Home Antitrust and Competition The House’s Recent Spate of Antitrust Bills Would Change Big Tech as...

The House’s Recent Spate of Antitrust Bills Would Change Big Tech as We Know It

0
Photo by Erlon Silva - TRI Digital, via Getty Images

If enacted, the five bills that were introduced in the House this month would represent the most dramatic statutory changes to US antitrust law since the passage of the Federal Trade Commission Act and the Clayton Act in 1914. Whether they would change it for the better is another matter entirely. 


“Move fast and break things.” That used to be Facebook’s motto, but it could now just as easily apply to the House antitrust subcommittee. On June 11th, five new antitrust bills were introduced in the House of Representatives and last week, after a marathon mark-up session, the subcommittee advanced the bills to the full House for consideration. If enacted, the bills would represent the most dramatic statutory changes to US antitrust law since the passage of the Federal Trade Commission Act and the Clayton Act in 1914. One short bill, HR 3843, would adjust merger filing fees, but the other four bills address the dominant digital platforms—no firm is namechecked, but the bills target Google, Apple, Facebook, Amazon, and probably Microsoft—and would dramatically reset the daily digital lives of US consumers. 

Taken together, the four platform bills address three critical questions: (1) What markets can the digital platforms operate in? (2) How can the platforms enter new markets? (3) What restricts how the platforms are allowed to compete?

HR 3826, also known as the Platform Competition and Opportunity Act of 2021, would largely bar the covered platforms from acquiring other businesses, though as these markets evolve, firms presumably could drop in and out of coverage. Current US antitrust law limits horizontal mergers that reduce competition—typically mergers between firms that currently compete with each other directly—and imposes much weaker limits on vertical mergers (like AT&T’s temporary purchase of Time-Warner). The limits on the covered platforms in the Platform Competition and Opportunity Act aren’t absolute (and I believe that a $50 million or below exclusion was added during markup based on an amendment by Rep. Deborah Ross (D-NC)), but for practical purposes would block many of the acquisitions that the Big Tech firms would want to make.

What is driving this ban and how should we assess it? Rep. Ken Buck (R-CO), a Republican member of the House antitrust subcommittee, focuses on how many firms the platforms have acquired. Many of these mergers were done with the approval of the relevant antitrust authorities here and abroad. Others might point to Facebook’s acquisition of Instagram and WhatsApp as particularly egregious examples of deals limiting current or future competition.

The acquisition ban doesn’t limit platform entry into markets, but rather shapes the entry path the firms have to take. When Google wanted to enter the smartphone operating systems market, it would have had to start from the ground up rather than purchase Android in 2005 for an estimated $50 million. When Apple wanted to start designing its own chips to compete with Intel, AMD, Qualcomm, and others, it would have had to start from scratch rather than purchase P.A. Semi for $278 million in 2008 and Intrinsity for $121 million in 2010.

Acquisitions of this type have three key advantages, as they make it possible for firms: (1) to enter new markets faster and to combine their internal capabilities with those of the acquired firm; (2) to specialize in invention and have other firms specialize in scaling new businesses; and (3) to attract initial investments given the possibility of a quick return on those investments through sale. Apple’s entry into chip design has allowed it to build a wide range of devices that consumers find particularly attractive and is spurring additional competition in personal computers. A serious consideration of these issues would look at the acquisitions by the platforms as a group to try to assess the overall consequences of these purchases. That would be a large undertaking, but exactly the sort that should occur before the Platform Competition and Opportunity Act is voted on.

“The House antitrust subcommittee … has held no hearings at all to address exactly how the proposed legislation would operate and the consequences that the bills would have.”

Let us turn next to HR 3825, the Ending Platform Monopolies Act, which would impose line of business restrictions on the covered platforms. This bill would be a Thanos snap for our daily digital lives, as large parts of what we are used to would vanish before our very eyes. The bill addresses line of business restrictions in three different ways, but take the most basic version, set out in Section 2(a)(1), which would make it “unlawful for a covered platform operator to own, control, or have a beneficial interest in a line of business other than the covered platform that—(1) utilizes the covered platform for the sale or provision of products or services.”

Pick your favorite covered platform and think that through, but I will focus on Apple, as I have an iPhone, an iPad Air, and an Apple Watch. Sec. 2(a)(1) might very well block Apple from offering the Apple Watch, AirPods, AppleMusic, Apple Maps, and I could go on. (In each case, Apple could offer the service for Android, just not for iOS.) I gather that you can run AirPods on an Android device, but they work better with an iPhone. And I think that the Apple Watch is exclusive to iOS devices. The bill would almost certainly have blocked the introduction of the Apple Watch in 2014 and AirPods in 2016.

The reception of the Apple Watch and AirPods in the marketplace suggests that consumers find the Apple ecosystem quite valuable. There are obviously many, many alternative cell phones, as well as alternatives for headphones and wearables. Blocking Apple and the other covered platforms from additional businesses would mean that sophisticated competitors would be blocked from the marketplace, although the firms that compete with these firms would find that valuable. This would very much be a choice by the government of the firms that it deems worthy of being competitors, rather than allowing consumers to make those choices product purchase by-product purchase.

The world of music that we live in today was really created by Apple with its release of the iPod in 2001. The iPod was not even close to being the first MP3 player, but it was the one that drove widespread adoption of portable digital music, and that tells you something about how subtle innovation is. Of course, even statutes of this sort presumably wouldn’t have blocked Apple from building the iPod, as back then, Apple was just a struggling company with a single-digit share in the personal computer market. And while Apple no longer struggles, obviously, Apple’s personal computer share hasn’t really changed. Apple has become today’s Apple by entering new markets and innovating with new products.

Line of business restrictions are typically associated with industries with regulated prices, such as local telephone markets, where there was a concern that the regulated firm was cheating by using its regulated local telephone to cross-subsidize its activities in competitive markets. You might find similar restrictions in the 1933 Glass-Steagall Act, where there was a concern about instability in financial markets. Neither of those ideas seem to match well here.

“HR 3825, the Ending Platform Monopolies Act, which would impose line of business restrictions on the covered platforms, would be a Thanos snap for our daily digital lives, as large parts of what we are used to would vanish before our very eyes.”

HR 3849, the Augmenting Compatibility and Competition by Enabling Service Switching Act of 2021—magically, that shortens to the ACCESS Act of 2021—focuses on data portability and interoperability. The data-based platforms—first and foremost, Google and Facebook—offer some of these products already, so while details matter, these are almost certainly not the most controversial provisions in the five bills. The interoperability provision is much more complicated, as that really recalls an era of regulation like that under the 1996 Telecommunications Act. That law required local telephone companies to rent out pieces of their networks, but the bill delegated broad discretion to the FCC to define the pieces and the pricing rules. That was not simple to implement, as the relevant case law makes clear (go read the key US Supreme Court cases such as Iowa Utilities from 1999 and Verizon from 2002). And antitrust proper flirted with these ideas, perhaps most notably in Berkey Photo (CA2 1979) in an effort to control Kodak’s monopolies in assorted camera-related markets. As I have argued here before, interoperability is a tantalizing approach but almost sure to be difficult to implement in practice.

Finally, turn to HR 3816, the American Choice and Innovation Online Act. Broadly speaking, the bill would create a detailed nondiscrimination regime for the covered platforms. Sec. 2(a)(1) bars any conduct that “advantages the covered platform operator’s own products, services or lines of business over those of another business user.” Another provision, Sec. 2(a)(3), bars a covered platform operator from engaging in conduct that “discriminates among similarly situated businesses users.” There is an affirmative defense and more on that in a second. And there was a consumer-welfare limit added to the bill during markup that would seem to narrow its coverage, though I haven’t seen the amendment yet and Rep. Mondaire Jones (D-NY) has vowed to try to kill the amendment on the floor of the House. 

To continue with Apple, assuming that it wasn’t barred from other businesses under HR 3825, HR 3816 would seem to bar Apple from preinstalling any number of Apple products, including Apple’s App Store, Apple Music, the Find My app, Apple Maps, a calculator, and more. Android phones typically preinstall any number of Google products, including Google Search, Maps and Google Play, and presumably each of those would face similar challenges regarding preinstallation. (That isn’t a new issue, as the European Commission thwacked Google on this in July 2018). There, of course, would be line-drawing problems between what might count as iOS and what was a separate other product, but ignore those for now. And the discrimination provision in Sec. 2(a)(3) might be understood to require Apple to preinstall every app in a category once it had installed one of the apps—all-or-none preinstallation—as otherwise it would be engaging in impermissible discrimination. The fact that preinstallation hasn’t been a hot-button issue so far doesn’t mean of course that it won’t become one given the breadth of the language in the anti-discrimination bill.

It isn’t clear to me whether Apple would be able to sell preinstallation. If every firm in a category gets to bid for say, the single preinstall slot for search, does that mean there has been no impermissible discrimination? (Apple reportedly gets paid billions by Google to preinstall Google search.) Can Apple be a competing bidder if it auctions off a single preinstallation slot for a particular category of apps? That would mean Apple could preinstall AppleMusic (and not Spotify) if Apple valued preinstallation more than Spotify.

As that suggests, there are lots of questions here. There is an affirmative defense that may limit the force of these provisions, but if broad preinstallation of the sort described above is intended to be allowed under the bill, the American Choice and Innovation Online Act should be clarified on that score. And, of course, that is just to focus on one issue—preinstallaion—and undoubtedly other issues would be raised as we considered each of the covered platforms.

We seem to be at something of an antitrust moment that is driven by the strong market positions of the digital platforms. The House antitrust subcommittee conducted extensive hearings on these markets before, but it has held no hearings at all to address exactly how the proposed legislation would operate and the consequences that the bills would have. An older, if not wiser, Facebook dropped its famous “move fast and break things” motto. Congress needs to act with greater care as well. There is an enormous amount that needs to be sorted regarding these firms and a possible response before new legislation should be enacted.