Everything you need to know about the antitrust investigations into big tech
June 13, 2019
Antitrust is quickly becoming the word of 2019. (Well, maybe tied with tariffs, but that’s another matter entirely.)
While it’s far from a new issue, antitrust legislation is in the spotlight lately as various investigations gear up to look into whether certain big tech companies – Amazon, Apple, Facebook, and Google – compete fairly.
The US Department of Justice (DOJ) and the Federal Trade Commission (FTC) are moving to investigate the four companies’ business practices. Both departments have jurisdiction to enforce antitrust laws and, in a slightly unusual turn of events, have divided oversight of the four tech companies. The FTC will handle any potential investigations into Amazon and Facebook, while the DOJ will look after Apple and Google.
The House Judiciary Committee has also launched a “bipartisan investigation into competition in digital markets.” This is the first time that Congress has undertaken such an investigation, and the committee has promised “a top-to-bottom review of the market power held by giant tech platforms.” The committee held its inaugural hearing June 11 on anticompetitive practices and has reportedly put Amazon, Google, Facebook, and Apple “on alert” that they will “go under the microscope.”
Plus, a group of state attorneys general is preparing to start their own investigations into the tech giants. According to the Wall Street Journal, the AG investigations largely center around the same issues fueling probes by the DOJ, FTC, and Congress.
And, of course, the argument that some big tech companies are monopolies that need to be broken up has already become a central theme of the 2020 presidential election campaign.
That’s a lot to take in. And the whole antitrust debate might have you wondering what it all means. We’ve got you covered. Here’s your primer on the antitrust legislation and actions.
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What are the antitrust laws?
Antitrust legislation protects consumers from predatory business practices by ensuring fair competition is maintained in an open market economy.
In 1890, Congress passed the Sherman Antitrust Act. Named after Senator John Sherman of Ohio, it was the first federal legislation that “outlawed monopolistic business practices.”
Under the Sherman Act, all contracts, combinations, and conspiracies that unreasonably restrain trade between states or with foreign nations are deemed illegal. This includes arrangements to fix prices, rig bids, and allocate customers, which are punishable as criminal felonies. The Act also prohibits “monopolization or attempts at monopolizing any aspects of interstate trade or commerce.”
To support and strengthen the Sherman Antitrust Act, Congress passed new legislative measures in 1914. One was the Clayton Antitrust Act, which was introduced to “curb the power of trusts and monopolies and maintain market competition.” The Clayton Act is a civil statute meaning it carries no criminal penalties.
1914 also saw passage of the Federal Trade Commission Act, which, you guessed it, established the Federal Trade Commission (FTC), providing the government with an agency to investigate potential antitrust violations.
With the Clayton Act, the federal government can challenge mergers that are considered anticompetitive. All mergers or acquisitions over a certain size must notify the Antitrust Division and FTC.
Bonus fact: The Clayton Act also made strikes, boycotts, and labor unions legal under federal law.
Have tech companies faced antitrust cases before?
One of the most high-profile antitrust cases involving a tech giant took place in the 1990s.
In 1998, after a lengthy investigation, the DOJ and 20 state attorneys general filed an antitrust suit against Microsoft.
At the time, Microsoft was attempting to shift its power in computers to dominance over web browsing and was pushing customers to use its Internet Explorer browser. The main complaint against Microsoft was that the company was packaging its Internet Explorer browser with its Windows operating systems, giving Microsoft a massive advantage over rival browsers, like Netscape.
The government eventually won the case when a judge ruled that Microsoft had violated antitrust legislation and ordered the company to split into two sections – one that would handle Windows and the other that would oversee all other Microsoft software. The ruling to split up the company was later overturned and replaced with a settlement that had Microsoft agree to lift barriers to third-party developers.
The case wasn’t overly popular, and as the New York Times reported, many, “Microsoft most of all, argued that enforcing antitrust against Microsoft would damage innovation and impede the economic growth fueled by the technology sector.”
But those concerns turned out to be unfounded. In fact, ironically, the case against Microsoft helped pave the way for other companies, including Google and Facebook.
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What are the potential cases against Apple, Facebook, Amazon, and Google?
While there’s little indication of what any investigations might look into, there’s plenty of speculation.
Many suspect any antitrust investigation involving Apple will focus on the company’s business practices with its App Store. Some maintain that Apple’s App Store operates as a monopoly that overcharges users. Developers are allowed to set the price for apps, but Apple takes a 30% commission on every purchase. The argument is that this fee is then passed on to users who have no other way to purchase apps on Apple devices.
The matter is also the source of an ongoing antitrust case against Apple.
Facebook’s sheer size and ability to acquire potential competitors could be what regulators focus on.
It’s no secret that a lot of people think the social media giant needs to be split up by undoing its acquisitions of WhatsApp and Instagram.
In a lengthy op-ed in the New York Times, Facebook co-founder Chris Hughes wrote that the company is a monopoly that needs to be broken up. He alleged that the power wielded by Mark Zuckerberg is “staggering” as well as “unprecedented and un-American.” According to Hughes, Facebook controls more than 80% of the world’s social networking revenue.
“Facebook’s dominance is not an accident of history,” wrote Hughes. “The company’s strategy was to beat every competitor in plain view, and regulators and the government tacitly – and at times explicitly – approved.”
Amazon competing against its own sellers is the most common complaint critics cite.
Since Amazon is both a retailer and a marketplace for third-party sellers, many questions have popped up about Amazon using its abundance of sales data to give itself an advantage over smaller vendors.
Some have suggested that Amazon should be prohibited from competing with other merchants that use its marketplace.
Amazon Prime could also be in the antitrust spotlight. Using a subscription service to get packages in a day or two might be a massive perk for consumers, but the FTC has indicated it’s interested in looking into whether bundling these services lets Amazon undercut competitors on pricing.
Google’s dominance over several areas – mainly search, digital advertising, and mobile operating systems – has led to antitrust scrutiny against the company.
With search, where Google has around 90% of the market, critics claim the company can manipulate results to favor its own listings above those of competitors. Some also say that Google imposes too many self-serving regulations on smartphone makers who use its Android operating system.
It’s worth pointing out that in 2013, the FTC closed a two-year investigation into Google’s conduct without any formal action.
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How difficult is it to prove an antitrust violation?
In a word: very.
Regulators have to do more than prove that a company is a monopoly; they must also demonstrate it used anticompetitive practices.
On its website, the DOJ notes that antitrust isn’t violated “simply when one firm’s vigorous competition and lower prices take sales from its less efficient competitors; in that case, competition is working properly.”
The DOJ and FTC also need to show that the alleged anticompetitive practices are harming customers. That has typically been measured by whether prices are increasing and innovation is waning. And that could be difficult for regulators to prove since many services offered by these companies are free for customers to use.
“The big challenge with these antitrust things is, it’s not obvious what the consumer harm is today,” Scott Kupor, a managing partner at the venture capital firm Andreessen Horowitz, told Barron’s. “If you think about the consumer utility of Facebook, Google, Amazon, and Apple, it’s not clear they are doing something that is curtailing competition.”
Even if anticompetitive conduct is proven against any of the companies, the likelihood of any being broken up is pretty slim. But if the FTC or DOJ file lawsuits against any of the companies and succeed in federal court, a judge could order changes to business practices or structure.
While Congress doesn’t have any power to enforce antitrust legislation, its investigation is still important. The House Judiciary Committee’s probe could potentially build momentum to give regulators more power to go after monopolies or even create new agencies to oversee big tech firms.
Just don’t expect any decisions or changes to happen overnight. Any of the investigations have a long, long road ahead.