The News: Last Friday, House Democrats introduced five new antitrust-style bills aimed at curtailing the market dominance of US technology companies. The bills follow the House Judiciary Committee’s 16-months’ long investigation into the business practices of major U.S. technology companies, among them Apple, Amazon, Google, and Facebook. Each of the five bills, which are predicated on the assumption that market leadership among U.S. tech giants is the result of anticompetitive behavior, targets a specific practice allegedly used by tech companies to maintain market dominance.
The Problem with Congress’s 5 New Antitrust Bills Aimed at Reining In U.S. Big Tech
Analyst Take: This is admittedly a topic that’s easy to do a deep dive on, and that’s definitely on my to-write list. For now, however, here is my quick first-reaction breakdown of all five of Congress’s new antitrust bills aimed at reigning in Big Tech.
1. The Ending Platform Monopolies Act
The first of these bills, introduced by Rep. Pramila Jayapal of Washington, empowers the U.S. Department of Justice to essentially break up U.S. tech companies over perceived conflicts of interest.
The text of the bill outlines its purpose: “To promote competition and economic opportunity in digital markets by eliminating the irreconcilable conflict of interest that arise from dominant online platforms’ concurrent ownership or control of an online platform and certain other businesses.” Note that for the purposes of this and other bills being considered by Congress, “dominant online platforms” are generally considered to be companies with over $600B in market cap and at least 500,000 monthly U.S. users.
Also: “It shall be unlawful for a covered platform operator to own or control a line of business, other than the covered platform, when the covered platform’s ownership or control of that line of business gives rise to an irreconcilable conflict of interest.”
If you find this language vague, you aren’t alone. According to the bill, an “irreconcilable conflict of interest” is present when a platform 1) owns another business besides the platform, and 2) could find it advantageous to prioritize its own products and services over those of competitors also using that platform.
This could apply to Google, Apple, Amazon, and Facebook, to name just a few.
A few key points need to be highlighted here. The first is that what the bill aims to make unlawful isn’t anticompetitive behavior, but the mere “ownership or control” by a platform company of other companies that might compete against other users of the platform. This would essentially completely bypass a century of established competition and antitrust law by lowering the bar from demonstrable anticompetitive behavior to a mere potential for conflict of interest.
Second, because the legal remedy would have to address the material ownership and/or control by dominant platform companies of other lines of business (rather than anticompetitive behavior), it replaces fines and other remedies with a systematic breakup of U.S. tech companies, which seems dangerously myopic, reckless, and unnecessary.
Third, I don’t quite understand how legislation can make it unlawful for, say, Amazon and Google, to sell their own private-label products and services on their own platforms (their marketplaces) merely because that would be deemed “unfair” to their competitors also using the platforms (marketplaces), when the practice is already commonplace in other industries. This is already common practice for retailers like Walmart, Target, CVS, Monoprix, and others, including through their online platforms. How then exactly can there be two sets of rules for the exact same business model — one for a handful of tech companies, and one for everyone else?
Not only does the targeting of a handful of tech companies seem prejudicial and malicious, it also runs the risk, should it somehow prevail, of upending the entire retail market.
One could easily argue that private label goods and services sold by platform/market operators 1) materially increase competition and consumer choice, and 2) can help drive prices down for consumers so long as they don’t run afoul of the Robinson-Pactman Act (as in Borden Co. v. FTC), so I fail to see how the practice is in any way anti-competitive.
I highly doubt that this bill can withstand legal challenges in the courts, so it seems as futile as it is ill-conceived.
2. The Platform Anti-Monopoly Act
The second of the five bills, introduced by Rep. David Cicilline of Rhode Island, is dubbed the Platform Monopoly Act, and again targets platform companies with over $600B in market cap and at least 500,000 monthly U.S. users. This is essentially an attempt to expand the definition of self-dealing into the technology platform space.
The bill is currently broken down into several key provisions:
The bill would make it illegal for “companies to engage in any behavior that “advantages [their] (the ‘covered platform’s operators) own products, services, or lines of business over those of a competing business or potential competing business that utilizes the covered platform.”
In other words, should this bill pass in its current form, Google, Apple, Microsoft, and Amazon would no longer be able to prioritize their own products in search, app stores, and on their devices the way they have historically been prioritized.
The bill would also make it unlawful for these companies to make use of private data from third-party businesses through the use of their service “to offer or support the offering of the covered platform operator’s own competing or potentially competing products or services on the platform.”
This section clearly takes direct aim at Amazon’s use of third-party merchant data to both create and optimize its own private label offerings.
The bill as written would also make it unlawful to behave in a way that “impedes dependent businesses from communicating information or providing links on the covered platform to covered platform users to facilitate business transactions on or off of the covered platform.”
This section seems aimed directly at Apple and has Spotify’s litigation against Apple written all over it. It would make it illegal for Apple to take any action that would restrict app developers in its app store from letting consumers know about alternative ways to purchase their app, subscriptions, and upgrades through their own or third-party websites instead of the app store.
The bill would also make it illegal for these companies to take any action that “conditions access to the covered platform or preferred status on the platform on the purchase or use of other products or services offered by the covered platform operator.”
This seems aimed primarily at Amazon and to a lesser extent Google, who have been accused of giving preferential treatment to third-party merchants in search results on the condition of bundling services. The practice has been denied by Amazon, and the company’s position on the matter is that their algorithm, not a secondary pay-to-play scheme, is at play.
3. The Augmenting Compatibility and Competition by Enabling Service Switching Act of 2021 (also known as The ACCESS Act of 2021.)
Pennsylvania Representative Mary Gay Scanlon’s bill aimed at tackling the issue of data portability is called the Augmenting Compatibility and Competition by Enabling Service Switching Act of 2021 (a.k.a. The ACCESS Act of 2021). The crux of it is this:
“A covered platform shall maintain a set of transparent, third-party-accessible interfaces (including application programming interfaces) to initiate the secure transfer of data to a user, or with the affirmative consent of a user, to a competing business or a potential competing business at the direction of a user, in a structured, commonly used, and machine-readable format.”
The language of this bill leaves me a bit perplexed, as I fail to see how it hopes to “augment competition. In theory, yes, requiring platforms to “maintain a set of transparent, third-party-accessible interfaces to initiate the secure transfer of data to a user, or with the affirmative consent of a user, to a competing business or a potential competing business at the direction of a user, in a structured, commonly used, and machine-readable format” seems like a great idea, and one that should help consumers move from one platform to another more easily, but as this type of data portability model is unlikely to be feasible or practical, it leaves me to wonder what exactly the bill is there to do other than pretend to try to solve a problem that it doesn’t actually solve.
For starters, for this bill to work, an entirely new ecosystem of “commonly used” standards would have to be developed regarding 1) what data are or aren’t covered by the bill, 2) how these datasets are captured, contained, and accessed, and 3) where and how these data sets are to be stored. Second, data isn’t that portable. We aren’t just talking about a set of information tokens like name, age, and address, that can be packed up into a virtual suitcase. What do you do about insights gleaned by a platform’s algorithms? What do you do about data regarding user interactions and behavioral patterns while on the platform? What about third-party data collected or otherwise acquired by a platform about user activity and preferences outside of the platform, then merged with proprietary data sets?
One of the biggest open questions raised by this bill is “who owns the data (and what portions of complex, layered data sets)?” The problem, obviously, is that the bill assumes that customers own their own data, when that hasn’t been established by any court of law — at least not yet, anyway. As a result, not only does this bill fall flat on its face in terms of how it might be applied in the real world, it puts the proverbial cart ahead of the horse by predicating its validity on assumptions about data ownership that have yet to be resolved.
4. The Merger Filing Fee Modernization Act of 2021
The Merger Filing Fee Modernization Act of 2021, introduced by Colorado representative Joe Neguse, is a lot less contentious than the previous three, as it aims to mainly beef up resources and funding to the FTC and the antitrust division of the DOJ: “To promote antitrust enforcement and protect competition through adjusting premerger filing fees, and increasing antitrust enforcement resources.” Specifically for fiscal year 2022, it aims to set aside $252 million for the Antitrust Division of the Department of Justice; and $418 million for the Federal Trade Commission (whose budget is currently roughly $330 million per year).
This push to provide both antitrust agencies with a lot more funding than they were previously allocated suggests that both are ramping up efforts to more aggressively tackle antitrust enforcement, but bear in mind that not all antitrust enforcement is focused on Big Tech. Also, considering how much revenue companies like Amazon, Google, Apple, Microsoft, and Facebook generate each year, this relatively modest budget increase is unlikely to make much of a difference in court.
5. The Platform Competition and Opportunity Act
The Platform Competition and Opportunity Act, introduced by New York representative Hakeem Jeffries, hopes to make it more difficult for Big Tech companies to acquire potential competitors or companies that could help their competitors position themselves better against them.
Under the bill, M&As involving large technology companies would be unlawful unless it could be shown that the company being acquired does not 1) “compete with the covered platform or with the covered platform operator for the sale or provision of any product or service offered on or directly related to the covered platform;” and 2) “pose a potential competitive threat.”
Again, this broad-sweeping bill would set a new and prejudicial standard against large technology companies which depend on the ability to acquire companies, technologies, and IP portfolios to grow, expand into new markets, and consolidate services around their customers’ and users’ needs.
One of the most dangerous aspects of this bill is that the term “platform” can be applied to online marketplaces like Amazon and the Apple Store, for example, but also to broader technology ecosystems both present and future. For instance, fast-forward a few years to an eventual set of technology platforms (marketplaces) serving the automotive market, or the healthcare market, or the manufacturing market. What then? Companies over a certain size won’t be able to acquire smaller companies merely because they might someday pose a competitive threat?
Even currently, what does that mean for technology companies with existing artificial intelligence (AI) lines of business, for example, looking to acquire “competing” AI labs, large or small? How about software? Where does it stop?
Perhaps more importantly, what would this new prohibition mean for the tens of thousands of startups whose entire business model may be to build companies from scratch with the sole intent of ultimately being acquired by tech giants? Would there still be an incentive for investors to bankroll small tech companies with big ideas if the possibility of being acquired were suddenly snuffed out? Consider the economic, financial, and technology wreckage this bill might cause if it were enacted into law. Also consider the national security implications of essentially cutting VC technology investment at the knees, and thus killing the U.S. technology startup ecosystem.
An additional unintended consequence of this bill becoming law would be that, in the absence of a healthy, thriving startup ecosystem, only large technology giants could afford to invest in technology innovation. This means that we would see a consolidation of investment in technology R&D focused on Big Tech rather than across a richer, more layered ecosystem of R&D and innovation, which is the exact opposite of what the bill ultimately wants to do. The result would be less competition, not more competition.
The problem with Congress’s 5 new antitrust bills is pretty simple. With the exception of The Merger Filing Fee Modernization Act of 2021, which is mostly a funding bill for antitrust enforcement, the approach taken by Congress to break up Big Tech with these bills seems counterproductive, short-sighted, and ultimately harmful to competition. It also reveals a profound lack of practical understanding of how the tech industry operates, and needs to operate, in order to remain competitive, relevant, profitable, and innovative.
Do Big Tech companies hold too much power? You could argue that, sure, but if the objective is to keep very large, very powerful companies in check, Congress could approach the problem by establishing guardrails that protect consumers and competition without taking a wrecking ball to an entire system that, for the most part, works exceedingly well for everyone involved. The objective should be to regulate but in a way that causes as little harm to these companies and their ecosystems of employees, contractors, suppliers, licensees, and investors as possible.
This, sadly, does not appear to be the responsible approach being taken by lawmakers, who instead appear to be rushing into efforts to “break up” U.S. technology companies on ideological grounds rather than for pragmatic or practical reasons. Indeed, if method reveals intent, these bills, as written, reveal an interest in an outcome without the requisite proportional interest in the dire unintended consequences that this outcome would certainly bring.
I don’t believe that four of these bills will ultimately become law, let alone that they would survive challenges in the U.S. Federal Courts if they did, so I am not particularly worried about them. But I am annoyed and concerned that members of Congress, who ought to know better, clearly bypassed basic due diligence in drafting the language of these bills, which would not only fail to achieve their stated goals, but ultimately cause more harm than good.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.