House Judiciary Continues Anti-Competitive Investigation Into Big Tech

Last week, the House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee held its third hearing into the market power of online platforms which focused on “The Role of Data and Privacy in Competition” as part of its “investigation into competition in digital markets.”

Chair Jerrod Nadler (D-NY) stated that digital technologies have provided Americans with a remarkable array of services. He noted it has never been easier to post news and information, share content, and communicate with loved ones, all at a moment’s notice. Nadler asserted that as with technological revolutions of the past, this transformation has upended the balance of power across the economy. He contended that it is important for Congress to study and understand how these imbalances are affecting Americans, what are causing these asymmetries of power, and whether these new and growing inequalities are compatible with our democratic values. Nadler remarked that the committee’s ongoing oversight of digital markets is a key part of this process. He said the hearing would examine how the use of data is contributing to the growing inequalities of power and how this affects competition. He said that as previous hearings have shown, a growing share of commerce and communications is controlled by a small number of companies. Nadler asserted that because these platforms are, in essence, large intermediaries, they are perfectly positioned to closely track each transaction and communication that passes through their channels. He stated that while intermediaries have long collected information on the economic activity that flows through their platforms, the large firms of the digital economy have unprecedented ability to track and surveil users across the internet. Nadler stated that this data collection includes information not only about a person’s shopping and reading habits but also about the time they wake up and go to sleep, their precise location each hour of the day, and the content of their most private communications. He said that because several of these platforms derive the vast majority of their revenue from digital advertising, these firms also have an incentive to collect as much information as possible so that they can target consumers with precision. Nadler said that these troves of information can be used by companies in even more nefarious ways to discriminate on the user’s race, gender, income, or otherwise to intrude on personal privacy. He explained that in light of these trends there are two questions he would like answered at the hearing:

  • First, how are digital technologies and the constant data collection they enable affecting competition and is there something unique about digital markets that enables firms to acquire and maintain market power in novel ways. Nadler said that in digital markets maximizing data collection can provide a significant competitive advantage because a large and constantly growing set of user data allows firms to both improve existing products and services and to expand into new lines of business often with a competitive edge. Nadler said that frequently the companies with the most dominant are those that have captured the most data from as many sources as possible. He said scholars have described this as leading to winner take all markets with the first company to establish a competitive lead wins the market crushing any potential competition. Nadler asserted that competitors in digital markets have a strong incentive to collect as much information as possible as quickly as possible as part of a long-term strategy to compete in the marketplace and to achieve market dominance, which raises serious questions about whether it is desirable to have data be the key dimension along which companies are looking to compete.
  • Second, how does data collection increase the ways that dominant companies can abuse their market power. Does the collection and use of data enable new forms of conduct that lawmakers and regulators recognize as anti-competitive. For example, platforms that serve as intermediaries for commerce have critical insight into their rivals’ business models, a dynamic that raises significant competition concerns.

Antitrust, Commercial, and Administrative Law Subcommittee Ranking Member James Sensenbrenner (R-WI) said the hearing would focus on the roles that data play in privacy and competition and the ways the data of online consumers can be better protected. He said that data is in many ways the lifeblood of the internet, and numerous issues are swirling around the use of this data. Sensenbrenner said these include allegations that platforms that accumulate a large amount of data can function as barriers to entry for new platforms. He added that platforms holding large data bases can leverage that data to compete unfairly with third party competitors that are dependent upon their platforms. Sensenbrenner noted that incumbent platforms have pursued mergers with emerging competitors in order to kill off competition for data acquisition and market share. He stated his hope that the hearing could separate fact from fiction regarding these allegations. Sensenbrenner reiterated his view that antitrust laws do not exist to punish success but rather to foster it. He cautioned antitrust regulators and Congress from extending antitrust laws in ways that punish success, suppressing innovation, and ultimately limiting consumer welfare. He added that these principles also apply to data privacy, and if Congress is going to legislate on this issue, it must get it right. Sensenbrenner said his views do not exist in a vacuum as many American and European governments have already acted, including the European Union with its General Data Protection Regulation (GDPR) and California with its California Consumer Privacy Act (CCPA). Sensenbrenner claimed that while well-intentioned, the GDPR is already producing substantial collateral damage to consumer well-being, innovation, and the health of the digital economy. He claimed it is likely the CCPA will have the same effect. He asserted that these results are avoidable, and the U.S. must put in place a better method of protecting consumer privacy online.

Antitrust, Commercial, and Administrative Law Subcommittee Chair David Cicilline (D-RI) noted that the committee launched a historic, bipartisan investigation into the state of the digital marketplace in June. He said the purpose of the investigation is to document anti-competitive behavior online, to determine whether the dominant firms are engaging in anti-competitive conduct, and to assess whether current anti-trust laws and enforcement levels are sufficient to address these problems. Cicilline stated that the committee has held a series of hearings, briefings, and Member roundtables to start this top-to-bottom review. He stated that the committee has requested documents and materials relevant to the investigation from the four dominant platforms. Cicilline explained that the committee received tens of thousands of pages of materials this week and will receive more in the weeks ahead. He added that hearings and roundtables would continue to ensure the goals of the investigation are met. Cicilline said this series of hearings are essential to the committee in executing its constitutional duties to ensure that anti-trust laws are working. He stressed that Congress and not the courts, agencies, or private companies, enacted the anti-trust laws, and Congress must be the body to determine whether current laws are keeping up with digital markets. Cicilline said the hearing was an opportunity for the committee to better understand a key component of digital markets: the role of data and privacy. He highlighted the international reports on competition in digital markets published on this issue that have noted that data is at the heart of the issue. Cicilline quoted the Australian Competition and Consumer Commission’s “exhaustive” report which asserted that the “breadth and depth of user data collected by the incumbent digital platforms provides them with a strong competitive advantage creating barriers to rivals entering and expanding in relevant markets and allowing the incumbent digital platforms to expand into adjacent markets.” He said the United Kingdom’s Digital Competition Expert Panel similarly reported that large troves of data when combined with network effects may tip markets in favor of a single dominant platform, killing off competition. Cicilline referenced a University of Chicago report that cites the importance of access to data as a key factor in whether venture capital firms will invest in startups as those with less data receive less funding. He noted this has real consequences for firms that get locked out of the market and never get to offer new and innovative services. Cicilline also said there is broad agreement among anti-trust experts that data can be abused for anti-competitive purposes, and in some cases these tactics have created innovation “kill-zones” around dominant firms. Cicilline noted the hearing also provides the opportunity to examine the role of privacy in anti-trust and competition online. He asserted that while many services are billed as free, it is well known that consumers pay in the form of two valuable commodities: their personal data and their attention. Cicilline added that the prevalence of data usage and sharing techniques can indicate the lack of competition in markets. He contended that in a strong, competitive market, digital platforms would have strong incentives to deliver strong privacy standards, but in anti-competitive markets no such incentives exist. Cicilline claimed that competition and privacy are not mutually exclusive and that they can and must be made to work in concert as the committee considers how to restore the internet to its full promise.

Federal Trade Commission (FTC) Commissioner Rohit Chopra stated “As the Committee continues its investigation, it will be important for members of Congress to evaluate evidence with several things in mind, including:

(1) Data has certain economic features that are unique and unlike other assets.

(2) Most online services are not actually “free.” While consumers and businesses are not paying with dollars, they are paying with data.

(3) Competition is not a click away. Today’s tech titans are wholly integrated throughout the digital world, such that people and businesses cannot avoid them.

Chopra noted that “Last year, the FTC convened a series of hearings examining a range of competition and consumer protection issues in digital markets……FTC staff has outlined next steps for these hearings, including policy outputs and deliverables.” Chopra said that “I hope that the Commission will pursue work based on Section 6(b) of the Federal Trade Commission Act, which allows the agency to conduct industrywide investigations and studies and making its findings available to the public.” He stated that “Given its authority to prohibit unfair methods of competition and unfair or deceptive trade practices, the FTC is uniquely positioned to tackle the concerns associated with digital platforms.” Chopra stated that “The twin goals of competition and consumer protection are inextricably linked.”

Harvard Kennedy School Professor of the Practice of Economic Policy Dr. Jason Furman stated that he “recently chaired the Digital Competition Expert Panel for the UK government that produced a report titled Unlocking Digital Competition” and is “currently advising the UK as they move forward with a key set of recommendations from this report, including the establishment of a Digital Markets Unit to act as a pro-competition regulator.” Furman made “four points:

(1) The major digital platforms are highly concentrated and, absent policy changes, this concentration will likely persist with detrimental consequences for consumers.

(2) More robust competition policy can benefit consumers by helping to lower prices, improve quality, expand choices, and accelerate innovation. These improvements would likely include greater privacy protections given that these are valued by consumers. However, itis not clear that competition will be sufficient to adequately address privacy and several other digital issues.

(3) More robust merger enforcement should be part of the solution to expanding competition, including better technical capacity on the part of regulators, more forward-looking merger enforcement that is focused on potential competition and innovation, and legal changes to clarify these processes for the courts.

(4) A regulatory approach that is oriented towards increasing competition by establishing and enforcing a code of conduct, promoting systems with open standards and data mobility, and supporting data openness is essential. This is because more robust merger enforcement is too late to prevent the harms from previous mergers and antitrust enforcement can take too long in a fast moving market.

American Enterprise Institute Visiting Scholar Dr. Roslyn Layton stated that “Congress is right to focus on competition in the tech sector, but it won’t achieve this with from third rate platforms mandate by government fiat.” She claimed that “Instead Congress should hasten the next technological revolution which will supplant the current incumbents.” Layton stated that “This can be done through policy that supports investments and incentives for next-generation technologies and removes the market barriers to entrepreneurship, innovation, and enterprise.” She asserted that “Here the focus should be on fast-tracking 5G, the internet of things, artificial intelligence, blockchain, and security technologies.” Layton stated that “In summary rational privacy legislation could consist of

(1) framework that protects Americans’ Constitutional rights and freedoms for speech and commerce;

(2) strengthened authority and budget for the FTC to develop risk-based privacy standards for the online economy (this would also include budget for more economists and technologists at the agency);

(3) safe harbors that allow companies to migrate their operations to those standards,

(4) investments and incentives for the development of privacy-enhancing technologies, and

(5) consumer education and competency training.

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