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Craigslist Shows that High Tech Is an Easy Regulatory Scapegoat

A group of attorneys general seemed to get its way as Craigslist finally took down its adult section, at least in the U.S. The states wanted to fight prostitution, so their top prosecutors said. But this is a mass of hypocrisy and shows a new danger for the high tech industry: become a distraction that politicians can trot out for the masses and a way for cash-strapped governments to supplement their revenue through fines.

Legal pressure on the online classifieds company has mounted for years as attorneys general claimed that the company provided a forum for prostitution ads. In May 2009, Craigslist removed the erotic services category from its U.S.-location sites, although it kept the category in other parts of the world.

Clearly Craigslist wanted to keep the listings, as it was one of the categories in which posters paid and helped underwrite the many that are free. A common complaint by district attorneys is that the adult services frequently involve minors and human trafficking. But, really, are the DAs and AGs going to pretend that the same ads, or worse, don't appear in alternative weeklies, in newspapers, and other local outlets? When questioned on NPR about the sole focus on Craigslist, Missouri Attorney General Chris Koster replied as follows:

I think that's a legitimate criticism of the situation. We are focused on Craigslist at this point because it is the biggest and most frequently visited of these types of sites.
Craigslist is not a local business that gets revenue and that probably supports someone or other for political offices, both in contributions and in endorsements. It is the business from out of town that allows these office holders to portray themselves as crusaders without paying a price for looking uncomfortably close to home.

Craigslist is not the only high tech company facing potential hassle. Google (GOOG) has raised many concerns over regulatory compliance of various sorts. But now Texas has opened an inquiry into the company's search services. Google tried to link the inquiry to Microsoft (MSFT). There is evidence that Microsoft is trying to use regulation as a competitive weapon, but a bigger danger for both companies, and others, exists.

Remember the huge multi-state lawsuit against the tobacco industry? The cigarette companies paid billions and the states lapped up the cash, and then often used it to cover other state expenditures. The money from the suit became a funding mechanism. High tech companies, collectively with many tens of billions of dollars in banks, represent the same. You can expect countries, states, cities, and any other governmental body capable of hiring lawyers, to consider whether, during tight times, big out-of-state tech companies that have historically been sloppy about regulatory compliance might not provide a financial lifeline.


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