The appetite for acquisitions and investment in online businesses has never been stronger, with many of the most attractive online opportunities being businesses that host, manage and leverage user-generated content. These businesses often rely on the immunities offered by Section 230 of the Communications Decency Act, 47 U.S.C. §230 (“Section 230” or the “CDA”) to protect them from liability associated with receiving, editing and posting or removing such content. And investors have relied on the existence of robust immunity under the CDA in evaluating the risk associated with such investments in such businesses. This seemed reasonable, as following the legacy of the landmark 1997 Zeran decision, for more than two decades courts have fairly consistently interpreted Section 230 to provide broad immunity for online providers of all types.
However, in the last five years or so, the bipartisan critics of the CDA have gotten more full-throated in decrying the presence of hate speech, revenge porn, defamation, disinformation and other objectionable content on online platforms. This issue has been building throughout the past year, and has reached a fever pitch in the weeks leading up to the election. The government’s zeal for “reining in social media” and pursuing reforms to Section 230, again, on a bipartisan basis, has come through loud and clear (even if the justifications for such reform differ on party lines). While we cannot predict exactly what structure these reforms will take, the political winds suggest that regardless of the administration in charge, change is afoot for the CDA in late 2020 or 2021. Operating businesses must take note, and investors should keep this in mind when conducting diligence reviews concerning potential investments.