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ANALYSIS: Smaller Fry Can Learn From Big Tech’s Antitrust Woes

Nov. 16, 2020, 9:33 AM

As 2020 draws to a close, tech giants face increased scrutiny over alleged anti-competitive practices, data privacy abuses, and censorship. Rather than dismissing these developments as mere muscle-flexing or political posturing, organizations of all sizes should pay attention, principally because Big Tech’s conduct has triggered negative reactions from both sides of the political aisle and enforcement actions are gaining traction.

Antitrust Uproar

On Oct. 6, the House Judiciary Committee’s Antitrust Subcommittee released a majority staff report, concluding that four dominant tech players — Amazon, Apple, Facebook, and Google — have abused their powers as “gatekeepers” to the internet. The 451-page paper wraps up a 16-month investigation that included seven congressional hearings led by House Democrats.

Two weeks later, the Department of Justice — along with 11 Republican state attorneys general — filed an antitrust complaint against Google, similarly labeling the search giant as a “gatekeeper.”

Notwithstanding their use of similar language, the two documents raise antitrust concerns from different perspectives.

The DOJ’s complaint attacks Google under current law. The complaint highlights Google’s use of exclusionary distribution agreements that allegedly deny rivals the “scale” to compete effectively. It cites, for example, Google’s agreement with Apple to preset Google’s search engine as the default for Apple’s Safari browser. Because consumers typically do not change their default settings, the complaint alleges that Google enjoys more than 80% of all U.S. search queries on mobile devices.

In contrast, the House Subcommittee report says that antitrust laws need updating to address increased market concentration in the digital economy. The subcommittee recommends strengthening those laws through, among other actions, a series of reforms related to merger enforcement.

The report notes that several of the companies “built entire lines of business through acquisitions, while others used acquisitions at key moments to neutralize competitive threats.” Amazon, Apple, Facebook, and Google engaged in several hundred M&As in 2000–2019, yet antitrust enforcers did not block any of them, the report says.

Given that scorecard, the subcommittee recommends “that Congress consider shifting presumptions for future acquisitions,” proposing that “any acquisition by a dominant platform would be presumed anticompetitive unless the merging parties could show that the transaction was necessary for serving the public interest and that similar benefits could not be achieved through internal growth and expansion.”

Privacy Harms

The House Antitrust Subcommittee views Big Tech’s unprecedented collection and potential misuse of consumer data as an indicator of market power: “Given the increasingly critical role platforms play in mediating access to everyday goods and services, users are ... far more likely to surrender more information than to cease using the service entirely. Without adequate competition, firms are able to collect more data than a competitive market would allow, further entrenching their market power while diminishing privacy in the process.”

Antitrust concerns arising from data privacy issues first made headlines in 2019, when Germany’s antitrust regulator ordered Facebook to halt how it tracks its users’ internet browsing and smartphone apps. Germany’s Federal Cartel Office (FCO) gave the company 12 months to stop “unrestrictedly collecting and using” such data and combining it with users’ Facebook accounts without their voluntary consent.

While a local German court subsequently granted Facebook a temporary injunction, Germany’s Federal Court of Justice in June 2020 preliminarily agreed with the FCO’s original decision, prohibiting Facebook from merging personal data without user consent. The court concluded that Facebook had abused its dominant market position, leaving users with no effective choice regarding the use of their personal data.

The House Antitrust Subcommittee suggests that Congress consider following Europe’s lead by requiring data interoperability and portability measures in order to restore competition and reduce costs for users seeking to leave a dominant platform. The report cites a bipartisan proposal introduced last year (S.2648), which would require dominant platforms not only to make user data portable and services interoperable, but also to allow users to delegate management of their privacy preferences to a third-party service.

Social Media Backlash

Republicans on the subcommittee published a separate report, faulting House Democrats for failing to address “how Big Tech has used its monopolistic position in the marketplace to censor speech.”

While the Republicans agree with a number of the majority’s legislative recommendations — including proposals to shift the burden of proof for companies pursuing mergers and acquisitions and empowering consumers to take control of their user data through data portability — they contend that “Facebook’s algorithms, advertising policies, and content moderation rules have all combined to discriminate against conservative viewpoints, shadow ban conservative organizations and individuals, and suppress political speech.”

The concern raised by House Republicans has been echoed by other branches of government — including an Oct. 13 statement written by Justice Clarence Thomas and an Oct. 15 announcement from FCC Chairman Ajit Pai — both of which specifically address the broad immunity granted to online intermediaries by the Communications Decency Act, 47 U.S.C. § 230, oftentimes simply referred to as “Section 230.”

In his commentary “The Assault on Platforms and Section 230,” Milton Mueller, founder of the Internet Governance Project, notes that regardless of what happens to Section 230, “we seem to be witnessing the end of the user-driven platform upon which that law was predicated.” Mueller writes that social media platforms “are being pushed into, or actively embracing, a role as ‘socially responsible’ arbiters of speech, association and norms. They are no longer just intermediaries connecting us.”

Mueller inadvertently corroborates the antitrust concerns raised above, noting that the platforms themselves have become victims of their own success. He writes that social media’s “increasing economic, social and political value to a diverse ecosystem of stakeholders, many with sharply conflicting values and goals, has made both their decision to permit and their decisions to restrict content more consequential and controversial.”

Conclusion

The rallying cry against Big Tech will likely spill over to any company viewed as having a dominant position, even in a niche market. Now’s the time for business leaders to reflect whether items on their 2021 road maps — such as proposed acquisitions, data processing activities, or marketing initiatives — warrant reexamination or possible modification in light of bipartisan blowback and potential litigation from would-be competitors.

With assistance from Eleanor Tyler, Legal Analyst, Bloomberg Law.

Access additional analyses from our Bloomberg Law 2021 series here, including pieces covering trends in Litigation, Transactions & Markets, the Future of the Legal Industry, and ESG.

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