Competition law & digital technology companies

Justice Department attorneys announce antitrust suit against Apple, March 2024.

Antitrust  (competition) lawsuits are under way in the US against two kinds of digital technology companies: companies that sell products (Amazon,  Apple and Microsoft) and social media companies that provide a free service (such as Facebook &  Google) while selling advertising.

The size of these companies seems incredible. 

Apple, Amazon,  Facebook (Meta), Google (Alphabet) and Microsoft have mushroomed into gigantic corporations over the past decades. Microsoft has the highest market capitalization (stock value) of any company on earth,  at $3.07 trillion, just ahead of the entire Gross Domestic Product of France (at $3.05 trillion). Amazon and Google are around 1.97 Trillion (with a “t”). Facebook is at 1.28 trillion and Apple is  at 2.67 trillion.  These corporations are far ahead of most of the world’s economies  (See GDP country rankings).

How did they get so big, so quickly?  They have engaged in monopolistic practices that are illegal and unethical, according to the US Dept. of Justice and the Federal Trade Commission.

US v Apple, 2024

In one of the largest antitrust suits against the computer and IT industries to date, the Justice Department announced on March 21, 2024  a lawsuit against Apple Inc. for  “monopolizing smartphones.”   The allegation is that Apple’s exclusionary conduct makes it harder for Americans to switch smartphones, undermines innovation, and imposes extraordinary costs on developers, businesses, and consumers.  Apple’s efforts “smothered an entire industry” said assistant attorney general Lisa Monaco.

Apple spokesperson Fred Sainz said: “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.”

US v Amazon, 2023    

The Federal Trade Commission sued Amazon in September, 2023,  alleging that the online retail and technology company “is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.”  The FTC says Amazon’s actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon.

Market concentration

Business insider, 2019

A small number of corporations  – Amazon, Alphabet (Google),  Apple,  Meta (Facebook,) and Microsoft in the US and Europe, alongside Alibaba, Baidu, Huawei, Tencent, WeChat and ZTE –  account for 90% of all digital revenue and profits.  Tech giants and their control over the market needs to be understood within the context of competition laws.     

New approaches to antitrust law needed 

Facebook and Google occupy an unprecedented political role, argues Zephyr Teachout  in a 2021 article in the Atlantic.

The closest we’ve come in America is the telegraph monopoly in the late 19th century, when the Associated Press and Western Union joined forces to control both news and the network through which it traveled.

Facebook and Google are each like that monopoly, but combined with the surveillance regimes of authoritarian states, and the addiction business model of cigarettes. Not only do they control discourse, surveil citizens, and make money from incentivizing paranoia, hatred, and lies; they also make money by keeping the public addicted to their services.,,

They want to be perceived as neutral platforms, while also being perceived as civically responsible, while also maximizing surveillance and the targeting of ads. That’s impossible—so the government has to force them to choose a new business model; or, rather, it has to choose for them.

In July, 2022, the House Judiciary Committee published a final report saying that  Google, Apple, Amazon and Facebook “have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”  By  controlling access to markets, the report said:

… these giants can pick winners and losers throughout our economy. They not only wield tremendous power, but they also abuse it by charging exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people and businesses that rely on them.  (Also) each platform uses its gatekeeper position to maintain its market power. By controlling the infrastructure of the digital age, they have surveilled other businesses to identify potential rivals, and have ultimately bought out, copied, or cut off their competitive threats. And, finally, these firms have abused their role as intermediaries to further entrench and expand their dominance. Whether through  self- preferencing, predatory pricing, or exclusionary conduct, the dominant platforms have exploited their power in order to become even more dominant.

For antitrust laws to work in the US, a simpler and easier enforcement mechanism is needed, or perhaps a return to the “per se” rules of market dominance and anti

Decades ago,  antitrust laws required weighing  the competitive pros and cons of every business decision. To win an antitrust case, the government needed proof not only of market dominance and anticompetitive behavior, but also that the this caused economic harm, including higher costs for consumers.  But how can harm be proven when the product is free ?  The answer is that the larger social harm is, or should be, the major concern.

The  2021-22 House Judiciary subcommittee hearings “produced significant  evidence that these firms wield their dominance in ways that erode entrepreneurship, degrade Americans’ privacy online, and undermine the vibrancy of the free and diverse press. The result is less innovation, fewer choices for consumers, and a weakened democracy.”

The subcommittee also said: “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.”

Antitrust suits: Search and social  

Google 

The European Commission (EC) has brought Google (aka Alphabet) to court on competition law violations numerous times since 2010 over issues such as anticompetitive practices such as:

  • favoring its own software on Android phones (This led to a  fine of   4.3 billion Euros) 
  • favoring its own shopping apps over others,
  • favoring its own advertising agency .  

US antitrust suits against Google (aka Alphabet) include allegations of anticompetitive practices around:

 Facebook 

Is the. solution to break up big tech?

Antitrust laws passed in 1890 and 1914 address issues with anticompetitive behavior, but the emphasis has been on harm to consumers. But how is that a problem for Facebook and other social media, or Google and other search browsers, when they are free to consumers and earn money through advertising?

Antitrust reform bills now in Congress would stop big tech from acquiring competitors or giving their own products preference over competitors. And there is momentum for breaking up Google, Facebook, and Amazon, which dominate social media and online sales.

 Jonathan Taplin,  director emeritus of USC’s  Annenberg Innovation Lab says in his book “Move Fast and Break Things: How Google, Facebook and Amazon Cornered Culture and Undermined Democracy”   that Google has an 88 percent market share in search advertising, Facebook owns 77 percent of mobile social traffic and Amazon has a 74 percent share in the e-book market. “In classic economic terms, all three are monopolies,” Taplin says. European anti-trust laws are also becoming tougher for companies that violate  privacy, he notes.

In The AntiTrust Case against Big Tech,  the NY Times, (Dec. 20, 2020),  describes Dina Srinivasan’s crusade against Google’s monopoly in advertising technology, which has “allowed for the type of self-dealing and insider trading that would be illegal on Wall Street.”

Srinivasan says in a June 21, 2021 op-ed that Google has cornered the advertising market and kept prices inflated.

These problems took root more than a decade ago when Google made a bid for DoubleClick, the popular service that helps websites sell ad space. Federal regulators approved the purchase. But they did so without requiring that Google separate the DoubleClick division helping publishers sell on exchanges from the division helping advertisers buy ad space, or from the division operating an exchange, which Google later dubbed AdX.  Could Google operate an exchange while acting in the best interests of both the websites and advertisers — in other words, both the seller and the buyer — all at once?

Both the sales and buying side of the advertising market should never have been owned by one company, and that is the primary target of divestment for Google. After buying DoubleClick, Google started selling ad space on  its own exchange, AdX and did not let other exchanges (at Yahoo or Microsoft)bid on the ad space at the same time.

Unsurprisingly, such self-dealing allowed Google — a late entry to the exchange market — to quickly grow AdX into the largest trading venue for ads. Websites paid the price: The lack of exchange competition resulted in their ad space selling for up to 50 percent less than what it otherwise would. Other abusive trading practices similar to the ones that we prohibit [with stock trading] on Wall Street … are happening in full view in advertising.

Divestment isn’t enough, according to a March 2, 2021 briefing on anti-trust and communications companies by the Electronic Frontier Foundation, which argues that ongoing regulation is needed, and “breaking up” monopolies is just the first step in achieving a pluralistic, diverse Internet.  A major point of ongoing reform would be more narrowly tailored privacy laws. For example, Facebook has sued competitors who aggregate FB and other social media, saying that it violates privacy rights.

It all comes down to regulatory reform.  “Letting the internet regulate itself was a good idea — in the 1990s,” Margaret O’Mara said in the New York Times, July 5, 2019.

Advocates of big-tech breakup often point to precedent set by the antitrust cases of the twentieth century. The three biggest were Microsoft in the 1990s, IBM in the 1950s through the 1980s, and the moves that turned AT&T into a regulated monopoly in 1913 and ended with its breakup seven decades later. Microsoft and IBM didn’t break up, and even AT&T’s dissolution happened partly because the company wanted the freedom to enter new markets.

What made these cases a boon to tech innovation was not the breaking up — which is hard to do — but the consent decrees resulting from antitrust action. Even without forcing companies to split into pieces, antitrust enforcement opened up space for market competition and new growth. Consent decrees in the mid-1950s required both IBM and AT&T to license key technologies for free or nearly free. These included the transistor technology foundational to the growth of the microchip industry: We would have no silicon in Silicon Valley without it. Microsoft dominated the 1990s software world so thoroughly that its rivals dubbed it “the Death Star.” After the lawsuit, it entered the new century constrained and cautious, giving more room for new platforms to gain a foothold.

In spring of, 2021, a large group of bills were introduced to regulate big tech,  including one that would have established a Federal Digital Platform Commission, in essence, an FCC for the internet.

And in October, 2022, a group of antitrust bills passed the House.

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Ancient history FYI  

US  v  Microsoft, 2001  — The Federal Trade Commission began investigating  Microsoft’s bundling of its operating system with other software,  especially its Internet Explorer browser, in the 1990s.  The issue was whether Microsoft technology was, in effect, a “refusal to deal,” similar to Loraine Journal v US, 1951, in which a newspaper refused ads from any company that also advertised on the radio.  In 2002, the U.S. Court of Appeals for the District of Columbia ruled that Microsoft had an illegal monopoly on operating systems and among other things had destroyed Netscape and had refused to deal with other companies when they worked with other systems.

Despite the ruling, the US Dept. of Justice (under the Bush administration) opted for a settlement which consumer advocates said was a setback to competition. Meanwhile, the European Economic Community, in March, 2004 ordered Microsoft to share technical information with rivals, offer a version of the Windows operating system without its Media Player and pay a fine of $612 million.

 

ALSO

Epic Games v Apple — In a 2023 decision, Apple won a lawsuit brought by Epic Games over restrictions on its online storefront, Apple Play.

In re Apple iPod iTunes Antitrust Litigation was  a 2005 class action lawsuit in the US and the EC/UK  that alleged anticompetitive activity against other companies that should have been able to market music for Apple’s iPod.  The UK’s Competition Commission  ordered Apple to lower its prices on iTunes tracks sold in the United Kingdom, but Apple never had to open its market.