Can the U.S. Antitrust Agencies Handle Big Tech?

Author: Steven Levitsky

PhD (Johns Hopkins), BCL (McGill), has 30 years’ experience at leading international firms including Shea & Gould and Dewey & LeBoeuf. He now practices as a legal consultant and can be reached at Steven.Levitsky@outlook.com.

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Both U.S. antitrust agencies are now deeply involved in their “investigations” of “Big Tech.”

As you know, the United States is so devoted to competition that we have two competing antitrust agencies. It was bad enough when these two agencies wasted everyone’s time and money fighting with each other over which agency gets to review a particular merger.[1] That situation was aggravated two years ago, when Congress proposed the “SMARTER ACT”[2] to make both agencies follow the same merger clearance rules. That bill was defeated after fierce agency lobbying, and the agencies successfully preserved their right to waste the public’s time and money with counter-productive bickering.

But now there is a whole new level of agency catfighting – this time over the “investigations” into “Big Tech.” In February, the FTC announced its Big Tech “Task Force.” In March, there was a public announcement that the Antitrust Division will look into Google and Apple, while the FTC would investigate certain conduct by Facebook and Amazon. Then in July, the DoJ apparently highjacked most of the investigation by targeting Amazon and Facebook as well. Following this, the DoJ then took the unusual step of intervening in the FTC’s case against Qualcomm to argue that the court should not pay too much attention to the FTC’s remedy claims,[3] or even to the merits of its case.[4]While these two agencies fight with each other to preserve their turf, outside in the streets, there is a populist uprising against the four “Big Tech” companies, based on their possible impact on small and mid-sized businesses, and possibly on their impact on consumers.[5] The popular allegations are that they favour their own products and services, pre-empt smaller companies from access to consumers, manipulate pricing, and are just too big to control. On the other hand, of course, there is the plausible argument that these companies represent the United States in critical economic “jousts” with the rest of the world, and the country would suffer economically if they were seriously harmed.

Obviously, it’s not clear which theory is correct. But what is clear is that these four companies achieved their preeminence with the consent of the two antitrust agencies that approved all their agglutinative mergers and overlooked their possible but certainly visible alleged market conduct violations. So, while the agencies go through a charade of pulling out their investigation flashlights and peering into the corners, the truth is that these agencies always had the power to review Big Tech’s mergers and Big Tech’s market conduct. And, with very rare exceptions, they did absolutely nothing.

It's not even clear now that the agencies have any theory to go on. For example, in a searingly brilliant demonstration of double-talk, Makan Delrahim, head of the Antitrust Division, observed that “without the discipline of meaningful market-based competition, digital platforms may act in ways that are not responsive to consumer demands.” This tremendous insight was followed by a promise that “The Department’s antitrust review will explore these important issues.” And the chairman of the FTC recently said, “This is not to say that big is bad.”[6] But what was the Department or the FTC doing all the years when the pre-conditions for these “important issues” were being set up? In fact, they were allowing these very companies to grow bigger and bigger.

One very legitimate preliminary question is, why did the agencies suddenly scramble to launch their investigations in early 2019? Having slept soundly at the switch while these four companies built up what is allegedly their monopoly power, what could account for their current sudden investigative interest?

When you look around, there seem to be only three possible answers. One: the insistent voices of Presidential hopefuls that Big Tech companies should be broken up. Two: the increasingly shrill voice of Congressional committees that want to investigate Big Tech. Three: the independent law enforcement voices of the elected attorneys general of each state, who don’t quite understand why the federal agencies have sat back all these years and done nothing. So one question is, without this vigorous prompting from elected officials, would the agencies even have bothered to conduct any investigation of Big Tech at all? Their highly dormant state before this political pressure was applied seems to suggest the answer is a resounding “no”.

In fact, as mentioned, the DoJ and FTC were busy approving the very mergers that suddenly turned the tech companies into “Big Tech.” Every single merger above the HSR threshold for any of these companies had to be cleared by one of these two agencies – and in fact, was cleared. Furthermore, even transactions that were below the HSR threshold were clearly within the jurisdiction of either agency to block. Both agencies have litigated to block mergers far below the HSR threshold. And the DoJ once even sued to block one merger as small as $3 million.[7] So why did they do nothing to investigate the multiple mergers that now, all of a sudden, are suspect in their cumulative effect? Was that not a predictable outcome?

It is basic merger law that a merger review is “forward-looking. Section 7 of the Clayton Act “bars mergers that may lead to harmful effects.”[8] This means that a merger can be blocked if it is reasonably likely to lead to a substantial lessening of competition. And both agencies have a bevvy of economists on hand to help predict the reasonably likely outcome of the mergers their agencies review. So where were they, as each of these now “Big Tech” companies were allegedly enhancing and augmenting their economic power by acquiring targets through either conglomerate mergers or horizontal mergers?

One answer, of course, is that both agencies are committed to the so-called “Chicago School” of economic antitrust analysis, which emphasises economic efficiency and so-called “consumer welfare” (a real misnomer) over the preservation of small and medium-sized businesses.

You can’t begin to discuss this subject without referring to the Supreme Court decision in United States v. Von's Grocery Co.,[9] a case that has earned the utter contempt of the Chicago School. Von's Grocery involved a merger of two competing grocery chains with a combined market share of 7.5%. That market share was obviously small, but the Federal Trade Commission sued to block the merger. It argued that, while the sales and market shares of these two chains increased over a decade, the number of single-owner stores fell dramatically, and that substantially affected competition.

The Court agreed with the FTC. It concluded that “[w]hile the grocery business was being concentrated into the hands of fewer and fewer owners, the small companies were continually being absorbed by the larger firms through mergers.”[10] It blocked the merger.

Although Von's Grocery is reviled and abhorred by current antitrust officials, the decision actually raises many of the very critical concerns that the current populist movement supports. In one critical passage, the Supreme Court referred to “the tendency of powerful business combinations to restrain competition ‘by driving out of business the small dealers and worthy men whose lives have been spent therein, and who might be unable to readjust themselves to their altered surroundings.’”[11]

In another passage, referring to the series of antitrust enactments over several decades, the Court observed:

From this country's beginning, there has been an abiding and widespread fear of the evils which flow from monopoly -- that is, the concentration of economic power in the hands of a few. * * *

To arrest this "rising tide" toward concentration into too few hands and to halt the gradual demise of the small businessman, Congress decided to clamp down with vigour on mergers. It both revitalised § 7 of the Clayton Act by "plugging its loophole" and broadened its scope so as not only to prohibit mergers between competitors the effect of which "may be substantially to lessen competition, or to tend to create a monopoly," but to prohibit all mergers having that effect. By using these terms in § 7 which look not merely to the actual present effect of a merger, but instead to its effect upon future competition, Congress sought to preserve competition among many small businesses by arresting a trend toward concentration in its incipiency, before that trend developed to the point that a market was left in the grip of a few big companies. Thus, where concentration is gaining momentum in a market, we must be alert to carry out Congress' intent to protect competition against ever-increasing concentration through mergers.”[12]

Obviously, having 7.5% of the market in Von’s Grocery was not earthshaking. But the social policy behind Von’s Grocery may well be. If you look at the current arguments of Presidential hopefuls, Congressional investigators, and attorneys general (who just announced their own investigation of Big Tech), aren’t they in fact all complaining about the “gradual demise of the small businessman” and the result that the “market was left in the grip of a few big companies.”

This socially-based conclusion, of course, has earned the complete derision of adherents of the Chicago School of economic analysis, who basically regard the values of Von's Grocery as retarded. For example, one former FTC commissioner co-authored an article that referred to Von’s Grocery as an example of “a court or regulator faithfully and accurately applying bad economic theory which simply has not yet fully comprehended the competitive implications of the practice at issue.”[13] Quite a mouthful. And, in another place, this same former commissioner, mocking a 2007 president hopeful, observed:

“Protection of small businesses and “mom and pop” outlets, vertical integration as a monopolistic evil, and attacks on marginal increases in concentration without a theory for how those changes will impact consumers. Looks like we’ve got all of our bases for an antitrust theory reminiscent of the 1960’s covered.”[14]

But protection of small businesses and “mom and pop” outlets, vertical integration as a monopolistic evil, and attacks on marginal increases in concentration, are exactly what the Presidential hopefuls, Congressional committees, and attorneys general are advocating. In other words, the antitrust agencies themselves are aligned with economic principles that helped produce the exact problems that people are complaining about today.

The DoJ has allowed big mergers even when, viewed from the street, they seem to scream “excess concentration.” Remember the U.S. Airways-American Airlines merger in 2013? The DoJ press release stated that

American and US Airways compete directly on more than a thousand routes where one or both offer connecting service, representing tens of billions of dollars in annual revenues. They engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual route-wide revenues. Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares.

Obviously, U.S. Airways-American Airlines was a major, not a “marginal” increase in market concentration (Von’s Grocery). But the DoJ caved into intense lobbying, settled the case, and created a result where consumers saw their competing “options” reduced to two, or even none. Of course, prices went up as a result.

Another example of the DoJ protecting the public is the recent CVS-Aetna merger settlement, where one obvious vertical restraint could be the steering of Aetna customers to CVS services. Of course, the DoJ fought fanatically to argue that the Federal court reviewing its decision to settle had absolutely no business looking at the overall antitrust issues in the case. According to the DoJ, the court needed to put on blinders and look only at the case the DoJ chose to bring, not the one it could have brought on the public’s behalf. In other words, the DoJ argued that no one, the court included, could represent the public’s interest in reviewing the merger settlement. Note that the Tunney Act, that allows courts to review merger settlements, was passed and amended because of perceived improprieties by the DoJ.[15]

Of course, no discussion of this topic would be complete without a nod to the DoJ for recently approving the Sprint/T-Mobile merger, a transaction that reduced retail competition from four to three in a market that affects virtually every consumer in America. The DoJ apparently thought the FCC’s decision about bringing cell service to rural America was just great. And maybe it is. But exactly how is that a competitive decision, as opposed to a social-values decision that the DoJ claims are irrelevant?

So much for the DoJ. But is the FTC any better? For example, it is rumoured that the FTC may be looking at Google’s search biases. But the FTC looked at that very issue in 2013 and closed its investigation after requiring only minor changes to Google’s search practices. Where was the FTC for the past six years while smaller competitors were supposedly consistently excluded from the market by these practices?

Let’s now turn to the FTC’s handling of Facebook’s privacy violations. This is obviously not an antitrust issue. But it is a regulatory issue. Just how well did the FTC do on that? The FTC settled privacy issues with Facebook back in 2012. But as we know now, Facebook engaged in far more egregious violations after the 2012 settlement, including the Cambridge Analytica mess. Where was the FTC then? And the current $5 billion settlement is just a fragment of Facebook’s quarterly earnings. So where is the vigorous enforcement here?

What’s the point of all these issues? In my view, there are three answers: (1) it is absurd to have two competing antitrust agencies that spent time fighting with each other. (2) it is absurd to have these agencies continue to be committed to economic theory that has led to highly-concentrated markets and the loss of opportunities for small and mid-sized businesses. (3) It is absurd to assume these agencies will ever voluntarily change their enforcement practices.

The real question is, what is the next step? Perhaps it is time that the country’s elected officials – the Presidential hopefuls, the Congressional investigators, and the state attorneys general – to take the lead and override the complacent, laissez-faire attitude of the antitrust agencies. In fact, we have already seen a suddenly invigorated group of attorneys general start their own generic price fixing case (the DoJ is still investigating), move to block the Sprint/T-Mobile merger, and initiate their own investigation of Google. Could it be that antitrust enforcement – which started in the U.S. as a state populist movement in the 1880s – will shift back to the states for aggressive action?

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[1] For those who don’t know, the two agencies have divided up U.S. industry based on their supposed area of expertise. For example, in energy mergers, the Department of Justice takes electricity, while the Federal Trade Commission takes gas and gas pipelines. But what happens if an energy merger involves both gas and electricity? The answer is, the agencies fight over the merger, often using up part or all the 30-day HSR waiting period. That means that mergers that might have been cleared in 30 days now have to either pull-and-refile or risk a second request, as well as suffering a huge amount of wasted time. The author has been involved in at least 10 mergers where a large part, or all, of the waiting period, was wasted with inter-agency bickering.

[2] The SMARTER Act is an acronym for the Standard Merger and Acquisition Reviews Through Equal Rules Act of 2017.

[3] Federal State Commission v. Qualcomm Incorporated, 5:17CV00220 LHK. [4] Federal State Commission v. Qualcomm Incorporated, No. 19-16122.

[5] I say “possibly,” because these companies may actually compete successfully on lower prices, no prices at all (free services), or better or faster innovation than any competitors could offer.

[6] Joseph Simmons, Prepared Remarks of Chairman Joseph Simons Georgetown Law Global Antitrust Enforcement Symposium September 5, 2018, https://www.ftc.gov/system/files/documents/public_statements/1413340/simons_georgetown_lunch_address_9-25-18.pdf.

[7] United States v. George’s Foods, 5:11CV00043 WDVA.

[8] Mergers, Federal Trade Commission, https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/mergers.

[9] 384 US 270 (1966).

[10] 384 US, 273.

[11] 384 US, 275, citing United States v. Trans-Missouri Freight Assn., 166 US 290 (1897).

[12] 384 US, 276-277 (my emphasis).

[13] Geoffrey Manne and Joshua Wright, The Limits of Antitrust in the New Economy, George Mason University Law and Economics Research Paper Series 9, 9 (2009),https://www.law.gmu.edu/assets/files/publications/working_papers/0954LimitsofAntitrust.pdf.

[14] Joshua Wright, Edwards, Antitrust, and the Return of Von's Grocery?, Truth on the Market, https://truthonthemarket.com/2007/10/03/edwards-antitrust-and-the-return-of-vons-grocery/.

[15] The Tunney Act, or the Antitrust Procedures and Penalties Act, requires courts to review settlements negotiated by the DoJ. The Act was first passed in 1974, because of claims of alleged improprieties that the DoJ had cleared an ITT merger in exchange for ITT’s offer to finance the 1972 Republican Convention. It was amended in 2004, based on the DoJ’s alleged failure to obtain meaningful remedies against Microsoft.