Technology Antitrust Hearing

With its investigation nearing an end, a subcommittee hears from antitrust witnesses on how to best address the problems turned up in Big Tech.

On October 1, the House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee held a hearing as part of its series on online competition titled “Proposals to Strengthen the Antitrust Laws and Restore Competition Online.” At this seventh hearing in the series, the subcommittee heard from antitrust enforcement experts from across the spectrum of approaches to dealing with competition and antitrust issues. It is rumored the subcommittee will release its recommendations and proposal next Monday, and if this is the case, it comes at a point when the United States Department of Justice (DOJ) and state attorneys general led by Texas Attorney General Ken Paxton may file their antitrust lawsuits against Google in the near future. It has also been rumored the Federal Trade Commission (FTC) will seek to file its antitrust action against Facebook by the year’s end. Moreover, there are ongoing investigations into Amazon and Apple’s practices that could lead to antitrust actions, probably next year at the earliest.

Subcommittee Chair David Cicilline (D-RI) (click here to watch his opening statement) said that since June 2019, the subcommittee has conducted an investigation into the state of competition in digital markets. He said the subcommittee promised a “top-to-bottom” review, including the business practices and dominance of the largest tech firms, Amazon, Apple, Google, and Facebook. Cicilline said over the last fifteen months, the subcommittee collected nearly 1.3 million internal documents and communications, testimony from 30 witnesses, submissions from more than 40 antitrust experts of every political persuasion, interviews with more than 240 market participants, employees of the investigated platforms, and other interested parties. Cicilline stated that similar to prior investigations, the subcommittee did not set out with any preordained outcome in mind and have followed the facts. He asserted the subcommittee has worked to preserve bipartisan cooperation throughout the process. Cicilline said this would be the seventh and final hearing in the investigation.

Cicilline contended in the last hearing the subcommittee pressed the CEOs of the four companies for more than six hours with evidence of their anticompetitive abusive practices. He declared their answers were evasive and non-responsive. Cicilline added these responses raised new questions as to whether the CEOs believe their companies are beyond oversight. He allowed these four corporations differ in important ways, but the investigation has identified three problems that each present:

1) each platform now serves as the gatekeeper over a key channel of distribution and by controlling access to markets, these giants are able to pick winners and losers throughout the economy. He contended that not only do they wield tremendous power but they are able to abuse by charging exorbitant rates and fees and imposing oppressive contracts and extracting valuable personal data from the people and businesses that rely on them.

2) each platform uses their gatekeeper position to protect their own power by controlling the infrastructure of the digital age they have surveilled other businesses to identify potential rivals and ultimately bought out, copy, or cut off their competitive threats.

3) These platforms have abused, and it seems continue to abuse, their control to expand their power in the marketplace whether through self-preferencing, predatory pricing, or requiring users to buy additional products, the dominant platforms have used their power in destructive ways to grow even bigger

Cicilline conceded each of these American companies have contributed immense technological breakthroughs and have added value to the United States over the past few decades. He said they were founded on shoestring budgets in dorm rooms and garages  and are a testament to our core values as a country. Cicilline said in an effort to continue and promote this new economy, Congress and antitrust enforcers have allowed these firms to regulate themselves with little oversight. He asserted as a result the internet has become highly concentrated , less open, and more hostile to innovation and entrepreneurship. Cicilline said to put it simply, these once scrappy underdog startups have grown into the kids of monopolies last seen more than a century ago during the time of oil barons and railroad tycoons. He declared the U.S. is at a crossroads and added the hearing is designed to discuss these problems and possible paths forward. Cicilline added that the hearing also concerns broader questions about market power in the U.S. economy and potential solutions to arrest this concerning trend. Cicilline said he and Subcommittee Ranking Member James Sensenbrenner (R-WI) had sent requests for answers to antitrust experts on a range of issues, including whether existing laws are adequate to addressing current market concentration, and they received 38 submissions, including from some of the witnesses at the hearing.

Subcommittee Ranking Member James Sensenbrenner (R-WI) (click here to watch his opening statement) stated the investigation has been very informative and has allowed the subcommittee to better understand the tech ecosystem. He said they have learned about some of the nation’s largest and most successful companies. Sensenbrenner stated Google, Facebook, Amazon, and Apple are ubiquitous today but grasping their influence and size, and more importantly, what they do with that influence and size is something Congress needs to examine. Sensenbrenner stated the examination of the state of antitrust in the tech world is wrapping up. He noted the subcommittee has heard from academics, enforcers, competitors, and the “big four tech companies themselves.” Sensenbrenner stated the record is extensive.

Sensenbrenner said the witnesses are here to tell the subcommittee what it should do about these issues. He contended the size of the panel reflects the diverse opinions on what is to be done. Sensenbrenner noted at the last hearing he stated his beliefs that U.S. antitrust laws did not need to change nor should the consumer welfare standard be abandoned. He argued that his 42 years’ experience in Congress has taught him that the body is ill-suited to micromanage the economy or to predict what it will look like in the future. Sensenbrenner said he remains skeptical of proposals to break up the companies, that mandate a one size fits all data standard, or create a “government-run public option.” He stated that these steps would ultimately stifle innovation and harm consumers.

Sensenbrenner stated the question that the subcommittee should be asking is whether the laws are insufficient to protect consumers. He claimed Americans consumers have been well served by the nation’s antitrust framework for decades. Sensenbrenner asserted overly burdensome regulations to break up these companies or having the government insert itself in their operations is the right course of action. He stated where improvement is needed is in the enforcement of existing law, and it should be noted that enforcement is starting to work. Sensenbrenner noted the DOJ and FTC antitrust investigations into the big tech companies and that DOJ is readying a case against Google. He stressed that the consumer welfare standard should be kept in mind in considering any overhaul of antitrust laws.

Committee Chair Jerrod Nadler (D-NY) (click here to watch his opening statement) stated that “over the past fifteen months, the [subcommittee] has undertaken a historic, bipartisan investigation of competition in the digital marketplace.” He said that “[a]s I made clear at the Subcommittee’s last hearing, I had significant concerns about consolidation and its harmful effects.” Nadler claimed “[t]he investigational record bore this out…[and [e]ach of the major companies that were part of this investigation, in its own way, exerts dominant control in the digital marketplace that is cause for concern.” He asserted that “[a]s we approach the end of this investigation—with the benefit of our six hearings and substantial record—my belief that we must modernize and reinvigorate enforcement of the antitrust laws is stronger than ever.”

Nadler claimed “[w]e must modernize our antitrust laws to meet the challenges of our modern economy….[a]nd we must ensure that our enforcement agencies have the tools, resources, and the will to vigorously enforce the law to protect consumers and promote competition.” He stated that “[t]his investigation has also made clear to me that beyond fixing the antitrust laws, we must also use our oversight authority to shore up the antitrust enforcement agencies’ ability and will to enforce those laws.” Nadler remarked that “[i]n some instances, the lack of enforcement may come down to a lack of will.” He argued that “[o]ur antitrust enforcers should not pull punches…[and] [w]e must ensure that the leadership at these agencies is committed to robust enforcement.” Nadler stated “[i]t is also important to adequately staff and resource the agencies as antitrust cases have become more resource-intensive and agency staff is faced with investigating some of the wealthiest companies of all time.”

Committee Ranking Member James Jordan (R-OH) repeated Republican talking points on Section 230 and decried the refusal of Democrats to hold hearings on alleged bias of conservatives on social media platforms. Jordan made no comments or statement about antitrust and competition law, and as his remarks largely do not bear on the matter at hand, there is little point in writing them. One might generously describe his opening statement as a mashup of antitrust and Section 230. However, if one wishes to hear what some would consider his “passionate” remarks on Section 230, click here.

Brookings Institute Visiting Fellow William Baer stated

• So where do we go from here? One strategy has the antitrust enforcers developing new policy guidance in areas such as vertical mergers, standard essential patents, and high tech platforms to nudge the courts towards a less skeptical view of the need for assertive enforcement. The joint DOJ/FTC Horizontal Merger Guidelines have, as I noted earlier, over time increasingly been relied on by the courts as providing a framework for determining whether the combination of two rivals risks harm to consumers and to competition.
• There are at least two reasons to doubt whether reliance on that strategy will be sufficient. First, it took years for the courts to embrace the soundness of the merger guidelines—indeed more than a decade. Can we afford to wait that long? Second, there is no guarantee that the courts will embrace that new guidance. The mindset that antitrust enforcers are more likely to be wrong than right, and that as a result, we should at all costs avoid the risk of over-enforcement, is pretty well-entrenched in antitrust jurisprudence. Absent some further direction from Congress, those biases are unlikely to change.
• So, I think the Subcommittee is doing the right thing by taking a hard look at changes to current law that will encourage the courts and empower the antitrust enforcers to be more assertive in challenging conduct and consolidation that risks creating or enhancing market power. These changes need not be dramatic. By incorporating presumptions that certain behaviors are likely to reduce competition, by making it clearer that showing a risk of a reduction in competition is sufficient, and by emphasizing that anticompetitive effects are not limited to price effects and include quality and innovation competition, Congress can make a meaningful difference.
• The other thing Congress can and should do is provide adequate resources to the antitrust enforcement agencies. Today, we are not doing that, not by a longshot. A recent report by Michael Kades of the Washington Center for Equitable Growth found that, in real dollar terms, we are spending 18 percent less on antitrust enforcement than in 2000. Officials at the Antitrust Division tell me the organization ended fiscal year 2019 with just 594 employees, compared to 795 employees at the same time 10 years earlier. This, as Kades notes, is occurring in the context of significant growth in the economy over that same time.
• The dollars and resources need to be increased for a number of reasons. First, as I have discussed, the courts today place a high burden on the government to prove an antitrust violation. That means the enforcers need to devote significant resources to investigating and proving their cases, including extensive document reviews, witness interviews, depositions, and expert opinion—industrial organization economists and others. It is time-consuming; it is expensive; and it is resource-intensive. As an example, in 2016, the Antitrust Division challenged two proposed mergers that would have dramatically consolidated the health insurance industry: Anthem’s proposed acquisition of Cigna and Aetna’s effort to acquire Humana. We successfully persuaded the courts to enjoin both deals, but getting there required the commitment of 25 to 30 percent of the Division’s professional staff. My colleagues in the FTC’s Bureau of Competition were similarly constrained as they litigated in multiple forums during that same time. That inevitably meant other matters were understaffed. That is no way to ensure adequate enforcement.
• But second, more resources would allow for after-action studies of what happened in markets where the agencies decided not to bring enforcement actions or where the courts rejected an antitrust challenge. Developing that data would allow the antitrust enforcers to demonstrate to the courts what happens when there is under-enforcement. I urge the Subcommittee to consider carefully the submission of former FTC Chairman Tim Muris where he details how a series of retrospective studies by FTC economists during his tenure allowed the agency to persuade the courts that hospital consolidation in local markets across the country had resulted in significant increases in costs. The antitrust enforcers need more resources to develop the evidence needed to persuade the courts that antitrust enforcement can and does make a positive difference.

Conservative Partnership Institute Senior Director of Policy Rachel Bovard asserted

A comprehensive approach to combating Big Tech’s power will include reforms to Sec. 230, Big Tech’s congressionally created liability shield. Multiple Sec. 230 reform efforts are simultaneously happening at once, but all of them share one common goal: to make the recipients of Sec. 230’s benefits more transparent and accountable to their users in exchange for the statutory legal privilege they receive.

The initial intent and purpose of Section 230 was to provide a very narrow immunity designed to give platforms the freedom to filter content that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable” without fear of liability.

Unfortunately, embedded in that section is a catch-all phrase, “otherwise objectionable,” that gives tech platforms discretion to censor anything that they deem “otherwise objectionable.” Such broad language lends itself in practice to arbitrariness.

The DOJ recently put forward a proposal that aims to address both viewpoint bias and the harmful content which Sec. 230 enables.

Many on the Right take issue with the use of antitrust enforcement against Big Tech firms. Their claims are generally summarized as follows:

Antitrust is being used by conservatives as a political tool to go after Big Tech platforms they do not like.

Antitrust cannot solve speech concerns

Discussions of antitrust enforcement are actually proxies for updating antitrust law away from the consumer welfare standard.

I will take these claims one at a time. First, the bipartisan efforts and wide-ranging remedies under discussion make clear that there is growing awareness among legislators that Big Tech’s unchecked power in specific circumstances warrants review. Big Tech isn’t being singled out for its own sake; rather, specific actions – antitrust violations, viewpoint discrimination, and the facilitation of various criminal acts – are being targeted.

Second, antitrust’s application to “speech concerns” may not be direct, but proper enforcement of the law against violations could certainly have tangential effects. Antitrust enforcement does not occur in a vacuum. Enforcing against the monolithic dominance of these companies in one sector, if warranted, could free up the market in such a way that concerns over viewpoint bias could be competed away in ways which Big Tech’s market dominance now makes impossible.

Third, it is the view of myself and the Internet Accountability Project that our antitrust laws do not need to be updated; that the laws on the books are sufficient for tackling per se violations of antitrust as they exist in the tech sector. Antitrust enforcement is law enforcement. As conservatives, we do not support legal amnesty for those who violate our nation’s laws – and this should extend to corporations who violate competition laws in the market.

Open Markets Institute Director of Enforcement Strategy Sally Hubbard recommended the following:

• Beginning in the early 1980s, however, the Reagan administration, in tandem with introducing the flawed Chicago School ideology to competition policy, radically increased the role that economists played in determining what constitutes a just outcome in the enforcement of antitrust law. This included doubling the number of economists within the division by 1986, to nearly three economists for every 10 lawyers. And it included the decision to elevate the division’s chief economist to the role of deputy assistant attorney general.
• The Open Markets Institute believes that these changes played a major role in subverting the ability of the agencies to enforce U.S. antitrust law according to the original will of the American people as expressed through Congress. We further believe that Congress should now entirely reassess the role of economics within competition policy and reassess the relative levels of funding for economics within the agencies.
• The Open Markets Institute believes that Congress, in its oversight capacity, must require greater reporting and transparency from the FTC about its investigative and enforcement efforts regarding platform monopolists. Congress should hold the FTC accountable for weak enforcement, such as the FTC’s recent fines against Facebook and YouTube for repeated consent decree violations. Fines alone are not enough, because they don’t change platform monopolists’ destructive business models and anti-competitive practices. Google has handed over more than $9 billion to the European Commission since 2017 for antitrust violations, but Google has not fundamentally changed the ways that it excludes competition.
• Congress should also pressure the FTC to use its 6(b) authority to study targeted advertising, disinformation, election interference, the monopolization of digital ad revenue by digital platforms, and other harms related to platform monopolies.
• In the digital marketplace, privacy and monopoly are intricately related. Meaningful privacy reforms would, for instance, undercut Facebook’s and Google’s dominance because comprehensive tracking of users is required to support the platforms’ targeted digital advertising business models, and privacy reforms would undercut Amazon’s dominance because it uses data to disadvantage its competitors. Massive data collection allows tech giants to strengthen their monopoly power and erect barriers to competitive entry.
• The Open Markets Institute believes that Congress should reform Section 230 of the Communications Decency Act, which at present gives the platform monopolists far-reaching legal immunity for actions that other corporations must police against. Section 230 was first enacted nearly a quarter of a century ago as part of the Telecommunications Act of 1996. It grants broad immunity to “interactive computer services” from lawsuits seeking to hold the services liable for information published by an “information content providers.”
• One example of an unintended consequence of Section 230 is that dominant platforms remain legally unaccountable for the libel, fake news, fraudulent content, bots, and hate speech flowing across their platforms. At the same time, however, these firms are uniquely and unfairly able to profit from the spread of such content, because they sell advertising next to it. But these platforms are in competition for advertising revenues with traditional publishers, who do not have Section 230 immunity. In addition to reforming Section 230, another possible solution to these imbalanced terms of competition would be to prohibit entities enjoying Section 230 immunity from selling advertising.
• The Open Markets Institute also calls on Congress to make it easier for citizens to bring class action lawsuits. The American people developed class action lawsuits, in ways that supplement government enforcement, to help deter corporations from abusing their power. In recent years, however, courts have used the constructs of antitrust injury and antitrust standing to erect many procedural obstacles that limit who can sue under the antitrust laws and under what circumstances they can sue.57 These obstacles clearly flaunt the intent of Congress. Procedural barriers to private class actions, including the widespread use of clauses that require people harmed by monopolization to seek arbitration instead of suing in court, should also be eliminated.

Washington Center for Equitable Growth Director of Markets and Competition Policy Michael Kades stated

• First, we need legislation, not just enforcement actions. This may sound obvious, but legal requirements should efficiently distinguish procompetitive conduct from anticompetitive conduct. Over the past 40 years, however, the federal courts, showing an almost neurotic fear of overenforcement, have increased burdens on plaintiffs in antitrust cases and narrowed the scope of antitrust law.
• One example underscores this point. Arguably, the most significant monopolization case in U.S. history was the government’s successful break-up of the American Telegraph and Telephone Company in the 1980s. Under current case law, it is questionable that the government could pursue its claim under today’s standards. This development should shock every member of Congress. But it is of particular concern because the central issue in AT&T was its refusal to connect its long-distance competitor MCI to local phone exchanges—in other words, freezing out competitors—one of the major concerns raised in the course of the Committee’s investigation. My written testimony includes a letter I signed with 11 other economists and lawyers. (see Appendix A). All of them have served in the government. Many of them have defended companies in antitrust investigations. And all of them agree that:
  • the antitrust laws, as interpreted and enforced today, are inadequate to confront and deter growing market power in the U.S. economy and unnecessarily limit the ability of antitrust enforcers to address anticompetitive conduct in the digital markets that the Committee is investigating.
• That letter I signed provides a number of suggested reforms to restore the vitality of the antitrust laws, which
  • Nullify existing precedent that limits antitrust actions,
  • Clarify that the antitrust laws protect potential competition,
  • Establish legal rules that, in appropriate cases, require defendants to prove their conduct does not harm competition, and
  • Increase penalties and enforcement resources
• The courts have made it abundantly clear that they believe the antitrust laws have little role to play in promoting competition because the market can fix itself. And, therefore, do no harm is the prevailing approach. Unless Congress takes a different view by passing legislation, dominant firms will have little concern about the antitrust laws limiting their conduct.

Antonin Scalia Law School Professor Tad Lipsky argued:

• U.S. antitrust statutes and enforcement institutions are well-adapted to handle competition problems emerging in the digital economy. I have also recommended two initiatives to further improve our antitrust enforcement system so that anticompetitive practices are correctly identified and eliminated, while assuring that procompetitive conduct is not excessively burdened by inappropriate forms of public intervention:
  • Specifically, I support the recommendation made in the March, 2017 Report and Recommendations by the International Competition Policy Experts Group (of which I was a member) to establish and fund a dedicated office within the Executive Branch to identify and eliminate foreign-jurisdiction antitrust enforcement practices that limit competition and innovation by U.S. firms. Of greatest concern are those non-U.S. antitrust regimes that incorporate standards and objectives in tension or conflict with dynamic free-market competition (e.g., protection of local competitors or promotion of “national champions”), or that unduly restrict the procedural defense rights of business firms that are subject to antitrust investigations and cases.
  • Second, I support efforts to ensure more effective separation of prosecutorial and adjudicative functions within the Federal Trade Commission, such as designating the Director of the Bureau of Competition as an officer of the Executive Branch, with appointment and supervision of the Director similar to those applicable to the Assistant Attorney General for Antitrust.

Demos President Sabeel Rahman stated:

• I would like to outline a policy framework for legislative and regulatory action in response to the problems of tech firms, monopoly power, and infrastructural power.
• There are three policy strategies in particular that Congress and regulators at the FTC, FCC, and elsewhere should consider:
  • First, we must limit the dangers of infrastructural power by breaking up dominant firms, imposing firewalls and structural limits on the power of these firms to control essential infrastructure. This means developing policies that include separation by size (“breaking up” market dominant firms); separation by function (splitting platforms from commerce, for example); laws requiring interoperability to mitigate against undue consolidation and merger activity; and laws prohibiting tying contracts or predatory pricing. These limits can be legislated, and enforced by federal regulators.
  • Second, we should through legislation and regulatory enforcement impose public obligations and basic standards of nondiscrimination, fair dealing, fair pricing, and accountability over these infrastructural firms. Over a century ago, common carriage requirements were critical to preventing discrimination on railroads, and ensuring that all comers could access new transportation infrastructure to engage in commerce and travel. Historically, public obligations have also encompassed requirements for basic health and safety—for example, assuring that goods are not toxic or harmful to consumers. It was the rise of these kinds of public obligations that helped drive the development of our modern forms of labor, consumer, and business regulations. Similar public obligations were at the heart of the net neutrality debates in previous years: requirements of common carriage and anti-throttling obligations were meant to ensure that internet service providers did not leverage their control over access to the internet to favor paying information providers or business allies over other content providers and businesses.
  • Third, we should consider the degree to which some of these essential infrastructures can be provided not by private, profit-seeking firms, but by public providers, either on an exclusive basis or as “public options” that compete alongside private alternatives. In some markets, a public alternative could help remedy the problems of infrastructural power, especially if the public option operates on a non-profit basis, with statutory requirements for nondiscrimination, fair pricing, and the like. These public options could provide a ‘plain vanilla’, non-exclusionary alternative—which in turn would impose competitive pressures on private firms to match these socially-beneficial terms of service. In the internet service debate for example, the attempts to create municipal broadband networks represents a “public option” response to the infrastructural power of internet service providers like Comcast or Spectrum.

Fordham University School of Law Professor Zephyr Teachout said her “testimony will focus on three actions Congress should take immediately:

• Reassert Congressional supremacy in the relationship between Courts and Congress in Antitrust Policy
  • Congress must overturn via legislation bad Supreme Court decisions, and reassert Congressional supremacy over economic policy. The Sherman Act, the Clayton Act, and our antitrust laws are not Constitutional provisions over which Congress must defer interpretation to the Supreme Court. They are federal laws, passed by this body, and when they are misinterpreted by courts, Congress must act. For 40 years it has failed to do so, and stood by while the Supreme Court rewrote federal antitrust policy.
  • For example, in a trio of cases the Supreme Court reinterpreted the law in a way that essentially ripped apart our existing predatory pricing laws. Congress did not act. There were no hearings on these cases and no legislative action. Anti-predatory behavior laws are a key tool for reigning in the abuses of Amazon, Google, and Facebook.
• Pass Laws Requiring Structural Separation/Line of Business Laws
  • Amazon, Google, Facebook and Apple control market access to central parts of our economy, and directly compete with businesses that use their markets. These platforms abuse their chokepoint power to demand high private taxes from suppliers, copy, kill or acquire competitors, and then use their ill-gotten profits to subsidize adventures into new markets where they repeat their abuse of power strategies.
  • Congress should pass a structural separation law delineating a clear “single line of business” rule for any large data company, using revenue, role in data collection and sale, and consumer footprint. For instance, it could draw of the kind of framework used in California’s recent AB-1790, which used the following definition: “An online e-commerce marketplace with more than 200,000,000 active customer accounts that, in whole or in part, offers to customers for sale goods or services sold by companies that are not owned by the online e-commerce marketplace.”
• More Congressional Investigations
  • The CEO hearing of this subcommittee was a paradigm for what Congressional hearings should be. You were prepared, serious, and detailed, and brought forward important testimony because of the deep investigative work of the last year. Your investigation showed what a serious, demanding, unafraid assertion of public power over abusive companies looks like. And it shouldn’t just be the antitrust subcommittee. The labor committee should bring in Uber and Lyft in for tough questioning about how they use psychological techniques and big data on drivers, and how pay and prices are calculated. The small business committee (perhaps in conjunction with this committee) should interrogate Postmates, GrubHub, DoorDash, and UberEats about the evidence that they have been charging restaurants exorbitant commission fees, stealing tips, creating impostor restaurant websites, and draining revenue from restaurants facing a global pandemic.
  • While Congressional leaders may have worried in the past about whether the Supreme Court would permit this kind of investigation, in Trump v. Mazars this summer, the Court gave Congress a green light for investigations into big corporations. Justice John Roberts made clear that Congress is at the peak of its power when investigating economic behavior in service of prospective legislation. The Court says Congress’ power to investigate corporate actors in the process of understanding how it should respond legislatively is “broad” and “indispensable.” Investigations are necessary for wise and effective legislation. It is the job of Congress to stand between private tyrants and the people, and in service of that job, it must investigate rigorously.

University of Pennsylvania Carey Law School Professor Christopher Yoo stated:

• In sifting through the various reform proposals that have been suggested, I would encourage the Subcommittee to keep in mind two key precepts. The first is the importance of maintaining antitrust’s longstanding commitment to protecting consumers over competitors and to promoting innovation. The second is that many remedies work far worse in practice than they sound in theory. I will do so by examining two proposed reforms: the imposition of line of business restrictions and mandating data portability and interoperability.
  • Anyone familiar with the proposed imposition of line of business restrictions will recognize it as the approach that dominated telecommunications law during the 1980s and 1990s. That experience raises a number of cautionary notes. As an initial matter, line of business restrictions raised difficult definitional problems. The problem of characterizing the precise limits of a line of business is difficult under the best of circumstances, but it becomes unmanageable in industries undergoing rapid technological change. The inflexibility of the line of business restrictions harmed consumers to the tune of over $1 billion per year.
  • This history illustrates how line of business restrictions can harm innovation. Consider further the history of mobile operating systems. In 2005, just fifteen years ago, the U.S. market was dominated by Palm, Blackberry, Symbian, and Microsoft. Apple iOS appeared on the scene in 2007, with Android following in 2008. These new entrants employed innovative new business models that expanded beyond their original lines of business: iOS embraced vertical integration and required consumers to pay significant prices, while Android did not charge for its system and relied on third-party payments. In so doing, these new entrants shook up what had become a sleepy category in ways that provided tremendous benefits for consumers. Total smartphone sales exploded, growing 50% annually for the next five years.
  • Another commonly advanced proposal is to require data portability and interoperability. Interestingly, large platforms such as Google and Facebook already provide for data portability, and yet consumers almost never available themselves of this feature. The difficulties faced by past attempts to impose portability and interoperability mandates help explain why data portability has proven so hard to implement.
  • For a data portability regime to be meaningful, the data must be configured in a standardized format, otherwise the data generated by one system will not be useful to any other system. The problem is that different companies structure their data in radically different ways. In addition, reconfiguring data is typically prohibitively expensive. The choice of data format thus threatens to impose unleash a difficult fight over how to standardize the data and to create significant disadvantages for whoever loses that fight.
  • In addition, standardizing data formats create significant risks of depriving consumers of the benefits of innovation. The structure of data largely determines what types of uses are and are not possible. Forcing data into a particular format would inevitably preclude important types of innovation.

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