Big tech regulation a delicate balance for US government

Building momentum for big tech regulation 

Federal regulators have spent nearly the last two years trying to twist traditional industrial-era mandates originally aimed at oil and finance industries into regulation for big tech -- the Googles, Amazons and Facebooks of the world that generate and collect vast amounts of data.

In June 2019, Congress initiated an investigation into online market power, which was spearheaded by the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law.

The investigation included testimony from the CEOs of Facebook, Amazon, Google and Apple. It produced significant evidence that these firms "wield their dominance in ways that erode entrepreneurship, degrade Americans' privacy online, and undermine the vibrancy of the free and diverse press," according to the investigation's report.

The investigation resulted in the U.S. Department of Justice (DOJ) filing an antitrust lawsuit against Google in October 2020, followed by antitrust lawsuits filed against Facebook in December by the Federal Trade Commission (FTC) and attorneys general from 46 states, the District of Columbia and Guam.

Specifically, the antitrust lawsuit against Facebook alleges it crushed its competition using a "buy-or-bury" strategy. As evidence, the lawsuit points to Facebook's acquisitions of Instagram for $1 billion in 2012 and WhatsApp for $19 billion in 2014. For companies Facebook was unable to acquire, the lawsuit alleges the company engaged in "exclusionary tactics," such as restricting competitive app developers' access to its APIs. 

Now, regulatory momentum is underway with Klobuchar's introduction of the "Competition and Antitrust Law Enforcement Reform Act of 2021." Klobuchar serves as the lead Democrat on the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights.

Klobuchar's bill focuses on mergers and acquisitions and seeks to reform the more than 100-year-old Clayton Antitrust Act, which defines unethical business practices, including monopolization.

One of the bill's main initiatives is to strengthen prohibitions against anti-competitive mergers, even creating a new FTC division to study past mergers such as Facebook's purchase of Instagram. It would also raise the bar on what constitutes anti-competitive behavior and shift responsibility for proving the merger doesn't violate the law from the government to the firms involved.

Aurelien Portuese

The legislation also proposes providing the DOJ and the FTC more funding so that they can enforce antitrust laws, a move Aurelien Portuese, director of antitrust and innovation policy at the Information Technology and Innovation Foundation (ITIF), supports. But, he added, the crackdown on mergers and acquisitions places too much emphasis on the buyer and not enough on the seller.

"It's very detrimental because we completely overlook the fact that it's not only Facebook or Apple buying these startups, it's that these startups want to be bought," he said. "We completely overlook the reciprocal nature of that issue … by prohibiting these kinds of mergers, we prevent one way for startups to be funded."

Portuese said there has been significant "politicization of antitrust" both in the U.S. and globally, which he argues could lead to complex antitrust decisions being made quickly by political bodies instead of the more appropriate judicial systems. Politicized decision-making could result in harmful big tech regulation if the wrong interventions such as splitting companies into smaller pieces are implemented.

"Breaking up these companies would be very detrimental," Portuese said. "Not only for these companies, it wouldn't create any sort of benefits for their rivals, it wouldn't create any sort of benefits for consumers and it would harm innovation and American competitiveness." 

Marshall Van Alstyne

It could also harm the economy, according to Marshall Van Alstyne, a professor at the Boston University Questrom School of Business. He said that while most proposals for big tech regulation are based on legitimate grievances, many stand to cause economic damage if implemented -- particularly breaking up companies or unwinding past mergers.

These platforms increase in value as they harness more interactions and data. Breaking them up would shrink the networks that create value.

"If done badly, these could cause a lot of harm," Van Alstyne said. "These platforms increase in value as they harness more interactions and data. Breaking them up would shrink the networks that create value."

To that end, Van Alstyne argues that Klobuchar's bill is still too grounded in the past, falling short when it comes to understanding how modern platforms operate, which is essential for crafting big tech regulation.

"[The bill] seeks to create competition when it should be trying to create social value," he said. "These are not the same. Competition would not, for example, correct the problem of fake news on Facebook or self-preferencing on Amazon. The proposal's more limited view of antitrust also draws from the traditional industrial-era concepts of how a firm operates without recognizing how differently internet-era firms operate."

Finding the right way to regulate big tech

Big tech companies benefit from network effects, meaning the value a user might gain from a product or service increases based on the number of people using that product or service, Van Alstyne said.

Google, for example, uses data collected from people using its Google Search product to improve its Gmail product. Breaking up those services would reduce the companies' value, he said.  

Rather than focus on splitting companies up, a better way to approach legislation would be to "separate the services offered on top from the network infrastructure on the bottom," Van Alstyne said.

"In the case of Facebook, it might mean that Amazon, with your permission, could now make recommendations based on your social network, or, conversely, Facebook could recommend friends based on similar book interests," he said. "Each would compete to give you benefits across both networks, but neither is broken into pieces."

The Biden administration has yet to broach the subject of big tech regulation, although there has been speculation that Biden is considering creating a White House position dedicated specifically to antitrust issues.