A Texas law is a major problem for Facebook. Here’s why.

Tech companies got some relief last week when the Supreme Court moved to suspend the law, but there’s no guarantee that will stay that way pending a full review of the case in US District Court.

The story begins last fall, when the Texas House voted overwhelmingly to pass a measure called HB 20, which prohibits social media platforms with more than 50 million US users from filtering content. The bill was proposed by Republican State Rep. Briscoe Cain, who said social media companies should be classified as common carriers, like telecommunications carriers, and shouldn’t have the same type of editorial decision-making powers than media companies.

There are echoes here of the ongoing fight in Washington over Section 230, a provision of the Communications Decency Act of 1996 that established the ground rules for the modern Internet. Section 230 protects social media sites from legal liability for content posted by users, while giving such sites the ability to monitor content and remove material deemed objectionable.

By signing HB 20 into law last September, Texas Governor Greg Abbott positioned the measure as a method of protecting free speech. Opponents claim otherwise.

“There is a dangerous move by social media companies to silence conservative views and ideas,” Abbott said. “That’s wrong, and we won’t allow it in Texas.”

NetChoice, a tech trade group, said, “By passing HB 20, the Texas Legislature has given little thought to the First Amendment.”

Facebook and other referred social media companies Barrons to NetChoice when asked for a comment on HB 20.

NetChoice argues that the law leads to a world in which social media is overflowing with objectionable content. “The government cannot force corporate America to harbor and distribute a vile mass murderer’s manifesto, Putin’s anti-Western propaganda, or anti-Semitic Holocaust denial,” NetChoice said in a recent statement.

After mixed rulings in federal court, the Supreme Court voted last week to reinstate a lower court stay of the law, pending a full review of the case in district court.

On the surface, it’s a big win for technology, but the law is far from dead.

In issuing his stay, the 5 to 4 majority of the Court did not issue a written opinion. Meanwhile, a strong dissent from Judge Samuel Alito laid the groundwork for a legal argument that would undermine social media’s ability to control posts.

The dissent echoes the arguments of Texas lawmakers. “This motion concerns matters of great importance which will clearly merit the consideration of this Court,” Alito wrote.

Paul Gallant, chief executive of the Cowen Washington Research Group, said while the Supreme Court’s decision was “unambiguously good” for social media companies in the short term, the narrow 5-4 vote means there is still plenty of uncertainty.

The dissent, Gallant notes, argues that “it is not at all clear how our existing precedents, which predate the Internet age, should apply to large social media companies.”

Gallant thinks that comment could encourage other politically conservative states to pass similar laws, likely without waiting for the final adjudication of the Texas law.

And this is where things get problematic for tech companies and their shareholders. Blair Levin, technology policy analyst at New Street Research, wrote that the Texas law could trigger “the end of the current business model for social media platforms.”

If the Texas law stands, he said, social media companies would face an untenable choice. They could maintain current moderation practices, but that likely leads to a steady stream of lawsuits that platforms would likely lose under HB 20.

The other option is to open their platforms to content often now banned, such as “hate speech, threats of violence, sexually explicit material, dangerous medical advice”. This type of content could cause advertisers to withdraw from the platforms.

“The Texas law, if upheld, would lead to a downward cycle in which the value of every major social media platform will be less than it is now,” Levin wrote.

The 50 million user threshold means that HB 20 applies to a range of social media companies, from Facebook, Twitter and YouTube to Alphabet to TikTok,

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According to Levin, the law ignores the business model of social media. Companies have an incentive to maximize advertiser interest, he argues, not support specific political positions.

“If the government imposes different practices, it risks creating a less profit-optimal business model,” he warns. “If upheld, the law will change the business model in negative and likely material ways for investors.”

Write to Eric J. Savitz at [email protected]