2020 ended with a whirlwind of US antitrust activity against the tech industry. In a three-month span, state and federal authorities shook off nearly two decades of inaction by filing five separate lawsuits alleging wide-scale violations of the antitrust laws by Google and Facebook. The historic cases go to the heart of what online platforms can and cannot do in dealings with their business users, competitors, and partners. Antitrust now stands front and center in the US debate over how to regulate Big Tech, and the entire industry should take heed.
This first in a series of articles about the landmark antitrust lawsuits against Google and Facebook looks at how the mere filing of these cases signals a reshaping of the legal landscape and what it means for tech businesses, big and small.
The article begins with an overview of the five cases. For those familiar with the background, feel free to skip to the analysis below.
The antitrust case against Facebook
Two separate government antitrust lawsuits were filed against Facebook on the same day in December of 2020.
A lawsuit by the FTC (one of the two main federal agencies responsible for enforcing the antitrust laws in the US) alleges that Facebook unlawfully obtained and maintained a monopoly position in social media.1https://www.ftc.gov/system/files/documents/cases/051_2021.01.21_revised_partially_redacted_complaint.pdf Under antitrust laws, this is called a “monopolization” claim and it targets unilateral steps taken by a large company to harm competition.
The FTC alleges that Facebook monopolized the social media market in two related ways. First, it is alleged to have prevented “interconnection” to its platform by certain third-party services via APIs. APIs are technical functionalities needed in order to be able to send data to and receive data from Facebook, which is critical to bridging a user’s experience on a smaller upstart service to their Facebook account. (For example, by allowing users to get up-and-running on a new service by being able to automatically connect to all of their Facebook Friends who are already on that service.) The complaint alleges that Facebook was choosey in granting access to its APIs, a decision that was influenced by competitive considerations. In effect, the case turns on the claim that Facebook cut off or limited access to APIs for those third-party services that posed a direct or potential competitive threat.
Second, the FTC lawsuit alleges that Facebook eliminated competition by acquiring smaller start-ups before they could grow into a viable competitive threat to its social media network. In particular, the complaint centers on two acquisitions–the photo-sharing app Instagram and the instant messaging service WhatsApp–that are alleged to have squelched potential competition in its infancy.
The root of the government’s case is that Facebook cut off competition from existing or potential rivals, including companies offering niche alternatives to Facebook which could attract new users and then potentially be used to build out a broader social media network product that more directly competes with Facebook’s core platform. The complaint alleges that Facebook’s conduct had the effect of eliminating competition by preventing rivals from emerging. This, in turn, harmed advertisers who did not get the benefit of having other social media platforms compete for their advertising dollars (by, for example, charging lower rates). Users are also alleged to have been harmed as a result of having been deprived of the “choice, quality, and innovation” that would arisen in the social media space under more competitive market conditions.
On the same day that the FTC filed its case, the Attorney General of New York led a very large group of states bringing a separate antitrust lawsuit against Facebook.2https://ag.ny.gov/sites/default/files/state_of_new_york_et_al.v._facebook_inc.-_filed_public_complaint_12.11.2020.pdf Although its allegations are more detailed, the claims are very similar to the FTC’s. But there are a few important differences. The main one is that the states bring a separate and distinct cause of action claiming that the acquisitions of Instagram and WhatsApp were illegal under the antitrust laws governing mergers that are harmful to competition. (The FTC does not bring a distinct merger look-back claim, but rather fits those allegations within its single monopolization claim.) Another difference is that the state complaint takes a broader view of the alleged harm caused to users by the absence of competition, which includes “degraded privacy protections” and a loss of “privacy options.” (Some of these allegations ring of the novel theories of competitive harm underpinning a potentially groundbreaking antitrust lawsuit against Facebook that is currently being litigated in Germany.3https://twitter.com/tsteinvorth/status/1349978624833761280?s=21
The remedies sought in the FTC and states’ complaints against Facebook are similar. In both, the plaintiffs would require that Facebook make its systems interoperable with third-party services and provide prior notification to the government of all future mergers and acquisitions. Both suits also seek the extraordinary measure of unwinding the WhatsApp and Instagram acquisitions, up to seeking a breakup of Facebook that transforms it from an ecosystem of integrated social media and messaging services into a looser affiliation of independent businesses.
The antitrust case against Google
Three separate antitrust lawsuits have been filed by federal and state government officials against Google. (A fourth has been signaled to be on the way.4https://www.foxbusiness.com/technology/state-attorneys-general-are-planning-another-lawsuit-against-google-for-play-store-for-androids) Like the complaints against Facebook, the cases against Google also center on monopolization allegations that the tech giant obtained and maintained a monopoly position in its core search and online advertising markets by excluding competitors.
The first of the lawsuits was filed in October of 2020 by the DOJ (the other of the two main federal antitrust enforcers), with a handful of states joining.5https://www.justice.gov/opa/press-release/file/1328941/download The DOJ-led complaint was the first of the Big Tech antitrust cases to be brought last year, and it was also the narrowest. It alleges that Google locked up key “distributors” such as devices (like the iPhone), browsers (like Chrome), and wireless carriers (like AT&T) with contractual and technical restrictions that made Google Search or Google Assistant the default search option for users and made it difficult to change that default to a rival (such as DuckDuckGo). These arrangements allegedly included large payments by Google to the distributors in exchange for preferred search positioning. The DOJ also alleges that Google conditioned a distributor’s access to services such as the Google Play Store (a must-have to sell a product to consumers that runs the Google Android mobile operating system) to preferential treatment of Google’s search services.
According to the DOJ, the purposes of these arrangements was to maintain Google’s strong position in the market for general search (which is offered to users for free) with the aim of protecting the company’s revenue-generating search-related advertising business (where advertisers engage in auctions to bid on keywords in order to appear in Google search results). As proof of this motivation, the complaint alleges that some of the payment arrangements included sharing of Google’s advertising revenues with the distributors. The detrimental effect on competition, according to the DOJ, was to exclude rivals from accessing the major distributors (and, in turn, their users) and thereby prevent them from growing into a competitive search service (and, in turn, a competitive search-advertising business).
After the DOJ tested the waters with its headline-grabbing case, two separate state-led complaints were filed against Google the following month in December. A complaint led by the Attorney General of Colorado (joined by various other states) very much builds off the DOJ case by focusing on search and search-related advertising.6https://coag.gov/app/uploads/2020/12/Colorado-et-al.-v.-Google-PUBLIC-REDACTED-Complaint.pdf It adds allegations that Google took steps to limit the interoperability between certain of its own search-advertising tools and those offered by third parties, which excluded rivals from emerging to service the advertisers using Google’s vertically integrated online ad auction system. The Colorado-led complaint also alleges that Google disadvantaged third-party vertical services (such as shopping aggregators similar to Google Shopping) by demoting their placement and visibility in Google search results. The alleged purpose was to hinder those services from competing with Google in vertical search markets, so that they would not establish a foothold which could be used to expand into the general search market that is Google’s key gateway to users.
The second of the state complaints against Google is led by the Attorney General of Texas.7https://www.texasattorneygeneral.gov/sites/default/files/images/admin/2020/Press/20201216%20COMPLAINT_REDACTED.pdf The Texas-led complaint (joined by a handful of other states) differs from the DOJ and Colorado-led cases in that it targets Google’s display (bit search) advertising business. Unlike search ads, which appear in search results, display ads appear directly on websites or apps. Google operates a large vertically-integrated online auction that connects publishers of online content (such as app developers) with advertisers looking to display ads next to that content.
The Texas-led complaint revolves around allegations that Google has excluded competitors in how it created and now exploits a “bottleneck” in the online display advertising auctions that it operates. It alleges that Google advantaged its own ad tools (offered to the publishers and advertisers who participate in its auctions) over competing ones by giving itself access to better user data, quicker processing of auction activities in the background, and the ability to make “last look” bids. It also alleges that Google engaged in exclusive arrangements and bundling of services vis-a-vis auction users in an attempt to lock out competitors. The complaint also alleges that Google took steps to quash publisher efforts to engage in self-help “header bidding” that would have opened up its auctions to competitive pressures from third-party ad services. This last claim also takes the Texas case beyond Google’s unilateral steps to monopolize markets and into allegations that the company colluded with Facebook to discourage header bidding in exchange for granting it certain advantages as a participant on Google’s auctions.
A common thread runs through all three Google complaints when it comes to the theory of harm to competition. Mainly, it is that Google’s exclusionary conduct has weakened competitive forces to the point that the fees Google charges to users of its online advertising auctions have been inflated, improvements to its services and innovations in the market have been stunted, and market alternatives for online advertising auction users have not been allowed to emerge. All of this, in turn, is alleged to have contributed to broader problems for internet businesses and end users, such as pay-to-play search results that are less relevant to user queries, advertising campaigns that are less effective, and a lack of adequate financial support for publishers who are dependent on ad revenues to generate their content.
The three Google cases also have in common a novel antitrust theory that is based on the notion that collecting consumer data has been the key to Google establishing and maintaining its strong market positions in search and advertising markets. It is alleged that data generates personalized search results and targeted advertisements to users–both at the core of Google’s success. User data also gives Google the information it needs to maximize its revenue when acting as a middleperson between advertisers and publishers on the ad auctions that it runs. Therefore, by protecting its strong data advantage in search and online advertising, Google is alleged to maintain high barriers to entry that prevent competition from emerging.
What the government antitrust lawsuits against Google and Facebook mean for tech businesses
The federal and state antitrust lawsuits against Google and Facebook are truly sweeping in their scope. For now, they are just complaints—mere allegations that have to be proven in court and then applied to a century-old body of antitrust jurisprudence before a violation of the law can be established or any relief can be imposed. Still, the filing of the complaints carries real and practical significance not only for Big Tech platforms like those named as Defendants but also for the countless businesses operating in or around their vast online ecosystems.
Win or lose, the mere filing of the antitrust lawsuits against Google and Facebook signals a new era of enforcement that tech companies will have to adapt to.
US antitrust authorities have been slow to react to developments in Silicon Valley. Since 2017, the European Commission has brought three cases (through decision and fine) against Google, with allegations reaching some of the same conduct that is at issue in the just-filed cases in the US.8https://www.politico.com/news/2020/10/21/google-europe-us-antitrust-431036 Additional European investigations of Google are under way, in addition to Apple, Facebook, and Amazon.
By contrast, until the complaint filed against Google in October 2020, US authorities had not brought an analogous antitrust case against Big Tech since the DOJ went after Microsoft in the late 1990s and early 2000s.9https://www.wired.com/2002/11/u-s-v-microsoft-timeline/ It was only with the US House of Representative’s public hearings followed by its historic report in the summer of 2020 that policymakers began to set out their views on the state of antitrust enforcement in tech and to propose reforms.10https://judiciary.house.gov/news/documentsingle.aspx?DocumentID=3429 (The conclusion—even in the minority parties’ concurrent report—was that significant enforcement and reform is needed.)
Whether they ultimately succeed or fail, the pending lawsuits against Google and Facebook are the first decisive steps in nearly two decades by antitrust officials to dust off century-old antitrust laws and bring them into the modern digital era. A shift in enforcement priorities at both the federal and state levels of this size and scope is a once-in-a-generation tectonic shift of the legal landscape in which businesses operate.
Final rulings from the courts on whether Google or Facebook violated antitrust laws may take up to a decade. Well-established case law on the nuanced questions surrounding how the antitrust laws are to be applied to tech markets may take even longer. But the prospect of additional tech companies facing burdensome government investigations and costly lawsuits is immediate. This alone will cause a sea change in how Big Tech deals with antitrust compliance—the way that Microsoft was transformed as an organization in the early 2000s by the scars of a decade-long battle with antitrust authorities.
From the day-to-day mundane all the way up to major M&A, business strategy and operational decision-making will have to be viewed through a new antitrust prism defined by the novel digital theories of the Google and Facebook cases. At the same time, Big Tech’s burdens will spell opportunity for the countless tech businesses that operate on their vast ecosystems. The reverberations will also be felt well beyond what is colloquially referred to as “tech” (the various consumer-facing products and services that we are all most familiar with). Large incumbents operating in the various traditional industries that are being transformed by digitization—like cars, banking, publishing, healthcare—will also have to start paying closer attention to antitrust risk and compliance. (More on exactly how further below.)
The Big Tech lawsuits reflect a potential re-convergence of EU and US law, highlighting the value of a global approach to compliance and legal risk management.
Antitrust law was an American creation, exported to Europe and much of the rest of the world after WWII. In that new neoliberal world order, the US led and others followed. But Silicon Valley flipped that script.
The digital revolution strained international relationships, as major jurisdictions in Europe identified problems and went after them with novel antitrust theories while the US stood pat. Interpretations of competition laws have increasingly diverged across the Atlantic, especially in the treatment of single-firm monopolization conduct by dominant firms (the sorts of claims at the heart of the present Google and Facebook cases). More recently, active antitrust tech enforcement in Europe was even seen by some as trade protectionism vis-a-vis an increasingly isolationist US.
The filing of the antitrust lawsuits against Google and Facebook in the US is on track to reverse this trend. Supported by a shift in the tone of both major political parties in the US, and against the backdrop of a new presidential administration seen as likely to be enforcement-minded (and pro-Europe), proactive use of the antitrust laws in the US and a cross-Atlantic re-convergence of policy goals in dealing with concentration in private markets seems at hand. And with the US lawsuits against Big Tech pushing the envelope farther than even aggressive EU enforcement efforts were willing to go, the US could (if its courts go along with enforcers’ views of the law) reemerge again as a world leader in antitrust policy.
This has at least two implications for tech companies. First, keeping track of antitrust developments in Europe (and other forward-thinking jurisdictions like Brazil, Australia, and India) is an effective way to look around the corner at what might be coming to the US in terms of tech enforcement and regulation. Anticipating legal risks before they turn into a problem could save companies a lot of time and money spent on defending government investigations and lawsuits that could have been anticipated and averted with some simple changes in corporate policy and practice.
Second, a tipping point may be coming at which US-based tech companies with a worldwide presence start to see it in their interests to adopt internal policy and design their technology to the lowest common denominator of an emerging worldwide patchwork of laws and regulations. As a technical or practical business matter, it might make sense to identify the key legal risks not just in the US but in any other major market, and to use that as a guide for how to run the business worldwide. Convergence of EU-US antitrust laws will further globalize compliance and legal risk assessment.
The antitrust lawsuits against Google and Facebook are part of a rising tide of state law enforcement that companies in all industries (tech or not) should heed.
The national and international stages are not the only ones that matters in competition law. State-by-state antitrust enforcement in the US, like country-by-country enforcement in the EU, runs parallel to the federal enforcement framework. State enforcement is generally not preempted or precluded by federal interests, and as a result it can set powerful precedent for antitrust efforts domestically and even abroad. Still, state enforcers have historically not been very active in antitrust matters with national implications, focusing instead on local interests. But that has changed.
With the filing of their historic antitrust lawsuits against Facebook and Google, the days when state law enforcers were an after-thought in federal-run antitrust investigations are over. States were already becoming more assertive in recent years, to the point of sometimes finding themselves at odds with federal antitrust authorities. In one recent high-profile antitrust case, a handful of states (unsuccessfully) opposed the T-Mobile/Sprint merger in a federal court even as the DOJ pushed for a remedy to allow the deal to go through. But the current Big Tech cases reflect an even higher level of state autonomy and proactiveness.
State Attorneys General have taken the lead on significant aspects of the Google and Facebook antitrust probes, with some going so far as to file separate lawsuits bringing broader claims than those being pursued by the FTC and DOJ. And the states cannot even seem to agree amongst themselves on litigation priorities and strategy, as evidenced by the two separate state-led complaints filed against Google (falling largely across the divide of the two major national political parties).
The implication is clear: businesses failing to account for state authorities in identifying and mitigating antitrust risk do so at their own peril. This extends to M&A, contracts and business partnerships, and any dealings with one’s customers, suppliers, or competitors. All are fair game for a State Attorney General to investigate and find unlawful under state or federal antitrust laws. This means that, to the extent an investigation is ongoing with the DOJ or FTC or a remedy to resolve it is being negotiated, interested state actors should be brought in the fold. It also means putting an added premium on retaining counsel with local expertise and experience to assist.
The Big Tech lawsuits signify a major effort by US enforcers to reanimate for the digital era the extinct body of US law that governs the “antitrust duty to deal.”
The notion that large incumbents may have a duty to deal with their smaller rivals is one of the most hotly contested issues in antitrust policy and academic circles. Even under EU law the question has not been settled, which is why it is the focus of Google’s appeals of its antitrust fines by the European Commission.11https://techlawdecoded.com/what-an-elusive-remedy-in-the-google-shopping-case-says-about-the-future-of-regulating-big-tech/ But in the US, the duty to deal is nearly an extinct creature in the legal and economic habitats that antitrust lives in.
In recent decades, an especially hands-off approach to free markets has prevailed in US courts. One of its effects has been to whittle down the antitrust duty to deal to a very narrow set of circumstances that are rarely satisfied. This has posed a special problem for tech, where a first-mover advantage and runaway effects inherent to the market (for example, the “network effects” of everyone wanting to be on the same few social media platforms) can quickly erect high barriers to entry that entrench an incumbent’s position. Rivals looking to expand into the market often argue that access to some “essential facility”, such as user data or interoperability with the incumbent’s platform, is necessary to break through those entry barriers. But laissez faire inclined economists and other corporate interests have steered courts towards a “tough love” approach to private markets that includes declining most invitations to force one company to do business with another absent some unique and rare circumstances.
But what courts through individual case rulings have done to make such claims difficult for plaintiffs to bring, they can un-do with new decisions. The government antitrust cases against Google and Facebook present such an opportunity, as they reflect a major push by state and federal enforcers to reverse the law’s skepticism of the antitrust duty to deal.
At the government lawsuits’ core lies the notion that the Big Tech platforms had major first-mover advantages which they have protected by excluding their competitors from accessing user data (through data portability), connecting to platform systems (through interoperability), or getting equal placement or positioning on a consumer-facing platform (self-preferencing). The theory continues that, as it is required to attract users and compete in the market (whether social media, search, or online advertising), the absence of openness and fair dealings on the platforms acts to protect the incumbent’s strong market position through the exclusion of rivals.
Though the government’s antitrust lawsuits conspicuously avoid what has become a dirty word in mainstream antitrust circles, they ring of imposing an antitrust duty to deal on Google and Facebook vis-a-vis their existing or potential competitors. And whether or not the plaintiffs call it that, the defendants will surely try to do so, in the hopes of pushing these cases into favorable legal territory by framing them as an effort to force Big Tech to prop up its competitors, undermining the incentive to become a lawful monopolist which is seen as a healthy driver of a free market system.
As will be discussed in the next article of this series, that tactic very well may help Google and Facebook to win these cases. But while it is an uphill climb for the government, having the force of state and federal enforcers put behind arguments favoring a use of the antitrust laws to impose a duty on large incumbents to deal with rivals could sway the courts. This is all the more so if bolstered by public opinion favoring more tech enforcement and growing criticism in academia of the hands-off neoliberal school of economics that has prevailed in modern antitrust.12https://techlawdecoded.com/how-tech-forces-a-reckoning-with-prediction-based-antitrust-enforcement/
All of this could spell an opportunity for rivals and business partners, leaning on the force of the government’s positions in their antitrust lawsuits against Google and Facebook, to seek more openness and a more level playing field from the large online platforms that they depend on. For the large tech businesses that serve as gatekeepers to customers, suppliers, data, or infrastructure needed to compete in a market within their ecosystem, it could foretell more investigations into any conduct that complaining third parties could style as a refusal to deal which has the effect of restricting competition.
The devil is in the remedy: the end-game in the antitrust lawsuits against Google and Facebook could have the biggest impact of all on tech business planning.
Perhaps the aspect of the Big Tech cases that is most capable of shattering the expectations and interrupting the functioning of Silicon Valley (and the venture funding machinery that fuels it) is not the wonky question of whether the antitrust laws were violated, but the practical issue of what remedy would be appropriate to impose if they have.
The relief that would be most directly tied to the core theories of the government’s cases would be to force the large platforms to interoperate and share data with third-party services. It could also include requirements for putting third-party business users on equal footing with the platform operator’s own vertical businesses (for example, in search display and positioning). Such conduct relief could be an inconvenience for Google and Facebook, for sure. It could even eat away at some of their share if enabling rivals to emerge at the market’s edges.
For the companies looking to take on Big Tech in some niche market within their ecosystems, and for the various tech companies whose business models are dependent on having access to the big platforms on equal and fair terms to their rivals, such conduct relief would be a welcome development. And the precedent set by the resolution of the antitrust lawsuits against Google and Facebooks could have an impact that goes well beyond the ecosystems of consumer-facing tech platforms. If successful at getting a court order (or a negotiated settlement) for conduct relief imposing interoperability or data sharing and portability, gatekeeper platforms and the various businesses operating around them in other digital markets—such as IoT, manufacturing software, and online payments—could see the same risks and opportunities.
Still, it is not clear that conduct relief forcing the platforms to be more open would dramatically reshape the markets at issue in the antitrust lawsuits against Google and Facebooks. The incumbents already have quite a leg up on any potential rival, in terms of scale, capital, technology, user base, branding, online infrastructure, vertical integration, and various home field advantages that go along with being a successful early mover. That might help explain why Facebook, Google and others have already, on their own initiative, called for more open internet standards and promoted interoperability and data portability. Openness is apparently something that Big Tech, at least at this stage, sees as good for business. (In fact, some of the earlier allegations in the cases against Facebook regarding closed APIs have been mooted by subsequent changes to its policies.)
Looming much larger than the conduct relief is the potentially existential threat posed by the requests for “structural” relief that are contained in the government’s complaints against Google and Facebook. Though the details in the Google complaints are lacking, public comments from observers of the case and policymakers pushing for more aggressive antitrust enforcement have suggested that structural relief against Google might involve separating its search from its advertising business, or even breaking up the vertically integrated pieces of the ad side of the business. The serious implications of structural relief are clearer in the cases against Facebook, where the government complaints expressly reserve the right to seek as a remedy the unwinding of the acquisitions of WhatsApp and Instagram. That could go so far as imposing a legal separation of the businesses that prevents them from being operated under the same roof.
In this way, the antitrust lawsuits against Google and Facebook are the closest effort yet at “breaking up Big Tech” to be seen in the wild, that is, in the enforcement efforts of antitrust officials or private litigants. But off the campaign trail, where such slogans were catchy but lacking in nuance, crafting such remedies will be a huge challenge where integration has been core to both the Big Tech business model and the user experience. (More on that to follow in the next article in this series.)
Whether the threats are real, or just government posturing for the tough negotiations to try to resolve these cases before a trial, they represent choppier legal waters ahead for Big Tech. Just the threat of structural relief being on the table when dealing with government authorities has the potential to shift the tech landscape, given that integration across an ecosystem has been relied upon to fuel user growth and the accumulation of the data that is used to improve ad-targeting (and thereby generate more revenue). As for the various businesses operating in the platform ecosystems, the mere risk of structural relief being imposed could be useful when threatening to lodge complaints with antitrust authorities to gain some leverage in negotiations to resolve a dispute with a Big Tech player.
The headline-grabbing allegations of Big Tech collusion could be a game-changer for collaboration and coordination in the tech industry.
Claims of collusion under federal antitrust laws can bring criminal liability. This can spell huge fines, probation, and reputational damage for a company. It can mean jail time for its executives. Such “cartel” cases can also be easier for the government (and subsequent private plaintiffs seeking money damages) to bring because antitrust laws alleviate plaintiffs of certain burdens of proof, in particular the difficult task of showing that competition was harmed by the defendant’s conduct. For all these reasons, attorneys advise their clients to treat criminal cartel liability with the utmost seriousness and to give the highest priority to mitigating it.
The mere allegation in the Texas-led complaint that Google and Facebook (though the latter is not named as a Defendant in the case) may have colluded to avoid competing in online advertising markets is sending shockwaves through tech. Although the lawsuit brings only civil (not criminal) charges, court rulings in the case could lead to new legal precedent being established that is used by authorities to bring criminal cases in the future. Tech companies should, therefore, use the allegations in the Texas-led complaint as a rough guide for how to assess the antitrust risk of their partnerships and business dealings–those with direct competitors as well as any industry players operating in an adjacent market.
In the sprawling landscape of the Big Tech digital ecosystems, this can cast a very wide net. But comprehensive due diligence is necessary because any industry collaboration or coordination that can arguably be linked to a squelching of competition is a massive potential liability lying in wait. Going forward, strategic partnerships and industry efforts to collaborate, even if they involve seemingly benign issues like privacy, data security, technical interoperability, or data portability, will need to be screened for legal risk beforehand.
Inevitably, opportunities to work together will fizzle out due to the fear that a criminal investigation could follow. The changed incentives could have drastic consequences for the industry. Historians have chronicled how the success of Silicon Valley can be attributed in some part to a collaborative environment in which ideas and people flowed easily across enterprises in ways that promoted innovation and competitiveness. This is a rosy picture, no doubt. And the narrative already started to lose its luster amidst the Microsoft investigations in the late 1990s, before taking a big hit in 2010 with a DOJ case brought against a host of significant Silicon Valley players entering into employee no-poach agreements.13https://www.justice.gov/opa/pr/justice-department-requires-six-high-tech-companies-stop-entering-anticompetitive-employee Still, enforcement against Big Tech for collusive conduct has been extremely rare and collaborations on matters such as data portability, interoperability, data protection and privacy, web standards, and digital currency continue to play a big role in the digital sector.
But all the while, the strict cartel laws have remained on the books—one of the few areas of consensus in antitrust that has survived its long history. What was missing, however, was how to adapt the notion of an antitrust cartel to digital markets in which customers don’t pay for the products and geographic boundaries don’t exist. Because short of a clear-cut case of a price-fixing or market allocation scheme reached in secretive meetings using codenames, courts and enforcers struggle to draw the line between a per se illegal cartel and the sort of potentially pro-competitive industry collaboration that the antitrust laws judge more favorably based on its economic reasonableness. That line can only be drawn through experience, which is to say, the application of the law to the facts in specific case. (The DOJ’s successful but highly controversial 2013 case against Apple alleging collusion in the e-books market is a perfect example of how difficult this can be in the digital context.14https://www.justice.gov/opa/pr/second-circuit-affirms-apples-liability-se-unlawful-e-book-price-fixing-conspiracy)
The case-by-case approach by which it can be determined what an unlawful cartel looks like in new and novel industries is why the tech industry should pay very close attention to what happens in the Texas-led lawsuit against Google. The decision may capture within the antitrust dragnet conduct long considered business-as-usual in Silicon Valley, and provide valuable guidance on what to look for when assessing the risk of two tech companies coordinating their market activities.
The antitrust claims brought against Facebook for its prior acquisitions will bring heightened uncertainty to M&A, in tech sectors and beyond.
In 1976, a law went into effect which set out a new framework for how mergers and acquisitions would be screened by antitrust authorities to determine whether they had the potential to eliminate competition. Under the HSR act, M&A that crosses certain size thresholds has to be reported to the federal antitrust authorities before the parties complete the deal. The government then has a set amount of time to review the transaction before deciding whether to bring a lawsuit in court to try to block it.
The HSR act was a grand bargain. Government officials got time to review a deal before it was completed (and made more difficult to un-do). The business community got more clarity about the timing of the review and some sense of finality about the lawfulness of their deal (so that they would not get surprised by an after-the-fact investigation). And while as a strict matter of the law the federal government does not “approve” a reported transaction through this process (it only indicates its non-intention to seek any action against it), as a practical matter obtaining such “clearance” from the government is in almost all cases seen as the final word. It was a win, win for regulators and private markets.
This grand bargain could be partially undone if the government plaintiffs are successful at convincing a court that Facebook’s acquisitions of WhatsApp or Instagram were unlawful under the antitrust laws. Although such merger look-back investigations of consummated deals are not uncommon, they are much rare than challenges lodged at the time of an HSR filing. It is even less common to see the government challenge a consummated deal that was—as is the case with both of the Facebook acquisitions—already reviewed and “cleared” by a federal antitrust agency. (More often, they involve smaller transactions that, for technical reasons, did not have to be filed with the government.) Facebook has good reason to express some level of surprise and consternation about seeing these deals face government challenges nearly a decade later.
It is far too early to tell if the governments’ claims will succeed. (A discussion of the chances of that happening will be discussed in the next article in this series.) And even if the FTC or states succeed, the decision of the court might be on such unique and fact-specific grounds that little changes in how the law is applied to other deals. Still, regardless of how things shake out, the mere filing of the merger look-back claims against Facebook—posing, as they do, an existential risk to one of the biggest companies in the world—will change how businesses of all sizes approach antitrust legal risk for M&A.
Companies engaging in M&A which could, due to later developments in the market, be deemed in retrospect as being harmful to competition will always have to look over their shoulders for the possibility—no matter how remote—that they might find themselves in a dog fight with federal and state enforcers years down the road. This risk will inform what deals to pursue and how to judge when a completed deal is “in the clear” (the answer sometimes being a dissatisfying “never”). It might also inform what companies do once they complete a risky acquisition. Consider, for example, a situation where Facebook is able to dodge liability or a harsh remedy because a court determines that it would be ineffectual or unfair to un-do its work of integrating its acquisitions into its social media platform. One could imagine other companies rush to fold their acquisitions into their organizations and scramble the eggs as soon as possible upon closing.
The government antitrust lawsuits against Google and Facebook will trigger a flood of follow-on civil lawsuits seeking money damages and strategic injunctive relief.
In the US, a government antitrust lawsuit against a big company is only the start of its legal troubles. Before the dust settles, the company will have gone through multiple massive civil litigations brought by attorneys representing private plaintiffs in a host of class action lawsuits seeking money damages. Some large members of the classes being represented in those cases will “opt out” of the collective actions and bring their own separate lawsuits (hoping for a better monetary recovery). In all of their various forms, these so-called “follow-on” civil lawsuits filed by private plaintiffs can last longer and bring even more financial pain than the government cases that they are built off of.
The risks and costs of the antitrust lawsuits against Google and Facebook will likely go beyond the particular defendants and specific sectors named in the government complaints. Antitrust statutes create big incentives for lawyers (including awarding of attorneys’ fees) and businesses (including automatic tripling of any money damages awarded by a jury) to scope out opportunities to bring individual or consolidated lawsuits. There is a long history of the government creating a narrow opening in the law by bringing a targeted case against one or a few defendants, and the private bar busting the doors wide open with a series of much broader civil lawsuits that reach new defendants and even new industries. Expect whatever success—large or small—that the government has in prosecuting its antitrust lawsuits against Google and Facebook to lead to a tidal wave of new cases brought by private plaintiffs against large incumbents in various tech-related sectors.
For the more savvy businesses that depend on the large tech platforms, an opportunity will also emerge from the government’s lawsuits to bring their own targeted lawsuits against Google, Facebook, and other Big Tech players. Such business-to-business lawsuits will often be funded by the company bringing it and seek strategic advantages, rather than the monetary relief that tends to be the focus of large consolidated cases brought by plaintiffs’ attorneys seeking to recover a percentage of the pot. These B2B lawsuits might seek injunctive relief that includes getting the platforms to open up their systems, share their data, change how they display or prioritize search results, and other ways of leveling the playing field on the Big Tech ecosystems. As a result, shrewd in-house legal departments will have more tools at their disposal to support the strategic mission of a company.
A new era for Silicon Valley
The government’s antitrust lawsuits against Google and Facebook have the potential to dramatically reshape the legal landscape of the tech industry. The implications go well beyond these two companies and the social media, search, and ad markets in which they operate. The aggressive posture and novel theories underpinning the lawsuits against Google and Facebook will require a careful rethinking of antitrust compliance for any large tech business, whether consumer-facing or not. On the other side are the countless business users, competitors, and partners of the Big Tech platform ecosystems that stand to gain something from the government’s efforts. These companies may see more opportunities to stake out a corner where they can become a niche rival to Big Tech, or to get some certainty in the otherwise precarious existence of a platform-dependent business plan.
It may be the start of a new era in Silicon Valley where the “move fast and break things” attitude of tech start-up culture is displaced by the more measured approach to innovation and competition that is seen in mature, regulated industries. For shrewd counsel and savvy businesses, the new legal landscape will present opportunities. For some large incumbents, it will challenge rapid growth and bring about a more compliance-driven business culture. For capital markets, money may start to flow more easily in the direction of some start-ups, as investors grow less wary of the “Big Tech kill zone”—the ominous term referring to the space occupied by platform-dependent tech ventures. Silicon Valley may never be the same.
Of course, the impact won’t be fully understood or felt until these cases progress and even get resolved (whether by a court or the mutual agreement of the parties). So come back for the next article in this series, which will look at how these cases might play out, and what sort of broader legal reforms they might usher in.