July 6, 2017 | Article

Eliminating Internet Safe Harbors Hurts The U.S. Economy

One of the most important parts of the internet – and what makes it so attractive and useful to so many people – is the ability to search for and store information at the click of a button. Intermediary liability safe harbors play a critical role in making that possible.These safe harbors protect internet platforms (called intermediaries) – such as Google, Dropbox, Facebook, Snap, among others – from being held liable for the content of their users, ensuring consumers can experience the internet that we’ve come to know and love.

Put in place in 1996 and 1998 respectively, Congress established two intermediary safe harbors – Section 230 of the Communications Decency Act and Section 512 of the Copyright Act enacted by the Digital Millennium Copyright Act – to create space for innovation and spur investment to further develop the internet’s capabilities.

So what would happen if they disappeared?

New economic analysis from NERA Economic Consulting took a look at the very question by estimating the impact of reducing the protections offered by safe harbor laws.

The analysis finds weakening intermediary liability safe harbor protections would significantly reduce economic activity in the internet sector, causing the U.S. economy to lose 4.25 million jobs and nearly half a trillion dollars in the next 10 years. That’s equivalent to giving away the annual GDP of Iceland, Jamaica, and Nicaragua combined and firing all McDonald’s workers in the U.S each year.

As one of America’s most dynamic and successful industries, the internet sector is driving economic growth, doubling its share of the U.S. economy between 2007 and 2014. Reducing liability protections not only hurts the internet sector; it harms the entire U.S. economy.

To quantify the impact of making intermediaries responsible for all user content, researchers used consumer surveys focused on two internet intermediary services – search engine and cloud storage – to calculate the average decrease in consumer use of these services and resulting estimated decrease in revenue. The findings? The fall in consumer demand due to more advertisements (in search engines) and higher costs (for cloud services) would result in a combined 10 percent revenue drop for these services, resulting in lost jobs and reduced economic activity.

But internet intermediaries include far more than these two services; they span data storage, internet access, internet telephony, cloud computing, social media, internet advertising, and e-commerce to name a few. The NERA analysis applies the 10 percent revenue drop as an indicator of the economic impact to the entire internet sector, of which search engine and cloud services make up only 18 percent.

By applying the findings to all intermediaries, the study finds that without internet liability:

  • The U.S. economy would lose an estimated $44 billion in GDP & more than 425,000 jobs each year. That’s equivalent to giving away the annual GDP of Iceland, Jamaica, and Nicaragua combined and firing all McDonald’s workers in the U.S.
  • Internet startups would face higher entry costs, limiting innovation. Without intermediary liability safe harbors, startups – and the VC’s that fund them – won’t be able to test new ideas without facing unreasonable liability and high expenses.
  • Consumers would face higher costs and worsened online user experience. It is economically and technologically unfeasible for platforms to screen third-party content at scale. Loss of the intermediary liability safe harbors would mean fewer and worse services online.

Safe harbor protections were put in place for a reason. With a thriving internet economy, American businesses and consumers are able to connect with billions of people to access and share information. Even more, they are now depending on services such as ride-sharing apps, e-commerce sites, and social media – all of which are enabled by an internet that allows for free expression and content creation.

Safe harbor laws provide a foundation for innovation and drive economic growth. Preserving them is key to ensuring the best internet and economy for America.

Read NERA’s full report here.

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