Co-authored by: Alexander Goldman
In June of 2019 the House Committee on the Judiciary launched an investigation into whether Silicon Valley had fallen under the grip of a few large gatekeepers that have come to control key areas of e-commerce. A sixteen-month examination of key players’ market dominance, primarily focusing on Apple’s, Google’s, Amazon’s, and Facebook’s business practices, was to follow. Upon the release of the study, Judiciary Committee Chairman Jerrold Nadler stated, “Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition.”
A rash of lawsuits and proposed reforms ensued, igniting a lengthy and uncertain path to curbing big tech’s market dominance. A year after the House Judiciary Committee’s findings, what does the U.S. tech antitrust landscape look like? Why is this happening now? What does this mean for the holders of Apple’s, Google’s, and Amazon’s debt in the near term?
As Facebook is not a debt issuer, Apple, Amazon, and Google are of highest concern to institutional cash investors. Antitrust actions can take years to work their way through Congress and the courts, so investors have time to anticipate potential impacts on cash management portfolios. But with the recent revival of interest in antitrust issues, it’s time to start coming up the learning curve.
Lawsuits and Challenges
Numerous lawsuits from government agencies and state attorneys general alike have been launched against the tech giants in recent months, many of them similar in nature. The wide range of plaintiffs, and their overlapping concerns, makes keeping track of case developments in the U.S. difficult at best.
- August 2020: Epic Games sued Apple, claiming the ‘walled garden’ approach to their app store stifled consumer choice. In September, the presiding judge ordered a nation-wide injunction against Apple’s anti-steering practices, thereby granting developers greater ability to alert users about payment portals outside the app. However, it left much of the app store’s structure intact, and did not deem Apple to be a monopoly in the digital mobile gaming transaction market. Both Epic and Apple appealed the ruling.
- August 2020: Epic Games launched a lawsuit against Google similar to its Apple suit, but with a greater emphasis on Google’s practices of engaging in deals to retain developers within the Play Store ecosystem. The suit also accused Google of leveraging its market power to keep the Play Store front and center on many devices.
- October 2020: The Justice Department, along with 11 state attorneys general, filed a suit against Google for maintaining unlawful monopolistic practices in the search and search advertising markets. The suit will likely not go to trial until 2023.
- December 2020: Two groups of state and territorial attorneys general filed separate lawsuits, focusing on additional anticompetitive behavior by Google in its search and search advertising business.
- July 2021: 36 state attorneys general filed a lawsuit challenging Google’s mandated use of its in-app payment system and Google’s practices of leveraging its size to force device makers to give the Play Store premium placement on their devices.
- May 2021: Washington D.C. Attorney General Karl Racine sued Amazon, alleging it reduced price competition by forcing sellers to enter price parity agreements, which would not allow sellers to sell products at reduced prices on other websites.
Why This, Why Now?
Over the last decade, reported merger transactions have increased 79%, from 1,166 transactions in 2010 to 2,089 transactions in 2019. Particularly in the technology sector, this has led to extreme industry concentration, exemplified by Google’s 92.6% market share in the search engine market. Some tech giants have even attempted to purchase outspoken app developers, such as when Google considered acquiring Epic in 2018. Additionally, current antitrust laws are increasingly seen as outdated and not properly enforced. These basic factors have caused governments across the world, not just in the U.S., to take action towards reducing the power of technology companies.
Thus far, both chambers of Congress have taken steps to introduce antitrust laws relevant to the modern tech industry. The House Committee on the Judiciary passed six bills aimed at implementing structural and behavioral reforms on the big four tech companies. The Senate quickly followed suit when Senators Blumenthal, Blackburn, and Klobuchar proposed a bill targeting restrictive rules which Apple and Google have imposed on their app store participants.
Collectively, these bills would increase competition by prohibiting behavior that gives the products and services of dominant platforms a competitive advantage over other competitors who use their platforms. The most controversial bill, the Ending Platform Monopolies Act, would make it unlawful for a platform with at least 50 million monthly users and a market cap greater than $600 billion to own or operate a business that presents a clear conflict of interest, which would affect such products as Amazon Prime, Google search results and interoperability between Facebook and Instagram.
These bills also increase the federal government’s antitrust enforcement power and place additional burdens on technology companies considering mergers and acquisitions. For example, the Platform Competition and Opportunity Act would require dominant platforms to prove the legality of acquisitions, rather than the government prove illegality. If passed, these bills would reduce the dominant positions of companies such as Google, Amazon, and Apple, and would reduce the flexibility of future acquisitions.
New Kids on The Block
The Biden administration has brought key personnel to the antitrust divisions of the Federal Trade Commission and Department of Justice who are heavily in favor of increased regulation of Big Tech. Lina Khan, who was sworn in as the Chair of the FTC in June of 2021, has argued that the current approach to antitrust law is not sufficient to deal with online platforms. Tim Wu, another critic of Big Tech, was appointed special assistant to the president for technology and competition policy. Wu co-authored a paper which envisioned increased funding and procedural changes for the FTC and DOJ. Finally, President Biden nominated Jonathan Kanter, an antitrust lawyer who has represented clients against Alphabet Inc., to serve as assistant Attorney General in the State Department’s Antitrust Division. The nominations of Khan, Wu, and Kanter demonstrate an agenda to take stronger action against large tech firms.
The lengthy timeline and multiple angles of attack which these lawsuits and reforms have proposed leave significant uncertainty as to exactly when or how these companies will be affected. What we do know is that large corporate lawsuits and legislative processes tend to take time. Lawsuits will likely be appealed, possibly dragging out the process for years to come, as was the case in United States v. Microsoft and Google v. Oracle. The Apple v. Epic appeals process could take five years. Legislative reforms must make it through a long ratification process and are likely to look very different than they do in their current state, if or when they are passed.
In the meantime, we may also see big tech companies making concessions to lessen the pressure on them. Thus far, we’ve seen Apple and Google lower their in app-purchase commissions, and Apple has loosened its app store rules by allowing developers to provide alternative routes to payment systems outside of the app store. While such stories are likely to dominate the news cycle, a big tech breakup is far off, leaving cash investors with breathing room in the near term.