Big tech's reckoning starts with an antitrust committee
Apple, Google, Facebook and Amazon all face a grilling from lawmakers.
On July 27th, the CEOs of Apple, Facebook, Amazon and Google -- the “GAFA” companies -- will testify in front of the House Judiciary Antitrust Subcommittee. Getting those four people into the same room -- even virtually -- on the same day is something of a feat and it speaks to how seriously these companies are taking the committee’s long-standing investigation into their practices.
In June last year, the House Judiciary Committee launched a bipartisan investigation into competition in “digital markets.” It said that a “small number of dominant, unregulated platforms,” hold “extraordinary power” over e-commerce, online communication and digital information. It added that this power has a stifling effect on competition and entrepreneurship in both the US and the wider world.
Each CEO will need to explain how their monolithic platforms, like Facebook’s social network, Google’s advertising business and Apple’s App Store, do not violate antitrust law. “Antitrust” is shorthand for the rules around businesses stifling competition in a free and fair market. That includes blocking powerful companies from buying up, copying or pricing out their rivals to the detriment of competition. Regulators are now turning their beady eye toward what ‘big tech’ has been up to for all of these years.
“Both Democrats and Republicans do seem to believe that there’s something wrong with how these big tech companies are operating.” Joel Mitnick is an antitrust lawyer at Cadwalader in New York who began his career as a trial lawyer at the Federal Trade Commission. He says that lawmakers suspect that there’s “something abusive going on terms of their market power.” He added that there’s a belief that these companies are blocking, or excluding, competitors.
As well as these hearings, it’s likely that Google is going to face a separate antitrust lawsuit that’ll be filed towards the end of 2020. The Wall Street Journal said a cadre of attorneys general want to scrutinize Google’s online advertising business. Apple looks like it’ll be next on the block, with a Politico report from last month saying that Apple’s “easy ride” from lawmakers is coming to an end. It contends that Apple’s control of the app store, and how it treats competing apps from rival developers within its ecosystem, is under quiet scrutiny.
News of a potential US probe into Apple came roughly a week after the European Union began its own investigation. EU officials are investigating whether Apple’s control of the app store “violate EU competition rules,” because you can only buy system apps from the App Store. The fact that apps that offer in-app purchases can only do so through Apple’s system, earning the latter 30 percent commission, is also under scrutiny.
The ultimate goal of any antitrust investigation is to promote competition that will, it’s hoped, benefit the consumer. Critics believe that Apple’s control of the App Store stifles competition and, by extension, is ultimately harmful to consumers. They believe that Apple is essentially creating a market that forces people to use Apple’s own products and services.
The obvious example is the App Store, which is the only way for developers to get their software onto people’s iOS, iPad OS and Watch OS devices. But look at HomePod, the Apple speaker that can only directly access Apple Music. If you want to play from Spotify or other services, you’ll have to use your phone to cast to the speaker. In late June, however, Apple said that it would open HomePod up to third-party services in the coming months as it opens up its products.
Mitnick explained that rather than simply examining companies through the lens of being a “monopolist,” you need to look at “market power.” Apple has historically eschewed being the biggest player in town in favor of catering to a smaller, premium segment of the market. And in consumer technology, there is a wide variety of cheaper products available from its bigger, albeit potentially less profitable, rivals.
But that’s not the case with the iOS ecosystem. In the US, StatCounter says that iOS has around 58 percent of the market compared to Android’s 41 percent. iPad OS, the tablet-friendly version of iOS, is even more dominant in the US, with StatCounter reporting close to 65 percent of the market. It’s not a monopoly, but Apple appears to be the dominant player in the US.
And, says Mitnick, when a company gets that big “they lose the right to be so exclusionary,” essentially that with great power comes an obligation to be even more scrupulous. After all, if officials can demonstrate in a court that the App Store rules are boxing out developers and stifling competition, they could insist on radical changes. Or, they could decide that buying an Android phone offers enough of an alternative, and that Apple isn’t doing anything wrong.
Apple’s counter-argument to this is that it has done plenty to create a level playing field for its rivals. It charges just a $99 flat fee to any app developer and only asks for a 30-percent cut of any qualifying transaction. (That includes digital goods within the app or subscriptions, although that fee falls to 15 percent in subsequent years.) So long as apps don’t contravene Apple’s own rules, or break the law then developers have carte blanche to do whatever they want. And, right now, the arrangement benefits iPhone/iPad/Watch users who can count on secure apps that have been vetted by Apple.
Apple’s App Store Rules
Apple’s app development guidelines are laid out in a public document which explains how new software is judged. These include some fairly common-sense rules about what apps and content will be blocked and are broken down by:
Objectionable Content: No hate speech, targeted harassment, incitement to real-world violence (and animal abuse) or “pornographic” content. There are generous exemptions built in to the rules, so building a mobile FPS is fine so long as it’s not used to harass.
Physical Harm: That includes buying weapons (or ammunition), the promotion of self-harm through invalid medical advice or offering fake diagnoses via the phone. Exercise apps that promote extreme challenges that could result in physical harm are also a no-no. Oh, and no apps designed to promote smoking, drug-taking or alcohol abuse.
Apps should, perhaps obviously, do the job that they’re advertised as doing without fraud or fakery. They should be compatible with the devices in the iOS ecosystem and cannot overtax the iPhone’s famously-small battery. All apps should also work within iOS / MacOS’ sandboxing systems and allowed APIs rather than having free reign on the phone.
Naturally, the apps cannot use stolen IP, be a copycat of an existing app or otherwise illegal. Developers also have to be transparent about their privacy policy and build their apps in a way to preserve user privacy.
And, perhaps the most contentious clause, is that if you want to charge people for purchases in-app, you must use Apple’s secure system rather than your own.
In terms of benefiting consumers, Apple can point to Google’s approach which, by comparison, is far more harmful. After all, with far fewer rules about what apps can be published, the stories of Android malware affecting millions of users are legion. In September 2019, 25 apps were found to be executing malicious code and had to be pulled by Google after being downloaded 2.1 million times. Just a month earlier, Google had to pull an app with 100 million users after it was found to be spreading malware. There isn’t enough space to add in similar stories from previous years.
Mitnick says that whatever happens, bringing an antitrust suit against Apple is going to be a fairly slow process. Once a coterie of federal and state bodies agree that an investigation must begin, officials will begin issuing Civil Investigative Demands (CIDs). These are, essentially, subpoenas that compel a company to hand over any material requested. This process alone can take months and companies can -- and do -- negotiate what evidence they hand over in order to protect corporate secrets.
After that point, the Department of Justice, the Federal Trade Commission or any other involved body can begin taking depositions. That would include live testimony from Apple employees, app developers and consumers to try and get as full a picture as possible. “Then there’s another period of time,” said Mitnick, “where the government goes into a sort of black hole to evaluate all of this material.” Here they will decide if there’s enough evidence to support a lawsuit, which could take the better part of a year.
There’s a capital-P political issue here, too, with Republicans believing that big tech (through the prism of social media) is skewing the online conversation against them. That’s despite the overwhelming evidence to the contrary and repeated leaks about rules being altered to benefit them. Democrats, meanwhile, feel that companies aren’t doing enough to foster innovation, uphold democracy and meaningfully use the huge wealth that they’ve generated.
There are plenty of ways that any antitrust investigation can play out, and only one of them leads to a lawsuit. “Most of them,” said Mitnick, “just end by the government deciding that there’s not a case here.” This is especially true if there’s no obvious breaking of the law, or experts feel the case isn’t strong enough to take to court. Another outcome could be that officials negotiate with Apple to comply with its findings rather than wage a costly, and very public, courtroom war. Finally, should the occupancy of the White House change in January, a new administration may choose -- for various reasons -- to alter the investigations.
It may be that Apple, sensing which way the wind is blowing, is already looking to head off an antitrust action before it comes. In the wake of its dust-up with the makers of the Hey email app, Apple has said it will alter its policies to allow developers to challenge rules they don’t like. This may be enough of a tweak to take some of the wind out of the idea that it’s needlessly inflexible or abusing its position of power.
Thomas Brown is an antitrust expert and partner at Paul Hastings in San Francisco who also lectures at UC Berkeley’s law school. He believes that antitrust law can be useful in specific instances, like merger review and cartel enforcement, but ineffective elsewhere. “When you filter those interventions all the way down to consumers,” he said “consumers probably didn’t notice at the time, and wouldn’t be able to tell you today what the effect of the intervention was.” He added, too, that even getting to the point where antitrust enforcement happens is “unbelievably difficult.”
“The great puzzle and challenge of competition is that there’s a lot of agitation to do something, but whatever that tends to be,” said Brown “tends to be a damp squib.” He believes that as well as there being little benefit to the end-user, it’s political theatre rather than real enforcement. Right now, he explained, antitrust law is about “the relative power between public and private actors than it has anything to do with traditional notions of market power.”
He believes that these contortions are, in effect, history repeating itself, with big tech playing the role Standard Oil did a century ago. “You saw the emergence of these national, truly national businesses in the form of Standard Oil,” he said, pointing out that it was at a time when the Federal government was “relatively weak” compared to the individual states. “Now, the digital platforms have done the same thing, except on an international scale, and they’re just not as responsive to domestic, political concerns in the same way that businesses of the 20th century were.”
Brown believes that the government will struggle to bring a suit against Apple, especially within the confines of antitrust law. “It’s difficult to understand how the rules related to accessing the App Store are anti-competitive,” he said. “What rival claims that, if they had access on different terms, they would have been able to offer an alternative?” he added.
Controversial technology industry analyst Benedict Evans wrote in January how ineffective he feels antitrust actions are. He said that what blunted Microsoft’s dominance wasn’t the protracted litigation it went through in the ‘90s, but the shifting trends in technology. “Those cases,” he wrote “ended in 2001 and none of them said anything about mobile, and yet Microsoft lost [mobile dominance] as well.” Instead, it was the creation of the iPhone and, more importantly, Android, which sucked all of the oxygen out of Microsoft’s mobile ambitions.
The US will only drag big tech through the courts if it feels certain that the law is on its side and it can win. But even if it can, it’s uncertain if those actions will be enough to really make any real difference to consumers. Google, Apple, Microsoft, Amazon and Facebook alone make up nearly 20 percent of the S&P 500.
The Washington Post says that each one spends huge sums on lobbying Washington each year to try and water down its political opposition. Of course, antitrust is only the first tool lawmakers can use to try and bring big tech to heel, and if that fails, other tools could be invoked just as easily.
