Background

As previously discussed in this prior post, the case of Moody v. NetChoice concerned laws passed by Texas and Florida that had limited how social media companies, like Facebook and YouTube, could moderate the content that appears on their platforms. The Florida and Texas laws (i) aimed to stop tech companies from filtering, prioritizing, and labeling content in certain ways and (ii) required them to give specific reasons for removing or changing posts. Social media companies argued that these laws violated their free speech rights by restricting how they curate user-generated posts.

The Supreme Court's Decision

The Court didn’t actually make any ruling but vacated and sent the case back to the lower courts for further review.

Majority Opinion (Roberts, Sotomayor, Kagan, Barrett, Jackson, and Kavanaugh): Justice Kagan authored the Court’s opinion. 3 liberal and 3 conservative justices joined her opinion (with Justice Jackson joining only certain parts). Reading the majority opinion, it would seem the Court ruled against government control over social media content moderation, overturning conflicting appeals court decisions. However, this isn’t a victory for social media companies; it’s really a swing and a whiff.

NetChoice, the trade group representing Facebook and Google, had brought these cases as "facial challenges." It wanted the Court to declare that the laws were generally unconstitutional for everyone (as opposed to being unconstitutional for certain people — what’s called an “as applied challenge”). A win for social media companies would not only have blocked these laws but also prevented future tech regulations. 

However, since the Court chose not to decide the merits of the case and to send the cases back to the lower courts (a “remand”), the First Amendment discussions in the rulings are merely comments and observations, which are not legally binding (“dicta”). They create no precedent. Rather, the cases must be reconsidered by the lower courts and any decision was punted for another day.

The interesting takeaway from the ruling is that it offers a glimpse into the justices' perspectives on regulating social media and big tech:

• Justice Kagan viewed social media regulation as akin to newspaper regulation, primarily protected by the First Amendment. Her comments focused on the “intent to suppress” in these states’ laws. However, regulating algorithmic feeds may be constitutional because it sorts content based on “a user’s expressed interests and past activities.”

• Justice Jackson avoided weighing in on the First Amendment, theoretical debate, which might indicate a less tech-friendly position.

• Justice Barrett noted the potential implications of artificial intelligence (AI) in content moderation. She suggested that while AI might be used to implement human decisions, its outputs may not always be protected under the First Amendment (for example, if an AI model were tasked with determining what is and whether to remove hateful content). This is a point to watch in future cases.  Barrett also highlighted that the free speech analysis could change depending on the “corporate structure and ownership” of some platforms — specifically, if the platform were owned by foreign entities.

Minority Opinion (Thomas, Gorsuch, and Alito): In separate, concurring opinions the minority agreed with the decision to vacate and remand the cases, but they criticized the majority for what it considered superfluous comments and opinions based on an incomplete record.

Ironically, the minority offered their own views, disagreeing that content moderation is as expressive as traditional editorial functions. They argued that the laws should be upheld to some extent to address concerns about censorship and the suppression of diverse viewpoints on social media platforms. They believed the states had legitimate interests in ensuring that all voices be heard online.

Closing Thoughts

There’s a possibility that we might see some alignment in future cases between the liberal Jackson and the conservative Barrett, Thomas, Gorsuch, and Alito. The enemy of my enemy…

There is clearly a desire to regulate social media on all sides of the aisle, but the question is how you do so without violating freedom of speech. Conservatives aim to address what they see as a liberal bias that suppresses conservative voices, while liberals focus on tackling misinformation, hate speech, and harmful content that can spread without proper moderation.

Achieving this balance is difficult. One wonders when big tech will finally face regulation, and whether regulating big tech is one of the few remaining non-partisan issues.

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Resources:

• https://www.thenation.com/article/society/supreme-court-netchoice-moody/

• https://www.americanactionforum.org/insight/moody-v-netchoice-implications-for-speech-regulation/#:~:text=As%20the%20Court%20made%20clear,balancing%20the%20marketplace%20of%20ideas.

• https://www.supremecourt.gov/opinions/23pdf/22-277_d18f.pdf

• https://www.theverge.com/2024/7/1/24166388/supreme-court-ruling-moody-paxton-texas-florida-social-media-law

• https://firstamendment.mtsu.edu/article/facial-challenges/

• https://www.law.cornell.edu/wex/dicta

• https://www.law.cornell.edu/wex/remand

• https://digitalcommons.law.utulsa.edu/cgi/viewcontent.cgi?article=1364&context=tlr

• https://scholarship.law.gwu.edu/cgi/viewcontent.cgi?params=/context/faculty_publications/article/1201/&path_info=Defining_Dicta_new.pdf

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Disclaimer:  This post is for general information purposes only. It does not constitute legal advice.  This post reflects the current opinions of the author(s).  The opinions reflected herein are subject to change without being updated.

Follow up from my previous post:

Today, the US Supreme Court (in a 6-3 decision along conservative/liberal lines) in Loper Bright Enterprises v. Raimondo has overturned the “Chevron Doctrine” or “Chevron Deference.”  

Today, the US Supreme Court (in a 6-3 decision along conservative/liberal lines) in Loper Bright Enterprises v. Raimondo has overturned the “Chevron Doctrine” or “Chevron Deference.” Note, this is the second major ruling this week that reduces agency authority. The Court also ruled this week that the SEC’s use of in-house judges in securities fraud cases was unconstitutional (SEC v. Jarkesy).

Overturning the Chevron Doctrine is a big deal.  To put this in perspective, 70 Supreme Court decisions and 17,000 lower court decisions have relied on Chevron. It effectively weakens the power of executive agencies, ending a long-established precedent relied upon since 1984 (Chevron v. Natural Resources Council).

Under the Chevron Doctrine, a court is supposed to defer to an agency’s interpretation of the statute it administers when Congress’s intention of that law is ambiguous or silent -- so long as the agency’s interpretation is “reasonable.”   Please see my prior post for more about this legal doctrine.

I. The Ruling

What Does the Ruling Say?
Going forward, the court must decide if an agency has authority to act when a statute is ambiguous without automatically deferring to agencies' interpretations of said laws. Instead, courts will interpret the laws on their own and will only consider the agencies' views if they find them convincing (persuasive and not binding). In other words, the Supreme Court stressed that judges should make their own decisions if the meaning of the law is unclear and not just follow what agencies say.

What Does This Mean for Previously-Ruled Cases?
The ruling does not automatically overturn previous cases decided under the Chevron Doctrine. The Court clarified that it isn’t challenging prior decisions.  Nevertheless, people might try to revisit and challenge old cases where the Chevron deference was crucial to the outcome.

What Does This Mean for Open Cases?
For cases that are still open or under appeal, parties may argue for a re-evaluation of agency interpretations using the new standard of “independent judicial interpretation.”   This means that courts might reach different conclusions if they interpret the laws differently from the agencies.

What Are the Potential Consequences of Overturning Chevron?
Many may be celebrating the end of Chevron, but with anything, there will likely be many positive and negative effects of this decision:

• 1. Congress Must Clarify Agency Authority:   Instead of agencies creating regulations through enforcement (as you see with crypto from the SEC and the CFTC), they likely now have to wait for Congress to pass new laws to clarify what authority they actually do have.  Why?  Because these agencies would need explicit permission from Congress.

• 2. Increase in Lawsuits Against Agencies:  We will likely see more legal battles against agencies.  There could be a surge of lawsuits, making it chaotic as every unclear term in a law could be subject to litigation, complicating governance.

• 3. Agencies Defanged:  If Congress is stuck in partisan gridlock, it might mean no new laws are passed, leaving agencies with less power.  That Congress will act to clarify agency authority assumes a lot.

• 4. Agency Hesitancy:  Agencies may also become more cautious in issuing guidance and making rules given they will have less authority.

• 5. Power Shifts & Patchwork of Regs:  This decision could shift power to the courts, leading to varied interpretations of regulations across different regions. You may see forum shopping (where you sue in certain states that you know to be favorable to your views).

II. Final Thoughts

Once again, the present Supreme Court has proven a lack of deference for “stare decisis” (the legal concept that the law honors prior rulings, opinions and precedents from previous case law) — prior terms saw reversals on abortion and affirmative action.

What Does It Mean for Crypto?
For those thrilled about the ruling, this is not a complete panacea to SEC/CFTC overreach via regulation by enforcement. The Howey Test (the test that determines if a certain transaction is an “investment contract” and thereby a security) is judge made law. So overturning Chevron doesn’t overturn the Howey Test. The impact in reality would more likely arise in SEC rulemaking.

While the decision may curb some regulatory overreach, it also introduces uncertainty and potential chaos as the courts, Congress, and regulatory agencies adjust to this new legal landscape. The need for clear and comprehensive legislative action is more pressing than ever to establish well-defined regulatory frameworks that support the nascent crypto sector.

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Disclaimer:  This post is for general information purposes only. It does not constitute legal advice.  This post reflects the current opinions of the author(s).  The opinions reflected herein are subject to change without being updated.

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The beginning of October isn’t just the start of the Halloween season; it also marks the new term of the Supreme Court of the United States (SCOTUS).  Legal scholars aren’t just excited for their Ruth Vader Ginsberg costumes but also the docket of cases that will be brought before the court in this session. 

Specifically, there are 2 cases worth following that could impact crypto projects and online/social media platforms.

Challenging the Administrative State and “Chevron Deference”
Loper Bright Enterprises v. Raimondo – Docket No. 22-451

Loper Bright is a case concerning how much power executive agencies (think the FDA, SEC, EPA, and other acronyms) should have to regulate companies and persons that fall under their respective purview.  In this case, a group of commercial fishermen disputed a rule promulgated by the Commerce Department, which compelled the fisheries to pay the salaries of the fishing inspectors required to be on their boats. 

The fisheries sued the Commerce Department for exercising power beyond what was explicitly granted under the law.  Specifically, the fishermen argued that the Magnuson-Stevens Fishery Conservation and Management Act of 1976 did not explicitly authorize the department to create an industry-funded monitoring system; instead, they argued the statutory language was vague. 

In determining if the Commerce Department exceeded its authority, SCOTUS will consider whether to weaken or overturn a legal concept called the “Chevron Deference” or “Chevron Doctrine.”  The prior SCOTUS ruling in Chevron v. Natural Resources Defense Council (1984) created a precedent concerning the judicial oversight of an agency’s interpretation of the statute it administers (e.g., the Environmental Protection Agency (EPA) administers the Clean Air Act). Under the ruling, a court is supposed to defer to an agency’s interpretation of the statute it administers when Congress’s intention of that law is ambiguous or silent -- so long as the agency’s interpretation is “reasonable.” 

In certain cases, when a court is trying to determine if it should defer to the agency’s interpretation (i.e., follow Chevron Deference), it sometimes applies a legal theory called the “Major Questions Doctrine” (MQD).  MQD says that if Congress did NOT give an agency explicit authority to regulate an issue involving something of major political and economic importance (aka a policy question), then the agency shouldn’t be regulating that issue (i.e., Chevron Deference shouldn’t apply).  The MQD is a fairly new legal concept that got bumped to the foreground in West Virginia v. the EPA (2022), in which SCOTUS ruled the EPA wasn’t granted specific authority under the Clean Air Act to put emissions caps on carbon dioxide emissions.

The rationale is that major policy decisions should be reserved for Congress, unless a law explicitly delegates the responsibility to a federal agency with 100% certainty.  In other words, an agency needs clear, Congressional authorization under a statute to regulate something.  Some legal scholars critique MQD as it exists today because the level of clarity required for an agency to regulate is uncertain. 

How the court ends up ruling in Loper Bright could have a direct impact on a variety of issues, including the environment, guns, the internet, disease control, among others.  If SCOTUS continues to weaken the Chevron Doctrine, the authority of federal agencies could erode. 

The crypto industry has been bristling against what it sees as an overzealous administrative state that is using regulation by enforcement to end crypto.   Loper Bright could provide a solid ground to challenge the authority of the SEC and CFTC.  Defendants in crypto enforcement cases (such as SEC v. Terraform) have attempted to use MQD as a legal argument, but the MQD defense has yet to make a significant impact.  That could change after this case.  Should be an interesting herring to attend!

Worth noting there are 2 additional cases challenging the “administrative state” – for folks that want to go down that rabbit hole: 

·       Securities and Exchange Commission v. Jarkesy (challenging administrative agency courts)

·       Consumer Financial Protection Bureau v. Community Financial Services Association of America (challenging CFPB funding as violating the Constitution’s appropriations clause).

Social Media Companies’ Content Moderation Rights and Freedom of Speech
NetChoice, LLC v. Paxton – Docket No. 21-51178

Much of Silicon Valley is familiar with Section 230 of the Communications Decency Act as it’s the invincibility cloak protecting all social media and online platforms. It says, "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." (47 U.S.C. § 230(c)(1)).  In plain speak, no company that hosts user-generated content (UGC) can be held liable for that UGC. 

The public policy reasoning for passing Section 230 was to let online speech flourish and thrive.  By protecting the tech companies that enable UGC (such as Wikipedia, X (formerly Twitter), or Substack), you protect Internet speech by not holding a company accountable for the statements of its users. 

Given the sheer amount of UGC that’s on the Internet, it would be incredibly difficult for a platform to meaningfully review every single post, blog, or message.  Holding a platform liable for hosting UGC without malicious intent or knowledge could smother online discourse.  Tech companies would constantly fend off lawsuits, and the Internet as we know it today might not have existed. 

Note that the legal shield for hosting UGC is not absolute.  Section 230 will not protect companies that violate criminal law, create harmful content, or violate a third party’s intellectual property rights.  Therefore, given that there is no complete protection from a potential lawsuit, platforms want the ability to block content that could inadvertently lead them into aiding and abetting a bad actor.  For example, if a user posts child pornography and the platform does nothing about it but perhaps should have known about it, it could be complicit in what is clearly an illegal activity and thereby be held liable. 

Section 230 also gives online platforms the right to moderate UGC. Companies can moderate content in “good faith” that they consider “to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable.” (47 U.S.C. § 230(c)(2)(A)).  Without this content moderation right, tech companies would have too much litigation risk to allow anything on their platforms but puppies and rainbows, thus neutering public discourse.  You could lose posts about art and politics because such subjects would be too litigious.  Section 230 walks the line of trying to foster a free Internet that is a neutral place for true, dynamic discussions.

Additionally, companies also choose to moderate UGC because they worry they’ll lose advertising dollars for being seen as promoting morally repugnant views.  If an online platform loses users due to another individual’s unsavory use of said platform, that could damage the company’s profitability due to the cost of litigation and revenue loss.  Reduced profitability could mean the platform has to pare down its operations or shut down, thereby depriving the world of an open public square for online speech.

This brings us to NetChoice v. Paxton in which the states of Texas and Florida passed laws that restrict a company’s right to moderate content.  For context, these were conservative legislatures who were concerned about left-leaning tech companies censoring conservative voices.  Under the proposed laws, a user could sue online platforms for censorship and/or account suspensions, inhibiting a company’s ability to moderate UGC.  The company would also need to provide an explanation for its decision to block content.  The laws were reviewed by different appellate courts (the Eleventh and Fifth Circuit).  There was a split between the circuits regarding the constitutionality of the laws so the Biden administration asked SCOTUS to take up the issue.  

If the laws in Texas and Florida are upheld, the impact would be twofold: 

1. Exposing Online Platforms to Legal Liability:  The Texas/Florida laws could restrict the editorial discretion of tech companies to remove UGC they find to be offensive (even if such offensive content violates the terms of use) because they could be sued for censorship upon moderating content.  Private companies could be compelled to host pornography, hate speech, spam and other such controversial material.  That could expose tech companies to other kinds of lawsuits in which there is a risk that they could be seen as complicit in showcasing egregious content/activities as their ability to moderate has been diluted.  A lose-lose scenario.

2. Harming a Private Company’s Freedom of Speech:  Tech companies argue that if they lose the legal protection to moderate content, the government could violate a private company’s right against government-controlled speech.  Forcing platforms to host speech against their will would overturn First Amendment precedent.  The First Amendment is not a complete right to say whatever you want to whomever you want.  Under the US Constitution, freedom of speech applies to the government curtailing free speech or compelling speech – it doesn’t mean that private parties can’t restrict speech.  Next time you have trouble sleeping, read the terms of use of an online platform.  You’ll notice the terms include language that reserves the right for a platform to remove UGC at its discretion.  By using a platform, a user accepts those terms.  As an example, below are Snapchat’s Community Guidelines (posted August 2023):

The question before the court is whether the government can restrict the speech of one party to allow the speech of another party?  In this case, can the government restrict the speech of a private company (the speech in this case being content moderation) to allow users to say whatever they want?

Recall that the current court is split between 6 Republican-appointed justices (Alito, Barrett, Gorsuch, Kavanaugh, Roberts, and Thomas) and 3 Democratic-appointed justices (Kagan, Jackson, and Sotomayor), and the conservative judges have already shown in the rulings on affirmative action and abortion that they are not afraid to dismantle past legal precedents.  In the American legal tradition, there is a foundational concept called “stare decisis,” which is Latin for “let the decision stand.”  It means that courts should honor precedential rulings and opinions from previous case law.  By respecting past decisions, the law is more consistent and predictable.  While it may be frustrating that laws are slow to change, that slowness creates stability in society.  Given the conservative leaning of the court, there is a good chance SCOTUS will chip away at the Chevron Doctrine and Section 230 -- two examples of settled law.  

For fans of the conservative rulings -- perhaps, we shall see an uptick in the Justice Dread Pirate John Roberts this year at Halloween?

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Resources:

• 47 U.S. Code § 230 - https://www.law.cornell.edu/uscode/text/47/230

• Loper Bright Enterprises, et al., Petitioners v. Gina Raimondo, Secretary of Commerce, et al. - https://www.supremecourt.gov/docket/docketfiles/html/public/22-451.html

• NetChoice, LLC, dba NetChoice, et al., Petitioners v. Ken Paxton, Attorney General of Texas - https://www.supremecourt.gov/docket/docketfiles/html/public/22-555.html

• United States Courts:  https://www.uscourts.gov/about-federal-courts/educational-resources/about-educational-outreach/activity-resources/supreme-1#:~:text=By%20law%2C%20the%20U.S.%20Supreme,the%20first%20Monday%20in%20October.

• Congressional Research Service – The Major Questions Doctrine:  https://crsreports.congress.gov/product/pdf/IF/IF12077

• Congressional Research Service – Section 230:  https://crsreports.congress.gov/product/pdf/R/R46751

• Heritage Foundation - 3 Supreme Court Cases Could Shake Up the Administrative State:  https://www.heritage.org/courts/commentary/3-supreme-court-cases-could-shake-the-administrative-state#:~:text=Now%2C%20three%20cases%20on%20the,Consumer%20Financial%20Protection%20Bureau%20v

• SCOTUSblog - Justices schedule first cases of the 2023-24 term:  https://www.scotusblog.com/2023/07/justices-schedule-first-cases-of-the-2023-24-term/

• SCOTUSblog – Justices Take Major Florida and Texas Social Media Cases: https://www.scotusblog.com/2023/09/justices-take-major-florida-and-texas-social-media-cases/

• The American Bar Association - The Major Questions Doctrine post-West Virginia v. EPA: https://www.americanbar.org/groups/environment_energy_resources/publications/trends/2022-2023/january-february-2023/the-major-questions-doctrine/

• The American Bar Association - Understanding Stare Decisis: https://www.americanbar.org/groups/public_education/publications/preview_home/understand-stare-decisis/#:~:text=Stare%20Decisis%E2%80%94a%20Latin%20term,and%20opinions%20from%20prior%20cases

• Electronic Frontier Foundation - Section 230: https://www.eff.org/issues/cda230

• JDSupra - The First Amendment: Where it is Implicated, and Where it is Not: https://www.jdsupra.com/legalnews/the-first-amendment-where-it-is-3482126/

• CNN - Biden Administration Asks Supreme Court to Hear Cases on State Social Media Laws: https://www.cnn.com/2023/08/14/business/biden-supreme-court-social-media/index.html

• TechCrunch - A Law Inviting Texans to Sue Social Media Companies Over ‘Censorship’ Is Back: https://techcrunch.com/2022/05/11/texas-social-media-law-hb20/?guccounter=1

• Axios – The Political Leanings of the Supreme Court Justices:  https://www.axios.com/2019/06/01/supreme-court-justices-ideology

• USA Today - How a Group of Herring Fishermen May Get the Supreme Court to Reel in Government Power: https://www.usatoday.com/story/news/politics/2023/05/01/supreme-court-herring-fishermen-chevron/11574448002/

• Snap Community Guidelines (August 2023): https://values.snap.com/privacy/transparency/community-guidelines

• Ruth “Vadar” Ginsburg generated by DreamStudio.

• Dread Pirate John Roberts generated by DreamStudio.

• Freepik (Photo): https://www.freepik.com/free-photo/low-angle-shot-cute-dog-captured-rainbow-blue-sky_10720647.htm#query=rainbow%20dog&position=2&from_view=keyword&track=ais

• Invisibility Cloak generated by DreamStudio.

Disclaimer:  This post is for general information purposes only. It does not constitute legal advice.  This post reflects the current opinions of the author(s).  The opinions reflected herein are subject to change without being updated.