[Senate Hearing 117-874]
[From the U.S. Government Publishing Office]
S. Hrg. 117-874
THE IMPACT OF CONSOLIDATION AND
MONOPOLY POWER ON AMERICAN INNOVATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COMPETITION POLICY,
ANTITRUST AND CONSUMER RIGHTS
OF THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 15, 2021
__________
Serial No. J-117-48
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
www.judiciary.senate.gov
www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
56-248 WASHINGTON : 2024
COMMITTEE ON THE JUDICIARY
RICHARD J. DURBIN, Illinois, Chair
PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa, Ranking
DIANNE FEINSTEIN, California Member
SHELDON WHITEHOUSE, Rhode Island LINDSEY O. GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
MAZIE K. HIRONO, Hawaii BEN SASSE, Nebraska
CORY A. BOOKER, New Jersey JOSH HAWLEY, Missouri
ALEX PADILLA, California TOM COTTON, Arkansas
JON OSSOFF, Georgia JOHN KENNEDY, Louisiana
THOM TILLIS, North Carolina
MARSHA BLACKBURN, Tennessee
Joseph Zogby, Chief Counsel and Staff Director
Kolan L. Davis, Republican Chief Counsel and Staff Director
.........................................................
SUBCOMMITTEES ON COMPETITION POLICY, ANTITRUST
AND CONSUMER RIGHTS
AMY KLOBUCHAR, Minnesota, Chair
PATRICK J. LEAHY, Vermont MICHAEL S. LEE, Utah, Ranking
RICHARD BLUMENTHAL, Connecticut Member
CORY A. BOOKER, New Jersey JOSH HAWLEY, Missouri
JON OSSOFF, Georgia TOM COTTON, Arkansas
THOM TILLIS, North Carolina
MARSHA BLACKBURN, Tennessee
Keagan Buchanan, Majority Staff Director
Wendy Baig, Minority Staff Director
C O N T E N T S
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OPENING STATEMENTS
Page
Durbin, Hon. Richard J........................................... 5
Klobuchar, Hon. Amy.............................................. 1
Lee, Hon. Michael S.............................................. 3
WITNESSES
Alford, Roger.................................................... 14
Prepared statement........................................... 41
Responses to written questions............................... 86
Harman, Alex..................................................... 9
Prepared statement........................................... 49
Responses to written questions............................... 77
Hein, Bettina.................................................... 12
Prepared statement........................................... 55
Questions submitted with no response returned................ 79
Migicovsky, Eric................................................. 10
Prepared statement........................................... 61
Responses to written questions............................... 80
Moss, Diana...................................................... 7
Prepared statement........................................... 67
Responses to written questions............................... 82
APPENDIX
Additional materials submitted for the record.................... 96
THE IMPACT OF CONSOLIDATION AND
MONOPOLY POWER ON AMERICAN INNOVATION
----------
WEDNESDAY, DECEMBER 15, 2021
United States Senate
Subcommittee on Competition Policy, Antitrust,
and Consumer Rights
Committee on the Judiciary
Washington, DC.
The Subcommittee met, pursuant to notice at 2:37 p.m., in
Room 226, Dirksen Senate Office Building, Hon. Amy Klobuchar,
Chair of the Subcommittee, presiding.
Present: Senators Klobuchar [presiding], Blumenthal,
Ossoff, Lee, Hawley, and Blackburn.
Also present: Chair Durbin, Senators Grassley, and Cruz.
OPENING STATEMENT OF HON. AMY KLOBUCHAR,
A U.S. SENATOR FROM THE STATE OF MINNESOTA
Chair Klobuchar. Thank you, everyone. I call to order this
hearing of the Subcommittee on Competition, Antitrust, and
Consumer Rights entitled ``The Impact of Consolidation and
Monopoly Power on American Innovation.'' Good afternoon. I want
to welcome our witnesses, and I thank Senator Lee and his staff
as well as my staff for planning this hearing.
Innovation is part of the American spirit. It is the core
of the American spirit. Innovation generates new opportunities
and new hopes for businesses, workers, and families.
Breakthroughs in science and technology has given us the
vaccines that are getting us through the pandemic and driving
the development of clean energy solutions to take on the
climate crisis that we see every day, as my State is getting
record heat wave and thunderstorms in the middle of December
today. Emerging technologies like artificial intelligence are
driving innovation across our economy.
Of course, some of our economy's largest companies began as
startups with new innovations, and we continue to see
innovations. We also have to remember that innovation is all
about competition and bringing in new players to innovate. That
if we just simply have monopolies, over time, we do not get the
innovations that we need. I think history shows us with the
story with the breakup of AT&T and the innovations that we saw
after that in terms of everything from the cell phone industry
on. Looking back at our history, it's always been innovation
that has fueled the American economy, from the railroads and
the telegraph to smartphones and the internet. America would
not be where it is today without innovations and strong
competitive policy and laws on the book.
The innovation that is vital to our American economy cannot
thrive without open competitive markets, because it's
competition that pressures manufacturers to invest in research
and development to constantly innovate, to improve their
projects, and introduce new products to compete. It's
competition that provides opportunities for entrepreneurs to
develop new ideas and start new businesses and for young people
to dream about new possibilities.
In recent years, we have seen the growth of monopoly power
across the American economy, from cat food to caskets. Dominant
players are using their power to maintain monopoly positions
and thwart competition. Between the early 1980's and the last
few years, the rate of new business formed in the U.S. fell.
Data suggests that as we move out of this pandemic, Americans
are starting new businesses at historic rates. That's great.
Remember we fell by 40 percent before. Businesses can start,
but can they really grow to the point of being competitive?
That is something that we want to talk about today. Why
invest in innovation? Why spend on research and development?
Why start a new business if the market are controlled by a
handful of dominant companies that control access to customers
and have the power to suppress new businesses. Monopoly power
threatens to choke off innovation. Over the last several
decades, companies like Google and Amazon, Apple, Facebook, and
Microsoft have created many great innovations. We went from the
Wall Street Gordon Gecko days with his cell phone,
affectionately known as ``the brick,'' that weighed two pounds
and was 13 inches long, to cell phones the size of a watch.
While these tech companies were once scrappy startups
innovating to survive, they are now the largest companies the
worlds have ever known. They are still innovating and
introducing new products, yes. They are also gatekeepers, and
that is the thing that we need to focus on. Gatekeepers that
use their powers to stifle competition and innovation by their
competitors and the businesses that have no choice but to use
their services. We don't want to stop them from innovating. We
don't want to destroy them. We just want to stop them from
stopping others from catching on and innovating.
Just yesterday, the Competition and Markets Authority in
the UK issued a report highlighting that Apple and Google's
control over app stores can limit innovation and choice and
lead to higher prices, none of which is good for users. Small
businesses develop new and innovative products for American
consumers, and many of them advertise on the gatekeepers,
Facebook, Google, Amazon. Can they sustain this incentive to
innovate when Amazon or Apple knocks off their products and
puts their own copycat products first in search results?
Developers across the country are creating useful new apps
for consumers, but they are sometimes slow to reach users,
because Apple takes weeks or months to review them before
putting them up on the app stores. If they want to reach iPhone
customers, they have no choice, because there's no other way
into the market. Once upon a time, disruption was a good thing
in tech. New companies on the block were proud of breaking into
markets and changing the status quo, adopting company mottos
like, ``Move fast and break things.'' Now, disruption is what
they seem to fear.
Before Facebook bought Instagram, Mark Zuckerberg wrote in
an email that if Instagram were to, quote, ``grow to a large
scale, they would be very disruptive to us.'' We will never
know if an independent Instagram would have found solutions to
the massive privacy and content and children's problems we are
seeing today. Why? Because Facebook bought it, and our laws are
not equipped to address this kind of conduct. Current law
allows judges to consider harms to innovation and antitrust
cases, but they rarely do. That's because judges often demand
an impossibly high standard of proof, which can be hard to show
when you are talking about how innovation in the future might
be harmed.
We need solutions to these problems. The Competition and
Antitrust Law Enforcement Reform Act would update the legal
standard to prohibit harmful mergers across the economy,
shifting the burden to dominant companies to prove that their
acquisitions don't threaten competition. This doesn't mean
they're not going to purchase other companies. They are. It
just makes them have to prove that they don't hurt competition.
To address the issues in the digital economy, I joined
Senator Blumenthal and Senator Blackburn to introduce a bill
that will open up the twin app store monopolies that Apple and
Google operate. That's the Open App Markets Act. I'm also proud
of the bipartisan legislation that Senator Grassley and I have
introduced to prevent dominant digital platform from engaging
in behavior that harms competition by favoring their own
products or services just because they own them. We have
authors from across the political spectrum on that bill.
Someone referred to it as ``the Ocean's Eleven of sponsors.''
American businesses and consumers need a renewed and
strengthened antitrust movement. They needed a movement
grounded in a pro-competitive economic agenda that will
actually help capitalism and innovation across the economy. We
must act now to protect American innovation and promote
competitiveness in tech and healthcare, and indeed in all
sectors of the economy.
I'll now turn it over to Ranking Member Senator Lee, and I
note that our Chair is here. We're grateful he's here, Senator
Durbin. If he would like to say a few words as well when
Senator Lee is finished.
STATEMENT OF HON. MICHAEL S. LEE,
U.S. SENATOR FROM THE STATE OF UTAH
Senator Lee. Thank you, Chair Klobuchar. I'm a huge
advocate of the consumer welfare standard, and I've also made
clear that in no universe should application of that standard
be limited to a focus on price and output. Those are factors to
be considered. They are not the exclusive list of things to be
considered when applying the consumer welfare standard.
Innovation effects are a perfect example of how antitrust
enforcers, and also courts, can and should apply a more
comprehensive understanding of consumer welfare. When
competition suffers so does innovation, and when innovation
suffers, that harms consumers. In fact, one might say that
competition is itself the mother of innovation. Competition
really can't occur, especially in our society, in our economy
today, without a lot of innovation.
Monopolists and other large unthreatened incumbents feel no
need to improve their products or to develop new ones, not as
long as consumers continue to pay for the old ones. And as long
as that expectation holds firm, they're not going to feel it.
They're even less motivated to develop products and services
that create new markets that would cannibalize the old. There's
no reason horse and buggy manufacturers--it is no worry. It
shouldn't come as a surprise to us, in other words. There is a
reason that it wasn't horse and buggy manufacturers who came up
with the automobile.
Ensuring that competition thrives and results in useful
innovation depends mostly on the competitors and innovators
themselves, but it also requires two important things from
Government. One, is to protect the free market by vigorously
enforcing antitrust laws, to prevent harmful consolidation and
anticompetitive conduct. Two, to step back and refrain from
regulation and market interference of the sort that tends to
disrupt the competitive process and make innovation harder. In
fact, when the antitrust laws are properly enforced, the need
for Government regulatory intrusions elsewhere diminishes.
My own State of Utah has been particularly successful at
this, which is one of the reasons why U.S. News and World
Report rated Utah's economy as the strongest out of the 50
states this year. Utah is at the forefront of protecting
consumers from anticompetitive conduct, including by joining
antitrust lawsuits against Google and Facebook. And I commend
Utah Attorney General Sean Reyes for joining in that and
commend the Antitrust Division of the Department of Justice for
its actions, and also the Federal Trade Commission insofar as
they have undertaken steps in these areas. I commend them for
that.
Our State has seen its pro-free market regulatory approach
attract businesses and investors from around the country,
resulting in a growing tech community and a vibrant startup
ecosystem. This has occurred in part because of Utah's historic
approach toward regulation, which is a light touch one. It's
been accelerated of late with the regulatory sandbox initiative
that's been adopted by our State legislature at the behest of a
number of zealous proponents, including the original proponents
at the Libertas Institute in Utah.
In 2020, Utah startups racked up over $30 billion of
liquidity events, just in 2020 alone. This is a massive vote of
confidence in the innovation that's happening in the Beehive
State. This year has seen an additional $14 billion in
investments so far, including seven IPOs of Utah companies like
Owlet and Recursion Pharmaceuticals.
Owlet is a company started by a Brigham Young University
graduate who started it out of their garage. In this garage,
they developed a baby sock that monitors blood oxygenation and
alerts parents to any problems.
Recursion was founded in 2013 and incubated at the
University of Utah, where it developed technology to
significantly accelerate drug development. Utah is quickly
becoming the face of competition and innovation. I do worry,
however, that DC bureaucrats may spoil the party for everyone.
Antitrust enforcement goes beyond stopping mergers and conduct
presenting harm to consumers, and instead seeks to punish
anything and everything that displeases progressives,
displeases whatever administration happens to be in power, or
looks solely at what is big at the moment--is looking too big
in the eyes of antitrust regulators. These are all things that
threaten to do more harm than good. So, too, do regulations
that entrench incumbents and create barriers to entry and
stifle innovation.
Owlet, for example, the company I mentioned a moment ago
that was started in a garage by some BYU graduates, has been
hampered by over-regulation and ineptitude at the FDA. Meaning
that Owlet's products will temporarily be unavailable in the
United States. That in turn means fewer moms will rest easy at
night. Fewer jobs will be created in my home State, and less
money will be reinvested in research and development for
American consumers. All of this because of regulatory
overreach. Regulatory overreach protecting no one except market
incumbents elsewhere.
When I hear stories like this, it makes me angry. It makes
me sad. It also makes me wonder about how many startups Federal
agencies kill that we never even hear about. I look forward to
discussing with today's witnesses some of these issues,
including issues about how the Federal Government can follow in
the footsteps of Utah by enforcing the antitrust laws to the
benefit of consumers and ensuring along the way that regulatory
overreach doesn't stifle innovation and offset the gains we
make with antitrust laws. Thanks.
Chair Klobuchar. Thank you very much, Senator Lee. I didn't
know that about your great State of Utah, where I spent some
time this summer. Then of course, like many Senators, I looked
up where my State ranked, and you are correct that Utah ranks
number one for economy in that U.S.--and you rank number three
for best State overall. Guess what State ranks number two,
Minnesota.
Senator Lee. Oh. Spoiled again.
Chair Klobuchar. With that, I will--and Washington State is
number one with a number of factors, but a point of great
pride. I think it's interesting. There's maybe a reason the two
of us unite on this issue of innovation, because it drives a
lot of what's great about our states. With that, I turn it over
to Senator Durbin.
STATEMENT OF HON. RICHARD J. DURBIN,
U.S. SENATOR FROM THE STATE OF ILLINOIS
Chair Durbin. Thanks very much, Senator Klobuchar for your
leadership. Thanks, Senator Lee for making it a bipartisan
effort. This is the seventh hearing of this Subcommittee on
competition and continues to illustrate the need to promote
competition and protect consumers. It's an article of faith for
most people that competition leads to innovation, and
competition and innovation lead to lower prices for consumers
and improve product lines. I believe that. That's why I'm
cosponsoring the Klobuchar legislation.
If you look at the reality of the marketplace, one of the
things you see right away is pharma. Pharma of course, with the
patent protections, has virtual monopoly on the sales of
certain products. When that protection expires, there are
supposed to be competitors emerging who will then make the
product cheaply and give the consumers a break in the process.
It's kind of an interesting balance. A protected monopoly that
then evolves into a competitive marketplace. We look at the
lengths that pharma goes to protect the drugs that they
developed and to extend this patent protection over and over
and over again through a variety of different ways, and we
realize there's money to be made by stifling this competition
and protecting their property rights. Ms. Hein, who is I
believe going to join us from Switzerland--is that right?
Chair Klobuchar. I think, yes.
Chair Durbin. She is. That's what I read.
Ms. Hein. Yes.
Chair Durbin. Yes. I read your testimony, and she takes
exception to several of the things that I just said. She
believes that--I think. I don't want to put words in her mouth,
but what I read her testimony to say is that people are
developing these products and companies to build them, not for
the purpose of going public and making a competitor, but for
the purpose of being acquired by an even larger company.
According to her, acquisitions are 10 times more likely
than any of these new firms going public. I'll let her develop
her line of thinking there, but it seemed to be that having
some large corporation that's going to pay a premium to take
over your fledgling business is more enticing to most
innovative entrepreneurs than hanging around and watching your
next Google emerge. It will be interesting to see what her
argument may be.
I think the bottom line--and it has been since a Senator
named Sherman back in 1890 put together an Antitrust Act--is
that we believe in the marketplace, but we believe in a fair
marketplace with real competition is in the best interest of
innovation and consumer cost. I hope we can pursue that thought
here today and see if there are any dissenters.
Chair Klobuchar. Thank you very much. Thank you very much,
Senator Durbin, for being the cosponsor of the bill and your
devotion to competition issues. I think we'll introduce our
witnesses now.
We'll start with Dr. Moss, who is the president of the
American Antitrust Institute. As an economist, Dr. Moss has
studied antitrust issues affecting markets across the economy,
especially in digital technologies and healthcare. She
previously worked at the Federal Energy Regulatory Commission
on the agency's competition analysis for electricity mergers.
Alex Harman--Mr. Harman is the competition policy advocate
at Public Citizen, where he works to address concentration in
market power across industries, especially in the tech
industry. Previously, he worked in the Obama administration,
including--also worked in Congress, where he was chief counsel
to Senator Hirono, a beloved Member of this Committee.
We also have with us Eric Migicovsky. I like long names
with a lot of vowels, so we welcome you. Mr. Migicovsky is the
founder of Beeper, a startup that allows users to access their
messages from multiple services in a single application.
Previously, he worked for Y Combinator, a startup tech
accelerator, and founded another startup that developed smart
watches. It's kind of exactly what we're talking about here
with startups.
Next, as noted by Senator Durbin, Bettina Hein is with us.
Ms. Hein is a software entrepreneur who has built technology
companies in both the United States and Europe. She is most
recently the founder of a digital health startup, and she
previously founded startups focused on speech technology and
video advertising.
Finally, Roger Alford is a professor of law at Notre Dame
Law School, where his teaching includes international trade,
international antitrust, and comparative law. Previously, he
served as the Deputy Assistant Attorney General for
International Affairs with the Antitrust Division of the U.S.
Department of Justice from 2017 to 2019.
If the witnesses could please stand and raise your right
hands, including the witness who is remote.
[Witnesses are sworn in.]
Thank you. You can be seated, and I will now recognize the
witnesses for five minutes of testimony each. Dr. Moss, you can
proceed.
STATEMENT OF DIANA MOSS, PRESIDENT,
AMERICAN ANTITRUST INSTITUTE, DENVER, COLORADO
Dr. Moss. Thank you, Senator Klobuchar and Chair, Ranking
Member Lee, and Members of the Subcommittee. It is an honor to
be here today. I'll start by saying that competition drives
innovation, and innovation drives productivity and economic
growth. Therefore, competition drives economic growth, the
backbone of the U.S. economy.
Evidence shows that innovation in the U.S. may be slowing.
A number of reasons might account for these changes. One is the
financial community's laser focus on shareholder returns, which
diverts attention away from growing value through R&D, and
toward short-term profits. Another reason is weaker antitrust
enforcement over the last 40 years, which has spurred
businesses to acquire R&D versus developing it organically.
A likely by-product of rising concentration has been a loss
of innovation competition. Policymakers should be deeply
skeptical of arguments that bigness generates innovation.
Because dominant firms and oligopolies do not fear losing to an
innovative rival, they have weak incentives to stay ahead of
the innovation curve. To be sure, they do engage in some
innovation, but it is very different than what we would get
through robust competition.
For example, less competition means dominant firms and
oligopolies avoid developing products that cannibalize their
own product lines. Instead, they focus on innovation that
protects their market positions. Oligopolies can also collude
on technology decisions. They can divide up R&D markets and
strike anticompetitive licensing agreements. All of this limits
innovations and keeps prices high.
Here are some leading examples of innovation competition
concerns. First, the digital business ecosystems are defined by
a growth by acquisition model, whereby they acquire rival
disruptors to fortify their platforms or expand cloud
infrastructure. Many of these deals are so-called killer
acquisitions, which neutralize disruptive innovators. For those
innovators that do operate on platforms and networks are often
the target of discriminatory conduct, which harms innovation.
A second example is horizontal and vertical integration
that has created firms with massive wingspans that cover
multiple levels in a supply chain. Innovation competition
concerns were featured in Government complaints in deals like
Bayer-Monsanto and AT&T-Time Warner. Not enough attention is
given to the higher barriers created for smaller rivals to
enter and get a foothold in those markets.
Finally, we know that market wide, probability of invention
in pharmaceutical R&D increases with the number of competing
firms. That competition between R&D pipelines is essential for
innovation. But over the last 25 years, the FTC has allowed 66
mergers worth $1 trillion of branded and generic pharmaceutical
firms. Most were in highly concentrated markets and settled
with targeted divestitures, leading to assets changing hands
within a shrinking group of drug manufacturers. Many of those
very firms are defendants in antitrust litigations and criminal
price-fixing conspiracies.
I'll conclude my remarks with three policy priorities.
First, we need antitrust enforcers to bring what I call more
standalone innovation competition cases. That means innovation
plays the starring role in the case and is not simply tacked on
to concerns over higher prices. To be sure, we have seen those
cases in Facebook and Google, Visa-Plaid, John Deere-Precision
Planting, and Nvidia-ARM, but we need more.
Second, enforcers may be reluctant to bring innovation
competition cases because they perceive high litigation risk.
This risk is amplified by the court's deference to claimed
merger benefits, which stack the deck against plaintiffs. Yet
we know from business research that few merger benefits are
ever achieved, as illustrated most recently by AT&T's post-
merger spinoff of Warner Media less than three years later.
Discounting efficiencies claim, especially in mega-mergers,
could spark more innovation competition cases.
Third, current approaches to showing harm from acquisitions
of smaller disruptors are inadequate. Aside from a high
evidentiary standard, little attention is paid to evidence of
intent, or that dominant firms take out innovative rivals to
maintain their market positions. Stronger or different
standards are needed.
Antitrust has a way to go on innovation competition.
Invigorating enforcement will require support from Congress,
including shifting the burden to defendants to justify mega-
mergers, stronger standards for acquisitions that neutralize
disruptors, and perhaps even lowering the HSR thresholds for
acquisitions by the fast-growing digital players.
Finally, I would like to say that the problem of fear and
intimidation in our markets is growing at an alarming rate.
Smaller rivals fear retaliation from dominant firms and
oligopolies if they complain to public or private enforcers
about abusive conduct. This hamstrings their essential role in
antitrust enforcement and has a direct adverse effect on
innovation competition. Thank you, and I look forward to your
questions.
[The prepared statement of Dr. Moss appears as a submission
for the record.]
Senator Klobuchar. Thank you very, very much. Next up, Mr.
Harman.
STATEMENT OF ALEX HARMAN, COMPETITION
POLICY ADVOCATE, PUBLIC CITIZEN, WASHINGTON, DC
Mr. Harman. Thank you, Chairwoman Klobuchar, Ranking Member
Lee, Chairman Durbin, and other Members of the Subcommittee for
the opportunity to testify today. I'm Alex Harman, competition
policy advocate for Public Citizen's Congress Watch division.
We're a national nonprofit organization with more than 500,000
members and supporters. For the past 50 years, we've
represented the public interest on a broad range of issues,
including competition and consolidation of corporate power.
Thank you for your leadership in continuing to examine one
of the most critical issues of our time: the harms to consumers
and our economy that result from the failure of our antitrust
laws to meet the challenges of the day. For decades, we have
seen the rise of market power of big tech companies and an
alarming increase in consolidation throughout the economy,
which has stifled innovation.
We appreciate the thoughtful work of the Subcommittee to
address this serious problem through today's hearing and its
prior work.
I would like to dispel the myth that large, consolidated
industries, particularly big tech companies, somehow foster
innovation and American competitiveness. Or even more absurd,
that addressing the problem of runaway consolidation and
anticompetitive conduct would stifle innovation.
Empirical evidence and common sense show us that the
opposite is true. When companies face less competition, they
invest less in R&D. They are in turn less likely to innovate in
ways that benefit consumers and the economy. All too often,
companies that depend on these gatekeeping firms to reach the
marketplace slash jobs and cut back on developing new products
and services, because they must pay steep monopoly rents as a
cost of doing business. As the founder of one business said,
``It feels like we are treading water with cement blocks around
our feet.''
This point bears repeating. Less competition leads to less
innovation. Less innovation hurts consumers and the entire
economy. In the highly consolidated tech sector, this means we
get only marginal incremental enhancements instead of
breakthrough products and services that once defined the big
tech companies.
Although I'll focus my testimony big tech's widespread
dominance and abuse, the harmful effects of monopoly power on
innovation are not limited to digital platforms. Studies of the
agriculture and pharmaceutical industries also show that more
consolidation leads to less R&D.
Decades ago, these companies sought to disrupt stagnant
industries and succeed where incumbents failed. These once
scrappy disruptors have grown to be some of the largest and
most valuable companies on the planet. Their businesses are
focused on maintaining or building their dominance instead of
building new products or services, ensuring that they cannot be
displaced or disrupted by the next generation of startups.
Tech startups often cannot get funding if they are in the
so-called ``kill-zone'' that surrounds big tech. If a startup
attempts to operate in an area that is seen as too close or a
threat to one of the companies, investors assume that they will
fail because of the likelihood that the big tech companies will
crush such threats.
A recent report by the FTC confirmed what we largely
already knew. These firms have acquired more than 600 companies
in the last decade. This innovation by acquisition has the
insidious effect of displacing internal R&D and locking up
innovative technologies under the control of big tech.
In the last two years, Facebook--excuse me, Meta--while
facing an FTC lawsuit over its acquisitions of Instagram and
WhatsApp, has acquired five different virtual reality
companies, seeking to cement its dominance in this space for
years to come. In addition to engaging in hundreds of
acquisitions, large tech companies have abused their dominance
to make it so that any business that needs access to their
platform either cannot compete at all, or can only do so under
difficult or unfair conditions.
These problems must be addresses--addressed immediately.
Not five years from now. Not even a year from now. Across the
political spectrum, Americans overwhelmingly agree that big
tech must be reined in and demand action. Bipartisan
legislation introduced earlier this year in the U.S. House of
Representatives, as well as the other bills introduced by
Members of this Subcommittee would help address the problems
I've laid out.
These bipartisan bills include the American Innovation
Choice Online Act, introduced by Chairwoman Klobuchar and
Ranking Member Grassley, which would establish fair rules for
competition online. The Platform and Competition and
Opportunity Act, introduced by Chairwoman Klobuchar and Senator
Cotton, would prohibit certain anticompetitive mergers by the
big tech companies. The Open App Markets Act, introduced by
Senators Blumenthal and Blackburn, would ensure more
opportunity for competition in the mobile app markets.
Public Citizen supports all of this legislation. These
bills would help unleash innovation. The promise of new,
faster, and better products and services has hit a wall of big
tech monopolies and their monopolistic market distortions. It
is time to meet this challenge and correct the failure of our
antitrust laws.
Thank you again for the opportunity to testify on this
important topic, and I look forward to any questions you might
have.
[The prepared statement of Mr. Harman appears as a
submission for the record.]
Chair Klobuchar. Very good. Thank you. Mr. Migicovsky.
STATEMENT OF ERIC MIGICOVSKY, FOUNDER
AND CEO, BEEPER INC., PALO ALTO, CALIFORNIA
Mr. Migicovsky. Chairwoman Klobuchar, Ranking Member Lee,
and Members of the Committee, thank you for the opportunity to
testify. My name is Eric Migicovsky, and I am the founder of
Beeper. We are a one-year-old startup with 20 employees. Beeper
is a new chat messaging app that enables you to chat on 15
different chat networks. It's a simple and efficient way to
communicate with your friends, family, and colleagues.
Beeper is actually my second startup. Previously, I founded
Pebble, where we invented the smartwatch and did over $200
million in sales. After trying to compete with the Apple Watch
on an uneven playing ground, we were forced to sell the company
to Fitbit in 2016. This hearing represents a rare opportunity
to examine issues at the heart of innovation. Whether new ideas
can compete fairly in markets distorted by big tech companies.
I started building Beeper because I was tired of having to keep
track of which apps my friends were on. I wanted one single
place where I could message anyone I knew.
Another motivating factor for us is security and privacy.
Eighty percent of chat apps today do not offer encryption to
their users. We're building Beeper as an alternative to chat
apps run by large social networks that exist solely to capture
more user data. Today, we have several thousand people beta
testing Beeper, but we're finding it increasingly hard to
connect Beeper to chat networks run by big tech companies.
Our concerns over a level playing field are not simply
theoretical. In particular, we are worried about Facebook.
They've taken aggressive actions against companies in the past
that have tried to interoperate with their network, including
suing new entrants over CFAA violations, copyright, and other
claims.
My goal here today is to support legislation like Senator
Klobuchar and Senator Grassley's American Innovation and Choice
Online Act and Senator Blumenthal and Senator Blackburn's Open
App Markets Act. I believe increased innovation in the chat
market would result if these bills are passed.
Chat is now the dominant form of communication. Just ask
any teenager if they've sent an email or made a phone call in
the last week. Today, almost all major chat apps are controlled
by big tech companies, and most were created over 10 years ago.
They're old, tired, and lacking in new ideas. For example,
WhatsApp's most recent new feature was Status, which they
copied from Snapchat.
The reason why little innovation happens in chat is because
of lock-in network effects. Over three billion people use chat
every day, but on most major chat apps, you can only chat with
people who are on the same app. Most users do not use these
apps because of specific features. They use them because their
friends are on the app. This lock-in network effect prevents
new competitors with innovative ideas from getting off the
ground.
Big tech companies also stifle users' freedom by making it
practically impossible to switch networks. For example, when
WhatsApp changed its privacy policy earlier this year, many
people tried to leave the platform. It's very difficult to move
group chats and chat history from WhatsApp, so most people
stayed put.
Big tech companies also do not transparently explain to
users what happens with their personal data. For example, Apple
backs up users' encryption keys to their iCloud servers by
default. Just last week it was reported that Tim Cook did a
secret $275 billion deal with the Chinese government, which may
have included moving certain iCloud servers to China.
Finally, the chat market itself is distorted. Big tech
companies give away their chat products for free, because chat
is a reliable way to lock users into social platforms that then
mine their user data. At Beeper, we have somewhat of a
revolutionary business model. We charge users money in exchange
for a service. Luckily, this Committee is currently considering
legislation that provides straightforward solutions to these
problems.
First, big tech companies need to provide interoperability
on their chat networks. Interoperability will give users the
freedom to communicate with friends and family who are on
different platforms. This is not a radical concept. Email is
interoperable. Gmail users can send email to Outlook or Yahoo,
no problem.
Second, in order to have the freedom to switch networks,
users need to be able to exert control over their own accounts
and personal data. I firmly believe that the bills this
Subcommittee is considering represent a critical step forward
toward ensuring a competitive playing field for new startups.
Thank you for your time. I look forward to answering any
questions you have.
[The prepared statement of Mr. Migicovsky appears as a
submission for the record.]
Chair Klobuchar. Okay. Thank you very much. Remotely with
us, Ms. Hein.
STATEMENT OF BETTINA HEIN, CO-FOUNDER
AND CEO, JULI, BOSTON, MASSACHUSETTS
Ms. Hein. Thank you so much. Chair Klobuchar, Ranking
Member Lee, Chairman Durbin, and Members of the Subcommittee,
thank you for your invitation to me to testify today. I'd like
to begin by thanking you, Madam Chair, for your leadership
regarding entrepreneurship and innovation issues as the co-
chair of the Senate Entrepreneurship Caucus. In particular,
your work regarding the unique challenges that confront women
entrepreneurs--and there are many--is especially appreciated.
I want to begin by emphasizing that I am not a policymaker
or an antitrust attorney. I'm a career long startup
entrepreneur. I'm currently building my third company, and it
has 15 people right now. I'm here to share with you my
perspective the likely impact of acquisition restrictions and
other market interventions on entrepreneurs like me.
Thriving entrepreneurship is critical to a strong and
growing economy. You all have mentioned that. Entrepreneurship
is also risky. A third of new businesses fail by their second
year. Half by their fifth. For fragile startups, there are
three principal outcomes: fail, go public, or be acquired.
Failure is the most common outcome. Many entrepreneurs dream of
taking their company public, but most startups never achieve
the scale that going public requires.
Acquisition, therefore, is by far the most likely avenue
for entrepreneurs and their employees to realize the value of
what they've created through years of hard work and sacrifice.
In a typical year, 10 times as many startups are acquired as go
public.
Importantly, acquisitions also enable startup investors,
which I actually myself do as well. I invest in startups with
the money that I've earned before. Acquisitions enable startup
investors to reclaim their invested capital, realize any gains,
and recycle their capital into the next generation of startups.
My principle concern here today is that the Platform
Competition and Opportunity Act, and those like it that
restrict acquisition of startups by larger companies, will
profoundly undermine the incentive for entrepreneurs to take
the personal and financial risk of launching a new company. If
investors are unable to liquidate their investment to reclaim
capital and potential gains, they won't risk their capital by
investing it in companies like mine in the first place. Without
investors, there is no Juli. There is no startup ecosystem.
I'm also concerned that the bill will likely accomplish
exactly the opposite of what it intends by tilting regulatory
circumstances in favor of the larger companies it targets. The
risk of this unintended effect is very real because it has
happened before. In the six years following the enactment of
Sarbanes-Oxley, small company IPOs valued at $50 million or
less plummeted by 92 percent, and that would have included
Apple, Microsoft, etc. in their infancy.
For me personally, Sarbanes-Oxley, at the time, meant
giving up on my girlhood dream of running a public company.
Similarly, 10 years after the enactment of Dodd-Frank, large
banks are bigger and more profitable than ever, while more than
2,000 community banks have disappeared and lending to small
businesses has decreased significantly.
The Platform Competition and Opportunity Act risks similar
unintended consequences. By dramatically increasing the
regulatory hurdle and compliance costs of acquisition, the Act
would likely advantage large incumbent companies who have the
money and teams of lawyers to navigate the new legal landscape.
Many smaller acquirers would be shut out. Additionally, large
acquirers will pay for the costs of the new requirements by
simply reducing the value of transactions. In other words,
reducing what they're willing to pay for companies like mine.
Large technology companies won't be hurt by this
legislation. Entrepreneurs like me will be. American
households, consumers, and investors who rely on innovations
entrepreneurs contribute will also be hurt.
Madam Chair, Ranking Member Lee, to protect competition and
innovation, we don't need the blunt sledgehammer of sweeping
legislation with all of the risks of unintended consequences.
Rather, we need a surgeon's scalpel to carefully dissect,
understand, and address the unique circumstances of each
proposed acquisition, and that scalpel resides with the
regulators.
As you said at a recent Center for American Progress event,
Madam Chair, ``Put the right people in those agencies, and give
them the resources they need to do their job.'' Thank you very
much for this opportunity, and I'm looking forward to your
questions.
[The prepared statement of Ms. Hein appears as a submission
for the record.]
Chair Klobuchar. All right. Thank you very much. Next up--
but I will note the number of the people that are in the
agencies doing their jobs or have done their jobs, including
the former head of the Antitrust Division, Makan Delrahim,
under President Trump, believed that we need to make some
changes to the laws so they can actually do their jobs to
enforce the laws. With that, I will turn it over to Professor
Alford.
STATEMENT OF ROGER ALFORD, PROFESSOR,
NOTRE DAME LAW SCHOOL, NOTRE DAME, INDIANA
Professor Alford. Thank you, Chairman Klobuchar, Ranking
Member Lee, and Members of the Subcommittee. Thank you for
inviting me for the opportunity to be here. You have my written
testimony, so I'm just going to raise a few key points in my
opening remarks, and hopefully we can go into more detail in
the Q and A.
I was going to begin by talking about the consumer welfare
standard, but my position is very similar to what Senator Lee
said, so I will skip my comments with respect to the consumer
welfare standard. Let me begin by discussing innovation and
quality-fixing.
Harm to innovation raises the issue of powerful market
actors engaging in what may be called ``quality-fixing.'' Why
do we focus so much attention on price-fixing, but we almost
never discuss quality-fixing? Why are we not more concerned
about big tech companies working through trade associations to
collude on quality, such as a diluted common privacy standard?
Why have there been no subpoenas from Congress or Government
enforcers investigating collusion on quality? Rare are the
cases such as the European Commission and its $1 billion fine
against five European automakers for colluding with one another
to delay introducing clean energy innovations.
Second, antitrust law should be more particular about
innovation involving startups. We should embrace the fact that
a common exit strategy for startups is to be acquired. At the
same time, we should recognize that VC money is often
unavailable to a startup that tries to compete with a dominant
firm. If it does try to compete, that dominant firm may seek to
acquire to eliminate a competitor. The DOJ's challenge of
Visa's attempt to acquire Plaid is on recent example, and so
too is the FDA's complaint against Facebook regarding the
Instagram and WhatsApp acquisitions.
Third, innovation is of particular concern in the context
of mergers, and sometimes requires innovation divestitures. To
address innovation concerns in the Bayer-Monsanto merger for
example, the DOJ required emerging parties to divest certain
intellectual property and research capabilities, including
pipeline R&D projects. This structural remedy was necessary to
maintain competition in emerging product lines.
Fourth, sometimes incumbents seek to forestall innovation
to keep prices high and to reduce output. The real estate
market is a quintessential example. It is dominated by the
National Association of Realtors, which imposes mandatory rules
that keep prices high and reduces innovation.
As a result of NAR, rules that require a seller to pay a
buyer broker's commissions, brokerage fees for the sale of an
average home in the Unites States are between $20,000 and
$24,000, compared to $14,000 for the same priced home in other
developed countries. Imagine the impact on the average American
if they could purchase homes more efficiently, enhance their
job mobility and build home equity easier and earlier. Online
listing services such as Zillow have offered some innovation in
searching for homes, and discount brokers such as Redfin and
REX offer technological solutions.
None of these innovations allow consumers to buy and sell
homes with the kind of transparency, functionality, and
efficiency commonplace in other online marketplaces. There is
nothing like Robinhood or E-Trade in the real estate market.
This is all because of NAR's mandatory rules that forestall
innovation.
Finally, let me briefly discuss exclusionary innovation.
Innovation is not always good. Sometimes innovation excludes
competition. With respect to online platforms, search
algorithms often are designed to self-preference. Technologies
often are not interoperable. Data portability raises similar
concerns. Big tech frequently introduces, quote, ``innovations
to degrade the quality of competing products and services.''
Let me offer a concrete example from the Texas v. Google
complaint. Google uses its power in the online digital
advertising marketplace to force publishers to use Google's
exchange, which charges extremely high transaction fees. These
fees hurt publishers' revenue, so publishers developed some
code to allow them to reduce fees and route their inventory to
multiple exchanges. Google was upset by this. They called is an
existential threat, so they introduced a series of innovations
to make it slower and harder for publishers to use competing
exchanges. In short, Google introduced numerous innovations for
the express purpose and result of excluding competition.
Let me close by saying that one certainly has the
impression that there is a growing bipartisan consensus that
big tech companies have abused their market power in excluding
innovation and that something must be done about it. That is
reflected in various lawsuits filed and prosecuted by the Trump
and Biden administrations, as well as almost every State
attorney general. It is also reflected in the various
bipartisan legislation that has been introduced in the Senate
and in the House.
Thank you very much, and I look forward to your questions.
[The prepared statement of Professor Alford appears as a
submission for the record.]
Chair Klobuchar. Very good. Thank you all of you. I think
I'll start with you, Mr. Migicovsky because I was struck by
your testimony about how innovative developers like yourself,
you can come up with a product, you can get it to market, you
start a new business, bright and shiny, and then you always
come up against some kind of a wall. Could you talk about what
your experience has been interacting with dominant platforms in
more depth, like Apple, Google, and Facebook?
One of the things I was thinking about, which maybe you can
comment on, when you talked about how when you do emails, you
can--you don't know that you're dealing with a different
company or whatever it is. Then I was thinking about how when
you do chats, it comes up in different colors. It would be like
with the emails, you had 10 different colors and it would come
up in different ways, whereas Apple has to point out it's not
their phone you're dealing with, and that often some of these
are harder to read for non-iPhone users, and I was just
thinking how ridiculous that is compared to email or other
forms of telephones, for instance, or cell phones. You don't
have a buzz in the background when you try to call someone from
a different cell phone company. Or a little bing goes on--
``You're not on our network, sorry. Good luck.'' Could you talk
about this?
Mr. Migicovsky. Thanks for the question, Senator. I'll
answer the last one first and then move to the first one. I
think what you're referring to is the iMessage green bubble
versus blue bubble situation you probably have experienced.
When you're sending a message from and iPhone to an Android
user, it shows up as a green bubble. Yes, this is a real thing.
While I was doing research for this, I actually found that
the color differentiation between the text on a green bubble
actually fails Apple's accessibility standards, which means
that it's technically harder to read a message to someone who
has an Android phone than iPhone. These little things add up to
make it more difficult to communicate.
You may recall 20 years ago when cell carriers used to
limit or limit SMS or text messaging between carriers. For
example, if you had an AT&T phone, you couldn't send a text
message to someone who had Verizon. That's kind of the world
that we're living in today, and it feels a little bit weird to
be in 2021 and still have these barriers between us as we
communicate.
Regarding your question about the walls that have been
thrown up, my fist company, Pebble, we made smart watches. We
were building a product that competed squarely with Apple's
Apple Watch. On Android, we were able to get access to the
system features that we needed to deliver a good user
experience, but on Apple products, we simply weren't able to
get the same level of access that products like the Apple Watch
enjoyed. This made it really hard to compete, and since Apple
controls both the app store as well as the operating system, it
was hard to build an accessory that worked with iPhone.
Chair Klobuchar. Could you talk a little bit--and maybe Ms.
Moss, Mr. Harman, you can join in on how that bill--the bill
that Senator Grassley and I have introduced, which I see
Senator Hawley here is supporting it, as well as Senator
Durbin--how that would help with some of this conduct because
you can't put your stuff above everyone else. You can't rip off
other products and then put it up against the product you're
ripped off, and that you can't use data and other things. Any
of you can comment on it, but the difference that it would
make. Ms. Moss.
Dr. Moss. Thank you. I'm happy to respond to that question.
I think competition in this country has risen to the level of a
public policy problem, and innovation competition is a big part
of that, obviously. That means, I think, we need to use all of
the tools in the public policy toolkit to address the concern
over waning competition through discriminatory conduct or other
harmful types of behaviors. I would say that using multiple
tools in the toolkit, strengthening antitrust regulation is a
really important way to remove incentives to engage in
discriminatory conduct, or put constraints on it. That will
absolutely level the playing field for smaller rivals--
innovative disruptors operating on platforms, in terms of
operability, in terms of access, in terms of the ability to
reach consumers with their products and services.
I would say one more thing very briefly. The tech sector
moves very, very quickly, extremely quickly, and we are--the
big five are on the downside of an acquisition cycle. We are
now studying, at the American Antitrust Institute, the
companies that are what we call up-and-comers. These are
companies who are acquiring cloud infrastructure, they are
building out and fortifying platforms, and I worry about this
next gen of up-and-coming digital techs that are going to be--
the powerful platforms in three to five years. I think we want
to think broadly about public policy initiatives and
legislative reforms like the anti-discrimination bill so that
we are throwing our umbrella over all of the potential firms
who could grow to be dominant platforms and who would engage in
discriminatory conduct.
Chair Klobuchar. Very good. Anything you want to add, and
then I'll turn it over to Senator Lee. Mr. Harmon.
Mr. Harmon. Yes. I think the question you're asking about
how would your bill specifically make it easier? I think if you
are in the situation of a startup, as Pebble was, and you look
at how Pebble was treated in a situation in which Apple would
have to make their platform available for you to plug into, or
would not be able to preference their product above yours, it's
going to change your calculus in terms of how you approach
developing a potential competitor.
Chair Klobuchar. Very good. Thank you very much. Senator
Lee.
Senator Lee. Thank you. Professor, I want to start with
you, if that's all right. I saw you mentioned in your written
testimony something we looked at at a hearing that we held last
year, on that I called back when I was the Chairman of the
Committee still. Among other things, we looked at competition
and the state of competition in areas where consumers suffer as
a result of two firms having control of every part of the ad
tech space, and my office is currently working on legislation
on this issue to address some of these problems: the conflicts
of interest in competition that arise in digital advertising.
Do you think this is an area where Congress could step in and
solve the problem?
Professor Alford. Yes, thank you for the question. As I
mentioned in my bio, I've been consulting with the State of
Texas since August 2019 on the Texas v. Google litigation, so I
know firsthand, having followed this issue extremely closely,
how real the problem is. So yes, I think the answer--litigation
obviously is one possible solution. It's extraordinarily
expensive. It takes an extremely long time. There are
inordinate delay efforts on the part of Google with respect to
that.
You have introduced a venue legislation that will try to
help expedite the process with respect to litigation, which I
think is a great idea. To answer your question, I think there's
no regulatory context whatsoever here to deal with the online
display advertising market. It is--right now, antitrust is
doing all of the work, right? One possible solution that one
could think about would be to think about how the similar
conflicts of interest have been adjusted in financial markets
and how we could impose similar conflict of interest concerns
and limitations in the online display advertising markets.
For example, you cannot own the New York Stock Exchange,
right, and then be a monopoly player on the stock exchange as a
broker, right? You cannot basically funnel all of the trades
that happen on your brokerage firm into your preferred
exchange, right?
Right now, Google has exactly that issue, so there is no
best interest duty, there is no duty of best execution, there's
no limitations on insider trading, all of those kinds of things
happen. If you had a strict requirement that if you're going to
own an exchange, you can't be a broker on either the ad or the
sell side, that would be a useful addition, I think.
Senator Lee. Yet, currently, they are.
Professor Alford. They are definitely----
Senator Lee. They run the exchange----
Professor Alford. Yes, exactly.
Senator Lee [continuing]. And they're a broker of both
sides.
Professor Alford. Just to give you an example, the NYSE is
owned by Intercontinental Exchange, and they earn $3.6 billion
from revenue from their exchanges. Google earns that in five
days.
Senator Lee. Right. My concern is not with how much money
they earn or how they do it. It's not unlawful to be a
monopolist in this country, but it is unlawful to acquire or
maintain monopoly status through anticompetitive conduct.
Professor Alford. Right.
Senator Lee. It's hard to me to imagine a circumstance in
which one can own the exchange platform and also be a buyer,
seller, broker, dealer and whatever other positions they might
occupy in the meantime. It's hard for me to imagine how one
firm can maintain all of those positions without something
anticompetitive going on in purpose and effect.
Ms. Hein, I'd like to turn to you next. You and your
colleagues decided to sell your first company to an acquirer.
Can you explain to my colleagues and to me why any entrepreneur
would choose to sell their company rather than to continue to
build it with an eye toward going eventually public?
Ms. Hein. Yes, I can do that, Senator. Thank you for your
question. The circumstances of each company are unique, and it
depends on how strong of a position one can build in the
market, as we're discussing here, depends on the technology and
how market access works. Oftentimes, there are also hurdles
like I spoke about in my testimony, Sarbanes-Oxley, for
example. What that kind of regulation does is that it requires
a significant amount of capital even to access the capital
markets, so currently, startups that want to go public,
typically, before they go public, raise an additional $20
million in order to then be able to get over those hurdles
everything that they need to do.
With startup companies, it's very unique where they go, and
I think that it should not be regulation that determines who I
sell the company to or whether I could go public with it.
Senator Lee. Can I ask one follow-up there?
Chair Klobuchar. Of course.
Senator Lee. It does sound like a somewhat similar
situation to where you see a lot of pharmaceutical startups
heading. As a result of FDA regulations and the capital demands
competing--on starting and finishing clinical trials, most
small innovators have to get acquired in order to scale up. It
sounds like you're describing a similar phenomenon.
Ms. Hein. Yes. Definitely. There are a lot of regulatory
hurdles, and obviously, there is reason for a lot of these, but
my point here is that there are a lot of unintended
consequences, and I am afraid that my livelihood, which exists
in creating innovative companies, will be impacted by
regulations that I have to abide by and I can't do anything to
control. The different thresholds, for example, is the $600
billion going to stay in place or be lowered, as Dr. Moss
suggests. That all makes it very scary for people like me.
Senator Lee. Thank you.
Chair Klobuchar. Senator Durbin.
Chair Durbin. Thank you. I'm trying to work through in my
mind some historic analogies that will help me understand where
we are today, and I guess the most profound evidence of
Government intervention in the marketplace in my lifetime that
destroyed a monopoly and created innovation and
entrepreneurship to a level that was unimaginable was AT&T,
almost 40 years ago. It busted up into regional companies and
then spun off in many, many different directions.
The mothership, AT&T, kept the production of telephones in
Western Electric, which was an important part of the economy in
the Chicagoland area, but now, they're virtually nonexistent.
It isn't as if the iPhone people had to go to Western Electric
to get permission for a new invention. Innovation just raced
right past that model, that AT&T model that we had accepted as
being virtually a public utility for so long in the United
States.
It really gets down, Mr. Migicovsky and Ms. Hein, to a
question which I'm still hanging onto, and that is what is your
ambition as an entrepreneur and an innovator? Is it to be
acquired at some early point in the process and to make out
like a bandit, and then look to invest in others who are doing
the same, or is it to build the next iPhone or whatever it
happens to be, some variation. Which will take a lot of time
and patience and investment to happen. According to Ms. Hein,
the numbers are 10 to 1 that it's just to be acquired and move
along to something else.
Of course, the acquiring entity may have the best of
intentions or the worst of intentions. It's hard for us to say.
They may want to get you out of the competitive mode because
you look menacing to them, or they may think this is such a
great idea, we want to own it. We want to develop it.
Mr. Migicovsky, before Ms. Hein, would you comment on that?
Mr. Migicovsky. Thanks very much for the question, Senator.
Over the last four years, before I started Beeper, I was a
venture capitalist at an early stage firm called Y Combinator.
There, I helped invest in 400 companies over the span of four
years. I will say that the best founders that I met at Y
Combinator started their company to beat Google, not to sell to
it. I think that the limitations that are put on competition
right now by some of these extremely large tech platforms are
reminiscent of the AT&T days, especially for their earliest--
companies at their earliest stage.
There's a story from the 1950's about a company that made
an addition to an AT&T telephone called the Hush-A-Phone, which
was a silencer that you would put around the phone, and they
were banned from making it because AT&T had, you know, monopoly
across the entire stack. That is very similar to companies like
Apple, which makes the phone and also makes the app store that
distributes software. That's one of the reasons why we're
supportive of Senator Blumenthal and Senator Blackburn's Open
App Markets Act, which would go very far to leveling the
playing ground for startups to compete on the app store.
Chair Durbin. Give me your reaction to Ms. Hein's 10 to 1
number. It isn't even close. It's like 10 times as many are
looking for acquisition as opposed to public offering.
Mr. Migicovsky. When companies start out, they're
definitely--at least the best founders that I know, are not
looking for an acquisition. They're looking to build a product
that could potentially change the world. That's one of the
unifying factors, I think, among most startup founders. I
think--I could speak to my case. In our case, our company,
Pebble, we ran out of money, and so we had to sell the company
as the only kind of exit. That was definitely not our intention
when we started out. We had, you know, very large and high
goals. Having an exit route is, you know, useful. It's
definitely not the thing that we set out to do.
Chair Durbin. I might say to Ms. Hein, if she's still
following. I hope that she still is. I voted for Sarbanes-Oxley
and if you would go back to that moment in time when we had
that debate, we were dealing with corporations that weren't
shooting straight. They weren't leveling with people in terms
of the actual books, and people were losing a lot of money from
misrepresentations. It's true that there was--will be a
difference of opinion, even on this panel, about what I have to
say here--true that there were more regulations imposed, but
the goal of those was similar to a goal of antitrust
operations, so that we can have more honest dealings with the
public than we did before.
We had some terrible instances--I could go through the long
list. Sure, it cost more for corporations to provide
information that was reliable and trustworthy for consumers as
well as investors, but if you want the integrity of the
marketplace, which I think distinguishes the United States from
many other countries, there's a price to be paid for it, and I
just say that in defense of Sarbanes-Oxley.
Senator Lee. [Presiding.] Senator Grassley.
Senator Grassley. I'm just going to make a statement and
ask one question in my five minutes. I'm a Republican, and
everybody thinks Republicans should leave the free market
alone, and I believe that it is the best source of innovation
and competition. Where markets aren't working, antitrust
enforcers should be able to take swift and decisive action to
prevent anticompetitive activity. If our laws need updating to
provide better authority, then that's something that Congress
should consider.
I have strong concerns about competition in some sectors.
That's why I've introduced several bills addressing concerns
with competition in the pharmaceutical marketplace. A lot of
those have been bipartisan with Senator Klobuchar. Similarly,
agriculture is an area where I've expressed concern for many
years and introduced several pieces of legislation, including
increasing transparency in livestock markets. I've been
increasingly concerned with the dominance of the big tech
companies and how that impacts competitors and consumers.
Right now, there are only a handful of companies that
control American's everyday lives, from what they see and read,
how they interact online, how they purchase goods. These big
tech companies are using their dominant monopoly power to favor
themselves, and that monopoly power harms small businesses.
It's not only preferencing and discrimination that's happening,
but they also are using their power in the market to silence
conservative voices.
There must be a level playing field and fair competition.
That's why I earlier joined the bill that Senator Klobuchar has
already talked about, the American Innovation and Choice Online
Act to address competition concerns with big tech. This bill
provides common sense rules to ensure that dominant online
platforms don't unfairly preference their own products or
discriminate against business users on their platforms. It will
help ensure greater competition and more opportunities for
small business and better results for consumers.
This bill isn't about punishing successful companies. I
strongly applaud American ingenuity and success, but we must
ensure that there is a fair and even playing field for everyone
on dominant platforms and that consumers aren't harmed. The
American Innovation and Choice Online Act is about targeting
harmful conduct while ensuring that pro-consumer innovations
are protected.
My question to Ms. Moss and Professor Alford, how do you--
let me--I want to go back to one of the bills that I said I
introduced. Over the past few decades, we've seen increased
competition and anticompetitive activity in the agriculture
industry, including in meatpacking, the seed market, and
fertilizers. So, to you two, how do you think that this has
negatively impacted competition in consumers of agricultural
products?
Dr. Moss. Thank you, Senator Grassley. To your question
about competition in the ag biotech industry, we've--AAI has
done a tremendous amount of work on this. We now have the
creation of multi-level, massive, behemoth platforms in traits,
seeds, agri-chemicals, and now digital farming. I spoke in my
remarks earlier about the massive wingspan of these companies.
Not to say that there aren't necessarily some efficiencies that
might come out of integration. These companies are so large
that smaller innovative rivals have virtually no chance of
getting a foothold in the market because they are faced with a
company that dominates multiple levels.
To your question about the role of Congress, I applaud all
of you for thinking hard and seriously about the role of
Congress in strengthening, clarifying, modernizing, and
updating our antitrust laws to address the types of endemic
problems that we see in large companies. Exclusionary conduct
through discrimination on platforms, cartels that slow down
innovation and harm consumers, all of these are needed steps
and bootstrapping for our antitrust laws, I think, in the
United States. We really are, I believe, at a pivotal-pivotal
point, excuse me, where we can look to protect our consumers,
our markets, and our democratic principles, or we can slide
into a period of very slow economic growth and decline.
Senator Grassley. Professor.
Professor Alford. Yes, on agriculture, let me just say that
I think the biggest problem is you sort of have to pick which
seeds and seed varieties and chemicals you're going to use
between the different competitors and then stick with them. You
don't really have the freedom to pick and choose between some
seed varieties with some companies and then other chemicals
with other companies. You sort of have to pick which company
you're going to go with and do that.
With respect to your support and sponsorship of S-2992 and
the various categories of unlawful conduct that you are
proposing to address, I do want to say that there's a lot of
good that is happening in this bill. Let me give you, for
example, section 2 on unlawful conduct of S-2992 prohibits
conditioning access to cover platforms or preferred status or
placement on the cover platform on the purchase or use of other
products or services offered by the covered platform operator
that are not part of or intrinsic to the covered platform. That
is exactly the kind of behavior that we're seeing with respect
to Google and the online advertising market where there is a
forced tie-in, a forced connection between if you're going to
use one of their products, say, the buyer broker or the seller
broker, you also have to use one of their other products. You
cannot advertise on YouTube without using Google's brokerage
services. It's impossible to do it. These are the kinds of
concerns that I think you're proposing in this legislation that
would be helpful.
Senator Lee. Senator Blumenthal.
Senator Blumenthal. Thanks, Senator Lee. Thank you all for
being here today. This topic is one of tremendous interest and
importance to this Subcommittee, and in fact, should be, as
you've said, Ms. Moss, to the whole Congress. I want to begin
by asking a question about Apple and Google with their total
control over what apps consumers can discover and install
around the world. That's why the app stores are called walled
gardens, as you know. Despite corporate rhetoric about the
protection of freedom of expression, both Apple and Google have
proven susceptible to pressure from authoritarian governments,
which should concern us on both sides of the aisle.
Apple has caved to pressure from Chinese authorities to
remove tens of thousands of apps from the app stores in China,
and they've done it without so much as an explanation as to the
laws that the Chinese government claim were violated. No real
protest, no objections. To name a few of those apps, the New
York Times apps, which Apple removed while the newspaper was
working on articles critical of the Chinese government,
abhorrent to our values. Radio Free Asia, as U.S. taxpayer-
funded, nonprofit news service, and one of the most popular
Koran apps in China.
Of course, China is not the only country capable of putting
that kind of pressure on Apple or Google to cave in to their
terms. This fall, Apple and Google agreed to shut down the
smart voting app in Russia, which was meant to help opposition
parties organize the head of parliamentary elections.
Let me ask you, Mr. Harman, we have an obvious foreign
policy interest in promoting democracy, free press, and human
rights. These are core American values. They are the values
that underly freedom of expression in this country and our
marketplace that enables Google and Apple to make the money
that they do. Is it fair to say that Apple's censoring
protestors in Hong Kong and Russia, even blocking the Voice of
America service, undermines our national interest?
Mr. Harman. I think yes, of course. In fact, absolute
monopoly on how you get to apps gives them the power to do
that.
Senator Blumenthal. My time is limited, so I will assume
that everyone on this panel agrees unless you would like to say
something to the contrary. Thank you.
As you all know, two decades ago, the Department of Justice
and 20 attorneys general sued Microsoft over Windows dominance
to undermine competitors in a new, important market--then, very
new--the internet. I was one of the State Attorneys General. In
fact, I helped to lead that group. One tactic from the
Microsoft playbook of that time strikes me as particularly apt
today. Microsoft's desire to collect a vig for online commerce.
I didn't use the word vig at the time. Actually, it was used by
a number of outside commentaries. I'm going to put one in the
record. James Rill, who referred to it at the time as a vig. As
you know, vig is sort of a slang term; as a former U.S.
attorney, I know well. Used by bookies. Meaning they take a cut
when they bring betters together.
In 1997, the Wall Street Journal, in this article, which
I'm going to ask to be part of the record, if there is no
objection?
Chair Klobuchar. So be it. It will be part of the record.
[The information appears as a submission for the record.]
Senator Blumenthal. Thanks. ``They, in effect, collected a
vig for every transaction over the internet that uses Microsoft
technology.'' That's actually a quote from the article.
Microsoft actually was never successful in that effort
because of antitrust enforcement against the company by those
State attorneys general and the Department of Justice. Since
then, there have been years of lax antitrust enforcement, and
so Apple and Google have managed to do what Microsoft wasn't
able to accomplish at the peak of its monopoly power, which is
to collect a vig on every transaction in our app economy.
Today, Apple and Google use their duopoly to take a cut of
all paid apps and in-app purchases of digital goods and
services. Typically, it's 30 percent off the top. That vig
actually has far more profound impact on most consumers than
the vig collected in those days by the bookies, which was
rarely felt by the average or ordinary American. This vig
really stifles innovation and ultimately raises cost for
consumers. And if developers don't like that vig, there is
nowhere for them to go. Apple and Google's duopoly gives them
the power to say, ``Pay our cut or leave behind all mobile
devices.''
Because Apple set the standard, this monopoly rent free--
rent fee. I wish it were rent free--is often referred to as the
Apple tax. The Apple tax. The vig. Every bit as pernicious,
probably more so, than the vig charged by bookies.
I think I've accurately summarized the current state of
play. Let me ask you, Mr. Migicovsky, isn't it the case that
Apple and Google are doing what Microsoft couldn't get away
with--essentially charging that vig--and what is the impact on
consumers?
Mr. Migicovsky. Thanks for the question, Senator. It has a
massive impact. Companies that get started have to consider
both how they price their product for customers--that takes
into account the Apple tax. Because of the nontransparent rules
that Apple has set up around getting onto their app store, most
companies need to spend weeks, if not months, negotiating and
working through a reviews process with Apple just to get onto
the store. This is something that every company that wants to
sell a product available to iPhone users needs to take into
consideration.
I think with the bill that you put forward along with
Senator Blackburn, Open App Markets Bill, puts forward an idea
that levels the playing field, and it would allow for the
possibility of sideloading or installing an app outside of the
store, which opens up many opportunities for new ideas, new
companies, and new business models, as well, that don't have to
pay the 30 percent tax.
Senator Blumenthal. Thanks, Mr. Migicovsky. Mr. Harman, I'm
assuming you would agree with that. I've overstepped my time,
so the Chairman may allow you to answer, but----
Chair Klobuchar. Go ahead. Oh, please go ahead.
Senator Blumenthal. Mr. Harman.
Mr. Harman. Yes, I agree, and I think it is important to
compare. The Microsoft vision pales in comparison to what the
reality of what 30 percent. I mean, I don't think they imagined
30 percent with their vig. And Google and Apple have
successfully put that in place.
Senator Blumenthal. Even Bill Gates didn't have that
vision.
Mr. Harman. Right.
Senator Blumenthal. Thanks, Madam Chair.
Chair Klobuchar. Senator Hawley.
Senator Hawley. Thank you, Madam Chair and thanks to the
witnesses for being here. Ms. Moss, I want to come back to
something that you said to Senator Klobuchar at the beginning
of the hearing. You said--talked about the big five being on
sort of a downward slope in their acquisitions and then talked
about that next generation of dominant platforms. You were
thinking about this, with particular reference to the cloud
infrastructure.
I'm really curious about that. Could you just give us a
sense of--who you--as you look to the future, and you think
about the next wave here of potential monopolists and the next
wave of dominant platforms--who are you thinking about? What
are you looking at? What are you seeing?
Dr. Moss. Thank you, Senator. That's a fantastic question,
and very much dovetails with the work that I referenced
earlier. We at AAI are very interested in the digital business
ecosystem, sort of as a business model or phenomenon. And what
we find is they're very unique.
Typically, a digital business ecosystem is built around a
platform, whether it's search, or ecommerce, or advertising,
you name it. To support those platforms and the users that
engage with them, you need a lot of cloud infrastructure, so
you need machine learning technologies, cloud computing,
artificial intelligence plays a really important role, data
analytics.
We find that when those two pieces are in place, digital
ecosystems can really expand infinitum. They can add in apps to
their ecosystems, whether that's in fintech or health tech, or
energy tech, or ed tech. Again, you name it. These ecosystems
have really significant capacities for growth and expansion.
What we've seen with the top five, is they have grown
monumentally over the last 25 years. Seven hundred
transactions, 200 reportable under the HSR requirements, only 1
challenged Google ITA by the Department of Justice.
We are very worried about the activity that we see from an
antitrust standpoint, obviously. New players who are quietly
engaging in massive levels of acquisitions--these are folks
that really fly under the radar screen--who have that cloud
technology and capability. They have their platforms in place.
And they really are poised to expand dramatically in the next,
I would say, three to five years, whereas the big five have
really slowed down significantly on acquisitions.
We have this new generation coming up of highly acquisitive
companies with tremendous cloud capability, and those are the
ones I think that are very much worth watching as we move into
the future. I'm not saying the big five aren't worth watching.
They are, but it's this new generation, I think, that we need
to be very keen on monitoring.
Senator Hawley. Give us a sense of who is in that category.
Dr. Moss. I would love to do that. There are public and
private companies. I wish I had my list, my spreadsheet. We
have companies in there like Sales Force, which has been
incredibly acquisitive over the last many years. Companies like
Intuit, with an incredible impact in the fintech space. Zillow
is building out an incredible platform ecosystem, and these
companies don't have enormous market caps as you might know,
but they certainly have the capability to grow, I think, into
large market cap companies and have all the same features as
the big digital business ecosystems.
Just one more quick comment. We worry about these companies
because they are really rife with what we call market failures
in economics. There are data externalities. There are network
effects. There are information asymmetries around the use of
data. When you have ecosystems or models like that, where there
are lots of market failures, you're kind of looking at a
similar situation to your traditional natural monopoly electric
utility. That does require government oversight to make sure
that consumers are not ripped off.
Senator Hawley. Very good. That's very helpful. Thank you
very much. Mr. Migicovsky, if I could just come to you. I
wanted to ask you about further action that you think from a
policy perspective that this body might take. You've mentioned
about opening up the app store. I've sponsored legislation that
would mandate data portability and interoperabilities. Is that
something worth pursuing? Are there other steps that we should
be thinking about policy wise, in terms of changes to the law
that would actually promote competition and innovation and
allow companies like yours to have a chance at succeeding, as
opposed to being shut out by the dominant players?
Mr. Migicovsky. Thanks very much for your question,
Senator. The Access Act, which I think you cosponsored in the
previous Congress, is a, I think, a very important piece of
legislation that would support companies like Beeper that are
aiming to interoperate with some of the largest tech platforms.
I think one of the things that access does is it enables users
to have the freedom to switch away from certain platforms if
they no longer continue to agree with those platforms.
Right now, most users are locked in because their current
social graph is contained within some of these free apps. If
Access were to come to pass, I think that you would see a
tremendous innovation in terms of new companies that would
compete with some of these entrenched large tech companies
because no longer would switching mean giving up on the
existing relationships that you have with your friends, with
your family. You would still be able to maintain those, while
potentially supporting a different competitor in the space.
Senator Hawley. Very good. That's very helpful. Thank you.
My time has expired, so I will leave it at that. I just want to
say, Madam Chair, that I happened to see Mr. Migicovsky earlier
today, and I think this is your first time testifying, right? I
told him this Committee is so friendly that he had nothing to
fear. There you are.
Chair Klobuchar. Exactly. Except for certain people, but
yes, it is very very friendly. Very friendly. Okay. Next up,
Senator Blackburn.
Senator Blackburn. Thank you, Madam Chairman, and thank you
all for the hearing today. I had the opportunity to visit with
Mr. Migicovsky yesterday and had a great competition. I
represent Tennessee, and in our State, I think we have the most
amazing, creative community. When you look at Nashville and all
the songwriters, the TV, the movie production, we have a lot of
people that are constantly innovated--innovating. Their
intellectual property is their stock and trade.
One of the things we hear a good bit about is access to
capital for startups, and this is something that many times
what I hear--and a lot of this is people that are innovating in
health IT, or in predictive diagnostic systems, or in the
financial service sector.
Then people will say well, they don't want to invest
because they're afraid that you're going to have a Google or an
Apple or somebody come in and cut the legs out from under you,
and you're not going to be able to actually reap that benefit.
Ms. Hein, I want to come to you for about 30 seconds on this,
and then Mr. Migicovsky, you. Talk about the problem with
access to capital when you have these innovators that are
facing these people that are scooping up rather than allowing
companies to grow. Go ahead, please.
Ms. Hein. Yes. Thank you, Senator. It is a problem that
access to capital is limited, especially for female
entrepreneurs. I think you know that, and those in regions that
are not the supercenters of venture capital. What big companies
do do is that they not only buy companies, but they also just
copy the features that we bring out, and that does stifle
competition. I don't think, therefore, that just limiting
acquisitions will be the answer to this. I agree with my other
panelists that open API access, for example, is very important.
Interoperability are part of the solutions that you could
enact.
Senator Blackburn. Thanks. Go ahead.
Mr. Migicovsky. Thanks for the question, Senator. I think
to echo one of the points that Alex was making earlier today--
as an investor, we decided to invest in many early stage
companies, usually at the stage where it's one or two people
and an idea. There were certain areas that we had to think
twice before we invested in, mostly because of large entrenched
players. I think one that may come to mind is the music
industry and the entertainment industry.
When we looked at startups that attempted to innovate in
these spaces, we always considered how difficult it was to get
access to the IP and break into some of these very controlled
markets. I think that's one of the reasons why it's more rare
to see startups that attempt to reinvent ways of distributing
music or content, mostly because of this.
Senator Blackburn. You know, sometimes when I look at this
issue on innovation, it reminds me of what we went through
about 10 years ago with the patent trolls that were looking at
some of the concepts in the apps that were coming online, and
it seems to kind of mirror that. Let me have you continue, if I
can, on chokepoints where the startups have a tough time
breaking into a market. What would you classify as being these
chokepoints?
Mr. Migicovsky. One of the chokepoints that I think we've
talked about before is the app store. That is the primary
chokepoint. All roads to the iPhone flow through the app store.
On top of that, I think the financial sector currently has many
controls that limit how new startups can begin to interoperate.
It's getting better. I think there are some startups, like
Plaid, that have innovated in the space and make it much easier
for new companies to kind of connect in. Another example is
Stripe. Other than that, it is still much harder to build a
financial tech company.
Senator Blackburn. Thank you. You will notice, Madam
Chairwoman that he gave the correct answer in talking about the
app store, and that is why we need the Open App Markets Act.
Chair Klobuchar. Very good.
Senator Blackburn. Thank you very much.
Chair Klobuchar. Nice summary. All right. Next up, Senator
Cruz.
Senator Cruz. Thank you, Madam Chair. Welcome to each of
the witnesses. Thank you for being here. The focus of this
hearing is innovation and ensuring that our competition
policies drive innovation. It's critical. As Professor Alford
notes, innovation is just one of the often hidden casualties in
antitrust law.
Like him, I support the consumer welfare standard. Too
often, however, that standard has focused exclusively on price
and output effects to the exclusion of things like quality and
innovation. The same anticompetitive forces that can stifle
technological innovation can also stifle ideas and views that
the dominant players disagree with and want to root out.
As I look at it, when we think about how we protect
innovation, we also need to look more broadly at how we protect
people and companies who dare to think differently. I want to
go down the row. Does everyone here agree that it can
constitute an antitrust and competition harm when dominant
players use their dominance to censor individuals who think
differently or just those who disagree with them? Ms. Moss.
Dr. Moss. Thank you, Senator Cruz, for the question. I
think the answer to the question, in a nutshell, is antitrust
is very good at addressing some problems in the digital
business ecosystems because they are directly related to
competition or a lack thereof. The problem we see with the
digital ecosystems is they raise a number of dramatically
impactful problems. Social problems, political problems,
economic problems.
I think free speech on the platforms and censorship is one
of those problems that may not be that well-addressed by
antitrust enforcement but should certainly be addressed by
another appropriate public policy tool.
Senator Cruz. Mr. Harman.
Mr. Harman. I think I generally agree with that. I think it
depends on the situation and the financial interests of the
platform.
Senator Cruz. Mr. Migicovsky.
Mr. Migicovsky. I think the central problem here is that
there is a lack of user freedom. Users do not have the ability
to switch platforms if they no longer agree with the platform
or if they want to try a new service. There's a lack of
interoperability and data portability. I think that the
American Innovation and Choice Online Act goes to great lengths
to make this a much more level playing field.
Senator Cruz. Thank you. Professor Alford.
Professor Alford. I mean, I will echo some of the previous
comments. I think there's a lot of things that are happening
with respect to these big tech companies and only some of them
relate to antitrust law.
For example, issues of censorship, issues of addiction,
issues of mental health and wellness. A lot of those issues
don't directly relate to antitrust issues. They are very
serious concerns, but it's difficult to fit those square pegs
into the round hole of antitrust. I do think that you can say
that to the extent that censorship constitutes harm to the
quality of the experience of the consumer, then it would be a
colorable claim that you could make under the antitrust laws.
I would also add that to the extent these big tech
companies say that they do not discriminate against
conservatives, and they can show that that's a
misrepresentation, then they also could be liable under the
consumer protection laws.
Senator Cruz. Ms. Hein.
Ms. Hein. I have to agree with most of the other panelists
that antitrust is probably not the right thing to address
freedom of speech and censorship. I do think though, that
critical voices and new ideas are the lifeblood of innovation
and that should not be stifled.
Senator Cruz. Again to each of you. When we tackle issues
of competition and innovation, should we think broadly about
what it means to innovate? That is, think beyond simply
technological innovation, and look more broadly at innovation
that serves a clear market demand, a consumer demand.
Mr. Migicovsky talked about consumer freedom. One example
of innovation to serve a market demand is Parler, which was
created to serve a demand in the face of widespread censorship
of conservatives. Parler was created, and then Google and Apple
and Amazon all used market power to coordinate to block the
competitor and drive them out of business. Ms. Moss.
Dr. Moss. Thank you. I think where competition becomes very
important in this particular debate--and certainly free speech
is a backbone of democratic--underlying democratic principles
which support a market-based system--is to encourage
competition and entry by smaller innovative rivals in spaces
that are dominated by large platforms. Regardless of their
political inclinations or not, the mechanics are such that
kicking off smaller rivals for whatever reason, limiting users'
ability to switch and not be locked into a particular system,
all contribute to a diminution in the number of voices that are
out there in the free speech context.
As Roger pointed out as well and others have said,
antitrust would have a hard time getting at that problem
through methods of deterrence and how to remedy that type of
issue. Certainly, more competition is always better in that
context. I think, as I said earlier, we need other public
policy tools to address some of these stickier issues.
Senator Cruz. Mr. Harman.
Mr. Harman. Yes. I think we should be thinking about
innovation as removing the barriers--especially in the big tech
space--removing the barriers that the dominant platforms have
put in place to protect themselves, so that innovators, as they
are at the very first stage--at the finance stage, at a mature
stage--they are not bound by the strictures that these
companies put in place.
Senator Cruz. Mr. Migicovsky.
Mr. Migicovsky. Senator Blumenthal mentioned earlier that
there are not just considerations in the app store here in the
United States, but also internationally, that foreign
governments have taken action in removing apps from the app
store there. I think it all comes down to the ability for
people to decide for themselves which apps they would like to
use. And as of right now, people do not have that freedom to
choose on platforms like the iPhone.
Senator Cruz. Mr. Alford.
Professor Alford. Yes. In my prepared remarks, I discussed
quality-fixing in addition to price-fixing, and you and Senator
Lee have both talked about the Parler example in which Google,
Apple and Amazon have kicked off Parler. To the extent that one
could show an agreement between Google, Apple and Amazon to
raise the same identical quality concerns with respect to the
reasons for why they decided to kick Parler off of their
platforms, I think there could be a quality-fixing argument.
As I suggested in my opening remarks, I am surprised that
there's not more subpoenas or investigations with respect to
big tech companies when they are engaging in quality-fixing,
such as, ``Let's develop a common position. Let's get on the
same page,'' about this privacy concern or this desire and
effort to squelch conservative voices. To the extent there is
potential evidence of quality-fixing, then I think there should
be investigations of that.
Senator Cruz. Ms. Hein.
Ms. Hein. I think the other panelists have given you good
input on that. I'm not an expert on which apps to remove from
the app store or not.
Senator Cruz. Okay. Thank you.
Chair Klobuchar. Very good. Thank you, Senator Cruz. I have
a few additional questions here. I guess I'll go to you, Mr.
Harman. We have heard a lot of misleading claims on TV. Senator
Grassley has had to deal with these, that we are somehow going
to get rid of Amazon Prime. That's one of my favorite ones,
when if you look at the bill it would not do that by any means.
Could you talk about what the bill actually does, which is to
prohibit platforms from abusing their gatekeeper power? Would
these type of rules help or harm businesses that rely on Apple,
Google, and Amazon to reach their customers?
Mr. Harman. Thank you, Senator. Yes, these are misleading
claims. I think the starting point is, what is a platform?
Amazon Prime is not a platform. If you are a business user of
these platforms, you are at the mercy of those platforms to get
access to their users--to their customers, to your customers.
You are at their mercy on their terms of service that are
totally subjective to their whim to change. This bill gives you
the ability, as a business user, to have a fair playing field
so you that you're not going to be unfairly discriminated
against because of your potential threat to their platform
dominance.
Chair Klobuchar. Would Amazon be forced to cancel Prime or
free shipping because of this bill?
Mr. Harman. Absolutely not.
Chair Klobuchar. Okay. Also, numerous recent reports have
suggested that Amazon creates knockoffs of third-party sellers'
products and uses its algorithms to give its own brands an
advantage. Part of this was reporting in Wall Street Journal
and other places. How does this practice affect competition and
the incentives of small businesses to create new innovative
products?
Mr. Harman. Yes. I think this is an example of--I mean,
it's patently unfair, right? It makes all of us upset. It's
also an example of--in this case Amazon--the dominance of
demonstrating to your users that if they don't fall in line,
this is what can happen. They are at your whim. You want to
sell your product? You have to do everything they do and not
upset them and not be too successful, because then they might
step in and remove you.
Chair Klobuchar. Very good. I think that's a lot of people,
and sometimes I wonder if--Members around here--people are
very--when you've got monopolies and they have a lot of power,
you don't want to piss them off. That's the problem with the
monopoly. I hope people take this to heart, because one of our
jobs is to look out for the public interest and to look at
what's really happening, and it's right in front of our eyes.
Whether it's what you heard from the whistleblower on
Facebook, whether it is what we are hearing from companies as
big as Spotify, and Tile, and Match.com about what's going on
in the app stores, or whether it is what we are hearing from
small businesses and startups like Mr. Migicovsky's, who are
simply trying to compete with some really good ideas.
Or it's whether we heard what we hear from the companies
themselves. I think it was Mark Zuckerberg's infamous words in
an email where he said, ``I'd rather buy than compete.'' I
think that's about as clear as we can get.
Professor Alford, you previously worked in the Antitrust
Division of the Department of Justice. We consider that a badge
of honor around here. Where you were at the Department, how did
you handle questions around innovation when pursuing cases?
Professor Alford. They would always--typically, in the
merger context, they would always be part of the analysis. They
would be part of the questions that would arise. There would be
requests on document production related to issues concerning
innovation. To the extent that there was a potential risk to
innovation as part of the merger, then they would address that
appropriately.
In some cases, it meant, as I suggested in my written
testimony, it meant that there had to be a divestiture of
certain assets to maintain R&D or to maintain intellectual
property. In some cases, the harm to innovation led to a
decision to block the merger altogether. As I mentioned, the
example of that would be Visa's attempted acquisition of Plaid.
I think in the context of conduct cases, I think I did not see
specific cases during my time there where harm to innovation
was part of the specific conduct cases, because----
Chair Klobuchar. Why do you think that is? Because the
horizontal merger guidelines explicitly reference innovation,
including considerations of whether a merger is, quote,
``likely to diminish innovation competition.''
Professor Alford. I think there's a variety of answers to
that. I think there is a tendency at the enforcement agencies
to focus on price and output. There's not a sufficient
attention on issues related to quality or harm to innovation,
and there is a reluctance in some cases to bring innovative
litigation that has less likelihood of success. There is, I
guess, error cost analysis, you could say, where I'd rather be
safe and not bring a case unless I have a high degree of
confidence.
I think there is a movement afoot--bipartisan movement
afoot, to bring more cases and recognize that as long as a case
is plausible under the existing antitrust laws, it's better to
be slightly more aggressive than conservative with respect to
bringing litigation. I think that's a relatively recent
development.
Chair Klobuchar. Right.
Professor Alford. When I was there, the overwhelming
majority of the time the concern was, ``Europe is focusing on
these companies. Where is America? Where are the United
States?''
Chair Klobuchar. Yes.
Professor Alford. It wasn't until, as you know, the very,
very end of the Trump administration, and now with the Biden
administration, that we are really I think focusing on these
issues.
Chair Klobuchar. I've appreciated that, that it's gone
between two very different administrations----
Professor Alford. Right.
Chair Klobuchar [continuing]. With different leaders in the
agencies. I think it shows, and some of the more successful
antitrust suits have been like that. They have crossed
political party lines. One of the things I talked about at
length, and he was helpful on, is your former boss, Makan
Delrahim, was about the resources for the agency. Do you think
the agencies need more resources?
Professor Alford. Yes. I love section 15 of your bill where
you're proposing--what is it--$300 million extra for the
Department of Justice and something even greater than that for
the Federal Trade Commission. I don't think anyone in the DOJ
or the FTC will be opposed to that.
Chair Klobuchar. Yes. There's two things going on. One is
the bill that Senator Grassley and I passed through this
Committee, and it's now over in the House actually. It got
through the U.S. Senate to change the merger fee standards
which was supported by this Committee. It's over $100 million
long term. Go ahead.
Professor Alford. I was going to say that of all of the
antitrust bills that have been for proposed in the House and in
the Senate, I think the merger filing fees and the reforms with
respect to that, as well as the Venue Act that you also have
cosponsored. Or I believe----
Chair Klobuchar. That Senator Lee is the lead on, yes.
Professor Alford. Exactly. That Senator Lee is the lead on.
Exactly.
Chair Klobuchar. Okay. Then the other thing is, we also
have additional funding. Well, there's the budget, but also in
the bill we're considering right now--in the Build Back Better
bill.
I was going to ask you, Ms. Moss, just about pharma here at
the end, because we have been focused on tech. As you know,
many of my bills are actually more generic, not to use the
pharma--a little play on words. They are not just about tech.
They are about changing the standards in some limited cases,
but important big cases, as well as looking at all industries.
Because I think that tech is unique in that we have done
nothing for it since it started, and now Federal law. We've
done nothing on Federal privacy. We've done nothing on updating
many of our laws when it comes to tech, because they've said
leave us alone and everyone said, ``Okay,'' and now look where
we are.
I do want to give you that opportunity because there's been
a lot of support on this Committee, including many Republicans,
on taking on some of the pharmaceutical issues. We just
recently passed two or three bills out of this Committee
related to patents and the like, so talk about what you are
seeing in pharma consolidation.
Dr. Moss. Sure. Thank you. Pharmaceuticals and healthcare
more generally are some of the most consumer-facing sectors we
have. Prices matter to consumers. Drug costs are high in this
country. They're a major part of total healthcare spend. We
count on innovation--robust innovation--amongst the branded
pharmaceutical companies to have parallel path R&D
competition--head to head R&D competition--to produce new
branded drugs that make it through to the commercialization
process.
We count on the generics to be first to file. Racing to the
finish line to get to that abbreviated new drug application.
That's almost a form of innovation in terms of lowering costs
to consumers. We see generics now innovating in the super
generic space because of the defense patents that are put out
by the branded drug companies.
This is all on the decline. If you look at the return on
R&D in pharmaceuticals, it is absolutely in decline, and we
have strong research, as I noted in my testimony, that says the
more competitors you have in the market, the more productivity
you will get out of the R&D process itself.
I don't think the FTC's merger policy on pharma has been
very helpful. The study we did back in the spring is a real eye
popper. Sixty-seven companies allowed to merge with very
targeted divestitures. I mean, we're talking about therapeutic
value, or even molecule-defined markets, so we need to revisit
how we look at pharmaceutical mergers--pharmaceutical markets
in the antitrust context.
Remedies are beginning to have a bad name. The larger the
company, the more concentrated the merger, the more pressure
there is on remedy to restore competition. That goes for price
competition, quality competition, innovation competition. We
are seeing a growing list of failed remedies in all sectors and
including in the pharmaceutical sector specifically.
To revitalize competition and innovation competition in
pharma I think is going to take some major changes in how
antitrust enforcers look at those mergers and the policies they
pursue, but we strongly need support from Congress. The bills
that you have put out, which would be designed to support
stronger enforcement but to also address some of the issues
that we have elsewhere in the intellectual property space, in
the FDA drug approval space, and opening up possibilities for
innovative products like biosimilars and super generics.
Chair Klobuchar. Okay. Just two follow-ups not on pharma,
just because these are things that we keep getting, and I
really want to get on the record some answers to these.
Mr. Harman, last week in the Commerce Committee, I
questioned the head of Instagram about how aggressively his
company is targeting teenagers. In fact, there was a document
that showed one of the people that worked there said the
existential threat to the company if they lost teenagers. It
showed marketing increases to their budget. This all came out
of the Facebook whistleblower document. Is it possible that
Instagram might have developed better features to promote user
privacy, safety, and security if it had not been bought by
Facebook, now Meta?
Mr. Harman. Absolutely, and other apps could have developed
as well that wouldn't have had to face the dominant Facebook,
Instagram, WhatsApp monopoly.
Chair Klobuchar. How does the consolidation of the tech
industry deprive consumers of real choice in innovations? It
could solve issues. I think everyone always thinks price. Very
important, right? There's other things. There's bells and
whistles about misinformation, privacy violations, harmful
content.
Mr. Harman. Yes. I like to think of it as the things we
don't know are missing. The innovations that didn't get off the
ground because people didn't want to take on--or were crushed--
but didn't want to take on what was an insurmountable threat to
Facebook or to Google or to Apple.
Chair Klobuchar. Yes. I think in the case of the Instagram
and kids, I think a lot of parents know something is missing,
though. I will say.
Mr. Harman. Yes. Absolutely.
Chair Klobuchar. Their kids are seeing all this crap they
don't want them to see. They can't--get addicted to their
phones at age 10, and yet these companies are the biggest
companies the world's ever known, and they could find out who
is using their phones and create some limits on it. It's not in
their best interest because I think it's--or as I said the
other day--they're diametrically opposed to the interests of
the parents because they want them on those phones, because
they want to get the marketing revenue.
Last question, Mr. Migicovsky. In recent weeks, we've heard
a lot of misleading claims from groups funded by big tech.
There are a lot of groups funded by big tech that have really
nice sounding names, as you know. One claim I've heard is that
this bill would force Apple to allow unsafe apps on consumer
devices. We don't believe that's true because of the standards
in the bill, and our bill has a specific provision enabling
platforms like Apple and Google to take action to protect
safety, user privacy, and security. We'll continue to work with
the on this. Not much longer, because as noted, I think we need
a little less talk and a lot more action around this place when
it comes to--someone was complaining about the timeline. I'm
like, ``What do you mean? Twenty-five years that we haven't
done anything?''
Apple does not allow consumers to download apps on their
iPhones outside the app store, and they say allowing
sideloading would expose consumers to unsafe apps. As you know,
Google does allow other apps on there. In your knowledge as an
entrepreneur and engineer, can Apple allow users to sideload
apps on their iPhones and still protect their privacy and
security? Just one little clue, iMacs allow others on there,
but continue on.
Mr. Migicovsky. I think the simplest answer is that Google
currently allows other applications on the Android operating
system, and the sky has not fallen. The same should----
Chair Klobuchar. Also, I meant Macs, not iMacs. But Macs,
their own product, allow----
Mr. Migicovsky. Any sort of application to be installed. I
mean, that was the core foundation of computing 30, 40 years
ago when computers started becoming multipurpose devices. It
was hackers and innovators creating new experiences that no one
ever thought of before. Part of the way that we can do that is
by quickly iterating and building new ideas. That is definitely
not the case on iPhone.
Chair Klobuchar. Very good. Senator Lee.
Senator Lee. Okay. First, I want to go back to Ms. Hein. I
want to give you a chance to respond to some of Senator
Durbin's comments a little while ago. The quote that you shared
in your written testimony about Sarbanes-Oxley is one that I've
seen in a number of contexts, and it is haunting. It's haunting
to me not just as a Member of this Subcommittee in particular,
but it's a signal to me that we ought to be careful. We ought
to be cautious always when wielding Government authority that
by purporting to solve one problem, we not create a lot of
other problems, and that we not thwart innovation and
competition. Do you want to respond to that?
Ms. Hein. That's exactly my point, Senator that I've been
trying to make. All of this legislation, Sarbanes-Oxley, Dodd-
Frank, very well-intentioned, but as economists say, there are
distortions and unintended consequences of this. Therefore, I
am critical of things where we don't know how they will play
out. Therefore, I think that specifically the point I have been
making is around acquisitions, that there is no real reasoning
right now why a certain number of companies cannot have larger
hurdles to acquisitions.
Senator Lee. Right. Still using Sarbanes-Oxley as a model
then, as Senator Durbin points out, there were issues that led
to that. I happen to not agree that Sarbanes-Oxley was the only
answer that could have been concluded. I don't think that was
the case.
The fact that there are legitimate reasons that caused
Congress to be considered, and then actions taken by Congress
through a change in law to create additional obligations that
can be put in place by the overpowering force of the Federal
Government, the fact that there--somewhere along that chain,
legitimate concerns animating those does not obviate the need
to look for negative unintended consequences on competition. Do
you agree with that?
Ms. Hein. Yes, Senator, I agree with that. As I mentioned,
I don't think that the sledgehammer of legislation is necessary
here but actually adding those resources to the FTC and the
Department of Justice to look at these things very individually
and figure out what are actually the aspects of that
anticompetitive behavior that need to be stopped.
You gave a good example there with advertising technologies
and being on the buy side and the sell side. Those are exactly
areas where action is needed, and that has nothing to do with
acquisitions.
Senator Lee. Thank you. Professor Alford, a few months ago
we saw actions taken by three tech giants, Apple, Google and
Amazon over about a 48-hour period to take down what was then a
new and budding and somewhat promising social media platforms
called Parler. I don't know to what degree they were
coordinating that, or they were colluding in doing that.
What I do know is that all three of them took action at
almost exactly the same time with near surgical precision in
order to take down a much smaller company, one that, as best I
can tell, didn't compete with any of them. This is concerning
to me. Since then, Parler has been able to get up and operate
again, but they were badly wounded in the process, and the
astronomical growth that they had seen up until that point
halted.
When you halt that kind of growth, it tends to lose its
momentum. I am not sure where they are now growthwise, but this
is concerning. It raises questions in my mind. Do you want to
help me understand? How do we distinguish between legitimate
standard-setting and the collusive quality-fixing that you
mentioned in your testimony?
Professor Alford. Yes. I mean, you've raised this issue
numerous times, and I think it's an incredibly important issue
to think about. If you think about alternative platforms that
might be able to compete with Facebook, one can well imagine
the network effects that would result from a mass migration of
essentially conservative-minded people wanting to go to another
network, just as one can think of TikTok as a mass migration of
really, really young people wanting to go and migrate toward a
really young platform.
You can certainly imagine a world where there would be a
plurality of platforms, and they could break off on a whole
variety of different lines, including regarding political
alignment. I think that they viewed Parler as a very serious
threat. As you said, you would have to show--to the extent that
Google, Apple and Amazon colluded with one other and coordinate
with one another to say, ``Yes. Let's use the same arguments
together at the same time to take down the app,'' and do it, as
you said, within a 48-hour period, that definitely should raise
alarm bells. I don't know why there has not been CIDs issued to
these companies with respect to quality-fixing like that.
I think the larger point that you raise though, is that the
fact that they feel that they can do this suggests that these
companies themselves know that they are monopolies, right? As
you put it in your speech to NetChoice, ``Conservative anger at
big tech is real, and it's entirely justified. No business
would treat its customers with the prejudice and disdain shown
toward conservatives by big tech, unless that business were
confident that it was the only game in town.'' I think at a
minimum, it reflects the power that they feel.
Senator Lee. While not independently a violation of
antitrust laws, perhaps, it certainly is not the kind of
activity--in other words, if you aim your audience insofar as
you're talking about a marketplace consisting of the American
people, it would cause one to wonder why, and under what
circumstancesc, a company would deliberately alienate roughly
half of its potential user base or customer base.
Professor Alford. Exactly.
Senator Lee. That in turn suggests, perhaps, a need for
another look.
Professor Alford. Exactly.
Senator Lee. Dr. Moss, we talked a little bit earlier, and
you have spoken with some of my colleagues about the
pharmaceutical industry. I think this is an interesting one.
It's an interesting angle from which to view competition,
because you have such a highly regulated industry, one in which
you can't do anything without--not just without being regulated
once you produce something, but long before you get into the
regular--production pipeline you have to go through a million
steps costing an enormous amount of money in order to get
there.
As a result of this, you have a lot of companies that never
really can make it to production. They will always be acquired.
That's part of their business plan is to be acquired, because
they don't have all the resources to make it through two and
then through the phase three clinical trials and everything
else that goes along with it. Getting acquired is not only part
of the plan, it's the entire plan for many of them.
How do you solve that kind of regulation-induced
consolidation? I mean, is it first something that we ought to
worry about? Is it something we should try to solve? If so, how
would we go about doing that?
Dr. Moss. Thank you, Senator Lee. R&D is a risky process
for sure. I think in pharmaceuticals, the chances of actually
realizing a fully commercialized drug that has made it through
clinical trials and into the hands of physicians and other
healthcare providers is probably one of the highest risks that
has been experienced.
I think the crux of the issue with innovation competition
and its decline in pharmaceuticals lies directly with
consolidation in the branded drug companies, but also in the
generic space. This gets back to the elimination of parallel
path pipelines, racing to be the first to file, entry by
generics into the super generic spaces, etc.
What we see, or at least what some good economic analysis
shows us, is that this level of consolidation has created sort
of a bulge in the development end of the pipeline where you
have very, very few companies--fewer and fewer companies--
actually shepherding along that final leg in the process to get
the drug into a--the commercial zone. That's where the FDA
comes in and the application processes and that sort of thing.
More competition to smooth out that bulge in that development
part of the pipeline would be really, really important.
As far as the startup model or the nurturing the smaller,
riskier businesses, I don't have good answers for that,
unfortunately. The one thing we've learned in the digital tech
space is that that VC-backed startup model is very, very much
part of the growth of the big tech ecosystems. I agree with
you, Senator, that it's also part of the growth in the
pharmaceutical space. These companies have actually fostered
the development of a pipeline of new talent in the form of
startups. Those startups are often, as I said, backed by
venture capital.
However, that very model, the existence of that very model,
and the desire to be acquired as opposed to grow into a fully
fledged rival like Senator Klobuchar was just saying, that in
itself is a distortion of competition, because those companies
are going to be innovating differently if they want to be
acquired versus if they want to go it on their own and stay
independent as standalone rivals and challenge the incumbents
with significant market power.
I don't know what you do with that model from a public
policy perspective, but I don't think good policy is protecting
that model because the digital tech companies say, ``Well,
these are the people we want to buy. This is how we grow.'' And
then the small startups want to be acquired and are thus
directing their R&D in areas that are designed to maximize
their purchase price. That's why I think we need strong
antitrust enforcement and stronger standards for acquisitions
of potential rivals, which are included in the CALERA bill as
well as other protections.
Senator Lee. Right. I always think about industries that
are born into regulatory captivity or born into regulatory
freedom. You see this elsewhere in other heavily regulated
industries, some of them by the same regulatory bodies. The
FDA, for example, also exerts its heavy hand in things that are
not pharmaceutical products, but things like the Owlet sock
that I mentioned a minute ago. Where you just have moms and
dads who want to be able to monitor their baby's heart rate and
oxygen levels remotely. It's a convenient way of doing this,
it's not a device that promises or purports to be there for
diagnosis or treatment of any medical condition. They just rest
a little easier being able to look at a number and say, ``Yes,
that looks like things are going well in there,'' and they
don't have to go walk into the room, risking waking up the
baby.
There are a whole bunch of people, in Utah and elsewhere in
this country, who are now very upset that they can't get this
thing. Word spreads. My daughter-in-law, Claire, was recently
at a friend's baby shower, and a lot of the moms, they were
complaining about the fact that you can't find an Owlet. They
were scrambling about where to find one: on the secondary
market, or to buy one used. All this because a busybody,
regulatory agency decided it had to get involved. As a result
of this, people aren't going to enter in and compete.
I worry about what that says for so many other industries.
I think--the FDA has had a nice, long run, but it has been
given way too much control over our entire economy. I think
they need to remember that they're not elected to anything.
They don't have power to make new laws, and they're acting as
if they were the masters of the universe. I think it harms
competition. You wouldn't disagree with me that the regulatory
power of the FDA, and other agencies for that matter, extends
far beyond the pharmaceutical industry and into other areas
where it can have all sorts of consequences that are not only
unintended, but very unpleasant.
Ms. Hein. As an economist, I have to mention, of course,
that there is this thing called regulatory capture, which we do
worry about. I'm a former Federal regulator myself, over the
FERC for many years during the open access rule, and saw the
rough-and-tumble of vested interests in large, dominant firms,
wanting regulation that would actually make their lives easier,
as opposed to inject oversight and competition into the market.
We should not forget that regulation--good regulation,
well-structured regulation that achieves objectives with
minimal side effects or distortions is really an important
goal.
Second, I think it's worth mentioning that if we want to
stimulate innovation competition for the benefit of consumers,
and workers, and entrepreneurs, we cannot apply a one-size-
fits-all regulatory model to everybody. Case in point, I did a
podcast, an AAI podcast, ``Ruled by Reason,'' with two really
innovative entrepreneurs in the beef sector. These are small,
independent cattlemen. They have innovative ranching
operations. They are essentially microprocessors. These guys
can't compete because the USDA imposes standards on them for
food inspection--animal inspection that they would impose on a
large packing facility. It's really expensive and hard for
these smaller players to be innovative and enter markets when
they are subject to one-size-fits-all regulation regardless of
size.
Senator Lee. Thank you.
Chair Klobuchar. You kind of lost me at masters of the
universe. I was thinking that wouldn't be a bad title to have
right now around this place. Try to get some things done. Okay.
I just want one follow-up here, I guess, from maybe two of you.
Ms. Heins testified in just the latest questions from Senator
Lee that small entrepreneurs would be hurt by legislation to
limit serial acquisitions by dominant platforms. Do you agree,
Mr. Harman?
Mr. Harman. No. I would like to associate myself with the
comments of Ms. Moss. I think the--it is market distortion that
everything is focused toward being purchased or not upsetting
the dominant players, and I think getting the dominant players
out of that market will cause innovators to be able to--the
sky's the limit--build what they want and not be afraid of the
consequences from big, dominant players who control the market.
Chair Klobuchar. I just always figured out that our laws
have to be as sophisticated as the economy that we're dealing
with, and I think it's one of the reasons you've seen
bipartisan support on the merger issue. Honestly, there are a
number of people that are supportive on the conservative side,
including Maken Dellerheim on the taking that merger standard
of flipping the burden for the biggest deals and extending it
beyond tech.
That being said, I think it's very important to note that
we're dealing with several different bills here. One is on the
merger issues. I have one that would cover all aspects and
different players, and not just in tech. Senator Cotton and I
have one that's focused on tech. Then, we have the bill that
we've been really--I wanted to focus much of the discussion,
which it has in this hearing, on some of the exclusivity
content, and this is what Mr. Migicovsky is getting at, where
these platforms are favoring themselves over others. It
wouldn't mean the platforms go away anyway, nor do some of
their very important offerings.
What it means is you just have some fairness because
there's been no rules of the game set, and that is the bill,
just for anyone watching at this late hour, that Senator
Grassley and I have put together with the Ocean's Eleven of
sponsors. That was Samantha Bee's line. Then we have App
Stores, which is a specific focus very related to the
exclusivity and the non-discrimination bill that we put
forward.
Then we have other bills, which Professor Alford was
focused on with the helping the agencies, and Ms. Heins
mentioned, as well, the need to have good people in these
agencies who are doing their jobs in a moment where we're
seeing more and more consolidation. There's going to be more
and more mergers coming before these agencies across the board,
and we have to make sure they have the resources that they
need. It's another area of focus.
Then we have bills related to pharma and agriculture
consolidation that we've had hearings on in this Subcommittee,
as well as the work being done over on the Commerce side.
Again, back to tech, but really across the economy, on privacy
and sharing data. Senator Cantwell is leading the efforts on
that, as well as some kid-specific legislation on protecting.
Then we have Section 230, which we blissfully did not
discuss at length. I say blissfully because we could have a lot
bigger discussions, and have had on this Committee, as well as
not just Subcommittee, the Committee, which is something that
if we--if everything is stalled out here as the tech companies
put millions and millions of dollars up on TV ads specifically
targeting my colleagues in the Washington, DC area, I would
hope that they are smarter than that to realize that's why
they're getting targeted on late-night TV when they come home
from work. Or the 2,500 tech lobbyists that have been hired. I
would hope that they see beyond that because, at some point,
we're going to have no choice but to make major changes to
Section 230 because we can't get anything moving, which maybe
you could describe as the more chisel effect, in terms of going
after--on the merger side--going after the anti-discrimination
conduct, or the pro-discrimination conduct that's happening
right now going after privacy.
My view is I'm going to get there, too, to wherever my
colleagues are. It's just getting rid of any immunity at all--
right now, I have targeted immunity bills--if we don't get
something done here. I'm speaking now to an empty room, but
it's not because the Senators weren't here. They were here in
droves, which I really appreciated. In terms of interest of the
Senate as a whole, that's what we have to see in the next few
months. We can't wait. An election is upon us. We've got to get
the markup in January on a few of these bills. I would suggest
the exclusivity bill, the bill that I have with Senator
Grassley. I would also put on the record the recent piece he
wrote for the Des Moines Journal--Des Moines Register, on the
bill, as well as the number of these other pieces of
legislation.
We just have to stop talking about them. I don't want to
have any more hearings with CEOs and throwing popcorn at them.
We need to have action and get this done, and that is not for
you witnesses, who are valiantly stuck through until 5 p.m. at
this hearing, but it's really for my colleagues and the rest of
the Senate especially, that it is time to bring these bills up
for markups. No more hearings; markups, so that we can get them
to the floor.
You know that, Professor Alford, two of the bills, one has
passed the Senate, the merger bill. The other, the venue bill,
which is now headed to the floor, as well as a few other bills
that are focused on pharma and other things. That's great, but
we have to get some of these tech bills to the floor so that we
can get the floor time to actually pass them. That is my goal.
Less talk, more action.
With that, the hearing record will be held open for more
talk for another week, I believe.
Chair Klobuchar. With that, the hearing is adjourned. I
want to thank Senator Lee and all of the Senators that
participated and been incredibly active on this issue. That
part of it has been heartwarming, actually, because we are up
against a lot. We have two lawyers on our staff that do
antitrust. They're sitting behind me. They're a mighty group.
It's kind of a ``Saving Private Ryan'' situation, with Avery
and Mark, and the tech companies have 2,500 lobbyists and
probably 10,000 lawyers. I believe in the movie, ``Saving
Private Ryan.'' I believe a small but mighty force can win.
That's what we are doing. That's what we are up against, but
we've got the momentum on our side because we've got the people
of this country on our side. Thank you. Hearing is adjourned.
[Whereupon, at 4:57 p.m., the hearing was adjourned.]
[Additional material submitted for the record follows.]
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