Policy – Page 53

FTC suggests new rules to shift parents’ burden of protecting kids to websites

biometric data, children's online privacy protection act, children's privacy law, COPPA, federal trade commission, ftc, online data privacy, Policy / Rejus Almole / December 21, 2023

Ending the endless tracking of kids —

FTC seeking public comments on new rules to expand children’s privacy law.

Ashley Belanger – Dec 21, 2023 4: 36 pm UTC

The Federal Trade Commission (FTC) is currently seeking comments on new rules that would further restrict platforms’ efforts to monetize children’s data.

Through the Children’s Online Privacy Protection Act (COPPA), the FTC initially sought to give parents more control over what kinds of information that various websites and apps can collect from their kids. Now, the FTC wants to update COPPA and “shift the burden from parents to providers to ensure that digital services are safe and secure for children,” the FTC’s press release said.

“By requiring firms to better safeguard kids’ data, our proposal places affirmative obligations on service providers and prohibits them from outsourcing their responsibilities to parents,” FTC chair Lina Khan said.

Among proposed rules, the FTC would require websites to turn off targeted advertising by default and prohibit sending push notifications to encourage kids to use services more than they want to. Surveillance in schools would be further restricted, so that data is only collected for educational purposes. And data security would be strengthened by mandating that websites and apps “establish, implement, and maintain a written children’s personal information security program that contains safeguards that are appropriate to the sensitivity of the personal information collected from children.”

Perhaps most significantly, COPPA would also be updated to stop companies from retaining children’s data forever, explicitly stating that “operators cannot retain the information indefinitely.” In a statement, commissioner Alvaro Bedoya called this a “critical protection” at a time when “new, machine learning-fueled systems require ever larger amounts of training data.”

These proposed changes were designed to address “the evolving ways personal information is being collected, used, and disclosed, including to monetize children’s data,” the FTC said.

Keeping up with advancing technology, the FTC said, also requires expanding COPPA’s definition of “personal information” to include biometric identifiers. That change was likely inspired by charges brought against Amazon earlier this year, when the FTC accused Amazon of violating COPPA by retaining tens of thousands of children’s Alexa voice recordings forever.

Once the notice of proposed rulemaking is published to the Federal Register, the public will have 60 days to submit comments. The FTC likely anticipates thousands of parents and stakeholders to weigh in, noting that the last time COPPA was updated in 2019, more than 175,000 comments were submitted.

Endless tracking of kids not a “victimless crime”

Bedoya said that updating the already-expansive children’s privacy law would prevent known harms. He also expressed concern that increasingly these harms are being overlooked, citing a federal judge in California who preliminarily enjoined California’s Age-Appropriate Design Code” in September. That judge had suggested that California’s law was “actually likely to exacerbate” online harm to kids, but Bedoya challenged that decision as reinforcing a “critique that has quietly proliferated around children’s privacy: the idea that many privacy invasions do not actually hurt children.”

For decades, COPPA has protected against the unauthorized or unnecessary collection, use, retention, and disclosure of children’s information, which Bedoya said “endangers children’s safety,” “exposes children and families to hacks and data breaches,” and “allows third-party companies to develop commercial relationships with children that prey on their trust and vulnerability.”

“I think each of these harms, particularly the latter, undermines the idea that the pervasive tracking of children online is [a] ‘victimless crime,'” Bedoya said, adding that “the harms that COPPA sought to prevent remain real, and COPPA remains relevant and profoundly important.”

According to Bedoya, COPPA is more vital than ever, as “we are only at the beginning of an era of biometric fraud.”

Khan characterized the proposed changes as “much-needed” in an “era where online tools are essential for navigating daily life—and where firms are deploying increasingly sophisticated digital tools to surveil children.”

“Kids must be able to play and learn online without being endlessly tracked by companies looking to hoard and monetize their personal data,” Khan said.

FTC suggests new rules to shift parents’ burden of protecting kids to websites Read More »

Child sex abuse images found in dataset training image generators, report says

AI, Policy / Mike M. / December 20, 2023

More than 1,000 known child sexual abuse materials (CSAM) were found in a large open dataset—known as LAION-5B—that was used to train popular text-to-image generators such as Stable Diffusion, Stanford Internet Observatory (SIO) researcher David Thiel revealed on Wednesday.

SIO’s report seems to confirm rumors swirling on the Internet since 2022 that LAION-5B included illegal images, Bloomberg reported. In an email to Ars, Thiel warned that “the inclusion of child abuse material in AI model training data teaches tools to associate children in illicit sexual activity and uses known child abuse images to generate new, potentially realistic child abuse content.”

Thiel began his research in September after discovering in June that AI image generators were being used to create thousands of fake but realistic AI child sex images rapidly spreading on the dark web. His goal was to find out what role CSAM may play in the training process of AI models powering the image generators spouting this illicit content.

“Our new investigation reveals that these models are trained directly on CSAM present in a public dataset of billions of images, known as LAION-5B,” Thiel’s report said. “The dataset included known CSAM scraped from a wide array of sources, including mainstream social media websites”—like Reddit, X, WordPress, and Blogspot—as well as “popular adult video sites”—like XHamster and XVideos.

Shortly after Thiel’s report was published, a spokesperson for LAION, the Germany-based nonprofit that produced the dataset, told Bloomberg that LAION “was temporarily removing LAION datasets from the Internet” due to LAION’s “zero tolerance policy” for illegal content. The datasets will be republished once LAION ensures “they are safe,” the spokesperson said. A spokesperson for Hugging Face, which hosts a link to a LAION dataset that’s currently unavailable, confirmed to Ars that the dataset is now unavailable to the public after being switched to private by the uploader.

Removing the datasets now doesn’t fix any lingering issues with previously downloaded datasets or previously trained models, though, like Stable Diffusion 1.5. Thiel’s report said that Stability AI’s subsequent versions of Stable Diffusion—2.0 and 2.1—filtered out some or most of the content deemed “unsafe,” “making it difficult to generate explicit content.” But because users were dissatisfied by these later, more filtered versions, Stable Diffusion 1.5 remains “the most popular model for generating explicit imagery,” Thiel’s report said.

A spokesperson for Stability AI told Ars that Stability AI is “committed to preventing the misuse of AI and prohibit the use of our image models and services for unlawful activity, including attempts to edit or create CSAM.” The spokesperson pointed out that SIO’s report “focuses on the LAION-5B dataset as a whole,” whereas “Stability AI models were trained on a filtered subset of that dataset” and were “subsequently fine-tuned” to “mitigate residual behaviors.” The implication seems to be that Stability AI’s filtered dataset is not as problematic as the larger dataset.

Stability AI’s spokesperson also noted that Stable Diffusion 1.5 “was released by Runway ML, not Stability AI.” There seems to be some confusion on that point, though, as a Runway ML spokesperson told Ars that Stable Diffusion “was released in collaboration with Stability AI.”

A demo of Stable Diffusion 1.5 noted that the model was “supported by Stability AI” but released by CompVis and Runway. While a YCombinator thread linking to a blog—titled “Why we chose not to release Stable Diffusion 1.5 as quickly”—from Stability AI’s former chief information officer, Daniel Jeffries, may have provided some clarity on this, it has since been deleted.

Runway ML’s spokesperson declined to comment on any updates being considered for Stable Diffusion 1.5 but linked Ars to a Stability AI blog from August 2022 that said, “Stability AI co-released Stable Diffusion alongside talented researchers from” Runway ML.

Stability AI’s spokesperson said that Stability AI does not host Stable Diffusion 1.5 but has taken other steps to reduce harmful outputs. Those include only hosting “versions of Stable Diffusion that include filters” that “remove unsafe content” and “prevent the model from generating unsafe content.”

“Additionally, we have implemented filters to intercept unsafe prompts or unsafe outputs when users interact with models on our platform,” Stability AI’s spokesperson said. “We have also invested in content labelling features to help identify images generated on our platform. These layers of mitigation make it harder for bad actors to misuse AI.”

Beyond verifying 1,008 instances of CSAM in the LAION-5B dataset, SIO found 3,226 instances of suspected CSAM in the LAION dataset. Thiel’s report warned that both figures are “inherently a significant undercount” due to researchers’ limited ability to detect and flag all the CSAM in the datasets. His report also predicted that “the repercussions of Stable Diffusion 1.5’s training process will be with us for some time to come.”

“The most obvious solution is for the bulk of those in possession of LAION‐5B‐derived training sets to delete them or work with intermediaries to clean the material,” SIO’s report said. “Models based on Stable Diffusion 1.5 that have not had safety measures applied to them should be deprecated and distribution ceased where feasible.”

Child sex abuse images found in dataset training image generators, report says Read More »

Republicans slam broadband discounts for poor people, threaten to kill program

affordable connectivity program, FCC, Policy / Rejus Almole / December 19, 2023

Senate Minority Whip John Thune gestures with his right hand while speaking to reporters. — Enlarge / Senate Minority Whip John Thune (R-S.D.) speaks to reporters after the weekly Senate Republican caucus lunch on November 14, 2023, in Washington, DC.

Getty Images | Anna Rose Layden

Republican members of Congress blasted a program that gives $30 monthly broadband discounts to people with low incomes, accusing the Federal Communications Commission of being “wasteful.” The lawmakers suggested in a letter to FCC Chairwoman Jessica Rosenworcel that they may try to block funding for the Affordable Connectivity Program (ACP), which is expected to run out of money in April 2024.

“As lawmakers with oversight responsibility over the ACP, we have raised concerns, shared by the FCC Inspector General, regarding the program’s effectiveness in connecting non-subscribers to the Internet,” the lawmakers wrote. “While you have repeatedly claimed that the ACP is necessary for connecting participating households to the Internet, it appears the vast majority of tax dollars have gone to households that already had broadband prior to the subsidy.”

The letter was sent Friday by Sen. John Thune (R-S.D.), Sen. Ted Cruz (R-Texas), Rep. Cathy McMorris Rodgers (R-Wash.), and Rep. Bob Latta (R-Ohio). Cruz is the top Republican on the Senate Commerce Committee, and Thune is the top Republican on the Subcommittee on Communications, Media, and Broadband. McMorris Rodgers is chair of the House Commerce Committee, and Latta is chair of the House Subcommittee on Communications and Technology.

The letter questioned Rosenworcel’s testimony at a recent House hearing in which she warned that 25 million households could lose Internet access if Congress doesn’t renew the ACP discounts. The ACP was created by congressional legislation, but Republicans are wary of continuing it. The program began with $14.2 billion a little less than two years ago.

“At a hearing before the House Energy and Commerce Committee on November 30, 2023, you asserted—without evidence and contrary to the FCC’s own data—that ’25 million households’ would be ‘unplug[ged]…from the Internet’ if Congress does not provide new funding for the ACP,” the letter said. “This is not true. As Congress considers the future of taxpayer broadband subsidies, we ask you to correct the hearing record and make public accurate information about the ACP.”

“Reckless spending spree”

The letter criticizes what it calls “the Biden administration’s reckless spending spree” and questions whether the ACP is worth paying for:

It is incumbent on lawmakers to protect taxpayers and make funding decisions based on clear evidence. Unfortunately, your testimony pushes “facts” about the ACP that are deeply misleading and have the potential to exacerbate the fiscal crisis without producing meaningful benefits to the American consumer. We therefore ask you to supplement your testimony from November 30, 2023, with the correct information about the number of Americans that will “lose” broadband if the ACP does not receive additional funds, and correct the hearing record accordingly by January 5, 2024.

During the November 30 hearing, Rep. Yvette Clarke (D-N.Y.) said she will introduce legislation to re-fund the program. The ACP has widespread support from consumer advocates and the telecom industry. Additionally, the governors of 25 US states and Puerto Rico urged Congress to extend the ACP in a November 13 letter.

The Biden administration has requested $6 billion to fund the program through December 2024. Rosenworcel’s office declined to comment on the Republicans’ letter when contacted by Ars today.

Although the FCC operates the discount program, it has to do so within parameters set by Congress. The FCC’s ACP rulemaking noted that the income-eligibility guidelines were determined by Congress.

Republicans slam broadband discounts for poor people, threaten to kill program Read More »

Binance to pay $2.7 billion fine after hiding shady transactions from feds

Binance, Binance US, Changpeng Zhao, Commodity Futures Trading Commission, crypto exchange, Cryptocurrency, cryptocurrency exchange, money laundering, Policy / Rejus Almole / December 19, 2023

Ill-gotten gains —

Binance’s former compliance-control officer must also pay a $1.5 million fine.

Ashley Belanger – Dec 19, 2023 6: 21 pm UTC

Enlarge / Founder and CEO of Binance Changpeng Zhao, commonly known as “CZ,” in May 10, 2022, in Rome, Italy.

Now that a federal court has approved a settlement with Binance, the world largest cryptocurrency exchange is hoping to move past a money-laundering scandal that forced its founder and CEO, Changpeng Zhao, to resign and overnight drained more than $1 billion in assets from its platform.

Under the settlement, Binance will “disgorge $1.35 billion of ill-gotten transaction fees and pay a $1.35 billion penalty” to the Commodity Futures Trading Commission (CFTC), the federal agency announced in a press release.

Additionally, Zhao will personally pay a $150 million civil monetary penalty. According to a plea agreement with the US Department of Justice—which ordered Binance to pay a “historic” penalty of $4.3 billion—Zhao’s previously ordered $50 million fine can be credited under certain terms against the amount that Zhao owes the CFTC.

The CFTC found that Zhao directed Binance to dodge US regulatory requirements and violate Binance’s own terms of use to hide unauthorized US trading on the exchange. Binance did this by soliciting US customers to trade on the platform without being subjected to Binance’s know-your-customer (KYC) procedures.

“Zhao and Binance were aware of US regulatory requirements, but chose to ignore them and knowingly concealed the presence of US customers on the platform,” the CFTC’s press release said. “The order also finds Zhao and other members of Binance’s senior management actively facilitated violations of US law, including instructing US customers to evade compliance controls.”

Among those “aiding and abetting Binance’s violations,” the CFTC said, was Binance’s former compliance-control officer, Samuel Lin. Under a separate order, Lin must pay a $1.5 million civil monetary penalty, the CFTC noted.

As part of the settlement, Binance will no longer allow customers to use sub-accounts to skirt KYC procedures and has agreed to remove all non-compliant accounts from the platform. Moving forward, Binance has agreed to “no longer allow existing sub-accounts, including those opened by prime brokers, to bypass the platform’s compliance controls,” the CFTC said.

Binance must also implement a new corporate governance structure, adding a board of directors with independent members and compliance and audit committees. This structure is intended to prevent Binance from approving suspicious transactions linked to terrorism, child sexual abuse, and ransomware attacks, as well as from violating anti-money laundering and sanctions laws.

In November, when Zhao resigned, Binance said that settling these lawsuits would help the crypto exchange “turn the page,” Reuters reported.

Zhao’s plea agreement prevents him from making any public statements contradicting his acceptance of responsibility for Binance’s schemes, and he has kept his word on that front. Shortly after resigning, Zhao wrote on the social media platform X (formerly Twitter) that he had made mistakes and must take responsibility “for our community, for Binance, and for myself.”

Within one day after Zhao resigned, though, some Binance users immediately did not appear confident in the platform, withdrawing more than $1 billion from the exchange, CNBC reported. A market analyst told CNBC that Binance’s token suffered most from the CEO stepping down.

However, the majority of Binance’s assets—more than $65 billion—remained on the platform, CNBC reported, indicating that Binance is likely big enough to survive this year’s legal storms.

Zhao said he was “proud to point out” that the plea deals “do not allege that Binance misappropriated any user funds” or “that Binance engaged in any market manipulation.” Naming his successor as CEO—Binance’s former global head of regional markets, Richard Teng—Zhao expressed confidence that Teng would “ensure Binance delivers on our next phase of security, transparency, compliance, and growth.”

Binance to pay $2.7 billion fine after hiding shady transactions from feds Read More »

Disgraced Nikola founder Trevor Milton gets 4-year sentence for lying about EVs

Cars, Electric vehicles, fraud, hydrogen fuel cells, Nikola, Nikola trucks, Policy, Trevor Milton, zero-emission vehicle / Rejus Almole / December 18, 2023

Web of lies —

Prosecutors had asked for a heavier sentence to deter future fraud.

Ashley Belanger – Dec 18, 2023 7: 08 pm UTC

Enlarge / Trevor Milton, founder of Nikola Corp., arrives at court in New York on Monday, Dec. 18, 2023. Milton is set to be sentenced on Monday after being found guilty of securities fraud and wire fraud in October 2022.

The disgraced founder and former CEO of the “zero emissions” truck company Nikola, Trevor Milton, was sentenced to four years in prison on Monday, Bloomberg reported.

That’s a lighter sentence than prosecutors had requested after a jury found Milton guilty of one count of securities fraud and two counts of wire fraud in 2022. During the trial, Milton was accused of lying about “nearly all aspects of the business,” CNBC reported.

From 2016 to 2020, Milton’s “extravagant claims” were fueled by a desire to pump up the value of Nikola stock, The New York Times reported. He was accused of misleading investors about everything from fake prototypes of emission-free long-haul trucks to billions worth of supposedly binding orders for hydrogen fuel cells and batteries that were never shipped. In a sentencing memo, prosecutors said that Milton targeted “less sophisticated investors,” the Times reported, engaging “in a sustained scheme to take advantage of” their inexperience.

Nikola’s stock peaked in 2020, but then dozens of fraud allegations were reported by the investment firm Hindenburg Research, causing Nikola stock to plummet promptly. “We have never seen this level of deception at a public company, especially of this size,” Hindenburg Research’s report said. Facing backlash, Milton resigned, voluntarily withdrawing from his company and selling off $100 million in Nikola stock to fund more than $85 million in luxury purchases, the Times reported. Today, Milton remains Nikola’s second-largest shareholder, Bloomberg reported.

By 2021, Nikola had admitted to the US Securities and Exchange Commission that nine statements made by Milton were “inaccurate.”

The price of these lies to investors was more than $660 million, prosecutors claimed.

Through it all, Milton has denied the charges, requesting to be sentenced to only probation while holding back tears, Bloomberg reported. At his sentencing hearing, he said that his “misstatements” came from a place of “deeply held optimism,” and he did not intend to cause any harm, Yahoo reported.

“I was not a very seasoned CEO,” Milton reportedly said.

Prosecutors sought heavier consequences, asking the judge to order Milton to pay a $5 million fine and sentence Milton to 11 years in prison.

Milton is likely to appeal, Bloomberg reported.

Nikola’s spokesperson provided Ars with a statement on the sentencing.

“Nikola has a strong foundation and is in the process of achieving our mission to decarbonize the trucking industry, which is our focus,” Nikola’s statement said. “We have made significant progress year-over-year and will continue with the same level of discipline and commitment in 2024. We are pleased to move forward and remind the public that the company founder has not had any active role in Nikola since September 2020.”

Nikola’s shaky road to recovery

Current Nikola CEO Steve Girsky has recently said that Nikola will recover by attracting “world-class people to execute on our business plan” and working toward “establishing ourselves as the leader in zero-emissions commercial transportation,” Forbes reported.

Girsky seems keen to move past the scandal by promoting Nikola’s latest successes. In September, Girsky boasted that daily tests showed that one of Nikola’s fuel cell trucks could successfully run for 900 miles.

“This was quite an accomplishment, and I defy anyone to find another zero-emission vehicle truck anywhere that can run up to 900 miles in a day,” Girsky said.

However, since the 2020 scandal, Nikola’s stock has dropped 99 percent, Forbes reported, and now an investor analytics company called Macroaxis has estimated that Nikola has an 81 percent chance of going bankrupt.

While Forbes credited Milton with most of Nikola’s current woes, it’s not just the scandal causing investment setbacks for Nikola. In August, Nikola also recalled most of its battery-electric trucks—about 209—after a fire probe revealed a “defective part” that “is believed to have caused a battery to overheat” and risk setting trucks on fire, The Wall Street Journal reported.

This represented “virtually all” the battery-electric trucks that Nikola had shipped to customers, the Journal reported. While engineers worked on a solution to keep battery-electric trucks on the roads, Nikola temporarily halted sales of the battery-electric trucks, ramping up production instead on hydrogen fuel-cell electric trucks that remain Nikola’s core focus.

In September, Girsky described the recall as a setback but pointed to all of Nikola’s progress since Milton’s departure.

“It’s a setback, but we’re in it for the long haul,” Girsky said. “We’ve proved the skeptics wrong who said we couldn’t engineer a truck, couldn’t build a truck, and couldn’t sell a truck, and we’re not planning on stopping any time soon.”

Disgraced Nikola founder Trevor Milton gets 4-year sentence for lying about EVs Read More »

Musk’s X hit with EU’s first investigation of Digital Services Act violations

Digital Services Act, elon musk, Policy / Rejus Almole / December 18, 2023

EU investigates X —

EU probes disinformation, election policy, Community Notes, and paid checkmarks.

Jon Brodkin – Dec 18, 2023 4: 54 pm UTC

Getty Images | Chris Delmas

The European Union has opened a formal investigation into whether Elon Musk’s X platform (formerly Twitter) violated the Digital Services Act (DSA), which could result in fines of up to 6 percent of global revenue. A European Commission announcement today said the agency “opened formal proceedings to assess whether X may have breached the Digital Services Act (DSA) in areas linked to risk management, content moderation, dark patterns, advertising transparency and data access for researchers.”

This is the commission’s first formal investigation under the Digital Services Act, which applies to large online platforms and has requirements on content moderation and transparency. The step has been in the works since at least October, when a formal request for information was sent amid reports of widespread Israel/Hamas disinformation.

The European Commission today said it “decided to open formal infringement proceedings against X under the Digital Services Act” after reviewing X’s replies to the request for information on topics including “the dissemination of illegal content in the context of Hamas’ terrorist attacks against Israel.” The commission said the investigation will focus on dissemination of illegal content, the effectiveness of measures taken to combat information manipulation on X, transparency, and “a suspected deceptive design of the user interface.”

The illegal content probe will focus on “risk assessment and mitigation measures” and “the functioning of the notice and action mechanism for illegal content” that is mandated by the DSA. The commission said this will be evaluated “in light of X’s content moderation resources,” a reference to the deep staff cuts made by Musk since purchasing Twitter in October 2022.

Community Notes and paid checkmarks under review

The information manipulation portion of the investigation will evaluate “the effectiveness of X’s so-called ‘Community Notes’ system in the EU and the effectiveness of related policies mitigating risks to civic discourse and electoral processes,” the announcement said. The transparency probe “concerns suspected shortcomings in giving researchers access to X’s publicly accessible data as mandated by Article 40 of the DSA, as well as shortcomings in X’s ads repository,” the commission said.

Musk’s decision to make “verification” checkmarks a paid feature will figure into the commission’s probe of whether the X user interface has a deceptive design. The commission said it will evaluate “checkmarks linked to certain subscription products, the so-called Blue checks.”

The investigation will include more requests for information, interviews, and “inspections,” the commission said. There is no legal deadline for completing the investigation.

“The opening of formal proceedings empowers the Commission to take further enforcement steps, such as interim measures, and non-compliance decisions. The Commission is also empowered to accept any commitment made by X to remedy on the matters subject to the proceeding,” the announcement said.

In a statement today, X said it is committed to complying with the Digital Services Act and is cooperating with regulators. “It is important that this process remains free of political influence and follows the law,” the company said. “X is focused on creating a safe and inclusive environment for all users on our platform, while protecting freedom of expression, and we will continue to work tirelessly towards this goal.”

Musk’s X hit with EU’s first investigation of Digital Services Act violations Read More »

Adobe gives up on $20 billion acquisition of Figma

adobe, antitrust, competition, EU, Policy, syndication, UK / Rejus Almole / December 18, 2023

No deal —

Competition probes in the EU and UK made regulatory approval dicey.

Cristina Criddle, Suzi Ring, and Tim Bradshaw, FT – Dec 18, 2023 3: 35 pm UTC

Adobe has abandoned its proposed $20 billion acquisition of product design software company Figma, as there was “no clear path to receive necessary regulatory approvals” from UK and EU watchdogs.

The deal had faced probes from both the UK and EU competition regulators for fears it would have an impact on the product design, image editing, and illustration markets.

Adobe refused to offer remedies to satisfy the UK Competition and Markets Authority’s concerns last week, according to a document published by the regulator on Monday, arguing that a divestment would be “wholly disproportionate.”

Hours later, the two companies issued a mutual statement terminating the merger, citing the regulatory challenges. Adobe will pay Figma $1 billion in a termination fee under the terms of the merger agreement.

“Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,” said Shantanu Narayen, chair and chief executive of Adobe.

The companies had been battling multiple regulatory challenges, with the EU’s executive body, the European Commission, publishing a statement of objections to the deal last month arguing the takeover could “significantly reduce competition in the global markets.”

Margrethe Vestager, the EU’s competition commissioner, said: “By combining these two companies, the proposed acquisition would have terminated all current and prevented all future competition between them. Our in-depth investigation showed that this would lead to higher prices, reduced quality or less choice for customers.”

Competition regulators around the world have sent mixed signals over the aspirations of Big Tech groups hoping to acquire promising start-ups and potential rivals, at a time when public markets have been largely closed to new listings.

The EU’s antitrust watchdog has made a formal objection to Amazon’s $1.7 billion proposed purchase of Roomba-maker iRobot. However, Microsoft was able to complete its $75 billion takeover of games maker Activision after it made revisions to the deal to appease UK regulators.

Speaking with the Financial Times last week, Figma chief executive Dylan Field said: “It is important that those paths of acquisition remain available because very few companies make it all the way to IPO. So many companies fail on the way.”

Shares in Adobe were up almost 2 percent in pre-market trading. Since the deal was announced, Adobe has turned its focus to embedding generative artificial intelligence into its products by, for example, enabling users to create novel stock imagery with AI.

The huge price that Adobe was willing to pay for San Francisco-based Figma had been seen by critics of the deal as an effort to quash the software giant’s most promising new rival in decades.

The deal, which was first negotiated during the COVID-19 pandemic’s boom in tech investment and announced in September 2022, would have valued Figma at roughly 50 times its annual recurring revenue, and double its last private funding round in 2021.

The companies were expected to appear in front of the CMA to contest the regulator’s provisional findings on Thursday this week.

Under its proposed remedies in November, the CMA said it was considering either prohibiting the deal or demanding the divestiture of overlapping operations, such as Adobe’s Illustrator or Photoshop, or Figma’s core product, Figma Design.

Field said that the latter suggestion left him amazed at “the idea of buying a company so you can divest the company.”

“When I read that document and saw that was one of the proposals, I thought it was quite amusing; it felt like a bit of a punchline to a joke. I was surprised to see that as a proposal from the agency.” In a statement on Monday, Field said he was “disappointed in the outcome.”

Earlier on Monday, the CMA had published the companies’ responses to its provisional findings, which Adobe and Figma said contained “serious errors of law and fact” and took “an irrational approach to the gathering and appraisal of evidence.”

“Requiring a multibillion-dollar global divestment of Photoshop or Illustrator in order to address an uncertain and speculative theory of harm is wholly disproportionate,” they wrote.

Adobe gives up on $20 billion acquisition of Figma Read More »

This “smoking gun” killed the McDonald’s ice cream hackers’ startup

DMCA, DMCA abuse, ice cream, mcdonalds, Policy, Science, syndication / Rejus Almole / December 16, 2023

A little over three years have passed since McDonald’s sent out an email to thousands of its restaurant owners around the world that abruptly cut short the future of a three-person startup called Kytch—and with it, perhaps one of McDonald’s best chances for fixing its famously out-of-order ice cream machines.

Until then, Kytch had been selling McDonald’s restaurant owners a popular Internet-connected gadget designed to attach to their notoriously fragile and often broken soft-serve McFlurry dispensers, manufactured by McDonald’s equipment partner Taylor. The Kytch device would essentially hack into the ice cream machine’s internals, monitor its operations, and send diagnostic data over the Internet to an owner or manager to help keep it running. But despite Kytch’s efforts to solve the Golden Arches’ intractable ice cream problems, a McDonald’s email in November 2020 warned its franchisees not to use Kytch, stating that it represented a safety hazard for staff. Kytch says its sales dried up practically overnight.

Now, after years of litigation, the ice-cream-hacking entrepreneurs have unearthed evidence that they say shows that Taylor, the soft-serve machine maker, helped engineer McDonald’s Kytch-killing email—kneecapping the startup not because of any safety concern, but in a coordinated effort to undermine a potential competitor. And Taylor’s alleged order, as Kytch now describes it, came all the way from the top.

On Wednesday, Kytch filed a newly unredacted motion for summary adjudication in its lawsuit against Taylor for alleged trade libel, tortious interference, and other claims. The new motion, which replaces a redacted version from August, refers to internal emails Taylor released in the discovery phase of the lawsuit, which were quietly unsealed over the summer. The motion focuses in particular on one email from Timothy FitzGerald, the CEO of Taylor parent company Middleby, that appears to suggest that either Middleby or McDonald’s send a communication to McDonald’s franchise owners to dissuade them from using Kytch’s device.

“Not sure if there is anything we can do to slow up the franchise community on the other solution,” FitzGerald wrote on October 17, 2020. “Not sure what communication from either McD or Midd can or will go out.”

In their legal filing, the Kytch co-founders, of course, interpret “the other solution” to mean their product. In fact, FitzGerald’s message was sent in an email thread that included Middleby’s then COO, David Brewer, who had wondered earlier whether Middleby could instead acquire Kytch. Another Middleby executive responded to FitzGerald on October 17 to write that Taylor and McDonald’s had already met the previous day to discuss sending out a message to franchisees about McDonald’s lack of support for Kytch.

But Jeremy O’Sullivan, a Kytch co-founder, claims—and Kytch argues in its legal motion—that FitzGerald’s email nonetheless proves Taylor’s intent to hamstring a potential competitor. “It’s the smoking gun,” O’Sullivan says of the email. “He’s plotting our demise.”

Although FitzGerald’s email doesn’t actually order anyone to act against Kytch, the company’s motion argues that Taylor played a key role in what happened next. It’s an “ambiguous yet direct message to his underlings,” argues Melissa Nelson, Kytch’s other co-founder. “It’s just like a mafia boss giving coded instructions to his team to whack someone.”

On November 2, 2020, a little over two weeks after FitzGerald’s open-ended suggestion that perhaps a “communication” from McDonald’s or Middleby to franchisees could “slow up” adoption of “the other solution,” McDonald’s sent out its email blast cautioning restaurant owners not to use Kytch’s product.

The email stated that the Kytch gadget “allows complete access to all aspects of the equipment’s controller and confidential data”—meaning Taylor’s and McDonald’s data, not the restaurant owners’ data; that it “creates a potential very serious safety risk for the crew or technician attempting to clean or repair the machine”; and finally, that it could cause “serious human injury.” The email concluded with a warning in italics and bold: “McDonald’s strongly recommends that you remove the Kytch device from all machines and discontinue use.”

This “smoking gun” killed the McDonald’s ice cream hackers’ startup Read More »

Marketer sparks panic with claims it uses smart devices to eavesdrop on people

ads, Policy, Tech, voice assistant / Rejus Almole / December 15, 2023

We’ve all experienced it or heard about it happening: Someone has a conversation about wanting a red jacket, and then suddenly, it seems like they’re seeing ads for red jackets all over the place.

Makers of microphone-equipped electronics sometimes admit to selling voice data to third parties (advertisers). But that’s usually voice data accumulated after a user has prompted their device to start listening to them and after they’ve opted into (preferably not by default) this sort of data collection.

But a marketing company called CMG Local Solutions sparked panic recently by alluding that it has access to people’s private conversations by tapping into data gathered by the microphones on their phones, TVs, and other personal electronics, as first reported by 404 Media on Thursday. The marketing firm had said it uses these personal conversations for ad targeting.

Active Listening

CMG’s Active Listening website starts with a banner promoting an accurate but worrisome statement, “It’s true. Your devices are listening to you.”

A November 28 blog post described Active Listening technology as using AI to “detect relevant conversations via smartphones, smart TVs, and other devices.” As such, CMG claimed that it knows “when and what to tune into.”

The blog also shamelessly highlighted advertisers’ desire to hear every single whisper made that could help them target campaigns:

This is a world where no pre-purchase murmurs go unanalyzed, and the whispers of consumers become a tool for you to target, retarget, and conquer your local market.

The marketing company didn’t thoroughly detail how it backs its claims. An archived version of the Active Listening site provided a vague breakdown of how Active Listening purportedly works.

The website previously pointed to CMG uploading past client data into its platform to make “buyer personas.” Then, the company would identify relevant keywords for the type of person a CMG customer would want to target. CMG also mentioned placing a tracking pixel on its customers’ sites before entering the Listening Stage, which was only described as: “Active Listening begins and is analyzed via AI to detect pertinent conversations via smartphones, smart TVs, and other devices.”

The archived version of the page discussed an AI-based analysis of the data and generating an “encrypted evergreen audience list” used to re-target ads on various platforms, including streaming TV and audio, display ads, paid social media, YouTube, Google, and Bing Search.

That explanation doesn’t appear to be on the Active Listening page anymore, but CMG still says it can target people who are actively saying things like, “A minivan would be perfect for us” or “This AC is on it’s [sic] last leg!” in conversations.

But are they actively listening?

In a statement emailed to Ars Technica, Cox Media Group said that its advertising tools include “third-party vendor products powered by data sets sourced from users by various social media and other applications then packaged and resold to data servicers.” The statement continues:

Advertising data based on voice and other data is collected by these platforms and devices under the terms and conditions provided by those apps and accepted by their users, and can then be sold to third-party companies and converted into anonymized information for advertisers. This anonymized data then is resold by numerous advertising companies.

The company added that it does not “listen to any conversations or have access to anything beyond a third-party aggregated, anonymized and fully encrypted data set that can be used for ad placement” and “regret[s] any confusion.”

Before Cox Media Group sent its statement, though, CMG’s claims of collecting data on “casual conversations in real-time,” as its blog stated, were questionable. CMG never explained how our devices would somehow be able to garner the computing and networking power necessary to record and send every conversation spoken within the device’s range in “real-time,” unbeknownst to the device’s owner. The firm also never explained how it acquired the type of access that requires law enforcement to obtain a warrant. This is despite CMG’s blog claiming that with Active Listening, advertisers would be able to know “the second someone in your area is concerned about mold in their closet,” for example.

CMG’s November blog post pointed to an unnamed technology partner that can “aggregate and analyze voice data during pre-purchase conversations,” as well as a “growing ability to access microphone data on devices.”

Marketer sparks panic with claims it uses smart devices to eavesdrop on people Read More »

TikTok requires users to “forever waive” rights to sue over past harms

bytedance, child safety, class action lawsuit, montana, Policy, social media platforms, tiktok, TikTok ban / Rejus Almole / December 15, 2023

Or forever hold your peace —

TikTok may be seeking to avoid increasingly high costs of mass arbitration.

Ashley Belanger – Dec 15, 2023 6: 57 pm UTC

Some TikTok users may have skipped reviewing an update to TikTok’s terms of service this summer that shakes up the process for filing a legal dispute against the app. According to The New York Times, changes that TikTok “quietly” made to its terms suggest that the popular app has spent the back half of 2023 preparing for a wave of legal battles.

In July, TikTok overhauled its rules for dispute resolution, pivoting from requiring private arbitration to insisting that legal complaints be filed in either the US District Court for the Central District of California or the Superior Court of the State of California, County of Los Angeles. Legal experts told the Times this could be a way for TikTok to dodge arbitration claims filed en masse that can cost companies millions more in fees than they expected to pay through individual arbitration.

Perhaps most significantly, TikTok also added a section to its terms that mandates that all legal complaints be filed within one year of any alleged harm caused by using the app. The terms now say that TikTok users “forever waive” rights to pursue any older claims. And unlike a prior version of TikTok’s terms of service archived in May 2023, users do not seem to have any options to opt out of waiving their rights.

TikTok did not immediately respond to Ars’ request to comment, but has previously defended its “industry-leading safeguards for young people,” the Times noted.

Lawyers told the Times that these changes could make it more challenging for TikTok users to pursue legal action at a time when federal agencies are heavily scrutinizing the app and complaints about certain TikTok features allegedly harming kids are mounting.

In the past few years, TikTok has had mixed success defending against user lawsuits filed in courts. In 2021, TikTok was dealt a $92 million blow after settling a class-action lawsuit filed in an Illinois court, which alleged that the app illegally collected underage TikTok users’ personal data. Then, in 2022, TikTok defeated a Pennsylvania lawsuit alleging that the app was liable for a child’s death because its algorithm promoted a deadly “Blackout Challenge.” The same year, a bipartisan coalition of 44 state attorneys general announced an investigation to determine whether TikTok violated consumer laws by allegedly putting young users at risk.

Section 230 shielded TikTok from liability in the 2022 “Blackout Challenge” lawsuit, but more recently, a California judge ruled last month that social media platforms—including TikTok, Facebook, Instagram, and YouTube—couldn’t use a blanket Section 230 defense in a child safety case involving hundreds of children and teens allegedly harmed by social media use across 30 states.

Some of the product liability claims raised in that case are tied to features not protected by Section 230 immunity, the judge wrote, opening up social media platforms to potentially more lawsuits focused on those features. And the Times reported that investigations like the one launched by the bipartisan coalition “can lead to government and consumer lawsuits.”

As new information becomes available to consumers through investigations and lawsuits, there are concerns that users may become aware of harms that occurred before TikTok’s one-year window to file complaints and have no path to seek remedies.

However, it’s currently unclear if TikTok’s new terms will stand up against legal challenges. University of Chicago law professor Omri Ben-Shahar told the Times that TikTok might struggle to defend its new terms in court, and it looks like TikTok is already facing pushback. One lawyer representing more than 1,000 guardians and minors claiming TikTok-related harms, Kyle Roche, told the Times that he is challenging TikTok’s updated terms. Roche said that the minors he represents “could not agree to the changes” and intended to ignore the updates, instead bringing their claims through private arbitration.

TikTok has also spent the past year defending against attempts by lawmakers to ban the China-based app in the US over concerns that the Chinese Communist Party (CCP) may use the app to surveil Americans. Congress has weighed different bipartisan bills with names like “ANTI-SOCIAL CCP Act” and “RESTRICT Act,” each intent to lay out a legal path to ban TikTok nationwide over alleged national security concerns.

So far, TikTok has defeated every attempt to widely ban the app, but that doesn’t mean lawmakers have any plans to stop trying. Most recently, a federal judge stopped Montana’s effort to ban TikTok statewide from taking effect, but a more limited TikTok ban restricting access on state-owned devices was upheld in Texas, Reuters reported.

TikTok requires users to “forever waive” rights to sue over past harms Read More »

Judge rejects Elon Musk’s attempt to avoid testifying in Twitter stock probe

elon musk, elon musk sec, Policy / Rejus Almole / December 15, 2023

A loss for Elon —

Musk has to testify for SEC probe into whether he violated US securities laws.

Jon Brodkin – Dec 15, 2023 5: 35 pm UTC

Illustration of a stamp that prints the word — Getty Images | Bet_Noire

Elon Musk can’t avoid testifying in an investigation into whether he violated federal securities laws, a magistrate judge said during a court hearing yesterday.

The Securities and Exchange Commission sued Musk in October to force him to testify for a third time in a probe related to purchases of Twitter stock he made before he bought the company. Musk responded in November by asking the court to block the SEC’s subpoena, claiming the agency is “harassing” him, exceeding its authority to investigate, and making “overly burdensome” demands for “irrelevant evidence.”

Musk’s arguments were rejected during a hearing yesterday in US District Court for the Northern District of California. No formal ruling has been issued yet, but a magistrate judge made it clear she will rule in the SEC’s favor if Musk doesn’t appear for testimony.

“During a hearing in San Francisco, US Magistrate Judge Laurel Beeler quickly rejected arguments by Musk’s attorney that SEC officials do not have the authority to issue subpoenas, saying the agency has broad investigative powers and that no judge would ‘second guess’ an SEC probe,” Reuters reported.

According to Reuters, “Beeler told the sides to figure out when Musk would sit for one more four-hour deposition, or she would issue an order” compelling Musk to testify. “If you don’t work it out, then it’s in San Francisco in February,” Beeler said.

SEC probing Twitter stock purchases

The SEC lawsuit said the subpoena that Musk failed to comply with is for an investigation into whether “Musk violated various provisions of the federal securities laws in connection with (1) his 2022 purchases of Twitter stock, and (2) his 2022 statements and SEC filings relating to Twitter.”

The SEC began its investigation in April 2022 after Musk acquired a 9 percent stake in Twitter and failed to disclose it within 10 days as required under US law. Musk testified twice in July 2022, but the SEC said it has obtained thousands of new documents since then and “has not yet had an opportunity to question Musk about those documents and other substantial information it has obtained in its investigation.”

The SEC told the court that its investigation into whether Musk violated securities laws “pertains to considerably more than the timing and substance of a particular SEC filing; it also relates to all of Musk’s purchases of Twitter stock in 2022 and his 2022 statements and SEC filings.”

Musk’s response complained that “the SEC has opened one investigation after another into Mr. Musk and companies related to him, often targeting its inquiries into his constitutionally protected rights.” Musk alleged that the SEC probe has focused on his political beliefs and “passion for the First Amendment,” and “reeks of McCarthyism that has no place in a free country.”

Judge “emphatically” rejected Musk argument

Beeler “emphatically” dismissed arguments put forward by Musk’s attorney yesterday, according to Reuters. “You’ve got one more four-hour deposition, one more day of depositions to survive and it’s over. It seems unlikely there’s going to be any more hassle,” Beeler was quoted as saying.

Musk’s filing also claimed that SEC enforcement staff members cannot issue subpoenas due to requirements in the Constitution’s Appointments Clause. “The issuance of an administrative subpoena demanding Mr. Musk’s testimony is an exercise of significant governmental authority of the kind that can be performed only by ‘Officers of the United States,'” Musk’s filing said. “And under Article II, such officers can be appointed only by the President, a court, or the head of a department.”

According to Reuters, Beeler “said she is inclined to take the SEC’s view on the [Appointments Clause] issue but would take a closer look before issuing her order.”

Separately, Musk last week asked the Supreme Court to terminate a settlement that requires him to get Tesla’s pre-approval for tweets or other social media posts that may contain information material to the company or its shareholders. Musk agreed to the settlement after the SEC said his August 2018 tweets claiming he had secured funding to take Tesla private were false and caused significant market disruption.

Musk’s attempts to terminate the settlement with the SEC were previously rejected by a US district court and a federal appeals court.

Judge rejects Elon Musk’s attempt to avoid testifying in Twitter stock probe Read More »

Elon Musk told bankers they wouldn’t lose any money on Twitter purchase

elon musk, Policy, syndication, Twitter, X / Rejus Almole / December 15, 2023

Value destruction —

Lenders unlikely to get even 60 cents on the dollar for the bonds and loans.

Joshua Franklin, Eric Platt, Ortenca Aliaj, and Hannah Murphy, FT – Dec 15, 2023 3: 06 pm UTC

Elon Musk privately told some of the bankers who lent him $13 billion to fund his leveraged buyout of Twitter that they would not lose any money on the deal, according to five people familiar with the matter.

The verbal guarantees were made by Musk to banks as a way to reassure the lenders as the value of the social media site, now rebranded as X, fell sharply after he completed the acquisition last year.

Despite the assurances, the seven banks that lent money to the billionaire for his buyout—Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale—are facing serious losses on the debt if and when they eventually sell it.

The sources did not specify when Musk’s assurances were made, although one noted Musk had made them on several occasions. But the billionaire’s behavior, both in attempting to back out of the takeover in 2022 and more recently in alienating advertisers, has more broadly stymied the banks’ efforts to offload the debt since he engineered the takeover.

Large hedge funds and credit investors on Wall Street held conversations with the banks late last year, offering to buy the senior-most portion of the debt at roughly 65 cents on the dollar. But in recent interviews with the Financial Times, several said there was no price at which they would buy the bonds and loans, given their inability to gauge whether Linda Yaccarino, X’s chief executive, could turn the business around.

One multibillion-dollar firm that specializes in distressed debt called X’s debt “uninvestable.”

Selling the $12.5 billion of bonds and loans below 60 cents on the dollar—a price many investors believe the banks would be lucky to achieve in the current market—would imply losses before accounting for X’s interest payments of $4 billion or more, writedowns that have not yet been publicly reported by the syndicate of lenders, according to FT calculations. The debt is split between $6.5 billion of term loans, as well as $6 billion of senior and junior bonds and a $500 million revolver.

Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale declined to comment. A spokesperson for X declined to comment. Musk did not return a request for comment.

The banks have held the debt on their balance sheets instead of selling at a steep loss in the hope that X’s performance will improve following a series of cost-cutting measures. Several people involved in the transaction noted that there was no plan to sell the debt imminently, with one saying there was no guarantee the banks would be able to offload the debt even in 2024.

The people involved in the deal cautioned that Musk’s guarantee was not based on any formal contract. One said they understood it as a boastful statement that the entrepreneur had never let his lenders down.

“I have never lost money for those who invest in me and I am not starting now,” he told Axios earlier this month, when asked about a separate fundraising push by his company X.ai Corp.

Some on Wall Street view Musk’s personal guarantees with skepticism, given that he tried to back out of his agreement to buy Twitter despite a watertight contract, before relenting.

Nevertheless, the guarantee from a man whose net worth Forbes pegs at about $243 billion has helped some of the bankers make the pitch to their internal committees that they can ascribe a higher price to the debt while they hold it on their balance sheets.

Morgan Stanley, the largest lender on the deal, in January disclosed $356 million in mark-to-market losses on corporate loans it planned to sell and loan hedges. Banks rarely report specific losses tied to an individual bond or loan, and often report write-downs of multiple deals together.

Wall Street was saddled with the Twitter buyout loan at the same time they were holding a smattering of other hung bridge loans—deals they were forced to fund themselves after failing to raise cash in public bond and loan markets. The FT has previously reported on large losses tied to other hung loans at the time, including the buyouts of technology company Citrix and television rating provider Nielsen.

How the debt has been marked on bank balance sheets has been an open question for traders and investors across Wall Street, given how much X’s business has deteriorated since Musk bought the company.

Musk, already out of favor with marketers for loosening content moderation, last month lost more advertisers after endorsing an antisemitic post. In November he followed by telling brands that were boycotting the business over his actions to “go fuck” themselves, criticizing Disney’s Bob Iger in particular.

According to a report last week from market intelligence firm Sensor Tower, in November 2023 total US ad spend among the top 100 advertisers on X was down nearly 45 percent compared with October 2022, prior to Musk’s takeover.

Elon Musk told bankers they wouldn’t lose any money on Twitter purchase Read More »