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Silicon Valley Anti-Trust Review: Scorecard and Coming Attractions

Tim Wu, the bard of big tech, has written multiple books about the rise and coming fall of technology monopolies, oligopolies and empires. In The Master Switch, Wu tells the story of how, in the 19th Century, the existing telegraph empire tried to smother telephone technology in its cradle. He continues with how the ascendant, then established, telephone monopoly destroyed rising competition for decades, with tacit support of the government.

Wu’s latest book, The Curse of Bigness argues that, since the emergence of the digital economy, our government has abandoned a rich and socially beneficial history of trust-busting to promote the success big companies dominating people’s lives. He advocates for the benefits of competition, especially among the digital industries that reach into our homes every minute.

Somebody was listening.

In the past two years, both public and private anti-trust actions have been initiated against the huge U.S. technology companies.  It is likely that more will arrive soon. I will use the occasion of last week’s landmark state and federal anti-trust enforcement filings against Facebook to examine some of the most significant anti-trust fights faced by the technology goliaths aimed to cut them down to size. Each of these battles affects different aspects of dominant digital tech, but they all arise from the argument that market size and position have been leveraged to stifle fair competition at a cost to consumers.

The major cases in this digital anti-trust law include the case filed in 1974 that broke up the AT&T telephone monopoly more than a decade later, and the Department of Justice case that led to the 2001 settlement agreement to open Microsoft Application Programing Interfaces to competitors. Prior to 2018, very few legal efforts have been initiated in D.C. to rein in the burgeoning power of companies like Google, Apple, Facebook or Amazon.

Last week’s cases against Facebook filed by the federal government and by 48 states will likely roll through the courts for years, possibly more than a decade. They seek to force Facebook to spin off WhatsApp and Instagram into their own companies, claiming that Facebook has purchased or destroyed emerging competing social media technologies while those technologies were starting to gain traction in the market. The FTC lawsuit includes a 2008 email from Facebook CEO Mark Zuckerberg stating, “it is better to buy than compete,” and a 2012 email where he wrote that facing Instagram in competition would be “really scary.”

According to Business Insider, “In addition to the divestitures, the filings are also seeking to keep Facebook from engaging in anticompetitive conduct. Such conduct could include Facebook preventing competing services from gaining access to its customer base, David Dinielli — an antitrust lawyer and a former special counsel with the antitrust division of the Department of Justice — told Business Insider. The ultimate goal, he said, is to restore competition in the market.” The scrutiny associated with these legal actions are also expected to limit Facebooks bolder acquisitions and anti-competitive behavior into the future, requesting the court to restrain Facebook from making further acquisitions of more than $10 million without notifying the plaintiffs in advance.

But the Facebook government suits are far from the only anti-trust trouble for U.S. big tech companies. Less than two months ago the U.S. Justice Department, joined by 11 states, sued Google for “unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets.” Google processes close to 90% of all online searches in the U.S. The government’s press release noted Google’s market value of a trillion dollars, and highlights Google’s use of exclusivity agreements that forbid pre-installation of competing search services on hardware, use of tying agreements forcing pre-installation of its own applications as prominent and un-deletable features on hardware, and using monopoly profits to create a self-reinforcing cycle of monopolization.

Google’s deals to place its search functions on Apple devices are especially sensitive and lucrative. According to a CNET article “Last year, almost half of Google’s search traffic came from Apple devices, according to the DOJ’s complaint. The agreement is so important that Google views losing it as a “Code Red” scenario, the lawsuit says.”   The New York Times notes, “The lawsuit, which may stretch on for years, could set off a cascade of other antitrust lawsuits from state attorneys general. About four dozen states and jurisdictions, including New York and Texas, have conducted parallel investigations and some of them are expected to bring separate complaints against the company’s grip on technology for online advertising. Eleven state attorneys general, all Republicans, signed on to support the federal lawsuit.”

Apple and Google are also defendants in anti-trust based lawsuits filed by Epic Games, covered by this blog here and here. Among other things, Epic accuses the tech giants of leveraging their dominant positions in electronic hardware 1) to exclude competitive app stores – overcharging application developers for the privilege of being available on the hardware – and 2) to exclude online payment competitors from offering alternate options to pay for those apps. The court, as a matter of law, has already thrown out two of Apple’s counterclaims based on addition of an Epic direct payment option for sale of its game apps to consumers using Apple hardware, rejecting Apple’s lawyer’s contention that the lesser fees consumers paid directly to Epic “should be in Apple’s hands.”

In a case that has rolled up and down the federal courts twice and is now before the U.S. Supreme Court (which refused to hear the case the first time), Oracle is trying to protect the Java Application Programming Interfaces – technology developed by a company Oracle purchased – from being used by Google in the Android Operating System. This case is based in copyright, not anti-trust law, but it addresses one of the most significant issues for companies who want to limit who can access and interact with their code – from database developers to automobile manufacturers – and its resolution will help determine which tech companies can create their own technological sandboxes and keep others from offering customer benefits within the closed systems. So this case will affect tech competition as much or more than some of the cases filed under U.S. anti-trust law.

Of course, the Europeans, frustrated with their own inability to create and nurture successful digital companies, have been quicker to claim antitrust violations by huge U.S. tech businesses. In June of 2017, the EU levied its largest antitrust fine in history – 2.4 billion euro – against Google to punish it for favoring its own shopping product in searches. In 2018 the EC fined Google more than 5 billion euro (a new record) for charges based on alleged misuse of Android to impede development of the market for mobile devices. But wait, there’s more, as then again in March 2019, the European Commission fined Google nearly 1.5 billion euro for misuse of its dominant position in the market for brokering online search ads.

And while The EU may be resolving its financial crises on the back of Google, it is also attending to other American tech giants. The EU just filed antitrust charges against Amazon last month, accusing Amazon of using sales data to gain unfair advantage over other merchants. In June of 2020 the European Commission opened antitrust investigation into Apple store rules as anticompetitive behavior. And, to bring our discussion full circle, the same commission has been suing Facebook on antitrust grounds for years on a number of different claims.

Are Google, Apple, Facebook, and Amazon too big?  Will consumers benefit from restricting the power and reach of these companies? For years this question was pondered, but not acted upon by U.S. governments. That era has ended and a new one has begun.  Watch this blog for updates as courts, legislatures and regulators consider whether and how to burden these beasts.

Copyright © 2021 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume X, Number 350
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About this Author

Theodore Claypoole, Intellectual Property Attorney, Womble Carlyle, private sector lawyer, data breach legal counsel, software development law
Senior Partner

As a Partner of the Firm’s Intellectual Property Practice Group, Ted leads the firm’s IP Transaction Team, as well as data breach incident response teams in the public and private sectors. Ted addressed information security risk management, and cross-border data transfer issue, including those involving the European Union and the Data Protection Safe Harbor. He also negotiates and prepares business process outsourcing, distribution, branding, software development, hosted application and electronic commerce agreements for all types of companies.

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704-331-4910
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