This article was originally published in Law360 on January 10, 2024, and is republished here with permission.
In an era dominated by technological advancements, the tech industry has become a battleground for various legal challenges shaped by geopolitical events, partisan politics, regulatory initiatives, patent disputes and class actions.
As tech companies continue to push the boundaries of innovation, they find themselves navigating a complex legal landscape. Let’s look at some current market trends affecting tech companies and cast some light on proactive legal strategies to mitigate emerging risks.
Geopolitical Events and Tech: A Complex Nexus
The intricate relationship between geopolitical events and the technology industry forms a complex nexus that shapes the landscape of global business. The tech industry, characterized by its interconnected and border-spanning nature, is uniquely susceptible to the repercussions of geopolitical shifts.
These events encompass various political and economic dynamics, including active war in Europe, the Middle East, and Africa, supply chain disruption, trade tensions, sanctions, and changes in relations between great powers.
One of the most prominent illustrations of this intricate relationship is the enduring trade dispute between the U.S. and China. This dispute, marked by tit-for-tat tariffs and heightened economic hostilities, has reverberated throughout the tech sector.
Supply chains, a critical component of the tech industry, have been notably affected as both countries implement measures to protect their economic interests. This has led to disruptions, increased costs, and a reevaluation of global manufacturing strategies by tech companies.
Furthermore, the tensions have cast a spotlight on Chinese tech giants, subjecting them to heightened scrutiny and regulatory measures for different reasons, both from the Chinese government, on the one hand, seeking great contribution and alignment, as well as Western governments seeking to avoid dependence on Chinese products and violation of Western norms on employment and privacy of personal information.
Concerns about intellectual property theft and potential risks to national security have prompted governments to reassess their relationships with these companies, creating a challenging environment for tech firms operating across borders.
In fact, research from J.H. Whitney Data Services shows that many of the largest tech companies in the U.S. are so intertwined with China that it would be challenging to survive a massive geopolitical crisis between the two countries.[1]
Regulatory Challenges: Navigating a Shifting Landscape
The tech industry operates in a vigorous regulatory environment, with governments worldwide grappling to keep pace with technological advancements. Antitrust investigations, data protection regulations and content moderation policies are areas where tech companies face regulatory scrutiny.
With the proliferation of artificial intelligence applications from the enterprise to the consumer, governments are locked in a race to automate faster without ceding control to a machine.
Navigating this complex landscape requires proactive engagement with regulators, compliance by design, and a deep understanding of evolving legal frameworks. The days for AI and machine learning technologies to evolve in a regulatory sandbox are numbered.
Tech companies must adopt a forward-looking approach to anticipate and address regulatory challenges before they escalate into legal disputes.
Patent Disputes: The Battle for Innovation
Patent disputes within the tech industry are deeply ingrained and have evolved into a standard feature as companies strive to safeguard their intellectual property, aiming to gain a competitive edge and add to the company’s value for investors or would-be acquirers.[2]
As new technologies and ideas emerge rapidly, companies become entangled in a complex web of overlapping patents. Multiple entities may work on similar innovations simultaneously, leading to potential IP disputes.
One of the primary challenges for tech companies is navigating this intricate landscape, where the boundaries of patents often blur, and the risk of unintentional infringement looms. As a result, legal battles over access to and even control over markets for products or services that require patents have become more frequent but also protracted and costly.
Strategic patent portfolio management is essential for companies aiming to mitigate the risks associated with patent disputes. This involves acquiring patents for their innovations and carefully analyzing existing patents to avoid infringement. Moreover, tech companies often engage in cross-licensing agreements and use each other’s patented technologies, reducing the likelihood of disputes.
As technology advances, the importance of effective patent management and resolving disputes through legal means or alternative mechanisms will remain integral to sustaining innovation and fostering a competitive industry.
Class Actions: Protecting Consumer Rights in the Digital Age
The pervasive integration of technology into our daily lives has brought about critical issues such as data privacy, security breaches and deceitful business tactics. These concerns have resulted in many class actions against technology companies.
Several prominent cases have recently garnered significant attention, particularly those involving large-scale data breaches and accusations of anti-competitive conduct. These incidents underscore the imperative for robust measures to safeguard consumers and their interests.
One of the critical issues is the heightened awareness and emphasis on the importance of data privacy. As individuals entrust an increasing amount of personal information to technology platforms, the potential misuse or unauthorized access to this data has become a serious concern.
Instances of data breaches, where sensitive information is compromised, have not only led to financial losses for individuals but have also eroded the trust placed in tech companies. Currently, 12 states — California, Virginia, Connecticut, Colorado, Utah, Iowa, Indiana, Tennessee, Oregon, Montana, Texas and Delaware — have comprehensive data privacy laws.[3]
Moreover, allegations of anti-competitive behavior have further fueled the legal landscape surrounding technology companies. There is a growing suggestion for comprehensive consumer protection measures within the tech industry in response to these challenges.
Companies operating in this space are increasingly being called upon to prioritize transparent communication, ensuring that users are well-informed about how their data is being used and protected. Compliance with privacy regulations has become a nonnegotiable requirement as governments worldwide enact and enforce laws to safeguard individual privacy rights.
Equally crucial is the implementation of rigorous cybersecurity protocols. This involves safeguarding against external threats such as hacking and addressing internal vulnerabilities that may compromise data security.
Proactive Legal Strategies
In the face of these emerging risks, tech companies can adopt several proactive legal strategies to safeguard their interests.
Comprehensive Compliance Programs
Implementing robust compliance programs that adhere to global regulations can help tech companies demonstrate a commitment to legal and ethical standards.
Strategic Intellectual Property Management
Consistently evaluating and revising patent portfolios and performing freedom-to-operate analyses can reduce the likelihood of patent conflicts and enhance a company’s competitive standing.
Transparent Communication
Open and transparent communication with consumers, shareholders and regulators is essential. Providing clear information about data practices, security measures and business conduct can enhance trust and reduce the risk of class action litigation.
Engagement With Stakeholders
Taking a proactive approach to interacting with regulators, industry associations and various stakeholders enables technology companies to stay abreast of regulatory changes and actively influence policies affecting the industry.
Work With Experts
Legal teams should include others when developing a more robust approach to legal risk management.[4] Organizations should look at utilizing the expertise of the legal chief operating officer, risk professionals and technologists who can recommend optimal technology solutions for legal risk management. These specialists, adept in risk and technology, play a crucial role in helping the legal department identify and address potential risks associated with new technologies being sold or purchased by the organization.
Looking Forward
Recent events at OpenAI, the inventor of the now ubiquitous consumer AI application ChatGPT, are a case in point. Mistrust about whether compliance with its stated mission of keeping AI-technology safe led to a power struggle between the board and management.
Breakdowns in communication between board members and management, each operating at different speeds with different priorities, caused the board to fire the chief executive officer and remove the chairman from the board.
Within days, there was an open revolt among the employees, over 90% of whom signed an open letter that they would resign if CEO Sam Altman was not promptly reinstated.
Altman’s return to the CEO position only seven days later led to a recomposition of the board of directors, some of whom appear to have confused legal control with the ultimate power to make lasting decisions. What lasting impact this episode will have on the AI industry, specifically on OpenAI, remains to be seen.
Navigating the complex legal landscape requires tech companies to take a proactive legal approach, prioritizing compliance, intellectual property protection and transparent communication. By staying vigilant and adopting forward-looking strategies, tech companies can mitigate emerging risks and position themselves for sustained success in an ever- evolving industry.
[2] https://techcrunch.com/2023/07/28/the-anatomy-of-a-patent-litigation-target/.
[3] https://pro.bloomberglaw.com/brief/state-privacy-legislation-tracker/.