Big Tech and Competition Law: the concerns and next step
Feb 14, 2021
An abundance of literature indicates that big tech companies (largely, Apple, Amazon, Facebook, and Google) pose a significant antitrust threat that the current tools employed, under various antitrust legislation, fall short of addressing.
This short piece aims to understand, from a layperson’s perspective, the size, power, and tools employed by big tech companies, the potential ‘threats’ they pose to antitrust laws and notes that there must be a greater insight into their functioning, before traditional tools of antitrust law may be employed.
The market cap of Apple, Amazon, Facebook, Google, and Microsoft combined reached USD 6.8 trillion in 2020. Big tech companies have a wide array of entities within their umbrella that intersect across various segments. For instance, Facebook includes Instagram, WhatsApp, Oculus VR, LiveRail, and Threadsy, to name a few. Google includes its search engine, browser, map services, YouTube, Fitbit and has made another (approximately) 240 acquisitions to date. As such, a regular smartphone user may have at least 2 or more applications from the same provider installed, which enables that provider to collect and assimilate data across these various platforms, which may then be sold for revenue.
The broad threats posed by these companies include:
Threats to privacy: Big tech companies track, store, and sell individualized data. This enables advertising platforms to conduct ‘targeted advertising’. The question is: to what extent is this permissible? This has become a greater concern, especially in light of WhatsApp’s recent policy changes. The ongoing debate regarding data collection and earning revenue from that data is based on whether or not it may be ethical to consider a human being your ‘product’;
2. Killer acquisitions: These companies acquire smaller platforms/apps/start-ups with the intent of nipping potential competition in the bud. There were significant concerns when Facebook acquired Instagram for USD 1 billion, whose net worth today is USD 100 billion. Similar concerns arise with respect to startups such as Turi Inc., which was helping almost 100 customers in creating and managing software that uses machine learning, a powerful type of artificial intelligence. Its technology was so promising that Apple snapped it up for USD 200 million. These deals usually escape the scanner of antitrust agencies, given that the current merger review procedure only investigates deals that exceed a certain financial threshold. Most of these startups/smaller entities are valued at a figure lesser than the thresholds. Therefore, the debate surrounding these acquisitions revolves around modifying the merger review threshold to include such acquisitions as well. In India, the Competition Law Review Committee has proposed a modification to the current legislation in relation to this aspect as well.
3. Data vault creating a barrier to entry: Big tech companies gain their power through the enormous vault of data at their disposal. Given that their platforms run on the basis of network effects, their growth is contingent on providing services such that individuals attract other individuals to join the platform. For example, if five friends join Facebook, this may attract another five friends from the same group to join, and so on. Given this effect, Facebook has access to the locations, preferences, data, and activity logs of billions of individuals. It uses this data to better its own products and services and also has the ability to sell this data as a commodity and earn revenue through it. This data vault makes companies such as Facebook extremely powerful and also creates an indirect barrier to entry for any new player who may not be able to gain the same status without that data and network effects. As such, there may be a greater dependency on these platforms, going forward.
Given the above, the current issue surrounding these companies and the present antitrust regime is that the existing tools of competition law are insufficient and inadequate to regulate the conduct of these entities. Here is a broad overview of the arguments posed:
a. Traditional tools are inadequate: Traditional antitrust laws were contemplated with a view to protecting the free-market economy and were tailored to suit traditional industries. They dealt with traditional commodities, which could be quantified and easily analysed through traditional economic tools. Big tech companies work in a very different manner. They have, at their base, the consumer as the product. They provide goods free of cost to the consumers and sell their data to earn revenue. This data may not be quantifiable in the same way that a company’s plants or factories are. As such, traditional economic tools fall short in being able to assess market power through data, understanding that the goal is to grab eyeballs rather than market ‘shares’ and assessing the risk posed.
b. Remedies may not be applicable: The remedies contemplated under traditional antitrust laws include divestitures (i.e., giving up your plant/tower/factory) and behavioural commitments (i.e., promising to license IPR on fair, reasonable, and transparent terms; providing a certain commitment in dealing with competitors, etc.). The traditional tools of antitrust laws, through divestitures or commitments, may not be able to effectively curb the threat posed by big tech companies. It is very tough to assimilate and assess which entity within the larger enterprise houses consumer data and in what manner is it processed, to order a divestiture of an entity within the company’s umbrella. It is also very difficult to assess which type of commitment could lead to better antitrust outcomes. Would it be fair to ask a business entity to share its data with every competitor? If that is the case, the entity will not be able to earn revenue through this data anymore (since it will become publicly available) and will have to charge consumers to survive, which would place an undue burden on them. The entities may also be discouraged from investing in R&D and bettering their products. if they had to offer commitments, it would curb their incentive to innovate. As such, the traditional remedies contemplated may not be sufficient.
c. Concern at a global level: The concerns posed by these companies exist on a global level. Traditional antitrust laws consider antitrust concerns on a jurisdiction-specific basis. Given the number of entities falling within the corporate umbrella across the world from where data is stored, transmitted, and used, it is very tough for a singular antitrust agency to identify jurisdiction-specific concerns and remedies to effectively tackle the issue.
In light of these concerns, the road ahead possibly comprises reflecting on the following:
a. Further research on these companies: The first step would be to undertake a thorough market study on these entities to better understand their size, scope, and operations, to effectively address antitrust concerns.
b. Data expert: At this point, traditional antitrust regulators do have economic experts but do not have permanent tech or data experts. It would be helpful to have a permanent advisor on board who could provide a better insight into big tech companies and provide effective solutions to tackle the threat posed.
c. Jurisdictional cooperation: Given that the issues posed by these companies are at a global scale, any effective remedy or assessment of the concerns posed would require cooperation at a global level by all antitrust agencies, to ensure divestment in the jurisdiction where necessary and commitments spanning multiple countries, for seamless enforcement. This could even include cooperation between antitrust and data privacy agencies.
d. Exploring innovative commitments: It is essential that innovative commitments, which are able to effectively resolve concerns posed by these companies, are thought of and looked into. These commitments should differ from traditional divestment / behavioural outcomes and focus more on data-related commitments, transfer of data, market access, etc.
Mandating mergers and acquisitions for a select set of companies: It would be useful to have a select set of big tech companies mandatorily notifying mergers or acquisitions to antitrust agencies so that any potential transaction undertaken by them comes under the scanner. This would be useful in better understanding the threat posed, loss of potential competition, and may lead to exploring effective remedies.
ABOUT THE AUTHOR
Ms Raveena Sethia is Associate (Competition Law) at Shardul Amarchand Mangaldas & Co.