We at the International Center for Law & Economics (ICLE) filed an amicus brief earlier this month to the U.S. District Court for the Northern District of California in the NetChoice v. Bonta case. It was an updated version of the brief we filed earlier this year before the 9th U.S. Circuit Court of Appeals.
Our more recent amicus was in support of NetChoice’s second motion for preliminary injunction. The 9th Circuit had upheld part of the original preliminary injunction against provisions of California’s Age-Appropriate Design Code (AADC) Act that called for data-protection impact assessments (DPIAs). The panel, however, remanded the rest of the law for reconsideration as to whether the case was properly brought as a facial challenge, instead of as-applied to NetChoice’s members.
Our brief argued that, regardless whether the law is considered as a facial or as-applied challenge, restrictions on data collection for the purposes of curation and targeted advertising should be subject to strict scrutiny. And on such scrutiny, those provisions would likely fail for lacking a compelling state interest or narrow tailoring to such an interest. I summarized the brief at a high level in a short Twitter thread last week, and the full brief can be read here.
Here, I wanted to expand a bit on the underlying law & economics principles presented by the case. First, I’ll provide a brief summation of the economics of multisided platforms. Next, I argue that the First Amendment’s press clause should incorporate a robust understanding of multisided platforms, as the press has long been supported by both advertising and subscriptions. In other words, courts must grapple with how regulating one side of a speech platform could affect access to protected speech. Finally, I will suggest how courts could do that by applying current doctrine and finding access to protected online speech is “inextricably intertwined” with the collection and use of data for targeted advertising.
Platform Economics
As I’ve written extensively, multisided platforms are ubiquitous—particularly online. They are defined by the way they work, which is as matchmakers between two or more groups. As economists David Evans and Richard Schmalensee put it:
[M]atchmakers’ raw materials are the different groups of customers that they help bring together. And part of the stuff they sell to members of each group is access to members of the other groups. All of them operate physical or virtual places where members of these different groups get together. For this reason, they are often called multisided platforms.
Sometimes, a platform may determine it can raise revenue from a group on one side of the platform if demand on the other side is sufficiently high. In such cases, the platform may choose to offer one side free or discounted access to the platform to boost such demand, which is subsidized by participants on the other side of the platform. This creates a positive feedback loop in which more participants on one side of the platform leads to more participants on the other.
For example, a physical marketplace like a mall brings together buyers and sellers by providing a location, security, and amenities for retailers and retail customers. In this case, the stores pay rent to the owners of the mall, but potential customers of those stores are not charged for entry.
Mass media is another prime example. Newspapers, magazines, radio, and television stations all offer content to consumers and also sell advertising space to businesses. In order to maximize value, they must create compelling content for their audience and present it in an engaging way. But they also must determine the best way to raise revenue. Some charge subscription fees to access content, but others offer free access to content while charging businesses for advertising. Many use a combination of both.
Online platforms present hybrid versions of these examples. E-commerce sites like Amazon or Etsy are closer to virtual versions of the mall. Social-media platforms like Facebook or X are more like mass media. There are also online versions of traditional mass media controlled by those entities themselves.
Social-media platforms typically provide free access to users. Revenue is primarily collected from the other side of the platform—i.e., from advertisers. In effect, social media act as attention platforms; They supply content to users, while collecting data for targeted advertisements for businesses who seek access to those users. To be successful, social-media platforms must keep enough (and the right type of) users engaged, so as to maintain demand for advertising. They must curate content that users desire in order to persuade them to spend time on the platform.
Toward an Economic Understanding of the Press Clause
The First Amendment to the U.S. Constitution states:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Questions long have arisen regarding whether there is a difference between freedom of speech and freedom of the press and, if so, whether the protections granted to speech generally are co-extensive with those given to the press. But there is also a question of who is included as “the press” today.
One distinction that makes sense is to say that speech is what individual speakers (which includes written speech) do, while the press are those entities that publish and distribute speech. In other words, the First Amendment protects not only the right to speak from government infringement, but also the use of private means to publish and distribute speech. The government may not shut down the printing press and say it is not harming a speaker.
In this understanding, the press clause protects speech platforms, whether traditional media or online. This would include the right of editorial discretion that protects the ability of platforms to curate and present speech as they see fit. As the U.S. Supreme Court recently put it:
[T]he First Amendment offers protection when an entity engaging in expressive activity, including compiling and curating others’ speech, is directed to accommodate messages it would prefer to exclude. “[T]he editorial function itself is an aspect of speech.” Denver Area Ed. Telecommunications Consortium, Inc. v. FCC, 518 U. S. 727, 737 (1996) (plurality opinion). Or said just a bit differently: An entity “exercis[ing] editorial discretion in the selection and presentation” of content is “engage[d] in speech activity.” Arkansas Ed. Television Comm’n v. Forbes, 523 U. S. 666, 674 (1998). And that is as true when the content comes from third parties as when it does not. (Again, think of a newspaper opinion page or, if you prefer, a parade.) Deciding on the third-party speech that will be included in or excluded from a compilation—and then organizing and presenting the included items—is expressive activity of its own. And that activity results in a distinctive expressive product.
Moreover, while Congress retains the power to tax, it seems obvious enough that there must be some limitation on what the government can do to limit the ability of speech platforms in order to raise revenue. The Supreme Court has struck down special taxes on newspapers and magazines. In Grosjean v. American Press Co., the Supreme Court found a tax on advertising revenue to be invalid, in part because of its effect of reducing access to protected speech:
As applied to appellees, it is a tax… on the gross receipts derived from advertisements carried in their newspapers when, and only when, the newspapers of each enjoy a circulation of more than 20,000 copies per week. It thus operates as a restraint in a double sense. First, its effect is to curtail the amount of revenue realized from advertising, and, second, its direct tendency is to restrict circulation.
Obviously, traditional media has long been supported by advertising, as well as subscriptions. But aside from Grosjean, courts have not done a ton of work on the issue of what limitations can be imposed on the advertising side of speech platforms before they effectively foreclose access to protected speech.
This seems like a potential weakness that becomes very apparent when we approach the context of online platforms. Much of the internet ecosphere is built on data collection performed by online platforms in order to curate speech for users and provide targeted advertising. Restrictions on such data collection would appear to constrain online speech platforms’ ability to engage in both editorial discretion and to raise revenue from the advertising side of the platform. The result is a double harm to users, who would receive less relevant and engaging content, while also losing free access to otherwise protected speech (or access predicated on watching an unskippable and less relevant contextual ad).
Inextricably Intertwined: Incorporating Platform Economics into First Amendment Jurisprudence
Courts have started to grapple with the economics of multisided platforms in the context of antitrust. For instance, in Ohio v. American Express, the Supreme Court argued that both sides of the market must be considered in both market definition and competitive effects. Below, I will argue that courts could and should incorporate a more fulsome understanding of platform economics into current doctrines from First Amendment law.
The fact that media operates as a multisided platform is not unknown to courts in First Amendment cases. For instance, in Miami Herald v. Tornillo, the Supreme Court recognized the connections among readers, advertisers, and revenue:
The power of a privately owned newspaper to advance its own political, social, and economic views is bounded by only two factors: first, the acceptance of a sufficient number of readers—and hence advertisers —to assure financial success; and, second, the journalistic integrity of its editors and publishers.” (emphasis added).
Certainly, general economic regulations can apply to the media—whether online or not—and remain consistent with the First Amendment. But the Supreme Court has not looked kindly upon treating the press differently. As the Court put it in Minneapolis Star & Tribune Co. v. Minnesota Comm’r of Revenue:
[D]ifferential treatment, unless justified by some special characteristic of the press, suggests that the goal of the regulation is not unrelated to suppression of expression, and such a goal is presumptively unconstitutional.
When it comes to laws limiting online platforms’ ability to collect data for the purposes of curating speech and offering targeted advertising, the question is first whether a law is a general economic regulation, and second, whether (and how) courts would assess the impact on access to speech as a result of their application. Below, I argue that if a law effectively imposes higher costs on users to receive access to speech platforms as a result of data-collection restrictions, it should be subject to strict scrutiny. The reason: the collection of data for the purpose of targeted advertising is “inextricably intertwined” with free access to the protected expressive product under a robust understanding of platform economics.
In Dex Media West Inc. v. Seattle, the 9th U.S. Circuit Court of Appeals dealt with a law imposing special regulations on phonebooks if they included “yellow pages” of paid commercial listings. The question presented to the court regarded the proper standard of review for this purported economic regulation under the First Amendment. The City of Seattle argued successfully at the district court level that its ordinance should only be subject to the intermediate scrutiny standard of commercial speech. The 9th Circuit would reverse, subjecting the ordinance to strict scrutiny. They did this, in part, because the economic realities of media as multisided platforms makes advertising “inextricably intertwined” with access to speech.
In disagreeing with the district court on this point, the circuit panel noted the importance of advertising to traditional media:
That phone book companies depend economically upon advertisements to pay for the directories does not distinguish them from other forms of communications that plainly qualify for full First Amendment protection. As noted above, economic motive in itself is insufficient to characterize a publication as commercial.
The full First Amendment protection of newspapers, magazines, television shows, radio programs, and the like demonstrates that the inclusion of commercial material does not support treating those publications and broadcasts as commercial speech entitled to less First Amendment protection. A newspaper or magazine could be subscription-only and contain no advertisements, and broadcasters could similarly forego commercials and rely upon other sources of income. There is no legal requirement that these publications defray costs — or make profits — with advertising. But public broadcasting and Consumer Reports are the very limited exceptions, not the rule. The Seattle Times is owned by a private corporation and operated as a commercial enterprise, like the New York Times, the Wall Street Journal, and virtually all major American newspapers. So, too, are the commercial television and radio networks, their affiliates in Seattle, and the substantial majority of television and radio stations across the nation…
Economic reality applies here, too. Without advertising, the Seattle Times would presumably not exist, as the Seattle Post-Intelligencer no longer does in printed form. That the yellow pages directories depend financially upon advertising does not make them any less entitled to protection under the First Amendment.
While not specifically referencing the economics of multisided platforms, the 9th Circuit’s decision showed an intuitive understanding of its importance here. Subjecting the ordinance to merely intermediate scrutiny due to the presence of advertisements in the yellow pages would miss the economic reality that the phonebook is offered for free to users, and is therefore “paid for” by businesses in those yellow pages. And this makes the yellow pages phonebooks no different than other forms of media protected by the First Amendment.
The relevance to the AADC should now be apparent. Targeted advertising is inextricably intertwined with free access to protected speech on many online platforms. Restrictions on data collection for targeted advertising will constrain those online platforms’ business models. Whether this means exclusion from speech platforms, as may be the case for minors, is an open question.
Online platforms could also charge users for access that is typically free today, or impose greater ad saturation (like unskippable ads) with less relevance to those users in order to compensate for lost revenue. But in any case, the AADC’s restrictions would likely lead to less free access to protected speech online for minors. As such, it should be subject to strict scrutiny.
Conclusion
It is legally uncontroversial to assert that, if a law restricts access to protected speech, it must be justified under strict scrutiny. But government lawyers are really good at arguing that regulations are purely economic and have nothing to do with speech. Understanding the economics of multisided platforms is necessary for courts to properly assess the impact of economic regulations under the First Amendment.