The Real Supreme Court Bombshell Could Ignite One Sector

It's all over the news today: Senate Republicans unanimously voted to advance Amy Coney Barrett's nomination for Associate Justice of the Supreme Court to the full Senate.

Meanwhile, a court matter of huge importance to investors isn't front-page news, but most definitely should be: The Supreme Court may very well have the $9 trillion tech sector - particularly the FAANGs - in its sights.

Of course, the Supreme Court hears and rules on cases of national and even global importance sometimes. But it's not every day a case like Malwarebytes Inc. v. Enigma Software Group USA LLC comes up. This case concerns massive issues of technology, money, freedom of speech, and everything that stems from that - including the elections - all rolled into one.

There's a lot at stake here, and I'm going to walk you through what's going on because, as I said, this is a $9 trillion issue impacting some of the richest, best-performing stocks in the market. Vast fortunes, including countless retirement accounts, are in play.

Which way the court decides to go here is going to impact the stock market like a ton of bricks... or, on the other hand, a tank of jet fuel...

The Lawsuit Next Time

In Malwarebytes v. Enigma, Enigma sued Malwarebytes, alleging Malwarebytes engaged in anticompetitive conduct by reconfiguring Enigma's products to make it difficult for consumers to download and use them.

In its defense, Malwarebytes invoked Section 230 - something we've been hearing more and more of in the background lately.

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Section 230 of the 1996 Communications Decency Act states that a computer service provider cannot be held liable for providing tools "to restrict access to material" that it "considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable." Section 230 is also known as the Internet immunity law.

Broadly speaking, Section 230 essentially says that no interactive service provider should be considered the publisher or "speaker" of any information provided by another content provider. Importantly, and germane to Malwarebytes v. Enigma, the law also holds that no service provider could be held liable for offering, in good faith, a filter to restrict access to such content as people might find objectionable.

For example, if Mr. X makes a libelous Facebook post or tweet about Mr. Y, Facebook or Twitter would be immune from any suit or prosecution, because Facebook or Twitter are merely the platform. Mr. X would likely be the party in hot water.

Say Mrs. A uses a Gmail account to commit fraud, say, or insider trading, Google - the provider of the Gmail service - would likely be immune from any action stemming from that illegal activity; Mrs. A would be the one in trouble.

What's more, if XYZ Inc. offers otherwise legal adult content to folks age 18 and over, and Google offers its users a filter they might use to block that adult content should they deem it objectionable, XYZ can't sue Google for throttling its free speech or damaging its business. In this case, Google is merely making a good-faith effort to create community guidelines.

Or, oversimplified, the writer can get in hot water, as can the publisher, but generally not the newsstand or the library.

So, ultimately, the reason Malwarebytes lost the case on appeal to the Ninth Circuit is the Court concluded that "immunity is unavailable when a plaintiff alleges anticompetitive conduct."

Two things are important to understand here.

The Ninth Circuit denied Malwarebytes' protection under the Internet immunity law, not because it couldn't be held liable for what Enigma alleged, but because the Court interpreted the law as not applying to anticompetitive conduct.

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While the two issues might appear to be comparing apples to oranges, the denial of the Appeals Court to provide safe harbor to Malwarebytes under Section 230 puts into question other companies' reliance on Section 230 for Internet immunity.

That doesn't affect any other cases, past or pending, where Internet immunity was or might be successfully relied upon; it only narrowly denied use of the law when the issue at stake is anti-competitiveness.

When Malwarebytes attempted to take the case to the Supreme Court, Justice Clarence Thomas, writing for the majority, denied Malwarebytes' petition for a writ of certiorari - it declined to review the Ninth Circuit's ruling, letting the lower court's ruling stand.

What's important is in writing for the Majority, Justice Thomas said, "The decision is one of the few where courts have relied on purpose and policy to deny immunity under §230."

And most importantly, Thomas wrote, "I agree with the Court's decision not to take up this case. I write to explain why, in an appropriate case, we should consider whether the text of this increasingly important statute aligns with the current state of immunity enjoyed by Internet platforms." [Italics my own.] Justice Thomas added, "Many courts have construed the law broadly to confer sweeping immunity on some of the largest companies in the world."

And that is the big deal here. That is the Supreme Court bombshell.

In other words, the Court is essentially inviting cases to be sent up to it so it can rule on Internet immunity, not in the context of competitiveness, but in the broadest sense of immunity and who's responsible for what on the Internet.

Bear with me - I'll explain how and why this will end up shifting capital...

Why This Could Move Billions in Mega Caps

The Internet, and social media platforms like Facebook, Twitter, and dozens of other smaller platforms catering to every taste and preference on the spectrum, loom large in our lives today.

But the Internet in general and social media in particular are increasingly cited as a platform for mischief, disinformation (i.e. fake news), or even worse, violence. Aside from blatantly illegal activity, social media companies tended to take a hands-off approach to policing user content, though that's starting to change.

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They've often pointed to Section 230 immunity.

But Justice Thomas and, apparently, a majority on the high court, have now signaled their desire to closely examine that Section 230 immunity.

That may very well upend social media companies like Facebook Inc. (NASDAQ: FB), Twitter Inc. (NASDAQ: TWTR), or even Alphabet Inc. (NASDAQ: GOOGL).

If it transpires that those companies might go without the sweeping Section 230 immunity they've enjoyed since 1996, that would have knock-on effects and repercussions across a huge swath of the market. As we've seen countless times, lawsuits or regulatory pressure can send even the biggest stocks soaring or tanking, depending on how they're handled and, of course, the actual outcome.

Justice Thomas rounded out his majority decision saying, "Paring back the sweeping immunity courts have read into §230 would not necessarily render defendants liable for online misconduct. It simply would give plaintiffs a chance to raise their claims in the first place. Plaintiffs still must prove the merits of their cases, and some claims will undoubtedly fail. Moreover, States and the Federal Government are free to update their liability laws to make them more appropriate for an Internet-driven society."

What's going to change and when it will change is still uncertain, but the Supreme Court has thrown down the gauntlet here, and expressed, in its own reserved way, its eagerness to put Section 230 to the test.

Obviously, in the event, the FAANGs and other social media and tech companies would be most impacted, but I think the play to watch here is the cybersecurity segment, as tracked by the ETFMG Prime Cyber Security ETF (NYSEArca: HACK).

Watch this for one simple reason: Cybersecurity companies, nearly all of which offer at least some products that speak directly to what's objectionable, or that have the capabilities to track illegal activity, will be in increasingly high demand in a world where there's some kind of reduced Section 230 immunity.

That's where the money's going... and where you should be going, too.

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