5 key legal developments for the tech sector to watch out for in 2021
After the seismic events of 2020, the New Year offers fresh hope for tackling the Covid-19 pandemic, for economic recovery and for ‘building back better.’ Technology and data will continue to have an increasingly critical role in all aspects of the global economy, but businesses will be the subject ofincreased scrutiny and will need to navigate a climate of heightening risk and increasing regulation of the digital economy.
Below, Stuart Bedford, partner and co-head of the technology sector at global law firm Linklaters, highlights to The Stack five key areas of legal and regulatory development to look out for in 2021:
1: Foreign investment controls
Events in 2020 have disrupted the flow of global commerce and brought new momentum to the recent trends towards protectionism and deglobalisation – trends set to continue into 2021. Governments keen to protect and maintain their technological and data sovereignty have introduced protectionist measures on inbound investments. The rise of foreign investment controls across the globe has been particularly pronounced in the tech sector. Fifteen OECD countries have introduced tighter foreign investment controls and a further seven are planning changes, with new rules aiming to protect the tech sector. The intense focus on foreign investment control is already and will continue to result in record numbers of filings and deals being subject to longer review processes. For example, the proposed UK regime is predicted to review more than 1,000 cases per year compared to around 60 merger cases reviewed by the CMA per year. Transaction parties now, more than ever, need to ensure that foreign investment filing requirements are factored into the timetable and into the associated risk assessment for deals involving assets in affected sectors.
2: A revolution in anti-trust regulation of digital platforms
Governments and competition agencies have different views on how to tackle Big Tech, but despite their differences in approach, the consensus is clear: addressing concerns around the operation of digital markets remains a top priority for 2021 and beyond, and existing competition tools are not sufficient. Following a public consultation this summer, the European Commission is on track to make its ambitious plans for digital markets a reality. It intends to publish two significant legislative proposals before the end of 2020: a Digital Services Act to address e-commerce and online harms, and a Digital Markets Act focusing on new antitrust measures comprising two key pillars: mandatory do’s and don’ts for big platforms and a new harmonised EU market investigation framework.
In a similar vein, the UK’s Competition and Markets Authority plans to introduce a tailored “code of conduct” for each platform with “strategic market status”, enforced by a new Digital Markets Unit. Rather than adding brand new tools to their toolbox, agencies in Germany, China and the U.S. plan to enhance their existing rules to give the regulators more effective powers and sanctions. These upcoming reforms could have wide-ranging consequences and will be closely watched by both online platforms and other businesses that are impacted by their conduct.
3: Data – enforcement, litigation and redress
Data protection became a board issue with the introduction of the EU’s General Data Protection Regulation in 2018, followed by equivalent regimes across the globe which provide rights of redress and sanctions of a much greater scale. The right for individuals to claim compensation for damages, the availability of collective procedures to enforce individual rights, and the availability of litigation funding to drive collective claims means that the exposure of the biggest companies for data protection failings could run to billions of pounds. In the EU and UK we are continuing to see a number of claimant-friendly developments which will shape the nature of litigation risk for tech companies in 2021 and beyond. In the EU, the EU institutions have agreed a new directive requiring Member States to implement collective redress procedures for consumer claims. In the UK, the Supreme Court decision in Lloyd v Google could potentially open the way for opt-out class actions for privacy breaches. If Lloyd wins, it would give the UK the toughest privacy regime in the world, combining the EU’s detailed GDPR obligations with a U.S. style class action compensation regime. It would have significant implications for Big Tech but it would also have massive consequences for central and local government, the UK’s NHS and any other organisation with large amounts of personal information in the UK
4: Digital Europe – plans for a single digital market for finance
Since the invention of bitcoin over 10 years ago, regulators have been grappling with the question of whether, and how, to regulate digital assets. Facebook’s ambitions for an independent payment system has refocused regulatory efforts and the EU has been first to respond with a comprehensive Digital Finance Package. This includes specific proposals for an EU-wide regulatory framework for cryptoassets. The EU vision goes far further than anywhere else to define and regulate innovative financial technologies. If the vision of harmonisation can be achieved, a unified and competitive European market for digital finance could shape the direction of the global digital asset industry, drawing greater investment to Europe.
5: Tech as a green enabler
Low carbon technologies and digital infrastructure will have a critical role in 2021 and beyond in enabling nations to ‘build back better’ and in helping the economy transition to net zero by 2050. However, tech companies and their green credentials are under scrutiny from a broad range of stakeholders, who are particularly focused on the risk of greenwashing. The EU Sustainable Finance Disclosure Regulation will force asset managers to gather detailed quantitative data on the adverse sustainability impacts of tech companies from 2022 and many investors are expected to start this early in 2021. There is also a raft of national and supranational legal initiatives driving a wholesale shift to embed ESG in corporate business strategy, such as a planned expansion of the EU Non-Financial Reporting Directive, planned EU proposals for mandatory human rights due diligence, and enhanced climate disclosures for listed companies in the UK from 2021. Tech companies will need to ensure that they are considering the environmental and social impacts of their own corporate activities together with those market actors in their upstream and downstream value chain (and the technologies they provide). They will need to take steps – including due diligence – to ensure that they are meeting emerging standards and managing corresponding risks in their supply chains as well.
