What happened
On Tuesday, Alphabet (GOOG +1.09%)(GOOGL +1.37%) investors could be forgiven for thinking they had vaulted backwards in time to the long tech bear market of 2022. Their company's share price dove by 2.6% on the day, a worse showing than the 1.9% drop of the S&P 500 index. Alphabet's core business unit was in the spotlight and not in a positive way.
So what
That day, the U.S. Supreme Court heard arguments in Gonzalez vs. Google, a case concerning Alphabet's YouTube.
A young woman, Nohemi Gonzalez, was killed in an Islamic State attack in Paris in 2015. Her family essentially claims that YouTube shares responsibility for her death. They contend that the popular video-sharing site's algorithms had pushed the terrorist's group's content to viewers.
Alphabet and social media site operators like Facebook parent Meta Platforms are essentially shielded from liability for user-posted content by Section 230 of the U.S. Communications Decency Act.
Section 230, and the court rulings that have resulted from it, holds that no provider of an "interactive computer service" which publishes this type of content can be treated as its publisher or speaker. In practical terms, this means that companies disseminating this material online are basically immune from being prosecuted for it.
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Key Data Points
Now what
The Gonzalez case has been won by Alphabet in lower courts, and while the Supreme Court has the power to reverse a decision or precedent, it seldom does so. On top of that, the latest reporting on the Gonzalez arguments is that the Justices were leaning toward a ruling in favor of the company.
Nevertheless, Section 230 is the legal rock upon which social media and other forms of online content posting/sharing are built. Investors are understandably nervous, at least to some degree, that Alphabet and its peers are currently facing major challenges like this case.
