INSIGHT: Did Antitrust Enforcers Allow for Creation of Competitive Ecosystem Now Drawing Their Ire?

Government regulators appear to be increasing antitrust enforcement efforts on the big tech companies.

One sign was in February 2019 when the Federal Trade Commission announced the creation of a technology task force to stay abreast of antitrust issues in the technology industry, and converted the task force into the Technology Enforcement Division later that year.

More recently, the FTC ordered Amazon, Apple, Facebook, Google, and Microsoft to turn over a decade’s worth of material on transactions that did not require pre-merger notification under the Hart-Scott-Rodino Act. While some see this as a step in the right direction, others question whether the FTC and Department of Justice have spent years allowing the very mergers that created the competitive ecosystem now drawing their ire.

Google, for example, has acquired more than 270 startups, including an average of 34 a year from 2011-2014, with only a single acquisition challenged by the government before receiving conditional approval. While not as prolific, through Feb. 17, Facebook had acquired 93 companies over the course of its history.

Killer and Zombie Acquisitions

Many of these acquisitions were so-called “zombie” or “killer” mergers, in which a company acquires an innovative entrant and either “kills” it or allows it to live on as a “zombie.” Examples of such mergers include Facebook’s acquisition of FriendFeed and Google’s acquisition of Waze.

Waze continues as a “zombie,” without the need to innovate in order to compete with its new parent companies. Facebook’s acquisition of FriendFeed, on the other hand, was a “killer” acquisition, as Facebook largely ignored the company it acquired in 2009 until it quietly shut it down in 2015. Since hardly anyone knew of FriendFeed, hardly anyone noticed it was gone.

Critics argue that killer and zombie acquisitions make it difficult for new competitors to emerge. Rather, they allow the status quo to become entrenched, contributing to a climate in which many entrepreneurs are merely looking to be acquired by one of the tech behemoths instead of competing with them.

These cases are often challenging for regulators because it is not clear whether they lead to higher prices or a reduction in quality even if they do eliminate potential competition.

Some believe that zombie and killer acquisitions can help acquiring companies innovate and create better technology. Others argue that such acquisitions prevent new entrants from emerging, lessen competition, and contribute to market power.

Data-Driven Acquisitions

Furthermore, even if the acquisition of a smaller company occurred for legitimate business reasons, critics and consumers may still be concerned about the mass accumulation of data. Companies seeking data can obtain it in different ways, such as targeting data through new users, as seen in Facebook’s acquisition of WhatsApp, or through new types of data, such as Google’s recently-announced acquisition of Fitbit.

This latter acquisition is particularly troubling for some antitrust practitioners from a data perspective. This is because it will provide Google, a company that already has a significant amount of data relating to consumers’ online activities, even more information, including:

• activity and fitness levels,
• heart rates,
• sleep patterns,
• friend lists,
• locations, and
• other personal information.

While Fitbit has tried to alleviate concerns by stating that it will not sell its data or allow Google to incorporate its user data into advertisements, one could imagine numerous other uses for which Google might utilize Fitbit’s treasure trove of personal information. Moreover, when Facebook acquired WhatsApp, similar promises were made—only to be broken later.

Thus, such big-tech acquisitions pose several challenging questions for antitrust enforcers and civil plaintiffs. Oftentimes it is difficult to determine what products are even being offered and to whom, making it difficult to describe the market, let alone define it. Even if one is able to properly define a market, many of the products offered by tech companies are free, making it unclear how consumers, the focus of antitrust law, have been harmed.

For example, Fitbit offers physical devices and health-tracking services to individuals for a cost. Google, on the other hand, offers numerous online products to consumers for free, but also sells data to advertisers for a cost. At issue in this merger are different products being sold or provided to different sets of customers, with different effects in different markets, all of which makes it very difficult to consider the potential anticompetitive effects of this merger.

Current antitrust law does not readily address these concerns, raising the question of whether new rules are needed or if innovative legal theories can mold the existing antitrust framework to modern technology.

The prevalence of big tech mergers in recent years has raised the question of whether regulators were ready to handle the complex issues associated with data-oriented acquisitions and killer and zombie mergers.

Indeed, with the FTC order to Google, Amazon, Apple, Facebook, and Microsoft regarding its smaller acquisitions and the DOJ investigation of the Google-Fitbit merger, it appears that government regulators are asking themselves these very questions.

Perhaps these developments and the government’s activity in the space, including the establishment of the FTC’s Technology Enforcement Division, are signs that the antitrust world might start getting answers.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Meegan Hollywood is a partner and Adam C. Mendel is an associate in Robins Kaplan’s antitrust and trade regulation group in New York. They prosecute complex antitrust actions involving price-fixing, unlawful monopolization, and other anti-competitive practices.

The views expressed herein are the authors’ own and do not necessarily reflect those of any client, employer, or colleague.