[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
REVIVING COMPETITION, PART 3:
STRENGTHENING THE LAWS TO ADDRESS
MONOPOLY POWER
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL, AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
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THURSDAY, MARCH 18, 2021
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Serial No. 117-13
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Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-296 PDF WASHINGTON : 2022
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COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MADELEINE DEAN, Pennsylvania, Vice-Chair
ZOE LOFGREN, California JIM JORDAN, Ohio, Ranking Member
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
STEVE COHEN, Tennessee LOUIE GOHMERT, Texas
HENRY C. ``HANK'' JOHNSON, Jr, DARREL ISSA, California
Georgia KEN BUCK, Colorado
THEODORE E. DEUTCH, Florida MATT GAETZ, Florida
KAREN BASS, California MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York ANDY BIGGS, Arizona
DAVID N. CICILLINE, Rhode Island TOM McCLINTOCK, California
ERIC SWALWELL, California W. GREGORY STEUBE, Florida
TED LIEU, California TOM TIFFANY, Wisconsin
JAMIE RASKIN, Maryland THOMAS MASSIE, Kentucky
PRAMILA JAYAPAL, Washington CHIP ROY, Texas
VAL BUTLER DEMINGS, Florida DAN BISHOP, North Carolina
J. LUIS CORREA, California MICHELLE FISCHBACH, Minnesota
MARY GAY SCANLON, Pennsylvania, VICTORIA SPARTZ, Indiana
SYLVIA R. GARCIA, Texas SCOTT FITZGERALD, Wisconsin
JOE NEGUSE, Colorado CLIFF BENTZ, Oregon
LUCY McBATH, Georgia BURGESS OWENS, Utah
GREG STANTON, Arizona
VERONICA ESCOBAR, Texas
MONDAIRE JONES, New York
DEBORAH ROSS, North Carolina
CORI BUSH, Missouri
PERRY APELBAUM, Majority Staff Director & Chief Counsel
CHRISTOPHER HIXON, Minority Staff Director
------
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL,
AND ADMINISTRATIVE LAW
DAVID N. CICILLINE, Rhode Island, Chair
PRAMILIA JAYAPAL, Washington, Vice-Chair
JOE NEGUSE, Colorado KEN BUCK, Colorado, Ranking Member
ERIC SWALWELL, California DARREL ISSA, California
MONDAIRE JONES, New York MATT GAETZ, Florida
THEODORE E. DEUTCH, Florida MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York W. GREGORY STEUBE, Florida
JAMIE RASKIN, Maryland MICHELLE FISCHBACH, Minnesota
VAL BUTLER DEMINGS, Florida VICTORIA SPARTZ, Indiana
MARY GAY SCANLON, Pennsylvania SCOTT FITZGERALD, Wisconsin
LUCY McBATH, Georgia CLIFF BENTZ, Oregon
MADELINE DEAN, Pennsylvania BURGESS OWENS, Utah
HENRY C. ``HANK'' JOHNSON, Jr.,
Georgia
SLADE BOND, Chief Counsel
DOUG GEHO, Minority Counsel
C O N T E N T S
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Thursday, March 18, 2021
Page
OPENING STATEMENTS
The Honorable David Cicilline, Chair of the Subcommittee on
Antitrust, Commercial, and Administrative Law from the State of
Rhode Island................................................... 2
The Honorable Ken Buck, Ranking Member of the Subcommittee on
Antitrust, Commercial, and Administrative Law from the State of
Colorado....................................................... 4
WITNESSES
The Honorable Rebecca Kelly Slaughter, Acting Chair, Federal
Trade Commission
Oral Testimony................................................. 8
Prepared Testimony............................................. 11
The Honorable Diane P. Wood, Judge, U.S. Court of Appeals for the
Seventh Circuit
Oral Testimony................................................. 21
Prepared Testimony............................................. 23
The Honorable Philip Weiser, Colorado Attorney General
Oral Testimony................................................. 33
Prepared Testimony............................................. 35
Mike Walker, Chief Economic Adviser, United Kingdom Competition
and Markets Authority
Oral Testimony................................................. 49
Prepared Testimony............................................. 51
The Honorable Noah Phillips, Commissioner, Federal Trade
Commission
Oral Testimony................................................. 58
Prepared Testimony............................................. 60
The Honorable Doug Peterson, Nebraska Attorney General
Oral Testimony................................................. 67
Prepared Testimony............................................. 69
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Items submitted by the Honorable David N. Cicilline, Chair of the
Subcommittee on Antitrust, Commercial, and Administrative Law
from the State of Rhode Island for the record
Statement from Iain Gold, Marka Peterson, and Joan Moriarty of
the International Brotherhood of Teamsters and the Strategic
Organizing Center............................................ 106
Statement from George P. Slover, Senior Policy Counsel,
Consumer Reports, and Sumit Sharma, Senior Researcher,
Technology Competition, Consumer Reports..................... 115
Statement from the American Economic Liberties Project and
Public Citizen............................................... 120
Statement from the Honorable Sean D. Reyes, Attorney General,
Utah......................................................... 143
Joint statement from twelve antitrust experts.................. 148
APPENDIX
Items submitted by the Honorable David N. Cicilline, Chair of the
Subcommittee on Antitrust, Commercial, and Administrative Law
from the State of Rhode Island for the record
A paper entitled ``A new vision for antitrust enforcement in
the United States,'' Raksha Kopparam, The Washington Center
for Equitable Growth......................................... 166
A paper entitled ``Competitive Edge: Crafting a monopolization
law for our time,'' Andrew I. Gavil, The Washington Center
for Equitable Growth......................................... 173
A paper entitled ``Competitive Edge: Principles and
presumptions for U.S. vertical merger enforcement policy,''
Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, and Fiona
M. Scott Morton, The Washington Center for Equitable Growth.. 180
A paper entitled ``Competitive Edge: Remedying monopoly
violation by social networks--the role of interoperability
and rulemaking,'' Michael Kades and Fiona M. Scott Morton,
The Washington Center for Equitable Growth................... 188
A paper entitled ``Competitive Edge: Underestimating the cost
of underenforcing U.S. antitrust laws,'' Michael Kades, The
Washington Center for Equitable Growth....................... 196
A paper entitled ``Interoperability as a competition remedy for
digital networks,'' Michael Kades and Fiona Scott Morton, The
Washington Center for Equitable Growth....................... 206
A paper entitled ``Modern U.S. antitrust research supports
strict enforcement of the law,'' Raksha Kopparam, The
Washington Center for Equitable Growth....................... 250
A paper entitled ``Modern U.S. antitrust theory and evidence
amid rising concerns of market power and its effects,'' Fiona
Scott Morton, The Washington Center for Equitable Growth..... 254
A paper entitled ``U.S. antitrust and competition policy amid
the new merger wave,'' John E. Kwoka, The Washington Center
for Equitable Growth......................................... 283
A paper entitled ``Antitrust experts call on Congress to
address failings in antitrust law to preserve competition and
prevent monopolies in digital marketplaces'' Michael Kades,
The Washington Center for Equitable Growth................... 302
A paper entitled ``Market power in the U.S. economy today,''
Jonathan B. Baker, The Washington Center for Equitable Growth 308
A paper entitled ``Restoring competition in the United
States,'' Bill Baer, Jonathan B. Baker, Michael Kades, Fiona
M. Scott Morton, Nancy L. Rose, Carl Shapiro, and Tim Wu, The
Washington Center for Equitable Growth....................... 325
REVIVING COMPETITION, PART 3:
STRENGTHENING THE LAWS TO ADDRESS MONOPOLY POWER
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Thursday, March 18, 2021
House of Representatives
Subcommittee on Antitrust, Commercial, and
Administrative Law
Committee on the Judiciary
Washington, DC
The Committee met, pursuant to call, at 2:14 p.m., in Room
2141, Rayburn House Office Building, Hon. David N. Cicilline
[Chair of the Subcommittee] presiding.
Members present: Representatives Cicilline, Neguse, Jones,
Jeffries, Raskin, Jayapal, Demings, Scanlon, McBath, Dean,
Johnson of Georgia, Buck, Jordan, Issa, Steube, Bishop, Spartz,
Fitzgerald, Bentz, and Owens.
Staff present: John Williams, Parliamentarian; Amanda
Lewis, Counsel; Joseph Van Wye, Professional Staff Member;
Slade Bond, Chief Counsel; Phillip Berenbroick, Counsel; Chris
Hixon, Minority Staff Director; David Brewer, Minority Deputy
Staff Director; Tyler Grimm, Minority Chief Counsel for Policy
and Strategy; Andrea Woodard, Minority Professional Staff
Member; and Kiley Bidelman, Minority Clerk.
Mr. Cicilline. The Subcommittee will come to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
Good afternoon, and welcome to today's hearing, the third
in the series to develop legislation to promote competition
online and to modernize the antitrust laws.
Before we begin, I would like to remind Members that we
have established an email address and distribution list
dedicated to circulating exhibits, motions, or other written
materials that Members might want to offer as part of our
hearing today. If you would like to submit materials, please
send them to the email address that has been previously
distributed to your offices, and we will circulate the
materials to the Members and the staff as quickly as we can.
I would also like to remind all Members and our Witnesses
that guidance from the Office of the Attending Physician states
that face coverings are required for all meetings in an
enclosed space, such as the Committee hearings. I expect all
Members on both sides of the aisle to wear a mask for the
duration of today's hearing.
I now recognize myself for an opening statement.
In 1950, Congress enacted the Celler-Kefauver Anti-Merger
Act, one of the last major amendments to the antitrust laws.
This landmark statute expanded the Clayton Act's prohibition on
illegal mergers, to include stock acquisitions and non-
horizontal transactions, reflecting the sense of Congress that
unchecked monopoly power poses a threat to our economy as well
as our democracy.
Congress enacted the Anti-Merger Act in response to the
extensive record created by the temporary National Economic
Committee and the Federal Trade Commission, and the dangers of
severe economic concentration, and recommendations to rein in
dominant companies. It captured key sectors of the U.S.
economy.
As the FTC warned in 1948, and I quote, ``If nothing is
done to check the growth in concentration, either the giant
corporations will ultimately take over the country, or the
Government will be compelled to step in and impose some forms
of direct regulations in the public interest.''
Following its enactment, the Supreme Court broadly
construed the Anti-Merger Act in a series of decisions that
reasserted the primacy of competition in the law over the
rising abuse of monopoly power, decisions which included Brown
Shoe and Philadelphia National Bank.
Indeed, as the court observed in 1962, this law clearly
reflected, and I quote, ``the danger to the American economy of
unchecked corporate expansions through mergers, and that
acquisitions with even a probable anticompetitive effect are
illegal.'' In spite of clear legislative intent, courts have
systematically weakened the antitrust laws, limiting the
analysis relied upon to focus primarily on price and output
rather than protecting the competitive process.
As Judge Diane Wood will testify today, the doctrine
developed by the Supreme Court over the last 40 years has
doomed many cases to failure, leading to under-enforcement.
The antitrust agencies have also contributed to this
problem by adopting a narrow view of their authorities,
particularly in emerging areas of the law, or in the face of
litigation risk. Bill Baer, the former head of the Justice
Department's Antitrust Division, testified before the
Subcommittee last Congress that the simple ``fear of getting it
wrong has warped antitrust.'' Adding that the attitude that
``uncertainty should result in inaction has also caused courts
to require a level of proof that is often unattainable.''
As a result of these trends, market power has risen
dramatically on an economy-wide basis, resulting in numerous
industries that are dominated by just one or two companies. As
my colleague and friend Senator Amy Klobuchar said last week in
a similar hearing before the Senate Antitrust Committee,
``America's market power problem cuts across our entire
economy. We see it in everything from cat food to caskets.''
Numerous studies show high levels of market power and
concentration across the U.S. economy causing nearly everyone
to question whether our competition laws and enforcement
approaches are adequate to protect consumers from
anticompetitive conduct and mergers, as acting secretary--
Acting Chair Rebecca Kelly Slaughter will testify today.
Moreover, during our investigation last Congress, the
Subcommittee documented how today's monopolies have exploited
these structural weaknesses in the law and lax enforcement to
expand their dominance by buying or burying their competitive
threats. For example, ahead of Facebook's acquisition of
WhatsApp, top executives of the company plainly described its
strategy as a land grab to shore up Facebook's position.
In 2012, Mark Zuckerberg went as far as saying that the
company could ``always just buy any competitive start-up.'' In
the years since, Facebook has certainly done so without
receiving more than a single second request from enforcers.
Google has similarly entrenched its dominance in the
navigation app market, of which it controls an estimated 80
percent, and has been referred to by investors as a utility. It
protects its market power through a series of acquisitions that
eliminated any meaningful competitive threat.
Prior to its acquisition by Google, the CEO of Waze, Noam
Bardin, said that the company was ``the only reasonable
competition'' to Google Maps. Since then, he has commented that
Waze could have probably grown faster and much more efficiently
if it had stayed independent, renewing concerns that this
acquisition killed a competitive threat to Google's own mapping
services, while reinforcing its power in other markets.
Our investigation also showed that once dominant, these
firms engage in a similar playbook of anticompetitive conduct
to protect and expand their power. For example, according to
its internal documents, Google recognized as early as 2005 that
specialized search engines could pose a threat to Google's
long-term dominance, noting that these search verticals could
hurt Google badly.
In response, Google deployed a series of tactics to
advantage its own services and appropriate the content of other
companies online. One entrepreneur, Brian Warner, told us that
his website was thriving until Google stole his content with a
drop in traffic to his website by 80 percent, forcing him to
lay off half of his staff.
Simply put, this conduct is destroying opportunity and
entrepreneurship, while undermining the open, decentralized
nature of the internet that made it a bastion for innovation.
As Mr. Warner told us, ``If someone came to me with an idea for
a website or web service today, I would tell them to run, run
as far away from the web as possible.''
We heard similar stories from other executives at small and
medium size companies who have been forced to slash jobs, cut
research and development budgets, primarily because of
anticompetitive conduct by the dominant technology firms.
Across the board we have seen less innovation, fewer jobs, and
less choice, while a handful of companies are growing larger
and larger. As a result, the internet has become highly
concentrated, less open, and more hostile to innovation and
entrepreneurship.
Although the Federal Trade Commission and the Justice
Department recently filed lawsuits against Facebook and Google,
challenging some of these practices or violations of the
antitrust laws, this conduct has gone unchecked for far too
long. This abysmal record was underscored by recent reporting
by Leah Nylen of Politico on the FTC's investigation of
Google's dominance in search nearly a decade ago.
Hundreds of pages of internal memoranda by the commission's
economists and lawyers obtained by Politico demonstrate that
despite significant evidence, the FTC was unwilling to
challenge Google's monopoly power. As the documents made clear,
Google sought to own the U.S. market through exclusive
contracts with carriers and device manufacturers, which made
Google the default choice for search on the vast majority of
smart phones.
Google's own employees acknowledge that these homogenous
payments, which totaled billions of dollars, were used to block
rivals from the market.
As Jeremy Stoppelman, the CEO of Yelp has said, these
documents ``show how Google methodically destroyed the Web.''
Despite recommendations by the Bureau of Competition to file an
antitrust lawsuit, the FTC voted unanimously to close the
investigation.
Over and over again these examples provide case studies of
why we need a massive overhaul of our antitrust laws, and
significant updates to our competition system. Today's hearing
is an opportunity to take additional steps in that process by
identifying reforms to develop and clarify the antitrust laws
to confront America's monopoly problem.
I thank our extraordinary panel of Witnesses for their
testimony. I look forward to today's hearing very much.
With that, it is now my pleasure to recognize the gentleman
from Colorado, the distinguished Ranking Member of this
Subcommittee, for purposes of making an opening statement.
Mr. Buck. Thank you, Mr. Chair. Thank you for holding this
hearing.
I have been reflecting on last year's investigation and the
ideas we heard during the hearings, in particular, I was
thinking about the various proposals we heard at the hearing
last October where several areas for potential action were
outlined, including increasing rigorous enforcement, reforming
burdens of proof for big tech mergers involving a monopoly
platform, instituting rebuttal presumptions, and codifying the
consumer welfare standard.
There are several areas where I believe Republicans and
Democrats are ready to work together. Before I begin, I want to
address the disinformation campaign the monopoly companies have
launched around town. They are whispering to anyone who will
listen that the proposals under consideration are going to
apply to the entire economy. That is not true.
I want to be clear for the record that the proposals I am
supporting are limited solely to big tech monopoly platforms.
We need to fully understand and appreciate the unintended
consequences of our proposals. I am very concerned that any
action we take should not impede our efforts to build a robust
economy after the crushing blow we received from the pandemic.
We must address predatory conduct of the big tech monopolies
without jeopardizing other sectors of our economy.
One area there is agreement between Republicans and
Democrats is that we need more robust enforcement of the
antitrust laws. We need personnel at these agencies who are
willing to bring the difficult cases.
Just this week, Politico published a piece outlining the
Obama-Biden Federal Trade Commission's reluctance to bring an
antitrust case against Google for its anticompetitive behavior
in the online search advertising and mobile phone software
markets. Among the revelations in the documents released by
Politico was an email where a top Google executive bragged to
the CEO that the company could ``own'' the U.S. market with its
exclusive contracts with major smart phone manufactures and
telecommunications companies.
Google also acknowledged to the FTC that it made humongous
payments as part of those contracts solely to keep rivals like
Microsoft and Yahoo from getting prime access to mobile phones.
Their tactics obviously work: Google is now the default
search engine on 86 percent of U.S. smart phones, to go along
with their 94 percent dominance in the desktop search market.
These contracts also form a major part of the antitrust suit
that the Trump Justice Department and 11 states filed against
Google.
As we consider giving the FTC and DOJ more funds, I want to
assure the agencies that any increase in funds will come with
increased oversight and an expectation by taxpayers that the
agencies bring the hard cases. We aren't making more taxpayer
money available so this type of dilatory behavior by government
bureaucrats can continue.
I have pleased to see the State Attorney Generals pick up
the enforcement ball in referred proposals that would assist
them that I think would warrant further investigation, Mr.
Chair. I very much appreciate the leadership and hard work of
Attorney General Phil Weiser from my home State of Colorado.
Mr. Chair, I would recommend a provision that would give
the State Attorneys General the same deference regarding venue
selection that the United States enjoys in big tech monopoly
cases. This fix would have major implications quickly.
For example, Google has filed a motion to change venue,
trying to move Texas' ad case to the Northern District of
California and, therefore, the Ninth Circuit where they have
favorable case law on appeals. This fix acknowledges our
federalist system of government, because it rightly recognizes
the sovereignty of the states and, pragmatically, it would
eliminate gamesmanship and forum shopping in these cases by the
big tech monopolies.
Another area where I believe Republican and Democrats could
work together is on reforming the evidentiary burden of proof
in merger cases. The burden of proof has become essentially
insurmountable and is basically a grant of near total immunity
to big tech companies. This is a big problem for consumers and
market competition because these tech titans' buying spree has
continued unabated for essentially the past 20 years.
Estimates vary, but the number of deals involving digital
platforms stands at approximately 750 over the past two
decades. Facebook acquired its competitors Instagram and
WhatsApp. Google bought its Google Maps competitor Waze. These
deals were cleared by the antitrust agencies with a casual
glance.
The buying spree continues. We now see Google trying to
acquire Fitbit, which will result in a predictable duopoly in
the wearables market: Apple and the iWatch, and Google with
Fitbit. Other wearables will be stripped of their market share,
and consumers will be left disrobed. Exposing this predatory
behavior will ensure that wrists don't go naked. If consumers
choose not to wear a wrist device, my conservative friends and
I can protect a consumer's right to ``bare arms.''
There seems to be a certain arrogance to the way these
companies operate. Congress has investigated and the State
Attorneys Generals have filed multiple lawsuits, and they have
been sued by the Department of Justice and the Federal Trade
Commission. Yet, they continue to Act with complete impunity.
Apple, Google, Facebook, and Amazon have reached monopoly
status, and their behavior won't change until Congress acts,
the enforcement agencies do their job, and the courts move
quickly to rein in their predatory conduct.
Third, I think another area we may need to look at is
implementing a rebuttable presumption to deny mergers at
certain dominance levels. In just a few years, we have seen the
tech center in Silicon Valley transferred from a nimble,
innovation-driven force that was the pride of the American
capitalist system, to an acquisition-driven behemoth.
Investment in R&D has evaporated along with self-generated
innovation at these companies.
The big tech monopoly platforms are now just whales
inhaling the start-up plankton.
Lastly, I believe we can work together to codify the
consumer welfare standard and remind agencies and the courts
that price is not the only factor that should be considered
when looking at whether a merger will have a negative effect on
competition. This change would reflect the reality that in big
tech markets, competition is not driven by price or output but,
rather, by potential innovation and forward-looking competition
reviews.
Mr. Chair, I thank you again for your collegiality and your
commitment to bipartisanship. I look forward to working with
you on these proposals.
I yield back.
Mr. Cicilline. I thank the gentleman for yielding back.
It is now my pleasure to introduce today's Witnesses. We
may take them a little out of order, depending on the technical
difficulties.
Our first Witness is Rebecca Slaughter, the Acting Chair of
the Federal Trade Commission. She was appointed to the FTC in
2018 and is one of the nation's leading experts on competition,
privacy, and consumer protection issues. While at the agency,
she has been a staunch advocate for increased FTC resources,
and a vocal proponent for American consumers and workers.
Before joining the FTC, Acting Chair Slaughter served as
chief counsel to Senator Charles Schumer as an associate at
Sidley Austin, LLP. Acting Chair Slaughter received her
bachelor's degree from Yale University, and her J.D. from Yale
Law School.
Our second Witness is Diane P. Wood, Circuit Judge in the
United States Court of Appeals for the Seventh Circuit. Prior
to being appointed a circuit judge in 1995, Judge Wood served
as Deputy Assistant Attorney General in the Department of
Justice Antitrust Division.
From 2013-2020, Judge Wood was a Chief Judge of the Seventh
Circuit. She is also a Fellow of the American Academy of Arts
and Sciences and serves as Chair of the Council of the American
Law Institute.
Judge Wood received both her bachelor's degree and J.D.
from University of Texas at Austin.
I would now like to recognize my distinguished colleague,
the gentleman from Colorado, Mr. Neguse, to introduce our third
Witness.
Mr. Neguse. Thank you, Mr. Chair, for your courtesy, and
thank you for the opportunity to welcome our third Witness,
Phil Weiser, the Attorney General of Colorado, who has
committed his life to public service. Previously, Attorney
General Weiser served as a professor of law and a dean of the
University of Colorado Law School where he founded the Silicon
Flatirons Center for Law, Technology, and Entrepreneurship.
In the Obama Administration he served and was appointed to
serve as the Deputy Assistant Attorney General in the U.S.
Department of Justice, as well as a Senior Advisor for
technology innovation at the White House's National Economic
Council.
Earlier in his career he also Co-Chaired the Carter
Innovation Council and served in President Bill Clinton's
Department of Justice.
He clerked after law school in Denver for Judge David Bell
in the 10th Circuit Court of Appeals and held two clerkships at
the United States Supreme Court for Justices Byron White and
the late Ruth Bader Ginsburg.
Attorney General Weiser, I want to thank you for joining us
and for the tremendous work that you do every day on behalf of
Coloradans. I know myself and Ranking Member Buck look forward
to your testimony.
Mr. Cicilline. Thank you. The gentleman yields back.
Welcome, General Weiser, it is good to have you here.
Our fourth Witness, Mike Walker, has served as the Chief
Economic Advisor for the United Kingdom's Competition and
Market Authority since 2013. Prior to joining the CMA, he was
Vice President of the European Competition Policy Team at CRA
International in London, a team he established in 2000.
He has also served as the Director of Competition Policy at
London Economic, and a senior regulatory economist with British
Telecom, and a Senior Associate at Lexecon Ltd.
Dr. Walker is the co-author of the Economics in Competition
law, a professor at the College of Europe at Bruges, and a
visiting fellow at King's College London.
Dr. Walker received his bachelor's, master's, and Ph.D.
from the University of Oxford.
Our fifth Witness, Noah Phillips, is a commissioner at the
Federal Trade Commission. Prior to his 2018 nomination and
unanimous confirmation to the FTC, he served as Chief Counsel
to Senator John Cornyn on the Senate Judiciary Committee from
2011-2018. In this role he advised the senator on issues
involving antitrust, constitutional law, consumer privacy, and
intellectual property. Commissioner Phillips is also an
experienced litigator, and worked at both Cravath, Swaine &
Moore, as well as Steptoe & Johnson before his tenure with
Senator Cornyn.
Commissioner Phillips received his A.B. from Dartmouth
College, and his J.D. from Stanford Law School.
Today's final Witness, Doug Peterson, is the 32nd Attorney
General of Nebraska. He was elected in 2014 and has worked to
defend the constitution and laws of the State of Nebraska.
Before being elected Attorney General, Mr. Peterson spent
more than 20 years in private practice, advising and advocating
for both individuals and businesses. From 1988-1990 he served
as Assistant Attorney General to the Nebraska Attorney
General's Office, representing the State in employment law and
tort litigation matters.
Attorney General Peterson received his bachelor's degree
from the University of Nebraska, and his J.D. from Pepperdine
University School of Law.
We welcome all our distinguished Witnesses, and we thank
you for your participation in today's hearing. I will begin now
by swearing in our Witnesses. I ask our Witnesses testifying in
person to rise. I ask the Witnesses testifying remotely to turn
on their audio and make sure that we can see your face and your
raised your right hand while I administer the oath.
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?
[Chorus of ayes.]
Mr. Cicilline. Let the record show that the Witnesses
answered in the affirmative. Thank you, and you may be seated.
Please note that your written statements will be entered
into the record in their entirety. Accordingly, I ask that you
summarize your testimony in five minutes. To help you stay
within that time frame there is a timing light in Webex. When
the light switches from green to yellow, you have one minute to
conclude. When the light turns red it signals that your five
minutes has expired.
I now recognize Acting Chair Slaughter for five minutes.
STATEMENT OF REBECCA KELLY SLAUGHTER
Ms. Slaughter. Thank you, Mr. Chair. Thank you Ranking
Member Buck, and Members of the Subcommittee for the invitation
to appear before you today. It is an honor.
Promoting competition and protecting consumers is the FTC's
mission. Current market conditions across the economy have
caused nearly everyone to question whether our competition laws
and enforcement approaches are adequate to protect consumers
from anticompetitive conduct and mergers.
Aggressive enforcement, using the FTC's existing authority,
can and should be complemented by this Committee's work to
sharpen antitrust laws and to import broader market-wide
restrictions that address pervasive anticompetitive conduct and
conditions.
I believe the FTC must push antitrust law forward through
bold agency action. Specifically, that means prioritizing
deterrence rand using the full range of the FTC's authorities
to stop unfair methods of competition.
The Commission has spent far too many of our enforcement
dollars and limited staff hours to challenge mergers that are
plainly illegal and should never have gotten out of the
boardroom. It is clear we have a deterrence problem.
To address this, we must develop a higher tolerance for
litigation risk, advocating for the most effective remedies--
including structural separation and refusing to accept
settlements that don't fully correct harm.
At the same time, we must lay the groundwork for success
for new theories and more aggressive enforcement. One way we
are doing just that is with our announcement this week of a
working group with international and domestic partners to build
a new approach to pharmaceutical merger enforcement.
We also need to make sure our merger guidelines, horizontal
and vertical, chart an enforcement path that fully addresses
competitive harms, and is appropriately skeptical of claimed
benefits. In addition to making our enforcement actions more
effective, we need to dust off some important tools that have
languished too long in our toolbox. We should activate our
unfair methods of competition rulemaking authority to prohibit
anticompetitive conduct that is difficult to litigate on a case
by case basis. We should consider bringing standalone section 5
claims in our competition cases more frequently.
We can work hard to be strategic and aggressive with our
toolbox, but we do face acute and urgent challenges in carrying
out our mission and that is where the work of Congress comes
into play.
First, resources. Though Congress has been very generous
recently in helping our resourcing catch up to demand, we are
not there yet.
Just one new data point: In the first five months of this
fiscal year, we processed 60 percent more HSR filings that we
had on average over the past five years. In February of this
year alone, we had more than twice as many filings as we did
the year before.
Even before this recent wave, filings had about doubled in
the last ten years while our FTE count stayed flat.
Another pressing problem for the Commission is the ongoing
threat from the courts to our authority under section 13(b) of
the FTC Act; a series of bad decisions limits our ability to
enjoin illegal conduct and seek monetary redress.
In its motion to dismiss the Commission's antitrust
complaint, Facebook cited these decisions and argued that
section 13(b) bars the suit. Together, all five commissioners
wrote to Congress and asked that you swiftly restore the
longstanding interpretation of section 13(b); I hope you will
consider that request.
On top of addressing those FTC-specific challenges, I also
support efforts by this Committee to reform the antitrust laws
more broadly. Even our most excessive enforcement efforts are
no substitute for legislative changes that clean up bad case
law, impose clear presumptions, and reduce untenable burdens on
enforcers. These changes would minimize the need to engage in
tortured and expensive efforts to both measure and balance harm
inefficiencies, particularly in cases where the facts support a
clear theory of harm.
Changes to the enforcement framework can work in tandem
with the broader restrictions on dominant platforms Congress is
considering. I strongly believe that effective enforcement is a
complement, not an alternative to thoughtful regulation.
Our antitrust laws protect the democratic ideal of fair
participation in a free society. I strongly support legislation
that will facilitate protecting not only consumers but all
market participants, workers, entrepreneurs, and small
businesses, especially those in marginalized communities, from
monopolistic practices and exclusionary conduct.
I look forward to working with this Committee and others in
Congress to consider the best balance of an enforcement and
regulatory framework to promote competition, and I welcome your
questions.
[The statement of Ms. Slaughter follows:]
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Mr. Cicilline. Thank you, Acting Chair Slaughter.
Judge Wood, you are now recognized for five minutes.
STATEMENT OF DIANE P. WOOD
Judge Wood. Thank you very much, Mr. Chair, Ranking Member
Buck and the Members of the Subcommittee. It is a real
privilege to be here today to testify on such an important
topic.
I would like to make three key points for the
Subcommittee's consideration.
First, I think it is important for us to recognize that the
antitrust laws have always been concerned not about the narrow
concept of so-called consumer welfare just in the sense of low
prices, but also with concentrated economic power that chokes
off vibrant competition and innovation.
Second, it is not only possible, but essential, that
exclusionary practices once again be pursued seriously by all
parties able to enforce the law--U.S. Government enforcers,
State Attorneys General, private parties--because these
practices have fallen by the wayside in recent years in terms
of enforcement priority.
Finally, third, it may be time to consider legislative
changes in the remedies area of the statutes, because we don't
want to see antitrust practices go unredressed because either
the standards are too onerous or the available remedies are too
ineffective.
I should stress with regard to substance that I am here
expressing only my personal views on these subjects, nothing
more.
This is obviously hardly the first time Congress has
considered legislative changes to the antitrust laws. But, this
is a time where clarification of the intent of Congress is
really called for. Congress does the same thing from time to
time. Congress did this with the Americans With Disabilities
Act when the courts seemed to be going in a direction that was
not where Congress had thought the law should go.
So, our antitrust laws, as I said, haven't always been
about the problems with monopoly. We need reinforcement of the
fact that these kinds of monopolistic practices are part of
what the law covers. Senator Sherman himself singled them out
when he first introduced the bill all those many years ago.
The original Supreme Court, the people who were
contemporaneous with the enactment of the Act, also recognized
that it was about fair competition practices. That is why the
FTC Act in 1914 spoke of unfair methods of competition. So, the
question for today's Congress is whether we need to sharpen the
laws, people's presumptions, and refine the breadth of its
concern.
I want to also discuss another thing. Some people are
afraid that if we focus on exclusionary practices we are not
going to be able to tell the difference between good old
fashion hard competition, which we like, and an anticompetitive
exclusionary practice on the other side.
I don't think that is a real risk. I think we can see when
firm has dominance, perhaps when it has a 40 or 50 percent
market share. Maybe the Committee should consider a threshold.
When the firm starts to behave as we have heard and swoop up
all its rivals, or exploit government barriers, or grant
exclusive rights thereby freezing other people out of markets,
competition is being damaged. We have the tools to examine that
sort of thing.
I am not talking about the old fashioned per se rule, which
may have been too clumsy, but the rule of reason itself could
be sharpened and made a more effective tool.
The under-enforcement of the law has come from a couple of
directions. Largely I think there is a sense that it is very
difficult to proceed when the law and the courts have become so
unfavorable. So, again, there is room for Congress.
Finally, in my last minute I would like to focus on
remedies. For section 2, all we have is injunctions, including
divestitures--very important--damages. Damages are difficult to
prove, but their availability is certainly a good private tool.
Perhaps we need to think more ambitiously. Maybe we want to
add to the menu something like Federal fines or make very
clear, as the Chair was saying, that disgorgement of profits is
acceptable. No one has to use all the tools all time, but they
can be complimentary. Many other countries do this. Perhaps the
Congress should seriously consider giving the remedy of fines
to the American governmental enforcers.
I will leave you with one thought. The antitrust laws are
for the protection of competition, not competitors. We need
competitors before we have competition.
Thank you very much.
[The statement of Judge Wood follows:]
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Mr. Cicilline. Thank you so much, Judge Wood.
I now recognize Attorney General Weiser for five minutes.
STATEMENT OF PHILIP WEISER
Mr. Weiser. Thank you, Mr. Chair. Thank you, Member Buck,
Congressman Joe Neguse for your kind introduction, and the
Members of the Subcommittee. I appreciate the opportunity to
visit with you today.
I have shared my final comments, and today I want to get to
the heart of the question that, Mr. Chair, you focused on: A
level of market power, a lack of concentration that calls on
enforcers to take actions to restore competition, and raises a
question for policy makers: How did we get to this point, and
what do we do about this?
The short answer is that in some markets we are seeing
entrenched incumbents. We talked about the area of tech
platforms where permissive merger policy, exclusionary conduct,
and other actions have lessened competition. Now, I want to be
clear, there are markets that function in a healthy manner with
competition. Take, for example, consumers can choose from a
number of video streaming services.
In other sectors, airlines and pharmaceuticals, for
example, we have too little competition and consumers are worse
off.
Let me start with airlines. For example, after a series of
mergers, four airlines now control almost 70 percent of
domestic air travel. Moreover, this industry Witnessed a
successful effort by American Airlines in the 1990s to stomp
out rivals through predatory pricing, and a mistaken court
decision that allowed this anticompetitive harm to happen.
For consumers, this has been a blow to our pocketbooks.
When the fuel prices went down, consumers didn't benefit;
rather the airlines made record profits and, as the New York
Times put it, consumers just got peanuts.
This decreased competition is not only bad for our
pocketbooks, but it means consumers are treated worse off.
During the pandemic, the number one complaint we have gotten at
the Colorado Department of Law is about airlines, particularly
Frontier Airlines, not following Federal consumer protection
requirements. That is why a bipartisan coalition of Attorneys
General, 40 of us, including General Peterson and I, are
calling for enhancing the enforcement of Federal airline
consumer protection laws.
We have to take a look. We have had too much concentration,
and we have to ask questions, how did we get here? These
retrospective studies are important, and we need more of them.
What we also need to ask is why have courts shown a
reluctance to enforce the antitrust laws? As the Chair noted,
why have enforcers been afraid of bringing new cases?
The short answer is the Chicago School of antitrust. Judge
Wood is not necessarily a member of that school, although you
were at the University of Chicago Law School for a long time.
It offered a series of critiques of antitrust laws, started out
on sound economic concerns, but overshot the mark, as the late
Bob Pitofsky put it, and now are focused on the mantra that all
we have to worry about is over-enforcement, and not to worry
about under enforcement.
This mind set is wrong and explains some of the mistaken
court decisions, including the one that I mentioned.
So, where do we go from here? I would recommend four steps.
First, we need enforcers to bring cases, to do their
homework, know their industry, and not be afraid, to bring
forth empirical evidence, rigorous economic analysis of
competitive harm happening in the marketplace. That is what the
U.S. Department of Justice did a generation ago when I was
working with Joel Klein. That unanimous Microsoft case that
resulted from that leadership set an important precedent about
exclusionary contracts, degraded access to a platform, and
efforts to keep artificial barriers to entry high, thereby
excluding rivals.
In the internet cases that our department and other states,
including Nebraska, have brought against Google and Facebook,
we are alleging harm similar to that of Microsoft. In the case
of Google, we explain in our complaint that Google protected
monopolies in search, in search advertising, using exclusionary
contracts and inhibiting rivals going to acquire customers.
Like Microsoft in the 1990s, Google sees threats to its
dominance from adjacent sectors and is not competing on the
merits to undermine the ability of rivals to compete. We must
restore competition to the marketplace and lower barriers to
entry.
In the Facebook case, its strategy was buy or bury the
rivals. The wrath of Mark Zuckerberg was well know, and under
his direction upstart rivals were either purchased or were
buried. That is the opposite of what the antitrust laws are
about, which is competition on the merits.
Second, we also need, as I mentioned, more retrospectives
to understand where markets are not working, where we can learn
from past mistakes. I appreciate the call for funding resources
for the FTC and the Antitrust Division of the DOJ to do just
that.
Third we must think about competition policy more broadly.
It is not only about antitrust enforcement. Back to the airline
industry, airports make leasing decisions based on landing
gates. We need to make sure those decisions are made with an
eye to facilitating competition.
The same goes with respect to our patent laws and how we
enable competition in pharma.
Finally, yes, we need legislative action to address this
wrong turn called for by the Chicago School. This Congress can
make an effort and show leadership in antitrust enforcement,
competition policy, and consumer protection.
I thank you for your attention to these issues, and I
welcome your questions.
[The statement of Mr. Weiser follows:]
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Mr. Cicilline. Thank you very much, Mr. Attorney General.
I now recognize Dr. Walker for five minutes.
STATEMENT OF MIKE WALKER
Mr. Walker. Thank you, Mr. Chair, Ranking Member Buck, and
other the Members of the Subcommittee for this opportunity.
I have been asked to speak about what I think we in Europe
have learned about the large digital platforms and how, if at
all, they should be regulated.
I think the starting point for thinking about competition
policy with respect to digital platforms is to note the they
undoubtedly provide great products and services that consumers
and firms love, but to also note that this is not a ``get out
of jail free'' card that should allow them to exploit their
substantial market power to the detriment of consumers, firms,
and the economy.
So, what do I think we have learned in Europe? Well, I
think we have learned that the existing competition policy
approach has failed with respect to large platforms.
I think we have learned that unilateral conduct cases on
their own are not enough to restrict these platforms' abilities
to exercise market power.
They take too long. They are not enough to restrict the
platforms' intense market power, and there is no belief that
entrenched market power is going to self-correct in the near
future.
I think we have learned that existing competition law is
not able to deal with the adverse impact of platform
envelopment strategies, particularly with respect to
undermining the ability of innovative entrants to be
successful. I think we have learned that competition policy
should not Act independently of privacy regulations. The
European experience is that incumbent platforms use privacy
regulation as a protective shield against competitive threats.
So, my view is that the entrenched market power of these
platforms requires regulation to restrict both their ability to
exploit their current market power and their ability to enhance
it by creating barriers to new entry. The key long-term
objective of this regulatory regime should be to open these
markets to new competitors. It is competition, not monopoly,
that drives innovation. It is innovation that enhances consumer
welfare.
Now, I think that merger control policy should be part of
this regulatory regime. It has a key role to play in stopping
existing incumbent platforms from further entrenching their
market power. We are all aware of past failures in this area.
So, what have we decided to do? In the U.K. we are setting
up a new regulator, the Digital Markets Unit, that is going to
regulate firms with ``strategic market status.'' These are
firms with entrenched market power that has an adverse effect
across a range of markets. Firms that are found to have
strategic market status will be subject to three types of
intervention.
First, a bespoke code of conduct that limits the ability of
the firm to exploit its existing market power. That code of
conduct will be based on three core principles: Fair trading,
open choices, and trust and transparency.
Second, we will have interventions that will be
procompetitive interventions to encourage new entry and
innovation to challenge the SMS firms. Such interventions are
likely to include remedies around personal data mobility,
interoperability, and data access.
Third, they will face enhanced merger scrutiny to ensure
they cannot protect or enhance their market power via
acquisitions. So, the merger standard is proposed to be reduced
to a reasonable prospect of harm, a lower standard than the
current balance of probabilities standard.
I think this is a super important part of the proposed
regime. The best way to deal with market power is not to allow
it to exist in the first place. It should be noted that this is
one area where the U.K. is different from the EU plan. The EU
proposals do not include merger control change and I think that
is a significant omission.
It is really important to note this is not traditional rate
of return or price regulation that is being proposed. The aim
of this regulation is not to bake in existing outcomes, but to
facilitate innovation and, hence, facilitate good competitive
outcomes. I cannot stress enough that encouraging innovation is
key to successful competitive outcomes.
I should also note the code of conduct for each SMS firm
will be bespoke to that firm. That seems right to me. The
business models of the firms differ and, hence, the source of
market power differs across the firms. Google and Facebook are
advertising funded, Amazon is transaction funded, and Apple
relies on devices and the iOS app store.
I have two final comments. One, I often hear the argument
that the future of these markets is very uncertain, the danger
of regulatory mistakes is high, and, therefore, regulators
should leave them alone. I think this argument is profoundly
wrong. There are very substantial risks to inaction, such as
market tipping or incumbents' intent to keep competitors out of
the market. Inaction is not a neutral choice; it is an active
choice and, in my view, the wrong choice.
Finally, digital platforms are global players. In my view
this means that regulatory consistency between the U.S.,
Europe, and other jurisdictions is highly desirable, both to
protect consumers and to create greater consistency for the
platforms.
Thank you for your attention.
[The statement of Mr. Walker follows:]
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Mr. Cicilline. Thank you, Dr. Walker.
I now recognize Commissioner Phillips for five minutes.
STATEMENT OF NOAH PHILLIPS
Mr. Phillips. Thank you, Mr. Chair.
Chair Cicilline, Ranking Member Buck, and the Members of
the Subcommittee, thank you for the opportunity to appear
before you today. I am pleased to be before you with my friend
and colleague, the acting Chair of the Federal Trade
Commission, and the other esteemed panelists to discuss
antitrust reform.
Today, the agencies are engaged in vigorous enforcement in
industries from tech, to pharmaceuticals, to consumer products.
In fiscal year 2020, the FTC brought a record-setting 27 merger
enforcement actions, the highest number in decades. Over the
last three years, we have also brought seven monopolization
cases. We appreciate the funding that Congress has
appropriated, which will help us to continue to enforce the
law.
Today's discussion concerns whether the law suffices. What
Congress does will have far-reaching consequences throughout
our economy. That will require careful consideration. I
encourage this Subcommittee to continue to engage thoughtfully.
The antitrust laws protect competition. Competition
benefits society, and consumers, by spurring innovation,
improving quality, and lowering prices. Companies, even
industries, rise and fall, but the competitive process ensures
that American consumers benefit. That is why antitrust focuses
on whether a merger, or other business conduct harms consumers.
We care about prices. No one should work to make Americans pay
more for food or healthcare. Competition also means output,
quality, and innovation.
Businesses compete to hire workers and buy inputs, too.
Antitrust cares about all these things.
Antitrust is a powerful tool. The laws are not designed to
address every problem that large companies create. Even perfect
competition cannot solve every problem. Some reformers seem to
promise antitrust can solve everything, from the political
power of large corporations, to privacy, to labor rights, to
racial inequality.
Does competition help address social problems? Without a
doubt. When companies compete to lower prices, for example,
people with fewer means have access to more products. That is
good for distributional equity. Antitrust is not, and should
not be, a regulatory catch-all.
This Subcommittee has done its homework to understand some
of the major technology platforms today. Many reform proposals
are not limited to four technology companies. The antitrust
laws apply to almost every industry, and many proposals that I
have seen go broader than big tech.
The antitrust laws are written broadly. Their breadth gives
plaintiffs and courts the flexibility to deal with many issues,
including in the tech sector. For example, the FTC recently has
sued to block mergers, break up companies, protect platform
competition, encourage new drugs to market, and stop contracts
protecting monopolies. The important work we do is not just in
tech, but hospitals, energy, consumer products, and
pharmaceuticals.
As you consider reform, animated in particular by a handful
of the largest technology firms, I urge you to consider the
impact on all businesses.
The history of antitrust legislation includes unintended
consequences: Some laws took money out of the pockets of
American consumers, or failed to check corporate power. The
Robinson-Patman Act sought to protect small, retail businesses
from larger, more efficient chain stores. The unfortunate
result was that American consumers paid more money for
groceries and household products that they use every day.
The 1960 Celler-Kefauver Amendments to the Clayton Act,
which the Chair mentioned, which are good, and which we use
today, were followed by a two-decade merger wave. The results
was not the diminishment of powerful corporations, but rather
the rise of gargantuan, unwieldy conglomerate corporations. It
took America a long time to get out of that mess.
Our Nation is emerging from a crisis, with tens of millions
out of work and shuttered businesses. We want to encourage
companies, big and small, to enter and meet consumer need.
Mergers and acquisitions are one way that they do that.
For example, the FTC recently permitted a large medical
diagnostics company to buy a small innovator developing a rapid
PCR test for COVID-19 and the flu. According to the companies,
the combination of the innovator's technology and the
acquirer's scale would enable the combined company to bring
better tests to more people. That is a good thing as we race to
put this pandemic behind us.
Markets work better when companies are allowed to give
consumers what they want. Government intervention is sometimes
necessary, but it can also get in the way. The FTC advocates
against State laws that prevent new hospitals, or impose
unnecessary occupational licensing requirements. Burdensome
environmental and NIMBY permitting slowed the plans of both
Presidents Obama and Presidents Trump to improve American
infrastructure.
Competitive M&A is no different. We can and do stop the bad
ones, but over-regulating will also stop good ones. The ability
to sell a company--
Mr. Cicilline. Commissioner, I hate to interrupt. Your time
has run. So, if you could wrap up.
Mr. Phillips. Two more sentences?
Mr. Cicilline. Sure.
Mr. Phillips. Thank you, Mr. Chair.
The ability to sell a company encourages people to innovate
and start them, and venture capitalists to fund them, in tech,
biotech, and consumer products. On the flip side, sand in the
gears prevents the market from working. As we think about
reform, please think about those facts.
Thank you for inviting me today. I look forward to your
questions.
[The statement of Mr. Phillips follows:]
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Mr. Cicilline. Thank you, Commissioner.
I now recognize Attorney General Peterson for five minutes.
STATEMENT OF DOUG PETERSON
Mr. Peterson. Thank you, Mr. Chair and the Members of the
Subcommittee for the invitation to be with you today. I
appreciate this opportunity to share with you my perspective on
how to address monopoly power and revive competition in the
modern economy.
At the outset, I want to express my appreciation to the
Subcommittee for its impressive and extension investigation
into the potential anticompetitive conduct occurring with the
big tech marketplace. Frankly, after 16 months of bipartisan
investigation, you have reviewed over 1.3 million internal
documents, you have considered 38 submissions by antitrust
experts, interviewed over 240 market participants, and
testimony at seven hearings, including CEOs from four major
tech companies.
So, I seriously doubt that I can bring any new information
to the investigation, excerpt to provide you one State Attorney
General's perspective on how we can bring better competition
into the markets.
I think it is helpful to look at an historical perspective.
I think it is productive to step back and reflect where we have
been with antitrust enforcement, not just in the U.S. but
globally.
For several years now, the foreign competition authorities
have been very active in investigating and prosecuting big
tech. They are to be applauded for their important efforts. The
EU also passed the GDPR. However, I think they have rightfully
asked where is the U.S. enforcement? The answer is, and my
perspective is, we are on our way.
In the last two years, both the House and the Senate have
initiated studies regarding antitrust enforcement during the
digital age. Both the U.S. Department of Justice and the FTC
have investigated and have filed antitrust actions against
Google and Facebook. From my perspective, the most significant
addition in the last two years is that 39 states, the District
of Columbia, territories of Puerto Rico and Guam, have
participated in both the multi-state investigation and have
subsequently joined as parties to one or more of the two
antitrust lawsuits that have been filed against Google and
Facebook.
There has never been a time in U.S. history where this
number of states have exercised their dual authority to enforce
the Sherman Act. The closest example would be the Microsoft
case in the late 1990s where 20 states joined the Department of
Justice. It is obviously upon the Attorney Generals to see this
type of number and a renewed a commitment to our duty to
enforce the Sherman Act. I think that is a significant sea
change when you look at the number that have been involved in
these two cases.
The degree of collaboration between the State antitrust
leadership and those at DOJ and the FTC has been outstanding
over the last two years. Antitrust enforcement actions are
resource-intensive endeavors, and require armies of specialized
attorneys, combined with both technical and economic experts to
be successful. As a result, enforcers are most effective when
cooperating and coordinating our efforts. Cooperative
enforcement was highly effective in past cases such as
Microsoft and the Apple E-Books in which State and Federal
enforcers came together successfully to take on some of the
world's largest technology companies.
Today, we are seeking action in our efforts with Federal
agencies. State enforcers have become true partners with their
Federal counterparts by bringing separate, yet coordinated,
enforcement actions, thus allowing us to bring more expansive
and aggressive cases where appropriate.
I recognize the House recently increased funding for
Federal agency enforcement, and we encourage this Subcommittee
to seriously consider additional proposals to increase
resources allocated to the antitrust enforcement community to
ensure agencies have the resources necessary to successfully
pursue our anticompetitive investigations.
The Sherman Act has been the primary tool for antitrust
officers to protect competitive markets for more than 130
years. I want to talk just briefly about some of the discussion
with regards to changes that are being called for.
Over the last century, it has offered an adaptable
framework for a wide range of fact patterns. Antitrust cases
provide each case a very factually unique setting, whether it
is defining markets or behaviors, or whether it is a highly
regulated industry. I think the Microsoft case provides the
best model for analyzing our current cases with regards to
Facebook and Google.
In Microsoft, the D.C. Court of Appeals endorsed the idea
that antitrust harm extends beyond simple price increases or
output reductions. Instead, the Sherman Act protects against
conduct which hinders or distorts the competitive process.
Courts largely understand that offering free product is no
exception from antitrust scrutiny or liability and, instead,
focuses on broader conceptions of competition, such as quality,
consumer choice, and innovation. In doing so, their analysis
goes far beyond the simple consumer price analysis.
I know that there are several proposals being considered by
this Subcommittee. There are just three that I would talk about
briefly. One is in the merger acquisition burden issue--
Mr. Cicilline. Mr. Attorney General, if I could ask you--I
hate to interrupt--but if I could ask you to wrap up. Your time
is expired. If you could make some concluding remark.
Mr. Peterson. Thank you, Chair.
Mr. Cicilline. We are going to ask a lot of questions.
Mr. Peterson. Mr. Chair, I will go ahead and wrap up with
that. Just simply say that I think with regards to the tech
platforms and what we are seeing today, they are moving
quickly, they are gathering much, a lot of data and market
dominance. I appreciate what this Committee has done to address
this. I think the discussion and dialog need to continue to be
at the forefront.
Thank you.
[The statement of Mr. Peterson follows:]
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Mr. Cicilline. Thank you, Mr. Attorney General.
Thank you to all our Witnesses for your very important
testimony. We will now proceed on the five-minute rule.
I now recognize myself for five minutes.
Chair Slaughter, I thank you very much for appearing before
us today. I am in strong agreement with your testimony and I
appreciate it very much.
I want to begin by asking you about the recent report by
Politico about the commission's decision to close the Google
investigation in 2013. Even though I know you were not on the
commission at the time, I think it is important for us to
understand what happened.
One of the things that I find most alarming about the
report is how the FTC completely ignored direct evidence of
Google's anticompetitive conduct. Google favored some
properties, suppressed action on major competitors, paid
billions of dollars to be the default choice for mobile search,
and deployed other exclusivity provisions to own the market, as
one of Google's own executives described it.
In sum, they paid exorbitant amounts to lock up the search
market on desktop and mobile, reinforcing the moat around
Google's business, and devastating competition online.
Instead of acting on this very serious threat to
competition, the commission chose to do nothing. As has become
the hallmark of economic legal analysis during this period, the
agency vastly overstated the likelihood of entry by firms
capable of challenging Google's dominance, and discounted the
likely harm to competition.
Most importantly, instead of aggressively enforcing the
law, the agency ignored contradictory evidence and blindly
adhered to a misguided view that markets self-correct. This is
not good economics, and this is not good lawyering.
This misguided approach was also at the heart of the
Commission's decision to close its investigation in Google's
acquisition of DoubleClick and AdMob, decisions that were bad
at the time but look even worse now.
There is something very wrong with this period. So, Chair
Slaughter, don't you agree that we must never let this happen
again?
What can we do to ensure that enforcers are following fact
rather than ignoring evidence or relying on faulty market
predictions? Do we need new laws, or do we need deep internal
reforms at the agency, or both?
Ms. Slaughter. Thank you for the question, Mr. Chair.
Yes, I agree. We want to make sure that our enforcement is
as effective as it can be.
Look, I wish a complaint had been filed at the time. I
think it is important to note that many of the issues that were
in the FTC's investigation are very much at play in the case
the cases that DOJ and the States have filed right now at
Google, with Google. I think it's great that our sister
agencies are taking a hard look and bringing these hard cases.
I also think it is incumbent on the FTC to bring hard
cases. I think in all areas, not just in tech, not just in
platforms, we need to go back and take a look at our past
analysis, figure out where are analytical tools are lacking,
where our predictions were wrong, and what we need to do better
going forward. That is very much something I am committed to.
Consistent with my testimony, there is work that the
agencies can do in that respect, and that there is work that
Congress can do to help us in that area.
I think that one of the key points that you and several
other Witnesses have raised is the question of error risk. Do
we stay being worried about the risk of over-enforcement, which
I think has been a guiding principle for a long time, or should
we focus more on the dangers of under-enforcement and the
dangers of inaction?
I am very much in the camp where I am concerned about the
dangers of inaction, under-enforcement, and addressing that is
a priority for me.
Mr. Cicilline. Thank you very much.
General Weiser, thank you again for appearing today as well
as for giving your excellent briefing to us at our field
hearing in Colorado last year.
As I noted in my opening statement, the Clayton Act's
prohibition on mergers that may substantially lessen
competition is concerned with probability, not certainty. That
is important because, as you have noted, it is a lot easier to
prevent monopolization at the outset by blocking a merger
versus bringing a complex case years later after the damage is
done and impossible to undo in its entirety.
So, General Weiser, my question is what recommendations do
you have for modernizing merger enforcement to address this
concern, as well as strengthen the law with respect to nascent
and potential competition?
Mr. Weiser. Thank you, Mr. Chair. It is a pleasure to be
with you again. Let me take your second question first.
I do think, and this picks up what Chair Slaughter just
noted, the fear of taking on these nascent competition cases
has been a barrier to action. We are worse for it.
When there is a dominant firm, I do believe there should be
a presumption that acquiring a would-be rival who could
threaten that firm's dominance is a violation of the antitrust
laws. That is a position for which I believe there is potential
support in current law, but clarification of that principle
would be important
We also need the encouragement, as my prior speaker just
said, for taking these cases on. Unfortunately, there were some
cases, I think there were bank mergers that didn't go well in
this doctrine and, unfortunately, enforcement stayed away.
The broader point, is that the merger guidelines that were
done in 2010 are important in setting up the structure for
merger analysis. You put your finger on a fundamental
principle, which is called in the world of antitrust, the
structural presumption. When we begin to see markets where we
lose four viable competitors, we start to see bad things for
consumers.
In the airlines, that is the reality. We have four major,
nationwide entities, providers, but almost no market has actual
four major providers of airline service. We are now working
with mostly two, which lends itself to coordination, and which
is not good for consumers.
So, we need to see more vitality for that structural
presumption and really put the burden of proof heavy on would-
be merging firms who want to overcome it, not to essentially
allow the enforcers to get stopped by undue artificial burdens.
Mr. Cicilline. Thank you very much, General.
I now recognize the Ranking Member of the Subcommittee, Mr.
Buck, for five minutes.
Mr. Buck. I thank the Chair. I would like to recognize or I
would like to have the Chair recognize Mr. Fitzgerald to ask
questions at the end, if that is permitted.
Mr. Cicilline. Of course. Mr. Fitzgerald, you are
recognized for five minutes.
Mr. Fitzgerald. Thank you, Mr. Chair.
Commissioner Phillips, last September the FTC issued a
notice of proposed rulemaking that would provide 10 percent de
minimis exemption to investment funds and master limited
partnerships. Any idea when that rulemaking is going to be
completed?
Mr. Phillips. Mr. Fitzgerald, thank you for the question. I
don't have an update on timing. Because it is an ongoing
rulemaking, I have to be careful about what I can and cannot
say.
I did write in a statement that accompanied that notice of
proposed rulemaking that that 10 percent exemption, taking out
from what we do, transactions that over 40 years we have never
challenged one. Transactions that no one has made an argument
are anticompetitive would be a good way to allow the market to
continue to function, allow the securities markets to continue
to work better, and save agency resources.
Again, in 40 years we have never, ever brought a case on
one of these transactions. These are not mergers in the
colloquial sense, these are equity purchases. Oftentimes, they
are by index funds or other investors. I do think, as I wrote
in my statement, subject to what input we get in the rulemaking
process, of course we want to look at that evidence. I do think
going in it is a good idea.
Mr. Fitzgerald. Very good. Thank you very much.
Chair Slaughter, you mentioned in the past that you want
more effective enforcement of vertical mergers. I just
wondered, can you kind of point to what you mean by that?
Also, can you explain why you think some of those may be
anticompetitive?
Ms. Slaughter. Thank you, Congressman, for the question.
Yes, so I think for a long time there has been a general
sense in the antitrust world that vertical mergers are rarely
bad, and in fact, may be mostly good. This assumes some
benefits to those mergers that I am not sure are supported by
the evidence.
In fact, the concern we have in verticals, or the concern I
have in verticals, is where the manufacturer of an input and
its downstream customers, one of its downstream customers
merge, then that manufacturer may be inclined not to share that
input with other customers.
So, I will give you an example of a case that we worked on,
that the FTC worked closely with Attorney General Weiser's
office on, which was a health insurance company that purchased
a physician's group. The FTC ended up taking a consent on a
horizontal element of concern in that case, but didn't have a
majority to support action on the vertical theory, which was
about protecting consumers basically from physician price
increases, and making sure that they still had access to
physicians through their health insurance, through health
insurance.
Working with the FTC staff, Attorney General Weiser was
able to pursue a remedy on the vertical theory there that I
think was really important for protecting consumers in
Colorado.
Mr. Fitzgerald. Yeah. I, just because I only have a minute
here, is there specific examples. You may not have those at
your fingertips right now, but love to see that as the
Subcommittee moves forward and takes a little bit harder look
at this.
Ms. Slaughter. Sure. I will give you another example of a
case that concerned me.
We had a case involving a kidney dialysis company that ran
a lot of clinics and purchased a company that made home
dialysis equipment. The concern there is once the company that
supplies clinic--that runs clinics owns the technology that
would take patients out of clinics and do home dialysis use,
are they really going to have the incentive to supply that
technology to the market if it draws away from their clinic
business?
That is a concern for patients for some real access to real
lifesaving medical technology.
So, that is one example, but we would be happy to work with
you to get more.
Mr. Fitzgerald. Okay. Thank you very much.
Mr. Chair, I would yield back.
Mr. Cicilline. The gentleman yields back.
I now recognize Mr. Jones of New York for five minutes.
Mr. Jones. Thank you, Mr. Chair. Thank you to the Ranking
Member as well for your leadership, sir.
I would like to thank our esteemed Witnesses for sharing
their expertise with us this afternoon. In our democracy no one
should be above the law, not the President, not any of us in
Congress, not the world's biggest corporations. Today,
unleashed from competition and from antitrust enforcement, the
monopolies that dominate our economy are increasingly above the
law.
On one hand, these monopolies have become too big to
govern. They know that if they violate our laws, they probably
won't be held accountable. To them, the penalties for breaking
the law are just the costs of doing business.
On the other hand, these monopolies are so big that they
have the power to govern us. They force us to ration lifesaving
medications, like insulin, set the wages for working families,
and choose which small businesses live or die. They decide
whether their workers will face exposure to COVID-19, and they
decide when their workers can use the bathroom. They can fire
almost anyone for almost any reason, but these corporations
themselves can break the law with impunity. They even evade
regulation by this body, until now.
We would never give our elected officials unlimited power
and blindly trust they will use it for the best. We compel them
to compete for our votes, and we limit their power with checks
and balances. Our economy should be no different. We need
competition, we need checks and balances, and stronger
antitrust laws must be part of the solution.
Judge Wood, it is an honor to speak with you this
afternoon. I used to work with someone at the Justice
Department who even then sang your praises. So, it is a
pleasure to finally make your acquaintance.
You testified that our antitrust statutes were created to
protect consumer welfare and to prevent ``concentrated economic
power.'' How has the Supreme Court made it harder for the FTC
and the Department of Justice to challenge unlawful
concentrations of economic power?
Judge Wood. Well, thank you very much for the question. It
is really a privilege to be here, and it is a privilege to meet
you as well, through Zoom.
The Supreme Court since roughly the mid-70s, I date it to
1974, has accepted what General Weiser called the Chicago
School approach, which I think is a little over-inclusive with
the name since I am from Chicago and it is not my approach.
They said that the only thing to worry about was high prices
for consumers or restrictions of output.
The Supreme Court has over and over again recited this
phrase: The antitrust laws are for the protection of
competition, not competitors. So, exclusionary practices that
push a competitor out of markets, often in a vertical setting,
were blessed by the Court. The court said there was no
violation. That is how they understood the statute.
There is nothing wrong with the Supreme Court doing its job
to interpret the statute, but Congress also has a job to say,
is this the statute we meant to have?
The other thing the Court has done is to adopt the notion
that the market will fix everything in the long run. The
analogy I would invite the Subcommittee to consider is one that
comes from the merger guidelines. If you don't think that
competition will be restored within about a two-year period,
you are going to be really worried about that merger.
Think of the example of Kodak, a monopolist for many years.
You probably barely remember it existed. Between 1925-1995 it
had about 80 percent of the U.S. film market. Well, that is a
long time to wait for the market to control things, for the
market to correct things.
So, my suggestion to the Subcommittee is it might, in these
monopolization cases, put in a requirement that is like the
two-year requirement in merger cases: If you think that the
monopoly will start breaking down because there is open
architecture, because there is interoperability, then maybe you
don't need to worry about it; but if you think it is going to
be persistent, that is a different story.
Mr. Jones. If Congress believes that the Supreme Court has
misinterpreted these statutes, doesn't Congress have the power
to correct that misinterpretation, specifically, the power to
ensure the FTC, the Department of Justice, and private
plaintiffs can hold corporations accountable?
Judge Wood. Congress absolutely has that power. As I was
suggesting, I can think of other areas in which Congress has
exercised it. Think of the Lilly Ledbetter statute that was
passed when the Supreme Court gave a very narrow interpretation
to the civil rights employment discrimination statute. Look at
the Americans With Disabilities Act.
Congress can step in whenever it wants to with a statute
and either change it, or correct it, or whatever it wants to
do.
Mr. Jones. Thank you.
Mr. Chair, I yield back.
Mr. Cicilline. The gentleman yields back.
I now recognize Mr. Bentz from Oregon for five minutes.
Mr. Bentz. Thank you, Mr. Chair.
So, Mr. Phillips, every law has to have a limiting
principle, otherwise it is not a law, it is a license to be
subjected. So, in fact, what we end up doing is outsourcing
this enforcement to perhaps bureaucracies. Thus, our antitrust
laws were expanded in scope of purpose, say, to add to consumer
protection such as independent businesses, fair economy, and
other things, to name a few.
What does this do to you in the regulatory realm?
Mr. Phillips. Thank you, Mr. Bentz, for that question.
I have seen the name that the old expression he who serves
two masters, serves none, is an important one to keep in mind.
The more things we are directed to do simultaneously, the less
we focus on any given one.
So, clarity in law and administrability was really
important for making us efficacious in our work. The more
different things you add, the worse off we are.
Now, as I said in my testimony, what we do today, the
consumer welfare standard that the Supreme Court has recognized
isn't just limited to price. So, for instance, if you don't
have price competition there might be other aspects of
competition that are affected. It is important to note that
today, in litigation we look at those other things, too.
So, we will allege price harms, but we will also allege
innovation harms, and so forth. That is how we do it today.
Mr. Bentz. Continuing with you, the principles of antitrust
law have evolved over 100 years, I suppose. There are people
who have become reliant upon them, build their businesses
around them.
If we choose to change those, what impacts do you
anticipate, if we change them significantly, perhaps even
dramatically?
Mr. Phillips. Yes. So, I think it really depends on what
changes we make. That is why this important network, this
discussion that we are having today is so important.
Part of what makes America great, part of what has allowed
our economy to be as innovative as it is--more innovative, by
the way, than other jurisdictions that have more restrictive
laws--is the fact that we have still today a vibrant investment
environment. People know maybe they are going to bet on a
unicorn and make a lot of money, but if they don't, they can
still make money selling out, including through M&A.
Founders know that when they go a leave a steady job to
start a company, they have a chance of making some of that
back.
That is an important ecosystem that we need to consider as
part of this discussion.
Mr. Bentz. Pursuing you with one more question, the
complexities of this area are truly amazing. When one goes into
litigation it takes years. Is that a function of just a poorly
designed system, or is it a function of the incredible
complexity of the businesses we are now dealing with?
Mr. Phillips. I think it is a mix of things. The truth is,
the problems with antitrust litigation in terms of costs--they
are real, and that is why I support more resources--aren't just
about antitrust. If you think about securities litigation or
corporate contract litigation, they are also hiring economists,
they are also spending a lot of time figuring, to figure things
out.
A lot of the most effective work that we do today--this is
important to recognize, and it goes, by the way, to nascent
competition--is before the litigation starts.
So, for instance, in mine and the acting Chair's tenure we
have challenged three examples of nascent competition: Big
established firms buying smaller ones.
We have brought complaints. We have used the merger laws,
that is the Clayton Act. We have used the Sherman Act. We have
used the monopolization laws. We have gone to court and they
have called off the mergers. That is a good outcome for
consumers. I think it is a good outcome for enforcers as well.
Mr. Bentz. In the limited time left, how should the law
distinguish between conduct that harms the competitor from
conduct that harms competition?
Mr. Phillips. Sure. What we look to protect is the
competitive process. There are times when one firm out competes
another. That hurts the other firm. That is not necessarily
bad. That is the distinction that phrase draws.
Sometimes it doesn't sound so meaningful, but the point is
we want people to benefit from the fruits of competition. We
don't just want, as sometimes happens, companies to come in and
complain that they are being beaten in the market and they want
the Government to go make it right for them.
Mr. Bentz. Thank you, Mr. Phillips.
Mr. Chair, I yield back.
Mr. Cicilline. The gentleman yields back. I now recognize
the gentleman from Colorado, Mr. Neguse, for five minutes.
Mr. Neguse. Thank you, Mr. Chair. I want to say at the
beginning, thank you for holding this hearing to examine ways
that Congress and improve and strengthen antitrust laws not
only for the digital marketplace, but across our economy. There
is clear bipartisan support, in large part due to the Chair's
approach to this Subcommittee's investigation with respect to
the digital marketplace that a Congress should construct a
broad and comprehensive range of reforms to modernize the
antitrust laws and protect innovation, and I thank him for that
work. Of course, to the distinguished panel that has joined us
both virtually and here in person.
Commissioner Phillips, do you believe that the FTC's
approach to pharmaceutical mergers is working?
Mr. Phillips. Forgive me. Congressman, thank you for the
question. My view, some have suggested that it isn't. What I am
interested in hearing is what are the harms that folks think we
are missing, because I think if they exist, we should figure
out what they are, figure out how to build a case on them, and
bring those cases. That is why I support the Chair's effort to
convene a group of enforcers. I think there are other enforcers
we could convene as well to think about what those additional
harms may be.
Mr. Neguse. Well, so let me say this, and I appreciate your
answer and then appreciate you being candid with respect to
your views. It sounds like you believe that they are working,
that the policies at the FTC has pursued with respect to
pharmaceutical mergers have been effective. I don't think that
is the case.
I happen to agree with the dissenting view that was issued
back in last November of 2020, and I think the empirical
evidence bears that out with a market that is highly
concentrated and an American public that is paying higher
prices for pharmaceutical drugs than any other Western country.
Clearly, it is an area that is ripe for the attention of
regulators which is why I am--I guess the one thing we do have
in common, Commissioner, that I do share your enthusiasm for
the Chair's decision to convene this working group, because I
am hopeful that it will provide some potential best practices
that the FTC could implement. So, to Commissioner Slaughter,
Acting Commissioner Slaughter, as you noted in your prepared
testimony, the FTC announced this multilateral working group to
build a new approach to pharmaceutical mergers, which is
something I fully support. You, of course, have expressed--the
dissenting opinion that I referenced was yours--your view as to
the FTC's failings in this regard. I wonder if you can expound
on both what you hope to achieve through the working group and
perhaps expound a bit on the concerns that you articulated in
the dissent that you issued, which I certainly fully agree
with.
Ms. Slaughter. Thank you so much, Congressman, for the
question and for the support that you have articulated for our
initiative. I am really excited about it. I am really excited
about the opportunity to take a fresh look at a broader range
of questions in pharmaceutical mergers than our traditional
approach has taken.
Some of the issues I want to make sure we think about are
innovation, broadly, not just in terms of specific products and
pipeline products, but when two large pharmaceutical companies
merge what does that do to their R&D budgets? What does that do
to the incentives to bring new, unrelated products to the
market? What does it do for the incentives for venture
capitalists and entrepreneurs to invest in small biotech start-
up companies that could bring new products to market that might
have to be scaled up through larger companies at some point?
Another area of concern for me has to do with conduct. We
have an entire division of the FTC that is devoted to
anticompetitive conduct in the healthcare industry and much of
that attention is focused on the pharmaceutical industry. So,
when two large companies with history of anticompetitive
conduct merge, what happens to their incentives to engage in
that conduct? That is something that I think that we need to be
looking at.
The goal of this initiative is to put concrete theories and
concrete examples of evidence that we can give to staff,
because it is true when we bring cases, they are specific cases
that we have to prove in court. I want our staff to be armed
with the best tools to do their investigations as thoroughly as
possible, address all the potential theories, and bring cases
effectively.
So, that is one thing I am excited about. The other thing I
am really excited about is the opportunity to partner with
sister enforcers and other great thinkers on these issues
across the globe. The list that we started with is by no means
an exclusive list. I am sure we would welcome participation
from other players, but I agree with what Attorney General
Peterson said earlier and that Attorney General Weiser
reflected which is that enforcers are stronger when we are
working together and partnering on issues and working in
harmony. This is a great example of an opportunity to do just
that.
Mr. Neguse. Thank you very much. Thank you, Commissioner,
and I have two seconds left here. With the Chair's courtesy, I
would simply say I want to give kudos to the Attorney Generals
and, in particular, my Attorney General from the State of
Colorado for their efforts. I think what you hear is a
bipartisan sense of gratefulness from this Committee for your
willingness to take on these very tough issues. With that I
would yield back.
Mr. Cicilline. The gentleman yields back. I now recognize
the gentleman from California, Mr. Issa, for five minutes.
Mr. Issa. Thank you, Mr. Chair. I want to piggyback on a
lot of the discussion about why particularly tech companies do
acquisitions in order to close off competition, but I want to
take it in a slightly different direction, if I may. Closing
off competition can be done in a number of ways and in fact
ensuring a dominant position in a number of ways. I want to
switch now to standard essential patents.
I come from an industry, many years ago at this point, the
electronics industry, where almost everybody who has a patent
would like to have their patented technology put into a
standard that then everyone must use and pay. This has
happened, certainly, in the telecommunications industry for
years, but we see it happening in bio and other areas in a
greater amount.
So, the question, primarily, I will take it from anyone
but, Acting Chair Slaughter, I would like to start with you. Do
you have the authority to effectively stop that practice from
turning into either revenue and thus perpetuating the
dominance, or other resource, other tools, or do you need
Congress to give you additional tools that would allow you to
stem the profiteering from that way of doing business? It would
be for Slaughter or the Commissioner.
Ms. Slaughter. Thank you for the question, Congressman, and
I will note that both Commissioner Phillips and I had the
pleasure of working with your office on the patent issues when
we were Senate staffers together so I am always excited to talk
about these issues with you. I think that to the extent that
what you were pointing out is that patent, and particularly a
standard essential patent, conveys enormous market power, it is
a really important issue. Standards are good. They allow
broader innovation and implementation and that is great.
We want to make sure that the market power isn't abused,
and that when you get--when your patent gets included in a
standard, that you follow through on the commitment to license
that patent at a fair, reasonable, and nondiscriminatory rate
so that your market power from your inclusion in a standard on
which many implementers read doesn't allow you to exclude
competitors from the market. That is different from the way we
traditionally think about patents, which are really rights to
exclude.
So, there is a role for antitrust law to play. I think it
is--there are many ways that we could be better enabled to
address competition problems and I have outlined some of them
in my testimony, but I think this is an important issue for us
to continue to focus on.
Mr. Issa. While I will let Commissioner Phillips answer
also, I am going to put a hypothetical. Congress could
determine that when a product with the approval of the patent
holder becomes a portion of a standard, and thus an essential
standard patent, that the standard for reimbursement and
inclusion could change from the right to exclude to eliminate
the right to exclude altogether, and from a reasonable royalty
to a diminished reasonable royalty based on what would have
been the revenue if it were not a standard and then divided
more broadly since it is a standard. In other words, not allow
the enrichment of everyone using it to logarith-mically, in
some cases, increase the revenue.
Congress could certainly determine how that calculation
would be made so as not to unfairly enrich somebody who chose
to have it put into a standard while having it patented and
often patented again and again and again over the years.
Please, Commissioner.
Mr. Peterson. So, first, I just want to echo the Acting
Chair. I recall very fondly the work we did together on
patents.
Mr. Issa. Back when we used to get new patent law made,
right?
Mr. Peterson. Well, this is actually really important. The
original monopolies were issued by the English kings in letters
patent. So, the original concept of a monopoly, right, is a
government grant of only you can be in that market, and you can
derive the rights. Our Founders wisely determined that we
should only grant that for the purpose of science progress and
the useful arts, right. That is in the Constitution. There are
many areas including as Mr. Neguse was talking about with
pharmaceutical where not only antitrust policy, but other
aspects of policy come to play.
The answer to your question, fundamentally, is absolutely.
Congress determines that antitrust laws, but more critically
for purposes of the question they determine patent rights. One
thing I would note is when the FRAND process is perverted, as
in the Rambus case, we have used antitrust law.
Mr. Issa. Thank you. Thank you, Mr. Chair.
Mr. Cicilline. The gentleman yields back. I now recognize
the gentleman from California, Mr. Swalwell, for five minutes.
Mr. Swalwell?
No? All right. I will now recognize the distinguished
gentleman from New York, the Chair of the House Democratic
Caucus, Mr. Jeffries, for five minutes.
Mr. Jeffries. I thank my good friend, Chair Cicilline, for
yielding, recognizing me, and for your incredible leadership
and putting together such a distinguished panel on this
important subject.
Attorney General Weiser, it is good to see you. The State
of Colorado has joined the antitrust lawsuit led by New York
State Attorney General Letitia James against Facebook; is that
correct?
Mr. Weiser. That is correct, Congressman.
Mr. Jeffries. That lawsuit alleges that Facebook has
engaged in a pattern of either burying or buying competitors in
violation of our nation's antitrust laws; is that true?
Mr. Weiser. That is true.
Mr. Jeffries. As evidence that Facebook has sought to bury
competitors such as Vine and Circle, is that part of your
lawsuit, sir?
Mr. Weiser. It sure is.
Mr. Jeffries. Facebook has also bought competitors like
Instagram and WhatsApp; is that true?
Mr. Weiser. Yes, it is.
Mr. Jeffries. Now, it is my understanding that you are a
Colorado Rockies fan; is that correct?
Mr. Weiser. That is correct, although with respect for you
and Congressman Jones, I did grow up as a Mets fan and it is
hard to get rid of that experience.
Mr. Jeffries. Yes, I appreciate your clarity there. I was a
little bit disappointed when I heard the news because I know of
your New York roots. Major League baseball would never allow
the New York Yankees to purchase and merge with the Boston Red
Sox; is that right? Is that fair to say?
Mr. Weiser. I don't think there has ever been merger of two
baseball teams before.
Mr. Jeffries. Right. I mean that would create an
anticompetitive environment, true?
Mr. Weiser. Absolutely. I did grow up a Mets fan, so I am
remembering 1986 fondly when it comes to the Red Sox.
Mr. Jeffries. Yes. Now, I don't think the NFL would permit
the Kansas City Chiefs to merge with the Tampa Bay Buccaneers,
correct?
Mr. Weiser. I don't believe so.
Mr. Jeffries. It would seem to me impossible to see a
scenario where the NBA would allow the Lakers to merge with the
Boston Celtics because of the fundamental unfairness that that
would create. So, I am just trying to figure out from your
perspective why in the world would our laws permit Facebook to
be able to purchase a competitor like Instagram possibly to the
detriment of the U.S. consumer?
Mr. Weiser. The answer gets to the prior conversation I was
having with the Chair, which is when a rival is still nascent
the ability to show that it is exercising a true constraint,
particularly when it is a market like this one where prices
aren't an issue, it is very difficult to do that. So, the
antitrust laws as they have been implemented provide almost an
incentive and an opportunity for dominant firms to keep a
lookout for nascent rivals and purchase them before it is self-
evident that they are effective competition.
What we can say, clearly, looking back, is that Instagram
and WhatsApp presented unique, clear, and significant threats
to Facebook and they were able to purchase them and thereby
avoid the sort of rivalry that we depend on in a free market
system.
Mr. Jeffries. Thank you.
Acting Chair Slaughter, prior to your tenure at the FTC,
the FTC actually approved that merger between Facebook and
Instagram. Why were our laws insufficient to see what was
coming and what should we contemplate changing to facilitate
the type of competitive playing field that we expect in sports
and should expect to see as it relates to big tech?
Ms. Slaughter. Thank you so much for question, Congressman.
So, I want to point to one word that you said in that question
which is that the FTC approved these mergers. It is worth
remembering that our laws don't actually give enforcers the
authority to approve mergers. It is not the case that but for
our approval, mergers would not go through; in fact, it is the
opposite.
We have the opportunity to investigate mergers before they
are consummated if they are large enough to merit an HSR
filing, and then, if we think that they might be a problem, we
have the opportunity to go to court and try to block mergers
and convince the court that the merger would be
anticompetitive. For reasons that Attorney General Weiser
pointed out, that can be a challenging endeavor in the case of
a nascent competitor.
I think it is an important thing to remember where that
balance lies in the laws as they are structured right now in
terms of acquisitions. It is also important to know that the
law does not stop after an HSR filing passes in the waiting
period lapses or an investigation is concluded. The law gives
the agencies the authority, and the responsibility, to continue
to check their work and where it is appropriate to take action
if it becomes clear that a merger was anticompetitive. That is
exactly what the FTC did in filing our own lawsuit against
Facebook in parallel with our partners and the State Attorney
Generals' offices.
Mr. Jeffries. Thank you, Madam Chair.
My time is expired, but I look forward to working with
Chair Cicilline and Ranking Member Buck on these issues
including updating the Clayton Act. I yield back.
Mr. Cicilline. The gentleman yields back. I now recognize
the gentleman from Florida, Mr. Steube, for five minutes.
Mr. Steube. Thank you, Mr. Chair. Recent actions by big
tech companies and their online platforms require action by
Congress. These companies have censored political debate in
this country and restricted competition. The most direct way to
alleviate this growing problem is not through antitrust
measures, but rather by amending section 230 of the
Communications Decency Act. The extraordinary protections of
section 230 should be contingent upon big tech allowing free
and open speech on their platforms. We can immediately address
big tech censorship through section 230 legislation. I urge my
colleagues to support this effort.
To the extent the Federal antitrust laws can address these
issues, it is important that our approach is not overly broad
and does not hinder State efforts to rein in big tech
monopolies. My first question is for AG Peterson. To the extent
antitrust laws can only partially bring big tech to heel, what
role do you think State consumer protections laws should play
and how about reforms to Federal law such as section 230?
Mr. Peterson. Well, I think it is a good question and,
frankly, it is a question that is being discussed by several
Attorney Generals as the utilization of our consumer protection
laws in some of the practices that we see. Actually, the
section 230 issue is obviously a much more complicated one.
From the consumer protection standpoint and, frankly, the FTC
has some of the same jurisdiction, I can't go into any further
detail, but I can say is that there is discussion in regards to
how we can be more diligent about following the platform
practices and how they may be in violation of consumer
protection laws.
Mr. Steube. It seems like exercise of big tech's powers
have an increasingly disproportionate impact on culture and
society because of the power that certain big tech companies
have. Instead of open and rigorous debate, voices that take
traditional views are increasingly being canceled. What role,
if any, do you think aggressive State antitrust enforcement
might play to help foster a more vibrant marketplace, AG
Peterson?
Mr. Peterson. Yes. What I would say is in the discussions
among AGs in addressing the market dominance by some of the big
tech companies, frankly, it has been very important among the
AGs in order to have a bipartisan coalition to stay as focused
as possible on competition factors and anticompetitive
behavior, which does not get out into the political speech
issues. I think we lose part of our coalition if we do try to
address any of the political speech issues with the antitrust
laws that we are utilizing.
Mr. Steube. Commissioner Phillips, speaking of the
unintended consequences of tinkering with well-established
antitrust laws, what guiding principles can Congress adhere to
make sure that any action we take in regard to tech and
antitrust does not end up being a total revision of antitrust
laws in this country?
Mr. Phillips. Congressman, thank you for the question. I
think the two most important things to keep in mind are, first,
that when you are thinking about things like presumptions you
should look for data to understand that the thing you are
targeting is more bad, in general, than good. So, here is what
I mean.
In antitrust law today, we have a structural presumption
for mergers that we apply in court. We have presumptions what
we call of per se rule, so if you are fixing prices or dividing
markets, doing things that we know, in general, are bad,
enforcers and private plaintiffs get a leg up. We are doing a
study right now at the FTC of acquisitions by large tech
companies. To be clear, there are other large companies that
also make acquisitions. What I think you want to know, think
about when you think about presumptions, is what do the data
show? So, that is the first thing, what do the data show.
The second thing, as you noted in your line of questioning
to Attorney General Peterson, antitrust is not designed to and
will not be effective at solving every problem. Some of the
problems that we are talking about don't have to do with
antitrust and the tools that we have aren't effective at doing
that. I will give an example. We were talking about content
moderation and what platforms are doing with speech that is, I
see platforms making decisions that I really don't like, but I
also see smaller companies doing that too.
So, it is harder for me to see how Twitter has market
power, but that doesn't mean that they aren't making decisions
that I don't like. Antitrust is not the salve for everything,
and I do think it is really important to figure out what the
problem is we are trying to solve and figure out the right
tools to solve it.
Mr. Steube. Well, along that line, and I only have a couple
of seconds, but what are the dangers of amending antitrust laws
to try to address problems unique to only a certain industry
like tech companies?
Mr. Phillips. Look, I think you always want to work with a
scalpel. One of the great things about the antitrust laws is
that they apply broadly, and they embed critical principles,
don't divide markets, don't set prices, and that is good. I
think a lot of the other problems relate to other things.
Mr. Steube. Thank you. My time is expired.
Mr. Cicilline. The gentleman's time has expired. The
gentleman yields back. I now recognize the gentleman from
California, Mr. Swalwell, for five minutes.
Mr. Swalwell. Thank you, Chair, and really appreciate your
interest in this area. I have to say to the panelists, I hope
we can do this in a bipartisan way. I hope we do not conflate
the so-called cancel culture concerns of my colleagues with
real reforms that need to be made. If they have real concerns
about cancel culture, I suggest that their next minority
Witness be Colin Kaepernick. I think he would have a few things
to say about them and cancel culture.
Let's get on to serious business because we have serious
matters to address. Acting Chair Slaughter, I think you talk
about antitrust cases as being notoriously expensive and taking
years to investigate and litigate. In some cases, we have seen
judges just completely exasperated at the time, and expense
that plaintiffs and defendants investing after teams of experts
and lawyers are involved. Can you talk about whether you see
like maybe a third way, rather than going through the full
course of litigation?
When I was a prosecutor, if we wanted to avoid a lengthy
trial and a lengthy period of time in between litigation and a
verdict, sometimes we would offer a deferred sentence, meaning,
if the parties agreed that they had to do A, B, and C, you
wouldn't have a trial. Is that a possibility here to avoid an
all or nothing approach?
Ms. Slaughter. Thank you so much for the question,
Congressman. I think that there two things I would say. First,
you are absolutely right about the expense in terms of both
time and money to engage in the kind of battle of the experts
that we see in antitrust litigation right now. I will just
point out, since I talk about resources all the time, it is
worth noting that one of the real squeezes on the FTC's
enforcement budget right now is the cost for us on economic
experts. It makes it really hard to bring cases. They are
expensive, they are time consuming, and they really squeeze our
budget.
To the extent that you are talking about a third way, it
sounds to me like what you are talking about are settlements,
and I think settlements have a really valuable role to play to
the extent that they actually solve the competitive problem
about which we are concerned. My anxiety comes into play when
we take settlements just to defer lengthy litigation and we
don't actually solve the problem, and the settlement is
something that maybe papers over, or requires ongoing
complicated monitoring or is difficult to administer and isn't
a clear solution to the problem.
So, I am for settling where we can do it in a way that
addresses the issue that we have, but I would rather see us go
all in on litigation, even risky and expensive litigation, if
that is the only way to solve the problem. I do think the way
we could avoid that cost is in some of the reforms that you are
considering that would do some burden shifting or add
presumptions so that we don't have to do as much and judges
don't have to spend as much time engaging in this tortured
battle of the expert and extensive analysis to balance harms
and efficiencies all the time.
Mr. Swalwell. Chair, talking dollars and cents, what do
these costs mean for those types of cases? Are there instances
where anticompetitive conduct or illegal mergers that the FTC
would typically want to bring enforcement actions against are
not pursued because of budget constraints?
Ms. Slaughter. Well, listen. I am not comfortable saying we
are going to forego enforcement actions because of budget
constraints. Even before we had visibility to what our budget
would look like this year, in December, I think we filed four
separate enforcement actions in that month alone, because it is
important to go at it.
We are looking at ways to cut those costs. If we can't make
sure that our resourcing keeps up with the costs of litigation
and, more importantly, the demand on the agency, the very, very
high volume of anticompetitive transactions that we are seeing,
then foregoing enforcement is a real possibility and that is a
very unsatisfying one to me.
Mr. Swalwell. Great. Well, thank you so much and I yield
back.
Mr. Cicilline. The gentleman yields back. I now recognize
the gentleman from North Carolina, Mr. Bishop, for five
minutes.
Mr. Bishop. Thank you, Chair Cicilline. I appreciate that.
The Chair mentioned, I think the same article I am holding,
a Politico article that is titled, ``How Washington Fumbled the
Future,'' by Leah Nylen, dated March 16, and I am taken with it
as the Chair. Have you had occasion to read that article, Mr.
Phillips?
Mr. Phillips. I have read the article, yes.
Mr. Bishop. It tells a story in which the lawyers are the
heroes, and perhaps it deserves some skepticism on that basis
alone, but I wonder. It depicts, if I can summarize, I think
that the FTC had an enforcement failure in 2013 in evaluating
Google and it depicts a disagreement between economists and
lawyers, particularly in the agency.
Was there an enforcement failure there, in your view, or do
you have insight about that?
Mr. Phillips. So, Congressman, I think about two years ago,
I read portions of some of the memos discussed in that article,
but I have not read all of them. I have not been briefed by
staff in any substance on the case and what went on. To be
clear, this was years before my tenure and I haven't reviewed
the evidence, so I don't want to weigh in on the particulars.
What I will say is this. The agency benefits from the
robust conversation between economists and lawyers. To be fair
to the economists who took a little criticism, our hospital
enforcement today is built on the work that they did, building
a model and explaining to courts for why hospital mergers can
be problematic, so I think we benefit from that input.
The answers are, when it comes to antitrust, when it comes
to merger enforcement, it is future-looking. Congress have told
us to look into the future and make our best guess and we do
that. We are not always going to get it right. To be clear, in
the history of American antitrust enforcement, not only people
not wanting to bring suits have gotten things wrong, but also
people wanting to bring suits, right. So, America once believed
that mainframe computing would be the only game in town. No one
does that anymore.
What a lot of people you have heard today talking about and
what I think is a change that is ongoing already at the
agencies is that when we look at a merger, in particular, let's
say, a merger of a nascent competitor, we are a little bit less
concerned with the risks of over-enforcement and a little more
concerned about the risks of under-enforcement.
I think that change is underway today. I think that is why
with my colleagues I voted for three of these cases including a
platform case that is the Illumina/PacBio case, that gene
sequencing platform. That is why the DOJ brought the Sabre
case. That is why they brought the Visa/Plaid case. The reason
you are seeing more of these cases is we are hearing the
message and we are concerned about this dynamic.
Mr. Bishop. So, you said something else that is interesting
in your answers to Mr. Steube and that was a lot of folks here
who are very concerned about the censorship that Mr. Swalwell
made light of it, but I am very concerned about the censorship
by tech giants acting together, that the problem there is a
lack of competition. There is market power, market
concentration of market power, and you said that, ``antitrust
can't solve every problem and we may need to look elsewhere.''
Can you elaborate on that? I mean why would--if it seems to me
to be a problem of a concerted action by five big tech
oligarchs, then why isn't antitrust the regular solution?
Mr. Phillips. Well, part of what I mean--thank you,
Congressman, for the question--is that some of the behavior is
governed by the First Amendment, so content moderation
decisions, ultimately, are governed by that. The other point I
was trying to make is these, and like I watch some of these
decisions and I don't like them, but it is not clear to me that
it is an exercise of market power, which is what we are trying
to police.
So, we do see some problematic instances with large tech
platforms, but my point is, we also see problematic instances
with other companies. So, I am not sold on the notion that this
is an antitrust problem.
Mr. Bishop. Well, I think the problem that maybe confounds
some of us is that the other place to go, it seems, is section
230, the Communications Decency Act, and it has sort of a meat
cleaver-ish approach or a significance if that this model,
business model, has been allowed to exist by virtue of the
moderation that is allowed under that provision and so some
desire to figure out how to fix it by invigorating competition.
I guess your point is that you can do as much harm as good
if you don't do that right.
Mr. Phillips. Yes. Again, I also am not sure that this is
sort of a manifestation of market power. The issue of content
moderation, which is terrifically hard and you are right to
note the complexities, and to be clear, I don't have a great
answer on this, is a problem of allowing speech, in effect, at
scale and the decisions that companies have to make, and
sometimes it seems to me like they are stepping on rakes,
right? Someone will call something to their attention, and they
will take down. It is just not clear to me that it is a
manifestation of market power.
Mr. Bishop. Thank you, sir. Mr. Chair, my time is expired.
I wish I could have gotten to Chair Slaughter, but I didn't.
Thank you.
Mr. Cicilline. The gentleman yields back. I now recognize
the distinguished gentleman from Maryland, Mr. Raskin, for five
minutes.
Mr. Raskin. Mr. Chair, thanks to you and Mr. Buck for your
great leadership with these hearings.
Judge Wood, I wanted to come to you. We often trace the
antitrust laws to a century or a little bit more ago, with
Sherman and Clayton and so on, but wasn't the antimonopoly
principle, in fact, something that the framers of the
Constitution themselves talk about? Didn't Jefferson actually
want an antimonopoly amendment in the Constitution? Doesn't it
suggest that there are deeper political and philosophical roots
to our antitrust jurisprudence?
Ms. Wood. Well, thank you very much. There certainly are. I
mean the antitrust laws did not spring out of nowhere. There
had been the English common law restraints of trade and notions
of what fair competition was all about, and that had been done,
of course, for a century at the State level.
The reason Congress stepped in, in 1890, was frankly that
transportation, communication, all sorts of other things began
to make it very easy for the Standard Oil Trust to be in
Minnesota one minute and New Jersey the next minute and who
knows where. So, Congress said the only thing that is going to
work is a Federal approach.
Then there is a period of time where the courts were trying
to figure out, whether Congress had just codified the common
law or if it had gone further than the common law, and that is
a longer discussion than we have today. They certainly learned
about the importance of competition from our forebearers.
As Commissioner Phillips said, there had also been the
statute of monopolies in England which led to our patent laws.
I might throw in a bid here for saying that if the Committee is
really interested in some of these difficult areas of dominance
that are, say, in the pharmaceutical industry driven by patents
and in other areas, one thing it could do is give authority to
more courts to think about how patent law and antitrust law
intersect. Give concurrent jurisdiction to the regular courts
of appeals and--
Mr. Raskin. Well, let me pursue that for a second, if I
could, Judge. What is wrong with the narrowed-down, consumer
welfare utility approach to antitrust? It sounds pretty good
just to say, well, if it lowers prices for consumers then there
can't be an antitrust violation.
Ms. Wood. It does sound good, but what it excludes is all
sorts of behavior designed to push people out of the market.
So, take the airline example that General Weiser was talking
about. If a newcomer decides to offer airline service between
Chicago and Denver and the incumbents all lower the price below
cost, well, that is lower prices for consumers. Consumers
probably like paying lower prices, but it drives the newcomer
not only out of that market, but it also sends a very
forbidding message to other newcomers that maybe they better
not try this because they are just going to lose a huge amount
of money and they don't have the staying power of the dominant
firms.
Mr. Raskin. So, that is going to end up hurting the
consumers in the long run when you get that monopoly--
Ms. Wood. Exactly.
Mr. Raskin. --power, but what else does it do to the
economy or to our society to have just a few dominant players
in each of these major industries?
Ms. Wood. I would put my finger on innovation, frankly. I
think when you have only a few dominant players, there are just
so many brains looking at it. We know from the AT&T case, for
example, that if you were the dominant player, you didn't have
any incentive to get rid of your old built-out infrastructure
and bring in something new and better.
So, if you push out all these competitors, whether through
refusals to deal or exclusionary practices or, through tying
arrangements or however you do it, then you don't get those new
ideas. You don't have that ferment that we have relied on over
the course of our history.
Mr. Raskin. Can you describe how a revived essential
facilities doctrine might help us to address the monopolization
tendencies that are taking place right now?
Ms. Wood. Okay, so what I think of when I think of
essential facilities is really the bottleneck monopoly. You
have a firm that either gets all the control over an essential
input or all the control over the essential patents and then it
just decides who it is going to let in. It is actually a little
bit like the question we had earlier on standard essential
patents. Maybe a bottleneck is an extreme case of exclusionary
behavior, but in my view, it is very effective at making sure
you keep the market for yourself and you keep out those
potential innovators.
Mr. Raskin. Finally, very quickly, do you think antitrust
law is a counterweight to the free market or do you see it as
the guarantor of a free market?
Ms. Wood. The second. I think it is the guarantor of the
free market. It protects the competitive process, broadly
speaking.
Mr. Raskin. Thank you very much, Mr. Chair. I yield back to
you.
Mr. Cicilline. The gentleman yields back. I now recognize
the Ranking Member of the Full Judiciary Committee, the
gentleman from Ohio, Mr. Jordan, for five minutes.
Mr. Jordan. Thank you, Mr. Chair.
Mr. Phillips, if we are not going to use antitrust to deal
with the censorship and you are reluctant to talk about 230,
what is the answer?
Mr. Phillips. Congressman, I am afraid that I don't have a
good answer for you right now. This strikes me as a
terrifically problematic issue. My remit is antitrust and
consumer protection and it doesn't fall into those categories.
Section 230 is a Congressional statute and that is something
Congress can evaluate, but if I had a good answer, I promise I
would give it you.
Mr. Jordan. Well, last fall, big media--we know this
happened--big media colluded with big tech to keep a critical
story from the American people, the story about the Biden
family and specifically Hunter Biden and the fact that he was
under investigation. We know that was a fact. We know everyone
knew. We know people in the press knew and they kept that from
the American people in the run-up to the most important
election we have which is a presidential election.
We are trying to figure out what we do to--I mean last
week, we had a hearing in this Committee where the Chair wants
to give an antitrust exemption to the very big media who
colluded to keep information from the American people; at the
same time, they want to use antitrust to go after big tech.
So again, we have got to do something, it seems to me. Any
thoughts on all that?
Mr. Phillips. Well, the one thing I would say is, if
competition is the goal, and competition is the goal of
antitrust, exemptions to the laws, right, permit companies not
to compete, but to collude together, I don't think that would
help the dynamic you are talking about.
Mr. Jordan. Okay. Then, but what about 230? This is
something that Congress can do. I happen to think, I have heard
from scholar, I have heard from Professor Dershowitz who said,
definitely we should reform 230. You are making content
decisions on your platform your liability protection should be
gone. I totally agree with that. I think that is something we
can do. You don't have a thought on that at all?
Mr. Phillips. The troubling thing, Congressman, in my
understanding, and I am not a section 230 expert, is what I
would like to see is a flowering of speech. I think that that
is what we as Americans like. That is why we are concerned,
when people of harangue other voices that they may not agree
with out of the public square.
The trick with section 230 is how to fashion it such that
dynamic doesn't happen.
Mr. Jordan. Yes.
Mr. Phillips. I definitely worry when it comes to strike
suit litigation that someone does something, someone fires a
suit at them and they take the content down. We don't want that
dynamic either. Again, I am not an expert on 230. That is the
worry that I have.
Mr. Jordan. Okay. I will yield the balance of my time to
the Ranking Member, Mr. Buck. Thank you, Mr. Chair.
Mr. Buck. Unexpected generosity, thank you.
Commissioner Phillips, let me ask you a quick question
here. Are you aware of any statutes passed by--well, you said
earlier in your opening statement that the problem with
antitrust revisions would be that they apply to the economy as
a whole. I believe that is a fair summary paraphrasing.
Mr. Phillips. Yes, sir.
Mr. Buck. Okay. Are you aware of any statutes passed by
Congress that targeted specific industries in the antitrust
area?
Mr. Phillips. So, I think there have been some attempts at
exemptions, and actually we were talking about sports earlier
and there are some sports that are exempt from antitrust. I am
not aware of a specific antitrust statute that targets an
industry. There are obviously regulatory statutes that Congress
has adopted.
Mr. Buck. So, let me ask you this. Are you familiar with
the Hepburn Act?
Mr. Phillips. I am not, as I sit here today.
Mr. Buck. Okay, so the Hepburn Act says that it shall apply
to any corporation or any person or persons engaged in the
transportation of oil or other commodity by means of pipelines
or partly by pipelines and partly by railroads or partly by
pipelines and partly by water. Would that be an example of an
antitrust statute that targeted a specific industry and
commodity?
Mr. Phillips. It may very well be. Also, I should add
something. I even referred in my testimony to the Robinson-
Patman Act and that was definitely focused on the retail
industry. So, to the extent my answer was inconsistent with
that example, forgive me.
Mr. Buck. Okay. Would there be anything inappropriate or
improper, unconstitutional perhaps, with this Committee
recommending to the House, and if it passed the House and
Senate, signed by the President, targeting big tech platforms
because of their unique space in our economy right now?
Mr. Phillips. So, Congressman, certainly there is nothing
improper or unconstitutional that I can think of off the top of
my head.
Mr. Buck. Okay.
Mr. Phillips. Congress has power over interstate commerce.
Mr. Buck. Great. I yield back.
Mr. Cicilline. The time of the gentleman has expired, or
the gracious gift from Mr. Jordan has expired. I now recognize
the gentlelady from Washington, Ms. Jayapal, for five minutes.
Ms. Jayapal. Thank you, Mr. Chair, for holding this very
important hearing. When you drive a car, you typically assume
certain rules of the road. These rules are there to protect
people driving in different directions towards different
destinations. Antitrust law used to abide by its own rules of
the road, sometimes called bright line rules. If a merger
risked concentrating too much power in the hands of a few firms
that could then dominate an industry, regulators blocked that
merger. They did that by setting clear thresholds. For
instance, in 1968, two firms that each held a share of four
percent or more in a highly concentrated market ordinarily
could not merge without inviting a lawsuit. Today, antitrust
law operates very differently. Now, corporations hire expensive
economic consultants to help them argue in court that a
proposed merger could theoretically--theoretically in quotes,
``lead to lower prices for consumers.'' Studies show that these
lower prices rarely materialize in practice, and the complexity
of this so-called consumer welfare standard excludes low- and
middle-income people who can't afford to hire fancy consultants
even if they face immediate harms from a merger whether it is
as consumers, workers, sellers, or community Members.
Chair Slaughter, from your perspective as Acting Chair of
the FTC, can you be specific about how enforcement under the
current standard compares to the use of bright line rules for
merger enforcement?
Ms. Slaughter. Thank you, Congresswoman, for the question.
I think you pointed to exactly how it compares, which is that
right now we have to engage in a very extensive, expensive
investigation into and then argument about, in court, the
particular harms. We have to measure them, we must to try to
balance them against measurable efficiencies, and that is
difficult. I think if we had clearer bright line rules, we
would absolutely prevent more mergers. If there is a risk to
that it is that perhaps we might block some mergers that might
not be the worst mergers in the world. It would be an over-
deterrence problem.
I will tell you that as I sit here right now, given how far
we have gone in under-deterrence, I don't lose a lot of sleep
about the risk of over-deterrence.
Ms. Jayapal. Thank you, Chair. In your testimony, you State
that the FTC must be bold in bringing cases where success in
the courts is not guaranteed. Would the adoption of bright line
rules for merger enforcement embolden antitrust enforcers to
bring important cases to court? I mean you referenced this. You
said you don't think it is going to have that effect, but can
you say more on that?
Ms. Slaughter. Well, yes. I think it would make the cases
less hard to litigate which would mean that we could bring more
of them. It would make the cases less expensive to litigate
which means we could bring more of them. I am focused very much
on what we can do now, even while Congress is engaged in this
important effort to reform the laws. I am excited about the
idea of being bold with new tools as well.
Ms. Jayapal. Yes, we are as well.
Judge Wood, the point has been made a few times throughout
this hearing that antitrust supposedly protects competition and
not competitors. You wisely noted in your remarks that we can't
have competition without competitors, and our antitrust laws
also prohibit unfair methods of competition. Isn't this statute
broader than antitrust laws? Should Congress clarify that it is
a far-reaching tool given this repeated confusion even here in
the hearing room today?
Ms. Wood. Well, thank you very much. I think at this point,
clarification might be welcomed not only, frankly, by
enforcers, as the Chair was saying, but the business community.
Business is very happy to deal with clear rules that everyone
understands, that their general counsels, their individual
lawyer, or whoever it is can just say to them, if you do this,
you are going to be okay. If you do this other thing, you are
inviting attention from antitrust enforcers or private
plaintiffs.
So, I actually think clarification from Congress about
thresholds, about what to do with the nascent companies, the
very little companies that have a lot of promise that really
fall through the cracks these days because they don't increase
concentration very much in the moment, as opposed to the longer
term, but I think that there would be a great benefit from
clarity, even if there was a little bit of risk of getting it
wrong sometime.
Ms. Jayapal. Let me quickly ask you about the question of
concentration because you mentioned that antitrust laws have
always been concerned not only with consumer welfare, but also
with concentrated economic power. Can you quickly elaborate on
what you mean by concentrated economic power and how you think
this Subcommittee should understand it?
Ms. Wood. Learned Hand said that concentrated power
certainly existed at about the 75-80 percent share of the
relevant market. The Europeans would tell you it is more like
40 percent. When you control, let's say, more than half of the
market, you can behave independently, and you don't have to
care what consumers think. That is the problem.
Ms. Jayapal. Thank you so much. I really believe we need to
reassert the broader vision of a democratic economy and society
that once guided antitrust enforcement and I am looking to do
that, reinstating these clear rules of the road that apply
equally to powerful corporations.
Thank you, Mr. Chair. I yield back.
Mr. Cicilline. The gentlelady yields back. I now recognize
the distinguished Ranking Member of the Committee, Mr. Buck,
from the great State of Colorado, for five minutes.
Mr. Buck. Thank you. Thank you, Mr. Chair.
Commissioner Phillips, I want to ask you a question with a
quick answer and then go to the Chair, Acting Chair also for
the same question. When was the last time the Federal Trade
Commission brought a case on innovation only? Not price and
innovation, but innovation only?
Mr. Phillips. Off the top of my head, I can't think of
that, but I would have to check the record.
Mr. Buck. Acting Chair Slaughter?
Ms. Slaughter. Well, I think innovation was very much at
the heart of the complaint we filed against Facebook, right,
that was not a price complaint. That was about innovation and
access and nascent competitors. So, that is one I would point
to, but that I agree with my colleague that I would like to
give a little thought to more.
Mr. Buck. Okay. Commissioner Phillips, did you support the
FTC recent action against Facebook?
Mr. Phillips. I did not.
Mr. Buck. Acting Chair Slaughter, did you?
Ms. Slaughter. I did. It was voted out on a 3-2 vote.
Mr. Buck. Okay. What change, Acting Chair Slaughter, what
changes, if any, or let me ask you this, this way. Should we,
should Congress consider codifying the guideline that was
issued jointly between the antitrust division and the Federal
Trade Commission on vertical mergers?
Ms. Slaughter. No, Congressman, honestly, I was concerned
that the guideline as it was issued was overly crediting of
claimed procompetitive benefits of vertical mergers and
undercounted a number of harms that I think are important. So,
I would prefer not to see those guidelines codified and, in
fact, I think we should consider withdrawing them.
Mr. Buck. Okay. How about shifting merger presumptions?
What is your position on that?
Ms. Slaughter. I think changing presumptions in mergers,
particularly in the kinds of cases where there is clear
evidence of anticompetitive harm or clear evidence of
dominance, would be very helpful for enforcers.
Mr. Buck. Commissioner Phillips?
Mr. Phillips. I think it is the answer I gave to Mr. Steube
earlier. I think we are conducting a study right now, in
particular, the big tech context of acquisitions. When we
create bright line rules in antitrust, we do our best when we
target things for illegality that are mostly bad.
Mr. Buck. Commissioner Phillips, what should we do about
the recent court interpretations of Rule 13(b) which some have
suggested undermine the effectiveness of Rule 13(b)?
Mr. Phillips. I do think Congress needs to give us clarity
on Rule 13(b). I don't know what the Supreme Court will do, but
we certainly had a lot of roadblocks from courts. We go into
these negotiations and people throw 13(b) decisions in our
face, so I think clarity from Congress on that would be
welcome.
Mr. Buck. What is clarity? A lot of us have trouble seeing
sometimes, so what is clarity?
Mr. Phillips. So, there are two issues. One issue is our
ability to get money as opposed to just an injunction barring a
company from doing something under the statute. I think
speaking to that is thing number one. The other, there are a
series of decisions, and this comes up in the Facebook case,
has to do with how far back we can go once the conduct has
stopped.
So, I think that getting clarity from Congress when they
want to allow us to use 13(b) to get money how late after the
conduct stops, would be terrific.
Mr. Buck. Acting Chair Slaughter, your thoughts on clarity
for 13(b)?
Ms. Slaughter. I think it would be critical for Congress to
speak not just with clarity but to restore the understanding
that courts have had for decades of the power that 13(b) gives
the FTC. Judge Wood wrote an incredibly eloquent, and I thought
very persuasive, dissent in the CBC case in the 7th Circuit
that tackled some of these issues. If we cannot get monetary
redress, we can't make consumers whole when we have seen
anticompetitive conduct or fraudulent behavior or any of the
law violations that the FTC tackles.
If we don't have the ability to go into court and stop bad
behavior from recurring, if we don't have the ability to get an
injunction, then there is very little that we can do to prevent
a company once it has stopped doing its wrongdoing, even if it
has stopped that in the shadow of an investigation, from
restarting that behavior. It renders the agency very limited in
its ability to go to Federal court. I think that is a real
problem for consumers not just in consumer protection but also
in the antitrust realm.
Mr. Buck. I would be remiss if I didn't mention that I
appreciate my fellow Coloradan joining me in supporting the
Colorado Rockies. So, thank you very much, Mr. Attorney
General.
Mr. Cicilline. We will leave out the modification he said
about his support of the Rockies.
I now recognize the very distinguished gentlelady from the
State of Florida, Ms. Demings, for five minutes.
Ms. Demings. Thank you so much, Mr. Chair, and thank you to
our Ranking Member as well. Thank you to all our Witnesses for
joining us today.
I think that we all agree, I believe that there is a need
to modernize our antitrust laws to create a market that gives
everyone a fair shot. That is what we are talking about, a fair
shot to healthy competition and holds bad actors accountable.
Judge Wood, in your written testimony, you explain that
courts today assess allegations of exclusionary practices under
the rule of reason. As a result, courts are left to try to
distinguish between what is an anticompetitive exclusionary
practice and what is merely tough-nose competition. Your
testimony makes it clear that while making these distinctions
isn't impossible, it can be challenging. What about this is
challenging and why?
Ms. Wood. Well, thank you very much, Congresswoman. It is
challenging, first, because it is done under the rule of
reason. That is a mushy term, coming all the way from a 1911
Supreme Court decision. So, you need to figure out a lot of
things with the help of very expensive economists, market
studies, who has market power, what is the impact of this
practice in the market, why was it undertaken--it is a very
elaborate inquiry.
That means that the rule of reason deters plaintiffs from
bringing those lawsuits to begin with; not everybody has a
pocket deep enough to support that. The enforcement agencies of
the Federal government or the State Attorneys General also live
on budgets. They have to assess very well what they are doing,
so it is a big investment. Instead, you could have rules of
thumb. You could say that if somebody is engaged in
exclusionary practices of some type and they have--I will pick
a number randomly--say, 40 percent of the market, then maybe we
have a presumption there which would leave a safe harbor for a
tremendous number of small- and medium-sized businesses to
engage in whatever practices they thought were most efficient
for them.
I think that is what we want to do. We want to let them
have some room to compete, but we also want to make sure that
the big guys don't turn into Facebook, buy or bury.
Ms. Demings. Thank you so much, Judge Wood. You also talked
about legislative changes in the remedy areas. You talked about
injunctions, damages, but you also talked about even additional
remedies. Could you just elaborate a bit on those, please?
Ms. Wood. Yes, certainly. I would be glad to. I will
preface it by saying that when I was at the Department of
Justice which, granted, was a long time ago at this point, my
job like General Weiser's job included the international
portfolio, so I learned a lot about other countries'
competition laws. Most of them have among the remedies they can
use the possibility of a civil fine.
Even though that is not ideal, I would freely say that some
fines are going to be too small and they may be a slap on the
wrist and it is not something you would always want to use.
They have a potentially important place. If you look at the
choice between forbidding somebody from doing something that
might be a bad fit for a particular case or ordering somebody
to do something, license your patents or have open architecture
on something, whatever, you might feel that was intrusive as
well.
Divestiture is great when that is the kind of structure of
the market, but that is not always going to be right, too. So,
I was thinking that the United States could just do what
everybody else in the world that I know of has done and add
civil fines to the menu.
Ms. Demings. Thank you so much.
Attorney General Weiser, what do you see as the primary
reasons from your perspective that enforcement efforts have
been weakened and what do you believe that Congress can do to
help?
Mr. Weiser. Thank you, Congresswoman.
There has been--and I have great respect for Judge Wood. It
is called the Chicago School, but not to take away from her
often-called post-Chicago School views, the Chicago School
thinking has had such an influence that has influenced both
courts and enforcers to be afraid of bringing cases that would
constitute so-called over-enforcement.
As Judge Wood said really well, using Kodak as an example,
we can see companies have durable, sustained market power that
harms consumers and we will sometimes see people talking
themselves out of bringing cases. What we saw with Google, for
example, was an ability to move from dominating Search in the
desktop to dominating Search in mobile. As the case that
General Peterson and I are leading right now, we want to stop
Google from dominating the Internet of things or connected
cars, or other sorts of devices.
So, what we need to do is get enforcers to commit to bring
cases. We have got to have laws and a message to the courts
that it is important to have robust enforcement and not to
create these artificial rules--the American Express decision is
a notable one--that makes it unduly difficult for enforcers to
get the relief that will protect consumers.
Ms. Demings. Thank you so much. Mr. Chair, I yield back.
Mr. Cicilline. The gentlelady yields back. I will recognize
the gentlelady from Pennsylvania, Ms. Scanlon, for five
minutes.
Ms. Scanlon. Thank you, Chair Cicilline. At a hearing last
July, I raised concerns about Amazon's scheme to artificially
lower the prices of Amazon brand diapers to drive down a
competitor's profits and then eventually acquire that company.
The tactic had real effects on parents who saw the cost of
Amazon diaper products rise once the competition was
eliminated.
Attorney General Weiser, you testified today that that is
the type of conduct that we should consider in violation of
antitrust laws, and in your remarks at the George Mason Law
Review's 24th Annual Antitrust Symposium this past February,
you talk about the very high bars set by the courts for
punishing predatory pricing schemes like the Amazon diaper
scheme. Can you talk about why the bar is so high and what this
means for smaller firms and then what legislative
recommendations you would make?
Mr. Weiser. Thank you very much, Congresswoman, and I
appreciate you reading that article. The case that is at issue,
it is a case influenced by the Chicago School thinking, is
known as Brooke Group. Famously, there is a statement in that
case that predatory pricing schemes are rarely tried and even
more rarely successful. That statement came out of works by
Chicago School scholars like Judge Bork; it didn't have a basis
in reality.
Unfortunately, that statement has influenced courts
including the case I talked about in my testimony, the American
Airlines case where what happened was exactly what Judge Wood
talked about. There was the flights between Dallas and Wichita
and after rivals, low-cost carriers, came in, American just
flooded the market, moved to a whole bunch of flights a day,
lowered prices, and then that pushed out the rivals from the
market. As the concern you mentioned, once the rivals were
gone, they raised their prices to back where they were. The
courts took a very narrow view of cost and the courts have also
taken at times a very demanding view of a recoupment
requirement and that has really led to an absence of these
cases and has created, as Chair Slaughter noted, a lack of the
sort of deterrence we would like to see.
So the short version is, I do think we need to either have
a narrowing of this precedent in the courts, and I have written
an article on this with a colleague of mine at how that could
happen, and/or Congress can overrule this Brooke Group decision
by statute. I do believe you have to have below-cost pricing
and then define that appropriately.
Then also you have to recognize, and this is again what
Judge Wood, another co-author of mine, said is the reputation
for predation that gets developed by an American Airlines that
lasts. We haven't seen entry into the airline industry much at
all over the last 20 years after this case was decided. That is
a problem for airline consumers.
Ms. Scanlon. Thank you. That is very helpful. I also would
like to touch briefly on the connection between antitrust law
and its privacy regulation. Mr. Walker, in your testimony, you
talk about the need to consider privacy regulation and
competition policy jointly, pointing out that dominant firms
have used European privacy protections as a competitive weapon,
and I also saw in your testimony that you talk about the fact
that these dominant social media firms are unlikely to self-
correct. Can you tell us what you, can you explain that
observation further?
Mr. Walker. Certainly. So, the information about privacy is
just that we have seen some of the platforms that take
advantage of rules around the restrictions on sharing data
outside of their ecosystem but being allowed to share data
within that ecosystem as a way of buttressing their competitive
position. In the U.K., we currently have a case against Google
where Google has said they are going to phase out third-party
cookies claiming--or saying, reasonably, they are doing that on
privacy grounds, but that is going to have real competition
effects, which is why we have instigated a case against them.
Why do I say that it doesn't look like they are going to
self-correct? Well, if you talk to Google, even up until two or
three years ago, they were telling us, no, no, competition is
only a click away and we could be--look what happened to Yahoo.
Facebook was saying the same about Myspace. You think that 15
years ago, yeah, okay, maybe you had an argument. If those are
your examples of how your position could be taken away, if you
are having to go back that far, then I don't think they are
making convincing arguments.
For the incumbent, the natural network effects of these
incumbents and their entrenched position through their
ecosystems makes it very hard for people to enter and compete.
Mr. Cicilline. The time of the gentlelady--
Ms. Scanlon. Thank you very much for that.
Mr. Cicilline. Oh, thank you. I think the gentlelady was
about to yield back. Thank you. I now recognize the gentlelady
from Georgia for five minutes, Ms. McBath.
Ms. McBath. Thank you so much, Chair, I really appreciate
it. Thank you to each and every one of you that is here before
us today. It is really important that we hear from you.
Chair Slaughter, your testimony mentions a few ways
Congress can strengthen the FTC's enforcement capabilities, and
I also want to make sure that the FTC has strong investigative
authority to root out problems that harm competition or reduce
consumer choice. I am concerned that this investigative
authority does not apply equally to all industries. With the
cost of healthcare burdening so many Americans, I think the FTC
must be able to study the insurance industry as it deems
appropriate.
There is particular cause for concern in light of what this
Committee learned from our past hearings on consolidation in
healthcare. At that hearing, Dr. Marty Gaynor told us that two
largest health insurers have 70 percent of the market and over
one-half of all local insurance markets. So, Chair Slaughter,
do you think that the FTC should be empowered to study the
health insurance industry without getting specific permission
from Congress?
Ms. Slaughter. I do, Congresswoman. That would be very
welcome.
Ms. McBath. Well, thank you so much. I appreciate that.
So, Mr. Walker, or excuse me, should I say, Dr. Walker, as
an economist, why do you believe that competition not monopoly
drives innovation and improves consumer choice?
Mr. Walker. I mean, there has been a debate in economics
over this issue and there's a view that it is that monopolists
have the money to invest and to drive innovation. There is the
view that, no, it is competition; that the incentive to escape
from competition to give yourself a competitive advantage is
what drives innovation.
Just empirically, I think the evidence is that competition
is what drives innovation. Competitive markets lead to more
innovation. The markets are all monopolized. The monopolies
tend to get a bit lazy. If they don't face competitive
pressures, they don't have an incentive to innovate.
Competitive firms don't have that luxury. They need to innovate
otherwise somebody else will and they will be dead.
Ms. McBath. Thank you. Judge Wood, your testimony notes
that antitrust law has long been concerned with promoting
innovation and that concentrated economic power can stifle
innovation if it is left unchecked. A recent article in The
Verge highlighted an example of a small business that created a
popular cross-body camera bag and sold it on Amazon, and Amazon
then came out with its own Amazon Basics bag. That is what they
called it and it bore a really striking resemblance to the bag
that the small business developed. It even had the same name,
and just until recently.
There are many allegations of Amazon using its monopoly
power over sellers and the data it extracts from them to copy
successful products that are sold on its marketplace. These
include shoes, a car company that invests, I think it was a car
trunk organizer and seat cushions, but all for a lower price
than the company that invested in the products' research and
development.
As we stated in our report, the Subcommittee's Report, the
Subcommittee, we heard repeated concerns that Amazon leverages
its access to third-party sellers' data to identify and
replicate those popular and profitable products from among the
hundreds of millions of listings on its marketplace. So, Judge
Wood, should we concerned that entrepreneurs will no longer
have an incentive to innovate if dominant firms leverage their
monopoly power to copy and undercut small innovators?
Ms. Wood. Well, you have really put your finger on a very
important question, in my opinion, which is whether our whole
categories in antitrust have become too rigid. We think of
horizontal restraints, and Amazon is not competing with another
Amazon. Amazon is actually the only player. There are also
vertical restraints where Amazon has various people who use its
facilities. I think there is a way that that should be loosened
up, that there is a way in which we need to understand that
these leveraging theories lead to consumer harm.
Now, you might say, theoretically, the answer is stronger
trademark laws or more strong other laws. Frankly, small
businesses don't always have the budget to litigate forever on
a trademark dispute either. So, I think these leveraging
theories are something that would repay careful study.
Ms. McBath. Well, thank you so much for your answers, and I
believe that I must yield back the balance of my time.
Mr. Cicilline. I thank the gentlelady and now recognize the
gentlelady from Pennsylvania, Ms. Dean, for five minutes.
Ms. Dean. Thank you so much, Mr. Chair. I apologize for
having been in and out. I hope you will know that I was doing
my best to listen in, but if I repeat a little bit, I hope you
will bear with me.
Judge Wood, I wanted to ask you, you noted in your written
testimony antitrust enforcement has been weakened for a variety
of reasons. Can you describe the primary contributing factors
and how do we appropriately reverse these trends?
Ms. Wood. Well, thank you very much. If I were to speculate
the primary reason is that the chance of success in any
particular antitrust case, especially a case that is not a
hardcore cartel, horizontal price fixing division of markets,
the things that are under the per se rule, it has become very
hard and very expensive to win those cases. Also, lawyers are
going to actually face ethical issues. Can you even file the
case under the rules that govern stating a good-faith claim?
As we get rule after rule inspired by what General Weiser
keeps calling the Chicago School, saying, well, even if we have
evidence that all the companies in this business are
coordinating their behavior somehow that is not enough, we need
a smoking gun where they all sit down in a room and say, let's
charge the same price, it is that assessment of likelihood of
success in the courts.
Expense is another thing. As you get rid of clear rules
such as the per se rules, then you definitely raise the expense
of litigation. You have to assume people are rational. They are
not just going to throw dollars away at something year after
year if it is not likely to result in some sort of relief. So,
I would single those out.
Ms. Dean. Thank you very much, Your Honor.
Dr. Walker, are there advantages to Europe's abuse of
dominant standard compared to the United States law in its
ability to reach anticompetitive conduct by monopolists or
dominant firms?
Mr. Walker. Well, certainly the provisions properly used
can be very effective in stopping firms abusing their market
power. However, there are definite limits that you should be
aware of. First, the cases take an awfully long time, so if we
think about Google Android, which most economists would think
was a pretty obvious case, the complaint was 2013, we got a
decision 2018, and it is now on appeal. So, they still take too
long.
Second, I would say they don't, generally, allow you to
remove the source of the market power, and if you have a
sophisticated firm with substantial market power and you stop
them being able to exercise that in one way, that sophisticated
firm, they are going to find another way to exercise that
market power and you end up playing a game of whack-a-mole. So,
yes, it is a useful provision, and we certainly have a number
of cases that we are pursuing under that provision but, it is a
long way from being perfect.
Ms. Dean. I appreciate that. Certainly, we struggle here in
our system with the court cases and appeals, etc.
Also, for you, Dr. Walker, why do you believe effective
merger control is an essential element of restoring competition
in digital markets and addressing the dominant platforms'
significant and durable market power?
Mr. Walker. Well, I mean you have to learn from mistakes
you have made in that past and we look at Facebook and we look
at its position with Facebook, Instagram, and WhatsApp, and you
have to think that those acquisitions have not been good for
consumers. So, you want to be in a world where those
acquisitions, in the future, are picked up.
We have learned something about how to think about these
acquisitions. One of the things we have learned is that under a
balance of probability standard, it is extremely difficult to
be able, in 2012, to say, yes, Instagram is a bad merger, I can
be more likely than not, sure it is going to lead to consumer
harm. The problem is, if it does lead to consumer harm, it
leads to a lot, as we have seen. So, that is why, actually, we
need merger control with a lower standard of proof for these
cases so you can go in and say, this merger, there is at least
a prospect it can be anticompetitive and a lot of harm if it
is, therefore, we should be able to block it.
Ms. Dean. I thank you for that and for the focus on
consumer harm. I see my time is expired and I yield back.
Mr. Cicilline. The gentlelady yields back. I now recognize
the gentleman from Georgia, Mr. Johnson.
Mr. Johnson of Georgia. Thank you, Mr. Chair, for holding
this very important hearing. We have spent nearly two years
understanding the complex problems posed by big tech companies
that have full control over their marketplaces and now we
finally turn to the big question which is, how do we fix this?
Since this investigation began, I have been dismayed to
learn about the depth of the anticompetitive issues that exist
when just one company hold the keys to an entire segment of the
economy. Whether a company prioritizes its own products for
users or prevents the platform availability of a competitor
application, big tech frequently exhibits self-preferencing
behaviors, stacking the deck to enable themselves to get bigger
while squeezing the life out of the little guy. What we are
dealing with here is what happens when big tech becomes too
big. (Audio interference.) Therefore, we want that corporation
to do the right thing by way of competition and their
competitors. That is why Congress enacted the antitrust laws
more than a century ago, to keep our economy competitive and to
avoid the immense concentration of economic power that we see
today.
As with other critical areas of the law such as the Voting
Rights Act, the Supreme Court has whittled away at the
antitrust laws over the past several decades. When coupled with
forced arbitration causes and consumer agreements, which block
everyday people and small businesses from getting their day in
court, it has become practically impossible to hold
corporations accountable when they break the law. So, I am
looking forward for us to come up with some great ways of
curing this by way of legislation.
General Weiser, I am very concerned how anticompetitive
conduct by dominant firms, like self-preferencing, is
undermining innovation and preventing competitors from entering
the market with better services and giving firms with
gatekeeper power control over the entire marketplace. You have
also testified that this dominance has created a kill zone, as
you call it, for new companies, undermining (audio
interference) generation of innovation. Is current law (audio
interference) and how would legislative action help address
these trends by removing obstacles to enforcement?
Mr. Weiser. Thank you. I want to underscore that these
hearings and this focus is a valuable complement and fits very
closely with the agenda of pursuing cases like the Facebook
case, like the Google case. We are confident we can prevail
under current law in these cases. The Microsoft precedent I
mentioned gives us a road map for how we win these cases. Part
of what you can do, and Chair Slaughter mentioned this, is make
sure to encourage and invest in antitrust enforcement as a
critical part of the economy.
I just want to pick up a point of innovation that you have
adverted to and that Judge Wood mentioned. During AT&T's reign,
AT&T had this gatekeeping monopoly where MCI and Sprint
couldn't enter effectively into the long-distance market
without interconnection that was nondiscriminatory to AT&T.
When there was an effort to build a fiber optic network, there
were no takers to buy the invention at that point. AT&T told
the folks at Corning, when we want to build a fiber optic
network it will be after we depreciate our current network and
we will build it ourselves.
After the AT&T divestiture, a procompetitive, antitrust
decision, both Sprint and MCI purchased fiber optic networks
and some of us are old enough to remember the pin-drop
commercial that Sprint had and AT&T was forced to compete in
the marketplace. That is what helps consumers. Choices in
products, rival firms, and innovate--I agree with Dr. Walker,
innovation comes from competition. Allowing firms like a Google
or a Facebook to squelch out competition to deprive consumers
the choice, that is bad for consumers and we need to fight for
competition.
Mr. Johnson of Georgia. Thank you, General.
Dr. Walker, you are a leading antitrust economist. In your
statement, you write, ``The right answer to uncertainty and
complexity is not inaction.'' What do you believe is the
biggest danger in taking a neutral approach to big tech
monopolies?
Mr. Walker. Well, the biggest danger is that antitrust
authorities look at these cases and we say it is all too
difficult so we will do nothing, and we will get exactly the
wrong answer rather than trying to get roughly the right
answer. Historically, competition authorities around the world
have tended to go for inaction in the face of uncertainty and
that has been a huge mistake.
Mr. Johnson of Georgia. Yes, what are the global
consequences that--
Mr. Cicilline. The time of the gentleman's has expired. You
can, of course, finish your thoughts.
Mr. Johnson of Georgia. Okay, yes. I was just wanting to
know what would be the global consequences if the U.S. fails to
act, sir?
Mr. Walker. Well, if we fail to act, then I don't see why
the firms would stop their behavior. We know that behavior is,
increasingly, they do squash nascent competitors. They do use
leverage strategies to see if that works so competition
authorities around the world need to act.
Mr. Johnson of Georgia. Thank you. I thank the Chair and I
yield back.
Mr. Cicilline. The gentleman yields back. I am just going
to ask the Witnesses to indulge me just a couple of minutes,
and I will, of course, give the Ranking Member the same
opportunity just to sort of wrap up with a couple of questions.
Commissioner Phillips, I would like to turn to you. You
testified that antitrust is a fact-intensive inquiry and that
competition cannot solve every problem, but no one is seriously
debating that. We are here to discuss reforms that will boost
competition precisely because of the evidence and because a
century of experience has taught us that competition in the
economy is always desirable.
Helpful to us is understanding how enforcers think about
these issues and so your presence here is useful. You, for
example, voted against the FTC's bipartisan complaint against
Facebook for monopolization, correct?
Mr. Phillips. I did.
Mr. Cicilline. You are aware that 48 State Attorneys
General, Republicans and Democrats, agreed that this evidence
warranted filing an antitrust complaint, correct?
Mr. Phillips. I am.
Mr. Cicilline. You have read the underlying evidence in
those complaints, I assume?
Mr. Phillips. Yes.
Mr. Cicilline. So, you are aware that Mark Zuckerberg told
Facebook's Chief Financial Officer that the purpose of
acquiring Instagram was to neutralize a competitive threat and
buy the company time, correct?
Mr. Phillips. Yes.
Mr. Cicilline. You are aware that the company's own market
data shows that Facebook has tipped the market in its favor in
terms of monthly active persons' attention and time spent on
its platform, correct?
Mr. Phillips. I think that is right, but I will accept the
premise for purposes of the question.
Mr. Cicilline. All right. You also know that Facebook's own
data scientists and economists believe that Twitter and Snap
are not meaningful sources of competition to Facebook, correct?
Mr. Phillips. I am not aware of that evidence, but I have
no reason to disagree.
Mr. Cicilline. So, I guess my question then is, in the
light of that, tell us as we think about these issues, what
additional evidence would you have needed or is your opposition
based on something else that we don't understand?
Mr. Phillips. So, my quibble with this case begins,
Congressman, with the fact that these are transactions--the
gravamen of the case is two transactions. It is Instagram and
it is WhatsApp, and these are transactions that were brought to
the attention of the Federal Trade Commission before I was
there, the better part of a decade ago.
There is no allegation in the complaints of fraud in that
process or anything like that. The agency did what it did, and
for years, the company was allowed to make decisions, made
investments, so a big part of this goes to the integrity of the
process. For the government to come back in years later, I
don't think the government is barred as a matter of law later
from bringing a case.
Mr. Cicilline. In fact, it specifically authorizes as a
matter of law, isn't it?
Mr. Phillips. Sorry?
Mr. Cicilline. It is specifically authorized to do that as
a matter--
Mr. Phillips. Yes. Yes, we can go in after the fact. As a
general matter in terms of mergers, the longer you wait, the
more investments the company make and I think that presents a
real issue. I can't undo the fact that the agency did what it
did. I also think on the merits there are some questions to do
with market definition and effects under section 2. I do think
this broader framing is really important. I wasn't there when
this happened, but it did happen.
Mr. Cicilline. Yes. Finally, Commissioner Phillips, you
testified repeatedly today that the antitrust laws are working
just fine, but that is simply not true. To give one example,
the FTC recently suffered a crushing defeat in its efforts to
challenge an anticompetitive hospital merger. Just a few months
ago, on the Jefferson/Einstein case, a case where you voted to
bring, in fact, the agency has lost a number of the cases you
cited as examples of aggressive enforcement under current law
such as the DOJ's Sabre/Farelogix case.
So, you argue that the law is working just fine, but don't
the outcomes in these cases say just the opposite?
Mr. Phillips. So, Congressman, I don't think I used the
phrase ``just fine,'' and I would agree with you that courts
sometimes get these things wrong. I voted for the Jefferson
complaint. I think we were right. I think the court was wrong.
I agree with you. I also agree with you that the court's
interpretation of Amex in the Sabre/Farelogix case was also
wrong. That doesn't mean to me that it is the enterprise is
broken.
So, the examples I gave before in terms of small
competitors being bought by incumbent firms, this is Illumina/
PacBio. This is Harry's and Schick. This is Procter & Gamble
and Billie. On the DOJ side, it is the Sabre/Farelogix case
what they brought. They brought the Visa/Plaid case. In all
those other instances, the mergers were called off. These
negotiations take part in the shadow of the law.
So, I guess I am a little bit optimistic because of my
experience about the ability of agencies to stop some of these
mergers.
Mr. Cicilline. All right, I thank you again for your
testimony. I am happy to yield to Mr. Buck for any wrap-up
questions he may have.
Mr. Buck. I am going to ask one very quick question because
we both have to go vote very quickly.
Commissioner Phillips, based on Chair Cicilline's
questions, don't your answers and the concerns that the Chair
has indicated that we need more aggressive action and not less
aggressive action from Congress, from the agencies, and from
the courts?
Mr. Phillips. So, I do think as I said before, the agencies
are pivoting to focus on some of these issues. I think you see
it in the enforcement program. I think that is a good focus.
You have heard a lot about error costs, and one of the things
that I am saying is that when I am looking at a merger ex ante
before it happens, I am going to be willing to take some more
risk. I think that is an important cultural change that has
happened at the enforcement agencies.
Mr. Buck. Okay, thank you very much for your time and I
very much appreciate the Witnesses' time today.
Mr. Cicilline. I seek unanimous consent to add a number of
letters and statements regarding the Committee's work to
strengthen the laws to address monopoly power into the record.
Without objection.
[The information follows:]
MR. CICILLINE FOR THE RECORD
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In closing, again I want to thank on my behalf and behalf
of Mr. Buck and the whole Committee, our extraordinary
Witnesses for their testimony at today's hearing. Without
objection, all Members will have five legislative days to
submit additional written questions for the Witnesses or
additional materials for the record, and the hearing is hereby
adjourned.
[Whereupon, at 4:55 p.m., the Subcommittee was adjourned.]
APPENDIX
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