Circumventing Federal Regulation: The Advent of Shadow Regulation on the Internet

October 13, 2016

A new trend in the seemingly lawless land of the internet are controls that regulate how we use the internet. These shadow regulations, as the Electronic Frontier Foundation has dubbed them, are now increasingly being established through private industry agreements. They are typically voluntary agreements between companies, unknown to the public, and affect activities conducted on the web. The regulations stand to take the place of several somewhat failed government attempts to regulate internet usage, such as the Stop Online Piracy Act (SOPA), but are now presenting unforeseen problems in the marketplace.
The government’s previous initiatives have proved largely unworkable due to the complicated nature of creating and passing legislation that addresses the constantly evolving internet landscape. Therefore, self-regulating private deals often fill the gaps where legislation ends and current issues arise. One main advantage to self-governance is that industries are more familiar with their respective markets and thus better equipped to regulate them. Compared to generalized guidance from the federal government, this enables more workable solutions to be made for specific industries. It can also be more adept at identifying and deterring illegal conduct in specific markets and is able to stop such behavior outside the criminal and civil law. Despite these advantages, self-regulation also comes with big problems.
This regulation has created disadvantages for the public, leading industries to use shadow regulation in order to control prices and dominate the market with certain products. The pharmaceutical industry is a major player in creating these private deals and uses them to keep the price of drugs from dropping as well as regulating the number of generics that enter the market. Big pharmaceutical companies have been hard at work to stop consumers from buying cheaper generic drugs online, often from foreign nations. While federal law already prohibits the importation of drugs from foreign countries, federal regulation is not meeting big pharma’s standards and has prompted them to take matters into their own hands.
The big pharmaceutical industries have been working with payment processors, internet platforms, delivery providers, and domain name companies to create a shadow regulation for the industry. For example, a pharmaceutical industry will create a private agreement with Paypal (online payment provider), Google (internet platform), UPS (delivery provider), and GoDaddy (domain name company) to secretly regulate what pharmaceuticals can be bought online. The pharmaceutical companies are bound together through membership in groups such as Alliance for Safe Online Pharmacies (ASOP) and the Center for Safe Internet Pharmacies (CSIP). These groups work to keep counterfeit and fake drugs out of the U.S., but also block legitimate overseas online pharmacies from selling drugs to Americans. While this in accord with federal regulations, the effect on consumers is significant.

The public has no legal recourse if they wish to take action against these regulations because it is outside the legal realm, with no oversight or accountability.

There are benefits and pitfalls of shadow regulation. Shadow regulation is making it easier for the federal government to keep tabs on internet usage by allowing them to be a part of these agreements without having to go through the strenuous process of passing new legislation. This provides them with a somewhat “hands off” way of preventing people from using the internet in undesirable ways and circumventing federal laws, e.g. importing counterfeit drugs online. But, it can also lead to cyberanarchy by placing regulation in the hands of a powerful few who will dominate their respective markets through agreements between companies. A balance between these interests is needed to provide a safe while unobtrusive solution to regulate internet usage.