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Big Tech Antitrust Probes to Stretch States’ Limits

Nov. 6, 2019, 11:31 AM

State antitrust probes of Alphabet Inc.’s Google and Facebook Inc. could strain the budgets of attorneys general already handling expansive and time-intensive opioid and generic drug price-fixing suits.

Dozens of state attorneys general have banded together to probe whether the tech giants have used anti-competitive tactics, such as buying out potential rivals, in order to cement their market strongholds. The size of the targets means even the biggest bipartisan multi-state effort could feel the pinch, current and former state attorneys general say.

“We have an antitrust section and some of the best people in public service on our staff, but when you are talking about people who have all the money in the world, if there is anybody that can make a government feel under-resourced, it’s Facebook and Google,” Ohio’s Attorney General Dave Yost (R), who is involved in both multistate tech probes, told Bloomberg Law.

The costs of the probes could require additional staff and funding from state legislatures. Attorneys general also may seek outside counsel who could “front the money” and limit the need to go to the legislature for authorization, said Douglas Gansler, a former Democratic Maryland attorney general who heads Cadwalader Wickersham & Taft LLP’s state attorneys general practice.

Preferred Vehicle

Multistate probes have long been the go-to format for successful investigations and eventual litigation, because it’s the best way to pool limited resources for what are often complex and lengthy cases.

Twenty states and the District of Columbia joined the Justice Department in bringing an antitrust suit against Microsoft Corp. in 1998, a case that lasted nearly nine years.

Fifty attorneys general, including from D.C. and Puerto Rico, signed onto the Google probe announced in September while Facebook’s multistate probe mushroomed to 47 attorneys general, including from Guam, in October.

Working in the states’ favor is that the probe is ramping up as several other major multistate actions are near completion, including a suit backed by more than a dozen state attorneys general seeking to block T-Mobile U.S. Inc.'s $26 billion acquisition of Sprint Corp. That case is scheduled to go to trial in December and is co-lead by New York’s Attorney General Letitia James, who is also leading the Facebook multistate probe.

The end Sprint-T-Mobile antitrust suit “by itself will allow more antitrust litigation experts to pivot to the big tech investigation,” said Bernard Nash, co-chair of Cozen O’Connor P.C.'s state attorneys general practice.

“Obviously, no AG’s resources are limitless, but an AG’s office can shift their own internal priorities to re-direct resources,” Nash added.

Most state attorneys general rely on budgets created by their states’ legislatures and also on funds received from case settlements to fund investigations.

In some circumstances, state attorneys generals will enter into contracts with outside plaintiffs’ law firms that will pay costs initially and conduct extensive portions of an investigation, Gansler said. Opioid cases, securities litigation, and climate change cases are some examples of probes that state attorneys general have staffed with outside counsel, Gansler added.

Mississippi Attorney General Jim Hood (D), recruited Kitchens Law Firm, P.A. in 2017 to investigate claims Google improperly gathered students’ personal data through the company’s educational platforms.

Outside counsel was “necessary” because there wasn’t “sufficient and appropriate legal and financial resources” within the attorney general’s office to handle the matter, Hood said in the agreement with Kitchens.

State Dynamics

Multistate investigations may be joined by 50 or more attorneys general, but only a handful will devote their staff to a particular issue.

In the Google competition probe, seven states will take the lead while the 43 other offices may only divert minimal resources and input. For the Facebook investigation, nine attorneys general are a part of an executive team, with 38 other attorney general offices still participating in non-leading roles.

“Although you may have dozens of states in a multistate, companies are dealing with fewer than 10 in the executive committee” that runs the investigation, Gansler said. The leadership drives the multistate, he said.

How much a particular state participates may change over the course of the investigation.

“A state doesn’t necessarily have to participate in the multistate for the entire duration of the investigation, nor does it have to be involved from the start,” Lori Kalani, co-chair of Cozen O’Connor P.C.'s state attorneys general practice, said.

“Multistates can be flexible and fluid,” Kalani added.

Cost-Sharing

For any multistate, attorneys general must sign on to a cost-sharing fund which designates how much each state is contributing to a particular investigation, Victor Domen, the former chair of the National Association of Attorneys General multistate antitrust task force, said.

Generally, the more populous a state is the more funds it contributes to a multistate, Domen, who is now an antitrust partner at Norton Rose Fulbright LLP, added. However such cost plans are only designated for the investigative portion, a new fund will have to be created if states decide to pursue litigation, he added.

New York, Texas, and California’s attorneys generals are typically the most active in multistate probes, because they have the deepest resources. While New York is leading the Facebook probe and Texas spearheading the Google investigation, California has not publicly announced whether it’s a part of either antitrust inquiry.

State Resources

There’s a fixed number of staff available for antitrust investigations, with most states only employing a handful of lawyers who specialize in competition probes.

“A state could have as few as one antitrust attorney in its office assigned to the multistate group, to as many as a dozen attorneys,” Domen said.

Multistates often are considered the best way to pursue large and complex investigations because it allows dozens of attorneys general to “leverage resources, expenses, and time by splitting up the work,” Kalani said.

“In many cases, companies prefer a settlement with all 50 states because of the finality that offers,” Kalani said.

Attorneys general offices in Texas, which is leading the Google probe, and Illinois have job postings for antitrust lawyers on their websites. Neither office would comment on whether the new hires would work on the Facebook or Google antitrust investigations.

Some states don’t see the need for extra resources to take on Big Tech. Representatives for attorneys general in Iowa and North Carolina, both of which are serving on the executive committees of the two tech probes, said they won’t seek additional funds or attorneys to handle these investigations.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com; Daniel R. Stoller in Washington at dstoller@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com