FTC, Justice Take on Digital Giants as Congress Dawdles

Media Fellowship

Suits against Google, Amazon rely on court proceedings in the absence of antitrust legislation for the digital age

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Sen. Amy Klobuchar, D-Minn., and Charles E. Grassley, R-Iowa, have introduced legislation to prevent online platforms from giving their own products preferential treatment.

The Federal Trade Commission’s lawsuit announced against Amazon.com Inc. last week and a Justice Department suit against Google LLC are seen by some as an indication that the executive branch is moving to correct what it considers market distortions in areas where Congress has not acted on antitrust issues.

The FTC lawsuit alleges that Amazon squeezed out competitors to maintain monopoly power. In the U.S. v. Google trial that began last month, the Justice Department is alleging that the search engine company stomped out competition. 

“What would have happened if Congress had actually enacted bipartisan legislation?” said Maurice Stucke, a professor at the University of Tennessee College of Law and a former Justice Department antitrust lawyer. While that answer is unclear, the lawsuits rest on how U.S. courts interpret key provisions of the Sherman Act, a 19th century law that governs monopolies and unfair practices, Stucke said in an interview.

“Legislators aren’t really doing anything,” Stucke said, adding that the agencies are trying to go back to the legislative aim of older laws. “They’re facing resistance from the courts,” he said, referring to recent decisions by the Supreme Court relying on the so-called major questions doctrine to invalidate actions by executive agencies. The doctrine says decisions of major national significance need clear congressional authorization.

Two bipartisan antitrust bills aimed at digital marketplaces were approved by the Senate and House Judiciary committees in 2022 but didn’t get floor votes despite a push by lawmakers of both parties. 

The Senate measure was backed by Sens. Amy Klobuchar, D-Minn., and Charles E. Grassley, R-Iowa, and the House measure was backed by then-Rep. David Cicilline, D-R.I., and Rep. Ken Buck, R-Colo. The bills would have prohibited large online platforms from “self-preferencing” their products over those of competitors. 

Klobuchar and Grassley reintroduced the measure in the current Congress. 

“The case for reinvigorating competition policy and putting in place rules of the road for Big Tech companies is clear,” Klobuchar said in a statement after the FTC announced its lawsuit against Amazon. “I will continue to push for updates to the antitrust laws.”

The push to enact new antitrust laws for the digital age gained momentum after the House Judiciary Committee conducted a 16-month investigation. In October 2020, it issued a report finding that the top four tech platforms — Amazon, Apple, Facebook and Google — had amassed market power and exerted significant influence to weaken competition. 

The report found that the tech giants “not only wield tremendous power, but they also abuse it by charging exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people and businesses that rely on them.” The report also found that “each platform uses its gatekeeper position to maintain its market power.” 

Cicilline, who then led the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law, has retired from Congress. Lina Khan, the current chair of the FTC, was the counsel to the House investigation. 

The algorithm novelty

Although both cases allege monopolistic and anti-competitive behavior, the FTC’s case against Amazon includes a novel aspect alleging the company used a pricing algorithm to stifle competition and potentially overcharge customers, Stucke said.

“This is the first time there has ever been an allegation involving a monopolist using pricing algorithms to soften competition,” Stucke said. 

The FTC, in a heavily redacted complaint, said Amazon used a system called Project Nessie to compete unfairly, and that the company had “no valid and cognizable justification” for using the tool.

“Amazon’s Project Nessie has already extracted over [redacted] from American households,” the FTC complaint says. “In addition to overcharging its customers, Amazon is degrading the services it provides them.”

Jason Del Rey, whose book “Winner Sells All” delves into the retail giant, on social media site X describes the Amazon algorithm as a pricing tool “that would repeatedly lower the price on an item to match its competitor.” Del Rey, citing an Amazon spokesman, noted that Amazon later stopped using it.

Amazon has rejected the FTC’s allegations, saying the suit “reveals the Commission’s fundamental misunderstanding of retail” business online. 

The Justice Department’s case against Google deploys elements of behavioral economics as it argues the company created a bias to nudge consumers toward its search engine over others, Stucke said. 

Google contested the claim, arguing that making its product the default by itself would not be enough to keep customers if the search engine was inferior. 

While Congress is still attempting to craft antitrust laws tailored for the digital age, the European Union has taken the lead, as it has with other aspects of the digital economy. The EU enacted the General Data Privacy Regulation five years ago on data privacy and the Digital Services Act, that went into force this year governing content moderation.

In early September, the 27-member bloc designated top tech platforms including Apple Inc., Amazon, Microsoft Corp., Google’s parent Alphabet Inc., Facebook’s owner Meta Platforms Inc., and TikTok parent ByteDance as gatekeepers under a separate EU law, the Digital Markets Act. The companies have six months to become compliant with the rules. 

The companies must abide by a list of do’s and don’ts or face fines up to 10 percent of global annual revenue.

The designated companies are required to allow business users to access data they generate on the platform, provide companies that advertise on a platform with tools to do their own assessments, and allow business users to promote themselves and strike deals outside the gatekeeper’s platform. 

The EU law prohibits the gatekeepers from treating their own products more favorably than those offered by third parties, and from preventing consumers from connecting with third party companies outside the gatekeeper’s platform, among others. 

The EU law is premised on the notion that consumers and smaller companies pay a price in the long run even though online platforms and their digital services may appear to be free in the short term, said Andreas Schwab, a member of the European Parliament from Germany, one of the two lawmakers who shepherded the law through the parliament. 

“A service that is offered to you for free does not mean that you don’t have to pay any costs,” Schwab said in an interview in Brussels in June. Consumers “are paying for these services through their data, feeding an advertising system, and you have to translate this data and the contribution into a price” and see if that’s fair or not, Schwab said. 

The EU is not attempting to ban or prohibit gatekeepers from doing business with other smaller companies and individuals but “we want to make sure there is transparency,” Schwab said.

Stucke said it remains to be seen if the EU’s approach to changing the behavior of large tech platforms through fines is effective. Even if a large entity like Meta, which owns Facebook, WhatsApp and Instagram, is broken up into its components, the “underlying economy wouldn’t have changed,” he said. 

“Until you start giving consumers the right to opt out of behavioral advertising,” it would be difficult to change the underlying incentives for tech companies, he said.  

The United States has yet to pass a federal data privacy standard but 11 states have such laws and five others are considering similar legislation.

This article originally appeared in Roll Call on October 3, 2023.