FILE- In this Sept. 5, 2018, file photo an empty chair reserved for Google's parent Alphabet, which refused to send its top executive, is seen as Facebook COO Sheryl Sandberg accompanied by Twitter CEO Jack Dorsey testify before the Senate Intelligence Committee hearing on Capitol Hill in Washington. Google CEO Sundar Pichai will testify next week at a congressional hearing on the company’s business practices, just three months after aides put up an empty chair to symbolize his refusal to appear. (AP Photo/Jose Luis Magana, File)Jose Luis Magana/The Associated Press
Silicon Valley will be back under the microscope this week, with U.S. senators examining whether Big Tech’s penchant for swallowing up smaller competitors has stifled innovation.
Tuesday’s U.S. Senate judiciary committee hearing into mergers and acquisitions by tech firms is the latest move in an intensifying political backlash against Silicon Valley that threatens to upend an industry that, until recently, has largely been able to write its own rules.
Earlier this month, dozens of state attorneys-general announced investigations into the growing power of Facebook Inc. and Alphabet Inc.’s Google. The Trump administration – through both the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) – has launched its own probes of the tech industry, while Congress is scrutinizing a wide array of Silicon Valley practices through parallel inquiries in the House of Representatives and the Senate.
Analysts say the sheer number of investigations into a single industry by so many government levels, departments and agencies is unprecedented, making it highly likely the tech industry will eventually face some kind of regulatory action.
“The more of them that pile on, the more you might think these companies cannot get out unscathed,” said Eleanor Fox, a professor of trade regulation at New York University.
Whether regulators actually force Silicon Valley to fundamentally change how it operates remains far less certain.
Investigators face several hurdles to building an antitrust case against tech behemoths, and competition-law experts say it will likely be months, if not years, before it becomes clear where regulators are headed.
For one, with so many government officials jockeying for position, regulators run the risk that their probes will become mired in internecine political squabbles.
Ideally, regulators combine their efforts, said William Kovacic, a former chair of the FTC who now directs the Competition Law Center at George Washington University in Washington. That doesn’t appear to be the case this time, with state, federal and congressional investigations all proceeding on separate tracks.
While rivalry among government departments and agencies can be good, helping to light a fire under a slow-moving bureaucracy, “Rivalry can also disintegrate into a clumsy and disorganized effort that values institutional parochial considerations above everything else, including good policies,” Prof. Kovacic said.
That risk made itself clear last week during a Senate hearing, when top officials from the FTC and the DOJ – who had previously agreed to share responsibilities to investigate the major tech firms – acknowledged their agreement was breaking down.
Analysts worry the Department of Justice in particular has become deeply politicized under U.S. President Donald Trump in a way that could ultimately undermine efforts to investigate Big Tech.
The department went to court in July to block a successful antitrust lawsuit brought by the FTC against Qualcomm that would have forced the U.S. mobile chip maker to license its technology to competitors including Chinese tech giant Huawei, a company at the centre of U.S.-China trade tensions.
“It’s highly unusual, very strange” for the federal government to go to court to fight an antitrust case brought by another federal agency, said Maurice Stucke, a former prosecutor at the Justice Department who teaches law at the University of Tennessee, Knoxville. That alone has likely caused bad blood between the FTC and the DOJ, he said.
A bigger hurdle is that existing U.S. antitrust laws aren’t designed to punish companies solely for being too rich and powerful.
Even if prosecutors can convince a court that large tech companies have become monopolies, they still need to make the case that those monopolies have harmed competition in a way that’s bad for consumers. It’s a difficult argument to make against companies that undercut competitors’ prices, such as Amazon.com Inc., or give away their products and services for free, such as Google and Facebook.
“You can’t bring an antitrust case on the grounds that Google is too big and growing and we don’t see a way to stop it,” said Stanford University law professor Doug Melamed, a former general counsel for Intel Corp. who previously served as acting U.S. assistant attorney-general in charge of the Justice Department’s antitrust division.
Even if regulators do prevail in an antitrust case against a tech firm, they may not get the kind of game-changing outcome many of Silicon Valley’s most vocal opponents are hoping for, such as an order to break up one or more big tech firms.
Prosecutors could argue, for instance, that Google unfairly designs its search results to favour its own businesses over third-party competitors – an argument European competition regulators successfully made against Google in 2017.
But the likely result – that Google has to pay a fine and tweak its search algorithm – would amount to a slap on the wrist for a company that makes the vast majority of revenues through advertising.
“That could hurt Google Travel, or Google Maps, but it’s not going to fundamentally change their business,” Prof. Melamed said. “If you’re a populist who wants to see these platforms broken up or brought to heel, I would be very surprised if there was an antitrust case that does that.”
An antitrust ruling could potentially have the opposite effect, making some tech firms even more powerful. European regulators slapped Google with a record $6.3-billion fine last year for forcing smartphone makers that license the tech giant’s Android operating system to install Google as the default search engine.
In response, Google has said it plans to force rival search engines to pay to access Android through an auction. “So it’s like Google saying we win either way,” said John Newman, a former Justice Department antitrust lawyer who now teaches law at the University of Miami. “I’d be looking at that as a cautionary tale of just trying to slap a behavioural remedy on something and hope it fixes the problem.”
Still several analysts believe the threat of an antitrust lawsuit may be enough to slow the growing power of Silicon Valley, making companies more cautious about pursuing practices that could bring more scrutiny from regulators. That alone could open the door to new competitors.
“This is a drag on these companies,” Prof. Kovacic said. “Their effectiveness, their adroitness, will be limited to some extent, whether or not the government wins a case – or even brings a case.”
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