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



                ONLINE PLATFORMS AND MARKET POWER,
            PART 5: COMPETITORS IN THE DIGITAL ECONOMY

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

                                HEARING

                               before the

               SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND 
                           ADMINISTRATIVE LAW

                                 of the

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 17, 2020

                               __________

                           Serial No. 116-70

                               __________

         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

40-788                  WASHINGTON : 2020








                       COMMITTEE ON THE JUDICIARY

                   JERROLD NADLER, New York, Chairman

ZOE LOFGREN, California              DOUG COLLINS, Georgia,
SHEILA JACKSON LEE, Texas              Ranking 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, Ranking Member
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

                              ----------                              

                            JANUARY 17, 2020

                           OPENING STATEMENTS

                                                                   Page
Honorable David Cicilline, Chairman, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................     1
The Honorable Ken Buck, Member, Subcommittee on Antitrust, 
  Commercial and Administrative Law..............................     3

                               WITNESSES

Patrick Spence, Chief Executive Officer, Sonos, Inc.
    Oral Testimony...............................................     6
    Prepared Testimony...........................................     9
David Barnett, Chief Executive Officer, PopSockets LLC
    Oral Testimony...............................................    16
    Prepared Testimony...........................................    18
David Heinemeier Hansson, Chief Technology Officer, Basecamp, 
  LLC.
    Oral Testimony...............................................    23
    Prepared Testimony...........................................    26
Kirsten Daru, General Counsel, Tile, Inc.
    Oral Testimony...............................................    39
    Prepared Testimony...........................................    41

                                APPENDIX

Responses to Questions for the Record from Patrick Spence, Chief 
  Executive Officer, Sonos.......................................    73
Statement for the Record from Patrick Spence, Chief Executive 
  Officer, Sonos.................................................    77
Responses to Questions for the Record from David Barnett, Chief 
  Executive Officer, PopSockets..................................    79
Responses to Questions for the Record from Kirsten Daru, General 
  Counsel, Tile..................................................    83
Letter from Kyle Andeer, Vice President, Corporate Law and Chief 
  Compliance Officer, Apple Inc..................................   122
Statement for the Record from Jeff Haley, former President, 
  OralHealth Corporation.........................................   126


 
                  ONLINE PLATFORMS AND MARKET POWER,
              PART 5: COMPETITORS IN THE DIGITAL ECONOMY

                              ----------                              


                        FRIDAY, JANUARY 17, 2020

                        House of Representatives

                Subcommittee on Antitrust, Commercial, 
                         and Administrative Law

                       Committee on the Judiciary

                            Washington, DC.

    The subcommittee met, pursuant to call, at 10:05 a.m., in 
University of Colorado Law School, 2450 Kittredge Loop Road, 
Boulder, Colorado, Hon. David Cicilline [chairman of the 
subcommittee] presiding.
    Present: Representatives Cicilline, Neguse, and Buck.
    Also Present: Representative Perlmutter.
    Staff present: Amanda Lewis, Counsel; Joseph Van Wye, 
Professional Staff Member; Lina Khan, Counsel; and Slade Bond, 
Chief Counsel.
    Mr. Cicilline. The subcommittee will come to order.
    Without objection, the chair is authorized to declare 
recesses at any time. We welcome everyone to today's hearing, 
``Online Platforms and Market Power, Part 5: Competitors in a 
Digital Economy.'' I now recognize myself for an opening 
statement.
    It is a pleasure to be here at the University of Colorado 
Law School for today's hearing, the fifth in the subcommittee's 
series on online platforms and market power and the 
subcommittee's first field hearing in more than a decade.
    In July, the subcommittee received testimony from 
executives representing the four dominant online platforms--
Google, Amazon, Facebook, and Apple--along with a panel of 
leading experts about the effective market power in the digital 
economy on innovation and entrepreneurship.
    Through both that hearing and other parts of the 
subcommittee's investigation it has become clear these firms 
have tremendous power as gatekeepers to shape and control 
commerce online.
    Stacy Mitchell, the director of the Institute for Local 
Self-Reliance, testified, and I quote, ``A growing share of our 
commerce now flows through a handful of digital platforms. 
These powerful gatekeepers not only control market access but 
also directly compete with the businesses that depend on 
them,'' end quote.
    It is apparent that the dominant platforms are increasingly 
using their gatekeeper power in abusive and coercive ways.
    Because these platforms function as bottlenecks for online 
commerce, they are able to set the terms and conditions of 
competition, giving them immense power to pick winners and 
losers in the online economy.
    It is far too common to hear horror stories from startups 
and other small businesses about how a dominant platform's 
abrupt changes have destroyed their business.
    A single sudden change of algorithms, a software update, or 
new product design can be disastrous for the millions of 
companies that depend on these platforms to get to market.
    And because these platforms actively compete with the very 
business they rely on--that rely on them, what may be portrayed 
as an innocent change could very well be a deliberate strategy 
to crush any existing potential competition.
    Companies across the online ecosystem both large and small 
have found themselves dependent on the arbitrary whim of these 
platform giants, one algorithm tweak away from ruin.
    In many cases, there is little notice or any real recourse 
for the companies that are disadvantaged by the platforms' 
conduct.
    Because their decisions are largely unaccountable, opaque, 
and result in sweeping consequences, the dominant platforms 
effectively serve as private regulators.
    The dominant platforms can also use their gatekeeper power 
to dictate anti-competitive take it or leave it contract terms.
    Startups and small businesses have had to sign away certain 
basic rights or even hand over valuable data to a competitor as 
the price of accessing their customers through the platform.
    Such coercive terms of doing business would undoubtedly be 
absent in a competitive marketplace. For locally-owned 
businesses that are the economic lifeblood of their communities 
as both job creators and engines of prosperity, this gatekeeper 
power and how the platforms are exercising it is of tremendous 
concern.
    Many small businesses are forced to rely on dominant 
platforms to advertise or sell their products and services 
online. In many cases, they do not have an alternative.
    Earlier this week, my staff spoke with an online seller 
whose entire economic livelihood and his family's health has 
been jeopardized by one of the dominant platform's sudden, 
arbitrary, and reckless decision to suspend his business and 
block access to his inventory.
    Not only does this dynamic threaten ongoing competition but 
it also has lasting effects as a powerful disincentive for new 
entrants to try and compete with powerful incumbents.
    As Patrick Spence, the CEO of Sonos, will testify today, 
``This shuttering of competition online dries up the venture 
capital new companies need to develop the next inventions and 
to bring them to market.
    Venture capital firms are well aware of the kill zone that 
surrounds startups that pass within striking distance of the 
dominant platforms. They stay away from those investments,'' 
end quote.
    Today, we will hear from the CEOs, founders, and senior 
executives of several dynamic and innovative companies that 
must confront this economic nightmare.
    Each of the innovative companies represented here today--
Sonos, PopSockets, Tile, and Basecamp--are American success 
stories. I applaud them for their courage to share their 
testimony in the face of potential retaliation by the dominant 
platforms.
    We have been in touch with a number of companies with 
similar perspectives that understandably will not testify due 
to this very real concern.
    With that, I want to thank the esteemed panel of witnesses 
for joining us today. I also want to thank Subcommittee Vice 
Chair Congressman Neguse. He represents Boulder, Colorado, and 
advocated strongly that the field hearing be in his district.
    I also want to thank Dean Jim Anaya and all of the hard 
working professors and professional staff at Colorado Law who 
assisted us in having this hearing today.
    I thank them for hosting, and I particularly want to 
welcome and thank Congressman Ken Buck from Colorado who is an 
esteemed member of the subcommittee who has been very active in 
this investigation and the representative of Colorado's 4th 
Congressional District.
    And I would now like to recognize him for the purposes of 
making an opening statement.
    Mr. Buck. Thank you, Mr. Chairman, and I very much 
appreciate you holding this hearing in God's country and 
joining here in God's country for the hearing, and I am very 
appreciative that my friends, Congressman Neguse and 
Congressman Perlmutter, have left the swamp with me last night 
on a plane to get here, and we are here safely and working on 
this important issue.
    Today, as we continue our oversight of the state of 
competition in the tech center, our focus is shifting from 
looking at how larger digital platforms operate to hearing what 
it is like to compete with these platforms.
    Each of our panelists represent companies that are in the 
arena innovating and competing daily to deliver value to 
customers. They have real skin in the game and we look forward 
to learning from their unique perspectives.
    To begin, I want to review the principles that I think 
Congress should focus on in our inquiry.
    First, innovation and competition in the tech center have 
produced enormous value for consumers. We should not forget 
about those benefits as we consider the current state of 
competition in the tech center.
    Second, any legislative proposals that emerge from our 
inquiry should be consistent with maintaining a free and 
competitive marketplace.
    Proposals to construct broad new regulatory regimes must be 
viewed with caution. Experience has shown that burdensome 
regulations often miss the mark.
    Regulations often come too late to resolve anything and 
this approach is often less efficient than the free market. 
Regulators are often not nimble enough to keep pace with a 
dynamic marketplace so that the regulatory regime has the 
effect of entrenching incumbents rather than encouraging 
competition.
    Third, big is not necessarily bad. Anti-trust laws do not 
exist to punish success but to promote competition. Congress 
should help foster an atmosphere where ideas flourish and 
startups can innovate fairly, fairly compete, grow, and 
succeed.
    With these principles in mind, over the past few years we 
have seen the largest platforms continue to expand and increase 
their market power.
    The increased concentration and market power of a small 
group of companies has raised concerns from a diverse array of 
constituencies about how that power is being used.
    This includes domestic and international regulators and 
enforcement authorities, small, medium, and large companies, 
and consumers.
    Our task during these hearings has been to evaluate whether 
true anti-trust harms are occurring in the tech center and, if 
so, whether the existing anti-trust laws are adequate to 
address these harms.
    To understand these complex questions, we have invited a 
diverse panel of market participants, companies that compete 
directly with the large platforms, that relies on services of 
the large platforms and, in some cases, both compete with and 
rely on the large platforms.
    Companies that both compete with and rely on the largest 
digital platforms have become more and more common, especially 
as Google, Facebook, Amazon, and Apple have continued to expand 
into broader and more diverse business lines.
    We know that many tech companies rely on the infrastructure 
services provided by large platform companies in order to serve 
their customers while simultaneously having to directly compete 
with the platform companies.
    To demonstrate, consider the hypothetical company A that 
competes with one of Google's products but also relies on a 
different Google product to run its business, or relatedly, 
company B relies on Amazon or Apple's platform for its success 
and then Amazon or Apple launches a new product that competes 
directly with company B.
    In these circumstances, the question arises of where the 
line sits between fierce and healthy competition and anti-
competitive conduct.
    Do the large platforms use their market power in one 
business line to harm competitors in another business line? And 
if that does occur, how do we determine whether the allegedly 
harmful conduct was motivated solely by a desire to improve the 
product or whether there was anti-competitive motive?
    I hope that our panel can discuss these and other related 
questions today. Each of our panelists has significant 
experience competing in the digital economy and they have a 
unique perspective to offer us today.
    I look forward to learning from them so that we can better 
understand what competing with or relying on the largest 
platforms looks like in the real world.
    I yield back.
    Mr. Cicilline. Thank you, Mr. Buck.
    Before I introduce our panel of witnesses, we are also 
joined by the distinguished representative from the 7th 
Congressional District, Mr. Perlmutter, who serves both on the 
Financial Services, the Rules Committee, and Science and 
Technology, and has been involved in this area in a number of 
different ways, and I would ask unanimous consent of the 
committee to allow Mr. Perlmutter to participate in full in 
this hearing.
    Without objection, so ordered.
    It is now my pleasure to introduce today's witnesses. Our 
first witness is Patrick Spence, the chief executive officer at 
Sonos. Mr. Spence joined Sonos in 2012 as their chief 
commercial officer and has played a central role in the 
development and launch of some of the company's most successful 
products.
    Before starting at Sonos, Mr. Spence spent more than 14 
years at RIM BlackBerry in a variety of roles, ultimately 
become executive vice president of sales and marketing.
    He was named one of Canada's Top 40 Under 40 in 2007. Mr. 
Spence received an honorary degree from the Richard Ivey School 
of Business at the University of Western Ontario.
    Our second witness is David Barnett. He is founder and CEO 
of PopSockets, LLC. Before founding PopSockets, Mr. Barnett was 
a professor of philosophy at the University of Colorado, 
Boulder, specializing in philosophy and language.
    He developed an interest in entrepreneurships and began 
designing products to prevent ear bud cords from dangling. In 
the process of developing a specialized iPhone case founded 
through a successful kickstarter campaign, Mr. Barnett stumbled 
upon the pop grip. It has gone on to become PopSockets' 
flagship product and one of the most popular mobile device 
attachments on the market.
    In 2015, Mr. Barnett left the University of Colorado to 
focus full time on running PopSockets. Mr. Barnett received his 
B.A. in philosophy from Emory University, his B.A. in physics 
from the University of Colorado, Boulder, and his Ph.D. in 
philosophy from New York University.
    Our third witness is David Heinemeier Hansson. Mr. Hansson 
is the chief technology officer and co-founder of Basecamp, 
LLC, a project management and communications software used by 
hundreds of organizations like Shopify, NASA, and the 
University of Miami.
    He is also the creator of Ruby on Rails, an open-sourced 
web framework used by programmers at GitHub, Airbnb, Startup, 
and Goodreads.
    Mr. Hansson is also the author of multiple books about 
successful business management including ``It Doesn't Have To 
Be Crazy At Work'' and the New York Times bestseller 
``Rework.''
    Mr. Hansson received his Bachelor's degree from the 
Copenhagen Business School.
    The last witness on our first panel is Kirsten Daru, vice 
president and general counsel of Tile. Prior to joining Tile in 
2019, Ms. Daru served as the chief privacy officer at 
Electronic Arts.
    There, she led all elements of EA's internal data privacy 
compliance, employee data privacy training, and litigation 
involving consumer claims.
    She was also the lead attorney for all international 
privacy matters. She started her legal career as an attorney at 
Reed Smith LLP.
    Ms. Daru received her B.A. from the University of 
California at Davis and her J.D. from the University of San 
Francisco School of Law.
    We welcome all of our very distinguished witnesses and we 
thank you for participating in today's hearing.
    Now, if you would please rise I will 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?
    [A chorus of ayes.]
    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 five minutes.
    To help you stay within that time, there is a timing light 
on your table. When the light switches from green to yellow you 
have one minute to conclude. It is actually here.
    When the light turns red it signals your five minutes have 
expired and I would like you to conclude.
    And we will begin with Mr. Spence. You are recognized for 
five minutes.

   STATEMENTS OF PATRICK SPENCE, CEO, SONOS; DAVID BARNETT, 
 FOUNDER AND CEO, POPSOCKETS LLC; DAVID HEINEMEIER HANSSON, CO-
FOUNDER AND CTO, BASECAMP LLC; KIRSTEN DARU, VICE PRESIDENT AND 
                     GENERAL COUNSEL, TILE

                  STATEMENT OF PATRICK SPENCE

    Mr. Spence. Thank you.
    I would like to thank Chairman Cicilline, Ranking Member 
Sensenbrenner, and distinguished members of this committee for 
the opportunity to appear here today.
    It is my privilege to lead a company that is a classic 
American success story. Sonos was founded in Santa Barbara, 
California, in 2002 by a handful of entrepreneurs that wanted 
to make it easier and better to be able to listen to great 
music throughout their home.
    Today, we employ over 1,500 people and our products have 
been welcomed in more than 9 million homes. We are a classic 
innovation and growth story.
    We have grown our customer base, our product portfolio, and 
our revenue every year since our founding almost 20 years ago.
    In mid-2018 we enjoyed another rite of passage of many 
American success stories. We became a public company on the 
NASDAQ stock exchange.
    The scope and scale of our innovation is reflected in our 
portfolio of over 750 patents, a number that continues to grow 
every year as we invest heavily in new innovation.
    We believe that if we keep working hard to make great new 
products we will win new customers and they will come back and 
buy more products.
    I welcomed this committee's invitation to testify because I 
am concerned that the market conditions that allowed us to 
innovate and thrive over the past two decades are being 
endangered by the rise of a small group of dominant companies 
with unprecedented power.
    We believe that this committee needs to act urgently to 
rein in the power of these dominant companies in order to 
support the market conditions for the next big ideas to emerge 
and to create a fair playing field for new emerging innovative 
companies.
    Today, I would like to focus in on three trends in 
particular. The first trend is how these dominant companies are 
using their power in one market to conquer or destroy adjacent 
markets, especially markets that may one day present a 
challenge to their current dominance.
    Voice technology has transformed smart speakers into the 
latest gateway to the internet. They connect you to the music 
you love and to many of the most important services on the 
internet e-commerce to Search.
    For Google and Amazon specifically, the development of the 
smart speaker market--the one in which we invented and 
operate--presents both a threat and an opportunity.
    The threat that if other companies were to be successful in 
the smart speaker market they might stand between these 
dominant companies and customers.
    The opportunity for these companies is to dominate yet 
another important consumer market and, more critical, to use 
smart speakers to collect vast amounts of consumer data, which 
can be monetized on their already dominant platforms.
    These dominant firms have seized this opportunity. They 
have flooded the market with dramatically price-subsidized 
products, giving them away at steep discounts or even for free.
    Indeed, there are records stating that the products 
themselves are money losers. Now they control, roughly, 85 
percent of the U.S. smart speaker market. This is terrible for 
the innovative dynamic created by fair competition because it 
hamstrings those companies that have better products that 
cannot afford to be sold at a loss.
    And in the long term, prices are sure to go up once these 
dominant companies have driven the other companies out of the 
market and reduced competition.
    The second issue is that these dominant companies are 
exploiting their role as essential business partners and to 
tilt the playing field in favor of their own products and 
services.
    These companies have such dominance and breadth across a 
variety of markets they become essential business partners for 
every company. Our relationships with them at times are 
productive and mutually beneficial, as these firms also value 
access to our large and growing customer base.
    But these dominant companies have a huge amount of power. 
Gaining access to their platforms and integrating their 
services are becoming more and more of a take it or leave it 
proposition with demands such as early and technically-detailed 
access to our future products, sharing proprietary business 
data including sales forecasts and waiving essential 
contractual rates.
    These companies have gone so far as demanding that we 
suppress our inventions in order to work with them. The most 
recent example of this is Google's refusal to allow us to use 
multiple voice assistants on our product simultaneously.
    And a third important issue is the practice of efficient 
infringement. These dominant companies disregard inventions and 
patents because they are so powerful and they are doing the 
cost benefit analysis for infringing now and paying later once 
they have achieved dominance and moved past the point where 
they have to worry about competition in that market.
    They are exploiting today's system and enforcement to 
extend their dominance from one market to the next, and a 
recently filed patent infringement case against Google 
illustrates our point. We have provided more details in our 
written testimony.
    We believe in competition and have competed and won through 
innovation and hard work against much larger companies to get 
to where we are today.
    However, we are at a moment now, and I say this with 20 
years in the consumer technology industry where today's 
dominant companies have so much power across such a broad array 
of markets and continue to leverage that power to expand into 
new markets that we need to rethink existing laws and policies 
to determine if they are still achieving the spirit in which 
they were set out.
    We believe that independent companies and a system which 
fosters new startups have never been more important to the 
future of innovation because fair competition breeds creativity 
and progress and makes America better for everyone, not just 
dominant and powerful few.
    Thank you.
    [The statement of Mr. Spence follows:]

    [GRAPHIC] [TIFF OMITTED]
    
    Mr. Cicilline. Thank you, Mr. Spence.
    Mr. Barnett, you are now recognized for five minutes.

                   STATEMENT OF DAVID BARNETT

    Mr. Barnett. First, thank you, Honorable Chairman and the 
other members of the committee, for having me.
    So I will tell you first the story of PopSockets and then 
some challenges that we have had with Amazon.
    PopSockets started about six years ago in my garage just 
west of where we are sitting right here when I was a philosophy 
professor at the University of Colorado.
    I launched the business around our flagship product, which 
is a--well, I have it on my phone--but a grip and a stand for a 
phone. So that is how it started. We now have a full family of 
products around this product.
    In these six years we have grown to about 270 employees. 
There are thousands of people around the world whose 
livelihoods depend on PopSockets indirectly through different 
businesses.
    We have sold over 165 million units of this product and I 
feel lucky to have realized one version of the American dream, 
in part by participating in America's free market economy and 
being able to transact with millions of Americans and thousands 
of companies in order to create this success.
    So today I want to talk about two challenges that we have 
had with Amazon, one involving counterfeits, the other 
involving bullying, or strong arming.
    So we started our direct relationship with Amazon about a 
year and a half into business. So the middle of 2016 we started 
selling product to Amazon.
    Amazon, in turn, would sell our product on the marketplace. 
It was immensely successful. Within five months Amazon became 
our largest customer and we became one of Amazon's most 
significant players in the mobile electronics accessory 
category.
    We were--pop socket was the number three search term at 
some point on Amazon. So we had immense success but despite the 
success we never felt like we had a genuine partnership with 
Amazon.
    So the problem with counterfeits is the first problem we 
will talk about. We had enormous amounts of fake product that 
were taking our sales, creating bad customer experiences, and, 
of course, it was illegal, so illegal activity on behalf those 
selling them.
    And when Amazon was the seller, Amazon was, clearly, 
engaged in this illegal activity and multiple times we 
discovered that Amazon itself had sourced counterfeit product 
and was selling it alongside our own product.
    For a year and a half we requested that Amazon take some 
action--some serious action and just require evidence from 
sellers that they were selling authentic product.
    After a year and a half, finally in exchange for about $1.8 
million of retail marketing funds, which my team deemed 
ineffective, Amazon agreed to work with their brand registry 
department to require this evidence and things then changed 
dramatically.
    So that problem, largely, went away. There was another 
problem of knock-off products not using the PopSockets name 
that took a lot longer to go away.
    At one point, we were--we were reporting a thousand 
listings a day of fakes. Every day a thousand different 
listings of fakes that were eating away at our revenue and, 
really, harming our brand, too.
    Next, I want to turn to bullying--the lack of a symmetrical 
partnership. The way Amazon works is, you know, we sign an 
agreement together, so there is what is in the written record 
of the agreement. Everything looks good.
    We decide on a sale price to Amazon. Then what happens in 
practice is that Amazon decides what price they want to sell to 
the consumer for, after lowering the price they come back to us 
and demand funding for their lost margin when they lower their 
price.
    There is nothing in our agreement that says that we are 
required to pay for this, and yet they say, we need this--we 
expect this. The bullying begins.
    We decided to end our relationship with Amazon over this. 
This was one reason we cited what we gave to Amazon. Their 
response was, no, you are not leaving the relationship. I found 
that unbelievable that they would tell us that we were going to 
continue the relationship after we told them that bullying was 
the main reason we were leaving.
    We left anyway. They proceeded to remove the listings of 
our authorized reseller, all of the listings on Amazon, 
preventing an authorized reseller from selling.
    They refused to clarify the language around their policy 
that they cited in doing this, and caused great harm to our 
company. And, you know, while bullying is not technically 
illegal, when there is bullying by an extremely successful 
company with all these partners that continue to do business 
with it, one has to ask how is it that such a successful 
business maintains partnerships with so many companies while 
bullying them. It is because of the power asymmetry, of course, 
that companies tolerate this. They have to tolerate it.
    [The statement of Mr. Barnett follows:]

    [GRAPHIC] [TIFF OMITTED]
    
    Mr. Cicilline. Thank you. Thank you, Mr. Barnett.
    Mr. Hansson, you are now recognized for five minutes for 
your opening.

             STATEMENT OF DAVID HEINEMEIER HANSSON

    Mr. Hansson. Thank you, and thank you for the invitation to 
provide testimony here.
    My name is David Heinemeier Hansson and I am the CTO and 
co-founder of Basecamp, a small internet company from Chicago 
that sells project management and team collaboration software.
    When we launched our main service back in 2004, the 
internet provided a, largely, free, fair, and open marketplace. 
We could reach customers and provide them with our software 
without having to ask any technology company for permission or 
pay them for the privilege.
    Today, this is practically no longer true. The internet has 
been colonized by a handful of big tech companies that wield 
their monopoly power without restraint.
    This power allowed them to bully, extort, or, should they 
please, even destroy our business unless we accept their often 
onerous, exploiting, and ever-changing terms and conditions.
    These big tech companies control if customers are able to 
find us online, whether customers can access our software using 
their mobile devices, and define the questionable ethics of 
what a competitive marketing campaign must look like.
    A small company like ours simply has no real agency to 
resist or reject the rules set by Big Tech and neither do 
consumers. The promise that the internet was going to cut out 
the middleman has been broken.
    We are all left to accept that these companies can and do 
alter the deal, any deal, however they please and whenever they 
do our only recourse is to pray that they do not alter it any 
further.
    Let us start with Google. Their monopoly in internet search 
is near total and their multi-billion-dollar bribes to browser 
makers like Apple ensure no fair competition will ever have a 
chance to emerge.
    Google uses this monopoly to extort businesses like ours to 
pay for the privilege that consumers who search for our 
trademarked brand name can find us because if we don't they 
will sell our brand name as misdirection to our competitors.
    Google feigns interest in recognizing trademark law by 
banning the use of trademark terms in ad copy but puts the onus 
of enforcement on victims and does nothing to stop repeat 
offenders, unless, of course, the trademark terms are belonging 
to Google itself. Then enforcement is swift and automatic. You 
will find no competitor ads for any of Google's own important 
properties.
    Google would never have been able to capture a monopoly in 
Search by acting like this from the start--misdirecting 
consumers, blanketing search results with ads, and shaking down 
small businesses.
    In the absence of meaningful regulation, they will continue 
to extract absurd monopoly rents while bribing browser makers 
to ensure nothing changes.
    Apple, too, enjoys the spoils of monopoly pricing power. 
With the App Store they own one of the only two mobile 
application stores that matter. The other belongs to Google.
    This cozy duopoly has allowed Apple to keep fees on payment 
processing for application makers like ours exorbitantly high.
    Whereas a competitive market like that for credit card 
processing is only able to sustain around a 2 percent fee for 
merchants, Apple, along with Google, has been able to charge 
and outrageous 30 percent for years on end.
    Apple may claim that they do more than payment processing 
for this fee such as hosting applications or providing 
discovery. But the company undercuts this argument by giving 
these services away for free to application makers who do not 
charge for their applications.
    But worse still is the draconian restrictions and merciless 
retribution that Apple brings to bear on application makers who 
dare to decline using Apple's payment services.
    Even a mere link to an external webpage that explains how 
to sign up for a service that doesn't use Apple's payment 
system can get their application rejected or removed from the 
App Store.
    Every application maker using Apple's App Store live in 
fear that their next update is denied or their application is 
entirely removed.
    All it takes is being assigned the wrong review clerk who 
chooses to interpret the often vague and confusing rules 
different than the last. Then you will be stuck in an appeals 
process that would make Kafka blush.
    Finally, Facebook's industrial-scale vacuuming of 
everyone's personal data has created an ad-targeting machine so 
devastatingly effective that the company, together with, guess 
who, Google is currently capturing virtually all growth in 
internet advertisement.
    I quote a report in my written testimony that put that 
capture between Facebook and Google at 99 percent in 2016. Not 
even Putin dare brag of an approval rating that high.
    Facebook is able to maintain this iron grip on the 
collection of personal data by continuing to buy any promising 
competitor. The acquisitions of Instagram and WhatsApp should 
never have been approved by regulators and need to be urgently 
undone.
    This creates a marketplace where companies that wish not to 
partake in the wholesale violation of consumer privacy is at a 
grave disadvantage.
    If you choose not to take advantage of this terrifying and 
devastatingly effective ad machine, your competitors surely 
will.
    This has been but a brief taste of what it is like to live 
as a small tech company in a digital world owned and operated 
by Big Tech.
    And I didn't even touch on the misery that it is to attempt 
direct head-on competition with any of these conglomerates. But 
at some point, all companies will be competing against Big Tech 
simply because Big Tech is bent on expanding until it does 
absolutely everything. The aforementioned companies already do 
payment processing, credit card issuing, music distribution, TV 
producing, advertising networks, map making, navigation 
services, alarm systems, cameras, computers, medical devices, 
and about a billion other things.
    Help us, Congress. You are our only hope. [Laughter.]
    [The statement of Mr. Hansson follows:]

    [GRAPHIC] [TIFF OMITTED]
    
    Mr. Cicilline. Thank you very much. Yes, I thank you very 
much.
    Now I recognize Ms. Daru for five minutes for your opening 
statement.

                   STATEMENT OF KIRSTEN DARU

    Ms. Daru. I would like to thank Chairman Cicilline and the 
members of the subcommittee for convening this hearing and to 
Vice Chair Neguse for hosting.
    My name is Kirsten Daru and I am the chief privacy officer 
and general counsel of Tile. Tile helps people find lost items.
    Our devices work with our Tile app, which is available on 
iOS and Android to help people find their wallet, purse, keys, 
you name it. We also embed our technology into third-party 
products like headphones and laptops.
    Tile is a small company. We only have about a hundred 
employees. But we have over 180 patent assets and much of our 
success can be attributed to our ability to collaborate with a 
wide diverse group of tech partners.
    That includes Hewlett-Packard, Google, Amazon, and, 
importantly, Apple, who we have partnered with since about 
2013.
    But last April, things began to change. Last April, reports 
came out that Apple was developing a competing Tile like device 
and shortly thereafter they told us that they weren't going to 
carry us in their retail stores anymore.
    But don't get me wrong. Tile welcomes competition. But it 
has to be fair competition, and in the weeks and months that 
followed those initial reports, Apple exploited its market 
power to advance its own interests at our expense, and I will 
explain.
    So, first, Apple's Find My app competes with Tile. 
Importantly, Find My is installed natively on Apple hardware to 
the exclusion of all competing apps and it cannot be deleted. 
Not so with Tile.
    Also, with iOS 13, which released last September, Apple 
made it more difficult for our customers to enable their Tile 
devices by burying the required permissions deep within the 
consumer setting.
    But not so for Find My. Find My's location settings are 
activated by a single selection during operating system 
installation.
    And then once our customers figure out how to enable our 
devices, also with iOS 13, Apple started surfacing these 
reminders and prompts to our customers to encourage them to 
turn it off.
    But Apple does not surface any reminders for its customers 
to turn off Find My's location permissions. Also, in its latest 
iPhones, Apple included a new nonproprietary technology.
    It is kind of like wifi or Bluetooth. It is called UWB--
Ultra Wide Band. Again, it is nonproprietary. It is one of 
those things that most--that would ordinarily be opened up to 
all third parties to use.
    What it is it is similar to Bluetooth but whereas Bluetooth 
can tell you that an item is in a room, UWB can tell you 
exactly where it is in that room.
    Reports surfaced that Apple's competing Tile hardware 
product would use UWB to enhance the experience of its 
customers. But, again, by contrast, Apple is not enabling Tile 
to use that technology for the benefit of its customers.
    All of these examples demonstrate that Apple is acting as a 
gatekeeper of third-party access to permissions and technology 
in ways that favor its own interests.
    Keep in mind that Apple owns the entire commercial iOS 
ecosystem. They own the hardware. They own the software. They 
own the App Store and the retail stores.
    That gives Apple access to competitively sensitive 
information including who our customers are, our retail 
margins, our subscription take rates, and Apple's control over 
the ecosystem enables it to make changes to the OS with no 
meaningful advance consultation or notice to competitors to 
enable us to evaluate or prepare for impact.
    It is like playing a soccer game. You might be the best 
team in the league. But you are playing against a team that 
owns the field, the ball, the stadium, and the entire league, 
and they can change the rules of the game in their own favor at 
any time.
    That is the field on which we are competing with Apple. 
That is the field on which America is competing with Apple, and 
it doesn't leave much incentive for entrepreneurs or investors 
to bring new innovations to bear in America.
    The functioning of a robust healthy app ecosystem is 
dependent on open platforms that do not favor the owner. It is 
our hope and preference to work with Apple to resolve our 
concerns.
    But in the meantime, we ask Congress to continue to explore 
how Apple's exploitation of its market power to advance its own 
interests is used to hinder competition and limit customer 
choice.
    I would like to again thank you for your time and I look 
forward to answering your questions.
    [The statement of Ms. Daru follows:]

    [GRAPHIC] [TIFF OMITTED]
    
    Mr. Cicilline. Thank you very much, Ms. Daru.
    I will now begin questioning under the five-minute rule and 
recognize myself first for five minutes. And I am just letting 
my colleagues know I am going to devote five minutes to each of 
the panelists.
    So we will have multiple rounds. You are free, obviously, 
to do it anyway you like. But I think these require kind of 
more in-depth discussions.
    So I will begin with you, Mr. Spence, and thank you for 
your testimony. In your written testimony, you describe how 
Google and Amazon have become essential business partners.
    As you note, their dominance across markets from voice 
assistants and operating systems to music services and cloud 
computing means that, and I am quoting you, ``they are like 
basic infrastructure,'' end quote.
    You note that this dominance enables the platforms to issue 
take-it-or-leave-it demands. Can you describe what some of 
those demands involve and what they have meant?
    Mr. Spence. Thanks for the question, Mr. Chairman.
    It is around things like our future products. So 
understanding what products we are going to be making in the 
future if we want access to their services. So they will look 
for that, which is really, at the end of the day, the most 
important thing inside a company like ours that is trying to 
keep confidential the products and any new innovations that we 
are working on.
    So getting access to those, getting access to the kind of 
volumes that we think we will do as we go through that, trying 
to understand as well just the general direction of where the 
company is going, making sure that--you know, that we are 
willing to engage in marketing funding for the products as well 
on the platform would be another example as we go through that.
    So, yeah, that is probably the--kind of a good feel for 
the----
    Mr. Cicilline. Thank you.
    In a set of questions that I sent to Google as part of this 
investigation last year, I asked the company whether it ever 
requires that third parties seeking to access Google's services 
give Google access to their proprietary data.
    Google responded that it has likely entered into those 
types of contracts but that any such contractual terms are, and 
I quote, ``the product of good-faith negotiations by 
sophisticated parties,'' end quote.
    Does that sound accurate to you it is the case, as Google 
suggests, that these contractual terms are just the product of 
regular business dealings?
    Mr. Spence. Thank you for the question, Mr. Chairman.
    I have been in consumer technology for 20 years. I think 
there are times where you are having negotiations with 
companies and it is on a--it is on a fair basis in terms of 
where you are.
    I think, as I have indicated, there is a--there is such a 
dominant power that exists with these companies that when 
Google or companies like that are asking for these things you 
really, even for a company of our size, feel that you have no 
choice but to provide them to the companies.
    Mr. Cicilline. One remarkable thing about these companies 
is how integrated they are across many different business 
lines. Sonos may be negotiating with Amazon or Google over 
their voice assistants services while also be dependent on 
Amazon's retail platform or Google Search.
    Is there a reason to think these platforms do, at the very 
least, or they could use their dominance in one market to apply 
pressure in a distinct market?
    Mr. Spence. Absolutely. I think that is the--you know, the 
risk that is here and I think it is a very fair assumption to 
think that they would even with best efforts, right, and in 
terms of that is that information inside companies, the larger 
and larger they get it is easy in this day and age for that 
information to go many different directions.
    And so as we provide information to these companies, it is 
certainly my concern that it can be shared across groups and 
that can be used to, in effect, compete with us down the line.
    Mr. Cicilline. So, just as an example, could Google demote 
you in search rankings if it didn't like how negotiations over 
voice assistant were going and how would something like that 
affect your business?
    Mr. Spence. Oh, that would be something that would 
dramatically impact our business. As David had mentioned, we 
have had to buy our brand name on Google just to make sure that 
we are at the top of the rankings in Google Search.
    But these companies have the power to be able to move you 
down the rankings, put tags on your products, do all sorts of 
things that would tilt the playing field.
    Mr. Cicilline. And, Mr. Spence, in your testimony you 
explain that Google has sought to blocking innovative service 
by Sonos that would have allowed consumers to utilize multiple 
voice assistants on a single Sonos speaker.
    Can you tell us more about Google's role in blocking this 
service and the effect of this decision on your product and on 
consumers, and how was Google able to make that demand and who 
benefited from the outcome?
    Mr. Spence. So probably the best way to think about what it 
is that we want to do is just like on your computer today you 
could choose to use one search engine. You could use Google or 
you could use DuckDuckGo.
    We want to give customers the ability to access either 
Amazon's Alexa service or Google's Google Assistant voice 
service on a Sonos speaker and we have developed the technology 
which enables that, which is new, innovative, and the best 
thing for customers because it is choice, and we would be happy 
to put other voice assistants on there as customers so deem it.
    We developed that. We had it ready. We have showed it to 
Google and Amazon. To Amazon's credit, they said, okay, this 
makes sense.
    Amazon has led recently the voice interoperability 
initiative to try and, you know, drive customer choice. Google 
has said, if you are going to do that, Google Assistant will 
not be available on the Sonos platform.
    So you will not have access to Google Assistant if that is 
what you--if that is the way you want to run this.
    And so they haven't allowed us and we can't offer that 
today, which is, in my opinion, you know, really reducing 
freedom of choice for customers.
    Mr. Cicilline. Thank you very much.
    I now recognize the gentleman from Colorado, Mr. Buck, for 
five minutes.
    Mr. Buck. Thank you, Mr. Chairman.
    And I wanted to mention something that I did mention in my 
opening statement and that is I think there is great 
bipartisanship in examination of this, and hearing each of the 
individuals testifying today I think it is clear that there is 
abuse in the marketplace and there is a need for action.
    The question I have for each of you really is I hear the 
problem. I don't hear the solution. And I am a small government 
person and I am concerned about the government interfering in 
the marketplace because it may ultimately interfere with your 
ability to produce the products in the free marketplace that 
you want to produce.
    I first want to say, Mr. Hansson, thank you for dressing 
the way you did. That is the way I would like to dress. 
[Laughter.]
    I don't want to wear a tie either and you sort of have the 
image of a tech person--a tech executive. [Laughter.]
    So I--when I grow up I want to be just like you. 
[Laughter.]
    Mr. Hansson. I am happy to play the part. [Laughter.]
    Mr. Buck. Mr. Spence, I heard you talk about Google and how 
they created a competitive product. Would you advocate that the 
government or regulators in some way prevent a Google from 
creating a competitive product?
    Mr. Spence. We have competed--we have competed, you know, 
in the market against many great companies--Bose, Sony, you 
know, many, many companies.
    I think the difference in the case here is that these 
companies are leveraging their power in one market to, you 
know, go into new markets where there is predatory pricing and 
they are doing it to uphold their dominance in other markets.
    And so I don't know what the answer is in that particular 
case but they are doing that and they are infringing the 
intellectual property--the invention of a smaller company like 
ours in those cases.
    And so I think--I think we are in a unique position where--
I am with you in terms of small government but I think the 
whole spirit of trying to encourage small companies, encourage 
new innovations and new startups is at risk, given how dominant 
these companies are.
    I would argue that we have not seen anything like this 
before and the level of dominance, at least in my 20 years of 
experience. And so I think there may be----
    Mr. Buck. We have certainly seen--we have certainly seen 
the Rockefellers. We have certainly seen dominance in steel and 
dominance in other products.
    So what I hear you saying, and I want to make sure that I 
hear it correctly, you aren't opposed to large companies--Bose, 
Google----
    Mr. Spence. No. No.
    Mr. Buck [continuing]. Creating a competitive product.
    Mr. Spence. No.
    Mr. Buck. What you are--what you are opposed to is that 
competitive product--the pricing structure of that competitive 
product is something you believe is predatory, is--they are 
selling it below cost or below at least market value because 
they want to knock the competitors out of the market and they 
are using their platform to do that.
    Mr. Spence. That is correct.
    Mr. Buck. And do the anti-trust laws now cover that? Are 
we--are we looking at a situation where we need to adapt anti-
trust laws to high tech or are we looking at a situation where 
we need to give the federal government more resources to 
enforce the laws that exist?
    Mr. Spence. I do not have the depth of understanding of 
anti-trust laws necessarily. But I would say that----
    Mr. Buck. Neither do I and I am on the committee. 
[Laughter.]
    Mr. Spence. What I would say is my understanding of the 
spirit it is such that it would address these kind of 
behaviors. So, to me, I am not sure if it is enforcement or the 
laws.
    But I would think that this level of power with this few 
firms we should have rules in place which allow the Congress to 
act or for there to be remedies that are put in place. And I 
don't--I just don't see it happening today.
    Mr. Buck. So I guess I am still struggling. I want to 
figure out do you have--is there a way for us to receive 
information about the predatory price?
    Obviously, we don't know how much it costs Google. They are 
such a large company they may have some benefits in terms of 
the size of the company in producing something that they can do 
more efficiently than a smaller company. I don't know.
    But what evidence is there that they are--they are selling 
something at a price that is below the cost in order to be 
predatory?
    Mr. Spence. There are some industry analysts that do this 
kind of work to understand the cost profile. We, obviously, 
understand the cost profile, given the industry we are in.
    So in looking at that, we are quite confident there has 
been--you know, there has been executives that have made 
comments from these companies that say, you know, that they are 
doing it for other strategic purposes really to get their other 
services into people's homes and lock those in.
    So that information is available, and I think from, I would 
say as well, unbiased third parties, right, because that is 
where I imagine you would probably want to get it from and that 
is available.
    Mr. Buck. Thank you very much for your time.
    I yield back.
    Mr. Cicilline. Thank you.
    I now recognize Mr. Neguse for five minutes.
    Mr. Neguse. Thank you, Mr. Chairman.
    First and foremost, thank you for hosting this hearing here 
in Colorado in the 2nd Congressional District in particular, 
which is a hub national for ingenuity and technology 
innovation, and so it is a pleasure to be able to welcome you 
here.
    And, of course, very grateful to my colleagues, Mr. 
Perlmutter and Mr. Buck, for joining as well, and we want to 
give our regards to Mr. Sensenbrenner, the ranking member, who 
I understand had planned to attend but, of course, could not 
due to a storm in the Midwest.
    This hearing couldn't be more important, couldn't be more 
timely, and so I appreciate the witnesses, each of you, for 
coming forward today and offering your testimony.
    The presence of research institutions like CU Boulder and 
Colorado State University, access to a healthy venture 
capitalist community, home to startup incubators, and the 
ability of local government to read the tea leaves really has 
turned Colorado in particular into an entrepreneurial tech 
powerhouse like no other.
    So it is no surprise that Boulder and Fort Collins rank in 
the top 10 of America's most innovative tech hubs and I am 
proud to represent both of those cities. Of course, I would be 
remiss if I didn't start off my remarks on that front.
    I also want to say thank you to the University of Colorado 
for hosting this field hearing. It is the second that we have 
been able to hold in the last year here in the 2nd 
Congressional District and I am very grateful particularly here 
at the University of Colorado and the law school in particular 
for their generosity and graciousness in hosting this.
    I want to focus my questions on two topics. The first is 
data and targeted internet advertising, and I reviewed the 
written testimony of each of the witnesses and, Mr. Hansson, in 
particular I found your written testimony very compelling.
    There is a line--I don't believe you said it during your 
oral testimony but I will read it here--where you say, quote, 
``Facebook's targeting capability is crushingly effective and, 
therefore, truly terrifying.'' I found that to be a very 
compelling sentence.
    Targeted ads really are one of society's most destructive 
trends. They have led to an explosion of fake news and 
misinformation and it requires us to question whether it is 
possible to have free and fair elections when social media 
platforms like Facebook not only allow but encourage the mass 
propagation of misleading information and then supply the tools 
to micro target that information to its users.
    So I wonder if you can provide some more detail on your 
company's experience with Facebook and the use of targeted 
advertising tools.
    I understand that you are a Facebook-free company I think 
is the way that it is--the moniker that is--that you don't use 
Facebook advertising anymore. That was a conscious choice that 
your company made.
    So maybe you can expand a little bit about how you go 
there.
    Mr. Hansson. Absolutely. Thank you, Congressman.
    In 2017, we ran a series of marketing campaign tests on 
different platforms. We ran some on Facebook. We ran some with 
Google. We ran other platforms.
    It was very clear in all of those tests that Facebook was 
by far and away the most effective way to market because of the 
immense amount of personal data that they have.
    So we could target our ads to just an astonishing degree 
and no other advertising platform was able to compete. And this 
is why Google, who also has the same sort of capabilities of 
targeting, and Facebook is able to capture 99 percent of all 
growth in internet advertisement, as was stated in that report 
from 2016, because they simply have a devastatingly effective 
machine.
    But when you think about why that machine is so effective, 
what is it that underpins it, how is it that they are able to 
outcompete everyone else, it is all based on a fundamental 
violation of privacy for people--that they have been able to 
capture so many data points through so many sources that people 
are neither aware of is happening or would consent to if they 
knew all these data sources, things like purchasing records, 
the fact that both Facebook and Google can track you, 
everything you do on the internet pretty much because they have 
their little like buttons and they have their Google sign-ins 
on so many sites, that fact that Google controls things through 
Search and Facebook controls the main avenue that people get 
news through the news feed.
    They just have so much data. No one can compete against 
that trove of data. And in fact, they shouldn't have been 
allowed to gather that data in the first place.
    If they didn't have all that data, if there had been 
regulations in place to prevent them from gathering all this 
data, then they wouldn't have been able to capture 99 percent 
of the growth.
    So I think that this is where we need to start with the 
original sin, that they are able and allowed to capture this 
data without consent, without informing consumers, and 
therefore they are as effective as they are.
    Mr. Neguse. How has it impacted your business becoming 
Facebook-free?
    Mr. Hansson. Yes, so this is the other part of it. If you 
look at that system and say, I want no part of it--I do not 
want to be part of a violation of privacy on this mass scale, 
and you opt out, as we have chosen to do, you have essentially 
cut yourself off from the main effective way of reaching people 
online that other companies will use.
    So our competitors who have no qualms about using this 
machine they will outcompete us when it comes to ads. They can 
buy cheaper ads that reach more people and is more effective in 
its conversation and we are, thus, at a great disadvantage in 
the competitive marketplace when we choose not to do so.
    So this is why the pressure is so high. It is like a 
prisoner's dilemma. If the other company chooses to do it, you 
are pretty much forced to do it, too, even if you don't want 
to.
    Mr. Cicilline. The chair now recognizes the other gentleman 
from Colorado, Mr. Perlmutter, for five minutes.
    Mr. Perlmutter. Thank you, Mr. Chair, and thanks to the 
university and panelists. Thank you for your testimony and, 
quite frankly, your courage to be here today because when you 
take on, you know, dominant players as--whether it is Amazon, 
Google, Apple, or Facebook, you know, you got to have a little 
trepidation. I think somebody used that term in their 
testimony.
    But I can tell you our family is a customer of pretty much 
everything that you all are selling, although my daughter is 
the one that uses Shopify that has the backstop in your 
software.
    So I just want to thank you for the products that you sell 
and that you design and innovate. The thing that I really am 
bothered with, and I will start with you, Professor, is the 
bullying piece, and I think, Mr. Hansson, you used extort and 
Ms. Daru, you didn't use it but the word squeeze came to mind 
in what is happening to Tile.
    So how in the world can Google or--I think it was Google 
who was problematic for you, Mr. Barnett----
    Mr. Barnett. It was Amazon.
    Mr. Neguse. Pardon me. Amazon. Ignore the contract that you 
entered into and just say sorry, you know, that was our 
contract but you got to lower your price?
    Mr. Barnett. With coercive tactics, basically, and these 
are tactics that are mainly executed by phone. It is one of the 
strangest relationships I have ever had with a retailer is with 
Amazon.
    Most of our discussions are by phone. They feel very 
scripted. They don't feel authentic. And by the way, I hear the 
same--what I describe I hear from lots of other manufacturers' 
brands who deal with Amazon.
    So what is on record is an agreement that appears to be 
negotiated in good faith in terms of the agreement. It is all 
there.
    And then what happens in practice is that there are 
frequent phone calls, and on the phone calls we get what I call 
bullying with a smile. Very friendly people that we deal with 
who say hey, by the way, we dropped the price of X product last 
week. We need you to pay for it.
    And I think to myself, well, that is odd. It is not in our 
agreement that we are going to pay for it so why do you need us 
to. And we expect you to pay for it. So there is some pushback, 
and I say, well, it is not in our agreement--why would you 
expect that.
    That is strange. It is not in the agreement. The response 
is, well, if we don't get it--and then the threats come--if we 
don't get it we are going to source product from the grey 
market. So one of your resellers----
    Mr. Neguse. Do they say that to you?
    Mr. Barnett. Yeah. Sure. The response is, if you don't--on 
the phone. Sure. The response is if you don't fund this what we 
are going to need to do is we are going to need to get a more 
competitive pricing.
    We are going to go to one of your resellers who is not 
authorized to sell to us and we are going to start sourcing it, 
and we will find it. So----
    Mr. Neguse. And then your only recourse was to terminate 
the contract?
    Mr. Barnett. That is one of the things they say. Another 
threat might be, you know, we have got too much inventory on 
hand so we are going to ship it all back to you. You are going 
to pay for all the fees.
    There is an expense to shipping this back to you so we are 
going to--we are going to end up charging you all of those 
dollars. So, really, we need the money. Let us have it.
    And also, you know, maybe we need to end the partnership is 
another threat, and if we had the partnership that puts us in a 
pretty tough position, given Amazon's dominance in the online 
marketplace.
    So this is tiring. I mean, it is tiring week after week 
saying, no, no, no, being subjected to this sort of bullying. 
And we eventually decided to end our partnership.
    Mr. Neguse. Let me turn to Mr. Hansson and Ms. Daru.
    So in connection with your companies, you provide all sorts 
of information to Apple, to Google, to whatever, and then what 
do they--how do they use that information against you?
    Mr. Hansson. Yeah, go ahead.
    Ms. Daru. Sure. Thank you.
    Mr. Neguse. I mean, don't they have a conflict of interest 
of some kind or----
    Ms. Daru. Thank you for your question.
    I would--I would think so, and I want to be clear that it 
is not that we are giving access necessarily to Apple.
    But by virtue of Apple's ownership of the entire iOS 
ecosystem they get access to a lot of competitively sensitive 
information like who our customers are, what other kinds of 
apps they use, the demographics of people who might be looking 
for Tile like apps in ways that we can't.
    They have access to our retail margins they shared and our 
profits. They know who is picking up our subscriptions and, 
unfortunately, it is really difficult for us to know exactly 
how they are using it but they certainly have access to it.
    Mr. Neguse. I think my time is about to expire so I will 
give you back to the chair.
    Mr. Cicilline. I thank the gentleman.
    I would like now to turn to Mr. Barnett.
    During this subcommittee's hearing, again, in the course of 
this investigation in July, Amazon's associate general counsel, 
Nate Sutton, denied that Amazon wields market power in online 
retail, testifying that the retail industry is full of 
competitors to Amazon including companies like Wal-Mart, eBay, 
Target, Safeway, Wayfair, and Kroeger, as well as Ali Baba and 
Rakuten.
    Mr. Sutton also claimed that sellers have numerous options 
when considering where to sell their products. And so my 
question for you is for businesses like PopSockets, do the 
companies Amazon listed serve as reasonable alternatives to 
selling on Amazon?
    Mr. Barnett. Sure. I can give you some actual numbers.
    We sell on the Wal-Mart platform. Our sales on the Wal-Mart 
platform are about 1/38th of the sales that we had on Amazon 
back when we had this relationship with Amazon. One-thirty-
eighth, and Target it is even less.
    So I don't know what it is but----
    Mr. Cicilline. So those aren't reasonable alternatives?
    Mr. Barnett. These are small fractions.
    Mr. Cicilline. Yeah.
    Mr. Barnett. If you back up--what they are saying--you 
know, what he is saying is in a way true. It is just 
irrelevant.
    If you back up and look at this, I think it is easiest to 
look at it as if it is a different country that we are looking 
at and ask those questions.
    Suppose you discover of some country--say, it is Costa 
Rica--and you discover that they have this marketplace--no, 
sorry, lots of marketplaces, but most of them are really tiny.
    They have one big marketplace where almost everybody goes 
to trade. They trade goods and people want to exchange goods.
    And then you learn it is privately run and then you learn 
that the company or person running this marketplace dictates 
the terms of the transactions, dictates ultimately, directly or 
indirectly, the prices that are--in these transactions, which 
indirectly dictates how much money companies have or 
individuals for innovation, for research. There is a private 
company running this marketplace.
    That would be pretty alarming and that might be an instance 
where you say government should probably get involved here.
    Mr. Cicilline. In his 2019 annual letter to shareholders, 
Amazon CEO Jeff Bezos wrote that third-party sales on Amazon 
are soaring, thanks to services that Amazon provides to 
merchants, and he wrote, and I quote, ``We helped independent 
sellers compete against our first party business by investing 
in and offering them the very best selling tools we could 
imagine and build.''
    Mr. Sutton, at the hearing, said, and I quote, ``We know 
sellers have other ways to reach customers so we invest in 
them, support them, make continuous efforts to improve their 
experience, including spending significant resources to root 
out bad actors and prevent fraud and abuse that harms both 
sellers and customers,'' end quote.
    Given your experience, do you agree with Amazon's statement 
suggesting that it seeks to act in the best interest of 
independent sellers?
    Mr. Barnett. I disagree with that.
    Jeff Bezos--I think when he makes this statement I am not 
sure that he can--he can genuinely, you know, believe his 
statement.
    So in our own case, we are not allowed to sell in that 
marketplace. PopSockets have been banned from selling in that 
marketplace because Amazon retail has chosen to have this 
transaction with us, and many other companies.
    That is the language they use, that we are one of the 
chosen ones to be coerced, basically, into a certain 
relationship.
    And then as far as helping these small sellers, you can do 
your own survey and see what they say. I doubt many of them 
will be willing to come and testify because their livelihood 
depends on it, and they will tell you about retaliatory 
practices.
    So they are used to it.
    Mr. Cicilline. And thank you again for your courage in 
being here.
    In your written testimony you describe your relationship 
with Amazon as one where they, and I quote, ``regularly dress 
up requests as demands, using language that a parent uses with 
a child--more generally, that someone in a position of power 
uses with someone of inferior power.''
    Is it your experience that Amazon acts as though it 
basically is able to dictate the terms of your dealings? What 
does this look like and why do you think Amazon is able to get 
away with taking this approach in its dealing with sellers?
    Mr. Barnett. The answer is yes.
    So throughout the relationship, strangely, it is by phone 
this all happens. But that is the language. It is a language of 
one party being in power over another party that is powerless--
we need this, we expect this, even though it is not in our 
written agreement.
    I think, in my experience, the greatest event that 
highlighted this attitude at Amazon was when we said--we said 
it very nicely, too--we said we are unhappy with a few things.
    We are going to experiment with another model. There is an 
asymmetry in the relationship. You know, we didn't call them 
bullies or anything. It was very friendly.
    Their response was, no, you are not going to do that. You 
are not going to leave us. That is the actual response.
    Mr. Cicilline. I want to just get in one more question. You 
stated that you feel Amazon has retaliated against PopSockets 
for speaking out on Amazon's policies.
    Can you tell us more about this situation, what kind of 
retaliation you experienced after terminating the relationship 
with Amazon retail?
    Did PopSockets experience any challenges with Amazon 
representatives and do you think your experience has been 
unique? I mean, I think this is really important for us to 
understand.
    Mr. Barnett. Sure.
    So we needed to interact with various departments at Amazon 
after we ended our relationship with them--our direct 
relationship of selling to the retail team, and my team 
reported to me that they were just getting stonewalled.
    With each department--the example I gave in my testimony 
was trying to get hundreds of thousands of dollars that Amazon 
owed us for incorrect charge backs.
    They just refused to communicate with us anymore. So 
communication just stopped department after department and, 
oddly, we were given the same reason.
    So we got one and only one sentence back by all of them. It 
said researching issues in partnership, and then nothing. They 
wouldn't respond.
    So we had--we had that experience and--I am losing my 
thought on the second----
    Mr. Cicilline. Well----
    Mr. Barnett [continuing]. Experience we had. It is not 
coming to me.
    Mr. Cicilline. Okay. Well, we will have some time.
    I now recognize Mr. Buck for five minutes.
    Mr. Barnett. Sure.
    Mr. Buck. Thank you, Mr. Chairman.
    Mr. Barnett, you--did you get a Ph.D. in philosophy?
    Mr. Barnett. Yes.
    Mr. Buck. I took a philosophy class once. [Laughter.]
    Mr. Barnett. Let us talk philosophy.
    Mr. Buck. I didn't do so well so I went into political 
science. But I think you are really smart and I always wanted 
to be smart, and you invented something and I really--it is 
what I love about innovation and--I mean, I always wanted to 
invent the pet rock. Do you remember that?
    Mr. Barnett. That would be great.
    Mr. Buck. A lot of the folks up here are too young to 
remember pet rocks. But they served absolutely no purpose but 
people bought them like crazy, and it had all--everything to do 
with marketing and nothing to do with function, and I always 
thought that was amazing.
    But where do you go if you don't go to Amazon? So you go to 
newspapers. Less and less people read newspapers. You go to 
billboards. You go to--where do you go?
    It seems like Amazon is so dominant that there is no 
alternative to Amazon.
    Mr. Barnett. Sure. I think--I think Amazon will rightly 
respond to you by saying, no, no, there are plenty of 
alternatives.
    In the Costa Rica hypothetical example I gave, there are 
plenty of alternatives. They are just tiny, right, and some 
companies can afford to live outside the large marketplace--the 
hypothetical one in Costa Rica that I described--and still 
survive on these tiny, you know, much smaller opportunities, a 
string of them, and that is what Amazon will respond.
    We are one of those companies who has survived its 
termination with Amazon. So we pulled out. We are still alive. 
We have lost quite a bit of money. So just last year, you 
know----
    Mr. Buck. So I want to get into a little philosophy with 
you here.
    Mr. Barnett. Sure.
    Mr. Buck. What made America great? And I am not getting 
into Make America Great. I am just--what made America great?
    In my mind, it is the ability for you to compete fairly 
with somebody else who has another product, and then you create 
the next innovation and they--and that is how you compete.
    Mr. Barnett. Sure.
    Mr. Buck. You don't compete with somebody or you can't--you 
can't innovate in a business world--and I know there are people 
in this world that don't like the word profit, but you can't 
compete unless you are making a profit.
    Mr. Barnett. That is exactly right.
    Mr. Buck. And if there is a company--if there was a country 
that stifles your ability to make a profit, we will see less 
and less innovation in this country.
    And as we see less and less--and this is getting really 
philosophical--as we less and less innovation in this country, 
we will not be a dominant player in the world because we don't 
manufacture at a lower cost. We innovate at a higher rate.
    Do you agree?
    Mr. Barnett. I fully agree, and that is why I--if you ask 
me whether I like small government or big government, I will 
tell you I like exactly the right size government.
    So I want to know what can government do in each instance 
and if government can take action that will help protect 
innovation without doing a greater harm, government should do 
that.
    Mr. Buck. Okay. So let me ask a question.
    Mr. Barnett. And there is a harm here. Our research--we 
have $10 million less to innovate this year. Ten million 
dollars we could double our innovation team.
    We have 30 people innovating all sorts of products. We 
could have 60 people. We could double the source of innovative 
products.
    Mr. Buck. Let me ask you a question. We have time limits so 
I just want to get to this one point.
    Mr. Barnett. Sure.
    Mr. Buck. What is the size of your lobbying budget? 
[Laughter.]
    Mr. Barnett. Zero.
    Mr. Buck. Mr. Spence?
    Mr. Spence. Zero.
    Mr. Buck. Mr. Hansson?
    Mr. Hansson. Zero.
    Mr. Buck. Ms. Daru?
    Ms. Daru. Nothing budgeted.
    Mr. Buck. So what is the size of Google, Facebook, Amazon, 
and Apple? You may not know, and you don't have to answer it 
because you are under oath.
    So let me just tell you something. Part of what we are 
dealing with here is the reality that they walk into our 
offices and they tell us their side of the story and we very 
rarely hear the other side of the story, and somehow part of 
this solution has to be that public policymakers elected, 
appointed, have to have access to that kind of information.
    So I thank you for being here and I also would encourage 
you to make sure that, you know, we are accessible. We are 
trying our best to make sure that we continue to create the 
environment for your kinds of companies.
    So thank you, and I yield back.
    Mr. Barnett. Thank you.
    Mr. Cicilline. I thank the gentleman.
    And I would say the gentleman's comments are really 
important as in that is the reason or at least one of the 
reasons this investigation was launched because we really 
wanted to understand the marketplace and that is why the 
testimony from these four witnesses, which I am afraid 
represent just a small number of examples of what we know is a 
very pervasive and large problem.
    So we are, again, grateful for your being here. And with 
that, I recognize Mr. Neguse for five minutes.
    Mr. Neguse. Thank you, Mr. Chairman. I couldn't agree more 
and I think my good friend, Mr. Buck, makes a very salient 
point and it is the impetus for why we are here today, to be 
able to hear directly from you all.
    I have been trying--the second point--the second sort of 
piece of this that I wanted to discuss was some of the issues, 
Mr. Hansson and Ms. Daru, that you all alluded to with respect 
to Apple and trying to come up with the right analogy for the 
fundamental issue that is bedeviling us here, which is the 
distinction of being both a marketplace operator and a seller 
of one's products. Neither of your prospective companies are 
marketplace operators but you do sell products and do a good 
job at that.
    If one thinks of the traditional way in which we purchase a 
product in a marketplace. Walk into a Target today or a 
Walgreen's or a Wal-Mart and look for a flashlight you may find 
a number of different companies that have created different 
versions of a flashlight, right, and they all--there is a 
profit motive there and they are able to sustain their 
businesses by innovating and improving upon the products that 
they have created.
    There is no fear that the store, the place in which they 
are purchasing this product, is going to take the information 
that comes with this product, create their own version of it, 
and essentially operate to the point that it blocks out any 
other product in that--in that category, right.
    And, of course, that is not the case with Apple and some of 
these digital behemoths because the App Store--and the 
flashlight is actually a great example, right, because prior to 
Apple creating the flashlight function on the phone, there 
were, my understanding, a number of apps that were quite 
successful, right, in creating and providing that service.
    And, of course, once Apple has decided to essentially do 
the same, it renders all of those apps superfluous and 
unnecessary.
    And I think, Ms. Daru, part of what made your testimony so 
compelling and your written testimony in particular is the 
information that you are providing as a company to Apple that, 
in turn, can be leveraged eventually to extinguish your 
invention and I guess I am curious.
    If you can kind of expound in greater detail about the type 
of information that you have to provide to Apple in order to 
ensure that your app is accepted into the App Store, because I 
don't know that the average consumer understands that level of 
detail.
    I think most folks assume that when you go into the App 
Store that it is a fairly basic transaction between Apple and a 
company like yours where you are essentially placed into 
their--into their marketplace and that doesn't strike me that 
that is the case.
    Ms. Daru. Thank you for your question.
    Yeah, and, you know, Tile doesn't provide data, you know, 
per se to Apple. But, again, by virtue of their ownership of 
the entirety of the iOS commercial ecosystem they necessarily 
have access to that type of information so, like, where 
customers are, what our retail margins are, our subscription 
take rates.
    They are able to--they have wholesale access to that 
information, and on top of that, you know, we are seeing other 
actions by Apple, again, to further its own interest and put 
companies like Tile at a disadvantage.
    They put their competing apps front and center in front of 
their consumers. Tile is in the App Store with the all the 
other third parties. Theirs is installed natively on the 
iPhones.
    They can--they basically make rules about how the platform 
should operate, who and under what circumstances, who should 
have access to permissions, and then they exempt themselves 
from all of those rules.
    You know, they give themselves access to technology like 
UWB but they deny access to companies who legitimately could 
use it to innovate for their own customers.
    You know, they make changes to the operating system in ways 
that drain our engineering resources and make it difficult for 
us to innovate.
    And so for all of those reasons, the--you know, it is clear 
that Apple is exploiting its market power and dominance to gain 
an advantage in the marketplace.
    Mr. Neguse. Mr. Hansson?
    Mr. Hansson. I think actually the even more important point 
is the economic point. To sell software on the App Store you 
have to agree that Apple takes 30 percent. What businesses just 
have an extra 30 percent margins to compete against someone who 
will charge themselves 0 percent margin?
    If Apple has a service--a competing service in the App 
Store, they have a 30 percent margin advantage right from the 
get-go. That is on top of all the other advantages they have in 
terms of information, setting the rules, and so forth.
    Just on prices alone, it is completely outrageous that they 
can charge 30 percent, that that rate has stayed constant in 
the 10 years the App Store has existed. Meanwhile, we get----
    Mr. Neguse. That rate is standard, that 30 percent, across 
the board?
    Mr. Hansson. That rate is standard. You don't get to 
negotiate. You don't get to--sort of they made some tiny 
concessions around long-term subscriptions recently. But they 
are inconsequential.
    On the same hand, we have a credit card processing system 
that we use on the open internet where we every week get 
conversations with the processors who want our business and 
they are all competing, and they are--we can do it 10 basis 
points cheaper than the other guy and the rights are 1.8 
percent or 2 percent.
    That is what a competitive market looks like. A 
incompetitive market is what it looks like on the App Store--30 
percent 10 years going, no matter how much revenue that Apple 
is processing through the App Stores. They face no competition 
and they have such an unfair advantage.
    Mr. Cicilline. Thank you.
    I now recognize Mr. Perlmutter for five minutes.
    Mr. Perlmutter. Thank you, and I think all of us up here on 
this panel--Mr. Buck, Mr. Cicilline and Mr. Neguse--we are all 
on the same page.
    And so I want to start with you, Mr. Spence. In your 
testimony you say dominant platforms are able to develop 
copycat products by analyzing sales metrics on their platforms 
and combining them with rich data profiles of their customers.
    These copycat products are then sold at cost or lower with 
no intent to reap a profit. They also can use remarkably 
similar trade, dress, and marketing campaigns. Can you expand 
on that a little bit?
    Mr. Spence. Sure. So we, in our written testimony as well, 
provided some examples of advertisements from some of the these 
dominant platforms that look remarkably similar to ones that we 
had, you know, a year or two before, that even with the same 
dress with using some of the same iconography, all of it, and 
they understand who has bought, you know, our products, other 
competitors' products, and they can address these people in a 
way that we can't and at an advantage that we can't. And so the 
advantages are like nothing we have ever seen before.
    Mr. Perlmutter. So talk to me about the rich data profiles. 
And everybody has touched on that a little bit. Talk to me 
about that.
    Mr. Spence. Well, think about how dominant these companies 
are across how many dimensions at this point--the mobile 
operating system, the cloud services, the search, the 
marketplace of e-commerce.
    The list goes on and on in terms of the breadth of 
information that they have that they can share back and forth 
to really understand and draw a picture of almost anything, 
right.
    They see something that may be exploding on the cloud 
services, right, and they see applications or things or areas 
of interest there. They see something that might be of interest 
and really exploding, like PopSockets, on their e-commerce 
front end.
    These are areas just by nature, I think, of companies now 
that we see that then there appears to be a trend where those 
become markets that then they move into, right.
    If there is any market that is getting traction and is of 
interest, you see these companies moving into those markets.
    It is almost, like, the fear of missing out, right, and I 
think it is a fear that, at the end of the day, this is a 
market that may threaten their dominance of the other markets.
    And so we are in this incredible cycle where every new 
market that you see pop up you see these dominant firms begin 
to participate.
    Mr. Perlmutter. All right. Last, and this sort of goes to 
my comment about, you know, everybody sitting there as--you 
guys, I just appreciate your testimony and willingness to come 
and share this.
    So you say in your testimony Sonos is strong enough and 
successful enough to say what goes, largely, unsaid but remains 
very much on the minds of countless tech entrepreneurs.
    Can you elaborate a little bit about why--you know, you 
have 1,500 employees. Ms. Daru's company has a hundred. I mean, 
why do you feel like you have a little bit of an advantage in 
that respect to share it today?
    Mr. Spence. We are in a--we started early enough. You know, 
so almost 20 years ago. And we--when it was unfashionable 
focused on profitable growth, not just growth at all costs, and 
we are in the fortunate position where I think we are strong 
enough financially.
    I am taking a risk here, no doubt. We work closely with all 
of these dominant companies, right. So I think I am taking a 
risk.
    But I feel that this is a big enough issue that people need 
to speak out, and I feel like it is important that these issues 
come to the forefront because we have a responsibility to speak 
for those that can't.
    Mr. Perlmutter. The last thing, and I know we have somebody 
from the Attorney General's office here in the audience today 
from the Office of Consumer Protection.
    But I had suggested to him that that consumer protection 
also be businesses such as yours when it comes to these 
dominant platforms--that it isn't just Mrs. McGillicuddy living 
down the street but it is, you know, Basecamp or Tile or Sonos 
or PopSockets.
    And with that, I yield back.
    Mr. Cicilline. I thank the gentleman.
    I now recognize myself for five minutes.
    Mr. Hansson, your written testimony stated that Google has 
a monopoly in Search. In its response to question I sent the 
company last year, Google wrote that it faces, and I quote, 
``robust competition from other sites on the internet with 
intense competitive pressure on us to ensure users find what 
they are searching for,'' end quote.
    What is your response to Google's statement that it faces 
intense competition in Search?
    Mr. Hansson. I think that statement relies on the fact of 
expanding the market so broad and so wide that everything is 
competition.
    It is like when Facebook said that they face intense 
competition from things like sleep, right. [Laughter.]
    Like, we have a limited amount of attention in the day. If 
we could make people sleep two hours less, that is two hours 
more they could spend looking at ads on Facebook.
    Google is doing the same thing by essentially saying that 
things like people searching for a product on Etsy, that is a 
kind of search and that is also in our domain.
    No, it is not. If you search the internet, Google is it. We 
have the statistics. We see where our leads come from when they 
come to our marketing site. They all come from Google.
    No other search engine that matters has any market share 
that matters at all. About 40 percent, which is a low number 
for our industry--40 percent of all our marketing needs come 
from Google.
    No other search engine provides as much as 1 percent. They 
have complete dominance. We could lose our listing in 
DuckDuckGo and we wouldn't even be able to tell. We lose our 
listing in Google and we may go out of business.
    Mr. Cicilline. Well, and in fact in a subcommittee hearing 
Google said, and, again, I am quote, ``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,'' end quote.
    And as you just mentioned, the search with respect to 
places like Yahoo, Microsoft, Bing, or DuckDuckGo rarely pass 
even 1 percent.
    Mr. Hansson. And also, just to--an example, if consumers 
hear about Basecamp they want to find Basecamp on the internet. 
Can they go to Travelocity to search for Basecamp? Are they 
going to find Basecamp in the travel listings there?
    No, they are not. There is only one place where you are 
going to find businesses that are online today and that is 
Google and that is why they have this tremendous power and none 
of these other platforms matter in that regard.
    Mr. Cicilline. And you noted in your testimony that Google 
is erecting tollbooths everywhere. What are some examples of 
these tollbooths and you state that it was not always like this 
and that Google has introduced these tollbooths over time.
    Why do you believe Google is imposing these tollbooths and 
what are the implications?
    Mr. Hansson. Yes. It used to be that Google cared very much 
about the user experience. They would endlessly give interviews 
about every little pixel mattering and how it was just so 
important to provide fast service to people could find what 
they were looking for.
    Today, if a consumer goes to Google on their mobile device 
and search for Basecamp, the first thing that they will find is 
whoever bought that trademark term, which is usually one of our 
competitors. Ergo, consumers are not finding what they are 
looking for.
    They are not being presented with what they are actually 
looking for. They are being presented with an ad and that is 
the tollbooth that they are erecting.
    It didn't used to be like this. You used to be able to 
search on Google for what you were looking for and you would 
find it because Google has a great search engine.
    The problem is they have replaced that search engine with 
an ad engine instead. So now they serve up ads first and they 
dominate.
    You ask anyone who is in Google's listings does it matter 
whether you are on page 3? No, it doesn't. No one goes to page 
3. Everyone goes to page 1 and they look at the first results.
    So we try very hard and have spent 20 years building a good 
reputation such that we would be the number-one organic search 
term for Basecamp.
    It is just that that doesn't matter anymore. The organic 
search term does not matter anymore. The only thing that 
matters is whether you buy the advertisement.
    We can pay off that, essentially, by buying ads on our own 
name. Why would we do that? Customers already know they are 
looking for Basecamp.
    They go to Google to find us--to find Basecamp, and now we 
have to pay Google to buy ads for our own name such that 
competitors aren't misdirecting them.
    It is a complete shakedown and it should not be allowed.
    Mr. Cicilline. And two more questions.
    One is you testified that your company has undoubtedly 
given up growth to competitors because you have refrained from 
pursuing targeted ads.
    Do you think a new startup to establish itself has the 
option to not work with Facebook and Google and survive?
    And then, finally, you also mentioned that Apple has 
retaliated against Basecamp for informing consumers that they 
can sign up online rather than through the app.
    Can you tell us more about this situation, how it has 
affected Basecamp and how this policy affects users?
    Mr. Hansson. Sure. For the first question, I think the main 
thing here, just like with Sonos, is we were founded early 
enough that we were able to build up a brand name prior to 
these conglomerates having complete domination as they do 
today.
    So we have some brand equity that we continue to rely on. 
But it is being diminished. And if you were to start today you 
would not have this opportunity. You would absolutely have to 
pay these platforms in able to allow consumers to find you and 
build your reputation.
    So I think the game is very different now and that is the 
tragedy that we have seen. We started a business, were able to 
grow it, make it successful because it was a free, fair, and 
open marketplace. It no longer is today and now we are facing a 
brand new threat.
    In terms of the retaliation, we had one example where our 
application does not use Apple's payment services. We refuse to 
pay the 30 percent fee. We find it completely outrageous.
    So we have to go through all these contortions to 
essentially tell users when they find our app in the App Store 
that we are not using Apple's payment services, that we are 
using something else.
    Except Apple forbids you in the terms of the agreement to 
say anything of the sort. You cannot mention that you are using 
an external third-party payment processor and if Apple finds 
any evidence of that anywhere they will deny your application.
    For a long time, for over a year, we had a small link in 
the help section deeply buried within the app that would lead 
you to an external help site that would talk about the fact 
that you could purchase a subscription to Basecamp.
    For the longest time no one at Apple cared. One time we 
submitted an update to our application. A particularly 
enterprising reviewer finds that, five pages buried deep, 
denies our update.
    Now we are no longer able to provide bug fixes, security 
patches, or anything else through our update until we remove 
that.
    So we get completely bullied out of having any way of 
telling customers how they can actually buy our product. You 
see this--I submitted in my written testimony a screenshot for 
Netflix--Netflix, one of the other big giants. They can't even 
tell their customers how to pay for the product when they are 
on the App Store. It is outrageous.
    Mr. Cicilline. Thank you very much.
    Mr. Buck.
    Mr. Buck. Thank you, Mr. Chairman.
    Mr. Spence, I want to clarify something with you. I am 
sorry, Mr. Barnett.
    You said that you can't buy PopSockets on Amazon anymore.
    Mr. Barnett. I did not say that.
    Mr. Buck. Oh, okay. You can't sell.
    Mr. Barnett. So what--just to clarify the relationship, we 
quit selling to Amazon. Amazon was then reselling so it would 
say sold by Amazon. There was plenty of other--there were 
plenty of other sellers.
    Mr. Buck. So we could still buy it on Amazon?
    Mr. Barnett. In addition, we are now testing a relationship 
with that same team at Amazon. So as of--in the last 30 days 
you will see products sold by this Amazon team that we broke up 
with, you know, over a year ago. So you may even see products 
sold by that team.
    Mr. Buck. Okay. Mr. Hansson, I want to visit with you about 
something because I think there are two issues here that most 
of us agree on.
    There are a lot of things that we don't agree on. There are 
two things that we are talking about today. One is 
competitiveness and the other is privacy, and we haven't 
touched on privacy and I want to ask you to shorten your 
answers a little bit for me if you can.
    But one of the things that bothers me is when I buy 
something online somebody now knows a little piece of 
information about me, and when I buy enough things online they 
know a whole lot of information about me and they use that 
information to target me.
    If there were 30 online vendors they would each know a 
little bit about me. When there is one online vendor like--or 
one search engine like a Google, that company now has a 
privacy--they have my private information as well as an 
interest in marketing.
    And I want to, if you could--and I know you don't have the 
philosophy degree, but I just want to--if you could, tell me a 
little bit about what your concerns are in terms of Americans 
and, really, people all across the globe giving up that private 
information and how it is impacting the marketplace.
    Mr. Hansson. I think that is a great question. I think 
actually as a--personally, as a consumer, it is the question 
that stresses me out the most--the fact that we are forced to 
give up our privacy to interact with the modern world.
    You cannot opt out of this data collection. If you want to 
use the internet, this is being done to you. You simple have no 
power.
    There are some good initiatives going on--CPA in California 
and the GDPR in Europe--that is starting to address this, that 
companies and platforms are not supposed to be able to just 
collect everything about you without your knowledge and, 
essentially, collecting these dossiers that they can use to 
target you, because we are all susceptible to advertisement.
    Anyone who says otherwise is simply uneducated. If you know 
enough about a person, you know all their weaknesses and their 
fears and their aspirations, you can sell them so far more 
effectively all sorts of things that they may not have bought 
otherwise and perhaps they shouldn't have pursued in the first 
place.
    The example I give in my written testimony is the fact that 
a woman who is pregnant Apple--sorry, not Apple--Google or 
Facebook may well know before her family does because they can 
purchase things like a sales record from CVS that maybe there 
was a pregnancy test bought or the fact that she searched on 
Google about becoming a new mother, and they can use that data 
to then sell that to advertisers who want to reach pregnant 
mothers.
    That is not a piece of information that they volunteered. 
They didn't sign up to say, oh, I would like to receive 
advertisement on this private fact about my life and have at 
it.
    This is just something that is being done to them and we 
need to provide consumers real protections so things aren't 
done to them so their data aren't being used against their 
better judgment.
    Mr. Buck. And that was the short version. [Laughter.]
    So I want to go sort of one step beyond that with you and 
what is the answer to that? Is there--is there a limit to how 
much--how big we should let a company aggregate that kind of 
information?
    Mr. Hansson. I think----
    Mr. Buck. And I know--I got to tell you, my concern isn't--
I don't really care if they tell 15 t-shirt companies that I am 
now looking for a t-shirt or 15 cowboy boot companies I am now 
looking for cowboy boots.
    I am concerned more about the ability of governments, the 
ability of police forces, the ability of people that would use 
that information for nefarious purposes to get that 
information.
    It is one thing to entice me into buying ice cream when I 
am on a diet. It is another thing when you are trying to use 
that information in ways that I explicitly don't want that 
information used.
    And so what is the answer there? How do we--how do we have 
great search engines but not just one?
    Mr. Hansson. I think the number-one issue here is simply to 
ban companies from collecting this information in the first 
place and then the reason they are collecting this information 
is such that they can sell you targeted advertisement.
    If it was no longer allowed to target advertisement based 
on personal data, they would have no interest in collecting all 
this data. This data is solely being collected for the purpose 
of creating these ad engines.
    So if you essentially say to Google, for example, you can 
simply place advertisement based on my search term--when I 
search for a new car in Chicago, resellers of cars in Chicago 
they can advertise.
    But they can't advertise on the fact that I owned a Toyota 
six years ago or that I was in an accident and I might be more 
susceptible to a advertisement for Volvo or something else like 
that.
    Ban the right of companies to use personal information for 
data targeting--for advertisement targeting.
    Mr. Cicilline. Thank you. The gentleman's time expired.
    I recognize Mr. Neguse for five minutes.
    Mr. Neguse. Thank you, Mr. Chairman.
    I also want to say a thank you to our attorney general and 
Congressman Perlmutter. Earlier, we had a chance to visit with 
him this morning and he has been a national leader on these 
issues on the anti-trust fund, working in tandem with the 
attorney generals from any number of other states and we 
appreciate his leadership on that front.
    I guess, you know, as we get closer to the end of this 
hearing, Mr. Buck asked this question I think at the very 
beginning and I think it is fitting that we sort of end on it 
as well, which is to say the goal of this committee at the 
conclusion of its investigation, the hope, is that we would 
have a number of different statutory recommendations that we 
can make to the Congress to change the law, strengthen the law, 
in the anti-trust and also potentially some regulatory 
recommendations, ways in which the agencies that are charged 
with addressing these issues can act in a more muscular way--
the FTC and others.
    I am curious as to whether, and this is a question to all 
four of you--as you sit here today, what recommendations would 
you make?
    What steps do you think Congress should take, whether that 
is specific legislation you think we ought to pursue, or, as I 
mentioned, perhaps on the regulatory front steps that we should 
encourage and incentivize there.
    And, you know, Mr. Hansson, you referenced this perspective 
of privacy just now in terms of one step perhaps that we could 
take. But I want to give each of you a chance to answer that 
question, starting with you.
    Mr. Spence. Thank you for the question.
    I do need to correct the record on one thing. We have 
just--we are now spending $10,000 a month on lobbying, which I 
would much rather be putting into research and development, but 
is a direct impact of the situation we are in today.
    You know, as I think about where I hope this committee is 
looking, I am not--you know, I am not educated enough to 
understand necessarily all the anti-trust laws, as I mentioned 
before.
    But I would say looking at leveraging market dominance in 
one category to be able to dominate another category is 
something that has to be, you know, thought through.
    Like, how--is that--is that the spirit of the kind of world 
that we want to live in, at the end of the day, and I think the 
other big issue is this notion of--is of efficient 
infringement, as it is called, where these dominant companies 
can infringe the intellectual property and invention of other 
companies and they do it calculating the fact that if they have 
to pay down the road--if that is enforced later on they will 
pay the fee.
    By that point, the competition will be out of it and it 
will be so dominant that it is a rounding error, at the end of 
the day.
    So swift action on that front and material action is 
something that I think would help.
    Mr. Barnett. So I raised two issues, one around the 
counterfeits and fakes on the Amazon marketplace, the other 
around bullying.
    As for counterfeits and fakes, we don't have the resources 
to fight Amazon. We didn't sue Amazon. We never will sue 
Amazon.
    We spent $7 million last year in legal battles against tiny 
players. I mean, really tiny players. Imagine what it would 
cost to fight Amazon.
    We could use some help. It would be great if the 
government, at some level, stepped in and said massive 
companies that are systematically violating intellectual 
property rights of small players are targets for the government 
and the government needs to step in. That is one thing with 
fakes.
    And then, second, with the bullying, there are two pieces 
to it. There is Amazon as a bully as a retailer and Amazon as a 
bully running a marketplace and dictating the terms of the 
marketplace, and they are connected.
    But it might be a good idea to separate these two out and 
say, Amazon, let us break it into two companies. One, if you 
want to sell on this marketplace, great. That is one company.
    If you want to run the marketplace, great. But you are 
going to run it according to certain rules where--especially if 
this is going to take 45 percent of the online revenue.
    Then there are going to be certain rules to ensure a 
certain fairness and to ensure that players can play fairly on 
this and dictate the terms that they--that they want, and if 
you want to take a fair profit, great. We will reward you for 
developing this great marketplace, right.
    Mr. Hansson. I think, actually, there is a lot of history 
here. The last time a single company was so dominant in 
technology in particular was Microsoft in the '90s and there 
was very direct enforcement of the fact that they were using 
their monopoly in Windows operating systems to extend that 
monopoly to browsers and cutting off the air supply to 
Netscape.
    The government--the DOJ had a anti-trust investigation. 
Concluded that Microsoft was in violation of anti-trust laws 
and tried to do things about it.
    And even if that intervention was not ultimately completely 
successful, it was still successful. Microsoft did not go from 
having a monopoly in the Windows operating system to having a 
monopoly of the internet, which was the stakes at the time. And 
we can absolutely do something of the same kind.
    The fact that Google has a monopoly in Search is a problem 
in and of itself that should be tackled. This is simply too 
important of a resource for consumers, for businesses, that 
they can run it like they just so please.
    Mr. Cicilline. The time of the gentleman has expired, but 
if the last witness wants to get in a quick answer.
    Ms. Daru. Sure. Thank you.
    So we have talked about a few things that--the impacts on 
Tile specifically as a result of Apple's anti-competitive 
conduct, and things like, you know, throwing new requirements 
at us out of left field like this new Apple ID requirement that 
we have to now engineer into our products rather than innovate.
    They are, you know, raising the prices of their--or the 
costs of their rivals by engaging in aggressive advertising 
practices.
    You know, all in all, that amounts to damage to Tile, 
damage to competition and, ultimately, damage to consumers and, 
ultimately, we are just one company.
    And so what we encourage is to continue to explore, you 
know, all of the different ways that Apple has engaged in this 
anti-competitive conduct so that we can shed light on what the 
best ways of addressing it is.
    Mr. Cicilline. Thank you.
    Mr. Perlmutter.
    Mr. Perlmutter. Just a couple questions. And, Mr. Chairman, 
thank you, and to my colleagues from Colorado for letting me 
sit in on this today, because it is very--I mean, this is very 
interesting and, obviously, it affects everybody every day, and 
even if you get a couple more hours sleep, you know, most of 
the waking hours that we all have.
    So, you know, part of what we are doing is--I would say the 
last really successful measure was breaking up Ma Bell, okay, 
which ultimately resulted in a lot of innovation but then 
consolidation again, which is where we are.
    And these companies are having their cake and eating it, 
too. They provide a service but then they provide a competing 
product. But they have got so much more information now you are 
at a terrible disadvantage.
    So there is a new product out there. Mr. Hansson, you were 
sitting here this morning when I brought it up. So I serve on 
the Financial Services Committee, so the banking committee, 
real estate, all that sort of stuff.
    We had Mr. Zuckerberg come testify to us about an effort 
underway at Facebook to create a new digital currency and to 
create, in effect, a banking system that is not going to be 
regulated as a bank in Switzerland, kind of with some partners 
called Calibra and the currency being Libra.
    You know, you had it--you talked about making Kafka blush 
and then you have sort of a fear and loathing comment in your 
testimony.
    It says, ``Back then there was excitement about the likes 
of Google and Facebook and the better tools and services they 
provided us. Today, the excitement is primarily replaced by a 
mixture of fear and loathing.''
    So in the context I brought to you of Facebook, with all of 
its information and its ability to unbelievably target 
information, what is your--what is your reaction to them 
potentially becoming the biggest bank on the planet?
    Mr. Hansson. That would be a catastrophe, and I think the 
fact that they already have so much data about everyone, if we 
add in all our purchasing data on top--I mean, how you spent 
your money and how much money you have--no single company 
should have access to this much data.
    Second of all, why do we need another thing that is 
unregulated that they can control? Like, we already have 
problems just dealing with all the issues that they have 
created in society as it is today.
    We need to deal with these issues first before they sort of 
venture off and try to undermine sort of currencies of 
sovereign countries.
    Mr. Perlmutter. And with that, I just appreciate everybody 
and their testimony today, and thank you for--and thanks to my 
colleagues for letting me participate in this.
    Mr. Cicilline. I thank you, Mr. Perlmutter, for being part 
of this.
    I am going to now recognize myself for the last five 
minutes and then I know Mr. Buck is going to make some closing 
comments as well.
    I want to turn now to you, Ms. Daru. Your written testimony 
notes that Apple is a major distribution channel for Tile's 
products but that Apple has introduced services such as Find My 
that you spoke about that now directly competes with Tile's 
business.
    Apple argues that Find My is not a real competitor to 
Tile's products because it does not use background data. How 
would you respond to that claim?
    Ms. Daru. Thanks for the question.
    Find My, as its name suggests, is a location-based finding 
service. So is Tile.
    And Find My helps people find their Apple devices. Tile can 
do that, too. And ultimately, you know, Apple renders Find My 
as a native installation on all their phones and it is a 
feature in every one of their phones and they sell those 
phones. So they certainly are in the business of location-based 
finding services.
    Mr. Cicilline. Thank you.
    You have described how Apple has made several changes that 
make it more difficult for customers to use Tile. For example, 
Apple now sends Tile users frequent prompts receiving that 
they--requiring that they repeatedly confirm they have granted 
Tile access to their location data.
    Apple has publicly said that it makes these types of 
changes to promote user privacy. Is there a reason to think 
that these changes which might hurt Tile are actually good for 
customers and can you describe what else is different in the 
new iOS as it relates to the Tile app?
    Ms. Daru. Thanks for your question.
    No, the changes that they have made are not good for 
privacy or for consumers. If you think about it, these changes 
that they have made they actually don't make any information 
more private.
    The vulnerabilities that existed before still exist. Any 
bad actors that are out there are still probably acting badly. 
But what these changes did is they added friction. They added 
confusion.
    They added annoyance to the customers of Tile, who got 
confused, wondering why they were getting all of these constant 
reminders, wondering if it should imply that Tile should not be 
trusted and, at the same time, didn't apply the same mode of 
transparency to its own services.
    And I think that this is a really prime example of Apple 
using privacy as a shield to advance its best interests.
    Mr. Cicilline. Privacy and data protection have been 
recurring themes in our investigation. Our committee is also 
concerned with the use of privacy as a shield for anti-
competitive conduct.
    You mention in your written testimony that Apple has 
justified the recent iOS changes in part to enhance consumer 
privacy.
    Can you discuss how Tile uses, stores, or monetizes 
sensitive user data?
    Ms. Daru. Absolutely. Thank you for your question.
    Privacy is of the utmost importance to Tile, especially 
given the nature of our business.
    Importantly, Tile only exists to help people find what 
matters most, to relieve a really large pain point in people's 
lives. They say that people spend at least 365 days of their 
life looking for lost items and that is what we are trying to 
solve.
    Trust is of paramount importance. Importantly, also is that 
Tile doesn't have any ancillary businesses that could use this 
data that is collected in a way that doesn't comport with 
reasonable expectations.
    We don't have an ancillary advertising business. We don't 
even have revenue-generating advertising in our products and 
services. Our only revenues come from selling our devices and 
our subscription revenues.
    Mr. Cicilline. So you don't use, store, or monetize the 
sensitive user data at all?
    Ms. Daru. We store--we do not monetize or sell sensitive 
user data. We store some data for a very limited amount of time 
only to provide the service, operate our business, and enhance 
user experience.
    Mr. Cicilline. Okay. And my final question is your written 
testimony notes that Apple's control of the iPhone ecosystem 
gives it access to competitively sensitive information.
    Do you believe Apple's access to this information raises 
competition concerns?
    Ms. Daru. I absolutely--I absolutely do.
    So in addition to the--to the examples I gave earlier, for 
instance, when they were carrying us in their retail stores we 
would even give them prototypes of our to-be-released products 
and absolutely they have the power and they have shown the 
proclivity to use that power to their competitive advantage. So 
absolutely.
    Mr. Cicilline. Thank you.
    And I would just----
    Ms. Daru. Yeah.
    Mr. Cicilline. Before that I would like to--my time is up.
    I am just going to ask all of you quickly to answer yes or 
no.
    Do you think that you would have been able to successfully 
launch your companies and the products you have described to 
this committee in today's internet environment?
    Mr. Spence?
    Mr. Spence. No.
    Mr. Barnett. Yes.
    Mr. Cicilline. Mr. Barnett, yes?
    Mr. Hansson. Maybe.
    Mr. Cicilline. Maybe?
    Ms. Daru. Impossible for me to speculate.
    Mr. Barnett. Can I qualify what I mean? We can stay in 
business. But we wouldn't enjoy anywhere the degree of success 
we have today with----
    Mr. Cicilline. All right.
    I am going to now yield to Mr. Buck.
    Mr. Buck. Thank you, Mr. Chairman.
    Ms. Daru, I want to end with you the way I started with Mr. 
Spence. I am wondering about the answer--the solution--and I 
hear Apple creating a product and pushing you out of the 
marketplace with the creation of that product.
    You can really find my wallet, by the way?
    Ms. Daru. Absolutely we can. Yeah.
    Mr. Buck. I am the one that 365 days----
    [Laughter.]
    So what is the answer to--should Apple not be allowed to 
create competitive products? Should Apple be restricted in its 
pricing or the way it regulates products in the App Store?
    What is--what would you like to see? And I would trust the 
chairman absolutely with this. You know, he could just pound 
that gavel and say tomorrow this is the way it is going to be.
    How--what would you like to see?
    Ms. Daru. So when it comes to Apple, I would start with we 
need equal transparency and visibility on their platform. We 
need equal access to permissions. We need equal access to 
critical technology.
    We need advance notice of changes to the OS that have a 
meaningful impact on our business and we need rules that are 
applied consistently across the board to everyone in the 
ecosystem including Apple.
    So like I said, we are one company and have had a 
significant impact by the anti-competitive practices of Apple. 
I wish I had all the answers.
    But I am here in support of Congress's continual 
exploration of these anti-competitive practices to better shed 
light and highlight how we have to--how we can address these 
inequities because, ultimately, the future of competition in 
the United States depends on it.
    Mr. Buck. So you are all right with Apple creating a 
competitive product; it is the way that they distinguish or 
discriminate between the two products that is the problem?
    Ms. Daru. So it is two things.
    So, absolutely, we welcome fair competition. But it has to 
be fair. You know, we are seeing time and again Apple using its 
dominant market power and engaging in practices that put us at 
a competitive disadvantage, for instance, engaging in these 
aggressive advertising practices, putting ads online that look 
like Tile ads for people who are searching for Tile, diverting 
them to the App Store, raising our costs at the most critical 
times of the year.
    You know, they are engaging in these practices that 
ultimately put us at a very--at a competitive disadvantage, and 
it is those types of unfair practices that we need to curb.
    Mr. Buck. I yield my time.
    Mr. Cicilline. Well, I want to, first, say thank you again 
to the University of Colorado Boulder for hosting us. Thank you 
to the four extraordinary witnesses that we have just heard 
from.
    You have demonstrated tremendous courage in being here 
today and describing economic retaliation that some of you have 
already experienced.
    And so I want you to be certain to share with us--we do not 
expect that you will suffer any economic retaliation for coming 
forward and testifying before Congress but if you do in any way 
it would be of tremendous interest to this committee.
    I think, you know, Mr. Buck raised the question of what is 
being spent by some of the big large digital platforms in 
lobbying their interests and there is not a corresponding lobby 
for innovators and entrepreneurs and small businesses.
    That responsibility falls to all of us. It is our 
responsibility to make sure that they marketplace is working, 
that it is promoting competition, that it is protecting 
innovation.
    It is protecting small businesses and entrepreneurs and 
that is the focus of this investigation to figure out how we 
get this marketplace working and what are the consequences that 
are being experienced by entrepreneurs and innovators and small 
businesses and consumers as a result of this tremendous market 
concentration.
    So you have contributed significantly to our work. I thank 
my colleagues who are traveling back home and traveling to the 
hearing, because it has added to what, as Mr. Buck said, has 
been a very bipartisan effort to really understand Congress's 
role in both modernizing the anti-trust statutes and making 
sure anti-trust enforcement is working properly and that the 
resources are available to be successful.
    And so, again, with deep thanks from the entire committee, 
this concludes today's hearing and without objection all 
members will have five legislative days to submit additional 
written questions for the witnesses or additional materials for 
the record.
    Without objection, the hearing is adjourned.
    [Whereupon, at 11:57 a.m., the subcommittee was adjourned.]
      

                                APPENDIX

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