U.S. antitrust authorities ramping up investigations under pressure for enforcement in digital platform markets
The conduct of digital platform providers such as Google, Amazon, and Facebook has increasingly become a hot button antitrust enforcement issue for global antitrust authorities. Much of the activity in the U.S. to date has focused on policy initiatives to better understand the unique features of enforcement in this sector. In recent weeks, however, the press has widely reported on announcements that the U.S. Department of Justice’s Antitrust Division (DOJ) and Federal Trade Commission’s Bureau of Competition (FTC) have been taking further steps to launch formal antitrust investigations of the large platform providers. These investigations have been announced against a backdrop of global enforcement initiatives and increasing political pressure at home, including scrutiny from Congressional oversight committees, advocacy from state attorneys general anxious to join the investigations, and repeated calls to action from presidential hopefuls.
These probes into the digital platform industry are set apart from past investigations in that there is no specific conduct or target clearly named. Rather, the statements have revolved around a broad and general concern over potential harm to consumers and competition in the tech sector. Both antitrust authorities still appear to be in the relatively early stages of their investigations and actively working with market participants to better assess the potential theories of harm. The DOJ and FTC will also likely look to more advanced initiatives outside the U.S., particularly in the European Union, European Member States, and Australia.
In this publication we provide Insights into the recent U.S. antitrust enforcement of the online platform industry as it fits into broader trends globally.
The DOJ and FTC’s recently announced probes of online platforms
Last month, the DOJ announced it was launching a broad investigation of market-leading online platforms. In a short press release, the DOJ described that the focus of its investigation would be on how digital platforms “have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.” The targets of the probe were not explicitly identified and only described as “market-leading online platforms” providing search, social media, and some retail services online. The implication is that this refers to the industry movers-and-shakers like Google, Facebook, and Amazon, respectively. The DOJ described the investigation as a response to “the widespread concerns” raised by “consumers, businesses, and entrepreneurs.” To further develop its investigation, the DOJ is seeking information from the public and industry participants– particularly those “who have direct insight into competition in online platforms.” Rather than presupposing an outcome, the DOJ promised an “objective and fair-minded” investigation that will “appropriately seek redress” from any company found to be violating antitrust laws.
The DOJ’s investigation may be viewed as a response to similar moves by the FTC, which also recently launched its investigation into online platforms with its newly established Technology Task Force, comprised of 17 full time staff attorneys from various divisions of the FTC’s Bureau of Competition. The broad mandate refers to “monitoring competition in U.S. technology markets, investigating any potential anticompetitive conduct in those markets, and taking enforcement actions when warranted.” In addition to investigations on a range of conduct complaints, the FTC has remarked that its Technology Task Force will review consummated technology acquisitions. The FTC has also reportedly been in discussions with other global regulators, including with the European Commission (“EC”) on its current investigation of Amazon and past investigations into Google. The FTC has displayed its commitment to take complaints by third parties seriously in making a week-long trip to Silicon Valley in May to meet with industry players. The FTC is also building on a series of hearings on competition in digital markets over the course of late 2018 and early 2019, and has suggested it would consider conducting a more formal market study on target markets.
Further news of the DOJ and FTC’s investigative efforts are likely to surface over the coming months as the authorities ramp up their information gathering efforts. Following these announcements, Facebook has publicly acknowledged open antitrust investigations by both the FTC and the DOJ. Released in its July 24 earnings report, Facebook did not elaborate what conduct or deal was the focus of the investigations. The authorities’ probes may potentially relate to their recent meetings with Chris Hughes, a co-founder and former executive of Facebook, who reportedly held several meetings with authorities regarding Facebook’s history of acquisitions. The FTC also appears be taking steps to collect relevant data from the industry in its investigations of other platform providers, reportedly issuing subpoenas for data to third party retailers selling their products over Amazon.
What lies ahead for the investigations in the U.S.?
While the investigations are still at the early stages, the U.S. antitrust authorities have given some clues as to their potential priorities. The initial focus for the DOJ and FTC seems to be an assessment of mergers and exclusionary conduct, which were targeted in their earlier policy initiatives as well. As the DOJ and FTC concentrate on competitive features of data, network effects, multisided markets, and different forms of non-price competition, the investigations are likely to expand into review of other platform businesses.
Focus on mergers
A particular focus of the initial investigations is likely to be on acquisitions by the online platforms of smaller nascent competitors, particularly those active in related markets that are not direct competitors. While these transactions can pose a challenging burden of proof for the authorities, there is likely to be a renewed enforcement activity concentrated around prospective transactions and consummated historical acquisitions. As part of their review, both authorities are likely to place significant focus on factors such as the competitive intent of the acquirer, network effects and access to historical data as potential barriers to entry, and non-price competition over features such as privacy terms.
While the theory of competitive harm for these acquisitions of nascent competitors inevitably requires a counterfactual assessment of what they could have achieved absent the transaction, the review of historical transactions may provide a more concrete set of evidence to inform the conclusions. In line with this strategy, a senior DOJ official in June outlined a novel framework for challenging a historical pattern of so called “defensive acquisitions” as a monopolization offense under Section 2 of the Sherman Antitrust Act. Under this framework, the DOJ would challenge such acquisitions as conduct intended to exclude future entrants as part of a strategy to achieve, maintain, or extend monopoly power. The FTC’s Technology Task Force has also indicated that one priority will be to review historical mergers in the sector. The authorities are likely to extensively review prior M&A activities of the large platform providers, including high profile examples cited in the press such as Facebook’s acquisition of WhatsApp and Instagram.
Other exclusionary conduct
Another potential area of concentration will be on different forms of exclusionary conduct. The head of the DOJ recently commented that anticompetitive conduct which could “trigger close scrutiny” include (i) coordinated conduct between different players that creates or strengthens market power or (ii) exclusive dealings which substantially foreclose competition. Explicit exclusivity arrangements, loyalty discounts, and other de facto exclusionary vertical arrangements aimed at blocking competitors from the market are likely to come into particular focus, consistent with FTC’s recent monopolization suit against e-prescriptions platform Surescripts. Similar to the merger analysis, the authorities are likely to consider how these companies are positioned to expand into related markets using network effects and the market power afforded by access to different types of proprietary data. The FTC and DOJ are also likely to look into other forms of self-preferencing conduct that have been a target of enforcement actions against Google and Amazon in Europe. However, the prevailing view is that the U.S. antitrust laws require a higher burden of proof to show an actual exclusionary effect for a monopolization claim than is required to establish an abuse of dominance in many European jurisdictions. The U.S. authorities will therefore need to consider the evidence and theories of harm carefully in challenging any exclusionary conduct in the tech sector.
Since many multisided platforms offering free services to consumers are funded with advertising revenues, digital advertising is becoming an increasing enforcement focus in the sector. Following a recent public hearing on digital advertising markets, the DOJ is likely to be particularly interested in exclusionary conduct by search and social media companies in the context of digital advertising. In March, for example, the EC fined Google for preventing rivals from competing in the online search advertising intermediation market. The EC found that Google committed this abuse through imposing restrictions on third party “publisher” websites, which had agreed to use Google’s AdSense for Search. These restrictions prevented Google’s rivals, such as Microsoft and Yahoo, from placing their own search advertisements on these websites (see our Insights). Additional theories of harm put forward by antitrust authorities in other jurisdictions, including the UK and Australia, have been tied to Google or Facebook’s abilities to preference their vertically related offerings to exclude new and established. For example, concerns have been raised about how platforms preference their own advertising services above those of rivals (e.g. on search results or social media feeds), exclude rival advertisers from other products or access to data, or introduce technical specifications that favor their own advertising services to the detriment of competitors.
Outlook for coordination
As their broad investigations proceed, there is a potential for overlap and even conflict between the two U.S. antitrust authorities. In order to avoid significant overlaps in their investigations, the press reported rumors that the U.S. antitrust authorities had reached a clearance agreement earlier this year in divvying up their review of the major online platforms, with the FTC reportedly focused on Facebook and Amazon and the DOJ reportedly focused on Google and Apple. The authorities have not confirmed this allocation, and the announcement of two parallel antitrust investigations into Facebook appears to suggest the reports are not fully supported. Clearance agreements in practice will likely be more dynamic and focus more narrowly on different theories of harm. Similar to the DOJ’s landmark investigation of Microsoft in the 1990s, each authority will also likely need to cooperate with a coalition of state attorneys general who will be keen to play a role in the decision-making process.
The extent of potential cooperation between the two antitrust authorities also remains to be seen, particularly with recent tensions that have arisen in their enforcement approaches. In the background, the DOJ and FTC have taken increasingly adverse public positions in the FTC’s ongoing enforcement case against the semiconductor company Qualcomm. The current leadership of the DOJ has also been more cautious on the need for enforcement of exclusionary conduct alone and highlighted in public statements the potential harm of overenforcement in stifling innovation. This criticism echoes the justifications behind the FTC’s 2013 decision to close its last major investigation of Google search bias without significant action.
The backdrop of the current enforcement environment
These investigations have been announced against a backdrop of increasing pressure to move forward, both from a range of U.S. stakeholders and from other global enforcers who appear to be ahead of the DOJ and FTC in their enforcement efforts.
The U.S. enforcement environment
The DOJ and FTC are under increasing political pressure in the United States to provide more transparency on their enforcement initiatives, including scrutiny from Congressional oversight committees, repeated calls to action from presidential hopefuls, and pressure from state attorneys general and private plaintiffs. The U.S. House Judiciary Antitrust Subcommittee is holding investigative hearings on anticompetitive behavior in the tech industry, during which representatives of online platforms like Amazon and Facebook have testified. A U.S. Senate Judiciary Committee Tech Task Force was launched in July 2019 to analyze “tech industry issues on privacy, data security, censorship, antitrust and competition.” Politicians active in these committees are increasingly calling on the DOJ and FTC to account for their enforcement actions in the technology sector, demanding for greater transparency in investigations of online platforms.
The federal enforcement authorities are also undoubtedly feeling pressure from the states and private complainants to launch investigations. In June, state attorneys general representing 43 states submitted a letter to the FTC advocating for stronger merger enforcement into the technology platforms markets. A coalition of state attorneys general are also seeking to work with the federal antitrust agencies on the broader investigations and reportedly plan to conduct independent investigations into the major online platform providers and fill any perceived enforcement void. Some of these state enforcers are already conducting independent investigations under their states’ respective consumer protection laws.
Private plaintiffs injured by the conduct of the large online platform providers are also likely to provide further pressure driving the investigations. For example, the US authorities are reported to have consulted with the founder of Unlockd, an Australian start-up mobile advertising company that sued Google for allegedly banning his company from Google’s advertising platform in order to exclude a nascent competitor. Private class action plaintiffs in the United States have also actively sought to bring novel civil monopolization claims against platform providers, including a series of cases by users and developers against Apple including a series of cases by users and developers against Apple related to its app store.
The global enforcement environment
The U.S. authorities may also be motivated to keep up with other global enforcers around the world, who appear to have been taking the lead on developing enforcement initiatives in this sector.
- The EC has imposed record fines on Google over the past two years for abuse of dominance with regards to exclusionary practices involving its Android operating system, comparison shopping services, and online search advertising intermediation platform AdSense. (See our Insights here, here, and here) Meanwhile, the EC continues its antitrust investigations into Amazon’s data usage practices as a hybrid platform that sells both its own products and those of third party manufacturers.
- The UK Competition & Markets Authority (CMA) has undertaken a series of policy initiatives focused on competition and privacy enforcement in the sector. These efforts culminated in the release of its Digital Markets Strategy in early July, which set out its regulatory and enforcement priorities in the sector. The key conclusions included a finding that the authorities failed to properly consider and test fully some credible competition concerns, citing transactions such as Facebook/Instagram and Google/Waze. The CMA has also launched a new market study into online platforms and digital platforms, in parallel to some broader enforcement and regulatory reforms. (See our Insights)
- Other European Member States have also been active in digital markets. For example, the French Competition Authority released a report on online advertising that identified a range of potential anticompetitive practices and has indicated that it will pursue further enforcement activities. (See our Insights) Germany has also been at the forefront of developing novel new theories of harm related to the exploitation of market power in a high-profile enforcement action into Facebook’s privacy terms. (See our Insights)
- The Australian Competition & Consumer Commission (ACCC) also launched a market study of digital platforms markets in Australia, focused on digital advertising. The ACCC’s final report concluded in part that the large platforms have the ability and incentive to squeeze out their competitors through their vertical integration into the advertising space and self-preferencing behavior. (See Allens’ Insights)
- Virtually all other enforcement agencies around the world have also focused to some degree on policy and enforcement initiatives related to digital platforms, including China, Japan, Korea, Canada, and Brazil. These agencies are keeping a close eye on developments in the U.S. and other jurisdictions as they set their enforcement priorities.
Considering the global nature of these markets, enforcement efforts will be closely correlated with concerns raised around the world. All these overseas initiatives are likely to inform and drive the U.S. antitrust authorities’ investigations as they develop their current probes, even if they ultimately reach their own conclusions on the application of U.S. antitrust laws to the potential harms identified.