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Top Tech Congressional Hearing: Anti-Trust Sentiments On The Rise, Big Tech To Break Up?

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With companies like Apple, Google, Amazon, and Facebook all facing an antitrust hearing, let’s understand the law better and also look at why Microsoft faced an antitrust hearing in 1998 and what was its ruling. We will also get to know about the current hearing and dive deep into what the investigations suggest and know why Microsoft CEO, Satya Nadella was not called for the hearing.

 

What is antitrust law?

Governments around the globe create and implements many laws to protect the citizens. They also regulate how the companies go on about doing their business and puts an end to their malpractices. These laws combined together creates a fair playing field for all companies also provide scope for new companies to emerge.

The Sherman Antitrust law of 1890, the Federal Trade Commission Act and the Clayton Antitrust Act together forms the core US antitrust law. They are applied to questionable business practices like bid-rigging, market allocation, price-fixing, and monopolies. (they are defined in a later part of the article)

competition law
Competition Law

In India, the “Antitrust law” is formerly known as The Competition Act, 2002 which was constituted on March 1, 2009. The act replaced the Monopolistic and Restrictive Trade Practices Act of 1969 to gain its place in the Indian Constitution. Although the Indian version of the antitrust law doe snot prohibits “dominance”, taking advantage of the domination by price manipulation, exploitation or exclusion is interdicted.

These acts or laws are designed keeping in mind the maximization of consumer welfare. They shield people from corporate greed. These laws can put a stop to stop price and bid-rigging, monopolization, and anti-competitive mergers and acquisitions via civil or criminal enforcement.

Understanding The Technicalities 

Market Allocation:

Sometimes, two companies devise a plan of keeping business specific to a geographical territory or consumers.

For example, let’s take two companies, A and B, both of whom sell the same product, but A has a base in the northern part of a country whereas the other has base in the southern part of the same country. They both come to an agreement that they won’t invade other’s areas and will only do trade in their own concealed geographic territory. This agreement creates a regional monopoly. The cost of doing business (which is intentionally kept high) forbids any startup to do business in these places.

In 2000, FTC found FMC Corp. guilty of Market Allocation. They and Asahi Chemical Industry conspired and divided the market for microcrystalline cellulose, a primary binder in pharmaceutical tablets.

FTC penalized FMC Corp. by prohibiting its sale of microcrystalline cellulose to any competitors for 10 years in the United States and also banned the company’s distribution of Asahi products.

Bid Rigging:

Companies sometimes decide among themselves who will win a bid before an auction. The losing company will intentionally bid lower allowing the previously decided winning company to get the deal.

Here we take A, B, and C three companies as our example. They meet up and decide that the latter two companies will intentionally lose the auction and let A get the deal as long as A and C let’s B to win the following auction and A and B lets C to win the next one. The cycle continues.

There are different kinds of bid-rigging:

  • Bid Suppression: Competitors don’t bid or take out their bids by letting a company win the deal.
  • Complementary Bidding: This happens when a competitor intentionally bids unacceptably high or includes special provisions that nullify the bid so that another company can acquire the deal. This is also known as courtesy bidding. This is the method by which most bid riggings are done as it creates the illusion of a genuinely competitive bidding environment.
  • Bid Rotations: The companies take turns in being the lowest bidder in the auctions. This is easy to spot as it creates a definite pattern that signals the presence of conniving activity among the competitors.

Price Fixing:

This occurs when a company does not let the price of a product get determined naturally by the market. The company would impose a price which is generally higher than it should be to ensure profits.

More than one company might come together to fix the price. If A and B have the same product which can only be differentiated by their value they might come together to keep the price same(generally higher than it should be) for both products to eliminate price war among themselves.

In 2013, the US Department of Justice found Apple guilty of fixing the prices of ebooks and charged them with a fine of $450 million.

Monopoly:

monopolistic trust
monopolistic trust

A company might cut out other companies and competition to take dominance in a sector. It is regularly regulated that a company has not achieved a higher stake by eliminating the other companies rather they have gained it strictly through business and innovation.

There are different ways a company might get monopolistic. Such as predatory pricing, the arrangement of exclusive supply of products, or by refusing to deal or conduct business with certain other companies or people.

Looking at the antitrust laws closely:

The Sherman Act
The Sherman Act
  1. The Sherman Antitrust Act: This act was brought into effect in 1890 by Senate John Sherman. This bars the companies from “contract, combination or conspiracy in restraint of trade,” and “monopolization attempted monopolization or conspiracy or combination to monopolize.” Violation of the law can result in a fine of up to $100 million for a company or up to $1 million for an individual along with a prision time up to 10 years.
    The first time it was used was in the U.S. v. E. C. Knight Company case in 1895.
  2. The Federal Trade Commission Act: Violation of the Sherman Act also violates the Trade Commission Act. This act bans “unfair methods of competition” and “unfair or deceptive acts or practices.”
  3. Clayton Antitrust Act: They look into specific practices that might get through the other acts. It forbids  “substantially lessening the competition or tending to create a monopoly,” preventing discriminatory prices, services and allowances in dealings between merchants, requiring large firms to notify the government of possible mergers and acquisitions, and imbuing private parties.Recently Apple, Google, Facebook, and Amazon are all facing investigation against the antitrust law. They had their last hearing on 29 July, 2020.Microsoft had also faced an antitrust hearing. The company faced the hearing in 1998.

Microsoft Antitrust Case:

Microsoft Antitrust Case 1998 || Photograph by: Jessica Persson/AFP/Getty Images
Bill Gates in Microsoft Antitrust Case 1998 || Photograph by Jessica Persson/AFP/Getty Images

Microsoft‘s rise into sudden fame in the computing industry got them noticed by the Federal Trade Commission. In the 1990s an investigation was launched by them against MSFT on grounds antitrust.

On May 18, 1998, the Department of Justice and attorney general of 20 states launched a case against Microsoft. The case was launched to determine if the company was bundling features in its operating system with monopolistic views in mind.

Microsoft provided it’s browser software free for its consumers, leading to the death of the then-popular browser Netscape. This led to accusations like, the operating system Windows makes the installation of third-party application difficult, forcing its users to use the software that came bundled along with the OS.

The court dealings were plagued with problems. With Microsoft claiming that its competitors were jealous of their success and economists writing to the President in support of the company, there were a number of distractions.

Microsoft lovers also claimed that the products that came bundled only makes the software easy to use and user friendly. Though another OS like Unix, Linux, Macintosh was also in the market, consumers chose Microsoft because of its user-friendliness and versatility.

Ruling:

Although these appeals, the presiding judge, Thomas Penfield Jackson, ruled against Microsoft. The court came to the conclusion that Microsoft had violated the Sherman Antitrust Act. They also added that Microsoft’s position in the marketplace created a monopoly that threatened not only the competition but also innovation in the industry. The judge called for Microsoft to break up and form two separate companies, one would deal with the OS and others will form the software arm of the company.

Microsoft then appealed that the court was unfair in its decision and biased in favor of the prosecution. In the appeal, the decision by Jackson was overturned. The Department of Justice decided to settle with Microsoft. With Microsoft is complying to share its computing interface with other companies, the Department of Justice deserted the requirement of breaking the company into two halves.

 

Looking into the current investigations against Facebook, Apple, Amazon, and Google:

 

Facebook

Facebook emerged Email
Facebook emerged Email

An email from Mark Zuckerberg in March 2012, a month before Facebook bought Instagram, shows his conversion on China’s “strong culture of cloning things quickly.”

The conversation between him and Facebook’s Product lead Chris Cox and CTO Mike Schroepfer (high-level employee) informs of their meeting with the founders of Chinese company RenRen. They talked of how the Chinese company cloned applications like Pinterest and Voxer. The company says how it’s easier for them to get the products out in the market, as they are copying others. They also suggest how Facebook can do the same. Facebook CEO then forwarded the mail to Sheryl Sandberg (chief operating officer in Facebook) asking her agreement on this matter.

Sandberg had replied, “it is hard not to agree that it is better to do more and move faster, especially if that means you don’t have competitors build products that take some of our users.”

Another conversation between Instagram founder Kevin Systrom and a former Facebook VP highlights how Zuckerberg might get to “destroy mode” if Systrom disagreed to sell Instagram. Other information on how Facebook saw the deal out also came out.

Other information like the acquisition of WhatsApp, which was named “Project Cobalt” also surfaced. At the hearing, Zuckerberg also admitted that his company has copied others, but denied that Facebook has done anything in anti-competitive way.

At a certain point during the hearing, Rep. Pramila Jayapal (D-WA) said that the billion-dollar acquisition of Facebook by threatening to copy the features was a viable business strategy.

Zuckerberg declined to say from how many companies Facebook has copied since 2012. In the CEO’s conversation with Systrom, he clearly mentioned that Facebook is also developing a “camera app” and he said, “at some point, you’ll need to figure out how you actually want to work with us.” Systrom also said to one of Instagram’s investors that the comments from Zuckerberg felt more like a threat.

Though Zuckerberg did not deny the conversation he said the conversation is being wrongfully characterized.

Apple

twitter House Judiciary Dems
Twitter of House Judiciary Dems

While Apple doesn’t crush its rivals, they make up the revenue by taking a tight hold on the software and hardware market. They possess the right-to-repair on smartphones and maintain the obsessive level of control over their products. Previously in Australia Apple had been fined $6.6 million after the company bricked iPhones that had been repaired by third parties with an iOS update.

They are also accused of providing better treatment to some app store application developers because of commission. Emails between Amazon CEO Jeff Bezos and Apple SVP Eddy Cue have surfaced where Apple looks to have struck a special deal over the Amazon Prime Video app for iOS and Apple TV. Apple had agreed to cut down its commission to 15% for customers who signed up for Amazon via Apple’s payment system. (Note: the commission doesn’t come down from 30% before a year or two)

In April 2020, Apple disclosed a special program for Amazon and a handful of other applications that said that they will be integrated with Siri for ease of user accessibility. Apple, however, did not disclose the cut in the commission.

The Apple CEO, however, said that most applications don’t provide commission at all while some provide a commission of 15-30%, depending on the services they provide. He also said that Apple would never raise commission as it would divert developer interest from its platform and also said that they give equal importance to every developer.

However, documents show that Apple has considered raising the commission amount to 40% in particular situations. Though they might not have done it, they have thought of it.

However, many other conversations, emails, and interviews with AppStore developers suggest that the company doesn’t treat everyone equally and enforces different rules for different people. Cook, however, argues that 84% application does not pay any amount, and the rest 16% pays a commission to the company.

The only thing according to the CEO that stops them from increasing the commission rate is that he thinks that it will divert developer interest. Though they have not implemented these tactics there is no “concrete” law that forbids them from doing it which is something to think about.

Google

Twitter of Jason Knit exposing Google
Twitter of Jason Knit exposing Google

An internal conversation of the company highlights how they thought the emergence of new applications and social networking sites posses an “orthogonal threat”.

The company thought that the emergence of YouTube and other applications with “high entertainment value” would do more searches in the search engines of those websites. This would in turn strike a heavy blow to their search business. The presentation from 2006 adds, “They aren’t direct competitors, but they may displace us in end-user time tradeoff.”

The presentation also suggested that Google should own the search boxes of the websites and create its own social networking solutions to stay in competition with the websites. Later that year Google acquired YouTube for $1.65 billion.

Google CEO Sundar Pichai was also grilled for the company’s acquisition of DoubleClick, an ad tech platform. Google then (2007) promised lawmakers and regulators that it would not and could not merge the DoubleClick’s data with their own. But did the same thing after a decade.

By doing so, Google has destroyed user anonymity. They have put an end to the privacy policies of the products by joining the user data. This helps them to target people with certain ads and provides them an advantage that they should not have.

Google has exponentially grown its market power with the help of this. The provision that rings the alarm loudest is that there was a policy that could and now can stop Google from merging the data.

Google CEO also stated that he reviewed all the high-level decisions of the company. He also added this was done to provide users a more personalized experience.

In 2007, Google has refrained from doing this because it would create a huge backlash within its users. But with the market power they have achieved a decade later, they did not care.

Amazon

Conversation of Jeff Bezos with representatives
The conversation of Jeff Bezos with representatives last

Documentation of Amazon shows how the company sought after and then later purchased Diapers.com. Amazon made aggressive price cuts that made Diapers.com run into loss and eventually was bought by Amazon itself. Discussions of setting up special automatic pricing rules to change its prices automatically and more aggressively than its competitor are evident from the documents.

During this period Amazon lost around $200 million and shows the company’s loss withstanding capability to make its rivals go out of business. This clearly is a monopolistic tactic that lets its command over a giant market span. CEO Jeff Bezos was questioned on this matter for more than two hours.

Amazon also acquired Ring, a competitor in the smart home sector. Documents from senior company management emerged that said they are “willing to pay for the market position as it’s hard to catch the leader.” The acquisition of the Ring was named Project Darwin. Bezos said that they are buying market position and not technology. And that market position and momentum is very valuable to them

Amazon was also grilled of competing against third party sellers by copying its products.

Why Microsoft CEO Satya Nadella wasn’t called for the hearing:

Microsoft is not the same as it was 20 years back. Now it has shifted to a minor role. With Alphabet’s chrome consuming about two-thirds of the market, Apple’s Safari web browser comes second and Microsoft’s Bing is far behind in the race. The company’s dream to become a mobile phone giant has also flopped.
Microsoft has now got its view on cloud computing. Recently Slack Technologies have filed complaints against Microsoft in European Union. It alleged that Microsoft is using predatory behavior to drive adaptation of its Team’s communication program. It also says that Microsoft is trying to cut off Slack’s rival offering. For now, Microsoft has denied all claims made by Slack Technologies.
The hearing on Wednesday was mainly online advertising where Google and Facebook dominate. Amazon is also a leading player. Apple and Google also control iPhones and Androids. Microsoft, having no e-commerce arm was not invited to the meeting. They also no longer sell mobile phones. 
So the Microsoft CEO can sit this one out.

 

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