How 47 USC 230 Improves Marketplace Efficiency

By Eric Goldman

I have been working on a draft article currently titled “In Defense of 47 USC 230” (I’m probably going to change the name). As part of our 15 year retrospective of 47 USC 230, I presented a short sketch of the article’s outlines.

I will blog a more thorough recap of the conference shortly, but in this post I am just sharing my talk notes. As you’ll see, my work is a direct outgrowth of my broader project on reputation systems. See some of my past talk slides.

My main argument is that 47 USC 230 helps improve marketplace efficiency. I hope this argument opens up a new and productive area for discussion. So often “debates” about 47 USC 230 devolve into irresolute slogans. On the pro-230 side, some argue that it advances First Amendment values (whatever that means) or that it protects innovation (whatever that means). On the anti-230 side, some argue that it breaks tort law (usually expressed as an expectation that websites should adopt “reasonable precautions”) or leaves injured victims remediless. There is merit to all of these arguments–but no clear way to decide how to favor one outcome over the other.

I can’t fix that problem, but I do hope to shift the debate into 47 USC 230 as economic policy, not just social policy. If I can make the case that 47 USC 230 turbocharges our economy, then perhaps we can better appreciate some real-world economic sacrifices associated with any proposed change. We might still desire to make changes, but we’ll also see the opportunity costs more clearly.

My talk notes:

* 230 advances many 1st Amendment interests, but I’m more interested in how it can improve our marketplace. In particular, I’m interested in 47 USC 230’s effect on “reputational information” = information about an actor’s past performance that helps predict its future performance

* Something truly new to the Internet: consumer review websites

– Offline, consumer opinions about marketplace goods/services were rarely published

– Online, consumer review websites can gather, organize and disseminate reputational information in the form of consumer reviews

– The result = explosion of consumer review content, much of it through consumer review websites. Practically every good/service in the marketplace is subject to consumer review website coverage

– 47 USC 230’s immunity enables consumer review websites in several ways. (1) Websites don’t need to default to a notice-and-takedown scheme, pursuant to which vendors would only target negative reviews. (2) Empower review websites to cover long-tail items, which would not be financially viable in different liability regime. (3) 230’s financial subsidy can be reinvested to subsidize review production. (4) Websites can experiment with different ways of organizing and disseminating consumer reviews without being locked into liability-minimizing approach, including fighting fake reviews without liability fears for exercising editorial control

* Why consumer review websites matter: they can help consumers make better marketplace decisions

– We want marketplaces to reward good producers and punish bad ones

– Marketplaces require readily available information about good/bad producers

– Consumer review websites help produce that information and make it readily available

– Thus, consumer review websites help guide the marketplace’s invisible hand

* Added bonus: if US has more favorable liability regime than our global competitors, we benefit in 2 ways

– New job creation from new consumer review website startups. US has emerged as global incubator of Web 2.0 start-ups, and we get the domestic jobs accordingly.

– Our domestic marketplace becomes more efficient over time than other countries’ domestic marketplace = our relative global position improves

* 47 USC 230 is already a good result, but we can improve its operation:

– Close the trademark hole (see, e.g., Lifestyle Lift)

– Enforce sanctions for clearly immunized cases

– Enact federal anti-SLAPP law

– Enact a “threats” action for bogus C&Ds

– Close the 512(c)(3) hole

– Extend the immunity to offline publishers