Five regulatory fights facing tech in 2017

Tech’s influence and reach is growing and pitting the industry against a new wave of regulatory challenges.

In the U.S., mega-mergers are likely to face tough scrutiny in 2017, and the industry is bracing for another round in the fight over encryption.

At home, President-elect Donald Trump is vowing to roll back many Obama administration regulations. But overseas, the European Union is pressing ahead with a number of high-profile cases against some of Silicon Valley’s giants.

Here are five regulatory fights the tech world will be watching closely in the new year.

 

Apple’s record tax penalty in Europe

In August, the European Union’s Commission on Competition handed a record judgment against Apple, ordering the company to pay over $13 billion in back taxes to Ireland.

Margrethe Vestager, the EU Commissioner on Competition, said Apple had broken the rules by receiving unfair state aid from Ireland.

The battle is just heating up.

Earlier in December, Apple formally appealed the ruling. In a statement, Apple claimed “the Commission took unilateral action and retroactively changed the rules, disregarding decades of Irish tax law, US tax law, as well as global consensus on tax policy, that everyone has relied on.”  

The Obama administration stood by Apple, questioning the EU’s order. A Treasury spokesperson said the EU decision “threatens to undermine the overall business climate in Europe‎.”

Treasury Secretary Jack Lew and lawmakers have raised questions over what they see as the unfair targeting of U.S. businesses by European regulators.

In recent years, the European Commission has handed down orders to pay back taxes or antitrust rulings against other U.S. companies, including Starbucks and McDonalds. In addition to the Apple fight, the Commission is also investigating Google and Amazon in other cases.

Trump could also provide a boost to Apple and other companies in the long run. He’s floated a one-time repatriation of offshore corporate profits that could help Apple.

But for now, Apple and European regulators are gearing up for the next round in their fight. The European Commission says it will defend its decision on Apple in the courts, dragging it into 2017.

 

The fight over encryption

Apple also took center stage in the national debate over encryption.

After the Dec. 2015 San Bernardino shooting, the FBI asked Apple to help crack an encrypted iPhone. Apple declined to provide a so-called backdoor and the FBI eventually was able to access the phone through other means.

Apple’s stance had support from Google and Microsoft and lawmakers like Rep. Darrell Issa (R-Calif.) who have been strong advocates for privacy rights.

But Apple’s stance also angered Trump, who called for a boycott of the company.

Trump had said little on encryption since, but his election has privacy advocates worried about new efforts to force tech companies to help law enforcement break encryption. Downloads of encrypted messaging apps spiked after Trump’s victory.

The debate shows no signs of fading.

Those who support encryption backdoors also got a boost in November, when Senate Intelligence Committee Chairman Richard Burr (R-N.C.) survived a tough reelection fight.

But Sen. Ron Wyden (D-Ore.), who also sits on the Intelligence Committee, is vowing to counter any attempt to weaken encryption. Wyden told Vice News after the election that he would filibuster any legislation on those lines.

 

AT&T-Time Warner merger

AT&T’s plans to merge with Time Warner will be under heavy scrutiny.

The plans to join the telecom giant with one of the nation’s biggest entertainment providers has sparked a heated debate and will face an antitrust review from the Justice Department (DOJ) and potentially the Federal Communications Commission as well. The FCC would review the merger if the companies decide to keep some of Time Warner’s television broadcasting licenses.

The deal has drawn critics from both sides of the aisle, including Trump and Sen. Bernie Sanders (I-Vt.)

Most notably, during the campaign, Trump blasted the deal, claiming it would put too much power in the hands of “too few” and saying he would reject it if he was in office.

Since then, Trump hasn’t spoken about the proposed merger, but many of those on his transition team would appear to be friendly to the deal. Three of Trump’s appointees on this FCC landing team are former researchers at the conservative American Enterprise Institute and have written in support of similar mergers in the past.

Sanders, though, has called on the DOJ to reject the deal.

Lawmakers, including Sen. Al Franken (D-Minn.), grilled Time Warner CEO Jeffrey Bewkes and AT&T CEO Randall Stephenson during a recent hearing on the deal, raising concerns about higher costs for consumers and decreased competition.

The deal is valued at $85 billion.

 

Google’s antitrust fight

Google has its own fight with the European Commission.

The Mountain View, Calif., based is facing EU antitrust allegations over its mobile search service, shopping comparison tool and online advertising service. The commission alleges that Google used its dominant position in these areas to unfairly push its own products and services and quash competitors.

Google has dismissed these charges, arguing back that customers just prefer their products and that the European Union’s definition of monopoly is wrong. In the case of its comparison shopping tool, the search giant says the EU is mistakenly excluding Amazon and eBay from the market.

The case has high stakes for Google. If they don’t beat back the charges, they could be hit with a fine equal to 10 percent of their global turnover in a year.

Google is mounting a fierce defense, keeping the fight in the spotlight in 2017.

 

Amazon’s EU tax case

Amazon is also awaiting a key tax ruling form the European Union. The decision was expected in 2016 but will be coming in the new year.

At issue is Amazon’s 2003 tax arrangement with Luxembourg, which regulators believe allowed the company to lock in a low tax rate with the country – a move the European Commission believes violates EU rules.

Sources told Reuters that Amazon could be ordered to pay over $400 million in back taxes — paltry compared to Apple’s tax penalty, but still a significant sum.

If the fine comes down and Amazon chooses to fight, the battle could drag out well beyond 2017.

The company is also trying to settle a separate dispute with the Commission over antitrust charges against its e-book sales, reports Reuters.