A Ruling Against Google in Gonzalez Could Create a “World of Lawsuits” and “Economic Dislocation”
It seemed every sector of the U.S. economy watched with bated breath as the U.S. Supreme Court heard oral argument in Gonzalez v. Google on February 21. Gonzalez challenges the longstanding case law interpretation of Section 230 as immunizing both digital service providers and their users against lawsuits based on content created by other users. Section 230 has been described as the law that “created the internet” and is widely recognized as the foundation for the entire digital economy. Without the longstanding interpretation of Section 230 as providing broad protections to digital intermediaries and their users, the $3.7 trillion digital economy built on user interactions with an enormous variety of content, most of which is created by other users, could not continue to exist.
During oral argument, Chief Justice Roberts noted that there are “hundreds of millions, billions of responses to inquiries on the internet every day” and “every one of these would be a possibility of a lawsuit” (Roberts, C.J., p. 78). This is, if anything, an undercount by orders of magnitude, as numerous digital intermediaries each have many billions of user posts, inquiries, engagements, or interactions per day. For example, one recent report found that there are about 500 million tweets each day on Twitter alone, and another recent report found that the average tweet gets almost 2,000 engagements. This suggests that there could be up to almost one trillion user actions per day for just a single digital intermediary. That’s up to one trillion user actions that could potentially lead to litigation against a single digital intermediary, other users, or both under an adverse Gonzalez ruling.
In short: a ruling against Google in Gonzalez would create unprecedented economic distortions, and destroy the tools used by the vast majority of Americans to speak and express themselves online.
Section 230 Is the Foundation of the Digital Economy
Section 230 became law in 1996, including 26 words that would transform the internet: “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.” Case law quickly coalesced around the application of these statutory standards, granting legal protection to digital intermediaries that displayed third-party content found objectionable by others, and protecting users of those intermediaries from liability for content posted by other users. Enormous investments were made for decades by all sectors of the economy relying on that understanding.
The rational reliance of digital intermediaries, business users, and end users on Section 230 over the following decades allowed for the creation of the modern digital economy built on user interaction with content created by other users. The Bureau of Economic Analysis of the United States Department of Commerce estimated the size of the digital economy at “$3.70 trillion of gross output, $2.41 trillion of value added (translating to 10.3 percent of U.S. gross domestic product (GDP)), $1.24 trillion of compensation, and 8.0 million jobs” for the year 2021.
An Adverse Ruling in Gonzalez Would Create a World of Lawsuits and Economic Dislocation
The petitioners in Gonzalez, along with the United States government, essentially want the Supreme Court to find that Section 230 only immunizes digital intermediaries for hosting user-created content, and not for any of the prerequisite presentational and prioritization choices a digital intermediary must make to allow end users to see and interact with such content. Likewise, the petitioners want the Supreme Court to find that Section 230 does not immunize end users of digital intermediaries for engaging in any of the casual engagements with other users’ content that are at the center of the experience, such as liking or retweeting another user’s post.
Under the status quo, dismissal of lawsuits regarding other users’ content at the complaint stage is likely and limits the cost of lawsuits to digital intermediaries and their users. With a narrowed Section 230, however, the incentives to file a complaint are larger, and the odds of getting each lawsuit dismissed at the complaint stage would be far lower. Many more cases would be filed, and many more cases would proceed to the merits, which would radically increase the cost of defending against each lawsuit for digital intermediaries and their users.
Many of the Justices in the Gonzalez oral argument expressed serious concerns about the potential for enormous harm from an adverse ruling, and thus it may be useful to provide some back-of-the-envelope estimates to quantify what is at stake. Justice Kagan observed that “anytime you have content, you also have these presentational and prioritization choices that can be subject to suit” (Kagan, J., p. 76). Chief Justice Roberts echoed Justice Kagan, noting that there are “hundreds of millions, billions of responses to inquiries on the internet every day” and “every one of these would be a possibility of a lawsuit” (Roberts, C.J,, p. 78). Quantifying this potential “world of lawsuits” (Kagan, J., p. 76) is important to understanding why such a ruling would cause “economic dislocation” that would “crash the digital economy” and harm “workers and consumers, retirement plans and what have you” (Kavanaugh, J., p. 54).
A key driver of this potential economic dislocation is the sheer scale of user-generated content that intermediaries must make choices about presenting and prioritizing: the aforementioned reports found that a single website, Twitter, had 500 million user posts per day and up to one trillion user engagements with other users’ content per day that could potentially lead to litigation against a single digital intermediary, other users, or both under an adverse Gonzalez ruling.
To quantify the risk conservatively, assume that 1% of all of the user-created content could potentially lead a party to consider litigation. Call such content “potentially troublesome content.” Compound the conservatism and assume that only 1% of that content is seen by a party potentially interested in litigation. Add one more conservative assumption, and assume that only 1% of parties potentially interested in litigation who see relevant potentially troublesome content actually file a complaint. That leads to an extremely conservative estimate that only one in a million instances of user-created content lead to a complaint being filed. For the Twitter example above, that would imply 500 complaints per day based on tweets, and up to almost one million complaints per day if all user actions, such as likes and retweets, could lead to litigation, for just a single digital intermediary.
How much would this cost each intermediary? Assuming that a supermajority of such plaintiffs would rationally target the digital intermediaries rather than potentially judgment-proof end users, for simplicity treat all complaints as targeting the digital intermediary. Multiple research papers on the legal costs of civil litigation have found that the cost of defending against each civil lawsuit that is resolved at the demand letter or complaint stage is about $3,000, though the figure would likely be much higher in the absence of voluntary withdrawal of demand letters and voluntary dismissals of complaints by the plaintiffs, both of which could become much less common following an adverse ruling in Gonzalez. Defending against a merits case, however, typically costs around $100,000, and all too often $500,000 or more in cases with significant discovery costs, which lawsuits against digital intermediaries likely would be. These legal expenses do not include any damages or settlement figures.
It can also be illustrative to offer hypothetical examples of potential impact to individual intermediaries following an adverse ruling in Gonzalez, assuming they continued to offer existing digital services despite the legal uncertainty. Such estimates are incomplete estimates intended for illustration alone, as they do not account for the likely much larger displacement to the broader economy arising from intermediaries’ likely discontinuation and/or restructuring of most digital services in order to manage the risks arising from the legal uncertainty.
Extending the Twitter example further for illustrative purposes: in the most conservative scenario, where only tweets lead to litigation and discovery costs are not significantly higher than the median for civil cases, defending against 500 potential lawsuits per day through the merits would cost:
500 lawsuits/day * $100,000 legal costs/lawsuit = $50 million in legal costs/day.
Annualizing that figure, you’d end up at:
$50 million in legal costs/day * 365 days/year = $18.25 billion in legal costs per year.
That amounts to $18.25 billion in potential legal costs per year, just for a single business, before even accounting for damages or settlement costs. In any scenario where user engagements such as likes or retweets also frequently lead to litigation, the costs could increase by orders of magnitude.
Digital Intermediaries Could Only Offer Sesame Street or Bourbon Street Experiences to Users After an Adverse Ruling
In practice, the expectation of such ruinous legal costs following an adverse ruling in Gonzalez would lead to radical restructurings of digital intermediary business models, and likely significant reduction in size for most digital intermediaries. Users likely would become much less willing to engage with other users’ content in the absence of immunity for casual engagements, and this alone would force significant and costly restructuring of both digital intermediaries’ business models and user experiences. Managing liability risk under an adverse Gonzalez reading would force most digital intermediaries to deal with a 2020s version of the infamous “moderator’s dilemma.”
Each intermediary would have to choose between 1) becoming much more aggressive content moderators, offering users a narrower, highly curated, kindergarten-like “Sesame Street” experience that attempted to pre-screen any content that could lead to lawsuits to allow user-desired recommendation algorithms to continue to operate, albeit for a much smaller base of user-created content and pre-screened content creators; or 2) attempting to minimize the number of choices made in the display, presentation, or prioritization of user-generated content — in other words, virtually no moderation of content — likely resulting in a chaotic and potentially unsafe “Bourbon Street” experience and a far smaller user base as a result.
What Is at Stake? The Contribution of Digital Tech to the U.S. Economy
Whichever way intermediaries respond to an adverse ruling in Gonzalez, the changes from the status quo would likely be perceived as highly detrimental by the end users whose engagement drives the digital economy. The tools used by the vast majority of Americans to speak and express themselves online likely would see less use — and be seen as less useful — by all participant types: the end user base of intermediaries could shrink significantly, the business users could see significantly less value from the intermediaries, and the value of the intermediaries could decline significantly, with up to 8 million jobs and $3.7 trillion in annual U.S. output at risk.
Investors in digital intermediaries and their business users could see significant losses, and such losses would be felt widely across the American population: digital intermediaries account for at least one fifth, and potentially more than a quarter, of the S&P 500 by index weighting, and thus a major reduction in the value of their securities would significantly harm passive investors’ low-cost index funds that track the S&P 500 Index, commonly a top investment in 401(k) plans. According to Morningstar, retail investors held $8.53 trillion in index funds that seek to replicate market indicators like the S&P 500 Index or related measures with similarly large digital intermediary representation. Likewise, American pension plans are heavily invested in digital intermediaries: the average government employee pension plan has 4.3 of the 5 leading digital intermediaries in its top 10 holdings.
A great deal is riding on the Court’s decision in Gonzalez, as several Justices demonstrably appreciated. Protecting intermediaries and users from claims involving third-party content would preserve the benefits of the Internet for generations to come.