Can the Courts and New Antitrust Laws Break Up Big Tech?

By Kendall Kuntz

If you have a social media profile on Facebook, have shopped online on Amazon, have run a search on Google, or have purchased an application through Apple's App Store, you have interacted with Big Tech.  Big Tech refers to the major technology companies including Apple, Google, Amazon, and Facebook.  Big Tech is known for its dominance in online searching, advertising, social networking, and shopping, but in 2020, a great deal of its publicity surrounded an investigation by Congress for violations of antitrust law.  For years, Big Tech has been using its power to suppress market competition and engage in “take it or leave it” business negotiations, thereby evading antitrust regulation that is “overwhelmingly focused on the welfare of the consumer."  The United States Government has begun the process of attempting to break up Big Tech by filing a flurry of lawsuits against Big Tech, including against Google and Facebook, and by proposing legislation aimed at checking Big Tech power, expanding the scope of current antitrust laws, and augmenting enforcement resources.

There are three core antitrust laws in effect today: the Sherman Act, the Clayton Act, and the Federal Trade Commission Act.  These three antitrust laws attempt to protect market competition for the benefit of consumers.  The Sherman Act outlaws monopolies and contracts that unreasonably restrain trade.  The Clayton Act prohibits mergers and acquisitions that substantially lessen competition or create a monopoly.  Lastly, the Federal Trade Commission Act bans “unfair methods of competition” and “unfair or deceptive acts or practices.”  Antitrust laws are not established to punish success, but are focused on preventing anticompetitive effects, exclusionary practices, reduced consumer choice, and hindered innovation.

From June 2019 through October 2020, Congress examined the digital dominance and business practices of Amazon, Apple, Google, and Facebook to determine how their market power affected the economy and democracy.  Congress found that the totality of the evidence demonstrated that Big Tech has too much monopoly power, and it must be reined in to protect economic freedom and encourage fair market competition.  Congress also reviewed existing antitrust laws and determined that such laws needed to be strengthened.

On October 10, 2020, the U.S. Department of Justice (“DOJ”) and eleven states filed a lawsuit against Google.  The complaint alleged that Google violated Section 2 of the Sherman Act, 15 U.S.C. § 2, by “unlawfully maintaining monopolies in the markets for general search services, search advertising, and general search text advertising . . . through anticompetitive and exclusionary practices.”  Google’s alleged anticompetitive and exclusionary practices included Google entering into exclusionary agreements with distributors that prohibited Google’s distributors from dealing with Google’s competitors and required the distributors to display Google applications, like the search application, in prime positions where consumers would likely begin their web searches.  These exclusionary agreements enabled Google in recent years to account for nearly 90% of all general search engine queries in the United States, thus foreclosing competition for internet searching.

Shortly after filing a lawsuit against Google, the Federal Trade Commission (“FTC”) filed suit against Facebook.  That complaint alleged that Facebook violated Section 5(a) of the FTC Act, 15 U.S.C. § 45(a) through “its anticompetitive conduct and unfair methods of competition in or affecting commerce.”  Notably, the lawsuit defined Facebook’s anticompetitive conduct to include (1) acquiring Instagram and (2) acquiring WhatsApp, to “squelch those threats.”  The FTC has argued that Facebook’s continued ownership and operation of Instagram and WhatsApp prohibits direct competitive threats and raises barriers to entry into personal social networking, thereby protecting Facebook.  Without neutralizing Facebook’s anticompetitive conduct, the complaint explained that Facebook would likely seek to acquire “any companies that constitute . . . threats to its personal social networking monopoly.”

Facebook responded by calling the lawsuits revisionist history.  When Facebook acquired Instagram in 2012, the FTC voted 5-0 to clear the transaction, finding it did not make the market any less competitive.  Why would the FTC now allege that the acquisition was anticompetitive, when the FTC had unanimously approved it years before?  Pre-acquisition, Instagram only had about 2% of the users it has today, no revenue, and minimal infrastructure.  In 2012, Instagram had only 30 million users.  In 2012, Facebook had surpassed one billion active users.  While Facebook CEO Mark Zuckerberg has expressed “it is better to buy than compete,” when Facebook acquired Instagram in 2012, the platforms may have been competing in the photo sharing sphere, but by pure scale of size, they were not competitors.  As of 2021, Instagram has clearly become a mainstay in the social media world, but pre-Facebook acquisition, with a limited number of users, Instagram could have virtually disappeared, like MySpace did.  With an uncertainty surrounding the longevity of social media platforms, the FTC may have originally approved the acquisition of Instagram because Instagram and Facebook were not directly competing over users, and it was impossible to predict, at the time, how long Instagram, or Facebook, would continue to exist.  However, it is clear today that Instagram has survived and thrived under Facebook.  With Instagram escaping a similar fate to MySpace, and becoming a mainstay in the photo-sharing world, Facebook has been able to hinder other firms from competing in the photo-sharing segment.  Facebook’s 2012 acquisition of Instagram may not have originally seemed anticompetitive, but with Instagram blossoming into the dominant photo-sharing platform it is today, the merger has had anticompetitive effects warranting new review by the FTC.

The push to break up Big Tech has bipartisan support.  A poll by Vox and Data for Progress found that 59% of overall people surveyed supported breaking up Big Tech; 55% of those supporting the break-up of Big Tech were Democrats, while 61% were Republicans. 

The consistent feelings surrounding Big Tech, irrespective of political party, are important, as Senator Amy Klobuchar, D-Minn., unveiled a “sweeping antitrust reform bill” on February 4, 2021.  Senator Klobuchar’s Competition and Antitrust Law Enforcement Reform Act (“CALERA”) seeks to reform current antitrust laws, making it more challenging for big companies to get mergers and acquisitions approved, and giving enforcers, like the FTC and DOJ, more enforcement power.

CALERA has a number of key proposals to current antitrust laws and enforcement.  Among many proposed changes, CALERA has importantly proposed to change the standard and burden for proving that the merger or acquisition would not cause harm.  Currently, under the Clayton Act, regulators must prove that the proposed merger or acquisition would hurt consumers “when the effect of such acquisition may be substantially to lessen competition” in the market.  CALERA seeks to shift the burden and standard, requiring that the merging or acquiring entities prove that the merger would “create an appreciable risk of materially lessening competition.”  While it will be up to the courts to interpret this new standard in practice, the new standard is a means to prevent a corporate merger or acquisition where there would be insufficient evidence to demonstrate that competition would be substantially lessened.

In addition to shifting the burden and amending the legal standard for unlawful acquisitions, CALERA also focuses on exclusionary conduct.  CALERA proposes to amend the Clayton Act by creating a presumption of illegality for exclusionary conduct that presents “an appreciable risk of harming competition” if the exclusionary conduct is undertaken by a company, buyer or seller, that has a market share over 50% or otherwise has significant market power in the relevant market.  CALERA defines exclusionary conduct as conduct that “materially disadvantages [one] or more actual potential competitors; or tends to foreclose or limit the ability or incentive of [one] or more actual or potential competitors to compete.”

Additional notable CALERA provisions include increasing civil monetary penalties under the Sherman and Clayton Acts, and increasing funds for Federal Agencies, like the FTC and the DOJ.  The FTC has reported being financially strapped and attempted to resolve budgetary issues by considering staff reductions, cutting litigation costs, and bringing fewer cost-intensive cases.  Increasing funds for these federal agencies could increase the available staff and resources to properly investigate and try these Big Tech cases.

While antitrust laws and Big Tech may have seemed predictably impenetrable, the laws and companies are now commanding attention and calls for reform throughout the legal sector.  The year of 2021 may become the year that Big Tech’s anticompetitive actions are stopped.  As Senator Klobuchar said, “[y]ou can’t take on trillion-dollar companies with Band-Aids and duct tape.”