Lessons from Mainstream: Don’t Want Scrutiny? Don’t Invite It

Much of this discussion has centered on the idea of amending, or even eradicating, the protections against liability for third-party expression offered by Section 230 of the Communications Decency Act, but that scrutiny and those proposed reforms are not the only ones being contemplated by the federal government.

The sheer size and scope of companies like Facebook have also created concerns that they have become monopolies, or are acting like such, stifling competition and exerting a controlling influence over the social media market.

A recent report from the Federal Trade Commission presents the FTC’s findings from an inquiry into “past acquisitions by the largest technology platforms’ that did not require reporting to antitrust authorities at the FTC and the Department of Justice.”

According to the FTC, the inquiry “analyzed the terms, scope, structure, and purpose of these exempted transactions under the Hart-Scott-Rodino (HSR) Act and the Commission’s reporting requirements by Alphabet Inc., Amazon.com, Inc., Apple Inc., Facebook, Inc., and Microsoft Corp. between Jan. 1, 2010 and Dec. 31, 2019.”

While the report notes that 94 of the 616 transactions analyzed by the FTC “exceeded the HSR Size of Transaction threshold,” the FTC conceded that “in some instances parties may not need to file if certain other criteria are met or statutory or regulatory exemptions apply.”

In other words, legally speaking, these transactions may not have required reporting by the companies involved even if they exceeded the HSR Act and the FTC’s reporting threshold – but it’s clear from the report and the FTC’s press release announcing the report’s publication that the Commission has grown even more leery of the conduct of these five corporate giants.

“While the Commission’s enforcement actions have already focused on how digital platforms can buy their way out of competing, this study highlights the systemic nature of their acquisition strategies,” said FTC Chair Lina M. Khan. “It captures the extent to which these firms have devoted tremendous resources to acquiring start-ups, patent portfolios, and entire teams of technologists—and how they were able to do so largely outside of our purview.”

Among the findings of the report that suggest the five companies acquisition strategy included an intent to stifle competition, two immediately stand out.

The first is that more than 75% of the transactions “included non-compete clauses for founders and key employees of the acquired entities” – agreements that prevent those individuals from leaving the newly acquired company to join, or start up, a competing entity.

The second finding suggesting a strategy to forestall competition is the fact that “at least 39.3% of the transactions in which the target company’s age was available involved firms that, as of the time of the consummation of the transaction, were less than five years old.” Snapping up small, growing companies is one way of preventing the development of a competitor that could capture market share currently controlled by one of these five tech giants.

To be fair, non-compete agreements are very common and acquiring small businesses that have developed promising products is a good way for a company to expand into new or emerging spaces efficiently, without having to develop similar products of their own.

Still, whatever the intent of the acquisition strategy employed by these companies, what’s clear is their approach has piqued the curiosity of the FTC and both the Executive and Legislative branches of the U.S. Government – and done so during a period in which the companies were also ruffling feathers with everything from their editorial and content policies to privacy practices (or lack thereof) and the nature of their algorithms.

While these companies and the broader tech sector have powerful lobbying influence and laws like Section 230 on their side when it comes to countering some of the ways the federal government would like to regulate and oversee them, reading about their acquisition strategy and the FTC’s inquiry reminds me of something an attorney said to me many years ago, albeit in a different context.

At the time, I was serving as a consultant to an adult affiliate program that had asked me about an idea of theirs for an aggressive marketing approach – an approach I thought might be so aggressive as to cross the line into illegal territory.

When I asked an attorney who routinely helped me with legal questions that came up during my consulting gigs about their idea, he told me it wasn’t illegal, but in his opinion, it was the sort of thing that looked so shady, it might draw unwanted attention from law enforcement, regulatory bodies, legislators and the media, making them want to take a hard look at the company’s business practices, in general.

It was then he said the line that keeps coming to mind as I read this FTC report: “Why poke the bear?”

Why, at a time when you know the government is already wary of your company, already alleging you engage in anti-competitive behavior, would you offer them additional reason to put you under the microscope?

Running a business, especially an adult business, necessarily involves risk. At the level of a Facebook, Microsoft or Alphabet, substantial risks are often justified, at least in the minds of those who run these companies, by the immense revenues and profits at stake. At the same time, even a massive company can be severely impacted by the truly enormous fines the FTC sometimes hands out – and if they truly draw the ire of Congress, changes in law could come that are potentially ruinous for such companies, even at their enormous size.

What does any of this have to do with the adult industry? It’s clear from recent events that major financial institutions and governments around the world currently are taking a very close look at how adult entertainment companies conduct themselves – particularly those that deal in user-generated content (UGC), like tube sites, fan sites and adult social media platforms. In structuring your company’s policies and shaping its conduct, its strategy and approach to the market, you should keep an eye on these developments and consider the potential for such unwanted attention to come your way, as well.

Even if you firmly believe the government, financial institutions, etc., simply are treating adult industry entities unfairly – and there’s a certainly an argument this is the case – we all need to recognize the power and influence held by banks, regulatory agencies, governments and major media outlets. It’s probably not the worst idea to tailor your business practices and policies to make them as defensible as possible under scrutiny, should powerful entities like these decide to peek under the hood of your company, so to speak.

I’m not suggesting adult industry entrepreneurs should simply get out of the UGC business, avoid running sites and platforms that allow users to publish self-produced content, or flee from all potentially risky business practices. I’m just saying this may be a time for greater caution, more introspection and closer evaluation of your own products and platforms with an important question in mind: How will all this look to the outside world, should one of these powerful entities come sniffing around?

Put another way: Banks, governments and regulatory agencies are bears. Why poke them?

Magnifying glass image by cottonbro of Pexels