Should tech giants be regulated like oil barons and railroad tycoons? House Committee thinks so.

November 29, 2020

Apps, social media, online search and online purchases have become an essential part of everyday life. Tech giants who are dominant in these spaces, such as Facebook, Apple, Google and Amazon, have harnessed tremendous power over consumers as well their business partners. The world has taken notice of this and the legislature has recently started to take actions. Earlier this year, with much fanfare, the top executives of these four tech giants were called to testify in front of Congress about their companies’ market power.

“To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”

Recently, the House Judiciary Committee issued a report on its “investigation of competition in the digital market.”  The Committee found that Facebook, Apple, Google and Amazon have too much market power and have used their power for anti-competitive purposes. The Committee view of the tech giants’ behaviors is best reflected in the following scathing remark: “To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”

The Committee clearly considers the current laws and enforcement inadequate in addressing anti-competitive practices in the digital economy. In turn it recommends a slew of regulations and legislative reforms to build a more robust tool kit to address these concerns. Its recommendations focus on three directions: 1. restoring competition in the digital economy; 2. strengthening the antitrust laws; and 3. reviving antitrust enforcement.

For restoring competition in the digital economy, the report recognized that digital services, like telecommunication, banking and transportation, is a sector where it is necessary to have “a broad set of policies to create the conditions necessary for fair competition, even when economies of scale may favor concentration.” This foreshadows the overall approach that the report would take; it analogized many of the anti-competition issues in the digital economy today with those the legislature had encountered before in the traditional sectors. The report’s number one recommendation for restoring competition is to “reduce conflicts of interest through structural separation and line of business restrictions.” Conflicts of interest arise because the tech giants often compete with their customers and business partners. Analogizing again with railroads and telecommunication services, the report said that these policy tools had been standard in reining in dominant intermediary in those sectors. Undoubtedly, this is the most dramatic recommendation because it could potentially lead to the breakup of the tech giants. The report also recommended other measures such as increasing interoperability and data portability, implementing non-discrimination rules, and prohibiting abuse of bargaining power, etc.    

The report also recommends an expansion of the application and enforcement of anti-trust laws. It considers the current application and enforcement narrow and insufficient. At the outset, the report recommends a broad construction of the anti-trust goals as opposed to the narrow construction in recent history. It then primarily focused on mergers and acquisition enforcement, and monopolization laws. The expansion of the anti-trust laws would be achieved by recalibrating and broadening interpretation of the existing anti-trust statutes and overriding certain anti-trust case laws. For example, in examining mergers for anti-trust concerns, it proposes moving away from the case-by-case analysis of current case law and codifying a bright-line structural presumption rule, which would create a rebuttable presumption of anti-trust violation when the merger would result in one firm controlling over 30% market share. It also recommends codifying a presumption “against acquisition of startups by dominant firms” as well as a presumption against vertical integration in certain situations. On monopolization laws, the report recommends that important concepts, such as “abused of dominance” and “predatory pricing,” be more broadly construed so that these laws can be more easily applied to curb anti-competitive behaviors in the digital economy.     

The Committee’s recommendations give a good sense of the approach it would likely take in future legislation. The recommendations primarily involve enhancing existing tools to make them more readily applicable to the digital economy. This reflects the Committee’s desire to fit the necessary measures within the existing legal framework rather than to create a brand new framework. Could the framework once used to rein in the oil barons and railroad tycoons be recalibrated to adequately address issues in the digital economy? The Committee clearly thinks it can be, for the most part. In its assessment, the tech giants and the oil barons and railroad tycoons are more similar than different, and the same tools should be used to address their anti-competitive behaviors. Conceptually it makes sense as the same basic principles can be applied in different contexts. However, to supercharge the existing anti-trust laws to tailor it to the digital economy may have inadvertent effects on other sectors of the economy. Given the unique aspects of the digital economy, the legislature may need to be innovative and go outside the existing framework to achieve its regulatory goals. 

For the tech giants, one thing for sure is that things are going to change. Their industries are on the cusp of becoming more regulated than ever before. Breakups may not happen but higher standards of conduct coupled with more hurdles on mergers and acquisitions should be expected.

Ting Zheng