House investigation faults Amazon, Apple, Facebook and Google for engaging in anti-competitive monopoly tactics
October 7, 2020 | technology | No Comments
Congressional investigators faulted Facebook for gobbling up potential competitors with impunity, and they concluded that Google improperly scraped rivals’ websites and forced its technology on others to reach its pole position in search and advertising. The lawmakers’ report labeled both of those firms as monopolies while faulting the federal government for failing to crack down on them sooner.
Amazon and Apple, meanwhile, exerted their own form of “monopoly power” to protect and grow their corporate footprints. As operators of two major online marketplaces — a world-leading shopping site for Amazon, and a powerful App Store for Apple — the two tech giants for years set rules that essentially put smaller, competing sellers and software developers at a disadvantage, the report found.
The House investigation stopped short of calling on the Trump administration to break up any of the companies. Instead, it proposed the most sweeping overhaul of U.S. antitrust law in decades, a series of legislative proposals that could empower the government to battle bigness in the tech industry and prevent future problematic mergers. Any such retooling would require approval from Congress, and it would affect not only Silicon Valley but the entire economy — essentially turning the House’s efforts into a broader assault against corporate consolidation.
“You look at farms and agriculture; you look at big banks, of course; you look at the housing market; you look at retail,” said Rep. Pramila Jayapal (D-Wash.), one of the panel’s members. “Our focus is on tech, but there’s no question this would help strengthen competition and rein in anti-monopoly behavior across industries, which would benefit consumers.”
In the meantime, the House’s findings threaten to carry considerable legal weight, lending fresh evidence to state and federal officials as they actively investigate Apple, Amazon, Facebook and Google for potential violations of antitrust rules. The Justice Department is expected to file an antitrust lawsuit against Google in a matter of days, as state attorneys general carry out their own, nearly finished probe of the search-and-advertising giant.
“To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons,” the House panel concluded in its report. “Although these firms have delivered clear benefits to society, the dominance of Amazon, Apple, Facebook, and Google has come at a price.”
“These firms typically run the marketplace while also competing in it,” the report continues, enabling tech giants “to write one set of rules for others, while they play by another, or to engage in a form of their own private quasi regulation that is unaccountable to anyone but themselves.”
Apple did not respond to a request for comment. Facebook and Google defended their business practices in statements that touted their popular appeal. Amazon responded with a blistering, unsigned blog post, calling House investigators’ proposed antitrust overhaul “flawed” and “fringe” in nature and scope. The company also defended its business practices, arguing that its relationship with third-party sellers is “mutually beneficial.” (Amazon CEO Jeff Bezos owns The Washington Post.)
“All large organizations attract the attention of regulators, and we welcome that scrutiny. But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong,” the blog said.
House lawmakers embarked on their wide-ranging probe of the tech industry in June 2019, responding to a flurry of complaints that Apple, Amazon, Facebook and Google had become too big and powerful. Investigators working on behalf of Rep. David N. Cicilline (D-R.I.), chairman of the House Judiciary subcommittee on antitrust, commercial and administrative law, soon amassed a trove of 1.3 million documents and hundreds of hours of testimony in public and private, including a high-profile, public grilling of the four tech giants’ chief executives: Amazon’s Bezos, Apple’s Tim Cook, Facebook’s Mark Zuckerberg and Google’s Sundar Pichai.
Initially, Cicilline predicted that the probe would find that the Internet had become “broken” — overcome with ills, including privacy scandals, resulting from years of neglect in Washington. Sixteen months later, he said in a statement Tuesday that the vast body of evidence lawmakers obtained had confirmed his fears, leaving “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.”
The House report also serves as an indictment of the federal agencies that are supposed to keep watch over the country’s largest companies.
The Justice Department and the Federal Trade Commission have the power to probe potential wrongdoing, review and approve large mergers before they occur, and tap decades-old laws — put to use more than a century ago against railroad, steel and oil magnates — to ensure that companies don’t become too politically and economically dominant. With the tech industry, though, investigators concluded that the government had “failed, at key occasions, to stop monopolists from rolling up their competitors and failed to protect the American people from abuses of monopoly power.”
The report recommends a significant overhaul of the federal government’s antitrust powers, including making it illegal for a company like Amazon or Google to give greater weight to their own products in their online marketplaces. Other suggested changes would empower consumers to bring lawsuits and give new legal tools to the Justice Department or FTC to block future tech mergers.
Some of the most ambitious ideas drew sharp rebukes from congressional Republicans, raising doubts about the extent to which lawmakers may be able to translate the report into a robust federal overhaul. Some House Republicans even issued their own findings Tuesday, focusing not on antitrust but rather “bias and censorship” targeting conservatives online. Top GOP lawmakers have joined President Trump in airing such claims of censorship, offering specious evidence amid a flurry of denials from major social media sites.
With Facebook, the House investigation trained its attention on the tech giant’s purchases of Instagram, a photo-sharing app, and WhatsApp, a messaging service. Facebook long has maintained that those acquisitions — blessed in the past by federal regulators — helped both of those apps grow from nascent start-ups into widely popular global services. But more than 41,000 pages of emails, memos and other once-secret company records tell a different story, showing that Facebook sought to acquire “its competitive threats to maintain and expand its dominance.”
This summer, Democratic lawmakers unearthed a slew of private communications, showing Facebook officials discussing a “land grab” to buy up the company’s rivals before they could pose significant threats. On Tuesday, congressional investigators added to that damning trove: They revealed a 2018 memo, prepared for Zuckerberg, that appears to show that Facebook had grown more concerned with competition from a subsidiary than outside services.
A former senior Instagram employee told lawmakers the memo guided Facebook’s strategy, which sought to ensure that Instagram could never become bigger and more popular than the tech giant’s original social-networking app, according to the report. To investigators, it also proved that the Instagram purchase essentially “tipped the social networking market toward a monopoly, and now considers competition within its own family of products to be more considerable than competition from any other firm.”
“Acquisitions are part of every industry, and just one way we innovate new technologies to deliver more value to people,” Facebook spokesman Chris Sgro said in a statement. “Instagram and WhatsApp have reached new heights of success because Facebook has invested billions in those businesses.”
Taking aim at Google, the House probe determined that the tech giant had tapped vast swaths of user data to become “an ecosystem of interlocking monopolies” in search, advertising, mapping, mobile and more. Lawmakers homed in on the ways that Google gives its own products a boost in search results, even when they are inferior to competitors’, making the panel the latest government entity to take issue with the company’s business practices after Europeans fined it billions for unfairly manipulating search results.
“Americans simply don’t want Congress to break Google’s products or harm the free services they use every day,” Google spokeswoman Julie Tarallo McAlister said in a statement. “The goal of antitrust law is to protect consumers, not help commercial rivals.”
Lawmakers also took aim at Amazon’s relationship with third-party merchants. The e-commerce giant publicly calls these smaller providers its “partners,” but Amazon competes with them as the seller of many products itself. House lawmakers said that the relationship “incentivizes Amazon to exploit its access to competing sellers’ data and information, among other anticompetitive conduct.”
Investigators said they heard from companies that Amazon used “strong-arm” tactics in negotiations. Book publishers, for example, said the company retaliated by removing the “buy” button on their products or showed their books as out of stock. Some of the tales stand in stark contrast to the remarks Amazon made to the subcommittee at a hearing early in the investigation, when Amazon’s associate general counsel told Congress that the company does not use “individual seller data directly to compete.” Months later, media reports contradicted that claim, revealing that the company had used rivals’ data to develop competing products.
The subcommittee said in its report that Amazon “displayed a lack of candor” in its responses, and it cited a letter in which members from both parties on the panel accused the company of being “misleading, and possibly criminally false or perjurious.” The subcommittee staff said it views the company’s claims “with a degree of skepticism” in instances where it conflicted with other information the staff gathered.
With Apple, congressional investigators focused on its App Store, the only official way to get apps on the company’s iPhones and iPads. Apple long has faced criticism for the rules it applies to apps that appear in this portal — and the fees it sometimes extracts from those that offer subscriptions. Epic Games, the maker of the popular video game Fortnite, has sued Apple over such policies.
The House report repeatedly faults Apple for amassing anti-competitive “gatekeeper power” over the software that appears on mobile devices. It pointed to evidence showing that the iPhone giant at times had copied features from popular or innovative rival services. In one example, Phillip Shoemaker, a former App Store review director, told House aides about an instance in which Apple rejected an app for wireless charging even though it did not violate company guidelines — then later “appropriated the rejected app’s feature for its own offerings,” the report says.
“Apple has struggled with using the App Store as a weapon against competitors,” Shoemaker has written, according to the report.
Apple previously has said it does not steal other companies’ app data to create its own products. “We do not retaliate or bully people,” Apple CEO Cook said at a congressional hearing in July. “It is strongly against our company culture.”