New Google Antitrust Suits Filed

Two new suits filed against Google by state attorneys general. If the content detailed isn’t illegal behavior, get ready for even more shocking conduct from technology companies to stymie competitors and extract the maximum of any and all rents.

Last month, two new suits were filed against Google, arguing that the company’s dominance in the search engine and online advertising markets. One suit is led by Colorado’s attorney general and the other by Texas’ attorney general. The two suits have overlapping but different foci, and it is possible these new suits get folded into the suit against Google filed by the United States (U.S.) Department of Justice (DOJ). There are also media reports that some of the states that brought these suits may be preparing yet another antitrust action against Google over allegedly anti-monopolistic behavior in how it operates its Google Play app store.

Colorado Attorney General Phil Phil Weiser and 38 other state attorneys general[1] filed their antitrust suit in the District Court of the District of Columbia “under Section 2 of the Sherman Act, 15 U.S.C. § 2, to restrain Google from unlawfully restraining trade and maintaining monopolies in markets that include general search services, general search text advertising, and general search advertising in the United States, and to remedy the effects of this conduct.” They are asking the court for a range of relief, including but not limited to permanent injunctions to stop ongoing and future anti-competitive conduct and a ;possible breakup of the company.

Weiser and his counterparts framed their argument this way:

Google, one of the largest companies in the world, has methodically undertaken actions to entrench and reinforce its general search services and search-related advertising monopolies by stifling competition. As the gateway to the internet, Google has systematically degraded the ability of other companies to access consumers. In doing so, just as Microsoft improperly maintained its monopoly through conduct directed at Netscape, Google has improperly maintained and extended its search-related monopolies through exclusionary conduct that has harmed consumers, advertisers, and the competitive process itself. Google, moreover, cannot establish business justifications or procompetitive benefits sufficient to justify its exclusionary conduct in any relevant market.

They summed up their legal argument of three forms of anticompetitive conduct of Google:

  • First, Google uses its massive financial resources to limit the number of consumers who use a Google competitor. For example, according to public estimates Google pays Apple between $8 and $12 billion per year to ensure that Google is enthroned as the default search engine on Apple devices, and it limits general search competition on Android devices with a web of restrictive contracts. Google pursues similar strategies with other devices, such as voice assistants and internet-connected cars.
  • Second, Google’s Search Ads 360 (“SA360”) service, a search advertising marketing tool used by many of the world’s most sophisticated advertisers, has long pledged to offer advertisers a “neutral” means for purchasing and comparing the performance of not only Google’s search advertising, but also that of its closest competitors. But, in reality, Google operates SA360—the single largest such tool used by advertisers—to severely limit the tool’s interoperability with a competitor, thereby disadvantaging SA360 advertisers.
  • Third, Google throttles consumers from bypassing its general search engine and going directly to their chosen destination, especially when those destinations threaten Google’s monopoly power. Google acknowledges its [REDACTED] because of the proliferation of services offered by specialized vertical providers. Specialized vertical providers, like an online travel agency who offer consumers the ability to complete a transaction then and there, do not compete in Google’s search-related markets. Nevertheless, they pose a threat to Google’s monopoly power in those markets because their success would both strengthen general search rivals with whom they partner and lower the artificially high barriers to expansion and entry that protect Google’s monopolies.

In summary, Weiser and his colleagues argued:

  • Google has willfully maintained, abused, and extended its monopoly power in general search services through (a) anticompetitive and exclusionary distribution agreements that lock up the present default positions for search access points on browsers, mobile devices, computers, and other devices as well as emerging device technology; require preinstallation and prominent placement of Google’s apps; and tie Google’s search access points to Google Play and Google APIs; (b) operation of SA360 to limit the tool’s interoperability with a competitor, disadvantaging SA360 advertisers; (c) discriminatory treatment towards specialized vertical providers in certain commercial segments that hinders consumers’ ability to find responsive information; and (d) other restrictions that drive queries to Google at the expense of search rivals.
  • Google has willfully maintained, abused, and extended its monopoly power in general search advertising through (a) anticompetitive and exclusionary distribution agreements that lock up the present default positions for search access points on browsers, mobile devices, computers, and other devices as well as emerging device technology; require preinstallation and prominent placement of Google’s apps; and tie Google’s search access points to Google Play and Google APIs; (b) operation of SA360 to limit the tool’s interoperability with a competitor, disadvantaging SA360 advertisers; (c) discriminatory treatment towards specialized vertical providers in certain commercial segments that hinders consumers’ ability to find responsive information; and (d) other restrictions that drive queries to Google at the expense of search rivals.
  • Google has willfully maintained, abused, and extended its monopoly power in general search text advertising through (a) anticompetitive and exclusionary distribution agreements that lock up the present default positions for search access points on browsers, mobile devices, computers, and other devices as well as emerging device technology; require preinstallation and prominent placement of Google’s apps; and tie Google’s search access points to Google Play and Google APIs; (b) operation of SA360 to limit the tool’s interoperability with a competitor, disadvantaging SA360 advertisers; (c) discriminatory treatment towards specialized vertical providers in certain commercial segments that hinders consumers’ ability to find responsive information; and (d) other restrictions that drive queries to Google at the expense of search rivals.

Texas Attorney General Ken Paxton and nine other attorneys general[2] filed their antitrust action in the Eastern District of Texas and dropped a bomb: they allege Google and Facebook conspired to monopolize the online advertising market after publishers have devised a system to blunt Google’s dominance. However, Paxton and his colleagues argue that Google’s illegal actions have essentially taxed Americans through higher prices and lower quality products and services because companies are forced to pay a premium to Google to advertise online.

Paxton and the attorneys general summarized their suit and the relief they think appropriate in light of Google’s conduct:

As a result of Google’s anticompetitive conduct, including its unlawful agreement with Facebook, Google has violated and continues to violate Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Plaintiff States bring this action to remove the veil of Google’s secret practices and end Google’s abuse of its monopoly power in online advertising markets. Plaintiff States seek to restore free and fair competition to these markets and to secure structural, behavioral, and monetary relief to prevent Google from ever again engaging in deceptive trade practices and abusing its monopoly power to foreclose competition and harm consumers.

They summed up the harm they think Google has wrought:

Plaintiff States have sustained antitrust injury as a direct and proximate cause of Google’s unlawful conduct, in at least the following ways: (1) substantially foreclosing competition in the market for publisher ad servers, and using market power in the publisher ad server market to harm competition in the exchange market; (2) substantially foreclosing competition in the exchange market by denying rivals’ access to publisher inventory and to advertiser demand; (3) substantially foreclosing competition in the market for demand-side buying tools by creating information asymmetry and unfair auctions by virtue of Google’s market dominance in the publisher ad serving tools and exchange markets; (4) increasing barriers to entry and competition in publisher ad server, exchange, and demand-side buying tools markets; (5) harming innovation, which would otherwise benefit publishers, advertisers and competitors; (6) harming publishers’ ability to effectively monetize their content, reducing publishers’ revenues, and thereby reducing output and harming consumers; (7) reducing advertiser demand and participation in the market by maintaining opacity on margins and selling process, harming rival exchanges and buying tools; (8) increasing advertisers’ costs to advertise and reducing the effectiveness of their advertising, and thereby harming businesses’ return on the investment in delivering their products and services, reducing output, and harming consumers; (9) protecting Google’s products from competitive pressures, thereby allowing it to continue to extract high margins while shielded from significant pressure to innovate.

With regard to another possible antitrust action against Google, the suit Epic Games brought against the tech giant for taking 30% of in-app purchases as a condition of being allowed in the Play Store may shed light on what such a suit may look like.  In August Epic Games filed a suit against Google on substantially the same grounds as it is bringing against Apple. Google acted after Apple did to remove Fortnite from its Play Store once Epic Games started offering users a discounted price to buy directly from them as opposed to through Google. Epic asserted:

  • Epic brings claims under Sections 1 and 2 of the Sherman Act and under California law to end Google’s unlawful monopolization and anti-competitive restraints in two separate markets: (1) the market for the distribution of mobile apps to Android users and (2) the market for processing payments for digital content within Android mobile apps. Epic seeks to end Google’s unfair, monopolistic and anti-competitive actions in each of these markets, which harm device makers, app developers, app distributors, payment processors, and consumers.
  • Epic does not seek monetary compensation from this Court for the injuries it has suffered. Epic likewise does not seek a side deal or favorable treatment from Google for itself. Instead, Epic seeks injunctive relief that would deliver Google’s broken promise: an open, competitive Android ecosystem for all users and industry participants. Such injunctive relief is sorely needed.
  • Google has eliminated competition in the distribution of Android apps using myriad contractual and technical barriers. Google’s actions force app developers and consumers into Google’s own monopolized “app store”—the Google Play Store. Google has thus installed itself as an unavoidable middleman for app developers who wish to reach Android users and vice versa. Google uses this monopoly power to impose a tax that siphons monopoly profits for itself every time an app developer transacts with a consumer for the sale of an app or in-app digital content. And Google further siphons off all user data exchanged in such transactions, to benefit its own app designs and advertising business.
  • If not for Google’s anti-competitive behavior, the Android ecosystem could live up to Google’s promise of open competition, providing Android users and developers with competing app stores that offer more innovation, significantly lower prices and a choice of payment processors. Such an open system is not hard to imagine. Two decades ago, through the actions of courts and regulators, Microsoft was forced to open up the Windows for PC ecosystem. As a result, PC users have multiple options for downloading software unto their computers, either directly from developers’ websites or from several competing stores. No single entity controls the ecosystem or imposes a tax on all transactions. And Google, as the developer of software such as the Chrome browser, is a direct beneficiary of this competitive landscape. Android users and developers likewise deserve free and fair competition.

In late October, the DOJ and a number of states filed a long awaited antitrust suit against Google that has been rumored to be coming since late summer 2020. This anti-trust action centers on Google’s practices of making Google the default search engine on Android devices and paying browsers and other technology entities to make Google the default search engine. The DOJ and eleven state attorneys general are following in the footsteps of the European Union’s (EU) €4.34 billion fine of Google in 2018 for imposing “illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search.” The European Commission (EC or Commission) claimed the offending behavior included:

  • has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
  • made payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
  • has prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called “Android forks”).

The EC said its “decision concludes that Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system.”

And, of course, this is only the latest anti-trust case Google has faced in the EU with the €2.42 billion fine in June 2017 “for abusing its dominance as a search engine by giving an illegal advantage to Google’s own comparison shopping service.”

Google’s antitrust and anticompetitive issues are not confined to the United States and the EU. In 2019, the Australian Competition and Consumer Commission (ACCC) announced a legal action against Google “alleging they engaged in misleading conduct and made false or misleading representations to consumers about the personal location data Google collects, keeps and uses” according to the agency’s press release. In its initial filing, the ACCC is claiming that Google mislead and deceived the public in contravention of the Australian Competition Law and Android users were harmed because those that switched off Location Services were unaware that their location information was still be collected and used by Google for it was not readily apparent that Web & App Activity also needed to be switched off.

© Michael Kans, Michael Kans Blog and, 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 with appropriate and specific direction to the original content.

Image by Hebi B. from Pixabay

[1] The following states are parties to the suit: Colorado, Nebraska, Arizona, Iowa, New York, North Carolina, Tennessee, Utah, Alaska, Connecticut, Delaware, Hawaii, Idaho, Illinois, Kansas, Maine, Maryland, Minnesota, Nevada, New Hampshire, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Dakota, Vermont, Washington, West Virginia, and Wyoming; the Commonwealths of Massachusetts, Pennsylvania, Puerto Rico, and Virginia; the Territory of Guam; and the District of Columbia.

[2] These states sued Google: Texas, Arkansas  Idaho, Indiana, Mississippi,  Missouri,  North Dakota,  South Dakota, Utah, and the Commonwealth of Kentucky.

U.S. Federal Government and States Ask Court To Break Up Facebook

Antitrust suits finally filed against Facebook. The U.S. and state governments want to spin off WhatsApp and Instagram.

As has been long rumored, the Federal Trade Commission (FTC) and state attorneys general have filed lawsuits against Facebook, claiming the social media giant has pursued anti-competitive practices in violation of federal and state laws. This is the second major lawsuit filed this fall against a tech giant and may not be the last. The lawsuits make the case that the appropriate way to rectify the pattern of abuse is to spin off WhatsApp and Instagram among other requested legal relief. Probably not by accident, but both suits were filed in the same federal court, and consequently the suits will likely be consolidated with the FTC and the states working together in litigating against Facebook. This case may not be resolved until well into the Biden Administration.

The FTC voted to proceed with the antitrust and anti-competition action on a 3-2 vote with Chair Joseph Simons siding with the two Democratic Commissioners. The other two Republicans voted no but did so without issuing a dissent or statement, explaining their views or arguing the majority’s approach is wrong or misguided.

In the suit filed in the District Court of the District of Columbia, the FTC claims that Facebook has violated Section 2 of the Sherman Antitrust Act and by extension Section 5 of the FTC Act through buying potential rivals WhatsApp and Instagram and forcing any companies that want to use Facebook’s application programming interfaces not to compete with Facebook or Facebook Messenger. As a result, the FCT claims, people have no functional options for social messaging and personal networking and the online advertising market hurts advertisers and ultimately consumers given Facebook’s dominance of the market.

The FTC asserted:

  • Facebook has maintained its monopoly position by buying up companies that present competitive threats and by imposing restrictive policies that unjustifiably hinder actual or potential rivals that Facebook does not or cannot acquire.
  • Facebook holds monopoly power in the market for personal social networking services (“personal social networking” or “personal social networking services”) in the United States, which it enjoys primarily through its control of the largest and most profitable social network in the world, known internally at Facebook as “Facebook Blue,” and to much of the world simply as “Facebook.”
  • Facebook’s unmatched position has provided it with staggering profits. Facebook monetizes its personal social networking monopoly principally by selling advertising, which exploits a rich set of data about users’ activities, interests, and affiliations to target advertisements to users. Last year alone, Facebook generated revenues of more than $70 billion and profits of more than $18.5 billion.
  • Since toppling early rival Myspace and achieving monopoly power, Facebook has turned to playing defense through anticompetitive means. After identifying two significant competitive threats to its dominant position—Instagram and WhatsApp—Facebook moved to squelch those threats by buying the companies, reflecting CEO Mark Zuckerberg’s view, expressed in a 2008 email, that “it is better to buy than compete.” To further entrench its position, Facebook has also imposed anticompetitive conditions that restricted access to its valuable platform—conditions that Facebook personnel recognized as “anti user[,]” “hypocritical” in light of Facebook’s purported mission of enabling sharing, and a signal that “we’re scared that we can’t compete on our own merits.”
  • As Facebook has long recognized, its personal social networking monopoly is protected by high barriers to entry, including strong network effects. In particular, because a personal social network is generally more valuable to a user when more of that user’s friends and family are already members, a new entrant faces significant difficulties in attracting a sufficient user base to compete with Facebook. Facebook’s internal documents confirm that it is very difficult to win users with a social networking product built around a particular social “mechanic” (i.e., a particular way to connect and interact with others, such as photo-sharing) that is already being used by an incumbent with dominant scale. Even an entrant with a “better” product often cannot succeed against the overwhelming network effects enjoyed by a dominant personal social network.
  • In an effort to preserve its monopoly in the provision of personal social networking, Facebook has, for many years, continued to engage in a course of anticompetitive conduct with the aim of suppressing, neutralizing, and deterring serious competitive threats to Facebook Blue. This course of conduct has had three main elements: acquiring Instagram, acquiring WhatsApp, and the anticompetitive conditioning of access to its platform to suppress competition.

The FTC detailed the harm to people and to competition:

  • Through at least the foregoing conduct, Facebook suppresses, deters, hinders, and eliminates personal social networking competition, and maintains its monopoly power in the U.S. personal social networking market, through means other than merits competition. In doing so, Facebook deprives users of personal social networking in the United States of the benefits of competition, including increased choice, quality, and innovation. Facebook cannot justify this substantial harm to competition with claimed efficiencies, procompetitive benefits, or business justifications that could not be achieved through other means.
  • By suppressing, neutralizing, and deterring the emergence and growth of personal social networking rivals, Facebook also suppresses meaningful competition for the sale of advertising. Personal social networking providers typically monetize through the sale of advertising; thus, more competition in personal social networking is also likely to mean more competition in the provision of advertising. By monopolizing personal social networking, Facebook thereby also deprives advertisers of the benefits of competition, such as lower advertising prices and increased choice, quality, and innovation related to advertising.

The FTC asked the court for a ruling that:

  1. that Facebook’s course of conduct, as alleged herein, violates Section 2 of the Sherman Act and thus constitutes an unfair method of competition in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a);
  2. divestiture of assets, divestiture or reconstruction of businesses (including, but not limited to, Instagram and/or WhatsApp), and such other relief sufficient to restore the competition that would exist absent the conduct alleged in the Complaint, including, to the extent reasonably necessary, the provision of ongoing support or services from Facebook to one or more viable and independent business(es);
  3. any other equitable relief necessary to restore competition and remedy the harm to competition caused by Facebook’s anticompetitive conduct described above;
  4. a prior notice and prior approval obligation for future mergers and acquisitions;
  5. that Facebook is permanently enjoined from imposing anticompetitive conditions on access to APIs and data;
  6. that Facebook is permanently enjoined from engaging in the unlawful conduct described herein;
  7. that Facebook is permanently enjoined from engaging in similar or related conduct in the future;
  8. a requirement to file periodic compliance reports with the FTC, and to submit to such reporting and monitoring obligations as may be reasonable and appropriate; and
  9. any other equitable relief, including, but not limited to, divestiture or restructuring, as the Court finds necessary to redress and prevent recurrence of Facebook’s violations of law, as alleged herein.

46 states, the District of Columbia, and the territory of Guam filed suit the same day against Facebook, alleging violations of Sections 16 and 7 of the Clayton Act and Section 2 of the Sherman Act. The suit was also filed in the District Court of the District of Columbia. The state attorneys general who filed suit against Facebook represent the following jurisdictions: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, the territory of Guam, Hawaii, Idaho, Illinois, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

The states made their case that Facebook has violated federal antitrust and anti-competition laws:

  • Every day, more than half of the United States population over the age of 13 turns to a Facebook service to keep them in touch with the people, organizations, and interests that matter most to them. For them, Facebook provides an important forum for sharing personal milestones and other intimate details about their lives to friends and family: for example, announcing the birth of a child or grieving the loss of a close relative; sharing photos and videos of children and grandchildren; and debating politics and public events.
  • Users do not pay a cash price to use Facebook. Instead, users exchange their time, attention, and personal data for access to Facebook’s services.
  • Facebook makes its money by selling ads. Facebook sells advertising to firms that attach immense value to the user engagement and highly targeted advertising that Facebook can uniquely deliver due to its massive network of users and the vast trove of data it has collected on users, their friends, and their interests. The more data Facebook accumulates by surveilling the activities of its users and the more time the company convinces users to spend engaging on Facebook services, the more money the company makes through its advertising business.
  • For almost a decade, Facebook has had monopoly power in the personal social networking market in the United States. As set forth in detail below, Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers.
  • Facebook’s illegal course of conduct has been driven, in part, by fear that the company has fallen behind in important new segments and that emerging firms were “building networks that were competitive with” Facebook’s and could be “very disruptive to” the company’s dominance. As Facebook’s founder and CEO, Mark Zuckerberg observed, “[o]ne thing about startups . . . is you can often acquire them,” indicating at other times that such acquisitions would enable Facebook to “build a competitive moat” or “neutralize a competitor.”
  • Zuckerberg recognized early that even when these companies were not inclined to sell, if Facebook offered a “high enough price . . . they’d have to consider it.” Facebook has coupled its acquisition strategy with exclusionary tactics that snuffed out competitive threats and sent the message to technology firms that, in the words of one participant, if you stepped into Facebook’s turf or resisted pressure to sell, Zuckerberg would go into “destroy mode” subjecting your business to the “wrath of Mark.” As a result, Facebook has chilled innovation, deterred investment, and forestalled competition in the markets in which it operates, and it continues to do so.
  • Facebook’s unlawfully maintained monopoly power gives it wide latitude to set the terms for how its users’ private information is collected, used, and protected. In addition, because Facebook decides how and whether the content shared by users is displayed to other users, Facebook’s monopoly gives it significant control over how users engage with their closest connections and what content users see when they do. Because Facebook users have nowhere else to go for this important service, the company is able to make decisions about how and whether to display content on the platform and can use the personal information it collects from users solely to further its business interests, free from competitive constraints, even where those choices conflict with the interests and preferences of Facebook users.
  • choice in personal social networks, suppressed innovation, and reduced investment in potentially competing services. Facebook’s conduct deprives users of product improvements and, as a result, users have suffered, and continue to suffer, reductions in the quality and variety of privacy options and content available to them.
  • By eliminating, suppressing, and deterring the emergence and growth of personal social networking rivals, Facebook also harms advertisers in a number of ways, including less transparency to assess the value they receive from advertisements, and harm to their brand due to offensive content on Facebook services.
  • Facebook’s anticompetitive campaign to forestall competing services that might threaten its dominance in personal social networking services includes a variety of tactics.

The states are asking the court for the following relief:

  1. That Facebook be adjudged to have violated Section 2 of the Sherman Act, 15 U.S.C. § 2;
  2. That Facebook be enjoined and restrained from continuing to engage in any anticompetitive conduct and from adopting in the future any practice, plan, program, or device having a similar purpose or effect to the anticompetitive actions set forth above;
  3. That Facebook be enjoined and restrained from making further acquisitions valued at or in excess of $10 million without advance notification to Plaintiff States;
  4. That Facebook be enjoined and restrained from making further acquisitions without such disclosures to Plaintiff States as would be required to the federal government under the Hart-Scott-Rodino Act for transactions falling within the scope of such Act;
  5. That Facebook’s acquisition of Instagram be adjudged to be in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18;
  6. That Facebook’s acquisition of WhatsApp be adjudged to be in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18;
  7. That each Plaintiff State be awarded its costs, including reasonable attorneys’ fees pursuant to 15 U.S.C. § 15(c); and
  8. That the Court order such other and further equitable relief as this Court may deem appropriate to restore competitive conditions and lost competition and to prevent future violations, including divestiture or reconstruction of illegally acquired businesses and/or divestiture of Facebook assets or business lines.

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

U.S. Sues Google

One of possibly two suits alleging that Google engaged in antitrust and anti-competitive practices was filed. This one is arguing that Google’s search engine practices violate U.S. law.

The United States (U.S.) Department of Justice (DOJ) and a number of states have finally filed the antitrust suit against Google that has been rumored to be coming since late summer. This anti-trust action centers on Google’s practices of making Google the default search engine on Android devices and paying browsers and other technology entities to make Google the default search engine. However, a number of states that had initially joined the joint state investigation of Google have opted not to join this action and will instead be continuing to investigate, signaling a much broader case than the one filed in the United States District Court for the District of Columbia. In any event, if the suit does proceed, and a change in Administration could result in a swift change in course, it may take years to be resolved. Of course, given the legion leaks from the DOJ and state attorneys general offices about the pressure U.S. Attorney General William Barr placed on staff and attorneys to bring a case before the election, there is criticism that rushing the case may result in a weaker, less comprehensive action that Google may ultimately fend off.

In its press release, DOJ claimed

Today, the Department of Justice — along with eleven state Attorneys General — filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to stop Google from unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets and to remedy the competitive harms. The participating state Attorneys General offices represent Arkansas, Florida, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, South Carolina, and Texas.

The DOJ added

As one of the wealthiest companies on the planet with a market value of $1 trillion, Google is the monopoly gatekeeper to the internet for billions of users and countless advertisers worldwide. For years, Google has accounted for almost 90 percent of all search queries in the United States and has used anticompetitive tactics to maintain and extend its monopolies in search and search advertising.  

The DOJ claimed:

As alleged in the Complaint, Google has entered into a series of exclusionary agreements that collectively lock up the primary avenues through which users access search engines, and thus the internet, by requiring that Google be set as the preset default general search engine on billions of mobile devices and computers worldwide and, in many cases, prohibiting preinstallation of a competitor. In particular, the Complaint alleges that Google has unlawfully maintained monopolies in search and search advertising by:

  • Entering into exclusivity agreements that forbid preinstallation of any competing search service.
  • Entering into tying and other arrangements that force preinstallation of its search applications in prime locations on mobile devices and make them undeletable, regardless of consumer preference.
  • Entering into long-term agreements with Apple that require Google to be the default – and de facto exclusive – general search engine on Apple’s popular Safari browser and other Apple search tools.
  • Generally using monopoly profits to buy preferential treatment for its search engine on devices, web browsers, and other search access points, creating a continuous and self-reinforcing cycle of monopolization.

These and other anticompetitive practices harm competition and consumers, reducing the ability of innovative new companies to develop, compete, and discipline Google’s behavior. 

In the complaint the DOJ and attorneys general asserted:

  • Google’s practices are anticompetitive under long-established antitrust law. Almost 20 years ago, the D.C. Circuit in United States v. Microsoft recognized that anticompetitive agreements by a high-tech monopolist shutting off effective distribution channels for rivals, such as by requiring preset default status (as Google does) and making software undeletable (as Google also does), were exclusionary and unlawful under Section 2 of the Sherman Act.
  • Back then, Google claimed Microsoft’s practices were anticompetitive, and yet, now, Google deploys the same playbook to sustain its own monopolies. But Google did learn one thing from Microsoft—to choose its words carefully to avoid antitrust scrutiny. Referring to a notorious line from the Microsoft case, Google’s Chief Economist wrote: “We should be careful about what we say in both public and private. ‘Cutting off the air supply’ and similar phrases should be avoided.” Moreover, as has been publicly reported, Google’s employees received specific instructions on what language to use (and not use) in emails because “Words matter. Especially in antitrust law.” In particular, Google employees were instructed to avoid using terms such as “bundle,” “tie,” “crush,” “kill,” “hurt,” or “block” competition, and to avoid observing that Google has “market power” in any market.
  • Google has refused to diverge from its anticompetitive path. Earlier this year, while the United States was investigating Google’s anticompetitive conduct, Google entered into agreements with distributors that are even more exclusionary than the agreements they replaced. Also, Google has turned its sights to emerging search access points, such as voice assistants, ensuring that they too are covered by the same anticompetitive scheme. And Google is now positioning itself to dominate search access points on the next generation of search platforms: internet-enabled devices such as smart speakers, home appliances, and automobiles (so-called internet-of-things, or IoT, devices).
  • Absent a court order, Google will continue executing its anticompetitive strategy, crippling the competitive process, reducing consumer choice, and stifling innovation. Google is now the unchallenged gateway to the internet for billions of users worldwide. As a consequence, countless advertisers must pay a toll to Google’s search advertising and general search text advertising monopolies; American consumers are forced to accept Google’s policies, privacy practices, and use of personal data; and new companies with innovative business models cannot emerge from Google’s long shadow. For the sake of American consumers, advertisers, and all companies now reliant on the internet economy, the time has come to stop Google’s anticompetitive conduct and restore competition.

The DOJ and state attorneys general asked the court to:

  • Adjudge and decree that Google acted unlawfully to maintain general search services, search advertising, and general search text advertising monopolies in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2;
  • Enter structural relief as needed to cure any anticompetitive harm;
  • Enjoin Google from continuing to engage in the anticompetitive practices described herein and from engaging in any other practices with the same purpose and effect as the challenged practices;
  • Enter any other preliminary or permanent relief necessary and appropriate to restore competitive conditions in the markets affected by Google’s unlawful conduct;
  • Enter any additional relief the Court finds just and proper; and
  • Award each Plaintiff an amount equal to its costs incurred in bringing this action on behalf of its citizens.

A number of attorneys general who has joined the effort led by Texas Attorney General Ken Paxton in investigating Google released a statement indicating their investigation would continue, presaging a different, possibly broader lawsuit that might also address Google’s role in other markets. The attorneys general of New York, Colorado, Iowa, Nebraska, North Carolina, Tennessee, and Utah did not join the case that was filed but may soon file a related but parallel case. They stated:

Over the last year, both the U.S. DOJ and state attorneys general have conducted separate but parallel investigations into Google’s anticompetitive market behavior. We appreciate the strong bipartisan cooperation among the states and the good working relationship with the DOJ on these serious issues. This is a historic time for both federal and state antitrust authorities, as we work to protect competition and innovation in our technology markets. We plan to conclude parts of our investigation of Google in the coming weeks. If we decide to file a complaint, we would file a motion to consolidate our case with the DOJ’s. We would then litigate the consolidated case cooperatively, much as we did in the Microsoft case.

The DOJ and eleven state attorneys general are following in the footsteps of the European Union’s (EU) €4.34 billion fine of Google in 2018 for imposing “illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search.” The European Commission (EC or Commission) claimed the offending behavior included:

  • has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
  • made payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
  • has prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called “Android forks”).

The EC said its “decision concludes that Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system.”

The EC found:

General search services

Google is dominant in the national markets for general internet search throughout the European Economic Area (EEA), i.e. in all 31 EEA Member States. Google has shares of more than 90% in most EEA Member States. There are high barriers to enter these markets. This has also been concluded in the Google Shopping decision of June 2017.

Smart mobile operating systems available for licence

Android is a licensable smart mobile operating system. This means that third party manufacturers of smart mobile devices can license and run Android on their devices.

Through its control over Android, Google is dominant in the worldwide market (excluding China) for licensable smart mobile operating systems, with a market share of more than 95%. There are high barriers to entry in part due to network effects: the more users use a smart mobile operating system, the more developers write apps for that system – which in turn attracts more users. Furthermore, significant resources are required to develop a successful licensable smart mobile operating system.

As a licensable operating system, Android is different from operating systems exclusively used by vertically integrated developers (like Apple iOS or Blackberry). Those are not part of the same market because they are not available for licence by third party device manufacturers.

Nevertheless, the Commission investigated to what extent competition for end users (downstream), in particular between Apple and Android devices, could indirectly constrain Google’s market power for the licensing of Android to device manufacturers (upstream). The Commission found that this competition does not sufficiently constrain Google upstream for a number of reasons, including:

  • end user purchasing decisions are influenced by a variety of factors (such as hardware features or device brand), which are independent from the mobile operating system;
  • Apple devices are typically priced higher than Android devices and may therefore not be accessible to a large part of the Android device user base;
  • Android device users face switching costs when switching to Apple devices, such as losing their apps, data and contacts, and having to learn how to use a new operating system; and
  • even if end users were to switch from Android to Apple devices, this would have limited impact on Google’s core business. That’s because Google Search is set as the default search engine on Apple devices and Apple users are therefore likely to continue using Google Search for their queries.

App stores for the Android mobile operating system

Google is dominant in the worldwide market (excluding China) for app stores for the Android mobile operating system. Google’s app store, the Play Store, accounts for more than 90% of apps downloaded on Android devices. This market is also characterised by high barriers to entry. For similar reasons to those already listed above, Google’s app store dominance is not constrained by Apple’s App Store, which is only available on iOS devices.

The EC flagged three types of illegal behavior:

1) Illegal tying of Google’s search and browser apps

2) Illegal payments conditional on exclusive pre-installation of Google Search

3) Illegal obstruction of development and distribution of competing Android operating systems

The EC stated:

At a minimum, Google has to stop and to not re-engage in any of the three types of practices. The decision also requires Google to refrain from any measure that has the same or an equivalent object or effect as these practices.

The decision does not prevent Google from putting in place a reasonable, fair and objective system to ensure the correct functioning of Android devices using Google proprietary apps and services, without however affecting device manufacturers’ freedom to produce devices based on Android forks.

And, of course, this is only the latest anti-trust case Google has faced in the EU with the €2.42 billion fine in June 2017 “for abusing its dominance as a search engine by giving an illegal advantage to Google’s own comparison shopping service.”

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

Image by Photo Mix from Pixabay

Further Reading, Other Developments, and Coming Events (7 October)

Coming Events

  • The European Union Agency for Cybersecurity (ENISA), Europol’s European Cybercrime Centre (EC3) and the Computer Emergency Response Team for the EU Institutions, Bodies and Agencies (CERT-EU) will hold the 4th annual IoT Security Conference series “to raise awareness on the security challenges facing the Internet of Things (IoT) ecosystem across the European Union:”
    • Artificial Intelligence – 14 October at 15:00 to 16:30 CET
    • Supply Chain for IoT – 21 October at 15:00 to 16:30 CET
  • The Federal Communications Commission (FCC) will hold an open commission meeting on 27 October, and the agency has released a tentative agenda:
    • Restoring Internet Freedom Order Remand – The Commission will consider an Order on Remand that would respond to the remand from the U.S. Court of Appeals for the D.C. Circuit and conclude that the Restoring Internet Freedom Order promotes public safety, facilitates broadband infrastructure deployment, and allows the Commission to continue to provide Lifeline support for broadband Internet access service. (WC Docket Nos. 17-108, 17-287, 11- 42)
    • Establishing a 5G Fund for Rural America – The Commission will consider a Report and Order that would establish the 5G Fund for Rural America to ensure that all Americans have access to the next generation of wireless connectivity. (GN Docket No. 20-32)
    • Increasing Unlicensed Wireless Opportunities in TV White Spaces – The Commission will consider a Report and Order that would increase opportunities for unlicensed white space devices to operate on broadcast television channels 2-35 and expand wireless broadband connectivity in rural and underserved areas. (ET Docket No. 20-36)
    • Streamlining State and Local Approval of Certain Wireless Structure Modifications –
    • The Commission will consider a Report and Order that would further accelerate the deployment of 5G by providing that modifications to existing towers involving limited ground excavation or deployment would be subject to streamlined state and local review pursuant to section 6409(a) of the Spectrum Act of 2012. (WT Docket No. 19-250; RM-11849)
    • Revitalizing AM Radio Service with All-Digital Broadcast Option – The Commission will consider a Report and Order that would authorize AM stations to transition to an all-digital signal on a voluntary basis and would also adopt technical specifications for such stations. (MB Docket Nos. 13-249, 19-311)
    • Expanding Audio Description of Video Content to More TV Markets – The Commission will consider a Report and Order that would expand audio description requirements to 40 additional television markets over the next four years in order to increase the amount of video programming that is accessible to blind and visually impaired Americans. (MB Docket No. 11-43)
    • Modernizing Unbundling and Resale Requirements – The Commission will consider a Report and Order to modernize the Commission’s unbundling and resale regulations, eliminating requirements where they stifle broadband deployment and the transition to next- generation networks, but preserving them where they are still necessary to promote robust intermodal competition. (WC Docket No. 19-308)
    • Enforcement Bureau Action – The Commission will consider an enforcement action.
  • On October 29, the Federal Trade Commission (FTC) will hold a seminar titled “Green Lights & Red Flags: FTC Rules of the Road for Business workshop” that “will bring together Ohio business owners and marketing executives with national and state legal experts to provide practical insights to business and legal professionals about how established consumer protection principles apply in today’s fast-paced marketplace.”

Other Developments

  • Consumer Reports released a study it did on the “California Consumer Privacy Act” (CCPA) (AB 375), specifically on the Do-Not-Sell right California residents were given under the newly effective privacy statute. For those people (like me) who expected a significant number of businesses to make it hard for people to exercise their rights, this study confirms this suspicion. Consumer Reports noted more than 40% of data brokers had hard to find links or extra, complicated steps for people to tell them not to sell their personal information.
    • In “CCPA: Are Consumers Digital Rights Protected?,” Consumer Reports used this methodology:
    • Consumer Reports’ Digital Lab conducted a mixed methods study to examine whether the new CCPA is working for consumers. This study focused on the Do-Not-Sell (DNS) provision in the CCPA, which gives consumers the right to opt out of the sale of their personal information to third parties through a “clear and conspicuous link” on the company’s homepage.1 As part of the study, 543 California residents made DNS requests to 214 data brokers listed in the California Attorney General’s data broker registry. Participants reported their experiences via survey.
    • Consumer Reports found:
      • Consumers struggled to locate the required links to opt out of the sale of their information. For 42.5% of sites tested, at least one of three testers was unable to find a DNS link. All three testers failed to find a “Do Not Sell” link on 12.6% of sites, and in several other cases one or two of three testers were unable to locate a link.
        • Follow-up research focused on the sites in which all three testers did not find the link revealed that at least 24 companies on the data broker registry do not have the required DNS link on their homepage.
        • All three testers were unable to find the DNS links for five additional companies, though follow-up research revealed that the companies did have DNS links on their homepages. This also raises concerns about compliance, since companies are required to post the link in a “clear and conspicuous” manner.
      • Many data brokers’ opt-out processes are so onerous that they have substantially impaired consumers’ ability to opt out, highlighting serious flaws in the CCPA’s opt-out model.
        • Some DNS processes involved multiple, complicated steps to opt out, including downloading third-party software.
        • Some data brokers asked consumers to submit information or documents that they were reluctant to provide, such as a government ID number, a photo of their government ID, or a selfie.
        • Some data brokers confused consumers by requiring them to accept cookies just to access the site.
        • Consumers were often forced to wade through confusing and intimidating disclosures to opt out.
        • Some consumers spent an hour or more on a request.
        • At least 14% of the time, burdensome or broken DNS processes prevented consumers from exercising their rights under the CCPA.
      • At least one data broker used information provided for a DNS request to add the user to a marketing list, in violation of the CCPA.
      • At least one data broker required the user to set up an account to opt out, in violation of the CCPA.
      • Consumers often didn’t know if their opt-out request was successful. Neither the CCPA nor the CCPA regulations require companies to notify consumers when their request has been honored. About 46% of the time, consumers were left waiting or unsure about the status of their DNS request.
      • About 52% of the time, the tester was “somewhat dissatisfied” or “very dissatisfied” with the opt-out processes.
      • On the other hand, some consumers reported that it was quick and easy to opt out, showing that companies can make it easier for consumers to exercise their rights under the CCPA. About 47% of the time, the tester was “somewhat satisfied” or “very satisfied” with the opt-out process.
    • Consumer Reports recommended:
      • The Attorney General should vigorously enforce the CCPA to address noncompliance.
      • To make it easier to exercise privacy preferences, consumers should have access to browser privacy signals that allow them to opt out of all data sales in one step.
      • The AG should more clearly prohibit dark patterns, which are user interfaces that subvert consumer intent, and design a uniform opt-out button. This will make it easier for consumers to locate the DNS link on individual sites.
      • The AG should require companies to notify consumers when their opt-out requests have been completed, so that consumers can know that their information is no longer being sold.
      • The legislature or AG should clarify the CCPA’s definitions of “sale” and “service provider” to more clearly cover data broker information sharing.
      • Privacy should be protected by default. Rather than place the burden on consumers to exercise privacy rights, the law should require reasonable data minimization, which limits the collection, sharing, retention, and use to what is reasonably necessary to operate the service.
  • Two agencies of the Department of the Treasury have issued guidance regarding the advisability and legality of paying ransomware to individuals or entities under United States (U.S.) sanction at a time when ransomware attacks are on the rise. It bears note that a person or entity in the U.S. may face criminal and civil liability for paying a sanctioned ransomware entity even if they did not know it was sanctioned. One of the agencies reasoned that paying ransoms to such parties is contrary to U.S. national security policy and only encourages more ransomware attacks.
    • The Office of Foreign Assets Control (OFAC) issued an “advisory to highlight the sanctions risks associated with ransomware payments related to malicious cyber-enabled activities.” OFAC added:
      • Demand for ransomware payments has increased during the COVID-19 pandemic as cyber actors target online systems that U.S. persons rely on to continue conducting business. Companies that facilitate ransomware payments to cyber actors on behalf of victims, including financial institutions, cyber insurance firms, and companies involved in digital forensics and incident response, not only encourage future ransomware payment demands but also may risk violating OFAC regulations. This advisory describes these sanctions risks and provides information for contacting relevant U.S. government agencies, including OFAC, if there is a reason to believe the cyber actor demanding ransomware payment may be sanctioned or otherwise have a sanctions nexus.
    • Financial Crimes Enforcement Network (FinCEN) published its “advisory to alert financial institutions to predominant trends, typologies, and potential indicators of ransomware and associated money laundering activities. This advisory provides information on:
      • (1) the role of financial intermediaries in the processing of ransomware payments;
      • (2) trends and typologies of ransomware and associated payments;
      • (4) reporting and sharing information related to ransomware attacks.
  • The Government Accountability Office (GAO) found uneven implementation at seven federal agencies in meeting the Office of Management and Budget’s (OMB) requirements in using the category management initiative for buying information technology (IT). This report follows in a long line of assessments of how the federal government is not spending its billions of dollars invested in IT to maximum effect. The category management initiative was launched two Administrations ago as a means of driving greater efficiency and savings for the nearly $350 billion the U.S. government spends annually in services and goods, much of which could be bought in large quantities instead of piecemeal by agency as is now the case.
    • The chair and ranking member of the House Oversight Committee and other Members had asked the GAO “to conduct a review of federal efforts to reduce IT contract duplication and/or waste” specifically “to determine the extent to which (1) selected agencies’ efforts to prevent, identify, and reduce duplicative or wasteful IT contracts were consistent with OMB’s category management initiative; and (2) these efforts were informed by spend analyses.” The GAO ended up looking at the Departments of Agriculture (USDA), Defense (DOD), Health and Human Services (HHS), Homeland Security (DHS), Justice (DOJ), State (State), and Veterans Affairs (VA).
    • The GAO found:
      • The seven agencies in our review varied in their implementation of OMB’s category management activities that contribute to identifying, preventing, and reducing duplicative IT contracts. Specifically, most of the agencies fully implemented the two activities to identify a Senior Accountable Official and develop processes and policies for implementing category management efforts, and to engage their workforces in category management training. However, only about half the agencies fully implemented the activities to reduce unaligned IT spending, including increasing the use of Best in Class contract solutions, and share prices paid, terms, and conditions for purchased IT goods and services. Agencies cited several reasons for their varied implementation, including that they were still working to define how to best integrate category management into the agency.
      • Most of the agencies used spend analyses to inform their efforts to identify and reduce duplication, and had developed and implemented strategies to address the identified duplication, which, agency officials reported resulted in millions in actual and anticipated future savings. However, two of these agencies did not make regular use of the spend analyses.
      • Until agencies fully implement the activities in OMB’s category management initiative, and make greater use of spend analyses to inform their efforts to identify and reduce duplicative contracts, they will be at increased risk of wasteful spending. Further, agencies will miss opportunities to identify and realize savings of potentially hundreds of millions of dollars.
  • The Department of Homeland Security’s (DHS) Cybersecurity and Infrastructure Security Agency (CISA) provided “specific Chinese government and affiliated cyber threat actor tactics, techniques, and procedures (TTPs) and recommended mitigations to the cybersecurity community to assist in the protection of our Nation’s critical infrastructure.” CISA took this action “[i]n light of heightened tensions between the United States and China.”
    • CISA asserted
      • According to open-source reporting, offensive cyber operations attributed to the Chinese government targeted, and continue to target, a variety of industries and organizations in the United States, including healthcare, financial services, defense industrial base, energy, government facilities, chemical, critical manufacturing (including automotive and aerospace), communications, IT, international trade, education, videogaming, faith-based organizations, and law firms.
    • CISA recommends organizations take the following actions:
      • Adopt a state of heightened awareness. Minimize gaps in personnel availability, consistently consume relevant threat intelligence, and update emergency call trees.
      • Increase organizational vigilance. Ensure security personnel monitor key internal security capabilities and can identify anomalous behavior. Flag any known Chinese indicators of compromise (IOCs) and TTPs for immediate response.
      • Confirm reporting processes. Ensure personnel know how and when to report an incident. The well-being of an organization’s workforce and cyber infrastructure depends on awareness of threat activity. Consider reporting incidents to CISA to help serve as part of CISA’s early warning system (see the Contact Information section below).
      • Exercise organizational incident response plans. Ensure personnel are familiar with the key steps they need to take during an incident. Do they have the accesses they need? Do they know the processes? Are various data sources logging as expected? Ensure personnel are positioned to act in a calm and unified manner.
  • The Supreme Court of the United States (SCOTUS) declined to hear a case on an Illinois revenge porn law that the Illinois State Supreme Court upheld, finding it did not impinge on a woman’s First Amendment rights. Bethany Austin was charged with a felony under an Illinois law barring the nonconsensual dissemination of private sexual pictures when she printed and distributed pictures of her ex-fiancé’s lover. Because SCOTUS decided not to hear this case, the Illinois case and others like it remain Constitutional.
    • The Illinois State Supreme Court explained the facts of the case:
      • Defendant (aka Bethany Austin) was engaged to be married to Matthew, after the two had dated for more than seven years. Defendant and Matthew lived together along with her three children. Defendant shared an iCloud account with Matthew, and all data sent to or from Matthew’s iPhone went to their shared iCloud account, which was connected to defendant’s iPad. As a result, all text messages sent by or to Matthew’s iPhone automatically were received on defendant’s iPad. Matthew was aware of this data sharing arrangement but took no action to disable it.
      • While Matthew and defendant were engaged and living together, text messages between Matthew and the victim, who was a neighbor, appeared on defendant’s iPad. Some of the text messages included nude photographs of the victim. Both Matthew and the victim were aware that defendant had received the pictures and text messages on her iPad. Three days later, Matthew and the victim again exchanged several text messages. The victim inquired, “Is this where you don’t want to message [because] of her?” Matthew responded, “no, I’m fine. [S]omeone wants to sit and just keep watching want [sic] I’m doing I really do not care. I don’t know why someone would wanna put themselves through that.” The victim replied by texting, “I don’t either. Soooooo baby ….”
      • Defendant and Matthew cancelled their wedding plans and subsequently broke up. Thereafter, Matthew began telling family and friends that their relationship had ended because defendant was crazy and no longer cooked or did household chores.
      • In response, defendant wrote a letter detailing her version of events. As support, she attached to the letter four of the naked pictures of the victim and copies of the text messages between the victim and Matthew. When Matthew’s cousin received the letter along with the text messages and pictures, he informed Matthew.
      • Upon learning of the letter and its enclosures, Matthew contacted the police. The victim was interviewed during the ensuing investigation and stated that the pictures were private and only intended for Matthew to see. The victim acknowledged that she was aware that Matthew had shared an iCloud account with defendant, but she thought it had been deactivated when she sent him the nude photographs.
    • In her petition for SCOTUS to hear her case, Austin asserted:
      • Petitioner Bethany Austin is being prosecuted under Illinois’ revenge porn law even though she is far from the type of person such laws were intended to punish. These laws proliferated rapidly in recent years because of certain reprehensible practices, such as ex-lovers widely posting images of their former mates to inflict pain for a bad breakup, malicious stalkers seeking to damage an innocent person’s reputation, or extortionists using intimate photos to collect ransom. Austin did none of those things, yet is facing felony charges because she tried to protect her reputation from her former fiancé’s lies about the reason their relationship ended.
      • The Illinois Supreme Court rejected Petitioner’s constitutional challenge to the state revenge porn law only because it ignored well-established First Amendment rules: It subjected the law only to intermediate, rather than strict scrutiny, because it incorrectly classified a statute that applies only to sexual images as content neutral; it applied diminished scrutiny because the speech at issue was deemed not to be a matter of public concern; and it held the law need not require a showing of malicious intent to justify criminal penalties, reasoning that such intent can be inferred from the mere fact that the specified images were shared. Each of these conclusions contradicts First Amendment principles recently articulated by this Court, and also is inconsistent with decisions of various state courts, including the Vermont Supreme Court.
    • Illinois argued in its brief to SCOTUS:
      • The nonconsensual dissemination of private sexual images exposes victims to a wide variety of serious harms that affect nearly every aspect of their lives. The physical, emotional, and economic harms associated with such conduct are well-documented: many victims are exposed to physical violence, stalking, and harassment; suffer from emotional and psychological harm; and face limited professional prospects and lowered income, among other repercussions. To address this growing problem and protect its residents from these harms, Illinois enacted section 11-23.5,720 ILCS 5/11-23.5. Petitioner—who was charged with violating section 11-23.5 after she disseminated nude photos of her fiancé’s paramour without consent—asks this Court to review the Illinois Supreme Court’s decision rejecting her First Amendment challenge.
  • Six U.S. Agency for Global Media (USAGM) whistleblowers have filed a complaint concerning “retaliatory actions” with the Office of the Inspector General (OIG) at the Department of State and the Office of Special Counsel, arguing the newly installed head of USAGM punished them for making complaints through proper channels about his actions. This is the latest development at the agency. the United States Court of Appeals for the District of Columbia enjoined USAGM from “taking any action to remove or replace any officers or directors of the OTF,” pending the outcome of the suit which is being expedited.
  • Additionally, USAGM CEO and Chair of the Board Michael Pack is being accused in two different letters of seeking to compromise the integrity and independence of two organizations he oversees. There have been media accounts of the Trump Administration’s remaking of USAGM in ways critics contend are threatening the mission and effectiveness of the Open Technology Fund (OTF), a U.S. government non-profit designed to help dissidents and endangered populations throughout the world. The head of the OTF has been removed, evoking the ire of Members of Congress, and other changes have been implemented that are counter to the organization’s mission. Likewise, there are allegations that politically-motivated policy changes seek to remake the Voice of America (VOA) into a less independent entity.
  • The whistleblowers claimed in their complaint:
    • Each of the Complainants made protected disclosures –whether in the form of OIG complaints, communications with USAGM leadership, and/or communications with appropriate Congressional committees–regarding their concerns about official actions primarily taken by Michael Pack, who has been serving as the Chief Executive Officer for USAGM since June 4, 2020. The Complainants’ concerns involve allegations that Mr. Pack has engaged in conduct that violates federal law and/or USAGM regulations, and that constitutes an abuse of authority and gross mismanagement. Moreover, each of the Complainants was targeted for retaliatory action by Mr. Pack because of his belief that they held political views opposed to his, which is a violation of the Hatch Act.
    • Each of the Complainants was informed by letter, dated August 12, 2020, that their respective accesses to classified information had been suspended pending further investigation. Moreover, they were all concurrently placed on administrative leave. In each of the letters to the Complainants, USAGM claimed that the Complainants had been improperly granted security clearances, and that the Complainants failed to take remedial actions to address personnel and security concerns prior to permitting other USAGM employees to receive security clearances. In addition, many or all of the Complainants were earlier subject to retaliatory adverse personnel actions in the form of substantial limitations on their ability to carry out their work responsibilities(i.e. a significant change in duties and responsibilities), which limitations were imposed without following appropriate personnel procedures.

Further Reading

  • Big Tech Was Their Enemy, Until Partisanship Fractured the Battle Plans” By Cecilia Kang and David McCabe — The New York Times. There’s a bit of court intrigue in this piece about how Republicans declined to join Democrats in the report on the antirust report released this week, sapping the recommendations on how to address Big Tech of power.
  • Facebook Keeps Data Secret, Letting Conservative Bias Claims Persist” By Bobby Allyn — NPR. Still no evidence of an anti-conservative bias at Facebook, according to experts, and the incomplete data available seem to indicate conservative content may be more favored by users than liberal content. Facebook does not release data that settle the question, however, and there are all sorts of definitional questions that need answers before this issue could be definitely settled. And yet, some food for thought is a significant percentage of sharing a link may be driven by bots and not humans.
  • News Corp. changes its tune on Big Tech” By Sara Fischer — Axios.  After beating the drum for years about the effect of Big Tech on journalism, the parent company of the Wall Street Journal and other media outlets is much more conciliatory these days. It may have something to do with all the cash the Googles and Facebooks of the world are proposing to throw at some media outlets for their content. It remains to be seen how this change in tune will affect the Australian Competition and Consumer Commission’s (ACCC) proposal to ensure that media companies are compensated for articles and content online platforms use. In late July the ACCC released for public consultation a draft of “a mandatory code of conduct to address bargaining power imbalances between Australian news media businesses and digital platforms, specifically Google and Facebook.”
  • Silicon Valley Opens Its Wallet for Joe Biden” By Daniel Oberhaus — WIRED. In what will undoubtedly be adduced as evidence that Silicon Valley is a liberal haven, this article claims according to federal elections data for this election cycle, Alphabet, Amazon, Apple, Facebook, Microsoft, and Oracle employees have contributed $4,787,752 to former Vice President Joe Biden and $239,527 to President Donald Trump. This is only for contributions of $200 and higher, so it is likely these data are not complete.
  • Facebook bans QAnon across its platforms” By Ben Collins and Brandy Zadrozny — NBC News. The social media giant has escalated and will remove all content related to the conspiracy group and theory known as QAnon. However, believers have been adaptable and agile in dropping certain terms and using methods to evade detection. Some experts say Facebook’s actions are too little, too late as these beliefs are widespread and are fueling a significant amount of violence and unrest in the real world.

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

Image by Katie White from Pixabay

Antitrust Report Released

A far reaching set of recommendations on how the U.S. should remake its antitrust policies to take on Big Tech

The subcommittee of the House Judiciary Committee that has been investigating digital competition for over a year issued its final report and is calling for nothing less than a complete remaking of United States (U.S.) antitrust policy and law. In the view of the subcommittee a handful of technology companies have strangleholds on a number of key markets, and the health of the U.S. economy demands that the companies be broken up and reformed. The four companies the subcommittee focused on are Amazon, Apple, Facebook, and Google, four of the world’s largest companies by market capitalization. Even though the tide has turned against these and other large technology companies that were feted during the Obama Administration, if the response of Republicans on the committee encapsulates the feeling of party members in the Senate, there is no likely path for enactment of many of these proposals even under a Biden Administration unless the filibuster is junked. And even then, tech companies would find many sympathetic moderate and centrist Democrats who could not go along with a wholesale reform of antitrust enforcement.

The House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee started its inquiry over a year ago and held seven hearings, including one this past summer with the CEOs of the four companies. Subcommittee Chair David Cicilline (D-RI) has long made his leanings clear in his opening statements and questions as has the full Committee Chair Jerrold Nadler (D-NY). They agree that these companies are too large and current antitrust enforcement and law are inadequate to the job of addressing dominance of inline markets to rival to trusts from more than 100 years ago.

The Subcommittee found:

  • Over the past decade, the digital economy has become highly concentrated and prone to monopolization. Several markets investigated by the Subcommittee—such as social networking, general online search, and online advertising—are dominated by just one or two firms. The companies investigated by the Subcommittee—Amazon, Apple, Facebook, and Google—have captured control over key channels of distribution and have come to function as gatekeepers. Just a decade into the future, 30% of the world’s gross economic output may lie with these firms, and just a handful of others.
  • In interviews with Subcommittee staff, numerous businesses described how dominant platforms exploit their gatekeeper power to dictate terms and extract concessions that no one would reasonably consent to in a competitive market. Market participants that spoke with Subcommittee staff indicated that their dependence on these gatekeepers to access users and markets requires concessions and demands that carry significant economic harm, but that are “the cost of doing business” given the lack of options.
  • This significant and durable market power is due to several factors, including a high volume of acquisitions by the dominant platforms. Together, the firms investigated by the Subcommittee have acquired hundreds of companies just in the last ten years. In some cases, a dominant firm evidently acquired nascent or potential competitors to neutralize a competitive threat or to maintain and expand the firm’s dominance. In other cases, a dominant firm acquired smaller companies to shut them down or discontinue underlying products entirely—transactions aptly described as “killer acquisitions.”
  • In the overwhelming number of cases, the antitrust agencies did not request additional information and documentary material under their pre-merger review authority in the Clayton Act, to examine whether the proposed acquisition may substantially lessen competition or tend to create a monopoly if allowed to proceed as proposed. For example, of Facebook’s nearly 100 acquisitions, the Federal Trade Commission engaged in an extensive investigation of just one acquisition: Facebook’s purchase of Instagram in 2012.

Regarding the four companies themselves, the Subcommittee claimed:

  • Facebook
    • Facebook has monopoly power in the market for social networking. Internal communications among the company’s Chief Executive Officer, Mark Zuckerberg, and other senior executives indicate that Facebook acquired its competitive threats to maintain and expand its dominance. For example, a senior executive at the company described its acquisition strategy as a “land grab” to “shore up” Facebook’s position, while Facebook’s CEO said that Facebook “can likely always just buy any competitive startups,” and agreed with one of the company’s senior engineers that Instagram was a threat to Facebook.
    • Facebook’s monopoly power is firmly entrenched and unlikely to be eroded by competitive pressure from new entrants or existing firms. In 2012, the company described its network effects as a “flywheel” in an internal presentation prepared for Facebook at the direction of its Chief Financial Officer. This presentation also said that Facebook’s network effects get “stronger every day.”
  • Google
    • Google has a monopoly in the markets for general online search and search advertising. Google’s dominance is protected by high entry barriers, including its click-and-query data and the extensive default positions that Google has obtained across most of the world’s devices and browsers. A significant number of entities—spanning major public corporations, small businesses, and entrepreneurs—depend on Google for traffic, and no alternate search engine serves as a substitute.
    • Google maintained its monopoly over general search through a series of anticompetitive tactics. These include an aggressive campaign to undermine vertical search providers, which Google viewed as a significant threat. Documents show that Google used its search monopoly to misappropriate content from third parties and to boost Google’s own inferior vertical offerings, while imposing search penalties to demote third-party vertical providers. Since capturing a monopoly over general search, Google has steadily proliferated its search results page with ads and with Google’s own content, while also blurring the distinction between paid ads and organic results. As a result of these tactics, Google appears to be siphoning off traffic from the rest of the web, while entities seeking to reach users must pay Google steadily increasing sums for ads. Numerous market participants analogized Google to a gatekeeper that is extorting users for access to its critical distribution channel, even as its search page shows users less relevant results.
    • A second way Google has maintained its monopoly over general search has been through a series of anticompetitive contracts. After purchasing the Android operating system in 2005, Google used contractual restrictions and exclusivity provisions to extend Google’s search monopoly from desktop to mobile. Documents show that Google required smartphone manufacturers to pre-install and give default status to Google’s own apps, impeding competitors in search as well as in other app markets. As search activity now migrates from mobile to voice, third-party interviews suggest Google is again looking for ways to maintain its monopoly over search access points through a similar set of practices.
  • Amazon
    • Amazon has significant and durable market power in the U.S. online retail market. This conclusion is based on the significant record that Subcommittee staff collected and reviewed, including testimonials from third-party sellers, brand manufacturers, publishers, former employees, and other market participants, as well as Amazon’s internal documents. Although Amazon is frequently described as controlling about 40% of U.S. online retail sales, this market share is likely understated, and estimates of about 50% or higher are more credible.
    • As the dominant marketplace in the United States for online shopping, Amazon’s market power is at its height in its dealings with third-party sellers. The platform has monopoly power over many small- and medium-sized businesses that do not have a viable alternative to Amazon for reaching online consumers. Amazon has 2.3 million active third-party sellers on its marketplace worldwide, and a recent survey estimates that about 37% of them—about 850,000 sellers—rely on Amazon as their sole source of income.
    • Amazon achieved its current dominant position, in part, through acquiring its competitors, including and Zappos. It has also acquired companies that operate in adjacent markets, adding customer data to its stockpile and further shoring up its competitive moats. This strategy has entrenched and expanded Amazon’s market power in e-commerce, as well as in other markets. The company’s control over, and reach across, its many business lines enables it to self-preference and disadvantage competitors in ways that undermine free and fair competition. As a result of Amazon’s dominance, other businesses are frequently beholden to Amazon for their success.
    • Amazon has engaged in extensive anticompetitive conduct in its treatment of third-party sellers. Publicly, Amazon describes third-party sellers as “partners.” But internal documents show that, behind closed doors, the company refers to them as “internal competitors.” Amazon’s dual role as an operator of its marketplace that hosts third-party sellers, and a seller in that same marketplace, creates an inherent conflict of interest. This conflict incentivizes Amazon to exploit its access to competing sellers’ data and information, among other anticompetitive conduct.
  • Apple
    • Apple has significant and durable market power in the mobile operating system market. Apple’s dominance in this market, where it controls the iOS mobile operating system that runs on Apple mobile devices, has enabled it to control all software distribution to iOS devices. As a result, Apple exerts monopoly power in the mobile app store market, controlling access to more than 100 million iPhones and iPads in the U.S.
    • Apple’s mobile ecosystem has produced significant benefits to app developers and consumers. Launched in 2008, the App Store revolutionized software distribution on mobile devices, reducing barriers to entry for app developers and increasing the choices available to consumers. Despite this, Apple leverages its control of iOS and the App Store to create and enforce barriers to competition and discriminate against and exclude rivals while preferencing its own offerings. Apple also uses its power to exploit app developers through misappropriation of competitively sensitive information and to charge app developers supra-competitive prices within the App Store. Apple has maintained its dominance due to the presence of network effects, high barriers to entry, and high switching costs in the mobile operating system market.

The Subcommittee summarized its recommendations:

a. Restoring Competition in the Digital Economy

  • Structural separations and prohibitions of certain dominant platforms from operating in adjacent lines of business;
  • Nondiscrimination requirements, prohibiting dominant platforms from engaging in self- preferencing, and requiring them to offer equal terms for equal products and services;
  • Interoperability and data portability, requiring dominant platforms to make their services compatible with various networks and to make content and information easily portable between them;
  • Presumptive prohibition against future mergers and acquisitions by the dominant platforms;
  • Safe harbor for news publishers in order to safeguard a free and diverse press; and
  • Prohibitions on abuses of superior bargaining power, proscribing dominant platforms from engaging in contracting practices that derive from their dominant market position, and requiring due process protections for individuals and businesses dependent on the dominant platforms.

b. Strengthening the Antitrust Laws

  • Reasserting the anti-monopoly goals of the antitrust laws and their centrality to ensuring a healthy and vibrant democracy;
  • Strengthening Section 7 of the Clayton Act, including through restoring presumptions and bright-line rules, restoring the incipiency standard and protecting nascent competitors, and strengthening the law on vertical mergers;
  • Strengthening Section 2 of the Sherman Act, including by introducing a prohibition on abuse of dominance and clarifying prohibitions on monopoly leveraging, predatory pricing, denial of essential facilities, refusals to deal, tying, and anticompetitive self-preferencing and product design; and
  • Taking additional measures to strengthen overall enforcement, including through overriding problematic precedents in the case law.

c. Reviving Antitrust Enforcement

  • Restoring robust congressional oversight of the antitrust laws and their enforcement;
  • Restoring the federal antitrust agencies to full strength, by triggering civil penalties and other relief for “unfair methods of competition” rules, requiring the Federal Trade Commission to engage in regular data collection on concentration, enhancing public transparency and accountability of the agencies, requiring regular merger retrospectives, codifying stricter prohibitions on the revolving door, and increasing the budgets of the FTC and the Antitrust Division; and
  • Strengthening private enforcement, through eliminating obstacles such as forced arbitration clauses, limits on class action formation, judicially created standards constraining what constitutes an antitrust injury, and unduly high pleading standards.

The Ranking Member on the Antitrust, Commercial, and Administrative Law Subcommittee, Jim Sensenbrenner (R-WI) signaled his agreement with some of the recommendations made in the report but articulated his views:

  • I disagree with the view that there needs to be a wholesale rewrite of our country’s antitrust laws.
  • Congressional review of our antitrust laws in the age of Big Tech was absolutely warranted.  Oversight of the existing legal and regulatory framework is one of the key functions of the committee system, and I applaud Chairman Cicilline on his undertaking of this project in a bipartisan manner. 
  • There actually is a lot that we agree on, including the lack of sufficient scrutiny on past activity by these companies.  For example, the report highlights that Facebook only had one acquisition extensively reviewed by the FTC out of nearly 100.  That lack of enforcement raises significant questions. What becomes clear is that better resources and funding for the enforcement agencies are key to having an effective antitrust framework.
  • Ultimately, I am concerned with several of the recommendations made by the committee.  A ‘Glass-Steagall’ like approach to tech regulation does not benefit consumers and will lead to too much government regulation of a very innovative industry.  Likewise, mandating data interoperability could hamper future innovation by preventing the development of new and better systems.
  • I am also opposed to several of the proposed changes to merger activity.  A presumptive ban on future acquisitions, especially now with economic uncertainty plaguing the world, could hinder potentially fruitful, beneficial business decisions. Also, shifting the burden of proof in merger cases misplaces the obligation upon companies to prove their innocence rather than the government proving their guilt.

In his statement, Ranking Member Jim Jordan (R-OH) again chose to ignore the competition and market dominance issues on which a number of his Republican colleagues agreed with Democrats to again reiterate unproven Republican talking points about alleged conservative bias:

Big tech is out to get conservatives. Unfortunately, the Democrats’ partisan report ignores this fundamental problem and potential solutions and instead advances radical proposals that would refashion antitrust law in the vision of the far left.

On the same day, a small group of committee Republicans released their report on “Big Tech” with their proposed policy and legal solutions. This effort was led by Representative Ken Buck (R-CO), a subcommittee member who participated in the hearings in a bipartisan fashion even praising Cicilline for his evenhanded conduct of the proceedings. However, Buck did indicate he could not agree with some of the directions his Democratic colleagues seem to be heading in response to the evidence. Buck was joined by Representatives Matt Gaetz (R-FL), Doug Collins (R-GA), and Andy Biggs (R-AZ).

They noted:

We write this response to join Chairman Cicilline and the majority staff on certain recommendations, offer modifications to some recommendations, and argue against the wisdom of proceeding on a few recommendations. We also want to point out that the committee’s ongoing efforts should emphasize issues that have been ignored but must be addressed in the future for a truly bipartisan approach to reforming Big Tech’s dominant position in the marketplace. Finally, we want to thank the Chairman for not using this report as an opportunity to push a progressive labor, environmental, or other unrelated policy agenda under the guise of antitrust enforcement. We sincerely appreciate the Chairman’s friendship and dedication to making this process open and accessible to all members.

Buck, Gaetz, Collins, and Biggs added:

The majority staff report offers a comprehensive review of the technology marketplace and accurately depicts the harmful effects of Big Tech’s anticompetitive reign over the digital economy. Many of the factual findings detailed in the report are undeniable. The majority staff accurately portrays how Apple, Amazon, Google, and Facebook have used their monopoly power to act as gatekeepers to the marketplace, undermine potential competition, and pick winners and losers, all while simultaneously cozying up to unfriendly nations like China in order to further expand their global footprint.

In terms of where they agree with Cicilline and the Democrats, they remarked:

  • We agree that antitrust enforcement agencies need additional resources and tools to provide proper oversight. However, these potential changes need not be dramatic to be effective. By reinforcing presumptions that certain behaviors are likely to reduce competition, lowering evidentiary burdens in litigated cases, and emphasizing that anticompetitive effects are not limited to price effects and include innovation competition, quality, output, and consumer choice, Congress can make a meaningful difference.
  • We also agree with a number of the majority’s other legislative recommendations, including proposals to shift the burden of proof for companies pursuing mergers and acquisitions and empowering consumers to take control of their user data through data portability and interoperability standards. Additionally, the report offers recommendations where we believe there is common ground, but the subcommittee should receive expert feedback before pushing forward. Some of these proposals include the majority’s monopoly reforms related to predatory pricing, monopoly leveraging, the Essential Facilities Doctrine, and policies related to the Supreme Court’s recent decision related to two-sided markets in Ohio v. American Express Co.

Buck, Gaetz, Collins, and Biggs spelled out the recommendations made by the majority they could not join:

  • However, the majority also offers policy prescriptions that are non-starters for conservatives. These proposals include eliminating arbitration clauses and further opening companies up to class action lawsuits. Similarly, the majority’s desire to institute Glass- Steagall for America’s tech sector and modeling the majority’s equal terms for equal services recommendation on President Obama’s net neutrality rule will not garner support from Republicans.
  • While we agree in principle with the findings identified in the report, we cannot endorse all of the legislative recommendations offered by the majority. We will work with the Chairman in a bipartisan fashion to help enact the legislative solutions where we can agree. However, we are concerned that sweeping changes could lead to overregulation and carry unintended consequences for the entire economy. We prefer a targeted approach, the scalpel of antitrust, rather than the chainsaw of regulation.

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

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Further Reading, Other Developments, and Coming Events (6 October)

Coming Events

  • The United States’ Department of Homeland Security’s (DHS) Cybersecurity and Infrastructure Security Agency (CISA) announced that its third annual National Cybersecurity Summit “will be held virtually as a series of webinars every Wednesday for four weeks beginning September 16 and ending October 7:”
    • October 7: Defending our Democracy
    • One can register for the event here.
  • The European Union Agency for Cybersecurity (ENISA), Europol’s European Cybercrime Centre (EC3) and the Computer Emergency Response Team for the EU Institutions, Bodies and Agencies (CERT-EU) will hold the 4th annual IoT Security Conference series “to raise awareness on the security challenges facing the Internet of Things (IoT) ecosystem across the European Union:”
    • Operational IoT – 7 October at 15:00 to 16:30 CET
    • Artificial Intelligence – 14 October at 15:00 to 16:30 CET
    • Supply Chain for IoT – 21 October at 15:00 to 16:30 CET
  • The Federal Communications Commission (FCC) will hold an open commission meeting on 27 October, but the agenda has not yet been announced.
  • On October 29, the Federal Trade Commission (FTC) will hold a seminar titled “Green Lights & Red Flags: FTC Rules of the Road for Business workshop” that “will bring together Ohio business owners and marketing executives with national and state legal experts to provide practical insights to business and legal professionals about how established consumer protection principles apply in today’s fast-paced marketplace.”

Other Developments

  • The Department of Homeland Security’s (DHS) Cybersecurity and Infrastructure Security Agency (CISA) announced that a “malicious cyber actor” had penetrated an unnamed federal agency and “implanted sophisticated malware—including multi-stage malware that evaded the affected agency’s anti-malware protection—and gained persistent access through two reverse Socket Secure (SOCKS) proxies that exploited weaknesses in the agency’s firewall.” Since CISA said it became aware of the penetration via EINSTEIN, it is likely a civilian agency that was compromised. The actor used “compromised credentials” to get into the agency, but “CISA analysts were not able to determine how the cyber threat actor initially obtained the credentials.” It is not clear whether this is a nation state or sophisticated hackers working independently.
    • It should be noted that last month, the Department of Veterans Affairs (VA) revealed it had been breached and “the personal information of approximately 46,000 Veterans” has been compromised. This announcement came the same day as an advisory issued by CISA that Chinese Ministry of State Security (MSS)-affiliated cyber threat actors have been targeting and possibly penetrating United States (U.S.) agency networks. 
  • Senators Ron Wyden (D-OR) and Jeff Merkley (D-OR) and Representatives Earl Blumenauer (D-OR) and Suzanne Bonamici (D-OR) wrote the Department of Homeland Security (DHS) regarding a report in The Nation alleging the DHS and Department of Justice (DOJ) surveilled the phones of protestors in Portland, Oregon in possible violation of United States (U.S.) law. These Members asked DHS to respond to the following questions by October 9:
    • During a July 23, 2020, briefing for Senate intelligence committee staff, Brian Murphy, then the Acting Under Secretary for Intelligence and Analysis (I&A) stated that DHS I&A had neither collected nor exploited or analyzed information obtained from the devices or accounts of protesters or detainees. On July 31, 2020, Senator Wyden and six other Senators on the Senate Select Committee on Intelligence wrote to Mr. Murphy to confirm the statement he had made to committee staff. DHS has yet to respond to that letter. Please confirm whether or not Mr. Murphy’s statement during the July 23, 2020, briefing was accurate at the time, and if it is still   
    • accurate.
    • Has DHS, whether directly, or with the assistance of any other government agency, obtained or analyzed data collected through the surveillance of protesters’ phones, including tracking their locations or intercepting communications content or metadata? If yes, for each phone that was surveilled, did the government obtain prior authorization from a judge before conducting this surveillance?
    • Has DHS used commercial data sources, including open source intelligence products, to investigate, identify, or track protesters or conduct network analysis? If yes, please identify each commercial data source used by DHS, describe the information DHS obtained, how DHS used it, whether it was subsequently shared with any other government agency, and whether DHS sought and obtained authorization from a court before querying the data source.
  • The National Cybersecurity Center of Excellence (NCCoE) at the National Institute of Standards and Technology (NIST) has published for comment the “Securing Data Integrity Against Ransomware Attacks: Using the NIST Cybersecurity Framework and NIST Cybersecurity Practice Guides” that provides an overview of [NCCoE and NIST’s]  Data Integrity projects…a high-level explanation of the architecture and capabilities, and how these projects can be brought together into one comprehensive data integrity solution…[that] can then be integrated into a larger security picture to address all of an organization’s data security needs.” Comments are due by 13 November. NCCoE and NIST explained:
    • This guide is designed for organizations that are not currently experiencing a loss of data integrity event (ransomware or otherwise). This document prepares an organization to adequately address future data integrity events. For information on dealing with a current attack, please explore guidance from organizations like the Federal Bureau of Investigation the United States Secret Service, or other pertinent groups or government bodies.
    • Successful ransomware impacts data’s integrity, yet ransomware is just one of many potential vectors through which an organization could suffer a loss of data integrity. Integrity is part of the CIA security triad which encompasses Confidentiality, Integrity, and Availability. As the CIA triad is applied to data security, data integrity is defined as “the property that data has not been changed, destroyed, or lost in an unauthorized or accidental manner.” An attack against data integrity can cause corruption, modification, and/or destruction of the data which ultimately results in a loss in trust in the data.
  • As referenced in media reports, Graphika released a report on a newly discovered Russian disinformation efforts that led to the creation and propagation of propaganda to appeal to the right wing in the United States (U.S.) In “Step into My Parler: Suspected Russian Operation Targeted Far-Right American Users on Platforms Including Gab and Parler, Resembled Recent IRA-Linked Operation that Targeted Progressives,” Graphika explained:
    • Russian operators ran a far-right website and social media accounts that targeted American users with pro-Trump and anti-Biden messaging, according to information from Reuters and Graphika’s investigation. This included the first known Russian activity on the platforms Gab and Parler. The operation appeared connected to a recent Russian website that targeted progressives in America with anti-Biden messaging.
    • The far-right “Newsroom for American and European Based Citizens,” naebc[.]com, pushed the opposite end of the political spectrum from the ostensibly progressive PeaceData site, but the two assets showed such a strong family resemblance that they appear to be two halves of the same operation. Both ran fake editorial personas whose profile pictures were generated by artificial intelligence; both claimed to be young news outlets based in Europe; both made language errors consistent with Russian speakers; both tried to hire freelance writers to provide their content; and, oddly enough, both had names that translate to obscenities in Russian.
    • Reuters first tipped Graphika off to the existence of the NAEBC website and its likely relationship to PeaceData. U.S. law enforcement originally alerted the social media platforms to the existence of PeaceData. On September 1, Facebook attributed PeaceData to “individuals associated with past activity by the Russian Internet Research Agency (IRA).” Twitter attributed it to Russian state actors. Social media platforms (Facebook, Twitter, LinkedIn) have taken similar action to stop activity related to NAEBC on their platforms. To date, Parler and Gab have not taken action on their platforms.
  • The Cybersecurity and Infrastructure Security Agency (CISA) and Multi-State Information Sharing and Analysis Center (MS-ISAC) issued a joint Ransomware Guide “meant to be a one-stop resource for stakeholders on how to be proactive and prevent these attacks from happening and also a detailed approach on how to respond to an attack and best resolve the cyber incident.” The organizations explained:
    • First, the guide focuses on best practices for ransomware prevention, detailing practices that organizations should continuously do to help manage the risk posed by ransomware and other cyber threats. It is intended to enable forward-leaning actions to successfully thwart and confront malicious cyber activity associated with ransomware. Some of the several CISA and MS-ISAC preventive services that are listed are Malicious Domain Blocking and Reporting, regional CISA Cybersecurity Advisors, Phishing Campaign Assessment, and MS-ISAC Security Primers on ransomware variants such as Ryuk.
    • The second part of this guide, response best practices and services, is divided up into three sections: (1) Detection and Analysis, (2) Containment and Eradication, and (3) Recovery and Post-Incident Activity. One of the unique aspects that will significantly help an organization’s leadership as well as IT professional with response is a comprehensive, step-by-step checklist. With many technical details on response actions and lists of CISA and MS-ISAC services available to the incident response team, this part of the guide can enable a methodical, measured and properly managed approach.  
  • The Government Accountability Office (GAO) released a guide on best practices for agile software development for federal agencies and contracting officers. The GAO stated:
    • The federal government spends at least $90 billion annually on information technology (IT) investments. In our January 2019 High Risk List report, GAO reported on 35 high risk areas, including the management of IT acquisitions and operations. While the executive branch has undertaken numerous initiatives to help agencies better manage their IT investments, these programs frequently fail or incur cost overruns and schedule slippages while contributing little to mission-related outcomes.
    • GAO has found that the Office of Management and Budget (OMB) continues to demonstrate its leadership commitment by issuing guidance for covered departments and agencies to implement statutory provisions commonly referred to as Federal Information Technology Acquisition Reform Act (FITARA.) However, application of FITARA at federal agencies has not been fully implemented. For example, as we stated in the 2019 High Risk report, none of the 24 major federal agencies had IT management policies that fully addressed the roles of their Chief Information Officers (CIO) consistent with federal laws and guidance.
    • This Agile Guide is intended to address generally accepted best practices for Agile adoption, execution, and control. In this guide, we use the term best practice to be consistent with the use of the term in GAO’s series of best practices guides.

Further Reading

  • GOP lawmaker: Democrats’ tech proposals will include ‘non-starters for conservatives’” By Cristiano Lima — Politico. Representative Ken Buck (R-CO) is quoted extensively in this article about Republican concerns that the House Judiciary Committee’s antitrust recommendations may include policy changes he and other GOP Members of the committee will not be able to go along with. Things like banning mandatory arbitration clauses and changing evidentiary burdens (i.e. rolling back court decisions that have made antitrust actions harder to mount) are not acceptable to Republicans who apparently agree in the main that large technology companies do indeed have too much market power. Interestingly, Buck and others think the solution is more resources for the Department of Justice and the Federal Trade Commission (FTC), which is rapidly becoming a favored policy prescription for federal privacy legislation, too. However, even with a massive infusion of funding, the agencies could not act in all cases, and, in any event, would need to contend with a more conservative federal judiciary unlikely to change the antitrust precedents that have reduced the ability of these agencies to take action in the first place. Nonetheless, Republicans may join the report if the recommendations are changed. Of course, the top Republican on the committee, Representative Jim Jordan (R-OH), is allegedly pressuring Republicans not to join the report.
  • Why Is Amazon Tracking Opioid Use All Over the United States?” By Lauren Kaori Gurley — Motherboard. The online shopping giant is apparently tracking a range of data related to opioid usage for reasons that are not entirely clear. To be fair, the company tracks all sort of data.
  • As QAnon grew, Facebook and Twitter missed years of warning signs about the conspiracy theory’s violent nature” By Craig Timberg and Elizabeth Dwoskin — The Washington Post. This article traces the history of how Facebook and Twitter opted not to act against QAnon while other platforms like Reddit did, quite possibly contributing the rise and reach of the conspiracy. However, they were afraid of angering some on the right wing given the overlap between some QAnon supports and some Trump supporters.
  • Democratic Party leaders are “banging their head against the wall” after private meetings with Facebook on election misinformation” By Shirin Ghaffary — recode. Democratic officials who have been on calls with Facebook officials are saying the platform is not doing enough to combat disinformation and lies about the election. Facebook, of course, disputes this assessment. Democratic officials are especially concerned about the period between election day and when results are announced and think Facebook is not ready to handle the predicted wave of disinformation.

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

Photo by Bermix Studio on Unsplash

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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Senate Judiciary Hearing On Google

A committee looks at the possible antitrust practices of Google in the adtech market.

The Senate Judiciary Committee’s Antitrust, Competition Policy & Consumer Rights Subcommittee will hold a hearing on 15 September titled “Stacking the Tech: Has Google Harmed Competition in Online Advertising?.” In their press release announcing the hearing, Chair Mike Lee (R-UT) and Ranking Member Amy Klobuchar (D-MN) asserted:

Google is the dominant player in online advertising, a business that accounts for around 85% of its revenues and which allows it to monetize the data it collects through the products it offers for free. Recent consumer complaints and investigations by law enforcement have raised questions about whether Google has acquired or maintained its market power in online advertising in violation of the antitrust laws. News reports indicate this may also be the centerpiece of a forthcoming antitrust lawsuit from the U.S. Department of Justice. This hearing will examine these allegations and provide a forum to assess the most important antitrust investigation of the 21st century.

Chair Mike Lee (R-UT) said the focus of the hearing is Google’s online advertising business and whether it is monopolist or has engaged in any conduct that harms competition and consumers. He said he would discuss antitrust policy more broadly before discussing Google. Lee remarked he has served on the subcommittee for nine years, six of which as chair, and during this period antitrust policy has evolved and a gulf has widened between the two sides of the issue. He claimed there are those who would like to see no antitrust laws at all, while others are overly deferential to speculative efficiencies, quick to dismiss actual evidence of competitive harm when it might conflict with unproven economic theories. Lee argued this end of the spectrum fetishizes freedom even when harm might endanger freedom. He claimed they forget that markets, like governments, do not keep themselves free, and that liberty s only secure when power is diffused.

Lee said at the other extreme is a line of arguments that has been pushing for years an agenda to transform antitrust laws from a tool based in economic science to protect and promote competitive markets into a panacea for all their perceived social ills. He said built on the myopic economic presence that big is bad, which is, to them, the beginning and end of the question, some at this end of the spectrum would use antitrust policy to address labor, racial, and income disparities. Lee conceded these may be laudable goals, but these are not problems antitrust law is meant to solve nor are they goals antitrust law is capable of solving, at least not without creating a host of other problems. He argued that attempts to repurpose antitrust law into a social justice program would have scores of unintended consequences that would cripple the United States’ (U.S.) economy for generations. He noted there is hypocrisy in thinking big is bad only applies to corporations and not to government bureaucracy, the type needed to dismantle large companies and regulate them.

Lee said he is on the side of the American people, the law, and vigorous enforcement of antitrust laws that have made the U.S. the most prosperous nation on earth. He asserted that already enacted laws are, for the most part, sufficient to meet the challenges of the day. Lee reiterated the maxim that liberty is only secure when power is diffused, a principle central to the U.S.’ Constitutional Republic. Lee claimed the concept of federalism, perhaps the greatest contribution of the founding generation, is what makes the U.S. unique among all other nations. He stated this principle applies to economic power as it does to political power. Lee contended that antitrust laws may be properly described as federalism for the economy.

Lee said that hearing is focused on what may prove the seminal antitrust case of the 21st Century that may define the terms of competition and innovation in the U.S.’ dynamic economy for years and decades to come. He said unlike some of his House colleagues, he has no interest in staging a political spectacle to attack, condescend, and talk over witnesses. Lee remarked naïve though it may be in 2020, he said his hope is that by looking at this specific question, the subcommittee can have a serious and frank conversation about the state of competition in digital markets. He declared that online advertising is an incredibly complex business, one that touches every single person on the internet.

Lee explained the technologies that connect publishers and advertisers have evolved rapidly over the last decade, and he expansion of online advertising has facilitated an explosion of online content by allowing even the smallest website owner to monetize the content they produce. He said small and local businesses have also benefitted from being able to quickly and easily promote their businesses without any of the same capital investments that would have been required just a few decades ago. Lee admitted that at the same time, this growth and expansion has been largely consolidated onto a single platform, Google’s online ad business. He said that as business has grown, so, too, have complaints that Google, which operates both the ad selling and ad buying platforms and then sells its own inventory through those platforms has given rise to conflicts of interest and claims it has rigged online ad auction technology to favor its own interests and protect its own market share. Lee said whether this is true or not matters because so many businesses depend upon digital advertising to market their products or to monetize the content they produce. Web users in turn benefit from free online content and being connected to relevant businesses in a way that helps to make optimal business decisions. Lee said, simply put, markets function better when businesses thrive, and consumers are informed. He asserted ideally online advertising helps accomplish this, but, if, on the other hand, online advertising has been monopolized and constrained by opaque pricing and exclusionary conditions, everyone loses to that degree. Lee added that Google and other big tech companies have been accused of other bad acts unrelated to antitrust or competition, and he said he has repeatedly expressed his concern about anti-conservative bias by these firms. He pledged to continue to pursue these concerns but added that while his concerns about anti-conservative bias may have implications for antitrust like market power, today’s hearing is not fundamentally about those concerns.

Ranking Member Amy Klobuchar (D-MN) explained

  • We are not having this hearing because Google is successful. Google is successful. I just used it on my way here. Or because Google is big. That’s not why,from my perspective, we’re having this hearing. We are having it because even successful companies, even popular companies, and even innovative companies are subject to the laws of this country including our antitrust laws. 
  • We are all successful when we make sure that our economy is strong and our economy is working better. But the law can’t be blinded by Google’s success or its past innovations if the company in its zeal to achieve greater success crosses a line into anticompetitive behavior. It’s our job to regulate it. It’s that simple. So we’re going to touch on issues, I hope, today of competition, technological innovation, the use of personal data. These are some of the defining issues, as the chair has said, defining issues of our time and I personally think, as we go into the months to come, this won’t just be about Google. This isn’t even just about the tech industry as much as I believe we need to change our laws and look at monopsonies and look at changing the burdens and making it so that our laws are as sophisticated as the companies that now occupy our economy.

Klobuchar asserted:

  • I think we need to do all that and I think it should be a huge priority going into the year. But right now as the chairman mentioned, we are focused on this issue today. Our society has never been more dependent on this technology than we are now in the midst of this global pandemic. As I noted, not just Google, the pandemic has forced a bunch of small businesses to close their doors and the five largest tech companies continue to thrive to the point where they briefly accounted for nearly 25% value of the entire S&P 500 stock index just a few weeks ago.
  • Again, I don’t quarrel with their success, but we have to start looking at do our laws really match that situation. And even if the original intent when these companies started as start-ups was to be innovative, which they’ve been, at what point do you cross the line so you squelch innovation and competition from other companies? We start with this, the ownership and use of data.
  • The powerful companies that provide us with these technologies are also collecting personal information. We know that. They know who our friends are, they know the books we read, where we live, whether we’ve graduated from college, income levels, race, how many steps we took yesterday. The chairman and I share an interest in this. How long we’ve stayed where we are. Machine learning analyzes troves of personal data, allowing our firms to discern even more sensitive information about us, our medical conditions, political, religious views and even preferences that we don’t even know we have. And why would companies do all of this? Well, put simply, to target us with digital advertisements. There’s really no other reason. It is a capitalist society. That’s what they do.

Klobuchar stated

  • Now, Google makes more money doing that than any company in the world, hands down, by leveraging its unmatched access to consumer data gained through its existing dominance in online and mobile search, mobile operating systems, Android, email, Gmail, online and mobile video, YouTube, browsers, Chrome, mobile mapping apps, Google maps and ad technology.
  • So, this ad technology ecosystem, known as the ad tech stack, consists of advertisers on one side and publishers on the other. So let’s look at these two sides. On the advertising side Google controls access to the huge number of advertisers that place ads on Google search which is nearly 90% of the search market and has unparalleled access to data as I described. On the publisher side, Google has privileged access to ad data to inform its bidding strategies. And then it also effectively controls the process, the ad auction process, that gets an advertiser’s ad to be put on a publisher’s site. Google dominates all the markets for services on both sides of the ad/tech stack, the publisher side and the advertising side, and I hope that will be a lot of our focus today. Research has suggested that Google may be taking between 30 and 70 percent of every advertising dollar spent by advertisers using its services depriving publishers of that revenue. Who are the publishers? They’re content producers. They’re things like the Minneapolis Star Tribune, they depend on revenue, so many of our content producers, our news producers do to get by.  
  • And to me, given that my dad was a journalist, to me this is one of the key elements here because if you have unfairness in how that ad echo system is going, then you’re depriving these news organizations at a time when the first amendment is already under assault of the revenue that they need to keep going. So whether it’s happening, and we don’t know all of the details at the Department of Justice right now, this could be the beginning of a reckoning for our antitrust laws to start looking at how we’re going to grapple with the new kinds of markets that we see across the country. It would help answer the question whether our federal antitrust laws are able to restrain the business conduct of even the largest, most successful companies in the world. When you think of the breakup of AT&T, that was our last big thing that happened in the antitrust area. Really big thing. What did that lead to? Lower prices, more competition. It really worked. But we’re not able to do this right now.
  • And my hope is that we’re getting the start and the Justice Department, that things are going on at the FTC. But to really do that, they’re going to do resources to take on the legions of lawyers at the companies and that’s my first goal. What can we do for enforcement? My second, what do we have to do to make the laws work better, to look at some of the deals that have already been made? The third is what are the remedies? Do they make a difference in changing the behavior and allowing competition? I literally don’t have personal grudges against these companies like sometimes the president has expressed about various companies. I don’t. I just want our capitalist system to work. I want it to work. And to have it work you simply can’t have one company dominating areas of an industry. Our Founding Fathers started this country in part because they were rebelling against monopoly power.

Google Global Partnerships and Corporate Development President Donald Harrison stated

  • Online advertising prices in the U.S. have fallen more than 40% since 2010. According to the Progressive Policy Institute, “for every $3 that an advertiser spends on digital advertising, they would have to spend $5 on print advertising to get the same impact.” As a result, the share of U.S. GDP going to advertising in media has declined roughly 25% in recent years. The benefits of these lower prices ow directly to American businesses and consumers.
  • We help businesses grow from advertising on (1) our own sites, and (2) other publishers’ sites.
    • Advertising on Google sites and apps
    • A wide range of businesses, including many small firms, advertise on our sites and apps like Google Search and YouTube. That’s where we earn the majority of our advertising revenue.
    • We show no ads — and make no money — on the vast majority of searches. We show ads only on a small fraction of searches, typically those with commercial intent, such as searches for “sneakers” or “toaster.” We face intense competition for these types of searches. An estimated 55 percent of Americans start product searches on Amazon, not Google. And many online shoppers use Walmart, eBay, and other sites. For travel searches, many go to Expedia, Kayak, Orbitz, and TripAdvisor. Facebook, Bing, Twitter, Snap, Pinterest, and many more compete with us for a range of commercial advertisements.
    • Advertising on non-Google sites and apps
    • In addition to ads on our own properties, Google also helps businesses advertise on a wide range of other websites and mobile applications, known as “publishers.” We offer technology that (1) helps advertisers buy ad space — known as the “buy side,” and (2) helps publishers sell their ad space — known as the “sell side.” This technology is often referred to as “ad tech.”
    • The ad tech portion of our business accounts for a small fraction of our advertising revenue. And we share the majority of that revenue with publishers. Publishers get paid for every impression — each time an ad is viewed — even if the ad is never clicked. Of the revenue we retain, a large portion goes to defray the costs of running this complex and evolving business.
  • A crowded and competitive ad tech ecosystem
    • The ad tech space is crowded and competitive. Thousands of companies, large and small, work together and in competition with each other, each with different specialties and technologies. We compete with Adobe, Amazon, AT&T, Comcast, Facebook, News Corporation, Oracle, and Verizon, as well as leaders like Index Exchange, Magnite, MediaMath, OpenX, The Trade Desk, and many more.
  • Google shares billions of dollars with publishers, more than the industry average.
    • Even as online ad prices and ad tech fees have fallen, benefiting businesses and consumers, Google has helped publishers make more money from ads. In 2018, we paid more than $14 billion to the publishing partners in our ad network — up from $10 billion in 2015.
    • In 2019, when both advertisers and publishers used our tools, publishers kept over 69 percent of the ad revenue — more than the industry average. And when publishers use our tools to sell directly to advertisers, they keep even more of the revenue.

Chalice Custom Algorithms Chief Executive Officer Adam Heimlich contended

  • In 2016, Google combined search and display data, breaking a promise made to American regulators. Google also broke the industry’s privacy standard by linking consumers’ names, from Gmail, to the ID numbers assigned to browsers for exchange transactions.
  • Continuously, from 2016, Google came up with new ways to pollute the exchange ecosystem they’d previously seemed to embrace. Pollution came in the form of restrictions and exclusions that made the open web less efficient for buyers and sellers.
  • Google took YouTube, Google’s most valuable display property, off the exchanges, while making it available through an exclusive “pipe” from Google’s exchange bidder. Google excluded data providers from its websites and measurement partners from its platforms. Google’s selling platform denied publishers’ demand for a unified, exchange- vs-exchange action. To keep publishers from getting rid of Google’s software, Google funnels exclusive display demand from its search platform through it. Google weaponized new privacy laws to restrict advertisers’ and publishers’ access to their own ad data in Google tools.
  • Google tightened ties among its products until the shady broker was no longer one among a set of competitors: Google became the only display company not hobbled by the exclusions and restrictions it’d placed on everyone else. The power to interoperate among buy-side, sell-side and measurement software went from being a feature of the exchange ecosystem to a capability exclusive to Google.
  • Now, progress on innovation is squeezed to the margins of the industry, and new adtech is rare. The majority of advertisers have stagnated or regressed.
  • There’s more at stake than most people realize. The more efficient the ad market, the more likely it is that superior new products will find customers and thrive. When the ad exchanges function properly, the size advantage from flooding the airwaves is offset by quieter voices speaking directly to whoever’s most open to any given improvement. It tilts the incentives of every business toward innovation.
  • Google is dominating display by breaking interoperability and subtracting the efficiencies of a symmetrical market. Pre-2016, under intense competitive pressure, ad exchanges were becoming more transparent and privacy-respectful as the ecosystem grew. Google could have coped with these developments without using its market power destructively: There was nothing to stop Google from exiting the arena or competing within its open standards. Whether or not Google competes with other big tech firms is irrelevant to the harms they’ve caused publishers, measurement companies, platforms and small businesses like mine in the ~$50B open web display market.
  • It was efficient when publishers, platforms, measurement tools and service providers all interoperated. Innovators of a great new product or service could access a global marketplace of thousands of buyers and sellers quickly at low cost. Small businesses with great ideas had a shorter ramp to success.
  • Now, funding for new adtech startups has been drying up and the pace of innovation slowed down. The number-one concern I hear from potential investors is Google’s domination of the market my company operates in. For years, they’ve been breaking existing efficiencies and preventing the development of new ones.
  • Many expect Google to successfully mislead regulators about its conduct in the open web, and its harmful effects. I’m grateful for the opportunity to help scrutinize Google’s claims. For the sake of competition, the innovation competition drives and the benefits innovation brings, Google should be forced to either exit the ad exchange market or compete within its open standards.

Omidyar Network Beneficial Technology Senior Advisor David Dinielli stated

  • [U]nder current law, there is a strong case to be made that Google has illegally monopolized, or illegally maintained a monopoly in, the market for digital advertising on what is termed the “open web,” i.e., advertising that appears on websites as users traverse the internet.
  • Through a variety of conduct described herein, Google now occupies every layer the “ad tech stack”—a term that describes the various functions that serve to match website publishers with the advertisers who seek to deliver targeted ads to consumers who are viewing those websites. In antitrust parlance, website publishers provide the “supply” of ad space, and advertisers create the “demand” for that space. The market for this sort of advertising is unique and appears on its face dysfunctional from an antitrust standpoint: Google—through its various ad tech tools – represents both the suppliers and the purchasers and also conducts the real-time auctions that match buyers and sellers and determine the price. Moreover, Google appears to have engaged in a multitude of anti-competitive acts, such as making the ad space on YouTube (which it owns) available exclusively through its own ad tech tools, that were designed to cement its lock on this market and exclude competitors. As my co-author and I said in a recent paper about the digital advertising market, “all roads lead through Google.”
  • Google has asserted that the digital advertising market is vibrant and competitive, and that publishers and advertisers have many options in buying and selling advertising space. Of course, it is not surprising that there are other some other actors in this market, given the significant profits to be made. But a recent report from the United Kingdom’s Competition and Markets Authority (“CMA”) explained, based on an extensive factual investigation, that Google holds a dominant position—as high as 90%—in every layer of the ad tech stack. Moreover, a monopolization case in the U.S. does not require proof that the alleged monopolist hold 100% of a particular market—which would make it literally a monopolist—but rather that it has “monopoly power” and that it has engaged in anticompetitive conduct to obtain or maintain that power rather than competing on the merits. Google’s conduct as described herein surely fits that standard.
  • Digital advertising is complex and the tools and processes that allow for near- instantaneous placement of ads every time we open a web page can seem opaque. But the consequences of unchecked power in this market are significant. If advertisers are paying higher prices than would obtain in a well-functioning market, economic theory teaches that those higher advertising prices will be passed down to consumers in the form of increased prices for goods and services. If website publishers, such as local news outlets, are being paid less than they should for their supply of advertising space, they will invest less in content creation and news gathering. Google is the winner and the rest of us are the losers. This committee therefore is right in investigating if current antitrust law is up to the task of ensuring competition in digital advertising and exploring possible legislative fixes if it is not.

Netchoice Vice President and General Counsel Carl Szabo stated

  • Among the many Google products and services that consumers love are Google Search, YouTube, Gmail, and Google Drive—all amazingly useful, and all free. To many critics of “Big Tech,” however, when consumers enthusiastically choose these free-of-charge products, it amounts to proof that something must be wrong. Every successful new service or product that proves a winner with consumers is deemed by these critics to be just another antitrust violation.
  • But Google’s greatest successes are being won in markets with the greatest competition. In the digital ads market, for example, Google faces fierce competitive pressure. You would never know that listening to the critics.
  • For starters, Google is no monopoly. It’s wildly popular with consumers, yes. And true, it’s also very popular with investors. But the company faces competition from all corners, including from other tech platforms such as Facebook and Amazon (which are simultaneously and thus illogically also dubbed monopolies).
  • Far from being evidence of any unlawful conduct, Google’s success under these conditions offers abundant proof that it is meeting and exceeding the fundamental test that has been the bedrock of antitrust law for the last 40 decades: are consumers benefitting? There can be little doubt on this point, for Google’s users vote daily with their choices. In order to dismiss this as irrelevant, the critics are now arguing that antitrust enforcement should simply abandon the consumer welfare standard, enabling them to attack “bigness” per se. This would undermine the very purpose of antitrust law since its inception more than a century ago.

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

Photo by Morning Brew on Unsplash

Epic Games/Apple Suit

A major game developer is taking on Apple over its App Store’s take of 30% of in-app purchases. Antitrust regulators will be paying keen attention.  

In a case sure to be watched closely by antitrust regulators in the United States, European Union, and elsewhere, a major video games developer is suing Apple for its App Store practices. The litigation was sparked after Epic Games tried to get its users to make in app purchases aside and apart from the app downloaded from the Apple Store, for Apple is entitled to as much as 30% of such sales under its terms of services. Apple swiftly removed Epic Games’ Fortnite, claiming a violation of its terms of service, and Google quietly followed suit by removing the multiplayer game from the Play Store.

In its complaint filed in federal court in California, Epic Games is arguing that Apple’s practices violate federal and California antitrust and anti-competition laws. Epic Games argued

  • This case concerns Apple’s use of a series of anti-competitive restraints and monopolistic practices in markets for (i) the distribution of software applications (“apps”) to users of mobile computing devices like smartphones and tablets, and (ii) the processing of consumers’ payments for digital content used within iOS mobile apps(“in-app content”). Apple imposes unreasonable and unlawful restraints to completely monopolize both markets and prevent software developers from reaching the over one billion users of its mobile devices (e.g., iPhone and iPad) unless they go through a single store controlled by Apple, the App Store, where Apple exacts an oppressive 30% tax on the sale of every app. Apple also requires software developers who wish to sell digital in-app content to those consumers to use a single payment processing option offered by Apple, In-App Purchase, which likewise carries a 30% tax.
  • In contrast, software developers can make their products available to users of an Apple personal computer (e.g., Mac or MacBook) in an open market, through a variety of stores or even through direct downloads from a developer’s website, with a variety of payment options and competitive processing fees that average 3%, a full ten times lower than the exorbitant 30% fees Apple applies to its mobile device in-app purchases.

Of note, Epic Games is not suing Apple for monetary damages, which may be a shrewd public relations strategy. Instead the company is seeking an injunction against Apple to end what it calls Apple’s monopolistic practices in its App Store:

  • Epic brings this suit to end Apple’s unfair and anti-competitive actions that Apple undertakes to unlawfully maintain its monopoly in two distinct, multibillion dollar markets: (i) the iOS App Distribution Market, and (ii) the iOS In-App Payment Processing Market (each as defined below).
  • Epic is not seeking monetary compensation from this Court for the injuries it has suffered. Nor is Epic seeking favorable treatment for itself, a single company. Instead, Epic is seeking injunctive relief to allow fair competition in these two key markets that directly affect hundreds of millions of consumers and tens of thousands, if not more, of third-party app developers.

Apple is facing an antirust investigation in the European Union for substantially the same conduct Epic Games has sued the company for. In June 2020, the European Commission (EC) announced two antitrust investigations of Apple regarding allegations of unfair and anticompetitive practices with its App Store and Apple Pay. These investigations precede those in the United States by federal and state governments of Apple, Facebook, Google, and Amazon.

In a press release, the EC announced it “has opened a formal antitrust investigation to assess whether Apple’s conduct in connection with Apple Pay violates EU competition rules…[that] concerns Apple’s terms, conditions and other measures for integrating Apple Pay in merchant apps and websites on iPhones and iPads, Apple’s limitation of access to the Near Field Communication (NFC) functionality (“tap and go”) on iPhones for payments in stores, and alleged refusals of access to Apple Pay.” The EC noted that “[f]ollowing a preliminary investigation, the Commission has concerns that Apple’s terms, conditions, and other measures related to the integration of Apple Pay for the purchase of goods and services on merchant apps and websites on iOS/iPadOS devices may distort competition and reduce choice and innovation.” The EC contended “Apple Pay is the only mobile payment solution that may access the NFC “tap and go” technology embedded on iOS mobile devices for payments in stores.” The EC revealed “[t]he investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices” and “will investigate the possible impact of Apple’s practices on competition in providing mobile payments solutions.”

In a press release issued the same day, the EC explained it had also “opened formal antitrust investigations to assess whether Apple’s rules for app developers on the distribution of apps via the App Store violate EU competition rules.” The EC said “[t]he investigations concern in particular the mandatory use of Apple’s own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.” The EC added “[t]he investigations concern the application of these rules to all apps, which compete with Apple’s own apps and services in the European Economic Area (EEA)…[and] [t]he investigations follow-up on separate complaints by Spotify and by an e-book/audiobook distributor on the impact of the App Store rules on competition in music streaming and e-books/audiobooks.”

The EC provided further detail on the scope of its inquiry and “will investigate in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices:

(i)   The mandatory use of Apple’s own proprietary in-app purchase system “IAP” for the distribution of paid digital content. Apple charges app developers a 30% commission on all subscription fees through IAP.

(ii)  Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps. While Apple allows users to consume content such as music, e-books and audiobooks purchased elsewhere (e.g. on the website of the app developer) also in the app, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper.

The EC explained the genesis of part of this inquiry being allegations leveled by Swedish music streaming platform, Spotify. The EC stated “[o]n 11 March 2019, music streaming provider and competitor of Apple Music, Spotify, filed a complaint about the two rules in Apple’s license agreements with developers and the associated App Store Review Guidelines, and their impact on competition for music streaming services.” The EC explained the other part as “[o]n 5 March 2020, an e-book and audiobook distributor, also filed a complaint against Apple, which competes with the complainant through its Apple Books app.” The EC asserted “[t]his complaint raises similar concerns to those under investigation in the Spotify case but with regard to the distribution of e-books and audiobooks.”

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

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Qualcomm Wins On Appeal

An appeals court reverses an FTC antitrust action brought at the end of the Obama Administration against a U.S. chip manufacturing giant that will likely play a major role in 5G.

A United States appeals court overturned an antitrust decision the Federal Trade Commission (FTC) won against chip manufacturer Qualcomm in mid-2019 with possible ramifications in the 5G market as the company is one of the leading producers of technology that will likely be vital in the next generation of wireless communications.. At present, the FTC is considering whether it will appeal the decision, but it lacks the support of the other agency charged with enforcing federal antitrust and anti-competitive laws.

This decision comes at a time when many in both parties in Washington are pressing the FTC and United States (U.S.) Department of Justice (DOJ) to enforce U.S. antitrust and competition laws, particularly in the technology sector which is perceived as being dominated by a handful of huge firms. So, whether the FTC appeals will be informed by the political dimension as the Commission will surely receive inquiries and pressure to proceed and will need to explain why they did not if that course is chosen.

The United States (U.S.) Court Of Appeals for The Ninth Circuit (Ninth Circuit) reversed a U.S. District Court’s decision that Qualcomm’s licensing practices violated the Sherman Antitrust Act. Specifically, the lower court held these practices “have strangled competition in the Code Division Multiple Access (CDMA) and premium Long-Term Evolution (LTE) modem chip markets for years, and harmed rivals, original equipment manufacturers (OEMs), and end consumers in the process.” Consequently, the court found “an unreasonable restraint of trade under § 1 of the Sherman Act and exclusionary conduct under § 2 of the Sherman Act….and that Qualcomm is liable under the FTC Act, as “unfair methods of competition” under the FTC Act include “violations of the Sherman Act.”

However, the Ninth Circuit disagreed, overturned the district court and summarized its decision:

  • [We] began by examining the district court’s conclusion that Qualcomm had an antitrust duty to license its standard essential patents (SEPs) to its direct competitors in the modern chip markets pursuant to the exception outlined in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). [We] held that none of the required elements for the Aspen Skiing exception were present, and the district court erred in holding that Qualcomm was under an antitrust duty to license rival chip manufacturers. [We] held that Qualcomm’s OEM-level licensing policy, however novel, was not an anticompetitive violation of the Sherman Act.
  • [We] rejected the FTC’s contention that even though Qualcomm was not subject to an antitrust duty to deal under Aspen Skiing, Qualcomm nevertheless engaged in anticompetitive conduct in violation of § 2 of the Sherman Act. [We] held that the FTC did not satisfactorily explain how Qualcomm’s alleged breach of its contractual commitment itself impaired the opportunities of rivals. Because the FTC did not meet its initial burden under the rule of reason framework, [We were] less critical of Qualcomm’s procompetitive justifications for its OEM-level licensing policy—which, in any case, appeared to be reasonable and consistent with current industry practice. [We] concluded that to the extent Qualcomm breached any of its fair, reasonable, and nondiscriminatory (FRAND) commitments, the remedy for such a breach was in contract or tort law.

The Ninth Circuit noted that it stayed the district court’s decision pending the outcome of the appeal and remarked “we  characterized  the  district court’s order and injunction as either “a trailblazing application of the antitrust laws” or “an improper excursion beyond the outer limits of the Sherman Act.” The Ninth Circuit ultimately held “the district court went beyond the scope of the Sherman Act.” The Ninth Circuit explained

Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not. Qualcomm has exercised market dominance in the 3G and 4G cellular modem chip markets for many years, and its business practices have played a powerful and disruptive role in those markets, as well as in the broader cellular services and technology markets. The company has asserted its economic muscle “with vigor, imagination, devotion, and ingenuity.” Topco Assocs., 405 U.S. at 610. It has also “acted with sharp elbows—as businesses often do.” Tension Envelope Corp. Our job is not to condone or punish Qualcomm for its success, but rather to assess whether the FTC has met its burden under the rule of reason to show that Qualcomm’s practices have crossed the line to “conduct which unfairly tends to destroy competition itself.” Spectrum Sports, 506 U.S. at 458. We conclude that the FTC has not met its burden.

The decision represents an obvious setback for the FTC, an agency trying to more actively enforce antitrust law. At the very end of the Obama Administration in January 2017, the FTC had claimed “that Qualcomm has harmed competition in two markets for baseband processors, also called modem chips, through a set of interrelated Qualcomm practices.” The FTC “filed a complaint in federal district court charging Qualcomm Inc. with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products” according to its press release. The FTC alleged “that Qualcomm has used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.”

One of the three sitting FTC Commissioners filed a dissent in which she argued

I  face  an  extraordinary  situation:  an  enforcement  action  based  on  a  flawed  legal  theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide. These extreme circumstances compel me to voice my objections.

The DOJ took the extraordinary step of arguing against its sister agency before the Ninth Circuit in support of barring the district court’s injunction against Qualcomm:

The district court’s ruling threatens competition, innovation, and national security. Its liability determination misapplied Supreme Court precedent, and its remedy is unprecedented. Immediate implementation of the remedy could put our nation’s security at risk, potentially undermining U.S. leadership in 5G technology and standard-setting, which is vital to military readiness and other critical national interests.

According to one media outlet, this was the first instance the DOJ had filed a brief arguing against the FTC in an antitrust case.

© Michael Kans, Michael Kans Blog and, 2019-2020. 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 with appropriate and specific direction to the original content.

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