By: Evan Hammer
Introductions to Antitrust Law and Big Tech
In 1890, Congress adopted the Sherman Antitrust Act, the first antitrust legislation in the United States outlawing restraint of trade and monopolization of industries involving interstate commerce. The Sherman Act prevents competing businesses from fixing market prices, segmenting markets, or rigging bids, which are all ‘per se’ violations of the act. In 1911, the Supreme Court decided in Standard Oil Company of New Jersey v. US that the language used in the act doesn’t prohibit all attempts to restrain trade or monopolize, only those that are “unreasonable.1 This standard is known as the Rule of Reason and was the dominant governing principle in antitrust legislation for most of the 20th century.2 In 1914, Congress added on to antitrust legislation, passing the Federal Trade Commission (hereinafter “FTC”) Act and the Clayton Act. The former bans “unfair methods of competition” and “unfair or deceptive acts or practices.3” Intuitively, all violations of the Sherman Act also violate the FTC Act, which just allows the FTC to prohibit like activities. The latter addresses anti-competitive practices that the Sherman Act does not. Most notably, it prohibits mergers and acquisitions that lessen competition or create a monopoly. The act was amended by the Robinson-Patman Act in 1936 and the Hart-Scott-Rodino Antitrust Improvements Act in 1976. These additions ban certain discriminatory actions between merchants and require companies planning large mergers or acquisitions to notify the government in advance.4 These acts fall under both civil and criminal law, and the criminal punishments for violating any of the antitrust acts include up to ten years in jail and treble damages - fines up to three the amount gained by the conspirators or lost by the victims of the crime.
Antitrust law is commonly associated with Presidents Theodore Roosevelt and William Howard Taft; known as the “trust busters,” they brought over 130 such cases to trial during their presidencies, against firms in many major sectors including Standard Oil, American Tobacco, US Steel, and Kodak. While businessmen like John D. Rockefeller were able to take advantage of a country without or with weak economic regulations, this behavior is certainly not a problem of the past. Emerging industries provide new challenges as to the jurisdiction and application of the hundred-year-old law. In fact, in 2022, 242 antitrust cases were filed in federal district courts, down from over 300 in 2021 and from over 400 in 2020.5 Plaintiffs allege all sorts of violations, but the past three decades have seen the emergence of the information technology (IT) industry, which presents a unique challenge in terms of court regulation.
The IT industry has roots in the mid-20th century, but it wasn’t until the 1980s when Microsoft began dominating the personal computer market that the money-making potential of tech companies began to be realized. Over the next decades, hundreds of companies were to try and capture a share of the market, and existing companies did whatever they could to maximize their profits. By the 2020s, Alphabet (Google), Amazon, Apple, Meta (Facebook), and Microsoft had risen above their competitors, especially in the United States. The group is referred to by many names; Big Tech, the Tech Giants, the Big Five, or MAMAA, to name a few. Regardless of name, they have some important similarities. Each is among the world’s most valuable public companies, with a maximum market cap over 1 trillion US dollars. Each serves billions of customers, controls a large amount of user data, and are, in most cases, totally dominant in their respective market. In 2017, the Big Five made up more than 40 percent of the value of the Nasdaq 100.6 This type of market dominance always leads to scrutiny under antitrust laws, and there have been many instances of such legislation. In this paper, I will first examine two prior Big Tech antitrust cases involving Microsoft and Apple. Then I will discuss general difficulties in restricting the actions of these firms before looking at two ongoing cases and what their outcomes and effect on consumers might be. Last, I will look at Congress’s and President Biden’s ongoing efforts to try and combat Big Tech using antitrust prosecution as their biggest threat.
Case History
United States v. Microsoft Corporation
In 1992, the Federal Trade Commission began investigating whether the successful software company Microsoft was exhibiting monopoly power in the market for personal computers (PCs). Two years later, the Department of Justice opened their own investigation into Microsoft’s practice of ‘bundling’ its web browser, Internet Explorer, with its operating system, Windows OS. They felt that this practice was anticompetitive since every Windows user automatically had Internet Explorer, and the market for other browsers (most notably, Netscape’s Navigator) was thus restricted due to the extra time and money it would cost to install them instead. Allegedly, this practice led to Microsoft’s victory in the browser wars of the late 1990s.7 In 1998, the DOJ was joined by the Attorneys General of twenty US states and the District of Columbia in charging Microsoft with four violations of the Sherman Act; unlawful exclusive dealing arrangements, bundling, maintenance of a monopoly, and attempted monopolization of the internet browser market.8
After a 76-day bench trial, United States v. Microsoft Corporation was first decided in November 1999 by Judge Thomas Penfield Jackson’s findings of fact. He held that Microsoft was acting as a monopoly and that they had taken actions designed to sustain their monopoly power, such as eliminating rival applications. The following April, Jackson declared his conclusions of law, holding that Microsoft had deliberately engaged in anti-competitive behavior to monopolize the PC and web browser markets, direct violations of the Sherman Act. As a result, the District Court ordered a breakup of Microsoft, splitting the company into two parts – one to produce the OS and one to produce other software components.
Naturally, Microsoft corp. immediately appealed this decision, which sent the case directly to the Supreme Court. The D.C. Circuit Court reviewed the appeal in June of 2001, and it overturned Judge Jackson’s rulings, though not fully on reasons of the law. Jackson had violated the Code of Conduct for American Judges, discussing the case with news media while it was ongoing.9 His discussions included analogizing Microsoft to “gangland killers,” denying the company due process, and declaring that “they lost” before all evidence was heard.10 As a result, the Circuit Court overturned his decision that Microsoft should be broken up, though they did not overturn his findings of fact. The crucial question was whether or not traditional antitrust analysis was capable of being applied to the technological market. Judge Richard Posner had previously argued that it was, and in Microsoft the D.C. Circuit Court agreed at first. Yet, by altering the liability rule to be more permissive in the case of bundling (sometimes called tying), they contradicted themselves, deciding that traditional analysis needed to be altered in the modern era.11 Ultimately, the case was remanded back to the District Court under a different judge, and the DOJ reached a settlement with Microsoft that did not require them to change any of its code nor cease tying software with Windows in the future.
Opinions about the conclusion of Microsoft differ greatly. Some despised the special antitrust immunity that the settlement seemed to grant the company, believing that Microsoft would be free to continue restricting competition and that the agreed terms were superficial changes. Others, like Milton Friedman, believed that it set a precedent allowing government regulation of otherwise unregulated industries, hindering free market capitalism.12 I think that the most important factor to consider is how consumers were affected by the decision. Tying Internet Explorer to Windows OS allowed consumers access to a top-of-the-line web browser for free, so long as they had access to the top-of-the-line operating system that Microsoft produced. This increased consumer welfare, as requiring customers to pay for a web browser of their choice, and then take the time to install it, was undesirable for most people. While Microsoft was able to continue to stifle competition, their products were usually more innovative and beneficial to consumers, thus it’s somewhat unclear whether this outcome was more harmful or more beneficial to consumers.
Apple Inc. Litigation
Before shifting to present day analysis, I will discuss some of the court proceedings that took place over a decade-long span involving another Tech Giant. The origins of Apple Inc. v. Pepper (2019) stem from 2007, when a class-action lawsuit was filed against Apple in response to the introduction of the iPhone.13 The suit alleged that Apple’s SIM lock system and configuration of its App Store were anticompetitive practices that violated the Sherman Act. For this paper, I will focus on the charges related to the app store. While Apple allowed third-party developers to create and sell mobile applications, it took 30% of all revenue generated by app sales. Additionally, developers had to agree to terms and conditions preventing them from distributing their apps on any other marketplace, while consumers were virtually unable to download apps from any other source. This behavior resulted in an effective monopoly for app distribution on the iPhone, as developers were forced to raise the costs of their apps (to cover Apple’s fees) while Apple’s apps remained cheaper or even free to download. The company contended that it was a reseller, not a producer, of mobile applications, and the 30% fee was a sales commission. If this were the case, the allegations would have no merit since the Sherman Act does not have jurisdiction over such activity.
In Re Apple iPhone Antitrust Litigation (11-cv-06714-YGR) was the second class-action suit filed against Apple, alleging the same allegations though after several refinements. The District Court dismissed the case with prejudice, upholding Apple’s application of the “Illinois Brick doctrine.” Illinois Brick Co. v. Illinois (1977) was a Supreme Court case involving eleven Chicago concrete block manufacturers engaged in price fixing behaviors.14 The manufacturers sold concrete to masonry contractors, who completed jobs for general contractors, who often were contracted by the government, the original plaintiff of the suit (they were defendants on appeal). The Court’s 6-3 decision asserted that indirect victims of price fixing have no standing to sue for antitrust violations or damages as a result of the increased prices, and thus the Illinois government could not collect damages. Regarding Apple, the district court felt that consumers were indirect users of the App Store and thus could not bring a class-action suit alleging antitrust violations, only the app developers themselves could. The class then appealed to the United States Court of Appeals for the Ninth Circuit, who reserved the District Court’s ruling. This was directly contrary to the Illinois Brick doctrine and a prior Eighth Circuit decision regarding Ticketmaster.15 In June 2018, the Supreme Court agreed to hear Apple Inc. v. Pepper. Their main point of contention was how the doctrine could be applied to the modern technological landscape.
Almost a year later, The Court issued its 5-4 decision affirming the Ninth Circuit’s judgment. Consumers were indeed direct purchasers of apps from the App Store, and thus had standing to sue Apple under the Illinois Brick doctrine. Writing for the majority, Justice Kavanaugh felt that consumers directly felt the impact of Apple’s 30% fee and could thus file suit, though he mentioned that actually winning such a suit would be difficult. Notably, Apple v. Pepper required the court to interpret long-standing antitrust regulations with an eye toward the present and future of technology, smartphones, mobile applications, and app stores. The dissenting justices felt that their interpretation of the Illinois Brick doctrine directly went against previous principles.16 How exactly the doctrine and others like it may apply to modern and future antitrust law split the Supreme Court at the time and remains a difficult task as Big Tech firms continue to expand and dominate markets.
III. The Biden Administration’s Antitrust Policies
These seminal cases illustrate the reality that it is difficult to apply traditional antitrust law to modern cases, especially those involving the technology industry. In the early 20th century, the country was in the height of its Second Industrial Revolution, and antitrust acts were necessary to prevent emerging railroad or oil corporations from engaging in price discrimination or monopolizing their respective markets. The Sherman and Clayton Acts were designed to protect small firms and allow them the opportunity to compete.17 However, their purpose changed over time. In the 1970s, Robert Bork’s The Antitrust Paradox outlined the principle of the “consumer welfare standard,” which began to replace the rule of reason principle.18 Bork felt that a corporation being large doesn’t inherently mean it is acting in an anticompetitive way, so long as consolidation doesn’t raise prices and make consumers worse off. For the past forty-plus years, this standard has been the main principle of antitrust law. But recently, antitrust activists are responding to the immense size of the tech giants and realizing that this standard might be unable to fully capture the intention of the antitrust laws and thus need to be reworked or replaced altogether.19 Since taking office in 2021, President Joe Biden and Congress have taken many steps to try and reform antitrust law and shrink Big Tech, though the firms feel consumer welfare would only be harmed as a result.
The White House’s approach has been to fill key policy-making roles with prominent Big Tech critics. First, President Biden appointed Lina M. Khan to lead the Federal Trade Commission, who became known for her essay, “Amazon’s Antitrust Paradox,” referencing Bork’s book. She has since been an advocate for stricter antitrust regulation. Along with Kahn, Biden appointed Jonathan Kanter the assistant attorney general for the Department of Justice’s Antitrust Division. Kanter is closely associated with the New Brandeis movement, an anti-monopolistic movement inspired by Kahn.20 A third Biden appointment was Tim Wu, a Columbia University law professor who has made significant contributions to antitrust and communications policy. Wu coined the phrase “network neutrality,” the principle that ISPs must treat all Internet communications equally, without price discrimination, regardless of content, website, etc.21 Beyond filling these roles, Biden issued an executive order in July 2021 that directly attacked consolidation in Big Tech and other sectors. The order points out that many prominent industries such as agriculture, health care, and financial services are built on ‘robust competition.’ The President believes that this feature is key to keeping the American economy among the top economies in the world. Since Biden’s administration believes that Big Tech is fostering anticompetitive behaviors, he has called for a government-wide response, starting with the establishment of the White House Competition Council.
Momentum for antitrust reform has also found its way to Congress, as there are both Republicans and Democrats who support it. Several antitrust bills have been passed through the House and Senate, led by Democratic senator Amy Klobuchar, chair of the Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights. Along with Senator Tom Cotton (R), she introduced the Platform Competition and Opportunity Act in 2021, which would change how mergers and acquisitions were regulated.22 Currently, regulators attempting to block a merger must prove it is anticompetitive. But the bill would shift the burden of proof to the Big Tech companies that are attempting to acquire their rivals, who would have to prove that the proposed merger/acquisition will not result in a reduction of competitive balance or consumer welfare. In addition, Klobuchar joined Senator Chuck Grassley (R) in introducing the American Innovation and Choice Online Act in 2021.23 The bill would prohibit Big Tech platforms from giving their own productions preferential treatment. For example, it would be illegal to move their services to the top of search results on their web browsers. She also introduced the Merger Filing Fee Modernization Act, which the Senate passed in June 2021. It would increase funds for the FTC and the DOJ’s Antitrust Division.
IV. Recently Decided and Ongoing Legislation
As a result of this new focus on antitrust legislation, there have been several major cases involving Big Tech over the past few years. These suits are usually based in the United States or Europe but the desire for reform has expanded into India and other Asian countries. Since December 2021, there have been 17 antitrust suits filed against Alphabet, Amazon, Meta, Microsoft, and Apple, five of which were filed in the United States. Investigations are ongoing in all but four of the cases, so I will briefly discuss the three cases decided overseas.24
In January 2022, the European Union, led by France’s Commission Nationale de I’informatique et des Libertes, decided that Google and Facebook were making it difficult for users to decline being tracked by websites’ cookies, though it was easy to accept their use. Alphabet was fined a record 150 million euros ($161.8 million), while Meta was fined 60 million euros. In October of the same year, the Competition Commission of India found that Alphabet was monopolizing mobile operating systems through Android OS and fined them $161.5 million. Additionally, the Netherlands Competition Authority ordered Apple to change its terms and conditions due to their App Store fees violating the country’s competition law in May of 2022.
The recent legislation decided in the United States took place during December 2022, when Microsoft attempted to acquire video game developer Activision Blizzard, Inc, known for game franchises such as Call of Duty and World of Warcraft. The near $70 billion deal would have been the largest acquisition in both Microsoft’s history and in the history of the video game industry. However, the Federal Trade Commission filed a complaint blocking the merger due to Microsoft’s history of suppressing competition from its rivals in the gaming industry.25 For example, Microsoft acquired ZeniMax, parent company of Bethesda Softworks, and tried to make their games exclusive to Microsoft’s Xbox consoles, even after assuring European antitrust authorities it would not do so.26 The FTC felt that the merger would enable Microsoft to take a similar approach with Activision’s games, suppressing distribution, quality, or inflating price of the games to rival consoles, negatively impacting any consumer who uses a gaming console from one of Microsoft’s rivals. While this sort of behavior is certainly not a recent phenomenon, its application to technology, and more specifically, the video game industry, is something that the FTC and federal government must constantly be attempting to decipher.
V. Concluding Remarks
Though antitrust law has been a pillar of the American judicial system for over a century, market innovations have forced it to be a constantly evolving set of rules and regulations. While almost identical at their cores, the ways in which the Sherman and Clayton Acts were applied in the early 20th century must be very different from how they are applied in the modern age. This is especially true when considering tech giants whose market shares may be reminiscent of 1900s-era trusts. Additionally, the mechanisms involved in technology markets, such as operating systems, application stores, or video games, can make it very difficult for a judge or jury to apply the text of antitrust laws with the goal of consumer protection in mind, and companies tried to take advantage of this early on. However, in recent years, President Biden’s administration has begun to crack down on Big Tech, attempting to better regulate the industry using antitrust laws. Similarly, other countries have also been applying pressure and more regulation is sure to be coming soon.
Footnotes
1 Standard Oil Co. v. United States, 221 U.S. 1
2 The Premerger Notification Office, DPIP and CTO Staff. “The Antitrust Laws.” Federal Trade Commission
3 The Antitrust Laws.” Federal Trade Commission
4 Ibid
6 "The 'Big Five' Could Destroy the Tech Ecosystem", Bloomberg.com, November 15, 2017
7 The Microsoft case by the numbers: comparison between U.S. and E.U." Le Concurrentialiste. February 10, 2014. Retrieved February 6, 2015.)
8 United States v. Microsoft Corp., 253 F.3d 34 (lexis.com)
9 Judiciary Policies and Procedures: Codes Of Conduct
10 United States v. Microsoft Corp., 253 F.3d 34 (lexis.com)
11 J. Greogry Sidak and David J. Teece, Dynamic Competition in Antitrust Law. (link)
12 Friedman, Milton (March–April 1999). "The Business Community's Suicidal Impulse". Policy Forum. Cato Institute.
13 Apple Inc. v. Pepper, 2017 U.S. LEXIS 6185
14 Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977)
15 Campos v. Ticketmaster Corp., 140 F.3d 1166 (8th Cir. 1998).
16 Apple Inc. v. Pepper, 2017 U.S. LEXIS 6185
17 Everything to Know About Today's Antitrust Reform Movement | Time
18 Bork, Robert H. The Antitrust Paradox: A Policy at War with Itself. Free Press, 1993
19 Everything to Know About Today's Antitrust Reform Movement | Time
20 The Return of the Trustbusters - WSJ
21 Net Neutrality | Electronic Frontier Foundation (eff.org)
24 The ongoing big tech antitrust cases to watch in 2023 (qz.com)
26 Ibid.