House Judiciary Report on Tech Features Misguided, Harmful Policy Recommendations

The House Judiciary Subcommittee on Antitrust released a long-anticipated report on four major American technology companies Tuesday evening, ending an investigation that lasted over a year and featured seven major hearings. The capstone of the report is a series of policy recommendations for members of Congress and the antitrust enforcement agencies (the Federal Trade Commission and the Department of Justice, or FTC and DOJ). Unfortunately, these recommendations would take antitrust law well beyond its historical scale and scope and into uncharted territories. The result of these recommendations, if unchallenged, could be the breakup of some of America’s most successful companies, a more difficult economic recovery for the country in the years to come, and a long-term struggle for innovation that places America well behind its peers around the world.

The report, which covers the business practices of Facebook, Google, Amazon, and Apple, concludes with 13 policy recommendations across three broad buckets: 1) “Restoring Competition in the Digital Economy,” 2) “Strengthening the Antitrust Laws,” and 3) “Reviving Antitrust Enforcement.” Most of the recommendations, though, would significantly expand the FTC and DOJ mandates on antitrust enforcement, moving the agencies, Congress, and the courts away from the decades-old consumer welfare standard - and closer to unpredictable and politically motivated adventurism.

NTU has discussed before how important the consumer welfare standard is for a light-touch antitrust policy, one that has served taxpayers, businesses, and workers well since the 1980s. As NTU President Pete Sepp wrote in 2018:

To the degree that FTC should be involved in federal antitrust policy, it is vital that all nominees respect the simple principle that any merger or other corporate action under review must be analyzed solely by the prospect of consumer benefit or harm.

The authors of the Subcommittee report make clear that they fully intend to depart from the consumer welfare standard:

Through adopting a narrow construction of “consumer welfare” as the sole goal of the antitrust laws, the Supreme Court has limited the analysis of competitive harm to focus primarily on price and output rather than the competitive process…

Instead, the Subcommittee says, Congress needs to clarify that antitrust laws “are designed to protect not just consumers, but also workers, entrepreneurs, independent businesses, open markets, a fair economy, and democratic ideals.” Disagreement with this particular point is not to suggest that all of the above are not critical to a thriving democracy. They are. However, antitrust enforcement authorities are awesome powers - the powers to approve or disapprove of business transactions; to determine what business conduct is deemed harmful to competition; to determine if and when a business has a monopoly on a market, and how to remedy a monopoly. The government needs to exercise these powers with extreme caution and in a fair and even-handed manner, which is why NTU has long supported the consumer welfare standard. Abandoning this standard risks leaving antitrust law captive to temporal, parochial interests, choking off innovation and discouraging entrepreneurs. This is also one reason why NTU has opposed calls from some conservatives and right-of-center stakeholders to use antitrust law as a punishment for tech companies over claims of viewpoint bias.

Even though the Subcommittee report authors, working for the Democratic majority, do not address claims of viewpoint bias in their report, they do focus plenty on technology issues that may be cause for lawmakers’ concern but should not be solved through more aggressive antitrust enforcement or changes to antitrust laws. In fact, of the four “significant costs” the Subcommittee claims have stemmed from business practices at the four major tech companies, two cannot reasonably be fixed by changes to antitrust law or enforcement while two others are unsupported by evidence.

Those costs, as reported by the Subcommittee in their executive summary, are identified as having:

...diminished consumer choice, eroded innovation and entrepreneurship in the U.S. economy, weakened the vibrancy of the free and diverse press, and undermined Americans’ privacy.

Taking these each in turn:

  • Consumer choice: Consider each of the four companies cited in the report. Despite leading positions in some markets, Americans who wish to use social networks that aren’t Facebook can choose Twitter, Snapchat, TikTok, WeChat or any number of smaller and emerging networks. Indeed, many users are on multiple platforms. While Google is indeed the leading search engine in the world, consumers have a choice of Yahoo, Bing, DuckDuckGo, and more. Amazon customers can take their business to an infinite number of brick-and-mortar stores, or, if they would like to remain online, to e-retail platforms set up by Target, Walmart, Etsy, or to custom online shops set up by numerous small retailers. Apple smartphones and laptops are seemingly ubiquitous, but they are far from the only choice for consumers - indeed, Apple’s innovations have inspired successful competitors for over a decade now. For a Subcommittee that is so focused on tossing out the consumer welfare standard, they swing and miss even in their own attempts to demonstrate consumers have been severely harmed by the companies above.
  • Innovation and entrepreneurship: A number of stakeholders have used cold, hard data to challenge the opinion that tech companies have choked off innovation. As a venture capital leader wrote of the report, “According to the House, big tech has reduced entrepreneurship and VC activity. The data show otherwise: from '06-'19, total # of VC deals/$ up 4x to 12,211 deals/$135.8b, early-stage deals/$ up 3x to 4,157 deals/$46.3b, angel/seed deals/$ up 10x to 5,107 deals/$10b.” And as the Progressive Policy Institute wrote in July, the four companies targeted in the report are among the dozen or so U.S. leaders in research and development (R&D) spending and capital expenditures, where “a monopolist secure in its market position would rather distribute profits to shareholders than make risky investments.”
  • The free press and privacy: A free and diverse press is vital to American democracy, and many important conversations about data privacy are happening on Capitol Hill and in state capitals around the country. None of that means that the proper antidote for privacy and press concerns is a change to antitrust laws. Congress could legislate to address consumer privacy concerns without touching the antitrust laws. It could also legislate around concerns over the free press. Indeed, one of the few policy recommendations in the Subcommittee report that does not immediately come off as harmful is a limited antitrust exemption for news publishers. This would, in the Subcommittee’s estimate, allow publishers to band together to negotiate for better terms on distributing their content through Facebook, Google, and other tech platforms. This could be the very kind of light-touch antitrust policy that the Subcommittee spends the vast majority of the report rejecting.

Notwithstanding any and all of the above points, most of the Subcommittee’s policy recommendations are far too expansive and harmful to be given serious consideration. The first recommendation is for “structural separations” or “line of business restrictions” on the major tech companies, a sort of Glass-Steagall for tech that would prevent, for example, Amazon from selling its own products on NTU wrote about this proposal just last week:

...physical marketplaces like Target, Walmart, and Costco sell their own products in marketplaces they control to the great benefit of consumers. If lawmakers would not ban the Targets of the world from selling their own products (often at a lower cost than brand names), it makes little sense to ban this practice in a digital marketplace.

The Subcommittee explicitly challenged this comparison between physical and digital marketplaces in their report, but they also don’t propose banning, say, Target and Walmart from selling their own products on their popular online marketplaces. While the ‘Glass-Steagall for tech’ proposal would be harmful in any context, it is particularly telling that the Subcommittee proposes subjecting certain companies that they don’t like to these rules while exempting others. Therein lies the danger of a parochial and temporal application of antitrust law, rather than consistent, fair, and even standards.

The Subcommittee also recommends that “Congress consider shifting presumptions for future acquisitions by the dominant platforms.” This view is dangerous, as noted by NTU years ago:

When it comes to government approval, the burden of proof should fall upon merger opponents, not the businesses in question. Substituting exotic legal theories ... would be a license for ideologically motivated mischief, rather than economically anchored analysis.

The view is also somewhat pointless. A presumption might be slightly more understandable if antitrust agencies were completely operating in the dark on mergers and acquisitions, but they are not. Under the Hart-Scott-Rodino Act, companies involved in any mergers or acquisitions that meet relatively low dollar thresholds have to report to the antitrust agencies for premerger notification and review. The agencies already have a virtually limitless ability to challenge acquisitions from the large technology companies - and, as the Subcommittee notes, they have declined to do so.

Another harmful policy recommendation that may have slipped some media notice is buried on page 400 of the report. The Subcommittee recommends Congress clarify:

...that market definition is not required for proving an antitrust violation, especially in the presence of direct evidence of market power.

This is a dangerous recommendation, given that some of the more overzealous antitrust challenges in recent years have come as a result of antitrust agencies poorly or inadequately defining the market. Indeed, improper definition of the relevant market was a major theme of a recently proposed acquisition from the global distribution system company Sabre, of a much smaller travel company. Antitrust agencies must define a relevant market to determine if a merger or acquisition will be anticompetitive, and the Subcommittee is somewhat absurdly suggesting that “market definition” is not necessary to judge “evidence of market power.”

Beyond the numerous legislative recommendations, though, lurks a much more ambitious Subcommittee agenda. Indeed, the Subcommittee notes at the outset of their recommendations that they intend “for these recommendations to serve as a complement, not a substitute, to strong enforcement of the antitrust laws.” They add:

...Subcommittee staff supports as a policy matter the examination of the full range of remedies—including unwinding consummated acquisitions or divesting business lines—to fully restore competition that was harmed as a result of these acquisitions and to prevent future violations of the antitrust laws.

This could be a signal that the Subcommittee supports breaking up the tech companies they investigated, which would do significant economic and social damage to users of these platforms, the hundreds of thousands of people who work for these companies, the scores of businesses that have seen financial success participating in and on these platforms, and, in the long run, to America’s economic competitiveness and success going forward. At a time of severe economic strife in the country, this kind of damage should be unacceptable.

The Subcommittee’s report is more than 400 pages long, so there is certainly more to analyze and break down in the weeks ahead. However, the Subcommittee’s policy recommendations indicate that lawmakers are considering some truly harmful changes to decades of antitrust precedent, in the courts and at the federal agencies responsible for enforcement. Lawmakers who support a robust economy and a fair legal system for American businesses should reject the approaches advanced by the Subcommittee.