With a new session of Congress underway and a new administration at the White House, Big Tech is once again in the sights of lawmakers. Not only are big companies like Apple, Amazon, Facebook and Google under investigation for allegedly violating the existing antitrust law, but a newly proposed Senate bill would make it more difficult for these and other companies to become so worryingly large. .
The bill (PDF), called the Antitrust and Competition Law Reform Act (CALERA, for short, which is still strange), would become the biggest revision of US antitrust regulations in at least 45 years if it became law.
“Although the United States already has some of the most effective antitrust laws in the world, our economy today faces a huge competition problem,” said Sen. Amy Klobuchar (D-Minn.) When she introduced the bill on Thursday. “We can no longer sweep this issue under the rug and hope that our existing laws are adequate,” added Klobuchar, calling the project “the first step in revising and modernizing our laws” to protect competition in the current era.
The bill proposes significantly expanded resources (ie, more money) for the Federal Trade Commission and the Justice Department’s Antitrust Division, to allow both to seek to review more mergers more aggressively. As Klobuchar told CNBC: “You can’t face trillion dollar companies with band-aids and tape.”
Most importantly, however, the proposed law would invoke modern legal theories to update antitrust law to the way companies compete and do not compete with each other in the 21st century.
Sens. Richard Blumenthal (D-Conn), Cory Booker (DN.J.), Edward Markey (D-Mass.) And Brian Schatz (D-Hawaii) co-sponsored the project, which firmly targets the technology sector, without actually naming it at all.
What does the antitrust law do?
There have already been four major antitrust bills in the history of the United States, all aimed at preventing a single company from using unfair tactics to dominate its market sector and crush potential rivals.
Congress’ first attempt at antitrust enforcement, the Sherman Act, became law in 1890. The Sherman Act was surprisingly short and simple, making it illegal to monopolize, attempt to monopolize or conspire to monopolize a market. Once that baseline was established, the laws that followed tried to address all the ways companies tried to get around it.
In 1914, the Clayton Act significantly drafted the existing antitrust law, largely to deal with the wave of acquisitions and corporate formation that came in the wake of the Sherman Act. This law limits acquisitions through the purchase of shares, but leaves a huge gap for companies that acquire other companies by buying their assets immediately.
The next major antitrust review, the 1950 Celler-Kefauver Act, attempted to address the gaps in the Clayton Act by establishing regulations around vertical mergers (when a company acquires a business in its supply chain instead of acquiring a direct competitor) and mergers conglomerates. Finally, in 1976, the Hart-Scott-Rodino Act established a rule that companies planning mergers above a certain amount ($ 92 million for 2021) must notify regulators and potentially face scrutiny. before they complete their business.
Scrutiny change
All laws currently in force regarding the review of mergers place the burden of proof in the same place: on the regulator.
When companies file their pre-merger notice with regulators (the FTC generally; the DOJ for high-profile, high-value or particularly complicated transactions), their paperwork basically says, “Let’s do this and it’s okay.” it falls to the regulator specifically to seek, define and possibly argue in court the reasons why the proposed transaction may not be.
Klobuchar’s bill would shift that burden in another direction for companies that already have a dominant position in the market. These companies – which in technology would absolutely include companies like Amazon, Google and Facebook – would have to proactively demonstrate that a merger would not “create an appreciable risk of significantly reducing competition”, and would not create a monopoly or monopsony.
Mono-what?
A monopsony is effectively the same problem as a monopoly – excessively concentrated market power – but reversed. Instead of having just one seller, a monopsony is a situation where there can be many sellers, but only one buyer.
In a classic monopoly, you have only one seller available. For example, a single oil company has bought all the oil fields and oil transportation companies and related businesses in the country, so if you want oil, you have to buy it from that company. In the absence of competition, this company has no incentive to be flexible in any way, including with regard to price, and can effectively commit extortion not only to consumers, but also to other companies throughout the supply chain.
In a monopsony, you have only one buyer available – or at least one large buyer has so much market power that it alone can determine how sellers operate and what prices they can set. In the 1990s and 2000s, for example, Walmart was routinely criticized for forcing suppliers to lower prices to unsustainable levels. Walmart succeeded in doing this because it commanded such a large share of the United States retail market that suppliers who wanted access to consumers could not realistically refuse to work with it.
In the technological space, it can be argued that Facebook, Google and Apple currently exercise monopsony power in at least one market segment. Amazon, for example, is so dominant in the book sales space that publishers basically can’t avoid the platform if they really want to sell books, and that gives Amazon an advantage in defining terms that may be unfavorable to publishers.
Although the first known use of the word “monopsony” dates back to 1933, no United States antitrust law has so far addressed the idea of anti-competitive behavior in this type of bottom-up direction. If it becomes law, Klobuchar’s project would be the first to add the risk of creating a monopsony to the factors that competition regulators must consider when analyzing mergers.
And speaking of “anticompetitive” …
The bill also expands the scope of what is considered illegal behavior by a dominant company.
As we explained earlier, being the biggest – or even the only – participant in an industry is not in itself illegal. Competition law is concerned, instead, with how you got there and what it does with the market power that the domain gives you. Klobuchar’s proposal would expand that limit and prohibit “exclusionary conduct” which presents an “appreciable risk of harming competition”.
This type of legal standard may, for example, have led to a different result in the case of Qualcomm, where the Ninth Circuit reversed the conclusion of a previous judge that the company behaved in an anti-competitive manner.
“This damage, even if real, is not ‘anti-competitive’ in the antitrust sense – at least not directly – because it does not involve restrictions on trade or exclusionary conduct in the ‘area of effective competition,” the court wrote in a widely criticized opinion article. The law that broadens the definition of “exclusionary conduct” may lead to different conclusions in similar cases in the future.
But will it ever become law?
Six months or a year ago, any proposed antitrust reform would be dead (like Klobuchar’s 2019 reform bill).
With Democrats currently in control of the White House, the House and – through Vice President Kamala Harris – the Senate, however, the idea of a truly approved reform is more possible. The wheels of Congress revolve around the rate of frozen molasses, of course, and lawmakers in Hill are currently prioritizing COVID-related packages … but there is enough fluctuating anger against Big Tech in both the government and the nation at large that there is a non-zero chance that such a note may, in fact, have legs.