At an exclusive American Bar Association retreat in Jackson Hole, Wyo., last week, 300 antitrust experts and academics squeezed into a conference room at a private resort to get the latest on what has become a daily topic in legal circles.
The featured speaker, Makan Delrahim, head of the U.S. Justice Department’s Antitrust Division, acknowledged an “open investigation in tech,” but said he was prohibited from sharing details of an ongoing investigation, an attorney who attended the speech told MarketWatch.
The substance of the speech left many wanting more, especially with reports of tension between the Department of Justice and Federal Trade Commission over the handling of the case. For now, the FTC is looking at Facebook Inc. and Amazon.com Inc., while the Justice Department is handling Alphabet Inc.’s Google and Apple Inc.
On Tuesday, the legal community got much more from Delrahim. Speaking at a technology policy conference in Colorado, he said the Justice Department is working with a group of state attorneys general to investigate Big Tech’s impact on innovation and pricing, among other areas. His pronouncement came a day after a report that unidentified state AGs are preparing a joint antitrust investigation of the four companies as early as next month.
“Big tech platforms aren’t going to regulate themselves,” Rep. David Cicilline, D-R.I., a vocal critic of the industry, said in a statement Tuesday. “I’m pleased that several state attorneys general are now conducting their own investigation into the dominance of these firms.”
Such is the state of affairs in the antitrust community, where Big Tech is at the top of their minds. The topic seems inescapable amid a crush of news that has surfaced in recent days for three of the four companies, highlighting the growing shadow of antitrust actions on how they conduct business. The developments are daily reminders of the hostile political climate big tech finds itself in these days.
recently stepped away from a possible buyout amid growing regulatory interest in its acquisitions strategy. Amazon
has been accused of squeezing sellers who offer better prices on Wal-Mart. Apple
is being investigated in Russia for its business practices on its App Store, mirroring a similar complaint in a class-action lawsuit in the U.S. For Alphabet’s
Google, the story arc goes full circle to its dominance in search, already the subject of probes in the U.S. and Europe.
“Everything is being scrutinized through the lens of antitrust; the threat of enforcement has each company considering their business practices,” Mitch Stoltz, senior staff attorney for the Electronic Frontier Foundation, told MarketWatch in a phone interview. He is one of a dozen academics and antitrust experts who assessed the most-vulnerable threats all four companies face from federal regulators and antitrust investigators.
The calculus is further complicated by the monetization of customer data, a key strategy behind the revenue success of Facebook and Google, each of whom has billions of members on their various digital properties. “The underlying theme for antitrust action is: Are consumers hurt, and how are they hurt?” says Eleanor Fox, a professor of trade regulation at New York University School of Law. “With the possible exception of the Apple App Store, consumers are not impacted by higher prices. There could be an indirect cost to consumers, however, if the data gleaned from them by big tech companies has appreciable value.”
Based on interviews with antitrust experts and a constantly evolving news cycle, MarketWatch assessed the biggest worries companies face.
As iPhone sales cool and Apple increasingly relies on its thriving Services division to carry the financial load, the importance of its App Store intensifies. That makes a class-action lawsuit alleging overcharging by Apple and favoritism toward its apps all the more important. The U.S. Supreme Court decided in May to let consumers move forward with the long-running suit that claims Apple used its market dominance to inflate prices via a 30% commission at its App Store. The company’s tactics with the App Store makes it susceptible to regulatory action, antitrust experts contend.
The scrutiny extends overseas, where no action by big tech seems to go unnoticed. Russia’s anti-monopoly watchdog, Watchdog FAS, last week said it was investigating Apple for declining an application of a parental control app from Kaspersky Lab called Safe Kids on Apple’s Operating System. Apple offers a similar app called Screen Time. Kaspersky claims the move caused a significant reduction in its functionality and amounts to an anti-competitive move by Apple. In April, Apple said it removed several parental control apps from its App Store because they “put users’ privacy and security at risk.”
What Apple has allegedly done with its App Store is what landed United Airlines Holdings Inc.
and American Airlines Group Inc.
in hot water with Congress in the early 1980s, Mark McCareins, a professor at Northwestern University’s Kellogg School of Management who practiced antitrust law for more than 30 years, told MarketWatch in a phone interview.
Both airlines operated proprietary computerized reservation systems to search and book travel, leading to charges their flights appeared more prominently in search results. The U.S. government eventually outlawed “screen bias” in 1984 though travel systems remain in existence. None are majority-owned by the airlines now, however.
Facebook recently scotched a potential acquisition of video-based social network Houseparty out of concern it would “draw unwelcome federal government scrutiny,” according to a report this week in the New York Times. The deal unraveled about the same time the FTC began escalating its probe into Facebook’s acquisitions, the report said.
The social-media company’s aggressive mergers and acquisition history has made it the most susceptible of the four companies to antitrust violations, says Fox. It has snapped up 92 companies since 2007, based on research by Columbia University professor Tim Wu that was cited in a Congressional hearing on big tech business practices in July.
A focus of investigators, they say, is the purchase of Onavo Mobile Ltd. in 2013. Facebook used Onavo’s behavior-tracking technology to find and target fast-growing companies, which led to the $19 billion acquisition of WhatsApp in 2014. Documents released last year by U.K. lawmakers confirmed the importance of Onavo in Facebook’s plans. Onavo was eventually shuttered.
Matt Perault, Facebook’s director of public policy, told a House antitrust subcommittee last month that the company’s acquisitions have sparked innovation and added firms of complementary strengths to the company’s platform.
Amazon’s prodigious retail operation has trampled overrun book sellers, consumer electronics stores, distributors of health and beauty products, and department stores, to name a few, but because it doesn’t dominate any particular market, it isn’t likely to feel the sting of U.S. regulators, UBS analyst Eric Sheridan said in a June 17 note.
That perception may be changing, however, in light of a Bloomberg report that sellers on Amazon’s Marketplace are facing pressure to raise their prices on competing platforms like Wal-Mart Inc.
and eBay Inc.
Merchants who offer their products for lower prices on non-Amazon platforms have been told they may lose promotional benefits like Prime Shipping, higher placement in search results, and access to “buy now” buttons because of the difference in price. The implicit threat, Fox says, is potentially anti-competitive.
It’s the kind of hard ball tactic that, if true, draws the attention of regulators for “predatory pricing,” says Abraham Wickelgren, law professor at University of Texas.
In a statement to MarketWatch, Amazon spokesman Jack Evans said, “Amazon works hard to keep prices low for both customers and sellers. We have very competitive fees for sellers and we make significant investments on their behalf to continually improve our store and empower their businesses. Sellers have full control of their own prices both on and off Amazon, and we help them maximize their sales in our store by providing them insights on how to be the featured offer.”
“It is interesting to think about whether online is a separate channel from offline,” Avery Gardiner, senior fellow for competition, data, and power at the Center for Democracy & Technology, told MarketWatch. “Consumers can buy phones at Apple Stores, at wireless carrier stores, at Best Buy, and on Amazon. Does Amazon have market power in selling such devices? If Amazon raised the price of phones by 5% to 10% (the so-called SSNIP test, or small but significant non-transitory increase in price), would consumers switch to other outlets to defeat an attempt to raise prices?”
Proving monopolization of e-commerce, however, is hard, Nick Economides, an economics professor at New York University’s Stern School of Business, told MarketWatch in an interview. Federal prosecutions, with the exception of the years-long Microsoft Corp.
case, are rare. It was settled in 2001.
Google has not been in the news of late for anti-competitive reasons but it remains in the cross-hairs of U.S. and European regulators, particularly the latter.
Since 2017, the European Commission has fined Google guilty more than $9 billion for anti-competitive acts, most recently $1.7 billion for “abusive” online ad strategies that broke the EU’s antitrust rules. Regulators concluded that the search and advertising giant abused its market dominance by preventing or limiting its rivals from working with companies that had deals with Google.
U.S. regulators haven’t been nearly as vigilant. An antitrust investigation by the FTC was closed without penalties in 2013, reflecting a “non-interventionist, laissez faire” approach by domestic investigators, says NYU’s Fox.
The question remains, Wickelgren contends, if Google is using the algorithms of its powerhouse search engine which commands up to 90% of the market to gain leverage in an adjacent market, such as a search vertical.
Google’s long record of acquisitions that have extended its influence far beyond search and social media and into artificial intelligence, robotics, and renewable energy, may prove another path for regulators. The Silicon Valley behemoth has devoured 270 acquisitions, according to Columbia’s Wu. Only one deal, its 2010 acquisition of travel search firm ITA, was challenged by the federal government, though it was conditionally approved.
“The FTC said a few months ago that it planned to look at past mergers,” says Gardiner, who served in the antitrust division of the Justice Department as a trial attorney and counsel from 2005-8. “It is an interesting question on merger activity — is it motivated by a desire to get new capabilities or into new markets, or is because a company fears an upstart rival and wants to take it out?
“There are probably emails and PowerPoints in the hands of the business development teams and executives of all the tech giants that would help answer those questions, and the agencies certainly have the power to subpoena those emails and see what is there.”