Date
28 July 2017
Tech giants like Tencent have learned to be obedient while in China, but legal and regulatory issues are only bound to increase. Photo: Reuters
Tech giants like Tencent have learned to be obedient while in China, but legal and regulatory issues are only bound to increase. Photo: Reuters

Meet tech giants’ mortal enemies: law and order

After a six-year investigation, EU regulators slapped Google with a US$2.74 billion fine, ruling that the search-engine giant violated antitrust rules.

The record fine is not expected to cripple Google and its parent Alphabet, which has about US$92 billion cash on hand and annual profits of nearly US$20 billion.

Despite that, shares in Alphabet have dropped almost 8 percent from the recent high, representing the largest decline during the recent correction among the five technology giants collectively known as “FAAMG”.

I have pointed out before that the real threat for the global tech behemoths will no longer be the upcoming startups, or the clash of titans, but the antitrust rules of the leading economies and nations, namely the European Union, the United States and China.

Indeed, legal issues against internet giants will be increasingly complex and difficult, eventually impacting their business models, profit margins and share performance.

Another good example is the licensing and regulatory issues of sharing economy services such as Uber and Airbnb.

I have been skeptical about their legitimacy. Hong Kong court recently convicted Uber drivers of driving without a permit and third-party insurance, while the government has adopted more stringent enforcement to deter the car-sharing service.

Hong Kong is definitely not the only place where Uber faces legal problems. It is encountering similar difficulties in several US states and other countries as well.

That’s why I have never been able to believe it is worth US$70 billion.

Lately, US President Donald Trump lashed out at Amazon on Twitter following a story he didn’t like in the Washington Post, which is owned by Amazon CEO Jeff Bezos.

He accused the online retailer of not paying “internet taxes”, although it’s unclear what taxes he was referring to.

But when we look back at Amazon’s history, we will see that the online retailer had exploited loopholes in the tax code by opening distribution centers in states with little or no sales taxes, and therefore many of the company’s transactions were untaxed.

If the government brings up the past, Amazon may not be able to claim it’s innocent at all. And the company’s tax problem is magnifying with its growing presence worldwide.

For a long time, software companies have received great concessions and special treatments when it comes to product liability, the Tort law and consumer protection.

Software firms in general require customers to give up the right to most of the accountability before using the software. In lots of cases in the US in the past, the court stood on the side of the software company and decided against the customer.

In the internet age, it is more difficult to sue the tech giants. As many services have become free, for companies such as Google and Facebook, the responsibility regarding security and privacy has becomes increasingly ambiguous.

Software crashed? No big deal, just reboot it, no consequence to bear. Software companies’ extremely low liability for their products is the main driving force for the rapid growth of the industry. It gives rise to the myth of the university dropout-turned-millionaire.

Meanwhile, technology companies are taking giant leaps into the real world, as illustrated by Tesla, Google and Apple marching into the self-driving car market.

The technology revives the moral issue in the old “trolley problem”. And it’s just the tip of the iceberg if we consider the potential ethical and legal problems related to artificial intelligence.

These new technologies are posing threats to the existing financial and economic systems, and as such, they no longer enjoy lax regulation from legal authorities.

Laws and measures will be implemented to beef up control on the development and application of these new technologies, just like what happened to genetic research.

Another concern lies in the political authorities. The rise of social media and other new technologies is presenting a threat to political stability, leading authorities to try to command and control them.

It is politics that has prompted Trump to chase after Amazon, not taxes. While in China, titans in the private sector like Alibaba and Tencent (700.HK) as well as state-owned companies such as ICBC (1398.HK), PetroChina (857.HK) and China Mobile (941.HK) have learned to be obedient, but the legal and policy issues they face will inevitably increase in the future.

This article appeared in the Hong Kong Economic Journal on July 4

Translation by Ben Ng

[Chinese version 中文版]

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BN/CG

Eddie Tam is the founder and CEO of Central Asset Investments.

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