Mergers & Antitrust Law News

2019 Outlook: Online Giants Loom Large in Antitrust Law, Policy

Dec. 31, 2018, 10:31 AM

Technology giants’ mushrooming influence on the U.S. economy will dominate antitrust policy-making in 2019.

Companies like Amazon.com Inc., Facebook Inc. and Google are eager to portray themselves as mere “platforms” for content and trade conducted by others. But debates over their economic powers and the extent to which they should be held liable through government enforcement and litigation have intensified throughout this year and will continue in courts and Congress in 2019.

U.S. antitrust regulators, unlike their European counterparts, have so far avoided pursuing enforcement against internet giants. Technology companies have had to deal with humbling appearances by their executives on Capitol Hill, even as their lobbying has successfully kept new regulation at bay.

That could prove harder in 2019 as a growing drumbeat for antitrust enforcement and lawsuits could engender meaningful changes. Lawmakers have shown willingness for new legislation to curb tech giants’ tentacles in a host of areas — ranging from digital ads and social media content to merchandise web displays and app sales commissions.

“There will be tremendous political pressure to bring a case against a big tech company in 2019,” said Michael Carrier, professor at Rutgers Law School who specializes in antitrust issues.

Battle in Courts

A couple of Supreme Court cases could clarify tech companies’ exposure to liability.

Apple v. Pepper, now before the Supreme Court, will address who is entitled to bring an antitrust suit when a consumer buys through an online portal. Federal antitrust law allows a party from just one level of a distribution chain to bring a damages lawsuit for a monopolist’s overcharging on its product. To have standing to sue, the plaintiff must have paid the monopolist directly.

In Apple v. Pepper, the plaintiffs, representing consumers, argue that Apple’s app store is a monopoly because it serves as the exclusive source for apps on Apple devices. Plaintiffs argue that Apple’s 30 percent commission on apps is evidence of its market power.

Apple argues the plaintiffs have no standing to sue because its commissions are paid by developers, not consumers. Apple is merely an agent in app purchases, with consumers buying apps directly from developers in the store, it says.

During oral argument, several justices pointed out that if a platform serves different groups, like developers and consumers, both could be direct purchasers with distinct injuries. The rule intended to empower only one group to sue could apply to the parties on all sides of a platform, they said.

A decision in Apple v. Pepper is expected in 2019. The court could revise the standing rule or decide whether consumers are real direct buyers under the existing rule.

The “agency model” Apple uses isn’t unique to online markets, Charlotte Slaiman, policy counsel at watchdog Public Knowledge told Bloomberg Law. If the Court holds that using an agency model can insulate sellers from consumer suits, “we’re going to have a lot of problems both online and in the real world,” Slaiman said.

American Express Aftermath

Meanwhile, federal courts are still parsing the meaning of a U.S. Supreme Court decision affecting what one group of American Express Co.'s customers, its merchants, can tell another customer group, card users. The ruling could impact tech companies that similarly bridge different sets of customers.

The high court’s ruling in Ohio v. American Express Co. allows AmEx rules that forbade merchants from telling customers that another card would be cheaper to accept. The justices upheld AmEx’s “anti-steering” ban and tossed a lawsuit brought by state attorneys general and the Justice Department.

The rule isn’t anticompetitive because the plaintiffs didn’t show that it harms both sides of the “transaction platform” market — consumers and merchants — the Court said. Consumers can still choose to pay with another card, and they could benefit from AmEx’s other offerings and services, according to the ruling. If a platform serves two markets, and the transaction on each side is tightly bound to one on the other, both sides must be taken into account in proving market harm, the Court said.

The decision could limit the liability of some tech companies, such as Amazon Inc. and Uber Inc., that serve more than one type of customers. Instead of just describing how a company’s conduct hurts individuals like them, plaintiffs will have to show the potential harm to other sides of the transaction platform, which could include merchants or drivers, in Uber’s case.

That will make cases more complex and put plaintiffs at a disadvantage because information about impacts in other markets is in the platform’s hands. The AmEx holding “appears to lay out a new burden for plaintiffs,” Yale University economics professor Fiona Scott Morton said.

Companies ranging from hospitals to retail stores might try to recast themselves as platforms after the ruling, Cleveland State University law professor Christopher Sagers told Bloomberg Law. He hopes the case “will be read pretty skeptically by the lower courts.”

Political Pressure

Congress may need to make new law to address these issues, Scott Morton said. For example, Congress might have to pass a statute making it clear what plaintiffs and defendants have to prove in platform cases after AmEx, she said. Several in Congress seem to agree.

Rep. David Cicilline (D-R.I.), who is poised to become chairman of the House Judiciary Committee’s antitrust subcommittee in the next Congress, has said he plans to craft a bill that would bar online companies with “significant market power” from discriminating against competitors.

Sen. Mark Warner (D-Va.) also will likely introduce legislation aimed at regulating the tech industry in 2019, Rachel Cohen, communications director for Warner, told Bloomberg law.

Warner’s tech industry regulation proposal in July includes a suggestion to treat some dominant online platforms as “essential services,” which would have dedicated sectoral regulators that cap reasonable prices.

Online markets are large and important enough that we need a sector-specific regulator, Slaiman said. “If we want real sectoral regulation of platforms, we need Congress to act.”

Regulators’ priority

Justice Department antitrust chief Makan Delrahim said at a conference in April that he’s focused less on companies’ size than their actions. “Big is not bad,” he said. “Big that behaves badly is bad.”

David Kully, a D.C. Partner at Holland & Knight LLP, told Bloomberg Law that the value consumers get from online platforms, and the fast changing markets in which they operate, mean that their size and market position alone should not compel the antitrust enforcement agencies to step in.

The big online players “may be successful because they are really innovative and offer great products and services,” he said. Kully, a former head of litigation in the Antitrust Division, said enforcers are equipped to intervene if that changes, and have shown willingness to do so in tech markets in the past.

Tech giants’ growing appetite to acquire startup rivals to quash competition will be one of the behaviors that regulators will monitor. The Federal Trade Commission, which is conducing a series of hearings on competition in the digital age, will be “thinking about what to do and how to bring cases” when such acquisitions pose competition concerns, FTC Chairman Joseph Simons said at a Sept. 25 conference hosted by Georgetown Law in Washington.

“These types of transactions are particularly difficult for antitrust enforcers to deal with because the acquired firm is, by definition, not a full-fledged competitor,” Simons said. “And also the likely level of competition with the acquiring firm is frequently, maybe more than frequently, not apparent. But harm to competition can nonetheless be significant.”

The FTC is also under growing pressure to reopen an antitrust investigation into whether Alphabet Inc.'s Google is abusing its dominance in the online search market. The agency has been criticized for being too soft on Google in contrast with the European Commission, which ordered the company to pay a $2.7 billion antitrust fine and change its search practices.

The FTC decided in 2013 not to bring an antitrust case against Google after investigating whether the company skewed search results to favor its own services.

“To the extent that there is anticompetitive conduct, I think that our enforcers are up to the task,” Kully said.

—With assistance from Victoria Graham, Alexei Alexis

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bloomberglaw.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com

To read more articles log in. To learn more about a subscription click here.