The nation’s biggest tech companies are under the microscope from state and federal regulators who fear they have amassed too much power.
But the state-led efforts could cause the biggest problems for Silicon Valley as companies address requests from the top law enforcement officials coast to coast.
“That’s a lot of red tape. That’s a ton of document gathering and sending, and if anyone has gotten a bill from a corporate law firm, that’s not cheap,” said Jessica Melugin, associate director of the Center for Technology and Innovation at the Competitive Enterprise Institute.
The Federal Trade Commission, the Justice Department, nearly all 50 states, and Congress have launched investigations into possible antitrust violations by Google, Facebook, Amazon, and Apple. The investigations focus on varying aspects of each company’s business models, but all hinge on whether Silicon Valley’s most prominent players have stifled competition and harmed consumers.
The investigations are the latest crusade against big tech, as the collective group is sometimes called, which has become a favored target of Republicans and Democrats alike who are concerned the companies have engaged in monopolistic practices as they have grown in size and dominance.
“The states have joined the federal government in being concerned about the power that tech companies have, a power that seems to be intruding into our daily lives more and more with each passing day,” said Michael Carrier, a law professor at Rutgers University and leading authority on antitrust law.
The various investigations are all proceeding concurrently, though details have been kept primarily under wraps.
For Amazon, the scrutiny could focus on numerous acquisitions and whether the e-commerce giant gives preference to its products at the expense of those from outside sellers, while Apple may be under fire for its power over the App Store.
The focuses of the investigations involving Google and Facebook, meanwhile, could be numerous. For Facebook, they could include its data collection practices and history of acquiring companies that could threaten its dominance, while Google’s trouble may relate to its search function and advertising business.
Carrier said any action from the federal government would have “a significant effect,” but the multiple state efforts “could play an important backstop role.”
“If the states believe the federal government is not being as aggressive as it should be, they can act to fill the gap,” he said.
Casting a shadow over the investigations is the question of how far antitrust laws reach and whether they amount to more than fishing expeditions that could ensnare the country’s biggest firms, tying them up with unnecessary litigation for months or even years.
“The U.S. standard for antitrust is consumer harm,” Melugin said. “You can find a lot of people who say, ‘It gives me a weird feeling that they’re so big. It makes me uncomfortable they have this data about me.’ But that doesn’t quite rise to the level of consumer harm.”
A red flag, she added, is that many supporters of the investigations are calling for expanding antitrust laws that would bolster the case against Silicon Valley’s largest companies.
Doug Gansler, the former attorney general of Maryland who is now in private practice, noted Google and Facebook are both free to use, which throws a wrench in determining whether consumers face higher prices as the companies have grown.
“Facebook has 2.4 billion people using it [monthly], and every single one of them is using it for free,” he said. “I don’t know the answer, but the question is going to have to be broached at some point: Yes, they’re a big company, yes, people like their service. How is that damaging to any consumer?”
To chip away at the dominance of the tech companies, some lawmakers have called for Facebook, Google, Amazon, and Apple to be broken up, with Sen. Elizabeth Warren of Massachusetts, a Democratic presidential front-runner, leading the charge.
While the investigations into the tech companies can provide the vehicle for breaking up big tech, it’s a penalty that can only be pursued by the federal government, experts say.
“States,” Melugin said, “certainly have all the right to do antitrust enforcement, but when you’re talking about states investigating corporations that have very little or any corporate presence in the state, it gets more tenuous.”
“Citizens of this state are using these products. OK, but that doesn’t translate into now in Missouri, I can break up Google in Menlo Park,” she said.
In addition to breaking up the big firms, penalties could also include unwinding mergers, such as Facebook’s acquisition of Instagram and WhatsApp.
“There could be more behavioral remedies that would change the ways the companies do business, ranging from forcing the companies to share data to tinkering with their algorithms,” Carrier said.
A total of 47 attorneys general, led by New York Attorney General Letitia James, have signed on to an antitrust investigation into Facebook, while 50 attorneys general are investigating Google in an investigation spearheaded by Texas Attorney General Ken Paxton.
Gansler said state attorneys general have taken up the mantle in recent years with investigating the private sector because “there’s a perception right now that the federal government is engaged in less regulation and enforcement.”
“They truly believe that states are laboratories of democracy, and states are much more nimble and able to coordinate with each other and bring a case more quickly and with more consensus than the federal government,” he said.
Although some view the president and his policies as friendly to big businesses, the Trump administration has not been shy about blocking significant mergers and acquisitions.
The Justice Department sought to block AT&T’s $85.4 billion merger with Time Warner and blocked Broadcom’s merger with Qualcomm over national security concerns.
There are a host of state antitrust laws similar to those at the federal level that can be raised in a potential case brought against big tech, but Gansler said public statements from the state attorneys general indicate they may be “attempting to go at back-door privacy issues that they have with these companies by using antitrust laws.”
The Justice Department has made the case that antitrust violations could extend beyond price increases.
“Price effects alone do not provide a complete picture of market dynamics,” Makan Delrahim, who helms the agency’s antitrust division, said in June. “Diminished quality is also a type of harm to competition. As an example, privacy can be an important dimension of quality. By protecting competition, we can have an impact on privacy and data protection.”
But Melugin noted that there are rules under the FTC’s jurisdiction dealing specifically with privacy that should not get entangled with antitrust laws.
“These are not new concepts, but they’re not antitrust,” she said. “What is antitrust? It’s consumer harm in the form of higher prices, less output.”
While the states may not have the same power behind them that federal regulators do, they do have strength in numbers.
“The federal remedies are more serious in the end, but the immediate problem is now you’re having to dance like a monkey for 50 state attorneys general, and that’s a huge diversion of time, resources, and energy where I would prefer to see these companies focused on making the next great innovation for consumers,” Melugin said. “Now they’re having to lawyer up for 50 different regimes.”
Most of the states are likely to try to extract money out of the tech firms in the form of fines, but whether they are successful again depends on whether regulators can show their expanded dominance hurt consumers.
“Whether or not that money goes back to any consumers that would theoretically have to be harmed by free tech products, it’s difficult to see it playing out,” Melugin said.
