Towards a Global Big Tech Clampdown?

Much like for the rest of us, 2020 has been a roller-coaster year for big tech companies. Their market values boomed, and yet legal challenges against them have been mounting across the globe. In October, a subcommittee of the US House of Representatives published a report on competition in digital markets, highlighting some of the worrying practices of GAFA (Google, Amazon, Facebook, and Apple), and proposing ways to rein in their market power. It was soon followed by a historic lawsuit against Facebook, filed by the Federal Trade Commission (FTC), for «illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct.»

On the other side of the Atlantic, the European Commission unveiled the Digital Services Act package, proposing new rules to «create a safer and more open digital space.» The initiative encompasses rules for the digital market, and aims to impose special obligations on large platforms acting as ‘gatekeepers’. The Commission further issued statement of objections against Amazon, suspected of using independent sellers’ non-public data for its own benefit. China is also tightening the grip on its own big tech ecosystem, with regulatory proposals to control market power, an investigation into Alibaba’s monopolistic practices, and fines on Alibaba and others for failing to report their mergers.

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While the developments in the US and China signal a change in the tide for tech giants, the events in Europe are consistent with the European Commission’s general strategy towards anticompetitive conduct. GAFA have been the target of some of the competition watchdog’s best-known investigations, earning Competition Commissioner Margrethe Vestager a reputation as «big tech’s toughest opponent«. In the last four years, the Commission has levied: three record fines totalling €8.25 billion on Alphabet, Google’s parent company, for abuses of market power relating to Google Shopping, the Android operating system, and AdSense; a penalty of €110 million on Facebook for failing to disclose, during the review of its acquisition of WhatsApp, that it had the technology (and will) to link the phone numbers used for WhatsApp communications with Facebook accounts; and a €13 billion tax bill for Apple in Ireland, where certain tax benefits granted to the company were found to amount to illegal State aid.

Big tech companies remain highly popular, and for good reason. They have transformed the world, making it easier to connect socially and commercially. The European Commission naturally recognises that they have brought about benefits for consumers, and facilitated cross-border trade. Moreover, in an ideal world their size and revenue would put them in a privileged position to be the drivers of innovation: very few other companies have the resources they have at their disposal to invest in research and development. But as the saying goes, with great power comes great responsibility, and these titans have not always been up to the mark. If they misuse private data or go out of their way to harm the competition, individuals and small businesses suffer the consequences, and the innovation generated in the process amounts to zero.

When tech giants misbehave, there are various possibilities in order to act. The most drastic route would be to break up these businesses. Advocates of this position include Senator Elizabeth Warren and Professor Tim Wu. If the FTC’s legal action against Facebook is successful, Mark Zuckerberg’s company could be forced to sell Instagram and WhatsApp, effectively losing its «data-opoly» status. The Digital Markets Act also refers to divestiture as a potential remedy.

There is precedent for this line of action. In the 20th century, companies like Rockefeller’s Standard Oil or Alcoa were broken up using the Sherman Act, the US basic antitrust statute. However, this remains the nuclear option, in part because it is a politically sensitive step particularly when the firms targeted are sited outside the jurisdiction looking for the breakup.

Another alternative is to impose fines and other penalties for anticompetitive behaviour and/or data protection breaches. This can be done through vigorous enforcement of competition law and data protection legislation. It is in this regard that Europe has been a veritable torchbearer. In the US, the predominance of the Chicago School of Economics’ neoclassical laissez-faireism has made it very difficult to effectively apply the law. It does not help that tech giants heavily fund academic work and think tanks to advocate for a big-tech friendly regulatory environment and a hands-off approach to law enforcement. Prior to the Facebook lawsuit, the Sherman Act’s prohibition of monopolisation appeared to be all but forgotten. The new litigation, together with the $5 billion fine imposed on Facebook last year for failing to protect its users’ privacy, give reason for hope in this regard.

Preventive measures are another avenue worth exploring. They include the adoption of specific regulation (much like the recent EU and China proposals, or Europe’s General Data Protection Regulation), as well as thorough review of mergers. In this sense, it is perhaps disappointing that no enforcer dared to block Facebook’s Instagram and WhatsApp acquisitions when they had the chance. And while China has vowed a tougher stance, in the EU the controversial purchase of Fitbit by Google was recently cleared.

(Este análisis forma parte del ciclo ‘Ojo al Dato’, que produce Agenda Pública para la Fundación «la Caixa»)

Part of the problem is the high standard of proof imposed on competition authorities in order to demonstrate that the concentration will likely be detrimental. It is also often difficult to predict the harms a merger may cause before it has been carried out perhaps a strong reason to consider the option of breaking up the companies by undoing the merger at a later stage.

Will the global big tech clampdown work? Only a couple of years ago, President Donald Trump accused Vestager of hating the US for the actions taken against Silicon Valley in Europe. Now the US itself is aiming at its national tech giants, as is China. These developments are certainly promising, but to assess whether these tactics might eventually bear their fruits we need to wait and see how events unfold in the coming months. Will the FTC prevail against Facebook in court? Will the legislative initiatives in China and Europe be finally made into law? Will enforcers continue to invest the time and resources it takes to pull off these intricate investigations? Even if the answer to all these questions is positive, any penalties imposed will need to be robust enough to deter what are lucrative yet harmful practices. For the time being, at the very least we can say that 2020 has set the stage for change.

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