4 Feb 2022

Co-author of grounding law Alexander Zhuravlyov: Companies won't be able to ignore court orders once they register in Russia

Alexander Zhuravlev

Alexander Zhuravlev
Photo: Press-service

The law obliging big foreign IT companies to open offices in Russia for closer interaction with the Federal Service for Supervision of Communications, Information Technology and Mass Media (Roskomnadzor) and to comply with the requirements of the Russian authorities was enacted on January 1, 2022. Alexander Zhuravlyov, the chairman of the commission for digital economy at the Moscow branch of the Russian Association of Lawyers, who is one of the authors of the law, has given an interview to Interfax in which he speaks about loopholes closed by the new law, whether Google and Meta will 'ground' in Russia and why recommendation algorithms need to be regulated.

Question: I want to ask you about the enforcement of the grounding law, which you sponsored and which has taken effect recently. There are reports that a number of services, for example Likee and Viber, have already started to implement it. Do you think that U.S. companies like Meta and Google will ground?

Answer: I think it’s only a matter of time. Before the law was adopted foreign companies had an opportunity to profit from a situation where they are officially absent from our market - the absence of an office allows them not to comply with Russian laws; or be guided by U.S. government’s policy on our country. These factors partly explain why Meta and Google comply with European laws and interact with local watchdogs but often allow themselves to ignore Roskomnadzor.

In practice, since the law took effect many foreign companies, such as Likee, Viber, Apple, Spotify and even TikTok and Twitter, have started to comply with it. IT giants are interested in doing civilized business and make money on the Russian market, but they face certain difficulties. For example, these difficulties could be related to organizing a legal entity, time constraints and other procedural issues inside a company.

The grounding law takes into account international experience and fills gaps in our laws. It forms clear, comprehensible and rather civilized rules of conduct for foreign tech companies in Russia. Moreover, it provides for gradual sanctions if the set requirements are not observed. The law does not envisage anything out of the ordinary. I am sure that Google and Meta understand this well, but they are not in a hurry - they are analyzing and weighing up the risks.

Furthermore, the companies have been hit with fines that have to be paid. For example, turnover-based fines. Before the grounding law took effect the state had been unable to apply means of enforcement against foreign companies. For example, if you commit an offence in Russia but you are outside the country, you have no property in the country, and no legal entity, there is nothing that can be recovered from you. At the same time, a court order could be fulfilled in other countries in a limited number of cases. If these are civil lawsuits, then everything depends on the country. Russia has various agreements which allow court judgments to be fulfilled in other jurisdictions. Naturally, there is no such agreement with the United States. They don't have a similar agreement even with their closest ally, the United Kingdom. The lack of such agreements and conventions makes it difficult to enforce a judgment.

As for administrative violations, there are so-called conventions that allow mutual demands to be enforced. However, such agreements are concluded only for taxes. There are almost no such agreements regarding administrative fines related to destructive content and the violation of law on personal data. This means that in fact there is no means of recovering court-imposed fines. Companies won't be able to ignore court orders with impunity one they have registered in our jurisdiction.

There is another reason, which is equal conditions for doing business with Russian companies and equal application of not only fines but taxation procedures and other rules for all players. If foreign businesses are not localized they can avoid having to complying with laws. The law removed this inequality.

Q.: Does this mean that for example Google, which opened an office in Russia, is on the same footing as Yandex?

A.: Roughly speaking, yes. It is equal to any company acting on the Russian market and has a legal entity or an office.

Q.: The Google Limited Liability Company is not considered to be an office? Even when turnover-based fines for not removing banned content were imposed, the judgment was made against U.S. legal entity Google LLC rather than the Google Limited Liability Company.

A.: At the moment it isn't but it could become one. According to the grounding law, an entity must send a notification regarding the opening of an office or a company to the appropriate authorities, Roskomnadzor. It could be a limited liability company or a joint stock company. The watchdog gets information directly from the organization – what kind of a body this will be and where on Russia's territory it will operate. Based on this data, Roskomnadzor will work with the company stated in a notice by the subject of the grounding law. It will depend exactly on what Google will say in a notice stipulated by the law whether the Google Limited Liability Company will be an authorized [representative] or not.

If we speak about December turnover-based fines, the law had not yet taken effect back then. That is why the fine was applied to the owner of the information service, which is the Google company based in the U.S.

Q.: Do I understand correctly that the authors of the law assumed that economic measures are better than blocking?

A.: In my opinion, blocking is a measure of last resort, as users of the services will suffer first of all. People today use various services to bypass blocking that is why such a measure cannot always have an appropriate effect.

Any company on any market works out of economic feasibility. Businesses' main task to put it bluntly is to make money and profit to owners and shareholders. As, for example, Federal Tax Service's data on Google indicate, it is reasonable for the company to continue working in Russia. They are making good profit on our market. This prompts a rather logical conclusion that economic measures could be more effective than blocking. And it is harder for companies to part with their money.

I can give you by way of an example the market of Australia, a country with a population of just 26 million. Last year local legislators considered a bill which in fact obliged Big Tech to share wages with content writers. In turn, Google said that it was leaving the Australian market. The bill was passed and after negotiations the company has still continued to work there and make payments to the writers.

These are Big Tech's tactics. If you are a transnational corporation, you have serious influence on people. If bills causing a public outcry and unsuitable for the corporations are adopted, they are making their allies of millions of their users by threatening to withdraw [from the market]. This is how they put pressure on the authorities. But this doesn't mean that the companies eventually quit the market. They are just acting in their own interests, seeking to delay the adoption of an unsuitable bill and to cause an outcry to their advantage.

Q.: Are there examples of similar grounding laws in other countries? How do things work there?

A.: As for the national level, almost all countries have to some extent introduced conditions for localizing businesses. This happened in the U.S., Austria, Turkey, China, Germany, and France prior to our grounding law. If we talk about supranational legislation, there is the Digital Markets Act, the EU is fine-tuning a bill that will regulate operations of IT giants ranging from data turnover to the payment of taxes in the country you work in.

Q.: In the EU, turnover-based fines are as a rule applied for breaching anti-competition laws or personal data, while in Russia fines are imposed for content.

A.: This is not quite right. Last April, the Federal Antimonopoly Service imposed a turnover-based fine of 906 million rubles on Apple for breaching antimonopoly laws. At the same time, turnover-based fines for not removing banned information were imposed on Google and Meta for the first time in December.

In various countries there are fines for extremist content and content that violates the rights of children. In some countries they are based on turnover and in others they are fixed.

Q.: The grounding law was adopted in particular to make conditions for foreign and Russian players equal. Were Russian companies so afraid of competition with foreign services?

A.: Russia has a strong tech market with a lot of players, and it has been developing successfully over the past 20 years. The question is primarily why foreign and Russian companies were in unequal legal positions rather than whether they were afraid or not. This gave the former certain advantages and hindered the development of Russian companies.

Q.: I would like to discuss the bill on recommendation systems which is also sponsored by you and which is being drafted now. First of all, what is a recommendation system or algorithm?

A.: This is a program which automatically gives users recommendations about content that may interesting for them given their preferences and behavior inside and outside the service. What is the issue here? A user should be able to choose whether to use this system or nor, whether to switch it on or not. Moreover, they have the right to know and understand what the principle underlying the recommendation system is and what their data are being used for.

Legal regulation of such system is very topical now, and Russia isn't the only country thinking about it. The U.S. and Canada have also paid attention to recommendation systems, while in China a law takes effect on March 1. In the EU, similar regulation will be proposed in the future Digital Markets Act, which I mentioned earlier.

Often, services don't check the advertised products. For example, I sometimes speak about cryptocurrencies and blockchain. Then Facebook shows me an advertisement of an ICO. Clicking them I understand that the project is a fraud. Some users complained about advertisements of so-called drug hideouts and vacancies for drug couriers. Such cases are unlikely to be treated as user preferences.

Q.: But there are internal company rules that prohibit advertising fraudulent websites and what is more drugs.

A.: But who would check their work or the work of the algorithm used for moderation? Why do they think that such advertisements could be shown?

Q.: It is likely to be a question of the quality of moderation. They do not cope.

A.: Well, who will make them cope? It is likely that a company which makes huge amounts of money for placing advertisements doesn't care much about who places advertisements, whether it is a fraudulent organization or not, the main thing is that it pays.

In general, there are very many problems in moderating the content of foreign services. Users can easily see disinformation about Covid and plainly dangerous and illegal information, for example advertisements of drugs.

The initiative regarding recommendation services is aimed at limiting the distribution of destructive and illegal content.

Q.: According to the bill, I can switch off the recommendation algorithm so that it for example doesn't take into account my user behavior when showing advertisements. In this case, do Internet companies building their business specifically on targeted advertisements incur losses?

A.: In my opinion, giving a user an opportunity to switch off the recommendation algorithm won't have a significant influence on incomes of Internet companies, since in case of recommendation algorithms the issue is about the content which the service automatically shows to users.

Target advertisements are one of the marketing tools which uses methods and settings to search for the target audience for the company's goals. It is set on the basis of public information from users' profiles, so roughly speaking a marketing expert selects a combination of parameters and metrics when creating a campaign, which ensures fine tuning. Moreover, there had been targeting even before smart feeds appeared.

As far as I understand, the bill which is being developed deals exactly with what the service automatically shows to its users.

Moreover, today there are many other monetization patterns. For example, there already exist and in the future there will be separate digital worlds, so-called metauniverses, which apart from advertisements will make it possible to buy virtual objects.

Q.: Is it possible that the bill will make companies change the monetization pattern and start taking money from users?

A.: This is unlikely. For example, you can switch off the recommendation algorithm in VK, but no one takes payment from you for this.

Q.: Do you mean the newswire which I can switch on in a chronological mode?

A.: Yes. And at the same time, you will switch off the recommendation algorithm.

Q.: As far as I know, choosing the chronological mode doesn't mean that I'm not targeted any more.

A.: In fact, this function in particular switches off recommendation algorithms. It restores the wire to what it was initially, before the smart wire was introduced. Once again, the issue is that neither you nor I clearly understand how the recommendation system works, what its principle and mechanism is, and what data it uses.

Q.: What should companies, again social networks, do? Make wires chronological?

A.: There is the notion of legal design. This means that companies should primarily explain to users in plain terms what is happening, how the recommendation algorithm works, what users see and how they can change this, and if they want to switch this off. Services are not required to publish the code, but it is important to explain the principles of the service's operations. My opinion is that this should be stipulated.

Q.: In your opinion, who this bill aimed at most of all? Social networks?

A.: This issue is being discussed now. I think that these are primarily social networks.

Q.: Messengers? For example, telegram launched its own advertising pattern.

A.: It is a question for legislators, who falls under the bill. I have outlined the problem on my part, their task is to compile the list.