[Senate Hearing 117-730]
[From the U.S. Government Publishing Office]
S. Hrg. 117-730
PROMOTING COMPETITION, GROWTH, AND
PRIVACY PROTECTION IN THE
TECHNOLOGY SECTOR
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FISCAL RESPONSIBILITY
AND ECONOMIC GROWTH
OF THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 7, 2021
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-261-PDF WASHINGTON : 2023
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland RICHARD BURR, North Carolina
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania TIM SCOTT, South Carolina
MARK R. WARNER, Virginia BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
______
Subcommittee on Fiscal Responsibility and Economic Growth
ELIZABETH WARREN, Massachusetts, Chair
RON WYDEN, Oregon BILL CASSIDY, Louisiana
RICHARD BURR, North Carolina
(II)
C O N T E N T S
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OPENING STATEMENTS
Page
Warren, Hon. Elizabeth, a U.S. Senator from Massachusetts, chair,
Subcommittee on Fiscal Responsibility and Economic Growth,
Committee on Finance........................................... 1
Cassidy, Hon. Bill, a U.S. Senator from Louisiana................ 3
WITNESSES
Brown, Courtenay, Amazon associate and leader, United for
Respect, Newark, NJ............................................ 5
Racine, Hon. Karl A., Attorney General, District of Columbia,
Washington, DC................................................. 7
Lynn, Barry C., executive director, Open Markets Institute,
Washington, DC................................................. 9
Sherman, Justin, fellow and research lead, Data Brokerage
Project, Sanford School of Public Policy, Duke University,
Durham, NC..................................................... 10
Sacks, Samm, senior fellow, Yale Law School Paul Tsai China
Center, New Haven, CT; and cybersecurity policy fellow, New
America, Washington, DC........................................ 12
Gray, Stacey, senior counsel, Future of Privacy Forum,
Washington, DC................................................. 14
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Brown, Courtenay:
Testimony.................................................... 5
Prepared statement........................................... 35
Cassidy, Hon. Bill:
Opening statement............................................ 3
Prepared statement........................................... 45
Gray, Stacey:
Testimony.................................................... 14
Prepared statement........................................... 45
Lynn, Barry C.:
Testimony.................................................... 9
Prepared statement........................................... 51
Responses to questions from subcommittee members............. 59
Racine, Hon. Karl A.:
Testimony.................................................... 7
Prepared statement with attachment........................... 60
Sacks, Samm:
Testimony.................................................... 12
Prepared statement........................................... 66
Sherman, Justin:
Testimony.................................................... 10
Prepared statement........................................... 70
Warren, Hon. Elizabeth:
Opening statement............................................ 1
Prepared statement with attachment........................... 75
Communications
Center for Fiscal Equity......................................... 85
Sara Monica LLC.................................................. 87
PROMOTING COMPETITION, GROWTH, AND
PRIVACY PROTECTION IN THE
TECHNOLOGY SECTOR
----------
TUESDAY, DECEMBER 7, 2021
U.S. Senate,
Subcommittee on Fiscal Responsibility
and Economic Growth,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, via webex, in
Room SD-215, Dirksen Senate Office Building, Hon. Elizabeth
Warren (chair of the subcommittee) presiding.
Present: Senators Wyden, Whitehouse, and Cassidy.
Also present: Democratic staff: Michael Evans, Deputy Staff
Director and Chief Counsel; Ian Nicholson, Investigator and
Nominations Advisor; and Joshua Sheinkman, Staff Director.
Republican staff: Lincoln Foran, Policy Advisor; John O'Neal,
Trade Policy Director and Counsel; Mayur Patel, Chief
International Trade Counsel; Gregg Richard, Staff Director; and
Jeffrey Wrase, Deputy Staff Director and Chief Economist.
OPENING STATEMENT OF HON. ELIZABETH WARREN, A U.S. SENATOR FROM
MASSACHUSETTS, CHAIR, SUBCOMMITTEE ON FISCAL RESPONSIBILITY AND
ECONOMIC GROWTH, COMMITTEE ON FINANCE
Senator Warren. This hearing will come to order.
Good morning, and welcome to today's hearing of the
Subcommittee on Fiscal Responsibility and Economic Growth. I am
pleased to be working with Ranking Member Cassidy on this
hearing on promoting competition, growth, and privacy
protection in the technology sector. Senator Cassidy will be
joining us remotely. We are going to do a mixed hearing, with
some people in person and some people remote.
Under President Biden's leadership, the American economy is
rebounding. The unemployment rate has dropped from a pandemic
height of 14.8 percent in April of 2020, to 4.6 percent today;
5.6 million jobs have been added since President Biden's
inauguration, more than were added in the first 10 months of
any administration since we have been keeping records. Child
poverty is projected to plummet by more than 40 percent, thanks
to the American Rescue Plan. All of this has occurred despite
an ongoing pandemic that has plagued us now for nearly 2 years.
Families have tried to adapt, and those changes have echoed
throughout our economy.
Demand has shifted as people have consumed fewer services
while buying more durable goods like exercise equipment and
home appliances. The economy has recovered more quickly than
many businesses projected, and all of this is contributing to
unexpected bottlenecks in our supply chain and sporadic
shortages at warehouses. And these factors contribute to the
price increases for many consumer goods. But they are not the
only reason that prices have gone up.
Sure, giant companies will raise prices when they have to,
but they will also raise prices when they can get away with it.
And how do we know this? Because when companies are simply
passing along their increases in costs, then profit margins
should stay the same. But when companies see a chance to gouge
customers, particularly while everyone is talking about
inflation, then those companies raise their prices beyond what
is needed to cover their increased costs.
Right now, prices are up at the pump, at the supermarket,
and online. At the same time, energy companies, grocery
companies, and online retailers are reporting record profits.
That is not simply a pandemic issue. It is not simply some
inevitable economic force of nature. It is greed. And in some
cases, it is flatly illegal.
One reason for this price gouging is that fewer and fewer
markets in America are truly competitive. When several
businesses are competing for customers, companies cannot use a
pandemic or a supply chain kink to pad their own profits. In a
competitive market, the margin above costs stays steady even in
troubled times. But in a market dominated by one or two giants,
price gouging is much easier.
For generations, policymakers and regulators under both
Democrats and Republicans promoted free-market competition. But
starting in the 1970s, our government changed course. For
decades now, regulators and courts have looked the other way
even as one sector after another has become dominated by one or
two giants. They rubber-stamp merger after merger without
regard to the consequences. And when small businesses got wiped
out, and startups were smothered or bought out, they just did
not care.
Today, as a result of increasing consolidation across
industries, bigger and bigger corporations have more and more
power to charge their customers any price they want. They also
wield more and more power to under-invest in things like supply
chain resiliency and more and more power to hold down wages and
benefits for workers. And it is getting worse.
Earlier this month, Federal Trade Commission Chair Lina
Khan noted that by September of this year, our antitrust
agencies had already received more merger filings than any
other year in the previous decade. In fact, they are on track
in 2021 to receive a 70-percent increase above average filings
in recent years. Giant corporations are taking advantage of
this global crisis to gobble up struggling small businesses and
to increase their power through predatory mergers. I introduced
my Pandemic Anti-Monopoly Act last year to slow down this
trend, and to protect workers and small businesses and families
from being squeezed even more by harmful mergers during this
crisis. And I will reintroduce it this year, because the need
is clear.
The effects of limited competition in our technology sector
are particularly severe, and that is why I am interested in
exploring today's hearing. Limited competition in tech is
having spillover effects across our entire economy.
Anticompetitive practices in the semiconductor industry have
exacerbated supply chain issues. Big tech firms have used their
dominance to inflate prices throughout the online retail
market, and to subject their workers to inhumane conditions
during the pandemic.
And as Ranking Member Cassidy has rightly highlighted in
his own work, tech firms collect and exploit sensitive personal
information, often threatening national security, harming our
emotional health, and discriminating against vulnerable groups.
It does not have to be like this. With stronger antitrust
laws and robust enforcement, we can ensure that our economy
works for American families, not just for the wealthiest
corporations. Congress could provide better tools to the FTC
and the Department of Justice to investigate anticompetitive
mergers and break up the companies that have held our economy
down. We can also make it easier for the agencies to reject
such mergers in the first place. By promoting competitive
markets for consumers and workers, we can foster a stronger
American economy and a stronger American democracy.
So I look forward to discussing these issues today. I
appreciate all of our witnesses who are joining us, and I look
forward to hearing about your insights and your experiences.
[The prepared statement of Senator Warren appears in the
appendix.]
Next, I am going to turn to Ranking Member Kennedy--
Cassidy; sorry, Senator Cassidy--for your opening remarks.
Senator Cassidy?
OPENING STATEMENT OF HON. BILL CASSIDY,
A U.S. SENATOR FROM LOUISIANA
Senator Cassidy. No problem, Senator Warner [laughing]--no,
Senator Warren. Good morning. Thank you all for being here at
today's hearing. And thank you for our witnesses for taking
time to testify.
Senator Warren and I have agreed to a bipartisan hearing on
promoting competition, growth, and privacy protection in the
technology sector. I will focus my time on the privacy aspect
of this, and specifically on the data broker industry.
The data broker industry is relatively unknown to most
Americans, but its practices and techniques are interwoven into
our lives. Data brokers build profiles on individuals about
certain attributes, and then sell that information to those
whom they see fit, or whoever wishes to purchase.
For example, I am a big fan of LSU football. I frequently
search what is related to our new coach, Brian Kelly, upgrading
from Notre Dame to LSU. That search data is collected and a
profile is made. I then receive ads about buying LSU football
tickets, merchandise, et cetera.
We all experience something similar on the Internet.
Multiple times a year a company will be the victim of a hack
that exposes the data of thousands, if not millions, of
customers. While we go to great lengths to minimize those
cyber-incursions, we ignore an entire industry that transacts
in much more detailed and sensitive critical information.
You will hear today from witnesses that there is very
little information that data brokers cannot sell, and even less
data that they are not willing to sell. I believe that few in
this room would think it a good idea to sell the profiles of
American service members--but that is what is happening.
We should have a conversation about what American data we
think is okay to be bought and sold without the knowledge of
many Americans; what type of data we think is acceptable to be
bought and sold, period. Should we allow a list of military
personnel to be sold to foreign adversaries? Should we allow
lists of domestic abuse survivors to be sold to domestic
abusers? We should have a conversation about what data is
appropriate to collect, what limits should be placed on the
groups that collect that data, and restrictions on how that
data is sold or transferred to others. We should have a
conversation about all the things our foreign adversaries can
do with this data. That is why we assembled a team of data
broker experts to talk about the different aspects of data
brokers, what is regulated and what is not, and how best to
move forward.
Thanks again to our witnesses, and I am looking forward to
discussing the issue.
[The prepared statement of Senator Cassidy appears in the
appendix.]
Senator Warren. Thank you very much. I appreciate it,
Senator Cassidy.
So, we have a great set of witnesses here to share their
views on promoting competition, growth, and privacy protections
in the American technology sector. I appreciate everyone being
with us today.
First, joining us virtually, we have Courtenay Brown. Ms.
Brown is an Amazon Fresh worker at the company's fulfillment
center in Avenel, NJ and a leader with United for Respect. She
is also a veteran of the United States Navy.
Second, also joining us remotely, we have the Honorable
Karl Racine, the District of Columbia's first elected Attorney
General. He is the president of the National Association of
Attorneys General and the chair emeritus of the Democratic
Attorneys General Association's executive committee. Previously
he was a managing partner at Venable Associates, White House
counsel for President Clinton, and a staff attorney for the
Public Defender Service of the District of Columbia.
Third, we have Barry Lynn, who is the executive director of
the Open Markets Institute. His research focuses on threats of
the 21st-century monopolies to our democracy, individual
liberty, security, and prosperity.
Next, we have Justin Sherman, a co-founder and senior
fellow at Ethical Tech, an initiative at Duke University
focused on research at the intersection of technology and
ethics. Mr. Sherman studies data brokers and the sensitive data
that they hold on U.S. individuals.
Following Mr. Sherman, we have Samm Sacks of Yale Law
School's Paul Tsai China Center and a cyber policy fellow at
the think tank New America. Ms. Sacks is an expert on cross-
border data flows and studies how the Chinese Government
collects and uses data.
And finally, we have Ms. Stacey Gray. Ms. Gray is senior
counsel at the Future of Privacy Forum. She is a data broker
expert, and her research centers on the intersection of
emerging technologies and Federal regulation and enforcement.
Increasing consolidation throughout the American economy
undoubtedly contributes to higher prices, worsening working
conditions, and privacy concerns. The pandemic has not only
exacerbated these issues, but has also exposed them more
plainly.
We can fix this together. We can make our economy work for
all Americans. I want to thank you all for being with us today.
I am looking forward to hearing your testimony.
So, Ms. Brown, we are going to start with you. You are
recognized for 5 minutes. And tell us what you want us to know.
STATEMENT OF COURTENAY BROWN, AMAZON ASSOCIATE AND LEADER,
UNITED FOR RESPECT, NEWARK, NJ
Ms. Brown. Okay; good morning, everyone. Thank you for
inviting me to share my experience with you today, Senator
Warren and members of the subcommittee. My name is Courtenay
Brown, and I live in Newark, NJ. I am currently working at an
Amazon fulfilment center and have been for 4\1/2\ years. Before
working at Amazon, I served my country as a service member in
the United States Navy, and I took the commitment that I made
to my country then seriously, as well as the commitment I take
seriously now as a member leader of United for Respect.
I am here today, Senators, to raise the alarm about
Amazon's business model, because it is a threat to working
people, and it is a threat to our economy. One out of every 150
American workers is an Amazon employee, as well as, in that
group, there are some former employees. And this multi-billion-
dollar corporation grew on the back of its workers by
exploiting them. I am looking to you to stand up to
corporations like Amazon and protect us.
The job that I do is a much-needed service, especially
since the COVID-19 pandemic began. As a process guide, I am in
charge of sorting 35,000 to 50,000 groceries daily for delivery
to homes in near cities in New Jersey. I am in and out of our
cooler constantly, stepping in and out of temperatures as low
as negative 10 degrees, and picking up and setting packages
down with little to no rest. The work that I do is supposed to
be done with 30 to 40 people, but we operate with 25 people or
less every day. Because our work is essential, and our workload
has increased, we need more hands on deck, not less, so that we
can take turns getting breaks and getting much-needed rest. But
Amazon can barely retain its workers.
Amazon's multi-billion-dollar wealth is made possible by
offering same-day delivery--anywhere from same-day delivery to
2-day delivery--and the corporation has achieved this speed and
scale through their sheer brutality, watching, timing, and
punishing associates like me and my coworkers for not working
fast enough, and not allowing associates to take time off to
adequately rest and recover, and to prevent burnout.
From the moment we pull into the parking lot, we are
monitored. And that is every step at the facility that we take,
and if we fall behind in any way during our 11-hour shift, we
risk being disciplined, or even losing our jobs. We are pushed
to our limit, to the point where we cannot even take regular
bathroom breaks. Often, we have to run to and from the bathroom
in under 2 minutes, so we do not get in trouble. On top of
that, the bathrooms are usually pretty gross and they are
usually broken too.
The constant pressure and surveillance is why Amazon has
twice the level of injuries and turnover compared to similar
jobs. Research has shown that workplace injury rates are higher
at Amazon facilities with more robotic and automated
technology. I used to be a trainer, and I saw firsthand how,
out of 50 new hires, only five would make it to the 1- or 2-
month mark. And many quit soon after due to injuries or over-
exhaustion.
We are living in a country where machines are getting
better treatment than people. The machines at my facility
undergo routine maintenance checks to ensure that they do not
burn out. Yet the one time I needed to take off to recover from
my mother's passing back in September, I was only given 2 days
to do so. Two days to plan a funeral and process my mother's
death. So I ended up taking a month off of unpaid time, which
was the only option I had at the time. And this unpaid time was
only because there was a reduction in the amount of work we
had. And my sister, she was not as lucky, because she also
works with me, and she had to literally work the day of her
death, as well as the day after, come for her funeral, and then
return to work 2 days later. So the entire funeral was
literally scheduled around me and my sister's work schedule.
Imagine going through that while Jeff Bezos made $75 billion
last year, thanks to me and my co-workers.
Amazon's high-tech sweatshop caused me to develop plantar
fasciitus and tendinitis with debilitating pain in my heel and
ankle from having to stand for long periods of time at work
with little to no rest. There was once when the pain was so
severe that I ended up in the emergency room and, because I was
homeless at the time, I did not have enough time to take off. I
had to beg doctors and nurses to see me as quickly as possible,
because I could not afford to lose my job and the opportunity I
had of becoming leadership.
This kind of exploitation is not just happening to me.
People have been working through the pandemic nonstop because
they will not let us take time off. Often we are so exhausted,
we break down and cry. A coworker of mine had to stop breast-
feeding her child early due to not receiving the support when
she had to pump at work. This is the type of environment Amazon
is perpetuating across the country. Amazon associates have been
fighting back against these dangerous conditions for years.
Instead of fixing the problem, Amazon is only doubling down on
exploitative models.
Jeff Bezos himself recently told shareholders that he plans
to use more automated control of workers in the warehouse. The
worst part is that Amazon is setting up its high-tech
sweatshops in Black and Brown communities desperate for work.
Amazon is a big-
numbers company, and they know that there are people who look
like me who have very limited choices, and they know we cannot
afford to complain or refuse bad conditions. Amazon takes
advantage of this desperation. The pandemic has closed a lot of
businesses in my area, so even someone like me who considers
looking for another job, I cannot because there are no jobs
available, or the pay is not enough to make rent and put food
on the table.
This committee is considering competition and economic
growth in the tech sector. When corporations break the rules to
maximize their profit, they ensure they win by all means
necessary, including exploiting workers and gutting small
businesses.
Senators, I am looking to you to stop corporations like
Amazon from ruining our economy and dictating the workplace
standards for hundreds of millions of workers like me. I am
asking you to help me put an end to inhumane, exploitative
practices that leave America's workers injured, exhausted, and
mentally battered each day. Our country needs elected officials
to side with working people--to side with essential workers,
not big corporations.
[The prepared statement of Ms. Brown appears in the
appendix.]
Senator Warren. Thank you very much, Ms. Brown. I
appreciate your coming in and testifying.
Now we go to Attorney General Racine. You are recognized
for 5 minutes.
STATEMENT OF HON. KARL A. RACINE, ATTORNEY GENERAL, DISTRICT OF
COLUMBIA, WASHINGTON, DC
Mr. Racine. Chair Warren, Ranking Member Cassidy, and
distinguished members of the subcommittee, thank you so much
for the opportunity to testify before you today. As the first
independent elected Attorney General of the District of
Columbia, and also the outgoing president of the bipartisan
National Association of Attorneys General, one of my most
important responsibilities is to protect DC consumers from
corporate wrongdoing, including investigating and, where
appropriate, filing suit against defendants that illegally
exercise monopoly power, violate privacy laws, and hurt
workers.
We have used our power and authority to sue Amazon in the
local DC court for using its overwhelming market power--that
is, 50 to 70 percent of all online sales occur on Amazon's
platform--to control prices and to restrict agreements with
third-party sellers that sell on Amazon's marketplace and
wholesalers that feed Amazon's retail business. In its defense,
Amazon claims that everything it does in business is all about
the consumer. Well, our investigation reveals otherwise. Amazon
indeed is focused, and the evidence is compelling, on one
thing: its bottom line, even at the expense of consumers like
the ones it claims to care so much about. In fact, Amazon is
costing all of us more money by controlling prices across the
entire electronic mall.
Like you, Senator Warren, I too am a capitalist. People
should get paid for their hard work, creativity, and
entrepreneurship. People should certainly watch their profits
increase as their business increases. But when companies like
Amazon unfairly and unlawfully increase the prices on all of
us, stifle competition, and take advantage of consumers, the
law must step in and say, ``enough is enough.''
Back in 2019, Amazon was facing pressure from Congress and
regulators over anticompetitive behavior, and we know that the
concern around Amazon and others is as bipartisan as it gets.
To put regulators at ease, Amazon claimed it removed a
particular clause in its agreement with third-party sellers
that prohibits these third-party sellers from offering their
goods for lower prices or on better terms than competing online
marketplaces, including the third-party seller's own websites.
Again, Amazon claimed that it would remove that particular
clause. Here is the spoiler alert: Amazon deceived Congress and
consumers with its bait-and-switch, replacing the initial terms
of the agreement with different titles and different words that
had the same illegal impact.
Let me give an example of how this works. If I am a third-
party seller selling, for example, headphones, I do want to
list my product on Amazon. Why? Because it reaches so many
people--remember, 50 to 70 percent of the entire electronic
mall. Well, in order to do so, I have to do the following: sell
the headphones at a price on the Amazon marketplace that allows
me to still own a reasonable profit, after incorporating
Amazon's very high fees and commissions. Then I am barred from
selling my headphones on any other platform, including my own
website, at a lower price, even though I could earn a fair
profit by doing so.
Put another way, I have to build in those high Amazon fees
and high Amazon commissions into the price of the headphones
that I sell. Why? Because Amazon forced me to agree to that
term in order to access its electronic mall. And if they find
out, if I sell my headphones even on my own website for a lower
price, lower than the built-in fees and commissions that Amazon
requires, guess what? You get kicked off of the Amazon
marketplace and have sanctions, financial sanctions, imposed on
you.
This leaves third-party sellers with two choices. They can
sell their product on Amazon under these extremely restrictive
terms that guarantee a profit to Amazon and put third-party
sellers at risk, or they can only offer their product on other
marketplaces. But because Amazon controls so much of the
marketplace, third-party sellers have little choice. These
agreements impose an artificially high price because, as I have
explained, all across the online retail space, consumers lose
in this game as a result of Amazon's agreements.
But absent these agreements, third-party sellers could
offer their products for lower prices. That is one of the bases
for our lawsuits. And Amazon is not just doing this with third-
party sellers. They are also doing it with wholesalers as well.
So we recently added that count to our lawsuit. First-party
sellers sell products to Amazon for Amazon to resell at retail
to consumers. If Amazon lowers its retail prices to match or
beat the lower price on a competing online marketplace, the
wholesalers--listen to this--are forced to pay Amazon the
difference between the agreed-upon profit and what Amazon
realizes with the lowered retail price. This can lead to
wholesalers owing Amazon millions of dollars.
To avoid triggering this agreement, wholesalers have
increased the prices on their goods on competing online
marketplaces. In other words, they have agreed to do what
Amazon wants--that is, to charge consumers more for products
than they ordinarily would have to pay but for Amazon's illegal
agreements.
All of these agreements reduce an online marketplace's
ability to compete with Amazon's marketplace on price, and
result in consumers paying artificially high prices. And even
outside this litigation, small businesses of course have
complained and complained that Amazon has stolen their business
ideas and passed them off as Amazon's own.
Let me give you one brief example----
Senator Warren. Attorney General, I am going to have to
stop you here in just a minute. We have just 5 minutes for each
of our witnesses, but we are going to be able to ask you some
questions, because I definitely want to hear this. Is that
okay?
Mr. Racine. Absolutely, Senator, and I am happy to stop
right here.
[The prepared statement of Mr. Racine appears in the
appendix.]
Senator Warren. Great. Okay, thank you so much. I
appreciate it.
And now, Mr. Lynn, you are recognized for 5 minutes.
STATEMENT OF BARRY C. LYNN, EXECUTIVE DIRECTOR,
OPEN MARKETS INSTITUTE, WASHINGTON, DC
Mr. Lynn. Chair Warren, Ranking Member Cassidy, members of
the subcommittee, thank you for inviting me to speak with you
today on this fundamentally important topic. I am Barry Lynn,
and I direct the Open Markets Institute, and it is good to see
you today.
Political economics is the art of governing how people
compete with and exercise power over one another. An essential
truth of human society is that competition among people is
inevitable. What people can control is whether corporations and
markets are structured to promote the liberty and well-being of
the individual, the ability of citizens to make wise decisions,
and the security and prosperity of individuals and of the
Nation.
For two centuries, Americans were masters of engineering
competition policies to achieve these ends. American citizens
used anti-monopoly laws to make themselves the most equal and
free people in the world, and the most prosperous, innovative,
and powerful. But beginning 4 decades ago, Americans from both
parties radically altered how we think about and enforce
competition policy.
Rather than aim to promote liberty, democracy, and
community prosperity, policymakers embraced a philosophy that
said we should aim to promote efficiency only. The result is
that today Americans face the gravest set of domestic threats
to liberty and democracy since the Civil War. Today in America,
as Courtenay made clear, monopolists drive down the people's
wages while driving up the prices that people must pay.
Monopolists threaten freedom of the press and of expression.
Monopolists spy on citizens then use the people's own secrets
to misinform, incite, and enrage those same citizens for
profit.
Monopolists tax, extort, and steal other people's
businesses. Monopolists destroy better technologies and ideas.
Monopolists destroy vital industrial capacities. Last year we
saw this with face masks, this year, with semiconductors.
Monopolists create dangerous dependencies on powerful foreign
states. Monopolists strip America's communities of wealth,
opportunity, independence, security, and hope.
None of this is new. I, myself, first warned of how the
platform monopolists threaten freedom of expression and
democracy more than 11 years ago. I, myself, first warned of
the dangers of supply chain concentration 19 years ago. But
there is good news. Americans are swiftly awakening to the
interlocking set of crises. Today the great majority of
Americans from across the political spectrum want to see
monopolists stripped of their powers and, better yet, enforcers
and legislatures are on the move.
The Justice Department and the FTC have brought lawsuits
against Google and Facebook, and in the most democratic anti-
monopoly action in U.S. history, Attorneys General from 49
States, Puerto Rico, Washington, DC, and Guam launched
investigations of Google and Facebook and filed three
additional lawsuits.
Then there are the smart and urgent efforts to strengthen
antitrust laws here in the Senate, as with Senator Warren's
proposal; in the House; and in Europe and around the world.
Perhaps most important, President Biden has personally
condemned the pro-
monopoly Chicago School of ``consumer welfare'' philosophy of
Robert Bork and Richard Posner and restored our Nation's
traditional focus on protecting the American people and the
Nation itself from all dangerous concentrations of power and
control. And in Lina Khan and Jonathan Kanter, President Biden
has appointed law enforcers smart enough and strong enough to
get the job done.
Today's hearing marks an especially important step forward
in this great struggle. It highlights the pressing need to
relearn that competition policy is much more than mere
antitrust law. Rather, competition policy is the combination of
antitrust with trade policy, corporate governance, Wall Street
governance, and industrial strategy. Nowhere is this more
obvious than in addressing America's twin supply chain crises.
That is why in my written testimony I focus on what lessons we
can learn from the role monopolists have played in
concentrating so much risk and power in our production and
transportation systems, such as with semiconductors.
And I detail how we can rebuild our industrial system in
ways that make us truly safe, while also breaking inflation and
boosting wages. Our opportunity today is not merely to rebuild
what the monopolists have broken these last 40 years, it is to
relearn how to use anti-monopoly laws both to imagine and make
an America far more democratic, just, and forward-looking than
any of us have dared imagine in a generation.
[The prepared statement of Mr. Lynn appears in the
appendix.]
Senator Warren. Thanks very much, Mr. Lynn. I appreciate
it.
Mr. Sherman, you are recognized for 5 minutes.
STATEMENT OF JUSTIN SHERMAN, FELLOW AND RESEARCH LEAD, DATA
BROKERAGE PROJECT, SANFORD SCHOOL OF PUBLIC POLICY, DUKE
UNIVERSITY, DURHAM, NC
Mr. Sherman. Chair Warren, Ranking Member Cassidy, and
distinguished members of the subcommittee, thank you for the
opportunity to testify today about privacy issues facing
American citizens. I am a fellow with Duke University's Sanford
School of Public Policy, where I lead a research project
focused on the data brokerage ecosystem, a multi-billion-dollar
virtually unregulated industry of U.S. companies aggregating,
buying, and selling Americans' intimate personal data on the
open market.
Data brokers are profiting off the vulnerability and
insecurity of the U.S. and its citizens. While comprehensive
consumer privacy law is vital, Congress need not wait to
resolve this debate to regulate data brokerage. Today I will
make three points. Congress can strictly control the sale of
data to foreign companies, citizens, and governments; strictly
control the sale of data in sensitive categories like genetic
and health information and location data; and stop companies
from circumventing those controls by inferring data.
Our research at Duke University has found data brokers
widely advertising data on hundreds of millions of Americans,
their sensitive demographic information, political preferences
and beliefs, and whereabouts in real-time locations, as well as
data on first responders, students, government employees, and
current and former members of the U.S. military. Data brokers
contract and sell your race, religion, gender, sexual
orientation, income level, how you vote, what you buy, what you
search online, and where your kids and grandkids go to school.
This harms every American, particularly the most vulnerable.
And I will focus on three examples.
Data brokers advertise data on millions of current and
former U.S. military personnel. Criminals have bought this data
to scam veterans and their families because of the military
benefits they get from the Federal Government. Foreign states
could acquire this data to profile military personnel, trick
them and their families, and undermine national security.
The Chinese Government's 2015 hack of the Office of
Personnel Management was one of the worst breaches the Federal
Government has suffered. In the future there is no need for the
Chinese Government, or any other foreign intelligence agencies,
to hack those databases when the data can be bought legally on
the open market from U.S. companies.
Data brokers known as ``people search'' websites aggregate
millions of Americans' public records and make them available
for search and sale online. Abusive individuals have used this
data, including highly sensitive information on individuals'
addresses, whereabouts, and family members, to hunt down and
stalk, harass, intimidate, and even murder other people--
predominantly women and members of the LGBTQ+ community.
There is little in U.S. law stopping data brokers from
collecting, publishing, and selling data on victims and
survivors of this violence. Data brokers also advertise data on
millions of Americans' mental health conditions. Companies can
legally purchase this data from other firms and use it to
exploit consumers. Criminals already scam senior citizens using
data broker data. They could similarly buy data on seniors with
Alzheimer's and dementia to steal away their life savings.
Foreign governments could even acquire this data for
intelligence purposes.
Our research has found that companies selling this data on
hundreds of millions of Americans conduct relatively little
``know your customer'' due diligence. And for those that do, it
is unclear how strong it is in practice. Brokers may also make
their customers sign nondisclosure agreements, stopping them
from saying where they obtained U.S. citizens' information.
As part of talking about data threats to Americans' civil
rights, U.S. national security, and democracy, we must focus on
this entire data brokerage ecosystem. There are three steps
Congress can take now. First, strictly control the sale of data
broker data to foreign companies, citizens, and governments,
which currently can entirely legally buy millions of U.S.
citizens' data directly or through front companies. Second,
strictly control and even consider outright bans on the sale of
data in sensitive categories like genetic and health
information and location data, which is used now to follow,
stalk, and harm individuals. Third, stop companies from
circumventing those controls by inferring data, using
algorithms and other techniques to predict things they have not
technically collected.
Congress can and should act now to regulate the data
brokerage ecosystem and its threats to consumers' civil rights
and national security. Thank you.
[The prepared statement of Mr. Sherman appears in the
appendix.]
Senator Warren. Thank you, Mr. Sherman.
And now, Ms. Sacks, you are recognized for 5 minutes.
STATEMENT OF SAMM SACKS, SENIOR FELLOW, YALE LAW SCHOOL PAUL
TSAI CHINA CENTER, NEW HAVEN, CT; AND CYBERSECURITY POLICY
FELLOW, NEW AMERICA, WASHINGTON, DC
Ms. Sacks. Chair Warren, Ranking Member Cassidy, and
members of the subcommittee, it is such an honor to testify
today. I am a senior fellow at Yale Law School's Paul Tsai
China Center and the cybersecurity policy fellow at New
America. I have spent the last decade as an analyst of China's
technology and data policies, both in the national security
community and with the private sector. I also advise
corporations on China's policies.
Today I will focus my testimony on China and global cross-
border data flows. While my expertise focuses on China--and I
will speak specifically about the Chinese Government's efforts
to acquire data--my views of the most effective solutions
require that the United States put forward a more comprehensive
data governance vision with stronger protections for security
and privacy for all companies.
Some of these risks are specific to China, but so much of
this is much bigger. U.S. lawmakers have an opportunity to
address transnational security threats, while also advancing a
more secure, ethical, and democratic Internet in its own right.
The Chinese Government has embarked on an ambitious
national data strategy with the goal of acquiring, controlling,
and unlocking the value of data. My written testimony submitted
for the record has more details on recent plans and directives
that signal the centralization of Chinese state power of
information flows within and beyond China's borders.
The Chinese leadership seeks to control data as both a
strategic and an economic asset. There are concerning national
security risks. Beijing is already presumed to have sensitive
national security information from the theft of personal
records of roughly 20 million individuals from the U.S. Office
of Personnel Management, as my colleague Justin Sherman has
testified. If that location, health, and social media data were
to be acquired on the open data market--and combined with what
Beijing already has--China could target individuals in
sensitive government national security positions and the
military for manipulation, coercion, and blackmail.
This is particularly concerning from a counterintelligence
perspective. As Chinese online services and network
infrastructure grow in predominance around the world, it is
possible that the Chinese Government could use this position to
monitor data processes abroad, just as the United States had
done--as shown by Edward Snowden--in utilizing data
transmissions across U.S. intelligence networks.
We simply do not know what value and harm data created now
will hold in the future. But we must grapple with the
implication of the CCP gaining control of information flows
beyond China's closed Internet ecosystem. I have the following
recommendations.
First, the analogy of data as the new oil is false and
leads to bad policy. It assumes that data is a finite state
resource and, as such, efforts by both Beijing and Washington
to hoard and wall off data from each other will only lessen
national power, not increase it. Instead, Congress should
mandate stronger cybersecurity protections and basic standards
for what data can be collected and retained in a comprehensive
Federal privacy law to protect Americans' sensitive data, not
just from sophisticated state hackers, but also from the
unregulated industry of data brokers around the world trading
in consumer data without transparency or control.
While comprehensive Federal privacy law moves slowly amid
much debate, having baseline rules for the data broker industry
would close off a prime target for exploitation now. Currently,
there is nothing in our regulatory structure that would prevent
the Chinese Government from buying American citizens' data.
That is why bans on Chinese software applications will not make
us more secure or safe. Even if TikTok, for example, were an
American-owned company, it could still legally buy that data on
the open market.
Given this, American data is shockingly exposed and will
remain that way as long as restrictions on data flows only
focus on specific companies deemed adversaries. The United
States should work with like-minded governments to develop a
common set of standards and safeguards, perhaps building off of
the initiatives put forward by the Japanese Government, known
as ``data free flows with trust.'' And I have some more
specific recommendations in my written testimony.
But in conclusion, inaction by the United States in
offering an affirmative, compelling vision of U.S. data
governance in its own right will only make the United States
less secure, less prosperous, less powerful, and allow space
for Chinese companies controlled by the CCP to flourish.
Thank you.
[The prepared statement of Ms. Sacks appears in the
appendix.]
Senator Warren. Thank you very much, Ms. Sacks.
And now, Ms. Gray, you are recognized for 5 minutes.
STATEMENT OF STACEY GRAY, SENIOR COUNSEL,
FUTURE OF PRIVACY FORUM, WASHINGTON DC
Ms. Gray. Thank you, Chair Warren, Ranking Member Cassidy,
and members of the subcommittee, for the opportunity to testify
today. My work at the Future of Privacy Forum is in U.S. law
and public policy related to emerging technology and consumer
privacy regulations. And specifically, I have been asked to
speak to the topic of data brokers.
Privacy advocates, the Federal Trade Commission, and
members of this and other Senate committees, have long called
for greater transparency and accountability in the data broker
industry, and regulation is long overdue. Many of the most
influential reports published almost a decade ago have
influenced the debate. And since then, much has changed. There
have been significant advances in machine learning and
artificial intelligence. Adoption of consumer technology has
also become universal with 97 percent of U.S. adults using
smartphones, and most families having, of course, many
additional devices.
The legislative landscape has evolved more slowly and has
largely not kept up. Since 2018, California and two other
States have passed consumer privacy laws. Three States have
established limited data broker-specific regulations. And many
of these have focused on transparency to the establishment of
data broker registries, while others, such as the California
Privacy Rights Act, codify broader consumer rights to opt out
of the sale and sharing of data. Much more work remains to be
done.
I would like to make two points regarding data brokers and
then give recommendations. The first point is that defining the
very term ``data broker'' has been an ongoing challenge,
because it encompasses a very broad spectrum of divergent
companies and business activities. The leading definition
includes any business that collects and sells personal
information of a consumer with whom that business does not have
a direct relationship. Many hundreds of businesses fall under
this definition and use data for a wide range of purposes--as
my fellow witness, Mr. Sherman, pointed out--including
marketing and advertising, people search data bases, fraud
detection, identify verification, and risk scoring. Some of
these activities directly benefit consumers, such as the use of
data to protect a bank account against fraudulent activity, but
others primarily benefit the purchasers or the users of data,
such as advertisers, with fewer, or little or no accompanying
benefits to individuals or society.
Second, the lack of a direct relationship with consumers,
characteristic of the data broker industry, is at the heart of
concerns around privacy, fairness, and accountability, but it
also presents one of the greatest challenges for crafting
effective data privacy regulation, and I will briefly explain
why.
Any business with a direct-to-consumer relationship--such
as a restaurant, a hotel, a retailer, even a social media
network--can collect large amounts of personal information
about U.S. consumers today, directly or by purchasing it. And
in some cases, those third-party companies can exercise
enormous influence in market power, as we have heard. However,
there is still some degree of accountability to users who are
aware that the companies exist and can delete accounts, or
raise alarms.
In contrast, a business lacking a direct relationship with
consumers typically does not have the same reputational
interest, incentives, and in some cases legal requirements, to
limit the collection of data and protect it against misuse.
However, a lack of consumer relationship also means that
businesses engaged even in legitimate data processing, or
socially beneficial data processing, cannot rely on traditional
historical privacy mechanisms of notice and choice. Meaningful
affirmative consent, or opting in, might be impractical or
impossible for a business to obtain in some cases, while opting
out after the fact tends to be both an inadequate safeguard and
impractical for most consumers to navigate.
We know that consumers can become overwhelmed with choices
and often lack the knowledge to assess future risks, complex
technology, or future potential secondary uses. So what does
this all mean? First and foremost, Congress should pass
baseline comprehensive privacy regulation that establishes
clear rules for both data brokers and first-party companies
that process personal information from U.S. consumers. It
should address the gaps in the current U.S. sectoral approach
to consumer privacy, and it should incorporate, but not rely
solely, on consumer choice.
A privacy law should also codify clear limits on the
collection of data and apply accountability measures such as
transparency risk assessment auditing, limitations on the use
of sensitive data, and limits on retention.
In the absence of comprehensive legislation, there are a
number of other steps Congress can take to address risks
related to privacy and data brokers, including empowering the
Federal Trade Commission to continue using its unfair and
deceptive trade practices authority to fund and staff the
establishment of a privacy bureau; limiting the ability of law
enforcement agencies to purchase information from data brokers;
enacting sectoral legislation for uniquely high-risk technology
such as biometrics and facial recognition; or updating existing
Federal laws such as the Fair Credit Reporting Act to more
effectively cover emerging uses of data.
Thank you, and I look forward to your questions.
[The prepared statement of Ms. Gray appears in the
appendix.]
Senator Warren. Thank you very much, Ms. Gray. I appreciate
all of your testimony here.
And now I recognize Senator Whitehouse for 5 minutes of
questions.
Senator Whitehouse. Thanks very much, Chair Warren. I
appreciate it. This is a fascinating and important hearing, and
I am delighted to have these terrific witnesses here.
Facebook and Google have been profiting off some of the
worst propagators, I guess you would call it, of climate
denial. The Center for Countering Digital Hate finds 10 fringe
sites that fuel 69 percent of climate disinformation on
Facebook. So with a little bit of focus, they could address
this problem if it is only 10 major propagators. Google itself
makes millions from Google ads that it runs alongside climate
denial content, as if it were legitimate.
Mr. Lynn, can you talk a bit about how our information
ecosystem suffers when a handful of companies control what
people see, and how they perceive reality; what a
communications monopoly means in a world in which there is so
much deliberate climate denial propagated by industry?
Mr. Lynn. Thank you, Senator. It is a fundamentally
important issue. And what we see today--one way to answer the
question is to understand that Google and Facebook today are
the communications corporations of the 21st century. These are
the AT&Ts and the Western Unions of the 21st century.
AT&T and Western Union were prohibited by law from
manipulating how people spoke to one another. Google and
Facebook--their business model is based on manipulation. The
reason they take in the data is in order to manipulate you.
They are massive manipulation machines. The way they make their
money is by renting out the manipulation machines and calling
the money that they receive--they call it ``advertising.'' So
what we have is, in the midst of our society, rather than sort
of networks that connect people and empower people to speak
with one another and interact with one another, we have
machines that are designed to set people into conflict with one
another, to feed them false information, to determine how
people vote, and what we have----
Senator Whitehouse. So they are ready, willing, and able
tools for false information propagators.
Mr. Lynn. When they were established, I think the idea was
that these systems would be used by Proctor & Gamble to sell
soap and Tide. What they now do, however, is they rent
themselves out to Vladimir Putin, to climate deniers, to the
Chinese Communist Party--you know, whoever comes along.
Senator Whitehouse. Let me switch to data that you are
talking about, that they have gathered, and ask the witnesses
who spoke about data privacy and data brokers, what does
somebody listening to this hearing need to know about what
companies know about them, what data brokers can extract from
what companies know about them to sell, and to what extent that
information can be individualized back to them, potentially by
foreign bad actors, foreign governments? Mr. Sherman, go ahead.
Mr. Sherman. Data brokers know everything about pretty much
every American--where you work, where your kids go to school,
how much money you make, your race, your religion, your sexual
orientation--and their entire business model is that they can
target this to individuals. They sell this data. They offer
advertising, like Mr. Lynn mentioned, for the purposes of
targeting specific individuals. And so these profiles are out
there on the open market for sale.
Senator Whitehouse. And if you were running a psychological
warfare operation involving American public officials, or
American CEOs, or various kinds of decision-makers in American
society, how valuable a tool would that be if you were a
foreign government, to be able to look into people's lives and
understand not only what you directly know, but what
conclusions you can realistically draw about what their
shopping habits are and so forth?
Mr. Sherman. Incredibly valuable for that. You can buy
databases right now for what people search online, how they
vote, what they think. And so it is all out there on the open
market.
Senator Whitehouse. My time is up. Thank you, Chair Warren.
If I could, I would just add one question for the record so
as not to take up too much time. But one of the things we hear
in the Finance Committee a lot--our chairman has joined us,
Chairman Wyden, and he is very active on this subject--is that
if we make big American companies pay a fair share in taxes,
that will make them uncompetitive against foreign companies.
And that is the argument our Republican friends always make.
What they ignore is that when the big American companies do not
pay a fair tax burden, that gives them competitive advantage
over smaller American companies. And obviously that plays out
in this tech world, because you have Apple and Google, who have
come up with, you know--what do they call them?--the double
Irish and the Dutch sandwich, and all these peculiar tax tricks
that they use to avoid paying their fair share. And I would be
interested in your views, again in writing and not now because
my time has expired, on how that creates competitive
disadvantage with potential competitors against them for
competitive advantage in the U.S., and to what extent it locks
in, financially, some of their monopolistic power because,
frankly, they put themselves into a place where they do not
have to pay taxes, but all their competitors have to--well, all
their smaller competitors have to.
Thank you very much. I appreciate the attention to that
question in writing.
Senator Warren. Thank you, Senator Whitehouse; a very
thoughtful question.
And now, Senator Cassidy, I think you are up.
Senator Cassidy. Thank you, Madam Chair. Thank you all for
testifying.
Mr. Sherman, I cannot help but note we are on Pearl Harbor
Day, and our country has come to venerate this day, but also to
honor the service men, women, others in the clandestine
services, et cetera, who offer themselves to protect us. And we
rightly make tremendous investment in the VA hospitals and
other services to include a suite of benefits to help these
folks who have offered so much.
But I am struck when you speak about how a data broker can
sell personal information on active military personnel--I
assume on veterans as well--to allow a company to basically rip
them off of these benefits that they would ordinarily receive.
How and where--how does someone get such information? What
is the price of one military profile? And is it safe to say
that companies are getting rich off of using this data to trick
our service folks into giving their benefits over to the
company, a marginal benefit for the service person or the
veteran, but a great benefit for the company, and the taxpayer
gets ripped off? I have at least three questions in there.
Mr. Sherman. Data brokers are absolutely profiting off the
vulnerability and insecurity of the U.S. and its citizens. That
includes veterans. That includes members of the military. I do
not have a figure in front of me for the cost of one of those
profiles, though I can follow up on that, but I will say it is
very, very easy to find this information online and to purchase
it.
Our research has shown that many of these companies
offering this data--whether it is military personnel, low-
income individuals, whatever it is--do not do much customer
vetting. They are basically willing to sell to most entities
with a check and an email address. And so at the end of the
day, it is all too easy for people to use this, as they have,
to scam veterans and to create risks to national security.
Senator Cassidy. Now how do they get this information? How
do they know that someone is active military, et cetera?
Mr. Sherman. Because the collection and buying and selling
of this information is so unregulated, it is very easy for
these companies to put pieces of information together to figure
out who you are, much like they might track where you go during
the day, and what you spend, to figure out how much money you
and your household make. They might look at where you travel to
figure out if you are in the military.
Senator Cassidy. Would the data brokers themselves have
location data that would obviously indicate that I am spending
my night on base every night, except for an occasional
deployment in some place which seems to be a military zone, or
are they buying this location data from others?
Mr. Sherman. Likely both. Many companies collect this data
directly from people's phones, whether you are working on the
Hill, or in the military, or even in an intelligence agency,
and they also buy this data from other companies.
Senator Cassidy. Now I am a physician, so let me toss this
out, and if one of the other witnesses on data brokers wishes
to address it, please do. The thought has occurred to me that
we have HIPAA penalties if I, as a physician, would reveal that
someone was HIV positive, or had a mental illness. But one of
you specified that the mental illness is actually well known,
which makes total sense to me. If you have location data that
shows that somebody goes to work every day at a place which is
known to be a mental health clinic or an HIV clinic, a
treatment clinic, that would mean the person is probably
employed there. But if they go every 2 weeks, or every month,
and then they go to a pharmacy afterwards, they could infer
that the patient has either got HIV or a mental health issue,
or some other illness. Those are often stand-alone clinics, and
so they could infer this.
Is this kind of a correct kind of guess at how all this is
done? And does this not kind of violate, certainly, the spirit
that seems almost the letter of the HIPAA regulations? Mr.
Sherman, please start, and I will ask Ms. Sacks and Ms. Gray to
comment.
Mr. Sherman. That is exactly the problem with data brokers,
Senator. They can basically dance around the very few, very
limited privacy laws we do have, by proxy data, by running
algorithms to get that information anyway.
Senator Cassidy. So this would be what you were speaking of
as ``inferring.'' They can infer, even if they do not directly
collect.
Mr. Sherman. That is correct.
Senator Cassidy. And they sell that data to those who might
be interested in marketing to someone who has mental illness or
HIV, or something such as that?
Mr. Sherman. Yes, they do that.
Senator Cassidy. Ms. Gray or Ms. Sacks, do you have any
further comments on that? Because as a physician, that greatly
offends me, because the idea that we can infer that which is
otherwise restricted is--again, it just violates that which I
always kind of had in my DNA as a physician in terms of
protecting patient privacy.
Ms. Gray. I would characterize that the same way, Senator.
And in fact, this is one of the major problems that needs to be
addressed through nonsectoral comprehensive privacy
regulations, because data collected increasingly through apps,
wearable devices, and fitness devices, and devices like
bicycles and electric vehicles, can all lead to the types of
information sharing that you are describing. Some of it is
directly collected from consumers, and some of it would refer
to large data sets.
Senator Cassidy. Your answer implied that my car, which is
connected to the Internet, theoretically at least could have an
app that could--theoretically at least, a data broker could
purchase the information related to my location data from a car
which is, quote/unquote, ``a smart car,'' although I do not
know why you would have to do it from an app that was on
somebody's cellphone. But is all that true?
Ms. Gray. All of that is true. Much of the commercial
location data that is in the industry, some from mobile apps
and some from cars, is tied to device IDs. For example, some of
it is actually from apps when it claims to measure things like
driving behavior, and all of that information is very valuable
for a number of purposes, some of them benign like
transportation analytics in urban planning, and some of them
more harmful.
Senator Cassidy. I will have a second round, but I yield
back, Madam Chair.
Senator Warren. All right. Thank you very much, Senator
Cassidy.
Senator Wyden?
Senator Wyden. Thank you, Senator Warren. And I want to
thank you and Senator Cassidy for getting into these issues.
Senator Cassidy just mentioned the modern car, and the modern
car is a computer on wheels. And I have been investigating now
for years, as chairman of this committee, the sleazy,
unregulated world of these data brokers. And in several
instances we blew the whistle on government agencies that were
too-eager consumers for this information, and we pushed Apple
and Google to finally get some of the sleaziest data brokers
out of their stores, and out of their businesses. And I am glad
we are making progress, but we have a lot more to do.
I want to start with you, Mr. Sherman. You made an
important point with respect to how foreign governments can
acquire Americans' data to run disinformation campaigns,
identify undercover government personnel, blackmail government
employees--and I have been working on legislation for some time
now to deal with this threat, which will be introduced shortly.
My first question to you, Mr. Sherman: do you agree that
Congress should enact legislation to strictly limit the exports
of Americans' personal data to high-risk foreign nations and
companies to address what, in my view, are demonstrable
national security threats?
Mr. Sherman. There is a huge--a huge--national security
threat here, and Congress does need to control the sale of data
to foreign companies, citizens, and governments. As you
referenced, it is all too easy to get that on the open market.
Senator Wyden. Very good.
Ms. Gray, we have also been looking at this whole issue of
how U.S. Government agencies bypass the courts by buying
American data from data brokers. And so I have introduced
bipartisan legislation, The Fourth Amendment Is Not for Sale,
to close these loopholes.
Do you agree that the governments' exploitation of these
loopholes is a serious problem? And do you agree that Congress
ought to close these ever-yawning loopholes by passing our
legislation?
Ms. Gray. Absolutely, Senator. The Fourth Amendment Is Not
for Sale Act is a very strong model. That is exactly what is
needed right now.
Senator Wyden. And tell us, if you would, how this connects
with privacy issues? Because I have also introduced another
piece of legislation, the Mind Your Own Business Act. Had that
become law, I am of the view Mr. Zuckerberg would have already
faced major sanctions for behavior connected to privacy
violations.
But how does this whole area connect with privacy? Because
on the Finance Committee, we are increasingly looking at
privacy issues. For example, we feel very strongly that the
wealthy tax cheats right now are about as likely to get audited
by the government as getting hit by a meteor. We have to do
more to root out that corruption, but we can do it in a way
that is consistent with protecting people's privacy. I am a
privacy hawk. I will put my privacy credentials up against
anybody in the United States Senate.
Tell us how this whole field connects with the broader
expanse of making sure that we protect people's privacy.
Ms. Gray. Sure. Well, one of the issues is the sheer scale
and volume of the modern commercial data ecosystem. And it is
becoming increasingly untenable, I think, to separate the
related fields of law enforcement and national security uses of
data and commercial collection and uses of data that originate
for a particular purpose but end up being used for secondary
purposes, and being used by government agencies.
Senator Wyden. It is striking, because I am also on the
Intelligence Committee, and I have come to the conclusion that
privacy is a massive economic and national security issue. And
you cannot just separate these all out in separate boxes. And
this question on economics and national security and privacy
are directly linked. I want to thank all of you for your good
work. I appreciate Senator Cassidy's interest in this. Senator
Warren has been a long-time leader of making sure that we hold
these major economic forces in our country, our largest
companies, accountable.
And by the way, I was in Sisters, OR, and people were
asking me about these issues. Being successful and ensuring
that there is accountability are not mutually exclusive. We can
do both. Of course we want our businesses to do well. Of course
we want them to be profitable. But they can also be accountable
to key American values like protecting people's privacy. And I
want everybody to know I am so pleased that Senator Warren has
given us this chance.
These sleazy, unregulated data brokers, I want to put them
on notice today: we are going to stay at it until there are
serious consumer protections. Whether it is The Fourth
Amendment Is Not for Sale, or other kinds of measures, there is
going to be accountability in this field.
Thank you, Senator Warren.
Senator Warren. And thank you, Senator Wyden. And thank you
for your long-time leadership in this area. This is how we are
going to make changes, so thank you. Thank you for all you have
done.
I want to talk about another aspect of the issues that we
have raised today, and that starts over 100 years ago when
Congress passed our first antitrust laws to protect both local
businesses and to protect our democracy from powerful dominant
corporations that would undermine competition, crush workers,
and gouge consumers.
But starting in the 1970s, our government reversed course.
Corporate CEOs and lobbyists pushed the idea that mega-mergers
and corporate behemoths were actually good. Economists used
complicated models to say, gee, if we just let big corporations
get even bigger, they would be more efficient, they would lower
prices for everyone, and they would compete better on the world
stage.
Unfortunately, too often that is not what happened. Take
the semiconductor industry for an example. Hedge fund managers
took over our biggest chip manufacturer, Intel. Intel grew its
market size, cemented its dominant position through
anticompetitive and predatory practices. Then, having killed
the competition, the managers were free to weaken Intel's
fundamentals with impunity. I will give you just one example.
From 2001 to 2010, instead of spending more money on
innovation--remember, we are talking about the semiconductor
industry, right? You have to stay up. Instead of spending more
money on innovation, on new ideas, on more efficient
manufacturing here in the United States, Intel's managers spent
$48 billion on stock buy-backs. They boosted share prices and
executive pay, while they hollowed out a once-great company.
So, Mr. Lynn, let me start with you. You know a lot about
the semiconductor industry. Did consolidation, particularly the
growth of Intel, lead to greater efficiency?
Mr. Lynn. No, Senator, the opposite.
Senator Warren. Did it lead to lower prices?
Mr. Lynn. Absolutely not, Senator.
Senator Warren. Then did it at least make Intel a stronger
competitor on the world stage?
Mr. Lynn. The opposite, Senator.
Senator Warren. So in your assessment, what exactly did
happen as a result of Intel's growing dominance in its sphere?
Mr. Lynn. First, one of the things--you mentioned $48
billion that Intel paid out between 2001 and 2010. The
dominance allowed them to pay out much more between 2010 and
2020--actually $130 billion over the last 10 years. So the
looting and sacking of this corporation grew much faster and
more aggressive over the last 10 years.
But this results in higher prices for the chips. It results
in more power--you know, concentration of power over workers.
And it is not just the people on the assembly line, but it is
also scientists. It is also the engineers. And these are the
people that we count on to develop a better future, and we have
concentrated power over them. So we see less innovation as
another effect. The other effects include this extreme
concentration of capacity that we have seen in corporations
like TSMC in Taiwan. And this extreme concentration--here you
have all of a certain kind of chip, you have all your eggs in
one basket--means that the system itself is fragile and subject
to catastrophic failure.
What you have is a system that gives other powerful
countries like China power over the people who depend on that
capacity--for instance, by threatening to disrupt shipments in
and out of Taiwan. It leads to these massive shortages, these
structural shortages that we see that are leading to the
shutdown of assembly lines all around the world--not just in
America, but we are talking about Ford, a 50-percent decline in
production of cars in Q2. We are seeing Toyota, a 40-percent
decline in production of cars in Q3. This equals vastly higher
prices for newer cars, vastly higher prices for used cars,
vastly higher prices for rental cars, and a lot of dirtier cars
on our streets because we cannot replace them with newer,
cleaner cars.
Senator Warren. So consolidation clearly did not strengthen
our semiconductor industry, but consolidation, or lack of
competitors in this field, did create this supply chain crisis
that the pandemic has exposed. And now, as you rightly point
out, without semiconductor chips, other manufacturers like auto
companies cannot meet demand. They are furloughing workers at
the same time that orders are stacking up, all because they
cannot get the chips that U.S. manufacturers once supplied all
around the globe.
And what has been management's response to this? The same
executives who exacerbated this crisis by failing to properly
invest in their operations in infrastructure, now are asking
Congress to bail them out so they can make the investments that
they should have been making years ago.
Excessive concentration is a real problem. It is also a
problem in our domestic logistics and supply chain operations,
and it applies, obviously, to big tech firms.
Ms. Brown, I would like to go to you, if I can. During the
4\1/2\ years that you have worked at Amazon, Amazon has grown
bigger and bigger. Its profits have skyrocketed. So let me ask.
In your personal experience, have Amazon's logistical
operations improved, or have things just gotten worse, and
particularly with the COVID crisis? Can you speak to that?
Ms. Brown. Yes, absolutely. It has definitely gotten worse
as the years have gone on, especially with the pandemic. It is
all about this pushing out as much as possible frame of mind.
It used to be about the quality that we are giving our
customers. That was the number one thing. But now Amazon really
does not care very much. They do not care about how their
workers are trained. It is all about speed and quantity. So
when it comes to my facility with delivering food, you know, we
deliver broken eggs, crushed bread. We end up sending out a lot
of spoiled food and everything.
So a lot of us want to do good work, but it is like really
frustrating because, you know, we are at a limit for doing such
things. And for Amazon, they are getting rich. They preach the
customer obsession, but it is not good for customers at all.
And it is not good for hardworking people at the facility
centers either. Workers cannot do their jobs well because
Amazon wants to make more money, and that is the bottom line
for them--about as much product as they can get out, and more
money. And if you attempt to try and do these things like
giving customers good quality, actually practice customer
obsession, you end up actually getting written up and then
eventually terminated. So the bottom line for them is all
profit.
Senator Warren. Thank you so much, Ms. Brown.
Amazon's profits have exploded during the pandemic, even
though deliveries have been significantly delayed and services
have become more expensive. In a competitive marketplace,
Amazon's rivals would be able to compete on these factors--
providing more reliable service, or lower prices, or a better
work environment. But because there is no competition,
consumers get higher prices and worse services, while Amazon
gets even richer.
Markets can produce lower prices. Markets can produce more
reliable products. Markets can produce robust supply chains,
but only if there is competition. When giants are allowed to
dominate an industry, everyone else pays. Thanks very much.
Senator Cassidy, I recognize you.
Senator Cassidy. Thank you.
Ms. Gray, I will have a series of questions for you right
now. I finished in my last line of questioning speaking about
how location data could establish somebody as being HIV
positive, or having mental illness, or being military
personnel, et cetera. I understand the organization with which
you work considers location data to be personal information
that should be regulated. Can you kind of comment upon that,
please?
Ms. Gray. Certainly. Commercial location data of the nature
of the data that is frequently bought and sold in the data
broker industry is often tied to, not necessarily name and
contact information, but device identifiers such as a device ID
related to a mobile phone. That has led many in the industry to
claim at times that the data is not personally identifiable,
that it has been anonymized, or de-identified to a certain
extent. And while the risk may have been lessened, the facts
remain that persistent, precise location information over time
is very straightforward to relate back to an individual person
because our behaviors and our movements are unique over time.
And so that is one of the unique challenges specific to the
commercial location data industry.
Senator Cassidy. I am sorry. I had to stop my video. My
computer is about to die. I apologize for that.
Secondly, related to that, what is the difference between
suppressing data--I call my data broker. I contact him. I say I
do not want my data to be marketed, et cetera. How do I ask
them to get rid of it? And I am told that oftentimes they do
not get rid of it. They suppress, but suppression is different
than deletion. Can you elaborate on that, please?
Ms. Gray. Sure. Sure, Senator. Suppression is an industry
term that is frequently used for the purpose of describing when
a company maintains a list of consumers or individuals or
devices for the purpose of excluding those individuals or
devices from their products and services, but not necessarily
deleting the underlying data.
And there can be a range of reasons to do that. One of
them, for example, is to comply, in an ongoing manner, with
deletion or opt-out requests that are required by some of the
emerging privacy laws. For example, data brokers that
automatically collect large amounts of information from public
records may receive a request to delete data from an
individual, actually delete that data, but be unable to
continue to delete data on that individual in the future unless
they retain a limited suppression list.
Senator Cassidy. In that case, you suggest that that is
actually a positive thing in which they would be using the
suppression list to mark this. So is it a positive or a
negative that data is merely suppressed as opposed to
eliminated?
Ms. Gray. I would say, Senator, it depends on the use case.
There are other higher-risk marketing and advertising use cases
related to suppression lists. As we heard, for example, some
marketers wish to exclude certain segments of the population
from receiving advertisements that may be deemed offensive. For
example, a list of households associated with the loss of a
child, or the loss of a pregnancy, may be a list that a
marketer uses to exclude those households from receiving
marketing and advertising related to baby products. That is an
example.
So it depends on the use. And there is some risk associated
particularly with those more sensitive categories of
information just by the maintenance of a suppression list.
Senator Cassidy. So there is clearly a nuance here. And
frankly, if we are going to attempt to address that in
legislation, we would need someone such as you and your
organization to help elaborate on that nuance. Because it
actually sounds like it could be a positive thing, although you
suggest that there is a potential negative as well.
So with that said, let me ask you about the next thing,
because I think this is another nuance. In your written
testimony--I believe it was you who spoke of the fact that this
big data can be very helpful. You wish to look at, just to give
an example--I am not sure it ever came to full fruition, but it
has in other countries--using location data to establish who
may have been at a conference at which COVID is known to have
infected people, and so therefore you can do that.
I know after Mardi Gras in March of 2020, people used
location data to figure out where everybody went back to from
New Orleans after Mardi Gras and where people had come from,
and they were able to establish that COVID came to New Orleans
from both the Northwest and the Northeast.
So clearly people are using data in another sense. So what
is the nuance between using the data appropriately for public
health purposes, as an example, maybe to let me know how
congested the highway is, and should I take this route or
should I take another, as opposed to using it somewhat
nefariously, if you will?
Ms. Gray. You are right, Senator, to point out that there
are essentially good uses and bad uses of this data. For
example, in the early stages of the COVID-19 pandemic there
were large commercial data sets held by both first parties,
including Google, and members of the commercial location data
broker industry, that provided aggregate analyses of how people
were moving around to help assist public health efforts.
So, there are both good and bad use cases. One of the
nuances here is that, when we talk about fair information
practices and privacy and having a realm of private life, there
are increasing concerns around the fact that data is collected
in the first place--even when it might be later used for good
or beneficial purposes. There is, nonetheless, a zone of
private life that I think most agree should not be intruded
upon.
In other cases, most consumers are aware that they are
sharing location data--for example, for a particular service--
and not aware that it may be re-used for a secondary or
incompatible purpose. And things like commercial research and
public health purposes are technically incompatible purposes,
because that is not the reason that the data was necessarily
provided. And so crafting nuanced exemptions here related to
sources of data, sensitivity of data, risk related to harms to
individuals and groups and society, are all part of crafting
effective regulation here.
Senator Cassidy. Thank you.
And I will finish with this and turn it back to you, Madam
Chair. But I sincerely think, observationally, it cannot be
disputed, that we can come up with better legislation from a
hearing such as this that takes information from those who are
stakeholders and academics and others who analyze and try and
get those nuances down.
Again, I ask you to contact my staff afterwards with some
idea of those nuances. And that is an open invitation to
everybody on the panel.
Madam Chair, I turn it back to you.
Senator Warren. Thank you, Senator Cassidy.
So, as Attorney General Racine pointed out, Amazon controls
50 to 70 percent of the $430-billion online market for consumer
goods. Prices for everything from light bulbs to mattresses to
motor oil are going up on Amazon. And the question is, why is
that happening? A huge part of the reason is Amazon's
deliberate exploitation of its market dominance to squeeze more
dollars out of consumers and third-party sellers alike. In
other words, Amazon is taking a big bite out of the middle.
So one of our witnesses, Attorney General Racine, filed a
lawsuit this year against Amazon for this very reason. And a
particular focus of the lawsuit is the impact of something that
Amazon calls its ``fair pricing policy.''
And if I can, Attorney General Racine, I would like to
follow up on the example you gave to illustrate this policy.
So, let's say if I make earphones and sell them for $100 on my
own website--I just want to make sure we are clear on all
this--if I want to sell them on Amazon to access this huge
marketplace online and extend my reach, I have to pay Amazon's
fees and agree to their terms. And my understanding is that
Amazon's fees can be as high as 40 percent of the cost of these
goods.
So, thanks to these fees--let's just pick that example--I
have to increase my prices to ensure that I can still turn a
profit. So now instead of charging $100 for these earphones, I
may now have to charge $140. But the worst part is, I now also
have to charge $140 on my own website, and on every other
platform where I am trying to sell my headphones. These
inflated prices crush American consumers.
So, Attorney General Racine, I want to return to your
opening remarks. I want to go back over the example you talked
about, but you also mentioned how Amazon forces wholesalers to
pay more as well. So I did the consumer part. Can you say a
little more about how they are doing this with their
wholesalers as well?
Mr. Racine. Sure. And you have captured it exactly right,
Senator, which of course is no surprise to me. With respect to
wholesalers, Amazon again forces these first-party sellers, I
will call them, to reach an agreement with them in regards to
what the price is going to be. And here is the deal. If Amazon
lowers its retail prices to match or beat a lower price for
that initial good on the online marketplace, the wholesaler is
forced to pay Amazon the difference between the agreed-upon
profit that they made with Amazon and the money that Amazon
realizes after it lowers the retail price.
In short, Amazon has profit protection at the cost of the
first-party seller. I do feel compelled to also mention--and do
not take my word for it; look at the April 23, 2020, Wall
Street Journal article written by Dana Mattioli that talks
about how Amazon has scooped up data from its own sellers,
these first-party sellers, to launch competing products. So not
only are they crushing these first-party sellers with these
unlawful agreements--that is what we allege--but they are also
using data around the popularity and selling of these products
to launch competitive products against these first-party
sellers.
Amazon cannot win enough without cheating, and that is why
we are suing them.
Senator Warren. So this just knocks me out. In a typical
collusion case like price-fixing, competitors illegally agree
to charge higher prices. And when they get caught, they can
actually go to jail under Federal law. But Amazon accomplishes
the same thing in-house. And its higher fees are inflating
prices on its own platform as well as in stores and on other
websites through these anticompetitive contract provisions with
third-party sellers. And the result is, prices go up for
millions of Americans, and Americans cannot see it because
there is no place else to do the price comparison to see what
is happening here.
This price increase is entirely hidden from consumers
because it looks the same wherever they go. And it just shows
up as inflation.
Mr. Racine. Can I give you numbers?
Senator Warren. Please.
Mr. Racine. I think it is going to make your point. So
between 2014 and 2020, Amazon's revenue from third-party seller
fees and charges grew from $11.75 billion to over $80 billion.
This year, Amazon is estimated to reap over $121 billion in
fees from third-party sellers. They are doing this because it
is extremely profitable. They do not care that consumers are
paying far too much for goods, and they are not doing what they
say they are doing, which is focusing 100 percent on consumers.
They are focused 100 percent on utilizing their market power to
extract every bit of profit that they can.
Senator Warren. So the question, obviously, you have to ask
is, how do they get away with this? And what I would like you
to focus on, if you can, Attorney General Racine, is how
Amazon's dominant market position contributes to this kind of
pricing power that has been felt throughout our economy.
Mr. Racine. I think the example with the headphones that I
gave, and that you accentuated, frankly, and made better, is
the best example. And that is, that what Amazon does is, it
artificially builds its commissions and fees into a product
that ensures that that embedded profit that it has, frankly,
continues throughout the electronic mini-mall or major mall in
such a way that no one, not even you, nor me, the creator of my
own headphones, can sell my headphones for cheaper than what
Amazon and we essentially were forced to agree to sell them at.
And why do we engage in that agreement? Because they own 50
to 70 percent of the marketplace. Look at it as a toll booth
keeper. The road only leads to the toll booth. The toll booth
keeper can raise those prices, and you as the driver have no
choice but to pay whatever they are asking if you are trying to
get down that road.
And we think that is illegal. We appreciate the work of
this great committee. We are going to make law in the courts,
and we look forward to helping with respect to legislation.
Senator Warren. Well, I very much appreciate that. I
appreciate your point about 50 to 70 percent of the marketplace
that they already own. And yet, Amazon keeps growing. And they
do not just grow by sales, they continue to acquire.
So back in May, Amazon announced its proposed acquisition
of MGM Studios. That would be an $8.45-billion deal. Now I
wrote a letter to the FTC Commissioners asking them to review
the deal thoroughly and to evaluate how the deal might affect
workers and prices in other markets in the Amazon ecosystem.
Mr. Lynn, even if the FTC wanted to oppose this huge
merger, it would be a challenge to successfully block it--
notwithstanding everything that we have already heard from the
Attorney General, and that others have testified about. Can you
explain why that is?
Mr. Lynn. Yes, thank you, Senator.
Well, first it is going to be very expensive in terms of
the time, you know, for this limited staff that the FTC has.
They are going up against the richest corporation in the world,
the most powerful corporation in the world, a corporation that
can throw wrench after wrench after wrench into the mechanism.
It is also very expensive in terms of the expertise they
have to pay for--economic expertise. They have to put millions
and millions of dollars, often, into the kitty to pay for
economists. And this is even with President Biden's
renunciation of the Bork consumer welfare philosophy. The
legacy--because of the nature of the law--of the consumer
welfare philosophy and its focus on efficiency continues to
shape how the judiciary is going to look at this issue. And
they have to be ready with this very expensive expertise.
The third reason is, it is just very difficult to
communicate with judges in the stylized language of consumer
welfare, of efficiency. You know, this is an issue of power. It
is an issue of democracy. It is an issue of human liberty. And
they are being told that we have to talk about this in terms of
efficiency.
Judges are trained to use common sense to enforce the law,
to ensure the rule of law. And when you are using consumer
welfare framing, you are speaking nonsense.
Senator Warren. Well, I really appreciate that.
You noted earlier that President Biden has selected two
outstanding experts, Lina Khan and Jonathan Kanter, to lead the
antitrust efforts at the FTC and at DOJ. These are people who
believe in competition. And they are going to build strong
cases. But Congress needs to do its part. We need to make sure
that they have the resources, and we need to make sure that
they have the tools to be able to wage these battles.
Otherwise, we are just going to continue to see companies like
Amazon squeeze consumers, no matter who is President or no
matter whatever crisis of the day we are dealing with.
So, I think it is important that we step up on our side
too. Thank you.
Senator Cassidy, back to you.
Senator Cassidy. Thank you. It appears 5-minute limits are
off, so I may go a little bit longer.
Senator Warren. I apologize. Please go as long as you need
to, Senator Cassidy.
Senator Cassidy. I have a series of questions for you, Ms.
Sacks. First, your testimony speaks of the need to have kind of
a comprehensive arrangement between countries, or blocks, if
you will, to take the EU as a block, in order to have some sort
of agreement. I think I am summarizing, although I am sure you
would find nuance there.
Now the reason I say this is that I have been told that the
general data protection regulation of the EU risks making the
EU a digital colony to the U.S. or China. It is so restrictive
that the big data sets that are required to enhance research on
AI are almost impossible to construct. I do not know if that is
true. You know far more than I do. But nonetheless, that is
what I am told.
So, there is something here. How do we allow those sort of
data sets required for AI to be constructed, the big data
sets--if you agree that that is the case--and then how do we
have a governance that would exclude bad actors--and I think
folks see China, with all their cyber-espionage, as being a bad
actor--but nonetheless get the fruits of this big data?
And you had mentioned specifically the Japanese with the
``data free flow with trust'' paradigm. So I think I have given
you kind of a lot of directions to go in your answer, and I
will turn it back to you.
Ms. Sacks. Thank you, Senator Cassidy.
I think you put out a key point here, which is that U.S.
security and prosperity relies on access to large international
data sets. But as with other areas of the data broker
legislation that you mentioned with Ms. Gray, this one will
have nuance to it.
So how do we allow global data flows, but with the right
safeguards in place, both at home and internationally? And I
think that a big, important step here is making sure that we
get our own house in order first. The transatlantic data flow
relationship will be key, and it is important that the U.S. put
forward its own vision of data privacy first, but this should
not be a copy-and-paste of GDPR. And the topic of this hearing
focused on antitrust, I think gets at the challenge, which is
that one of the most important critiques of GDPR is that it may
only end up serving those companies that are wealthy enough to
comply with a very heavy burden that comes along with it.
So it reinforces the concentration of power in big tech,
while there still may be limitations on meaningful privacy
protections. I think that the Japanese ``free flow with trust''
model is a compelling way to think about how like-minded
countries can come together to put in place certain standards
that would allow data to flow with certain conditions in place.
And perhaps there can be a certification regime drawing on some
of the privacy protections already outlined in the OECD
guidelines.
So there are a number of directions, and this will require
nuance as well, and I look forward to helping support efforts
of the committee to do that.
Senator Cassidy. Now, does that require an international
treaty? I mean, you are not--I am assuming you may not be an
international trade attorney, but can we just basically pass
legislation which is in alignment with others without having a
formal treaty? Or do you have a sense of how we would go about
this OCED kind of a collaboration?
Ms. Sacks. You know, I think this is one that I am going to
need to get back to you on, on the specific nuts and bolts of
the various tools that are in place. If it is all right, I will
follow up with you and your staff after.
Senator Cassidy. I appreciate that.
Now, Ms. Sacks, tell me--we have learned that the Chinese
Government, as an example, could purchase information on U.S.
military personnel, and presumably location data as well. It
would be kind of interesting to see where people are deployed,
would it not, just to see the concentration of force, et
cetera, what type of force, if you know from other information
what branch of the military they are in?
But do other countries have that same sort of lax attitude
regarding allowing the legal purchase of information upon their
security forces? So, for example, what about China?
Ms. Sacks. The Chinese Government is actually moving
rapidly ahead to lock down more kinds of data that are deemed
vital to national security, even in the commercial sector. For
example, they put in place a data security law this fall which
seeks to put forward a data classification scheme where they
will move across sectors to define what kind of data would be
vital to national security. They did this first in the auto
sector, for example, and data being vital to national security
has new higher-bar security obligations as well as localization
requirements around who that data can be shared with.
Senator Cassidy. Now I think it was you who suggested that
it could be counterproductive if you wall off your data, and
that indeed the free flow of data--again, a nuance here--a free
flow of data is essential to ascending economic power for a
Nation as a whole, with the economic power, of course, being
somewhat linked to national security.
So in your mind, is what they are doing counterproductive?
I mean, is that something we should also do, or is it
counterproductive?
Ms. Sacks. The Chinese Government is shooting itself in the
foot by, I think, over-classifying the kind of data that it
deems vital to national security. But in theory, what they are
trying to do is say that certain kinds of data are vital to
national security and need to be locked down and other kinds of
data should flow and circulate in the economy.
Now, how that is going to happen in practice is another
story. But I think that there could be something we could learn
here in terms of defining what is the most sensitive kind of
data. And Mr. Sherman and Ms. Gray have mentioned location
data, for example.
President Biden put forward an executive order in June in
which he called for creating a framework to assess what the
security risks are of transactions involving Americans'
sensitive data and what should be restricted. And in that
executive order, he said not all data has the same level of
sensitivity.
So I think one thing we can do is have a more thoughtful
process, following on that executive order, around what kind of
data is vital to national security and should be subject to
higher protections, and what kind of data is less sensitive and
should be subject to more international flow and sharing.
Senator Cassidy. Let me finish with this. Mr. Sherman, is
there any sort of data that cannot be relinked? So, of course,
we say we are going to have location data, and we are going to
be using it for X, Y, and Z purpose; it will be anomymized, it
will be delinked, because it is very important. Maybe you just
want to use it to establish crowd flows within a city for city
planning, et cetera. But is there any data that cannot be
relinked if you have a robust enough data set by which to
compare it to?
Mr. Sherman. As Ms. Gray mentioned, there is a difference
between data with someone's name or Social Security number
attached, and data that does not have that attached. But at the
end of the day, you can re-identify anything.
As myself and others have now testified, there is so much
data out there on Americans hoarded by different companies that
it is all too easy to combine it to identify people by name.
Senator Cassidy. Okay.
Madam Chair, I am going to sign off now, because I have to
transition to come in for votes. But I thank all the witnesses
for your testimony, including Senator Warren's witnesses whom I
might have not asked questions of, but I found their testimony
very interesting. And, Madam Chair, I look forward to
collaborating with you on such future events.
Senator Warren. And thank you for being such a great
partner on this. I really appreciate it, Senator Cassidy. And
like you, I am delighted with the witnesses that you have
invited today, to learn from them, and I hope we will have many
follow-up questions for the record here. So, thank you for your
partnership. This is just the opening round, and we will keep
going on this.
I have one more round of questions I would like to be able
to ask right now. What I would like to do now is focus a little
bit on market dominance and the impact on workers.
For too long our antitrust policies have focused on prices
and consumers, which are important, but the Amazon example
shows that we have had weak enforcement of those policies, and
that has let these big companies increase prices across the
board.
We have also talked about how consolidation creates other
problems, particularly for American workers. You know, whenever
these companies merge, the corporate executives like to talk
about the new efficiencies. And what they usually mean by that
is they are going to lay off workers and cut wages. So, as
companies grow more dominant, they have more and more power to
lay off workers and to cut wages with no real consequences for
themselves, because they know that as industries become more
consolidated, workers have fewer alternatives. This means that
employees who are subject to increasingly harsh, dehumanized
working conditions cannot just move to a better job if there is
no other available employer. This is called monopsony power,
and our antitrust laws need to better address this.
So, Ms. Brown, if I can, I would like to ask you a couple
of questions here. You work for Amazon Fresh. And lots of
people order their groceries for delivery within a few hours
and never think anything more about it. But there is a grueling
process that happens behind the scenes to accomplish this feat.
Can you explain how conditions at your warehouse have
changed during the pandemic?
Ms. Brown. Absolutely. So, I am going to paint a picture
for you about what the process looks like. So as soon as you go
on the website and you click the ``place your order'' button,
it causes a chain reaction of people running around the
warehouse to gather everything. So, it is a small team of those
who will eventually be looking at the numbers and everything
and passing it down to another slate of people who are then
running around a warehouse that is bigger than a football
field, to then gather those items.
Then it goes to an even smaller team that is usually like
about five people, to package those items out. And then it goes
to an even smaller amount of people who are responsible for
sorting everything, depending on where it is going, on the
conveyor belt. And then it goes to my people--we work on the
dock--and we are responsible for sorting thousands of those
orders every day for 11 hours, making sure they get on the
truck and making sure they get to the customers as fast as
possible.
So now, the human toll in all of this is, basically, we
have very few to no breaks. We work until our bodies are
basically past the emergency stop. We delay bathroom breaks. We
miss lunch. You know, we cannot miss work. And during the
pandemic, you have a lot of us that--you know, we are burned
out. So a lot of us, myself included, we would literally take
like 30 seconds to kind of cry it out for a little bit, and
then get right back to it. Then when you go home, you do not
even have the energy to take care of your family, if you have
kids, or you have family members who are dependent on you.
Things such as cleaning the house or cooking for yourself
basically become nonexistent on days that you have to work.
Senator Warren. So this sounds really grueling. And I know
that during these challenging times, many people across a lot
of different industries have considered quitting their jobs and
finding better employment. However, Amazon is continuing to
grow like no other company, especially while small retailers
and small local businesses are closing.
So let me ask, Ms. Brown, if conditions are this bad at the
Amazon warehouse, what other employment options do you and your
coworkers have to be able to support yourselves and your
families?
Ms. Brown. Well, Black and Brown people in my particular
neighborhood, a lot of my coworkers do not really have very
many options open to us out here in New Jersey. So most other
jobs out here are warehouse jobs, or retail. And those do not
pay enough. Amazon pays just a bit more than them. So we are
stuck being taken advantage of in warehouses like this.
And this is what they bank on. So they know we have no
other choice. So they continue with the lack of regulation and
everything to protect us.
Senator Warren. So you're right: it is not an accident. You
know it is the largest employer in your industry, equipped with
massive power. Amazon can pressure other companies to follow
suit with its poor labor standards, or they just put those
companies out of business.
Now, it was announced last week that the Amazon facility in
Bessemer, AL, that workers there are entitled to hold a new
union election. And if that election is successful, this would
be Amazon's first union ever in the United States. But I want
to ask about the other side of that: what it is like to
negotiate with Amazon if you do not have a union on your side.
Amazon claims--and for this one, I actually want to quote
Amazon on it--they claim that ``direct connection between
managers and associates is the most effective way to understand
and respond to the wants and needs of Amazon employees.''
Now it is certainly effective for Amazon's bottom line,
but, Ms. Brown, can you tell us how effective this ``direct
connection'' that Amazon talks about, negotiating with Amazon
without a union, has been for you and for your fellow workers?
Ms. Brown. So, okay, my colleagues and I have been fighting
for change at Amazon for years. And instead of listening to us
and working with us to find solutions, they tend to double-down
and continue to exploit us. So that is why we continue to speak
out to try to improve working conditions, and for executives to
take us seriously.
So going to Amazon, especially when, say you are going to
be written up or something, is kind of like trying to defend
yourself in court. It is usually not going to go too well.
Senator Warren. Well, I am very concerned that the workers
who are most at risk during this pandemic are more likely to be
women, are more likely to be people of color--and of course it
varies depending on the job.
And so if I can--this is the last thing I want to ask you,
Ms. Brown--as a Black woman, what have you observed about
Amazon's treatment of racial minorities and women?
Ms. Brown. So now Amazon, they will hire any and everyone.
That is true. But, depending on what race you are, that is
going to determine whether you can get promoted, and sometimes
what you are going to be doing. Most of the workers are Black
and Brown, and very few of us hold high positions in the
company. And it shows in the promotion process. They will
promote only enough Black and Brown people so that it looks
okay, but mostly they hire White managers out of school who
have never actually worked for Amazon versus hiring, you know,
the majority of their workforce that is Black and Brown,
promoting us upwards, in the process. They really do not--when
they do promote you, the pay is definitely different from those
who get hired from outside.
So, if you are a Black or Brown worker, usually when you
make manager, your internal promotions, you get a lower wage
compared to one who is going to be coming from outside who is
going to be getting a higher wage. And for women, you know, it
is even more scarce to really see us in any kind of leadership
role, with any of the same responsibility and respect. They
would rather promote usually a White guy over someone who looks
like me.
Senator Warren. Well, I appreciate your testimony and your
coming in to talk to us about this.
You know, all of this suggests to me that if we really
tackle the dominant power issue by fighting abusive employer
practices, by limiting mergers that would harm workers, and by
empowering workers to unionize, we could accomplish two
important goals at the same time. We could strengthen the
American labor force and the middle class, and we could advance
racial and gender equity. Vigorous competition enforcement
would be better for all Americans who work, and better for all
Americans who purchase goods.
So, thank you very much for your testimony, Ms. Brown. I
really do appreciate it.
And I now ask for unanimous consent that the statement
received by the subcommittee from the International Brotherhood
of Teamsters and the Strategic Organizing Center on the
importance of strong antitrust policy for workers, including in
the tech sector, be entered into the record.
[The statement appears in the appendix on p 77.]
Senator Warren. Without objection, so ordered.
I think at this moment, the United States is at an
inflection point. Wealth and income disparities are at levels
that we have not seen in our lifetimes. The government's lax
enforcement of antitrust laws during the past few decades is a
huge part of this problem. Regulators and judges have allowed
merger after merger, and the result is too little competition
in the U.S. market.
Dominant firms in technology are free pretty much to do as
they please, including on data collection. They raise prices,
they reduce wages, they threaten our privacy, all so that they
can boost their profits to their shareholders and make their
CEOs richer. I am encouraged that the Biden administration is
committed to stronger enforcement actions across agencies, and
committed to promoting competition. But Congress has to step up
and do its part too.
It is time for Congress to finally update our antitrust
laws. We should ban all mergers involving huge corporations.
The biggest companies need to compete on the merits. They need
to offer better products, better prices, better service, not
just buy up their rivals and then gouge consumers. And second,
we have to give our antitrust agencies better tools to break up
the anticompetitive deals that are most harmful to our economy,
like Facebook's acquisition of Instagram. And finally, our
competition policy must safeguard our workforce. Those deal
synergies that reduce corporate costs often come out of the
hides of American workers--real people with families to support
who deserve to work with dignity and are paying a huge cost
when mergers reduce competition.
More than 100 years ago, our antitrust laws were not
designed to promote efficiency or to increase consumer welfare.
They were designed to protect people from being at the mercy of
economic kings who could exploit workers and customers at their
whims. Those laws were also designed to protect our democracy
from the corrupt influence of giant corporations. Congress
needs to do its part once again to make our economy more
competitive.
So I want to say again, thank you to all of our witnesses.
I appreciate your being here today. Your testimony has been
very valuable, and I appreciate your answers.
For any Senators who wish to submit questions for the
record, those are due 1 week from today. That is Tuesday,
December 14th. For our witnesses, you will have 45 days to
respond to any questions.
I want to thank you all again.
And with that, this hearing is adjourned.
[Whereupon, at 11:33 a.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Courtenay Brown,
Amazon Associate and Leader, United for Respect
Thank you for inviting me to share my experience with you today,
Senator Warren and members of the committee. My name is Courtenay
Brown, and I live in Newark, NJ. I'm currently working at an Amazon
fulfillment center and have been for 3\1/2\ years.
Before working at Amazon, I served my country as a service member
in the U.S. Navy. In my time of service, I vowed to uphold the core
values of the Navy, which included the commitment to care for the
safety, professional, personal, and spiritual well-being of our people.
It was my duty, and that of my fellow Navy men and women, to work
together as a team to improve the quality of our work, our people, and
ourselves.
I took seriously the commitment I made to my country then, and I
take it seriously now as a member leader with United for Respect.
I'm here today, Senators, to raise the alarm about Amazon's
business model, its threat to working people, and its threat to our
economy. One out of every 153 American workers is an Amazon employee
\1\ and this multi-billion-dollar corporation grew on the back of its
workers by exploiting them. I'm looking to you to stand up to
corporations like Amazon and protect us.
---------------------------------------------------------------------------
\1\ https://www.businessinsider.com/amazon-employees-number-1-of-
153-us-workers-head-count-2021-7.
The job I do is a much-needed service, especially since the COVID-
19 pandemic began. As a process guide, I sort 35,000-50,000 groceries
for delivery to homes in New York City and New Jersey every day. I'm in
and out of our cooler constantly, picking up and setting down items as
heavy as a TV monitor with little to no rest. The work that I do is
supposed to be done with a team of 30-40 people, but we are operating
with 28 people or less. Because our work is so essential, we need more
hands on deck, not less, so that we can take turns getting breaks and
---------------------------------------------------------------------------
much-needed rest. But Amazon does not retain its workers.
The work is physically and mentally exhausting, and on top of that,
we are monitored every single second as we scan items. So pausing even
to wipe the sweat off our forehead can lead to a write-up as managers
monitor our locations and times we spend doing work. If we fall behind
in any way during our 11-hour shift, we risk being disciplined. We are
pushed to our limit to the point where we can't even take regular
bathroom breaks. Often we literally have to run to and from the
bathroom in under 2 minutes so we don't get in trouble. The constant
pressure and surveillance is one reason why Amazon has twice the level
of injuries and turnover compared to similar employers.\2\
---------------------------------------------------------------------------
\2\ https://revealnews.org/article/behind-the-smiles/; https://
www.seattletimes.com/business/amazon/amazons-turnover-rate-amid-
pandemic-is-at-least-double-the-average-for-retail-and-warehousing-
industries/.
Very few people survive Amazon for more than 6 months. I used to be
a trainer at Amazon and I saw firsthand how, out of 50 new hires, for
example, only 5 would make it to the 6-month mark, and many quit soon
after due to injuries and over-exhaustion. Unfortunately, many are
often so bruised and battered that they have to turn to disability or
---------------------------------------------------------------------------
unemployment because they can't work anymore.
We are living in a country where machines are getting better
treatment than people. The machines at my facility undergo routine
maintenance checks to ensure they don't burn out. Meanwhile, research
has shown that workplace injury rates are higher at Amazon facilities
with more robotic and automated technology.\3\
---------------------------------------------------------------------------
\3\ https://humanimpact.org/wp-content/uploads/2021/01/The-Public-
Health-Crisis-Hidden-In-Amazon-Warehouses-HIP-WWRC-01-21.pdf.
Yet the one time I needed time off to be with my family to recover
from my mother's passing, I was told I wouldn't be able to get the
allotted 3 days off for bereavement; I was only getting 2. As you can
imagine, 2 days to plan for funeral arrangements and process my
mother's death was not nearly enough, so I had to take a month off
unpaid because that's the only option I had. A month of unpaid time
off, while Jeff Bezos made $75 billion \4\ last year thanks to me and
my coworkers.
---------------------------------------------------------------------------
\4\ https://www.businessinsider.com/amazon-ceo-jeff-bezos-net-
worth-explodes-in-2020-chart-2020-12.
Amazon's multi-billion-dollar wealth is made possible by offering
1- and 2-day delivery, and the corporation has achieved this speed and
scale through sheer brutality--watching, timing, and punishing
associates like me and my coworkers for not working fast enough and not
allowing associates to take time off to adequately recover, rest, and
---------------------------------------------------------------------------
prevent burnout.
Amazon's high-tech sweatshop caused me to develop plantar
fasciitis--a debilitating pain in my heel--because I'm having to stand
up for long periods of time at work with little to no rest. The burning
sensation around my heels is so painful that I take what little time I
have to run to the bathroom just to cry. One time the pain got so
intolerable I broke down and went to the emergency room. I begged the
doctors not to keep me longer than a few hours because I had to go back
to work. I was more concerned that I'd get punished at work for calling
out than prioritizing my own health. This kind of exploitation isn't
just happening to me--I know a coworker of mine who wasn't provided the
accommodations needed to pump her breast milk at work after giving
birth to her child. This is the type of work environment Amazon is
perpetuating across the country.
Amazon associates have been fighting back against these dangerous
conditions for years. Instead of fixing the problem, Amazon is only
doubling down on its exploitative model. Jeff Bezos himself recently
told shareholders that he plans to use more automated control of
workers in the warehouses.\5\ As Amazon associates, we know what more
automated control looks like--dehumanizing tactics designed to break
our bodies.
---------------------------------------------------------------------------
\5\ https://www.aboutamazon.com/news/company-news/2020-letter-to-
shareholders.
Amazon has built an empire on our backs, and now other employers,
like Walmart, are racing to copy it's inhumane, exploitative model that
---------------------------------------------------------------------------
demands we work nonstop.
The worst part of all is that Amazon is setting up its high-tech
sweatshop in Black and Brown communities desperate for work. The
pandemic has closed a lot of businesses in my area, so even someone
like me who has considered looking for another job--I can't because
there are no jobs available or the pay isn't enough to make rent and
put food on the table.
This committee is considering competition and economic growth in
the tech sector. When corporations write the rules to maximize their
profit, they ensure they win by all means necessary--including
exploiting workers and gutting small businesses.
Senators, I'm looking to you to stop corporations like Amazon from
ruining our economy and dictating the workplace standards for hundreds
of millions of workers like me. I'm asking you to help me put an end to
inhumane, exploitative processes that leave America's workers injured,
exhausted, and mentally battered each day.
Our country needs elected leaders to side with working people--to
side with essential workers--not big corporations.
Thank you.
Appendix I
Public Hearing on: Promoting Competition and Economic
Growth in the Technology Sector
United for Respect, December 2021
We cannot have a thriving economy or democracy when the most
powerful tech corporations in the world profit, grow, and outcompete
small businesses by finding innovative ways to exploit working people.
When success is the result of low-road labor practices, workers,
communities, and responsible businesses are undermined and left facing
the consequences.
Over the past decade, Amazon has grown from a company with 56,000
workers to one with 1.47 million.\6\, \7\ Amazon is now the
second largest employer in the United States, and relies on thousands
more third-party contractors to complete its distribution network.\8\
Today, Amazon dominates multiple markets and industries: it's projected
to capture 41.4 percent of U.S. retail e-commerce in 2021, 40.8 percent
of the cloud computing market through Amazon Web Services, and 21
percent of the streaming market with Prime Video.\9\,
\10\, \11\ Recently, Amazon's CEO of World Consumer
predicted that by early 2022, Amazon would surpass UPS and FedEx to
become the U.S.'s largest package delivery service.\12\
---------------------------------------------------------------------------
\6\ https://s2.q4cdn.com/299287126/files/doc_financials/annual/
269317_023_bmk.pdf.
\7\ https://ir.aboutamazon.com/news-release/news-release-details/
2021/Amazon.com-Announces-Third-Quarter-Results/.
\8\ https://www.nbcnews.com/business/business-news/amazon-now-
employs-almost-1-million-people-u-s-or-n1275539.
\9\ https://www.cnbc.com/2021/06/18/as-e-commerce-sales-
proliferate-amazon-holds-on-to-top-online-retail-spot.html.
\10\ https://www.wsj.com/articles/amazons-cloud-boss-is-girding-to-
defend-turf-in-the-field-company-pioneered-11636300800.
\11\ https://www.tvtechnology.com/news/amazon-apple-hbo-max-grow-
us-streaming-shares-in-q3.
\12\ https://www.cnbc.com/2021/11/29/amazon-on-track-to-be-largest-
us-delivery-service-by-2022-exec-says.html.
Amazon has achieved this growth and dominance by creating a high-
turnover, high-pressure system that offloads the costs of injuries,
employment precarity, and deskilling onto the public, workers, and
their families. This is Amazon's great innovation. Monitored at every
minute, Amazon warehouse workers and drivers report running to the
bathroom or even peeing in bottles, suffering from mental stress and
fatigue, workplace injuries, and being driven to unemployment. With
turnover of 150 percent, or higher, Amazon itself worries that it will
churn through the entire workforce in some regions.\13\
---------------------------------------------------------------------------
\13\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html.
Amazon's extensive worker surveillance and productivity metrics,
commonly known as rate and time off task, have been repeatedly linked
to the high injury rates at its warehouses.\14\, \15\ In
2020, Amazon reported 27,178 workplace injuries, of which 90 percent
were serious enough that workers were unable to perform their regular
duties or were forced to miss work entirely.\16\ Studies have found
that not only are serious injuries more frequent at Amazon warehouses--
nearly 80-percent higher than for all other employers in the warehouse
industry--but that they are more severe as well, with injured Amazon
workers taking, on average, a week longer than the recovery time for
workers injured in the general warehouse industry.\17\, \18\
A study by Human Impact Partners also found that injury rates at Amazon
warehouses were higher during the peak rush seasons associated with
holidays, Cyber Monday, and Prime Day.\19\ Similarly, elevated injury
rates were found at Amazon facilities with higher levels of robotic and
automated technology.\20\
---------------------------------------------------------------------------
\14\ https://humanimpact.org/wp-content/uploads/2021/01/The-Public-
Health-Crisis-Hidden-In-Amazon-Warehouses-HIP-WWRC-01-21.pdf.
\15\ https://thesoc.org/wp-content/uploads/2021/02/
PrimedForPain.pdf.
\16\ https://thesoc.org/wp-content/uploads/2021/02/
PrimedForPain.pdf.
\17\ https://thesoc.org/wp-content/uploads/2021/02/
PrimedForPain.pdf.
\18\ https://thesoc.org/wp-content/uploads/2021/02/
PrimedForPain.pdf.
\19\ https://humanimpact.org/wp-content/uploads/2021/01/The-Public-
Health-Crisis-Hidden-In-Amazon-Warehouses-HIP-WWRC-01-21.pdf.
\20\ https://humanimpact.org/wp-content/uploads/2021/01/The-Public-
Health-Crisis-Hidden-In-Amazon-Warehouses-HIP-WWRC-01-21.pdf.
Amazon has also come to dominate the logistics industry by
undercutting wages.\21\ A study by Bloomberg found that when Amazon
opens new facilities, the average warehouse industry wages fall in that
county, reaching their pre-Amazon level only after 5 years.\22\ The
same study found Amazon's employee promotion rate to be far below that
of the industry average, reflecting the high turnover rate and lack of
advancement opportunities facing most associates.\23\
---------------------------------------------------------------------------
\21\ https://www.bloomberg.com/news/features/2020-12-17/amazon-
amzn-job-pay-rate-leaves-some-warehouse-employees-
homeless?sref=AuDcg4ag.
\22\ https://www.bloomberg.com/news/features/2020-12-17/amazon-
amzn-job-pay-rate-leaves-some-warehouse-employees-
homeless?sref=AuDcg4ag.
\23\ https://www.bloomberg.com/news/features/2020-12-17/amazon-
amzn-job-pay-rate-leaves-some-warehouse-employees-
homeless?sref=AuDcg4ag.
Black workers disproportionately bear the brunt of Amazon's model.
At one of Amazon's largest warehouses in New York, Black workers were
50-percent more likely to be fired than their White peers.\24\ And
during the pandemic, Amazon fired several Black workers who spoke out
about unsafe conditions.\25\ This mirrors findings that Black people
are more likely to have dangerous jobs, less likely to have their
concerns heard, and more likely to be retaliated against.\26\ Further,
Amazon actively discourages the promotion of hourly workers in
warehouses, the majority of whom are Black and Brown.\27\
---------------------------------------------------------------------------
\24\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html?referring
Source=articleShare.
\25\ https://sahanjournal.com/business-economy/amazon-shakopee-
minnesota-protest/.
\26\ https://www.nelp.org/publication/silenced-COVID-19-workplace/.
\27\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html.
Meanwhile, other employers are forced, lest they be undercut, to
compete using the same methods that economist Daron Acemoglu calls
``so-so'' tech innovation.\28\ This so-so or low-road innovation
contributes little to economic growth, while destabilizing the lives of
working people and lowering wages. This race to the bottom wastes our
enormous shared technological potential, while exacerbating economic
inequality.
---------------------------------------------------------------------------
\28\ https://fairgrowth.house.gov/sites/
democrats.fairgrowth.house.gov/files/documents/
Acemoglu%20Testimony.pdf.
This is not a natural outcome of progress in the tech sector, but a
reflection of economic policy decisions that we have the power to
change. Our current policies incentivize the wrong kind of innovation
---------------------------------------------------------------------------
and growth, and we must turn that around.
States are already beginning to take action in this direction.
Recently, California passed a State bill regulating warehouse
performance metrics such as those utilized by Amazon.\29\ In 2020,
Washington State, citing the high workplace injury rates at Amazon
warehouses, raised the company's Worker Compensation premium rates by
15 percent and proposed placing fulfillment centers in a risk class of
their own.\30\ Worker surveillance practices like those Amazon uses to
monitor associates and drivers, have also led to introduced legislation
in Massachusetts and Illinois.\31\, \32\ Meanwhile, as
Reuters reported last month, Amazon has used its massive lobbying and
policy team to kill or undermine over 36 State bills that would impact
the company.\33\
---------------------------------------------------------------------------
\29\ https://www.latimes.com/business/story/2021-09-08/california-
bill-ab701-passes-senate-warehouse-work-metrics-algorithims-regulation.
\30\ https://www.seattletimes.com/business/because-of-injury-
claims-state-wants-amazons-automated-warehouses-to-pay-higher-workers-
comp-premiums-than-meatpacking-or-logging-operations/.
\31\ https://www.bostonglobe.com/2021/10/07/opinion/massachusetts-
has-chance-clean-up-our-national-privacy-disaster/.
\32\ https://inthesetimes.com/article/at-will-just-cause-
employment-union-labor-illinois.
\33\ https://www.reuters.com/investigates/special-report/amazon-
privacy-lobbying/.
As this committee studies actions to ensure we have a healthy tech
sector, it should consider a new generation of economic policies and
labor rights that prevent tech corporations like Amazon from leveraging
worker exploitation into growth, and outcompeting rivals by taking the
low road. Establishing robust worker protections and rebalancing power
between workers and employers would not only benefit hundreds of
thousands of Amazon workers, but could reorient the economy and tech
innovation toward more equitable and sustainable outcomes that lead to
productive growth. In order to do this, we must establish policies that
prioritize worker health and safety, protect against predatory
surveillance and automated management practices, fortify the rights of
workers to speak out and organize, guard against low-road business
models, and incentivize innovation that enhances worker well-being and
shared economic prosperity.
Appendix II
Worker Letter to Shareholders
United for Respect and Warehouse Worker Resource Center
November 29, 2021
Dear Amazon Shareholder,
We are Amazon associates and leaders with United for Respect (UFR)
and the Warehouse Worker Resource Center (WWRC). We are part of a
multiracial movement of working people advancing a vision of an economy
where our work is respected and our humanity recognized. We write to
you today to share an important letter from Human Impact Partners and
over 200 public health practitioners calling on Amazon CEO, Andy Jassy,
to end the inhumane and unsafe workplace quotas and surveillance that
are currently ubiquitous throughout Amazon's logistics network.
Based on the findings of a study by Human Impact Partners and the
WWRC, this letter outlines the dangerous reality we experience going to
work every day. The high productivity quotas at Amazon facilities,
commonly known as rate and time off task, have led to injury rates
twice that of the general warehouse industry, and three times that of
the average private employer. During peak rush times, and in Amazon's
most automated facilities, workplace injury rates are even higher.
As the very people at risk from Amazon's unsafe warehouse
practices, we urge you to read the letter and consider the included
recommendations. Common-sense improvements such as doing away with rate
and time off task, adopting ergonomic standards, and strengthening
COVID-19 precautions would not only make Amazon facilities safer
workplaces, but might lessen the worker shortage and high turnover rate
seen presently at Amazon warehouses. As an Amazon shareholder, you can
help mitigate any short-sighted mismanagement of human capital at the
company and support any shareholder proposals that seek to review
workplace health and safety issues.
In our capacity as Amazon, UFR, and WWRC worker-leaders, we would
also welcome the chance to speak directly with you, answer any
questions, and share our vision of a better and safer Amazon.
Sincerely,
United for Respect Member Leaders and the Membership of WWRC
Appendix III
Joint Statement
Stop Amazon's Injury Crisis: End Amazon's Dangerous
and Punitive Worker Surveillance
June 21, 2021
Amazon injures and discards \34\ warehouse workers and delivery
drivers at double the industry average. There were a record \35\ 24,000
serious injuries at Amazon facilities last year. It is time for
lawmakers and regulators to step in and end the punitive system of
constant surveillance that drives the dangerous pace of work at Amazon.
---------------------------------------------------------------------------
\34\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html?referring
Source=articleShare.
\35\ https://thesoc.org/amazon-primed-for-pain/.
Amazon's business model is a calculated exploitation of workers,
the majority \36\ of whom are Black and Brown. Amazon's punishing \37\
system monitors workers' speed or rate, tracks their movements each
second with a metric called time off task, and imposes a constant
threat of termination. Amazon claims to simply monitor workflow--but in
reality, rate and time off task are used to control \38\ physical
movements and discipline workers, dictate when or if they can use the
bathroom, and have been used to retaliate \39\ against worker
organizing. A recent investigation in Washington State concluded \40\
that this high-pressure system violates the law.
---------------------------------------------------------------------------
\36\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html?referring
Source=articleShare.
\37\ https://logicmag.io/bodies/surviving-amazon/.
\38\ https://www.theverge.com/2019/4/25/18516004/amazon-warehouse-
fulfillment-centers-productivity-firing-terminations.
\39\ https://www.nbcnews.com/business/business-news/fired-
interrogated-disciplined-amazon-warehouse-organizers-allege-year-
retaliation-n1262367.
\40\ https://www.seattletimes.com/business/amazon/amazons-
relentless-pace-is-violating-the-law-and-injuring-warehouse-workers-
washington-state-regulator-says/.
Discarding workers after they are injured or too exhausted, Amazon
churned \41\ through over half a million workers in 2019. Amazon's
model breaks people's bodies, taking their health and sometimes
livelihoods. The cumulative costs of this exploitative business model
are offloaded \42\ onto workers, their families, and the public.
---------------------------------------------------------------------------
\41\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html.
\42\ https://www.nelp.org/publication/amazons-disposable-workers-
high-injury-turnover-rates-fulfillment-centers-california/.
Black workers disproportionately bear the brunt of Amazon's model.
At one of Amazon's largest warehouses in New York, Black workers were
50 percent \43\ more likely to be fired than their White peers. And
during the pandemic, Amazon fired \44\ several Black workers who spoke
out about unsafe conditions. This mirrors findings \45\ that Black
people are more likely to have dangerous jobs, less likely to have
their concerns heard, and more likely to be retaliated against.
Further, Amazon actively \46\ discourages the promotion of hourly
workers in warehouses, the majority of whom are Black and Brown.
---------------------------------------------------------------------------
\43\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html?referring
Source=articleShare.
\44\ https://sahanjournal.com/business-work/amazon-shakopee-
minnesota-protest/.
\45\ https://www.nelp.org/publication/silenced-COVID-19-workplace/.
\46\ https://www.nytimes.com/interactive/2021/06/15/us/amazon-
workers.html.
Warehouse workers and delivery drivers cannot wait for Amazon to
fix its broken system. To ensure Amazon's model does not become the
standard for our entire economy, regulators and lawmakers must
---------------------------------------------------------------------------
intervene:
- End rate and time off task tracking: State and Federal
electeds should enact laws that ban this surveillance-driven
discipline and control to ensure that workers are protected
from abusive conditions.
- Update OSHA standards and enforcement to end rate and time
off task: As evidence mounts that Amazon's model creates an
unsafe workplace, State and Federal OSHA programs should
enforce existing standards and create new rules that address
practices like rate and time off task that monitor workers and
increase the pace of work.
- Investigate Amazon's abuses: Agencies tasked with
safeguarding workers should investigate Amazon for these
widespread and longstanding abuses, including: injuries,
retaliation, and discrimination.
For years, workers have spoken out and protested \47\ against these
conditions. Most recently, in Bessemer, AL, Black warehouse workers
\48\ led a unionization effort, citing \49\ the punishing conditions
created by Amazon's system of surveillance, control, and threat of
termination.
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\47\ https://www.theverge.com/2019/10/3/20897119/amazon-workers-
walk-out-protest-part-time-work-minnesota.
\48\ https://www.vox.com/the-highlight/22320009/amazon-bessemer-
union-rwdsu-alabama.
\49\ https://www.vox.com/the-highlight/22320009/amazon-bessemer-
union-rwdsu-alabama.
Last year, civil society organizations stood with workers and
called \50\ upon Congress to ban this type of punitive worker
surveillance, citing the dangerous impacts on workers' physical and
mental health, potential to undermine workers' right to organize, and
long-term deskilling and wage decline of these jobs.
---------------------------------------------------------------------------
\50\ https://athenaforall.medium.com/end-worker-surveillance-
d99aa7cd3850.
Finally forced to admit to ongoing injury problems, Amazon is
nevertheless doubling down on its extractive model. In his final letter
\51\ to shareholders, Jeff Bezos stated that Amazon would begin to use
artificial intelligence to direct workers from one task to the next.
But using technology to maintain absolute control over workers' tasks
and workflow will only escalate Amazon's injury crisis. Decades of
research show that when workers do not have autonomy and control at
work, they are more likely to be injured and experience mental strain
\52\ and depression.\53\ Later, Amazon announced wellness programs and
funding for injury research, but it refuses \54\ to do the one thing
that would stop widespread injuries: eliminate rate and time off task.
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\51\ https://www.vice.com/en/article/z3xeba/amazons-new-algorithm-
will-set-workers-schedules-according-to-muscle-use.
\52\ https://www.jstor.org/stable/
2392498#metadata_info_tab_contents.
\53\ https://www.researchgate.net/publication/
324557829_Job_Strain_Long_Work_Hours_and
_Suicidal_Ideation_in_US_Workers_A_Longitudinal_Study.
\54\ https://www.seattletimes.com/business/amazon/amazon-to-
maintain-pace-of-warehouse-work-despite-regulators-citation/.
Amazon will soon \55\ be the largest private employer in the United
States, and if lawmakers and regulators fail to take action, its
dangerous and extractive model will become the standard in warehousing,
logistics, and retail. As other retailers implement similarly
exploitative strategies,\56\ this dangerous trend will further degrade
working conditions for tens of millions of people across the country.
The result will be a punishing, untenable reality for all working
people, and Black and Brown people will pay \57\ the highest cost.
---------------------------------------------------------------------------
\55\ https://www.cnbc.com/2021/06/11/amazon-to-overtake-walmart-as-
largest-us-retailer-in-2022-jpmorgan.html.
\56\ https://www.techtimes.com/articles/261243/20210609/walmart-
free-phones-employees-used-surveillance-workers-expert.htm.
\57\ https://www.epi.org/blog/workers-of-color-are-far-more-likely-
to-be-paid-poverty-level-wages-than-white-workers/.
We call on lawmakers and regulators do everything in their power to
end rate and time off task, ensuring Amazon cannot use this punitive
system of surveillance to cycle through entire workforces in
---------------------------------------------------------------------------
communities throughout the country.
In Solidarity,
Athena Coalition Government Accountability Project
Action Center on Race and the
Economy Green America
(ACRE) Institute for Local Self-Reliance
Awood Center Jobs With Justice
AI Now LAANE
Civil Liberties Defense Center Make the Road New York
Color of Change Make the Road NJ
Constitutional Alliance MediaJustice
Demos Movement Alliance Project
Fight for the Future MPower Change
Free Press National Employment Law Project
New York Communities For Change Stand Up Nashville
OLE Surveillance Technology Oversight
Project (STOP)
Open Markets Institute SumOfUs
Partnership for Working Families Transit Riders Union
Presente.org United for Respect
Public Citizen Warehouse Worker Resource Center
Restore the Fourth Minnesota Warehouse Workers for Justice
Secure Justice
Appendix IV
Joint Statement
Put Workers over Profits: End Worker Surveillance
October 14, 2020
Farhiyo Warsame, a warehouse worker, was targeted, surveilled, and
fired by Amazon after speaking up about unsafe conditions at work,
according to the Awood Center. Amazon tracked Farhiyo's time in between
each small task and used the accumulated extra seconds to justify
threats for her eventual termination. Through this ``rate'' and ``time
off task'' tracking system, Amazon would have you believe it monitors
work productivity--but in reality, this system is used to control the
physical movements of workers, dictate when or if they can use the
bathroom, discipline workers and, in the end, has been used repeatedly
to retaliate against workers. It enforces an unreasonable pace of work
that leads to the unusually high number of injuries at Amazon.
Today, workers are subjected to an unprecedented level of workplace
surveillance and control. From voice monitoring to tracking
applications, these systems are being introduced into workplaces that
are already stacked against low-wage workers, creating an environment
ripe for exploitation. Surveillance gives corporations more power over
workers. When combined with automation that dictates the pace and type
of work, it results in a more dangerous, punishing, and precarious
workplace. It can also lead to lower wages, deskilling of jobs, mental
health stresses, the potential for racial discrimination, and a
chilling effect on organizing. Workers urgently need legal protections
that prevent these harms and end exploitative practices, including
Amazon's rate and time off task monitoring.
The use of surveillance to exploit workers has a long history in
the United States, going back to the plantation and then in
manufacturing, where Taylorism and other systems of ``scientific
management'' established control over workers' every move. The trend
has worsened dramatically in recent years, and laws and regulatory
agencies have failed to catch up.
Meanwhile, with few protections for workers, corporate employers
have been able to grow profits by demanding and enforcing dangerous
speeds, controlling each physical movement of a worker, and maximizing
opportunities to make workers replaceable and expendable.
New technologies that monitor and control workers represent a
radical transfer of power from workers to corporations. At Amazon
warehouses, workers report that a scanner tells you exactly where to
go, gives you seconds to get there, and then orders you what to do
next. Your entire workload and every task you complete is managed in
seconds. If you take longer than the seconds you are given, the time is
added to your time off task. If you go to the bathroom or take a rest,
this is also added to time off task. At the end of the day, if your
productivity falls below a moving threshold, you are disciplined, and
eventually fired.
Amazon's contract delivery drivers face similar monitoring, with
dispatchers pressuring drivers to deliver increasing volumes of
packages in a single shift--even if that means drivers must speed or
skip bathroom breaks to meet delivery quotas. At Amazon, this is paired
with intelligence systems and practices to monitor potential organizing
activity outside of work.
This level of monitoring and control has no place in our economy.
Corporate employers say that these technologies make workplaces more
efficient and are necessary to be competitive, but those claims do not
hold up to scrutiny. Instead, we find:
Individual productivity monitoring is used to enforce a dangerous
pace of work. Within Amazon warehouses, the pervasive and punitive
nature of tracking rate and time off task for each worker results in
nearly double the injury rate and greater job precarity, as compared to
the sector. While Amazon claimed that they stopped disciplining workers
for productivity during the pandemic, the practice continued. This type
of monitoring is designed for workers to fail.
Worker surveillance disproportionately harms Black and brown
workers. Black and Brown workers are more likely to be in low-wage
jobs, less likely to be listened to when they raise concerns, and more
likely to face retaliation. Additionally, algorithmic decision-making
can dramatically reinforce and exacerbate racial disparities,
particularly where people impacted have no recourse or power. For many
of these workers, the level of monitoring is akin to discriminatory
police surveillance in their communities.
Surveillance is being used punitively, rather than to keep workers
safe. Corporations are adopting new workplace technologies for the sole
purpose of disciplining individual workers, even in areas where
technology could be used to improve working conditions. When Amazon
developed new technologies to determine if workers were within six feet
of one another, they then immediately used this information to
discipline and then fire workers.
Surveillance is being used to retaliate against workers and
undermine their protected rights to speak out and take collective
action. With limitless surveillance at an employer's fingertips,
targeting a particular worker is trivial--illegal retaliation is easily
obscured. Amazon has used monitoring of time off task and social
distancing to retaliate against workers after they spoke up about
safety concerns. Surveillance of workers is not limited to the
workplace, and it was recently reported that Amazon monitored private
social media groups of Amazon Flex drivers, and tried to recruit an
intelligence analyst to investigate labor organizing activities.
Pervasive surveillance and automated control increase corporate
profits on the backs of workers, by reducing wages and deskilling jobs.
While some technologies, such as supermarket scanners, allow companies
to raise profits by using workers more efficiently, surveillance
technologies raise profits by the cruder mechanism of increasing the
exploitation of workers. The supermarket scanner allows each worker to
serve more customers with the same level of effort, but surveillance
technologies can dangerously accelerate the pace of work. The costs of
injury and burnout are then offloaded onto families and the workers
compensation system, rather than being internalized by the company.
During the pandemic, corporate employers have expanded workplace
surveillance in ways that can compromise worker privacy and autonomy,
and are using those tools for worker discipline and control. Employers
have a legal duty to provide a safe working place (e.g., by slowing
work speeds and providing handwashing breaks). Instead, Amazon
developed a punitive social distance surveillance system that it gave
to other corporate employers.
In response, State and Federal Governments should enact protections
against workplace surveillance--ending predatory practices, such as
Amazon's rate and time off task monitoring. These protections should
prioritize worker health and safety, fortify the rights of workers to
speak out and organize, guard against low-road business models, require
transparency in the use of new technologies, protect against new forms
of tech-driven racial discrimination, and incentivize innovation that
enhances worker well-being. Workers deserve better than models of
exploitation developed on plantations and in factories over 100 years
ago.
In Solidarity,
Athena Media Mobilizing Project
Action Center on Race and the
Economy MediaJustice
The Awood Center MPower Change
Center on Privacy and Technology at
Georgetown Law National Employment Law Project
Civil Liberties Defense Center New America's Open Technology
Institute
Color of Change New York Communities For Change
Constitutional Alliance Open Markets Institute
Council on American-Islamic
Relations (CAIR) Our Data Bodies
Coworker.org Partnership for Working Families
Demand Progress Public Citizen
Demos Restore The Fourth Minnesota
Fight for the Future RootsAction.org
Free Press Secure Justice
Government Accountability Project SEIU California
Greater New York Labor-Religion
Coalition Stand Up Nashville
Instituto de Educacion Popular del
Sur de California SumOfUs
Jobs With Justice Surveillance Technology Oversight
Project (S.T.O.P.)
Just Futures Law United for Respect
LAANE Warehouse Worker Resource Center
Make the Road New York Working Partnerships USA
X-Lab
Appendix V
Joint Statement
Silencing of Whistleblowers in the Workplace Is a Threat to Public
Health
Given the immediate public health risks, we are calling for an
urgent expansion and improved enforcement of legal protections for
workers who speak out and take collective action against dangerous
workplace conditions that risk exacerbating the spread of COVID-19 in
communities. Workers themselves are in the best position to raise
health and safety concerns, and if these concerns are ignored, or
worse, if workers are retaliated against, it not only impacts those
workers and their families, but risks accelerating the current public
health crisis.
Over the last few weeks, Amazon fired at least six workers who had
spoken out about unsafe working conditions in warehouses. In addition
to these firings, other workers at Amazon have reported receiving
arbitrary work-related warnings as a result of speaking out or
participating in walkouts, and they fear that they are being set up for
termination. Given that Amazon is the second largest private employer
in the United States and is significantly expanding its workforce
during the crisis, this apparent pattern of retaliation is alarming.
Thousands of warehouse, delivery, and grocery workers are on the
front lines of this fight, risking contracting and spreading COVID-19
every day in order to provide essential goods. This risk
disproportionately falls on communities of color, who are more likely
to hold these jobs and more vulnerable to the virus, as a result of the
systemic racism that undermines health in these communities. These
essential workers are calling for common-sense measures in line with
CDC guidance: implementation of 6 feet of distance between all
individuals in the facility, personal protective equipment for all,
time for handwashing, temporarily closing and cleaning exposed
facilities to allow for quarantine, independent and transparent
reporting, and paid leave policies to help exposed and sick workers to
stay home.
Instead of adopting policies to protect workers, corporations are
increasingly adopting invasive surveillance technologies to penalize
and monitor lower-wage workers. This already predatory surveillance
could too easily be turned against protected concerted activity and
workers voicing concerns. We know that the mere presence of pervasive
surveillance is likely to silence dissent, but not to protect health.
People who take action and speak out are not only exercising their
legally protected right to protest and organize collectively for safe
working conditions, but also acting in the national interest and
protecting public health. Large facilities like warehouses, factories,
and meatpacking plants employ thousands of people and grocery stores
are major points of social interaction--if necessary precautions are
not taken, COVID-19 could easily spread throughout communities. The
right to demand better health and safety measures needs to be protected
in order to limit the spread of COVID-19.
The current crisis has elevated workplace whistleblowing and
collective action to a matter of national health and additional
protection and enforcement measures are urgently necessary.
In solidarity,
Athena Coalition New America Center on Education and
Labor
Access Now New America's Open Technology
Institute
Action Center on Race and the
Economy New York Communities for Change
AI Now Institute Ohio Valley Environmental Coalition
Alternate ROOTS Open Markets Institute
Black Alliance for Just Immigration Open MIC (Open Media and
Information
Center on Privacy and Technology at
Georgetown Law Companies Initiative)
Color of Change Partnership for Working Families
Community Justice Exchange People Demanding Action
Constitutional Alliance People for the American Way
Council on American-Islamic
Relations (CAIR) PeoplesHub
Defending Rights and Dissent Project Censored
Demand Progress Education Fund Project on Government Oversight
Ella Baker Center Public Citizen
Fight for the Future RootsAction.org
Freedom of the Press Foundation RYSE Center
Global Action Project Secure Justice
Government Accountability Project Surveillance Technology Oversight
Project (STOP)
Instituto de Educacion Popular del
Sur de California The Awood Center
Just Futures Law The Civil Liberties Defense Center
Line Break Media The Tully Center for Free Speech
Make the Road New Jersey United for Respect
Make the Road New York United We Dream
Media Mobilizing Project Warehouse Worker Resource Center
MediaJustice Whistleblower and Source Protection
Program at ExposeFacts
MPower Change Law Project (NELP)
Woodhull Freedom Foundation
Muslim Advocates XLab
National Employment National Immigration Law Center
______
Prepared Statement of Hon. Bill Cassidy,
a U.S. Senator From Louisiana
Good morning, and thank you all for being here for today's hearing.
Thank you to our witnesses for taking time to testify today.
Senator Warren and I have agreed to a bipartisan hearing on
promoting competition, growth, and privacy protection in the technology
sector. I will be focusing my time on the data broker industry.
The data broker industry is relatively unknown to the common
American, but its practices and techniques are interwoven into many
aspects of their lives. Data brokers build profiles on individuals
about certain attributes and then sell that information to whom they
see fit. For example, as a big fan of LSU football, I frequently search
topics related to LSU football; that search data is collected. A
profile is made to say I am a fan of LSU football, and I will then
receive ads about buying LSU football tickets, merchandise, and more.
We have all experienced something similar to this, and we experience it
almost everyday.
Multiple times a year a company will be the victim of a hack that
exposes the data of thousands of customers. While we go to great
lengths to minimize these cyber incursions, we ignore an entire
industry that transacts in much more detailed and sensitive personal
information. As you will hear from some of our witnesses, there is very
little information data brokers can't sell and even less data that they
aren't willing to sell. I believe that few people in this room would
think it is a good idea to sell the profiles of millions of American
service members, but that's just what they are doing.
We should have a conversation about what American data we think is
okay to be bought and sold without the knowledge of many Americans, and
what type of data we think is acceptable to be bought and sold period.
Should we allow a list of military personnel to be sold to foreign
adversaries? Should we allow lists of domestic abuse survivors to be
sold to domestic abusers?
We should have a conversation about what data is appropriate to
collect, what limits should be placed on the groups that data is
collected on, and restrictions on how that data is sold or transferred
to other parties.
We should have a conversation about all of the things our foreign
adversaries can do with this data.
That's why we have assembled a team of data broker experts to talk
about the different aspects of data brokers: what's regulated, what's
not, and how to best move forward.
Thanks again to our witnesses. I'm looking forward to discussing
these issues.
______
Prepared Statement of Stacey Gray, Senior Counsel,
Future of Privacy Forum
Chair Warren, Ranking Member Cassidy, and members of the
subcommittee, thank you for the opportunity to testify today on the
important issue of consumer privacy in the technology sector.
Specifically, I've been asked to discuss the subject of data brokers
and consumer privacy, an important and highly relevant topic as
Congress continues to work towards enacting a Federal comprehensive
data privacy law.
As a senior counsel at the Future of Privacy Forum,\1\ I work on
public policy related to the intersection of emerging technologies,
business practices, and U.S. consumer privacy regulation. The Future of
Privacy Forum is a 501(c)(3) non-profit organization, based in
Washington, DC, specializing in consumer privacy and dedicated to
helping policymakers, privacy professionals, academics, and advocates
around the world find consensus around responsible business practices
for emerging technology.
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\1\ https://www.fpf.org. The views expressed in this testimony are
my own, and do not represent the views of FPF's supporters or Advisory
Board. See Future of Privacy Forum, Advisory Board, https://fpf.org/
about/advisory-board/; Supporters, https://fpf.org/about/supporters/.
Let me begin by observing that attention to this topic is not new.
Privacy advocates, the Federal Trade Commission, and members of the
Finance Committee and other Senate Committees \2\ have long called for
greater transparency, accountability, and regulation of the data broker
industry. This includes reports from the Government Accountability
Office (GAO) in 2013,\3\ the Federal Trade Commission (FTC) in 2014,\4\
and the research and advocacy of academic scholars and leaders,
including Pam Dixon of the World Privacy Forum,\5\ and my fellow
witnesses here today.
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\2\ Majority Staff Report for Chairman Rockerfeller, ``A Review of
the Data Broker Industry: Collection, Use, and Sale of Consumer Data
for Marketing Purposes,'' Committee on Commerce, Science, and
Transportation, Office of Oversight and Investigations (December 18,
2013), available at http://educationnewyork.com/files/
rockefeller_databroker.pdf.
\3\ Government Accountability Office, ``Information Resellers:
Consumer Privacy Framework Needs to Reflect Changes in Technology and
the Marketplace,'' GAO-13-663 (September 2013), https://www.gao.gov/
assets/gao-13-663.pdf.
\4\ Federal Trade Commission, ``Data Brokers: A Call for
Transparency and Accountability'' (May, 2014), https://www.ftc.gov/
system/files/documents/reports/data-brokers-call-transparency-
accountability-report-federal-trade-commission-may-2014/
140527databrokerreport.pdf.
\5\ World Privacy Forum, https://www.worldprivacyforum.org/.
Since many of these reports were published almost a decade ago,
much has changed. There have been significant advances in machine
learning, the ability of systems to learn, adapt, and generate
inferences from large datasets, with varying accuracy. Adoption of
consumer technology has also become nearly universal, with 97 percent
of U.S. adults now owning a smartphone,\6\ and most adults owning
several additional devices--a fact which has led to fragmentation in
marketing industries, and incentives for many businesses to collect
even more data to attribute and measure behavior across devices.\7\
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\6\ Pew Research Center, ``Mobile Fact Sheet'' (April 7, 2021),
https://www.pewresearch.org/internet/fact-sheet/mobile.
\7\ Jules Polonetsky and Stacey Gray, Future of Privacy Forum,
Cross-Device: Understanding the State of State Management (2015),
https://fpf.org/wp-content/uploads/2015/11/FPF_FTC
_CrossDevice_F_20pg-3.pdf.
The legislative landscape is also evolving. Since 2018, California
and two other States have passed non-sectoral consumer privacy
legislation,\8\ and three States have established limited data broker-
specific regulation--California,\9\ Nevada,\10\ and Vermont.\11\ Some
State efforts have focused on transparency, through the establishment
of Data Broker Registries, while others, such as the California Privacy
Rights Act, codify consumer rights to opt out of the sale of data and
limit the use of sensitive information. Much more work remains to be
done.
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\8\ See California Consumer Privacy Act, Cal. Civ. Code
Sec. 1798.100 (2018); California Privacy Rights Act, Cal. Civ. Code
Sec. 1798.100 (2020); Virginia Consumer Data Protection Act, Va. Code
Ann. Sec. 59.1-571 (2021); Colorado Privacy Act, Colo. Rev. Stat.
Sec. 6-1-1301 (2021).
\9\ Data Broker Registration, Cal. Civ. Code Sec. Sec. 1798.99.80-
88 (2020).
\10\ In 2021, Nevada updated its existing law governing operators
of online services, providing consumer rights specific to qualifying
data brokers. See Heather Sussman and David Curtis, Orrick, ``Nevada
Expands Online Privacy Law; Goes for Brokers'' (July 1, 2021), https://
www.orrick.com/en/insights/2021/07/Nevada-Expands-Online-Privacy-Law-
Goes-for-Brokers.
\11\ Vermont Data Broker Regulation, 9 V.S.A. Sec. 2430 (2018).
In the context of this evolving landscape, I'd like to make two
substantive points regarding the data broker industry, and then provide
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three recommendations.
1. First: Defining the term ``data broker'' is a challenge for many
regulations, because it encompasses a broad spectrum of divergent
companies and business activities. The GAO has used the phrase
``information resellers,''\12\ and the leading definition from current
State law includes any commercial entity that ``collects and sells [or
licenses] the personal information of a consumer with whom the business
does not have a direct relationship.''\13\
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\12\ Government Accountability Office, ``Information Resellers:
Consumer Privacy Framework Needs to Reflect Changes in Technology and
the Marketplace,'' GAO-13-663 (September 2013), https://www.gao.gov/
assets/gao-13-663.pdf.
\13\ Under the Vermont Data Broker Regulation, a Data Broker is ``a
business, or unit or units of a business, separately or together, that
knowingly collects and sells or licenses to third parties the brokered
personal information of a consumer with whom the business does not have
a direct relationship.'' 9 V.S.A. Sec. 2430(4)(A).
Businesses that fall under this definition, including the 170
businesses registered and currently ``active'' in Vermont's Data Broker
Registry,\14\ or the 490 businesses currently registered in
California,\15\ use data for a wide range of purposes. Some of the
information these businesses collect and sell is quite sensitive and
closely linked to individuals, while other information is less
sensitive or de-identified to some degree. Both registries, and most
current definitions of data broker, exclude business activities that
are regulated by the Fair Credit Reporting Act (FCRA) \16\ (i.e.,
consumer reporting agencies and the use of credit reports for
eligibility decisions in employment, insurance, and housing) or the
Gramm-Leach Bliley Act (GLBA) \17\ (i.e., financial institutions).
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\14\ Vermont Secretary of State, Corporations Division, ``Data
Broker Search'' (last visited December 3, 2021), https://
bizfilings.vermont.gov/online/DatabrokerInquire/DataBrokerSearch.
\15\ State of California Department of Justice, Office of the
Attorney General, ``Data Broker Registry'' (last visited December 3,
2021), https://oag.ca.gov/data-brokers.
\16\ Fair Credit Reporting Act, 15 U.S.C. Sec. 1681.
\17\ Gramm-Leach-Bliley Act, 15 U.S.C. Sec. 6801.
Commercial purposes that can fall outside of FCRA and GLBA include,
---------------------------------------------------------------------------
but are not limited to:
Marketing and advertising--Likely the largest category of
typical ``data broker'' activities by revenue is for marketing and
advertising,\18\ including direct mail, online, and mobile advertising.
Advertisers have long had the ability to purchase and curate lists of
audiences (such as by demographics, zip code, or inferred
interests).\19\ Increasingly, data brokers and other large tech
companies are interested in using web, mobile, and offline data to
generate detailed predictions related to consumer purchasing intent,
future behavior, psychological profiles,\20\ lifestyle,\21\ or
sensitive information such as political affiliation or health
conditions.\22\ Many advertising technology (ad tech) providers also
use data to offer measurement for ad attribution, conversion, and
related metrics.
---------------------------------------------------------------------------
\18\ See Federal Trade Commission, ``Data Brokers: A Call for
Transparency and Accountability'' (May 2014) at 23, https://
www.ftc.gov/system/files/documents/reports/data-brokers-call-
transparency-accountability-report-federal-trade-commission-may-2014/
140527databrokerreport.pdf.
\19\ In many cases, risks related to data depend on its use. For
example, an audience list associated with ``Interest in Motorcycles''
could be used to send direct mail discounts from a local motorcycle
repair shop, but could also be used by an insurance company to infer
that individuals or households engage in risky behavior. Id. at vi.
\20\ See, e.g., AnalyticsIQ, ``What We Do: Consumer Data'' (last
visited December 3, 2021). https://analytics-iq.com/what-we-do.
\21\ See, e.g., Experian's Mosaic USA (December 2018) (last
visited December 3, 2021), https://www.experian.com/assets/marketing-
services/product-sheets/mosaic-usa.pdf.
\22\ Justin Sherman, ``Data Brokers and Sensitive Data on U.S.
Individuals'' Duke Sanford Cyber Policy Program (August 2021), https://
sites.sanford.duke.edu/techpolicy/wp-content/uploads/sites/17/2021/08/
Data-Brokers-and-Sensitive-Data-on-US-Individuals-Sherman-2021.
pdf.
Appending and matching services--Many businesses provide
matching services that allow companies to link, or append additional
information, to their existing lists of customers.\23\ In some cases,
businesses offer specialized, isolated matching services, or ``clean
rooms,'' that allow for external partners to link datasets without
sharing underlying data, often for reasons of data ownership or
protecting privacy. For example, a health-care institution might use a
matching service to send information about clinical trials to patients
with specific health conditions, without disclosing patient information
to researchers.
---------------------------------------------------------------------------
\23\ See 2020 NAI Code of Conduct (Network Advertising Initiative),
page 8-B, ``audience matched advertising,'' https://thenai.org/wp-
content/uploads/2021/07/nai_code2020-1.pdf.
People Search Databases--People search databases are online
search tools that provide free or paid access to information that can
be found in public records, such as a person's home address, previous
addresses, names of family members, DMV information, court records, and
criminal records.\24\
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\24\ Examples of people search companies include Whitepages
(whitepages.com); Truthfinder (truthfinder.com), BeenVerified (https://
www.beenverified.com/), and Spokeo (https://www.spokeo.com/). See also,
Adi Robertson, ``The Long, Weird History of Companies that Put Your
Life Online,'' Wired (March 21, 2017), https://www.theverge.com/2017/3/
21/14945884/people-search-sites-history-privacy-regulation, and Yael
Grauer, ``How to Delete Your Information From People-Search Sites,''
Consumer Reports (August 20, 2020), https://www.
consumerreports.org/personal-information/how-to-delete-your-
information-from-people-search-sites-a6926856917.
Fraud detection--Many companies offer commercial fraud
detection services to institutions such as banks, health-care
institutions, and online retailers, to protect consumers and businesses
against fraudulent activities.\25\ Such services typically rely on a
wide variety of data from public and private records, such as
purchasing behavior, online behavior, or real-time behavioral data from
devices.\26\
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\25\ According to data released by the Federal Trade Commission,
more than 2.1 million fraud reports were filed by consumers in 2020.
Consumers reported losing more than $3.3 billion to fraud in 2020, up
from $1.8 billion in 2019. Nearly $1.2 billion of losses reported last
year were due to imposter scams, while online shopping accounted for
about $246 million in reported losses from consumers. Federal Trade
Commission, ``New Data Shows FTC Received 2.2 Million Fraud Reports
from Consumers in 2020'' (February 4, 2021), https://www.ftc.gov/news-
events/press-releases/2021/02/new-data-shows-ftc-received-2-2-million-
fraud-reports-consumers.
\26\ See, e.g., Tax N. et al. (2021), ``Machine Learning for Fraud
Detection in E-Commerce: A Research Agenda.'' In: Wang G., Ciptadi A.,
Ahmadzadeh A. (eds.) Deployable Machine Learning for Security Defense.
MLHat 2021. Communications in Computer and Information Science, vol
1482. Springer, Cham. https://doi.org/10.1007/978-3-030-87839-9_2.
Identity verification--The ability to accurately verify
identity, or that an individual is who they say they are, is a key
component of digital services across many sectors.\27\ Including for
the estimated 1 billion people globally who do not have proof of
identity and are thus prevented from accessing government services or
excluded from basic financial services, individual ``digital
footprints'' can offer opportunities for alternative approaches to
digital identity verification.\28\
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\27\ See Noah Katz and Brenda Leong, Future of Privacy Forum,
``Now, on the Internet, Everyone Knows You're a Dog: An Introduction to
Digital Identity'' (August 3, 2021), https://fpf.org/blog/now-on-the-
internet-everyone-knows-youre-a-dog/. Notably, identity verification
can also be an important responsibility for businesses in responding to
consumer requests to access, delete, and control data under emerging
consumer privacy laws. See, e.g., Jennifer Ellan and Steven Stransky,
``The new CCPA draft regulations: Identity verification,''
International Association of Privacy Professionals (June 30, 2020),
https://iapp.org/news/a/the-new-ccpa-draft-regulations-identity-
verification.
\28\ Vyjayanti T. Desai, Anna Diofasi, and Jing Lu, ``The global
identification challenge: Who are the 1 billion people without proof of
identity?'', World Bank (April 25, 2018), https://blogs.worldbank.org/
voices/global-identification-challenge-who-are-1-billion-people-
without-proof-identity.
Alternative risk scoring--Historically, credit scores provided
by consumer reporting agencies (CRAs) include predictions of
creditworthiness based on past loan repayment history and related
information. A growing number of fintech and data broker companies have
begun using data from other sources, such as rental history or payment
of utility bills, to make similar predictions about risk.\29\ Sometimes
known as ``alternative risk scoring,'' this can be used to extend lines
of credit to consumers that are ``thin-file,'' or have little to no
formal credit history. However, such risk scoring has raised concerns
about privacy, fairness, bias, and accuracy, when it involves
predictions from data such as web browsing, search history, or social
media. Alternative risk scoring is governed by FCRA when used for
individual eligibility decisions, such as firm offers of credit, but in
some cases may fall outside of the protections of FCRA, for example
when involving household data or lead generation.\30\
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\29\ See generally, Consumer Financial Protection Bureau, ``CFPB
Explores Impact of Alternative Data on Credit Access for Consumers Who
Are Credit Invisible'' (February 16, 2017), https://
www.consumerfinance.gov/about-us/newsroom/cfpb-explores-impact-
alternative-data-credit-access-consumers-who-are-credit-invisible/.
\30\ For an exploration of the boundaries of the Fair Credit
Reporting Act, see generally, Testimony of Pam Dixon Before the U.S.
Senate Committee on Banking, Housing, and Urban Affairs: Data Brokers,
Privacy, and the Fair Credit Reporting Act (June 11, 2019), https://
www.banking.senate.gov/imo/media/doc/Dixon%20Testimony%206-11-19.pdf;
and Sahiba Chopra, ``Current Regulatory Challenges in Consumer Credit
Scoring Using Alternative Data-Driven Methodologies,'' 23 Vanderbilt
Journal of Entertainment and Technology Law 625 (2021), https://
scholarship.law.vanderbilt.edu/cgi/
viewcontent.cgi?article=1044&context=jetlaw.
Socially Beneficial Research Initiatives--Commercial data
contributes to a growing number of research initiatives that seek to
harness data in support of socially beneficial goals, such as public
health tracking, humanitarian efforts, disaster relief, and medical
research. In 2020, FPF established an annual Award for Research Data
Stewardship, recognizing collaborations between company and academic
researchers that allow researchers to access commercial data with
privacy and ethical safeguards.\31\
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\31\ See Future of Privacy Forum Blog, FPF Issues Award for
Research Data Stewardship to Stanford Medicine and Empatica, Google and
Its Academic Partners (June 28, 2021), https://fpf.org/press-releases/
fpf-issues-2021-award-for-research-data-stewardship/.
Some data broker activities provide clear benefits to consumers,
such as the use of data for public health, or to protect financial
accounts against fraudulent activity. Others primarily benefit the
purchasers or users of the data, such as advertisers, with little or no
accompanying benefit (or perceived benefit) to individuals. A key to
effective regulation will be to draw nuanced distinctions based on
sources of data, purposes of processing, limitations on sharing and
sale, data sensitivity, and the potential for risk and harm to
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individuals and groups.
2. Second: The lack of a direct relationship with consumers that
characterizes most ``data brokers'' is both at the heart of concerns
around privacy, fairness, and accountability, while also presenting the
greatest challenge for data privacy regulation.
Any business with a direct-to-consumer relationship, big or small,
such as a retailer, restaurant, hotel, or social media network, can
collect personal information about U.S. consumers directly, indirectly,
or through purchasing and appending it. In some cases, those ``first-
party'' companies can exercise enormous influence and market power.\32\
However, there is still a degree of public accountability to users who
are aware of who such companies are and can delete accounts or raise
alarms when practices go too far. In addition, first-party companies
can directly present users with controls and tools to manage their data
in an app, on a web site, through direct email communications, or other
means.\33\
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\32\ Charlotte Slaiman, ``Data Protection Is About Power, Not Just
Privacy,'' Public Knowledge (March 3, 2020), https://
www.publicknowledge.org/blog/data-protection-is-about-power-not-just-
privacy.
\33\ In some cases, the ability of advertisers to purchase data
from data brokers can undermine the efforts of first-party platforms to
create greater transparency and control for users. See, e.g., Privacy
Risks with Facebook's PII-based Targeting: Auditing a data broker's
advertising interface (FTC PrivacyCon), https://www.ftc.gov/system/
files/documents/public_events/1223263/panel05_privacy_risks_fb_pii.pdf.
In contrast, a business lacking a direct relationship with
consumers does not always have the same reputational interests,
business incentives, or in some cases legal requirements, to limit the
collection of consumer data, process it fairly, and protect it against
exfiltration. In States such as California, where privacy law codifies
the right to access, delete, or opt out of the sale or sharing of data,
consumers typically are not aware of what companies within the ``data
broker'' category may process their information, how to reach them, or
how to manage the hundreds of opt-out requests that would be necessary
to control the disclosure of their information.\34\
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\34\ See Maureen Mahoney, ``California Consumer Privacy Act: Are
Consumers' Digital Rights Protected?'', Consumer Reports (October 1,
2020), https://advocacy.consumerreports.org/wp-content/uploads/2020/09/
CR_CCPA-Are-Consumers-Digital-Rights-Protected_092020_vf.pdf.
At the same time, a lack of a consumer relationship means that
businesses engaged in legitimate or socially beneficial data processing
often cannot rely on traditional mechanisms of notice and consent.
Affirmative consent, or ``opt-in,'' may be impossible or impractical
for a business to obtain, while ``opting out'' after the fact tends to
be impractical for consumers to navigate. For this reason, consumer
advocates and academics have long observed the problems of legal
regimes that rely solely on consent: consumers can become overwhelmed
with choices, and may lack the knowledge to assess future risks,
complex technological practices (such as predictive analytics, machine
learning, or AI), or future secondary uses.\35\ These risks are
especially acute in the data broker industry.
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\35\ See e.g., Neil Richards and Woodrow Hartzog, ``The Pathologies
of Digital Consent,'' 96 Wash. U. L. Rev. 1461 (2019), available at
https://openscholarship.wustl.edu/law_lawreview/vol96/iss6/11.
What does this mean? In some cases, consumer choice remains an
appropriate component of consumer privacy frameworks; a lack of consent
should prevent data processing in many circumstances. But choice cannot
be the sole safeguard in consumer privacy rules. In other cases, data
processing should not occur even with a person's consent, for example
if the processing is inherently high-risk or harmful.\36\
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\36\ Many proposals for Federal privacy frameworks advanced by both
industry and consumer advocacy groups have included categories of
``prohibited'' data practices that organizations processing personal
information would be barred from engaging in, even with individual
consent. See e.g., Center for Democracy and Technology, CDT's Federal
Baseline Privacy Legislation Discussion Draft (December 13, 2018) (last
visited December 3, 2021), https://cdt.org/insights/cdts-federal-
baseline-privacy-legislation-discussion-draft/ (proposing that Federal
law prohibit per se ``unfair data processing practices,'' such as
certain forms of biometric information tracking, precise geospatial
information tracking, and probabilistic cross-device tracking); compare
to, e.g., Privacy For America, ``Principles for Privacy Legislation''
(last visited December 3, 2021), https://www.privacyforamerica.com/
overview/principles-for-privacy-legislation/ (an industry-led proposal
containing prohibitions on data misuse that would include (1) banning
the use of data to make certain eligibility decisions outside outside
existing sectoral laws, (2) banning the use of data to charge higher
prices for goods or services based on certain personal traits, and (3)
outlawing the use of personal information for stalking or other forms
of substantial harassment).
In some circumstances, we should recognize there are socially
beneficial uses of large datasets that cannot, for reasons of
practicality or accuracy, hinge on consumer choice. For example,
commercial research in the public interest may include allowing
independent researchers to evaluate the effect of large platforms on
mental health; understanding the effect of COVID-19 and public health
efforts; enabling disaster relief, and mitigating bias and
discrimination in AI.\37\
---------------------------------------------------------------------------
\37\ See Future of Privacy Forum and Anti-Defamation League, ``Big
Data: A Tool for Fighting Discrimination and Empowering Groups'' (July
2014), https://fpf.org/wp-content/uploads/2014/09/Big-Data-A-Tool-for-
Fighting-Discrimination-and-Empowering-Groups-FINAL1.pdf.
In these cases, privacy law can offer other tools for protecting
consumers, including: limits on collection of data; transparency;
accountability; risk assessment and auditing; limitations on the use of
sensitive data; and limitations on high-risk automated processing for
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making important decisions regarding individuals' life choices.
3. Recommendations:
First and foremost, Congress should pass baseline comprehensive
privacy legislation that establishes clear limitations and rules for
both data brokers and first-party companies that process individuals'
personal information. Its primary purpose should be to address the gaps
in the current U.S. sectoral approach to consumer privacy, which has
resulted in incomplete legal protections. Currently, personal
information collected within certain sectors, such as credit reporting,
finance, and health care, are subject to longstanding Federal
safeguards, while commercial data outside of these sectors remains
largely unregulated even when the data may be equally sensitive or
high-risk.\38\
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\38\ For example, medical records held by hospitals and covered by
the Health Insurance Portability and Accountability Act (HIPAA) are
subject to Federal privacy and security rules. However, equally
sensitive commercial information or inferences about health conditions
is largely unregulated when processed by app developers, search
engines, or marketing and advertising firms, outside of the Federal
Trade Commission's longstanding section 5 authority.
In the absence of comprehensive legislation, there are a number of
steps Congress can take to address risks related to consumer privacy
and data brokers. Legal protections specific to the industry (alone or
as part of a comprehensive law) could play a useful role, for example,
through a national registry or opt-out system that would build on, or
standardize the work of California and Vermont. In practice, however, a
comprehensive law that is not specific to particular technologies or
business models will be most effective, fair, and interoperable with
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global frameworks such as the General Data Protection Regulation.
Other legal approaches include: (1) limiting the ability of law
enforcement agencies to purchase information from data brokers,
including information purchased as a workaround to evade the
constitutional limitations on those agencies when seeking information
directly; (2) enacting sectoral legislation for uniquely high risk
technologies, such as facial recognition; or (3) updating existing
laws, such as the Fair Credit Reporting Act, to more effectively cover
emerging uses of data, for example in alternative consumer risk
scoring.
Second, Congress should empower the Federal Trade Commission to
continue using its longstanding authority to enforce against unfair and
deceptive trade practices, through funding of enforcement, research,
and consumer education; greater numbers of staff and the establishment
of a Privacy Bureau, and civil fining authority to effectively police
businesses.
And finally, legislators should ensure that, within reasonable
limits, privacy regulation does not prevent the use of data for
socially beneficial purposes that are in the public interest, such as
identifying bias and discrimination, contributing to a fair and
competitive marketplace, holding large platforms accountable through
independent research, and contributing to generalizable scientific,
historical, and statistical research and knowledge.
Thank you for this opportunity, and I look forward to your
questions.
______
Prepared Statement of Barry C. Lynn, Executive Director,
Open Markets Institute
america's monopoly crisis--democracy and security at risk
Five and a half years ago, Senator Warren awakened Americans to the
extreme and fast-growing threat posed by the concentration of power and
control across almost all sectors of the U.S. economy. ``Consolidation
and concentration are on the rise in sector after sector,'' Senator
Warren said in the June 29, 2016, speech, when she became the first
leading policymaker to recognize America's monopoly crisis.
``Concentration threatens our markets, threatens our economy, and
threatens our democracy.''
Since then Americans have witnessed a long series of real advances
in the fight against concentration and consolidation. These include:
Learning how monopolization lies at the root of most of the
great problems we face today--including low wages, high prices, broken
health care, sharp declines in entrepreneurship, and political
extremism.
Getting leading journalists and policymakers in both parties
to recognize the problem and to propose legislation to fix it.
Getting law enforcers in Washington and in almost every State
of the Nation to bring powerful lawsuits against Google and Facebook,
perhaps the most powerful and far-reaching corporations in human
history.
Relearning how to use traditional antimonopoly tools such as
common carrier law and other rules designed to ensure that monopolists
treat every American the same.
Then in July President Joe Biden resoundingly restored antimonopoly
law to its necessary and original role as one of the main tools we use
to protect our democracy and individual liberties. And in doing so, the
President also bluntly renounced the ``Chicago School'' philosophy of
Robert Bork and other ``Neoliberal'' radicals, with its focus solely on
restricting the use of antimonopoly law solely increasing efficiency
theoretically to promote the ``welfare'' of the ``consumer.'' Further,
President Biden then demanded that all agencies and departments of
government--not merely those with traditional antitrust authorities--
join the fight against today's extreme and dangerous concentration of
power and control in the hands of a few.
What we are witnessing is one of the most important intellectual
and political awakenings in American history, on a par with the
awakening that took place in the years just before and after the
Declaration of Independence. Or rather, we are witnessing a reawakening
to the true promise, purpose, and principles of our democratic
republic.
In place of the dangerous determinism of the Neoliberal Chicago
School philosophy, with its insistence on the necessity, scientific
inevitability, and fundamental goodness of bigness and concentrated
control, Americans are returning to our traditional common-sense
approach to regulating power and competition in ways that help us build
a more democratic, just, sustainable, and innovative society. This in
turn is empowering us to develop our own selves, families, and
communities more fully and completely, which was one of the essential
goals of the Founding.
Unfortunately, the task before us remains immense and daunting. The
power and control that has been concentrated in the hands of Google,
Facebook, Amazon, and other autocratic corporations over the last 40
years poses perhaps the most extreme threat to our democracy that we
have faced since the Civil War. And the rise of the Internet and other
new technologies over this period means our task today is not merely to
restore the approaches of the past, but to adapt them to new structures
and ways of communicating and doing business.
The good news is that Senator Warren's hearing today provides us
with a vitally important chance to speed and broaden our efforts to
reestablish the basic balances and controls that are essential if we
are to preserve our democracy and fundamental liberties. The
opportunity lies in the fact that today's hearing is the first to focus
on the role that monopolization has played in creating the complex
supply chain and production crises that so threaten our economic and
industrial security today.
This focus on the supply chain crisis is important in three key
ways.
First, the extreme and growing nature of the threats posed to our
production systems illustrate in an easy-to-understand way how
monopolization directly threatens the security of our Nation, our
communities, and our families, not only by cutting jobs and creating
higher prices but by creating the potential for a catastrophic
breakdown of vital production systems and/or various forms of conflict
with China and other nations.
Second, the fact that the supply chain crisis is the result of
radical neoliberal changes to multiple regulatory regimes in the 1980s
and 1990s--including antimonopoly, trade, corporate governance, and
finance and banking--demonstrates clearly the need to strategically
integrate multiple regulatory regimes into a single coherent whole.
Third, the fact that all of these threats we face today were
predicted 15 or even 20 years ago demonstrates the costliness of delay
and the urgency to take radical and comprehensive action immediately.
Properly studied and embraced, the lessons of our supply chain
crises will also teach us how to speed and expand all of our
antimonopoly efforts--including those aimed at the platform
monopolists--to a point where we can assure ultimate victory. The
lessons of our supply chain crises can also help to teach us how to
integrate our efforts here in the United States with those of our
closest industrial and political allies, in ways that will further
empower us to establish the foundations for a safe and sustainable
international system able to support our democracies and prosperity
through the long haul of the 21st century.
the origins of the supply chain crisis
The first step to understanding today's supply chain crises, is to
recognize that the structures of the production systems on which the
United States relies today differ radically from the structures of the
production systems that served our Nation in the past.
For most of the decades after the Second World War, right until the
last years of the 20th century, most production of products and
components around the world was widely distributed in multiple
locations around the world.
First, production was compartmentalized within the borders of the
nation-state. In the case of products such as automobiles, electronics,
metals, and chemicals, for instance, every industrial nation largely
produced what it consumed, and then competed with other industrial
nations to sell finished goods to smaller nations, and to nations that
were less industrialized.
Second, within most industrialized nations, manufacture of products
such as automobiles, electronics, metals, and chemicals was separated
into multiple vertically integrated corporations. In the United States,
for instance, antimonopoly practice aimed to ensure that at least four
corporations competed to make any particular product. Much the same was
true of Japan and of Europe as a whole.
Production within corporations was then often further
compartmentalized by the distribution of the capacity to manufacture of
key components and end products among two or more different factories.
As a result, for most of the 20th century, when something went
wrong in one factory or one industrial region somewhere in the world,
the overall effects of the disruption were limited to one of many
companies. Further, the widespread distribution of manufacturing
capacity and skills meant that when one company experienced a major
problem, it could turn to its competitors for help in keeping its own
assembly lines moving and in repairing whatever damage it had suffered.
Then on September 21, 1999, an earthquake in Taiwan revealed that
in at least one industry--semiconductors--the structure of production
had been changed in revolutionary ways.
The 7.3 magnitude earthquake killed more than 2,500 people and
disrupted life and business across Taiwan. But for the first time in
human history, the efforts of an earthquake in one nation were felt
almost immediately all around the entire world. The quake disrupted
power at Taipei's international airport, which in turn prevented the
Just-in-Time shipment of semiconductors from the industrial city of
Hsinchu to factories around the world. As a result, within just a few
days, computer assembly plants in California, Texas, and elsewhere
began to shut down. The quake, in other words, had triggered the
world's first industrial crash.
Luckily the Taiwanese foundries where the semiconductors were
produced had suffered only minor damage and both production and
transportation of semiconductors were swiftly restored. But the quake
demonstrated in blunt fashion that at least with the manufacture of one
important type of semiconductor, production was no longer
compartmentalized in any real way. On the contrary, production was now
concentrated in a single place in the world, largely under the control
of a single corporation.
Looked at another way, all the industrial nations of the world, and
all the industrial corporations, had allowed all of this one
particularly ``egg'' to be put in a single basket.
In the years that followed, such extreme industrial concentration
swiftly went from being the exception to the rule. Under the trading
rules established in the mid-1990s by the Uruguay Round of the GATT,
industrial nations began to offshore more and more capacity to other
nations, in a process that at the time was called globalization. At the
same time industrial corporations that had long insisted on producing
in house the basic components that went into their finished products
began to outsource production to other companies.\1\
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\1\ https://prospect.org/features/detroit-went-bottom-up/.
Within a relatively short time, this combination of outsourcing and
offshoring resulted in the concentration of production of many other
vital goods in one or two places on the globe, much in the way the
production of certain semiconductors had been concentrated in Hsinchu.
Today we see such concentration in the production of many if not most
of the components that go into computers and other electronics, but
also in products ranging from pharmaceutical ingredients to Vitamin C
to piston rings to pesticides to silicon ingots. In many instances we
have also seen extreme concentration of the capacity to assemble the
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components into finished products.
Beginning 20 years ago, I and a few other students of the
international production system began to warn about a suite of dangers
posed by this revolutionary shift from a highly distributed and
compartmentalized system of production to a system marked by extreme
concentration of both capacity and of control. We warned that this
concentration of capacity was making the production system as a whole
ever more subject to catastrophic cascading failure, due to the loss of
access to one industrial region or even just one factory.
We also warned that this new concentration of capacity had created
the opportunity for nation-states or even factions within nation-states
to exercise various forms of coercion over other nations and individual
corporations that depended on the production that had been concentrated
within their borders.
We also warned that this extreme concentration of capacity and
monopolization of control would likely result in higher prices, lower
quality, and lower levels of overall production of many individual
goods and components, as the new monopolists became less focused on
serving their customers and more focused on extracting outsize profits.
And we warned that that concentration and monopolization threatened to
result in less innovation in key products and processes.
During these same years, however, many leading economists,
journalists, and policymakers began to defend the new concentration of
production as a more efficient way to manufacture products. Some also
defended this new concentration of production as a way to ensure that
nation-states did not go to war with one another. And thus the warnings
were ignored, for more than 20 years.
the origins of the transportation and distribution crisis
Today in America we also face a second, distinct crisis, closely
related to the first. This is the breakdown of the main transportation
systems on depend on for the shipment of both finished products and
components to factories and stores around the world. The origins of
this crisis lie in the same neoliberal intellectual revolution that
overthrew America's antimonopoly laws, back in the 1980s and 1990s.
For most of U.S. history, the Federal, State, and local governments
devoted great attention to ensuring the safety, efficiency,
reliability, and affordability of transportation and distribution
services. The goal was to ensure that individuals always got what they
needed when they needed it. And that companies would always be able to
get the supplies they needed and be able to deliver finished goods.
One result was a set of highly sophisticated systems to regulate
the private corporations that handled America's ocean shipping,
railroads, and air service. A second result was direct oversight of the
construction of highways, canals, inland waterways, ports, and
airports, and of such supporting infrastructures as pipelines and fuel
depots. It also included extensive and complex systems for regulation
of food marketing, processing, and warehousing.
In the 1980s and 1990s, however, U.S. regulators at all levels
retreated in often dramatic fashion from these long-time tasks. They
did so under pressure from the same laissez faire arguments used to
overthrow antimonopoly law; i.e., that it was more efficient just to
let the ``market'' regulate investment in transportation and the
behavior of transportation corporations.
The result, when combined with the revolutionary changes taking
place during these same years in the international system of
production, was a revolutionary reordering of every one of the
transportation and distribution systems that tie Americans to one
another and to the other nations of the world. This reordering played
out largely as a concentration of power and control over America's
transportation system in the hands of a few giant corporations and
foreign nation-states, and the concentration of physical risk through
the construction of super large ships, super long rail trains, and
super large ports and inland shipping facilities.
Beginning about 15 years ago, I and a few others began to warn
about the radical concentration of capacity and ownership in
steamships, railroads, warehousing, trucking, food processing, and
retail was undermining the stability of the systems we rely on for the
transportation, processing, storage, and distribution of many of the
goods and foods on which we depend. We said the concentration of
capacity and control was making our food and fuel systems ever more
subject to potentially catastrophic cascading failure.
Over these years, the United States and other nations also
experienced a number of events that demonstrated that the
``deregulation'' of transportation and distribution services was indeed
creating a variety of new threats to the security of the American
people and the proper functioning of the American economy as a whole.
These events include massive and long lasting disruptions to rail
service in the United States after the merger of the Union Pacific and
Southern Pacific railroads in 1996 and after CSX and Norfolk Southern
divvied up control of Conrail beginning in 1999. It also includes a
series of disruptions caused by strikes and lockouts of stevedores at
West Coast ports. And it includes the hyper consolidation of the
steamship industry itself into three closely interlocking cartels, in
ways that have made it far easier for these foreign-controlled
corporations to exploit the American public and U.S. businesses.
Perhaps the single most dramatic warning took place in late 2012
when Hurricane Sandy flooded automobile and rail tunnels running
between Manhattan and New Jersey and also disrupted fuel supplies to
the region as a whole. For centuries, warehouses and other storage
centers within the boundaries of the city had kept weeks of food within
near reach of the people it was destined to feed. Within 24 hours of
Sandy's passage, however, it became clear that this was no longer true.
The extreme consolidation of food service, food warehousing, and food
transportation over the preceding decades--combined with the
introduction of Just-In-Time practices in food warehousing--had
stripped out most of this buffer. The result was that New Yorkers had
become almost entirely dependent on an uninterrupted flow of trucks
from facilities located as much as 200 miles away, and now that flow
had been interrupted.\2\
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\2\ https://www.reuters.com/article/idUS417782027820131028.
Luckily, in the days after Sandy, New Yorkers did not panic and
major disruptions were averted. But in the decade since, no one at the
city, State, or Federal governments have taken a single step to address
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this danger.
On the contrary, over these same years, those few economists and
policymakers who looked at these issues largely defended the new
concentration of capacities, power, and control as a more efficient way
to serve American people.
systemic breakdowns and cascading effects
Since the beginning of the COVID-19 pandemic nearly 2 years ago,
both the production system and the transportation system have broken
down, in ways that have created widespread disruptions to our economy
and to our lives. Although distinct from one another, the breakdowns in
the production and transportation systems have, time and again, also
interacted in ways that greatly exacerbated the overall effects.
In the case of our production systems, the concentration of
manufacturing capacity for key inputs and final products has repeatedly
resulted in the breakdown of the ability to ensure that we have what we
need, when we need it. We saw this in dramatic fashion in the early
days of the Pandemic when there was a shocking lack of sufficient N95
masks and other personal protection equipment to protect even the most
vulnerable of front line workers. This despite the fact that Americans
had often first developed these products and had long led the world in
manufacturing them.
The lack of sufficient masks and other PPE resulted in a cascading
series of problems. It resulted in unnecessary deaths, including among
health-care workers. It resulted in widespread panic and a general
sense of dysfunction and confusion, as governments and institutions
fought over what supplies existed. It led to the unnecessary disruption
in the production of other vital goods. One dramatic example was the
widespread shutdowns of processing within America's highly concentrated
livestock industries--resulting in severe shortages of beef, chicken,
and pork at different times and in different places around the country.
Perhaps single best illustration of the far-reaching nature of the
threats posed by today's extreme concentration of industrial capacity
is in semiconductors.
Over the course of the 22 years since the earthquake in Taiwan
first revealed the extreme concentration of the capacity to produce
certain types of semiconductors, the problem has become only worse. As
was true in 1999, the world today remains just as vulnerable to
disruption by earthquake or other disaster, as there has been no effort
whatsoever to distribute capacity or ownership. Worse, monopolistic
manufacturers like Taiwan Semiconductor Manufacturing Corporation
(TSMC) have become increasingly tempted to exploit their chokepoint for
profit.
The result, which has played out across the industrial world over
the last 18 or so months, has been a slow but steady choking off of
production in an ever widening range of industries.
In the United States, the failure by TSMC to invest sufficient
funds to meet demand for its products has resulted in shortages of
goods ranging from appliances to farm machinery to medical devices. The
most far-reaching disruptions have take place within the automobile
industry, where the shortages of semiconductors has forced automakers
around the world to radically cut production. In the second quarter of
2021, for instance, Ford reported that it has lost about 50 percent of
planned production for the period.\3\ In October, Toyota reported that
third quarter production was down nearly 40 percent compared to a year
earlier,\4\ and Volkswagen reported that production had fallen 30
percent below projections.\5\ In recent days, the problems appear to
have spread into iPhone production.\6\
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\3\ https://techcrunch.com/2021/07/28/ford-expects-semiconductor-
rebound-new-vehicle-demand-to-increase-2021-profits/.
\4\ https://www.reuters.com/world/asia-pacific/global-supply-
constraints-deal-heavy-blow-japanese-firms-2021-10-28/.
\5\ https://www.reuters.com/business/autos-transportation/europes-
top-carmakers-count-cost-chip-crunch-2021-10-28/.
\6\ https://www.barrons.com/articles/apple-stock-chip-shortage-
iphones-51638543940.
Such massive shortfalls in production, in turn, trigger a variety
of other harms across the industrial system. These include fewer jobs
and smaller paychecks at vehicle manufacturers; higher prices for new
cars, used cars, and rental cars; less work for suppliers and dealers
and their employees, and more pollution as individuals are unable to
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replace older cars.
Meanwhile, a largely separate set of events has triggered massive
disruptions within the transportation and distribution systems on which
we rely to keep our shelves stocked and our factories running. This
includes the disruption to shipping through the Suez Canal earlier this
year when the container ship Everclear got stuck. And it includes the
backing up of container shipping across the Pacific when the Union
Pacific railroad ran out of space to offload containers at its yards in
Chicago.
Here too the result of extreme concentration of capacity and
control was a dangerous series of secondary effects, including empty
shelves in stores, factories that have been slowed or even shut down,
higher prices, and fewer jobs.
competition policy as industrial policy
Many people contend that America's supply chain crisis is nothing
more than a temporary effect of changes in consumption during the
pandemic, with people spending less on restaurants and more on the
purchase of manufactured goods and building supplies. The economist
Paul Krugman, for instance, recently made the case that the supply
chain crisis is the result of nothing more than a temporary surge in
demand for particular goods, and that the problem will soon ease. Or as
he put it, ``Why the skew? It's not a mystery: We've been afraid to
indulge in many of our usual experiences and bought stuff to
compensate.''\7\
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\7\ https://www.nytimes.com/2021/10/19/opinion/vaccine-mandates-us-
ports-supply-chain.
html.
There is certainly some truth to the idea that the COVID-19
pandemic has resulted in large changes to what we buy and when. But to
contend that America's twin supply chain crises will simply work
themselves out is embarrassingly naive. In the case of both the
production system and the transportation and distribution system, we
see overwhelming evidence that the problems derive foremost from the
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concentration both of physical capacity and of control.
The monopolists who control these systems have stripped out all the
slack, and then some. As a result, when something goes awry, the
effects are swiftly amplified and transmitted across the economy as a
whole.
Our first task in addressing America's industrial crisis is,
therefore, to recognize that we are dealing with two separate but
interlinking problems. Our second task is to identify what is common to
both the choke pointing of production and transportation, and what
makes the two problems unique.
What is common is that both problems derive from the same radical
changes in thinking about how to regulate the U.S. and international
political economies, beginning in the early 1980s. The Neoliberals of
the 1980s and the 1990s aimed foremost at concentrating control and
profits in the hands of the few. And they pursued this same basic goal
in both the production and transportation systems.
What separates the two problems from one another are the particular
regulatory regimes that neoliberals altered to achieve their ends, and
the particular regulatory regimes we must now alter if we are to solve
the problems.
In the case of the production system, the revolutionary
restructuring was the result of radical changes to four distinct
regulatory regimes--antitrust, trade, corporate governance, and
finance. It was the combination of these four that cleared the way for
the extreme concentration of production in one or a few places that we
see today.
A recent article in the Washington Monthly by Open Markets reporter
Garphil Julien provides a good description of how these four changes
combined in ways that resulted in the severe degradation of the U.S.
semiconductor industry. Julien reports, for instance, how Intel
executives extracted almost $180 billion from the corporation--in the
form of stock buybacks and dividends--between 2001 and 2020.\8\
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\8\ https://washingtonmonthly.com/2021/12/01/to-fix-the-supply-
chain-mess-take-on-wall-street/.
In the case of the transportation and distribution systems that
serve the United States, today's problems derive mainly from radical
changes in how we regulate these essential networks, as the Neoliberal
era changes aimed to achieve what, in essence, was a de facto
privatization of industries that had been largely governed to serve the
public interest. The problems that have resulted were then made worse
by the radical relaxation of antitrust enforcement in retailing and
food processing, which led to an ever more extreme concentration of
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reach, power, and control in corporations such as Walmart and Tysons.
A recent article in the Washington Monthly by Open Markets policy
director Phillip Longman provides a good example of how this process
played out in the U.S. railroad industry. As Longman details, railroad
executives have cut services dramatically over the last decade.\9\ And
as Martin Oberman, chair of the Surface Transportation Board made clear
recently, during this same period these railroads extracted more than
$190 billion in stock buybacks and dividends from the railroads, much
of which should have been reinvested in maintaining and improving
service.\10\
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\9\ https://washingtonmonthly.com/magazine/november-december-2021/
amtrak-joe-vs-the-modern-robber-barons/.
\10\ https://ajot.com/insights/full/ai-stbs-oberman-says-u.s-
railroads-reduced-service-raised-rates-and-derived-191-billion-in-
dividends-and-buybacks-since-2010.
Another good example of who the deregulation of the transportation
and distribution systems was designed to serve is the recent surge in
profits among members of steamship cartel. According to the maritime
consultancy Drewry, container lines are on course to earn as much as
$100 billion in profits this year, which is 15 times their profits in
2019.\11\ What looks like a crisis to the American people looks like a
fantastic opportunity to those who engineered the problem.
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\11\ https://maritimemag.com/en/drewry-forecasts-80-billion-profit-
in-2021-for-container-lines/.
Solving the monopoly crisis within the production system that
serves the United States will therefore require integrating antitrust
with trade, corporate governance, and financial policy. Solving the
monopoly crisis within the transportation and distribution industries,
meanwhile, will require radical changes to how the United States
regulates the steamship, railroad, warehousing, and distribution
industries, as well as far more aggressive antitrust enforcement in
retailing and food processing to break dangerous concentrations of
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capacity and control.
Perhaps most important is to recognize that there are no easy
fixes, that at least some of the disruptions we are experiencing today
will continue for years. Indeed, it is vital to approach this challenge
as a long-term project that will require the government to develop a
coherent and sophisticated industrial strategy that aims to rebuild the
capacity, resiliency, skills, and innovation systems within such
industries as semiconductors and railroads, and that then carefully
protects such investments from being appropriated by Wall Street
raiders.
on the precipice--after a 20-year failure to act
Today's twin supply chain crises were easily foreseeable 15 even 20
years ago. Time and again the U.S. Government was warned. Time and
again the U.S. Government failed to take action. It is vital that we
view the disruptions of the last 2 years as our last warning, and move
immediately to take comprehensive and radical action to restructure
both how we make the goods we need, and how we move them from factory
to home.
Because as bad as the present set of problems is, we can imagine
far worse crises. This includes the sudden and catastrophic seizing up
of the system as a whole. And it includes attempts by foreign powers--
China most likely--to exploit these dependencies and fragilities in
ways that allow these nations to concentrate power over individual
American businesses and over the American people as a whole.
This is an issue I have lived, in a very personal way, for 20
years.
In June 2002, I published a long essay in Harper's titled ``Unmade
in America: The True Cost of a Global Assembly Line.'' In that essay I
detailed how the September 1999 earthquake in Taiwan demonstrated how
the extreme and growing concentration of capacity within the
international system had made our international assembly lines subject
to catastrophic collapse and was fast giving the government in China
dangerous levels of control over the production of goods vital to the
security of the American people and the Nation as a whole.
That article immediately caught the attention of the U.S. national
security community, and was cited extensively in the first annual
report of the U.S.-China Security Review Commission, released in July
2002. The Harper's article also changed perceptions in the business
community, when Yale School of Management Dean Jeffrey Garten, writing
in BusinessWeek, called on the Bush administration to investigate the
dangers I described.
In 2005 I expanded my reporting on the twin supply chain crises
into a mainstream book for Doubleday, titled ``End of the Line: The
Rise and Coming Fall of the Global Corporation.'' That book was widely
debated, including in the Financial Times and The Wall Street Journal,
and in a special section of The Economist. It also led to direct
conversations with high-level officials within the Treasury and
Commerce Departments; the CIA; the Department of Defense; the White
House; the U.K. Ministry of Defence; Japan's Ministry of Economy,
Trade, and Industry; with multiple leading members of Congress; and
with think tank scholars and academics around the world.
During this period, my own warnings were supplemented by those of
other close students of the industrial system, including Intel's then
CEO Andy Grove, Xilinx Semiconductor CEO Willem Roelandts, and the
epidemiologist Michael Osterholm.
Over the years, these initial warnings were repeatedly borne out by
real world events. This includes disruptions caused by the shutdown of
borders after September 11th, the SARS epidemic, the explosion of a
volcano in Iceland, the great financial crash of 2008, and most
dramatically by the massive Tohoku earthquake in northern Japan in
March 2011.
During these years, I further developed my own analysis of the
origins and nature of the problem, in my 2010 book Cornered: The New
Monopoly Capitalism and the Economics of Destruction, and in a series
of articles for mainstream publications and specialized journals.
Recently my team at the Open Markets Institute cohosted an event with
the Organisation for Economic Co-operation and Development to discuss
the early lessons of the disruptions caused by the early stages of
COVID in 2020.
Yet until the Biden administration, every U.S. Government of the
last 2 decades has failed to develop a coherent plan to address these
risks. As a result, 5 years after the Trump administration first began
to impose tariffs on Chinese and other imports and embargoed shipments
of key components to Huawei and other Chinese corporations, the
concentration of capacity in a few places continues to worsen.
Despite all the headlines about America ``decoupling'' from China,
the fact is that U.S. corporations continue to shift more key capacity
into China than out of China. This is true of leading manufacturers
such as Apple.\12\ And it is true of the wider array of manufacturers
generally, as Nick Lardy of the Peterson Institute made clear
recently.\13\
---------------------------------------------------------------------------
\12\ https://www.theguardian.com/technology/2021/jun/03/apple-uses-
more-suppliers-from-china-than-taiwan-for-first-time-data-shows.
\13\ https://www.piie.com/blogs/china-economic-watch/foreign-
investments-china-are-accelerating-despite-global-economic.
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the opportunity
Last summer, I published an article in Foreign Affairs magazine,
titled ``Antimonopoly Power: The Global Fight Against Corporate
Concentration.''\14\
---------------------------------------------------------------------------
\14\ https://www.foreignaffairs.com/articles/world/2021-06-22/
antimonopoly-power.
In that piece I describe how to use competition policy principles
to guide the construction of an entirely new system of production for
the United States and our industrial and democratic allies. I described
how we can construct international industrial and transportation
systems that distribute all risk and all power in ways that ensure that
no natural or political disaster can ever again break the supply of the
goods and services we need to live safely and happily here in America,
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and cooperatively with the other nations of the world.
I am sure there are other ways to achieve these same goals.
I look forward to working with Senator Warren and the other members
of this subcommittee to do so swiftly. And to do so in ways that
reinforce our democracy, liberty, and community here in America.
Thank you for this opportunity. I look forward to working with you
in the days to come.
additional reading
End of the Line: The Rise and Coming Fall of the Global
Corporation, Barry Lynn, Doubleday, New York, August 2005.
Cornered: The New Monopoly Capitalism and the Economics of
Destruction, Barry Lynn, Wiley, 2010.
``Built to Break: The International System of Bottlenecks in the
Era of Monopoly,'' Barry Lynn, Challenge Magazine, March/April 2011.
``Systemic Supply Chain Risk,'' Yossi Sheffi and Barry C. Lynn,
The Bridge, Fall 2014. The first article in which an engineer
recognized the systemic nature of international production arrangements
and the potential for cascading crashes.
``War, Trade, and Utopia,'' Barry Lynn, The National Interest,
Winter 2006. A straightforward discussion of the politics of industrial
interdependence and dependence in a system marked by extreme
concentrations of industrial capacity.
``The New China Syndrome: American Business Meets Its New
Master,'' Barry Lynn, Harper's, November 2015.
``Unmade in America: The True Cost of a Global Supply Chain,''
Barry Lynn, Harper's, June 2002.
``How the United States marched the semiconductor industry into
its trade war with China,'' Chad P. Bown, Peterson Institute for
International Economics, December 2020.
``How Detroit Went Bottom-Up: Outsourcing Has Made the
Automotive Industry So Co-Dependent and Fragile that One Company's
Downfall Is Every Company's Concern,'' Barry Lynn, The American
Prospect, September 2009.
``Amtrak Joe vs. the Modern Robber Barons,'' Phillip Longman,
Washington Monthly, November 2021.
``To Fix the Supply Chain Mess, Take on Wall Street,'' Garphil
Julien, Washington Monthly, December 2021.
``New York's Looming Food Disaster,'' Sidhartha Mahanta,
Atlantic City Lab, October 21, 2013.
``A Year After Sandy, Food and Fuel Supplies Are as Vulnerable
as Ever,'' Sidhartha Mahanta, Reuters, October 28, 2013.
``The Old-School Answer to Global Trade,'' Beth Baltzan, The
Washington Monthly, April 2019.
``Preparing for the Next Pandemic,'' Michael T. Osterholm,
Foreign Affairs, July/August 2005.
``The Fragility That Threatens,'' Barry Lynn, Financial Times,
October 17, 2005.
______
Questions Submitted for the Record to Barry C. Lynn
Questions Submitted by Hon. Sheldon Whitehouse
Question. Big tech companies have been among the most aggressive
tax dodgers, pioneering offshore tax tricks with names like the
``double Irish'' and ``Dutch sandwich.''
What is the relationship between market power and large-scale tax
avoidance?
Answer. Bigness equals the ability to reach into more locations and
to play those locations off one another. Bigness equals more
complexity, hence more ways to hide or disguise profits. Bigness equals
greater ability to force governments to bend to your will.
Question. Many big tech companies--with the help of armies of
lawyers and accountants--have exploited our tax laws to avoid paying
their fair share. Smaller domestic companies that cannot avail
themselves of these tax avoidance strategies may face a proportionally
larger tax bill.
How might the abuse of tax loopholes by big tech companies put
smaller domestic companies at a competitive disadvantage?
Answer. Big corporations already have many huge advantages over
smaller businesses. They have more cash on hand to weather hard times.
It's easier for them to get credit. They pay less for their supplies.
They control more information. They have more power over government at
the local, State, and Federal levels. For independent businesses in
America, having to pay higher taxes relative to income is but one more
disadvantage. But sometimes it is the factor that finally breaks the
back of those enterprises.
Question. Before the passage of the Trump tax law, a handful of
giant tech companies collectively stashed hundreds of billions in
profits in offshore tax havens. The Trump law rewarded this offshore
tax avoidance by allowing companies to pay less than half of the tax
rate they would have previously owed on those profits.
Instead of using the Trump tax windfall to invest in their workers,
their businesses, or research and development, many businesses rewarded
wealthy shareholders with massive stock buybacks. One study found that,
in the year the law took effect, corporations spent 154 times as much
to buy back stock as they spent on worker bonuses and wage hikes.
How might market concentration and monopoly profits have
contributed to the decision by companies to choose stock buybacks over
productive investments in their businesses and workers?
Answer. In a competitive market, companies have to deliver. If not,
they lose their customers to a rival who offers a better good or
service. This means that in competitive markets, most companies will
invest more in their factories and stores, in their workers, and in
innovation. But Monopoly means never having to say you're sorry, no
matter how badly you fail. Monopolists, in other words, don't have to
deliver because their customers can't leave them for a rival. This
frees monopolists from the need to invest in their factories and
stores, in their workers, and in innovation. Instead, monopolists can
charge their customers monopoly profits for bad service, then turn all
that money over to financiers in the form of dividends and stock
buybacks.
Question. The Build Back Better Act includes critical reforms to
level the playing field for domestic businesses by reversing incentives
from the Trump tax law to shift profits overseas.
How might other aspects of our current tax laws encourage market
concentration?
Answer. Over the years, Americans have devised many tax strategies
to weaken or break the incentive to create a monopoly. The first such
strategy was to tax the estates of the wealthy at a higher rate than
smaller estates, and to require families to divide inheritances equally
among all their children. Another simple approach is to tax large
corporations at higher level than smaller corporations in the same line
of business. In recent years, however, many of the taxation strategies
designed to level the playing field for smaller companies have been
overturned, making it easier for monopolists to pull ahead of their
independent rivals. This in turn increases the incentive to make and
keep a monopoly.
______
Prepared Statement of Hon. Karl A. Racine,
Attorney General, District of Columbia
Chairwoman Warren, Ranking Member Cassidy, and distinguished
members of the subcommittee, thank you for the opportunity to testify
before you today to discuss how my office is enforcing antitrust laws
and stopping anti-competitive behavior from tech giants.
As the first independently elected Attorney General of the District
of Columbia--and also the outgoing president of the bipartisan National
Association of Attorneys General--part of my job is to bring creative
and novel lawsuits in the public interest.
That is why we were the first Attorney General office to bring an
antitrust lawsuit against Amazon alleging that it is illegally
controlling prices through restrictive agreements with third-party
sellers that sell on Amazon's marketplace and wholesalers that feed
Amazon's retail business.
Amazon claims that everything it does in business is about the
consumer. Well, even just a cursory look--and certainly our
investigation--reveals otherwise. Amazon is focused on one thing only:
its bottom line, even at the expense of consumers--like the ones it
claims to care so much about. In fact, Amazon is costing all of us more
money by controlling prices across the entire market.
As you have said before, Senator Warren--I too, am a capitalist. A
fair profit is more than fair. A great profit is more than fair. And
people should get paid for entrepreneurship and hard work. But when
companies use their market power to reduce competition and take
advantage of consumers under the guise of creating efficiencies,
regulators must step in.
Right now, many families are hurting. They're trying to keep a roof
over their heads, food on the table, and clothes on their back. And if
they're lucky, maybe afford a few Christmas presents. But Amazon's
pricing policies contribute to making that unattainable.
Now, let me give you a little bit of background on how we decided
Amazon isn't acting fairly, why we're suing them, and why consumers
deserve better.
Back in 2019, Amazon was facing pressure from Congress and
regulators over anticompetitive behavior. To put regulators at ease,
Amazon claimed it removed a clause in its agreements with third-party
sellers known as its Price Parity Provision (or PPP)--that prohibited
third-party sellers from offering their goods for lower prices or on
better terms on competing online marketplaces, including the third-
party sellers' own websites.
Spoiler alert: Amazon did a bait-and-switch by replacing the Price
Parity Provision with something nearly identical. Amazon called it the
Fair Pricing Policy (or FPP), which was incorporated into Amazon's
agreements with third-party sellers.
The Fair Pricing Policy, like the original Price Parity Provision,
effectively prohibited third-party sellers from offering their products
for lower prices or under better terms on a competing online platform--
including their own--by allowing Amazon to impose sanctions on those
third-party sellers that did so.
Let me give an example of how this works. If I'm a third-party
seller selling headphones and I want to list my product on Amazon, I
must do the following: sell the headphones at a price on the Amazon
marketplace that allows me to still earn a reasonable profit after
incorporating Amazon's high fees and commissions. Then, I'm barred from
selling my headphones on any other platform, including my own website,
at a lower price, even though I could earn the same profit by doing so.
And if I do, I--the third-party seller--could get kicked off of Amazon
or have other significant sanctions imposed on me.
This leaves third-party sellers with two choices. They can sell
their product on Amazon under these restrictive terms. Or they can only
offer their product on other marketplaces. But because Amazon controls
between 50-70 percent of all online sales, third-party sellers have
little choice but to accept Amazon's terms.
These agreements impose an artificially high price floor across the
online retail marketplace. By charging such high fees--as much as 40
percent of the product price--Amazon is inflating the prices for
consumers on its platform and competing platforms. For example, if I'm
selling a pair of headphones for $100 on Amazon, up to $40 dollars of
that price is to cover Amazon's fees. Plain and simple, this is
inflation.
And consumers lose in this scheme. As a result of Amazon's
agreements, consumers think they're getting the lowest prices on
Amazon's marketplace because they don't see any lower prices on other
online marketplaces. But, absent these agreements, third-party sellers
could offer their products for lower prices on other online
marketplaces.
And Amazon isn't just doing this with third-party sellers, they're
doing it with wholesalers as well--so we added that to our lawsuit too.
First-party sellers sell products to Amazon for Amazon to resell at
retail to consumers. And we've found that Amazon requires wholesalers
to guarantee a certain minimum profit to Amazon on those products. This
agreement is called the Minimum Margin Agreement (MMA).
This is how it works: if Amazon lowers its retail prices to match
or beat a lower price on a competing online marketplace, the
wholesalers are forced to pay Amazon the difference between the agreed-
upon profit and what Amazon realizes with the lowered retail price.
This can lead to wholesalers owing Amazon millions of dollars.
To avoid triggering this agreement, wholesalers have increased the
prices to and on competing online marketplaces. The Minimum Margin
Agreement, like the Price Parity Provision and the Fair Pricing Policy,
reduce competing online marketplaces' abilities to compete with
Amazon's marketplace on price and result in consumers paying
artificially high prices.
And even outside of this litigation, small businesses have
complained that Amazon has stolen their business ideas and passed them
off as Amazon's own. All of this can stunt innovation.
With this suit, we hope the Court will put a stop to Amazon's use
of illegal price restraints. And we hope to recover damages and
penalties to deter similar conduct by Amazon and other companies in the
District as well as across the country.
We also hope that our lawsuit will encourage other Attorneys
General in other States to find creative and impactful ways to rein in
the abuses of big tech and stand up for consumers.
Thank you, and I look forward to your questions.
______
Follow-Up Written Statement by Hon. Karl A. Racine,
Attorney General, District of Columbia
Chairwoman Warren, Ranking Member Cassidy, and distinguished
members of the subcommittee, thank you for the opportunity to testify
before you on December 7th to discuss how my office is enforcing
antitrust laws and stopping anticompetitive behavior from tech giants.
My office was the first Attorney General office in the country to
bring an antitrust lawsuit against Amazon, alleging that it is
illegally controlling prices through restrictive agreements with third-
party sellers that sell on Amazon's marketplace and wholesalers that
feed Amazon's retail business.
Below is a quick recap of why my office brought an antitrust
lawsuit and why it's important for consumers:
1. As a result of these agreements (the Price Parity
Provision, the Fair Pricing Policy and the Minimum Margin
Agreement), third-party sellers and wholesalers cannot offer
their products for lower prices on a competing online
platform--including their own--or else Amazon will impose
sanctions on the seller. These agreements are artificially
inflating prices, stifling innovation, and harming consumers.
2. Because Amazon controls between 50 to 70 percent of all
online retail sales, third-party sellers and wholesalers have
little choice but to offer their products on and to Amazon and
accept their anticompetitive terms.
3. We are asking the court to put a stop to Amazon's use of
illegal price restraints and recover damages and penalties to
deter similar conduct in the future.
In addition, I respectfully raise one more issue for this
subcommittee's awareness. According to an April 2020 article from The
Wall Street Journal (see below), Amazon employees have used data about
independent sellers on the company's platform to develop competing
products--a practice that is at odds with Amazon's stated policies.
To be sure, our office has fielded complaints from small businesses
about this insidious business practice. For example, a company called
Snap + Style began as an app that allows people to snap a picture of an
article of clothing and then get advice on additional clothes that
would match the photographed wardrobe item. The company contracted with
Amazon to sell its services on Amazon's ubiquitous Internet mall. After
experiencing success on the Amazon cyber-mall, Snap + Style faced
extraordinary competition from a company with a nearly identical
technology, and eventually saw its early business success dry up. That
competitor was the largest storefront on the Internet itself--Amazon.
Yes, Amazon brazenly started competing against its client by
effectively inverting the client's name from Snap + Style to its
brand--StyleSnap.
Monopoly and economic principles 101 tell us that such power
crushes creativity, entrepreneurship, and small business. More examples
of this type of conduct are stated in the previously referenced Wall
Street Journal article below.
______
From The Wall Street Journal, April 23, 2020
Amazon Scooped Up Data From Its Own Sellers
to Launch Competing Products
By Dana Mattioli
Amazon.com Inc. employees have used data about independent sellers on
the company's platform to develop competing products, a practice at
odds with the company's stated policies.
The online retailing giant has long asserted, including to Congress,
that when it makes and sells its own products, it doesn't use
information it collects from the site's individual third-party
sellers--data those sellers view as proprietary.
Yet interviews with more than 20 former employees of Amazon's private-
label business and documents reviewed by The Wall Street Journal reveal
that employees did just that. Such information can help Amazon decide
how to price an item, which features to copy or whether to enter a
product segment based on its earning potential, according to people
familiar with the practice, including a current employee and some
former employees who participated in it.
In one instance, Amazon employees accessed documents and data about a
best-
selling car-trunk organizer sold by a third-party vendor. The
information included total sales, how much the vendor paid Amazon for
marketing and shipping, and how much Amazon made on each sale. Amazon's
private-label arm later introduced its own car-trunk organizers.
``Like other retailers, we look at sales and store data to provide our
customers with the best possible experience,'' Amazon said in a written
statement. ``However, we strictly prohibit our employees from using
nonpublic, seller-specific data to determine which private label
products to launch.''
Amazon said employees using such data to inform private-label decisions
in the way the Journal described would violate its policies, and that
the company has launched an internal investigation.
Nate Sutton, an Amazon associate general counsel, told Congress in
July:\1\ ``We don't use individual seller data directly to compete''
with businesses on the company's platform.
---------------------------------------------------------------------------
\1\ https://www.wsj.com/articles/congress-puts-big-tech-in-
crosshairs-11563311754?mod=article
_inline.
It is a common business strategy for grocery chains, drugstores and
other retailers to make and sell their own products to compete with
brand names.\2\ Such private-label items typically offer retailers
higher profit margins than either well-known brands or wholesale items.
While all retailers with their own brands use data to some extent to
inform their product decisions, they have far less at their disposal
than Amazon, according to executives of private-label businesses, given
Amazon's enormous third-party marketplace.
---------------------------------------------------------------------------
\2\ https://www.wsj.com/articles/how-kirkland-signature-became-one-
of-costcos-biggest-success-stories-1505041202?mod=article_inline.
The coronavirus pandemic has enabled Amazon to position itself as a
national resource capable of delivering needed goods to Americans
sheltering in place,\3\ garnering it goodwill in Washington. The
company continues, however, to face regulatory inquiries into its
practices that predate the crisis.
---------------------------------------------------------------------------
\3\ https://www.wsj.com/articles/amazon-to-hire-100-000-warehouse-
and-delivery-workers-amid-coronavirus-shutdowns-
11584387833?mod=article_inline.
Last year, the European Union's top antitrust enforcer said that it was
investigating whether Amazon is abusing its dual role as a seller of
its own products and a marketplace operator \4\ and whether the company
is gaining a competitive advantage from data it gathers on third-party
sellers.
---------------------------------------------------------------------------
\4\ https://www.wsj.com/articles/european-union-probing-amazon-s-
treatment-of-merchants-using-its-platform-
1537367673?mod=article_inline.
The Justice Department, Federal Trade Commission and Congress also are
investigating large technology companies,\5\ including Amazon, on
antitrust matters. Amazon is facing scrutiny over whether it unfairly
uses its size and platform against competitors and other sellers on its
site. Amazon disputes that it abuses its power and size, noting that it
accounts for a small proportion of overall U.S. retail sales, and that
the use of private-label brands is common in retail.
---------------------------------------------------------------------------
\5\ https://www.wsj.com/articles/justice-department-to-open-broad-
new-antitrust-review-of-big-tech-companies-
11563914235?mod=article_inline.
Amazon has said it has restrictions in place to keep its private-label
executives from accessing data on specific sellers in its marketplace,
where millions of businesses from around the globe offer their goods.
In interviews, former employees and a current one said those rules
weren't uniformly enforced. Employees found ways around them, according
to some former employees, who said using such data was a common
---------------------------------------------------------------------------
practice that was discussed openly in meetings they attended.
``We knew we shouldn't,'' said one former employee who accessed the
data and described a pattern of using it to launch and benefit Amazon-
products. ``But at the same time, we are making Amazon-branded
products, and we want them to sell.''
Some executives had access to data containing proprietary information
that they used to research best-selling items they might want to
compete against, including on individual sellers on Amazon's website.
If access was restricted, managers sometimes would ask an Amazon
business analyst to create reports featuring the information, according
to former workers, including one who called the practice ``going over
the fence.'' In other cases, supposedly aggregated data was derived
exclusively or almost entirely from one seller, former employees said.
Amazon draws a distinction between the data of an individual third-
party seller and what it calls aggregated data, which it defines as the
data of products with two or more sellers. Because of the size of
Amazon's marketplace, most products have many sellers. Viewing the data
of aproduct with a number of sellers wouldn't give it insight into
proprietary seller information because the figures would show lots of
different seller behavior.
Amazon said that if there is only one seller of an item, and Amazon is
selling returned or damaged versions of that item through its Amazon
Warehouse Deals clearance account, Amazon considers that ``aggregate''
data--and hence is permissible for its employees to review.
Amazon's private-label business encompasses more than 45 brands with
some 243,000 products, from AmazonBasics batteries to Stone & Beam
furniture. Amazon says those brands account for 1% of its $158 billion
in annual retail sales, not counting Amazon's devices such as its Echo
speakers, Kindle e-readers and Ring doorbell cameras.
Former executives said they were told frequently by management that
Amazon brands should make up more than 10% of retail sales by 2022.
Managers of different private-label product categories have been told
to create $1 billion businesses for their segments, they said.
Amazon has a history of difficult relationships with sellers,
especially those that choose not to sell their products on its site.\6\
While some of the issues have involved counterfeit goods or frustration
about lack of pricing control on their products, another concern for
some is that Amazon would use data they accumulate to copy the products
and siphon sales.
---------------------------------------------------------------------------
\6\ https://www.wsj.com/articles/nike-to-stop-selling-directly-to-
amazon-11573615633?mod=
article_inline.
Because 39% of U.S. online shopping occurs on Amazon, according to
research firm eMarketer, many brands feel they can't afford not to sell
on the platform. In a recent survey from e-commerce analytics firm
Jungle Scout, more than half of over 1,000 Amazon Marketplace sellers
said Amazon sells its own products that directly compete with the
---------------------------------------------------------------------------
seller's products.
``We had a brand say they wanted to sell exclusively on Walmart,\7\ and
when we proposed Amazon, they said they don't want to risk private-
label copying of their product,'' said Kunal Chopra, the CEO of etailz,
which helps vendors sell across platforms.
---------------------------------------------------------------------------
\7\ https://www.wsj.com/market-data/quotes/WMT.
Early last year, an Amazon private-label employee working on new
products accessed a detailed sales report on a car-trunk organizer
manufactured by a third-party seller called Fortem, a four-person,
Brooklyn-based company run by two 29-year-olds. That employee showed
the report to the Journal. More than 33,000 units of the organizer were
sold during the 12 months covered in the report, according to a copy
reviewed by the Journal. The report has 25 columns of detailed
---------------------------------------------------------------------------
information about Fortem's sales and expenses.
Fortem accounted for 99.95% of the total sales on Amazon for the trunk
organizer for the period the documents cover, the data indicate. Oleg
Maslakou, one of Fortem's founders, said ``no one is selling the Fortem
organizer besides us and Amazon Warehouse Deals,'' a resale clearance
account of returned or damaged goods from Fortem. ``You hit us with a
big surprise,'' he said after reviewing the data Amazon's private-label
employee had on his brand.
Amazon said that there was one other seller of Fortem's trunk organizer
during the period of the data the Journal reviewed. It wouldn't comment
on how many days that seller was active or how many sales it made. The
Journal reached the other seller of the Fortem trunk organizer, who
said for the period of time, he sold only 17 units of the item.
Fortem's own sales and a slight number of its own damaged goods and
returns sold through Amazon's Warehouse Deals account accounted for
nearly 100% of the more than 33,000 sales of the unit during the
period, the data show.
The data in the report reviewed by the Journal showed the product's
average selling price during the preceding 12 months was about $25,
that Fortem had sold more than $800,000 worth in the period specified,
and that each item generated nearly $4 in profit for Amazon. The report
also detailed how much Fortem spent on advertising per unit and the
cost to ship each trunk organizer, according to the documents and
former Amazon employees who explained their contents.
``We would work backwards in terms of the pricing,'' said one of the
people who used to obtain third-party data. By knowing Amazon's profit-
per-unit on the third-party item, they could ensure that prospective
manufacturers could deliver a higher margin on an Amazon-branded
competitor product before committing to it, said another person who
accessed the data.
Fortem launched its trunk organizer on Amazon's Marketplace in March
2016, and it eventually became the number one seller in the category on
Amazon. In October 2019, Amazon launched three trunk organizers similar
to Fortem's under its AmazonBasics private-label brand.
The Fortem trunk organizer detailed in the documents is still a
bestseller in the category, Amazon noted. Fortem spends as much as
$60,000 a month on Amazon advertisements for its items to come up at
the top of searches, said Mr. Maslakou.
Pulling data on competitors, even individual sellers, was ``standard
operating procedure'' when making products such as electronics,
suitcases, sporting goods or other lines, said the person who shared
the Fortem documentation. Such reports were pulled before Amazon's
private label decided to enter a product line, the person said.
``Customers' shopping behavior in our store is just one of many inputs
to Amazon's private-label strategy,'' said Amazon. Other factors
include fashion and shopping trends and suggestions from manufacturers,
it said.
Amazon employees also accessed sales data from Austin-based Upper
Echelon Products, according to the data reviewed by the Journal. Its
office-chair seat cushion is a popular seller on Amazon. An Amazon
private-label employee pulled a year's worth of Upper Echelon data when
researching development of an Amazon-branded seat cushion, according to
the person who shared the data.
An Amazon employee pulled the data early last year. Last September,
AmazonBasics launched its own version.
After the Journal disclosed the contents of the sales report to Travis
Killian, CEO of seven-person Upper Echelon, he said: ``It's not a
comfortable feeling knowing that they have people internally
specifically looking at us to compete with us.''
Amazon said there were more than two dozen sellers of the Upper Echelon
seat cushion during the period, but declined to specify how many units
those sellers sold. Mr. Killian said if that were the case, he isn't
sure how the private-label data on his seller account provided to the
Journal matched his internal sales data so perfectly.
In traditional retail, a company such as Target \8\ Corp. or Kroger \9\
Co. places a weekly purchase order with the brands on its shelves. It
subsequently owns the inventory, setting the price and discounts.
---------------------------------------------------------------------------
\8\ https://www.wsj.com/market-data/quotes/TGT.
\9\ https://www.wsj.com/market-data/quotes/KR.
Because of the limitations of shelf space, traditional retailers stock
far fewer products than Amazon's hundreds millions of items. Typically,
they create private-label products to compete in generic categories
such as paper towels, rather than copycat versions of items created by
smaller entrepreneurs, private-label executives said. Amazon said the
vast majority of its private-label sales are staples such as batteries
---------------------------------------------------------------------------
and baby wipes.
The majority of Amazon's sales--58%--come through third-party sellers,
primarily small and medium-size firms that list their items for sale on
Amazon's Marketplace platform. (Amazon also buys items directly from
manufacturers and sells them directly in ``first-party'' sales.)
Amazon started making its own products in 2007 with its Kindle e-
reader, and it has steadily added new categories and other private-
label brand names. Some of its private-label products,\10\ such as
batteries, have been home runs. Investment firm SunTrust Robinson
Humphrey estimates Amazon is on track to post $31 billion in private-
label sales by 2022, or nearly double retailer Nordstrom \11\ Inc.'s
2019 revenues.
---------------------------------------------------------------------------
\10\ https://www.wsj.com/articles/amazon-tests-pop-up-feature-
touting-its-lower-priced-products-11552655614?mod=article_inline.
\11\ https://www.wsj.com/market-data/quotes/JWN.
______
Prepared Statement of Samm Sacks, Senior Fellow, Yale Law School Paul
Tsai China Center; and Cybersecurity Policy Fellow, New America
Chair Warren, Ranking Member Cassidy, and members of the
subcommittee, thank you for the opportunity to testify today.
I am a senior fellow at Yale Law School's Paul Tsai China Center
and a cybersecurity policy fellow at New America. I have worked as an
analyst of Chinese data and technology policies for the last decade, in
the U.S. national security community, and in the private sector. I also
advise corporate clients on China's technology policies.
Today I will focus my testimony on data security in the context of
the U.S.-China relationship and global cross-border data flows.
While my expertise focuses on China--and I will first speak
specifically about the Chinese Government's approach to acquiring and
extracting value from data--my view is that the most effective
solutions for the United States require a more comprehensive approach
to regulating data security and privacy. Some of these challenges
require tools that are specific to risks posed by China, but these
issues are bigger than China. Setting basic standards on what data can
be collected and retained by all companies will help protect U.S.
personal and other sensitive data, regardless of whether the risk comes
from a state-sponsored hacker, a data broker, or a private company
transferring the data to China. U.S. lawmakers have an opportunity to
address transnational security threats while also advancing a more
secure, ethical, and democratic global Internet in its own right.
china's national data strategy
1. The Chinese Government has embarked on an ambitious national
data strategy with the goal of acquiring, controlling, and extracting
value from large volumes of data.
In addition to China's two landmark laws that took effect this fall
(the Data Security Law and Personal Information Protection Law \1\),
Beijing has elevated the concept of data as an economic and strategic
asset,\2\ centralizing state power over information flows within and
outside of China's borders:
---------------------------------------------------------------------------
\1\ For translation and analysis of the Data Security Law, Personal
Information Protection Law, and related regulations and directives,
please see the Stanford Cyber Policy Center's DigiChina Project,
https://digichina.stanford.edu/.
\2\ The concept of data as a strategic resource is not new in
China. It appears in the Big Data White Papers (2014, 2016, 2018)
published by an influential think tank under the Ministry of Industry
Information Technology (MIIT), as well as in the Big Data Strategy
(2017). The 13th Five Year Plan (2016-2020) calls for ``fully
implementing the promotion of the big data development initiatives and
accelerating the sharing of data resources and development of
applications, to assist in industrial transformation and upgrading. . .
. ''
- An April 2020 directive issued by the State Council and
Central Committee of the Chinese Communist Party (CCP)
designates data as the fifth factor of production--after land,
labor, capital, and technology.\3\ At the National People's
Congress in March 2021, the outline of the 14th Five-Year plan
called for ``improving the market of data factors,'' and
stressing the need to unlock the value of data to fuel the
digital economy.\4\
---------------------------------------------------------------------------
\3\ Ouyang Shijia, ``New guideline to better allocate production
factors,'' April 10, 2020, China Daily, https://www.chinadaily.com.cn/
a/202004/10/WS5e903fd7a3105d50a3d15620.html.
\4\ Sina Online, ``What Is the Meaning of the `14th Five-Year Plan'
Outline (Draft) to Improve the Market of Data Elements?'', March 5,
2021, https://finance.sina.com.cn/china/2021-03-05/doc-
ikftssaq1688850.shtml.
- On November 30th of this year, China's Ministry of Industry
and Information Technology released the 14th Five Year Plan
(2021-2025) for China's big data industry. The plan defines big
data as a strategic emerging industry, slated for greater state
support to unlock the value of data. State supporting measures
focus on expanding ``international cooperation'' between
Chinese and foreign ``big data services'' companies in standard
setting and research and development (R&D), and encourage
multinationals to set up R&D centers in China. By 2025, the
plan calls for China to set up new mechanisms to facilitate
China's role in data trading and cross-border transfers and
``encourages Chinese firms to offer big data services in Belt
---------------------------------------------------------------------------
and Road Initiative (BRI) countries and regions.''
Beijing is also taking steps to centralize state control over data
by breaking down silos or data islands across different government
ministries and between the government and private companies, which have
long plagued the government's ability to aggregate and coordinate data.
Barriers to data sharing are due to a variety of reasons. Chinese
companies are reluctant to share their data as valuable commercial
intellectual property, while government agencies often push back
against one another's access requests, guarding their data as a form of
political power.\5\
---------------------------------------------------------------------------
\5\ Yuan Yang and Nian Liu, ``Alibaba and Tencent refuse to hand
loans data to Beijing,'' Financial Times, September 18, 2019, https://
www.ft.com/content/93451b98-da12-11e9-8f9b-77216ebe1f17; Martin
Chorzempa, Paul Triolo, Samm Sacks, ``China's Social Credit System: A
Mark of Progress or a Threat to Privacy?'', Peterson Institute for
International Economics Policy Brief, June 2018, https://www.piie.com/
publications/policy-briefs/chinas-social-credit-system-mark-progress-
or-threat-privacy; Samm Sacks testimony before Senate Judiciary
Committee hearing ``Dangerous Partners: Big Tech and Beijing,'' March
4, 2020, https://www.
judiciary.senate.gov/imo/media/doc/Sacks%20Testimony.pdf; Amba Kak and
Samm Sacks, ``Shifting Narratives and Emerging Trends in Global Data
Governance Policy,'' AI Now and Yale Law School Paul Tsai China Center
Policy Report, August 21, 2021, https://law.yale.edu/sites/default/
files/area/center/china/document/shifting--narratives.pdf.
An article by the Tencent Research Institute argues for
facilitating more data flows to China's large tech platforms. Citing an
International Data Corporation (IDC) estimate, the article states that
``by 2025, the proportion of the world's data held by [China] will
increase from 23.4 percent in 2018 to 27.8 percent, making China the
first in the world. The open use of data resources will determine
whether our country can seize the initiative in a new round of
international competition and guarantee national data security through
the development and growth of the digital industry.''\6\
---------------------------------------------------------------------------
\6\ Chen Weixuan et al., ``Data Production Factors in the Framework
of Macroeconomic Growth: History, Theory and Prospects,'' Tencent
Research Institute, June 12, 2020, https://tisi.org/14625.
What are the implications for the United States of China's domestic
and international efforts to acquire and make use of data as a
---------------------------------------------------------------------------
strategic asset?
2. Understanding China's motivations and different scenarios for
how aggregated datasets could be used by the Chinese Government is
vital for creating effective U.S. policy.
There are concerning potential uses of U.S. personal data from a
national security perspective. Beijing is already presumed to have
sensitive national security information from the theft of personnel
records of roughly 21 million individuals from the U.S. Office of
Personnel Management; travel information from a cyberattack on Marriott
hotels covering roughly 400 million records; and credit data from
Equifax on roughly 145 million people.\7\ If additional sources of
personal data such as location, social media, or pattern of life data
were to be acquired or bought openly through unregulated data brokers
and combined with what Beijing has already acquired through cyber-
theft, Chinese security services could use it to target individuals in
sensitive government national security positions or military personnel
for manipulation, blackmail, or other forms of coercion. This is
particularly concerning from a counterintelligence perspective for
individuals with security clearances or those with access to critical
infrastructure.
---------------------------------------------------------------------------
\7\ ``China's Collection of Genomic and Other Healthcare Data from
America: Risks to Privacy and U.S. Economic and National Security,''
National Counterintelligence and Security Center Fact Sheet, February
2021.
As Chinese online services and network infrastructure gain in
prominence around the world, it is also possible that the Chinese
Government could filter or monitor data processes abroad, just as the
United States had done, as shown by Snowden, in utilizing data
transmissions across U.S. networks for intelligence gathering. We also
simply do not know what value and harm data created today will have in
the future, regardless of who has access to it. As we move toward a
world in which people have online profiles built on aggregated data, we
must ask: what are the implications of the CCP gaining effective
control of information flows beyond China's closed Internet system?
What are the implications as the CCP takes even more drastic steps to
close off the loopholes that to this day keep even the Great Firewall
relatively porous and circumventable \8\ (e.g., stricter enforcement of
restrictions on virtual private networks (VPNs) or shifting from a
blacklist to a whitelist approach to permissible websites so technical
controls can keep pace with online content deemed threatening)?
---------------------------------------------------------------------------
\8\ Magaret Roberts assesses China's Great Firewall relies on
``friction-based censorship'' that ``works through distraction and
diversion. It nudges--but does not force--most users away from unsavory
material. This framing of censorship, Roberts says, helps explain why,
even though China's Great Firewall is porous and can be circumvented,
the number of people who `jump the wall' using a virtual private
network (VPN) remains relatively low. People are not necessarily afraid
of legal or political consequences of using a VPN, but rather the
process of doing so is deemed too bothersome or offers too little value
for the effort in most people's day-to-day lives.'' Stanford Freeman
Spogli Institute, March 6, 2020, https://fsi.stanford.edu/news/
china%E2%
80%99s-great-firewall-built-friction-based-censorship-says-margaret-
roberts.
At the same time, the Chinese Government's use of data is not
monolithic. Different actors are seeking data not just for security and
surveillance, but also as fuel for the digital economy and other basic
administrative functions. Outside observers of China often view
Beijing's actions solely through the lens of security, neglecting the
economic development drivers that play an important role. China's Data
Security Law makes explicit that security and development must be
balanced in China's data-governance system. These two competing
priorities have shaped China's cyber bureaucracy for years. This
longstanding internal source of friction and negotiation has
contributed, at least in part, to the Chinese Government not
necessarily enforcing to date the strictest or most conservative
security-oriented readings of Chinese cybersecurity laws and
regulations. An entire early chapter of the Data Security Law was
dedicated to this balance, indicating a recognition by Chinese
authorities that state power hinges not only on security of data, but
also on its commercial use, and that China must therefore find an
effective way to leverage both at once. This duality also is driving an
ambitious national effort to classify all data resources held by
government and industry by category and grade (``categorized and graded
protection system for data''). The goal is to distinguish less
sensitive data for circulation to fuel the economy from data that
---------------------------------------------------------------------------
should be locked down with tighter security restrictions.
As China grows in prosperity, and its leadership seeks to assert
state control over data for both strategic and economic gain, the
United States must also develop a comprehensive vision and regulation
to maintain leadership. Leading Chinese data scholar Dr. Hong Yanqing
writes that ``China should also consider how to enable Chinese
enterprises to control and use more data globally. After all, the
United States can extend its `arm' because its enterprises are all over
the world.'' Hong observes that Chinese tech companies need access to
global data flows, and that if the United States and the European Union
are able to align on digital policies, China will be at a disadvantage
of creating split products for different markets (for example,
Bytedance segmenting its global and Chinese versions of the apps TikTok
and Douyin). He adds that this approach ``prevents Chinese ICT
companies from upgrading services by using a global data pool and
limits the gains from the economies of scale. Once the United States
and the European Union reach an agreement, at least their enterprises
can avoid data localization and segregating storage, which puts Chinese
ICT enterprises at a disadvantage.''\9\
---------------------------------------------------------------------------
\9\ Hong Yanqing, ``Game of Laws: Cross-Border Data Access for Law
Enforcement Purposes,'' trans. Yale Law School Paul Tsai China Center,
originally published in Global Law Review in Chinese. This article is
the result of a special 2018 project by the Ministry of Justice, ``Big
Data and Cybersecurity Legislation'' (18SFB1005), in which the author
participated, https://law.yale.edu/sites/default/files/area/center/
china/document/game_of_laws-7.pdf.
Inaction by the United States will result in failure to create the
interoperable coalition on data that Chinese leaders fear. Stalled
progress on Privacy Shield and a global vision for data flows like APEC
Cross-Border Privacy Rules underscore the challenges ahead.
recommendations
To be effective, U.S. policy should be based on an accurate
understanding of why data matters. The analogy of data as the new oil
is false, and leads to bad policy that treats data as a finite and
zero-sum resource that is only valuable in large volumes. Matt Sheehan
writes that five dimensions are crucial for machine learning data
today: quantity, depth, quality, diversity, and access.\10\ This
understanding of data's value matters because it means that policies by
Beijing or Washington that seek to hoard or wall off data as a national
resource from the other could have unintended consequences that lessen
national power, rather than increase it.
---------------------------------------------------------------------------
\10\ Matt Sheehan, ``Much Ado About Data: How America and China
Stack Up,'' Macro Polo, June 16, 2019, https://macropolo.org/ai-data-
us-china/?rp=e.
Lack of regulation in the United States makes Americans' sensitive
data vulnerable to privacy and security harms not only from
sophisticated state-backed cyber intrusions, but also from the
unregulated industry of data brokers around the world trading in
consumer data without transparency or controls. Setting basic standards
on what data can be collected and retained by all companies will help
protect U.S. personal data, regardless of where the risk originates.
Developing a comprehensive Federal privacy law that includes
restrictions on data brokers is vital to this effort, along with the
creation of strong enforcement mechanisms. Inaction by the United
States means ceding leadership and influence in setting international
---------------------------------------------------------------------------
standards to both Europe and China in setting international standards.
Without higher standards for data security and privacy, U.S.
citizen data held by unregulated private companies are more vulnerable
to breaches by hackers from China or from being sold to third-parties
openly buying, aggregating, and selling consumer data. For example,
Equifax's many security issues are well-documented, such as the
company's failure to patch known vulnerabilities that ultimately left
exposed the data of 145 million Americans. But the hack was also
conducted by a foreign government entity with sophisticated hacking
capabilities and access to considerable state resources. Companies
should not have access to such a volume of personal data that it
creates a target to be hacked or transmitted to China.
This reality is also why bans on Chinese software applications are
not an effective way to secure Americans' data. Even if TikTok were
American-owned, for example, it could still legally sell data to data
brokers that could transmit it to China's security services.
Given this, American data is shockingly exposed and will remain
that way so long as restrictions on data flows only focus on specific
companies from countries deemed adversaries.
Debate over a range of issues will make progress on a federal
privacy law slow. In the meantime, having baseline rules for the data
broker industry would contribute to closing off vectors that make
American's data vulnerable to exploitation by a range of actors.
We must also keep in mind that U.S. actions to respond to data
security risks posed by the Chinese Government are not occurring in a
vacuum. Our policy approach should be tailored to take into account the
fact that technology competition with China will not only play out in
the United States and China, but also in other parts of the world from
India to Europe. How we respond to Chinese companies operating in the
United States has ramifications on whether other countries are willing
to accept our vision of data governance.
The ability of U.S. firms to maintain a high rate of innovation
depends upon access to global markets, talent, and, perhaps most
important, datasets. But rising data sovereignty policies around the
world are an increasing obstacle to the ability of U.S. companies to
operate internationally, beyond China. These policies are an effort by
nation-states to ensure control over data by prohibiting transfers of
data out of the country or seeking to limit foreign access to certain
kinds of data. In this context, U.S. actions will be a reference and a
roadmap for other governments that are concerned about U.S. companies
and the U.S. government getting access to their citizens' data.
The United States should work with like-minded governments to
develop a common set of standards that would allow data to flow--
building off of the concept of ``data free flows with trust'' put
forward by Japan.\11\ A multilateral approach should be based on
creating a system of incentives for compliance. The United States could
lead the way in setting up a certification system that would extend
benefits to countries whose data regimes and companies meet certain
clear criteria for data protection. The OECD privacy guidelines, for
example, could serve as a reference in creating a baseline for
commercial data flows.\12\
---------------------------------------------------------------------------
\11\ ``Data Free Flow with Trust (DFFT): Paths towards Free and
Trusted Data Flows,'' World Economic Forum, https://www.weforum.org/
whitepapers/data-free-flow-with-trust-dfft-paths-towards-free-and-
trusted-data-flows.
\12\ ``The OECD Privacy Framework,'' Organisation for Economic Co-
operation and Development, 2013, https://www.oecd.org/sti/ieconomy/
oecd_privacy_framework.pdf.
We need to address national security risks where they exist, but
that should be done as one part of a broader U.S. initiative for
comprehensive data privacy and higher cybersecurity standards for all
companies --whether domestic or foreign. Failure to offer a compelling
vision for U.S. data governance will make the United States less
secure, less prosperous, and less powerful, and allow more space around
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the world for companies controlled by the CCP to flourish.
______
Prepared Statement of Justin Sherman, Fellow and Research Lead, Data
Brokerage Project, Sanford School of Public Policy, Duke University
Chair Warren, Ranking Member Cassidy, and distinguished members of
the subcommittee, I appreciate the opportunity to testify about privacy
issues facing American citizens.
I am a fellow at Duke University's Sanford School of Public Policy,
where I lead a research project focused on the data brokerage
ecosystem. We study the virtually unregulated industry and practice of
data brokerage--the collection, aggregation, analysis, buying, selling,
and sharing of data--and its impacts on civil rights, national
security, and democracy. I am also affiliated with the Atlantic Council
and with American University Washington College of Law, where I work on
cybersecurity, Internet policy, and geopolitical issues.
Data brokerage is a threat to civil rights, to U.S. national
security, and to democracy. The entire data brokerage ecosystem--from
companies whose entire business model is data brokerage, to the
thousands of other advertisers, technology giants, and companies that
also buy, sell, and share Americans' personal data--profits from
unregulated surveillance of every American, particularly the most
vulnerable. While I support a strong, comprehensive consumer privacy
law, Congress must not wait to resolve the debate over such a law to
regulate the data brokerage industry.
There are three steps Congress should take now:
Strictly control the sale of data collected by data brokers to
foreign companies, citizens, and governments;
Strictly control the sale of data in sensitive categories,
like genetic and health information and location data; and
Stop data brokers from circumventing those controls by
``inferring'' data.
the data brokerage problem
Today, and for several decades, thousands of companies have
surreptitiously collected data from public and private sources about
each and every American. Often, these companies will use tools to
``infer'' additional data about each American. These companies then
repackage and resell that data on the open market, with very few
controls. This is the data brokerage ecosystem.
Data brokerage is a virtually unregulated practice in the United
States (except for two, limited State laws and some narrowly targeted
Federal regulations discussed below). Brokered data is used to target
consumers, marginalized communities, veterans, military service
members, government employees, first responders, students, and
children. Too often, this targeting is exploitative.
Military personnel: Data brokers advertise data about millions
of U.S. military personnel. Criminals have acquired this data to run
educational scams against veterans because of Federal military
benefits.\1\ Foreign governments could acquire this data to profile
military personnel, track them and their families, and otherwise
undermine U.S. national security. The Chinese Government's 2015 hack of
the Office of Personnel Management was one of the most damaging data
breaches the Federal Government has suffered--yet, in the future, there
is no need for the Chinese Government or any other foreign intelligence
agency to even hack many U.S. Government databases when the data can be
legally purchased from American data brokers, who problematically
appear to do very little customer vetting.
---------------------------------------------------------------------------
\1\ Tariq Habash and Mike Saunders, ``The Predatory Underworld of
Companies that Target Veterans for a Buck,'' Student Borrower
Protection Center, February 1, 2019, https://protectborrowers.org/the-
predatory-underworld-of-companies-that-target-veterans-for-a-buck/.
Survivors of domestic violence: Data brokers known as ``people
search websites'' aggregate millions of Americans' public records and
make them available for search and sale online. Abusive individuals
have used this data--including highly sensitive information on
individuals' addresses, whereabouts, property filings, contact details,
and family members--to hunt down and stalk, harass, intimidate, and
even murder other individuals, predominantly women and members of the
LGBTQ+ community.\2\ There is little in U.S. law stopping data brokers
from collecting, publishing, and selling this data on victims and
survivors of intimate partner violence.
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\2\ This goes back decades. See, e.g., Supreme Court of New
Hampshire. Helen Remsburg, Administratrix of the Estate of Amy Lynn
Boyer v. Docusearch, Inc., d/b/a Docusearch.Com and a (2003). Also see:
National Network to End Domestic Violence, ``People Searches and Data
Brokers,'' last accessed December 2, 2021, https://nnedv.org/mdocs-
posts/people-searches-data-brokers/.
Individuals with mental health conditions: Data brokers
advertise data on millions of Americans' mental health conditions.
Companies can legally purchase this data from other firms,
circumventing existing health privacy laws, and use it to exploit
consumers. Criminals could acquire this data to run scams against
senior citizens with Alzheimer's and dementia.\3\ Foreign governments
could even acquire this data for intelligence purposes. Once again,
there is little evidence data brokers conduct robust customer
screening.
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\3\ Criminals have already used broker data to facilitate elder
scams. See, e.g., U.S. Department of Justice, ``List Brokerage Firm
Pleads Guilty To Facilitating Elder Fraud Schemes,'' Justice.gov,
September 28, 2020, https://www.justice.gov/opa/pr/list-brokerage-firm-
pleads-guilty-facilitating-elder-fraud-schemes.
Our research at Duke University has found data brokers widely and
publicly advertising data regarding millions of Americans' sensitive
demographic information, political preferences and beliefs, and
whereabouts and real-time locations, as well as data on first
responders, government employees, and current and former members of the
U.S. military.\4\ Data brokers gather your race, ethnicity, religion,
gender, sexual orientation, and income level; major life events like
pregnancy and divorce; medical information like drug prescriptions and
mental illness; your real-time smartphone location; details on your
family members and friends; where you like to travel; what you search
online; what doctor's office you visit; and which political figures and
organizations you support. All of this is aggregated, analyzed, and
packaged into datasets for sale with such titles as ``Rural and Barely
Making It,'' ``Ethnic Second-City Strugglers,'' ``Retiring on Empty:
Singles,'' ``Tough Start: Young Single Parents,'' ``Credit Crunched:
City Families,'' ``viewership-gay,'' ``African American,'' ``Jewish,''
``working class,'' ``unlikely voters,'' and ``seeking medical
care.''\5\ All of this information is typically collected without any
consumer notice or consumer consent.
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\4\ Justin Sherman, Data Brokers and Sensitive Data on U.S.
Individuals (Durham: Duke University Sanford School of Public Policy,
August 2021), https://sites.sanford.duke.edu/techpolicy/report-data-
brokers-and-sensitive-data-on-u-s-individuals/.
\5\ U.S. Senate Committee on Commerce, Science, and Transportation.
A Review of the Data Broker Industry: Collection, Use, and Sale of
Consumer Data for Marketing Purposes. Washington, DC: Senate Committee
on Commerce, Science, and Transportation, December 18, 2013. https://
www.commerce.senate.gov/services/files/0d2b3642-6221-4888-a631-
08f2f255b577, ii; U.S. Federal Trade Commission. A Look At What ISPs
Know About You: Examining the Privacy Practices of Six Major Internet
Service Providers. Washington, DC: Federal Trade Commission, October
21, 2021. https://www.ftc.gov/system/files/documents/reports/look-what-
isps-know-about-you-examining-privacy-practices-six-major-internet-
service-providers/p195402_isp_6b_staff
_report.pdf, 22.
Hundreds of data brokers make selling this data their entire
business model, and thousands more companies, from small businesses to
technology giants, buy, sell, and share data as part of this ecosystem.
The entities using this data include banks, credit agencies, insurance
firms, Internet service providers, predatory loan companies, online
advertisers, U.S. law enforcement and security agencies, and
perpetrators of domestic violence--not to mention the foreign
governments, criminals, terrorist organizations, and violent
individuals that could potentially acquire the data. There are single
data brokers alone that advertise thousands of individual data points
on billions of people around the world. Large brokers also spend
millions of dollars lobbying against strong U.S. Federal privacy
legislation that would undercut their business models.\6\
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\6\ Alfred Ng and Maddy Varner, ``The Little-Known Data Broker
Industry Is Spending Big Bucks Lobbying Congress,'' The Markup, April
1, 2021, https://themarkup.org/privacy/2021/04/01/the-little-known-
data-broker-industry-is-spending-big-bucks-lobbying-congress.
The harms are well-documented. Scammers have acquired data to run
educational scams against veterans, military service members, and their
families.\7\ Abusive individuals have used people search websites--
where data brokers scrape public records and publish Americans'
addresses and other information on the Internet--to hunt down and
stalk, intimidate, harass, and even murder individuals trying to escape
them.\8\ Financial firms have used brokered data to market products to
consumers that ``limit or obscure their access to loans, credit, and
financial services.''\9\ GPS location data companies have secretly
tracked citizens attending protests and demonstrations and identified
their ages, genders, ethnicities, and other sensitive demographic
characteristics--all of which they can legally sell.\10\ Health
insurance companies have aggregated millions of Americans' medical
diagnosis, test, prescription, and socioeconomic data--as well as
sensitive demographic information like race, education level, net
worth, and family structure--to market their products and, possibly,
calculate how much they can charge consumers.\11\ Law enforcement and
security agencies have purchased data broker data on U.S. citizens,
ranging from home utility data to real-time locations, without
warrants, public disclosure, and robust oversight.\12\ The data law
enforcement and other customers use may not even be updated, complete,
or accurate.\13\ The list of known harms goes on. And with all this
data, companies can easily identify individuals by name.
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\7\ Habash and Saunders, ``The Predatory Underworld of Companies
that Target Veterans for a Buck.''
\8\ Sherman, Data Brokers and Sensitive Data on U.S. Individuals.
\9\ Testimony of Pam Dixon before the U.S. Senate Committee on
Banking, Housing, and Urban Affairs, ``Data Brokers, Privacy, and the
Fair Credit Reporting Act,'' June 11, 2019, https://
www.banking.senate.gov/imo/media/doc/Dixon%20Testimony%206-11-19.pdf,
1.
\10\ Zak Doffman, ``Black Lives Matter: U.S. Protesters Tracked By
Secretive Phone Location Technology,'' Forbes, June 26, 2020, https://
www.forbes.com/sites/zakdoffman/2020/06/26/secretive-phone-tracking-
company-publishes-location-data-on-black-lives-matter-protesters/.
\11\ One such company has alleged it does not use this data for
pricing. Marshall Allen, ``Health Insurers Are Vacuuming Up Details
About You--And It Could Raise Your Rates,'' ProPublica, July 17, 2018,
https://www.propublica.org/article/health-insurers-are-vacuuming-up-
details-about-you-and-it-could-raise-your-rates.
\12\ Drew Harwell, ``ICE investigators used a private utility
database covering millions to pursue immigration violations,'' The
Washington Post, February 26, 2021, https://www.
washingtonpost.com/technology/2021/02/26/ice-private-utility-data/;
Joseph Cox, ``How an ICE Contractor Tracks Phones Around the World,''
VICE, December 3, 2020, https://www.vice.com/en/article/epdpdm/ice-dhs-
fbi-location-data-venntel-apps.
\13\ See, e.g., United States District Court, Central District of
California, Gerardo Gonzalez et al. vs. Immigration and Customs
Enforcement et al. (2019), https://www.courthousenews.com/wp-content/
uploads/2019/09/Gonzalez.v.ICE_.detainer.final_.order_.9.27.pdf.
The potential harms are also numerous. Domestic extremists could
acquire real-time GPS location data to target politicians at home.
Foreign governments could acquire Americans' data to run disinformation
campaigns, uncover spies, blackmail U.S. Government employees, and
conduct other kinds of intelligence and military operations. Criminal
organizations will continue purchasing this data to run scams and
phishing campaigns.\14\ Individuals will continue using address,
whereabouts, and GPS data to stalk and commit violence against fellow
citizens. Companies will continue buying data on consumers and then
make decisions and target advertisements based on sensitive demographic
characteristics like race, ethnicity, gender, sexual orientation,
religion, income level, family structure, political affiliation, and
immigration status. Not to mention, threat actors can simply hack into
the data brokers, online advertising firms, and other entities housing
this highly sensitive data.
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\14\ See, e.g., U.S. Federal Trade Commission, ``FTC Charges Data
Brokers with Helping Scammer Take More Than $7 Million from Consumers'
Accounts,'' FTC.gov, August 12, 2015, https://www.ftc.gov/news-events/
press-releases/2015/08/ftc-charges-data-brokers-helping-scammer-take-
more-7-million.
Companies can collect this data on Americans directly, whether
those individuals know it or not; indirectly, by purchasing or
licensing the data or by plugging into data sources like online
advertising networks or third-party software development kits (SDKs);
and by running algorithms to predict (what they often call ``infer'')
sensitive information about individuals, from income level to sexual
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orientation.
Based on our research at Duke University, the companies selling
this data on the open market conduct varying degrees of know-your-
customer due diligence: some appear to conduct some due diligence
before initiating a data purchase agreement, some appear to conduct a
little due diligence, and some appear to conduct none at all. For those
that appear to conduct some due diligence, it is unclear how
comprehensive that vetting is in practice. Further, based on the
copious evidence of data brokerage-linked harms (from domestic violence
to consumer exploitation), there is very little to suggest data brokers
implement controls to prevent harmful uses of their data once sold.
Data brokers may also require clients to sign nondisclosure agreements
preventing them from identifying where they obtained U.S. citizens'
data.
As part of talking about the power of Big Tech, the dangers of
modern surveillance, and data threats to Americans' civil rights, U.S.
national security, and democracy, we must focus on this entire data
brokerage ecosystem.
the regulatory gap
Data brokerage is a virtually unregulated practice. While there are
some narrow controls around the collection, aggregation, buying,
selling, and sharing of certain types of data--such as with the Health
Insurance Portability and Accountability Act (HIPAA) and covered health
providers, or with the Family Educational Rights and Privacy Act
(FERPA) and covered educational institutions--these regulations are
very limited and easily circumventable. It is remarkably easy to
collect, aggregate, analyze, buy, sell, and share data on Americans,
even millions at a time, without running into any legal barriers,
regulatory requirements, or mandatory disclosures.
Two State laws mention data brokers: one in California and one in
Vermont.\15\ However, these laws are limited and insufficient to
prevent the harms identified for four main reasons--and, therefore,
this committee should lead and enact legislation to regulate the data
brokerage ecosystem.
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\15\ These are, respectively, California Civil Code Sec. 1798.99.80
and Vermont Statute 9 V.S.A. Sec. 2430.
First, both State laws focus merely on disclosure. They do not put
meaningful restrictions on data collection, aggregation, or analysis or
on the buying, selling, and sharing of data by companies classified as
``data brokers.'' Instead, they focus on requiring those companies to
register with the State, after which basic company information (e.g.,
the company's name) is published in a registry on the respective State
government's website.\16\ The Vermont law also imposes a few basic
technical requirements to protect the security of what it describes as
individuals' ``personally identifiable information,'' though this is
aimed at preventing data breaches instead of putting controls on data
sales.\17\
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\16\ The California registry can be found at: https://oag.ca.gov/
data-brokers. The Vermont registry can be found at: https://
bizfilings.vermont.gov/online/DatabrokerInquire/DataBroker
Search.
\17\ Vermont Statute 9 V.S.A. Sec. 2447. Data broker duty to
protect information; standards; technical requirements.
Second, these laws define data brokers (generally) as only those
companies buying and selling data on people with whom they do not have
a direct business relationship. This definition excludes every single
company that buys, sells, and shares data on its own customers from
coverage under a ``data broker'' law. In practice, if this definition
were paired with substantive controls, much of the data brokerage
ecosystem would escape regulation. This definition is also insufficient
because some firms occupy gray areas vis-a-vis these laws: for example,
Oracle has registered as a data broker in both States, but it appears
to buy and sell data it did not directly collect from consumers--as
well as data it may collect directly but through subsidiaries. The same
could be argued with respect to online advertisers, which frequently
have direct interactions with consumers but often in ways consumers do
not recognize or understand.\18\
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\18\ For more on how these laws provide lessons for writing a
Federal privacy legislation, see: Justin Sherman, ``Federal Privacy
Rules Must Get `Data Broker' Definitions Right,'' Lawfare, April 8,
2021, https://www.lawfareblog.com/federal-privacy-rules-must-get-data-
broker-definitions-right.
Third, even with the given definitions of data brokers, the two
State laws do not target the underlying ecosystem--the collecting,
aggregating, analyzing, buying, selling, and sharing of Americans'
data. The practice of buying and selling data with virtually no
restrictions enables consumer exploitation, civil rights abuses, and
direct threats to U.S. national security, but it is not meaningfully
controlled by these laws. And even with a legal focus on specific
``data broker'' entities, many firms that engage in data brokerage are
not captured in the laws, due to last-minute definitional changes
obtained by industry lobbyists prior to State-level enactment:
companies that buy and sell data on their direct customers; third-party
code providers that plug into apps and websites to collect data on
unwitting individuals; companies that run real-time bidding networks
for online advertisements, where dozens of companies get access to data
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on consumers whom they could target with paid ad access.
Lastly, these laws rely on the notion that some data is clearly
personally identifiable while other data is not. There is a difference
between data with an individual's name attached and data which does not
have a name attached, but that line is increasingly blurring. The sheer
volume of data that exists on any given American--including for sale on
the open market--means individuals, companies, and government agencies
can easily combine datasets together to unmask or ``reidentify'' the
person behind a piece of information. For instance, researchers
unmasked supposedly anonymized ride data for New York City taxi drivers
and could then calculate drivers' incomes.\19\ Basing laws too much on
this distinction does not recognize the complicated reality, where
simply removing a name or Social Security number from a dataset does
not meaningfully protect individuals' privacy. This distinction can
also allow companies to circumvent the narrow legal restrictions that
do protect individuals' data, because they can buy, sell, and share
Americans' information without a name attached and simply acquire other
identifying data or perform their own reidentification separately.
---------------------------------------------------------------------------
\19\ Marie Douriez et al., ``Anonymizing NYC Taxi Data: Does It
Matter?'', 2016 IEEE International Conference on Data Science and
Advanced Analytics, October 2016, https://ieeexplore.ieee.org/document/
7796899.
---------------------------------------------------------------------------
the congressional response
Congress has an opportunity to regulate the data brokerage
ecosystem, protecting Americans' civil rights, U.S. national security,
and democracy in the process. While a strong, comprehensive consumer
privacy law is important, Congress must not wait to resolve the debate
on such a law to regulate the data brokerage industry.
There are three steps Congress can take now:
Strictly control the sale of data collected by data brokers to
foreign companies, citizens, and governments. Currently, there is
virtually nothing in U.S. law preventing American companies from
selling citizens' personal data--from real-time GPS locations and
health information to data on military personnel and government
employees--to foreign entities, including those entities which pose a
risk to U.S. national security. As a result, it is far too easy for a
foreign government to set up a front company through which it can
simply buy highly sensitive data on millions of Americans, including
members of Congress, Federal Government employees, and military
personnel. In response, Congress should develop a set of strict
controls on data brokers' sales of data to foreign companies, citizens,
and governments--weighing outright prohibitions in some cases (e.g., on
selling data on government employees and military personnel) and
conditional restrictions in others (e.g., banning sale to a particular
end user determined, through a robust security review process, to have
requisite links to a foreign military or intelligence organization). As
more and more U.S. citizen data is available for sale on the open
market, this set of restrictions would better protect national security
and also protect against exploitation of American consumers by foreign
corporations.
Strictly control the sale of data in sensitive categories, like
genetic and health information and location data. Congress should also
consider banning the sale of certain categories of data altogether.
While many kinds of data can be used in harmful ways, some categories
are arguably more sensitive than others. For instance, individuals'
genetic information is highly sensitive. Location data is also a very
dangerous kind of data. With GPS data, law enforcement agencies
operating without adequate oversight as well as foreign intelligence
organizations, terrorist groups, criminals, and violent individuals
could acquire this data to follow people around as they visit bars,
restaurants, medical centers, divorce attorneys, police stations,
religious buildings, military bases, listed and unlisted government
facilities, their relatives' homes, and their children's schools. Based
on tracking U.S. citizens as they walk, travel, shop, sit, and sleep,
organizations and individuals intent on doing harm can also derive
other sensitive information about Americans' health, income, lifestyle,
and more. Congress should develop a list of sensitive data categories
that each correspond to bans on sale or other controls.
Stop data brokers from circumventing those controls by
``inferring'' data. If data brokers are prevented from collecting,
aggregating, buying, selling, and sharing certain kinds of data and/or
selling it to and sharing it with certain entities, they may still get
data using their third vector--analyzing data and making ``inferences''
from it. For instance, if data brokers were prohibited specifically
from buying and selling Americans' GPS location histories, a company
could still, in line with current practice, mine individuals' spending
histories, WiFi connection histories, phone call logs, and other
information to derive the data that is supposed to be controlled in the
first place, without technically ``collecting'' GPS location itself.
Congress should stop data brokers from circumventing controls by
implementing additional prohibitions around ``inferring'' categories of
sensitive information about individuals. This will tackle the third
main way data brokers currently get their data--and prevent companies
from circumventing controls to keep exploiting Americans.
The data brokerage ecosystem perpetuates and enables civil rights
abuses, consumer exploitation, and threats to U.S. national security
and democracy. It operates with virtually no regulation. Rather than
waiting to resolve the debate over a strong, comprehensive consumer
privacy law--which is also sorely needed--Congress can and should act
now to regulate data brokerage.
______
Prepared Statement of Hon. Elizabeth Warren,
a U.S. Senator From Massachusetts
Good morning, and welcome to today's hearing of the Subcommittee on
Fiscal Responsibility and Economic Growth. I'm pleased to be working
with Ranking Member Cassidy on this hearing on ``Promoting Competition,
Growth, and Privacy Protection in the Technology Sector.'' Senator
Cassidy will be joining us remotely. We're going to do a mixed hearing
with some people in person and some people remote.
Under President Biden's leadership, the American economy is
rebounding. The unemployment rate has dropped from a pandemic height of
14.8 percent in April 2020 to 4.6 percent today.\1\ Five point six
million jobs \2\ have been added since President Biden's inauguration--
more than was added during the first 10 months of any administration
since we've been keeping records. Child poverty is projected to plummet
by more than 40 percent \3\ thanks to the American Rescue Plan.
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\1\ https://www.bls.gov/news.release/pdf/empsit.pdf.
\2\ https://www.dol.gov/newsroom/releases/osec/osec20211105.
\3\ https://www.urban.org/sites/default/files/publication/104626/
how-a-permanent-expansion-of-the-child-tax-credit-could-affect-
poverty_1.pdf.
All of this has occurred despite an ongoing pandemic that has
plagued us for nearly 2 years. Families have tried to adapt, and those
changes have echoed throughout our economy. Demand has shifted \4\ as
people have consumed fewer services while buying more durable goods
like exercise equipment and home appliances. The economy has recovered
more quickly \5\ than many businesses projected and all of this is
contributing \6\ to unexpected bottlenecks in our supply chains and
sporadic shortages in warehouses.
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\4\ https://www.bls.gov/opub/mlr/2021/beyond-bls/COVID-19-causes-a-
spike-in-spending-on-durable-goods.htm.
\5\ https://www.nytimes.com/2021/04/06/business/imf-outlook-global-
economy.html.
\6\ https://www.businessinsider.com/why-store-shelves-are-empty-
supply-chain-crisis-shortages-2021-10.
And these factors contribute to price increases for many consumer
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goods. But they are not the only reasons prices have gone up.
Sure, giant companies will raise prices when they have to. But they
will also raise prices when they can get away with it. And how do we
know this? Because when companies are simply passing along increases in
their costs, then profit margins should stay the same. But when
companies see a chance to gouge consumers, particularly while everyone
is talking about inflation, then those companies raise their prices
beyond what's needed to cover their increased costs.
Right now prices are up at the pump,\7\ at the supermarket,\8\ and
online. At the same time, energy companies,\9\ grocery companies, and
online retailers \10\ are reporting record profits. That's not simply a
pandemic issue. It's not simply some inevitable economic force of
nature. It's greed--and in some cases, it is flatly illegal.
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\7\ https://www.nytimes.com/2021/11/23/business/biden-oil-reserves-
gas-prices.html.
\8\ https://www.today.com/food/groceries/how-to-save-money-on-
groceries-rcna36938.
\9\ https://www.cnn.com/2021/10/29/energy/exxonmobil-chevron-
profits/index.html.
\10\ https://www.cnbc.com/2021/11/30/amazon-touts-record-sales-
amid-weak-start-to-holiday-shopping-season.html.
One reason for this price gouging is that fewer and fewer markets
in America are truly competitive. When several businesses are competing
for customers, companies can't use a pandemic or a supply chain kink to
pad their own profits. In a competitive market, the margin above costs
stays steady, even in troubled times. But in a market dominated by one
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or two giants, price gouging is much easier.
For generations, policymakers and regulators under both Democrats
and Republicans promoted free-market competition. But starting in the
1970s,\11\ our government changed course. For decades now regulators
and courts have looked the other way even as one sector after another
has become dominated by one or two giants. They rubber-stamp merger
after merger without regard to the consequences, and when small
businesses got wiped out and startups were smothered or bought out,
they just didn't care.
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\11\ https://hbr.org/2017/12/the-rise-fall-and-rebirth-of-the-u-s-
antitrust-movement.
Today, as a result of increasing consolidation across industries,
bigger and bigger corporations have more and more power to charge their
customers any price they want. They also wield more and more power to
under-invest in things like supply chain resiliency, and more and more
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power to hold down wages and benefits for workers.
And it's getting worse. Earlier this month, Federal Trade
Commission Chair Lina Khan noted \12\ that by September of this year,
our antitrust agencies had already received more merger filings than
any other year in the previous decade. In fact, they are on track in
2021 to receive a 70 percent increase above average filings in recent
years.
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\12\ https://www.ftc.gov/system/files/documents/public_statements/
1598131/statement_of_
chair_lina_m_khan_joined_by_rks_regarding_fy_2020_hsr_rep_p110014_-
_20211101_final_0.pdf.
Giant corporations \13\ are taking advantage of this global crisis
to gobble up struggling small businesses and to increase their power
through predatory mergers. I introduced my Pandemic Anti-Monopoly Act
\14\ last year to slow down this trend and to protect workers and small
businesses and families from being squeezed even more by harmful
mergers during this crisis, and I will reintroduce it this year because
the need is clear.
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\13\ https://publicknowledge.org/acquisitions-in-the-time-of-covid-
big-tech-gets-bigger/.
\14\ https://www.warren.senate.gov/newsroom/press-releases/warren-
ocasio-cortez-to-introduce-pandemic-anti-monopoly-actread-one-pager-
here.
The effects of limited competition in our technology sector are
particularly severe, and that is why I'm interested in exploring
today's hearing. Limited competition in tech is having spillover
effects across our entire economy. Anticompetitive practices \15\ in
the semiconductor industry have exacerbated \16\ supply-chain issues.
Big Tech firms have used their dominance to inflate prices \17\
throughout the online retail market and to subject their workers to
inhumane conditions \18\ during the pandemic. And as Ranking Member
Cassidy has rightly highlighted in his own work, tech firms collect and
exploit \19\ sensitive personal information--often threatening national
security,\20\ harming our emotional health,\21\ and discriminating \22\
against vulnerable groups.
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\15\ https://www.wsj.com/articles/ftc-charges-broadcom-with-
illegal-monopolization-proposes-consent-order-11625248681.
\16\ https://www.wsj.com/articles/the-world-relies-on-one-chip-
maker-in-taiwan-leaving-everyone-vulnerable-11624075400.
\17\ https://www.vox.com/recode/22810795/amazon-marketplace-prime-
report.
\18\ https://www.npr.org/2021/02/17/968568042/new-york-sues-amazon-
for-COVID-19-workplace-safety-failures.
\19\ https://theconversation.com/the-ugly-truth-tech-companies-are-
tracking-and-misusing-our-data-and-theres-little-we-can-do-127444.
\20\ https://www.forbes.com/sites/joetoscano1/2021/12/01/data-
privacy-issues-are-the-root-of-our-big-tech-monopoly-dilemma/
?sh=5d3aba083cfd.
\21\ https://www.wsj.com/articles/facebook-knows-instagram-is-
toxic-for-teen-girls-company-documents-show-11631620739.
\22\ https://algorithmwatch.org/en/automated-discrimination-
facebook-google/.
It doesn't have to be like this. With stronger antitrust laws and
robust enforcement, we can ensure that our economy works for American
families, not just for the wealthiest corporations. Congress could
provide better tools to the FTC and the Department of Justice to
investigate anticompetitive mergers and break up the companies that
have held our economy down. We could also make it easier for the
agencies to reject such mergers in the first place. By promoting
competitive markets for consumers and workers, we can foster a stronger
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American economy and a stronger American democracy.
So I look forward to discussing these issues today. I appreciate
all of our witnesses who are joining us, and I look forward to hearing
about your insights and experiences.
______
Statement of the International Brotherhood of Teamsters
and the Strategic Organizing Center
The International Brotherhood of Teamsters is America's largest,
most diverse union. We represent 1.4 million hardworking men and women
throughout the United States, Canada and Puerto Rico. We started in
1903 as a merger of the two leading team driver associations. As we
say, ``these drivers were the backbone of America's robust economic
growth, but they needed to organize'' to get their fair share from too-
powerful corporations. The Strategic Organizing Center is a democratic
federation of labor unions representing millions of working people. We
strive to ensure that every worker has a living wage, benefits to
support their family and dignity in retirement, and we advocate not
just for jobs, but for good jobs: safe, equitable workplaces where all
employees meaningfully participate in the decisions affecting their
employment. Our organizations are concerned with ensuring corporate
power does not overshadow the authority, autonomy and well-being of
workers--or anyone else--in our country, and we believe that antitrust
law has a vital role to play in that effort. We thank you for holding
today's hearing and hope you will use this time to examine the impact
of anticompetitive behavior in the technology sector on labor market
and workers.
We are not the first to observe troubling trends in our economy.
These include a decline in real wages in spite of significant
productivity growth, a huge and growing gap between the wealthy and the
rest of us, an increasingly fissured workforce that allows employers to
shift labor costs--and deny responsibility for the safety and economic
security of the workers that create their wealth--onto others. They
also include the disproportionate impact these trends have on workers
who are people of color and on reinforcing racism in our economic
structure. The concentration of power of large corporations across the
economy is of significant concern because this concentration drives and
exacerbates all of these trends. We are particularly concerned about
the largest digital platform companies because they are able to
exercise unprecedented power in our economy in ways that negatively
impact workers, consumers and other economic players--and the very
structure of the economy itself. Unions--and workers' authority as
union members to negotiate employment terms with their employer--are a
potent counterweight to concentrated corporate power in labor markets,
but we also recognize the paramount importance of the overall structure
of the economy and ways that corporate power is dispersed: the very
subject that antitrust law was meant to address.
During this period of growing corporate consolidation, antitrust
laws have weakened dramatically--not because Congress has changed the
laws, but because the courts have. A defining feature of court-made,
``modern'' antitrust law is its singular focus on the consumer welfare
standard, under which courts have deemed consumer price increases the
primary cognizable competitive harm. This fundamental misinterpretation
of both the purpose and the language of antitrust law ignores myriad
other forms of harm including declining quality, diversity, innovation,
choice, and anticompetitive concentration in supply markets, including
labor markets--which in turn has allowed these additional competitive
harms to manifest in our economy along with highly concentrated
corporate power.
It is against this backdrop that we join the growing chorus that
considers the hollowing-out of competition law over the past several
decades at least partly responsible for the increase in corporate might
and the corresponding decline in virtually every other source of power
in our economy--workers over their jobs, consumers over choice and
privacy, and small businesses over where and at what price they sell
their goods. We strongly advocate vigorous antitrust reform to both
restore needed protections for competition among diverse participants
in the economy, and address the challenges that new, uniquely dominant
digital platform companies present. We also believe that our Nation's
antitrust laws must be updated to address the current economic
realities--including that consumer welfare, or price, should not be the
sole touchstone of competitive harm, and further, to foreclose judicial
distortion of the law. We urge this reform to ensure that antitrust law
plays the role that Congress intended by leveling the playing field for
workers, consumers, small businesses and other market participants in
our economy.
As explained further below, our concerns are driven by evidence of
increased corporate concentration across the economy and the effects of
this concentration on all market participants, and workers in
particular, as well as the rise of extraordinarily powerful digital
platform companies with unique characteristics that current antitrust
law is ill-suited to address. This statement outlines our specific
concerns regarding the current state of antitrust law, and details
specific aspects of antitrust law and jurisprudence that we believe are
the most in need of reform to protect and promote a robust, competitive
economy, including fair and competitive labor markets where workers
have a fair shot at family-supporting wages, safe working conditions
and a job they can be proud of.
concentration on the rise in both product and labor markets
The U.S. has a market concentration problem. In terms of product
markets, over the last 2 decades approximately 75 percent of U.S.
industries have become more concentrated.\1\ Since 1980, in a variety
of sectors across the economy, the four largest firms have
significantly increased their share of sales.\2\ With respect to
efficiency and innovation, this is a cause for concern. The entry rate
of new firms into the U.S. market has fallen sharply, particularly
since 2007,\3\ while firm exit rates have remained relatively flat.\4\
In other words, the number of firms in various industries is declining,
and existing producers are gaining share while new entrants find it
increasingly difficult to challenge the established dominant players.
This implies a lack of economic dynamism and increased market
concentration.
---------------------------------------------------------------------------
\1\ See Gustavo Grullon, Yelena Larkin, and Roni Michaely, Are U.S.
Industries Becoming More Concentrated?, Review of Finance, Swiss
Finance Institute Research Paper No. 19-41 (October 25, 2018) at 1,
available at https://ssrn.com/abstract=2612047.
\2\ See Ufuk Akcigit and Sina Ates, Slowing Business Dynamism and
Productivity Growth in the United States, Federal Reserve Bank of
Kansas City publication (October 8, 2020) at 4, 31 note 31, 45,
available at https://www.kansascityfed.org/documents/4952/
aa_jh_201008.pdf. The sectors are manufacturing, retail trade,
wholesale trade, services, utilities and transportation, and finance.
Id. See also David Dayen, Monopolized: Life in the Age of Corporate
Power at 3 (2020) (noting that in the markets for airlines, commercial
banking, and phone, wireless, cable, and Internet services, four
companies control the market).
\3\ See John Haltiwanger, Entry, Innovation and Productivity Growth
in the U.S. Economy, Federal Reserve Bank of Dallas publication (May
31, 2018) at 9, available at https://www.dallasfed.org/-/media/
Documents/research/events/2018/18ted-haltiwanger.pdf.
\4\ Id.
Over the past decade, empirical evidence has demonstrated that the
majority of local labor markets in the U.S. are also overly
concentrated. Research indicates that 20 percent of all U.S. workers
work in highly-concentrated labor markets,\5\ and that, across all U.S.
labor markets, the average measurement of labor market concentration
well exceeds the Federal Trade Commission and Department of Justice's
own guidelines.\6\ Labor market concentration--or labor monopsony, the
corollary of monopoly in the supplier or labor market--may
significantly impact the wages and working conditions of workers. Labor
monopsony power, alongside persistent trends including declining labor
mobility,\7\ can lead to negative outcomes for U.S. workers. A range of
studies have shown that workers in highly concentrated labor markets
receive suppressed wages,\8\ less non-wage compensation in the form of
health benefits,\9\ and are more likely to be subject to labor rights
violations.\10\ Further, such negative impacts fall much more heavily
on workers who are people of color, so labor market concentration also
exacerbates the existing problems of inequality and ongoing racism
affecting our economy.
---------------------------------------------------------------------------
\5\ See Jose Azar, Ioana Elena Marinescu, Marshall Steinbaum, and
Bledi Taska, Concentration in US Labor Markets: Evidence from Online
Vacancy Data, NBER at 2 (August 10, 2018), available at https://
www.nber.org/system/files/working_papers/w24395/w24395.pdf.
\6\ See Jose Azar, Ioana Elena Marinescu, and Marshall Steinbaum,
Labor Market Concentration, NBER at 2 (December 10, 2018), available at
https://www.nber.org/system/files/working_papers/w24147/w24147.pdf.
\7\ See Damien Azzopardi, Fozan Fareed, Mikkel Hermansen, Patrick
Lenain, and Douglas Sutherland, The decline in labor mobility in the
United States: Insights from new administrative data, OECD (December
14, 2020), available at https://www.oecd-ilibrary.org/docserver/
9af7f956-
en.pdf?expires=1615398612&id=id&accname=guest&checksum=19D81A08C345C3299
8
FCE5FBCBBBE60B.
\8\ Azar, Marinescu, and Steinbaum, supra note 6.
\9\ See Yue Qiu and Aaron J. Sojourner, Labor-Market Concentration
and Labor Compensation, IZA Institute of Labor Economics (January 8,
2019), available at https://ssrn.com/abstract=
3312197.
\10\ See Ioana Elena Marinescu, Yue Qiu, and Aaron J. Sojourner,
Wage Inequality and Labor Rights Violations, IZA Institute of Labor
Economics (August 13, 2020), available at https://ssrn.com/
abstract=3673495.
Further, research suggests that monopolizing employers do not pass
on cost savings they receive from reduced wages to consumers.\11\
Instead, dominant employers tend to retain savings from lower
wages.\12\ At the same time, lower wages can increase consumer prices
because employers purchase less of the input (labor), which results in
higher marginal costs per product, and thus higher prices.\13\
---------------------------------------------------------------------------
\11\ See Alan James Devlin, ``Questioning the Per Se Standard in
Cases of Concerted Monopsony,'' Hastings Business Law Journal, Vol. 3,
No. 223, 2007 at 224 (July 6, 2009) (citing statements by DOJ antitrust
division officials regarding the consumer price impact of monopolies),
available at https://repository.uchastings.edu/cgi/
viewcontent.cgi?article=1106&context=
hastings_business_law_journal.
\12\ Id. at 231.
\13\ Id.
In spite of the problems caused by labor market concentration,
labor market antitrust litigation against employers is extremely rare.
Since 1960, there have been fewer than 100 labor market cases compared
to over 2,300 product market antitrust cases.\14\ Fully half the labor
market cases that have been brought under section 1 of the Sherman Act
have addressed only the niche employment setting of sports leagues.\15\
At the same time, not a single labor market case brought under section
2 of the Sherman Act has survived summary judgment.\16\ This
``litigation gap'' is exacerbated by the lack of attention to labor
market effects in the Department of Justice and Federal Trade
Commission's current Horizontal Merger Guidelines.\17\ Indeed, no
merger has ever been blocked based on increased labor market
concentration.
---------------------------------------------------------------------------
\14\ See Eric A. Posner, Why the FTC Should Focus on Labor
Monopsony, Pro Market (November 5, 2018), available at https://
promarket.org/2018/11/05/ftc-should-focus-labor-monopsony/.
\15\ See Ioana Elena Marinescu and Eric A.Posner, Why Has Antitrust
Law Failed Workers?, 105 Cornell L. Rev. 1343, 1365 (2020), available
at https://ssrn.com/abstract=3335174.
\16\ Id. at 1371.
\17\ Horizontal Merger Guidelines (revised April 8, 1997).
Department of Justice/Federal Trade Commission, available at https://
www.justice.gov/atr/horizontal-merger-guidelines-0.
The lack of antitrust enforcement and successful cases regarding
labor markets is another illustration--an even more extreme one--
indicating that current antitrust jurisprudence is the product of
judicial interpretation rather than congressional intent. There is
broad agreement that the Clayton Act provides for review of the effects
of mergers on labor markets as well as on product markets. Indeed,
Congress's intention to protect labor markets from the harms of
monopsony power has been clear since the inception of U.S. antitrust
policy: One of the reasons Senator John Sherman gave for legislating
against monopoly was that ``[i]t commands the price of labor without
fear of strikes, for in its field it allows no competitors.''\18\
---------------------------------------------------------------------------
\18\ See Congressional Record 2457 (1890), available at https://
appliedantitrust.com/02_
early_foundations/3_sherman_act/cong_rec/21_cong_rec_2455_2474.pdf.
Contrary to Sherman's intent, courts have generally failed to
properly adjudicate or even recognize labor claims under antitrust law.
With limited exceptions, including piecemeal victories against certain
``no poaching'' agreements,\19\ the courts have proven largely
unreceptive to labor monopsony claims, and instead over the years have
eroded important antitrust precedents beneficial to labor.\20\ This
contradicts not only the original intention of key laws meant to
protect fairness in the economy, but also severely limits the ability
of workers to vindicate important rights through antitrust law.
---------------------------------------------------------------------------
\19\ See Marinescu and Posner, supra note 16.
\20\ See Marshall Steinbaum, ``Antitrust, the Gig Economy, and
Labor Market Power,'' Law and Contemporary Problems at 49 (June 12,
2019), available at https://scholarship.law.duke.edu/cgi/
viewcontent.cgi?article=4918&context=lcp.
This history explains why, to be meaningful, any antitrust reform
must not only be written clearly and with enough specificity to prevent
courts from subverting its meaning and intent, but must also be
emphatically clear that competition in labor markets as well as product
markets is protected.
rise of digital economy requires new law and enforcement
In addition to concerns related to the broader U.S. economy, the
rise of dominant digital companies present unique issues and threats to
competition and people's welfare. Companies including Amazon, Apple,
Facebook and Google are increasingly dominant across a number of
markets including e-commerce, online search, online advertising and
cloud computing. It has been projected, for example, that Amazon's
market share will account for 50 percent of the entire e-commerce
market in 2021.\21\ Many sources have documented how these companies
have utilized their dominance in ways that harm consumers, small
businesses, and workers as these platforms seek to expand, including
self-preferencing over businesses competing on their platforms, data
collection and use practices that may harm consumers, and the decline
in diversity in such industries as publishing because of consolidated
control.\22\ Meanwhile, the Amazon Web Services (AWS) segment of
Amazon's business controls 32 percent of the cloud computing market,
greater than the share held by AWS's three largest competitors
combined.\23\ While many industries are dominated by only four
corporate players, in the Big Tech arena a single company often
dominates the market: for example in social media (Facebook), Internet
search (and search advertising) (Google), or e-commerce (Amazon).\24\
---------------------------------------------------------------------------
\21\ Projected retail e-commerce GMV share of Amazon in the United
States from 2016 to 2021, Statista (December 1, 2020), available at
https://www.statista.com/statistics/788109/amazon-retail-market-share-
usa/.
\22\ See Investigation of Competition in Digital Markets,
Subcommittee on Antitrust, Commercial, and Administrative Law of the
House Committee on the Judiciary (2020); Petition for Investigation of
Amazon.com, Inc., submitted to Federal Trade Commission (2020),
available at http://www.changetowin.org/wp-content/uploads/2020/02/
Petition-for-Investigation-of-Amazon.pdf. Regarding the impact of
Amazon's 65-percent market share in e-books over diversity in
publishing, see Lina M. Khan, ``Amazon's Antitrust Paradox,'' 126 Yale
L.J. 710, 766 (2017), available at https://www.yalelawjournal.org/note/
amazons-antitrust-paradox.
\23\ Cloud Infrastructure Spend Grows 46 percent in Q4 2018 to
Exceed U.S.$80 Billion for Full Year, CANALYS (February 4, 2019),
available at https://www.canalys.com/newsroom/cloud-market-share-q4-
2018-and-full-year-2018.
\24\ Dayen, supra note 2.
Such consolidation of control over product markets begets control
over corresponding labor markets. The example of Amazon is again
illustrative of this phenomenon. Following unrelenting expansion of its
business, Amazon now employs approximately 1.3 million workers
worldwide,\25\ the majority in the U.S. The company's growth within
labor markets is both record breaking \26\ as well as diverse in terms
of the categories of workers affected. Indeed, from white collar
technology workers to blue collar warehousing workers, Amazon is an
increasingly powerful employer. For example, it is now estimated that
Amazon employs fully one-third of all warehousing workers in the
U.S.\27\ As a consequence of Amazon's power in warehousing labor
markets, there are reports that in areas where the company has
established warehouses, wages for warehouse workers have declined.\28\
---------------------------------------------------------------------------
\25\ See Form 10-K for Amazon, Inc. filed with the U.S. Securities
and Exchange Commission, February 3, 2021, at 4, available at https://
www.sec.gov/ix?doc=/Archives/edgar/data/1018724/000101872421000004/
amzn-20201231.htm.
\26\ Michael Mandel, A Historical Perspective on Tech Job Growth,
Progressive Policy Institute, (January 13, 2017), available at https://
www.progressivepolicy.org/wp-content/uploads/2017/08/
PPI_TechJobGrowth_V3.pdf.
\27\ According to Bureau of Labor Statistics estimates, the
warehousing and storage sector counted a total of 1,194,400 employees
in June 2020. The total number of Amazon warehousing and storage
workers was approximately 425,000 as of June 2020, or 36 percent of the
sectoral total.
\28\ See, e.g., ``Amazon Has Turned a Middle-Class Warehouse Career
Into a McJob,'' Bloomberg, December 17, 2020, available at https://
www.bloomberg.com/news/features/2020-12-17/amazon-amzn-job-pay-rate-
leaves-some-warehouse-employees-homeless; ``Unfulfillment Centre: What
Amazon does to wages,'' The Economist, January 20, 2018, available at
https://www.
economist.com/united-states/2018/01/20/what-amazon-does-to-wages.
The power of dominant tech companies in labor markets has also
contributed to--and accelerated--the fissuring of the American
workplace. Fissuring has allowed corporations to treat large portions
of their workforces as non-employees, and to shift responsibility for
their workforce's work conditions, safety and well-being out of their
sphere of corporate liability.\29\ We find this trend highly
problematic as it not only shifts responsibility away from corporations
but also reduces worker power to secure decent wages and working
conditions and address workplace abuses. We believe that this
increasing labor market dominance and fissuring by large digital
companies should not go unchecked.
---------------------------------------------------------------------------
\29\ See David Weil, The Fissured Workplace (Harvard University
Press 2014).
The need for updated tools to regulate dominant digital companies
has been written about elsewhere at length,\30\ but we note that
dominant digital companies have several unique features for which
current antitrust law--particularly in its current anemic, price-
focused form--is ill-suited. Features of these companies include
platform or other utility-like structures that generate network
effects: the platform becomes more and more valuable as more people use
it. These network effects accumulate and multiply until a tipping point
is reached, beyond which entry by new competitor platforms is
difficult. As a result, these markets become essentially winner-take-
all. Second, in part because of the potential network effects, these
companies' corporate strategies turn on growth--acquisition of market
share--and not profit. Similarly, companies also focus on expanding
their business lines, including through acquisitions whose aim is to
eliminate nascent competition. Finally, for digital platform companies,
the acquisition and use of data play a key role in both the value of
the company and how it can exercise dominance and exclude others from
markets. Relatedly--because companies invariably have been able to
acquire data for free--digital companies' services are often ``free''
to consumers, which makes traditional consumer welfare-price analysis
inapplicable.
---------------------------------------------------------------------------
\30\ See, e.g., Khan, ``Amazon's Antitrust Paradox,'' 126 Yale L.J.
710.
Because of the unique features of these platform companies,
antitrust reform must develop new tools suited to these types of firms.
These tools must include: recognizing harms beyond consumer welfare/
price and traditional profit-driven strategies for growth; recognizing
the value of consumer data acquisition and use in exchange for
supposedly ``free'' services; and grappling with the ability of such
companies to exercise dominance and squelch new entry and competition
at lower-than-monopoly levels of market share, because of the network
---------------------------------------------------------------------------
effect features of such platforms.
With the dominance of large digital platform companies comes
equally problematic power in labor markets: In the high tech industry,
tech companies dominated by colluding to prevent competition among high
tech employees for jobs.\31\ Google workers have complained en mass
regarding sexual harassment and anti-union as well as race-related
dismissals.\32\
---------------------------------------------------------------------------
\31\ ``Judge Koh OKs $415M Google, Apple Anti-Poaching Deal,''
Law360, Sept. 3, 2015, available at https://www.law360.com/articles/
677683/judge-koh-oks-415m-google-apple-anti-poaching-deal.
\32\ ``Hundreds of Google Employees Unionize, Culminating Years of
Activism,'' New York Times (January 4, 2021), available at https://
www.nytimes.com/2021/01/04/technology/google-employees-
union.html#::text=OAKLAND%2C%20Calif.,staunchly%20anti%2Dunion%20Silico
n%20
Valley.
In addition, the extraordinary growth of Amazon's direct and
indirect employment, as discussed above, has impacted labor markets.
Amazon's dominance in employment has brought reports that Amazon's
warehouses result in declining warehouse wages in areas where they
locate.\33\ The New York Attorney General believes Amazon has so
blatantly ignored State COVID safety protocols in New York that she has
sued Amazon under general public safety laws, seeking injunctive relief
including disgorgement of profits.\34\ Amazon continues to exercise its
power to substantially increase fissuring of the workplace, including
by pushing employment responsibility onto hundreds of small delivery
businesses that it effectively controls, and by using thousands of
delivery/logistics drivers who not only are without traditional
employment protections as independent contractors, but are also subject
to unrelenting delivery load and speed demands that may compromise
safety.\35\ Similarly, it has created a whole new army of Prime Now
shoppers who pick and delivery groceries, again as ``gig workers'' with
none of the traditional protections of employment.
---------------------------------------------------------------------------
\33\ See supra note 29 and accompanying text.
\34\ James v. Amazon.com, Inc. (NY Sup. Ct., Feb. 16, 2021). See
also Palmer v. Amazon, 20-cv-02468-BMC (E.D.N.Y. June 20, 2020) (public
nuisance suit brought against Amazon alleging that Amazon's failure to
protect workers adequately from COVID created a public nuisance, a
common law tort that endangered public safety). The suit was dismissed
on the grounds that OSHA preempts State claims regarding workplace
safety. Palmer, Slip Op. (November 2, 2020). See also Smalls v. Amazon,
20-05492 (E.D.N.Y., November 12, 2020) (class action Federal civil
rights case alleging that Amazon violated civil rights statutes by
failing to protect a workforce that has a majority of people of color
from the dangers of COVID.) Smalls is still pending in Federal court in
the Eastern District of New York.
\35\ ``Amazon's Next-Day Delivery Has Brought Chaos and Carnage to
America's Streets,'' BuzzFeed, August 31, 2019, available at https://
www.buzzfeednews.com/article/carolineodonovan/amazon-next-day-delivery-
deaths.
In addition, such corporations are able to mount vigorous corporate
backlash against workers who attempt to exercise their right to
organize. At Amazon, the company tried to recruit ``labor spies and
anti-union analysts with background in Federal intelligence work,''\36\
to surveille its direct employees for union activity. The company even
allegedly conducted anti-union surveillance of its independent
contractor Flex drivers, manifesting an ``Orwellian'' program that
allegedly monitored as many as 43 driver Facebook accounts for hints of
union sympathies.\37\ The company is also pursuing a highly-funded,
vicious union-busting campaign at Amazon's 6,000-worker warehouse
facility in Bessemer, AL where workers are voting on union
representation this month.\38\
---------------------------------------------------------------------------
\36\ ``12 Facts About Morgan Lewis, Amazon's Powerful Anti-Union
Law Firm,'' LaborOnline, Feb. 18, 2021 (citing report that Amazon
posted-and then deleted-a job listing for an 'intelligence analyst' to
monitor workers' efforts to unionize, Business Insider, September 1,
2020), available at http://www.lawcha.org/2021/02/02/12-facts-about-
morgan-lewis-amazons-powerful-anti-union-law-firm/.
\37\ ``Amazon Flex Driver Fights Attempt to Arbitrate Privacy
Claims,'' Law360, March 1, 2021 (detailing Amazon Flex driver's class
allegations that Amazon ``purportedly hired intelligence experts to use
automated tools and monitoring software to track and intercept drivers'
social media activity.''), available at https://www.law360.com/
articles/1359635/amazon-flex-driver-fights-attempt-to-arbitrate-
privacy-claims.
\38\ ``Amazon Is Paying Nearly 10K a Day to Anti-Union
Consultants,'' The Sludge opinion, March 8, 2021, available at https://
readsludge.com/2021/03/08/amazon-is-paying-nearly-10k-a-day-to-anti-
union-consultants/; ``Amazon fights aggressively to defeat union drive
in Alabama, fearing a coming wave,'' Washington Post, March 9, 2021,
available at https://www.
washingtonpost.com/technology/2021/03/09/amazon-union-bessemer-
history/.
---------------------------------------------------------------------------
recommendations for antitrust reform
For reasons discussed above, we urge vigorous antitrust reform.
Meaningful reform should include the following:
(a) Eliminate rule of reason: Eliminate the highly open-ended
and problematic ``rule of reason'' decision-making, in favor of a
clear, simple rules against abuse of market power, to prevent courts
misinterpreting the law or imposing additional barriers to antitrust
protections in the future.\39\ As this implies, parties should be
permitted to prove an antitrust violation by showing anti-competitive
harm from a dominant firms' conduct in a labor or product market. Firms
should not be able to defend, or rebut, evidence of abusive conduct by
offering a pro-competitive justification. Piecemeal or partial rules
that permit certain pro-competitive justifications, or that allow other
``rule of reason'' defenses provide too great an opening for continued
judicial law-making and subversion of antitrust protections.
---------------------------------------------------------------------------
\39\ The last 40 years of courts weakening antitrust laws in
response to Robert Bork's The Antitrust Paradox is the most commonly
cited example of judicial activism in antitrust (Khan, supra note 30 at
717-721), but judicial attempts to subvert the purpose--as well as
specific provisions--of antitrust law have been endemic since antitrust
laws were first enacted. Khan relates how Congress outlawed predatory
pricing starting in 1914, only to pass several new statutes outlawing
the same practice as courts repeatedly held those statutes allowed
predatory pricing conduct, until finally ``by the mid-twentieth
century, the Supreme Court recognized and gave effect'' to the
statutory prohibition on predatory pricing. Id. at 723-24.
(b) Include labor markets in merger reviews: For merger review,
establish labor market-related filing triggers, and require
consideration of the effects on labor market concentration of all
---------------------------------------------------------------------------
mergers reviewed.
(c) Prohibit anti-competitive worker restraints: Prohibit
outright anticompetitive worker restraints such as noncompetes and no
poach restrictions. Such restrictions directly interfere with workers'
mobility and limit their ability to compete for different jobs with
better wages or other terms of employment. These restraints exacerbate
inequality and the imbalance between corporate and worker power,
distorting competition in labor markets. Similarly, unfair and anti-
competitive mandatory arbitration clauses should be made illegal and
unenforceable.
(d) Provide for labor monopsony claims clearly and expressly:
Expressly provide for labor monopsony claims under antitrust laws by
including abuse of labor market power and exclusionary conduct in labor
markets in antitrust laws and legal standards. These changes should be
done using clear and express language so that courts may not refuse to
apply antitrust laws to labor monopsony behavior.
(e) Establish an appropriate threshold for labor market power:
Establish a lower market share threshold at which a firm is presumed to
have market power. Evidence suggests that a special feature of labor
markets is that they become significantly less competitive at lower
levels of concentration than product markets; we thus urge a 20 percent
threshold for labor markets.\40\
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\40\ See Investigation of Competition in Digital Markets,
Subcommittee on Antitrust, Commercial, and Administrative Law of the
House Committee on the Judiciary (2020) at 393 (``It is the view of
Subcommittee staff that the 30 percent threshold established by the
Supreme Court in Philadelphia National Bank is appropriate, although a
lower standard for monopsony or buyer power claims may deserve
consideration by the Subcommittee.''), available at https://
judiciary.house.gov/uploadedfiles/
competition_in_digital_markets.pdf?utm_campaign=4493-519.
(f) Expand antitrust exemption to include gig/fissured worker
organizing: Organizing activity by workers classified as independent
contractors should be exempt from antitrust laws just as employee
organizing is exempt. Independently classified workers must be
permitted to engage in collective activity to improve their working
---------------------------------------------------------------------------
conditions.
(g) Address special problems posed by Big Tech for a healthy,
competitive economy: Revise antitrust laws to address the unique
characteristics of digital platform companies in ways that recognize
the value to such companies of growth in market share over profits in
the areas of predatory pricing, mergers and recognition of cognizable
competitive harms; the threat posed by vertical integration and cross-
business-line self-preferencing and exclusionary conduct; and the
outsized power such firms can exercise over workers and over the
fissuring of the workplace when they become dominant economic actors.
We believe that the structure of our economy matters. In order to
have a fair chance at a good job, good wages, and chance to have a
choice and negotiate these conditions--as well as a choice about what
we buy, where we live, who has our information--it matters who has
power in our economy and in our system. In all of these areas, as
discussed above, we believe the power of individuals has been
declining, and the power of the large corporation has increased. And it
is increasingly clear that corporate concentrations of power harm
consumers, workers and other market participant as well as the economy
itself in a multitude of ways--from wage inequality to corporate
influence on politics to innovation.
International Brotherhood of
Teamsters The Strategic Organizing Center
25 Louisiana Avenue, NW 1900 L Street, NW #900
Washington, DC 20001 Washington, DC 20036
Iain Gold Joan Moriarty
202-437-0963 (917) 208-5978
[email protected] [email protected]
Marka Peterson
(202) 215-6115
[email protected]
______
Communications
----------
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael G. Bindner
Chair Warren and Ranking Member Cassidy, thank you for the opportunity
to submit these comments for the record to the subcommittee on this
topic.
The technology sector has certainly been an attractive target for those
who seek to create a wealth tax, which is why we believe the
subcommittee is addressing this topic. Whether this sector produces
long-term wealth for its owners is questionable, however. Founders are
often leveraged and cash flow comes, not from revenue, but from
continued capitalization. When making comments on wealth and social
media, I always ask the following question:
``How often do you buy a product that is advertised on the platform?''
Me neither. When I buy things, I go to Amazon and similar sites and
browse. When I buy airline tickets, I go to the carrier's webpage or a
page where I can compare prices. On some media sites, I may follow an
ad from one influencer to another, but commercial ads are simply an
annoyance, not an opportunity to buy something outside of my budget.
The jury on commercial advertising success in this sector is still out.
Any regulation of such advertising is, or should be, the job of the
Federal Trade Commission. Advertising in such an environment is no
different than advertising in other broadcast or print media. If there
are gaps in the law, they can be easily filled by the appropriate
committee, which this is not.
Social media is by nature monopolistic. Our generation finds old
classmates, paramours and even disconnected relatives in one place,
rather than across multiple platforms. Should the inability to stay
afloat without capital infusions be realized, many of us will search
for different platforms as a group, using old fashioned technologies
like the telephone to decide where to land. True social groups are not
really a productive market for most advertising. Indeed, in order to
remain friends, political debates often run out of steam.
Of late, it is the political advertisements that are attracting the
most attention. There is very real concern about online sedition--
although seditionists who use public sites are not the sharpest of
tacks in the desk drawer.
If it were not for the lives lost and the potential for real mayhem,
the Insurrection would have been comical. It was based on Mr. Eastman's
rather wishful reading of the 12th Amendment. Once alternative slates
became an impossibility, the winner had to be the current President.
Even with all of the contested state delegations omitted, Biden still
had more electoral votes. A clear reading of the Amendment states that
the House counts only a majority of valid electors. Invalidating
electors reduces the total.
Even if a Kangaroo Kongress had found a way to kill or detain members
to get a majority to their liking, the rule of law is too strong in
this nation and its military for the traitors to have succeeded. The
organizers would have simply been elected immediately rather than after
the current FBI and congressional investigations (including the Ethics
Committee) finish their work. Our democracy was never in real danger--
although members of Congress certainly were.
Most social media politics is not that blatantly stupid or dangerous.
The real ``muscle'' of the militia movement is currently rotting in the
District of Columbia jail. Most will realistically face long prison
terms, as will certain members of the legislature who were in any way
part of the master conspiracy. Existing law will punish the guilty, as
will the Ethics Committees.
Having eliminated commerce, capital finance and sedition as concerns in
the technology sector, it is time to address what is left and why there
is little that can be done by this, or any other committee.
Issues of competition, growth and privacy must be considered around the
issues of political speech and advertising. Platforms have, of late,
been policing themselves (Twitter) or are shut down (Parler) when
extremists become dangerous. Any discussions along these lines are
probably best discussed by the Intelligence Committees and their staff.
A new minority leader, with new staff, on the minority side of the
other chamber can be trusted to get down to business.
The avenues for Congress to regulate political advertising have been
foreclosed by the Constitution and the Courts. The content of political
speech on social media cannot be touched. The same applies to issues
and independent campaigns. That social media leaves a trail that could
prove that some independent campaigns are more linked to the main
campaign than is allowable is a positive.
The FEC needs adequate staffing to follow such leads--and a more robust
membership model. The current structure would be comical if it did not
endanger our democracy. The FEC must also build stronger relationships
to the intelligence community to avoid a repeat of 2016. I suspect more
shoes will drop soon.
The questions of the privacy of data in this context consist of voter
identification, get out the vote and fundraising data. When funds are
raised for a candidate's political committee, information must be
public. For dark money committees, more sunshine is desperately needed.
President Obama's campaign perfected the tools for using technology in
2008. The Trump campaign merely followed the existing playbook. Any
campaign that does not target using the same methods should not bother
filing papers to get on the ballot.
Regulations on soliciting contributions and volunteers are problematic.
The real gold in electoral politics are good donor and volunteer lists.
The kind of donors and activists who are most in demand already know
that their information is as valuable to future campaigns as it is for
the ones they are currently working on.
Adding ``fine print'' to donations--or possibly a video to be watched
before making a contribution or volunteering would be worthwhile to let
first time donors know what they are truly signing up for it. I wish
you luck getting such measures passed. No one wants to be the first to
warn potential donors, although in the long run, it may be a selling
point for reform minded candidates.
As long as the Supreme Court takes a broad view of what constitutes
political speech (and measures to regulate it constitutionally have as
much chance to pass as those on flag burning--and neither should pass),
there is little that Congress can do to regulate political speech on
the Internet.
As long as there are monied interests in politics, these issues will
arise. The problem is capitalism itself. The truth is, even if
capitalism is entirely replaced by a more cooperative economy, the
governance of political speech should still be off the table--
especially as authoritarian capitalism is in its eventual death throes.
Eventually, workers will beat them at their own game.
I hope these comments have raised issues not previously discussed in
this debate--which if taken to heart should end it.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff. A YouTube video of these comments will be shared
with the committee under separate cover.
______
Sara Monica LLC
P.O. Box 168
Dunellen, NJ 08812
www.SaraMonica.com
[email protected]
Statement of Sara Maher
Amazon's Incentives for Employees' Inefficiencies
A secondary incentive for Amazon to force their employees to work
unrealistic fast paces, beyond the benefit Amazon receives from the
amount processed, is the additional profits Amazon illegally gains
through the inefficiencies of the work that can't be done properly or
correctly due to the restrictive time demands and unrealistic quotas.
Most notably in 1) FBA guaranteed returns mail fraud, 2) FBA
overcharges, non-reimbursements and phantom inventory, 3) vetting of
counterfeits screening.
Amazon profits from what slips through the cracks when the employees
are forced to work so fast that they must let things slip through the
cracks to make their quotas. Amazon gives the impression that they're
working efficiently to prevent errors, but the unrealistic working pace
sets the system up for failures. Amazon's sweat shop pace actually
hinders the process being done efficiently and carefully, allowing
Amazon to illegally profit immensely from those failures. Amazon abuses
and uses its employees as proxies for these illegal practices.
First, take another look at the insightful and truthful comments from
Courtenay Brown about Amazon's ``High tech sweat shops'', and going
forward you'll realize that Amazon is financially incentivized to be
dysfunctional by design.
Courtenay Brown's quotes,
Now Amazon doesn't care about how their workers are trained,
it's all about speed and quantity . . .
Workers cannot do their jobs well because Amazon wants to make
more money . . . A lot of us want to do good work, but it's
really frustrating because, you know, we're at a limit.
Workers cannot do their jobs well because Amazon wants to make
more money. That's the bottom line for them. As much product as
they can get out and more money.
And most importantly, And you attempt to try and do, you know,
these things like give customers good quality, actually
practice customer obsession, you get written up and terminated,
so it's all about Amazon's profits.\1\
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\1\ Subcommittee Hearing, Promoting Competition, Growth, and
Privacy Protection in the Technology Sector, Tuesday, December 7, 2021,
09:30 AM, https://www.finance.senate.gov/hearings/promoting-
competition-growth-and-privacy-protection-in-the-technology-sector.
So, if they get punished for trying to do a good job for their
customers, but rewarded for doing a bad one, and if Amazon financially
benefits from the work poorly executed and from the mistakes, then
that's basically the definition of dysfunctional by design, which means
Amazon's executives are aware of the benefits from the dysfunctions,
therefor it's fair to assume it's intentional. And if Amazon has always
been aware of these mistakes, but by not fixing these mistakes Amazon
benefits by immense profits, then again you have to ask, are they
really mistakes anymore or are they dysfunctional by design, therefore
liable for those mistakes. And as long as Amazon has these financial
incentives and monopoly power they have no need or motivation to fix
these mistakes or to do a better job for their employees and for their
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customers which includes their 3rd party sellers.
And remember, Amazon has 2 customer bases, 1st--The customers who
purchase the products and services from the platform. And 2nd--The 3rd
party sellers who pay fees to sell on the platform and use the FBA
services.
The 3rd party sellers I'm referring to in this document are the
American small businesses who are following the rules of Amazon's
platform and the rules of the federal and state laws. I'm not referring
to the 3rd party sellers, mostly in foreign countries, who are selling
through FBA in America and are gaming the system by paying Amazon
employees to rig the system for them, and are not accountable to
federal or state laws.\2\
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\2\ Some Amazon Sellers Are Paying $10,000 A Month To Trick Their
Way To The Top, By Leticia Miranda, BuzzFeed News Reporter, Posted on
April 24, 2019, at 3:35 p.m. ET. Last updated on April 24, 2019, at
4:47 p.m. ET, https://www.buzzfeednews.com/article/leticiamiranda/
amazon-marketplace-sellers-black-hat-scams-search-rankings.
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1--FBA Returns (Fulfillment by Amazon's returns processing warehouses).
The financial burdens and risks of FBA's returns are disproportionately
put on the 3rd party sellers rather than Amazon. The extreme
inefficiencies in the returns processing system frauds the 3rd party
sellers out of additional and unnecessary consecutive returns
processing fees on the same returned items that are often in an
infinite loop going back and forth between FBA returns department and
the buyers. Where stressed employees knowingly process used and damaged
``non-sellable'' returns, then mark them as ``sellable'' as a faster
processing option due to unrealistic quotas, and then place the item
back into inventory to be shipped to the next customer, only to get
returned again due to its used condition. Employees are pushed to work
so fast, that it's impossible for them to take enough time to properly
inspect the condition of all the FBA returns, and a guaranteed second
return of the same item gives Amazon's FBA additional fraudulent
lucrative profits in FBA returns processing fees payable by the
victimized unwitting 3rd party sellers. And it frauds the buyers who
believed they were to receive products in new and unused condition, and
potentially dangerous to the buyers depending on the condition of the
compromised products. Considering this grand scale fraud is conducted
through the mail, its millions of dollars in mail fraud.
An Amazon employee who worked at LEX2 processing returns made a post on
Reddit where he answered questions about the LEX2 returns processing.
The following quotes gives you an idea of the state of affairs.
A Reddit user named anning123 asked this question:
I bought something in new condition, but the package I received
was clearly opened and used. The item itself has a sticker with
``LPN PM'' number, do you know if it means anything?
The Amazon employee named AmazonAssociate09876 answered:
The LPN PM sticker is a ``License Plate Number.'' They are used
by Amazon returns facilities to label returned items so that a
new barcode with a track history can be applied. If you ever
see that sticker it means the item has been returned via
Amazon. This doesn't exactly mean it's been used though as
plenty gets returned in brand new condition.
What happened with you though could be multiple things. For
example clothes are inspected to see if it is clean, undamaged,
and the correct item. The packaging is not considered unless
the item won't stay in it in which case it is repackaged in a
new bag. We are not required to fold it nor make it look nice
again.
If it was basically anything else, then you are one of about 3
million customers every year who got a bad product due to
``work place laziness.'' Amazon requires it's employees to
process 44 returns an hour to maintain ``acceptable'' rate. At
my FC they have been lax on this and the average is now 36 an
hour. Not maintaining rate will lead to a warning. Do it again
is a write up. Three write ups is a termination. Most new hires
struggle to hit 44 an hour and at least half lose their jobs
due to rate alone. So a lot of associates cheat and never even
look inside the packaging (or new hires not answering their UI
questions correctly because they don't read the thing) and end
up processing items that are clearly damaged as new. Which
leads to customers like you getting a bad product.
It's a two sided issue that can be fixed if Amazon bloody
stopped putting on the blame on the returns associates and
acknowledged their own fault. Just one simple solution is to
have the out bound employees call out bad product when they
stow it. That said they also have a rate to maintain as well.
Maybe having inflexible rates that only ever go up is a bad
thing? Or maybe being inflexible to the point that a machine
decides if someone loses their job not a human and no one can
supersede said machine is problem as well?\3\
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\3\ Reddit post: Hello! I am an Amazon Returns associate, AMA!,
https://www.reddit.com/r/IAmA/comments/nv1cg4/
hello_i_am_an_amazon_returns_associate_ama/.
I've been selling on Amazon since 2009 as a low volume 3rd party
seller. And for many years, sellers and myself, have been requesting
Amazon create a button (option) in seller central where we can opt to
have all our FBA returns automatically removed from inventory
regardless of the condition so we can evaluate them for ourselves to
determine if they're in sellable condition. There are many examples of
this request in the seller forums.\4\, \5\, \6\
And it would be by far easier on Amazon's employees to not have to
judge within 96 seconds (60m/44r = 96s) if a product had been tampered
with, opened, used, swapped out with another product, etc. . . . But
Amazon has denied us this simple option over and over again. And it
would be much easier for Amazon to automatically remove the returns
since they already have a process of ``removal of returns'' and
``removal of inventory''. And the returns would be easy to track and
send back to the original seller because each stickered FBA product has
internal bar codes printed on a sticker that's placed on the products
which tracks the logistics of individual sellers' products.
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\4\ Amazon, please make a few FBA changes to help sellers avoid
suspensions by ConcernedFbaSeller Posted on: 05 August 2015 5:16 PM,
https://sellercentral.amazon.com/forums/
thread.jspa?threadID=264246&start=0&tstart=0&sortBy=date.
\5\ How do I stop returns from getting put back in to inventory? By
Schiit Audio Posted on: 02 October 2014 10:38 AM, https://
sellercentral.amazon.com/forums/thread.jspa?threadID=
223907&tstart=0.
\6\ How to Identify Returned Item for Purpose of Removal Order, by
LucasP, May 9, '15 8:46 AM, https://sellercentral.amazon.com/forums/t/
how-to-identify-returned-item-for-purpose-of-removal-order/49183.
Since Amazon was very aware of the problem for years, and after a lot
of pressure, to appease us, Amazon finally tried a wonderful pilot
program for a limited time called the ``FBA Customer Returns Removal
Pilot Program''. Where sellers give Amazon the ASIN numbers of the
products they want to be automatically removed from inventory if
they're returned. Amazon would automatically mark them when they're
returned as ``unsellable'' regardless of the condition, which would
automatically have them pulled from inventory and returned to the
original seller. A perfect super simple solution that worked within
their existing system. But then Amazon stopped the pilot program for
unknown reasons.\7\ They had many opportunities of simple and fantastic
solutions like this one to correct the situation, but chose not to. The
only problem I see, if Amazon improved the returns processing system by
reducing the quotas on their workers to allow them to do a better job,
and allowing sellers to automatically pull out all of their returns out
of inventory, then Amazon would lose potentially millions to billions
of dollars in unnecessary and fraudulent additional fulfillment fees
and returns processing fees payable by the victimized unwitting 3rd
party sellers.
---------------------------------------------------------------------------
\7\ FBA Customer Returns Removal Pilot Posted byu/frankyford,
https://www.reddit.com/r/FulfillmentByAmazon/comments/ebo25y/
fba_customer_returns_removal_pilot/.
---------------------------------------------------------------------------
Here's the math:
This is a screenshot of one of my returns payment summaries from 2016.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsSo basically, if the product is sold and the customer keeps it,
then on this product that costs $19.95 Amazon would profit $5.87 in
processing and referral fees, and the seller profits $14.08. Keep in
mind these fees do not include the amount of money spent in FBA storage
fees, shipping fees to the fulfillment centers, or Amazon's
advertisement fees for the sale of that product on Amazon's platform.
But if that product is returned in damaged and used condition, Amazon
still profits $3.48 in processing fees, but the seller loses the entire
price of the product in addition to $3.48 in processing fees ($19.95 +
$3.48 = $23.43). And if the product was marked correctly as non-
sellable and shipped back to the seller, then the additional removal
fee of .50 cents would have made the total a loss of $23.93 ($23.43 +
.50 cents = $23.93).
And now, if that same returned product that's used and damaged is put
back into inventory to be fraudulently sold as new and unused condition
to the 3rd party sellers next buyer, then it pretty much guarantees the
buyer will return it based on its poor condition. So, the second time
that same products gets processed as a return, Amazon profits a
combined total of $6.96, and the seller now loses a combined total of
$6.96 plus the entire cost of the product ($19.95 + $6.96 = $26.91).
And you can easily see how the math can quickly add up if the product
goes unnoticed by the 3rd party seller, and is in an infinite loop
between the returns department and the customers. I assume that
eventually the customer would finally receive a new and unused product
in good condition, but who knows after how many attempts, and it would
be at the expense of the 3rd party seller.
So, if the process was honest and efficient, and the product was
removed the first time, then Amazon would profit a total of $5.87. But
when it's returned twice and processed twice, Amazon profits in returns
processing fees a total of $6.96 ($3.48 + $3.48 = $6.96). The
additional profit from the first return and the second return combined
is a total of $1.09 ($6.96 - $5.87 = $1.09). So Amazon made an extra
$1.09 in the fraudulent reprocessing of a used and damaged return, than
if they simply pulled it out of inventory when it was returned the
first time.
One dollar and 9 cents doesn't sound like much money, but Amazon has
about 200 million PRIME members, and more than 200 million shipments a
year. So, say for example, if Amazon only did this once a year with
approximately only 10% of their PRIME members, a seemingly overlooked
and honest ``mistake'' that gets refunded. And if Amazon makes an
additional profit of $1.09 from the combination of the fees earned on
the 1st and 2nd return of the same unit, in this scenario if the
originally costs is $19.95, then $20 million x $1.09 = $21,800,000.00,
in potential illegal profits per year.
Now imagine if it happened to all of their PRIME members, but only once
a year. Imagine if it happened to all of their PRIME members, but
several times a year. Keep doing the math, and the motivation to not
fix this debilitating situation starts to become more obvious at the
expense of the FBA employees who are used as proxies, the 3rd party
sellers who Amazon is stealing from, and the customers who are put at
risk of potentially receiving a dangerously tampered with product. And
at the expense of the shareholders as well since these illegal profits
also inflates the value of Amazon, because it's undetectable as to how
this extra money was made since it's undetectable as how it should have
never happened.
It's also very dangerous for the consumers because many of the non-
sellable returns that are placed back into inventory and shipped out
again typically have a variety of these issues: no packaging, no
product instructions, no warning labels, no users manuals, no warranty
papers, no tamper evident security seals, missing parts, used items,
soiled items, damaged items, swapped items with different low quality
products, originals swapped with counterfeit items, items covered in
human hair or pet hair, items covered in body fluids, etc. . . . just
simply repackaged in Amazon's plastic bags and barcodes and put back
into inventory to be shipped to the next unwitting 3rd party FBA
sellers' customers.\8\, \9\, \10\,
\11\, \12\
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\8\ ``Online order of diapers arrives at Jersey City home--but they
were already soiled,'' By Joshua Rosario | The Jersey Journal, Updated
January 11, 2020; Posted January 10, 2020, https://www.nj.com/hudson/
2020/01/online-order-of-diapers-arrives-at-jersey-city-home-but-they-
were-already-soiled.html.
\9\ ``Why did Amazon send this man a pair of moldy shoes?'', Inside
Edition, Duration: 01:43 2/6/2020, https://www.msn.com/en-us/video/
viral/why-did-amazon-send-this-man-a-pair-of-moldy-shoes/vi-BBZJmc9.
\10\ ``Amazon Customer Outraged To Find `Baggie of Drugs' Inside
Package Containing Gift For His 8-Year-Old Niece'' Newsweek, by Khaleda
Rahman On 11/24/19 AT 9:26 AM EST, https://www.newsweek.com/amazon-
customer-outraged-drugs-package-1473750.
\11\ ``A ``new'' Amazon waffle maker came with an old crusty-
looking waffle already in it''; ``Buying from Amazon is still a crap
shoot.'' Vox, By Jason Del Rey@DelRey January 3, 2020, 2:20pm EST,
https://www.vox.com/recode/2020/1/3/21047550/amazon-waffle-maker-
babycakes-marketplace-seller.
\12\ ``Police investigate after 65 pounds of weed included with
Orlando couple's Amazon order,'' WFTV.com By: Jeff Deal, Updated:
October 20, 2017-6:16 PM, https://www.wftv.com/news/local/police-
investigate-after-63-pounds-of-weed-included-with-orlando-couples-
amazon-order/627653301/.
This fraudulent activity also damages 3rd party sellers' accounts in
``violation reports'' which the 3rd party sellers' accounts can get
suspended for, since Amazon passes the blame for ``Item not as
described'' and ``used items sold as new'' complaints onto the
unwitting 3rd party FBA sellers who have no idea that Amazon's FBA put
used returns back into inventory. Typically when an FBA seller's
account is suspended, they have to pay Amazon a disposal fee for their
inventory if they can't afford to have it all shipped back to them and
if they can't afford long term storage fees in FBA. The disposal fee is
the cheapest removal option, but at the greatest loss. But ``disposal''
doesn't necessarily mean Amazon disposes of it, in many cases it's free
inventory for Amazon to sell. So if Amazon wants the inventory of a 3rd
party FBA seller, there are ways for Amazon to get it for free, and the
returns fraud ``account violations'' could be a means amongst many to
---------------------------------------------------------------------------
that scenario.
And since there is no way to leave company feedback directly for
Amazon, then the 3rd party FBA sellers have to take the full blow of
the customers' negative reviews and feedback from poor FBA experiences,
which is extremely damaging to their businesses' reputation, brands and
sales, even though they had no control over the FBA shipments and
activities.\13\ And the returns fraud also damages the product reviews
of private label brands when a customer receives a used/damaged/
swapped/counterfeit/knock-off/moldy/soiled returned item they thought
was supposed to be the legitimate product in new condition.
---------------------------------------------------------------------------
\13\ Are we really this powerless with new feedback removal team?
Kings Fan Goods Posted on: 21 September 2017 8:56 PM, https://
sellercentral.amazon.com/forums/thread.jspa?thread
ID=367788&tstart=0. Kings Fan Goods Posted on: 21 September 2017 8:56
PM.
``Feedback'' reviews are about the companies' services, which is
different than the ``product reviews''. And without visible feedback
reviews about Amazon, then Amazon will always look better as it
fraudulently deceives the buyers that Amazon is more trustworthy than
any other 3rd party seller or any other business in general. This is an
unfair business practice since Amazon allows others to judge 3rd party
sellers, but no one is allowed to judge Amazon. It's also damaging to
other honest businesses outside of Amazon because customers can't
compare their reviews to Amazon since Amazon has no reviews about
itself. Therefor there are no limitations on how poorly Amazon's
services are and how badly they can abuse their entire ecosystem to
squeeze, cheat and steal more cash out of its debilitated bodies. And
too many 3rd party sellers are too scared to speak up, out of fear of
retaliation and loss of their selling privileges.\14\
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\14\ Mas_Des_Bories comment August 14, 2017 6:07 AM post #23,
https://sellercentral.
amazon.com/forums/t/what-s-do-i-do-next-amazon-will-not-pay-for-what-
they-destroyed/321102/23.
2--FBA overcharges, non-reimbursements, swapped inventory and phantom
---------------------------------------------------------------------------
inventory.
Another way Amazon unjustly profits from FBA warehouse inefficiencies
due to employee stress, and quotas, is that their employees are forced
to works so fast that they make many costly mistakes, and then to
compensate, out of fear of losing their jobs or pressure from
management, they'll cover their tracks by manipulating the inventory
data at the expense of the 3rd party sellers, or they won't process the
information correctly for reimbursements, or they won't cooperate with
sellers for their contractual reimbursements.
When FBA sellers catch mistakes where they didn't receive their due
reimbursements for FBA lost and damaged inventory or FBA returns not
returned within 45 days,\15\ they have to report it within a claim
period to get their money back. Sometimes after a great deal of work
and documentation from the FBA sellers, Amazon will actually reimburse
them, but typically below the fair market value.\16\ Other times Amazon
will simply refuse to reimburse the claim even if it's within the claim
period, by making nonsensical excuses, or changing the facts, or hiding
the discrepancies by changing the terminology, etc. . .
.\17\, \18\, \19\, \20\,
\21\ Other time's Amazon won't reimburse in cash but with a totally
different cheaper bogus product, as an exchange.\22\, \23\
Sometimes claims are denied for no practical reason.
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\15\ How do you catch the refunds that need to be reimbursed?,
https://sellercentral.
amazon.com/forums/thread.jspa?threadID=206387&tstart=0 Uplifting Deals
25 May, 2014 7:40 AM.
\16\ OnlineSeller comment in What's happening with FBA system
October 8, 2017 6:04 AM, https://sellercentral.amazon.com/forums/t/
whats-happening-with-fba-system/326179/10.
\17\ Beware Reimbursement Requests Getting Difficult by
HonestSeller, Posted on August 2, 2017 11:48 AM, https://
sellercentral.amazon.com/forums/thread.jspa?messageID=4093066#
4093066.
\18\ What do I do next? Amazon will not pay for what they
destroyed! By TheLeatherman Posted on: 26 July 2017 12:03 AM, https://
sellercentral.amazon.com/forums/t/what-s-do-i-do-next-amazon-will-not-
pay-for-what-they-destroyed/321102.
\19\ Is anybody aware of a policy change in handling ``stickered''
inventory? Funky Monkey Posted on: 16 February 2014 8:10 PM, https://
sellercentral.amazon.com/forums/t/is-anybody-aware-of-a-policy-change-
in-handling-stickered-inventory/304119.
\20\ THEY CHANGED THE TERMINOLOGY! Funky Monkey March 20, 2014 2:45
AM, https://sellercentral.amazon.com/forums/t/is-anybody-aware-of-a-
policy-change-in-handling-stickered-inventory/304119/33.
\21\ Results and observations from my experience digging for FBA
Reimbursements TiffDMP Posted on: 05 March 2016 12:52 PM, https://
sellercentral.amazon.com/forums/thread.
jspa?threadID=293756.
\22\ Amazon no longer reimbursing units not returned in cash! Funky
Monkey, Posted on: 28 July 2017 12:31 PM, https://
sellercentral.amazon.com/forums/t/amazon-no-longer-reimbursing-units-
not-returned-in-cash/321425.
\23\ Amazon lost entire pallet of inventory, magically found
cheaper substitute, by Richard Roberson Posted on: 20 November 2017
10:34 AM, https://sellercentral.amazon.com/forums/t/amazon-lost-entire-
pallet-of-inventory-magically-found-cheaper-substitute/336057.
And in many cases Amazon employees will manipulate the inventory status
to deny reimbursements, like if its ``warehouse damaged'' where Amazon
would owe a reimbursement, they'll change it to ``customer damaged'' so
Amazon wouldn't be responsible for the reimbursement, even if it's
never been shipped to a customer.\24\ They'll also delete the entire
claim records (Case ID #) and retract and delete e-mails.\25\ They've
also suspended FBA sellers' accounts for bogus reasons if they try to
get Amazon to pay them their due reimbursements too often.\26\
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\24\ Customer Damage when No Inventory was Returned, https://
sellercentral.amazon.com/forums/t/customer-damage-when-no-inventory-
was-returned/349577.
\25\ FunkyMonkey's reply to TheLeathrman, https://
sellercentral.amazon.com/forums/t/what-s-do-i-do-next-amazon-will-not-
pay-for-what-they-destroyed/321102/7. TheLeatherman Posted post #7 July
28, 2017 12:19 AM.
\26\ https://sellercentral.amazon.com/forums/t/what-s-do-i-do-next-
amazon-will-not-pay-for-what-they-destroyed/321102/26. TheLeatherman
post #26, August 15, 2017, 1:45 PM.
And Amazon will often change the status of a ``warehouse damaged'' unit
to a ``sellable'' unit to not have to reimburse the FBA seller by
swapping dissimilar inventory between sellers and hide their actions by
saying in the ``Adjustment Reports'' the inventory came from a
``Holding Account''. Typically the dissimilar inventory is of far less
value and in inferior condition than the original, or an entirely
different product or counterfeit, but Amazon will claim it's the same
type of product when it's not. Another use of a ``holding account'' is
to make it look as if it's a totally new product that they held from
the seller's inventory, even when there were no other units in the
inventory it could have come from, it's phantom inventory to hide the
discrepancies so when the data is reconciled, everything looks
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accounted for.
FBA also regularly overcharges 3rd party sellers in ``weight handling
fees,'' ``long term storage fees'' errors, fulfillment fees, oversize
fees, etc.\27\, \28\, \29\,
\30\, \31\, \32\
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\27\ FBA fulfillment is 131.74 for a 11.95 item, Real chance Posted
on: 18 November 2017 6:50 PM, https://sellercentral.amazon.com/forums/
thread.jspa?threadID=376081&tstart=30.
\28\ Yet another reimbursement type . . . FBA storage fees for non-
existent ASINs by Water_Enthusiast (formerly iSnorkel) Posted on: 14
March 2017 7:46 AM, https://sellercentral.amazon.com/forums/t/yet-
another-reimbursement-type-fba-storage-fees-for-non-existent-asins/
284554.
\29\ FBA LONG TERM STORAGE FEE ERRORS!?!?!? WATCH OUT! Bee_Blessed
Posted on: August 18, 2016 4:54 PM, https://sellercentral.amazon.com/
forums/t/fba-long-term-storage-fee-errors-watch-out/182971.
\30\ Been overcharged FBA fees for thousands of orders and amazon
won't reimburse by SnoRainier Posted on: 26 April 2017 10:58 PM,
https://sellercentral.amazon.com/forums/t/been-overcharged-fba-fees-
for-thousands-of-orders-and-amazon-wont-reimburse/302279.
\31\ Why is Amazon stealing from the little guys? By just_a_li
April 18, 2017, 1:01 PM, https://sellercentral.amazon.com/forums/t/why-
is-amazon-stealing-from-the-little-guys/298524.
\32\ Anyone else being overcharged for FBA fees? By Florida_Man,
https://seller
central.amazon.com/forums/t/anyone-else-being-overcharged-for-fba-fees/
278036.
There have also been widespread issues for FBA inbound shipments, and
3rd party sellers at their wits end sending petitions to Jeff Bezos
directly through the seller forums. In a forum titled ``Petition to
Jeff/Executive Team regarding FBA Issues'' Rooster wrote, ``1--In the
last few months a change was made whereby the Seller was blamed for
issues caused by the FBA warehouses--without recourse.'' ``2--There is
an auto-reconcile feature that seems to be in place which is causing
widespread issues by not allowing a shipment to be researched for items
lost by the warehouses--or not being counted correctly in receiving.''
``3--Complete and correct shipments are being counted in as short and
then designated with a ``Problem'' designation requiring Sellers to
Acknowledge that we caused the problem and thus taking a hit to our
Inbound Metrics as well as losing the value of the items lost.'' Other
sellers in the forum joined in and added their own lists of grievances
over other disservices.\33\
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\33\ Petition to Jeff/Executive Team regarding FBA Issues. By
Rooster, Posted on: August 11, 2017 2:28 PM, https://
sellercentral.amazon.com/forums/thread.jspa?threadID=362363.
These fraudulent practices are damaging to the sellers' businesses,
sales, finances, brands, product reviews, feedback, and reputation. And
of course absolutely devastating to their mental health as they watch
in horror and agony as all their investments, hard work and dreams get
stolen from them, and the fear of how they'll financially survive and
provide for their families is unimaginable; millions of 3rd party
sellers have been living through this every day for years. And of
course sellers getting blamed for FBA issues out of the sellers'
control creating ``account violations'' which suspends the sellers'
accounts are even worse, aside from destroying the sellers' entire
businesses, the sellers are unable to access their sellers' accounts to
recover their reimbursements, and they'll have very few chances of ever
recovering their money. Sometimes the sellers' only chances of
reimbursements are if they go public with their story in Amazon's
Seller Forums, if they get lucky a forum monitor will chime in and
resolve the problem to save face on a now public issue. It's difficult
for sellers to get the attention of the media, because reporters simply
can't grasp the intricate details of online retail and have a hard time
understanding the issues. It's the same problem with government
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agencies.
These fraudulent practices also defraud the buyers who believed they
were getting a product in new and unused condition and/or believed they
were getting the product they ordered, and not a product that FBA
swapped out with something else to avoid reimbursing their FBA 3rd
party sellers.
Any contractual reimbursements that are denied and not paid back fully
are boundless profits for Amazon. It's a win-win situation for Amazon's
financial advantage into the millions to billions of dollars, but it's
all stolen money from the 3rd party sellers.
For example, in Amazon's Seller Forums where the FBA sellers try to
keep everyone aware of FBA's latest inventory manipulations, a FBA
seller named Water_
Enthusiast (formerly known as iSnorkel) Posted a warning to FBA sellers
on: 17 September 2016 1:34 PM in a thread titled, ``New type of FBA
reimbursement to request: Missing Unfulfillable Units'',
``We open cases for reimbursements that should have been issued
automatically, but aren't, to the tune of over $15,000 a year (plus
some lost units replaced to our inventory). Most cases are eventually
successful.''
. . . ``Recently I've stumbled on yet another category of units that
require reimbursement requests--missing unfulfillable units. In my
experience, NONE of these types of missing units have been ``auto-
reimbursed'' so opening a case is the only way to get what is due when
Amazon misplaces unfulfillable units.''
``When a customer returns an item with opened packaging, whether the
item is damaged or not, Amazon puts it back into our FBA inventory as
an unfulfillable unit. So far so good, system works as expected (we
have the ``repackaging of returns'' option off). We have the account
setting enabled to automatically return to us all unfulfillable units
every 2 weeks. So you would expect that these unfulfillable units would
make it back to us within a few weeks so we can inspect and repackage
or otherwise deal with it at our facility.''
``However I have found 60+ instances in the last several months where
the unfulfillable unit apparently DISAPPEARED--it never came back to
us, it does not remain as an unfulfillable unit in our FBA inventory,
it has not been reimbursed in $ or in units, and I see no evidence of
it being converted to a fulfillable unit and being added to FBA
inventory that way.''
``Multiple cases opened so far (with 5 units per case), half of the
cases have successfully earned reimbursement for the missing units so
far, with the rest of the cases still open. Several cases required
multiple contacts to resolve, especially when there were multiple
orders/returns for units of the same SKU, some of which were actually
returned to us and some of which were not.''
. . . (Side note--we've found our cases have been resolved quicker and
more favorably since we've taken to answering every emailed survey
``Were you satisfied with the support provided?'' to reward reps who
resolve in our favor (5 star), and to give appropriate feedback (1 to 2
star) to reps who give the runaround or make errors. I believe that the
reps can look at the feedback we give to other reps, much as eBay
members can view the ``feedback left for others'' in a buyer's
feedback, and that this may influence how they treat our cases.
Especially the prospect of earning 5 stars. YMMV.)
. . . And then in a reply to her post another seller named Chief Robot
posted on 29 December 2016 2:17 AM and said, ``Yes, we find these from
time to time. Just found a few ``reserved'' inventory that were lost or
should have been reimbursed. Status changed from unfulfillable to
reserved. Then stays in reserved forever. Best is when it belongs to an
old listing that no longer has a catalogue page and is archived, you
never see it when quickly scanning trough gui page. New SS excuse,
reserved unit is a fantom [Phantom] unit that was created to solve an
error in the past.''\34\
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\34\ ``New type of FBA reimbursement to request: Missing
Unfulfillable Units,'' by Water_Enthusiast (formerly known as iSnorkel)
Posted on: 17 September 2016 1:34 PM, https://sellercentral.amazon.com/
forums/t/new-type-of-fba-reimbursement-to-request-missing-
unfulfillable-units/198156.
In the case of this seller Water_Enthusiast, she carefully monitors her
FBA inventory so her losses are minimum, but at the expense of her
labor which is costly. This is labor Amazon FBA is getting paid to do
through sellers' FBA fees, but FBA does the job so poorly that it takes
sellers valuable additional time to correct FBA's costly errors. In
many cases it costs more to pay an additional employee to keep track of
FBA to prevent the non-reimbursement loses, than they would recover
from non-reimbursements. So it's simply cheaper to succumb to
victimization of Amazon stealing from them. Most sellers don't have the
time, resources or knowledge to stay on top of it, or they're not aware
of the non-payments because they assume Amazon's FBA is doing the job
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they're paying them to do. So they lose everything to Amazon.
So let's do the hypothetical math on this, say there were 100,000 FBA
sellers selling at her sales volume that assumed Amazon was honestly
and efficiently reconciling the inventory and payments, and weren't
aware of the losses or unable to be reimbursed, then 100,000
$15,000.00 = $1,500,000,000.00 a year of potential profits which Amazon
could keep without detection or consequence. And that doesn't include
the sellers that have higher or lower sales volume than her.
These profit should look like a negative on Amazon's balance sheets,
but shows up as a positive. And are undetectable as how they were
gained because it's undetectable as how they should have been lost.
Perhaps somewhere in Amazon's fluctuating policy something is written
about claim periods. But nowhere in the policy does it say FBA sellers
are responsible for keeping track of FBA payments and reimbursements to
make sure FBA pays them according to policy otherwise FBA is not liable
for reimbursements. FBA is supposed to keep track of the inventory as a
part of the contractual agreement of their services and pay
reimbursements accordingly without margins of error.
No new Amazon FBA warehouse should be allowed to be built in the USA
until a thorough external audit and investigation is done of all FBA
business practices since the first day Amazon started FBA, for both the
employees and the 3rd party sellers. Investigations need to be done
into the abuse and exploitation of their employees who are also being
used as proxies for theft; against their will. The ``Adjustment
Reports,'' ``Reserved Units,'' ``Holding Accounts'' and ``Inbound
Shipments'' need to be thoroughly investigated and reconciled. Non-
reimbursements, non-payments, overcharges that's owed to the 3rd party
sellers need to be investigated, reconciled and reimbursed. A
reconciliation of all inventory needs to be done to find all the
discrepancies over the years, so the full value of the lost, damaged
and non-returned items can be fully accounted for and reimbursed to the
3rd party sellers. Additional fraudulent fees from processing the same
returns over and over again into an infinite loop must be reimbursed.
Overcharges from weight handling fees and long term storage fees errors
must be reimbursed. And considering that the 3rd party sellers are
illegally forced and racketeered into FBA via PRIME, since FBA is
illegally tied to PRIME and the ranking visibility on the platform,
then 3rd party sellers should also be reimbursed all their fulfillment
fees as restitutions from being illegally racketeered into FBA. (I can
further elaborate about racketeering via protection racket upon
request). And an SEC investigation needs to be done on the additional
money FBA stole from its 3rd party sellers but then reported as
profits, when in fact it was stolen money. FBA & SFP needs to be untied
from PRIME as the sole qualifications, so other fulfillment service
companies can qualify a product for PRIME, or any other perks made
available on the platform. And going forward, Amazon's FBA should be
closely monitored and audited by external agencies. These agencies
should do reviews and audits of the monitoring of inventory status, and
making sure the reimbursements and inventory are reconciled. And Jeff
Bezos's influence, and the resulting employees' fears and pressures to
abide to his selfish and unethical commands in this massive fraud needs
to be investigated.
3--Fast paced counterfeits screening forces counterfeits to slip
through the cracks; and Amazon financially benefits.
Amazon gives the impression that they've invested heavily in stopping
counterfeits on their platforms and within FBA. But the working pace is
set up for failure and inefficiencies, just like the previous examples.
And Amazon profits bountifully from the counterfeits that are forced to
slip through the cracks.
Wade Shepard, an investigative reporter did such a thorough job
explaining how this happens, that there's not much more I need to add
to his reporting to explain this. So here are some quotes from his
article ``How Chinese Counterfeiters Continue Beating Amazon'' by Wade
Shepard, January 12, 2017:\35\
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\35\ How Chinese Counterfeiters Continue Beating Amazon, by Wade
Shepard, January 12, 2017, https://www.forbes.com/sites/wadeshepard/
2017/01/12/why-amazon-is-losing-its-battle-against-chinese-
counterfeiters/#7a75e68c585c.
Amazon's counterfeit problem grew exponentially when the
marketplace began to aggressively target Chinese sellers in
2015. To help cut out the import/export middlemen and allow
Chinese manufacturers and merchants to sell directly to buyers
in the USA, Canada, and Europe, Amazon streamlined the shipping
process by doing things like registering with the Federal
Maritime Commission to provide ocean freight, which allowed for
Chinese merchants to ship entire containers directly to
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Amazon's fulfillment warehouses.
``Amazon wanted all those Chinese sellers in the U.S. They
actively invited them to sell,'' explained Chris McCabe, an
Amazon Seller consultant from ecommerce Chris and a former
Amazonian who once worked in the company's merchant account
investigation division.
Once these bulkheads were removed, China-based merchants began
pouring into the marketplace, doubling their presence in 2015
alone, and making Amazon the cross-border ecommerce choice for
Chinese sellers. That same year, Amazon moved past Walmart as
the most valuable retailer in the USA, Jeff Bezos moved up to
number five on Forbes's wealthiest person list, and profits
soared by 20%.
. . . over 60% of the world's knockoffs originate from China--a
big chunk of an industry worth half a trillion dollars per
year.
``Did we see a rise in counterfeits being sold on Amazon after
the marketplace became popular with Chinese merchants?'' I
asked Julie Zerbo.
``We absolutely did,'' she replied. ``Sure, counterfeits were
present on the site prior to Amazon's push for a greater
presence of Chinese sellers, but the influx of fakes since then
has been enormous.''
It is unreasonable to assume that Amazon expected anything
different, as China's prevalence for counterfeit production was
well know prior to their big China push. According to China's
state-run Xinhua news agency, 40% of the country's domestic
online marketplaces were made up of counterfeit goods in 2015,
the same year that Amazon bridged the ecommerce hemispheres.
Amazon claims to be doing whatever they can to inhibit
counterfeits in their marketplace . . .
But when fake items on Amazon are about as easy to find as
authentic ones, I have to wonder what these anti-counterfeit
measures actually consist of--and why they don't seem to be
working effectively.
Michael Jakubek, who worked on Amazon's fraud and abuse
prevention teams between 2004 and 2012 . . . [said] ``The big
problem with this is that the investigators get rewarded based
on how quickly they go,'' Jakubek said. ``There's no reason
they can't identify that these sellers are bad, but they're
compensated to go so quickly that they typically just do really
cursory reviews.''
Chris McCabe, who investigated merchant violations for Amazon
for 5 years, elaborated: ``You need people, properly trained
people with the right kind of SOPs in their hands or in their
heads, and that's where a lot of the failures come in. I mean,
they are being pressured to review work very quickly. They have
this IPH (investigations per hour) which always slowly inches
up . . . If you know you have a certain number of
investigations to do during an hour and you've done two that
were incredibly complex and you have to do ten more in the rest
of the hour, but those two took you half an hour or 20 minutes,
it means you have to blow through the rest of them to catch
up.''
. . . Amazon employees are not only pressured to work extremely
rapidly--often sacrificing quality for quantity--but many
positions are perpetually filled by those who are new on the
job.
'`The highly skilled, experienced, trained people that I used
to work with are gone,'' McCabe explained. ``They need better
training. They need more auditing of investigations, because
it's clear that all the wheels have come off the cart when it
comes to the quality of the work that goes into an
investigation of an appeal, a review of an account.''
To put it simply, Amazon's high-pressure, high-turnover,
metrics-driven work environment seems to result in torrents of
seemingly mindless mistakes, oversights, and copy and paste
responses. While Amazonians are encouraged to tear apart each
other's ideas, be available to respond to emails 24/7, and
treat their job like a lifestyle, scammers and counterfeiters
are running amok, selling knockoffs on their marketplace with
near impunity--even when caught they just open up a new account
under a new name and hope to fall through the cracks of
Amazon's porous HR strategy once again.''
It's a clear pattern of behavior. So, since 2019, Amazon had employed
approximately ten thousand additional employees to fight frauds and
counterfeits. But they let it get so out of control for so long, that
now they can't even stop it. So now tax payers are responsible to pay
for it through the additional work of law enforcement, like the DOJ and
FBI. ``Amazon's hiring of former federal law enforcement agents seems
like a strategy to avoid liability without seriously addressing the
fundamental problems with its marketplace,'' Schakowsky said in an
interview for an article by Emily Birnbaum and Daniel Lippman, ``How
one of America's largest employers leans on federal law
enforcement''\36\
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\36\ How one of America's largest employers leans on federal law
enforcement, by Emily Birnbaum and Daniel Lippman, Tuesday, December
21, 2021, 4:30 AM, https://news.
yahoo.com/amazon-cultivates-close-ties-federal-093010630.html.
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Conclusion
There's only so much money to squeeze out honestly and fairly,
eventually when the sources runs dry, the only way left to attain it is
to steal it or cheat it out. Just like Amazon did with the 61.7 million
of stolen Flex driver tips. And lawmakers should be very wary that all
those shiny objects that Amazon dangles in front of them to coax
favoritism and to change laws in their favor is riddled with that
stolen money.
[all]