[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]




                  ONLINE PLATFORMS AND MARKET POWER, 
                PART 2: INNOVATION AND ENTREPRENEURSHIP

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON ANTITRUST, COMMERCIAL 
                         AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                             JULY 16, 2019

                               ----------                              

                           Serial No. 116-39

                               ----------                              

         Printed for the use of the Committee on the Judiciary


             [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



        Available http://judiciary.house.gov or www.govinfo.gov



 
                  ONLINE PLATFORMS AND MARKET POWER, 
                PART 2: INNOVATION AND ENTREPRENEURSHIP

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON ANTITRUST, COMMERCIAL 
                         AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 16, 2019

                               __________

                           Serial No. 116-39

                               __________

         Printed for the use of the Committee on the Judiciary



             [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



        Available http://judiciary.house.gov or www.govinfo.gov


                               __________


                  U.S. GOVERNMENT PUBLISHING OFFICE


39-901                  WASHINGTON : 2020





                       COMMITTEE ON THE JUDICIARY

                   JERROLD NADLER, New York, Chairman

ZOE LOFGREN, California              DOUG COLLINS, Georgia, Ranking 
SHEILA JACKSON LEE, Texas                Member
STEVE COHEN, Tennessee               F. JAMES SENSENBRENNER, Jr., 
HENRY C. ``HANK'' JOHNSON, Jr.,          Wisconsin
    Georgia                          STEVE CHABOT, Ohio
THEODORE E. DEUTCH, Florida          LOUIE GOHMERT, Texas
KAREN BASS, California               JIM JORDAN, Ohio
CEDRIC L. RICHMOND, Louisiana        KEN BUCK, Colorado
HAKEEM S. JEFFRIES, New York         JOHN RATCLIFFE, Texas
DAVID N. CICILLINE, Rhode Island     MARTHA ROBY, Alabama
ERIC SWALWELL, California            MATT GAETZ, Florida
TED LIEU, California                 MIKE JOHNSON, Louisiana
JAMIE RASKIN, Maryland               ANDY BIGGS, Arizona
PRAMILA JAYAPAL, Washington          TOM McCLINTOCK, California
VAL BUTLER DEMINGS, Florida          DEBBIE LESKO, Arizona
J. LUIS CORREA, California           GUY RESCHENTHALER, Pennsylvania
MARY GAY SCANLON, Pennsylvania,      BEN CLINE, Virginia
  Vice-Chair                         KELLY ARMSTRONG, North Dakota
SYLVIA R. GARCIA, Texas              W. GREGORY STEUBE, Florida
JOE NEGUSE, Colorado
LUCY McBATH, Georgia
GREG STANTON, Arizona
MADELEINE DEAN, Pennsylvania
DEBBIE MUCARSEL-POWELL, Florida
VERONICA ESCOBAR, Texas

        Perry Apelbaum, Majority Staff Director & Chief Counsel
                Brendan Belair, Minority Staff Director

                                 ------                                

                 SUBCOMMITTEE ON ANTITRUST, COMMERCIAL 
                         AND ADMINISTRATIVE LAW

                DAVID N. CICILLINE, Rhode Island, Chair
                    JOE NEGUSE, Colorado, Vice-Chair
                    
HENRY C. ``HANK'' JOHNSON, Jr.,      F. JAMES SENSENBRENNER, Jr., 
    Georgia                              Wisconsin
JAMIE RASKIN, Maryland               KEN BUCK, Colorado
PRAMILA JAYAPAL, Washington          MATT GAETZ, Florida
VAL BUTLER DEMINGS, Florida          KELLY ARMSTRONG, North Dakota
MARY GAY SCANLON, Pennsylvania       W. GREGORY STEUBE, Florida
LUCY McBATH, Georgia

                       Slade Bond, Chief Counsel
                    Daniel Flores, Minority Counsel




                            C O N T E N T S

                              ----------                              

                             JULY 16, 2019

                           OPENING STATEMENTS

                                                                   Page
Honorable David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................     1
The Honorable James Sensenbrenner, Ranking Member, Subcommittee 
  on Antitrust, Commercial and Administrative Law................     4

                               WITNESSES
                               Panel One

Adam Cohen, Director of Economic Policy, Google
    Oral Testimony...............................................     6
    Prepared Testimony...........................................     8
Matt Perault, Head of Global Policy Development, Facebook
    Oral Testimony...............................................    15
    Prepared Testimony...........................................    17
Nate Sutton, Associate General Counsel of Competition, Amazon
    Oral Testimony...............................................    23
    Prepared Testimony...........................................    25
Kyle Andeer, Vice President of Corporate Law, Apple
    Oral Testimony...............................................    29
    Prepared Testimony...........................................    31

                               Panel Two

Timothy Wu, Julius Silver Professor of Law, Columbia Law School
    Oral Testimony...............................................    73
    Prepared Testimony...........................................    76
Fiona Scott Morton, Theodore Nierenberg Professor of Economics, 
  Yale School of Management
    Oral Testimony...............................................    81
    Prepared Testimony...........................................    83
    Supplementary Testimony......................................    86
Stacy Mitchell, Co-Director, Institute for Local Self-Reliance
    Oral Testimony...............................................   186
    Prepared Testimony...........................................   188
Maureen Ohlhausen, Partner, Baker Botts L.L.P.
    Oral Testimony...............................................   203
    Prepared Testimony...........................................   205
Carl Szabo, Vice President and General Counsel, NetChoice
    Oral Testimony...............................................   216
    Prepared Testimony...........................................   218
Morgan Reed, Executive Director, The App Association
    Oral Testimony...............................................   231
    Prepared Testimony...........................................   234

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

A letter from the Retail Industry Leaders Association from the 
  Honorable Lucy McBath, Member, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................    53
A statement for the record from The Honorable Doug Collins from 
  the Honorable Kelly Armstrong, Member, Subcommittee on 
  Antitrust, Commercial and Administrative Law...................   253
A statement for the record from the Honorable Jerrold Nadler from 
  the Honorable David Cicilline, Chairman, Subcommittee on 
  Antitrust, Commercial and Administrative Law...................   260
A letter from the Open Markets Institute from the Honorable David 
  Cicilline, Chairman, Subcommittee on Antitrust, Commercial and 
  Administrative Law.............................................   268
An article accompanying a statement from the Open Markets 
  Institute from the Honorable David Cicilline, Chairman, 
  Subcommittee on Antitrust, Commercial and Administrative Law...   274
An article accompanying a statement from the Open Markets 
  Institute from the Honorable David Cicilline, Chairman, 
  Subcommittee on Antitrust, Commercial and Administrative Law...   284
A statement for the record from Nathan Proctor from the Honorable 
  David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   293
A statement for the record from Caleb Watney from the Honorable 
  David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   295
A statement for the record from Genius Media Group, Inc from the 
  Honorable David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   306
A statement for the record from the Electric Frontier Foundation 
  from the Honorable David Cicilline, Chairman, Subcommittee on 
  Antitrust, Commercial and Administrative Law...................   313
A statement for the record from Public Knowledge from the 
  Honorable David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   323
A letter from the Retail Industry Leaders Association from the 
  Honorable David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   328
A statement for the record from DuckDuckGo, Inc. from the 
  Honorable David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   339
A statement for the record from Six4Three, LLC from the Honorable 
  David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   347
A statement for the record from Brian Warner from the Honorable 
  David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   354
A statement for the record from the American Hotel and Lodging 
  Association from the Honorable David Cicilline, Chairman, 
  Subcommittee on Antitrust, Commercial and Administrative Law...   361
A statement for the record from Gay Gordon-Byrne from the 
  Honorable David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................   363
A letter for the record from Spotify from the Honorable David 
  Cicilline, Chairman, Subcommittee on Antitrust, Commercial and 
  Administrative Law.............................................   381
A statement for the record from Apple in response to a letter for 
  the record from Spotify from the Honorable David Cicilline, 
  Chairman, Subcommittee on Antitrust, Commercial and 
  Administrative Law.............................................   387

                                APPENDIX

Questions for the Record from the Honorable David Cicilline, 
  Chairman, Subcommittee on Antitrust, Commercial and 
  Administrative Law.............................................   394
Questions for the Record from the Honorable Mary Gay Scanlon, 
  Member, Subcommittee on Antitrust, Commercial and 
  Administrative Law.............................................   600
Questions for the Record from the Honorable James Sensenbrenner, 
  Ranking Member, Subcommittee on Antitrust, Commercial and 
  Administrative Law.............................................   606
Questions for the Record from the Honorable Gregory Steube, 
  Member, Subcommittee on Antitrust, Commercial and 
  Administrative Law.............................................   609


                  ONLINE PLATFORMS AND MARKET POWER,
               PART 2: INNOVATION AND ENTREPRENEURSHIP

                              ----------                              


                         TUESDAY, JULY 16, 2019

                        House of Representatives

               Subcommittee on Antitrust, Commercial and 
                           Administrative Law

                       Committee on the Judiciary

                            Washington, DC.

    The subcommittee met, pursuant to call, at 3:00 p.m., in 
Room 2141, Rayburn House Office Building, Hon. David Cicilline 
[chairman of the subcommittee] presiding.
    Present: Representatives Cicilline, Johnson, Raskin, 
Jayapal, Demings, Scanlon, Neguse, McBath, Sensenbrenner, Buck, 
Armstrong, and Steube.
    Staff Present: Lisette Morton, Director, Policy, Planning, 
and Member Services; Madeline Strasser, Chief Clerk; Julian 
Gerson, Staff Assistant; Amanda Lewis, Counsel; Joseph Van Wye, 
Professional Staff Member; Lina Khan, Counsel; Slade Bond, 
Chief Counsel; Daniel Flores, Minority Chief Counsel; and 
Andrea Woodard, Minority Professional Staff Member.
    Mr. Cicilline. Good afternoon. The subcommittee will come 
to order.
    Without objection, the chair is authorized to declare 
recesses of the committee at any time.
    We welcome everyone to the second in our series of hearings 
investigating competition in the digital markets, this one on 
innovation and entrepreneurship. I now recognize myself for an 
opening statement.
    Thirty years ago the first software for the World Wide Web 
was released into the public domain to create a global 
communications network. Within a few years search and browsing 
services were built onto this software to give people tools to 
communicate, share, and explore information through a 
decentralized platform that was designed to be open and 
nondiscriminatory.
    Vint Cerf, an internet pioneer and codesigner of the 
internet's early architecture, testified in 2006 on behalf of 
Google that the overarching principle of the open internet was 
that no central gatekeeper should exert control over the 
internet. As he noted, this open and competitive environment 
meant that entrepreneurs with new ideas for applications need 
not worry about getting permission for their inventions to 
reach end users.
    Over the following decades the meteoric growth of our open 
and competitive internet revolutionized our lives, our work, 
our businesses, and our entire world. Millions of new, good 
paying jobs were created, and greater access to information 
promised a renewal of our democracy and social progress.
    This environment also fostered the growth in dynamism of 
four companies that will testify at today's hearing: Google, 
Amazon, Facebook, and Apple. Each of these American companies 
have contributed immense technological breakthroughs in 
economic value to our country. They were started on shoestring 
budgets in dorm rooms and garages and are a testament to our 
core values as a country.
    But in an effort to promote and continue this new economy, 
Congress and antitrust enforcers allowed these firms to 
regulate themselves with little oversight. As a result the 
internet has become increasingly concentrated, less open, and 
growingly hostile to innovation and entrepreneurship.
    Makan Delrahim, the associate attorney general of the 
antitrust division recently noted, and I quote, ``there are 
only one or two significant players in important digital 
spaces, including internet search, social networks, mobile and 
desktop operating systems, and electronic book sales,'' end 
quote.
    Google controls nearly all the search market in the United 
States and over 90 percent of all internet searches are 
conducted via Google platforms.
    Amazon controls nearly half of all online commerce in the 
United States. Despite statements from the company that it only 
captures a small percentage of retail in the United States, the 
reality is that half of American families have an Amazon Prime 
account, up from only 35 percent just 3 years ago, and Amazon's 
closest competitor, eBay, controls less than 6 percent of the 
market for online commerce.
    Facebook controls over 58 percent of the U.S. social media 
market and has approximately 2.7 billion monthly active users 
across its platforms. Notwithstanding the growing popularity of 
TikTok, a Chinese video sharing app, Facebook captures over 80 
percent of global social media revenue. And as Facebook 
cofounder Chris Hughes has recently observed, no major social 
networking company has been founded in the United States since 
the fall of 2011.
    And finally, Apple is under increasing scrutiny for abusing 
its role as both a player and a referee in the App Store 
through prices that may be higher than a competitive market 
would allow and policies that may favor Apple's own products 
and services.
    As the Supreme Court recently noted in Apple v. Pepper, 
regardless of price, and I quote, ``Apple pockets a 30 percent 
commission on every app sale,'' end quote, in addition to 
developer membership fees and a 30 percent commission on its--
on in-app purchases.
    A former Apple executive who oversaw app store approvals 
for 7 years has also described Apple as having, and I quote, 
``complete and unprecedented power over their customers' 
devices and using this power as a weapon against competitors,'' 
end quote.
    Although Apple has made a series of laudable commitments to 
protect consumers' privacy online, as the New York Times 
editorial board recently noted, its management of the App Store 
is, and I quote, ``dangerously reminiscent of the 
anticompetitive behavior that triggered United States v. 
Microsoft, a landmark antitrust case that changed the landscape 
of the tech industry,'' end quote.
    Several reports by leading economists and competition 
experts also suggest that the dominance of these firms is 
unlikely to be challenged by new rivals due to certain features 
that characterize digital markets. As these reports have found, 
the combination of high network effects, high-switching costs, 
and the self-reinforcing advantages of data can result in a 
winner-take-all market that shield dominant firms from 
competitive threats.
    At the same time there is growing consensus among venture 
capitalists and startups that there is a kill zone around 
Google, Amazon, Facebook, and Apple that prevents new startups 
from entering the market with innovative products and services 
to challenge these incumbents.
    And in recent years the number of technology startup 
financings has dropped significantly, from above 10,000 startup 
financings in 2015 to just above 6,000 in 2018, while the 
number of venture capital deals for investment beneath $1 
million have also declined significantly.
    Even when tech startups escape the investment kill zone 
they remain extremely reliant on these platforms in other ways. 
According to a recent report in Bloomberg, 17 out of 22 initial 
public offerings by significant technology companies, such as 
Lyft and Pinterest, cited online platforms as competitors or 
risks to their business. As this report noted and, I quote, 
``the tech giants have the power to change their services at 
any time generating havoc downstream,'' end quote, on smaller 
firms.
    And while the explosion of the early internet connected 
local businesses to broader markets, there is growing concern 
that anticompetitive practices and the gatekeeper role of 
online platforms is now imperiling small business in our 
communities.
    As Stacy Mitchell of the Institute for Local Self-Reliance 
will testify today, and I quote from her written testimony, 
``powerful online gatekeepers not only control market access 
but also directly compete with the businesses that depend on 
them,'' end quote, undermining entrepreneurship and economic 
opportunity.
    As I said before, this trend is not compatible with the 
open internet or its defining features that have allowed 
innovation and entrepreneurship to flourish. As Tim Wu will 
testify today, ``the United States is at risk of losing the 
best of our innovation culture and instead being a country of 
giant lumbering concerns where incremental improvement is the 
norm and where innovators dream of being bought not of building 
something of their own,'' end quote.
    Most importantly, for purposes of today's hearing, this 
trend is not the inevitable consequence of technological 
progress. It is the result of policy choices we are making as a 
country. Over the past decade, the largest technology firms 
have acquired over 436 companies, many of which were actual or 
potential competitors.
    For example, according to the New York Times report by Tim 
Wu and Stuart Thompson, of the 270 companies Google has 
acquired, 171 involved actual or potential competitors, and of 
Facebook's 92 total acquisitions, 46 involved actual or 
potential competitors. But not a single one of these 
acquisitions was challenged by antitrust enforcers. In fact, 
only a handful of these were closely scrutinized.
    And in the 2 decades since the Justice Department filed its 
landmark monopolization case against Microsoft, there has not 
been a single complaint filed by either agency alleging 
anticompetitive conduct in this market. Together these 
enforcement decisions have created a de facto immunity for 
online platforms.
    I hope that today's hearing provides an opportunity for a 
serious and sober discussion about these trends and possible 
paths forward to addressing them. As Tim Berners-Lee, the 
inventor of the World Wide Web, recently observed, unless we 
examine and address these trends, and I quote, ``we can expect 
the next 20 years to be far less innovative from the last,'' 
end quote.
    In other words, this hearing isn't just about the companies 
before us today. It is about ensuring that we have the 
conditions for the next Google, the next Amazon, the next 
Facebook, and the next Apple to grow and prosper.
    With that in mind, I thank both of our panels of expert 
witnesses for appearing before us today. And I now recognize 
the gentleman from Wisconsin for his opening statement, Mr. 
Sensenbrenner.
    Mr. Sensenbrenner. Thank you, Mr. Chairman.
    Innovation and entrepreneurship are the hallmarks of the 
American economy. This has been true in the past and it remains 
true now in the digital age. Today's hearing will focus 
primarily on the impacts large online platforms have on 
innovation and entrepreneurship. This is a critical topic, and 
I want to stress that we must take a fair and balanced approach 
to it.
    There are some who advocate that the biggest platform 
should just be broken up because they supposedly dominate too 
much of the market. That impulse seems misguided for several 
reasons: First, just because a business is big doesn't mean 
that it is bad. Antitrust laws focus on the conduct of 
companies and whether that conduct is anticompetitive. They do 
not exist to punish businesses just because they are big.
    Likewise, the antitrust laws do not exist to punish 
success; on the contrary, they exist to foster it. The most 
innovative, successful, and competitive companies often become 
very big, not through anticompetitive conduct, or violations of 
antitrust laws, but simply by providing a better service or 
product than the other companies in the marketplace.
    Second, as the written statements, offered by some of our 
witnesses attest, big online platforms can present small 
companies in many sections with a better way to reach the most 
customers. Breaking up big businesses simply because they are 
large would end up hurting lots of small businesses throughout 
the country.
    Third, breaking up big platforms won't necessarily solve a 
problem associated with those platforms. For example, the 
privacy issues are prominent in today's discussions of what is 
going on wrong online, but breaking up the big platforms into 
smaller ones might actually compound the problems of protecting 
privacy.
    I raise these points not to dismiss the idea that there 
might be genuine issues of anticompetitive conduct in the 
online ecosystem. However, I want to offer a counterpoint to 
some of the more radical positions that are being articulated.
    We should take a serious look at allegations of wrongdoing. 
Perhaps we'll hear some of those today. But we should not rush 
to amend the antitrust laws or break up companies by 
congressional fiat based upon false notions that being big is 
inherently bad or that everything a big company does should be 
presumed to be anticompetitive.
    And I yield back the balance of my time.
    Mr. Cicilline. Thank you, Mr. Sensenbrenner.
    I want to just acknowledge that both the chairman of the 
full committee, Mr. Nadler, and the ranking member of the full 
committee, Mr. Collins, are on the floor right now, and when 
they come to committee they'll be recognized, if it's okay with 
Mr. Sensenbrenner, for their opening statements.
    And at this time now I would like to introduce our panel. 
We have two panels of witnesses today. It is now my pleasure to 
introduce today's first panel.
    Our first witness is Adam Cohen, the director of economic 
policy at Google. Before joining Google Mr. Cohen was an 
economic corespondent for Dow Jones and the Wall Street Journal 
reporting out of both London and Brussels. Mr. Cohen received 
his AB from Harvard University and his MS from the London 
School of Economics.
    Our second witness, Matt Perault, is head of global policy 
development at Facebook, leading the company's global public 
policy planning efforts on law enforcement and human rights 
issues. Mr. Perault has also overseen public policy for 
WhatsApp, Oculus, and Facebook artificial intelligence 
research. Before joining Facebook he was counsel at the 
Congressional Oversight Panel as well as a consultant at the 
World Bank. Mr. Perault received his bachelor's degree from 
Brown University, his MPP from Duke University Sanford School 
of Public Policy, and his JD from Harvard Law School.
    Our third witness is Nate Sutton, associate general counsel 
for competition at Amazon, who oversees all competition-related 
litigation and regulatory matters for the company. Before 
joining Amazon, Mr. Sutton was a trial attorney with the 
Department of Justice Antitrust Division for 9 years working on 
civil antitrust matters. He also worked at the law firm of 
William & Connolly, LLP, from 2001 to 2007. Mr. Sutton received 
his BS in nuclear engineering from North Carolina State 
University and his JD from the University of Chicago Law 
School.
    The last witness in our panel is Kyle Andeer, vice 
president of corporate law at Apple. Prior to joining Apple Mr. 
Andeer spent 4 years as the deputy chief trial counsel with the 
Federal Trade Commission's Bureau of Competition, managing a 
trial staff of more than 25 attorneys and support staff. He 
also served as the principal competition attorney adviser to 
Commissioner J. Thomas Rosch as well as the DOJ's Antitrust 
Division. Mr. Andeer received his BA from the University of 
Pennsylvania and his JD from the University of California 
Berkeley School of Law.
    We welcome all of our distinguished witnesses on our first 
panel and thank them for participating in today's hearing.
    Now, if you would please rise, I'll begin by swearing you 
in.
    Please raise your right hand. Do you swear or affirm under 
penalty of perjury that the testimony you are about to give is 
true and correct to the best of your knowledge, information, 
and belief, so help you God?
    Let the record show the witnesses answered in the 
affirmative. Thank you. You may be seated.
    Please note that each of your written statements will be 
entered into the record in their entirety. Accordingly, I ask 
that you summarize your testimony in 5 minutes. To help you 
stay within that time, there's a timing light on your table. 
When the light switches from green to yellow you have 1 minute 
to conclude your testimony. When the light turns red it signals 
your 5 minutes have expired.
    Mr. Cohen, we'll begin with you.

 TESTIMONY OF ADAM COHEN, DIRECTOR OF ECONOMIC POLICY, GOOGLE; 
MATT PERAULT, HEAD OF GLOBAL POLICY DEVELOPMENT, FACEBOOK; NATE 
  SUTTON, ASSOCIATE GENERAL COUNSEL, COMPETITION, AMAZON; AND 
       KYLE ANDEER, VICE PRESIDENT, CORPORATE LAW, APPLE

                    TESTIMONY OF ADAM COHEN

    Mr. Cohen. Chairman Cicilline, Ranking Member 
Sensenbrenner, and distinguished members of the committee, 
thank you for the opportunity to appear before you today. My 
name is Adam Cohen, and I'm director of economic policy at 
Google. In my role I lead our public policy work on antitrust 
issues.
    Google was founded in 1998 by two students who had a big 
idea: Organize the world's information and make it universally 
accessible and useful. In their earliest form Google search 
results were simply ten blue links on a web page. Twenty years 
later we provide our users with much richer results, including 
direct answers to questions, pinpoints on a map when they 
search for an address, and direct links to flights, products, 
and a range of other information.
    As a responsible and successful company, we understand the 
importance of discussing how our business works and how we 
compete. We are proud of our record of continued innovation. We 
face constant pressure to improve our products and services, 
both sure signs of a competitive marketplace.
    In my testimony today I will focus on the value Google and 
the wider technology sector are creating for the U.S. economy, 
our investments in new technologies, and our industry's 
competitive dynamics.
    For the U.S. economy, Google's products and services create 
significant value, generating an estimated $335 billion in 
economic activity in 2018. This has benefited a wide range of 
consumers and businesses across the country. Firms that once 
operated in a local or regional market now reach national and 
international customers using our tools.
    We have also made substantial direct investments in the 
U.S. economy. Last year we hired more than 10,000 people and 
invested over $9 billion in data centers and offices across the 
country. In February we announced plans to invest an additional 
$13 billion this year with major expansions in 14 States.
    These new investments will give us the capacity to hire 
tens of thousands of additional employees and create more than 
10,000 new construction jobs. Overall, the technology sector 
supports roughly 12 million American jobs, the equivalent to 
7.6 percent of the total U.S. workforce. It is a vital source 
of new jobs.
    And for consumers, technology companies continue to provide 
innovation and better prices. Prices in the tech sector fell in 
2018 compared to an increase in the rest of the private sector. 
When it comes to investing in innovation technology companies 
are America's largest spenders on research and development.
    As an example, Google last year spent $21.4 billion on 
research, development, and related areas, three times more than 
in 2013. Our continuing investments spur innovation that 
improves our own products and services and also supports and 
accelerates innovation among other firms. We share many of the 
results of our research and new technologies typically through 
open-source software. This helps broad communities of 
developers to use our advances in their own applications and 
services.
    In terms of competition, our industry is highly dynamic and 
drives innovation that gives consumers better choices at lower 
prices. For example, when consumers search for information they 
can choose among Amazon, Yelp, Microsoft, Travelocity, and many 
other companies like these that consistently report strong user 
growth. If you don't want to use Google, there are many other 
information providers available.
    We also face formidable competition around the world. Our 
success enables us to make the research and development 
investments necessary to compete in a global environment with 
other global players. New firms are competing too. We continue 
to see record-setting venture capital activity with over 8,000 
venture-backed companies raising more than $130 billion in 
financing last year, the highest amount in over a decade.
    The technology sector has had one of the highest rates of 
business formation and job creation in the country over the 
past 3 decades. In fact, in the first quarter of 2019 a record 
147 American companies reached so-called unicorn status with 
valuations exceeding $1 billion.
    These companies had a combined value of $582 billion in the 
first quarter of the year, the highest aggregate value ever 
recorded. That is a rate of new business success unrivaled 
elsewhere in the U.S. economy creating new companies that 
compete with established companies across many areas.
    To conclude, even as progress and innovation expand sound 
regulatory frameworks help ensure our societies and economies 
continue to benefit from new technologies. We look forward to 
continued work with the committee as it examines these issues.
    Thank you for your time, and I look forward to your 
questions.
    [The statement of Mr. Cohen follows:]

          [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Cicilline. Thank you, Mr. Cohen.
    Mr. Perault is now recognized for 5 minutes.

                   TESTIMONY OF MATT PERAULT

    Mr. Perault. Thank you, Chairman.
    Chairman Cicilline, Ranking Member Sensenbrenner, and 
distinguished members of the subcommittee, thank you for the 
opportunity to appear before you today. My name is Matt Perault 
and I'm a director of public policy at Facebook. I've been at 
the company for 8 years, and I focus on competition and 
economic policy. It's an honor to be here to discuss these 
important issues.
    Facebook is an American success story. We were founded in a 
college dorm room 15 years ago, and since that time we've 
helped transform the way people around the world communicate, 
connect, and share. We believe deeply in the values of 
competition and innovation, values that are fundamental to the 
success of the American economy, and it's precisely because of 
these shared values that Facebook has grown from a dorm room 
idea to a vibrant American company.
    New apps enabling people to connect, discover, communicate, 
and share are emerging all the time because barriers to entry 
for digital platforms are low. Launching a new mobile app or 
online service often requires minimal staff, capital, and 
infrastructure, and the rise of cloud computing in app stores 
enables these platforms to reach a global audience. Consumers 
move easily between different apps and services. If they don't 
enjoy a product or experience, they'll leave it and explore 
other options.
    We face intense competition for all of the products and 
services that we provide. To name a few examples, Twitter, 
Snapchat, iMessage, Skype, Telegram, Google, YouTube, and 
Amazon offer photo and video sharing, messaging, advertising, 
and other services that compete with Facebook. In fact, more 
than 92 percent of advertising happens off of Facebook, and 
less than a quarter of U.S. online ad spend goes to Facebook.
    And our competition isn't just here in America. We compete 
with companies from all around the world. TikTok, for example, 
a Chinese app launched less than 3 years ago has been 
downloaded more than 1 billion times and was the most 
downloaded iOS app in the world in 2018.
    Facebook was transformative and groundbreaking when it 
launched, and we worked hard to remain so today. That's why we 
push ourselves to evolve and experiment to develop the next big 
technologies that will change how people connect and 
communicate in the future. I'd like to touch briefly on four of 
the ways that Facebook is investing in innovation.
    First, through developing new products and features. When 
Facebook was created the site consisted mostly of text details 
about each user. Now users can message, read news, broadcast 
live video, connect with businesses, send and receive payments, 
and raise money for important causes, just to name a few 
options. And the Facebook family goes beyond software to 
hardware products like Portal and Oculus. We're proud of how 
much we've invented and innovated and of how much our products 
and services have improved.
    Second, our investments in research and development have 
played an important role in fueling our innovation. We devoted 
nearly 20 percent of our revenue last year to investments in 
innovation, and we've made significant advancements in areas 
like artificial intelligence, virtual reality, and energy 
efficient data centers.
    Third, our acquisitions have been a powerful force for 
innovation. Companies like Instagram and WhatsApp have had 
increased opportunities to innovate as part of the Facebook 
family. We are better together and that's good for users.
    Fourth, Facebook has democratized advertising. Helping 
millions of small and medium-sized businesses our advertising 
platform can accommodate almost every budget, and we help 
advertisers reach their target audience and maximize their 
impact.
    Our services have enabled small and medium-sized businesses 
to grow, create jobs, and more effectively compete with larger 
companies leading to more choice and better products for 
consumers.
    We've heard countless examples of small entrepreneurs in 
Rhode Island, in Wisconsin, and across America who couldn't 
afford print or TV ads but who have been able to succeed by 
using our services to reach a local, national, or even global 
audience.
    Facebook is constantly working to find new ways to help 
people connect, communicate, and share. Like many successful 
American companies before us, we've grown by taking risks, 
learning from our mistakes, and constantly striving to improve. 
We recognize that we're a work in progress and we're committed 
to addressing the challenges we face as a company, but we are 
incredibly proud of what we've accomplished so far.
    I appreciate the opportunity to be here today, and I look 
forward to your questions.
    [The statement of Mr. Perault follows:]

        [GRAPHIC] [TIFF OMITTED] 
        
        
    Mr. Cicilline. Thank you, Mr. Perault.
    I now recognize Mr. Sutton for 5 minutes.

                    TESTIMONY OF NATE SUTTON

    Mr. Sutton. Thank you, Chairman Cicilline, Ranking Member 
Sensenbrenner, and members of the subcommittee. In my brief 
remarks today I will provide some background on Amazon's 
approach to business and on the industries in which we operate, 
I will discuss a relationship with third-party sellers that 
sell in our stores, and I will explain the positive effects we 
have on competition and the economy.
    Amazon's mission is to be Earth's most customer-centric 
company. Our corporate philosophy is firmly rooted in working 
backwards from what customers want. And we seek continually to 
innovate, to provide customers the best experience. This 
principle is essential to understanding Amazon as we apply it 
to all areas of our business.
    Amazon operates a diverse range of businesses, from retail 
and entertainment to consumer electronics and technology 
services. In each of these areas we face intense competition 
from well-established competitors.
    For example, retail, which remains by far our largest 
business, is as old as human commercial experience. It has long 
been and continues to be characterized by intense competition 
at every level. New technology, such as the internet, have only 
made retail more competitive, reducing barriers to entry, and 
expanding output.
    Studies show that retailers sell and customers shop in 
multiple stores, both offline and online. In fact, as Target 
and Best Buy recently announced, one of the fastest growing 
consumer practices is a mix of offline and online, whereby 
customers order products online that they later pick up in a 
physical store.
    And there are now dozens of online marketplaces in the U.S. 
and around the world. The result in retail is an ever-
broadening array of competitors, including many large and well-
known companies like Walmart, eBay, Target, Safeway, Wayfair, 
and Kroger, not to mention large and growing global competitors 
such as Alibaba and Rakuten.
    Amazon success in retail depends on our partnership with 
third-party sellers that sell their products right alongside 
our own products. We have invested heavily in these sellers, 
and they are growing twice as fast as Amazon's own retail and 
make up almost 60 percent of total unit sales in our stores.
    These businesses are primarily small and medium-sized 
firms, and last year almost 200,000 of them sold more than 
$100,000 in our stores. Amazon supports these sellers because 
we have a strong incentive to do so. The broad selection and 
price competition these sellers bring to our stores are 
attractive to our customers.
    For example, our selling partners provide the vast majority 
of new products in our stores. We know sellers have other ways 
to reach customers, so we invest in them, support them, and 
make continuous efforts to improve their experience.
    We have dedicated teams assigned to supporting sellers, 
launch new tools to help them increase sales, and spend 
significant resources to root out bad actors and prevent fraud 
and abuse that harms both sellers and customers. If we did not 
make these efforts on behalf of our selling partners, they 
would sell fewer products in our stores and more through our 
competitors.
    Amazon's investments in retail have also benefited the 
economy more generally. We have invested tens of billions of 
dollars in infrastructure and technical services. We employ 
more than 275,000 people in the United States. We offer a $15 
minimum wage and valuable benefits. We continue to invest in 
our employees through workforce training programs.
    For example, just days ago, we announced an initiative to 
invest $700 million to provide 100,000 of our employees new 
skills and training to help them move into more advanced jobs 
or find new careers.
    From our vantage point as a retailer in a highly 
competitive field, we offer two views for the committee's 
consideration. First, the technology used to provide a service 
is not the primary factor in a competitive analysis. Consumers 
benefit from all retail competition regardless of the precise 
business model involved. In today's retail market the notion 
that two products that are exactly the same do not compete with 
each other simply because one was ordered online and one was 
bought in a brick-and-mortar store makes little sense.
    Second, to avoid unintentionally tilting the competitive 
playing field, new rules should encompass all retailers 
regardless of the supply models that they use.
    Thank you, and I look forward to answering any questions 
the committee may have.
    [The statement of Mr. Sutton follows:]

            [GRAPHIC] [TIFF OMITTED]
    
    Mr. Cicilline. Thank you, Mr. Sutton.
    The chair now recognizes Mr. Andeer for 5 minutes.

                    TESTIMONY OF KYLE ANDEER

    Mr. Andeer. Thank you. Mr. Chairman, members of the 
committee, thank you for inviting me to speak with you today. 
My name is Kyle Andeer, and I am Apple's chief compliance 
officer, and I spend a lot of time focusing on business ethics 
and competition legal issues.
    Apple is a proud American company, a 40-year history of 
innovation in very competitive markets. Our mission is to make 
the best products and services in the world in each of the 
markets where we compete. For us it's never been about making 
the most. It's always about making the best. We design our 
technology to be easy to use and safe and secure for all 
customers.
    We see our customers' privacy as a fundamental human right, 
and we embed that value in everything we create. We go above 
and beyond to incorporate needing accessibility features to 
make sure everyone can get the most from their devices. And our 
products are made with our responsibility to the environment in 
mind. We are deeply proud of the role we play in democratizing 
coding and other high-tech skills all around the world.
    In discussing Apple's online platforms, we consider five 
distinct categories: iOS, macOS, watchOS, tvOS, and our soon-
to-be-released iPadOS. Our products run and compete on these 
platforms. We are very proud of each of these and feel that 
they are the best at each of their categories. We only create 
great products, not commodity products, and as a result we do 
not have a majority share in any one of these categories.
    For Apple the competition is fierce. Our customers have an 
ever-growing number of choices when it comes to products and 
services. We compete against some of the largest companies in 
the world, both foreign and domestic. We work hard every day to 
retain and grow customer trust and to compete for their 
business.
    Each of our platforms depends on a thriving ecosystem, from 
the App Store to peripherals and accessories, to partners such 
as service providers and car makers. Our expertise in software 
enables experiences like moving seamlessly between Apple 
devices, finding your same messages in Safari bookmarks no 
matter which device you use, and taking advantage of features 
like CarPlay that integrates your iPhone into your daily 
commute.
    The benefits of this ecosystem and the innovation it makes 
possible are clear to our customers. It means, for example, 
world-class security and unparalleled ease of use. We are also 
proud to offer services where millions of artists and 
entrepreneurs can share their work and ideas, like Apple Music, 
hosting more than 50 million songs from artists around the 
world, podcasts where hundreds of thousands of topics are 
discussed and shared, and the App Store, which has spawned new 
opportunities from everyone from the individual entrepreneur to 
the biggest companies in the world.
    Since its launch in 2008, the App Store has been vibrant, 
competitive, and ever growing. It has transformed the 
experience and reduced the cost of software distribution. So 
anyone with a great idea can invent a new app and distribute it 
worldwide from home. We're proud that App Store entrepreneurs 
across this country have generated over 1.5 million U.S. jobs 
across all 50 States.
    We designed the App Store to be both a safe and trusted 
place for customers to discover and download apps that interest 
them and a great opportunity for developers to start 
businesses. In entering the App Store every developer abides by 
the very same guidelines. From the student in her living room 
to some of the largest companies, we want to have--we want 
every creator to have an equal opportunity to succeed.
    We work hard every day to compete for developers who want 
to join and stay in our ecosystem. We're proud that a good 
number of apps, apps like Pinterest, Spotify, Lyft, and Uber 
have built successful businesses through the App Store with 
support from our team and the developer tools we offer. The App 
Store provides an enormous opportunity for developers to reach 
millions of users overnight, and the vast majority of apps, 
over 84 percent share none of the revenue they make from our 
store with Apple.
    Only a very small number of the nearly 2 million apps in 
the App Store are made by Apple. And in every category where 
our software competes we face multiple strong competitors. 
Apple believes users expect that their devices should provide a 
great experience out of the box, so our products include 
certain functionality like email, phone, and a music player as 
a baseline.
    But users have various needs, and they are free to discover 
and use any alternatives they might prefer. For instance, if a 
customer wants to use iCloud--doesn't want to use iCloud, they 
can use Box, Dropbox, or any number of other options.
    At the end of the day our only objective is to provide our 
customers the very best products and ecosystem in the world. It 
means the phone they love, the choice of accessories that 
enhance their experience, and millions of applications and 
services at their fingertips.
    And when it all comes together it means the tremendous 
market opportunity for everyone, entrepreneurs, artists, 
carriers, car makers, accessory makers, and developers. We are 
committed to carrying this legacy forward, believing at our 
core that a single great idea can unlock opportunities once 
unimaginable. That's what defines Apple and it always will.
    Apple welcomes this subcommittee's efforts to promote 
American innovation and entrepreneurship, and we look forward 
to working with you.
    [The statement of Mr. Andeer follows:]

           [GRAPHIC] [TIFF OMITTED]
    
    Mr. Cicilline. Thank you, Mr. Andeer.
    We will now proceed under the 5-minute rule with questions.
    I'll begin by recognizing the gentlelady from Pennsylvania, 
Ms. Scanlon.
    We're doing it a little out of order due to the time 
change. A couple of our committee members have other 
commitments, so I want to begin with Ms. Scanlon. You're 
recognized for 5 minutes.
    Ms. Scanlon. Thank you very much, Mr. Chairman. And thank 
you for hosting this event, this hearing.
    We've certainly heard a lot about the various ways in which 
your platforms have really developed a whole new sector of our 
economy, but we wanted to dig into a little bit of the 
anticompetitive aspects. And I wanted to focus on the issue of 
digital piracy and what that does in the creative community.
    So Creative Futures is a coalition representing 555 
organizations ranging from MGM to one of our local Philadelphia 
theater groups, and it represents a quarter million people in 
the creative rights community.
    They've raised concerns about the impact on the competitive 
process of copyright theft on the Facebook and Google 
platforms. Specifically, they noted in a submission unfair 
methods of competition can be facilitated or sometimes 
practiced on these massive internet platforms, and it results 
in less creative content than otherwise would exist, fewer new 
voices, and harm to legitimate non-pirated sources of 
distribution.
    So, Mr. Cohen, can you address these concerns of people in 
the creative rights community particularly about how YouTube 
doesn't really have an economic incentive to combat widespread 
copyright theft and this may have distorted the market for 
online streaming of movies and television?
    Mr. Cohen. Congressman, thank you for the question. YouTube 
has a very strong set of tools to prevent copyright infringing 
material from appearing. We developed a technology called 
Content ID that can remove copyrighted material before it's 
ever seen by anybody using the platform.
    We take this matter very seriously, and we provide by 
YouTube and other products means for consumers to find and 
access quality licensed legitimate content.
    Ms. Scanlon. So is that the process that you use when, in 
fact, pirated content is uploaded but then there's a takedown 
notice? Or are you talking about something else?
    Mr. Cohen. Congresswoman, we use a combination of automated 
tools. We can recognize copyrighted material that creators 
upload and instantaneously discover it and keep it from being 
seen in our platforms.
    Ms. Scanlon. Okay. I guess an additional concern that has 
been raised around this issue is that if you Google--if I were 
to Google an original show produced by the YouTube premium, 
maybe something like Koper Ky or Weird City, if I try to find 
pirated versions of the YouTube shows, nothing comes up. But if 
I go search for a pirated version of a show like Game of 
Thrones or Netflix's Russian Doll or HBO's Barry, a whole--
well, torrented versions, a lot of different pirated versions 
pop up.
    So there's a suggestion that there's a discrepancy in how 
these tools are working because the YouTube Google shows those 
pirated versions are taken down but some of the other 
companies' versions aren't taken down. Can you address how that 
discrepancy might be occurring?
    Mr. Cohen. Congresswoman, I have not seen any evidence of a 
discrepancy. We take great steps to protect copyrighted 
material and to show and to provide our customers legitimate 
means of reaching legitimate licensed content.
    Ms. Scanlon. Well, if you do come up with any data 
regarding discrepancies between the various platforms, can you 
provide that to the committee, please?
    Mr. Cohen. I would be happy to.
    Ms. Scanlon. Thank you. I'll yield back.
    Mr. Cicilline. I now recognize the ranking member of the 
subcommittee, Mr. Sensenbrenner, for 5 minutes.
    Mr. Sensenbrenner. Thank you very much.
    First question is to Mr. Perault. There is a time when 
Facebook was a pledging operation and people thought that 
others like MySpace were the future of social media. What 
competitive features of the social media marketplace made it 
possible for Facebook to overtake and vanquish MySpace and 
others like it?
    Mr. Perault. Thank you very much, Congressman, for the 
question.
    We have rolled out many innovations over the course of the 
history of our product. We had a real name policy at the time 
that we were founded. That was important in ensuring that there 
were authentic interactions on our platform and provided users 
with a better experience. We've since rolled out many 
additional features, such as News Feed and the ``like'' button, 
and we continue to innovate today.
    Mr. Sensenbrenner. So MySpace didn't have any of those 
features? Is that why people went to Facebook and abandoned 
MySpace?
    Mr. Perault. Congressman, I believe they did not have all 
of those features. We competed aggressively with MySpace, and 
we believe that that aggressive competition is in part 
responsible for our success today.
    Mr. Sensenbrenner. Well, I think what we're looking at is 
anticompetitive action. Did MySpace complain about what you 
were doing being anticompetitive, or did they just watch their 
ship slowly sink under the waves?
    Mr. Perault. Congressman, I am not aware of anticompetitive 
complaints from MySpace.
    Mr. Sensenbrenner. Okay. Thank you.
    To Mr. Cohen, your written statement says that Google 
helped reduce prices and expand choice for consumers and 
merchants in the U.S. and around the world. That sounds nice, 
but what facts, figures, and sources can you point to us to 
prove that it's true?
    Mr. Cohen. Congressman, I saw a recent study from the 
Progressive Policy Institute that showed that for every $3 of 
advertising spent online a business would have to spend an 
equivalent of $5 offline to get equal prominence. That cost 
savings--that efficiency in those businesses goes to 
reinvestment, it goes to lower prices for consumers. That is a 
tremendous savings for the U.S. economy.
    Mr. Sensenbrenner. Okay. You know, the print news media has 
come on hard times. There are a whole lot of reasons for that, 
and Google might be one of them, but I don't think it's the 
exclusive reason for the print media falling on hard times.
    You know, if I buy a copy of the Washington Post and there 
is an ad in there, and the Washington Post, you know, only 
circulates at least extensively in the Washington metropolitan 
area, and the same company puts an ad on Google, what do you 
think the exposure is between the print ad and the online ad in 
terms of numbers?
    Mr. Cohen. It can vary, Congressman. There's a lot of 
variety and control given to the advertiser in how they 
interact with online platforms, how they advertise with online 
platforms. One of the key things is that in newspaper 
advertising you would spend a certain amount of money. When I 
was last a journalist it was quite expensive to place 
advertisements in print media.
    You didn't know what your return on that investment was. It 
was hard to measure. In digital formats it's easy to know when 
an ad is clicked on. In fact, for our services often you only 
pay when an ad is clicked on. And you can then measure the 
effectiveness of that advertising campaign. You can have these 
ads reach as broad an audience as you like or you can use them 
narrowly focusing on local markets, if you prefer.
    Mr. Sensenbrenner. What do you think about the persuasive 
ability--now I look toward my own campaigns. I don't think 
we've put ads in newspapers either daily or weekly for over 25 
years because the surveys that we did showed that the people 
who read political ads in newspapers were either seeing what 
their favorite candidate was doing and mentally cheering or 
seeing what the opposition was doing and, you know, saying boo.
    But with an online ad, and we've used those for the last 
couple of cycles, you would think there is--at least the 
purpose of advertising is to educate someone toward a vote or 
a--buying a product or something like that? You really don't 
need any marketing surveys to show that that's effective?
    Mr. Cohen. Well, Congressman, I'm not an expert in 
political advertising. But what I would say is that I think 
you've identified an issue that affects the newspaper industry. 
There are different ways of reaching customers in different 
settings.
    And the newspaper business model has come under pressure, 
even before the internet, from competing services like cable 
news and with the advent of the internet from--you know, 
newspapers used to make a lot of money from classified 
advertising and a lot of that has shifted to services like 
Craigslist, Autotrader for automotive ads. There are a range of 
competitive pressures, and I think that's probably true for 
political advertising as well.
    Mr. Sensenbrenner. Thank you very much. My time is expired.
    Mr. Cicilline. The chair now recognizes the gentlelady from 
Washington, Ms. Jayapal, for 5 minutes.
    Ms. Jayapal. Thank you, Mr. Chairman.
    And thank you all for being here.
    My district has the great honor of long being a place for 
innovation, a place where many small companies became large 
giants, including Amazon. And it is also a place where in the 
past innovation has had to be protected by the Federal 
Government.
    And specifically, I call your attention to in 2001, the 
Department of Justice sued Microsoft accusing the company of 
violating the Sherman Antitrust Act by using a monopoly 
adversely affect the web browser market. And the case later 
settled after Microsoft agreed to make it easier for 
Microsoft's competitors to integrate their software with the 
Windows operating system.
    And there are many scholars out there who believe that this 
case is actually the one that opened up tremendous space for 
real innovation that wouldn't have otherwise existed and 
allowed a whole new wave of tech companies to spring up. And 
some of the companies represented here today actually 
flourished after that court ruling.
    Mr. Perault, let me start with you. You're the head of 
global policy development at Facebook. Does Facebook devote any 
resources to identifying promising tech startups or innovative 
non-Facebook platforms and apps?
    Mr. Perault. Not to my knowledge, no, Congresswoman.
    Ms. Jayapal. None at all?
    Mr. Perault. We certainly devote resources to understanding 
the competitive landscape in which we operate, but, no, I 
believe the answer to your question is no, not to my knowledge.
    Ms. Jayapal. So you don't acquire promising tech startups 
or innovative non-Facebook owned platforms or apps?
    Mr. Perault. Congresswoman, we certainly look to innovate 
with our products, and the focus of our acquisition strategy is 
focused on acquiring companies that enable us to offer a better 
service to the people who use our products. So we do look to 
acquire services that will enable us to innovate more 
effectively.
    Ms. Jayapal. And they might actually be competing with you, 
and that might be something that you think would integrate well 
into your existing platform?
    Mr. Perault. Thank you, Congresswoman. The focus of our 
acquisition strategy is on companies that will enable us to 
innovate more effectively and bring value to the people who use 
our services. For instance, at the time that we acquired 
Oculus, a virtual reality company, it didn't yet have a product 
in the market. As a result of our investment in Oculus, it now 
has a virtual reality product in the market.
    Ms. Jayapal. And what about when you acquired the 
positivity focused polling startup, TBH, 2 years ago and then 
the company shut down the app after only 8 months? It also 
bought the app Moves and then later shut it down. How would you 
consider those acquisitions and terminations, if you will, of 
those smaller companies?
    Mr. Perault. Congresswoman, it is certainly the case that 
some acquisitions don't work. When they don't work we may 
discontinue a product because of legitimate business judgment.
    Ms. Jayapal. I would just draw your attention to sort of 
a--you know, I would look at the pharmaceutical industry in--
according to a 2018 Yale study, some pharmaceutical companies 
seemed to engage in what they called killer acquisitions where 
they would buy smaller firms and then shut down potentially 
competing projects.
    And researchers actually found that when that happened it 
was more likely that the acquired companies' competing drug 
would be discontinued. So I'm not saying it's directly 
parallel, but it is one of the concerns I have.
    Mr. Sutton, you're associate general counsel at Amazon. 
Does Amazon devote any resources to identifying the most 
popular brands and products sold using the Amazon interface? 
So, for example, do you track the most popular non-Amazon 
brands that are sold in houseware divisions or the brand of 
size 14 pants that sold most often or any other product like 
that?
    Mr. Sutton. Thank you for your question.
    Amazon is proud to be a company of builders and have built 
our company from within not through acquisitions. With respect 
to data such as you identified, we do not use any seller data 
for--to compete with them. Last year was our smallest year of 
acquisitions, and we've only had one multibillion dollar 
acquisition and that was Whole Foods.
    Ms. Jayapal. I'm sorry, that was slightly different than 
the question I asked, which was when people sell products on 
your site, do you track which products are most successful, and 
then do you sometimes create a product to compete with that 
product?
    Because essentially you have this massive trove of data, 
right, people that are buying products on your platform, and so 
you're able to see which are the ones that are doing really, 
really well, like that size 14 pant or that houseware that's 
being sold. Do you track that and then do you create products 
that directly compete with those most popular brands that are 
out there?
    Mr. Sutton. Thank you. Let me answer that question. That 
data on popularity of products like much retail data is 
actually public data. For each of our products you can see 
where it's ranked. You can see how popular it is. We do not use 
any of that specific seller data in creating our own private 
brand products.
    And private brands is an area where, quite frankly, we lag 
behind many of our retail competitors who have 20 to 80 percent 
of their products as private brands, where we're only in the 
low, single digits. We do offer private brands on occasion 
because we think it offers high value and low-cost items for 
customers and because customers demand that and we want to 
provide that opportunity for customers.
    Ms. Jayapal. Thank you. I know my time is expired, Mr. 
Chairman. I just wanted to quickly say that my office recently 
met with a small business located in my district, and they pay 
a living wage, they create a high-quality product that they 
sell online and in a storefront.
    And they did have concerns, and so I know my office has 
reached out directly. We are right in the same place and we're 
looking forward to that conversation with you to see how Amazon 
can make sure that it's helping some of these small businesses. 
Thank you.
    Mr. Cicilline. Thank you. I now recognize the gentleman 
from North Dakota, Mr. Armstrong, for 5 minutes.
    Mr. Armstrong. Thank you, Mr. Chair.
    And I'm glad that privacy has come up, already piracy has 
come up. I know censorship has come up. We have talked about 
newspaper advertising, and I think that's where we get into 
this, and everybody sitting at that table up there has a role 
in some of those issues. We all have different interests in 
that.
    But I think that's when we--and I know everybody at this 
table is anti--witnesses are antitrust experts, but I think one 
of the problems, and I think we have to recognize this, is that 
antitrust is very company specific and it's very fact specific. 
So while we may want to talk to one of you about piracy, we may 
want to talk to another one of you about privacy--piracy and 
privacy, I should probably pick two different words--so as we 
do that.
    But I think one thing that is consistent is everybody 
sitting there in the companies you work for are capable of 
dealing with regulation. And we have witnessed this before as 
we continue to move forward, whether it's Dodd-Frank, whether 
it's healthcare regulation, wherever we deal with this. 
Whenever we work as a body to attempt to capture big bad 
actors, I would argue that often times what we do is we make it 
more difficult for startups whether that was our intent or not.
    Mr. Johnson. Would the gentleman pull his mike closer, 
please?
    Mr. Armstrong. Sure. Yeah. So, I mean, and it's just a 
caution and it's not that we shouldn't have these conversations 
because I'm glad we're having these conversations. But I just 
want to say that at the beginning that whatever concerns 
anybody may have with a particular company aren't necessarily 
the same for the other one.
    But you all as for-profit companies with a fiduciary duty 
to shareholders, I understand the fierce--particularly in this 
field to stay on the cutting edge of innovation. I mean, and 20 
years ago GE was the most valuable company in the world, and 
sorry to pick on Apple, but you guys were almost bankrupt.
    And even through that space and even now, even a handful of 
unicorn companies even with the vast resources of other 
companies again show that we miss valuable innovations in--
particularly in the tech field. All this just simply 
demonstrates how hard it is to predict what consumers will want 
in the future.
    So I guess we'll just go down, and I don't think this 
applies to Apple so much, but to what extent do your companies 
use venture capital funding to invest in startups? And I'll 
start with Mr. Sutton.
    Mr. Sutton. Thank you. Amazon is a company of builders and 
we primarily build from within. I'm not sure of the exact 
details to the extent we use venture capital funding to start. 
I would be happy to follow up with more details.
    Mr. Armstrong. Sure. Mr. Perault.
    Mr. Perault. Thank you very much, Congressman. My 
understanding is that we do not engage in that practice, but 
I'd be happy to follow up with specifics.
    Mr. Armstrong. And Mr. Cohen.
    Mr. Cohen. Thank you, Congressman. We do have a venture 
capital arm. I'm not familiar with the size or the scope of 
their investments. What I can tell you is that we acquire some 
small businesses in order to accelerate innovation. We actually 
are a great incubator for technology talents as well.
    And somebody mentioned the number of acquisitions Google 
has made. We have probably spawned ten times as many companies 
from former Google employees who have left the company and 
started companies like Twitter and Pinterest and Instagram.
    Mr. Armstrong. And then I would just go back to Mr. Perault 
for a second. Your written testimony highlights the new 
products and features Facebook has introduced, but how many of 
those has Facebook developed in house as opposed to buying? 
That's a really broad and long question, I understand that.
    Mr. Perault. Thank you, Congressman. We have developed many 
in house. For instance, we developed News Feed, which is now 
used broadly by many of our competitors. We developed the 
``like'' button. We developed photo tagging. We developed 
Portal. We have also invested in companies that we've acquired, 
like Instagram, Oculus, and WhatsApp.
    Mr. Armstrong. And what features in the current social 
media market, if any, could make it possible for a new 
fledgling competitor to take on Facebook?
    Mr. Perault. Congressman, I think there are probably many 
different answers to that question. My understanding, for 
instance, is that TikTok has focused on public sharing, for 
instance. That may be one feature that companies like ours 
might be interested in the future.
    Mr. Armstrong. And my last question for Mr. Cohen is more 
of a personal question not a congressional question. But can 
you explain to me why a 9-year-old would rather watch somebody 
play fortnight on YouTube than actually play fortnight, because 
I don't understand.
    Mr. Cohen. Congressman, I am completely mystified. I have 
no idea.
    Mr. Armstrong. Thank you. And with that, I'll yield back, 
Mr. Chairman.
    Mr. Cicilline. I thank the gentleman.
    I now recognize myself for 5 minutes. I want to focus on 
how the state of competition online is affecting real people in 
the communities we represent. I think we see a tremendous 
concentration of economic power that is fundamentally shaping 
markets in a way that is often unfair, unbalanced, and not 
competitive, resulting in less choice and worse quality of 
products and services for working people.
    We want to make sure as part of this investigation that 
we're doing everything we can to make sure our competition 
system is working for the entire economy, including small and 
local businesses in our community. For more than half of online 
commerce, retailers and manufacturers of consumer goods are 
relying on Amazon as a commerce platform.
    But as we know, and as Ms. Jayapal's question revealed, 
Amazon also offers its own products on the platform. So, Mr. 
Sutton, initially I want to say, doesn't that create a conflict 
of interest?
    Mr. Sutton. Thank you for the question. Respectfully, we 
disagree. We partner very closely with our third-party sellers. 
We rely on them to provide a broad selection and prices to our 
customers, and we've been very proud of our investments to help 
them grow to be a majority of our store and growing twice as 
fast.
    Mr. Cicilline. That's a different question. What I'm saying 
is, you are selling your own products on a platform that you 
control and they're competing with products in the marketplace 
from retail--from other sellers, right?
    Mr. Sutton. Thank you. Thank you for the question. That 
practice I think has been common in the retail industry for 
decades. Most retailers offer their own products in their store 
as well as third-party products and----
    Mr. Cicilline. But the difference is Amazon is a $1 
trillion company that runs an online platform with real-time 
data on millions of purchases and billions in commerce and can 
manipulate algorithms on its platform and favor its own 
product. That is not the same as a local retailer who might 
have a CVS brand and a national brand.
    I mean, it's quite different. So I want to drill down a 
little bit on the question that Ms. Jayapal asked you. You said 
we do not use seller data to compete with other sellers online. 
You do collect enormous data about what products are popular, 
what's selling, where they're selling. You're saying you don't 
use that in any way to promote Amazon products?
    Mr. Sutton. Let me answer----
    Mr. Cicilline. And I remind you, sir, you're under oath.
    Mr. Sutton. Yes. Thank you for your question. We use data 
to serve our customers. And to clarify my question, we don't 
use individual seller data to directly compete with them. And, 
again, similarly with respect to some of the most----
    Mr. Cicilline. Let me just--do you use consumer data to 
favor Amazon products? Because before you answer that, analysts 
estimate that between 80 and 90 percent of sales go to the 
Amazon buy box. So you collect all this data about the most 
popular products, where they're selling, and you're saying you 
don't use that in any way to change an algorithm to support the 
sale of Amazon branded products?
    Mr. Sutton. Our algorithms, such as the buy box, is aimed 
to predict what customers want to buy----
    Mr. Cicilline. Sir, but----
    Mr. Sutton [continuing]. And we apply the same criteria 
whether you're a third-party seller or Amazon to that because 
we want customers to make the right purchase regardless of 
whether it's a seller or Amazon.
    Mr. Cicilline. But the best purchase to you is an Amazon 
product?
    Mr. Sutton. No, that's not true.
    Mr. Cicilline. So you're telling us, sir, under oath that 
Amazon does not use any of that data collected with respect to 
what is selling, where it's selling, what products to inform 
the decisions you make or to change algorithms to direct people 
to Amazon products and prioritize Amazon and deprioritize 
competitors?
    Mr. Sutton. The algorithms are optimized to predict what 
customers want to buy regardless of the seller. We provide the 
same criteria. And with respect to popularity, that's public 
data on each product page, we provide the ranking of each 
product.
    Mr. Cicilline. Okay. I just want to give you an example of 
an entrepreneur in Rhode Island who creates a better set of 
headphones. She sells her product on Amazon on the marketplace, 
sales soar, which is great for her, great for Amazon because 
more people become Amazon Prime customers to buy this great 
renowned product.
    But instead of seeing the fruits of her success, the next 
thing that happens is that this hardworking Rhode Islander 
discovers that Amazon has rolled out a direct replica of her 
product. And because Amazon controls the platform, Amazon gives 
itself top billing and demotes the entrepreneur to page three 
results, which most people will never see.
    So how would anyone--in light of that kind of sequence of 
events, how would any entrepreneur invest in this kind of 
environment where that can happen, where there's no assurance 
it won't?
    Mr. Sutton. Our incentive is to help the seller succeed 
because we rely on them. If we did that, we know they'd go 
elsewhere. They have many options. So we apply the same 
criteria to both, and we do not use their individual data when 
we're making decisions to launch private brands.
    Mr. Cicilline. Thank you.
    I will now turn to Google--to Google Search for a moment, 
Mr. Cohen. Similar to results in Amazon, every day people think 
they are getting the best, most accurate result for searches 
for the products or services they're looking for. But instead 
what is happening is people are seeing results for Google's own 
services.
    In 2004, Google's cofounder Larry Page said the purpose of 
Google is to have people come to Google, quickly find out what 
you want and to get you out of Google and get you to the right 
place as fast as possible. Would you agree that Google still 
claims that that's your principle--guiding principle?
    Mr. Cohen. Congressman, our goal is to provide users 
information as quickly and as efficiently as possible.
    Mr. Cicilline. Sir, I want to direct your attention to two 
studies. The first is a study that was recently produced by 
Rand Fishkin, a leading expert on search engine optimization. 
His study prominently reviewed desktops and found that the 
majority of traffic to Google no longer goes out to the broader 
web, but instead stays on Google products.
    The second is the research by Cafferata Consulting which 
also finds that Google is increasingly keeping both a majority 
and a growing share of traffic within Google's ecosystem, sort 
of a walled garden. Do you agree that these studies show that 
Google is no longer showing people the best products or best 
results, but instead is giving them results to keep them on 
Google's products, not Google's platform?
    Mr. Cohen. Thank you for the question, Congressman. I'm not 
familiar with either of those studies, but what I can say is 
that we send a lot of clicks, a lot of traffic to competitors. 
In our own services we have aimed to connect merchants, 
airlines, a range of other services directly with consumers 
making the consumer experience better and making the experience 
for advertisers and merchants better.
    Mr. Cicilline. I regret my time has expired. But I would 
just ask you to review these studies because if innovators and 
entrepreneurs don't have traffic to their websites because the 
Google search is rigged in favor of Google's own services by 
keeping them inside Google's walled garden then the internet as 
we know it ceases to be an economic opportunity. So I would 
really ask you and welcome your comments after you have an 
opportunity to study those.
    And my time has long expired. I now recognize Mr. Steube, 
the gentleman from Florida.
    Mr. Steube. Thank you, Mr. Chair.
    I have got a very important question for Apple that I 
believe is on the minds of all Americans, why do you keep 
getting that alert for the iCloud and for the 99 cents on the 
iCloud all the time, constantly, constantly until you pay the 
99 cents for iCloud and then you are paying the 99 cents for 
iCloud, but you are not using it.
    Mr. Andeer. Thank you, Congressman. I am afraid I'm not 
aware of the details around what you're talking about, I would 
be happy to get back to you with any information on that. But 
I'm honestly not familiar with that.
    Mr. Steube. Okay, if you can give men some information on 
that, because I've seen and a lot of people have asked me about 
the fact that they constantly keep getting these alerts to use 
iCloud and you don't want to use it, but the alerts won't go 
away until you actually pay the 99 cents to use iCloud but 
you're not using it. So I--if you have some information on 
that, I'd love to get it.
    I'd like to go to Amazon for a second and kind of piggyback 
on the chair's questions. What's the current market share of 
Amazon in total U.S. domestic retail sales?
    Mr. Sutton. Amazon is 1 percent of the global retail market 
and 4 percent of the U.S. retail market approximately.
    Mr. Steube. So only 1 percent of the domestic retail sales. 
So who is above Amazon in total U.S. retail market share?
    Mr. Sutton. In the U.S. Walmart is two to three times 
larger than we are.
    Mr. Steube. Are there others or just Walmart?
    Mr. Sutton. I don't know everyone who is potentially 
larger. There are thousands of competitors across the retail 
landscape.
    Mr. Steube. So who is the current market share of Amazon 
total U.S. domestic online retail sales?
    Mr. Sutton. Online is not a separate market, it's just 
another channel. We know customers shop online and offline and 
evidence show that prices have converged between online and 
offline.
    With respect to online, Amazon is one of the leading 
retailers. There are many other retailers including Walmart and 
every other major retailer who has a large online presence, as 
well as just online players such as eBay.
    Mr. Steube. So you're like 1 percent, you stated. Is that 
correct?
    Mr. Sutton. Well, 1 percent of the global retail market and 
4 percent of the U.S. retail market.
    Mr. Steube. Let's just focus on U.S. So 4 percent of the 
U.S. market, what's the largest market share of any retailer in 
the total U.S. retail market?
    Mr. Sutton. Amazon focuses on our customers and so I'm not 
sure of exact market shares of all of our competitors because 
that's not what we focus on as a company. I do know again that 
Walmart is many times our size in the United States.
    Mr. Steube. Okay. And Amazon sales online U.S. retail 
shares growing at a faster rate of all companies or along the 
same level as other companies. So I know Walmart's put a lot of 
investment into their online platform. How do you compare to a 
Walmart or to other retail stores online?
    Mr. Sutton. Thank you for your question. The third party 
reports I've see report Walmart growing at a faster rate than 
we are online.
    Mr. Steube. Okay. Your written statement suggested Amazon 
competes directly with other sellers, serves competing sellers 
as a distributor and serves other sellers simply as an online 
marketplace platform through which they can reach their 
customers, which you testified before.
    Explain to me how that does or doesn't translate into 
whether Amazon is leveraging allegedly dominant retail market 
power into anticompetitive behavior against those other 
sellers?
    Mr. Sutton. I think the clearest answer to that question is 
from the evidence showing how much we've invested to help those 
third party sellers since we invited them into our store grow. 
They are now the majority of our sales, and they are growing 
twice as fast. We think that's great for these small and 
medium-sized businesses and it is great for our customers.
    Mr. Steube. Are you aware of any facts or figures that show 
that consumer choices among outlets in the U.S. retail market 
is declining or the competition in the U.S. market is failing 
to keep consumer retail prices down?
    Mr. Sutton. I'm only aware of data showing increasing 
choice for consumers today.
    Mr. Steube. Oh, man, we are going to get back to iCloud. 
What is Amazon's share of the storage market for the online 
cloud, for your cloud?
    Mr. Sutton. We offer AWS for Enterprises, which is 
different than a personal online storage.
    Mr. Steube. Okay. Any other comment on that?
    Mr. Sutton. With respect to Enterprises the vast majority 
of that space is still operating on premise servers and cloud 
is a new and developing space. We are one of the innovators so 
we are a leader, but competition primarily exists with long-
standing on premise IT competitors.
    Mr. Steube. When did Amazon get into the cloud services 
market?
    Mr. Sutton. A number of years ago. I don't remember the 
exact year.
    Mr. Steube. And how fast has this marketshare grown on the 
cloud?
    Mr. Sutton. Amazon innovated in creating cloud options for 
both storage and compute for enterprises. So as one of the 
early innovators we had to lead, but competitors, major 
competitors have entered and are closing that gap such as 
Microsoft, IBM, Google and many others. Although again cloud is 
still in its very early days and primarily IT is still serviced 
through on premise servers.
    Mr. Steube. All right. Thank you my time has expired.
    Mr. Cicilline. Thank you. Thank you the gentleman from 
Georgia, Mr. Johnson for 5 minutes.
    Mr. Johnson. Thank you, Mr. Chairman. And thank you for 
holding this very important and timely committee hearing. And 
also I want to thank the witnesses for your appearance today. 
Is it Parole or Perault, Mr. Parole or Mr. Perault?
    Mr. Perault. Thank you, Congressman. It is Perault.
    Mr. Johnson. Thank you sir. Mr. Perault, when was the last 
time that Facebook changed its terms and conditions?
    Mr. Perault. Thank you, Congressman. We----
    Mr. Johnson. There's no need to thank me.
    Mr. Perault. We evaluate our terms and conditions on a 
regular basis.
    Mr. Johnson. When is the last time you changed them?
    Mr. Perault. We are constantly changing our terms and 
conditions to ensure that people have the best experience on 
our product.
    Mr. Johnson. Certainly. So how many times over the last 
year have you changed the terms and conditions?
    Mr. Perault. Congressman, I don't have the specific data on 
that. I'd be happy to get back to you.
    Mr. Johnson. Ten times?
    Mr. Perault. Congressman, I don't have the data.
    Mr. Johnson. Twenty?
    Mr. Perault. I don't have the data, but I do know that we 
certainly face significant concerns about various different 
aspects of our products, including privacy. That's one of the 
reasons that we have actually called for regulation in that 
area.
    Mr. Johnson. Okay. Well, I just wanted to know 
approximately how many times terms and conditions have changed. 
A recent report from the Stigler center observed, quote, one 
way in which digital platforms exploit their marketshare or 
their market power is by requiring consumers to agree to terms 
and conditions that are unclear, difficult to understand, and 
constantly changing. Do you agree with that assessment?
    Mr. Perault. Congressman, we take privacy very seriously. 
It's important to us that we provide users with significant 
transparency and control.
    Mr. Johnson. I understand. I guess the point I'm trying to 
make is the users don't really have much buy in to the 
situation. They either have to check the box, agreeing to the 
terms and conditions, oftentimes having not read it in order to 
get the service or maintain the service or they just go without 
the service.
    So a user may sign up with one set of terms and conditions 
that's valuable time in building a social network on Facebook 
and then a month later be faced with a different set of terms 
and conditions. And because there is no real alternative to 
Facebook, the user has no choice but to accept those changes. 
Isn't that correct?
    Mr. Perault. No, Congressman, that is not correct.
    Mr. Johnson. There is competition with Facebook?
    Mr. Perault. Yes, Congressman, there is. We face fierce 
competition for all the products and services that we offer. 
People come to----
    Mr. Johnson. Who would be the competition, if I might?
    Mr. Perault. So many of our competitors----
    Mr. Johnson. Share that secret.
    Mr. Perault. Many of our competitors are sitting here at 
this table with me.
    Mr. Johnson. I think you're in a unique chair, in a unique 
position among those who are seated at the table. Each one of 
you occupy a unique and dominant position, but Facebook is--
stands alone in terms of social media. Any other social media 
platform that could compete with Facebook?
    Mr. Perault. Congressman, we certainly hope that in many 
ways that we are unique. There may not be an identical 
competitor to Facebook. We try to differentiate our services in 
an innovative tech industry in which we compete. But yes, there 
is significant competition in advertising. People can----
    Mr. Johnson. Well, I'd like to offline I'd like to get a 
list from you, so that I could do some shopping around myself. 
And that's not to disparage Facebook's offering. I just would 
like to know who your competition is. It's not readily 
apparent.
    Facebook's terms of service maintain that users, quote, 
``Own'' end quote, their data. Yet, Facebook has repeatedly 
prevented users from transferring their data to certain rival 
platforms including Twitter, Vine, Voxer and MessageMe. How do 
you reconcile Facebook's stated policy that users own their 
data with Facebook's repeated refusal to allow users to 
transfer their data on to rival platforms?
    Mr. Perault. Congressman, we do offer a data portability 
product and we've offered that product for a long period of 
time, it is called download your information. We've improved 
that product in the wake of the GDPR in Europe. We are actually 
a member of the----
    Mr. Johnson. You can actually transfer the Facebook data to 
another platform?
    Mr. Perault. Congressman, you are able to take your data 
out of Facebook to another platform, yes. We are also members 
of the data transfer project along with several other companies 
to try to look for ways to facilitate better data portability 
and our CEO Mark Zuckerberg has actually called for regulation 
in this area, because of many of the difficult, technical and 
privacy issues at stake. It is one that we are hoping to look 
to work with Congress on to improve the offerings for our 
users.
    Mr. Johnson. All right. Thank you, sir. And I yield back.
    Mr. Cicilline. I thank the gentleman. I now recognize the 
gentlelady from Florida, Ms. Demmings, for 5 minutes.
    Mrs. Demings. Thank you so much, Mr. Chairman. And thank 
you to all of our witnesses for being with us today.
    Mr. Sutton, bear with us. In recent years Amazon has 
started selling digital advertisement placements. Analysts 
estimate that digital ads brought in around $11 billion in 
business last year. Because businesses are increasingly 
dependent on Amazon, some of them are concerned that Amazon is 
using its ad business to squeeze more money. As a Bloomberg 
reporter recently wrote, Amazon's advertising is better 
understood as an additional tax the company imposes on the 
millions of businesses that sell through it's vast digital 
mall. It's one more toll extracted from sellers, according to 
the reporter.
    Given how dependent businesses are on Amazon's platform for 
online sales, what, if anything, Mr. Sutton, prevents Amazon 
from using ads as another way to charging a toll for using its 
platforms?
    Mr. Sutton. Thank you for the question. We do offer 
advertising as a service to our sellers as an optional service 
that's not necessary, but that they can use to help get their 
products discovered. The large majority of products sold in our 
store are not sold through advertisements.
    Again, there are many ways in which sellers have many 
options. We provide that as an additional one. We know they 
have many other options online where customers shop as well as 
offline.
    Mrs. Demings. So what would be your response to the 
reporter's statement that Amazon's advertising is better 
understood as an additional tax the company imposes on the 
millions of businesses that sells through its vast digital 
mall?
    Mr. Sutton. Respectfully I disagree. That statement is not 
correct. It is not a tax. It is like many services we offer 
that's optional. And again there are many other ways that 
sellers can advertise. They can sell--advertise through general 
purpose search, which still remains the most popular way for 
customers to find products online. And in fact, it is one of 
the reasons we are one of largest customers of Google.
    Mrs. Demings. You say the number is correct that you 
brought in about $11 billion in advertising last year? Does 
that sound about right?
    Mr. Sutton. I don't know that exact figure. I'm happy to 
follow up with it.
    Mrs. Demings. Okay. Mr. Sutton, who do view as Amazon's 
competitors with regard to third party sellers? And if you've 
already covered this, I do apologize, but who do you view as 
Amazon's competitors as it pertains to third party sellers?
    Mr. Sutton. Thank you for the question. Third party sellers 
have a wide variety of ways to sell. They can sell directly 
through brick and mortar retail stores, through their own 
website, and there are dozens of online marketplaces available 
for them as well from Walmart, to eBay----
    Mrs. Demings. So let's just say if I'm a third party 
seller, what other platforms can I list my products on that 
would allow them to be seen by a competing number of buyers?
    Mr. Sutton. Thank you. Again, they could list on Walmart, 
they could list on eBay, Target now has launched a marketplace. 
There are other new marketplaces, including also the ones from 
Chinese companies such as Alibaba, Rakuten. They are increasing 
in numbers. In fact, there are so many marketplaces that there 
is a billion dollar industry that has grown up to provide 
services to sellers so that they can use them to list across 
all marketplaces at the same time.
    Mrs. Demings. And you believe that those other platforms 
are competitive allow for competitive services.
    Mr. Sutton. Yes, absolutely.
    Mrs. Demings. Okay.
    Mr. Chairman, I yield back. Thank you.
    Mr. Cicilline. I thank the gentlelady. I now recognize the 
gentleman from Colorado, Mr. Neguse, for 5 minutes.
    Mr. Neguse. Thank you, Mr. Chair. And thank you to the 
witnesses for appearing today and for your testimony.
    I agree with my distinguished colleague from North Dakota 
that antitrust analysis is obviously very fact specific, and 
case specific, and industry specific and so forth. I want to 
talk today about Facebook.
    So Mr. Perault, following up on a question from the 
gentleman from Georgia, I think what he was getting at is this, 
is Facebook in your view a monopoly?
    Mr. Perault. No, Congressman, it is not.
    Mr. Neguse. Okay. So I assume the reason is because in your 
view Facebook has a number of competitors as you said, and a 
number of products that the company offers. Would that be a 
fair characterization of your view?
    Mr. Perault. Yes, Congressman, that's correct.
    Mr. Neguse. What is the largest social media network 
platform company by active users in the world? Do you know?
    Mr. Perault. Congressman, I don't. I do know that we have 
2.7 billion users.
    Mr. Neguse. I can tell you that it's Facebook, it's number 
one. Do you know the third largest company is WhatsApp. Who 
owns WhatsApp or what company owns WhatsApp?
    Mr. Perault. Congressman, we do.
    Mr. Neguse. Facebook, correct?
    Mr. Perault. Yes, Congressman.
    Mr. Neguse. And the fourth largest social media networking 
platform in the world by active users is Facebook messenger. I 
won't make you answer the question, suffice to say that that 
company is also--that service is also owned by Facebook. The 
sixth largest is Instagram. What company owns Instagram?
    Mr. Perault. Congressman, Facebook does.
    Mr. Neguse. Okay. So you can understand skepticism, because 
when a company owns four of the largest six entities measured 
by active users in the world in that industry, we have a word 
for that and that is monopoly, or at least monopoly power.
    Now with respect to my colleague the distinguished 
gentleman from Wisconsin, he is right that under the Sherman 
AntiTrust Act, a measure of whether or not a company is engaged 
in monopolistic activities is whether or not there is 
anticompetitive conduct at play. But, you know, I suspect you 
and I may have some disagreements on that front.
    And just to give you a sense of the way in which I think a 
number of us are evaluating the facts before us, if you could 
turn to Exhibit 1.5--if the committee staff would just put that 
up on the screen--this is a document, to my understanding there 
were a number of documents published about 8 months ago, as a 
result of a parliamentary inquiry conducted by the U.K. 
Parliament with respect to Facebook and various activities of 
the company.
    This is a platform policy, platform policy number 4. And 
you'll see under there highlighted subparagraph 1 the language, 
add something unique to the community, don't replicate core 
functionality that Facebook already provides. This was a policy 
maintained by Facebook. Is that correct?
    Mr. Perault. That is correct. Although unfortunately I'm 
having trouble seeing the exhibit. As I've gotten older, my 
eyes have gotten worse.
    Mr. Cicilline. It is behind you as well Mr. Perault.
    Mr. Neguse. Mine as well. We will be sure to provide you a 
copy.
    This is no longer a policy maintained by Facebook. Is that 
correct?
    Mr. Perault. Congressman, that's correct.
    Mr. Neguse. Okay. And I presume that is because this policy 
facially would be construed as an anticompetitive one, correct?
    Mr. Perault. Congressman, we have--thank you very much--the 
Facebook platform was designed to enable third parties to 
engage in complementary innovation that would benefit the 
people who use our services.
    When we launched the Facebook platform, we did have rules 
of the road. We continue to have rules of the road that balance 
a variety of considerations including protecting the user 
experience, protecting privacy and protecting our investment in 
our products. We have reevaluated those policies over time and 
have changed them to fit the evolving nature of the industry in 
which we exist.
    Mr. Neguse. Well I appreciate that. And I understand 
industries change, industries evolve and that your business has 
to evolve to comport with that. I would say from my vantage 
point, my understanding is Facebook did have a policy early in 
its tenure, it's Exhibit 1 in which the company welcomed 
developers with competing applications, including developers 
whose applications might compete with Facebook-built 
applications. That was a policy that was then repealed in favor 
of policy 4.1 the prior document that I just showed.
    So this notion that Facebook has been open to competition 
as you described in your opening testimony, this notion that 
it's a core value of the company is not borne out by the 
documentary evidence that we've seen. And I think that's in 
part why we are having this important hearing today. I see that 
my time has expired.
    I yield back.
    Mr. Cicilline. I thank the gentleman. I now recognize the 
gentlelady from Georgia, Ms. McBath.
    Mrs. McBath. Thank you, Mr. Chairman. Thank you gentlemen 
for your testimony today.
    I am truly deeply concerned about the success of businesses 
in my district. I represent Georgia's sixth congressional 
district and small locally owned businesses are the economic 
lifeblood of our communities. And they should have access to 
markets and consumers without facing anticompetitive 
constraints.
    I also believe that Congress and agencies have a serious 
responsibility to make sure that there's real competition in 
the market so that startups, small businesses, and local 
retailers are able to compete on the merits and give people the 
best options they can find.
    Mr. Sutton, this morning I met with seller that have had a 
very positive experience growing their business through Amazon. 
But some sellers have had a completely different kind of 
experience. Some sellers report that Amazon uses a variety of 
tactics to funnel merchants into Using Fulfillment by Amazon. 
International antitrust authorities are investigating whether 
Amazon privileges third-party vendors that use Fulfillment by 
Amazon. Now does Amazon privilege vendors who use Amazon's 
Fulfillment services over those who chose not to?
    Mr. Sutton. Thank you for the question. Amazon's very proud 
of all we've done to invest and help sellers succeed. And one 
of those ways is we built a very successful operation and 
delivery system, and we opened that up and made it available 
for sellers to use, Fulfillment by Amazon. It is an optional 
service that sellers can use if they want to. We continue to 
invest and provide tools for them to ship directly as well.
    We apply the same--we do not favor sell--products that use 
FBA over others. Obviously FBA is one way to provide quick 
delivery amongst many and we know that our customers do 
appreciate quick delivery, that's why we gave that as an option 
to our sellers to use amongst the various shipping options they 
have.
    Mrs. McBath. On the second panel that we have today, Ms. 
Mitchell in her written testimony she highlights how Amazon 
abruptly and arbitrarily suspends merchants' accounts, freezing 
their funds and shutting down their Amazon pages. According to 
her statement, Amazon frequently makes these decisions without 
explanation, leaving merchants to navigate a black box while 
their livelihoods are hanging in the balance.
    According to another report in The Verge, quote, ``Sellers 
are more worried about a case being opened on Amazon than an 
actual court,'' end quote. So Mr. Sutton, how many employees 
does Amazon have that are dedicated to addressing these kinds 
of concerns?
    Mr. Sutton. Thank you. Amazon again partners with sellers 
and we are very proud of our success in helping them grow and 
now be growing twice as fast as Amazon.
    Mrs. McBath. But how many----
    Mr. Sutton. We reluctantly take action----
    Mrs. McBath [continuing]. But how many do you have, sir, 
that are----
    Mr. Sutton. We have thousands of employees dedicated to 
helping and address concerns from third party sellers. We 
absolutely do not take arbitrary action, but we do have to take 
action on occasion when necessary. There is a dedicated group 
of bad actors that attempt to sell fraudulent products or 
counterfeit products or even dangerous products.
    And we have to take swift and immediate action to protect 
customers and to protect the legitimate sellers. We try to do 
that through a transparent process and we always provide an 
opportunity for sellers to appeal or to provide additional 
information if they think we got it wrong. In the vast number 
of situations they do not take advantage of those 
opportunities.
    Mrs. McBath. So how do you respond to the concern from 
merchants who have been abruptly suspended by Amazon who they 
say have no way of ever reaching an Amazon employee to make 
their case. And so what recourse do they actually have?
    Mr. Sutton. We provide a variety of ways for them to reach 
out.
    Mrs. McBath. Such as?
    Mr. Sutton. I don't know the full way. I know we have a 
dedicated customer team. We provide a tool, a dashboard tool so 
that they could see the status of their account. We have a 
dedicated team that will affirmatively follow up in the more 
serious cases. We may communicate via email and allow them to 
respond and provide details via email. There are a variety of 
ways in which we try to always communicate and to receive 
communications from our sellers.
    I would be happy to follow up and provide the full examples 
and details of that for you as well.
    Mrs. McBath. If you could, I'd appreciate it. It is also 
important to me that we keep good paying jobs in our 
communities. Too often we hear that retailers, manufacturers 
and suppliers have an uphill battle due to anticompetitive 
prices online.
    And Mr. Sutton, again numerous reports have identified 
instances when online platforms priced goods significantly 
below cost over the long-term, threatening mainstream 
businesses and other retailers who can't compete on those 
terms. And a letter that I am going ask be placed in the record 
for today, Mr. Chairman.
    Mr. Cicilline. Without objection.
    [The information follows:]
      

                  MRS. MCBATH FOR THE OFFICIAL RECORD

======================================================================= 
***********************************************************************
=======================================================================

 [GRAPHIC] [TIFF OMITTED]
 

    Mrs. McBath. Thank you.
    The Retail Industry Leaders Association notes that although 
intense competition is the hallmark of America's retail 
industry, the absence of competition elsewhere in the retail 
ecosystem stifles the benefits that have historically resulted 
from the intense competition, through this intense competition.
    Mr. Sutton, once again, how do you respond to concerns that 
Amazon has the ability to absorb losses in any market that it 
chooses?
    Mr. Sutton. Thank you. Amazon faces fierce retail 
competition across many and including from many members of RILA 
who are amongst our biggest competitors, such as Walmart. 
Amazon has run a profitable retail business for many years. The 
retail business because of the competition has very thin 
margins, but our retail business in the United States has been 
profitable.
    Mrs. McBath. Thank you. And Mr. Cohen, given the 
extraordinary----
    Mr. Cicilline. The gentlelady's time has expired, but if 
you have----
    Mrs. McBath. Thank you.
    Mr. Cicilline. Thank you.
    The chair recognizes the gentleman from Maryland, Mr. 
Raskin.
    Mr. Raskin. Mr. Chairman, thank you very much. I have a 
question for Mr. Cohen. According to data produced by Rand 
Fishkin. Google controls over 90 percent of the search engine 
market in the United States. So congratulations on that. 
Although this seems to fit the classical definition of monopoly 
Google has argued that the company's monopoly in the search 
market is nothing to worry about because competition is just a 
click away.
    I just want to make sure I have got Google's position 
right. Is that essentially the argument against viewing it as a 
monopoly?
    Mr. Cohen. Thank you for the question, Congressman. I would 
say that that definition of the market is quite narrow. And 
that when consumers are searching for information online there 
are a range of different services that they use. For example, 
when people are searching for products, the majority of 
Americans start their product searches on Amazon when they are 
searching for places to travel, hotels and airlines. They start 
with dedicated specialist competitors. So I think the market is 
much broader than that.
    Mr. Raskin. Well, let me followup then. I understand that 
Google paid Apple $9 billion in 2018 and $12 billion in 2019 
for the right to be the default search engine on Safari. Is 
that right?
    Mr. Cohen. Congressman, I'm not familiar with those 
numbers.
    Mr. Raskin. Okay. A billion is a big number so it is big 
numbers. Would Google pay these sums if there were really an 
effective competitive market in place?
    Mr. Cohen. Congressman, I'm not familiar with those 
numbers. We do reach syndication agreements with a range of 
different partners.
    Mr. Raskin. Are you familiar with the deal?
    Mr. Cohen. I'm not close to the terms of the deal. I think 
that if anything the prices probably reflect control or the 
decisions made by platforms, rather than somebody seeking to 
syndicate their services on those platforms.
    Mr. Raskin. Okay. I mean, my sense is that if these numbers 
are correct, that spending over $20 billion in 2 years to 
essentially cure it's place as the default search engine 
suggests that Google recognizes that defaults matter and that 
switching cost for users are high. But I appreciate your 
thoughts on that.
    Let me come to Mr. Andeer. You are here? Thank you.
    Apple's CEO, Mr. Cook, has argued that unlike your peers 
who run add based businesses, Apple is a company that 
fundamentally is privacy oriented. Do you believe that Apple is 
a privacy oriented business?
    Mr. Andeer. Yes, absolutely. We believe privacy is a 
fundamental human right.
    Mr. Raskin. Well then why has Apple allowed Google to be 
the default search engine on Safari?
    Mr. Andeer. Apple has with all of its products focused on 
what is the best consumer experience. And so when it comes to 
search, we conducted an open competition to see what did we 
think would be the best for our consumers. And consumers have 
always gone to Google. And so we ultimately went to Google, but 
we also make a number of options available to them. So it is 
very easy to change the default on your iPhone to any number of 
choices, including DuckDuckGo and other search engines that 
perhaps have more privacy protections.
    Mr. Raskin. Apple charges app developers a 30 percent tax 
on in app purchases in the first year and then 15 percent every 
year thereafter. In the statement submitted for the record, 
Spotify argues that by charging the 30 percent tax on in app 
purchases, Apple forces our providers to make an impossible 
choice, either pass the cost on to consumers or refuse to pay 
the commission and face a litany of technical hurdles imposed 
by Apple. These complaints have been echoed by other app 
developers as you may know.
    Mr. Andeer, how did Apple arrive at the amount of a 30 
percent fee? And could Apple charge a 35, or 45, or 50 percent 
fee for in app purchases?
    Mr. Andeer. So thank you for the question. Eighty-four 
percent of the apps, over 2 million apps available on the app 
store pay nothing to Apple. It is only a very small percentage 
that pay a commission. When it comes to Spotify, they are one 
of our most successful developers. But yet they pay a 
commission on less than 1 percent of their subscribers to 
Apple. And so they've been able to build a successful business, 
thanks to the app store. And we are proud of their success. We 
continue to invest in tools and other resources to make it very 
easy for developers to create great applications.
    You asked how we came to the 30 percent. Ten years ago, and 
it is easy to forget, most software was distributed through 
physical distribution like CompUSA or Best Buy. Typically a 
developer would share up to 60, 70 percent of the retail price 
with the distribution channel. So we set a very aggressive 
price of 30 percent, only applying to digital content in an 
effort to compete for those developer's mindshare and it has 
been very successful.
    Mr. Raskin. Okay. Do I have, Mr. Chairman, for one more 
question?
    Okay. A quick question for Mr. Perault. Facebook announced 
in January that it would be integrating WhatsApp. Instagram and 
Messenger. An announcement that coincided with growing calls in 
different places to break up Facebook, specifically by undoing 
the buy up of WhatsApp and Instagram. Facebook says the 
integration will let it protect users by providing end-to-end 
encryption. Is Facebook's integration ploy an attempt to thwart 
or preempt these efforts to break up Facebook?
    Mr. Perault. Thank you, Congressman. No, it is not. We face 
fierce competition for the products and services that we offer. 
It's our understanding that there are many services in the 
market that offer more and more privacy Protective Services. 
And so our pivot towards privacy with respect to interoperating 
our services was because of the competition that we face in the 
market.
    Mr. Raskin. Okay. Mr. Chairman, I yield back. Thank you.
    Mr. Cicilline. I thank the gentleman. And the ranking 
member has agreed to do a second round of questions and I 
appreciate that indulgence.
    Mr. Sutton, I want to just turn to you for a moment. In 
your testimony you have repeatedly emphasized that Amazon is a 
great partner to third party merchants. Now reports suggest 
that Amazon has been steadily increasing the fees it charges 
merchants. According to a recent article in the Washington 
Monthly, in 2014 Amazon fulfillment fees accounted for 17 
percent of the seller's total cost.
    Today Amazon has raised fees so they now launch around 27 
percent of a seller's cost. Amazon has also increased storage 
fees by over 40 percent since 2015. Seller fees are extremely 
lucrative for Amazon, earning the company over $42 billion in 
2018 according to the same article.
    And so, Mr. Sutton, my question is given how dependent 
merchants are on Amazon's platform, are these steady fee hikes 
by Amazon a pure exercise of its outsized buyer power?
    Mr. Sutton. Thank you for the question. It is because 
sellers have so many options that we have to provide 
competitive options. And those fee estimates are not accurate. 
The fees that are necessary to be paid in our store to sell 
items have actually been steady for a number of years and 
slightly declining.
    There are optional fees such as Fulfillment, which are 
competitively priced to other fulfillment options and they 
reflect the cost of the filling products, sending items, 
storing them of that nature. But those are reflective and 
competitive with other options sellers would have through the 
many other third parties that offer similar services or doing 
it themselves.
    Mr. Cicilline. Well, I would be anxious to receive from you 
the data that disputes the numbers. But let me understand the 
argument, you said because the seller has so many options they 
should therefore--that's the explanation for increased cost by 
Amazon on the seller, it's the exact opposite. I mean, the fact 
that sellers have other options would not cause Amazon to 
charge more money. So I don't understand your argument.
    Mr. Sutton. I'm sorry. Let me clarify.
    Mr. Cicilline. Please.
    Mr. Sutton. Because they have so many options that we 
partner with them and we charge fair fees. It's the reason our 
fees have been steady, which was the point I was trying to 
make. The fees for listing in our store has stayed steady or 
slightly declined. Some of these optional fees are based on 
market costs, and they have adjusted and they are competitive 
with other options in that space.
    Mr. Cicilline. Thank you. Over the years various reporting 
has documented the aggressive and predatory business tactics 
that Amazon employs. In 2013 Brad Stone reported that Amazon 
named one of its business campaigns the Gazelle Project, a 
strategy where Amazon would approach small publishers, and I 
quote, ``the way that a cheetah would a sickly gazelle.'' end 
quote. Is the Gazelle Project still in place, Mr. Sutton?
    Mr. Sutton. I'm not familiar with that project.
    Mr. Cicilline. Okay. If you could get back to me with an 
answer. I would also like to know whether Amazon pursues 
similarly predatory campaigns in other parts of your business. 
If you could get me answers to both those questions I'd 
appreciate it.
    Mr. Cicilline. The final thing I want to just ask this 
committee's investigation is extremely important for the 
economy, for consumers, for those you represent. And I hope 
that each of the witnesses today will pledge on behalf of the 
companies they represent to cooperate to the fullest extent 
possible, and to act in good faith to respond to the 
committee's requests in a timely and complete manner.
    I will ask you, Mr. Andeer, if you can answer that question 
on behalf of your company?
    Mr. Andeer. Yes, we will.
    Mr. Cicilline. And you Mr. Sutton?
    Mr. Sutton. Yes.
    Mr. Cicilline. Mr. Perault.
    Mr. Perault. Thank you, Chairman. Yes, we will.
    Mr. Cicilline. And Mr. Cohen?
    Mr. Cohen. Yes, gladly.
    Mr. Cicilline. And finally there has been some reporting of 
I think very disturbing efforts by a particular company to 
aggressively impede congressional oversight, to go so far as to 
hire opposition research firms to do opposition research on 
Members of Congress and staff of the committee.
    And so I would similarly ask you in the spirit of 
cooperation do you commit to not engage in those tactics in 
response to this investigation?
    Mr. Andeer.
    Mr. Andeer. Yes, we would never engage in that sort of 
conduct.
    Mr. Cicilline. Mr. Sutton?
    Mr. Sutton. Yes.
    Mr. Perault. Yes.
    Mr. Cicilline. Mr. Perault, thank you. Mr. Cohen?
    Mr. Cohen. Yes.
    Mr. Cicilline. Thank you.
    With that, I will recognize the gentleman from North 
Dakota, Mr. Armstrong.
    Mr. Armstrong. Thank you Mr. Chair. So Mr. Andeer, the 30 
percent markup on apps, that's been the same since the company 
started, since the app started, right?
    Mr. Andeer. Yes, it's correct. But for some apps we 
actually reduce that to 15 percent and of course that 30 
percent only applies to less than 16 percent of the apps in the 
app store.
    Mr. Armstrong. And you said 84 percent don't pay anything, 
right?
    Mr. Andeer. That's correct.
    Mr. Armstrong. But what percentage of the total U.S. global 
revenue from apps come from the remaining 16 percent that do 
share revenue?
    Mr. Andeer. I don't know the answer to that question. I do 
know that developers monetize in a number of ways. And so, we 
have developers on the app store that monetize through 
advertising through selling of physical goods, through the 
selling of services. The value that developers collect through 
the app store is probably hundreds of billions, perhaps over a 
trillion dollars.
    Mr. Armstrong. So how does the Apple app store fit into 
your company's offerings?
    Mr. Andeer. So I think to provide some context, when we 
launched the first iPhone, it didn't include the App Store. We 
thought developers and content creators would access consumers 
through the Safari web browser, and we have long supported an 
open and free internet. We created the App Store as a 
complement, an alternative to the open and free internet. Now, 
we have done a lot to encourage developers to create as many 
great apps as possible. And we really look at it as a way to 
continue to sell devices. We're a device company at the end of 
the day. We're looking to convince consumers that we offer the 
best possible product.
    Mr. Armstrong. How about Apple Music?
    Mr. Andeer. Apple Music is part of that strategy. So we 
offer Apple Music, but we also make it very easy for 
competitors to access each and every IOS user through the App 
Store. So Spotify, Google Play Music, and dozens of others 
offer apps that compete with Apple Music.
    Mr. Armstrong. Is Apple more of a hardware business, a 
software business, or a platform business?
    Mr. Andeer. We think of ourselves as a products company 
first and foremost. So we are selling an experience to 
consumers. We are selling an entire product so everything from 
hardware, software, to services. It is the total package.
    Mr. Armstrong. To what degree does Apple share or not share 
markets with the other companies providing testimony today.
    Mr. Andeer. We compete with all of the companies on this 
panel in various ways, in addition to dozens the others.
    Mr. Armstrong. I just felt like you didn't have enough 
questions during the first round of questions, so I wanted to 
make sure, sir. And this is going to go back to go what my 
friend Mr. Neguse was talking about, and then I'm going to go 
to Mr. Perault. You can't use Facebook Messenger without 
Facebook, right, or can you?
    Mr. Perault. I believe that you can, Congressman.
    Mr. Armstrong. Okay. So they are two separate and distinct. 
Do you know what percent of people that use Messenger that 
don't use Facebook?
    Mr. Perault. I do not have that data. Would be happy to 
follow up.
    Mr. Armstrong. And the reason I bring it up is, when we 
talk about competition versus complementing, and I mean how we 
use this, like, I just asked you all of those things because I 
wouldn't know where to get anything other than the Apple App 
Store. I'm sure other things exist, but I don't know about 
them. And I think there's a lot of us that are in that 
situation. So, with that, I just think, as we're closing this 
out, I hope as we move forward these hearings become more 
focused, more single-topic-specific focused. And then I would 
just encourage everybody and the companies who are testifying 
to be forthright with answers, and the questions that are--I 
can tell you about the half the questions being asked today. Of 
which I'm assuming you all with your vast resources and company 
resources could do as well. And it sure makes it a lot easier 
as we go forward and we focus on specific topics or specific 
things it will be easier for everybody if we are more 
forthright, honest and transparent with our answers. With that, 
I yield.
    Mr. Cicilline. I thank the gentleman. I now recognize the 
gentlelady from Georgia, Mrs. McBath, for 5 minutes.
    Mrs. McBath. Thank you, Mr. Chairman.
    The Wall Street Journal recently reported that Google Maps 
is overrun with millions of false business addresses and fake 
names, as many as 11 million. The article also noted that 
Google's ad businesses actually profits from these scams while 
consumers and legitimate locally owned businesses suffer. Mr. 
Cohen given the extraordinary power that Google enjoys over 
these small and local businesses, what measures is Google 
taking to identify and remove fraudulent listings? And is it a 
lack of competition in online search that allows Google to be 
so complacent by addressing this problem head on?
    Mr. Cohen. Congresswoman, thank you for the question. I'm 
not familiar with this Wall Street Journal report. I'm also not 
familiar with any claims of fraudulent listings in Google maps 
of that scale. We take a number of measures to address 
fraudulent listings. It is in our interest to present the most 
accurate, up-to-date information as possible to our consumers, 
precisely because we operate in a competitive marketplace.
    Mrs. McBath. Can you make available to the committee the 
processes that you use to make sure that people aren't 
fraudulently----
    Mr. Cohen. I would be glad to follow up once I discuss it 
with the experts in my company.
    Mrs. McBath. Okay. Thank you. I yield back the balance of 
my time.
    Mr. Cicilline. I recognize the gentleman from Maryland, Mr. 
Raskin, for 5 minutes.
    Mr. Raskin. Chairman, thank you. I am concerned about 
business conduct discriminates against competitors online your 
platforms are so dominant, a decision by any one of them, 
whether it is deliberate or accidental, malignant or benign, 
can be fatal for a business that relies on your platform in 
order to reach your customers. First of all, do you all agree 
that, in theory, each of your businesses can pick winners and 
losers in the marketplace? And we can go down the line. Do you 
agree?
    Mr. Andeer. No, I don't. I look at the facts of the 
marketplace in each and every single market in which we 
compete, whether it is music or books or video. There are 
companies that are far more successful in our platform than we 
are.
    Mr. Raskin. Okay. Mr. Sutton, what's your response?
    Mr. Sutton. Respectfully, I disagree. Amazon offers one 
store amongst thousands of retail options for customers who 
shop across them every day. Customers pick the winners and 
losers.
    Mr. Raskin. Mr. Perault.
    Mr. Perault. Congressman, I disagree as well. We face 
fierce competition for the products and services that we offer.
    Mr. Raskin. Mr. Cohen.
    Mr. Cohen. Yes, Congressman. Online people can--traffic 
anywhere they like, they can click on whatever services they 
like. We often see that in our search results new companies and 
new ideas are surfacing all the time that we never heard of.
    Mr. Raskin. Let's work our way back down the other way, 
then. Do you have processes in place for businesses to seek 
redress if they believe that they've been discriminated against 
by your platform?
    Mr. Cohen. Yes, Congressman, we do.
    Mr. Raskin. Can you describe briefly what that is?
    Mr. Cohen. There is a process for firms to appeal the way 
that they are ranked. I'm not familiar with how it works 
indepth, but I'd be happy to follow up with you.
    Mr. Raskin. Okay, Mr. Perault.
    Mr. Perault. Congressman, we do have processes as well. We 
have an appeals process for instance, and we are looking to 
expand and improve that process.
    Mr. Raskin. Okay. And that appeals process, how does that 
work, they go to--who do they go to?
    Mr. Perault. Congressman, pages for instance that are 
disabled on Facebook that are able to appeal the fact that they 
are disabled, we would then review that and make a 
determination on the appeal.
    Mr. Raskin. Okay. Mr. Sutton.
    Mr. Sutton. Most of our large competitors operate their own 
independent stores not through Amazon. With respect to the 
small- and medium-size sellers that sell through our store, we 
have many processes in place. We have a Seller Central that 
provides a lot of tools and services for them and lots of 
opportunities to communicate with Amazon if they have any 
concerns.
    Mr. Raskin. Mr. Andeer.
    Mr. Andeer. First and foremost, it is the consumers who 
make it very clear if they are unhappy with the experience on 
our products. And we have been very straightforward with 
wanting to offer not just our own services but third-party 
services as well. I would also say that we also employ hundreds 
of Apple employees who are focused on reviewing apps and are in 
constant communication with developers. And there is an 
escalation path within Apple to make sure any concerns or 
issues are quickly escalated. And we address those each and 
every week.
    Mr. Raskin. Thank you for those answers.
    Companies across the digital markets, nonetheless, live in 
fear of retaliation. I think by any of the firms that you 
represent. And this fear has kept some of them speaking up 
publicly about the anti-competitive practices that they 
experience and the committee has received a lot of 
communication for people in advance of this hearing. One 
business wrote: Unfortunately, we are not able to be more 
public at this time out of concern for retribution to our 
business.
    Another wrote: Given how powerful Google is and their past 
actions, we are, quite frankly, worried about retaliation. So 
my question to you is, would you commit that, on behalf of your 
company, that you will not retaliate in any way against any of 
the businesses that cooperate with this committee or share 
requested information with us as part of the investigation. 
Will you all agree to a nonretaliation policy towards 
businesses that participate Mr. Andeer?
    Mr. Andeer. Yes, as Apple's chief compliance officer, I 
would take such an allegation of retaliation extremely 
seriously.
    Mr. Raskin. That's great to hear. Mr. Sutton?
    Mr. Sutton. Yes, we would absolutely not retaliate against 
anyone who cooperates with the committee.
    Mr. Raskin. Mr. Perault.
    Mr. Perault. Thank you, Congressman. Yes.
    Mr. Raskin. Mr. Cohen.
    Mr. Cohen. Yes for me, too.
    Mr. Raskin. I appreciate that because you guys have done a 
good job of representing your businesses, but if there were a 
monopoly and you asked them if they were a monopoly, they would 
say they are not a monopoly. So, obviously, we've got to do 
work that goes beyond just asking you for your opinion. You've 
got to talk to other people. And so, for that to be meaningful, 
they can't be living in fear of retaliation from you so.
    Thank you very much, Mr. Chairman.
    I yield back.
    Mr. Cicilline. Thank you, Mr. Raskin. We have now been 
notified that the ranking member of the full Judiciary 
Committee has called for a roll call vote. So we're going to 
take a quick 10 minute recess so we can all vote, and we will 
resume with the second panel. I want to thank the witnesses 
from our first panel for being here. You're excused. You are 
welcome, of course, to stay for the second panel, but we very 
much appreciate you being here today and sharing the 
perspective on the current state of competition in the digital 
marketplace.
    We are in recess until the call of the chair.
    [Recess.]
    Mr. Cicilline. The subcommittee will come to order. I again 
want to apologize to our witnesses. There is historic action on 
the House floor that has taken a number of our committee 
members away from the committee, but I'd like to get started.
    And now we'll introduce our second panel of witnesses. The 
first witness on our second panel is Timothy Wu, the Julius 
Silver Professor of Law at Columbia Law School. Professor Wu is 
an expert on antitrust, copyright, and communications law, and 
he is a contributing opinion writer for The New York Times.
    He's the author of a number of important works that have 
framed discussions around technology and antitrust, including 
``The Master Switch'' and ``The Curse of Bigness.'' Professor 
Wu has twice been part of the Politico 50 list of individuals 
transforming American politics and was named to the American 
Academy of Arts and Sciences in 2017. Professor Wu received his 
bachelor of science from McGill University and his J.D. from 
Harvard Law School.
    Our second witness on today's panel is Dr. Fiona Scott 
Morton, the Theodore Nierenberg Professor of Economics at the 
Yale University School of Management.
    Dr. Scott Morton is nationally recognized as a leading 
scholar on issues of competition and has published articles 
that range widely across industries and leading economic 
journals.
    From 2011 to 2012, she served as Deputy Assistant Attorney 
General for Economics at the Antitrust Division of the United 
States Department of Justice where she helped to enforce the 
Nation's antitrust laws. Dr. Scott Morton received her B.A. 
from Yale and her Ph.D. from the Massachusetts Institute of 
Technology.
    The third witness on our panel is Stacy Mitchell, the 
codirector of the Institute for Local Self-Reliance. She has 
spent years working with policymakers and grassroots 
organizations to help develop and enact city, state, and 
federal policies to strengthen independent business and curb 
corporate power. Ms. Mitchell has appeared in publications like 
The Nation, The Atlantic, and The Wall Street Journal, and her 
works have had a significant influence on discussions around 
corporate consolidation. Her paper ``Antitrust and the Decline 
of America's Independent Businesses'' earned Ms. Mitchell 
recognition in 2017 as part of the Annual Jerry S. Cohen Award 
for Antitrust Scholarship. Ms. Mitchell received her B.A. from 
Macalester College and currently serves on the Board of the 
Main Center for Economic Policy.
    Our fourth witness is Maureen Ohlhausen, a partner at Baker 
Botts LLP. Prior to joining Baker Botts, Ms. Ohlhausen led the 
Federal Trade Commission as Acting Chairman and Commissioner. 
While at the FTC from 2012 to 2018, she directed all aspects of 
their antitrust work. She has published dozens of articles on 
antitrust, privacy, IP regulation, FTC litigation, 
telecommunications, and international law issues.
    Ms. Ohlhausen has particular expertise in the intersection 
of antitrust, technology, and privacy issues. She has received 
numerous awards for her work and scholarship including the 
FTC's Robert Pitofsky Lifetime Achievement Award. Ms. Ohlhausen 
received her B.A. from the University of Virginia and her J.D. 
from the Antonin Scalia Law School, formerly the George Mason 
University School of Law.
    Today's fifth witness is Carl Szabo, vice president and 
general counsel at NetChoice. Before joining NetChoice, he 
worked as an intellectual property attorney at Wildman Harrold 
Allen & Dixon advising clients on privacy, e-commerce, and 
contractual matters. Mr. Szabo has extensive experience in 
taxation, privacy, copyright, and trademark law.
    Before receiving his J.D., he worked at the FTC where he 
helped create and implement their consumer information security 
outreach plan. Mr. Szabo was also an adjunct professor of 
privacy law at the Antonin Scalia Law School. He received his 
B.A. from Rice University and his J.D. and Communications Law 
Certificate from the Catholic University of America.
    Our last witness today is Morgan Reed, the executive 
director of The App Association. He specializes in issues 
involving application development as it intersects with 
privacy, intellectual property, competition, and innovation. 
Prior to joining The App Association, he served as managing 
director of North American sales for a Taiwan-based trading 
company specializing in the manufacture of technology products 
for American markets.
    Recently, Mr. Reed has focused on developing an innovators 
network, organizing a team of intellectual property 
professionals to deliver a series of lectures across the United 
States focused on the importance of IP law. Mr. Reed received 
his B.A. and graduate degree at Arizona State University and 
attended the University of Utah and the National Taiwan 
University.
    We welcome all of our distinguished witnesses on the second 
panel. Thank you for participating in today's hearing. Now, if 
you would rise, I'll begin by swearing you in. Please raise 
your right hand. Do you swear or affirm under penalty of 
perjury that the testimony you are about to give is true and 
correct to the best of your knowledge, information, and belief, 
so help you God?
    Let the record show the witnesses answered in the 
affirmative. Thank you. You may be seated.
    Please know that each of your written statements will be 
entered into the record in its entirety. Accordingly, I ask 
that you summarize your testimony in 5 minutes. To help you 
stay within that time, there's a timing light on your table. 
When the light turns green to yellow, you have 1 minute to 
conclude your testimony. When the light turns red, it signals 
that your 5 minutes has expired.
    And we'll begin, Mr. Wu, with you. You have 5 minutes.

   TESTIMONY OF TIMOTHY WU, JULIUS SILVER PROFESSOR OF LAW, 
 COLUMBIA LAW SCHOOL; FIONA SCOTT MORTON, THEODORE NIERENBERG 
   PROFESSOR OF ECONOMICS, YALE SCHOOL OF MANAGEMENT; STACY 
   MITCHELL, CO-DIRECTOR, INSTITUTE FOR LOCAL SELF-RELIANCE; 
 MAUREEN OHLHAUSEN, PARTNER, BAKER BOTTS LLP; CARL SZABO, VICE 
  PRESIDENT AND GENERAL COUNSEL, NETCHOICE; AND MORGAN REED, 
            EXECUTIVE DIRECTOR, THE APP ASSOCIATION.

                    TESTIMONY OF TIMOTHY WU

    Mr. Wu. Thank you, Chairman and other members of the 
committee. It is a great pleasure to be here today, and I'm 
very grateful that the subcommittee is conducting this work and 
these investigations. I believe this is one of the most 
important economic issues facing our country.
    I think we face a vitally important question here, which is 
this, whether the United States will remain the place that new 
industries start, the place where startups get their start, the 
place where inventors think that they have a chance to 
challenge the dominant firms of their day, where innovation 
flourishes, where really the United States is capable of being 
the place, as I've said before, that new industries are 
started.
    And I think that is something that has come into question. 
I think that we face across the economy an over consolidation, 
an over concentration of many industries, and I think this is 
particularly evident and, in fact, extreme in the tech 
industries.
    So, over the last 2 hours of the first panel, we listened 
to something that to me could have been a hearing in the year 
2005 or maybe almost like a fantasy zone. If we're to believe 
what the testifiers were saying--and they were under oath--we 
live in a time of incredibly fierce competition. I could leave 
this hearing, go to my garage, and start a challenger to 
Google, Facebook, and Amazon. There are no barriers to 
competition. Every competition is only one click away.
    I think that everybody knows that's not true. There's no 
mystery anymore about whether the tech markets have flipped. 
There's no question as to whether there were barriers to entry 
and whether the tech economies have, in fact, become a very 
difficult place for people to get started.
    People are starting to talk about the decline in the number 
of startups, almost unthinkable in the United States, which has 
always had a comparative advantage in being the place where 
startups will get their start.
    So I think it is time for the reassertion of what I think 
have been incredibly successful policies from the last century, 
namely the antitrust laws and pro-competitive regulation on the 
model of the telecom laws and some of the FTC regulations.
    We have a trilogy of cases in the tech space in particular, 
IBM, AT&T, and Microsoft, which were big section 2 cases, which 
were criticized at the time of being certain to interfere with 
competition and hurt American companies at a time when Japan 
seemed very threatening.
    In retrospect, when you look back at the effects of these 
big cases, they loosened up the tech markets; they helped to 
contribute to an enormous boom in the tech and telecom markets 
that lasted and has lasted more than 30 years, and has restored 
the United States to a place of global leadership in the tech 
market.
    So I think that that trilogy of cases and some of the most 
important procompetitive regulation at the FCC and FTC is the 
policy we need in this time and not a policy of trying to 
endorse or support national champions.
    If I have time in questions, I'll address some of the 
things that were said earlier, but I want to address one or two 
right now. In the testimony we heard earlier, I think it's very 
notable that Facebook had trouble naming competitors. They were 
repeatedly asked. They couldn't name their competitor.
    I think there's a very simple reason for that: They've 
bought their competitors. They have bought the most threatening 
companies to them, and that is the reason that it's so hard for 
them to name them. They could've said Instagram and WhatsApp, 
but they own them. In fact--and Facebook also said that its 
intent when it bought these companies was peripherally benign. 
It saw them as promising companies. It wanted to incubate them.
    I suggest that this subcommittee look into an email written 
by Mark Zuckerberg around the time of the Instagram acquisition 
where he stated, as has been reported in the press, that the 
purpose of this--and this is paraphrasing--was to eliminate a 
dangerous, potential nascent competitor. You have subpoena 
power, if I'm not mistaken, and it might not be a bad idea to 
get your hands on that letter.
    I'll speak just in my last 20 seconds about Amazon and 
their testimony. Amazon swore up and down that there's nothing 
funny about their searches or algorithms. They would never 
favor their own products over another, but I think there needs 
to be serious scrutiny of the Amazon search engine.
    The FTC in 2001 issued a ruling suggesting--or a letter 
saying that search should be what consumers expect. And I think 
we have under enforcement of the questions as to whether 
searches are deceptive. And I'm over my time, but I will 
suggest that in each of these comments there were statements 
that were really not reflective of the conditions of 
competition in this country and the conditions of innovation, 
and I'm so glad that the subcommittee is taking the time to 
look at these issues.
    [The statement of Mr. Wu follows:]
 
           [GRAPHIC] [TIFF OMITTED]    

    Mr. Cicilline. Thank you, Professor Wu.
    And I assure you that the committee is not bound by the 
characterizations of the witnesses about the nature of the 
markets or the lack of competition. That's the purpose of the 
investigation, and we'll take you up on your suggestions.
    Next, I recognize Dr. Fiona Scott Morton for 5 minutes.

                TESTIMONY OF FIONA SCOTT MORTON

    Ms. Scott Morton. Thank you. Thank you, Chairman Cicilline, 
for the invitation to testify today. I agree with my colleague 
that we have just heard four very careful corporate 
discussions. From an economist's perspective, there were a 
number of concerns that they failed to mention, those in 
particular that negatively impact competition and innovation.
    Digital platforms provide tremendous benefits, and yet 
they've also created problems, such as insufficient 
competition, and that leads to too little innovation and 
entrepreneurship. I urge you as a committee to use this 
investigation to identify what types of antitrust enhancements 
and regulatory tools are needed to both jump start competition 
in this sector and protect it going forward to the benefit both 
of consumers and small businesses.
    As is detailed in the report that I submitted as my 
testimony, there are a number of characteristics of platforms 
that tend to drive them toward concentrated markets, very large 
economies of scale. Consumers exacerbate this with their 
behavioral biases. We don't scroll down to the second page. We 
accept defaults. We follow the framing the platform gives us 
and instead of searching independently.
    And what that does is it makes it very hard for small 
companies to grow and for new ones to get traction against a 
dominant platform. And without the threat of entry from 
entrepreneurs and growth from existing competitors, the 
dominant platform doesn't have to compete as hard.
    If it's not competing as hard, then there's several harms 
that follow from that. One is higher prices for advertisers, 
many of these platforms are advertising supported. Then there's 
higher prices to consumers who may think that they're getting a 
good deal by paying a price of zero, but the competitive price 
might well be negative. The consumers might well be able to be 
paid for using these platforms in a competitive market.
    Other harms include low quality in the form of less 
privacy, more advertising, and more exploitative content that 
consumers can't avoid because, as Tim just said, there isn't 
anywhere else to go.
    And lastly, without competitive pressure, innovation is 
lessened, and in particular it's channeled in the direction the 
dominant firm prefers rather than being creatively spread 
across directions chosen by entrance. And this is what we 
learned both from AT&T and IBM and Microsoft is that when the 
dominant firm ceases to control innovation, there's a 
flowering, and it's very creative and market driven.
    So the solution to this problem of insufficient competition 
is complimentary steps forward in both antitrust and 
regulation. Antitrust must recalibrate the balance it strikes 
between the risk of over enforcement and under enforcement. The 
evidence now shows we've been under enforcing for years, and 
consumers have been harmed. We have advances in both the theory 
and empirical tools that demonstrate how we can better identify 
those harms and measure them.
    Digital platforms in particular do raise a number of 
practical enforcement challenges, for example, measuring 
quality adjusted prices, okay. That's hard. But Congress could 
enable the agencies to bring these cases nonetheless by 
articulating through statute the risks that Congress wishes 
courts to weigh and the evidence they should accept.
    For example, if a dominant platform wants to acquire a 
nascent entrant when there's uncertainty over how close a 
competitor that entrant is going to become in the future, how 
should courts treat that uncertainty? Okay, today, that 
uncertainty essentially defaults to buy anybody small you want. 
That's our rule.
    Congress could change that default to you only get to buy 
the nascent entrant if the dominant firm proves to the court 
that the acquisition will benefit consumers, and then only in 
that case can the merger occur. So the defaults that we use in 
court really matter, and Congress can write laws that change 
those defaults.
    Congress could bring enforcement of the antitrust laws more 
in line with modern evidence and the resource intensity of 
modern investigations by shifting burdens of proof to 
defendants in certain settings. That would likely increase 
accuracy because the dominant or acquiring firm has the 
understanding and evidence of its business model that's needed 
to assess the impact of the conduct or merger.
    Lastly, regulation is a critical complement to more robust 
antitrust enforcement. Congress could give a regulator tools 
that allow it move quickly, something that litigation typically 
does not do, and effectively when dominant platforms pose a 
harm to competition. For example, a regulator could oversee a 
requirement that platforms don't harmfully discriminate between 
their own services and those of rivals.
    If an agency established a violation of the antitrust laws 
and determined that the best method of restoring competition 
was, for example, mandatory interoperability between the 
dominant firm and small entrants, a regulator could oversee and 
monitor that interoperability and make sure it happened. Other 
remedies that require monitoring might be data sharing, 
unbundling of services, or data porting from one service to 
another.
    A regulator could also establish base line conditions for 
competition so that entrepreneurs can enter a more level 
playing field and small businesses can grow. So, for example, 
an open standard from micro payments to consumers would be 
helpful.
    In conclusion, strengthening both antitrust enforcement and 
regulatory oversight of digital platforms is necessary in my 
view to achieve competition in this sector so that it best 
serves the American people. Thank you.
    [The statement of Ms. Scott Morton follows:]

            [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Cicilline. Thank you, Dr. Scott Morton.
    And now the chair recognizes Ms. Mitchell for 5 minutes.

                  TESTIMONY OF STACY MITCHELL

    Ms. Mitchell. Thank you, Chairman Cicilline and members of 
the committee. I really appreciate this opportunity to 
participate in this hearing and this historically important 
investigation.
    America's independent businesses are in trouble. They are 
declining rapidly across many sectors of the economy and it's 
not because they can't compete. On the contrary, research shows 
that in many sectors they actually out perform their larger 
rivals on many measures, including price.
    Rather, the evidence suggests that the problem can be 
traced to changes in policy and particularly our antitrust 
enforcement that have allowed a few dominant corporations to 
consolidate markets and given them free reign to hobble their 
smaller competitors.
    Today, this threat is really magnified in our digital 
markets. A handful of dominant players now act as gatekeepers. 
Amazon, in particular, last year, Amazon captured about $1 of 
every $2 that Americans spend online. But the more 
consequential measure of its market power is that half of all 
online shopping searches now start on Amazon's platform.
    What this means is if you are--is that for every--virtually 
every company in the economy that either makes or retails 
anything increasingly to reach the online market you have 
little choice but to sell through a platform that's run by your 
most aggressive competitor.
    This is a bitter pill. Becoming a seller on Amazon's 
platform means forfeiting to Amazon your product knowledge, a 
trove of data about your transactions. It means giving Amazon a 
sizable cut of your revenue, and it means entering into a 
relationship that is often predatory.
    Studies show that Amazon learns from the retailers on its 
platform and starts selling their most popular items itself. It 
has capsized businesses overnight by changing its terms, gating 
products so they can't sell them suddenly, or simply canceling 
their accounts without explanation.
    In the absence of competing platforms, there's no downward 
pressure on the fees that Amazon can charge sellers, and indeed 
these fees now constitute a sizable tax on its competitors' 
trade.
    And although Amazon didn't address this directly today, it 
is true that, in order to rank high and have a better chance of 
winning a buy box, you need to use its fulfillment services, 
and those fees have increased by double digits for the last few 
years.
    Amazon is many things. It's a platform. It's a retailer. 
It's a manufacturer. It's a digital ad giant and so much more. 
And, really, I think key to understanding its market power is 
that it's able to leverage the interplay between these 
different business lines to extort value from its competitors.
    An executive at a large, well-known performance footwear 
brand that sells to Amazon told, me that as long as his company 
sold to Amazon on their terms, they would help him police the 
counterfeiters and the other nefarious sellers on the platform.
    But the moment that they pushed back, that they didn't 
agree to that next big discount or the change in terms, 
Amazon's site became a Wild West of sellers misrepresenting his 
brand, many overseas and unreachable. He said, quote, they use 
this as a punitive measure. They can sink companies without 
anyone to answer to.
    Increasingly our commerce is occurring not in a market but 
in a private arena governed by Amazon, where it has the power 
to regulate, tax, and punish America's entrepreneurs. And the 
consequences of this are being felt around the country. There 
are few metros that are doing well, but most places are not. 
Local businesses are disappearing and, with them, a pathway to 
the middle class. Producers are struggling to invest in new 
products and grow their companies. New business formation is 
down to historic lows.
    And for many Americans, including those who walked out of 
an Amazon warehouse this week, work has become increasingly 
exploitative because there are so few companies competing for 
their labor.
    Amazon would like us to believe that to challenge its 
dominance is to somehow challenge the digital revolution 
itself. But the issue here is not technology; it's power, and 
it's the policies that enable that concentration of power.
    In fact, the urgent risk we face if we do not act is that 
entrepreneurialism and invention will become increasingly 
stifled. I hope the committee will consider several policy 
tools as part of this investigation. In particular, we very 
much endorse the approach that Congress took with regard to the 
railroads, that if you operate essential infrastructure, you 
can't also compete with the businesses that rely on that 
infrastructure.
    But we also need nondiscrimination rules for platforms, 
stronger enforcement against anticompetitive conduct, and 
changes to merger policy particularly in light of the pivotal 
acquisitions that Amazon and other tech giants have made that 
have flown under the enforcement agency's radar.
    Thank you very much.
    [The statement of Ms. Mitchell follows:]

           [GRAPHIC] [TIFF OMITTED] 
    
    
    Mr. Cicilline. Thank you, Ms. Mitchell.
    The chair now recognizes Ms. Ohlhausen for 5 minutes.

                 TESTIMONY OF MAUREEN OHLHAUSEN

    Ms. Ohlhausen. My thanks to Chairman Cicilline and members 
of the committee for inviting me to testify. I'm Maureen 
Ohlhausen, and as a former Acting Chairman and Commissioner of 
the Federal Trade Commission and a long-time antitrust 
practitioner, I hope to offer some perspectives to assist the 
committee with its important inquiry.
    In reaction to today's technology-driven economy, there's a 
perception in some quarters that antitrust needs to change from 
principally protecting consumers to pursuing other goals. Given 
the clear consumer benefits of technology-driven innovation, 
however, I'm concerned about reducing the focus on consumer 
welfare.
    But believing that consumer welfare is the appropriate goal 
does not mean being passive or embracing the view that 
antitrust cannot improve its tools to detect anticompetitive 
behavior. If those tools suggest that competition will be 
harmed and consumers made worse off from the behavior of any 
firm, antitrust enforcers should act.
    And my experience suggests that a successful case rests on 
three pillars: a secure foundation in the law, a solid factual 
basis, and strong economic evidence of an anticompetitive 
outcome. And I also recommend that any assessment examined, 
first, antitrust laws as interpreted by the courts; second, the 
application of that law to particular types of anticompetitive 
behavior in defined markets; and, third, the boundaries between 
antitrust law and regulation. And I will briefly address each 
of these factors.
    A defining quality of an antitrust violation is the 
elimination or weakening of a market constraint on a firm's 
power to set the terms of its interactions. In other words, we 
examine the impact on the competitive process through which a 
firm makes its decisions on price, quality, and the need to 
innovate.
    Thus, antitrust enforcers should intervene only when firms 
are likely to corrupt the competitive process and gain or 
maintain market power through means other than competition on 
the merits, such as by colluding with rivals, merging with 
competitors to reduce competition, or, for a firm with market, 
power engaging in exclusionary conduct that does not benefit 
competition on balance.
    Thus, under current antitrust law, a dominant provider must 
maintain its position through legitimate competition on the 
merits rather than through conduct that has little or no 
purpose beyond disadvantaging rivals. Now, this doesn't mean 
that antitrust can't reach many of the competitive concerns 
discussed today as long as there is factual and economic 
evidence of cognizable competitive harm, and I'd like to offer 
some recent examples.
    During my time as the Acting Chairman when the FTC had only 
two members, one Republican and one Democrat, we successfully 
handled a total of 32 proposed mergers with significant 
competition concerns and brought forward nine different conduct 
cases. And our challenge to the merger between CDK and Auto/
Mate involved a large established firm with a substantial 
market share buying a relatively small upstart that appeared 
poised to challenge the market leaders more aggressively.
    Now, some have questioned whether the existing antitrust 
paradigm can ever reach this kind of behavior where a big 
player squashes or absorbs a promising upstart before it can 
grow into a more substantial competitor. And the CDK-Auto/Mate 
action shows that antitrust law can address this competitive 
issue if the facts and economic evidence support it.
    I'd also like to say a few words about vertical mergers, 
the majority of which are pro-competitive. Vertical mergers 
can, however, raise antitrust concerns when the parties gain an 
ability and incentive to foreclose their rivals from a 
significant portion of the market.
    Thus, as with horizontal mergers, vertical deals should be 
evaluated on a case-by-case basis based on all the evidence 
available and not prejudged based on the size of the parties or 
concerns outside of preserving market competition.
    Now, the agencies can review consummated mergers and order 
divestitures when justified by the facts in the law. But trying 
to unscramble the eggs through a divestiture long after a 
merger or using a breakup as a remedy in a conduct matter is a 
drastic step that carries serious risk of doing more harm than 
good for competition and consumers.
    And aside from practical concerns, courts would require a 
particularly significant causal connection between the 
challenge conduct and creation or maintenance of the market 
power.
    Now, for those that seek to supplant antitrust with the 
regulatory approach, given the troubled history of extensive 
market regulation by government, we should carefully examine 
the assumption that regulators can divine the best course for 
technology-driven markets.
    Further, the U.S. has consistently been a strong voice 
globally in advocating for competition law to focus on consumer 
welfare goals and not to include other policy goals. And I fear 
that abandoning this clear position will encourage regimes 
around the world to pursue industrial policy goals, such as 
favoring domestic industry, to the detriment of U.S. consumers 
and business interests.
    Thank you.
    [The statement of Ms. Ohlhausen follows:]

         [GRAPHIC] [TIFF OMITTED]
    
    
    Mr. Cicilline. Thank you very much.
    I now recognize Mr. Szabo for 5 minutes.

                    TESTIMONY OF CARL SZABO

    Mr. Szabo. Mr. Chairman, members of the committee, thank 
you again for the opportunity to be here. It's been a long day 
so I'm just going to give three points and then kind of explain 
them a little further.
    First, markets have an outstanding record at eroding first-
mover advantages that help small business become large; two, 
bigger is better for consumers looking for choices or for small 
businesses looking for customers; and three, competition is 
robust, Americans know it, and Americans know that 
weaponization of antitrust isn't for their benefit.
    We've seen throughout the 21st century that markets 
naturally erode the first-mover advantages that help them get 
big. Search was once dominated by Yahoo. It was later overtaken 
by Google. MySpace was the dominant social network later 
overtaken by Facebook. And as the chairman pointed out, 
Facebook is now facing robust combination from TikTok, a new 
entrant, and that's just in the past couple of years.
    And with the advent of the internet, we've removed the high 
startup costs that are often seen in traditional markets. The 
next big innovation is readily buildable and distributable, 
further advancing the natural erosion of the first-mover 
advantage.
    For Americans and America's small businesses, bigger is 
better. What we see here are two-sided markets. You have 
consumers on one side and small businesses on the other. These 
platforms are operating as the bridge between the two. The 
connection is providing a much needed lifeline to America's 
Main Street businesses.
    And the bigger the platform, the better it is for these 
small businesses because it gives greater access to more 
potential customers. It drives down prices for advertising, and 
with micro targeted ads, American businesses can be sure that 
every dollar they spend on advertising actually leads to sales, 
something you didn't have in traditional media.
    And don't take my word for it. Polling shows that online 
platforms have helped nearly 60 percent of Americans discover 
new small businesses. And good news for those worried about the 
death of entrepreneurship, the esteemed Coffman Index, a 
nonpartisan group, shows that entrepreneurship is at its 
highest levels in over a decade.
    Third, competition is robust. Americans know it, and then 
they know weaponization of antitrust is not for their benefit. 
There's never been more choice and more opportunity. For anyone 
whose home was damaged in the recent storms, they can easily 
find repairs on Yelp, Thumbtack, TaskRabbit, Google, or Angie's 
List. When looking for social media, there's Instagram, 
Snapchat, Discord, Reddit, Twitter, and YouTube.
    For anyone looking to replace lost commodities they can 
turn to eBay, Overstock, Wal-Mart, Wayfair, Amazon, Rakuten, 
and many, many more. Americans can quickly and easily do 
comparison shopping on price and services on multiple platforms 
and on multiple search engines. The internet continues to 
create more choices, lower prices, and better services. These 
are all things you don't see in a consolidated market.
    But advocates on this panel are calling for weaponization 
of antitrust to address perceived injustices, and that's just 
not the reality. Some of today's panelists say that 50 percent 
of a market should now be considered a monopoly, others unable 
to prove that a dominant firm exists say, well, let's just take 
the top two, add them together, call it a duopoly. This isn't 
legitimate antitrust analysis.
    And at the end of the day, advocates calling for 
weaponization of antitrust standalone from the rest of the 
country. Polling shows that only one in 20 Americans think tech 
should be the focus of government oversight. And less than one 
in five think consumers are the beneficiaries of a breakup of 
big tech. That's because markets have an outstanding record at 
eroding the first-mover advantage. Bigger is better, especially 
for America's small businesses. Competition is robust, and your 
constituents know it.
    Thank you, and I welcome your questions.
    [The statement of Mr. Szabo follows:]

    [GRAPHIC] [TIFF OMITTED]
    
    
    Mr. Cicilline. Thank you. And before I recognize Mr. Reed, 
I do want to correct the record. I did not at all suggest that 
TikTok provided robust competition for Facebook. In fact, I was 
making the point that, despite their efforts, Facebook 
continues to capture 80 percent of global social media revenue. 
So, with all due respect, I don't want you to mischaracterize 
my opening statement.
    And, with that, I'll recognize Mr. Reed for 5 minutes. 
They've called votes, but we are going to, I think, be able to 
get through the questioning.

                    TESTIMONY OF MORGAN REED

    Mr. Reed. I'll make it as fast as possible. Good afternoon, 
Chairman Cicilline and members of the subcommittee. Thank you 
for holding this hearing and finally at the end of the whole 
list get down to actually giving small businesses a voice at 
the debate. Thank you.
    I get to start with good news. We've heard a lot of bad 
news today, but I'm going to start with some good news. The app 
economy in America is thriving. Growing up from virtually 
nonexistent in 2007 to $1.3 trillion today, it has created 5.7 
million jobs globally--we heard earlier about 1.5 million here 
in the U.S.--and is revolutionizing traditional industry 
verticals, making everything from agriculture to healthcare 
better and smarter.
    My written testimony contains a slew of facts and figures 
that help to define the breadth and scope of the app ecosystem 
and how platforms have benefited my community. But I wanted to 
share how the app economy is thriving in your district and what 
the world looked like for software companies before the 
platform revolution.
    Mr. Chairman, in Providence, Mojo Tech is a company with 65 
employees creating software solutions for healthcare, finance, 
and e-commerce companies. Your district has one of the leaders 
in cloud deployment for mobile and project management for 
Android and Iowa solutions.
    Representative Armstrong, in Fargo there's a company called 
Bushel. It's an agricultural tech company that provides 
subscription-based web----
    Mr. Armstrong. You're stealing my thunder.
    Mr. Reed. Oh, no. I'm sorry. Well, let's get through it. So 
Bushel basically has developed hardware for the grain supply 
chain. There are more than 1,000-grain facilities utilizing 
their platform. It's a great example of the way that mobile 
apps have that niche and really take advantage of it.
    Representative Johnson, I've talked to you a few different 
times about coal companies in your district, so this time I 
thought I'd come and talk a little bit about Atlanta-based 
Turbojet. It's a smaller shop that's doing solutions for 
nonprofits, including their website buildout, mobile-enabled 
capabilities more in the nonprofit space.
    So, in all of these cases, Representatives, I have 
thousands of stories just like these from all 435 congressional 
districts, each one benefiting from the explosion of platforms 
like the App Store or Google Play, Amazon, Web Services, 
Microsoft Azure.
    And you know who else benefited? Consumers. Here on the 
table I have a copy of OmniPage Pro. This was a software you 
bought if you needed to scan documents. If you wanted to turn 
it into a processor--into a way you could look at it in a word 
processor.
    I've also got this great review from PC World. They loved 
it back in 2005. But the important fact here in this review is 
it says the street price of this software in 2005 was $450.
    Now, right here, I've got an app from a company called 
Readdle that is nearly the same product level, has a bunch of 
features that this one doesn't. It's $6. Basically now 
consumers pay less than 1 percent of what they used to pay for 
some of the same capability. And what's even better about that, 
even though I love the product from Readdle, there are dozens 
of competitors in the app space. So, when you look at it from 
that perspective, consumers are getting a huge win.
    How have platforms made this radical drop in price 
possible? Simply put, they've provided three things: a trusted 
space, reduced overhead, and given my developers nearly instant 
access to a global marketplace with billions of customers.
    Before the platforms, to get your software onto a retail 
store shelf, companies had to spend years and thousands of 
dollars to get to the point where a distributor would handle 
their product. Then you'd agree to a cut of sales revenue, 
write a check for upfront marketing, agree to refund the 
distributor the cost of any unsold boxes, and then spend tens 
of thousands of dollars to buy an end cap.
    Digging in a little bit on this, I don't know how many of 
you know or are aware that the products you see on your store 
shelf or on the Sunday flyer aren't there because the manager 
thought it was a cool product. Those products are displayed at 
the end of an aisle, or end cap, because the software developer 
or consumer goods company literally pays for the shelf space.
    In fact, for many retailers the sale of floor space and 
flyers makes a huge chunk of their profitability for their 
store. And none of this takes into consideration printing 
boxes, manuals, CDs, dealing with credit cards if you go 
direct, translation services, customs authorities if you want 
to sell abroad.
    In the 1990s, it cost $1 million to start up a software 
company. Now it's $100,000 in sweat equity. And thanks to these 
changes, the average cost for consumer software has dropped 
from $50 to $3. For developers, our cost to market has dropped 
enormously and the size of our market has expanded globally.
    Of course, it's not all roses and sunshine. Platforms need 
to improve in important ways, and we appreciate this committee 
for monitoring the platform ecosystem to better understand 
what's happening.
    One area where we see some fault where some of the 
platforms have fallen short is transparency. Platforms should 
communicate to developers the guidelines and any changes they 
make to them clearly and explain what they mean to my 
developers.
    Another is safety and security. Some platforms have control 
over device security, and others don't, but all of them should 
strive for security practices that protect everyone who uses 
the platform.
    Lastly, platforms have a role to play in removing pirated 
apps. Platforms should diligently respond to even the smallest 
developer when it comes to protecting IP. Thank you.
    [The statement of Mr. Reed follows:]

    [GRAPHIC] [TIFF OMITTED]
    
    Mr. Cicilline. Thank you, Mr. Reed.
    And I'm going to reduce the time to 3 minutes so we can be 
sure to get our questions in. I thank everyone, and I apologize 
for the shortness, but they've just called votes again.
    I want to start off, Ms. Mitchell, with you, if I may. 
You've written about a number of ways in which Amazon leverages 
its core shopping platform to gain a competitive advantage over 
entrepreneurs, small businesses, and other third-party sellers 
that attempt to sell their products on Amazon.
    Can you explain, elaborate a little on that, particularly 
in light of the testimony that was presented in the first 
panel, how Amazon leverages its core platform to disadvantage 
small businesses and third-party sellers and how such tactics 
harm entrepreneurship and innovation online, you know, how it 
impacts everyday people who live in our districts.
    Ms. Mitchell. Yeah. You know, I spend a lot of time 
interviewing and talking with independent retailers, 
manufacturers of all sizes. Many of them are very much afraid 
of speaking out publicly because they fear retaliation.
    But what we consistently hear is that Amazon is the biggest 
threat to their businesses. We just did a survey of about 550 
independent retailers nationally. Amazon ranked number one in 
terms of being what they said was the biggest threat to their 
business above rising healthcare costs, access to capital, 
government red tape, anything else you can name. Among those 
who were actually selling on the platform only 7 percent 
reported that it was actually helping their bottom line.
    Amazon has a kind of God-like view of a growing share of 
our commerce, and it uses the data that it gathers to advantage 
its own business and its own business interests in lots of 
ways. A lot of this, as I said, comes from the kind of 
leverage, its ability to sort of leverage the interplay between 
these different business lines to maximize its advantage, 
whether it's promoting its own product because that's lucrative 
or whether it's using the manufacturer of a product to actually 
squeeze a seller or a vendor into giving it bigger discounts.
    Mr. Cicilline. Thank you so much.
    Professor Wu, you have written and spoken extensively about 
the importance of enforcing the antitrust laws and the digital 
markets in order to spur innovation. That's the subject of this 
hearing. Would you speak a little bit about why competition is 
so important to innovation and how does it affect people's 
lives, also how do you respond to the companies who say we are 
innovative ourselves, like we're innovative enough. We don't 
need competition because we'll continue to innovate.
    And, specifically, would you also address Mr. Szabo's use 
of the word ``weaponizing'' antitrust? I'm not sure what he 
meant by that, but I think the Antitrust Subcommittee takes our 
responsibility to enforce antitrust laws or to take the 
architecture of their enforcement very seriously because we 
understand the value of competition.
    I'm not exactly sure why anyone would suggest that's 
weaponizing it, but maybe if you could respond to the critical 
nature of competition as it relates to innovation and why what 
we're doing is not actually weaponizing them but trying to 
promote competition.
    Mr. Wu. Right. No, thank you for the opportunity. Yes. To 
the word ``weaponization'' I prefer the word ``enforcement.'' 
You know, when we talk about enforcing the criminal laws, we 
don't talk about weaponizing. We talk about enforcing the laws. 
And I think that, you know, the Justice Department, FTC, the 
States have a duty to enforce the laws. Congress passes them, 
and so that's, you know, the way to think about this.
    I think, historically speaking, the United States has 
experimented with two different types of innovation 
environment. One is centralized, where we allow industries to 
monopolize or oligopolies and we sit back and figure out what 
IBM is going to invent next or AT&T. The other and contrasting 
model is one where we have taken action, such as the AT&T 
breakup or the IBM suitor, Microsoft, or taken regulatory 
action and done a lot to reduce the barriers to entry.
    And what we've seen are a very different pattern of 
innovation, much more disruptive, much more kind of what 
economists sometimes call disruptive innovation or competition 
for the market as opposed to incremental, you know, adding call 
waiting to AT&T.
    And I think the comparative economic vantage of the United 
States over the last century has been its ability to start 
entire new industries. And in these big sort of centralized 
innovation industries, you don't see that. Instead, you see 
what's called the Kronos effect, an effort to stop the advance 
of new industry.
    So I think if the United States wants to be in the next 
century the tech leader, preeminent power, it needs to 
understand our own legacy and the advantages of competitive 
innovation.
    Mr. Cicilline. Thank you.
    I now recognize the gentleman from North Dakota for 3 
minutes.
    Mr. Armstrong. First, I'd like unanimous consent to enter 
Ranking Member Collins' statement into the record.
    [The statement of Mr. Collins follows:]
      

                      MR. ARMSTRONG FOR THE RECORD

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    Mr. Cicilline. Without objection.
    And I also introduce the opening statement of the chairman 
of the committee, Mr. Nadler, and a group of letters from a 
group of organizations that are contained on this list, without 
objection.
    [The statement of Chairman Nadler follows:]
      

                      MR. CICILLINE FOR THE RECORD

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    [The information follows:]
      

                      MR. CICILLINE FOR THE RECORD

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    Mr. Armstrong. And I do appreciate particularly Mr. Reed 
talking in that I think when we recognize--I come from a very 
rural area. The closest what you would consider big box store 
is Minneapolis or Denver. So, when we're talking about 
competition and all of this, I also think we've got to 
remember, at no point in time from my house in Dickinson, North 
Dakota, have I had more access to more diverse and cheap 
consumer products, I mean, things that often would require a 
plane ticket or a 9-hour car ride to buy can now be brought to 
our house. So I think when we're talking about consumers, we 
need to remember that side of it too.
    And I'm glad you brought up Bushel because Bushel is a 
fantastic company that has created--I don't know if they're 
going to qualify as a unicorn or not. I don't know what the 
real definition is, but they have created a space that hasn't 
existed at this point as well as they do it.
    Now, I don't know about this particular company, but I do 
know that there is--whether it's in technology or in 
traditional business, there are startups that get to a point 
where they have a certain product and a certain idea, but 
they've gone as far as they could do--go and they get acquired. 
And it can be in the oil and gas industry. It can be in any 
industry. It can be in the tech industry. So I would hope that 
when we deal with this we don't--if, at some point in time 
Bushel decides they do want to sell, I hope they have the 
ability to do that.
    But I guess I would just go to this, and all of the 
witnesses talked about different companies in different what 
they viewed as problems or potential problems with those 
companies, but they're not the same for every company. And I 
think that's where we go is that it's well established that the 
role of antitrust enforcement is to ensure that companies with 
significant market power don't use that power to unfairly harm 
competitors or consumers.
    And traditionally in antitrust it's very company specific, 
and it's very fact specific. So there are limits to what 
antitrust can do and enforcement process often takes years. So, 
outside of antitrust, I mean, we don't have to only exist in 
that universe. Are there measures we can take beyond those laws 
that promote competition in technology markets? And I've got 50 
seconds so--which means you all have 50 seconds so we get to go 
down the line. So please be quick.
    Ms. Scott Morton. Yes, there are. My report outlines a 
number of things that a regulator could do. But regulations 
that break down entry barriers and try to make a more level 
playing field for small businesses and entrepreneurs to 
actually get share and compete, that's the kind of regulation 
that I think would be really helpful.
    Mr. Reed. I would say support for open standards and 
ensuring that we don't have abusive use of patent rights in a 
way that actually harms open standards that are done in a 
voluntary manner.
    Mr. Szabo. And I would warn against turning to a know-it-
when-I-see-it definition for antitrust or monopoly and instead 
actually doing a fact analysis and an independent analysis as 
you've suggested.
    Ms. Ohlhausen. I agree with trying to break down regulatory 
barriers for small business and entrepreneurs, but I would 
caution against creating a single regulator. When you look at 
the history of the Civil Aeronautics Board and the FCC pre the 
AT&T breakup, I think there are important lessons there.
    Mr. Cicilline. The time of the gentleman is expired.
    I'll recognize the gentleman from Georgia for 3 minutes.
    Mr. Johnson. Thank you. We've run out of time. I do want to 
thank the panelists for being with us today. I know it's a late 
evening for you all. You had not planned on being here.
    I want to thank the chairman for hosting this very 
important topic today. If we do not oversee what's going on in 
this digital economy, in this digital marketplace with the four 
dominant players that we hosted today on the first panel, if we 
don't understand their market reach, if we don't understand 
their business practices and how those practices affect 
consumers, then we will never be able to regulate or legislate 
as may be necessary.
    So I do appreciate us having this hearing today, which is 
one in a series, and with that, I yield back.
    Mr. Cicilline. I thank the gentleman for yielding back.
    And I do want to thank the witnesses. We will continue to 
rely on you as resources as we continue this investigation. I 
appreciate your patience and your testimony today.
    This will conclude our hearing. I want to again thank our 
witnesses. And, without objection, all members will have 5 
legislative days to submit additional written questions for the 
witnesses or additional materials for the record.
    Without objection, this hearing is adjourned.
    [Whereupon, at 6:42 p.m., the subcommittee was adjourned.]
      

                                APPENDIX

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