GeoLegal Weekly #31 - Antitrust but Verify

The US Justice Department recently won its first major antitrust victory in a generation, while the FTC spoils for fights at every turn. How are the geolegal dimensions of scale changing?

Politics is so divisive that Democrats and Republicans can’t even agree on the racial identity of the Vice President. So, it’s startling when there are areas of clear bipartisan overlap. Trust-busting is one of those areas, with the Biden Administration recently winning a landmark ruling against Google in a case started by the Trump administration. 

We go into significant depth below on the Google case as well as aggressive action by the Federal Trade Commission but we want to bring a few points up to the top.

• The US and EU are getting more aggressive on anti-trust enforcement because there is growing support to do so among most stakeholder groups beside the monopolists themselves and because there has been massive consolidation in many parts of the economy.

• The types of concerns the government is chasing includes traditional trust-busting but also other anti-competitive behavior like whether an entire industry is outsourcing pricing decisions to the same third-party pricing algorithm with an effect of raising prices. Of course, there’s also a lot of focus on Big Tech companies gobbling up AI startups too.

• There’s an effort to personalize penalties so companies can’t just treat fines as a cost of doing business; for instance, executives can be banned from industries like “pharma bro” Martin Shkreli. Increasingly, however, anticompetitive behavior may earn criminal penalties (like this guy who was the first successful prosecution in 50 years for attempting to monopolize an industry; Shrkeli went to jail for something different.)

• Still, in a world where the US and China are facing off for global economic dominance, it’s not clear that the US government really wants to punish scale itself; doing so might help consumers, innovative companies and their investors, but runs afoul of efforts to increasingly rely on huge US companies as national champions in the race for AI dominance.

DOJ Scores a Win

Just over a week ago, the US Department of Justice prevailed over Google, with the judge plainly pronouncing:

“Google is a monopolist, and it has acted as one to maintain its monopoly.”

-US District Court Judge Amit Mehta

The Google ruling is striking as it’s been 20 years since the government won a landmark antitrust ruling against a technology company –  in that case, Microsoft. Because history sometimes rhymes, here is a brief refresher on the Microsoft trial: the Clinton administration and 20 states (18 of which had Democratic attorneys general at the time) sued Microsoft in late 1998, a massive trial occurred, and in mid-2000 the District Court ordered Microsoft to be split in two. In late 2000, the US had a memorable presidential election that the Republicans ultimately won. In 2001, an appeals court reversed parts of the District Court’s judgement and, crucially, vacated its remedy of splitting Microsoft in two. By then, a new (Republican) sheriff was in D.C., and in the Fall of 2001, when the world was thinking about other things, the lawsuit disappeared into a consent decree. Microsoft carried on.

Antitrust law has evolved slowly in the two decades since the Microsoft trial, but the rumblings against Big Tech have grown louder and louder. Sometimes things change slowly - and then all of a sudden. It’s not hard to imagine that the recent success against Google will bolster government momentum in cases against Amazon, Meta and others. It may also convince private parties that they will have a better chance in court, at least in the tech space, potentially reversing a declining trend in recent years.

As Assistant Attorney General for Antitrust, Jonathan Kanter noted:

“what we have found is when we present courts with facts that are solid, when we present courts with legal theories that…go back to the heartland cases of antitrust law, and we do a good, solid job presenting our cases to a court in telling a coherent story that holds up on the facts and the law, that not only do we win, but we win decisively.” 

And in describing the import of the decision, he hints that judgement (should it withstand appeal) could affect future jurisprudence.

“It’s about all of the elements that go into making a technology product, whether it’s data, whether it’s revenue from advertising, or whether it’s the volume of click data and the ability to learn by doing. All of these are important elements and aspects of the case, and any remedy from our perspective in any of our cases, whether it’s this one or any other, has to recognize the facts as they exist.”

But focusing on winning misses the point that for most companies, the cost they pay on antitrust comes in the form of bad press from accusations alongside the legal cost and management distraction of defending oneself. And the accusations are coming fast and furious.

Watch Assistant Attorney General Jonathan Kanter talk about the Google case

A Unique Convergence

At the highest level of US politics, Republicans and Democrats differ on questions like the separation of powers among the branches of US government; state versus federal control of elections; presidential immunity and so on.  But the politics of market regulation are now being fought on a new terrain, where interests within and across parties have departed from past patterns. This is especially the case right now, with both Republicans and Democrats converging on some form of economic populism targeted at working class voters in the rust belt, who will possibly be the fulcrum of this election. 

Elections have consequences and antitrust in particular is the quickest consequence of an election. Newspapers will say that if one candidate wins an election, they will change environmental law. Not much, and not fast. Environmental law is regulatory - a new executive can issue guidance pretty quickly, but to really make a difference - and especially to make a durable difference - will require shepherding a regulation through the notice and comment process into a final rule. It can take years. The Consumer Financial Protection Bureau is still working on arguably its biggest regulation of the Biden administration (implementing Sec. 1033 of the 2010 Dodd-Frank Act), and they’ve been at it for almost four years. If Trump wins in November, it will take the agencies at least two years to get to a final rule on any major regulatory initiatives. By contrast, the instant a new administration comes in, it can launch new antitrust enforcement actions - or kill the ones already underway. This is powerful, and it’s a colossal headache to plan for.

A particularly scary aspect of this is that antitrust is, in part, a criminal body of law. Corporate legal problems usually result in settlements, fines or judgments, but antitrust (and corruption) can get you fitted for an orange jumpsuit. (Google executives have not called their orange jumpsuit tailors - do Silicon Valley executives even have tailors? - because this enforcement action is civil.) 

While we often focus on the Department of Justice, increasingly relevant is the Federal Trade Commission (FTC), whose stated goal is “protecting the public from deceptive or unfair business practices and from unfair methods of competition.” The agency is occasionally controversial, and has recently become much more so under Chair Lina Khan, the youngest person ever to head the agency. She was still a law student in 2017 when she wrote a paper on Amazon that attacked the FTC’s use of a  “consumer welfare” standard as its sole benchmark. She has pushed hard for a broader view of the political, social, and economic impact of economic concentration beyond just “efficiency.” 

And, under her, the FTC has done just that. In a recent Geolegal Weekly, we looked at the FTC’s move to make non-compete clauses in employment contracts illegal. This was itself an indication of the agency’s redefinition of its mission to focus more on workers’ issues, foreshadowed by a 2022 MoU with the National Labor Relations Board. In the Daily Show interview below, she talks about how she’s coming after AI companies and tech more broadly.

FTC Chair Lina Khan on the Daily Show

This might not seem surprising given the broader political messaging behind Bidenomics. The signal is that under “Scranton Joe” the Democrats are going back to the party’s labor-friendly roots before it underwent a “neoliberal turn” blamed mostly on Bill Clinton and Robert Rubin. It’s also consistent with the continuation (and even occasional intensification) of many Trump-era trade policies under this administration. 

What is somewhat more surprising is how popular the FTC is in some corners of the GOP. J.D. Vance, Trump’s VP candidate (who graduated from Yale Law School the year before Khan entered it) has said he thinks of Khan as “one of the few people in the Biden administration… doing a pretty good job.” This would be consistent with Vance’s populist working class pitches, such as his preference for a weaker dollar to bolster American manufacturing. Not surprisingly, the Wall Street Journal has had a conniption about his embrace of the FTC head, complaining that “Trump’s running mate has embraced Biden’s most lawless regulator.” 

And the Republicans aren’t the only ones divided over this issue. Major Democratic donors in the tech industry, where a lot of the FTC’s attention has been focused, are lobbying Kamala Harris to replace Khan if she is elected (which is possible but subject to challenge). The donor/message divide also shows up for the party in other areas. Trader Joe’s and Starbucks (the former a beloved “Dem-coded” grocery; the latter once headed by a major Dem donor) have joined SpaceX in a case that argues that the National Labor Relations Board is unconstitutional, part of a broader legal pushback against the “Administrative State.”  

Even if both parties are loud but internally scrambled on the issue of big versus small business, actual legal outcomes might make one wonder what all the fuss is about anyway. The Khan FTC’s activism has been vociferous and performative, but its actual impact in the courtroom has (until now at least) been more of damp squib. 

The FTC failed to prevent Microsoft’s acquisition of Activision, and Meta’s acquisition of a virtual gaming company. The chair has been criticized publicly and supposedly internally as well by staff for pushing cases that have little chance of success. As we noted in our earlier piece, 16 of 17 legal experts thought the non-compete ban would be struck down either in a lower court or at SCOTUS. 

But even failures can have effects. One theory is that Khan is bringing even losing cases to court because she wants to prod Congress to write tougher antitrust law. In her own words, “I’m certainly not someone who thinks success is marked by a 100% court record,” Khan said last year in remarks at the University of Chicago. “If you just never bring those hard cases, I think there is severe cost to that, that can lead to stagnation and stasis.” More and more members of Congress are willing to act, perhaps led by Senator Amy Klobuchar of Minnesota, likely the only member of congress to have written a 600-page book on antitrust law. Legislation takes a long time to mature, especially now, but her Competition and Antitrust Law Enforcement Reform Act of 2021 might provide a preview of where the law is headed. 

From the point of view of companies, even if it takes legislatures a long time (or never) to change the statutes, a change in judicial precedent can mean problems here and now. If the Google ruling is upheld on appeal, private plaintiffs will be emboldened to bring suit against other defendants. One does not need to have a trillion-dollar market cap to violate the Sherman Act in a smaller product or service market, and the cost of litigation can force a settlement if the defendant can’t get an early dismissal or summary judgement. If the law develops to emphasise questions of fact - and nothing says questions of fact like the Google court’s 127-page “findings of fact.” – we may see a lot more antitrust action driven by the plaintiffs’ bar.

And of course, when the government is on the other side, the litigation itself is the punishment. In antitrust, if the political will is there, antitrust enforcement will be a threat to companies even if the courts are favorable to them. Increasingly, it seems, they are not.

Meanwhile, US technology companies have to worry about more than just what the thinking is about antitrust at just the FTC and the DoJ in Washington. Brussels looms very large as well, given the EU’s ambitions to be a “regulatory superpower” in the digital world despite (or because) of its relatively meager corporate heft in the sector. The EU’s Digital Market Act (DMA) is focused on the activities of six "gatekeeper" companies—Amazon, Apple, Alphabet, Microsoft, Meta and ByteDance/TikTok (5 US, one Chinese) — pushing them to allow more options for customers and vendors. Measures include allowing a freer choice of browsers, permitting app-developers for iPhones to make their products available in venues other than the Apple app-store, and allowing alternative payment methods etc.  The EU’s underlying intuition is that “digital platforms can be listed as gatekeepers if they act as key gateways between businesses and consumers by providing “core platform services.” 

And this is precisely what can open them to the scrutiny of regulators focused on whether the market is in-fact competitive. In this regard, the EU’s instincts don’t seem exactly the same as a broader “stakeholder” view at Khan’s FTC that looks at the impact on workers or communities or an alternate interpretation that looks at market concentration as less problematic if it coincides with consumer welfare. Instead, the view seems based on the idea that concentration is problematic because it is a departure from the ideal type of a competitive market.    

The European Commission obviously matters, not just because it oversees a market of more than 450 million people, but also because it can serve if not as a model, then at least as a useful interlocutor and example for US regulators, as noted by AAG Jonathan Kanter, in the piece cited above.

“We have an excellent relationship with our colleagues abroad in Europe. The international stage has been dealing with technology firms that have dominant power now for a couple of decades. So, we all watch what the other is doing to make sure that we can learn from it, but we have to enforce the laws that we have here, and we have to enforce the laws based on the interest of our domestic population”

Geopolitics of Scale

We’ll end by noting that the domestic politics of punishing scale don’t necessarily line up with the international politics of supporting it. As we wrote in GeoLegal Weekly #18, companies are increasingly being drafted into interstate conflict - particularly US and Chinese companies with respect to their governments’ rising tensions. While it may make sense to break down companies to support competition, the simple fact is that the world is in a race to “win” the AI Wars (see our piece on the topic) and Western countries can’t directly subsidize their companies like China can. As a result, aggressive sanctioning or attempts to break companies up feels out of step with the broader national security agenda. In fact, companies who are directly negotiating with federal authorities with respect to problems related to their scale would do well to make that point central to the conversation.

Thanks to Dan Currell for his thoughts and wise edits.

That it for this week.

-SW and KS