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Slew of Private Antitrust Suits Awaits Big Tech Under House Plan

Oct. 7, 2020, 8:05 PM

Companies such as Amazon.com Inc. and Apple Inc. would face a rise in private consumer and employee litigation under a House Democratic proposal to dismantle big tech’s market dominance in part by banning mandatory arbitration agreements.

“If it’s doing something anticompetitive, probably the first people that would notice and have the motivation to sue would be these small companies” that interact with Amazon, such as vendors and sellers, said Erik Hovenkamp, a law professor at the University of Southern California who specializes in antitrust and competition policy.

Eliminating forced arbitration “will have a very significant impact on the ability of plaintiffs to hold potential defendants accountable in a circumstance where there is an asymmetry in power between the parties,” said Shaoul Sussman, a legal fellow at the Institute for Local-Self Reliance whose research focuses on antitrust.

The increased potential for private lawsuits isn’t likely to have the same effect as government-led litigation, however.

“When we’re talking about Big Tech and breaking up these companies, that’s not the type of stuff that’s going to be addressed in class actions,” according to Stephen Calkins, a law professor at Wayne State University who studies antitrust.

Consumer antitrust litigation is typically a follow-on to federal lawsuits and part of the system of deterrence, Calkins said. It can be useful in addressing potentially anticompetitive behavior such as mandatory bundles, hidden charges, and automatic renewals.

But these typically aren’t the types of cases that change how these companies do business, he said.

Bipartisan Backing

The arbitration proposal is one of more than two dozen contained in a far-reaching report on big technology companies’ power, released Tuesday by the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law. The report outlines how Congress can better tailor antitrust laws to rein in the power of Amazon, Alphabet Inc.'s Google, Facebook Inc. and Apple.

The report also proposes removing barriers that have made it significantly harder for consumers and employees to sue powerful corporations through class actions.

Republicans have stated their opposition to the report itself, but recent bipartisan efforts to prohibit mandatory arbitration agreements in employment, consumer, and other contracts suggest that particular aspect of the report stands on firmer ground.

Doing away with forced arbitration is one proposal “that is less out there or radical,” Sussman said.

Public, Private Prongs

Antitrust enforcement in the U.S. relies on two prongs—public and private—Hovenkamp said. Forced arbitration clauses “forestall the avenue” of private enforcement by making it harder for small companies to pursue class actions, he said.

For example, between 2014 and 2019, only 163 sellers and 16 vendors initiated arbitration proceedings against Amazon, even as its number of sellers grew by hundreds of thousands per year, according to the House report.

Sellers have “little incentive” to bring actions that they feel are unlikely to result in anything meaningful, the report’s authors wrote.

Forced arbitration clauses also can “subvert justice” by moving cases involving important legal issues out of the public view, said Sanjukta Paul, a law professor at Wayne State University whose work focuses on the intersection of antitrust and labor.

“One major advantage that we have if there’s a court proceeding is at least we can see what’s going on, and we can’t do that with a private arbitration proceeding,” she said. “What’s happening in the tech sector now is a matter of public concern, however you come out on it.”

Revitalizing Class Claims

The House subcommittee also seeks to empower consumers and employees by paring back legal hurdles plaintiffs likely face when bringing antitrust-related suits, including those imposed by two U.S. Supreme Court rulings.

In American Express Co. v. Italian Colors Restaurant, the court ruled that that the sheer cost of arbitration isn’t enough for a court to overrule an arbitration clause that forbids class actions.

Comcast Corp. v. Behrend held that an antitrust lawsuit couldn’t proceed because the complaint failed to outline the monetary damages sustained by each of the thousands of individual parties to the lawsuit.

“Once the pleading standard for those specific causes of action is more approachable, that is going to be that one-two punch,” Sussman said.

Lowering the threshold for bringing a class action “will basically help to revitalize” antitrust enforcement, he said.

But that proposal alone won’t be enough to level the playing field with big tech, antitrust scholars say.

“Doing away with mandatory arbitration clauses would be one tool—but many others are also needed—to bring some balance to many of the power imbalances that are highlighted in the subcommittee’s report,” Paul said.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com; Jake Holland in Washington at jholland@bloombergindustry.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com;

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