The Supreme Court has agreed to hear a case that could determine whether Internet service providers must terminate users who are accused of copyright infringement.
In a list of orders released today, the court granted a petition filed by cable company Cox. The ISP, which was sued by Sony Music Entertainment, is trying to overturn a ruling that it is liable for copyright infringement because it failed to terminate users accused of piracy. Music companies want ISPs to disconnect users whose IP addresses are repeatedly connected to torrent downloads.
“We are pleased the US Supreme Court has decided to address these significant copyright issues that could jeopardize Internet access for all Americans and fundamentally change how Internet service providers manage their networks,” Cox said today.
Cox was once on the hook for $1 billion in the case. In February 2024, the 4th Circuit court of appeals overturned the $1 billion verdict, deciding that Cox did not profit directly from copyright infringement committed by users. But the appeals court found that Cox was guilty of willful contributory infringement and ordered a new damages trial.
The Cox petition asks the Supreme Court to decide whether an ISP “can be held liable for ‘materially contributing’ to copyright infringement merely because it knew that people were using certain accounts to infringe and did not terminate access, without proof that the service provider affirmatively fostered infringement or otherwise intended to promote it.”
Trump admin backed Cox; Sony petition denied
The Trump administration backed Cox last month, saying that ISPs shouldn’t be forced to terminate the accounts of people accused of piracy. Solicitor General John Sauer told the court in a brief that the 4th Circuit decision, if not overturned, “subjects ISPs to potential liability for all acts of copyright infringement committed by particular subscribers as long as the music industry sends notices alleging past instances of infringement by those subscribers” and “might encourage providers to avoid substantial monetary liability by terminating subscribers after receiving a single notice of alleged infringement.”
Finally, the Consumers’ Research position produces absurd results, divorced from any reasonable understanding of constitutional values. Under its view, a revenue-raising statute containing non-numeric, qualitative standards can never pass muster, no matter how tight the constraints they impose. But a revenue-raising statute with a numeric limit will always pass muster, even if it effectively leaves an agency with boundless power. In precluding the former and approving the latter, the Consumers’ Research approach does nothing to vindicate the nondelegation doctrine or the separation of powers.
The Gorsuch dissent said the “combination” question isn’t the deciding factor. He said the only question that needs to be answered is whether Congress violated the Constitution by delegating the power to tax to the FCC.
“As I see it, this case begins and ends with the first question. Section 254 [of the Communications Act] impermissibly delegates Congress’s taxing power to the FCC, and knowing that is enough to know the Fifth Circuit’s judgment should be affirmed,” Gorsuch said.
“Green light” for FCC to support Internet access
In the Gorsuch view, it doesn’t matter whether the FCC exceeded its authority by delegating Universal Service management to a private administrative company. “As far as I can tell, and as far as petitioners have informed us, this Court has never approved legislation allowing an executive agency to tax domestically unless Congress itself has prescribed the tax rate,” Gorsuch wrote.
The FCC and Department of Justice asked the Supreme Court to reverse the 5th Circuit decision. The court also received a challenge from broadband-focused advocacy groups and several lobby groups representing ISPs.
“Today is a great day,” said Andrew Jay Schwartzman, counsel for the Benton Institute for Broadband & Society; the National Digital Inclusion Alliance; and the Center for Media Justice. “We will need some time to sort through the details of today’s decision, but what matters most is that the Supreme Court has given the green light to the FCC to continue to support Internet access to the tens of millions of Americans and the thousands of schools, libraries and rural hospitals that rely on the Universal Service Fund.”
FCC Chairman Brendan Carr praised the ruling but said he plans to make changes to Universal Service. “I am glad to see the court’s decision today and welcome it as an opportunity to turn the FCC’s focus towards the types of reforms necessary to ensure that all Americans have a fair shot at next-generation connectivity,” Carr said.
Justice Elena Kagan filed a dissenting opinion that was joined by Sonia Sotomayor and Ketanji Brown Jackson. Kagan said that in similar cases, the court applied strict scrutiny, “a highly rigorous but not fatal form of constitutional review, to laws regulating protected speech based on its content.”
“Texas’s law defines speech by content and tells people entitled to view that speech that they must incur a cost to do so,” Kagan wrote. “That is, under our First Amendment law, a direct (not incidental) regulation of speech based on its content—which demands strict scrutiny.”
The Texas law applies to websites in which more than one-third of the content “is sexual material harmful to minors.” Kagan described the law’s ID requirement as a deterrent to exercising one’s First Amendment rights.
“It is turning over information about yourself and your viewing habits—respecting speech many find repulsive—to a website operator, and then to… who knows? The operator might sell the information; the operator might be hacked or subpoenaed,” Kagan’s dissent said. The law requires website users to verify their ages by submitting “a ‘government-issued identification’ like a driver’s license or ‘transactional data’ associated with things like a job or mortgage,” Kagan wrote.
Limiting no more speech than necessary
Under strict scrutiny, the court must ask whether the law is “the least restrictive means of achieving a compelling state interest,” Kagan wrote. A state facing that standard must show it has limited no more adult speech than is necessary to achieve its goal.
“Texas can of course take measures to prevent minors from viewing obscene-for-children speech. But if a scheme other than H. B. 1181 can just as well accomplish that objective and better protect adults’ First Amendment freedoms, then Texas should have to adopt it (or at least demonstrate some good reason not to),” Kagan wrote.
The majority decision said that applying strict scrutiny “would call into question all age-verification requirements, even longstanding in-person requirements.” It also said the previous rulings cited in the dissent “all involved laws that banned both minors and adults from accessing speech that was at most obscene only to minors. The Court has never before considered whether the more modest burden of an age-verification requirement triggers strict scrutiny.”
TikTok has said it’s preparing to shut down Sunday.
A TikTok influencer holds a sign that reads “Keep TikTok” outside the US Supreme Court Building as the court hears oral arguments on whether to overturn or delay a law that could lead to a ban of TikTok in the U.S., on January 10, 2025 in Washington, DC. Credit: Kayla Bartkowski / Stringer | Getty Images News
TikTok has lost its Supreme Court appeal in a 9–0 decision and will likely shut down on January 19, a day before Donald Trump’s inauguration, unless the app can be sold before the deadline, which TikTok has said is impossible.
During the trial last Friday, TikTok lawyer Noel Francisco warned SCOTUS that upholding the Biden administration’s divest-or-sell law would likely cause TikTok to “go dark—essentially the platform shuts down” and “essentially… stop operating.” On Wednesday, TikTok reportedly began preparing to shut down the app for all US users, anticipating the loss.
But TikTok’s claims that the divest-or-sell law violated Americans’ free speech rights did not supersede the government’s compelling national security interest in blocking a foreign adversary like China from potentially using the app to spy on or influence Americans, SCOTUS ruled.
“We conclude that the challenged provisions do not violate petitioners’ First Amendment rights,” the SCOTUS opinion said, while acknowledging that “there is no doubt that, for more than 170 million Americans, TikTok offers a distinctive and expansive outlet for expression, means of engagement, and source of community.”
Late last year, TikTok and its owner, the Chinese-owned company ByteDance, urgently pushed SCOTUS to intervene before the law’s January 19 enforcement date. Ahead of SCOTUS’ decision, TikTok warned it would have no choice but to abruptly shut down a thriving platform where many Americans get their news, express their views, and make a living.
The US had argued the law was necessary to protect national security interests as the US-China trade war intensifies, alleging that China could use the app to track and influence TikTok’s 170 million American users. A lower court had agreed that the US had a compelling national security interest and rejected arguments that the law violated the First Amendment, triggering TikTok’s appeal to SCOTUS. Today, the Supreme Court upheld that ruling.
According to SCOTUS, the divest-or-sell law is “content-neutral” and only triggers intermediate scrutiny. That requires that the law doesn’t burden “substantially more speech than necessary” to serve the government’s national security interests, rather than strict scrutiny which would force the government to protect those interests through the least restrictive means.
Further, the government was right to single TikTok out, SCOTUS wrote, due to its “scale and susceptibility to foreign adversary control, together with the vast swaths of sensitive data the platform collects.”
“Preventing China from collecting vast amounts of sensitive data from 170 million US TikTok users” is a “decidedly content agnostic” rationale, justices wrote.
“The Government had good reason to single out TikTok for special treatment,” the opinion said.
TikTok CEO Shou Zi Chew posted a statement on TikTok reacting to the ruling, thanking Trump for committing to “work with TikTok” to avoid a shut down and telling users to “rest assured, we will do everything in our power to ensure our platform thrives” in the US.
Momentum to ban TikTok has shifted
First Amendment advocates condemned the SCOTUS ruling. The American Civil Liberties Union called it a “major blow to freedom of expression online,” and the Electronic Frontier Foundation’s civil liberties director David Greene accused justices of sweeping “past the undisputed content-based justification for the law” to “rule only based on the shaky data privacy concerns.”
While the SCOTUS ruling was unanimous, justice Sonia Sotomayor said that “precedent leaves no doubt” that the law implicated the First Amendment and “plainly” imposed a burden on any US company that distributes TikTok’s speech and any content creator who preferred TikTok as a publisher of their speech.
Similarly concerned was justice Neil Gorsuch, who wrote in his concurring opinion that he harbors “serious reservations about whether the law before us is ‘content neutral’ and thus escapes ‘strict scrutiny.'” Gorsuch also said he didn’t know “whether this law will succeed in achieving its ends.”
“But the question we face today is not the law’s wisdom, only its constitutionality,” Gorsuch wrote. “Given just a handful of days after oral argument to issue an opinion, I cannot profess the kind of certainty I would like to have about the arguments and record before us. All I can say is that, at this time and under these constraints, the problem appears real and the response to it not unconstitutional.”
For TikTok and content creators defending the app, the stakes were incredibly high. TikTok repeatedly denied there was any evidence of spying and warned that enforcing the law would allow the government to unlawfully impose “a massive and unprecedented speech restriction.”
But the Supreme Court declined to order a preliminary injunction to block the law until Trump took office, instead deciding to rush through oral arguments and reach a decision prior to the law’s enforcement deadline. Now TikTok has little recourse if it wishes to maintain US operations, as justices suggested during the trial that even if a president chose to not enforce the law, providing access to TikTok or enabling updates could be viewed as too risky for app stores or other distributors.
The law at the center of the case—the Protecting Americans from Foreign Adversary Controlled Applications Act—had strong bipartisan support under the Biden administration.
But President-elect Donald Trump said he opposed a TikTok ban, despite agreeing that US national security interests in preventing TikTok spying on or manipulating Americans were compelling. And this week, Senator Ed Markey (D-Mass.) has introduced a bill to extend the deadline ahead of a potential TikTok ban, and a top Trump adviser, Congressman Mike Waltz, has said that Trump plans to stop the ban and “keep TikTok from going dark,” the BBC reported. Even the Biden administration, whose justice department just finished arguing why the US needed to enforce the law to SCOTUS, “is considering ways to keep TikTok available,” sources told NBC News.
“What might happen next to TikTok remains unclear,” Gorsuch noted in the opinion.
Will Trump save TikTok?
It will likely soon be clear whether Trump will intervene. Trump filed a brief in December, requesting that the Supreme Court stay enforcement of the law until after he takes office because allegedly only he could make a deal to save TikTok. He criticized SCOTUS for rushing the decision and suggested that Congress’ passage of the law may have been “legislative encroachment” that potentially “binds his hands” as president.
“As the incoming Chief Executive, President Trump has a particularly powerful interest in and responsibility for those national-security and foreign-policy questions, and he is the right constitutional actor to resolve the dispute through political means,” Trump’s brief said.
TikTok’s CEO Chew signaled to users that Trump is expected to step in.
“On behalf of everyone at TikTok and all our users across the country, I want to thank President Trump for his commitment to work with us to find a solution that keeps TikTok available in the United States,” Chew’s statement said.
Chew also reminded Trump that he has 60 billion views of his content on TikTok and perhaps stands to lose a major platform through the ban.
“We are grateful and pleased to have the support of a president who truly understands our platform, one who has used TikTok to express his own thoughts and perspectives,” Chew said.
Trump seemingly has limited options to save TikTok, Forbes suggested. At trial, justices disagreed on whether Trump could legally decide to simply not enforce the law. And efforts to pause enforcement or claim compliance without evidence that ByteDance is working on selling off TikTok could be blocked by the court, analysts said. And while ByteDance has repeatedly said it’s unwilling to sell TikTok US, it’s possible, one analyst suggested to Forbes, that ByteDance might be more willing to divest “in exchange for Trump backing off his threat of high tariffs on Chinese imports.”
On Tuesday, a Bloomberg report suggested that China was considering whether selling TikTok to Elon Musk might be a good bargaining chip to de-escalate Trump’s attacks in the US-China trade war.
Ashley is a senior policy reporter for Ars Technica, dedicated to tracking social impacts of emerging policies and new technologies. She is a Chicago-based journalist with 20 years of experience.
“You can use VPNs, the click of a button, to make it seem like you’re not in Texas,” Shaffer argued. “You can go through the search engines, you can go through social media, you can access the same content in the ways that kids are likeliest to do.”
Texas attorney Aaron Nielson argued that the problem of kids accessing porn online has only gotten “worse” in the decades since Texas has been attempting less restrictive and allegedly less effective means like content filtering. Now, age verification is Texas’ preferred solution, and strict scrutiny shouldn’t apply to a law that just asks someone to show ID to see adult content, Nielson argued.
“In our history we have always said kids can’t come and look at this stuff,” Nielson argued. “So it seems not correct to me as a historical matter to say, well actually it’s always been presumptively unconstitutional. … But we’ve done it forever. Strict scrutiny somehow has always been satisfied.”
Like groups suing, Texas also asked the Supreme Court to be very clear when writing guidance for the 5th Circuit should the court vacate and remand the case. But Texas wants justices to reiterate that just because the case was remanded, that doesn’t mean the 5th Circuit can’t reinstitute the stay on the preliminary injunction that was ordered following the 5th Circuit’s prior review.
On rebuttal, Shaffer told SCOTUS that out of “about 20 other laws that by some views may look a lot like Texas'” law, “this is the worst of them.” He described Texas Attorney General Ken Paxton as a “hostile regulator who’s saying to adults, you should not be here.”
“I strongly urge this court to stick with strict scrutiny as the applicable standard of review when we’re talking about content-based burdens on speakers,” Shaffer said.
In a press release, Vera Eidelman, a senior staff attorney with the ACLU Speech, Privacy, and Technology Project, said that “efforts to childproof the Internet not only hurt everyone’s ability to access information, but often give the government far too much leeway to go after speech it doesn’t like—all while failing to actually protect children.”
On Monday, the Supreme Court declined to decide whether to block lawsuits that Honolulu filed to seek billions in damages from oil and gas companies over allegedly deceptive marketing campaigns that hid the effects of climate change.
Now those lawsuits can proceed, surely frustrating the fossil fuel industry, which felt that SCOTUS should have weighed in on this key “recurring question of extraordinary importance to the energy industry” raised in lawsuits seeking similarly high damages in several states, CBS News reported.
Defendants Sunoco and Shell, along with 15 other energy companies, had asked the court to intervene and stop the Hawaii lawsuits from proceeding. They had hoped to move the cases out of Hawaii state courts by arguing that interstate pollution is governed by federal law and the Clean Air Act.
The oil and gas companies continue to argue that greenhouse gas emissions “flow from billions of daily choices, over more than a century, by governments, companies, and individuals about what types of fuels to use, and how to use them.” Because of this, the companies believe Honolulu was wrong to demand damages based on the “cumulative effect of worldwide emissions leading to global climate change.”
“In these cases, state and local governments are attempting to assert control over the nation’s energy policies by holding energy companies liable for worldwide conduct in ways that starkly conflict with the policies and priorities of the federal government,” oil and gas companies unsuccessfully argued in their attempt to persuade SCOTUS to grant review. “That flouts this court’s precedents and basic principles of federalism, and the court should put a stop to it.”
Several members of Congress— Senator Edward J. Markey (D-Mass.), Senator Rand Paul (R-Ky.), and Representative Ro Khanna (D-Calif.)—filed a brief agreeing that “the TikTok ban does not survive First Amendment scrutiny.” They agreed with TikTok that the law is “illegitimate.”
Lawmakers’ “principle justification” for the ban—”preventing covert content manipulation by the Chinese government”—masked a “desire” to control TikTok content, they said. Further, it could be achieved by a less-restrictive alternative, they said, a stance which TikTok has long argued for.
Attorney General Merrick Garland defended the Act, though, urging SCOTUS to remain laser-focused on the question of whether a forced sale of TikTok that would seemingly allow the app to continue operating without impacting American free speech violates the First Amendment. If the court agrees that the law survives strict scrutiny, TikTok could still be facing an abrupt shutdown in January.
The Supreme Court has scheduled oral arguments to begin on January 10. TikTok and content creators who separately sued to block the law have asked for their arguments to be divided, so that the court can separately weigh “different perspectives” when deciding how to approach the First Amendment question.
In its own brief, TikTok has asked SCOTUS to strike the portions of the law singling out TikTok or “at the very least” explain to Congress that “it needed to do far better work either tailoring the Act’s restrictions or justifying why the only viable remedy was to prohibit Petitioners from operating TikTok.”
But that may not be necessary if Trump prevails. Trump told the court that TikTok was an important platform for his presidential campaign and that he should be the one to make the call on whether TikTok should remain in the US—not the Supreme Court.
“As the incoming Chief Executive, President Trump has a particularly powerful interest in and responsibility for those national-security and foreign-policy questions, and he is the right constitutional actor to resolve the dispute through political means,” Trump’s brief said.
While the controversial US law doesn’t necessarily ban TikTok, it does seem designed to make TikTok “go away,” Greene said, and such a move to interfere with a widely used communications platform seems “unprecedented.”
“The TikTok ban itself and the DC Circuit’s approval of it should be of great concern even to those who find TikTok undesirable or scary,” Greene said in a statement. “Shutting down communications platforms or forcing their reorganization based on concerns of foreign propaganda and anti-national manipulation is an eminently anti-democratic tactic, one that the US has previously condemned globally.”
Greene further warned that the US “cutting off a tool used by 170 million Americans to receive information and communicate with the world, without proving with evidence that the tools are presently seriously harmful” would “greatly” lower “well-established standards for restricting freedom of speech in the US.”
TikTok partly appears to be hoping that President-elect Donald Trump will disrupt enforcement of the law, but Greene said it remains unclear if Trump’s plan to “save TikTok” might just be a plan to support a sale to a US buyer. At least one former Trump ally, Steven Mnuchin, has reportedly expressed interest in buying the app.
For TikTok, putting pressure on Trump will likely be the next step, “if the Supreme Court ever says, ‘we agree the law is valid,'” Greene suggested.
“Then that’s it,” Greene said. “There’s no other legal recourse. You only have political recourses.”
Like other civil rights groups, the EFF plans to remain on TikTok’s side as the SCOTUS battle starts.
“We are pleased that the Supreme Court will take the case and will urge the justices to apply the appropriately demanding First Amendment scrutiny,” Greene said.
The Supreme Court petition was filed by the New York State Telecommunications Association, CTIA-The Wireless Association, NTCA-The Rural Broadband Association, USTelecom, ACA Connects-America’s Communications Association, and the Satellite Broadcasting and Communications Association. Cable lobby group NCTA filed a brief supporting the petition.
New York Attorney General Letitia James defended the state law in a Supreme Court brief filed in October. The brief said that when New York enacted its law, the Pai-era FCC “had classified broadband as an information service subject to Title I of the Communications Act. Under Title I, Congress gave the FCC only limited regulatory authority—leaving ample room for States to regulate information services.”
Multiple appeals courts have found “that federal law does not broadly preempt state regulations of Title I information services,” and “Congress has expressed no intent—much less the requisite clear and manifest intent—to preempt state regulation of Title I information services,” the New York brief said. “Applicants’ field preemption claim fails because, far from imposing a pervasive federal regulatory regime on Title I information services, Congress instead gave the FCC only limited authority over information services. Congress thus left the States’ traditional police powers over information services largely untouched.”
Law requires $15 price, or $20 for higher speeds
It’s unclear when New York might start enforcing its law. The state law was approved in 2021 and required ISPs to offer $15 broadband plans with download speeds of at least 25Mbps, with the $15 being “inclusive of any recurring taxes and fees such as recurring rental fees for service provider equipment required to obtain broadband service and usage fees.”
The law also said ISPs could instead choose to comply by offering $20-per-month service with 200Mbps speeds. Price increases would be capped at 2 percent per year, and state officials would periodically review whether minimum required speeds should be raised.
Residents who meet income eligibility requirements would qualify for the plans. ISPs with 20,000 or fewer subscribers would be allowed to apply for exemptions from the law.
The New York attorney general’s Supreme Court brief argued that public-interest factors “weigh heavily in favor of allowing” the law, and that it won’t create the economic problems that telco groups warned of. “The three largest broadband providers in New York are already offering an affordable broadband product to low-income consumers irrespective of the ABA, and smaller broadband providers can seek an exemption from the ABA’s requirements,” the brief said.
The US is prepared to fight the injunction. In a letter, the US Justice Department argued that the court has already “definitively rejected petitioners’ constitutional claims” and no further briefing should be needed before rejecting the injunction.
If the court denies the injunction, TikTok plans to immediately ask SCOTUS for an injunction next. That’s part of the reason why TikTok wants the lower court to grant the injunction—out of respect for the higher court.
“Unless this Court grants interim relief, the Supreme Court will be forced to resolve an emergency injunction application on this weighty constitutional question in mere weeks (and over the holidays, no less),” TikTok argued.
The DOJ, however, argued that’s precisely why the court should quickly deny the injunction.
“An expedient decision by this Court denying petitioners’ motions, without awaiting the government’s response, would be appropriate to maximize the time available for the Supreme Court’s consideration of petitioners’ submissions,” the DOJ’s letter said.
TikTok has requested a decision on the injunction by December 16, and the government has agreed to file its response by Wednesday.
This is perhaps the most dire fight of TikTok’s life. The social media company has warned that not only would a US ban impact US TikTok users, but also “tens of millions” of users globally whose service could be interrupted if TikTok has to cut off US users. And once TikTok loses those users, there’s no telling if they’ll ever come back, even if TikTok wins a dragged-out court battle.
For TikTok users, an injunction granted at this stage would offer a glimmer of hope that TikTok may survive as a preferred platform for free speech and irreplaceable source of income. But for TikTok, the injunction would likely be a stepping stone, as the fastest path to securing its future increasingly seems to be appealing to Trump.
“It would not be in the interest of anyone—not the parties, the public, or the courts—to have emergency Supreme Court litigation over the Act’s constitutionality, only for the new Administration to halt its enforcement mere days or weeks later,” TikTok argued. “This Court should avoid that burdensome spectacle by granting an injunction that would allow Petitioners to seek further orderly review only if necessary.”
Facebook, Nvidia ask SCOTUS to narrow legal paths to retrieve investor losses.
The Supreme Court will soon weigh two cases that could potentially make it harder for misled investors to sue Big Tech companies after major scandals.
One case involves one of the largest tech scandals of all time, the Facebook-Cambridge Analytica data breach. In 2019, Facebook agreed to pay “more than $5 billion in civil penalties to settle charges by the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC) that it had misled its users and investors over the privacy and security of user data on its platform,” a Supreme Court filing said.
The other case involves an allegation that Nvidia intentionally hid how much of its 2017–2018 GPU demand was due to a volatile cryptocurrency boom and not Nvidia’s core gaming business—allegedly misleading investors ahead of a crypto crash. After the bust, Nvidia suddenly had to slash half a billion dollars from its earnings projection, and market experts later estimated that the firm had understated its crypto-related revenue by more than a billion. In 2022, Nvidia paid a $5.5 million SEC penalty over the inadequate disclosures that one SEC chief said “deprived investors of critical information to evaluate the company’s business in a key market.”
Investors, however, have not yet settled their own legal challenges. In both cases, investors suing convinced the 9th Circuit that the companies were guilty of misleading investors. But now, the tech companies have appealed to the Supreme Court, hoping to reverse those rulings.
In case documents, each claimed that their investors have not satisfied high legal bars, which Nvidia argued Congress designed to prevent “frivolous” or “nuisance” lawsuits from going on “fishing expeditions” to claim securities “fraud by hindsight.” Both warned that SCOTUS upholding the 9th Circuit rulings risked flooding courts with frivolous suits, with Nvidia cautioning that such lawsuits can be “used to injure the entire US economy.”
The Supreme Court will hear arguments in the Facebook case on Wednesday, November 6, then the Nvidia case on November 13.
SCOTUS may be persuaded by tech companies still stuck coping with the aftermath of scandals. A former SEC lawyer, Andrew Feller, told Reuters that the Supreme Court’s conservative majority may continue its “recent track record of handing down business-friendly decisions that narrowed the authority of federal regulators” in these cases. Both cases give justices opportunities to “rein in the power of private plaintiffs to enforce federal rules aimed at punishing corporate misconduct,” Reuters reported.
Facebook defends describing risk as hypothetical
The Facebook case centers on an SEC disclosure where Facebook said that its business may be harmed by a data breach, posing that as a hypothetical, without mentioning the ongoing Cambridge Analytica data breach. Specifically, Facebook wrote, “[a]ny failure to prevent or mitigate . . . improper access to or disclosure of our data or user data . . . could result in the loss or misuse of such data, which could harm our business and reputation and diminish our competitive position.”
Investors felt misled, accusing Facebook of hiding the breach by only presenting the risk as a hypothetical that implied no breach had ever occurred in the past and certainly did not disclose the present risk.
However, in a SCOTUS filing, Facebook insisted that “no reasonable investor would interpret a risk disclosure using probabilistic, forward-looking language as impliedly representing that the specified triggering event had never occurred in the past.”
Facebook is now arguing that SCOTUS agreeing that the company should have disclosed the major data breach “would result in a regime under which companies would be required to disclose every previous material incident they have experienced—effectively creating a sweeping regime of omissions liability.”
According to Facebook, news broke about the Cambridge Analytica data breach in 2015, and its business wasn’t immediately harmed. Following that logic, the social media company hopes that SCOTUS will agree that Facebook was only required to disclose the data breach in its SEC filing if Facebook knew its business would likely be harmed from the ongoing breach.
By affirming the 9th Circuit ruling, Facebook alleged, SCOTUS would be “vastly expanding the circumstances in which risk disclosures are deemed false or misleading,” exposing to legal challenges “a wide range of previously immune forward-looking statements—revenue projections, future business plans or objectives, and the like.”
But investors suing argue that Facebook is still being misleading about the data scandal in its court filings.
“The only reason Facebook has ever given to explain why the misappropriation risked no harm was that the event was allegedly disclosed to the public in 2015 and no one cared,” investors’ SCOTUS brief said. But in 2015, a report exposing a data breach tied to a Ted Cruz campaign was denied by Cambridge Analytica and prompted a Facebook investigation that concluded no damage had been done.
“Facebook actively misled the public about its investigation, ‘represent[ing] that no misconduct had been discovered,'” investors alleged, and “Facebook’s deception extended to its public filings with the SEC.”
According to investors, the real damage was done when the true extent of the Cambridge Analytica scandal was exposed in 2018. That caused substantial revenue losses that Facebook likely understood it was risking while allegedly leaving investors blind to those risks for years.
Investors argue that disclosure should not be required of every data breach that hits Facebook, whether it harms its business or not, but that the Cambridge Analytica data breach was significant and should have been disclosed as a material risk. The 9th Circuit agreed, holding that “publicly treating such a material adverse event as a merely hypothetical prospect can be misleading even if the event has not yet produced follow-on business harm because the company has kept the truth from the public.”
They further argued that requiring so-called overdisclosure wouldn’t trigger unwarranted litigation, as Facebook suggests, because Congress has always “given considerable attention to concerns over abusive private litigation.”
If Facebook wins, investors alleged, SCOTUS risks giving any tech company “a license to intentionally mislead investors about the occurrence of hugely material events by describing those events as purely hypothetical prospects.” Siding with Facebook would allegedly give “companies an incentive to stuff their annual reports with boilerplate, generic warnings that reveal little about the company’s actual business and to cover up events that could give rise to corporate scandals, as Facebook did here.”
Facebook argued that if the SEC is concerned about specific disclosures connected to the data breach, “the SEC can invoke the rulemaking process to impose” a requirement that companies must disclose all “past material adverse events.”
Nvidia disputes expert’s crypto data
While the Facebook case involved a bigger scandal, the Nvidia case could have bigger legal implications if Nvidia wins.
In the Nvidia case, investors argued that Nvidia CEO Jensen Huang made public statements allegedly misleading investors by downplaying the high demand for GPUs tied to volatile crypto markets. To plead their case, investors relied on statements from Nvidia employees, internal documents like meeting slides, industry research, as well as an expert opinion crunching general market numbers and estimating that Nvidia “underreported its crypto revenues by $1.126 billion.”
Nvidia claimed it’s far more plausible that the company simply made an “honest miscalculation” while navigating a complex emerging market.
To defend against the suit, Nvidia is arguing that the Private Securities Litigation Reform Act (PSLRA) imposes “special burdens on plaintiffs seeking to bring federal securities fraud class actions” through “heightened pleading requirements” to deter frivolous lawsuits arguing fraud by hindsight.
According to Nvidia, the PSLRA requires investors to allege particular facts based on particular contents of internal Nvidia documents, which goes beyond relying on an expert opinion. The tech company has urged SCOTUS that the 9th Circuit “‘significantly erode[d]” the PSLRA requirements by allowing Plaintiffs to “simply” hire “an expert who manufactured data to fit their allegations.”
“They hired an expert to create data and then filed a class action alleging that Nvidia and its CEO committed securities fraud by failing to disclose the data invented by Plaintiffs’ expert,” Nvidia argued.
This allegedly “eviscerates the guardrails that Congress erected to protect the public from abusive securities litigation” and creates a “dangerous” and “easy-to-replicate ‘roadmap’ for plaintiffs to sidestep the PSLRA in this recurring context.”
“Far from serving Congress’s goal of guarding against fishing expeditions by vexatious litigants, the Ninth Circuit’s opinion declares it open season so long as a plaintiff has funding to hire an expert,” Nvidia alleged.
Investors are hoping SCOTUS will uphold the 9th Circuit’s judgment. Instead of seeing their suit as frivolous, they argued that the SEC fine over the same misconduct “undermines any suggestion that this is the type of frivolous suit that the PSLRA was meant to screen out.”
They’ve disputed Nvidia’s arguments that they’ve relied solely on a hired expert to support their claims, arguing that each fact was corroborated by employee witnesses and third-party reports.
If Nvidia wins, investors warned, the SCOTUS decision would risk harming a wide range of private securities litigation that Congress has found “‘is an indispensable tool’ for ‘defrauded investors’ to ‘recover their losses without having to rely upon government action.'”
Ashley is a senior policy reporter for Ars Technica, dedicated to tracking social impacts of emerging policies and new technologies. She is a Chicago-based journalist with 20 years of experience.
Enlarge/ Supreme Court Chief Justice John Roberts and Associate Justice Sonia Sotomayor arrive for President Joe Biden’s State of the Union address on March 7, 2024, in Washington, DC.
Getty Images | Win McNamee
The US Supreme Court today overturned the 40-year-old Chevron precedent in a ruling that limits the regulatory authority of federal agencies. The 6-3 decision in Loper Bright Enterprises v. Raimondo will make it harder for agencies such as the Federal Communications Commission and Environmental Protection Agency to issue regulations without explicit authorization from Congress.
Chief Justice John Roberts delivered the opinion of the court and was joined by Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett. Justice Elena Kagan filed a dissenting opinion that was joined by Sonia Sotomayor and Ketanji Brown Jackson.
Chevron gave agencies leeway to interpret ambiguous laws as long as the agency’s conclusion was reasonable. But the Roberts court said that a “statutory ambiguity does not necessarily reflect a congressional intent that an agency, as opposed to a court, resolve the resulting interpretive question.”
“Perhaps most fundamentally, Chevron‘s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do,” the ruling said. “The Framers anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment. Chevron gravely erred in concluding that the inquiry is fundamentally different just because an administrative interpretation is in play.”
This is especially critical “when the ambiguity is about the scope of an agency’s own power—perhaps the occasion on which abdication in favor of the agency is least appropriate,” the court said. The Roberts opinion also said the Administrative Procedure Act “specifies that courts, not agencies, will decide ‘all relevant questions of law’ arising on review of agency action—even those involving ambiguous laws,” and “prescribes no deferential standard for courts to employ in answering those legal questions.”
Kagan: SCOTUS majority now “administrative czar”
The Loper Bright case involved a challenge to a rule enforced by the National Marine Fisheries Service. Lower courts applied the Chevron framework when ruling in favor of the government.
Kagan’s dissent said that Chevron “has become part of the warp and woof of modern government, supporting regulatory efforts of all kinds—to name a few, keeping air and water clean, food and drugs safe, and financial markets honest.”
Ambiguities should generally be resolved by agencies instead of courts, Kagan wrote. “This Court has long understood Chevron deference to reflect what Congress would want, and so to be rooted in a presumption of legislative intent. Congress knows that it does not—in fact cannot—write perfectly complete regulatory statutes. It knows that those statutes will inevitably contain ambiguities that some other actor will have to resolve, and gaps that some other actor will have to fill. And it would usually prefer that actor to be the responsible agency, not a court,” the dissent said.
The Roberts court ruling “flips the script: It is now ‘the courts (rather than the agency)’ that will wield power when Congress has left an area of interpretive discretion,” Kagan wrote. “A rule of judicial humility gives way to a rule of judicial hubris.”
Kagan wrote that the court in recent years “has too often taken for itself decision-making authority Congress assigned to agencies,” substituting “its own judgment on workplace health for that of the Occupational Safety and Health Administration; its own judgment on climate change for that of the Environmental Protection Agency; and its own judgment on student loans for that of the Department of Education.”
Apparently deciding those previous decisions were “too piecemeal,” the court “majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law,” Kagan wrote. “As if it did not have enough on its plate, the majority turns itself into the country’s administrative czar. It defends that move as one (suddenly) required by the (nearly 80-year-old) Administrative Procedure Act. But the Act makes no such demand. Today’s decision is not one Congress directed. It is entirely the majority’s choice.”
The unanimous 1984 SCOTUS ruling in Chevron U.S.A. Inc. v. Natural Resources Defense Council involved the Environmental Protection Agency and air pollution rules. Even with Chevron deference in place, the EPA faced limits to its regulatory power. A Supreme Court ruling earlier this week imposed a stay on rules meant to limit the spread of ozone-generating pollutants across state lines.
Consumer advocacy group Public Knowledge criticized today’s ruling, saying that it “grounds judicial superiority over the legislative and executive branches by declaring that the Constitution requires judges to unilaterally decide the meaning of statutes written by Congress and entrusted to agencies.”
Public Knowledge Senior VP Harold Feld argued that after today’s ruling, “no consumer protection is safe. Even if Congress can write with such specificity that a court cannot dispute its plain meaning, Congress will need to change the law for every new technology and every change in business practice. Even at the best of times, it would be impossible for Congress to keep up. Given the dysfunction of Congress today, we are at the mercy of the whims of the Imperial Court.”
