Antitrust Law Daily House antitrust subcommittee proposes ‘structural separations,’ law changes to deal with online platforms
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Wednesday, October 7, 2020

House antitrust subcommittee proposes ‘structural separations,’ law changes to deal with online platforms

By Lynn Stanton, TR Daily, and Peter Reap, J.D., LL.M.

The massive 450-page report examined dominant online platforms Facebook, Google, Amazon, and Apple, and recommended several reforms.

The House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law has released a staff report entitled Investigation of Competition in Digital Markets examining dominant online platforms Facebook, Google, Amazon, and Apple, and recommending several reforms. In releasing the report detailing the findings of the 16-month long investigation, the majority says it shows a clear and compelling need to strengthen antitrust enforcement and to consider a range of forceful options, including "structural separations" and prohibitions on anticompetitive conduct. The report calls for legislative proposals to "(1) address anticompetitive conduct in digital markets; (2) strengthen merger and monopolization enforcement; and (3) improve the sound administration of the antitrust laws through other reforms." It proposes several specific recommendations, including: using structural separation and line of business restrictions to reduce conflicts of interest; strengthening Section 7 of the Clayton Act and the law on vertical mergers; strengthening Section 2 of the Sherman Act; and improving antitrust enforcement by the FTC and Department of Justice Antitrust Division. A minority report entitled The Third Way: Antitrust Enforcement in Big Tech, was released by Republican Representatives Doug Collins (R., Ga.), Matt Gaetz (R., Fla.), and Andy Biggs (R., Ariz.).

Democratic leaders’ statement on release. "As they exist today, Apple, Amazon, Google, and Facebook each possess significant market power over large swaths of our economy. In recent years, each company has expanded and exploited their power of the marketplace in anticompetitive ways," said Judiciary Committee Chairman Jerrold Nadler (D., N.Y.) and Antitrust Subcommittee Chairman David N. Cicilline (D., R.I.) in a joint statement. "Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation, and safeguards our democracy. This Report outlines a roadmap for achieving that goal."

Recommendations. The majority report’s recommendations are presented in three broad areas:

Restoring Competition in the Digital Economy

  • Structural separations and prohibitions of certain dominant platforms from operating in adjacent lines of business;
  • Nondiscrimination requirements, prohibiting dominant platforms from engaging in self-preferencing, and requiring them to offer equal terms for equal products and services;
  • Interoperability and data portability, requiring dominant platforms to make their services compatible with various networks and to make content and information easily portable between them;
  • Presumptive prohibition against future mergers and acquisitions by the dominant platforms;
  • Safe harbor for news publishers in order to safeguard a free and diverse press; and
  • Prohibitions on abuses of superior bargaining power, proscribing dominant platforms from engaging in contracting practices that derive from their dominant market position, and requiring due process protections for individuals and businesses dependent on the dominant platforms.

Strengthening the Antitrust Laws

  • Reasserting the anti-monopoly goals of the antitrust laws and their centrality to ensuring a healthy and vibrant democracy;
  • Strengthening Section 7 of the Clayton Act, including through restoring presumptions and bright-line rules, restoring the incipiency standard and protecting nascent competitors, and strengthening the law on vertical mergers;
  • Strengthening Section 2 of the Sherman Act, including by introducing a prohibition on abuse of dominance and clarifying prohibitions on monopoly leveraging, predatory pricing, denial of essential facilities, refusals to deal, tying, and anticompetitive self-preferencing and product design; and
  • Taking additional measures to strengthen overall enforcement, including through overriding problematic precedents in the case law.

Reviving Antitrust Enforcement

  • Restoring robust congressional oversight of the antitrust laws and their enforcement
  • Restoring the federal antitrust agencies to full strength, by triggering civil penalties and other relief for "unfair methods of competition" rules, requiring the FTC to engage in regular data collection on concentration, enhancing public transparency and accountability of the agencies, requiring regular merger retrospectives, codifying stricter prohibitions on the revolving door, and increasing the budgets of the FTC and the Antitrust Division; and
  • Strengthening private enforcement, through eliminating obstacles such as forced arbitration clauses, limits on class action formation, judicially created standards constraining what constitutes an antitrust injury, and unduly high pleading standards.

The investigation’s broad scope covered several distinct markets: online search, online commerce, social networks and social media, mobile app stores, mobile operating systems, digital mapping, cloud computing, voice assistant, web browsers, and digital advertising. It examined four dominant online platforms: Facebook, Google, Amazon, and Apple.

Enforcement agencies. The majority report contends that the Subcommittee uncovered evidence that the antitrust agencies consistently failed to block monopolists from establishing or maintaining their dominance through anticompetitive conduct or acquisitions. "This institutional failure follows a multi-decade trend whereby the antitrust agencies have constrained their own authorities and advanced narrow readings of the law. In the case of the Federal Trade Commission, the agency has been reluctant to use the expansive set of tools with which Congress provided it, neglecting to fulfill its broad legislative mandate." The report also finds fault with the Justice Department "Together with the DOJ, the FTC has also chosen to stop enforcing certain antitrust laws entirely." The report cites the Robinson-Patman Act, which Congress passed in order to limit the power of large chain retailers to extract concessions from independent suppliers.

Private antitrust enforcement. Several trends in judicial decisions have hampered private antitrust plaintiffs, according to the report. It concludes that Congress should consider eliminating court-created standards for antitrust injury and antitrust standing; reducing procedural obstacles to litigation, including through eliminating forced arbitration clauses and undue limits on class actions; and lowering the heightened pleading requirement introduced in Bell Atlantic Corp. v. Twombly.

Subcommittee ranking member’s reaction. In a statement, subcommittee ranking member Jim Sensenbrenner (R., Wis.) said that while he agrees with many of the majority reports’ findings, he is "concerned with several of the recommendations made by the committee. A ‘Glass-Steagall’ like approach to tech regulation does not benefit consumers and will lead to too much government regulation of a very innovative industry. Likewise, mandating data interoperability could hamper future innovation by preventing the development of new and better systems."

Sensenbrenner added, "I am also opposed to several of the proposed changes to merger activity. A presumptive ban on future acquisitions, especially now with economic uncertainty plaguing the world, could hinder potentially fruitful, beneficial business decisions. Also, shifting the burden of proof in merger cases misplaces the obligation upon companies to prove their innocence rather than the government proving their guilt."

"Third way" report. The so-called "Third Way" report serves as a response to the majority staff’s report, according to Rep. Ken Buck. The minority agreed with the majority report’s view that antitrust enforcement agencies need additional resources and tools to provide proper oversight. However, these potential changes did not need to be as dramatic as recommended in the majority report to be effective. "By reinforcing presumptions that certain behaviors are likely to reduce competition, lowering evidentiary burdens in litigated cases, and emphasizing that anticompetitive effects are not limited to price effects and include innovation competition, quality, output, and consumer choice, Congress can make a meaningful difference."

Specifically, the minority report agreed "wholeheartedly" with the majority’s recommendation of more resources for the country’s antitrust agencies. It also generally agreed with the need for very limited legislative changes to provide consumers with a data portability standard that is similar that to transferring cell phone numbers. The minority also concurred with the majority’s recommendation that, in merger cases, market definition is not required if there is direct proof of market power and anticompetitive effects as it reflects current agency enforcement guidance.

The minority report cited a need for clarification and expert feedback on a number of majority proposals such as reforming the Sherman and Clayton Acts. Finally, the minority listed several majority proposals that minority members do not support in their current form, such as measures relating to private antitrust enforcement and others that are regulatory in nature such as the majority’s primary remedy to create competition in the tech marketplace by enacting legislation creating structural separation and delineating a clear "single line of business" rule for any large data company. This recommendation was listed as a "non-starter" by the minority report, along with eliminating arbitration clauses and limits on class actions.

Athena Coalition telepresser. In a telepresser event held this afternoon and hosted by the Athena Coalition’s Dania Rajendra, Cicilline joined advocates, legal experts, and a small business owner apparently harmed by Amazon’s policies. The Athena Coalition is an anti-Amazon group that claims that "[c]orporations like Amazon are dangerous to our communities, our democracy, and our economy." Cicilline explained how each of the four giant companies examined in yesterday’s report is a gatekeeper to the online market it inhabits. Cicilline went through the three general areas of recommended reforms by the study. He stated that the report would be marked up "over time" and that the drafting of legislation to address some of the report’s recommendations has begun.

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