Will Congress' Big New Push On Antitrust Actually Solve Any Competition Issues?

Policy

from the probably-not dept

On Friday, as has been widely expected for a while, a bunch of House lawmakers led by David Cicilline introduced five new antitrust bills that would, if they become law, completely reshape how antitrust works in the US. At least for tech companies. Somewhat notably, many of the bills seem written specifically to target just one industry and to avoid having to deal with other industries. The text of the bills has been floating around all week as the Democrats who are pushing them hoped to find some Republican co-sponsors. And, based on Friday’s press release, it appears they found at least one Republican to sponsor each bill (though only four Republicans in total, as they got Lance Gooden to agree to sponsor two of the bills).

Now, most of the bills strike me as extremely problematic — and even me just saying so will lead people to claim I’m somehow in the tank for these companies. Nothing is further from the truth. I’m all for creative ideas on how to end the dominance of the largest companies and to increase competition. But I fear poorly thought out proposals will have massive unintended consequences that go way beyond punishing Facebook, Google and Amazon.

Each bill does something different, and there are some occasionally creative and interesting ideas in them, but it really seems like these bills are more designed to destroy the thriving tech industry out of spite, rather than to actually encourage competition. As noted above, I’m in agreement that it would be good if we got more competition in the tech industry, but these bills take a very backwards-looking view on how to do that, basically by punishing companies for building successful products, rather than looking for ways to enable more actual competition. I’ve written before on ways to actually break up the dominance of big tech players, mainly by getting rid of many of the existing rules that have allowed the big players to block and limit competition. But these bills don’t do that. They take a much more punitive approach to successful companies, rather than an approach that enables more competition through innovation. That’s disappointing.

To me, the one that seemed most interesting at a first glance was the ACCESS Act (“Augmenting Compatibility and Competition by Enabling Service Switching Act”) by Rep. Mary Gay Scanlon. It basically requires “covered platforms” to maintain open APIs for interoperability and data portability. And, at a first pass, that is a good thing, and obviously quite consistent with my belief that we need to build a future that is based more on open protocols rather than silo platforms. Portability and interoperability are certainly a step in the right direction for that.

However, the way the bill actually is written suggests a real lack of futuristic technical thinking. It would lock in certain ideas that don’t necessarily make any sense. Basically, all this bill would actually do is make sure that you could transfer your data out of an existing internet giant. The big internet companies already do this… and because of the way it’s been implemented, it’s almost entirely useless and doesn’t help anyone. This bill wouldn’t change that, unfortunately.

On top of that, this bill fails to deal with the very real and very tricky challenges regarding data portability and interoperability as it pertains to privacy. Instead, the bill just handwaves it away, basically saying “don’t do bad stuff regarding privacy” with this data. That’s… not going to work, and is more or less an admission that the drafters of the bill don’t want to deal with the very significant challenges of crafting a data portability/interoperability setup that is also congruent with protecting privacy.

The real way to do this would be to separate out the data layer so that it’s not controlled by the centralized companies at all, but in the hands of the end-users or their agents. But while that could happen as an accident of this bill, it’s clearly not the intent. Thus it seems like this bill would not help very much, and that’s a real missed opportunity. It’s nice that it recognizes portability and interoperability as issues, but it doesn’t do the hard work necessary to make that actually meaningful.

Finally, perhaps the most problematic (by far) part of this bill is that if a “covered company” wants to change its APIs, it would need to get FTC approval — and that seems like a terrible idea. Imagine having to get approval from the government every time you change your API? What? No. Bad.

A covered platform may make a change that may affect its interoperability interface by petitioning the Commission to approve a proposed change. The Commission shall allow the change if, after consulting the relevant technical committee the Commission concludes that the change is not being made with the purpose or effect of unreasonably denying access or undermining interoperability for competing businesses or potential competing businesses.

I mean, yikes. That’s going from permissionless innovation — the very core of our innovation engine — to having the FTC act as the approver of any slight change to an API. That’s really, really bad.

The bill that may get the most attention is Cicilline’s own bill that basically says successful internet companies could no longer promote their own ancillary services over those of competitors. Basically, Google couldn’t insert its own local results, or its own maps, over a third party’s. Think of this as the Yelp Finally Forces Google To Use Yelp’s Listings Act, because that’s the main driver behind this bill. Basically, some companies that do more specialized search and content don’t want Google to be able to compete with them, and more or less want traffic they might not have earned. I can see a slight argument for how the practice of actual monopolies favoring their own services and excluding others could be anticompetitive, but this bill would make it defacto anti-competitive — and that seems likely to create massive unintended consequences that won’t be very good for the internet.

There are, after all, lots of cases where it makes quite a lot of sense for companies to link their ancillary products. Yet, here, doing so will almost definitively lead to a costly antitrust fight, meaning that it will be quite difficult for many companies to build useful complementary services. I don’t see how that benefits the public. Again, it seems that a much better solution would be to remove the barriers that currently limit the ability for third party competitors to step in and build tools that interoperate with the bigger players, but that’s not the goal here. The goal seems to be to restrict the big internet companies to much more limited offerings, rather than providing a wider suite of services.

Another major change comes from Rep. Hakeem Jeffries, and would effectively make it much, much harder for internet giants to buy companies. A key part of the bill is that the acquiring company would have to affirmatively show that the merger is legit, rather than the government having to show that the merger is problematic. Shifting the burden of proof would basically mean that most such mergers would be presumed unlawful, rather than the opposite. This could have huge and problematic implications for how our economy operates today.

On the good side, the bill would give the FTC and DOJ more resources to review acquisitions. However, as we’ve discussed before, in trying to block out anti-competitive acquisitions (which are a legitimate concern!) a bill this broad will almost certainly knock out other kinds of important and useful acquisitions (such as ones that keep failing or flailing services alive). More importantly it may take investment capital away from competitive entrepreneurial ventures.

No good investors invest in a company with a plan to just sell it off to a big tech company (indeed, most investors will ask startups how they would deal with such a competitive threat), but having the big guys act as a buyer is an alternative out — not as successful as succeeding on your own, but still better than losing all of the investment entirely — makes it easier for the investors to make these kinds of bets. Now that possibility of return will become much more difficult, meaning that investment capital is less likely to go to entrepreneurs trying to create competitive solutions. And that’s not good!

A separate bill from Rep. Neguse basically just raises the cost of mergers and acquisitions and… um… sure? Fine. I don’t see that as problematic really. I mean, at the margins, making it more costly to do an acquisition might be a nuisance, but the changes and increases don’t seem particularly significant here — and certainly not enough to stop a major acquisition (though, arguably it might drive down the amount that the owners of the acquired company get, effectively transferring it to the government). Consider it kind of a slight tax on selling your business. The bill would also increase funding to the FTC and DOJ to work on antitrust issues, and that seems reasonable as well.

Finally, there’s Rep. Jayapal’s bill that is pretty clearly designed to just stop Amazon from selling its own goods on Amazon. I know this is an issue lots of people complain about, but it remains unclear to me how much of an actual problem it is. Lots of retailers sell house branded products and compete against others without much of a problem. Costco has its house Kirkland brand, which it sells alongside other companies’ competing products. Is that so problematic?

As some are pointing out already, these bills could kill off (or severely limit) a bunch of services that people actually like, mostly as punishment that the innovations have been so successful. And that’s a problem.

It’s fine to admit that there’s a delicate balance here. How do you stop companies from becoming too powerful such that they alone squeeze out or stifle competition, while at the same time not putting in place stringent rules that, by themselves, stifle useful innovations? There really are two major themes of approaches: (1) punish or limit the ability of companies to act or (2) figure out better ways to create incentives for competitors to succeed. Unfortunately, regulators tend to jump to (1) and avoid even trying (2). That seems to be the case here.

Filed Under: acquisitions, antitrust, competition, data portability, doj, ftc, interoperability, mergers
Companies: amazon, apple, facebook, google