Myths and Facts: Legislation to Restore Competition Online

Myth: The legislation will harm U.S. competitiveness by weakening America’s most formidable competitors.

Fact: Rather than weakening U.S. tech firms, legislation designed to promote competition online staves off complacency and incentivizes all participants in the marketplace to invest in improving their products and services and creating new innovations that extend America’s leadership and competitiveness.

·                 Competition is a key driver of innovation, entrepreneurship, and growth. Competitive markets paved the way for waves of innovation and economic growth—driven largely by the Open Internet—in the wake of the Justice Department’s antitrust complaint against Microsoft.

·                 Professor Tim Wu of Columbia Law School testified last Congress that America may be “entering a startup winter” due to excessive consolidation. As he explained, the rise of market power online threatens to make the United States “a country where inventors and entrepreneurs dream of being bought, not of building something of their own.”

·                 Robust antitrust enforcement is also essential to protect other sources of innovation, from startups to other competitors in the marketplace. John Thorne, a partner with Kellogg, Hansen, Todd, Figel & Frederick, testified this Congress that antitrust enforcement “is most needed where monopolists are affirmatively disrupting rivals’ independent efforts to compete.”

 

Myth: The legislation will create unforeseen consequences or otherwise affect businesses other than the most powerful tech companies.

Fact: The bills are narrowly tailored to cover only the largest and most dominant online platforms.\                   

·                 The Committee’s investigation into digital markets extensively reviewed conduct and market strategies employed by several of these firms, concluding that each possesses and abuses monopoly power over segments of the digital economy.

·                 The legislation only applies to online platforms—such as online marketplaces, search, or social networking sites—that have: (1) a market capitalization in excess of $600 billion, tied to inflation; (2) more than 50 million monthly active users or 100,000 business monthly active users; and (3) is a critical trading partner with the ability to restrict or impede access to users or a tool that businesses need to effectively serve their users or customers.

·                 Only a handful of firms in the world have a market capitalization above $600 billion, while tying the bill to inflation ensures that the floor does not incrementally lower over time. Moreover, even a firm that meets this economic and user threshold still needs to possess gatekeeper power to be a critical trading partner.

Importantly, the legislation provides for additional checks, such as establishing a process for antitrust enforcers to designate covered platforms, based on the appropriate criteria and subject to judicial review.

 

Myth: The nondiscrimination bill prevents companies from making changes to improve their products or services to protect privacy or otherwise benefit consumers.

Fact: H.R. 3816 includes tailored prohibitions for anticompetitive business practices and merger activity—it does not micromanage the product design or features that have no harmful effect on competition online.

·                 In the context of H.R. 3816, an antitrust enforcer or plaintiff must first successfully prove that a covered platform engaged in expressly prohibited conduct, or violated this Act by advantaging its own products or services or disadvantaging or excluding rivals. If the enforcer or plaintiff successfully proves a violation, the defendant still has the following affirmative defenses:

(1)   The conduct did not result in harm to the competitive process by restricting or impeding legitimate activity by business users;

(2)   The conduct, though anticompetitive, was necessary to prevent a violation of, or comply with, Federal or State law; or

(3)   The conduct, though anticompetitive, was necessary to protect user privacy or data security.

·                 These defenses would allow a covered platform to limit access to the platform to benefit consumers.

·                 For example, in 2018, Apple removed Facebook’s Onavo app from the App Store for spying on consumers, and removed Tumblr’s app for hosting images of child sexual abuse.

·                 Neither decision by Apple involved unfairly advantaging its own products or services, or selectively excluding a rival or similar person. Even if a fact finder found that this conduct did harm the competitive process by limiting access to businesses engaged in legitimate activity, Apple would likely still prevail since the conduct was pursuant to a state or federal law or protecting users’ privacy and data security.

·                 Moreover, under current law, any firm may already file a lawsuit under the Clayton Act against a covered platform by alleging a violation of the antitrust laws.

·                 This legislation merely provides enforcers and plaintiffs with additional tools to challenge anticompetitive conduct, and provides courts with additional instruction for evaluating these types of claims.

 

Myth: Nondiscrimination and interoperability requirements will harm users’ privacy or data security.

Fact: The bills include robust safeguards for user privacy and data security.

·                 H.R. 3816 includes a defense for policing unlawful activity, conduct that harms privacy and data security, and other forms of illegitimate activity.

·                 H.R. 3849 includes robust privacy safeguards for user consent, data minimization, and requires the FTC to include privacy and security guardrails in the interoperability and portability standards it develops and issues.

 

Myth: Nondiscrimination requirements will eliminate basic, out-of-the-box functionality on mobile devices that consumers have come to expect, such as apps for messaging, e-mail, and the camera.

Fact: H.R. 3816 does not ban phones from coming with pre-installed apps, features, or an installed operating system.

·                 H.R. 3816 prevents several specific types of anticompetitive practices that harm the competitive process, impede innovation, and rob consumers of choices online. It does not restrict mobile devices from coming equipped with the types of functionality that consumers have come to expect out of the box.

·                 To promote competition and innovation, the legislation prohibits covered platforms from self-preferencing their own products or services or disadvantaging competitors.

·                 Any specific allegations of self-preferencing and discrimination must be adjudicated on a case-by-case basis, and covered platforms will have the opportunity to demonstrate to a court that their conduct is lawful.   

·                 For example, if the Justice Department successfully alleged that the use of default apps or pre-installed software harms competition, a court could order a remedy that involved giving consumers more choice during the installation process or allowing other firms to install operating systems on the iPhone.

·                 This choice is already available for Apple’s other products. For example, a consumer can buy a MacBook today and install Windows, another operating system owned by Microsoft. They can also download apps and other software directly onto the MacBook, and have greater control over which software is the default for common services, such as the web browser.

·                 Providing consumers with this same level of choice and control on mobile devices is no less safe than it would be for personal computers.

 

Myth: The legislation will take away things that consumers like, such as Amazon Prime or two-day delivery.

Fact: Products and services will not simply disappear because Congress prohibits exploitative conduct in the marketplace or prohibits conflicts of interest.

·                 Google will not stop offering its search engine because it cannot favor its own products in search results.

·                 Apple will not stop selling iPhones because it cannot preference its services over other apps. AT&T made similar arguments in the face of antitrust scrutiny in the 1980s, but the result of breaking up its telephone monopoly was more choice, lower prices, and waves of innovation that are still being felt to this day.

·                 Similarly, lines of business restrictions in prior laws—such as the Telecommunications Act of 1996—did not harm innovation or reduce choice. To the contrary, they were essential to opening markets, promoting competition, and spurring new innovations.

·                 Finally, structural remedies require divestiture to another firm or the creation of a new, independent business, which means that the products and services would still exist, even if owned by a new firm.

Myth: Nondiscrimination requirements will affect the ability of mobile operating systems to prevent malware on devices or prevent the spread of malware or other malicious content.

Fact: H.R. 3816 does not prevent dominant platforms from preventing the spread of malware or malicious content.

·                 The bill is carefully targeted to prohibit only anticompetitive conduct by dominant firms.

·                 Protecting users by preventing the spread of malware or malicious content is not anticompetitive. Conflating the two is a smokescreen because the legislation does not prohibit firms from engaging in conduct that does not harm the competitive process or impede legitimate business activity by covered users.

·                 Stopping the spread of malware or malicious content does not harm the competitive process, nor are those activities legitimate activities by business users.

·                 H.R. 3816 also provides specific protections that enable platforms to enforce broadly applicable policies that do not harm the competitive process or are narrowly tailored to protect user privacy, secure data from unauthorized access, or prevent violations of federal or state law.

·                 Lastly, like all enforcement statutes, this legislation conveys discretion to courts to determine the merits of enforcement actions or complaints.

·                 Taken together, these protections and discretion ensure that platforms will remain able to act to prevent the spread of malware or malicious content on their platforms.

 

Myth: The prohibitions in H.R. 3816 are strict and sweeping—there is no allowance for or understanding of the nuance and complexity of business decision-making.

Fact: The prohibitions are well-grounded in long-standing and well-understood antitrust principles.

·                 They also reflect the reality that the platforms that will be subject to them are giants and have immense market power, and that the specified kinds of conduct are almost always going to raise significant harm-to-the-competitive-process concerns.

·                 These platforms have enormous resources, and the advice of experienced lawyers.

·                 Despite the ability to nitpick the language of the bills, they will be well-equipped to manage their activities under the new requirements.

·                 The prohibitions and defenses are carefully written to avoid allowing those experienced lawyers to create loopholes, but to give the platforms a fair opportunity to justify any practice or course of conduct or acquisition.

·                 Further, the prohibitions are informed by the array anticompetitive practices that the Committee found are commonplace during an exhaustive 16-month investigation into the digital marketplace.

·                 Preventing the abuse of gatekeeper power by dominant online platforms is central to achieving the goals of increasing competition, innovation, entrepreneurship, and consumer choice online.

 

Myth: The legislation undermines efforts to moderate harmful, but legal, content online, such as false information about the COVID-19 pandemic or vaccines.

Fact: The bills do not apply to user generated content or speech by everyday people online—they only apply to conduct that harms competitors and other businesses by a covered platform.

 

Myth: The remedies in these bills deter innovation or beneficial commercial activity.

Fact: The remedies are designed deter and provide redress for abusive conduct that harms small businesses, innovation, and consumers online.

·                 The tech companies that are likely to be designated as covered platforms under the bill are among the richest companies in the history of the world. As a result, remedies must be sufficient to deter lucrative, but anticompetitive conduct.

·                 For example, in 2019, Facebook was fined $5 billion by the FTC for violations of a consent order. The firm’s value actually increased when the fine was announced, reflecting that even a record-breaking fine by the FTC was insufficient to discipline Facebook.

 

Myth: By switching the burden of proof for certain mergers and acquisitions, H.R. 3826 stops companies from all merger activity, including acquisitions to improve their products.

Fact: H.R. 3826 simply requires that if an acquisition is challenged by antitrust enforcers, the dominant platform has the burden of showing that the merger does not eliminate a competitive threat, reinforce the platform’s gatekeeper power, or foreclose a critical input, like data. We know from decades of experience that burden shifting works in merger enforcement.

 

Myth: These bills are unfairly targeted at specific companies or have exemptions for others.

Fact: None of the bills contain exemptions, and all are broadly applicable to firms that meet the criteria for a “covered platform”.

·                 The definition of covered platform, which is consistent across all the bills, is forward looking. It is meant to cover the most dominant online platforms in the markets for search, social media, online marketplaces, and mobile operating systems.

·                 In order for an online platform to be considered a covered platform, an agency or court must assess the factual evidence and answer “yes” to the following questions:

1. Is the online platform owned or controlled by a parent company that is well-capitalized to the tune of $600 billion or more?

1. Does the online platform have at least 50 million U.S.-based monthly active users or 100,000 monthly active business users?

1. Is the online platform a critical trading partner? Importantly, the term “critical trading partner” means an online platform that has gatekeeper power (i.e., the ability to restrict or impede access to users or a tool that businesses need to effectively serve their users or customers).