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Why the Supreme Court Might Save Big Tech If It Chooses Regulation Over Prohibition in a Crucial Free Speech Case

This could have profound repercussions for major tech as potent forces seek to alter the internet’s functionality. This is what investors must understand.

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Tuesday, the Supreme Court began hearing opening arguments to overturn legislation that shields internet companies from liability for content posted by third parties. Investors have excessive pessimism.

Purchase shares of Alphabet (GOOGL) and Meta Platforms (META).

The focus is on Section 230 of the Communications Decency Act. The 1996 law provides comprehensive immunity for internet companies to post user-generated content without fear of legal action. Proponents contend that YouTube, Facebook, and Twitter are analogous to town squares where third-party users exercise their right to free speech by posting information.

Opponents have a divergent view of the social compact. Because large tech companies monetize their posts and frequently promote them algorithmically, they resemble news organizations. They should be accountable for the content uploaded on their platform.

This would imply that Alphabet is legally responsible for all YouTube user-generated content. It is not difficult to see how this could undermine the business models of major technology companies. The firms would be perpetually engaged in litigation.

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Gonzalez v. Google, the case currently pending before the Supreme Court, represents the first significant test of this proposed new paradigm.

Nohemi Gonzalez, a citizen of the United States, was murdered in 2015 when ISIS militants attacked Paris. Her family alleges that Google’s YouTube recommendation algorithm contributed to her murder by promoting pro-ISIS videos. Attorneys for Gonzalez claim that this violated the Anti-Terrorism Act because it aided and abetted ISIL.

Both Democrats and Republicans support repealing Section 230.

Voices on the political left assert that large tech companies are not doing enough to keep their platforms free of violent and false third-party content. Conservatives assert that large technology companies frequently go too far in silencing conservative viewpoints.

There is a solution, and it is beneficial for large technology companies: regulation.

However, regulation is frequently misconstrued. It fundamentally entails stricter regulation of online content. It creates an entry barrier, which aids existing large technology platforms. These obstacles strengthen defenses against disruption. They diminish innovation.

This is particularly essential at the present time. Investors are concerned that search, social media, and messaging could be disrupted for the first time in twenty years. Chatbots with generative artificial intelligence, such as ChatGPT, have acquired tremendous popularity and market share. The repeal of Section 230 will necessitate new regulations for startups.

The Supreme Court could also aid the tech industry by doing nothing.

Multiple news outlets reported on Tuesday that a number of Supreme Court Justices appeared perplexed by the Gonzalez v. Google premise.

According to a report by The Hill, Justice Ketanji Brown Jackson, a liberal, and Justice Samuel Alito, a conservative, questioned the line the plaintiffs sought to draw between what constituted YouTube’s speech and that of the third party.

According to CNBC, Justice Brett Kavanaugh, a conservative, expressed concern that such a broad interpretation of speech would impede efforts to organize information on the Internet. And Justice Elena Kagan, a liberal, later told a Google attorney that Congress may be better suited to make this decision.

The Washington Post, Bloomberg, The Wall Street Journal, Fortune, and Politico all report that the defense had a successful day at the hearing. Justices appeared skeptical that Google should be held responsible for Nohemi Gonzalez’s demise.

Large internet company stocks have been under pressure for over a year. Much of the decline is attributable to apprehension over what future legislation will result from cases like Gonzalez’s. Investors recognize that failure could cripple business models dependent on third-party content.

Investors with a longer-term horizon should appreciate the negative sentiment. The opportunity presented by Alphabet and Meta is grossly undervalued. In the worst-case scenario, their platforms will be regulated, thereby excluding small, disruptive competitors. If the Supreme Court remands the case to Congress, where it will be lost in years of political infighting, nothing will occur.

Buy Alphabet and Meta Platforms as the market continues to weaken.

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