The Supreme Court is About to Rock the Tech Stocks’ World… and Your Money Along with It

Shah Gilani|October 16, 2020

While controversy over the nomination and seating of a new Supreme Court justice prior to a presidential election is headline news, addressing the critical tech-centric controversy over Internet immunity, which includes influencing elections, will soon be before the Court.

And hardly anyone’s noticed.

But we all better take notice, because what the Court decides is going to impact the stock market and some of the biggest tech companies in the world.

Here’s what the Supreme Court decided on October 13, and what it means for your money…

An Internet Bombshell

Justice Clarence Thomas, writing for the majority, “On petition for writ of Certiorari to the United States Court of Appeals for the Ninth District, in the case of Malwarebytes, Inc. v. Enigma Software Group USA, LLC,” announced that “The petition for a writ of certiorari is denied.”

A petition for writ of certiorari is a formal request to have the Supreme Court review a lower court ruling. Since the Court denied the request, the ruling of the lower court stands.

In Malwarebytes v. Enigma, Enigma sued Malwarebytes alleging Malwarebytes engaged in anticompetitive conduct by reconfiguring Enigma’s products to make it difficult for consumers to download and use them.

In its defense, Malwarebytes invoked Section 230 of the 1996 Communications Decency Act that states that a computer service provider cannot be held liable for providing tools “to restrict access to material” that it “considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable.” Section 230 is also known as the Internet immunity law.

Ultimately, the reason Malwarebytes lost the case on appeal to the Ninth Circuit is the Court concluded that “immunity is unavailable when a plaintiff alleges anticompetitive conduct.”

Two things are important to understand here:

The Ninth Circuit denied Malwarebytes’ protection under the Internet immunity law, not because it couldn’t be held liable for what Enigma alleged, but because the Court interpreted the law as not applying to anticompetitive conduct. While the two issues might appear to be comparing apples and oranges, the denial of the Appeals Court to provide safe harbor to Malwarebytes under Section 230 puts into question other companies’ reliance on Section 230 for Internet immunity.

That doesn’t affect any other cases past or pending where Internet immunity was or might be successfully relied upon; it only narrowly denied use of the law when the issue at stake is anti-competitiveness.

What’s important is in writing for the Majority, Justice Thomas said, “The decision is one of the few where courts have relied on purpose and policy to deny immunity under §230.”

And most importantly Thomas wrote, “I agree with the Court’s decision not to take up this case. I write to explain why, in an appropriate case, we should consider whether the text of this increasingly important statute aligns with the current state of immunity enjoyed by Internet platforms.”

In other words, the Court is essentially inviting cases to be sent up to so it can rule on Internet immunity, not in the context of competitiveness, but in the broadest sense of immunity and who’s responsible for what of the Internet.

That’s a bombshell.

What This All Means for You

Now bear with me… I’m about to throw a lot at you, but hang on. The money’s moving somewhere, and you’re going to want to make sure you’re hot on its trail.

Justice Thomas added to his above statement, “Many courts have construed the law broadly to confer sweeping immunity on some of the largest companies in the world.”

For the Court, Thomas explained, “Enacted at the dawn of the dot-com era, §230 contains two subsections that protect computer service providers from some civil and criminal claims. The first is definitional. It states, ‘No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.’ §230(c)(1). This provision ensures that a company (like an e-mail provider) can host and transmit third-party content without subjecting itself to the liability that sometimes attaches to the publisher or speaker of unlawful content. The second subsection provides direct immunity from some civil liability. It states that no computer service provider ‘shall be held liable’ for (A) good-faith acts to restrict access to, or remove, certain types of objectionable content; or (B) giving consumers tools to filter the same types of content. §230(c)(2). This limited protection enables companies to create community guidelines and remove harmful content without worrying about legal reprisal.”

According to Thomas, “Traditionally, laws governing illegal content distinguished between publishers or speakers (like newspapers) and distributors (like newsstands and libraries). Publishers or speakers were subjected to a higher standard because they exercised editorial control. They could be strictly liable for transmitting illegal content. But distributors were different. They acted as a mere conduit without exercising editorial control, and they often transmitted far more content than they could be expected to review. Distributors were thus liable only when they knew (or constructively knew) that content was illegal. The year before Congress enacted §230, one court blurred this distinction. An early Internet company was sued for failing to take down defamatory content posted by an unidentified commenter on a message board. The company contended that it merely distributed the defamatory statement. But the company had also held itself out as a family friendly service provider that moderated and took down offensive content. The court determined that the company’s decision to exercise editorial control over some content ‘render[ed] it a publisher’ even for content it merely distributed. [That] indicates that an Internet provider does not become the publisher of a piece of third-party content-and thus subjected to strict liability- simply by hosting or distributing that content. [Section 230] provides an additional degree of immunity when companies take down or restrict access to objectionable content, so long as the company acts in good faith. But the company had also held itself out as a family friendly service provider that moderated and took down offensive content. The court determined that the company’s decision to exercise editorial control over some content ‘render[ed] it a publisher’ even for content it merely distributed.”

These are some of the weighty issues the Court now appears ready and willing to tackle.

Since the Internet dominates our lives and is increasingly cited as a platform for disinformation, and worse, the Supreme Court’s desire to take on immunity is going to upend social media sites and companies and all platforms that might be liable for what’s on their sites, without the blanket immunity they’ve enjoyed since 1996.

Justice Thomas rounded out his majority decision saying, “Paring back the sweeping immunity courts have read into §230 would not necessarily render defendants liable for online misconduct. It simply would give plaintiffs a chance to raise their claims in the first place. Plaintiffs still must prove the merits of their cases, and some claims will undoubtedly fail. Moreover, States and the Federal Government are free to update their liability laws to make them more appropriate for an Internet-driven society.”

While what’s going to change and when is still uncertain, one thing we do know is cybersecurity software companies, many of whom offer products that speak directly to what’s objectionable and possibly subject to soon to be stripped down immunity, are going to be increasingly in demand.

That’s where the money’s going… and where you should go, too.

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Sincerely,

Shah