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The Kitchen Sync

December 11, 2020

FTC vs Facebook

What’s new: This week, the Federal Trade Commission (FTC) and more than 40 states charged Facebook with anticompetitive behavior and demanded the company be broken up.

Why this matters: Facebook is worth $360-$525 billion.

Key points:

  • Critics say several of the social platform’s acquisitions of up-and-coming rivals “were meant to be anti-competitive” and that Mark Zuckerberg’s “reign of unaccountable, abusive practices against consumers, competitors and innovation must end.”

  • But, similar charges have been leveled before and proving actual antitrust violations is no slam dunk.

  • For example, regarding the company’s purchase of Instagram, prosecutors must demonstrate that [1] the market would have been better for consumers if this purchase did not happen (a theoretical proposition) and [2] that Facebook had the express purpose of killing off competition.

  • Even more challenging is the fact that antitrust laws were established before the modern internet and there’s quite a bit of “translating” that goes on when applying these laws to tech.

What we’re thinking: Look, we’ve seen this coming for awhile and no one should be surprised. Also, it’s way too early to render judgement on the FTC’s case or on Facebook’s defense. What is clear, however, is that tech’s “darling days” are well in the past and consumers and the government have decisively changed their posture towards these companies. In the days to come, there will be good arguments and bad arguments — what’s most important is that these issues are resolved fairly under the law. (And there’s good reason to think this will happen despite all the rhetoric.)

FireEye has hacking tools stolen

What’s new: Bad guys, who are likely backed by the Russian government, broke into the systems of cybersecurity firm FireEye and stole several of the company’s hacking tools.

Why this matters: The stolen tools could (read: likely will be) used to mount new attacks around the world.

Key points:

  • FireEye revealed the hack on Tuesday and said it was hit by “a nation with top-tier offensive capabilities” who used “novel techniques.”

  • The bandits made off with several “Red Team tools,” which are bits of code the company uses to test and infiltrate client systems when assessing and filling security gaps.

  • Because these tools are so powerful, they’re kept in a highly secured digital vault — which makes the theft so stunning (think Tom Cruise in Mission Impossible stealing the “NOC List.”).

What we’re thinking: Cybersecurity is a contact sport — and the good guys just took a pretty big hit. Rest assured, we’re owning them too; but, that never comes out in their press and that’s just fine with us. We don’t do it for the applause.

China’s corporate data deluge

What’s new: A new report shows how China’s Corporate Social Credit Score (CSCS) scheme is being applied to Chinese and US companies.

Why this matters: The social credit score scheme is a key mechanism for CCP control over any company operating within its borders.

Key points:

  • The report is by the consulting firm Trivium China and was commissioned by the U.S. China Economic & Security Review Commission.

  • The report is clear: “The scale of this data aggregation scheme cannot be overstated … In a U.S. context, this would be roughly equivalent to the IRS, FBI, EPA, USDA, FDA, HHS, HUD, Department of Energy, Department of Education, and every courthouse, police station, and state agency sharing records across a single platform.”

  • The corporate social credit score will “penalize companies with poor compliance records by reducing their access to the market and subjecting them to public censure via ‘blacklists,’ while rewarding consistently-compliant companies with economic incentives and public praise via ‘redlists,’” the report said.

  • But, “The degree to which the CSCS currently automates data collection and regulatory processes is low,” the authors said. “Although China is piloting technologies designed to remotely detect operational violations — such as when a factory exceeds emissions quotas — there is no known instance in which automated data collection leads to the automated application of sanctions without the intervention of human regulators.”

What we’re thinking: You know what else will hurt a company’s “score?” Non-compliance with government data requests for “national security” and “cybersecurity” purposes.

Huawei is just awful

What’s new: New evidence shows the Chinese company tested a facial recognition tool that can send “Uighur alarms” to government officials when a member of the oppressed religious minority is detected, according to the Washington Post

Why this matters: Huawei’s facilitation of the CCP’s religious and political abuses is yet another reason the company ought not be allowed to maintain a dominant market position in the US or elsewhere.

Key points:

  • This latest revelation comes from an internal Huawei document — discovered by the research organization IPVM — showing the company partnered a facial recognition start-up to test an AI camera system that scanned faces in a crowd and estimated people’s age, sex, and ethnicity.

  • If the system detected Uighur, the test report said, it could flag the person for police in China, where more than one million Uighurs are imprisoned in “reeducation camps.”

  • The document, which was found on Huawei’s website, was removed shortly after The Post and IPVM asked the companies for comment.

What we’re thinking: Straight. Up. Evil.

Warner Bros. blow up Hollywood

What’s new: Last week, Warner Brothers announced that 17 movies in its 2021 lineup will be simultaneously released in theaters and on the HBO Max streaming service.

Why this matters: This blows up the long-established model of driving big box office sales before transitioning films to home viewing options.

Key points:

  • The company says they’re making the move because of the COVID-19 pandemic.

  • “Our content is extremely valuable, unless it’s sitting on a shelf not being seen by anyone,” said one executive.

  • Not everyone is happy — producers, directors, and actors are all wondering how this will impact their earnings.

  • How studios compensate stakeholders is complicated, with contracts negotiated film by film and person by person. But it’s basically two checks: one check is guaranteed (a large upfront fee) and another is a bet: a portion of ticket sales after the studio has recouped its costs.

What we’re thinking: Theaters are terrible — overpriced snacks, sticky floors, and you gotta wear pants. Bring on the streaming! (We realize it’s more complicated than that; but seriously, our TVs are 4K and our pjs are comfy.)

Klon Kitchen is a managing director at Beacon Global Strategies and a nonresident senior fellow at the American Enterprise Institute.