When confronted with antitrust and competition issues, technology companies face increasingly complex challenges. The antitrust laws were written decades ago and not with emerging technologies in mind. In the United States, both Democrats and Republicans have focused on reining in so-called "Big Tech." The European Union is considering more sweeping powers to address competition. And plaintiffs' lawyers are likely to become more aggressive in their search for their next big pay day.
We expect the Biden Administration to focus on bringing antitrust cases against tech companies. The monopolization cases against Google, originally filed by the Trump Administration and State Attorneys Generals, and the Federal Trade Commission action against Facebook, could be a model for other cases. We also expect U.S. agencies will increasingly coordinate with enforcement authorities around the globe and will look to, if not emulate, the tougher enforcement environment in Europe.
In Congress, there appears to be growing bipartisan support for action against tech companies. Last year, the House Subcommittee on Antitrust, Commercial and Administrative Law issued a lengthy report about the four largest U.S. tech companies: Apple, Amazon, Google and Facebook. After live hearings with testimony by the four companies' CEOs, the committee issued a report that identified issues in the tech space.
Those conclusions have prompted proposed legislation. On February 4, 2021, Senator Amy Klobuchar, chair of the Antitrust Subcommittee of the Senate Judiciary Committee, introduced "The Competition and Antitrust Law Enforcement Reform Act." If enacted, this bill would fundamentally revise longstanding U.S. federal antitrust laws by forcing the merging parties to shoulder the burden of proof in a variety of common combination scenarios and would provide regulators with other powers and augmented resources.
In particular, the bill would position regulators to more aggressively pursue transactions involving nascent or potential competitors, which have also faced heightened scrutiny under European competition laws. In addition, the legislation would add $300 million each to the DOJ and FTC budgets.
Responding to the Onslaught from Multiple Regulators and Lawsuits
In the tech industry, major litigation and enforcement actions, if mishandled, can quickly spin into a crisis. These cases will likely involve multiple regulators (often across borders) and class action and follow-on civil litigation. For this reason, tech companies should follow lessons from companies that have successfully navigated this litigation onslaught, including banks and car companies.
At the outset, boards and senior executives must focus on the big picture and develop a holistic, multidimensional strategy for responding to investigations and litigations in multiple jurisdictions. Be patient at the beginning and have a long-term strategy. These situations can take a long time to resolve, and strategic choices at the outset can have repercussions for years. In high-stakes actions, there are many audiences to consider, including consumers, investors, the media, legislators and regulators. A well-integrated communications and legal team can ensure that a company delivers a consistent message. When confronted with social media that amplifies criticism or pressure, the best strategy is staying focused on the long-term objectives and filtering out that noise.
Lessons from the Microsoft Cases
Our firm represented Microsoft in its antitrust cases in the 1990s. These cases provide a perspective on the limits of antitrust litigation in controlling the behavior of large tech companies. In those actions, the district court ordered that Microsoft be broken in half, with one company focused on operating systems and the other focused on applications, but the U.S. Court of Appeals for the D.C. Circuit reversed that ruling. The company's settlement with the DOJ focused on providing end users with choices involving web browsing software and media playback software, but those features remained built into Windows and are now crucial to both iOS and Android. Nevertheless, commentators credit the settlement with opening up competition to Microsoft from browser-based competitors like Google. Numerous Microsoft competitors sued in the wake of the DOJ case, and the company successfully resolved those cases.
Examining the Google and Facebook Enforcement Strategies
The pending government litigation against Google and Facebook may be models for future actions. Google faces a lawsuit by the Department of Justice, joined by ten Republican State Attorneys General, and a separate suit by a bipartisan group of 38 State Attorneys General. These cases all focus on monopoly maintenance theories of harm, which are fundamentally the same theories the government used against Microsoft years ago. They claim that Google has allegedly taken actions that thwart the development of competitors in an effort to maintain its significant position in search advertising and related markets. A trial in the DOJ case is not scheduled until 2023, suggesting that the allegations may evolve as discovery takes place over the next few years.
Facebook is facing a lawsuit by the FTC and a separate action by a bipartisan group of State Attorneys General. In those cases, regulators are focused on mergers that Facebook did years ago – its purchase of WhatsApp in 2014 and of Instagram in 2012. This raises the question of how often the government will examine mergers retroactively.
The FTC is challenging Facebook's past acquisitions of companies that were small at the time. This indicates an increased focus on nascent competition, perhaps in response to criticism that the government should have taken action against these acquisitions when they happened. These cases also raise questions about potential remedies. Many industry participants face serious repercussions and potential opportunities if injunctive relief changes long-standing practices.
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As we wait to see how the Biden Administration plans to challenge Big Tech, we feel confident that current enforcement challenges will continue and likely expand. Leading technology companies should take steps now to prepare by consulting with experienced advisers and discussing response strategies. Proactive preparation is the best defense.