An Economic Case for Section 230
Section 230, often regarded as “the most important law in tech,” is described by drafter Senator Ron Wyden as a “sword and shield” for Internet services of all sizes. It serves as a sword for Internet companies to remove problematic content and a shield when it limits liability in that action and provides legal certainty to companies no matter their size. But in addition to the competitive and innovative incentives Section 230 provides, it holds strong economic benefits as well.
A recent survey from the Internet Association (IA) — Best Of The Internet: Consumers Rely On User-Generated Content — focuses on online reviews and Section 230, which makes user-submitted reviews possible. The survey found that most Americans use and highly value online reviews: 67% of respondents said they check online reviews either most of the time or every time before buying products in person or online; 72% said it is highly important for a business to have positive online reviews before they buy; 85% either strongly agreed or somewhat agreed that they would be less likely to purchase products online that did not have any reviews; and 65% responded with a 7 or above out of 10 when asked how much they trust online reviews.
The survey additionally addressed the sharing economy: The survey found that 70%-80% of respondents felt safer when a home, ridesharing, or short-term rental service had user reviews and 40%-50% said they would not use a home, ridesharing, or short-term rental service without reviews. The statistics from the IA survey highlight the value of user reviews and their impact on purchases, whether digital or in person.
It’s quite apparent that the capability for users to engage with services — both digital services and physical services with a digital presence — online through reviews is a driving factor of the economy. A study from NERA and IA found that if liability protections for services are weakened, $440 billion in GDP and 4.25 million jobs could be lost every decade. Not only that, 71% of investors polled responded they would be uncomfortable investing in intermediaries if the protections were weakened.
A recent report from the Copia Institute and NetChoice, Don’t Shoot the Message Board, discusses intermediary liability through a comparison of U.S. and EU regulatory regimes. One conclusion the report draws from the data is that venture capital investments in the U.S. flow into Internet platforms earlier and at a larger rate than in the EU. Additionally, when looking at funding for companies in terms of funding amounts ranging to over $100 million, the report found the U.S. is significantly ahead of the EU. The report suggests that
“under the framework set forth by CDA 230, a company is 5 times as likely to secure investment over $10 million and nearly 10 times as likely to receive investments over $100 million, as compared to Internet companies in the EU, under the more limited E-Commerce Directive. In short, the data shows that Internet platform companies built under a CDA 230 regime, are much more likely to receive the significant investment necessary to grow and succeed.”
Finally, a recent cost report from Engine reviews legal costs for startups that would rise with the loss of Section 230. To collect information for the report Engine interviewed in-house attorneys and outside counsel for many startups about their actual costs of litigation. Engine found that at the pre-complaint stage each lawsuit can easily cost $3,000 at a minimum. And when a lawsuit is filed, a motion to dismiss or a motion for summary judgement could cost anywhere from $15,000-$150,000. This is all in addition to the costs incurred through the course of discovery as well. Combining the values present in all these stages with the possibility for a large number of lawsuits generates costly legal fees. Engine concludes that Section 230 spares Internet services from meritless lawsuits early in litigation, in addition to serving as a sword and shield for their content moderation decisions.
Results from these studies indicate that comprehensive intermediary liability protections such as what Section 230 provides help support the digital economy.