Economics

Can American Antitrust Law Keep Up With Artificial Intelligence?

April 6, 2026
Antitrust, Artificial Intelligence, Business Law, Economics, Intellectual Property

Alec J. Berin, Matthew P. Suzor, and Quintin C. Cerione of Miller Shah LLP

Since the debut of OpenAI’s ChatGPT in late 2022, artificial intelligence (AI) has exploded from an experimental tool to a global industry. The exponential rise of generative AI, although providing companies and consumers with greater levels of efficiency and productivity, is putting pressure on American antitrust law to play catch up in regulating the growing AI market.

As AI becomes commonplace today, one of the greatest challenges it poses is that its building blocks—chips, cloud infrastructure, and large-language models—are largely controlled by only a handful of companies.[1] A major concern, therefore, is whether American antitrust law, which was largely designed during an industrial period dominated by railroads and manufacturing, can address the competitive risks of the AI era. Regulators and courts have started to express their perspectives about these issues, yet more questions than answers have emerged.

The Intersection of American Antitrust Doctrine and AI

The core of the American antitrust framework is comprised of the Sherman Antitrust Act (1890), Clayton Act (1914), and Federal Trade Commission Act (1914).[2] The Sherman Act was initially enacted in an effort to target monopolization by barring exclusionary practices, while the Clayton Act filled its holes by prohibiting mergers and acquisitions whose effect “may be substantially to lessen competition, or to tend to create a monopoly.”[3] Historically, courts have applied these laws to industries defined by physical assets, such as steel, oil, and operating systems.[4] Today, however, the market power increasingly consists of control over intangible items: data and algorithms.

Regulators are attempting to offer guidance on how these statutes apply in a digital and data-driven era. For example, in 2023 the FTC and DOJ issued revised Merger Guidelines, which warned that a merger could undermine competition if it “creates a firm that can limit access to products or services that its rivals use to compete.”[5] Although this is not directed exclusively at tech companies, this language nonetheless suggests antitrust law’s expanded focus on vertical integration—especially relevant for companies’ partnerships aimed at combining the control of AI infrastructure and data services.

The particular challenge for regulating market power in the AI sector is defining the relevant market. Because AI depends on key inputs—vast amounts of data and computational resources – rather than traditional products and services that have historically defined markets, delineating the relevant market is uniquely complex. This is clearly indicated in a 2025 report from the Congressional Research Service, which warns that “limited access to data” may threaten competition, regardless of whether AI services remain free to consumers.[6] In the coming years, determining whether AI regulation will be concentrated on the models, chips, or cloud services used for these products—or if they will be considered a single integrated stack—will be critical in influencing enforcement outcomes.

Early AI-Antitrust Legal Battles

In recent months, lawsuits against major tech companies have begun to address how far traditional antitrust principles extend into the AI space.[7] This October, a class-action lawsuit filed against Microsoft[8] alleged that its financial relationship with Open AI—particularly a deal granting Microsoft exclusive cloud computing that restricts the supply of computational resources needed to run ChatGPT—both limited market competition and artificially drove up ChatGPT subscription prices while diminishing product quality for millions of Open AI users.[9] Similar concerns are being raised by antitrust experts regarding Nvidia’s $100 billion partnership with OpenAI,[10] as experts fear that building such a relationship will give both companies an unfair advantage over their competitors.

Perhaps most notably, a September ruling by a federal judge in a landmark antitrust case against Google illustrated how AI may continue to be an obstacle in regulating monopolies.[11] Although the judge affirmed that “Google cannot use the same anticompetitive playbook for its GenAI products that it used for Search,” he insisted that the emergence of generative AI has granted companies a greater ability “to compete with Google than any traditional search company developer has been in decades” and ultimately spared Google from the harsh penalties.[12] This exemplifies the inherent tension of AI; a technology capable of fostering and hindering competition will prove only more difficult for regulators to address in years to come.

Critical Legal Questions to Consider

Going forward, courts will need to answer a series of questions to best address the competitive concerns of AI. First, as AI blurs product boundaries—with single companies being involved in many layers of the supply chain—determining whether these layers represent distinct or integrated markets has big implications for assessing anticompetitive behavior.

Second, because several of the most popular AI products offer services for free or at low costs, harm to consumers may lie outside the scope of price fixing but instead resulting from diminished product quality and restricted access to inputs.[13] It will be up to courts and regulators to determine when harm is being committed in the AI market.

Third, defining the line between integration and exclusion will become increasingly urgent. Though partnerships and acquisitions may accelerate innovation, unlawful exclusion may arise through integrated companies’ restriction of rivals’ access to essential inputs or result in self-preferencing through exclusive supply arrangements. Though this risk is outlined in the 2023 Merger Guidelines, it remains to be seen how courts will approach this issue in the coming years.

 

Notes

[1] See e.g., Jay Stanley, Will Giant Companies Always Have a Monopoly on Top AI Models?, ACLU (Aug. 20, 2025), https://www.aclu.org/news/racial-justice/will-giant-companies-always-have-a-monopoly-on-top-ai-models; Steven Levy, There Is Only One AI Company. Welcome to the Blob, Wired (Nov. 21, 2025 at 11:00), https://www.wired.com/story/ai-industry-monopoly-nvidia-microsoft-google/.

[2] See Sherman Antitrust Act of 1890, 15 U.S.C. §§ 1–38; Clayton Act of 1914, 15 U.S.C. §§ 12–27; Federal Trade Commission Act of 1914, 15 U.S.C. §§ 41-58.

[3] The Clayton Act of 1914, 15 U.S.C. § 18.

[4] See e.g., United States v. Columbia Steel Co., 334 U.S. 495 (1948) (applying the Sherman Act to the steel industry); FTC v. Sinclair Ref. Co., 261 U.S. 463 (1923) (applying the Federal Trade Commission Act and Clayton Act to the oil industry); United States v. Microsoft Corp., 346 U.S. App. D.C. 330 (2001) (applying the Sherman Act to operating systems).

[5] Federal Trade Commission & U.S. Department of Justice, Merger Guidelines (issued Dec. 18, 2023),
https://www.justice.gov/atr/2023-merger-guidelines.

[6] Congressional Research Service, Artificial Intelligence and Competition Policy (2025), CRS Insight No. IN12458, https://crsreports.congress.gov/product/pdf/IN/IN12458.

[7] Mike Scarcella, AI Users Sue Microsoft in Antirust Class Action Over OpenAI Deal, Reuters (Oct. 13, 2025 at 17:47 CDT), https://www.reuters.com/legal/government/ai-users-sue-microsoft-antitrust-class-action-over-openai-deal-2025-10-13/.

[8] Class Action Complaint, Samuel Bryant et al. v. Microsoft Corp., No. 3:25‑cv‑08733 (N.D. Cal. filed Oct. 13, 2025) (alleging anticompetitive restraints arising from Microsoft’s partnership with OpenAI).

[9] Scarcella, supra note 7.

[10] Jody Godoy, Nvidia’s $100 Billion OpenAI Play Raises Big Antitrust Issues, Reuters (Sept. 23, 2025),
https://www.reuters.com/technology/nvidias-100-billion-openai-play-raises-big-antitrust-concerns-2025-09-23/.

[11] See generally, United States v. Google LLC, 803 F. Supp. 3d 18 (D.D.C. 2025) (remedies decision addressing generative AI’s competitive effects).

[12] Id. at 99, 128.

[13] Scarcella, supra note 7.

Why New York’s Algorithmic Pricing Disclosure Act Is Not Enough

November 3, 2025
Artificial Intelligence, Business Law, Economics

Jannelle Liu, MJLST Staffer

As artificial intelligence (“AI”) becomes increasingly integrated into business development strategies, policymakers have been prompted to consider new frameworks for oversight and accountability.[1] One prominent—and increasingly contentious—example is algorithmic pricing. The Canadian Competition Bureau broadly defines algorithmic pricing as the process of using automated algorithms to set or recommend prices for products or services, often in real time, based on a set of data inputs across the market.[2]

Algorithmic pricing recently became a contested topic of conversation as more U.S. lawmakers began introducing legislation to regulate these practices. On May 9, 2025, New York passed the Algorithmic Pricing Disclosure Act (“the Act”), which took effect on July 8, 2025.[3] The Act requires any business that uses algorithmic pricing based on consumer data to provide clear and conspicuous notice.[4] Specifically, the Act requires every advertisement, display, image, offer, or announcement of a price to include the following disclosure next to the price: “THIS PRICE WAS SET BY AN ALGORITHM USING YOUR PERSONAL DATA.”[5] The Act is an attempt to promote AI transparency. Although transparency is a necessary and important safeguard for accountability and consumer protection, this Act alone is not enough to establish effective oversight and prevent discriminatory pricing practices.[6]

As businesses increasingly rely on algorithmic pricing to optimize profits and dynamically respond to market demand, many AI researchers and tech advocates have called for greater transparency.[7] AI ethics guidelines focus on achieving transparency through principles of explainability and auditability. “Explainability” refers to the possibility of understanding how a system works and its outcomes.[8] For example, if a business uses an algorithm to set different prices for the same product based on user data, explainability measures whether the consumers know that the price is determined by an algorithm and the factors influenced the final price, such that they can determine if they are being charged disproportionately or unfairly. Transparency builds explainability, which gives consumers insight into AI decision-making and enables them to challenge unfair outcomes.

“Accountability” in AI refers to the duty of an organization that implements an AI system to inform and justify its usage and effects.[9] For example, if a business sets higher prices for certain neighborhoods or zip codes because it predicts residents are willing to pay more for their product, accountability requires the business to explain how the algorithm sets prices, justify that it does not unfairly discriminate against lower-income or minority communities, and correct any biased outcomes if they occur. Transparency ensures that businesses are being held accountable for fairness and equity in their algorithmic pricing practices.

Transparency is often regarded as the solution to a myriad of problems and remains a focus for most policy proposals in the field of AI.[10] In fact, 165 out of 200 AI ethics guidelines are specifically focused on promoting AI transparency.[11] It is equally important, however, to recognize that transparency has many flaws on its own. The link between transparency and accountability is tenuous at best. Consumers often do not know what information they need to have about a problem. Even when they are given information, many consumers do not have the background knowledge or tools necessary to make sense of it. On the other hand, companies are incentivized to refrain from being fully transparent to maintain competitive advantages and trade secrets, and to dodge the costly process of producing comprehensive algorithmic disclosures.[12] The complicated nature of these algorithms already introduces significant barriers to interpretability. Placing the burden of transparency on businesses—who are incentivized to control the narrative by selectively revealing information—becomes inherently counterintuitive to the goals of explainability and accountability.

New York is not the only state responding to risks posed by algorithmic pricing, but its approach is among the most modest. Emerging state legislation sheds light on the broader regulatory landscape surrounding AI-driven pricing practices. By contrast, other states have proposed more stringent measures. Vermont is currently considering a bill that prohibits all dynamic pricing past the point of sale, which eliminates the ability of businesses to adjust prices in real time.[13] Minnesota has proposed an outright ban on algorithmic pricing practices.[14] California is considering a bill that bans “surveillance pricing,” which sets customized prices based on personally identifiable information collected through surveillance.[15] Consumers in California would be able to bring injunctive actions directly against businesses under this act.[16] Compared with these proposals, New York’s Algorithmic Pricing Disclosure takes a notably minimalist approach. New York’s regulation only requires businesses to disclose when a price was set using consumer data. The law does not address fairness, prevent discriminatory pricing, or provide consumers with any direct remedies.

New York’s Algorithmic Pricing Disclosure Act represents a step in the right direction to regulate the currently under-regulated field of algorithmic pricing. However, it is only a start. Effective governance of algorithmic systems requires coordinated action across states, tech companies, universities, and the public.[17] Merely requiring businesses to acknowledge the use of algorithmic pricing is simply not enough to counter the risks of unfair, predatory, and discriminatory pricing. It is important to introduce mechanisms to monitor compliance, evaluate the impacts these systems have, and provide affected communities with a means for recourse and meaningful participation. While transparency is politically appealing and relatively easy to implement, it fails to achieve any meaningful impact without rigorous enforcement. AI transparency laws like New York’s Algorithmic Pricing Disclosure Act must be backed by adequately funded agencies with the authority to conduct audits and impose substantive sanctions on companies and the executives responsible for unfair or predatory pricing. Any transparency or disclosure-focused policies should also reflect what the public really wants to know and can interpret. Acknowledging that an algorithm was used to set prices, without any disclosure on how the algorithm functions, the data it uses, or its potential biases, fails to create meaningful accountability or consumer protection.

 

Notes

[1] Beth Stackpole, How Big Firms Leverage Artificial Intelligence for Competitive Advantage, MIT Sloan: Ideas Made to Matter (May 26, 2021), https://mitsloan.mit.edu/ideas-made-to-matter/how-big-firms-leverage-artificial-intelligence-competitive-advantage.

[2] Competition Bureau Can., Algorithmic Pricing and Competition: Discussion Paper (June 10, 2025), https://competition-bureau.canada.ca/en/how-we-foster-competition/education-and-outreach/publications/algorithmic-pricing-and-competition-discussion-paper.

[3] N.Y. Gen. Bus. L. § 349-a (McKinney 2025).

[4] Id.

[5] Id.

[6] Goli Mahdavi & Carlie Tenenbaum, New York’s Sweeping Algorithmic Pricing Reforms – What Retailers Need to Know, BCLP L. (July 22, 2025), https://www.bclplaw.com/en-US/events-insights-news/new-yorks-sweeping-algorithmic-pricing-reforms-what-retailers-need-to-know.html.

[7] Elizabeth Meehan, Transparency Won’t Be Enough for AI Accountability, Tech Pol’y (May 17, 2023), https://www.techpolicy.press/transparency-wont-be-enough-for-ai-accountability/.

[8] Juan David Gutiérrez, Why Does Algorithmic Transparency Matter and What Can We Do About It?, Open Glob. Rts. (Apr. 9, 2025), https://www.openglobalrights.org/why-does-algorithmic-transparency-matter-and-what-can-we-do-about-it/.

[9] Id.

[10] Id.

[11] Meehan, supra note 7.

[12] AI Transparency: What Are Companies Really Hiding?, Open Tools (Jan. 16, 2025), https://opentools.ai/news/ai-transparency-what-are-companies-really-hiding#section5.

[13] Gutiérrez, supra note 8.

[14] Robbie Sequiera, Cities–Including Minneapolis–Lead Bans on Algorithmic Rent Hikes as States Lag Behind, Minn. Reformer (Apr. 2, 2025), https://minnesotareformer.com/2025/04/02/cities-including-minneapolis-lead-bans-on-algorithmic-rent-hikes-as-states-lag-behind/.

[15] Gutiérrez, supra note 8.

[16] Stackpole, supra note 1.

[17] Gutiérrez, supra note 8.

New Congressional Bill to Fuel the Crypto Winter?

November 6, 2022
Administrative Law, Cryptocurrency, Economics, Industry, Securities Law, Tax Law

Shawn Zhang, MJLST Staffer

Cryptocurrency has experienced rapid growth over the past few years. Retail investors rushed into this market in hopes of amassing wealth. However, the current price of Bitcoin is sitting at roughly 30% of the all-time high. Investors dub this current state of the market as the “Crypto Winter”, where the entire crypto market is underperforming. This term signifies the current negative sentiment held by a large portion of the market towards cryptocurrency.

Cryptocurrency is a relatively new class of assets, bearing similarities to both currency and securities. Regulators are not quite sure of how to regulate this volatile market, and with the lack of regulations investors are more prone to risk. Nevertheless, legislators are still seeking to protect retail investors and the general public from risky investments, as they did with the 1933 Securities Act and 1934 Securities Exchange Act. The question is how? Well, the answer may be The Lummis-Gillibrand Responsible Financial Innovation Act which has recently been introduced into Congress. This bill seeks to “provide for responsible financial innovation and to bring digital assets within the regulatory perimeter.” If passed, this bill would address those concerns investors currently have with investing in the volatile crypto market.

Summary of the Bill

This legislation would set up the regulatory landscape by granting the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over digital assets, subject to several exclusions. One of the exclusions being that when the asset is deemed a security, the Securities and Exchange Commission (SEC) will gain jurisdiction and providers of digital asset services will then be required to provide disclosures. The bill would also require the Internal Revenue Service to issue regulations clarifying issues of digital assets and eliminate capital gains taxes through a de minimis exclusion for cryptocurrencies used to buy up to $200 of goods and services per transaction. Moreover, it would also allow crypto miners to defer income taxes on digital assets earned while mining or staking until they dispose of the assets.

Commodity vs Security

So, what’s the difference between CFTC and SEC? The CFTC governs commodities and derivatives market transactions, while the SEC governs securities. The key difference that these classifications make are the laws under which they operate. The CFTC was created under the 1936 Commodities Exchange Act, while the SEC was created under the 1933 Securities Act and 1934 Securities Exchange Act. Hence, giving the CFTC primary jurisdiction means that cryptocurrency will primarily be governed under the 1936 Commodity Exchange Act. The biggest advantage (or what one may think of as a disadvantage) of this Act is that commodities are generally more lightly regulated than securities. Under the 33’ act and 34’ act, securities are thoroughly regulated via disclosures and reports to protect the public. Issuers of securities must comply with a large set of regulations (which is why IPOs are expensive). This could be a win for crypto, as crypto was intended to be “decentralized” rather than heavily regulated. Though having some regulations may help invoke public trust in this class of assets and potentially increase the total number of investors, which may be a bigger win.

The question ends up being what level of regulation and protection is appropriate? On the one hand, applying heavy handed regulations may not be effective, and in fact might encourage black market activity. This may lead to tech savvy investors detaching their real life identity from the world of crypto and using their money elsewhere through the blockchain networks. On the other hand, investors hate uncertainty. Markets react badly when there is “fear, uncertainty, and doubt.” By solidifying the jurisdiction of CFTC on cryptocurrency, both investors and issuers may feel more at ease rather than wonder what regulations they must follow. As a comparison, oil, gold, and futures are also regulated by the CFTC rather than the SEC, and they seem to be doing fine on the exchanges.

Tax Clarifications & Incentives

Clarifications are always welcome in the complex world of federal taxes. Uncertainty can result in investors avoiding a class of assets purely due to the complexity of its tax consequences. Moreover, investors may be unexpectedly hit with a tax bill that was different from what they expected due to ambiguity or lack of clarity in the statutes. Thus, clarifications under the proposed Act would likely make lives easier for investors in this space.

Tax often incentivizes certain investor actions. For example, capital gains tax incentivizes investors to hold their investments for longer than a year in order to reduce their taxes. Tax incentives also often have policy rationales behind them, like the capital gain tax incentive aims to promote long term investment rather than short term speculation. This indirectly protects investors from short term fluctuations in the market, and also keeps more money in the economy for longer.

The proposed Act would eliminate capital gains tax for crypto used to purchase goods and services up to $200. That’s $200 of untaxed money that could be spent without increasing an investor’s tax liability. This would likely encourage people to conduct at least some transactions in crypto, and thus further legitimize the asset class. People often doubt the real world use of cryptocurrencies, but if this Act can encourage people to utilize and accept cryptocurrencies in everyday transactions, it may increase confidence in the asset class.

Conclusion

The Lummis-Gillibrand Responsible Financial Innovation Act could be a big step towards further adoption and legitimization of crypto. Congress giving primary jurisdiction to the CFTC is likely the better choice, as it strikes a balance between protecting consumers while not having too much regulation. Regardless of whether this will have a positive impact on the current market or not, Congress is at least finally signaling that they do see Crypto as a legitimate class of asset.

The Ongoing Battle Between Intuit and the IRS—And How Taxpayers Are Caught in the Crossfire

October 7, 2022
Administrative Law, Economics, Industry, Tax Law

Alex Zeng, MJLST Staffer

Every April 15, taxpayers scramble to get their tax documents sorted and figure out what, where, and how to file. This hopeless endeavor is exacerbated by the length and complexity of the tax code making it nigh indecipherable to the average taxpayer, the IRS only answering roughly nine to ten percent of the calls that it receives, and the fact that many IRS processes slog on for months before delivering an output. Consequently, it is almost no surprise that the Treasury Department, which interacts with the public primarily through the IRS, was ranked dead last in a recent customer satisfaction survey analyzing 96,211 US consumers’ perceptions of 221 companies and federal agencies. 

Responding to this crisis, the IRS has decided that it should provide a free, government-backed tax filing system. Under the Inflation Reduction Act, the IRS was given $15 million to study making its own digital tax filing platform. The concept is simple: by developing their own technology to handle tax filings, the IRS would be consolidating tax assessment and tax filings within one entity, thereby increasing customer satisfaction and efficiency within the system. After all, this sort of program already exists in California and its adoption is ostensibly paying dividends. The state’s program, CalFile, is a government-backed tax filing system that is free to single filers making up to $169,730 and married filers making up to $339,464 a year. The California Franchise Tax Board (“CFTB”) reports that CalFile saves taxpayers somewhere between $4 million and $10 million annually in tax preparation fees while the state saves around $500,000 in overhead and administrative costs. 

To many, this change is long overdue. It seemed obvious that the agency that requires tax filings should have its own system to file taxes. The question then becomes: what took so long? 

The History of Free Tax Filing 

To taxpayers that engage with the morass of tax every year, services such as TurboTax and H&R Block seem like godsends as they provide the opportunity to file with ease and near certainty of accuracy for a fee. Beneath this masquerade of doing good, however, lies these services’ sinister secret: they are responsible for the absence of a free government-backed filing service. For decades, companies such as Intuit have been closing the door to more accessible filing through aggressive lobbying and by tapping into taxpayers’ fear, uncertainty, and doubt about the tax filing process as part of their marketing strategy. 

In an effort to suppress government encroachment into the tax filing industry, Intuit and other industry giants formed the Free File Alliance (“FFA”) in the early 2000s and agreed to provide free federal filing to 60 percent of taxpayers at the time of drafting as long as the IRS promised not to compete with the industry. Though the Free File Alliance introduced free filing, fewer than three percent of all taxpayers use these services despite a seventy percent eligibility rate. This discrepancy is due to various barriers of entry, such as intentionally hiding their free tax filing services from search engines, reducing the income cap eligibility, and confusing taxpayers by having two separate services designated as “Free” and “Free File.” After ProPublica published articles investigating the industry’s deceptive tactics, the IRS and the FFA amended their agreement to bar companies from hiding their free products from search engines and struck the provision prohibiting the IRS from competing with the industry by introducing its own tax filing service. 

Potential Pitfalls for the IRS’s Free Filing System 

While the way towards an IRS-backed tax filing system may seem clear now that the provision preventing the IRS from developing one is stricken, there are still some obstacles that the IRS must surmount before its promulgation. One concern is that if the IRS follows through, then the IRS would be both the preparer and the auditor. This conflict of interest may introduce issues regarding whether a taxpayer can reasonably expect that the same agency that computes taxes and collects them is able to fairly consider objections to potential errors and return overpayments. 

Adjacent to this concern is that if the agency consolidates too much power and discretion within itself, private companies would languish under the regime of Big Brother as private interests and services are replaced by the government. Proponents of private companies dictating the boundaries of free tax filing services contend that if the government steps in, private companies, and thus consumer autonomy, would be squeezed out of the equation as private firms would exit the industry due to the government outcompeting them. In other words, taxpayers would lose out on having other options to file their taxes. If this happens, there is a fear that companies might retaliate. Industry giants would “have every reason to run an ad that says Big Brother is going to be watching your keystrokes,” as Steve Ryan, then general counsel of the Free File Alliance stated on National Public Radio. He continued by asking if “we really believe that that sort of advertising or program would actually be beneficial to electronic filing?” In this instance, not only would the tax filing industry face the danger of collapsing, but taxpayers would also suffer by not having the freedom to choose the service they want. 

It is unknown how well-founded these fears are, however. Although reported in 2011, data collected from the CFTB states that 97 percent respondents stated that filing is the type of service the government should provide and 98 percent stated that they would use this service again. Providing a free online tax filing system is also recognized as public service at its best and provides efficiency and convenience to the tax filer. Finally, a working paper for the National Bureau of Economic Research found that autofilling tax returns could be straightforward for many filers, with 41 to 48 percent of returns able to accurately be pre-populated using information from the previous year’s tax returns, and 43 to 44 percent of filers who would see their returns automatically filled are unnecessarily paying someone else to handle their filings. 

Another concern is more logistical. Both the IRS’s budget and staffing have shrunk over the past decades even as filings increased. This lack of personnel and increase in responsibility is also intensified by pandemic-era responsibilities, such as distributing stimulus checks and child tax credits. Consequently, there is a massive backlog of unprocessed tax returns and refunds—not insignificantly due to decades-old technology and the IRS’s insistence on using paper files. To create such an overarching system and then subsequently maintain it would require massive technological and organizational overhauls—overhauls that, given the IRS’s archaic technology and restricted funding and workforce, may overwhelm the IRS and create an even more catastrophic backlog in the short-term. The Inflation Reduction Act seeks to partially alleviate some of these pains by directing $80 billion toward the IRS, but it is unclear whether and how much these concerns will be addressed by this increase in funds. What is clear at this point, however, is that the IRS will start taking serious steps towards allowing taxpayers to file with the IRS. Hopefully, in the near future, taxpayers around the nation will be able to simply file their taxes every year, for free, within minutes.

Breaking the Tech Chain to Slow the Growth of Single-Family Rentals

April 17, 2022
Antitrust, Artificial Intelligence, Competition, Data, Discrimination, Economics, New Technology

Sarah Bauer, MJLST Staffer

For many of us looking to buy our first homes during the pandemic, the process has ranged from downright comical to disheartening. Here in Minnesota, the Twin Cities have the worst housing shortage in the nation, a problem that has both Republican and Democratic lawmakers searching for solutions to help both renters and buyers access affordable housing. People of color are particularly impacted by this shortage because the Twin Cities are also home to the largest racial homeownership gap in the nation. 

Although these issues have complex roots, tech companies and investors aren’t helping. The number of single-family rentals (SFR) units — single-family homes purchased by investors and rented out for profit — have risen since the great Recession and exploded over the course of the pandemic. In the Twin Cities, black neighborhoods have been particularly targeted by investors for this purpose. In 2021, 8% of the homes sold in the Twin Cities metro were purchased by investors, but investors purchased homes in BIPOC-majority zip codes at nearly double the rate of white-majority neighborhoods. Because property ownership is a vehicle for wealth-building, removing housing stock from the available pool essentially transfers the opportunity to build wealth from individual homeowners to investors who can both profit from rents as well as the increased value of the property at sale. 

It’s not illegal for tech companies and investors to purchase and rent out single-family homes. In certain circumstances, it may actually be desirable for them to be involved in the market. If you are a seller that needs to sell your home before buying a new one, house-flipping tech companies can get you out of your home faster by purchasing the home without a showing, an inspection, or contingencies. And investors purchasing single-family homes can provide a floor to the market during slowdowns like the Great Recession, a service which benefits homeowners as well as the investors themselves. But right now we have the opposite problem: not enough homes available for first-time owner-occupants. Assuming investor-ownership is becoming increasingly undesirable, what can we do about it? To address the problem, we need to understand how technology and investors are working in tandem to increase the number of single-family rentals.

 

The Role of House-Flipping Technology and iBuyers

The increase in SFRs is fueled by investors of all kinds: corporations, local companies, and wealthy individuals. For smaller players, recent developments in tech have made it easier for them to flip their properties. For example, a recent CityLab article discussed FlipOS, “a platform that helps investors prioritize repairs, access low-interest loans, and speed the selling process.” Real estate is a decentralized industry, and such platforms make the process of buying single-family homes and renting them out faster. Investors see this as a benefit to the community because rental units come onto the market faster than they otherwise would. But this technology also gives such investors a competitive advantage over would-be owner-occupiers.

The explosion of iBuying during the pandemic also hasn’t helped. iBuyers — short for “instant buyers” — use AI to generate automated valuation models to give the seller an all-cash, no contingency offer. This enables the seller to offload their property quickly, while the iBuyer repairs, markets, and re-sells the home. iBuyers are not the long-term investors that own SFRs, but the house-flippers that facilitate the transfer of property between long-term owners.

iBuyers like Redfin, Offerpad, Opendoor (and formerly Zillow) have increasingly purchased properties in this way over the course of the pandemic. This is true particularly in Sunbelt states, which have a lot of new construction of single-family homes that are easier to accurately price. As was apparent from the demise of Zillow’s iBuying program, these companies have struggled with profitability because home values can be difficult to predict. The aspects of real estate transactions that slow down traditional homebuyers (title check, inspections, etc…) also slow down iBuyers. So they can buy houses fast by offering all-cash offers with no inspection, but they can’t really offload them faster than another seller.

To the degree that iBuyers in the market are a problem, that problem is two-fold. First, they make it harder for first-time homeowners to purchase homes by offering cash and waiving inspections, something few first-time homebuyers can afford to offer. The second problem is a bigger one: iBuyers are buying and selling a lot of starter homes to large, non-local investors rather than back to owner-occupants or local landlords.

 

Transfer from Flippers to Corporate Investors

iBuyers as a group sell a lot of homes to corporate landlords, but it varies by company. After Zillow discontinued its iBuying program, Bloomberg reported that the company planned to offload 7,000 homes to real estate investment trusts (REITs). Offerpad sells 10-20% of its properties to institutional investors. Opendoor claims that it sells “the vast majority” of its properties to owner-occupiers. RedfinNow doesn’t sell to REITs at all. Despite the variation between companies, iBuyers on the whole sold one-fifth of their flips to institutional investors in 2021, with those sales more highly concentrated in neighborhoods of color. 

REITs allow firms to pool funds, buy bundles of properties, and convert them to SFRs. In addition to shrinking the pool of homes available for would-be owner-occupiers, REITs hire or own corporate entities to manage the properties. Management companies for REITs have increasingly come under fire for poor management, aggressively raising rent, and evictions. This is as true in the Twin Cities as elsewhere. Local and state governments do not always appear to be on the same page regarding enforcement of consumer and tenant protection laws. For example, while the Minnesota AG’s office filed a lawsuit against HavenBrook Homes, the city of Columbia Heights renewed rental occupancy licenses for the company. 

 

Discouraging iBuyers and REITs

If we agree as a policy matter that single-family homes should be owner-occupied, what are some ways to slowdown the transfer of properties and give traditional owner-occupants a fighting chance? The most obvious place to start is by considering a ban on iBuyers and investment firms from acquiring homes. The Los Angeles city council voted late last year to explore such a ban. Canada has voted to ban most foreigners from buying homes for two years to temper its hot real estate market, a move which will affect iBuyers and investors.

  Another option is to make flipping single-family homes less attractive for iBuyers. A state lawmaker from San Diego recently proposed Assembly Bill 1771, which would impose an additional 25% tax on the gain from a sale occurring within three years of a previous sale. This is a spin on the housing affordability wing of Bernie Sanders’s 2020 presidential campaign, which would have placed a 25% house-flipping tax on sellers of non-owner-occupied property, and a 2% empty homes tax on property of vacant, owned homes. But If iBuyers arguably provide a valuable service to sellers, then it may not make sense to attack iBuyers across the board. Instead, it may make more sense to limit or heavily tax sales from iBuyers to investment firms, or the opposite, reward iBuyers with a tax break for reselling homes to owner-occupants rather than to investment firms.

It is also possible to make investment in single-family homes less attractive to REITs. In addition to banning sales to foreign investors, the Liberal Party of Canada pitched an “excessive rent surplus” tax on post-renovation rent surges imposed by landlords. In addition to taxes, heavier regulation might be in order. Management companies for REITs can be regulated more heavily by local governments if the government can show a compelling interest reasonably related to accomplishing its housing goals. Whether REIT management companies are worse landlords than mom-and-pop operations is debatable, but the scale at which REITs operate should on its own make local governments think twice about whether it is a good idea to allow so much property to transfer to investors. 

Governments, neighborhood associations, and advocacy groups can also engage in homeowner education regarding the downsides of selling to an iBuyer or investor. Many sellers are hamstrung by needing to sell quickly or to the highest bidder, but others may have more options. Sellers know who they are selling their homes to, but they have no control over to whom that buyer ultimately resells. If they know that an iBuyer is likely to resell to an investor, or that an investor is going to turn their home into a rental property, they may elect not to sell their home to the iBuyer or investor. Education could go a long way for these homeowners. 

Lastly, governments themselves could do more. If they have the resources, they could create a variation on Edina’s Housing Preservation program, where homeowners sell their house to the City to preserve it as an affordable starter home. In a tech-oriented spin of that program, the local government could purchase the house to make sure it ends up in the hands of another owner-occupant, rather than an investor. Governments could decline to sell to iBuyers or investors single-family homes seized through tax forfeitures. Governments can also encourage more home-building by loosening zoning restrictions. More homes means a less competitive housing market, which REIT defenders say will make the single-family market less of an attractive investment vehicle. Given the competitive advantage of such entities, it seems unlikely that first-time homebuyers could be on equal footing with investors absent such disincentives.

Counter Logic Broadband

November 13, 2021
Economics, Internet

Justice C. Shannon, MJLST Staffer

In 2015 Zaqueri “Aphromoo” Black won his first North American League of Legends championship series “LCS” championship playing support for Counter Logic Gaming. Since 2013 at least forty players have made the starting lineups for eight to ten LCS teams. Aphromoo is the only African American to win an LCS MVP. Aphromoo is the only African American player to win multiple LCS finals. Aphromoo is the only African American player to win a single LCS Final. Aphromoo is the only African American player to make it to an LCS final. Aphromoo is the only African American player to participate in LCS playoffs. Indeed, Aphromoo is the only African American player to have a starting role on an LCS team. Why? At least in part, because due to the digital divide.

More than a quarter of African Americans do not have broadband. Further, nearly 40% of the African Americans in the rural south do not have broadband. One quarter of the Latinx population does not have broadband. These discrepancies allow fewer African Americans and Latinx to play online video games like League of Legends. Okay, but if the digital divide only affects esports, why should the nation care? The digital divide, as seen in esports, is also seen in the American educational system. More than 15% of American households lacked broadband at the start of the pandemic. This gap was more pronounced in African American and Latinx households. These statistics demonstrate a national need to address the digital divide for entertainment purposes and, more importantly, educational purposes. So, what are some legal solutions to the digital divide? Municipal internet, subsidies, and low-income broadband laws.

Municipal Internet

Municipal broadband is not a new concept, but recently it has been seen as a solution to help address the digital divide. While the up-front cost to a city may be substantial, the long-term advantages can be significant. Highland, IL, and other communities across the United States provide high-speed internet for as low as $35 a month. Cities providing low-cost broadband through municipalities frequently have competitive prices for gigabit speeds as well. The most significant downside to this solution is that these cities are frequently in rural locations that do not provide for large populations. In addition, when municipalities attempt to provide broadband outside of their borders, state laws preempt them to protect ISPs. ISPs lobby for laws to deter or prevent municipal internet on the basis that they are necessary to prevent unfair competition; this fear of unfair competition, however, restricts communities from getting connected.

To avoid the preemption issue during the pandemic, some cities have established narrow versions of municipal broadband. In addition, these cities are providing free connectivity in heavily populated communities. For example, during the pandemic, Chattanooga, Tennessee, offered free broadband to low-income students. If these solutions stay in place, they will set an industry precedent for providing broadband to low-income communities.

Subsidies

The emergency Broadband Benefit provides up to $50 per month towards broadband services for eligible households and $75 a month for households on tribal lands. To qualify for the program, a household must meet one of five standards. Congress created the program to help low-income households stay connected during the pandemic. Congress allocated $3.2 billion to the FCC to enable the agency to provide the discount. This discount also comes with a one-time device discount of up to $100 so that users not only have broadband but have the tools to utilize broadband. The advantage of this subsidy is it directly addresses the issue of low-income recipients not being able to afford broadband, which can immediately affect the 15% of Americans who do not have broadband.

The downside of this solution is to qualify, a recipient must share their income on a webpage they have not visited before, which can be invasive. Further, this plan does not permanently address the cost of broadband, and once it ends, it is possible that the same groups of Americans who could not afford broadband before lose access to the internet. Additionally, when the average cost of a laptop in America is $700, a discount of $100 does not do very much to ensure that users are correctly benefitting from their new broadband connection. If the goal is to ensure that users can attend classes, complete homework assignments, and maybe play esports on the side, then a lower-cost tablet ($350 on average) would not address the problem of needing hardware to access broadband.

However, a program like this could be valued as a reasonable start if things continue to go in the right direction. A fair price for broadband is $60 a month. Reducing the cost of broadband to $10 per recipient for competitive speeds and reliability after subsidization could be a great tool to eliminate the digital divide so long as it persists after the pandemic.

Low-Income Broadband Laws

Low-cost broadband laws would require internet service providers to provide broadband plans for low-income recipients at a low-cost price. This approach would directly address Americans with physical access to broadband but who cannot pay for broadband solutions due to cost, thus, helping to bridge the digital divide. Low-cost broadband plans such as New York’s proposed Affordable Broadband Act would require all internet service providers serving more than 20,000 households to provide two low-cost plans to qualifying (low income) customers. However, New York’s law was stymied by ISPs arguing that it is an illegal way to close the digital divide as states are preempted from rate regulation of broadband by the Federal Communications Commission.

The ISPs argued that the Affordable Broadband Act operated within the field of interstate commerce and was thus likely preempted by the Federal Communications Act of 1934. However, as broadband is almost always interstate commerce, other state laws similar to New York’s Affordable Broadband Act would probably run into the same issue. Thus, a low-income broadband law would likely need to come from the federal level to avoid the same road bumps.

The Future of Broadband and the Digital Divide

An overlapping theme between many of these solutions is that they were implemented during the pandemic; this begs the question, are these short-term solutions to an unexpected life-changing event or rational long-term solutions for various long-term problems, including the pandemic? If cities, states, and the nation stay the course and implement more low-cost broadband solutions such as municipal internet, subsidies, and low-income broadband laws, it will be possible to address the digital divide. However, if jurisdictions treat these solutions like short-term stopgaps, communities that cannot afford traditional broadband solutions will again lose broadband access. Students will again go to McDonald’s to do homework assignments, and Aphromoo may continue to be the only active African American LCS player.

Whitelist for Thee, but Not for Me: Facebook File Scandals and Section 230 Solutions

November 6, 2021
Data, Economics, Privacy, Social Media, Social Welfare

Warren Sexson, MJLST Staffer

When I was in 7th grade, I convinced my parents to let me get my first social media account. Back in the stone age, that phrase was synonymous with Facebook. I never thought too much of how growing up in the digital age affected me, but looking back, it is easy to see the cultural red flags. It came as no surprise to me when, this fall, the Wall Street Journal broke what has been dubbed “The Facebook Files,” and in them found an internal study from the company showing Instagram is toxic to teen girls. While tragic, this conclusion is something many Gen-Zers and late-Millennials have known for years. However, in the “Facebook Files” there is another, perhaps even more jarring, finding: Facebook exempts many celebrities and elite influencers from its rules of conduct. This revelation demands a discussion of the legal troubles the company may find itself in and the proposed solutions to the “whitelisting” problem.

The Wall Street Journal’s reporting describes an internal process by Facebook called “whitelisting” in which the company “exempted high-profile users from some or all of its rules, according to company documents . . . .” This includes individuals from a wide range of industries and political viewpoints, from Soccer mega star Neymar, to Elizabeth Warren, and Donald Trump (prior to January 6th). The practice put the tech giant in legal jeopardy after a whistleblower, later identified as Frances Haugen, submitted a whistleblower complaint with the Securities and Exchange Commission (SEC) that Facebook has “violated U.S. securities laws by making material misrepresentations and omissions in statements to investors and prospective investors . . . .” See 17 CFR § 240.14a-9 (enforcement provision on false or misleading statements to investors). Mark Zuckerberg himself has made statements regarding Facebook’s neutral application of standards that are at direct odds with the Facebook Files. Regardless of the potential SEC investigation, the whitelist has opened up the conversation regarding the need for serious reform in the big tech arena to make sure no company can make lists of privileged users again. All of the potential solutions deal with 47 U.S.C. § 230, known colloquially as “section 230.”

Section 230 allows big tech companies to censor content while still being treated as a platform instead of a publisher (where they would incur liability for what is on their website). Specifically, § 230(c)(2)(A) provides that no “interactive computer service” shall be held liable for taking action in good faith to restrict “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable [content] . . . .” It is the last phrase, “otherwise objectionable,” that tech companies have used as justification for removing “hate speech” or “misinformation” from their platform without incurring publisher like liability. The desire to police such speech has led Facebook to develop stringent platform rules which has in turn created the need for whitelisting. This brings us to our first proposal, eliminating the phrase “otherwise objectionable” from section 230 itself. The proposed “Stop the Censorship Act of 2020” brought by Republican Paul Gosar of Arizona does just that. Proponents argue that it would force tech companies to be neutral or lose liability protections. Thus, no big tech company would ever create standards stringent enough to require a “whitelist” or an exempted class, because the standard is near to First Amendment protections—problem solved! However, the current governing majority has serious concerns about forced neutrality, which would ignore problems of misinformation or the mental health effects of social media in the aftermath of January 6th.

Elizabeth Warren, similar to a recent proposal in the House Judiciary Committee, takes a different approach: breaking up big tech. Warren proposes passing legislation to limit big tech companies in competing with small businesses who use the platform and reversing/blocking mergers, such as Facebook purchasing Instagram. Her plan doesn’t necessarily stop companies from having whitelists, but it does limit the power held by Facebook and others which could in turn, make them think twice before unevenly applying the rules. Furthermore, Warren has called for regulators to use “every tool in the toolbox,” in regard to Facebook.

Third, some have claimed that Google, Facebook, and Twitter have crossed the line under existing legal doctrines to become state actors. So, the argument goes, government cannot “induce” or “encourage” private persons to do what the government cannot. See Norwood v. Harrison, 413 U.S. 455, 465 (1973). Since some in Congress have warned big tech executives to restrict what they see as bad content, the government has essentially co-opted the hand of industry to block out constitutionally protected speech. See Railway Employee’s Department v. Hanson, 351 U.S. 225 (1956) (finding state action despite no actual mandate by the government for action). If the Supreme Court were to adopt this reasoning, Facebook may be forced to adopt a First Amendment centric approach since the current hate speech and misinformation rules would be state action; whitelists would no longer be needed since companies would be blocked from policing fringe content. Finally, the perfect solution! The Court can act where Congress cannot agree. I am skeptical of this approach—needless to say, such a monumental decision would completely shift the nature of social media. While Justice Thomas has hinted at his openness to this argument, it is unclear if the other justices will follow suit.

All in all, Congress and the Court have tools at their disposal to combat the disturbing actions taken by Facebook. Outside of potential SEC violations, Section 230 is a complicated but necessary issue Congress must confront in the coming months. “The Facebook Files” have exposed the need for systemic change in social media. What I once used to use to play Farmville, has become a machine that has rules for me, but not for thee.

#IsTheShipStillStuck?

April 4, 2021
Economics, Litigation

Schuyler Troy, MJLST Staffer

The Ever Given, a massive four-hundred-meter-long cargo ship weighing over two hundred thousand tons and carrying over eighteen thousand cargo containers, ran aground in the Suez Canal on March 23, 2021. Wedged between the edges of the canal, the ship blocked all transport through the canal for just over six days. Trade routes were brought to a screeching halt as a backlog of hundreds of ships were left stranded in Egypt’s Great Bitter Lake waiting for passage through the canal, which serves as a conduit for about thirty percent of daily global shipping container volumes, including roughly one million barrels of oil a day. After days of round-the-clock work, the Ever Given was finally pried loose on March 29, allowing traffic to flow again through the canal. The precise cost of the trade stoppage is still unclear, but data from Lloyd’s List showed that the ship held up an estimated $9.6 billion in trade each day that it was stuck—roughly $400 million per hour. The canal itself generated $5.6 billion for Egypt in 2020.

What exactly caused the Ever Given to run aground is currently under investigation. According to an article from Business Insider, initial theories suggested that sudden strong winds caused the hull to deviate from its course and hit the bottom of the canal. Human error is also suspected to have played a part in the fiasco, with reports that the ship was traveling faster than the canal’s speed limit and that its crew opted not to utilize a tugboat escort through the canal. Investigators are also likely to scrutinize the performance of the Ever Given’s two Egyptian canal pilots, both senior chief pilots with more than thirty years of experience.

With so much money on the line, attention will surely turn to who will be left liable for the losses, and the complex structure of ownership and operation of the Ever Given has revealed a tangled web of potentially liable parties. The ship is owned by Shoei Kisen Kaisha, a Japanese subsidiary of Imabari Shipbuilding. At the time it ran aground in the Suez Canal, it was chartered and operated by Evergreen Marine, a Taiwanese container line. The Ever Given is registered in Panama, and is technically managed by the German ship management company Bernhard Schulte Shipmanagement. The crew was comprised of twenty-five Indian citizens, and the ship was insured in part by the UK P&I Club, a United Kingdom based insurance group.

Aggrieved parties are likely to raise claims arising not only from delays in shipment of the goods aboard the Ever Given, but also from cargoes on other ships that were delayed due to inability to transit the canal and from ships which diverted their course around the Cape of Good Hope, a longer and costlier route. There could also be claims for damage to the canal itself, as diggers were required to remove earth and rock from the canal’s banks around the areas where the ship ran aground.

Litigation over the Ever Given’s grounding will likely take years to sort out. In the meantime, we will always have the memes that the fiasco spawned.

Clawing Back the “Jackpot” Won During the Texas Blackouts

March 28, 2021
Administrative Law, Economics, Energy Law

Isaac Foote, MJLST Staffer

For most Texans, the winter storm in February 2021 meant cold temperatures, uncertain electricity at best, and prolonged blackouts at worst. For some energy companies, however, it was like “hitting the jackpot.” We here at MJLST (in Madeline Vavricek’s excellent piece) have already discussed the numerous historical factors that made Texas’s power system so vulnerable to this storm, but in the month after power was restored to customers, a new challenge has emerged for regulators to address: who will pay the estimated $50 billion in electricity transactions carried out during the week of blackouts. A number estimated to eclipse the total sales on the system over the previous three years!

At the highest level, the Texas blackouts were a result of the electric grid’s need to be ‘balanced’ in real time, i.e. always have sufficient electricity supply to meet demand. As the winter storm hit Texas, consumers increased demand for electricity, as they turned up electric heaters, while simultaneously a lack of winterization drove natural gas, wind, and nuclear electricity producers offline. So, to “avoid a catastrophic failure that could have left Texans in the dark for months,” Texas grid operator, the Electric Reliability Council of Texas (ERCOT), needed to find a way to drastically increase electricity supply and reduce electricity demand. Blackouts were the tool-of-last-resort to cut demand, but ERCOT also attempted to increase supply through authorizing an extremely high wholesale price of electricity. Specifically, ERCOT and the Texas Public Utility Commission (PUC) authorized a price of $9,000 per megawatt hour (MWh), over 340 times the annual average price of $26/MWh.

These high prices may have kept some additional generation online, but they also resulted in devastating impacts for consumers (especially those using the electric provider Griddy) and electric distributors (like Brazos Electric Power Cooperative that has already filed for Chapter 11 bankruptcy protection). Now, the Independent Market Monitor (IMM)for the PUC is questioning whether the $9,000/MWh electricity price was maintained for too long after the storm hit: specifically, the 32 hours following the end of controlled blackouts between February 17th and 19th. The IMM claims that the decision to delay reducing the price of electricity “resulted in $16 billion in additional costs to ERCOT’s market” that will eventually need to be recovered from consumers.

The IMM report on the issue has created a showdown in Texas Government between the State Senate, House, and the PUC. Former Chair of the PUC, Arthur D’Andrea, argued against repricing as “it’s just nearly impossible to unscramble this sort of egg,” while the State Senate passed a bill that would require ERCOT to claw back between $4.2 billion and $5.1 billion in from generators for the inflated prices. D’Andrea’s opposition to the clawback has already resulted in his resignation, but it appears unlikely this conflict will be resolved as the State House may concur with the PUC’s position.

There is further confusion over whether such a clawback would be legal in the first place. Before his resignation, D’Andrea implied such a clawback was beyond the power of the PUC. However, Texas Attorney General Ken Paxton issued an opinion that: “the Public Utility Commission has complete authority to act to ensure that ERCOT has accurately accounted for electricity production and delivery among market participants in the region. Such authority likely could be interpreted to allow the Public Utility Commission to order ERCOT to correct prices for wholesale electricity and ancillary services during a specific timeframe . . . provided that such regulatory action furthers a compelling public interest.”

Going forward it appears that the Texas energy industry will be facing a wave of lawsuits and bankruptcies, whatever the decisions made by the PUC or legislators. However, it is important to remember that someone will end up bearing responsibility for the billions of dollars in costs incurred during the crisis. While most consumers will not see this directly on their electricity bill, like those using Griddy had the misfortune to experience, these costs will eventually be transferred onto consumers in some ways. Managing this process in conjunction with rebuilding a more resilient energy system will be a challenge that Texas energy system stakeholders, policymakers, and regulators will have to take on.

Decode 16 Tons (of Bitcoin), What Do You Get? Nevada Considers Redefining the Phrase “corporate Governance”

March 14, 2021
Administrative Law, Business Law, Cryptocurrency, Economics, Ethics

Jesse Smith, MJLST Staffer

On January 16, 2020, Nevada Governor Steve Sisolak, as part of his state of the state address, announced a new legislative proposal allowing certain types of private companies to essentially purchase the ability to govern as public entities. The proposal applies specifically to tech firms operating within the fields of blockchain, autonomous technology, the internet of things, robotics, artificial intelligence, wireless technology, biometrics, and renewable resources technology. Those that purchase or own at least 50,000 contiguous acres of undeveloped and uninhabited land within a single county can apply to create  “innovation zones” within the property, or self-governed cities structured around the technology the company develops or operates. The company must apply to Nevada’s Office of Economic Development and provide a preliminary capital investment of at least $250 million, along with an additional $1 billion invested over ten years. Upon approval by the state, the area would become an “innovation zone,” initially governed by a three-member board appointed by the governor, two members of which would be picked from a list provided by the company creating the zone. This board would be able to levy taxes and create courts, school districts, police departments, and other offices empowered to carry out various municipal government functions.

One of the main companies lobbying for the passage of the bill, and the likely its first candidate or adopter, is Blockchains LLC, a Nevada based startup that designs blockchain based software in the areas of “digital identity, digital assets, connected devices and a stable means of digital payment.” The company purchased 67,000 acres of largely undeveloped land near Reno in 2018 for $170 million, in pursuit of building what it calls a “sandbox city,.” There, the company would further develop and use its blockchain technology to store records and administer various public and private functions, including “banking and finance, supply chains, ID management, loyalty programs, digital security, medical records, real estate records, and data sharing.”

Natural and rightful criticism of the legislation has mounted since the announcement. Many pointed out that Jeffrey Berns, the founder of Blockchains LLC, is a large donor to both Sisolak and Democratic PACs in Nevada. Furthermore, months before the proposal was unveiled, Blockchains purchased water rights hundreds of miles away to divert to its Nevada land, prompting various outcries from water rights and indigenous activists. From a broader perspective, skeptics conjured up dystopian images of zone residents waking up to “focus group tested alarm[s]” in constantly monitored “corporate apartments.” Others reflected on the history of company-controlled towns in the U.S. and the various problems associated with them.

Proponents of the plan seem fixated on two particular arguments. First, they note that the bill in its current incarnation requires an innovation zone to hold elections for the offices it sets up once its population hits 100. This allegedly demonstrates that while any company behind the zone “retains significant control over the jurisdiction early on, that entity’s control quickly recedes and democratic mechanisms are introduced.” Yet this argument ignores the fact that there is no requirement that a zone ever reach 100 residents. Additionally, even where this threshold is met, the board still retains significant control over election administration, and may divide or consolidate various types of municipal offices as it sees fit, and dismiss officials for undefined “malfeasance or nonfeasance” (§ 20 para. 2). Such powers provide ripe opportunity for gaming how an innovation zone’s government operates and avoiding true democratic control through consolidation of various powers into strategic elected offices.

Second is the more traditional argument that these zones will attract new businesses to the state and bestow an influx of money and jobs upon the citizens of Nevada. Setting aside various studies and arguments that question this assumption, this argument is yet another tired talking point that ignores the damage large businesses already wreak on the local communities they take over. Many overuse the limited resources of various departments. Others use the “value” that big businesses supposedly bring to communities to pit local governments against each other in bidding wars to see who can offer more tax breaks and subsidies to bring the business to their town, money and revenue that could and likely should be used to fund other local programs. Thus, the ability to actually govern appears to be the logical end in a progression of demands big businesses expect from the cities they set up shop in. Perhaps the best argument in favor of innovation zones is also the saddest, in that they allow big businesses to, as is said in corporate speak, “cut out the middleman” by directly collecting the tax dollars they already consume by the billions and directly controlling the municipal resources they already monopolize.

Sisolak, Berns, and other proponents of the proposal fight back against the idea that innovation zones will become the equivalent of “company towns” and argue that it will make Nevada a tech capital of the world by attracting the businesses specified in the bill. They would be well suited to remember two maxims that summarize the criticism of their idea: that history repeats itself and the road to hell is paved with good intentions. There is a reason these phrases are overused cliches. Last week’s MJLST blog post left us with the sweet sounds of Billy Joel to close out its article. As suggested by Tony Tran of “The Byte,” I’ll end mine with the classic, yet unknowingly cyberpunk ballad “16 tons” (the Tennessee Ernie Ford version), and leave the reader thinking about the future plight of the Nevada Bitcoin miner, owing her or his uploaded cloud soul to the company store, aka Blockchains LLC, in their innovation zone job.

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