So, What Are Antitrust Laws Then?
The virtual hearing of the four Big Tech CEOs – Mark Zuckerberg (Facebook), Jeff Bezos (Amazon), Tim Cook (Apple) and Sundar Pichai (Google), has been long overdue following the extensive investigation into their actions under antitrust laws in the US and dominance of their place in the tech market.
The first piece of legislation introduced in the U.S. was the Sherman Act 1890. The Sherman Act outlines how corporations are not allowed to obstruct or hinder any unlawful trade. It also prohibits the formation of monopolies that would prevent healthy market competition.
FUN FACT: under the Sherman Act, a corporation can be prosecuted under criminal law, as well as civil law. The criminal punishment under the Sherman Act can result in a corporation being liable for up to $100 million, yikes!
Another two Acts were later passed: the Federal Trade Commission Act 1914 and the Clayton Act 1914. The Federal Trade Commission Act is similar to the Sherman Act, but it extends further to look at the healthy competition between companies, ensuring there are no sneaky competition tactics being used by companies that may be detrimental to a specific sector. The Clayton Act, on the other hand, focuses on mergers and acquisitions that might undermine competition between companies.
Under the Clayton Act, companies have an obligation to inform the Federal Trade Commission (FTC) and the Department of Justice (Antitrust Division) (DoJ) before any talks or transactions take place when a merger or acquisition is deemed to be ‘large’. This is so the government can ensure that mergers and acquisitions are being conducted in a legal manner, and are not going to undermine market competition. For more information on U.S. Antitrust Law Acts, click here.
As a side note, in the UK we call this Competition Law, and it is regulated by the Competition Act 1998 and the Enterprise Act 2002. These Acts aim to prevent businesses from making anti-competitive arrangements that would disrupt and restrict healthy competition between businesses, and are enforced by the Competition and Markets Authority (CMA).
So, how did the Big Tech Chiefs avoid these antitrust legislations?
Tech Giants in the Hot Seat…
In late July, the U.S. Congress posed a series of piercing questions to the CEO’s of these Tech Giants, most notably, Jeff Bezos and Mark Zuckerberg under scrutiny for their roles as the CEO’S of Amazon and Facebook respectively. These two Tech Giants may have received more of the limelight from Congress because it appears that these players may have been playing dirty.
Firstly, it was seen how uncomfortable Jeff Bezos was, as this was his first hearing in front of Congress (not the ‘Big Bad Billionaire Tech Giant’ persona we thought he would be!). Both Bezos and Zuckerberg were questioned on their dominance in the tech market.
As for Bezos, the ‘antitrust subcommittee’ had obtained damaging emails providing evidence on how Amazon plotted against a competitor, Diaper.com, who were competing in the same market – baby products. This evidence revealed that Amazon conducted this business strategy in order to drive them out of the competition. Amazon did this by lowering their prices on the same product as their competitor, running them out of the market and resulting in an inescapable takeover. This is called predatory pricing. Oh, and FYI, predatory pricing is illegal!! For more information on predatory pricing click here.
These emails provided the much-needed evidence to show how Amazon gave an undercutting knockout to Diaper.com through their predatory pricing strategy. This tactic also shows how Amazon, as a Tech Giant, were willing to go an extra mile to tackle their opponent, even if it meant making a loss on their baby products, which was $200 million!
Zuckerberg endured the attack from Congress over Facebook acquiring companies such as Instagram. His business model was further exposed when emails and documents were presented, painting the picture that Zuckerberg would essentially take over a business that he felt would threaten Facebook’s position in the social media market.
The evidence presented in Zuckerberg’s email portrayed him to be the ‘bad guy’ as one email read: ‘one thing about start-up’s … you can often acquire them’. Let that comment sit with you, and ask yourself, has the U.S. government come to the aid of consumers and companies in the social media market too late?
Tim Cook was grilled as Apple’s CEO, where Congress pointed out how Apple removed over half of the app’s on the Apple App Store that let parents download ‘parent control’ apps for their kids, after Apple introduced their new ‘Screen Time’ software on Apple devices. Tim Cook claimed that this was not Apple trying to lessen the competition, but insisted it was for ‘safety concerns’. What do you think of that statement?
Google was scrutinised for how they have arguably started to ‘not give a damn’ about their user’s personal data and privacy. A member of Congress pointed out how ‘big-headed’ Google has become from 2007-2016 after acquiring Double-Click, where they combined data on both sites. This disregard to user’s data could be due to the expansion of their digital market size, in which they dominate to the point where they knew customers had no other viable competitor to turn to in the market.
Amazon suffered a further cutting dagger in the chest with regard to the company’s dealings with third-party data. Amazon has made some big hiccups, as Bezos admitted that they may have made their own products more competitive in the market by using data from companies who use Amazon to sell their products. This is not only against company policy, but also the ethics of competition law. To some, Amazon’s handling of third party data may be a little questionable, but, do you think Bezos has abused the data that Amazon holds?
A Moment of Reflection:
Now, you may be wondering whether all of these unlawful activities would warrant civil or criminal action under the American antitrust laws. Well, here is your answer… 99.9% of these activities gained the approval of both the Department of Justice, and the Federal Trade Commission. Mind-blowing, right?!
Many economists and top lawyers have highlighted how it is too easy to undermine the existing antitrust laws because the current legislation in place in the U.S. did not make room for growing markets such as the tech market. In other words, the antitrust legislation is quite outdated.
In some aspects, it appears like the Justice Department and Federal Trade Commission are also afraid of rubbing up these Tech Giants the wrong way. So instead, they have overlooked all of the unhealthy competition tactics and mergers and acquisitions, unconsciously refraining from putting the Tech Giants on the naughty step…
As many countries have seen economic growth drastically drop, the U.S. tech companies seem to be living in a parallel universe with their profits rising, in these unprecedented times. This is due to increasing online demands, such as through online shopping and binge watching, which Amazon provide, interacting with loved ones during lockdown, which Facebook provides (along with Instagram and WhatsApp – businesses of which Facebook has acquired), and for basic technology and work needs, which Alphabet (Google) and Apple can provide.
Although the investigation into these tech companies started nearly a year ago, it seems that the pandemic has given the U.S. government time to see just how high these tech companies have been soaring and highlighted that an intervention was well overdue, by not even letting the pandemic stop the hearing from happening! However, is it too little too late for the U.S. government to put their foot down? As between the 1980s to date, these Big Tech companies have bought up 720 other companies… talk about serial shoppers!
In order to minimize any further damages to healthy competition, it might be time to consider revising and updating the antitrust laws in the U.S. If the Federal Trade Commission and Justice Department continue to allow these Tech Giants to expand by buying up the competition, the consequences could be detrimental to both consumers and start-up companies.
Key Takeaways: How Do the Big Fish in Small Ponds Threaten Consumers and Small (and Not So Mighty) Businesses?
This investigation highlights the potential damage that Big Tech may have on the tech market. If healthy competitors are eliminated, the questionable use of consumer data and complete market dominance are only examples of what may be yet to come.
If we are using these Big Tech companies as consumers, should we be worried about their growing power? Well, if an oligopoly is formed, consumers will lose competitive prices (meaning we pay more for less variety!), and there may also be a greater loss in the protection of customer’s personal data. So, in short, YES! We don’t need any more doom and gloom added to 2020!
In the short term, it seems that competing smaller businesses will be the most likely to suffer at the expense of the hungry Big Tech companies in the event of further predatory price moves. But, in the long term, consumers cannot quite escape a feeling of insecurity when the powerful Big Tech clasp onto third-party data. Let’s just hope this doesn’t allude to its inappropriate use…
Therefore, the U.S. Congress Antitrust Committee have a lot to consider in writing their final report, which is expected to be released this month, as it seems that more antitrust and competition regulations are needed to prevent further exploitation and loopholes in the market.
It is clear that these Big Tech giants are completely dominating the market, leaving little room for incoming businesses as they seem to be buying up their competition in a Pac-Man style tactic!
On a final note, I will leave you with one question – why do you think these Big Tech giants should be more tightly regulated?
This article was co-written by Sarah Barry and Limor Ross. Sarah is a BCL Graduate from the National University of Galway, Ireland, and a current Masters student in the University of Limerick, Ireland. Sarah is a Content Writer for According To A Law Student (ATALS), and an an aspiring Commercial Law Solicitor. Sarah has a keen interest in international commercial law, especially in Intellectual Property and Mergers and Acquisitions.
Limor is a BA Philosophy and Politics (International) Graduate from the University of Leeds and a Content Writer for According To A Law Student (ATALS). Limor is an aspiring commercial lawyer and will be studying the Law Conversion Course (PGDL) at BPP University Law School during 2020/21. She holds a specific interest in Dispute Resolution.
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