Reports that the US Department of Justice (DOJ) and Federal Trade Commission are launching antitrust investigations into Google, Facebook, Amazon and Apple shook the industry when they were first reported last month. The two bodies have reportedly split the four companies between them, with the FTC taking charge of Amazon and Facebook, while the DOJ will look into Apple and Google.
At this point the DOJ and FTC aren’t publicly disclosing anything about the investigations, but we do have some clues about how they approach they might take from a speech delivered by Makan Delrahim, assistant attorney general for the Antitrust Division of the DOJ, at the Antitrust New Frontiers Conference last month.
Significantly, Delrahim said that despite calls for reforms to US antitrust laws, existing laws are sufficient to deal with the digital market.
He gave examples of the types of conduct which would be liable to be investigated. These include:
- coordinated conduct between competing companies which create or enhance market power;
- exclusivity, where a company forces its customers to buy exclusively from it or its suppliers to sell exclusively to it;
- and acquisitions of early stage companies which substantially lessen competition.
Delrahim also noted that actions and practices wouldn’t be judged only by their impact on prices for consumers. “Where competition is harmed, consumers and markets lose with higher prices, lower quality, lower rate of innovation, less free speech, and even lower privacy protections,” he said. “Protecting competition means protecting all of those dimensions of competition.”
Still Early Stages
This may all sound promising to those who would like to see action taken against Google, Amazon, Facebook and Amazon (GAFA), and worrying to those who would rather see them left alone. But given the lack of official information from the two agencies, what should we realistically expect to come out of the investigations?
Three leading antitrust experts VAN spoke to emphasised that it’s still very early days, and that we shouldn’t read too much into what we’ve heard so far. George A. Hay, a senior professor of Law at Cornell Law School who has previously worked for the DOJ’s Antitrust Division, noted that “all we have so far is an indication that the DOJ and FTC have decided to look carefully at Google, Facebook, Apple and Amazon. This is very preliminary and does not indicate that any kind of case (or cases) is imminent.”
Eleanor M. Fox, professor of trade regulation at New York University School of Law, agreed. “The fact that the agencies have divided up responsibilities on GAFA says nothing about whether positive antitrust action is likely,” she said. She added that the early stages of the investigation will likely involve interviewing as many people as possible and gathering facts, after which the two agencies will decide whether they want to take the investigations any further.
Professor Hay added that it’s significant that none of the four companies have been successfully pulled up by private antitrust cases yet. “Everything these companies do is essentially public knowledge, including knowledge by many well-informed observers in the private sector,” he said. “Moreover, much more so than the UK or EU, we have a very robust system of private enforcement in the U.S. So if there were an obvious violation by one of those companies, one would have expected private antitrust cases by now.”
What Might Regulators Be Interested In?
That’s not to say we should expect nothing from these investigations either – the two agencies wouldn’t be wasting resources investigating the four companies if there was no chance they’d file a case against any of them. Professor Hay said that pressure from Congress and the public will mean that the DOJ and FTC will be scrutinising the companies actions particularly carefully. But where are they most likely to find fault?
Dina Srinivasan, author of ‘The Antitrust Case Against Facebook’, believes Google and Facebook are most likely to have cases against them, saying that both have “a long list of conduct that is suspect under U.S. antitrust laws”.
“One of the things they could look at is how Google forced marketers to license Google’s bidder in order to purchase YouTube inventory,” she said. “This can be viewed as a type of illegal tying or bundling.”
Srinivasan also expects, in line with what Delrahim said in his speech, that practices around consumer privacy and tracking will come under scrutiny.
M&A the Most Likely Weak Point
Professor Hay believes that acquisitions completed by the four companies over the years are most likely to be put in the spotlight. “I’m always fascinated to read about the apps that young people are using and realising that those companies have been bought up by one of the majors,” he said. “While it’s not obvious that those acquisitions were illegal, I expect some post-hoc regret that some of them were allowed to happen.”
In the case of acquisitions, it’s sometimes difficult to identify an aggrieved party after the acquisition has taken place, which therefore leads to few private antitrust cases being taken. But the fact it’s difficult doesn’t mean they’ll necessarily escape the scrutiny of investigators. Facebook’s acquisition of Instagram and WhatsApp, or Google’s buyouts of YouTube or DoubleClick could be some of the cases that are reviewed.
But Hay said this doesn’t mean we should necessarily expect a break-up or forced divestment of these companies. “Whether anything can be done about the past is a different question,” he said. “But I expect much closer scrutiny going forward.”
Professor Fox meanwhile noted the importance of the different agencies taking up the various cases for different companies. The FTC and DOJ aren’t interchangeable and serve different functions.
If the DOJ moves forward on Google or Apple, it would be under the Sherman Antitrust Act, an 1890 law that prohibits anti-competitive agreements and conduct that attempts to monopolise a market.
The law certainly has teeth. It was the basis for United States v. AT&T Co, a case which resulted in the breakup of AT&T, and for United States v Microsoft Corp., which forced Microsoft to open up its APIs to third parties.
But Fox said that the Supreme Court has tended to be very conservative in its interpretation of the Sherman Act. “It puts the government to a demanding burden of proof that the firm has monopoly power and that it has engaged in conduct that should be prohibited,” she said.
Whereas the FTC, which is currently investigating Facebook and Amazon, enforces the Federal Trade Commission Act, which Fox says is more flexible than the Sherman Act. The Federal Trade Commission Act covers a lot of the same ground as the Sherman Act, but also bans “unfair methods of competition” and “unfair or deceptive acts or practices”. This means it covers practices which harm competition, but don’t necessarily fit into the specific categories prohibited by the Sherman Act.
But Fox believes that the Commission’s membership reduces the likelihood of action being taken. Three of the five commissioners would need to agree that one of the companies has behaved anti-competitively, and there is currently an ideological split among the commissioners. The Commission is made up of three Republicans and two Democrats, and has tended to split along party lines.
These divisions became to light following an FTC investigation into Facebook’s handling of consumer data following the Cambridge Analytica scandal (the FTC deals with more than issues relating to antitrust). No settlement amount has been agreed as the two Democrat members believed the settlement didn’t go far enough. However, Joseph J. Simons, the Republican chairman, has spoken publicly about his desire for a more bipartisan approach in the future. Facebook say they have set aside $3 billion for the anticipated fine.
Heavier Global Oversight
While those VAN spoke with had different expectations about where the two agencies might find fault, the consensus seems to be that we are still very much in the early stages and we shouldn’t expect anything major to happen until we hear it from the DOJ or FTC themselves.
But the investigations are still significant. They show there is a growing willingness from US watchdogs to at least scrutinise the tech giants’ business practices, and they fit into the wider global trend of governments and regulators tightening their oversight of GAFA. Just last week the UK’s Competition and Markets Authority announced a formal investigation into whether the digital advertising market is being distorted by the tech giants, and across Europe regulators are gearing up for action. Whether “GAFA” are broken up or not, their every action will certainly be monitored closely going forward.