[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 ======================================================================= [GRAPHIC] [TIFF OMITTED] 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 ======================================================================= [GRAPHIC] [TIFF OMITTED] [The information follows:] MR. CICILLINE FOR THE RECORD ======================================================================= [GRAPHIC] [TIFF OMITTED] 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 ======================================================================= [GRAPHIC] [TIFF OMITTED] [all]