Berkeley Technology Law Podcast: Antitrust Suits Against Big Tech
[KURT]
You’re listening to the Berkeley Technology Law Journal Podcast. I’m Kurt Fredrickson.
[XIMENA]
I’m Ximena Velazquez-Arenas.
[NATE]
I’m Nathaniel Kellerer.
[KAVYA]
And, I’m Kavya Dasari. Today our podcast will be about a topic that has garnered much attention over the last few years: antitrust lawsuits against big technology companies.
[KURT]
We sat down with Professor Christopher Hockett, an expert in antitrust and a lecturer at the University of California, Berkeley School of Law.
[NATE]
He will be helping us dissect the intricacies of what antitrust means in the context of the technology industry.
[XIMENA]
Let’s get started.
[MUSICAL INTERLUDE]
[KURT]
Apple, Facebook, Amazon, and Google were all slapped with antitrust allegations last year.[1] The Department of Justice has accused Google of using anti-competitive tactics to preserve a monopoly for its flagship search-engine business, filing a suit on October 20, 2020.[2] The Federal Trade Commission sued Facebook on December 9, 2020, accusing the social media giant of buying and freezing out small startups, such as WhatsApp and Instagram, to choke competition.[3] Ten states filed an antitrust suit against Google, also on December 9th, accusing the search giant of enlisting Facebook in an alleged deal to rig ad auctions and running an illegal digital-advertising monopoly.[4] Facebook was also sued by a coalition of forty-six states, along with the District of Columbia and Guam, for stifling competition and harming consumers.[5] And finally, an antitrust action was brought by Colorado and other states against Google on December 10th, alleging that the company harmed competition by favoring its own services and products, and by discriminating against companies offering more specialized search services.
[KAVYA]
In July 2020, we heard Big Tech CEOs testify before Congress on their companies’ alleged practices of quashing rivals and overcharging consumers to achieve market dominance.[7]
[MUSICAL INTERLUDE]
[Congressman David Cicilline]
Mr. Pichai, do you know how Google responded when Yelp asked you to stop stealing their reviews? I’ll tell you our investigation shows that Google’s response was to threaten to delist Yelp entirely.[8]
[Sundar Pichai, CEO of Google]
Congressman. You know, when I run the company, I’m really focused on giving users what they want. We conduct ourselves to the highest standard.[9]
[Congresswoman Pramila Jayapal]
In a chat you told Mr. Systrom that Facebook was, quote, “developing our own photo strategy. So how we engage now will also determine how much we’re partners versus competitors down the line.” Instagram’s founders seem to think that was a threat.[10]
[Mark Zuckerberg, CEO of Facebook]
Congresswoman, I want to respectfully disagree with the characterization. I think it was, it was clear that this was a space that we were going to compete in one way or another. I don’t view those conversations as a threat in any way.[11]
[Congressman Joe Neguse][12]
Last week, one of Amazon’s former engineers posted online that he and his team, quote, proactively identified growing businesses on AWS, that they built competing products, and they targeted those products to the business’s customers. And there’s been public reporting on that strategy. So I guess I’m wondering if you can comment on that.
[Jeff Bezos, CEO of Amazon]
We see that it’s an important product for customers, and we make our own product offering in that arena. And but it doesn’t mean we stopped servicing the other companies that are also making those products. We have competitors using AWS and we work very hard to make them successful.[13]
[Congressman Hank Johnson]
Apple is the sole decision maker as to whether an app is made available to app users through Apple’s App Store. Isn’t that correct?[14]
[Tim Cook, CEO of Apple]
Sir, we treat every developer the same. We have open and transparent rules. It’s a rigorous process.[15]
[MUSICAL INTERLUDE]
[XIMENA]
The House Judiciary’s report, dated October 2020, summarized allegedly anticompetitive business practices in the technology industry, stating that, currently, tech giants serve the function of a gatekeeper and their control over access to markets allows them to “pick winners and losers throughout our economy.” [16] The report alleges that the companies are abusing their market power by charging exorbitant fees, imposing oppressive contract terms, and extracting “valuable data from people and businesses that rely on them.”[17] Further, these tech companies have utilized their gatekeeper function to continue to retain their market power.[18] Because of these companies’ tremendous control over “the infrastructure of the digital age,” the companies have “surveilled other businesses to identify potential rivals, and have ultimately bought out, copied, or cut off their competitive threats.”[19] The tech giants’ exploitation of power is evident in their “self-preferencing, predatory pricing, or exclusionary conduct.”[20]
[NATE]
Currently, about forty states have filed antitrust lawsuits against Google alleging that the company “manipulates its search results to give its own products and services greater ranking over rivals.”[21] Another lawsuit claims that Google has become a monopoly, as its search engine captures about ninety percent of U.S. search queries.[22] Attorneys General of thirty-eight states, led by Colorado and Nebraska, are also looking into Google’s anticompetitive behavior in the digital advertising market.[23] Similarly, as mentioned earlier, the Federal Trade Commission (FTC) and forty-six states have brought antitrust charges against Facebook for buying up competitors like WhatsApp and Instagram.[24] E.U. regulators have also filed antitrust charges against Amazon, alleging that the firm is “using its access to data from companies that sell on its platform to gain unfair advantage over them.”[25] Additionally, the E.U. Competition Commission launched a formal antitrust investigation into Apple’s market conduct.[26] There are growing concerns in the United States that the Department of Justice should investigate Apple’s monopolistic control over its App Store as well.[27]
[KAVYA]
The House Judiciary Committee asserts that technology companies are turning into “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”[28] The present market structure, where tech giants are running the marketplace while, at the same time, competing in that marketplace, is an uneven playing field.[29] Regulators express concern that the result of this market dominance is “less innovation, fewer choices for consumers, and a weakened democracy.”[30]
[NATE]
To help us tackle this complicated subject, we interviewed Professor Christopher Hockett, a lecturer at the UC Berkeley, School of Law. Professor Hockett received his J.D. from the University of Virginia.[31] He has over thirty years of antitrust experience in the fields of technology, media, and telecommunications, and served as the global head of the antitrust practice at law firm Davis Polk.[32] On that note, let’s welcome Professor Hockett to the podcast.
[MUSICAL INTERLUDE]
[PROFESSOR HOCKETT]
Hi, my name is Chris Hockett. I’m a lecturer at Berkeley Law School. And the course that I’m teaching this semester is called “Antitrust and Technology Platforms.” And it’s about antitrust as applied to the big platform companies, specifically Google, Apple, Facebook, and Amazon.
[KAVYA]
Thank you so much, Professor Hockett for joining us on today’s podcast. We’re really excited to speak with you about a topic that’s been on everyone’s mind lately: antitrust lawsuits and investigations against Big Tech companies. Without further ado, let’s jump right in. Our first question for you is, what are some ways in which antitrust cases in the technology sector are different from traditional antitrust cases?
[PROFESSOR HOCKETT]
Well, thanks for having me on. Good question. I would say that technology businesses are different from non-technology businesses in several ways. One, it’s an area with highly dynamic competition, and lots of innovation. And it also is an area, and this is relevant to our topic for today, where market conditions exist, that can raise barriers to entry and limit competition. So it tends to be an area where you have strong network effects that may make market tipping more likely. And you might also have powerful economies of scale and scope that tend to produce and reward and perpetuate large businesses. So there are a few other characteristics that help protect and promote dominant technology platforms, including low marginal costs and high switching costs in some cases. And there are some behavioral characteristics, like user inertia, that also come to bear. But in short, it does make it sometimes difficult for new entrants to compete with established players.
[KAVYA]
You mentioned market tipping, could you expand on that topic a little bit?
[PROFESSOR HOCKETT]
Market tipping is a phenomenon in which there might be a lot of competition at the beginning of an innovation. But the competition tends to be for the market rather than within the market. So the winner—because of network effects and economies of scale and scope—it’s more likely than not that one firm is going to end up in a dominant position, rather than a market in which a variety of different competitors continue to compete selling the same thing. So when you think about the Big Tech platforms, Facebook is by far the dominant social network. And Google is by far the dominant search platform. And Amazon—Amazon is by far the dominant e-commerce platform. So that’s what I mean by tipping. Once those firms have established their dominant position, then they tend to control until some kind of disruptive innovation comes along.
[KAVYA]
Thank you for putting that in perspective. A follow up to that is, arguably most of the products at issue in these antitrust cases are free of charge from a strictly financial point of view. What is it about the way these companies are operating that necessitates a discussion of unfair market competition?
[PROFESSOR HOCKETT]
Let me start by saying and acknowledging that it is amazing what we get for paying no monetary price for some of these services like search and social media. Those services have added a huge amount of consumer welfare to the economy. They are enormously beneficial and valuable to users. There are economic studies showing that with respect to online search, for example, consumers value that in the thousands of dollars per year, and they pay no monetary price.
At the same time, we know that when there’s less competition or when there’s a monopoly, we look for a fix in the market on prices and quality and innovation, higher prices, or lower quality or less innovation are the hallmarks of a market where there is insufficient competition or monopoly. And for ad supported platforms like Google and Facebook, the zero monetary price doesn’t mean that users aren’t providing anything of value in exchange for what they’re getting. They’re providing platforms with data, signals about their interests and preferences, lots of information, and then their attention, which they have the platforms then sell to advertisers. And those are very valuable advertising opportunities.
On the other side of the platform, that platform operators make billions of dollars a year from. So we ask ourselves, well, what if the incumbent platforms face more competition than we see now, what might happen? Well, we could see things like users paying a negative price, for example, getting paid for submitting or allowing their data to be used for sale to advertisers for targeted advertising opportunities. We might see advertisers paying less if there were more competition for the online advertising that they place. We might see users getting better quality or more innovation from the platforms, maybe in the form of fewer ads or possibly more privacy protections, although that’s a question mark. So we don’t know because we just have these dominant players right now. And they have very high market shares. But those are some of the things that might be possible if there were more competition.
[MUSICAL INTERLUDE]
[KURT]
In late 2020, three separate lawsuits were filed against Google for alleged antitrust violations.[33] Two of the cases focus on Google’s monopoly on search engines and search advertising (one filed by the DOJ, and the other by the Attorneys General of thirty-eight states), and the third concerns Google’s control over non-search advertising.[34] In response to these antitrust claims, Google’s Senior Vice President of Global Affairs, Kent Walker, said that “people don’t use Google because they have to, they use it because they choose to.”[35]
Google processes around ninety percent of all online searches in the United States. The company has also been accused of anticompetitive practices by giving priority to its own products (such as shopping ads or local business listings) in search displays over those of competitors.[36] Further, the DOJ’s lawsuit also accuses Google of cutting deals with phone-maker companies like Samsung and Apple to set Google as the default search engine on their products.[37] Legislators from both parties have expressed concern that Google’s dominance gives it an unfair advantage in the market.
[XIMENA]
While Google has not been free from scrutiny in years past (the U.S. Federal Trade Commission conducted a two-year investigation on Google’s practices, concluding it had not violated antitrust laws in 2013), the current lawsuits signal a new era of antitrust regulation in the realm of Big Tech.[38] In 2019, the European Union fined Google $1.7 billion for “abusive” online practices.[39] Since then, the European Commission has unveiled new measures to continue regulating large tech companies like Google, Facebook, and Amazon. The two main proposals of this overhaul are the Digital Services Act and the Digital Markets Act, which would promote consumer protection and streamline a single rule book for digital markets.[40]
[MUSICAL INTERLUDE]
[NATE]
So now that we’ve gotten a sense of the issue, we’d like to discuss the narrative of the unchecked power of technology giants. It took quite a long time for federal regulators and State Attorneys General to pursue antitrust charges against large tech companies. Why is that? And what is different now?
[PROFESSOR HOCKETT]
Well, it wasn’t that long ago that we perceived Big Tech as benign and beneficial, with very little in the way of downsides. There was a lot of cool new stuff for users to explore and play with. And as we’ve talked about, users often didn’t have to pay out of pocket to receive those services. And there was a lot of new entry, and dynamism. And so there was, I think, a very optimistic outlook on what the tech sector was bringing to the public. Now, these providers, the largest platforms, are some of the largest companies in the world. They’ve grown to that size extremely quickly, faster than any other companies in history. The top five companies in the S&P 500 are now worth more than the bottom 282 companies. And four out of the five are tech platforms, and the other one is Microsoft. So along with this growth, we’ve seen increases in their economic and political power and influence and concerns about that.
We have also seen not quite as much new entry. Many would-be competitors have been purchased by the large platforms. And so the entry stories of ten years ago or are getting a little bit old. And I think most importantly, we’ve seen some pretty big downsides associated with platforms or that people associated with platforms like the propagation of misinformation, political polarization, socially corrosive content, threats to democratic values and institutions, and an increasing awareness of the loss of privacy of users and the implications of that. So I think that that change in the climate and the change in the size and scope of the companies and their reach is what explains what has changed in our attitudes about them and our consideration of antitrust remedies.
[NATE]
Interesting. So if I understand you correctly, you’re saying it’s also about the change of reputation of the Big Tech giants. And that ten years ago, everyone and society was amazed by the new possibilities. But now that we’ve seen the bad sides as well, it’s also a question of political thinking.
[PROFESSOR HOCKETT]
I think that’s exactly right. They were sort of shiny new objects. And I think that was our honeymoon period, with those companies. And I think now everybody is much more aware of how the platforms can have a downside. So I think that’s shaped public thinking and also the thinking of enforcers and regulators and Congress about whether something needs to be done to intervene, regulate, bring to heal the tech platforms.
[MUSICAL INTERLUDE]
[KURT]
Attorneys General from ten states filed a complaint against Google, accusing the search giant of abusing its monopoly over its online ad technology.[41] The suit accused Google of owning the ad exchange, allowing them to set rules for trading ads, but also acting as a broker to assist publishers in selling ad inventory.[42] The complaint alleged that Google’s power in the online advertising market resulted in a “monopoly tax” on businesses.[43] This “tax” was transferred to Americans through “higher prices and lower quality” on products advertised on Google.[44]
One of the centerpieces of the complaint includes Google’s purchase of DoubleClick for over three billion dollars in 2007.[45] The purchase gave Google the rights to DoubleClick’s advertising software and also expanded Google’s relationships with internet publishers, advertisers, and ad agencies.[46] Google’s purchase of DoubleClick and other ad software development startups has provided Google with a market share in each step of online advertising, including publishers, advertisers, and mobile ads.[47] These acquisitions raised questions of whether Google’s ad business could be considered anticompetitive.[48] William Kovacic, a former member of the Federal Trade Commission who approved the DoubleClick deal in 2007, said, “If I knew in 2007 what I know now, I would have voted to challenge the DoubleClick acquisition.”[49] Alphabet, Google’s parent company, responded that the rationale for the DoubleClick deal was “finding a piece of technology” to invest in, rather than to monopolize the ad marketplace, and that online ad prices have steeply fallen, showing that the ad marketplace remains highly competitive.[50]
[MUSICAL INTERLUDE]
[NATE]
In its investigation report, the House Judiciary Committee notes that tech giants have been exploiting their power through their “self-referencing, predatory pricing, and exclusionary conduct.” Could you elaborate on this anti-competitive conduct? What are some examples of what Facebook, Apple, Amazon, and Google have been engaging in?
[PROFESSOR HOCKETT]
So these are different strains of problems. Self-preferencing is basically using the platform to promote a vertically integrated product or service that’s owned by the platform. An example of that would be Amazon promoting its own house brands against third party products that are also being sold on the platform, or Google offering and favoring its own services, like its comparison shopping service, over its competitors and search results. So that’s self-preferencing. It’s essentially [a] kind of a conflict of interest: when a platform is both a host to competitors and is a competitor.
Predatory pricing refers to charging prices below some measure of cost, usually marginal cost, in order to drive competitors out of business, and then recouping those losses that have been sustained later. That is, under U.S. law, [it is] very hard to establish antitrust violation under the test articulated by the Supreme Court in [the] Brooke Group case.[51] But there are examples of that behavior by the tech platforms that critics of those platforms have pointed to as situations where predatory pricing ought to be able to address the issue. One would be, for example, Amazon’s conduct with respect to a company called Diapers.com. Its parent company was called Quidsi. And Diapers.com started selling diapers online and promoting [to] the kind of young parents segment. Amazon got worried about that, started promoting a segment called Amazon.mom or something like that, I think it was called, and selling diapers and other baby stuff below cost allegedly, and putting a lot of stress on Diapers.com, which it ultimately ended up buying. And after it did buy the company, it raised prices on diapers. So that’s an example that people have pointed out of a situation that the law ought to be able to attack as predatory pricing.
Exclusionary conduct is a broad category, but essentially it means when a monopolist or a dominant firm takes non-efficiency-based actions to deny its would-be-competitors access to distribution or other inputs necessary for them to compete. So, an example of that would be Google paying Apple to pre-install Google search on Apple devices and not to install any other search engines. Or requiring Android OEMs [original equipment manufacturers] to pre-install Chrome and Google Search if they want the Google Play Store. So, but as I say, that covers a wide waterfront of potential conduct.
[NATE]
Okay, so you showed us how these specific issues are all very different. But do you also see a common thread to the conduct of each of the companies that have been accused of it?
[PROFESSOR HOCKETT]
I would say that much of it falls into the category of reinforcing entry barriers and protecting a dominant position. Once the firm has ended up in a dominant position, which it might have, you know, attained without doing anything untoward, the allegation is that it’s creating obstacles for competitors that prevent them from getting a foothold. And there’s a variety of different ways you can do that, including by buying them.
[KAVYA]
So we’ve talked previously about exclusionary conduct. And I want to speak a little bit about taking Google as a concrete example. In the case of Google, what is illegal about paying companies to make their search the primary search engine for browsers and smartphones? Isn’t it like choosing what goes on your billboard? And why should the government be interfering in this seemingly contractual matter?
[PROFESSOR HOCKETT]
Well, that’s a good question, Kavya. And I don’t know that it is illegal. Google argues that it isn’t, and it points out that competition is only a click away. If you’ve ever done it yourself, it’s very easy to download a new search engine, whatever is installed as a default on your device, you can pick another search engine, including alternatives that are more protective of personal privacy, like DuckDuckGo. So Google says, look, competition is a click away. We’re not doing anything other than competing and promoting our own product. And if people stick with it, that’s because it provides more robust search results and better service than the competition. And that’s the essence of competition.
The government is arguing, as it did in the Microsoft case in the 1990s, that these inducements are not competition on the merits. They’re exclusionary, and they’re designed to protect Google’s monopoly in search where it enjoys a ninety percent share. So whether or not a court is going to agree with Google or with the government, we will see, because there’s now a case that’s been filed by the U.S. DOJ, as well as forty-six states. And that’s exactly what’s at issue. The European Commission has already fined Google for this conduct—and the Google Android case—when—that action is up on appeal now.[52] But the U.S. case is just getting started and is not expected to go to trial until Fall of 2023.
[MUSICAL INTERLUDE]
[XIMENA]
Facebook blocked all news on the platform from access by Australian users after an escalation of a dispute between Facebook and the Australian government about a law that would force Facebook to pay publishers for sharing their news stories.[53] This gave an indication of the significant impact antitrust regulation can have.[54] While loss of access is one of the dangers posed by the enormous market power of the corporations, stronger antitrust intervention would certainly have some positive consequences for the consumer. Examples of benefits include reduced flow of data and exchanges between portals like Instagram and Facebook or better services and lower prices due to increased competition in the marketplace.[55]
[MUSICAL INTERLUDE]
[KAVYA]
So going a little further into Google, in the antitrust lawsuit the Attorney General of Texas brought against Google, he stated that the company has been “acting as the pitcher, catcher, batter and umpire all at the same time” in the digital advertising market.[56] Can you expand on the company’s anti-competitive behavior in the online advertising arena, and how that has affected small businesses in particular? And why should the average American be worried about this?
[PROFESSOR HOCKETT]
Well, again, these are allegations so I’m not sure that anybody needs to be concerned about them. But giving them credit for what has been alleged; Google operates a number of services across the online advertising ecosystem essentially designed to help advertisers and publishers place and display ads. But Google also competes with those same advertisers and publishers. And the Texas lawsuit essentially says that Google is rigging the process in its favor and extracting more than it should be entitled to for the services that it provides. The lawsuit also alleges that Google essentially bribed Facebook not to invest in a competing ad auction technology called “Header Bidding,” which resulted in less competition. And that’s been one of the most sensational parts of that Texas lawsuit and the thing that they constantly talk about, even though they haven’t sued Facebook in that case; it’s just Google. But they talk about it as a collusive agreement to produce Facebook’s exit from the header bidding business. And we—again, whether or not that allegation finds support in the facts and convinces a court remains to be seen.
That case, unlike other cases against the platforms, is filed in the Eastern District of Texas, as opposed to Washington, D.C. And that docket moves a lot faster than the docket in the District of Columbia. So we may see that case go to trial first, if it doesn’t get moved. You asked also, what—why should small businesses care about this? Allegedly, because they’re paying too much for online advertising? Or are getting lower quality ad placements than they might otherwise get if there were more competition. And why should consumers care? The theory would be that if advertisers are paying more than they should, then some of the price increase would be passed on to consumers in the form of higher prices for the goods.
[KAVYA]
Thank you for putting that into perspective. Stepping away from Google, if we could look at Apple for a moment. What about the company’s App Store practices necessitates antitrust considerations? I believe there haven’t been any formal investigations into the company yet?
[PROFESSOR HOCKETT]
Well, the Congress is looking at the Apple App Store behavior. There isn’t a U.S. government lawsuit against Apple as there is against Facebook and Google. There [is] some private litigation against Apple, and some other investigations going on. And I’m not sure any of what Apple has done necessitates enforcement. But they’re essentially accused of a form of self-preferencing, giving more prominence to their own apps in the app store search results, charging too much in the way of commissions for app sales and in app purchases, and not allowing alternative forms of in-app payments for people who want to buy things when they’re using an app. Apple has its own iOS payment platform and when you want to buy something, when you’re using an app, you go through Apple and that’s where Apple collects its thirty-percent commission.
There is a lawsuit underway by Epic [Games] against Apple.[57] Epic makes the Fortnight game and Epic included a way in the Fortnight game of paying Epic directly for in-app purchases, which was in direct violation of the Apple Developer Agreement. And Apple kicked them out of the App Store, and there’s a lawsuit that is now underway in the Northern District of California by Epic Games against Apple for doing that. So we’ll see. Again, I think that’s scheduled to go to trial in perhaps early next year, and we’ll see what comes of it. But that’s the conduct that’s been spotlighted.
[MUSICAL INTERLUDE]
[KURT]
Intervention by government action is already having serious consequences for tech giants’ business operations. Alphabet, for example, has already refrained from individual acquisitions due to lawsuits filed by the Justice Department.[58] Meanwhile, experts speculate that the pending lawsuits could eventually force companies to divest via partial sell-offs, such as Facebook with Instagram and Alphabet with Google’s ad business.[59] Some companies, like Google, have responded with concerns about the new rules limiting data, such as combining data for location of a restaurant, its menu, and reservation application.[60]
[MUSICAL INTERLUDE]
[NATE]
Going back to the bigger picture, how realistic is it that these ongoing, and the potential proceedings you mentioned, actually will have serious consequences on the companies and their operations? How concerned should Big Tech be?
[PROFESSOR HOCKETT]
I think there’s a very realistic prospect of changes, if we consider the whole picture. There’s a lot, besides these lawsuits, that is also going on in the background. There’s international enforcement in the European Union and elsewhere, against the platforms. In fact, they have a pretty big head start on the U.S. authorities’ claims against the platforms. There’s regulatory initiatives that are under consideration. There’s tougher merger enforcement that I’m sure lies ahead for the platform companies. They’ve completed hundreds of acquisitions, for billions of dollars, over the past decade or so. None of those acquisitions was challenged—most of them were not seriously investigated. And I think that we’re not going to see that repeated going forward. I think that there’ll be very intense scrutiny of any mergers that the platforms propose going forward, even ones not involving competitors. And finally, there’s proposals to change U.S. antitrust law to reform it, to address some of the weaknesses that some legislators and commentators have pointed out, that enable the platforms to, you know, do what they do, and not worry as much about antitrust claims.
So, I think, a combination of all that plus the fact that the government is now suing—that is likely to change the course for how the platforms operate, just as it arguably did for Microsoft when the government brought the case against Microsoft. Although it prevailed, it was not able to break Microsoft up and the remedy was relatively mild. When Microsoft finalized it with the government, it still, people say, provided opportunities, including for companies like Google and Facebook, to spring up in places where Microsoft might have snuffed them out or competed them out of existence before they got going. So I do think that it’s almost certain that there will be changes coming to the platforms in one way or another.
[NATE]
Interesting. So speaking again about the social media market in specific, and I think it goes back to the topic of marketing and market tipping you mentioned. It appears as if the very business model of social networks like Facebook would eventually result in a quasi-monopoly business. It’s a goal of a social network to build a platform that connects people worldwide. Ideally, all people worldwide. And this may very well conflict with an antitrust objective of having a market full of competition and different service providers. Is it at all realistic to expect social media networks to compete without one provider eventually having a monopoly position?
[PROFESSOR HOCKETT]
It’s certainly true that the social market is one where network effects are very strong. So nobody wants to join a social network that doesn’t have other people that you want to connect with. So the more people that are on it, the more valuable it is to the users. And so it has a tendency to spiral up and concentrate and for there to be one winner as there has been, or predominantly one winner, as there has been for Facebook. There’s niche competition around the edges, you know, where, for example, Snap, came up with ephemeral social media. And that was different from Facebook, although Facebook copied that feature. Instagram photo sharing, which was a niche product that gained popularity, before Facebook bought it—then Facebook bought it and it’s gained a lot of popularity since. So, there–it’s hard to imagine a head-to-head competitor for Facebook offering exactly the same thing that Facebook is offering succeeding, because of the strong network effects and the difficulty of unseating such a big player. But the way competition happens in these industries is that it’s generally somebody in an adjacent space or a niche space that gets interest in critical mass among a key group of users. And we’ve seen that and– like TikTok–and it can actually make a dent in a dominant player’s market share. But the effects are there, notwithstanding, and it makes it tougher for competitors for sure.
[KAVYA]
To kind of get into some general considerations about the anti-competitive behavior. They say hindsight is 20/20. But our question is, is it in this case? Was any of this foreseeable? Were there policies or regulations that should have been implemented during the telecommunications revolution of the 80s and 90s, that would have curbed the expansion of technology monopolies? Or is this anti-competitive dynamic a fundamental challenge of the sector?
[PROFESSOR HOCKETT]
Well, so at one level, it wasn’t easy to foresee. If it had been, then everybody would have bought shares in these companies when they were very little. I remember when I was representing Amazon.com, when it went public. And the day it went public, Barnes & Noble started its online bookstore, and everybody thought that that was going to crush Amazon, because Barnes & Noble was an established bookselling brand and Amazon was just this little startup. But it would have been a very good decision to buy Amazon stock at the opening day and hold on to it. So I don’t think people foresaw how big these companies would grow and how successful they would be. And certainly I didn’t.
And during the 80s, and 90s, there was not much appetite for heavy handed regulation. In fact, in, you know, the Reagan years and beyond, there was the opposite. And most of what was happening was deregulation of previously regulated industries. And on the antitrust side, this is when some of the most defendant-friendly decisions got handed down, when the courts were under the influence of Chicago school antitrust thinking, which was, you know, very classical and hesitant about interfering, or making mistakes of getting too involved in regulating markets and, specifically, monopolies. So I don’t think it was foreseeable, and I don’t think it would have been politically doable or jurisprudentially doable to do anything about it back then. And some have argued that the laissez-faire system that we’ve had is what gave rise to these companies in the first place, right? We don’t see companies like this, or as many like this growing up in Europe where there was a heavier regulatory hand or other places. They started here, and they flourished here. And there’s an argument that they did because there were less obstacles in their way, legally, and from a regulatory standpoint.
[KAVYA]
I definitely agree. It probably wasn’t foreseeable, because that’s probably the first stock I would have bought if I had foreseen it. Kind of to transition to your opinion, what is your biggest concern regarding the power of tech giants today?
[PROFESSOR HOCKETT]
My biggest concerns are the platforms’ role in socially corrosive effects on society. I mean, polarization, challenges to democracy, misinformation, and loss of privacy. I think those are the issues that I think have the highest salience for me. I’m not sure that antitrust is the right tool to address those issues. In fact, I’m pretty sure that it is, in a lot of ways, not the best tool to address those issues. But I think those are the most serious issues.
[KAVYA]
When you say it’s not the best tool, what other tools are there for addressing this that you think would be more optimal?
[PROFESSOR HOCKETT]
I think direct regulation of the platform behavior. You know, we worry about bad content in social media. It’s not clear that having more competition is going to produce good content. In fact, there’s some evidence that the smaller platforms have more radical and more extreme content, like, you know, if you look at 4chan or 8chan [a.k.a. 8kun] [or] Parler. Their content is terrible. And so breaking up the platforms and inciting more competition may backfire. So I think the way to address that is to more directly try to control the content that you’re worried about. And that is no easy task. But it seems to me a more direct way of addressing the problems that are really at issue.
[MUSICAL INTERLUDE]
[XIMENA]
While there is no sign that the growth of Big Tech will abate in the next few years, lawmakers around the world are scrambling to find ways to put limits on these corporations. Responses so far by the federal government have been limited, and so state governments are starting to regulate Big Tech themselves. For example, Maryland, Indiana, and Connecticut are considering taxing ads shown by Google and Facebook to state residents.[61] New York is proposing reforming its antitrust laws to make suing tech companies easier.[62]And in Florida, lawmakers have drafted a bill that prohibits tech companies from suspending political candidates’ accounts.[63]
[KURT]
The European Union in particular is trying to lead the way with fundamental revisions to antitrust digital rules in order to hold the big U.S. tech companies accountable, potentially even forcing breakups of monopolistic companies.[64] President Biden has said that breaking up Facebook is “something that we should take a really hard look at.”[65] To look at actual legislative action, it is noteworthy that Senator Amy Klobuchar, as the incoming chairwoman of the Senate’s panel on antitrust law and competition, has recently introduced the Competition and Antitrust Law Enforcement Reform Act that aims to overhaul antitrust law.[66] The bill is, among other things, meant to make it easier to stop a tech giant’s acquisition of a competitor.[67] On a state-level, New York is leading the way. A bill, that was introduced in the mid of last year, is currently subject to discussion in the relevant committee and may pass later this year.[68] If it passes, the bill would make it easier to sue Big Tech companies for potential abuse of a monopoly power.[69]
[MUSICAL INTERLUDE]
[NATE]
Going further in that direction about what’s to come, let’s get a better sense of what tools legislators have. And I think we’ve touched upon this topic earlier. You’ve mentioned some of the possible remedies, by state and federal governments. What types of remedies have been shown to be effective in the past and out of the traditional antitrust cases tools that we have? Which of these do you think might work for the technology sector as well?
[PROFESSOR HOCKETT]
Well, so what’s been talked about? Most by, you know, the legislators are promoting, you know, sort of hashtags. #BreakUpBigTech, is breaking up the companies. There—and I’ll talk a little bit more about that in a second—there’s conduct remedies to where you’re just asking the companies to do or not do certain things. For example, I imagine that the government is going to ask Google or seek a remedy in which Google is not allowed to pay Apple to be the default search engine on Apple devices, or to require Android OEMs to pre-install the Chrome and Google Search products. So those are conduct remedies.
There’s also fines, the European Union is very fond of fines, I don’t think fines make that much difference for these companies, because they’re so huge that they can pay them and move right along. And in fact, when you see big fines assessed, often the stock price of the companies paying the fine goes up. Because they the investors see that the problem is now behind them.
There’s regulation, as we talked about a minute ago, regarding privacy, or interoperability. So if there was a way for you to move the information that Facebook has about you, and your web of relationships with friends, to another social media company, it might make it easier for you to switch—if you could transport that information or if you could do the same with Amazon and your purchasing history and move to another e-commerce company. There are some privacy implications of that that are a little bit in tension with the effort to lower entry barriers and reduce switching costs for users that helps competition. Making data more interoperable and accessible to competitors potentially puts that data at more risk of privacy violations. But those are some of the remedies that have been talked about traditionally in antitrust. Structural remedies like breakups are considered the gold standard. But they might not work here because of the network effects that we talked about earlier. You can’t—if you broke Facebook up into four, you know, companies like Facebook Northeast and Facebook South and Facebook West and Facebook Central. Well, they probably would just coalesce back into some version of Facebook for everybody. So that isn’t a solution that necessarily works. Nor would it necessarily work to strip away Facebook’s acquired companies like Instagram or WhatsApp, which is something that the government is seeking. But we’ll find out more as time goes on.
[KAVYA]
I think we already touched on this earlier. But to kind of put it more concisely, I guess, could you put into perspective what would be the practical, observable result of these antitrust lawsuits? Essentially, what does it mean to have greater market competition in the technology sector? And how would that look like for the average American? ‘‘
[PROFESSOR HOCKETT]
Well, I’m not sure if the lawsuits are gonna result in government wins. But generally, with more competition, you see better quality, more innovation, and lower prices. And here that might include lower prices for online advertising. But as we’ve discussed, it’s not clear that more competition would actually address some of the more serious problems that we associate with the platforms, like misinformation and divisiveness and threats to democracy. So I don’t know that the lawsuits are—I know that one reason, or I’m confident that one reason that the lawsuits are happening is because people are concerned about those issues. But I’m not sure that even if the government prevails in those lawsuits, that that’s going to help those problems.
[KAVYA]
If antitrust isn’t the solution to Big Tech and breaking them apart is not possible, how would new companies [similar to] Google or Facebook come about in this new kind of context?
[PROFESSOR HOCKETT]
Well, if you think about, say Facebook. There’s a famous Guardian headline from 2007, where the author wonders, “Will MySpace ever lose its monopoly in social media?”[70] And I’m sure this headline has followed the author around for his whole life. But the article talks all about how network effects and entrenchment are going to protect MySpace from any competition going forward. And yet Facebook comes along out of a dorm room in Harvard and does demolish MySpace. Why? MySpace was not a very good product. It had a lot of, you know, crummy ads. And it just wasn’t—it didn’t have the features that Facebook had in the beginning, especially a certain amount of cachet because it was limited to Ivy League schools, first Harvard, and then several others. So people wanted in, and it sort of spun that into a very dominant competitor. Question is, could that happen again? And people were more confident that it could several years ago when the displacement of MySpace and Friendster were fresher in our minds. But now I think people are more worried about it.
So what would fix it? I think, incite more competition – or would make it easier? I think, interoperability, probably. You know, making it easier for customers to switch social media sites. And, as long as privacy issues can be solved, which is a big proviso, migrate to other platforms. And that could give another platform a leg up in trying to compete with a dominant player like Facebook. But it’s, as I say, you might decide that you’d like to move your social graph over from Facebook to a competitor. But that’s also information that belongs to your friends and your network. And what kind of consent do they need to give for you to successfully make that move? So there’s a bit of complexity there. But I think that form of solution, standardizing the data format such that it can be used by multiple competitors, is a way forward that might find some appeal.
[KAVYA]
So is the honeymoon period of Big Tech over? Or is this the beginning of a new era of competition in technology and social media? As covered in today’s discussion, the field is rapidly developing and antitrust may not offer all the answers to regulate settled and emerging technologies. Despite this, we know change is looming as several suits against monopoly power and anti-competitive practices make their way up the courts. Going forward, antitrust lawsuits may be an important harbinger for other difficult conversations, such as the threat to democracy and privacy associated with digital platforms.
[MUSICAL INTERLUDE]
[KURT]
Thank you for listening! The BTLJ Podcast is brought to you by Podcast Editors Andy Zachrich and Haley Broughton.
[XIMENA]
Our Executive Producers are BTLJ Senior Online Content Editors Allan Holder and Karnik Hajjar. BTLJ’s Editor-in-Chief is Emma Lee.
[NATE]
If you enjoyed our podcast, please support us by subscribing and rating us on Apple Podcasts, Spotify, or wherever you listen to your podcasts.
[KAVYA]
If you have any questions, comments, or suggestions, write us at btljpodcast@gmail.com.
[KURT]
The information presented here does not constitute legal advice. This podcast is intended for academic and entertainment purposes only. The information in this podcast is up-to-date as of March 28, 2021. The interview with Professor Hockett took place on February 26, 2021.
[1] Nandita Bose, Big Tech Antitrust Probe Report from Congress Likely by Early Fall, Reuters (Jul. 24, 2020), https://www.reuters.com/article/us-usa-tech-congress-report/big-tech-antitrust-probe-report-from-congress-likely-by-early-fall-idUSKCN24P13Z.
[2] John D. McKinnon, These Are the U.S. Antitrust Cases Facing Google, Facebook and Others, Wall St. J. (Dec. 17, 2020), https://www.wsj.com/articles/these-are-the-u-s-antitrust-cases-facing-google-facebook-and-others-11608150564.
[3] Id.
[4] Id.
[5] Id.
[6] David McCabe, Cecilia Kang & Daisuke Wakabayashi, Google’s Legal Peril Grows in Face of Third Antitrust Suit, N.Y. Times (Dec. 30, 2020), https://www.nytimes.com/2020/12/17/technology/google-antitrust-monopoly.html.
[7] Dominic Rushe & Kari Paul, ‘Too Much Power’: Congress Grills Top Tech CEOs in Combative Antitrust Hearing, The Guardian (Jul. 29, 2020), https://www.theguardian.com/technology/2020/jul/29/tech-hearings-facebook-mark-zuckerberg-amazon-jeff-bezos-apple-tim-cook-google-sundar-pichai-congress.
[8] Guardian News, ‘Too Much Power’: Key Moments as Tech CEOs Face Historic US Hearing, YouTube, at 0:23–0:45 (July 30, 2020), https://www.youtube.com/watch?v=c14vvb51Ur8.
[9] Id.
[10] CNET, Everything Facebook CEO Mark Zuckerberg Just Said to Congress in 16 minutes, YouTube, at 4:02–4:57 (July 29, 2020), https://www.youtube.com/watch?v=EjU1chIhnug.
[11] Id.
[12] CNET, Everything Amazon CEO Jeff Bezos Just Said to Congress in 13 minutes, YouTube, at 9:37–10:24 (July 29, 2020), https://www.youtube.com/watch?v=F4-Ke0PDmKU.
[13] Id.
[14] Guardian News, ‘Too Much Power’: Key Moments as Tech CEOs Face Historic US Hearing, YouTube, at 2:02–2:19 (July 30, 2020), https://www.youtube.com/watch?v=c14vvb51Ur8.
[15] Id.
[16] Investigation of Competition in Digital Markets: Majority Staff Report and Recommendations Before the Staff of the Subcomm. on Antitrust, Com. & Admin. L. of the Com. on the Judiciary, 116th Cong., 6 (2020) [hereinafter “Investigation of Competition”].
[17] Id.
[18] Id.
[19] Id.
[20] Id.
[21] Tony Romm, Nearly 40 States Sue Google Alleging Search Manipulation, Marking the Third Antitrust Salvo Against the Tech Giant, Wash. Post (Dec. 17, 2020), https://www.washingtonpost.com/technology/2020/12/17/google-search-antitrust-lawsuit/.
[22] Id.
[23] Id.
[24] Kelly Anne Smith, What You Need To Know About The Facebook Antitrust Lawsuit, Forbes (Jan. 28, 2021), https://www.forbes.com/advisor/investing/facebook-antitrust-lawsuit.
[25] Kelvin Chan, EU Files Antitrust Charges Against Amazon Over Use of Data, AP News (Nov. 10, 2020), https://apnews.com/article/eu-files-antitrust-against-amazon-8e0222555df76c36bfbeed3289222d94.
[26] Jason Perlow, Apple’s Antitrust Fight Could Spell the End of iOS as we Know it, ZDNet (Sept. 16, 2020), https://www.zdnet.com/article/why-apples-antitrust-fight-could-spell-the-end-of-ios-as-we-know-it/.
[27] Id.
[28] Investigation of Competition, supra note 16.
[29] See id.
[30] Id.
[31] Christopher Hockett Biography, Univ. of Cal. Berkeley L. Sch., https://www.law.berkeley.edu/our-faculty/faculty-profiles/christopher-hockett/ (last visited Apr. 19, 2021).
[32] Id.
[33] Gilad Edelman, Google’s Antitrust Cases: A Guide for the Perplexed, Wired (Dec. 18, 2020), https://www.wired.com/story/google-antitrust-lawsuits-explainer/.
[34] Id.
[35] Kent Walker, A Deeply Flawed Lawsuit That Would do Nothing to Help Consumers, The Keyword Google Blog (Oct. 20, 2020), https://blog.google/outreach-initiatives/public-policy/response-doj.
[36] Richard Nieva & Andrew Morse, Google’s Three Antitrust Battles: Here’s What You Need to Know, CNet (Dec. 22, 2020), https://www.cnet.com/news/googles-three-antitrust-battles-heres-what-you-need-to-know-faq/.
[37] Richard Nieva, Google Faces Renewed Battles in Labor and Antitrust in 2021, CNet (Dec. 22, 2020), https://www.cnet.com/news/google-faces-renewed-battles-in-labor-and-antitrust-in-2021/.
[38]Nieva & Morse, supra note 36.
[39] Katie Collins, Google Fined 1.7b for ‘Abusive’ Online Practices in the EU, CNet (Mar. 20, 2019), https://www.cnet.com/news/google-fined-1-7bn-for-abusive-online-ad-practices-in-the-eu/.
[40] Press Release, European Commission, Europe Fit for the Digital Age: Commission Proposes New Rules for Digital Platforms (Dec. 15, 2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2347.
[41] David McCabe & Daisuke Wakabayashi, 10 States Accuse Google of Abusing Monopoly in Online Ads, N.Y. Times (Dec. 16, 2020), https://www.nytimes.com/2020/12/16/technology/google-monopoly-antitrust.html.
[42] Shannon Bond, Google Hit with 2nd Lawsuit Testing Its Monopoly Power — This One Over Digital Ads, NPR (Dec 16, 2020), https://www.npr.org/2020/12/16/947249782/google-hit-with-second-antitrust-suit-alleging-illegal-monopoly-in-online-ads.
[43] Id.
[44] Id.
[45] See McCabe & Wakabayashi, supra note 41; Louise Story & Miguel Helft, Google Buys DoubleClick for $3.1 Billion, N.Y. Times (Apr. 14, 2007), https://www.nytimes.com/2007/04/14/technology/14DoubleClick.html.
[46] Story & Helft, supra note 45.
[47] Steve Lohr, This Deal Helped Turn Google into an Ad Powerhouse. Is That a Problem?, N.Y. Times (Sept. 21, 2020), https://www.nytimes.com/2020/09/21/technology/google-doubleclick-antitrust-ads.html.
[48] Id.
[49] Id.
[50] Id.
[51] Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
[52] Jane Wakefield, Google Starts Appeal Against £2bn Shopping Fine, BBC News (Feb. 12, 2020), https://www.bbc.com/news/technology-51462397.
[53] Barbara Ortutay & Tali Arbel, Facebook Makes a Power Move in Australia—and May Regret It, AP News (Feb. 19, 2021), https://apnews.com/article/facebook-continues-news-block-australia-e0b545d3ba541c2de8389c6bd0a6f23f.
[54] Id.
[55] See U.S. Dep’t of Just., Antitrust Enforcement and the Consumer 1 (Dec. 18, 2015), https://www.justice.gov/atr/file/800691/download.
[56] See Complaint at 2, Texas v. Google LLC, No. 4:20cv957 (E.D. Tex. Dec. 16, 2020); Press Release, Ken Paxton Attorney General of Texas, AG Paxton Leads Multistate Coalition in Lawsuit Against Google for Anticompetitive Practices and Deceptive Misrepresentations (Dec. 16, 2020), https://www.texasattorneygeneral.gov/news/releases/ag-paxton-leads-multistate-coalition-lawsuit-against-google-anticompetitive-practices-and-deceptive.
[57] Epic Games, Inc. v. Apple Inc., No. 4:20cv5640YGR, 2020 U.S. Dist. LEXIS 154231 (N.D. Cal. Aug. 24, 2020).
[58] Vishal Persaud, Alphabet’s M&A Activity Declines as US Files Antitrust Suit, Pitchbook (Oct. 20, 2020), https://pitchbook.com/news/articles/alphabets-acquisition-activity-declines-as-us-files-antitrust-suit.
[59] Amrita Khalid, How an Antitrust Crackdown on Big Tech Could Impact Small Business, INC. (Feb. 11, 2021), https://www.inc.com/amrita-khalid/antitrust-tech-amazon-google-facebook.html.
[60] Silvia Amaro, EU Announces Sweeping New Rules That Could Force Breakups and Hefty Fines for Big Tech, CNBC (Dec. 15, 2020), https://www.cnbc.com/2020/12/15/digital-markets-act-eus-new-rules-on-big-tech.html.
[61] Shira Ovide, The State House Versus Big Tech, N.Y. TIMES (Feb. 17, 2021), https://www.nytimes.com/2021/02/16/technology/the-state-house-versus-big-tech.html.
[62] Id.
[63] Id.
[64] Ryan Browne, Europe Tries to Set the Global Narrative on Regulating Big Tech, CNBC (Dec. 16, 2020), https://www.cnbc.com/2020/12/16/europe-tries-to-set-the-global-narrative-on-regulating-big-tech.html.
[65] Elizabeth Culliford, Where U.S. Presidential Candidates Stand on Breaking up Big Tech, REUTERS (Jan. 24, 2020), https://www.reuters.com/article/us-usa-election-tech-factbox-idUSKBN1ZN16C.
[66] Khalid, supra note 59.
[67] David McLaughlin & Ben Brody, Democrats Pitch Antitrust Revamp for ‘Too Big to Fix’ Deals, Bloomberg News (Feb. 4, 2021), https://www.bloomberg.com/news/articles/2021-02-04/klobuchar-pitches-antitrust-reform-for-too-big-to-fix-merger.
[68] S.B. S8700, 2019-2020 Legis. Session (N.Y. 2019).
[69] Dominic Rushe, New York Unveils Landmark Antitrust Bill That Makes It Easier to Sue Tech Giants, The Guardian (Aug. 5, 2020), https://www.theguardian.com/technology/2020/aug/05/antitrust-bill-new-york-easier-to-sue-big-tech.
[70] Victor Keegan, Will MySpace Ever Lose Its Monopoly?, The Guardian (Feb. 8, 2007), https://www.theguardian.com/technology/2007/feb/08/business.comment.
