Tuesday, September 22, 2020

Technology 202: Revelations from Congress's antitrust investigation could have an enduring impact

Jul 31. 2020
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By The Washington Post · Cat Zakrzewski · NATIONAL, BUSINESS, TECHNOLOGY, CONGRESS 

Top tech executives' more than five-hour public lashing may be over. But the companies' antitrust scrutiny may be about to get worse.

That's because lawmakers on the House Judiciary antitrust panel came heavily stocked with new evidence from their year-long investigation into the tech industry's power, which has amassed 1 million documents from the companies and hundreds of hours of interviews with industry insiders.

Lawmakers unveiled executives' own words, recordings of conversations with small businesses and a trove of other evidence at the hearing to bolster accusations that tech companies squash their competitors.

The investigation could have an enduring impact on how the world regulates the tech industry. The revelations come at a critical moment, as tech companies face antitrust probes both in the United States and Europe - and U.S. lawmakers seek to overhaul existing antitrust laws they say are outdated and ill-equipped to rein in tech companies today.

Here were some critical findings you probably will hear about again:

- Lawmakers used Facebook chief executive Mark Zuckerberg's words against him.

Emails, chat records and video recordings - including some remarks and messages directly from Zuckerberg himself - were key to the committee's accusations that Facebook engaged in anti-competitive behavior. They accused the company of harvesting data about how its users behaved on other consumer apps, and then used that data to "copy, acquire, and kill" any rivals they notice have traction.

Jerrold Nadler, the New York Democrat who chairs the House Judiciary Committee, brought up a 2012 statements in which Zuckerberg apparently said he sought to acquire Instagram, which at the time was a rival photo-sharing app, out of fear that it could hurt Facebook. 

Zuckerberg, in response, said: "By having them join us, they certainly went from being a competitor in the space of mobile cameras, to an app that we could continue to help grow and help get more people to be able to use and be on our team." Zuckerberg argued it was far from obvious at the time of the acquisition that Instagram would reach the scale it had today.

But Nadler argued that if Facebook did snap up the company to neutralize a competitive threat, it would be against antitrust law. He pressed Zuckerberg on whether the company should be broken up.

- The panel published text records revealing Instagram's co-founder worried Zuckerberg would go into "destroy mode" if he didn't sell.

Kevin Systrom's chat logs show he worried about how Facebook might retaliate if he decided not to sell after Zuckerberg expressed interest in buying the photo-sharing app in 2012.

"Will [Zuckerberg] go into destroy mode if I say no [to an acquisition deal]?" Systrom asked in a message to tech investor Matt Cohler, according to documents published by the committee.

"Probably," replied Cohler, who had been an early Facebook employee. He warned that Facebook might target the app more aggressively if its leaders knew Instagram was raising more funding from venture capitalists.

These chat records were key to the interrogation by Rep. Pramila Jayapal, D-Wash., of Zuckerberg, in which she pressed him on whether he copied competitors.

- Recordings of a merchant's struggles with Amazon highlighted the personal costs of tech's power.

Rep. Lucy McBath, D-Ga., sought to highlight the personal toll of the companies' policies when she confronted Amazon chief executive Jeff Bezos with a recording of a third-party seller who said she was restricted because she competed with the e-commerce giant in selling textbooks. The small business owner, in the recording played during the hearing, accused Amazon of systematically blocking her company from selling textbooks for months, after her business began to cut into Amazon's market share. She insisted the restrictions put her business and ability to feed her family in jeopardy, and that she heard no response when attempting to contact the company to get them lifted. (Bezos also owns the Washington Post.)

Bezos said it was not an acceptable way to treat a partner, but he wasn't aware of a specific case. "I appreciate that you showed me that anecdote, and I would like to talk to her," Bezos said. "It does not at all, to me, seem like the right way to treat her."

Lawmakers sought to make the case that this was not a unique experience. "We have heard so many heartbreaking stories of small businesses who sunk significant time and resources into building a business and selling on Amazon, only to have Amazon poach their best-selling items and drive them out of business," said David Cicilline, D-R.I., who chairs the subcommittee that hosted the hearing.

Bezos also was also pressed by the committee on reports and supporting interviews by congressional investigators that found Amazon employees used data collected from third-party merchants to develop its own competing products. The e-commerce titan testified that he couldn't guarantee that the company didn't use proprietary data for this purpose, The Washington Post's Jay Greene wrote.Bezos said the company had a policy against that practice, but it is currently investigating whether those rules had ever been violated.

- Internal emails revealed an Apple executive considered hiking developer fees.

Apple executive Eddy Cue once suggested raising the cut Apple would take from subscriptions to apps on its App Store to 40%, up from the 30% the company initially charged.

Apple CEO Tim Cook insisted the company has never increased its commission fees, as lawmakers pressed him on whether the Apple App Store was too powerful and took too much of a tax from developers. But lawmakers questioned whether the company could do so in the future. Cook said that there was strong competition for app developers that would influence Apple's pricing.

Yet the document was key reveal because it highlighted that there has not always been a consensus about this issue among Apple's top leaders.

- Google faced pressure for reversing previous assurances to Congress about a controversial merger.

Rep. Val Demings, D-Fla., grilled Sundar Pichai, the chief executive of Google and its parent company Alphabet, about the company's practice of combining user data from its services with that from DoubleClick, an advertising company that the search giant acquired in 2007.

Google had previously told Congress it wouldn't combine data, Demings said. But then the company did so in 2016. Pichai confirmed that he signed off on the decision.

"Practically, this decision meant that your company would now combine all of my data on Google, my search history, my information from Google maps, information from my email, my Gmail, as well as my personal identity with the record of almost all of the websites I visited," Demings said. "That is absolutely staggering."

- Democrats hope the hearing is just the beginning of a bigger antitrust crackdown.

Cicilline accused all four companies of wielding monopoly power at the conclusion of his remarks, and he suggested some need to be broken up. He made clear a broader regulatory crackdown is coming for all of them.

That could start in about a month, when the committee is expected to issue a wide-ranging report on the findings of its investigation.

Cicilline told me after the hearing he thought the tech executives' testimony supported many of the findings of the lengthy investigation. "They're engaged in behavior that's anticompetitive, which favors their own products and services, which monetizes and weaponizes data, which compromises the privacy of their users and which creates a competitive disadvantage for companies attempting to enter the marketplace," he said as reporters gathered around him on the Hill.

It remains to be seen whether Republicans get on board with the Democrats' plans. Though the investigation began as a bipartisan endeavor, significant partisan divisions have broken out. The panel's top Republican, Jim Sensenbrenner, R-Wis., said he didn't think it was time to overhaul antitrust laws, but rather to examine how the Federal Trade Commission and Justice Department are enforcing the rules already on the books.


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