The 2020 election in the US and the debate over breaking up tech giants

In 2020, the population of the United States will vote to elect its next president. As the election period nears, the future of large technology companies has been the subject of increasing debate on competition and innovation. It is argued that companies such as Apple, Amazon, Google and Facebook have become monopolies, absorbing too large portions of their markets and damaging competition and innovation in the digital industry. In this context, some pre-candidates have publicly advocated the use of antitrust laws and measures to break up these corporations.

In today’s post, we present the antitrust debate and large technology companies in the US pre-election context.

The Big Tech and abuse of power in the technology marketplace

Google, Apple, Facebook, Themazon, Microsoft. This set of business groups – occasionally referred to as GAFAM, Big Tech or Big Five – is known for its hegemony in the digital technology industry. We use their operating systems, shop and browse through their platforms, maintain accounts on their social networks, and know the names and faces of their founders. This is often the case without our being aware: when we send audios to WhatsApp or see stories on Instagram, it is not obvious that these services belong to Facebook Inc. Similarly, the default user ignores that the Android system is developed by Google and that this belongs to Alphabet Inc., a conglomerate that also owns YouTube.

The problems associated with this concentration of economic, political and cultural power have been a growing focus of public attention. Much is said about how bubble filters, bots and disinformation weaken democracy and headlines about violations of privacy and users’ freedom of expression by business have become commonplace in this decade. In response, lawmakers have resorted to regulation to protect users, as shown by the approvals of the General Data Protection Regulation in Europe and of the General Data Protection Act in Brazil.

More recently, the debate over the future of Big Tech has been gaining new heights as another aspect of the issue in question has attracted regulatory interest over these players: the abuse of dominant positions in the technology industry to harm competitors in order to prevent competition from taking place effectively.

Google, for example, was fined in March this year by the European Commission (EC) in 1.49 billion euros for abusing its dominance in online search advertising market to benefit the various companies of the group to which belongs at expense of rival companies. The company had already been fined by the EC in € 4.34 billion last year for using its control over Android to hurt competitors and also in € 2.7 billion in 2017 for manipulating the results of its search engine to unduly favor its own products and services.

Similarly, Apple headed into the limelight recently when, on May 13, the US Supreme Court accepted that a consumer-driven consumer class action lawsuit be brought forward in court. The plaintiffs contend that the company uses its monopoly power to inflate iOS app prices by requiring all purchases and sales of iPhone software to occur through the App Store. Since Apple gets up to 30% of every transaction made by the Store, consumers claim that app prices would be lower if developers and users could trade without the middle of the platform.

The US pre-election scenario and the rise of the antitrust agenda

As this issue acquires greater public projection, regulators have sought to respond to it through the use of different mechanisms. In February, for example, the Federal Trade Commission of the US launched a task force aimed at overseeing competition in technology markets, investigating anti-competitive practices, and punishing offenders when ordered. Among other things, the group will examine mergers between major players in the industry, which will include reviewing already completed mergers and analyzing future ones.

In March, the controversy acquired explicitly electoral tones due to the publication of a plan by Elizabeth Warren – a senator and current pre-candidate for the Democratic Party – to break up the large technology companies. Warren’s proposal is based on two fundamental measures: 1)  companies with annual revenues of $ 25 billion would be prohibited from simultaneously owning digital platforms (of commerce, exchange and/or connection between third parties) and actors participating in those same platforms: Google could not own Google Search (platform) and Google Ads (actor) at the same time and Amazon could not participate in the Amazon Marketplace (platform) selling products from Amazon Basic and Amazon Essentials, for example; 2) mergers between industry giants would be reversed, as in the case of Whatsapp and Instagram purchases by Facebook, Waze by Google and Whole Foods by Amazon.

Since its publication, the repercussion of the proposal has been significant. Critics have disputed its institutional viability while other pre-candidates are repeatedly questioned about their positions on this type of measure. Margrethe Vestager, the current European Commissioner for Competition, considered that the legal dispute involved could take a decade and called such action a “last resort”. Some pre-candidates linked to the Democratic party – nominally Kamala Harris, Joe Biden and Bernie Sanders – on the other hand have expressed support for the idea that the possibility should be at least debated and considered.

The discussion was rekindled recently when Chris Hughes, co-founder of Facebook, published an opinion piece defending the dismemberment of the giant. According to him, the strategy of Facebook in recent years was based on defeating any competitor in sight. This would be exemplified by the WhatsApp and Instagram acquisitions, the duplication of Snapchat’s sharing model, and the use of the news feed algorithm to prioritize videos produced on the platform itself as opposed to those coming from competitors (Vine, Youtube). According to Hughes,

“As a result of all this, would-be competitors can’t raise the money to take on Facebook. Investors realize that if a company gets traction, Facebook will copy its innovations, shut it down or acquire it for a relatively modest sum. So despite an extended economic expansion, increasing interest in high-tech start-ups, an explosion of venture capital and growing public distaste for Facebook, no major social networking company has been founded since the fall of 2011.”

The repercussion of the article was significant and prompted a quick response from the company’s vice president of global affairs and communications, Nick Clegg. Clegg maintains that Facebook is not a monopoly because it faces significant competition in every sub-area in which the company provides services. According to him, Hughes’ reasoning would punish Facebook for its success in the market, which is not the goal of antitrust laws, whose purpose would be to ensure good quality services at low cost to consumers – something Facebook allegedly does.

Antitrust from a legal point of view

Competition law is the area of ​​legal knowledge that seeks to regulate the relationships that occur between companies, such as the processes of market concentration and the formation of monopolies, as well as the antitrust discipline itself.

In the defense of competition, from a legal point of view, there are some conducts that are considered as infractions to the economic order. Such conducts include, undermining free competition or free enterprise in any way, arbitrarily increasing a company’s profits, abusing a dominant market position, imposing barriers to entry, among others. From the perspective of competitive defense in the United States (and several other countries), therefore, it can be seen that occupying dominant positions in the market is not problematic in and of itself. This becomes a problem, however, if the power coming from these positions is used abusively to prevent the competition from actually happening.

US antitrust law consists of a set of federal and state laws aimed at regulating the conduct of corporations in order to promote free competition and benefit to consumers. The main laws that make up US competition law are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914.

Additionally, case law is the main source of law in Common Law’s legal system. U.S. There is a wide range of court decisions from US courts that pertain to various anticompetitive practices practiced by corporations. Among the infractions to the economic order contained in these precedents, one can mention, among several others, the practices of:

1. a) Monopoly: consists in the domain of a market sector by a company or corporation;
2. b) Exclusive dealing: availability of a specific product only through a single distributor;
3. c) Tying products: it consists of the sale of a specific product or service only if it is bought together with another specific product;

(d) Predatory pricing: attribution of unreasonably low prices to a product or service in order to undermine the sales of a competitor of lesser economic power and cause its bankruptcy.

Anti-competitive practices carried out by corporations tend to have an impact not only on competitors, but also on consumers in general. Among the damages caused by these practices are the inhibition of innovation, the reduction of competitiveness and, consequently, the range of options available to consumers, higher prices and reduced quality of services. Competing companies, for their part, face significant economic losses – particularly in the case of small firms, unable to compete with the operational flexibility of the market giants – as well as barriers to entry of new companies into a market sector, among others.

The insufficiency of the current antitrust model

The current antitrust model – based on protection only against conduct that could generate damages to the competition or the consumer market – is the subject of intense debate. What is the scope of application of antitrust laws? To what extent should these regulations interfere with the business activities of the companies that make up each sector of the market? These are some of the issues raised in this discussion.

An important perspective that counteracts the current antitrust model states that the scope of anti-competitive regulation should not be limited to corporate abuses of power, taking into account, for example, the possibility of controlling the economic power of companies to defend the public interest. This theory gains strength especially when one considers the world in which we live today, and more specifically, the existence of Big Tech.

This is because these market giants have risen to the position in which they are today, not generally through abusive anticompetitive practices, but because they invented a business model that, in one way or another, brought innovation and introduced services and products new and well received by the public. However, it can not be denied that, from the point of view of the above-mentioned public interest, the mere existence of companies with such economic, political and cultural power poses a considerable risk to both consumer rights and broader democratic values.

It is undeniable, for example, that all GAFAM member companies hold immeasurable amounts of data from their users. These data have been used for irregular purposes on a number of occasions – either by the “mere” lack of consent of the user in the case of personal data processing or even for manifestly unlawful reasons. Big Tech also possesses sufficient powers to strongly confront the State orders, which is evidenced by the resistance of power exercised in several legal disputes in which these companies remain relatively immune to court orders and sanctions imposed in response to irregular conducts.

A broader scope therefore appears to be well-suited to this model of domination of significant portions of the market. This is because the exorbitant market power exercised by these companies, while not necessarily representing anti-competitive conduct on their own (although anti-competitive practices are also frequent in Big Tech) poses an unquestionable risk to consumers and to the public interest itself – and the losses resulting from this imbalance of power are palpable.

Conclusion

Focusing on the discussions about the concentration of power in the hands of Big Tech companies, therefore, constitutes an important starting point for a market regulation that protects the rights and interests of consumers. This discussion, however, is not enough to ensure, in fact, a healthy technological market. Increasingly, measures aimed at avoiding the concentration of the market by the giants of technology are essential for the defense of competitiveness in the market, as well as the rights of Internet users themselves.

Would you like to know more about the problems arising from the concentration of power in the technology market? Check out our post about bots, fake news and other threats to democracy.