August 26, 2020

Big Tech Faces Antitrust Scrutiny


KEY TAKEAWAYS

  • A handful of technology companies grew very big, very fast by creating popular products and services; now there are widespread concerns they have become too dominant.
  • There has been a growing regulatory, legislative, and legal scrutiny of “big tech,” in the U.S. and the European Union.
  • Members of Congress are divided on whether antitrust law needs to be updated to reflect the digital age, or if the current laws just need to be enforced more rigorously. 

The internet-driven technology revolution of the last three decades has affected nearly every part of American life and commerce. Some large technology companies, including Facebook, Amazon, Google, and Apple, are a daily presence in people’s lives and dominate entire sectors of the economy.

The innovation and investment from these companies has created amazing technological devices and services, enhanced the human condition in distinct ways, generated enormous wealth, and created millions of American jobs. But the immense influence of these companies in people’s daily lives also has led to growing regulatory, legislative, and legal scrutiny of “big tech.”

The Department of Justice and the Federal Trade Commission – the agencies responsible for enforcing federal antitrust laws — have launched broad investigations into tech companies. The companies face antitrust scrutiny from state attorneys general, as well as governments overseas. Under U.S. antitrust law, consumer welfare, not the size of a company, is the key consideration.

Congress investigates

Lawmakers in both houses of Congress also have put big tech under the spotlight. Senate Judiciary Committee Chairman Lindsay Graham held a hearing in May 2019 scrutinizing digital advertising. The committee’s antitrust subcommittee, chaired by Senator Mike Lee, has held hearings examining the potential for digital platforms to favor their own products over those offered by others and their acquisitions of potential competitors.

The House Judiciary Committee has held hearings since last summer as part of a bipartisan investigation into “online platforms and market power.” The antitrust subcommittee has heard testimony from supporters and critics of big tech; drilled down into the role of data and privacy in competition; and examined the companies’ impact on innovation, entrepreneurship, and the free press. The heads of the FTC and the antitrust division of the DOJ both testified. The hearings concluded last month with testimony from the heads of Facebook, Amazon, Google, and Apple − four of the six most valuable companies in the world.

During the last hearing, the chairman of the subcommittee, Rep. David Cicilline, said: “this hearing has made one fact clear to me — these companies as they exist today have monopoly power. Some need to be broken up; all need to be properly regulated and held accountable.” The subcommittee’s ranking member, Rep. Jim Sensenbrenner, disagreed: “I have reached the conclusion that we do not need to change our antitrust laws. They’ve been working just fine. The question here is the question of enforcement of those antitrust laws.” The committee expects to release a report with legislative recommendations in the coming weeks.

facebook: a global giant

Big Tech Antitrust Security

In addition to the social networking service it started with, Facebook competes in online image sharing, messaging, virtual reality, and other emerging technology markets. Antitrust scrutiny of Facebook has focused mostly on its acquisitions of competitors or potential competitors. The two that have caused the most concern are its purchase of Instagram in 2012 and messaging service WhatsApp in 2014.

In addition, Facebook has drawn attention for its effect on the news industry, particularly on local newspapers, which rely heavily on advertising revenue. The president of a coalition of media organizations said at one of the House hearings that 93% of Americans get at least some of their news online, and “a small cadre of tech giants exercise an extreme level of control over news. At the same time, those same platforms also control the digital advertising technologies that news organizations use to monetize traffic. This has proven to be a dangerous combination.” The group supports legislation that would allow media companies to bargain collectively against dominant tech platforms. Antitrust law currently bans such collective bargaining among competitors. Facebook’s director of public policy argued that “more than 92% of advertising happens off Facebook [and] less than a quarter of new U.S. online ad spend goes to Facebook.” 

Facebook faces a number of antitrust investigations. In July 2019, it announced the FTC had opened an antitrust investigation into the company. CEO Mark Zuckerberg reportedly testified last week as part of the investigation, which is not expected to be completed until 2021. In July 2019, the Department of Justice announced a wide-ranging investigation “reviewing whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.” The investigation is ongoing. Attorneys general in at least 47 states are investigating Facebook to determine whether it has violated one or more state or federal antitrust laws.

Amazon: the everything store

Big Tech Antitrust Security

Started in a garage 26 years ago as an online bookstore, Amazon is one of the most successful companies of the internet age. It is America’s second largest private employer, with 590,000 employees, and was the third most admired company in a Harris survey. One market research firm estimates Amazon will control 38% of the e-commerce market in the U.S. by the end of this year; the next closest competitor is Wal-Mart with less than 6%. At the end of 2019, an estimated 122 million Americans, nearly half of all adults, subscribed to the Amazon Prime subscription service. For $119 per year, subscribers get free one-day shipping on most items, access to a streaming service, grocery delivery, and other perks. The company also is a leader in cloud computing, artificial intelligence, smart home technology, and drones.

Amazon has faced antitrust scrutiny on a variety of fronts, including possible predatory pricing. Recently investigators have focused on Amazon’s potential use of its massive amount of data to gain insight into products sold on the site and then launch competing products. A Wall Street Journal article based on interviews with former Amazon employees alleged this practice was common. Amazon CEO Jeff Bezos testified in the House that the company has a policy against using third-party data but that he could not “guarantee that policy has never been violated.”

The EU is reportedly preparing to file formal antitrust charges against Amazon for its treatment of third-party sellers. The company also faces separate investigations from Canada and Germany.

google: all the world’s information

Big Tech Antitrust Security

Since 2015, Google has been a subsidiary of parent company Alphabet. It competes in dozens of markets, including online search and marketing, smartphones, email, virtual reality, mapping, and navigation. YouTube, which it bought in 2006, is the leader in online video-sharing, with more than 500 hours of video content uploaded to the service every minute. Google also develops the open-source Android mobile operating system, which powers millions of smartphones, some made by Google and others made by competitors like Samsung. Other Alphabet subsidiaries are focused on artificial intelligence, internet service, cloud computing, autonomous vehicles, human health, and drones.

Like other tech behemoths, Google is the subject of significant antitrust concerns. The DOJ antitrust division is reportedly drafting an antitrust lawsuit against the company. Forty-eight states, the District of Columbia, and Puerto Rico have joined an antitrust investigation of the company led by the Texas attorney general. The investigation is focused on Google’s dominance in online search and advertising. The company has been fined at least three times by European regulators, most recently for $1.7 billion in 2019 for abusing its power in the ad industry. Google has since changed the policy that led to the fine. EU investigators are reportedly scrutinizing the company’s planned acquisition of health and wearables company Fitbit.

Google’s director of economic policy pointed to several factors policymakers should consider when analyzing the company from an antitrust perspective: the value Google provides for consumers and businesses; the continued status of the U.S. as the leader in innovations and startups; and the general state of the technology sector and its contribution to the American economy.

Apple: the world’s most valuable company

Big Tech Antitrust Security

Apple is primarily a consumer electronics company, making personal computers, smartphones, wearables, smart home devices, as well as online services and streaming. Earlier this month, Apple became the first U.S. company to reach a valuation of $2 trillion.

Apple has gotten substantial antitrust attention for the commissions of up to 30% it charges developers on its App Store. Apple CEO Tim Cook testified before House members that “Apple’s commissions are comparable to or lower than commissions charged by the majority of our competitors. And they are vastly lower than the 50 to 70% that software developers paid to distribute their work before we launched the App Store.”

Earlier this month, Epic Games, which makes the popular video game “Fortnite,” made changes to allow in-app transactions that do not go through the App Store. Apple immediately removed Fortnite from the store. Epic responded by filing antitrust lawsuits against Apple and Google, which had taken similar actions in its store for apps, alleging multiple violations of the Sherman Antitrust Act. The case may have significant repercussions for the two companies and for the app economy.

Issue Tags: Judiciary, Technology