Big Tech CEOs Appear At Hearing

In a marathon hearing, Democrats make their case on why big tech is engaged in antitrust and anti-competitive practices. Whether this hearing and a future report change anything is an open question.

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On  29 July, the House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee held its sixth hearing on “Online Platforms and Market Power” titled “Examining the Dominance of Amazon, Apple, Facebook, and Google” with the heads of Amazon, Apple, Google, and Facebook that lasted more than five hours. Democrats largely focused their questions on the documents and information provided by the companies to make the case each had engaged in practices that are at the least anti-competitive if not illegal under the Sherman and Clayton Antitrust Acts. On the other hand, Republicans largely avoided discussing anti-competitive or antitrust issues except in connection with lines of questioning regarding social media moderation of content that is allegedly biased against conservatives and the People’s Republic of China (PRC).

The subcommittee is expected to issue its report in the near term with possible recommendations on how to amend US law to address the problems turned up during the investigation. However, the Republican-controlled Senate and the White House will likely not be receptive to legislation to update the US’ antitrust or anti-competitive laws. And yet, a Democratic White House and Senate may prove more receptive and able to effect changes in these laws. It remains to be seen whether the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) bring broad cases against these companies for potential violations. Likewise, groups of states are collectively investigating Google and Facebook, and the attorney general of California is looking into Amazon’s business practices. Finally, the European Commission (EC) is also investigating a number of this companies as its new leadership considers the size and power of tech companies a central issue in the European Union.

Subcommittee Chair David Cicilline (D-RI) asserted “[a]lthough these four corporations differ in important and meaningful ways, we have observed common patterns and competition problems over the course of our investigation:

  • First, each platform is a bottleneck for a key channel of distribution. Whether they control access to information or to a marketplace, these platforms have the incentive and ability to exploit this power. They can charge exorbitant fees, impose oppressive contracts, and extract valuable data from the people and businesses that rely on them.
  • Second, each platform uses its control over digital infrastructure to surveil other companies—their growth, business activity, and whether they might pose a competitive threat. Each platform has used this data to protect its power, by either buying, copying, or by cutting off access for any actual or potential rival.
  • Third, these platforms abuse their control over current technologies to extend their power. Whether it’s through self-preferencing, predatory pricing, or requiring users to buy additional products, the dominant platforms have wielded their power in destructive, harmful ways in order to expand.

Cicilline stated that

  • At today’s hearing we will examine how each of these companies has used this playbook to achieve and maintain dominance—and how their power shapes and affects our daily lives. Why does this matter? Many of the practices used by these companies have harmful economic effects. They discourage entrepreneurship, destroy jobs, hike costs, and degrade quality. Simply put: They have too much power. This power staves off new forms of competition, creativity, and innovation. And while these dominant firms may still produce some new innovative products, their dominance is killing the small businesses, manufacturing, and overall dynamism that are the engines of the American economy.
  • Several of these firms also harvest and abuse people’s data to sell ads for everything from new books to dangerous “miracle” cures. When everyday Americans learn how much of their data is being mined, they can’t run away fast enough. But in many cases, there is no escape from this surveillance because there is no alternative. People are stuck with bad options. Open markets are predicated on the idea that if a company harms people, consumers, workers, and business partners will choose another option. We are here today because that choice is no longer possible.

Cicilline stated “I am confident that addressing the problems we see in these markets will lead to a stronger, more vibrant economy…[b]ecause concentrated economic power also leads to concentrated political power, this investigation also goes to the heart of whether we, as a people, govern ourselves, or whether we let ourselves be governed by private monopolies.”

Subcommittee Ranking Member James Sensenbrenner (R-WI) lauded the technological innovations the four companies have provided Americans that made coping with the COVID-19 pandemic easier. He reiterated that “being big is not inherently bad” and asserted the opposite was true because in the US success should be rewarded. Sensenbrenner said the hearing is designed to help the subcommittee better understand the roles the companies play in the digital marketplace and the effect on consumers and the public at large. He said that data drives the marketplace and those who control the data, in essence, control the marketplace. Sensenbrenner said there are broader questions around data such as who owns it; do they share data with their customers or competitors; what is the fair market value of that data; is there anything monopolistic in acquiring this data; and what are the implications of monetizing data.

Sensenbrenner claimed that since the “tech investigation” began, “we have heard rumblings from many” who say your companies have grown too large. He stated that since the hearing was announced the complaints have gotten even louder. Sensenbrenner said he found these complaints informative, but he did not plan on litigating each complaint today. He asserted antitrust law and the consumer welfare standard have served the US well for over a century and have provided a framework for some of the US’s most successful and innovative companies. Sensenbrenner allowed that as the economy evolves, antitrust law may need updating to meet the needs of the nation and its consumers. He stated his concern that market dominance in this space is ripe for abuse, “particularly when it comes to free speech,” as Facebook, YouTube, and Twitter have become the public space of today as political debate unfolds in real time. Sensenbrenner said that reports of “dissenting views, often conservative views” are targeted or censored are seriously troubling. He stressed that “conservatives are consumers, too” and “they need the protection of antitrust laws.” He argued that the power to shape debate carries tremendous responsibility.

Sensenbrenner said facts should guide the inquiry. He noted the companies are large, successful, and powerful, all of which are fine. He asserted he wanted to leave the hearing with a better picture of how these qualities affect consumers.

Amazon CEO Jeff Bezos claimed

  • The global retail market we compete in is strikingly large and extraordinarily competitive. Amazon accounts for less than 1% of the $25 trillion global retail market and less than 4% of retail in the U.S. Unlike industries that are winner-take-all, there’s room in retail for many winners. For example, more than 80 retailers in the U.S. alone earn over $1 billion in annual revenue.
  • Like any retailer, we know that the success of our store depends entirely on customers’ satisfaction with their experience in our store. Every day, Amazon competes against large, established players like Target, Costco, Kroger, and, of course, Walmart—a company more than twice Amazon’s size. And while we have always focused on producing a great customer experience for retail sales done primarily online, sales initiated online are now an even larger growth area for other stores. Walmart’s online sales grew 74% in the first quarter.
  • And customers are increasingly flocking to services invented by other stores that Amazon still can’t match at the scale of other large companies, like curbside pickup and in-store returns. The COVID-19 pandemic has put a spotlight on these trends, which have been growing for years. In recent months, curbside pickup of online orders has increased over 200%, in part due to COVID19 concerns. We also face new competition from the likes of Shopify and Instacart—companies that enable traditionally physical stores to put up a full online store almost instantaneously and to deliver products directly to customers in new and innovative ways—and a growing list of omnichannel business models. Like almost every other segment of our economy, technology is used everywhere in retail and has only made retail more competitive, whether online, in physical stores, or in the various combinations of the two that make up most stores today. And we and all other stores are acutely aware that, regardless of how the best features of “online” and “physical” stores are combined, we are all competing for and serving the same customers. The range of retail competitors and related services is constantly changing, and the only real constant in retail is customers’ desire for lower prices, better selection, and convenience.
  • It’s also important to understand that Amazon’s success depends overwhelmingly on the success of the thousands of small and medium-sized businesses that also sell their products in Amazon’s stores. Back in 1999, we took what at the time was the unprecedented step of welcoming third-party sellers into our stores and enabling them to offer their products right alongside our own. Internally, this was extremely controversial, with many disagreeing and some predicting this would be the beginning of a long, losing battle. We didn’t have to invite third-party sellers into the store. We could have kept this valuable real estate for ourselves. But we committed to the idea that over the long term it would increase selection for customers, and that more satisfied customers would be great for both third-party sellers and for Amazon. And that’s what happened.
  • Within a year of adding those sellers, third-party sales accounted for 5% of unit sales, and it quickly became clear that customers loved the convenience of being able to shop for the best products and to see prices from different sellers all in the same store. These small and medium-sized third-party businesses now add significantly more product selection to Amazon’s stores than Amazon’s own retail operation. Third-party sales now account for approximately 60% of physical product sales on Amazon, and those sales are growing faster than Amazon’s own retail sales. We guessed that it wasn’t a zero sum game. And we were right—the whole pie did grow, third-party sellers did very well and are growing fast, and that has been great for customers and for Amazon. There are now 1.7 million small and medium-sized businesses around the world selling in Amazon’s stores. More than 200,000 entrepreneurs worldwide surpassed $100,000 in sales in our stores in 2019. On top of that, we estimate that third-party businesses selling in Amazon’s stores have created over 2.2 million new jobs around the world.

Apple CEO Tim Cook asserted

  • The smartphone market is fiercely competitive, and companies like Samsung, LG, Huawei and Google have built very successful smartphone businesses offering different approaches.
  • Apple does not have a dominant market share in any market where we do business. That is not just true for iPhone; it is true for any product category.
  • What motivates us is the continuous improvement of the user experience, and we focus relentlessly on and invest significantly in new breakthroughs, innovative features and deepening the principles that set us apart.
  • Privacy and security are key examples of this drive. This is true for the iPhone and for every device we make. We build products that, from the ground up, help users protect their fundamental right to the privacy of their personal data. This principle is foundational and touches everything else we do.
  • We created the App Store in 2008 as a feature of the iPhone. Launching with a little more than 500 apps, it was our ambitious attempt to dramatically expand the features and customizability of every user’s device. We wanted to create a safe and trusted place for users to discover apps—and a means of providing a secure and supportive way for developers to develop, test and distribute apps to iPhone users globally.
  • Apple continuously improves, and provides every developer with cutting-edge tools like compilers, programming languages, operating systems, frameworks and more than 150,000 essential software building blocks called APIs. These are not only powerful, but so simple to use that students in elementary schools can and do make apps.
  • The App Store guidelines ensure a high-quality, reliable and secure user experience. They are transparent and applied equally to developers of all sizes and in all categories. They are not set in stone. Rather, they have changed as the world has changed, and we work with developers to apply them fairly.
  • For the vast majority of apps on the App Store, developers keep 100% of the money they make. The only apps that are subject to a commission are those where the developer acquires a customer on an Apple device and where the features or services would be experienced and consumed on an Apple device.
  • Apple’ s commissions are comparable to or lower than commissions charged by the majority of our competitors. And they are vastly lower than the 50 to 70 percent that software developers paid to distribute their work before we launched the App Store.
  • In the more than a decade since the App Store debuted, we have never raised the commission or added a single fee. In fact, we have reduced them for subscriptions and exempted additional categories of apps. The App Store evolves with the times, and every change we have made has been in the direction of providing a better experience for our users and a compelling business opportunity for developers.
  • I am here today because scrutiny is reasonable and appropriate. We approach this process with respect and humility. But we make no concession on the facts.

Alphabet CEO Sundar Pichai contended

  • Google operates in highly competitive and dynamic global markets, in which prices are free or falling, and products are constantly improving. Today’s competitive landscape looks nothing like it did 5 years ago, let alone 21 years ago, when Google launched its first product, Google Search.
  • For example, people have more ways to search for information than ever before — and increasingly this is happening outside the context of only a search engine. Often the answer is just a click or an app away: You can ask Alexa a question from your kitchen; read your news on Twitter; ask friends for information via WhatsApp; and get recommendations on Snapchat or Pinterest. When searching for products online, you may be visiting Amazon, eBay, Walmart, or any one of a number of e-commerce providers, where most online shopping queries happen.
  • Similarly, in areas like travel and real estate, Google faces strong competition for search queries from many businesses that are experts in these areas.
  • A competitive digital ad marketplace gives publishers and advertisers, and therefore consumers, an enormous amount of choice. For example, competition in ads — from Twitter, Instagram, Pinterest, Comcast and others — has helped lower online advertising costs by 40% over the last 10 years, with these savings passed down to consumers through lower prices.
  • We also deliberately build platforms that support the innovation of others. Using Android — a product I worked on for many years — thousands of device makers and mobile operators build and sell devices without any licensing fees to us or any requirement to integrate our products. This greatly reduces device prices, and today billions of consumers around the globe are now able to afford cuing-edge smartphones, some for less than $50. And in doing so they are able to access new opportunities — whether it’s sharing a video with friends and family around the world, gaining an education for themselves or their children, or starting a business. Competition also sets higher standards for privacy and security. I’ve always believed that privacy is a universal right and should be available to everyone, and Google is committed to keeping your information safe, treating it responsibly, and putting you in control of what you choose to share. We also never sell user information to third parties. But more must be done to protect users across industries, which is why we’ve long supported the creation of comprehensive federal privacy laws.

Facebook CEO Mark Zuckerberg asserted

  • Our story would not have been possible without U.S. laws that encourage competition and innovation. I believe that strong and consistent competition policy is vital because it ensures that the playing field is level for all. At Facebook, we compete hard, because we’re up against other smart and innovative companies that are determined to win. We know that our future success is not guaranteed, especially in a global tech industry defined by rapid innovation. The history of technology is often the history of failure, and even industry leading tech companies fail if they don’t stay competitive. This is why we’re focused on delivering better services for people and businesses, and competing as vigorously as we can within the rules.
  • Although people around the world use our products, Facebook is a proudly American company. We believe in values — democracy, competition, inclusion and free expression — that the American economy was built on. Many other tech companies share these values, but there’s no guarantee our values will win out. For example, China is building its own version of the internet focused on very different ideas, and they are exporting their vision to other countries. As Congress and other stakeholders consider how antitrust laws support competition in the U.S., I believe it’s important to maintain the core values of openness and fairness that have made America’s digital economy a force for empowerment and opportunity here and around the world.
  • Like many companies, we’ve both built our own products from the ground up, and we’ve moved others forward through mergers and acquisitions. Our acquisitions have helped drive innovation for people who use our own products and services and for the broader startup community. Acquisitions bring together different companies’ complementary strengths. When you acquire a company, you can benefit from their technology and talent, and when you are acquired you get access to resources and people you otherwise might never have been able to tap into.
  • Facebook has made Instagram and WhatsApp successful as part of our family of apps. Instagram and WhatsApp have been able to grow and operate their services using Facebook’s bespoke, lower-cost infrastructure and tackle spam and harmful content with Facebook’s integrity teams and technology.
  • Following its acquisition, Instagram was able to get help stabilizing infrastructure and controlling runaway spam. It also benefited from the ability to plug into Facebook’s self-serve ads system, sales team and existing advertiser relationships to drive monetization, and was able to build products including IG Direct and IG Video that used Facebook’s technology and infrastructure. Before it was acquired, WhatsApp was a paid app with a reputation for secure communications; together we built on that by introducing end-to-end encryption and making it free to use. Since its acquisition, WhatsApp has also been able to develop products such as voice and video calling that were built on Facebook’s technology stack.
  • These benefits came about as a result of our acquisition of those companies, and would not have happened had we not made those acquisitions. We have developed new products for Instagram and WhatsApp, and we have learned from those companies to bring new ideas to Facebook. The end result is better services that provide more value to people and advertisers, which is a core goal of Facebook’s acquisition strategy.

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House Passes FISA Reauthorization; Senate To Vote Today

Last week, the House passed the “USA FREEDOM Reauthorization Act of 2020” (H.R. 6172) by a 278-136 vote, a bill to reauthorize three expiring Foreign Intelligence Surveillance Act (FISA) provisions used by the National Security Agency (NSA) primarily to conduct surveillance: the business records exception, roving wiretaps, and the “lone wolf” provision.

However, the Senate started the process of invoking cloture on H.R.6172 before leaving for the weekend, and these authorities lapsed on March 15 when the current authorization ended. The Senate is scheduled to hold a vote to invoke cloture on the motion to proceed to the bill at 5:30 pm. During floor consideration on March 12, Senator Mike Lee (R-UT) twice asked for unanimous consent to pass a clean 45-day extension of the expiring FISA authorities and then the consideration of amendments to H.R. 6172 offered by Members looking to reform and limit FISA, but Senate Intelligence Committee Chair Richard Burr (R-NC) objected to each request.

A few weeks ago, the House Judiciary Committee set a February 26 markup of the bill that had been agreed upon with the House Intelligence Committee. However, Representative Zoe Lofgren (D-CA), was dissatisfied with the bill, calling it “so pitiful that it is not even worth pursuing.” She added that “[w]e have the opportunity to reform the system…[and] [w]e should take that opportunity.” Reportedly, Lofgren was going to offer amendments changing the bill to require that an amici curiae be appointed to oppose every government application under FISA to surveil an American and to change the definition of business records to exclude cell phone location, web browsing data, and search history. Information on the other amendments was not made available.

H.R. 6172 would end the controversial Call Detail Record (CDR) program that replaced the bulk telephony metadata program exposed by former NSA contractor Edward Snowden. The NSA had already shut down this program over what it framed as technical issues and deleted all the CDRs acquired from telecommunications companies, and yet, the Trump Administration asked that the program be reauthorized and vowed not to restart it until a need arose for these authorities. However, this request was coolly received by many Republicans and Democrats.

Also, H.R. 6172 would reauthorize the business records exception, which includes “any tangible thing,” in FISA first instituted in the USA PATRIOT Act in 2001 but would reform certain aspects of the program. For example, if the Federal Bureau of Investigation (FBI) or NSA is seeking a business record under FISA for which a law enforcement agency would need to obtain a warrant, then the FBI or NSA will also need to obtain a warrant. Currently, this is not the case. Additionally, under H.R.6172, the FISA application process under Section 215 could not be used to obtain a person’s cell site location or GPS information. However, the FBI or NSA would still be able to use Title I of FISA to seek cell site location or GPS data for purposes of conducting electronic surveillance related to alleged foreign intelligence. The bill would require that prosecutors must inform defendants of the evidence derived from electronic surveillance unless doing so would harm national security.

Moreover, records obtained under Section 215 could be retained no longer than five years subject to a number of exceptions that may serve to make this limitation a dead letter. For example, if such records are deemed to have a “secret meaning” or are certified by the FBI as being vital to national security, then such records may be held longer than five years. Given the tendency of agencies to read their authority as broadly as possible and the past record of IC agencies, it is likely these authorities will be stretched as far as legally possible. It bears note that all restrictions are prospective, meaning that current, ongoing uses of Section 215 would be exempted. The business records provision would be extended until December 1, 2023 as are the other two expiring authorities that permit so-called roving wiretaps and allow for surveillance of so-called “lone wolves.”

For FISA applications under Title I (i.e. electronic surveillance), any agency seeking a FISA order to surveil will need to disclose to the FISA court any information that may call into question the accuracy of the application or any doubtful information. Moreover, certain FISA applications to surveil Americans or residents would need to spell out the proposed investigative techniques to the FISA court. Moreover, any FISA application targeting U.S. officials or candidates for federal office must be approved by the Attorney General in writing before they can be submitted. H.R.6172 would permit the suspension or removal of any federal official, employee, or contractor for misconduct before the FISA court and increases criminal liability for violating FISA from five to eight years. Most of these reforms seem aimed at those Members, many of whom are Republican, that were alarmed by the defects in the FISA surveillance process of Trump Campaign associate Cater Page as turned up by the Department of Justice’s Office of the Inspector General investigation. Some of these Members were opposed to the House Judiciary Committee’s initial bill, which they thought did not implement sufficient reforms to the larger FISA process.

Like the bill the House Judiciary Committee was to mark up, the “USA FREEDOM Reauthorization Act of 2020” would set a six-month deadline for the Director of National Intelligence to declassify significant FISA opinions, orders, and decisions. The bill also beefs up the adversarial procedures in the FISA process by expanding the process by which amici curiae are expanded and their ability to ability FISA decisions to the FISA review court would also be expanded. Additionally, both FISA courts and the FISA review court would be empowered to seek outside legal counsel.

The Intelligence Committees would see their power increased to seek and obtain FISA applications in order to conduct oversight of the FISA process.

Finally, the powers of the Privacy and Civil Liberties Oversight Board (PCLOB) to oversee the FISA process would also be expanded. PCLOB would need to report on the extent to which FISA investigations are arising from protected First Amendment activities and from protected characteristics such as race, gender, sexual orientation, and others. There are broader PCLOB reforms that, for example, lengthen PCLOB members’ terms to six years and allows them to serve past the six-year mark until a successor is confirmed by the Senate as is the case with many other agencies.

During floor debate on H.R. 6172, House Judiciary Committee Chair Jerrod Nadler (D-NY) explained “[i]t is by no means a perfect bill…[and] [t]here are many other changes to FISA that I would have liked to have seen here, but this bill includes very important reforms:

  • First and foremost, it ends the NSA’s Call Detail Records program, which began as part of a secret and unlawful surveillance project almost 20 years ago.
  • This bill also prohibits the use of Section 215 to acquire information that would otherwise require a warrant in the law enforcement context. Our understanding of the Fourth Amendment has come to recognize a privacy interest in our physical location, and this legislation provides new protections accordingly.
  • As the law continues to evolve, the public will see how the government applies these standards in the FISA court. This bill requires the government to disclose all significant opinions of the FISA court within 180 days.
  • The bill also requires a one-time historical review of all significant opinions issued by the court since its inception.

Nadler stated the bill was changed to address the concerns of stakeholders on the left and right:

  • To address the concerns of those who seek additional guarantees of privacy, we have added new retention limits, new reports to explain key legal issues, and an explicit prohibition on the use of Section 215 to obtain GPS and cell site location information.
  • Other Members asked us to address the deep structural flaws in FISA identified by the inspector general in the report issued late last year. We have done just that. Working with our Republican colleagues, we have mandated additional transparency in FISA applications, created additional scrutiny for cases that involve elected officials, and elevated the consequences for misrepresenting information to the FISA court.

Lofgren argued against passage of the bill:

  • I would like to quote from the American Civil Liberties Union letter received today. The American Civil Liberties Union strongly urges us to vote ‘‘no’’ on this bill. They say: ‘‘Over the last several years, it has been abundantly clear that many of our surveillance laws are broken.’’
  • But that, ‘‘disappointingly, the reforms contained in H.R. 6172 are minimal—in many cases merely rep-resenting a codification of the status quo. In addition,’’ the ACLU says, ‘‘the bill contains provisions that would be a step back from even our flawed current law.’’
  • The ACLU goes on to say that ‘‘the bill fails to require that individuals receive appropriate notice and access to information when FISA information is used against them,’’ that ‘‘the bill fails to fully address deficiencies with the FISA court that have led to illegal surveillance,’’ that ‘‘the bill fails to appropriately limit the types of information that can be collected under Section 215,’’ that ‘‘the bill fails to appropriately raise the standard for collecting information under Section 215,’’ and that ‘‘the bill fails to appropriately limit the retention of information collected under Section 215.’

House Judiciary Committee Continues Its Antitrust Examination

The House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee continued its series of hearings titled “Online Platforms and Market Power” with an examination of the agencies charged with enforcing federal antitrust laws: the Department of Justice (DOJ) and the Federal Trade Commission (FTC).

Subcommittee Chair David Cicilline (D-RI) said the U.S. is experiencing a moment of extreme concentration across the economy as in industry after industry a few companies dominate critical markets that effect the day-to-day lives of hard-working Americans. He said unchecked by competition corporations can abuse their market power to raise prices for consumers, lower wages, and stifle entrepreneurship, and enriching themselves and their executives at the expense of everyone else. Cicilline said that one area where the concentration is most troubling is in the digital economy where a small number of dominant platforms have become critical intermediaries for the flow of commerce and information. He stated that while the platforms have delivered consumers some benefit, there is growing evidence that these platforms are now using their power to set the terms of the market in ways that enrich them but make it impossible to compete on an even playing field. Cicilline asserted that the news each day brings stories of how the decisions by these handful of companies increasingly determines whether a merchant, publisher, or app developer sinks or swims. He contended that because several of these monopolies operate business models premised on the surveillance of Americans, the power wielded over Americans is unprecedented.

Cicilline noted that six months ago the committee initiated a bipartisan investigation into competition in digital markets that follows in a long tradition of Congressional investigations into industry-wide assessments of whether dominant corporations were abusing their market power and whether U.S. laws are working to reverse the rising tide of economic concentration. Cicilline said the investigation is pursuing a similar path, and he said a key task for the subcommittee is understanding the enforcement record of each agency. Cicilline claimed that over the last decade alone, the largest technology firms have acquired over 436 companies, many of which were actual or potential competitors, but not a single transaction was challenged by antitrust enforcers. He added that only a handful were closely scrutinized. Cicilline said that the last major case brought by enforcers was Microsoft 20 years ago. He remarked that while these problems have plagued markets across the economy and not just in digital markets, the enforcement gap in these markets have created a de facto antitrust exemption for online platforms. Cicilline asked whether the federal agencies have failed to bring cases because of unfavorable caselaw requiring Congressional action to amend the law. He asked whether the inaction is due to a lack of agency resources or is it due to a lack of will at the agencies to enforce the laws on the books. Cicilline said that these are the questions the subcommittee is looking to answer through its investigation and areas he hoped would be fully addressed during the hearing.

Subcommittee Ranking Member James Sensenbrenner (R-WI) said in the course of ordinary oversight of antitrust enforcement agencies the committee conducts annual or biannual hearings to examine the waterfront before these important agencies, but the DOJ and FTC will discuss only one set of issues: antitrust issues in the tech sector. He asserted that the agencies understand the importance of getting right the applicability of the nation’s antitrust laws to this critical sector of the modern economy. Sensenbrenner noted that like the subcommittee, the agencies are in the midst of a searching inquiry into whether the U.S.’s century-old antitrust laws and government enforcement of those laws is adequate to the challenges presented by the new digital economy. Sensenbrenner said the subcommittee’s examination thus far has looked at whether entities in the tech sector, particularly the largest online platforms, have or have not been accumulating and leveraging market power over competitors and other market participants. He added that affected entities include fellow technology companies, news publishers, and app developers who depend upon large online platforms to reach consumers and many others. He stated that the subcommittee has also examined aspects of online data privacy and the role online data plays in competition, particularly with very large accumulations of consumers’ online data. Sensenbrenner said the testimony at the hearing would help the subcommittee by receiving the wisdom and expertise of the antitrust agencies and by helping legislators better understand if antitrust laws are current and up to the task of the modern digital economy. He added that there a number of issues before the agencies that Members are monitoring closely, including consent decrees. HE said he intended to submit questions for the record on situations where antitrust laws could be misapplied or extending to the point where success is punished, innovation is suppressed, and consumer welfare is harmed.

Committee Chair Jerrod Nadler (D-NY) stated that stated that “[t]here is growing evidence that a handful of dominant platforms now control key arteries of online commerce, content, and communications.” He claimed that “[a] number of important digital markets are now dominated by just one or two firms. For example, Google controls over 90% of the global search market and Facebook captures over 80% of all global social media revenue…[and] by some estimates, Amazon controls about half of all online commerce in the U.S.” Nadler stated that “[w]hile the open internet has delivered enormous benefits to Americans, waves of anti-competitive consolidation in digital markets have had devastating effects on key elements of our democracy and economy, such as the free and diverse press.” He said that “[i]t also threatens the survival of a key element of our economy—the American startup.” Nadler stated that “[e]mpirical evidence suggests that the trends of increasing consolidation and market power in digital markets pose a threat to technology startups and innovation in the U.S. economy.” He said that “[f]or example, it has been reported that seed funding for technology startups—the initial round of investment in a startup—has declined significantly from 2015 to 2018.”

Nadler stated that “I am deeply concerned about the antitrust agencies’ lax merger enforcement which has permitted these harmful levels of concentration and the rise of market power in the digital economy…[and] [i]n addition to rising consolidation, there have also been allegations of anti-competitive conduct in digital markets.” He stated that “[f]or instance, as more small- and medium-sized businesses become reliant on the dominant platforms to reach customers, they have increasing concerns that discriminatory or exclusionary conduct by the platforms could destroy their business over the course of just a few days or months.” Nadler stated that “[d]espite mounting evidence of illegal monopolization activities by the dominant platforms, and numerous cases brought by international enforcers, U.S. enforcers appear to be paralyzed.” Nadler stated that “[i]t has been decades since the DOJ or the FTC has brought a significant monopolization case in the tech sector. “ He said that “Tim Wu, a professor at Columbia University testified before the Judiciary Committee in July that the DOJ’s court challenges against AT&T, IBM, and Microsoft ‘were foundational in terms of shaking up industry and creating room for new firms to grow.’”

Nadler stated that “I am encouraged by reports of the agencies’ current investigations into the dominant tech platforms, but the decline of enforcement over the past several decades is extremely troubling—a decline, I should add, that has occurred across all industries, not just in the technology sector.” He contended that “I find it hard to believe that companies have simply ceased engaging in illegal monopolization rather than the more likely explanation—which is that the agencies are underenforcing the antitrust laws.” Nadler conceded that “[t]here may be a number of reasons for underenforcement by the agencies with respect to both anti-competitive conduct and merger review, including unfavorable case law, insufficient enforcement will, and inadequate agency resources, all of which I look forward to examining at today’s hearing.”

Nadler stated that “[o]ne problem Congress can most directly address is ensuring that the agencies charged with antitrust enforcement have sufficient funding…[and] [u]nfortunately, appropriations to these agencies have declined over the last decade despite an increase in merger activity and an increase in the complexity of investigations.” He claimed that “[i]n real terms, agency funding in 2019 was nearly 20% lower than in 2010…[and] it is vital that the antitrust agencies have the resources they need to do their jobs.” Nadler stated that “[w]hile ultimately it is the responsibility of the antitrust enforcement agencies to enforce the law, Congress has an obligation to assess whether existing antitrust laws and competition policies—and the will to enforce those laws and policies—are adequate to address the competition issues facing our country, and to take action if they are found to be lacking.”

Committee Ranking Member Doug Collins (R-GA) stated that “[t]he subcommittee’s antitrust investigation has been one of the bright spots on the committee’s agenda this term.” He said “[t]he importance of digital technology to our constituents’ lives grows every day…[and] [t]he tech sector is one of the greatest forces for innovation and wealth creation in the world and our economy.” Collins claimed that “[r]arely in history have we witnessed such a transformative change in how we go about our lives.” He stated that “[m]uch of that change is very much for the good, but not all…[and] [a]mong these changes are the ways that companies compete — both fairly and unfairly — to provide goods and services to consumers.” Collins claimed that “[i]t is therefore critical that we work on a bipartisan basis to understand whether our current antitrust laws and our antitrust enforcement agencies are up to the task the tech sector presents.” He remarked that “[w]e will have accomplished something important if together we can determine whether our antitrust laws need updating for the digital economy or whether the antitrust agencies need Congress’ help to assure vigorous antitrust enforcement in the tech sector.”

Collins claimed that “[f]rom the start of our inquiry, I have made clear the overarching principles guiding me in this endeavor:

  • First, while some tech companies have become very big, big is not necessarily bad. Companies that offer new innovations, better solutions and more consumer benefits at lower prices often become big — to the benefit of society. Proposals to break up big companies because of their size alone risk throwing the baby out with the bath water and simply punishing success.
  • Second, just like the existing antitrust laws, proposals for new legislation should aim to keep the free market free. Proposals to construct broad new regulatory regimes should be viewed with caution. Experience shows that regulatory solutions often miss the mark, solve problems less efficiently than free markets can and create new opportunities for anti-competitive companies to suppress competition through rent-seeking. That is especially true when regulation attempts to take on evolving problems in fast-moving markets.

Collins stated that “[t]his principle is particularly important to me as we seek a better way to protect the privacy of consumers’ online data…[and] I announced in July of this year that I would be introducing legislation this term to achieve better protection.” He added that “I am working hard on that legislation and it is strongly animated by the principle I just laid out.” He asserted that “[o]ther proposals, like laws adopted in Europe and California, threaten to entrench the market power of large incumbent tech companies under the cloak of protecting online data privacy…[and] I want us instead to enact a new federal law that better protects privacy without making it harder for new, small, innovative companies to enter the market, jostle with the giants and strive to become the blockbuster companies of tomorrow.” Collins stated that “[t]he heads of the antitrust agencies before us today also have stated principles they believe should guide antitrust inquiries into the tech sector…[and] I look forward to hearing in depth today about their views and whether we can borrow from some of their guiding lights as we work our way through our own congressional inquiry.”

FTC Chair Joseph Simons stated that

New technologies can offer real consumer benefits, but they can also raise complex and sometimes novel competition issues. We have prioritized efforts to monitor, study, and, where necessary, bring enforcement actions to maintain competition in technology markets. We are undertaking these efforts not only in connection with the technology platforms that are the focus of this committee’s ongoing investigation, but also with respect to technologies employed by companies throughout the economy that are changing and challenging competition. The FTC’s Bureau of Competition this year announced a shift in internal resources to establish a Technology Enforcement Division, a dedicated group that will monitor competition in U.S. technology markets and recommend enforcement action when warranted.

Simons said that “[a]s outlined in [FTC] testimony from last month, current law provides the Commission with several potential avenues to counter anticompetitive conduct by large technology firms that seek to thwart nascent and potential threats by acquisition or other means.” He stated that “[f]or instance, when evaluating mergers in dynamic markets, the Commission pays particularly close attention when an industry leader seeks to acquire an up-and-coming competitor that is changing customer expectations and gaining sales.”

Simons claimed that

The FTC is in the process of concluding a prominent policy initiative: its Hearings on Competition and Consumer Protection in the 21st Century. This extensive series of public hearings was convened to consider whether broad-based changes in the economy, evolving business practices, new technologies, and international developments warrant adjustments to competition and consumer protection law, enforcement priorities, and competition policy. The FTC worked to feature a wide variety of perspectives in these hearings. We invited legal and economic academics and consultants, public interest groups, public advocacy groups, 15 and representatives of businesses and industries to our hearing sessions. By the conclusion of our final hearing on June 12, 2019, we had convened 14 sessions over 23 days, with thousands of people attending via webcast or in person. To date, we have received close to 950 unique comments on the covered topics. All the information related to the hearings—the transcripts, comments, presentations, and questions—is available on the FTC website. This large corpus of material on the critical issues facing modern competition and consumer protection policy has already created a valuable resource for future research by the agency, interested academics, practitioners, and policymakers. At this stage, we are distilling the large volume of stakeholder input and generating further output, such as reports, statements, guidance, and speeches.

Simons stated that

As we have previously announced, we are prioritizing work involving platform competition, vertical mergers, and international initiatives. This work will be forward-looking and will both support the Commission’s enforcement mission and identify additional policy initiatives that may be important in shaping the future development of antitrust law. We expect to begin releasing some of this output soon. Through these hearings, the Commission intends to help formulate an enduring approach to current questions about antitrust and consumer protection enforcement. We recognize that, in some areas of the law, some now question the policies that have served as the basis for what had long been a bipartisan consensus. Particularly with respect to certain antitrust issues where this consensus has been questioned, we believe these hearings were a valuable investment of our resources to determine whether adjustments are necessary.

Assistant Attorney General Makan Delrahim said the Antitrust Division at the DOJ is hard at work reviewing the business practices of online platforms, which was announced in July. He said to date both Facebook and Google have publicly disclosed investigations. Delrahim stressed those companies are not the only focus of the review but they are a significant part of the review because of the role they play in the lives of so many American citizens. He added these companies occupy a unique role in the era of online, personalized advertising supported by user data. Delrahim said the work the DOJ is doing is focused in part on understanding the role data play in personalized advertising and the competitive dynamics. He stated DOJ is looking at how these dynamics create value for advertisers, content creators, and the consumers who use these advertising supported platforms. Delrahim claimed that by understanding these competitive dynamics, the DOJ can determine if the market leaders have monopoly power, how they exercise such monopoly power, and whether the source of that power is from merits-based competition or if the source of that power is exclusionary or anticompetitive conduct. Delrahim stated that other online platforms make money in other ways, and we’re reviewing those other business models as well. He contended that the common thread is that online platforms bring together users who access information services on the platform with third party providers of products, services, or advertisement. Delrahim claimed the DOJ is concerned about ways the online platform operators can manipulate the conditions for competition, and in some instances, the platform operators may have the incentive to improve the platform for the benefit of all those users while in other instances the platform operator may compete against users of the platform and may have an incentive to disadvantage competitors. He noted the DOJ’s 2008 action against Google and Yahoo’s agreement that would have eliminated the latter as an online search engine, and the companies ultimately decided not to proceed. Delrahim stressed he could not comment on the ongoing investigation but recent public remarks should assure the committee that the DOJ is taking a hard look at any possible anticompetitive behavior in online markets.

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.