US antitrust probe finds ‘alarming pattern’ of innovation-stifling practices | ZDNet

The United States House Judiciary Antitrust Subcommittee has wrapped up its probe into Amazon, Facebook, Apple, and Google, with its 450-page report [PDF], making a slate of recommendations, including those it said would strengthen antitrust laws and restore competition in the digital economy.

“As they exist today, Apple, Amazon, Google, and Facebook each possess significant market power over large swaths of our economy,” Judiciary Subcommittee Chairman Jerrold Nadler (D-NY) and Antitrust Subcommittee Chairman David N. Cicilline (D-RI) said in a statement.

“In recent years, each company has expanded and exploited their power of the marketplace in anticompetitive ways.

“Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation, and safeguards our democracy.”

The subcommittee kicked off its inquiries over 16 months ago. Democrat Congresswoman Pramila Jayapal (D-WA) said investigations led the subcommittee to the conclusion that self-regulation by Big Tech comes at the expense of communities, small businesses, consumers, the free press, and innovation.

“Our investigation revealed an alarming pattern of business practices that degrade competition and stifle innovation,” Congresswoman Val Demings (D-FL) added.

“These companies have made remarkable advancements that have shaped our markets and our culture, but their anticompetitive acts have come at a cost … competition must reward the best idea, not the biggest corporate account.”

Although not agreeing on who was to blame for allowing “Big Tech” to achieve near-monopoly status, Congressman Matt Gaetz (R-FL) agreed that these “predatory companies” have used their vast size to unfairly harm competition and consumers.  

On Facebook, the subcommittee said it found evidence of “monopolisation and monopoly power” in the social networking market. It also said that of its nearly-100 acquisitions, the Federal Trade Commission engaged in an extensive investigation of just one — Instagram in 2012.

The subcommittee said a senior Facebook executive described its acquisition strategy as a “land grab” to “shore up” Facebook’s position and another said the company purchased Instagram because it was a threat to Facebook.

“The online platforms’ dominance carries significant costs. It has diminished consumer choice, eroded innovation and entrepreneurship in the US economy, weakened the vibrancy of the free and diverse press, and undermined Americans’ privacy,” the report reads.

The report says Facebook has also maintained its monopoly through a series of anticompetitive business practices, using its data advantage to create “superior market intelligence to identify nascent competitive threats and then acquire, copy, or kill these firms”.

“In the absence of competition, Facebook’s quality has deteriorated over time, resulting in worse privacy protections for its users and a dramatic rise in misinformation on its platform,” it continues.

Google also holds a monopoly, the report says, with search dominance “protected by high entry barriers”, with the subcommittee determining “Google maintained its monopoly over general search through a series of anticompetitive tactics”.

Such anticompetitive tactics, the report lists, include contractual restrictions and exclusivity provisions to extend Google’s search monopoly, such as in the case of its 2005 purchase of the Android operating system.

“Google exploits information asymmetries and closely tracks real-time data across markets, which — given Google’s scale — provide it with near-perfect market intelligence,” the report says. “In certain instances, Google has covertly set up programs to more closely track its potential and actual competitors, including through projects like Android Lockbox.

“Each of its services provides Google with a trove of user data, reinforcing its dominance across markets and driving greater monetisation through online ads. Through linking these services together, Google increasingly functions as an ecosystem of interlocking monopolies.”

Although Amazon is considered as controlling about 40% of US online retail sales, the subcommittee said it was sure the company’s market share is likely understated and alleges that estimates of about 50% or higher were more credible.

“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,” the report says. “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; it has also acquired companies that operate in adjacent markets, adding customer data to its stockpile and “further shoring up its competitive moats”, the subcommittee wrote.

“Amazon has engaged in extensive anticompetitive conduct in its treatment of third-party sellers,” it said. “Publicly, Amazon describes third-party sellers as ‘partners’. But internal documents show that, behind closed doors, the company refers to them as ‘internal competitors’.”

On the voice assistant side, the report says the company’s “early leadership” in this market is leading to the collection of highly sensitive consumer data, which Amazon can use to promote its other business, including e-commerce and Prime Video.

And on the company’s cloud business, the subcommittee said as AWS provides critical infrastructure for many businesses with which Amazon competes, such a scenario creates the potential for a conflict of interest where cloud customers are “forced to consider patronising a competitor, as opposed to selecting the best technology for their business”.

Apple, meanwhile, “exerts monopoly power in the mobile app store market”, controlling access to more than 100 million iPhones and iPads in the United States.

“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,” the subcommittee determined. “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.

“In the absence of competition, Apple’s monopoly power over software distribution to iOS devices has resulted in harms to competitors and competition, reducing quality and innovation among app developers, and increasing prices and reducing choices for consumers.”

Not citing any one company in particular, the subcommittee said the rise of market power online has also materially weakened innovation and entrepreneurship in the US economy.

“Additionally, in the absence of adequate privacy guardrails in the United States, the persistent collection and misuse of consumer data is an indicator of market power online,” it wrote.

“Online platforms rarely charge consumers a monetary price — products appear to be ‘free’ but are monetised through people’s attention or with their data. In the absence of genuine competitive threats, dominant firms offer fewer privacy protections than they otherwise would, and the quality of these services has deteriorated over time.”

The subcommittee also said the market power of the dominant platforms risks “undermining both political and economic liberties”.

The subcommittee offered a number of recommendations to Congress: Restoring competition in the digital economy, strengthening the antitrust laws, and reviving antitrust enforcement.

The first batch of reforms would enforce “structural separations” and prohibit certain dominant platforms from operating in adjacent lines of business; introduce non-discrimination requirements, which would prohibit dominant platforms from engaging in self-preferencing, and require them to offer equal terms for equal products and services; require 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; introduce safe harbour for news publishers; and introduce prohibitions on “abuses of superior bargaining power”.

To strengthen antitrust laws, the subcommittee wants to reassert the anti-monopoly goals of the antitrust laws and their centrality to ensuring a “healthy and vibrant democracy”.

Specifically, it wants improvements to the Clayton Act, the Sherman Act, and the Federal Trade Commission Act, in order to bring these laws in line with the challenges of the digital economy.

The subcommittee said it wants to restore “robust congressional oversight of the antitrust laws and their enforcement” and restore the federal antitrust agencies to full strength, by triggering civil penalties and other relief for “unfair methods of competition” rules.

Such restoration, the report explains, would require the Federal Trade Commission to engage in regular data collection and enhance public transparency and accountability. The subcommittee highlighted the FTC and the Antitrust Division should also be handed further funding.

The subcommittee’s final recommendation was to strengthen 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.

Congressman Ken Buck (R-CO) said that while he does not support the recommendations made, he fully supports working towards a solution that “reins in Big Tech and their anticompetitive behaviour”.

“Antitrust enforcement in Big Tech markets is not a partisan issue, I support the ongoing, bipartisan investigations of these companies. But an ounce of prevention is worth a pound of cure — I would rather see targeted antitrust enforcement over onerous and burdensome regulation that kills industry innovation,” Buck said. 

In response to the subcommittee’s report, Google said the goal of antitrust law is to protect consumers, not help commercial rivals.

“Americans simply don’t want Congress to break Google’s products or harm the free services they use  every day,” the search giant wrote. 

“Many of the proposals bandied about in today’s reports — whether breaking up companies or undercutting Section 230 — would cause real harm to consumers, America’s technology leadership, and the US economy — all for no clear gain.”

At the time of publication, Amazon, Apple, and Facebook were yet to publish responses to the Investigation of Competition in Digital Markets report.