A long-awaited report from top Democratic Congressional lawmakers about the dominance of the four biggest tech giants had a clear message on Tuesday: Amazon, Apple, Facebook, and Google engage in a range of anti-competitive behavior, and US antitrust laws need an overhaul to allow for more competition in the US internet economy.
“To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons,” the report’s introduction states.
The 400-plus page report, written by the majority staff of the Democratic members of the House Judiciary Subcommittee on Antitrust, is the result of a 16-month investigation into whether these corporate giants abuse their power, and whether the country’s antitrust laws need to be reworked to rein them in. The report released Tuesday cites numerous examples of each tech titan engaging in acts that the lawmakers believe have hurt innovation and impede competition. While the anti-competitive behaviors the report cites vary from company to company, they are all linked by the allegation that the four giants abuse their gatekeeper status in various internet industries to secure and grow their market power in those sectors and others.
So what’s the solution? The report from Democratic lawmakers recommends creating new laws that would potentially break up tech companies and make it harder for them to pursue acquisitions; it also calls for clarifying existing antitrust laws with the goal of making them easier to enforce, particularly for tech companies. For now, the report’s recommendations are only high-level guidance to Congress for potential future legislation; it won’t lead to immediate action against these companies.
The release of the report was complicated on Tuesday by news that the Republican lawmakers in the house antitrust committee refused at the last minute to sign the report with their Democratic colleagues. Instead, Rep. Ken Buck (R-CO) and Jim Jordan (R-OH) each plan to release their own reports. Buck’s report, a draft of which Politico published on Monday, largely agrees with the Democrat’s conclusion that the big four tech firms have amassed too much power. But he disagrees with Democrats on how to fix the problem: Instead of creating new laws, Buck’s memo calls on Congress to fund and empower regulatory agencies and government departments like the Federal Trade Commission (FTC) and Department of Justice (DOJ) to go after Big Tech under existing laws. Jordan’s report hasn’t yet been released, but Reuters coverage indicates it will focus on so-far unproven claims of tech companies’ supposed anti-conservative bias, which he has shouted over his colleagues about in previous hearings.
These partisan divides are somewhat besides the point: Regardless of the specifics of how they advise to go after Big Tech, the fact that Republicans and Democrats agree that these companies pose a threat to the free market is significant.
“This is the first time since the 1970s that a congressional committee has devoted this kind of attention to dominant firms … and changing the structure of a major American industry,” former FTC Commissioner William Kovacic, who was appointed by George W. Bush, told Recode.
Here’s a breakdown of some of the key claims the report makes about each of the four major tech giants:
Amazon
With Amazon accounting for nearly 40 percent of all e-commerce sales in the US — making it more than seven times larger in this arena than No. 2 Walmart — the Democratic report argues that the tech giant has used its powerful position in anti-competitive ways. (The report also alleges that Amazon’s US e-commerce market share is closer to 50 percent or more in the US, rather than the near-40 percent figure commonly cited based on estimates from the research firm eMarketer). The report argues that the company unfairly gleans data and information from its third-party sellers that it uses to strengthen the retail side of its business, including by favoring its own product brands over those of competitors, giving this merchandise exclusive merchandising space on its virtual shelves, and prioritizing it in search results.
Another criticism is that Amazon can charge sellers ever-increasing fees because of its dominant position, and that most sellers and brands have practically no negotiating power because of their reliance on the Amazon sales channel. Amazon also penalizes sellers for selling their merchandise for lower prices on other retail sites.
Amazon released a company blog post in response to Tuesday’s report, calling it “flawed thinking” that Amazon is engaging in anti-competitive business practices, and that antitrust regulatory action “would have the primary effect of forcing millions of independent retailers out of online stores.”
“All large organizations attract the attention of regulators, and we welcome that scrutiny. But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong,” reads the post.
The report from Democrats argues that Facebook has expanded its monopolistic power in the social media industry by using a “copy, acquire, kill” strategy against its competitors and by unfairly hurting rival companies like Instagram (which the company purchased in 2012).
Specifically, the report argues that Facebook’s acquisition of Instagram was a blatant attempt to “neutralize a nascent competitive threat.” The report alleges that after Facebook bought Instagram, it intentionally stymied the photo-sharing app’s success so that it wouldn’t compete with Facebook internally.
The report cites a slew of internal emails, memos, and testimony from senior-level Facebook employees, including CEO Mark Zuckerberg, which support the argument that Facebook crushed Instagram by exerting monopoly power.
In one email, Zuckerberg told Facebook’s former CTO that “ that he had “been thinking about ... how much [Facebook] should be willing to pay to acquire mobile app companies like Instagram ... that are building networks that are competitive with our own.” The report argues this proves that Zuckerberg had anti-competitive interests from the beginning.
The report also cites a former senior-level Instagram employee who told Congress that Facebook CEO Mark Zuckerberg oversaw “brutal infighting between Instagram and Facebook” after the acquisition, with Zuckerberg slowing down Instagram’s natural growth to benefit Facebook proper. The Instagram whistleblower went so far as to call it “collusion, but within an internal monopoly. … It’s unclear to me why this should not be illegal.”
As part of their investigation, the subcommittee found an internal Facebook document called “The Cunningham Memo,” written in 2018 by Thomas Cunningham, a senior data scientist and economist at Facebook, which allegedly shows that Facebook has knowingly “tipped” its company toward becoming a monopoly, acknowledging that social media apps have tipping points where “either everyone uses them, or no-one uses them,” according to the memo. This memo was a key part of Zuckerberg’s acquisition strategy ahead of the Instagram purchase, according to internal documents and an interview the subcommittee conducted with a former Facebook employee involved with the project.
In a statement to Recode on Tuesday, Christopher Sgro, a spokesperson for Facebook, disagreed with the report’s conclusions. “Facebook is an American success story. We compete with a wide variety of services with millions, even billions, of people using them. Acquisitions are part of every industry, and just one way we innovate new technologies to deliver more value to people. Instagram and WhatsApp have reached new heights of success because Facebook has invested billions in those businesses. A strongly competitive landscape existed at the time of both acquisitions and exists today. Regulators thoroughly reviewed each deal and rightly did not see any reason to stop them at the time,” Sgro wrote.
The Democrats’ report argues that Google has a monopoly in the online search and marketing industry, creating an “ecosystem of interlocking monopolies” — which it has maintained through anti-competitive practices in two key ways.
The first is by launching an “aggressive campaign to undermine” what the report calls “vertical search providers” — which are search engines for specific topics, such as Yelp for restaurants, or Expedia for travel. The report says Google uses its dominance to “boost Google’s own inferior” content over some of these other companies’ content in its search results.
The second major way, that Google has demonstrated anti-competitive behavior, the report argues, is through “a series of anti competitive contracts” that pushed people to rely on Google search when using phones with the Android operating system (Google purchased Android in 2005).
“Documents show that Google required smartphone manufacturers to pre-install and give default status to Google’s own apps,” the report states.
Unsurprisingly, Google told Recode it disagreed with Tuesday’s reports, saying that they “feature outdated and inaccurate allegations from commercial rivals about Search and other services.
Americans simply don’t want Congress to break Google’s products or harm the free services they use every day,” read a statement in part from Julie McAlister, a spokesperson for Google.
Apple
According to the Democrats’ report on Tuesday, Apple exerts monopoly power through its oversight of software that’s downloaded on half of all mobile phones in the US. That’s a direct reference to Apple’s App Store — if you have an iPhone, you can only use apps that you download from the company’s tightly controlled Store. The subcommittee staff investigating Apple say in the report that the company has exploited its dominance to exclude some rivals from its store, unfairly favor its own apps, and charge fees that some app developers told the subcommittee are “exorbitantly high.”
Such a battle between Apple and developers over in-app fees exploded into public spotlight earlier this year when the maker of Fortnite, Epic Games, told its users they could buy the game’s virtual currency directly from Epic rather than through the Apple iOS version of the app. The reason? Epic wanted to avoid the 30 percent fee Apple charges for such in-app purchases. Dueling lawsuits ensued, and Apple even banned the game from the App Store. This is just one example of many cases like this that the report cites.
Apple, of course, refuted the conclusions in Tuesday’s report, telling Recode in a statement, “Our company does not have a dominant market share in any category where we do business. ... Last year in the United States alone, the App Store facilitated $138 billion in commerce with over 85% of that amount accruing solely to third-party developers. Apple’s commission rates are firmly in the mainstream of those charged by other app stores and gaming marketplaces.”
So what’s next?
Depending on the results of the November election, Democrats may not need Republicans’ support on antitrust legislation — if Democrats sweep Congress and win the White House. (The latest polls show Democrats and Biden currently have an edge, but poll-based predictions are far from certain.)
If Biden does win the presidency, “this [report] is a roadmap for how you would tackle this under a President Joe Biden … administration,” a staff member for a Democratic member of the subcommittee told Recode.
Rep. Pramila Jayapal (D-WA), a member of the subcommittee, told Recode in an interview on Tuesday, “I do anticipate...that we will have signed pieces of legislation pass the House of Representatives next year.” The bi-partisan subcommittee will meet later this year to debate and potentially amend the report.
And Tuesday’s congressional reports are just the beginning of upcoming antitrust regulatory proceedings against Big Tech. The Department of Justice is imminently expected to file a lawsuit against Google for anti-competitive business practices, which several state attorney generals may sign on to. Separately, the FTC is also investigating the business practices of the tech giants over antitrust concerns.
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2020-10-07 00:35:00Z
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