Antitrust Inquiry Continues

The beginnings of possible bipartisan antitrust reform legislation begin to emerge. Whether Democrats and the White House will play “small ball” is unclear.

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The House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee held the third of its ongoing hearings on how United States (U.S.) antitrust law should be changed to account for the lack of competition in digital markets, or what many call “Big Tech.”

Twitter

The House’s antitrust committee keeps chugging towards legislation that would dimmish the power of and possibly break up tech giants if the Senate’s filibuster is eliminated. Many Republicans seem to want more of the same, but better. And, Ken Buck, cool advertising for yourself on your mask but get a better fitting one.

Cocktail Party

Everyone agrees there are problems with competition in digital markets, but there is less consensus on what to do. Subcommittee Chair David Cicilline (D-RI) and many Democrats wants to remake antitrust and anti-competition enforcement. Ranking Member Ken Buck (R-CO) likely sketched the outer limits of current Republican cooperation on antitrust issues, but Democrats may be able to move the Overton Window on the issue as has happened on antitrust and other issues.

Meeting

Cicilline led the subcommittee in its extensive investigation of competition in digital markets and found significant concentration in markets dominated by Apple, Amazon, Facebook, and Google. In October 2020, the subcommittee issued its report, “Investigation of Competition in the Digital Marketplace: Majority Staff Report and Recommendations,” that called for the kind of reform of U.S. antitrust and competition laws not seen since Harry Truman was President. (see here for more detail and analysis.)

Cicilline, committee Democrats, and some Republicans keep examining how the Sherman and Clayton Antitrust Acts can be amended to address the concentration in digital markets and other markets through reiterating Congressional intent and undoing unfavorable caselaw, including some recent Supreme Court of the United States decisions. However, some Republicans and industry stakeholders think Democrats will go too far and distort competition law in ways that will hurt consumers and the U.S. economy. Still other Republicans are focused on working the referees in social media and are advocating for the breakup of Facebook and others if Republican and conservative viewpoints continue to be “censored” or “shadow-banned.”

Geek Out

Chair David Cicilline (D-RI) (watch his opening statement or read his full written testimony) contended:

  • Across the board, we are seeing less innovation, fewer jobs, and less choice while a handful of companies are growing larger and larger. As a result, the Internet has become highly concentrated, less open, and more hostile to innovation and entrepreneurship.
  • Although the Federal Trade Commission and Justice Department recently filed lawsuits against Facebook and Google challenging some of these practices as violations of the antitrust laws, this conduct has gone unchecked for far too long. This abysmal record was underscored by recent reporting by Leah Nylen of Politico on the Federal Trade Commission’s (FTC) investigation of Google’s dominance in search nearly a decade ago. Hundreds of pages of internal memoranda by the Commission’s economists and lawyers obtained by Politico demonstrate that despite significant evidence the FTC was unwilling to challenge Google’s monopoly power.
  • As the documents made clear, Google sought to “own the U.S. market” through exclusive contracts with carriers and device manufacturers, which made Google the default choice for search on the vast majority of smartphones. Google’s own employees acknowledged that these “humongous” payments—which totaled billions of dollars—were used to block rivals from the market. As Jeremy Stoppelman, the CEO of Yelp has said, these documents “show how Google methodically destroyed the web.” And despite recommendations by the Bureau of Competition to file an antitrust lawsuit, the FTC voted unanimously to close the investigation.
  • Over and over again, these examples provide case studies of why we need a massive overhaul of our antitrust laws and significant updates to our competition system. Today’s hearing is an opportunity to take additional steps in that process by identifying reforms to develop and clarify the antitrust laws to confront America’s monopoly problem.

Ranking Member Ken Buck (R-CO) (watch his opening statement) said he has been reflecting on the recommendations made last October to reform this area of the law, including more rigorous enforcement, lowering burdens of proof for the U.S. government, instituting rebuttable presumptions, and codifying the consumer welfare standard. He stated he would highlight the “several areas” where Republicans and Democrats can work together, but he remarked he would “address the disinformation campaign” technology companies have “launched around town,” in which they are claiming the proposals under consideration would apply to the entire economy. Buck stressed this is not true and the proposals he is supporting apply solely to “big tech monopoly platforms.” He argued essentially that more broadly gauged reform would jeopardize economic growth as the U.S. rebounds from the pandemic.

Buck asserted both parties agree more rigorous enforcement is needed and more personnel are needed at the antitrust agencies. Like Ciciliine, he recounted Politico’s blockbuster story on how the FTC declined to sue Google for antitrust and anti-competitive violations in 2013 despite staff recommendations it do so. Buck vowed that any increased funds for the Department of Justice (DOJ) and FTC will come with increased oversight and the expectation the agencies will bring the hard cases. He lauded the state attorneys general for bringing cases against Google and Facebook and argued they should enjoy the same deference in venue selection the U.S. government has. Buck suggested Republicans and Democrats could agree on lowering the burden the U.S. must meet in blocking mergers, which is “basically insurmountable” at present. He pointed to Google’s proposed acquisition of FitBit as another in a long line of big technology companies snapping up competitors or moving to take over new markets. Buck stated the subcommittee should move to deny mergers that foster dominance. He characterized Silicon Valley as no longer being full of startups and innovative ideas but rather “whales inhaling the startup plankton.” Buck said the last area of agreement is making the consumer welfare standard law so courts will understand that price should not be the only consideration in assessing harm and risk of harm to consumers.

Acting Federal Trade Commission Chair Rebecca Kelly Slaughter (watch her opening statement or read her full testimony) stated she would focus “on (1) what more the FTC can do right now using our current authority,(2) some of the challenges we face in carrying out our mission given the laws and resourcing we have today, and (3)the legislative and regulatory proposals that have the potential to change the FTC’s enforcement dynamic most dramatically:”

  • The FTC can take concrete steps on behalf of consumers and workers to further the fight against abusive market power: (1)prioritize deterrence as a goal in our case selection and resolution strategies, by recalibrating our tolerance for litigation risk and adopting a settlement policy that fully eliminates the risk of future harm, and(2) use the full range of the FTC’s tools to stop unfair methods of competition, including rulemaking and more stand-alone Section 5 enforcement in competition cases.
  • The Commission greatly appreciates the additional funding it received as part of this year’s appropriations, which provided a much-needed boost to our budget and helps address the increasing costs without cutting back on our current staffing or enforcement levels. But we are increasingly concerned about the ever-growing workload in both our competition and consumer protection missions and whether we will have enough resources to keep up with the increasing demand. As I have noted, the Commission is looking for ways to use existing resources more efficiently and effectively, but additional resources would be put to good use and help us to do more to further our mission.
  • Another pressing problem for the Commission is the ongoing threat from the courts to our authority under Section 13(b) of the FTC Act; a series of bad decisions limit our ability to enjoin illegal conduct and seek monetary redress. Last fall, all five of the sitting Commissioners urged Congress to act quickly to restore Section 13(b) in the face of these challenges. While Section 13(b) is often contemplated in the fraud context, it matters a great deal for antitrust enforcement.
  • Several legislative proposals in Congress would materially improve enforcers’ ability to block anticompetitive mergers, including those that are especially resource-intensive to investigate and challenge. Clearer bright-line rules could minimize the need to engage in tortured and expensive efforts to both measure and balance harm and efficiencies, particularly in cases where the facts support a clear theory of harm. Shifting the burden of proof so that the parties that wish to merge must prove that a proposed transaction would not materially harm competition for those transactions would substantially help to deter unlawful mergers. In addition, Congress should right-size the standard for what the DOJ and FTC need to show to prove a merger is unlawful to be more reflective of what would actually protect markets from undue concentration.

U.S. Court of Appeals for the Seventh Circuit Judge Diane Woods (watch her opening statement and read her full written statement) stated:

  • First, the antitrust laws have always been concerned not only with “consumer welfare,” as the Chicago School has used that term, but also with concentrated economic power that chokes off vibrant competition and innovation.
  • Second, it is not only possible, but essential, that exclusionary practices be once again pursued seriously by both the government antitrust enforcers—the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission, as well as the state Attorneys General—but also by the private parties who have been empowered for more than a century to serve as “private attorneys general” who can supplement the efforts of public enforcers.
  • Third, it may be time to consider legislative changes to the statutes, particularly in the area of remedies, so that anticompetitive practices do not go unredressed because antitrust standards are overly onerous or the available remedies are either too weak or otherwise ineffective.

Colorado Attorney General Phil Weiser (watch his opening statement and read his full written statement) said:

  • To revitalize antitrust enforcement, I recommend four related steps.
  • First, enforcers should bring cases that present empirical evidence and rigorous economic analysis that demonstrates competitive harm in the marketplace. That is exactly what the DOJ did a generation earlier in the Microsoft case. In that case, a unanimous D.C. Circuit concluded that Microsoft took a series of actions, including entering into exclusionary contracts, degrading access to its platform, and keeping barriers to entry artificially high, thereby excluding technologies that threatened to erode its operating system monopoly. In the ensuing years after that decision, antitrust enforcers did not bring a comparable case—and the courts rendered a number of decisions that imposed artificial hurdles to antitrust liability. With today’s high level of market concentration and a relative lack of competition in the tech sector, antitrust enforcers are taking up the question I began my testimony with — how to protect tomorrow’s innovators when we don’t know who they are? One answer to this question is to be vigilant about addressing predatory conduct that undermines the ability of new entrants to compete. As explained in the airline example, consumers are now worse off due to concentration in that industry and a lack of competition—both of which were enabled by permissive merger policy and a lack of predatory pricing enforcement.
  • Second, the central challenge for antitrust is to develop more in-depth analyses of how markets are working in practice. Historically, antitrust enforcers under- invested in retrospectives. One opportunity for this Subcommittee is to encourage and enable a more systematic investment in such studies, which could help us better understand how and why competition issues arise in a number of contexts, ranging from agriculture to health care. A very thoughtful report for the incoming Administration recommended such an investment. Indeed, the FTC was originally created with this purpose in mind. Additional funding for the FTC and DOJ, along with a clear mandate and authority for industry studies, is a sound and overdue investment.
  • Third, as we consider competition policy more broadly, we should not limit ourselves to thinking about antitrust enforcement. The federal government has considerable policy levers to encourage and enable competition. With respect to airlines, for example, airports make leasing decisions on which airlines receive landing gates. With respect to the pharmaceutical industry, certain patent law policies make entry for generic rivals more challenging, particularly for biosimilars. And, in the Internet ecosystem, the question is how interoperability and data portability requirements—long a staple of telecommunications regulations—can be imposed as procompetitive measures outside the litigation context, where these and other options, including divestitures, are available.
  • Fourth, legislative action is necessary to address the wrong turn called for by the Chicago School. This thinking motivated decisions like Brooke Group and has spurred the imposition of artificial and unwarranted obstacles to sound antitrust enforcement. In my view, to enable effective antitrust enforcement, corrective legislative action is clearly warranted to address recent misguided Supreme Court decisions. And complementary consumer protection measures—such as the one I mentioned with respect to airlines—are warranted as well.

The United Kingdom’s Competition and Markets Authority’s Chief Economic Adviser Dr. Mike Walker (watch his opening statement and read his full written statement) asserted:

  • The UK is setting up a tech-specific regulator. This is called the Digital Markets Unit and will, initially at least, be set up inside the CMA, the competition authority. The CMA has provided recommendations as to how the regulatory regime should work. These are largely based on the Furman Review and on our own work on the digital advertising market.
  • The aim of the proposed regulation is threefold.
    • First, to limit the ability of firms that currently have substantial market power to exploit that market power.
    • Second, to make it easier for firms to challenge the positions of the incumbents.
    • Third, to ensure that incumbents cannot protect their positions via acquisitions.
  • My view is that the proposed regulation will likely cover only a few firms directly. It will cover firms that are found to have strategic market status (SMS). This means that the firms have substantial entrenched market power in a digital activity and that this provides the firm with a strategic position which means that the effects of its market power are widespread and significant. There are two important points to note about this designation. First, the market power must not only be substantial, it must also be entrenched, with little prospect of it being competed away in the foreseeable future.  Second, that market power must have effects across a wide range of markets.  On the basis of our work so far, I think that Google and Facebook both very likely have SMS.  We have signalled that we will carry out analysis to see if Apple and Amazon have SMS.  It may be that other firms, such as for instance Microsoft, are found to have SMS. 
  • The essence of the proposed regime is that SMS firms will face three sets of obligations. 
    • First,  they  will  be  subject  to  a  firm-specific  code  of  conduct.    The  aim  of  this  is  to restrict  their  ability  to  exploit their  existing  market  power  to  the  detriment  of consumers.   Our  proposals  here  are  based  around  three  principles:  fair  trading;  open choices; and trust and transparency.  Fair trading relates to the need for SMS firms to treat users fairly and trade on reasonable commercial terms.  Open choices mean that users do not face barriers to choosing freely and easily between services provided by SMS firms and other firms.  Trust and transparency means that consumers are provided with clear and relevant information so that they can make informed choices about how they interact with the SMS firm.
    • Second, they will face pro-competitive interventions designed to encourage new entry and innovation to challenge the SMS firm.  Such interventions might include remedies around personal data mobility, interoperability and data access.
    • Third, they  will  face  enhanced  merger  scrutiny,  to  ensure  that  they  cannot  protect  or enhance their market power via acquisitions.

Federal Trade Commission Commissioner Noah Phillips (watch his opening statement and read his full written statement) stated:

  • Taking care is important, as the history of antitrust legislation includes unintended consequences: some reforms have taken money out of the pockets of American consumers, or failed meaningfully to advance the other goals articulated in favor of reform. For example, the Robinson-Patman Act of 1936 was passed with the intent to protect small, retail business from larger, more efficient chain stores. Historians, lawyers, and economists generally agree on the result: American consumers paid more money for the groceries and household products they use every day. The 1950 Celler-Kefauver Amendments to the Clayton Act ushered in an era of greater hostility to horizontal and vertical mergers. We enforce these merger laws today—and they are good—but the Subcommittee should keep in mind that their passage was followed by a two-decade merger wave. Contrary to what the authors may have hoped, the result was not the diminishment of powerful corporations, but rather the rise of gargantuan, unwieldy conglomerate corporations—no less powerful but, as it turns out, unsuccessful in practice.
  • Our nation is emerging from a crisis, with a terrible economic component that has put tens of millions out of work and shuttered businesses. We want to encourage companies, big and small, to enter and meet consumer need. Mergers and acquisitions are one way they do that. For example, Thermo Fisher, the scientific instruments company, recently acquired Mesa Biotech, a medical diagnostics company developing rapid PCR testing for COVID-19 and the flu. According to the companies, the combination of Mesa’s technology and Thermo Fisher’s scale will enable the combined company to bring more and better tests to more people. That is a very good thing as we race to put this pandemic behind us.
  • Markets work better when companies are allowed to give consumers what they want. Government intervention is sometimes necessary to protect us, but too often it just gets in the way. State laws that prevent new hospital expansions or impose unnecessary occupational licensing requirements are good examples—and the FTC advocates against them. Burdensome environmental and “NIMBY” permitting slowed the plans of Presidents Obama and Trump to improve American infrastructure, including “shovel ready” projects promised as fixes to the financial crisis of 2008-2009. Competitive M&A is no different. We can and do stop bad ones, but over-regulating will stop good ones, too. The ability of companies and investors willing to buy companies also encourages people to innovate and start companies, and venture capitalists to fund them, in tech, biotech, consumer products, etc. On the flip side, sand in the gears prevents the market from working. As you think about reform of the antitrust laws, including those governing mergers, I urge you to keep this in mind.

Nebraska Attorney General Doug Peterson (watch his opening statement and read his full written statement) stated:

  • The most obvious examples of our office’s efforts are the recent enforcement actions brought–along with dozens of my colleagues–against Facebook and Google for anticompetitive tactics designed to defend their respective monopolies. Like much of the antitrust community, our office has been concerned about how market dynamics in the internet ecosystem –such as economies of scale, indirect and direct network effects, and entrenched incumbents –may deter the innovation that consumers have come to expect. Of course, these concerns were not only heard in Nebraska, but also by elected officials across the country. As a result, dozens of Attorneys General banded together and pooled resources with our federal counterparts to bring two of the largest and most bipartisan enforcement actions since Microsoft. These recent actions are instructive of how we might address monopoly power moving forward in two ways.
  • First, both cases demonstrate the importance of overlapping enforcement authority and the need for robust state enforcement. Antitrust enforcement actions are resource intensive endeavors and require armies of specialized attorneys, combined with both technical and economic experts to be successful. These types of resources are readily available for large corporate defendants but are scarce for state and federal enforcers. As a result, enforcers are most effective when cooperating and coordinating our efforts. Cooperative enforcement was highly effective in past cases, such as Microsoft and Apple E-Books in which state and federal enforcers came together successfully to take on some of the world’s largest technology companies. The recent enforcement actions against Facebook and Google have sought to replicate those historical examples, and take our cooperation a step further. In addition to synchronizing our efforts with federal agencies, state enforcers have become true partners with our federal counterparts by bringing sperate yet coordinated enforcement actions, thus allowing us to bring more expansive and aggressive cases where appropriate.
  • However, despite our best efforts to make the most of our limited resources, there is still much work to be done. Protecting competition across the American economy is an expansive task. For us to meet this challenge, we require the tools and resources to research markets, investigate anticompetitive conduct, and prosecute violators. I would encourage this Subcommittee to seriously consider proposals to increase resources allocated to the antitrust enforcement community to ensure that agencies have the resources necessary to successfully pursue anticompetitive conduct.
  • Second, the Sherman Act has been a critical tool for antitrust enforcers to protect competitive markets for more than 100 years. Over the last century, it has offered a sufficiently flexible and adaptable framework for a wide range of cases with a variety of fact patterns. The Microsoft case provides the most recent example, and a model for the more recent Facebook and Google cases. In Microsoft, the D.C. Court of Appeals endorsed the idea that antitrust harm extends beyond simple price increases on consumers or output reductions; instead, the Sherman Act protects against conduct which hinders or distorts the competitive process. Courts largely understand that offering a “free” product is no exception from antitrust scrutiny or liability and instead focus on broader conceptions of competition, such as quality, consumer choice, and innovation. In doing so, their analysis goes far beyond some price metric produced by an economists’ equation.
  • Despite the Sherman Act’s effectiveness, the House Judiciary Committee’s Investigation of Competition in Digital Markets provides several policy solutions worthy of further consideration. However, before making any significant legislative changes, the Subcommittee should consider how comprehensive changes to antitrust law will impact the broader economy. Antitrust analysis is critically fact-specific and industry-specific. To adequately explore which legislative reforms are appropriate, this Subcommittee should carefully consider how those reforms would apply to antitrust concerns in other industries and whether additional legislative action may be necessary to address monopolies in the broader economy.

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2021. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

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