According to the New York Times, the smaller rivals, which have largely been publicly quiet until the hearing, finally stepped up to the plate and sounded off on big tech at a hearing in Boulder, Colorado.  The Congressional subcommittee heard stories of technology giants wielding their massive footprints and platforms as weapons, allegedly copying smaller competitors’ features or tweaking their algorithms in ways that stifle competition.

The pleas for regulatory relief resonated with lawmakers, led by Rep. David N. Cicilline (Democrat – Rhode Island), the chairman of the House’s antitrust subcommittee. Cicilline noted that “it has become clear these firms have tremendous power as gatekeepers to shape and control commerce online.”

The executives sounded off on big tech and the bipartisan committee encouraged them to testify about their stories.  The founder and CEO of PopSockets, explained how his company clashed with Amazon over policies that made it hard to sell his products on his preferred terms and prices.

Executives at Sonos, a high-end audio company, and Basecamp, which makes web-based product management tools allege that Google undermines smaller rivals. Sonos has sued Google, alleging patent infringement.  David Heinemeier Hansson the co-founder of Basecamp explained that its competitors have been purchasing ads on Google against the company’s own name, meaning people who search for Basecamp see rivals unless they scroll down their results page.  In other words, Hansson says that Google requires companies “to pay protection money” — or risk obscurity.

Tile makes Bluetooth trackers that can be attached to your personal possessions to help you keep track of them.  A Tile executive explained how Apple rolled out the “Find My” device tool — built into its operating system — that resembled Tile’s app used to find devices making it more difficult for Tile to compete.  From Tile’s perspective, it created a helpful tool for consumers, which was then copied by Apple and then Apple made its app the default on its devices, purposely hurting Tile’s business by making it more difficult for iPhone users to change their default settings, thus creating hurdles for Tile’s app that does not apply to Apple’s app. Tile wants a level playing field.

Along the lines of Tile wanting Apple to simplify what it claims is a too-complicated process right now, Apple shared a statement as part of the congressional hearing suggesting that a fix to this is coming soon. Per the statement shared by a CNBC reporter, Apple noted that:  “When setting up a new device, users can choose to turn on Location Services to help find a lost or misplaced device with ‌Find My‌ ‌iPhone‌, an app that users have come to rely on since 2010. Customers have control over their location data, including the location of their device. If a user doesn’t want to enable these features, there’s a clear, easy to understand setting where they can choose exactly which location services they want enabled or disabled. “…We’re currently working with developers interested in enabling the ‘Always Allow’ functionality to enable that feature at the time of setup in a future software update.”

Democrats and Republicans at the hearing sympathized with the executives.  There was little push back against the testimony of the small rivals.  Indeed, small rivals are encouraged to approach the DOJ Antitrust Division, FTC, and Congress about how the tech giants have used their powerful positions in search, e-commerce, online ads and smartphones to squeeze them out.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The notion that antitrust enforcement is motivated by politics has hung over the Trump administration since the Department of Justice’s failed attempt to block AT&T’s acquisition of CNN’s owner, Time Warner and some antitrust experts might point out that the Obama administration also influenced the DOJ’s decisions to sue or settle cases.

While politics has always played a role in setting the antitrust agenda, typically antitrust investigations and enforcement decisions are based on the facts.  Indeed, there is no credible evidence that the big tech firms have engaged in unlawful monopolization or that they have stifled innovation.  In fact, Iowa’s Attorney General Tom Miller, who is well known for his role of leading 20 states in the DOJ’s antitrust suit against Microsoft, said this past July that “[w]e are struggling with the law and the theory,” to bring a case against the big tech firms.

But, this didn’t stop the state AGs from entering the fray.  Republicans are concerned that the tech platforms have suppressed conservative viewpoints, Democrats are worried that these tech companies are simply too big and powerful.  But the announcements of the state AG investigations into Google and Facebook have two things in common: a lack of substance as they can point to no consumer harm and publicity to tout their efforts.

The latest announcement of the state AGs’ investigation of Google – from the steps of the Supreme Court no less – demonstrates just how political antitrust enforcement is becoming.  This type of high-profile activism may benefit state AGs’ political aspirations, but it could impose enormous costs on consumers.  Indeed, the mere threat of numerous investigations could have a chilling effect on innovation and competition for as long as these probes last.

Some state AGs appear to be conflating antitrust and other politically popular pet causes, raising the specter of using antitrust enforcement for political gain.  On the same day of his announcement of the Google investigation, Texas Attorney General Ken Paxton sent a fundraising request in an email to his supporters touting his efforts to take on “Silicon Valley titans.” And, according to a copy of the email shared with POLITICO, Paxton asserts “Texans are put at risk” by Google because of the company’s market dominance and privacy practices, and because its “executives clearly display anti-conservative and anti-Republican bias, subtly controlling what Americans see when they search for information about national political issues.”  But political concerns have no place in an antitrust investigation and using antitrust investigations to punish speech raises profound First Amendment concerns.

As the federal antitrust authorities and the state AGs begin their investigations, they must be mindful that companies like Google and Facebook have delivered a tremendous amount of innovation enabling the launch of new products and services that have resulted in many benefits to consumers such as free online search, email, messaging, and artificial intelligence services all while competing in a highly competitive advertising market with the likes of AT&T, Disney, CBS, and Comcast/NBCU.  These multichannel competitors have been locked in the stone age for years, are now finally innovating to compete against the new digital advertising entrants such as Google, Facebook, and Amazon.

In addition to competing with the large entertainment companies for users’ eyeballs and time, Google fiercely competes with Facebook, Amazon, and Apple in various ways, including the development and launch of new products and services such as digital assistant devices, internet of things platforms, and virtual reality products, providing consumers with an abundance of choices and convenience.  In short, the big tech platforms are not successful because they are big and powerful – they are big and powerful because they have been successful.  And that success stems from the nature of a free market economy that provides incentives of firms to innovate and grow.

Without question, this type of efficiency and competition should be preserved.  What’s more, utilizing antitrust enforcement as a political tool is a threat to the rule of law.  Antitrust enforcement should not be turned into a political enterprise to police unrelated, and unsubstantiated, “harms” based on subjective moral and social judgments.  Instead, it must continue to be primarily based on sound theories, objective economic criteria, and evidence of consumer harm.  For years, enforcement decisions were based on the consumer welfare standard – not on populist standards that change with the political winds.

Remember the antitrust laws are focused on consumers and whether any company is disadvantaged by Google’s business practices is not at issue – the central issue to a court will be, do consumers pay more.  And although there may be pockets of disgruntled rivals, there is little to no evidence that consumers have paid more because of the way that Google conducts its business.

Andre Barlow

202-589-1838

On the same day, Assistant Attorney General Makan Delrahim of the Antitrust Division of the U.S. Department of Justice (“DOJ”) said the DOJ is working with a group of more than a dozen state attorneys general as it investigates the market power of major technology companies.  Delrahim said at a tech conference that the government is studying acquisitions by major tech companies that were previously approved as part of a broad antitrust review announced in July of major tech firms with significant market power.  “Those are some of the questions that are being raised… whether those were nascent competitors that may or may not have been wise to approve,” he said.

On July 23, the DOJ said it was opening a broad investigation into whether major digital technology firms engaged in anticompetitive practices, including concerns raised about “search, social media, and some retail services online.”  The investigations appear to be focused on Alphabet Inc.’s Google, Amazon.com, Inc. and Facebook, Inc. (“Facebook”), as well as potentially Apple Inc.

More than a dozen states are expected to announce in the coming weeks that they are launching a formal probe.  “I think it’s safe to say more than a dozen or so state attorneys general (that) have expressed an interest in the subject matter,” Delrahim said.  In July, eight state AGs met with U.S. Attorney General William Barr to discuss the effect of big tech companies on competition, and various antitrust actions.

On August 19, the New York Attorney General’s office said it is continuing to “engage in bipartisan conversations about the unchecked power of large tech companies.”  North Carolina Attorney General Josh Stein is also “participating in bipartisan conversations about this issue,” his office said.  The DOJ is looking not only at price effects, but also at innovation and quality, and the next steps in its broad antitrust review would be seeking documents and other information.  Delrahim also said that after the July announcement, the companies under investigation “immediately reached out to work with us in a cooperative manner to provide information that we need as far as the investigation.  In June, the FTC told Facebook it had opened an antitrust investigation.  Last month, the FTC resolved a separate privacy probe into Facebook’s practices after the company agreed to pay a $5 billion penalty.

Thoughts

The states joining the DOJ’s and FTC’s investigations are not a surprise.  As many as 39 states have been raising antitrust concerns about the big tech firms with both the DOJ and FTC.  They have similar concerns regarding big tech as the federal antitrust agencies.  The issues relate to whether the markets for online advertising, search, social media, app sales and certain retail sectors are currently competitive.  The state AGs involvement in these investigations adds another layer of complexity for Google, Facebook, and Amazon.  This action by the state AGs should remind everyone that sound antitrust enforcement is not just a federal affair.  Indeed, many of the seminal antitrust cases including cases creating key principles of monopolization and merger law were brought by state attorneys generals.

State attorneys generals use the power under federal and their own state statutes to protect consumers against anticompetitive and fraudulent conduct in credit card, pharmaceutical, computer and many other markets crucial to consumers.

States have significant advantages over federal enforcers.  They are closer to the market and consumers and recognize the direct harm to consumers.  They have the ability to secure monetary damages.  States are often customers and victims of anticompetitive behavior.  State enforcers can bring combined antitrust and consumer protection cases.  And although each state has limited antitrust and consumer protection resources, states increasingly are using multi-state task forces to investigate and prosecute unlawful conduct.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com