Klobuchar’s Updated Self-Preferencing Antitrust Bill Remains Unacceptable for Taxpayers

Senator Amy Klobuchar (D-MN) has released an updated version of the American Innovation and Choice Online Act (AICO). This legislation was marked up by the Senate Judiciary Committee earlier this year without a hearing, and several Members derided the process and urged Senator Klobuchar to make substantial changes to the bill. In a good-faith effort, several Senators withdrew their amendments and offered tacit support as long as promises were kept to make major changes to the bill. However, AICO lacks substantial improvements and should not assuage the valid concerns of lawmakers.

One of the largest changes in the bill is the addition of carveouts for certain businesses. The updated AICO states that telecommunications companies are not online platforms and therefore not covered by the bill. Similarly, the word “payment” was removed from the definition of “online platforms,” which would likely help credit card companies and banks avoid being in the crosshairs of government enforcers. Notably, one of the biggest changes in the bill is a benefit to other industries, not to consumers.

Disappointingly, much of the bill focuses on other companies instead of consumers. To see the main beneficiaries of this anti-Big Tech legislation, one only needs to look at the one pager released by Klobuchar. Essentially, she suggests the driving force behind this bill is competitors to Big Tech companies who will not be subject to these regulations and would be granted a competitive advantage if this bill were enacted into law. Protecting competitors rather than consumers and competition is antithetical to how antitrust laws should work. This big government bill would still allow the federal government to pick winners and losers.

During the original bill’s markup, Senator John Cornyn (R-TX), among others, raised concerns about the cybersecurity implications of AICO. The updated version of this bill does little to lessen these concerns. Sec. 3(a)(4) requires that covered companies make their services interoperable unless it would lead to a “significant cybersecurity risk.” Interoperability is not always bad, but an interoperability mandate like this does pose serious concerns for consumers' data privacy and security. What constitutes a “significant” risk, and why is that the standard? The answer to this incredibly important question is, unfortunately, placed in the hands of federal bureaucrats. This is particularly troubling because even a small, moderate, or medium-sized cybersecurity risk can be consequential for those impacted. The U.S.’s support for Ukraine following the invasion by Russia could mean Americans are a higher target for Russian cyberattacks. Unfortunately, this bill creates a high bar to protect consumers from these threats.

The original AICO bill would have granted substantial new power to the federal government, and that has not changed with this updated version. The Federal Trade Commission (FTC), now with a 3-2 Democratic majority, and the Department of Justice (DOJ), would have immense power to shape the technology sector. Notably, this is not what consumers want, according to a recent Pew Research Center survey. Consumers, across the political spectrum, do not want more government regulation of the technology sector:

  • Only 35 percent of conservative Republicans want more government regulation of technology companies (down from 59 percent);
  • Conservative Republicans who believe the government should regulate tech companies less rose from 11 percent to 36 percent;
  • Moderate Republicans’ support for more regulations dropped from 48 percent to just 33 percent;
  • Liberal Democrats support from more tech regulations plummeted from 70 percent to 58 percent; and
  • Liberal Democrats who say the current level of regulations for tech companies is about right rose from 23 percent in 2021 to 32 percent.

This would also explain why Democrats are shying away from AICO. Consumers are expected to rely on the reassurances of Klobuchar that Lina Khan’s FTC and the DOJ will exercise good judgment. That is a risky proposition in the best of circumstances, but to be certain, the current economic climate is far from ideal. With record high inflation, supply chain issues, and skyrocketing gas prices, there is an appreciable risk that an empowered FTC could make the economic situation worse for consumers by punishing technology companies for offering consumers with services they enjoy and greater conveniences.

Recently, Republicans opposed Democrats’ bill to supposedly address the baby formula shortage by giving the Food and Drug Administration new funding, pointing out the government is a major contributor to the problem. Republicans also opposed a “price gouging” bill that would allow the FTC and executive branch enormous power to set gas prices and hinder oil and gas production. Republicans now have every reason to oppose this bill on the same merits. AICO isn’t going to help consumers. It’s a big government bill aimed at empowering bureaucrats in Washington to exercise greater control over technology companies. Lawmakers who want to do something about Big Tech can do that without taking heavy-handed action. Much like the baby formula and gas price bills, Republicans should work to actually work to remove government roadblocks to competition and innovation rather than hand over control to federal agencies and hope for the best.

Another major theme of the markup earlier this year was the unintended consequences of this legislation. These issues are still unresolved. Without a hearing on the bill, lawmakers were deprived of the chance to fully understand the impact AICO would have before voting in a markup. The harms to consumers if this bill were to be passed are not limited to the here and now. It’s likely dynamic technology companies would be disincentivized from developing future innovations. This is in part due to AICO punishing companies for offering integrated services, which can often be pro-consumer.

Companies would not only need to navigate the vague language of AICO to see if their current offerings could be deemed a violation, but they would also need to rethink whether the price of innovating is too high. A violation of this legislation would cost 10 percent of the total U.S. revenue of the company. It seems unlikely that a company would want to offer free services that consumers may want if it could potentially cost such a significant penalty if they stray from the ambiguous standards in AICO. This becomes especially problematic considering the affirmative defense provision requires a company to prove to the FTC that they are not harming competition. How does one offer a better mousetrap without harming the makers of less desirable mousetraps? Well, that would be up to unelected bureaucrats to decide.

During the markup, Senator Klobuchar waved away concerns about the bill and questioned the motives of Senators who raised valid inquiries about the language in the bill. While promises were made to improve the bill and address some reservations and open questions, there appears to be few, if any, improvements. Lawmakers should not be satisfied with these tweaks to the bill.