Google probe a sign U.S. getting serious about breaking up Big Tech?

The targets: Facebook, Amazon, and Google. The latter of which appears to be facing a new antitrust investigation by the Department of Justice.

Slowly, but surely, calls to break up tech giants have acquired a bipartisan/nonpartisan character.

President Trump, perhaps fueled more by conservative bellyaching about perceived social media censorship and Amazon’s specious drag on post office profits than traditional antitrust rubrics, has supported big tech breakups. “If we have tech companies using the power of monopoly to censor political speech, I think that raises real antitrust issues,” echoed Texas GOP Sen. Ted Cruz.

A 20-plus field of 2020 Democrat candidates for president is also fertile ground for the hot-button issue. Late last month, Sen. Elizabeth Warren (D-Mass.), one of those candidates, erected a billboard in San Francisco plastering her case to “Break Up Big Tech” in the heart of Silicon Valley.

Senators Richard Blumenthal (D-Conn.) and Josh Hawley (R-Mo.) are also, with recent correspondence, demanding that the Federal Trade Commission stop dragging its feet on a long-delayed Facebook fine for violating a 2013 consent order. The letter blasted the FTC’s rumored $3 billion-$5 billion fine as “a bargain” for Facebook and compared the FTC to “traffic police handing out speeding tickets to companies profiting off breaking the law.”

“Senator Blumenthal and Senator Hawley make a simple and compelling point. The Federal Trade Commission should do its damn job,” says Open Markets Institute Fellow Matt Stoller. The group bills itself as “a team of journalists, researchers, lawyers, and advocates working together to expose and reverse the stranglehold that corporate monopolies have on our country.”

“When Chairman Joe Simons was appointed, I had hoped he would break with the failed legacy of the Obama administration and end the monopolization in our markets,” Stoller added. “He hasn’t. If this settlement is anything like it’s been rumored, Congress should step in, investigate the failed FTC, and if necessary, move funding to state-level enforcers.”

The hits have kept coming on both data privacy and anti-trust fronts. Earlier this month, Facebook co-founder Chris Hughes took to the pages of the New York Times to argue that his corporate creation should be split up under the auspices of either the Federal Trade Commission or another regulatory agency.

“America was built on the idea that power should not be concentrated in any one person, because we are all fallible,” he wrote. “That’s why the founders created a system of checks and balances. They didn’t need to foresee the rise of Facebook to understand the threat that gargantuan companies would pose to democracy.”

The government wades in

Triggering a 6 percent stock price dive on Monday, the Wall Street Journal, on June 1, reported that the Justice Department “has been laying the groundwork” for a Google- and Alphabet-focused antitrust investigation. The New York Times and Bloomberg say they have confirmed the reporting.

“The Department’s antitrust division in recent weeks has been laying the groundwork for the probe,” sources told the Journal. The Federal Trade Commission, which shares antitrust authority with the Justice Department, previously conducted a broad investigation of Google but abandoned the effort in 2013 after the company made some voluntary changes to scrutinized business practices and successfully argued the consumer and business demand for its products and their economic benefits.

The FTC, reportedly, negotiated behind the scenes with Justice Department officials to give the latter agency primary jurisdiction and oversight over Google regarding any new antitrust investigation. The FTC, for its part, retains Facebook oversight amid its previously referenced, long-gestating multi-billion-dollar fine connected to the Cambridge Analytica scandal. It could include the placement of a corporate monitor at its Menlo Park headquarters.

Google has not yet responded to the Journal report.

A changing philosophy?

A Google investigation is unlikely to resolve quickly or with certainty, given its economic might, market ubiquity, and political influence.

An important question likely to arise is whether the United States leans in on a redefinition of its longstanding antitrust evaluations, away from an economic analysis of anticompetitive practices and pricing harms to a more European Union inspired review of more generalized, monopoly-fueled consumer harm.

Thus far, the European Union has, in fact, been far more aggressive in tech antitrust cases than the more laissez faire U.S.

Google and Alphabet have already faced multi-billion-dollar antitrust fines for Google in the European Union, accused of abusing its market dominance. They were fined $1.69 billion, for forcing sites to use AdSense; $2.7 billion for promoting shopping sites over others in search results; and $5 billion “for abusing the dominance of Android.”

In 2017, Margrethe Vestager issued a record-setting $2.7 billion fine against Google for being a monopoly with the potential to cause public harm.

Amazon has also faced scrutiny in Europe. Last year, Vestager said her Commission had launched a preliminary antitrust investigation into the online retailer.

Facts at a glance

What evidence does the government have to pursue a case against Google and its big tTech brethren?

Senator Cory Booker (D-N.J.), another candidate for president, is among those calling for the breakup of the big tech platforms, calling them “engines for discrimination, harassment, misinformation, and extremism.”

Booker, as quoted by the Open Markets Institute, has previously stated that all Americans must address the “crisis of unchecked corporate consolidation from our tech to our food systems, aided and abetted by lax federal competition policy.”

Open Markets, focusing on Amazon, says it “enjoys extensive dominance in many markets.” These include:

• 80 percent of the books, music, and video market;
• 62 percent of toys & hobby;
• 57 percent of consumer electronics;
• 51 percent of office equipment and supplies;
• 35 percent of online apparel;
• 45 percent of the entire e-commerce industry, which garnered Amazon $524 billion in total sales;
• 89 percent of the U.S. e-books industry, which generated more $560 million in sales for Amazon;
• 84 percent of E-Reader unit sales;
• 67 percent of smart speaker sales;
• 42 percent of cloud computing (according to Goldman Sachs).

In all, 89 percent of consumers are more likely to buy products online from Amazon than any other e-commerce site, according to Forbes.

Amazon has also engendered additional scrutiny for hints its wants to get into the wireless marketplace via a potential acquisition of Boost Mobile.

Its portfolio of companies may also be cause for anticompetitive concerns, despite claims by executives that it is an economic development engine for third-party partners. Analysts at TKI Research added fuel to the fire. In an October 2018 “brand report,” it found that the company had 120 distinct brands, and another 150 Amazon exclusive brands.

“All told, we’ve identified 120-plus Amazon private label brands and 150-plus Amazon exclusive brands from Amazon’s retail sites around the world as of today, for a total of 275-plus private label and exclusive brands combined. That represents a much larger number than has previously been identified in any reports we’ve seen,” it reported. “While Amazon’s brand portfolio is largest in clothing—there are over 125 private label and exclusive clothing, shoes, accessories brands in the U.S. alone—Amazon brands run the gamut of consumer product categories. We count 16 food and grocery brands, 25 healthcare and beauty brands, and 14 household goods brands in the U.S. alone. Amazon’s thousands of private label and exclusive brand items cover a greater number of retail categories than you may think.”

Turning to Alphabet, Evercore ISI Analyst Kevin Rippey cut his price target following reports from the Justice Department regarding potential antitrust violations.

“Importantly, Google has successfully navigated an antitrust investigation before (2011-2013), and emerged unscathed after a two-year inquiry, as the FTC voted 5-0 not to pursue further action,” he wrote. “While precedent suggests that Google enjoys broad discretion over the direction of search results, the questions arising from an investigation will challenge the possibility of multiple expansion.”

Antitrust proponents

Cheerleading big-tech breakup efforts is the aforementioned Open Markets Institute. Among its frequently repeated arguments and demands:

• A call for the FTC to prohibit Facebook from acquiring additional companies for at least five years and reverse its approvals of Facebook’s WhatsApp and Instagram acquisitions;
• Developing interoperability standards to give new social media startups a chance to succeed, prohibiting Facebook’s attempts to enter into the banking and payments space, imposing privacy regulations similar to those implemented by the German Federal Cartel Office, and banning Facebook from engaging in price or terms discrimination; and
• Congress should investigate the FTC’s “failure to fix Facebook.”

“It’s time to move money from the slothful FTC to state enforcers willing to stand up to concentrated power to do their job,” it wrote.

The group also commended Rep. David Cicilline (D-R.I.), chair of the House Antitrust Subcommittee, for sending a critical letter to the Justice Department questioning its “pro-monopoly amicus brief program” and “spotlighting the DOJ’s under-the-radar support for tilting the law even further for the benefit of the most powerful corporations.”

“Not only has the Antitrust Division stonewalled congressional oversight, but now it’s beginning to look more like an industry funded think tank than our nation’s premier antitrust enforcer,” Cicilline wrote. He also demanded answers to questions examining the DOJ’s antitrust enforcement record and how many attorney hours have been spent filing amicus briefs in cases where the U.S. was not a party.

Apple in the fray

Apple is also finding itself in anticompetitive hot water and on the losing end of a case before the Supreme Court.

In Apple v. Pepper, the Justice Department argued that iPhone users should not be able to sue Apple for monopolizing the sale of iPhone apps. It advised the court to refer to a 2013 ruling by Judge Neil Gorsuch, on the 10th Circuit, in Novell v. Microsoft. It ruled that refusing to deal with competitors is illegal only if profits are diminished in the process, an increasingly unlikely scenario today given the preponderance of free consumer services from Google, Twitter, and Facebook. The Supreme Court rejected that suggestion and ruled against Apple on May 29.