Jha, Shreya

Sharma, Vivek

<intR>²Dok

Social media platforms as expropriatedinvestorsReviewing state measures from the perspective ofinternational investment lawShreya Jha, Vivek Sharma 2019-12-03T14:00:09The reach and expanse of social media in the past decade has been enormous.With its growth, several legal issues have emerged. Particularly, instances of refusalto share personal data of users have led platforms to shut down their operations insome states. These developments raise concerns if the conventional understandingand interpretation of investments and investor-state disputes must be modified forfitting modern forms of business models like social media platforms.Therefore, on the one hand the concept of such platforms as investors and how theirinvestments are susceptible to expropriation needs to be discussed. On the other,the measures taken by the host states against the platforms have to be examined.Social media platforms as investorsInvestors have the right to refer a dispute to international investment arbitrationunder various normative regimes such as international contracts, bilateral investmenttreaties and multilateral investment treaties.In order to initiate such an arbitration, the assets of social media platforms must fallunder the definition of investment as it has been internationally recognized. It is aninternational practice to broadly interpret ‘investment’ made by an enterprise. Theprerequisites to be fulfilled in order to qualify as an investment under the Conventionon the Settlement of Investment Disputes between States and Nationals of OtherStates (ICSID Convention) are contributions in money or other assets, a certainduration, an element of risk, an operation made in order to develop an economicactivity in the host State, assets invested in accordance with the laws of the hostState and bona fide investments of assets.The tribunal had emphasized that “an extensive scrutiny of all these requirements isnot always necessary, as they are most often fulfilled on their face, overlapping orimplicitly contained in others.”Thus, if a company owning a social media platform opens a subsidiary company ina different jurisdiction and sets up a local office to employ workforces for processingthe execution of local projects, such actions should be considered as an investment.Moreover, the conventional understanding of what constitutes an asset of a foreignenterprise has gone through significant changes and modification. The assets- 1 -of social media platforms can be classified into two – tangible and intangibleassets.Tangible or physical assets are those existing materially. They haveeconomic or commercial value. This could be for example buildings, equipment andinventory.On the other hand, the most important good of social media platforms are theirintangible or digital assets. Digital assets refer to content in any format that is storeddigitally and provides value to the company. For social media platforms digitalassets are their user base and the data that they generate. In investment arbitration,contracts and subscriptions are understood to be assets as well. It has been widelyobserved that both tangible and intangible assets are susceptible to expropriation.The business model of social media platformsSocial media platforms gained prominence only a decade ago and became worthbillions of dollars rapidly. Such a phenomenon has been termed to be extraordinaryand truly signifies this distinct form of business model.These platforms coordinate the demand of distinct groups of customers who aredependent on each other. They essentially make money by renting out spaces foradvertising, engaging with application developers and most importantly by sellinguser information to advertisers.Furthermore, such platforms do not require physical assets in abundance. Thedata obtained by users is their principal asset, which also forms a part of theirdigital assets. This way, the social media platforms invest less as compared to whatthey reap in return. Hence, for social media platforms it is evident that the amountinvested and the value of the return on investments are not always proportional as ithas also been recognized internationally.Government measures against social media platformsAll around the globe there have been instances where the government has takenmeasures directed towards foreign social media platforms for privacy issues,personal data, user’s correspondence and for maintaining peace and order in thesociety.In the case of Cengiz and Others v. Turkey, the European Court of Human Rightsfound that blocking of YouTube in Turkey violated the right to freedom of expression.Turkey had blocked Youtube several times between 2008 and 2016. Such incessantbanning of the website impacts its business prospects.On the other hand, there has been a rising support for foreign direct investmentin information technology sector where numerous countries have invited foreigninformation technology companies to invest in their territories. It is important to notethat such instances constitute the basis of legitimate expectations.Legitimate expectations can be created by government officials of a countrystating that they will be following a particular stream of politics accompanied bythe necessary actions. Therefore, it may be inferred that after such statements- 2 -regarding information technology companies a ban of them may violate legitimateexpectations. The violation of such expectations might be qualified as expropriation.Expropriation refers to the legitimate need and the right of the government to takeprivate property for public purposes. The investor must be compensated for such anexpropriation. A detailed study can be found here.In light of the Youtube ban by Turkey, social media platforms should raise suchissues of government measures against them to the pedestal of an investor-statedispute and demand compensation.It is imperative that the government measure needs to cause substantial andpermanent economic deprivation to the social media platforms. A temporary blockingof such platforms cannot constitute an expropriation. However, if the deprivationis caused by a temporary ban which effectively neutralizes the assets of theseplatforms, then such platforms are said to be expropriated by the government.Sometimes, governments may introduce laws in good faith which are not directedagainst any enterprise. For example, the Indian government blocked several socialmedia platforms in the state of Jammu and Kashmir after revoking the highlycontroversial Article 370 of the Indian constitution. Additionally, there was a furor inthe Indian parliament as the opposition leaders were put under house arrest. Due tothe ban on internet no social media site could be accessed by anyone in that state.The government claimed that it was necessary to have the ban as there have beennumerous instances where these sites were used by terrorist groups for spreadingseparatist propaganda.Such laws may be violating legitimate expectations and may constitute expropriation.Additionally, when an indirect Government measure substantially affects thelegitimate benefits associated with a right conferred by the host state, it isnecessary that the conferment in question is rendered useless in order to constituteexpropriation. Assessments of such nature are very fact specific and cannot begeneralized easily.ConclusionThe preceding sections demonstrate that a new business model has come upbringing along its own set of legal complexities. These complexities, when addressedat an international level, raise concerns how social media platforms should beassessed in the current backdrop of conventional investor-state dispute resolutionsystem.A tribunal facing the problem of weighing the right of the host state to protectpeace and order in its territory on the one hand and the expectations of a socialmedia platform to conduct its business on the other, must adapt its conventionaljurisprudence to this new field. As an arbitration tribunal cannot be asked to judgewhich periods of a ban were arbitrarily, since the state can sovereignly decide onmatters of internal peace and security, the investor needs to be compensated for theloss of opportunity to make profits.- 3 - Vivek Sharma and Shreya Jha are undergraduate students at Guru Gobind SinghIndraprastha University, New Delhi. Cite as: Vivek Sharma & Shreya Jha, “Social Media platforms asexpropriated investors. Reviewing state measures from the perspective ofinternational investment law”, Völkerrechtsblog, 3 December 2019.- 4 -

Social media platforms as expropriated investors: Reviewing state measures from the perspective of international investment law

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Social media platforms as expropriated investors: Reviewing state measures from the perspective of international investment law

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