US lawmakers grill big tech chiefs over market power
US lawmakers have accused the CEOs of several of Silicon Valley’s biggest tech firms of running monopolies and trampling over small businesses, during a long-anticipated Congressional hearing.
Testifying before the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law on 29 July, tech chiefs from Facebook, Amazon, Apple and Google’s parent company Alphabet faced pointed questions from US lawmakers, who have spent the past year investigating competition and antitrust issues in digital markets.
“Although these four corporations differ in important and meaningful ways, we have observed common patterns and competition problems over the course of this investigation,” said David Cicilline, chair of the antitrust subcommittee, in the hearing’s opening statement.
“First, each platform is a bottleneck for a key channel of distribution,” he said. “Where they control access to information or a marketplace, these platforms have the incentive and ability to exploit this power, they can charge exorbitant fees, impose oppressive contracts and extract valuable data from the people and businesses that rely on them.
“Second, each platform uses its control over digital infrastructure to surveil other companies – their growth, business activity, and whether they might pose a competitive threat. Each platform has used this data to protect its power by either buying, copying or cutting off access for any actual or potential rivals.
“Third, these platforms abused their control over current technologies to extend their power. Whether it’s through self-preferencing, predatory pricing or requiring users to buy additional products, the dominant platforms have wielded their power in destructive harmful ways in order to expand.”
Major themes of the Congressional questioning included: the surveillance of competition and how this was used to inform the business decisions of these data-driven enterprises in an anti-competitive manner; the various mergers and acquisitions conducted by each company; and their ability to control others’ access to, and participation in, digital markets.
Throughout the five-and-a-half-hour hearing, the CEOs insisted that their companies faced “robust competition” and did not hold monopoly positions – but Cicilline remained unconvinced.
“This hearing has made one face very clear to me: these companies, as they exist today, have monopoly power,” he said in his closing remarks. “Some need to be broken up, and all need to be properly regulated and held accountable.”
Amazon, third-party seller data and startups
Amazon CEO Jeff Bezos, in his first appearance before Congress, was pressed by representative Pramila Jayapal over whether the online retail giant uses data collected from third-party sellers to make sales decisions.
“You have access to data that far exceeds the sellers on your platforms with whom you compete,” she said. “You can track consumer habits, interests, even what consumers clicked on but then didn’t buy, you have access to the entirety of sellers’ pricing and inventory information – past, present and future – and you dictate the participation of third-party sellers on your platform. So you can set the rules of the game for your competitors, but not actually follow those same rules for yourself.”
Bezos said that while a policy was in place against using seller-specific data to aid Amazon’s private label business, “I can’t guarantee you that that policy has never been violated”, adding: “I’m very proud of what we’ve done for third-party sellers.”
When pressed further by Cecilline on the use of third-party seller data and how the use of this data could undercut sellers on Amazon’s e-commerce platform, Bezos said the company was still investigating to what extent the policy was being violated.
“The evidence we’ve collected shows that Amazon is only interested in exploiting its monopoly power over the e-commerce marketplace to further expand and protect this power,” said Cecilline.
“This investigation makes clear that Amazon’s dual role as a platform operator and competing seller on that platform is fundamentally anti-competitive and Congress must take action.”
Joe Neguse, vice-chair of the subcommittee, said the use of confidential information was not confined to the company’s e-commerce marketplace, but its cloud computing arm, Amazon Web Services (AWS), as well.
“Last week, one of [Amazon’s] former engineers posted online that he and his team proactively identified growing businesses on AWS, that they built competing products, and that they targeted those products to the businesses customers,” said Neguse, asking Bezos to account for this practice.
Bezos replied: “I think there may be different categories, some databases of different kinds, and so on, where we see this is an important product for customers, and we make our own product offering in that arena. But it doesn’t mean we stop servicing other companies that are also making that product – we have competitors using AWS and we work hard to make them successful.”
Google, the digital advertising market and web surveillance
A major concern for Congress about Google is its dominance in the digital advertising market, and Jayapal expressed concern over the fact that Google acts on both the buy and sell side of its online digital advertising marketplace, “which is a major conflict of interest”.
“I worked on Wall Street for a long time – there are reasons why insider trading is regulated and this Ad Exchange is essentially the same thing,” she said.
On this point, Alphabet CEO Sundar Pichai was also asked by Cecilline whether Google had ever used its surveillance of web traffic to identify competitive threats. He responded: “Just like any other business, we try to understand trends from data we can see, and we use it to improve our products for our users.”
Cecilline said the committee’s evidence showed that Google had become the gateway to the internet, and began surveilling web traffic in order to “identify competitive threats and crush them”.
The extent of Google’s data collection also came under scrutiny by Democratic representative Val Butler Demings, who criticised the search engine giant’s acquisition of Double Click, a prover of advertising tools, in 2007.
“Google’s chief legal adviser testified before the Senate antitrust subcommittee that Google wouldn’t be able to merge this data, even if it wanted to, given contractual restrictions,” said Demings. “But in June 2016, Google went ahead and merged this data anyway, effectively destroying anonymity on the internet.”
She added: “I am concerned that Google’s bait and switch with Double Click is part of a broader pattern where Google buys up companies for the purposes of surveilling Americans, and because of Google’s dominance, users have no choice but to surrender.”
Asked if he had signed off on this decision, Pichai said: “I review, at a high-level, all the important decisions we make.”
Apple and the App Store
Most of the questioning directed at Apple CEO Tim Cook related to the company’s control of the App Store.
Democratic representative Henry Johnson said: “Throughout our investigation, we’ve heard concerns that rules governing the App Store review process are not available to app developers, the rules are made up as you go, they are arbitrarily interpreted and enforced, and are subject to change whenever Apple sees fit to change. That’s an enormous amount of power.”
In response, Cook said all app developers were treated equally, and that the process was rigorous because of privacy and security concerns. He added that Apple has “fierce competition” on both the developer and consumer side.
“It’s so competitive, I would describe it as a street fight for market share in the smartphone business,” he said.
However, Johnson noted that Apple had negotiated exceptions to its typical 30% App Store commission, which developers have to pay in order to be included on the service.
In a later round of questioning, representative Jamie Raskin said: “One businesswoman told me: ‘I pay around 25% of my income to Uncle Sam, the government, and then I pay 30% of my income to Apple. So I get half of it and it’s very hard to make ends meet’. Just because 1.7 million apps are on the store doesn’t mean the terms being dictated are in fact fair.”
Cook reiterated that there was “enormous choice” for both consumers and developers. “If you’re a developer, you can write for Windows, Xbox or PlayStation,” he said. “If you’re a customer and don’t like the setup, the curated experience of the App Store, you can buy a Samsung.”
Facebook, surveillance and acquisitions
Facebook CEO Mark Zuckerberg bore the brunt of the questions posed during the hearing that related to corporate surveillance, facing direct questions about leaked court documents reported throughout 2019 by Computer Weekly and NBC.
The cache of 7,000 “highly confidential” internal emails were disclosed as part of a legal action brought by Six4Three, a now-defunct app developer that claims Facebook forced it, and other app developers, out of business.
The documents demonstrate that Facebook closely surveilled competitors, and blocked some companies from accessing its application programming interfaces (APIs) if they were deemed to be big enough “competitive threats”.
Computer Weekly sent all these documents to the antitrust subcommittee in November 2019 after Facebook ignored requests from the committee to see the documents.
Johnson questioned Zuckerberg about Facebook’s digital surveillance capabilities, citing the purchase of web analytics firm Onavo in 2013, which it used to access non-public commercial information in real time about user engagement with competitive apps.
Specifically, it showed Facebook what country the user was in and the model of their device, allowing the social network giant to track the growth of apps across different geographies.
By December 2014, Facebook had produced a spreadsheet ranking 82,000 apps based on engagement and reach tracked from Onavo, and also used it to track which startups should be accepted to its FBStart programme.
After complaints from Apple that Onavo had broken its terms of service, the social media firm agreed to withdraw Onavo from Apple’s iPhone store in August 2018, but reused parts of its code to develop a Facebook Research virtual private network (VPN) for similar purposes.
Johnson said at the hearing: “Over nearly a decade, Mr Zuckerberg, you led a sustained effort to surveil smaller competitors to benefit Facebook. These were steps taken to abuse data, to harm competitors and to shield Facebook from competition. You tried one thing, then you got caught, made some apologies, then you did it all over again – isn’t that true?”
Zuckerberg disagreed with this characterisation, saying: “Every company engages in research to understand what their customers are enjoying, so that they can learn and make their products better.”
In a separate instance, Demings pointed to the fact that Facebook saw messaging apps as a particular competitive threat, including an app called MessageMe, which the leaked documents reveal had its access to APIs restricted for this reason in March 2013.
“Examples and supporting documents strongly suggest that Facebook does weaponise its platform policies, enforcing them selectively to undermine competitors,” she said, pointing to the examples of MessageMe and Facebook’s decision to restrict access to Pinterest, but not Netflix.
In response, Zuckerberg said that although he was not familiar with that particular exchange, “we used to have a policy that restricted competitors from using our platform and Pinterest is a social competitor with us”.
However, it should be noted that Netflix was considered a “Titan Partner” by Facebook, which denoted companies that were personal favourites of Zuckerberg. This category included Dropbox, Spotify and Foursquare, among others.
Concerns were also raised that Facebook’s surveillance was used to inform it which companies the social media giants acquired.
Asked by Johnson whether this was the case with Facebook’s purchase of messaging service WhatsApp, Zuckerberg said: “It was one of the signals that we had about WhatsApp’s trajectory, but we didn’t need it – without that, it was pretty clear that WhatsApp is a great product.”
As well as Facebook’s acquisition of WhatsApp, the lawmakers were also interested in its purchase of Instagram in 2012, which Jerrold Nadler, chair of the full judiciary committee, described as “exactly the type of anticompetitive acquisition that the antitrust laws were designed to prevent”.
He continued: “In the weeks leading up to the deal, you described Instagram as a threat, saying that ‘Instagram can meaningfully hurt us without becoming a huge business’. In your own words, you purchased Instagram to neutralise a competitive threat.”
“If this was an illegal merger at the time of the transaction, why shouldn’t Instagram now be broken off into a separate company?”
Zuckerberg maintained that the acquisition was an “American success story”, pointing to the Federal Trade Commission (FTC) unanimously voting in favour of the deal at the time.
This was met with a reminder from Cecilline that “the failures of the FTC in 2012 of course do not alleviate the antitrust challenges that the chairman described”.
In his closing remarks, Cecilline said the subcommittee would publish a report on the findings of the investigation later this year. It was later confirmed by senior committee aides in multiple news outlets that the report would be released by late summer or early autumn.