'Too much power': U.S. House panel's antitrust report could lead to breakup of tech companies

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A House panel proposed a series of far-reaching antitrust reforms to curb the power of U.S. technology giants including Amazon.com Inc. and Alphabet Inc.’s Google, the result of a 16-month antitrust investigation that found the companies are abusing their dominance.

The recommendations, contained in a 449-page report from the House antitrust subcommittee, represent the most dramatic proposal to overhaul competition law in decades, and could lead to the breakup of tech companies if approved by Congress.

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'Too much power': U.S. House panel's antitrust report could lead to breakup of tech companies Back to video

The findings target four of the biggest U.S. tech companies — Amazon, Google, Facebook Inc., and Apple Inc. — describing them as gatekeepers of the digital economy that can use their control over markets to pick winners and losers. The companies have abused their power to snuff out competitive threats, leading to less innovation, fewer choices for consumers and a hobbled democracy, the report said.

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“Companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons,” the panel’s Democratic leaders said. “These firms have too much power, and that power must be reined in and subject to appropriate oversight and enforcement. Our economy and democracy are at stake.”

Facebook fell more than 1% in late trading after the report’s release. Amazon and Apple slipped slipped less than 1% and Google was unchanged.

The staff report’s most Draconian recommendation is for Congress to consider legislation that would prevent tech companies from owning different lines of businesses, which could lead to a breakup of the companies.

“Their ability both to use their dominance in one market as negotiating leverage in another, and to subsidize entry to capture unrelated markets, have the effect of spreading concentration from one market into others, threatening greater and greater portions of the digital economy,” the report said.

To address this, the report recommends structural separation — prohibiting a dominant platform from operating in competition with the firms dependent on it — much like the Bank Holding Company Act of 1956 barred large banks from acquiring insurers, real estate firms, and other nonbanking companies. It also calls for line-of-business restrictions, or limiting the markets in which a dominant firm can engage, similar to bans on television networks’ entering production and syndication markets.

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Under congressional power, the break-ups would target types of business, rather than particular companies, committee counsel told reporters on Tuesday.

“These ill-conceived ideas demonstrate a misunderstanding of the size and shape of the retail industry,” Amazon said in a blogpost. “Amazon accounts for less than 1% of the $25 trillion global retail market and less than 4% of retail in the U.S. Unlike industries that are winner-take-all, retail has ample space for many winners.” Apple, Facebook and Google didn’t respond to requests for comment.

The report is the culmination of an investigation announced by Rep. David Cicilline, (D-RI) last summer as federal antitrust enforcers were beginning probes of the dominant tech companies. The panel issued information requests that yielded millions of pages of documents and held seven hearings, including one in July that featured testimony by the chief executives of the four tech companies.

Republicans on the committee appear poised to shun the recommendations from the Democrats, although Representative Ken Buck, a Republican member of the panel, told Bloomberg News on Tuesday some of his colleagues are interested in signing onto his response. Buck’s critique is expected to lay out both areas of agreement and joint concerns about company behavior as well as “non-starters” for conservatives.

Companies that once were scrappy, underdog startups ... have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons

Representative Jim Jordan of Ohio, who is the ranking Republican on the House Judiciary Committee, which includes the antitrust panel, criticized the report for what he called “radical” proposals to overhaul antitrust law.

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“Big tech is out to get conservatives,” he said. “Unfortunately, the Democrats’ partisan report ignores this fundamental problem and potential solutions and instead advances radical proposals that would refashion antitrust law in the vision of the far left.”

Other recommendations in the report include changing merger laws so that any acquisition by a dominant company is presumed to be anticompetitive unless the merging companies can show a takeover is “necessary for serving the public interest.”

Such a change would make it significantly easier for antitrust enforcers to stop deals by the big tech companies, which have completed hundreds of acquisitions over the past decade with little or no scrutiny. Dominant tech companies should also be required to notify enforcers of all transactions. Under current rules, many don’t have to be reported.

The subcommittee said it found that the dominant platforms have the ability to abuse their positions against suppliers, workers and consumers. But some of what the panel found objectionable wouldn’t fit the antitrust laws’ mold. To fix this, the report suggests creating a statutory red line against dominant-company abuse, defining a seller as dominant if it has a market share of 30% or more and a buyer as dominant with just a 25% share.

Another area that the report recommends is increasing the ability for consumers to move their data between services, or for sites and services to work together more easily.

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Companies such as Facebook are able to lock in consumers, the report contends, because few users would switch to an upstart that didn’t already have the powerful social connections that drive the companies’ networks.

The inability for consumers to switch between networks dims the possibility of competitors disrupting Facebook. But if users could move their data, that might force Facebook or other companies to work with competitors could theoretically crack the company’s grip on consumers.

Congress has previously mandated portability standards when it forced telecommunications carriers to let consumers keep their phone numbers when switching networks. Phone dialing, and services such as email and texting, already work together across brands seamlessly.

Although Democrats control the House, Republicans’ longtime skepticism about changing antitrust law could dim the chances that Cicilline’s proposals are adopted. With time running out in this Congress, any real legislative action won’t happen until 2021. The proposals will likely run into Republicans’ longtime skepticism about changing antitrust law. Even if the election hands the Senate majority to the Democrats, Republicans can still use procedural tools to block bills from passing.

In addition, powerful business groups such as the U.S. Chamber of Commerce had already begun to push back on Cicilline’s ideas in the months leading up to the release of the report. They’re all but certain to ramp up their opposition with the unveiling of a bill.

?2020 Bloomberg L.P.