Why Google and Facebook folded on sex-trafficking bill

Silicon Valley folded in a fight over a major anti-trafficking bill after months of mounting pressure from both political parties. The industry forged a compromise with senators that, while better for tech than the original proposal, amounts to the first major legislative defeat for tech giants Google and Facebook.

Why it matters: Online platform companies initially dug in their heals when lawmakers first approached them about the proposal. The fact that they were forced to make a compromise signals a big change for Big Tech, which has enjoyed immense political power in Washington during the past decade but now faces significant new pressures on several fronts.

What the bill would do: The Stop Enabling Sex Traffickers Act (SESTA) would reduce legal protections for platforms that host user-generated content, allowing trafficking victims to sue if platforms had knowingly facilitated the crime. Online platform companies initially argued the bill undermined their business model and could open the door to more legal liability for content on their sites.

But last week, the Internet Association, which represents Google, Facebook and other web companies, endorsed the bill after reaching a deal to modify some language. The bill — and the compromise amendment — moves to its first vote this morning.

Behind the scenes: Here's how it the compromise came together, according to interviews with multiple sources with knowledge of the negotiations:

• Google put up a significant fight over the bill. The company proposed several changes, including having the Justice Department sign off on state attorneys general pursuing the sites, which the bill's backers rejected as attempts to significantly weaken the bill, said two Senate sources. Facebook, meanwhile, didn't push back as hard on the compromise or engage in significant active lobbying as the negotiations reached the home stretch, according to multiple people. Both companies declined to comment.Facebook COO Sheryl Sandberg said in a Facebook post yesterday that she is "grateful" that lawmakers reached a compromise.
• Senators from both parties ratcheted up the pressure to make a deal. That includes Senate Commerce Committee Chair John Thune, who wanted a compromise before the bill proceeded to a committee vote, multiple sources said. Another source said that Senate Democratic Leader Chuck Schumer wanted to see the companies and lawmakers reach a deal.
• A group of lawmakers shared some of the tech industry's concerns but pushed the industry to work out a compromise. A cadre of Democrats led by Sen. Kamala Harris wanted to see changes to the bill before they signed on. They ultimately did the same day the compromise was announced.
• Staffers for Sens. Rob Portman and Richard Blumenthal huddled with the Internet Association and Thune's staff in the final weeks of negotiations, the two Senate sources said. The deal was only finalized nine minutes before the deadline to circulate the proposed text to members of the Commerce Committee, according to one of the sources. The Internet Association declined to comment.

What they're saying:

• Some tech industry sources tell us the deal isn't considered much of a win for tech, but was necessary given the political circumstances. "This is grudging, but a recognition of the politics," said a technology industry source, adding that the tech firms also understood the gravity of the sex-trafficking crimes involved.
• Others argue that the changes are substantive, making it possible for companies to fight trafficking without incurring new liability and ensuring that all claims brought by state officials are tied to federal law. They also say there was a very real chance that the bill could have passed as it was originally written, which would have been a worse outcome for the industry.

• Engine, which represents smaller internet companies, and TechFreedom said Monday that support for the bill signals "good intentions and the importance of the issue, but doesn't mean the bill is the best way to fight sex trafficking. Nor, unfortunately, will the changes announced on Friday prevent the bill from backfiring."

The bigger picture: These negotiations have been going on for months but came to a head late last week, in the midst of two days of tense hearings where Google, Twitter and Facebook were questioned about Russian manipulation of their platforms to influence the presidential election.

• Many in the tech industry felt they needed to resolve the sex-trafficking issue in part to focus on other battles coming down the pike, including a separate bill seeking new online political ad disclosures, sources say.
• "I can't think of another issue where tech had to fold like this," said a Senate aide familiar with the negotiations.

What's next?: If the bill passes today the next step would be a vote on the Senate floor. That could be blocked, or at least made more difficult, by Sen. Ron Wyden, who wrote the law that protects web platforms from being liable for the content their users post.

Be smart: After tech heavyweights defeated a pair of piracy bills in 2012, lawmakers tip-toed around issues that could tick off the industry. Tech lobbyist even reminded SESTA bill sponsors of that win during early talks about the bill, two sources said. The industry still has plenty of clout in Washington, but new skepticism and policy fights have emerged over the past five years.