[Senate Hearing 118-110]
[From the U.S. Government Publishing Office]
S. Hrg. 118-110
REINING IN DOMINANT DIGITAL
PLATFORMS: RESTORING COMPETITON
TO OUR DIGITAL MARKETS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMPETITION POLICY,
ANTITRUST, AND CONSUMER RIGHTS
OF THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MARCH 7, 2023
__________
Serial No. J-118-6
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.judiciary.senate.gov
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-536 PDF WASHINGTON : 2024
COMMITTEE ON THE JUDICIARY
RICHARD J. DURBIN, Illinois, Chair
DIANNE FEINSTEIN, California LINDSEY O. GRAHAM, South Carolina,
SHELDON WHITEHOUSE, Rhode Island Ranking Member
AMY KLOBUCHAR, Minnesota CHARLES E. GRASSLEY, Iowa
CHRISTOPHER A. COONS, Delaware JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut MICHAEL S. LEE, Utah
MAZIE K. HIRONO, Hawaii TED CRUZ, Texas
CORY A. BOOKER, New Jersey JOSH HAWLEY, Missouri
ALEX PADILLA, California TOM COTTON, Arkansas
JON OSSOFF, Georgia JOHN KENNEDY, Louisiana
PETER WELCH, Vermont THOM TILLIS, North Carolina
MARSHA BLACKBURN, Tennessee
Joseph Zogby, Chief Counsel and Staff Director
Katherine Nikas, Republican Chief Counsel and Staff Director
Subcommittee on Competition Policy, Antitrust, and Consumer Rights
AMY KLOBUCHAR, Minnesota, Chair
SHELDON WHITEHOUSE, Rhode Island MICHAEL S. LEE, Utah, Ranking
CHRISTOPHER A. COONS, Delaware Member
RICHARD BLUMENTHAL, Connecticut CHARLES E. GRASSLEY, Iowa
MAZIE K. HIRONO, Hawaii JOSH HAWLEY, Missouri
CORY A. BOOKER, New Jersey TOM COTTON, Arkansas
PETER WELCH, Vermont THOM TILLIS, North Carolina
MARSHA BLACKBURN, Tennessee
Keagan Buchanan, Democratic Chief Counsel
Wendy Baig, Republican Chief Counsel
C O N T E N T S
----------
OPENING STATEMENTS
Page
Klobuchar, Hon. Amy.............................................. 1
Lee, Hon. Michael S.............................................. 5
WITNESSES
Candeub, Adam.................................................... 12
Prepared statement........................................... 42
Responses to written questions............................... 47
Francis, Daniel.................................................. 10
Prepared statement........................................... 51
Responses to written questions............................... 180
Lewis, Amanda.................................................... 13
Prepared statement........................................... 196
Responses to written questions............................... 203
Lewis, Chris..................................................... 9
Prepared statement........................................... 210
Responses to written questions............................... 216
Scott Morton, Fiona M............................................ 7
Prepared statement........................................... 221
Responses to written questions............................... 232
APPENDIX
Item submitted for the record.................................... 41
REINING IN DOMINANT DIGITAL
PLATFORMS: RESTORING COMPETITON
TO OUR DIGITAL MARKETS
----------
TUESDAY, MARCH 7, 2023
United States Senate,
Subcommittee on Competition Policy, Antitrust, and
Consumer Rights,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice at 3:07 p.m., in
Room 216, Hart Senate Office Building, Hon. Amy Klobuchar,
Chair of the Subcommittee, presiding.
Present: Senators Klobuchar [presiding], Whitehouse, Coons,
Blumenthal, Hirono, Lee, Grassley, Hawley, and Tillis.
Also present: Chair Durbin and Senator Padilla.
OPENING STATEMENT OF HON. AMY KLOBUCHAR,
A U.S. SENATOR FROM THE STATE OF MINNESOTA
Chair Klobuchar. Sorry we were a little late, but the good
news is, we got both votes done. So we won't be running back
and forth. I call to order this hearing of the Subcommittee on
Competition Policy, Antitrust, and Consumer Rights on ``Reining
in Dominant Digital Platforms: Restoring Competition to Our
Digital Markets.'' I'd like to welcome our witnesses and thank
Senator Lee and his staff for helping to plan this hearing.
We all know that a few dominant online platforms have the
power to control whether and how businesses can access
customers and markets online. These dominant platforms often
abuse this power to preference their own products in a way that
stifles competition and innovation.
Last Congress, between the House and the Senate, over 150
hearings on the tech issues were held. Let me say that again--
one, I don't mean to not make you guys feel special--but, 150
hearings were held, and we did make progress.
In addition to the House report that Representative
Cicilline and Representative Ken Buck, as well as the Chairs
over in the House put out, we passed some bills.
The Senate Judiciary Committee, as you know, passed out the
bill on changing the merger fees that Senator Grassley and I
had, as well as the bill that Senator Lee and I had, that
Senator Lee led on venues.
Both bills passed at the end of last year as a part of the
year-end budget, and Senator Lee and I worked together. And I
believe those are very important pieces of legislation for
assisting those at the State and Federal level that are going
after these cases.
The Senate Judiciary Committee also reported the bipartisan
American Innovation and Choice Online Act to the Senate floor,
making it the first tech competition bill voted out of this
Committee since the dawn of the internet. This isn't just about
the money for enforcement or about State efforts. This is
actually about Federal efforts and the need to change the laws
to fit the times.
A few weeks later, the Open App Markets Act, something led
by Senator Blumenthal, and Blackburn, and myself, was also
reported out on a strong bipartisan vote, but after an
unprecedented lobbying effort by the dominant platforms--as in,
I remember in August of last year, they'd spent more money on
legislation, according to a Bloomberg report, than any other
entities, industries. Even more than Pharma had at that point.
I don't have updated numbers, but I know that nearly,
probably over $200 million was spent against this bill in
States all over the country with ads that had nothing to do
with each other, for red States and blue States, to show their
dominance. These bills did not get a vote on the floor.
And let me give you some numbers. I just noted the millions
of dollars in advertising against the bills--$90 million on
lobbying over the previous 18 months. In just one week last
May, one industry group spent $22 million on TV ads against the
American Innovation and Choice Online Act.
I--particularly, I want to note for the companies--enjoyed
the pop-up ads run in DC against me that said, ``Amy
Klobuchar''--and I love the way your lawyers insisted on
putting in small letters, ``could.''--``Amy Klobuchar could
destroy Amazon Prime.'' ``Amy Klobuchar could''-- in really
small letters--``destroy Google Maps.'' They were well noted.
Congratulations on your money spent.
These companies have only become more brazen since then
with armies of lobbyists and lawyers. They are in every corner
in this town, at every cocktail party, and all over this
building. But it's easy to see why they don't want us to act.
We would be happy to work with the companies on legislation,
but they shut every single thing down. Why? Because they can.
Google has 90 percent market share in search engines. Apple
controls 100 percent of app distribution for iPhones. Three out
of every 4 social media users use Facebook or Instagram. Amazon
accounted for about 40 percent of the entire U.S. e-commerce
retail market last year. That's dominance under any way of
looking at the antitrust laws, something that I know the
Justice Department is looking into, as we speak.
So while many have said all the right things about
fostering innovation, helping small businesses, and improving
privacy, when it comes to actual action, we have done nothing
in this Congress. With the exception of the funding--which I
will say is incredibly important--and the Venue bill, we have
done nothing in terms of setting standards when it comes to
tech.
Nothing out of the Congress on privacy. Nothing out of the
Congress on updating the children's protection bills when it
comes to the internet. Nothing on the Congress when it comes to
dominance on the platforms and self-preferencing. Nothing out
of the Congress on AI. You can come to your own conclusions on
why that has happened.
But I think you all know when you talk to parents who are
trying to help their kids to do their homework, and not spend
their whole day on social media, or be exposed to bad stuff. Or
when you talk to small businesses, like those in the National--
NFIB, the National Federation of Independent Businesses--which
is not exactly known as a liberal group, that has endorsed the
bill that we are in part talking about today--I think you then
understand what's going on in this country, and why we need
some rules of the road, and why there has been bipartisan
support for these bills.
I'm well aware of what's going on in the House, and
Congressman Buck, who I spoke to this morning, his loss of his
Committee post--which he did so well--and I'm well aware of
some of the changes made to that Subcommittee that have made it
harder and harder for us to proceed with these bills. We have
to be honest about that. But to just close our eyes and do
nothing and let another 2 years go by is a huge mistake.
And that's why we're having this hearing, and that's why
we're moving ahead. While we fail to act, the dominant
platforms use their control to suppress the competition and
rake in billions at the expense of consumers.
If you don't want Meta to have your data and sell it to
advertisers, tough luck, because you will have to avoid using
Facebook, Instagram, WhatsApp, and Messenger.
If you don't want to use the Apple App Store, tough luck,
because there is no other way to get your apps on the iPhone.
And if you're a small business that wants to use a local
delivery service instead of Amazon's shipping system, tough
luck, because they're two. Because it is virtually impossible
to get to the top of Amazon's search listings unless you buy
Amazon's shipping systems.
Small businesses are beholden to digital gatekeepers that
can block access to their customers, take their data, and
demote them in search rankings while copying their best ideas
and bringing them to market on their own. That discourages
businesses from innovating and deters investors from putting
money into startups. They all know the game is rigged.
We know that other countries are taking action. They are
leading the way in the Digital Age. I wish we were. I know
Senator Hawley has some ideas on how he would like to proceed.
I know Senator Lee has tons of ideas. But in fact, let's be
honest, that's not happening right now.
The European Union enacted the Digital Markets Act, which
puts regulatory restrictions on how the largest digital
platforms can use their power. Australia is considering similar
reforms to protect digital competition.
I'm glad they're doing this. It will give us good examples.
It will show that the market is still vibrant even when they
protect their consumers and they have the guts to pass
something.
The UK is considering legislation to further empower its
digital markets union. And South Korea enacted new rules to
open up app markets.
If Congress does nothing, we abdicate America's leadership
position on global competition policy. We let foreign laws
become the global standard for regulating American digital
businesses around the world.
And while the dominant digital platforms lobby against
legislation in the United States, they are agreeing to the same
common-sense rules in other countries.
That may be the biggest hypocrisy of all. It's okay to give
small businesses some rights in Europe. It's okay to have help
for consumers and protection for consumers in the UK or
Australia. But here, where they are allegedly hometown
companies, where they're supposed to be looking out for
Americans, they fight it tooth and nail.
The good news is that there's still a bipartisan majority
in both Chambers that is ready to take action. Bipartisan
legislation with Senator Grassley and other Members of this
Committee, the American Innovation and Choice Online Act, as
well as Representatives Cicilline and Buck in the House, which
establishes rules of the road for dominant digital platforms
and prevents them from favoring their own products or services
just because they own them.
These are targeted reforms to address anticompetitive
behavior, level the playing field for businesses, and increase
choice while driving down costs for consumers. And these
reforms do it without compromising privacy or security.
That's why, as the Attorney General said last week, the
Department of Justice, along with the Commerce Department,
endorses the bill. The bill also, as I already noted, has
strong support from the National Federation of Independent
Businesses, Consumer Reports, the Main Street Alliance, and
Consumer Federation of America, and many civil society groups
across the political spectrum.
I also joined Senators Blumenthal and Blackburn to
introduce the Open App Markets Act to give app developers more
power to reach their customers without the control of app
stores run by Apple and Google. And I am working with Senator
Lee on this bill to improve competition and transparency in ad
technology markets. We're going to be having another hearing to
focus on that soon.
Here's the bottom line: We cannot afford to waste another 2
years getting nothing done; another 2 years for these
monopolists to further entrench their power; another 2 years of
unchecked anticompetitive self-preferencing; another 2 years of
small businesses closing up shop; another 2 years of failing to
protect American consumers; while the rest of the world moves
forward.
And I am well aware that the content arguments are used,
and they're very different. The arguments that are made to the
left from the right. One day I hope to publish the sentences
that said that the companies give to the right and what they
give to the left. And at some point, we know that they're the
same because they're designed for one thing, and that is to
stop these bills and maintain their dominant position.
I know eventually we're going to get this done, even if it
means all these other countries went before us, and there'll be
pressure for them to agree to it in America. Eventually, we
will. But for the good of the people of this country, I hope it
is sooner rather than later. I look forward to continuing to
work with colleagues on both sides of the aisle. And with that,
I turn it over to Senator Lee.
OPENING STATEMENT OF HON. MICHAEL S. LEE,
A U.S. SENATOR FROM THE STATE OF UTAH
Senator Lee. Thanks so much, Madam Chair. If it seems like
we've had this hearing several times before, well, it's because
we have. But it's also because finding a way to rein in the
pernicious influence of Big Tech remains one of the most
pressing public policy concerns of our time.
These aren't the first monopolies, by any means, that
America has endured, and has had to figure out how to deal
with. We've dealt with them before, but never before have we
seen just a handful of trillion-dollar corporate bureaucracies
exercising such pervasive control over how we stay in touch
with friends and loved ones, how we shop to provide for our
families, obtain news and other information, exercise our First
Amendment rights, influence public debate, and even how we turn
on our air conditioning, and lock or unlock our doors.
All of that is on top of the fact that they're doing stuff
to our kids that many of us find very disconcerting. Big Tech's
business plans are built on an addiction business model, and
our children are uniquely vulnerable to fuel their growth and
their expansion as attractive targets for those businesses.
What's sold as fun and as a matter of convenience seems to,
more often, end up as a gateway to pornography and to Chinese
propaganda. But for them, a click is a click. Yet, while Big
Tech profits have grown significantly, so have teenage anxiety,
depression, and suicide rates. These companies don't just track
where we go, what we say, what we buy, who we talk to, what we
read. They actively influence, and direct nearly every facet of
our lives, to ensure that our patterns of behavior remain
what's most profitable for them.
Not content to stifle competition in their respective
commercial markets, Big Tech increasingly works to kill
competition in the marketplace of ideas. Woke ideology is
seeped from universities to the boardroom, and it's now being
foisted upon consumers in the form of censorship and exclusion
from the 21st-century public square. Even worse, we now know
that these companies have been colluding with the Federal
Government to do so. A gross violation of our constitutional
rights.
It turns out Big Tech and Big Government share a lot in
common, including their love for surveillance and censorship.
They don't necessarily bring out the best in each other, and
that's putting it mildly. So it's not surprising that so often
when we see Big Tech tracking and censoring us, it turns out
that Big Government was there, egging them along, facilitating
it, perhaps requesting it, all along.
In the past, there was at least some consolation in the
idea that market forces would eventually intervene, that
changes in technology and new innovation would somehow disrupt
incumbents and provide consumers with new choices. But today's
monopolists, however, control much of the consumer technology
and innovation themselves. And what they don't control, they
actively endeavor to buy up before it can become a competitive
threat that might actually risk displacing them or disrupting
their control of the marketplace.
This is precisely why there's such a strong bipartisan
support for the idea that we need to find ways to ensure that
the same companies that began as innovative startups disrupting
stagnant markets to improve the lives of consumers, don't end
up as entrenched as the monopolists undermining competition at
the expense of consumers and American society itself.
This is an incredibly important task, and one that I take
very seriously, as someone who's long championed Congress'
unique legislative prerogative and responsibility to make law.
And neither the judiciary nor the executive branch can solve
these problems alone. Congress must act.
At the same time, we also have a duty to ensure that the
cure isn't something that turns out to be worse than the
disease. As concerned as I am by the behavior of Big Tech, I'm
equally concerned that some of the bills that have been
introduced to solve one problem or another simply replace a
corporate tyrant with a Government tyrant. They would replace a
lack of competition with an excess of Government
micromanagement by bureaucrats, trading one form of dysfunction
for another.
Ironically, it's often this very kind of regulation that
leads to consolidation in the first place, pushing firms to
merge, thereby erecting barriers to entry, and protecting
themselves from competition. Congress should prefer targeted,
detailed legislative solutions to broad, vaguely defined grants
of new authority to Federal agencies.
As I've said before, it's important that Congress solve the
problems presented by Big Tech rather than broadly delegating
the issue off to Federal bureaucrats and agencies subject to
regulatory capture and unaccountable to voters. I remain
particularly opposed to the idea of granting any new authority
to the Federal Trade Commission.
Unfortunately, the radical agenda of the Biden FTC has made
it even harder to find common ground in the fight against Big
Tech. Even passing a bill to update the merger filing fee
structure, something that should have been uncontroversial, was
needlessly difficult and almost failed, simply because of the
overreach and the incompetence of the FTC under the current
administration.
I'm grateful to Senator Klobuchar for convening this
hearing because we're here to discuss some really important
issues, and for continuing to be a valuable legislative partner
as we both work toward bipartisan solutions to shared
challenges.
I look forward to our discussion today and a hearing later
this month that we'll be having to discuss our AMERICA Act to
tackle competition in digital advertising. Thank you, Madam
Chair.
Chair Klobuchar. Thank you, very much, Senator Lee. And now
I want to introduce our witnesses.
Fiona Scott Morton is a professor of economics at the Yale
School of Management, where she teaches competitive strategy
and antitrust economics.
Chris Lewis is president and CEO of Public Knowledge, a
nonprofit public interest group in digital competition.
Daniel Francis is an assistant professor of law at New York
University.
Adam Candeub is the director of the IP, Information &
Communications Law Program at Michigan State University.
And Amanda Lewis is a partner at Cuneo Gilbert & LaDuca,
LLP where she specializes in antitrust and consumer protection.
If the witnesses could now please stand and raise your
right hand.
[Witnesses are sworn in.]
Chair Klobuchar. Thank you. You may be seated. I will now
recognize the witnesses for 5 minutes of testimony each,
starting with you, Professor Scott Morton. Thank you.
STATEMENT OF FIONA M. SCOTT MORTON, THEODORE NIERENBERG
PROFESSOR OF ECONOMICS, YALE SCHOOL OF MANAGEMENT, NEW HAVEN,
CONNECTICUT
Professor Scott Morton. Thank you, Chair Klobuchar and
Ranking Member Lee, for the invitation to testify today. I have
only a few points to make.
The modern interpretation and application of U.S. antitrust
laws has failed to preserve competition in today's digital
platform markets. Relying on entrenched monopolists to innovate
and create competition is foolhardy and unsupported by economic
learning. The perfect antitrust law would be a great help, and
I would firmly support that.
But my understanding is that such a law is not on the menu
today, and will not be anytime soon. This means our choice is
between the status quo and the bills we're here to discuss
today.
Larger budgets for antitrust enforcement are also
necessary, and I support those. But litigation is an expensive,
uncertain, and slow method to stop the behaviors Congress, and
many other jurisdictions, have identified as problematic.
Current antitrust enforcement actions against Big Tech also
run up against the problem of what remedy to request should the
Government prevail. How can agencies restore the lost
competition? In the absence of prompt and effective remedies
that create competition in platform markets, a good alternative
is a set of rules that stimulates competition on dominant
platforms. The apps, vendors, and other businesses that use
these platforms are businesses that will not invest and invent
unless they have a route to profitability.
AICOA is quite conservative in that it aims to restore
competition to digital markets that are concentrated or
monopolized. The bill is fit for purpose and makes actionable
only those violations that injure competition. The deference
generally given to affirmative defenses in our current system--
an undue deference, in my opinion--very often indicates that
the law is very unlikely to penalize reasonable actions and
quality products.
The Protect Competition language in AICOA is new exactly
because we know we have an antitrust enforcement problem. Using
language drawn from the same ineffective jurisprudence we now
use today would yield the same ineffective outcomes we have
today, namely, insufficient protection of competition.
I expect it will take many years until we have a digital
regulator, just as it took much human suffering before Congress
chose to create regulators for industries like pharmaceuticals
and railroads. Until we have such a regulator, the laws being
proposed today are the best route to immediate improvements for
the welfare of consumers.
The pair of bills that we're discussing today reflect some
of the content contained in the Digital Markets Act, which
Senator Klobuchar referenced a few minutes ago and which will
take effect in Europe in January 2024, less than 9 months away.
Let me give you a few examples of the requirements in that
law.
Article 5, number 4 is anti-steering and an anti-gag rule.
Gatekeeper shall allow business users to contract, communicate,
promote, deliver various services bought elsewhere through the
core platform. So this gives app developers much more freedom
than they have today.
Article 5, item 7. Prohibition on tying a platform with an
in-app payment system, that gets freed up.
Article 6, item 2. Prohibition of the use of nonpublic
business user data to compete against the business users.
Article 6, item 4. An obligation to open operating systems
to third-party apps and app stores. ``The gatekeeper shall
allow and technically enable the installation and effective use
of third-party software applications or software application
stores.''
Article 6, number 5. ``The gatekeeper shall not treat more
favourably, in ranking and related indexing and crawling,
services and products offered by the gatekeeper itself than
similar services or products of a third party.''
Article 6, item 7. Free interoperability. So free, no
access charge, interoperability for business users, hardware,
and software that is equivalent to the access enjoyed by the
platform's own hardware and software.
As you can see from this limited selection, the DMA is much
more detailed than the text of AICOA or OAMA, and does not
include any efficiency defense. In particular, the DMA does not
require that the regulator show that each instance of
prohibited conduct harms competition. Instead, the rules were
chosen to be those that, in the view of the European
Parliament, would generally protect and increase competition.
Platforms must be in compliance with these rules by 2024 in
Europe.
What does this mean for the bills we're discussing today?
Right now, companies that seek to compete against today's
dominant platforms, or offer services through them, will have
an enormous incentive to focus their efforts in Europe where
they can bring new services, innovations, and lower prices to
European consumers with these changes in the laws that give
them more access, control, and innovative ability.
American businesses and consumers will be able to read
about these innovations, but they will need to go and launch a
product in Europe themselves or visit on vacation to experience
those products.
The United States will miss out on opportunities to lead
the world in tech sector innovation and experience the benefits
that that innovation can deliver. Thank you.
[The prepared statement of Professor Scott Morton appears
as a submission for the record.]
Chair Klobuchar. Thank you, very, very much. Next up, Chris
Lewis. Thank you.
STATEMENT OF CHRIS LEWIS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, PUBLIC KNOWLEDGE, WASHINGTON, DC
Mr. Lewis. Thank you, Chair Klobuchar, Ranking Member Lee,
for the invitation to testify today. Public Knowledge is a
nonprofit digital rights organization whose mission is to fight
for an open internet, free expression, and affordable access to
communications tools and creative works. And we see promoting
robust competition online as a key part of that mission.
Tech users are increasingly feeling like they have no power
over tech giants online and, at times, feel stuck with them.
Big Tech companies are popular for the democratic speech they
support, for the ease of purchasing products, and the
communities that they foster. However, there is a distinct
downside.
Consumers don't know or understand how they are being
tracked or influenced. Small businesses must accept unfair
treatment in order to access consumers through the digital
platform that dominate the internet. Their products can be
unfairly demoted in search results, their ability to
communicate with their customers can be limited, and their
competitively sensitive business information can be misused.
On social media, where so much of our modern political
debate takes place, women, people of color, and other
marginalized communities, face harassment that pushes us out of
the conversation. Radicalization pipelines on social media have
offline consequences.
Digital platforms are a distinct sector that need new laws
and rules to address their power and protect users. Antitrust
laws have an important role to play here, but existing
antitrust law will not be sufficient.
Here's a four-part framework that we've come up with for
how I think we can best address the variety of policy
challenges posed by dominant digital platforms.
The first is the subject of this hearing. Competition. We
need sector-specific, pro-competition legislation to empower
consumers and business users by incentivizing market entry, and
facilitating switching to new platforms.
Competition empowers customers to choose the option that is
best for them. In many markets, that's the best price. But in
digital platforms, where the price is often $0, competition may
happen along a variety of quality measures.
Consumers might prefer to see fewer ads, more relevant
search results, more reliable information, perhaps filtering
tools, or antiharassment tools, or even more, or less, content
moderation.
The American Innovation and Choice Online Act, AICOA, and
the Open App Markets Act, will make sure consumers are actually
seeing the products that are best for them and not just
products that are best for tech's bottom line.
By taking away some of the key tools that Big Tech uses to
stifle competitors and potential competitors online, fair
competition rules, like those found in AICOA and the Open App
Market Act, will also encourage new innovation to enter the
market, since they'll know that they can have a fair shot to
actually reach customers.
Briefly, the other three parts of the framework are
important as policymakers address sustainable solutions to meet
consumers' needs.
Part two is the importance of transparency so that
consumers and business users can make informed choices.
Transparency and due process practices, paired with
interoperability requirements, can build trust and empower
users when it comes to content moderation.
Third, we need consumer protection laws and rules to
address platform harms that won't be improved by competition.
The first, and most important, of these will be a comprehensive
privacy bill, like the ADPPA, which we support. Everyone
deserves to have their privacy respected.
Last, these responsibilities should be housed in a new
agency, an expert digital regulator. This regulator would work
together with antitrust enforcers, not in lieu of antitrust
enforcement. It would have competition, privacy, and other
consumer protection authorities. It could also address content
moderation concerns through transparency and due process
requirements. And it could help carefully craft the future of
algorithmic oversight and accountability.
Given the bipartisan work of Congress over the past few
years, we believe this framework can build a foundation for a
better internet in the future. I know folks may disagree on
some of the details of these legislative proposals, but we are
happy to work with you, and other stakeholders, to find
workable solutions. So thank you for inviting us here today,
and I look forward to your questions.
[The prepared statement of Mr. Lewis appears as a
submission for the record.]
Chair Klobuchar. Thank you, very much. Next up, Professor
Francis.
STATEMENT OF DANIEL FRANCIS, ASSISTANT PROFESSOR
OF LAW, NEW YORK UNIVERSITY, NEW YORK, NEW YORK
Professor Francis. Chair Klobuchar, Ranking Member Lee,
Members of the Subcommittee, thanks for inviting me today. I'm
a former Federal antitrust enforcer, and I strongly support the
Subcommittee's focus on tech monopoly.
Our digital markets are not competitive enough. Antitrust
enforcement needs more money, building on the recent wonderful
successes, and it needs updated statutes so that we can stop
anticompetitive acquisitions and exclusionary practices in tech
and other markets. And I would support platform rules that were
targeted at specific practices that used market power in
anticompetitive ways to harm consumers. But I don't recommend
enacting either of these bills under discussion today.
First, I don't support AICOA because I read it as telling
platforms to do less for consumers and more for other
businesses, some of which are going to turn out to be bad or
harmful.
Point one: AICOA makes it presumptively illegal to do many
things that benefit consumers. Integrating functions like
putting map information in search results, pre-installing apps
like mail or maps on a phone, bundling services like music or
movies in with Amazon Prime--those things shouldn't be even
presumptively illegal.
Point two: AICOA is going to discourage platforms from
protecting users. There are plenty of bad actors, malicious
apps, and junk out there on the internet. And today, platforms
protect users by restricting access.
But under AICOA, those access restrictions are going to
mean a threat of serious hassle, at best--complaints, lengthy
investigations, the threat of huge penalties and injunctions,
and even the forfeiture of personal compensation by executives.
And that threat's going to be bigger because so much of AICOA
is vague.
So, it's going to be much less attractive for platforms to
protect users than it is today. Now, that's going to mean that
some good actors will get access to platforms and users, and
that will be good.
But more bad actors are going to get access, too. They're
going to be pre-installed on devices, they're going to be
available in app stores, they're going to be available to
choose as a default, given access to cameras, and microphones,
and GPS information. And I think that's a much bigger harm.
Point three: The affirmative defenses are much too weak.
There's no defense here on the ground that what was restricted
was just a bad product, or it was full of spam, or intrusive
advertising. Or full of false, or objectionable, or sexually
explicit content. Or just too expensive to integrate.
There is a product improvement defense, but it's only
limited to core functions. If you improve a noncore function,
it doesn't apply. And the defense doesn't apply at all if what
you're doing could be done in a less discriminatory way, even
if doing it that way would be unprofitable.
And relying on the affirmative defense at all means
spending time and money to prove it, risking penalties and
injunctions, and even the loss of your own salary if a court
ends up disagreeing. So, I think it's going to be a paper
shield in practice.
Point four: Crucially, the bill doesn't define the central
concept of harm to competition. It could mean either an
antitrust-style consumer welfare test or injury to rivals. It
can't possibly be both. And if it's the latter, then it's no
limit at all. And if it's the former, which would allay a lot
of my concerns, it must say so explicitly.
Point five, and finally, AICOA is going to inject a ton of
confusion into tech markets. It's full of terms and concepts
that are new, important, broad, and undefined. And it's going
to drown in complaints the very same agencies that today barely
have the resources to cover their antitrust docket. I think
that's the last thing they need. And I can imagine State
attorneys general taking really different views in perfectly
good faith about how AICOA should work, including how content
moderation fits under Sections 3(a)(3) and 3(a)(9) of the bill.
Very briefly on the app store bill, I think it's a much
more promising basis for discussion. I would support rules for
app stores that have significant market power. A ban on app
price MFNs, a narrow ban on the competitive use of some data
that preserve their right to use their own data and to buy it
from developers, and I'd support a mandatory disclosure
requirement when paid advertising leads to a search ranking
boost.
But forcing third-party app stores into digital ecosystem
threatens real harm. The whole cybersecurity world, from the
NSA, and the FBI, to the FTC, tell consumers and users to stay
away from third-party app stores. I think the last thing we
should do is lift those up.
I don't think, even though I've been negative in my
presentation, that there are any easy answers here. Just really
hard tradeoffs and best guesses about what consequences are
going to be. My instinct is that we do a lot better supporting
and investing in the antitrust system that we've got, which so
badly needs support. I think that's a better deal all around.
Thanks for having me today, and I look forward to your
questions.
[The prepared statement of Professor Francis appears as a
submission for the record.]
Chair Klobuchar. Thank you. Next up, Professor Candeub.
STATEMENT OF ADAM CANDEUB, PROFESSOR OF LAW, MICHIGAN STATE
UNIVERSITY, EAST LANSING, MICHIGAN
Professor Candeub. Madam Chair, Ranking Member Lee, and
Senators, thank you for the chance to speak to you today. Big
Tech's market power undermines our Nation's culture of
vibrant----
Chair Klobuchar. Sorry. You have to turn your microphone
on, Adam.
Professor Candeub. Big Tech's market power undermines our
Nation's culture of vibrant democratic deliberation. Elon
Musk's Twitter files demonstrated that Big Tech has indeed
limited particular groups, including dissenters, from important
Government policies from full participation in national
political discussions. This power to exclude threatens all
Americans. Power to silence one group of Americans will be used
sooner or later to silence another.
Consider Parler. Beginning in 2021, the social media
company, which differentiated itself from competitors by its
free speech policies, was the most downloaded app on the Apple
Play Store. But then, on seemingly pretextual grounds, Apple
removed Parler from the App Store, and soon after, Google
removed it from the Play Store. Then Amazon Web terminated its
hosting agreement. The Parler app was quite literally taken
down, only returning online months later. It never recovered
its growth momentum. And this problem, the problem of Big Tech,
stems from its market power, and not simply Silicon Valley's
moral outlook that may differ from that of most Americans.
As price givers, they dominate certain online business
niches. And internet platforms can decrease service quality,
silence viewpoints, perspectives without experiencing revenue
loss. Competitive markets do not discipline their behavior.
Antitrust addresses market power and presents to many,
including myself, a dilemma. I stand on the side of markets and
economic freedom, but at the same time cannot close my eyes to
Big Tech's deleterious effects on the institutional resilience
of our democracy, free speech, children's health and
development, as well as, quite possibly, on economic innovation
and growth.
Antitrust has long recognized that special rules apply when
dealing with market power deployed to stifle free speech and
free expression. The Supreme Court, in Associated Press v.
United States, makes that point, and I quote, ``The First
Amendment, far from providing an argument against the
application of the Sherman Act, here provides powerful reasons
to the contrary. That amendment rests on the assumption that
the widest possible dissemination of information from diverse
and antagonistic sources is essential to the welfare of the
public.'' So from my perspective, I ask whether the Open App
Markets Act and AICOA further a freer country, a stronger
democracy, as well as a more vital and innovative online
economy.
The Open App Markets is a solid attempt to combat the power
of the large app distributors, but can be strengthened. As
written, it's not clear that it would solve the Parler problem.
There is no unreasonable discrimination provision that
prohibits arbitrary de-platforming. Further, Section 4
exceptions allow platforms to exclude or de-platform apps to
further digital safety.
As a law professor who specializes in communications law, I
confess I never heard the term until I read it in the bill.
What does digital safety mean? Don't text and drive? Don't
charge your iPhone while using it in the bathtub? Alas, no.
Digital safety is a concept pushed, and likely coined, by
the World Economic Forum and its Global Coalition on Digital
Safety. The WEF defines digital unsafe content as, I quote,
``lawful, but awful.'' As the Twitter files show, employees of
the major platforms have notions of what constitutes awful,
which probably do not align with what the Davos crowd considers
awful, and which are probably quite contrary to American
traditions of free expression.
As for AICOA, its Sponsors should be congratulated for
reforwarding the issue of restoring competition in digital
markets. I do have a few reservations. AICOA may simply be
ineffective at promoting free speech. With no private cause of
action, it is a very big stick, really a club, that DOJ, the
FTC, and the State attorney generals can use to hit Big Tech.
As was observed in the opening comments, Government power
for Big Tech often can have a bad effect on free speech. AICOA,
with its open-ended terms, and discretionary and exclusive
Government enforcement, adds to the available pressure
Government can employ on the major internet platforms to
silence Government's critics. I welcome the Committee's
questions. Thank you.
[The prepared statement of Professor Candeub appears as a
submission for the record.]
Chair Klobuchar. Thank you, very much. Ms. Amanda Lewis,
thank you for being here.
STATEMENT OF AMANDA LEWIS, PARTNER, CUNEO
GILBERT & LADUCA, LLP, WASHINGTON, DC
Ms. Lewis. Chairwoman Klobuchar and Ranking Member Lee,
thank you for the invitation to testify. I am here in my
personal capacity and not on behalf of any client.
Last Congress showed strong bipartisan support for
antitrust reform, especially for bills that would curb Big
Tech's and Big Pharma's monopoly power. There is a lot of
common ground here. This Committee advanced AICOA and the Open
App Markets Act on a bipartisan basis. You deserve credit for
doing so.
Enforcers, as well as private plaintiffs, are currently
seeking relief in court to address some of the gatekeeper
platforms anticompetitive conduct. But the unique challenges of
digital markets, plus the time and resource-intensive nature of
litigation, make this an inefficient, and also possibly
ineffective, tool for the job.
Under current law, the deck is stacked in favor of the
platforms. And that is why Congress should pass legislation to
rein in the dominant digital platforms and restore competition
to our digital markets.
AICOA is a comprehensive and well-thought-out bill. It
draws support from a long list of consumer groups, businesses,
and labor unions. It counts both NFIB and the Teamsters as
strong supporters. An example will help identify just a few
concrete benefits of the bill. AICOA would prohibit Amazon from
tying, which forces third-party sellers to pay enormous fees to
Amazon for services that they don't actually want to buy.
By prohibiting this conduct, AICOA will restore dignity and
autonomy to businesses that have no choice but to rely on
Amazon. Independent businesses will cease to be puppets with
Amazon pulling the strings.
Consumers will also benefit when sellers are no longer
forced to pay junk fees to Amazon that effectively add up to a
50 percent commission on every sale. Sellers will undoubtedly
pass those savings on to consumers. And this is just one
example of many of the benefits of AICOA.
The Open App Markets Act is much narrower. It's focused on
the mobile app ecosystem. If OAMA is passed, consumers will see
immediate savings, as well, when Apple can no longer force a 30
percent commission on developers for payment services that
should cost a fraction of that. OAMA would also force Apple to
give consumers the same freedoms that they enjoy on their
desktop and laptop computers, the freedom to download the
software and services of their choosing. This would put the
power back where it belongs: not in the hands of the dominant
platforms but in the hands of consumers.
Finally, OAMA will restore the incentive to innovate for
app developers. When innovators are no longer afraid that Apple
will effectively steal their ideas and hard-won customers, they
will take more risks and invest in new ideas. An increased
sense of security will encourage the investment of capital in
the innovation economy.
After this Committee's hard work to study the problems and
the solutions, these bills are ready to become law. I urge
Congress to move quickly to pass both AICOA and OAMA. Thank
you.
[The prepared statement of Ms. Lewis appears as a
submission for the record.]
Chair Klobuchar. Thank you, very much, to our witnesses.
I'll get started here. We have a number of Senators with
us. I'll start with you, Professor Scott Morton. I was
interested to see already the 2,800 lawyers and lobbyists for
the companies are now claiming that one of my points was that
we should cede regulation to--that I said, we should cede
regulation to Europe, and to Australia, and to South Korea.
They're already at it.
I think you know what I said, which was, that we should
take the lead. We in America, who believe in competition,
should take the lead. And that we have some good examples out
there, but we shouldn't let them take the lead. So, I just
thought for those of you tweeting that out, you might be
interested to note that that was a lie.
Professor Scott Morton, could you please talk about, and
kind of refute, some of the points that Professor Francis made
when it comes to the bill, and how the bill is all about
capitalism and competition? And as you know, throughout
history, that has been a counterweight to monopolists.
Professor Scott Morton. Thank you, Senator Klobuchar. I
think the parade of horribles that was listed by Professor
Francis really can't happen if there's a requirement to find
injury to competition. Today's courts are actually really happy
to find behaviors that economists would identify as harmful to
competition, to be fine.
The problem we have is actually excessive deference to that
kind of an argument. And I think, therefore, it's natural we
would have some of that here despite the beefed-up language. So
the notion that courts will suddenly eliminate quality products
because they have to evaluate a harm to competition is, I
think, misplaced.
And the kind of self-preferencing that the bill is worried
about can be harmful. This is known. It's not an imaginary
thing.
And Professor Francis has himself written that self-
preferencing isn't captured by the antitrust laws--the current
antitrust laws. So what kind of self-preferencing would we
worry about? What kind would be harmful? The kind that harms
competition.
So, again, we're returning to familiar economic concepts.
This is all stuff that we know from the literature. And the
fact that new words are being used in this legislation is
exactly to ensure that we get a new outcome. We can't use the
same terminology and imagine that courts won't understand it
the way they always have. So, to get a different outcome, we
have to use a new word and say, look, we're worried about harm
to competition.
In terms of innovation, I think, as I said in my opening
remarks, the entrenched monopolists that we have right now are
not--should not be relied on to generate innovation. That's not
what a monopolist does. It's safe. It doesn't have to run fast
to innovate. Where we're seeing quite a lot of innovation is
actually on these platforms now. So the apps themselves
competing with each other and trying to innovate and indeed
someday replace the platform. That gets limited without
protections.
Chair Klobuchar. Okay, thank you. Ms. Lewis--we have two
Lewises. So I'll start with you, Ms. Lewis. This Committee
found your testimony very interesting and compelling about the
small businesses. And I think you know we have previously heard
from them. Their group, the NFIB, is strongly in support of
this bill. And many of them have told us they're afraid to come
forward individually because they're afraid of retaliation by
the platforms. And we've seen this before because they can go
out of business if they're retaliated against.
You work with companies who are stuck in this position. How
would the American Innovation and Choice Online Act help them?
Ms. Lewis. Thank you, Senator Klobuchar. The fear of
retaliation is significant and really overwhelming for many
market participants. It is something that I encountered during
the House Judiciary Committee digital markets investigation and
have continued to experience in private practice.
It's one of the reasons why I co-founded the Responsible
Online Commerce Coalition: because small businesses, like
Amazon third-party sellers, are terrified--terrified of the
degree to which Amazon has complete control over their economic
livelihood and the power to essentially eliminate it overnight.
The AICOA very helpfully explicitly prohibits retaliation
when businesses of all sizes, and individuals, too, I believe,
raise concerns about these platforms anticompetitive conduct.
And that is a key provision, and I applaud you for that.
Chair Klobuchar. Thank you. Last question, Mr. Lewis. How
do you think the bill will affect the strength and
competitiveness of U.S. tech companies?
Mr. Lewis. Senator, I think it will affect it directly. Too
many small companies rely on these platforms for access to
consumers. And so it's important that they have the ability to
reach consumers without having to ask for permission. It's
important that they feel free to innovate without fear of their
business data being manipulated by the dominant digital
platforms.
So, most of the folks that we talked to, folks that were
studied in the House antitrust investigation, folks who don't
always want to come forward and share their fears, will say
privately that it's important that they have the ability to
compete. That they feel restricted by the practices of the
dominant digital platforms.
Chair Klobuchar. Okay.
Mr. Lewis. And I feel like AICOA specifically targets the
harms that we saw studied in the House Antitrust Subcommittee.
Chair Klobuchar. Thank you, very much. And I just think
it's really important to note as Ms. Lewis was talking about
the momentum for the bill, we have had major breakthroughs,
including the NFIB endorsement, since this started. And these
things take a long time. And we--the more and more small
businesses that, I think, that these platforms took for granted
that are coming out and talking about what's happening, and
including medium-sized businesses, and the like. I think it's
really important that we note that kind of momentum that we've
had, in terms of a change of the support that we're getting for
this bill, as more people understand what's really going on,
which--in this ecosystem, and what's going on around the world.
Senator Lee.
Senator Lee. Thank you.
Professor Francis, I'd like to start with you, if that's
okay. I share many of the concerns that have been expressed by
colleagues that self-preferencing by dominant digital platforms
may, in some circumstances, harm competition. But I'm also
concerned that the broad, vague language used in AICOA could
actually prohibit conduct--some conduct that's procompetitive
as well. Do you share this concern? And if so, can you
elaborate?
Professor Francis. Very much, Senator. So, the bill makes
central, as a limiting principle, the concept of harm to
competition. And that's going to mean one of two things. Either
antitrust-style consumer welfare, or injury to rivals or
competitors. And the bill inexplicably leaves that vacant.
Professor Scott Morton is exactly right. Antitrust does
have a concept of competitive harm. Not exactly the statutory
language that AICOA has chosen, but consumer welfare. The use
of market power to make consumers, or trading partners, or
workers, worse off overall. It's a harm requirement.
And if AICOA said that, then my written testimony would
have been much shorter and my concerns would have been allayed.
But it doesn't. It could just mean injury to competitors, and
that's what creates these terrible dangers.
Senator Lee. Thank you, that's helpful.
Professor Candeub, as I've mentioned, censorship isn't
necessarily itself an antitrust problem. But market power can
certainly enable, and in some cases markedly exacerbate,
censorship.
I think that we need to deal with the censorship issue
head-on, on its own terms. Which is why I'm preparing to
introduce legislation that would prevent social media companies
from acting as censor in private communications between one
person and another, and would require them to be transparent
and offer due process to their users when moderating public
content while still allowing for the removal of illegal and
pornographic content. Do you believe such a bill would be
helpful?
Professor Candeub. Very much, Senator. As noted, OAMA
doesn't really directly address the issue of de-platforming
individuals. You could sort of read into it in one of the
sections that it perhaps provides the protection, but it
doesn't have direct language saying that the platform shall not
engage in unreasonable discrimination.
Similarly, AICOA protects business users, but not user
users. So I think that legislation that sets that forth would
be a real step forward and would help Americans.
Senator Lee. Okay. Let's go back to AICOA for a minute.
Professor Francis, AICOA's supporters have pointed out--they'll
point to the requirement that, in many sections, conduct has to
result in harm to competition. Does this alleviate any of your
concerns?
Professor Francis. It doesn't, Senator. And I think there's
a real risk that a court looking at this bill will say, gosh,
it's pretty clear that this was intended to signal a departure
from the antitrust standard.
Number one, this conversation is being had right now as
part of the legislative process. And so failing to answer that
pretty strongly suggests that there isn't a clear answer that
can be written into the bill. This is not itself going to be an
antitrust statute. It doesn't use antitrust statutory language.
So, Section 7 of the Clayton Act, for example, talks about
a merger being illegal if its effect may be substantially to
lessen competition. That's not language that's followed here.
And there's nothing in AICOA that says harm to competition
shall be interpreted compatibly with antitrust.
So, this looks like a different kind of bill, doing
different kind of work, that very intentionally is going a
different way from traditional antitrust, including--because of
political and other concerns about antitrust's consumer welfare
standard itself. So I think failing to answer that question on
the face of the bill is very dangerous.
Senator Lee. Okay. So, by leaving these important terms
vague and undefined, are they giving the game away? Giving the
game away in that this would end up being a bill about
protecting competitors, not competition, or not consumers.
Right?
Professor Francis. I don't think there can be any room for
doubt that if harm to competition in this statute is read to
mean injury to rivals or injury to competitors, it would be
terribly anticonsumer in its operation.
Senator Lee. And can that be remedied without an adequate
narrowing of the term? Eliminating the vagueness in the
terminology?
Professor Francis. I can't think of an alternative,
Senator, to saying--and it's a short and simple provision if
this is really the purpose of the measure--to say that harm to
competition means injury to consumer welfare, or not wedded to
the terminology of something else, like overall harm to
consumers and workers. But something that incorporates the
concept, I think, is critical to ensure that it doesn't do a
terrible amount of unintended harm.
Senator Lee. And yet this concept is not foreign to our
competition policy. It's not foreign to antitrust law. This is
pretty well-worn stuff. Right?
Professor Francis. Exactly. As Professor Scott Morton says,
that's what antitrust typically means when it says harm to
competition. Now, it can be hard, in some cases, to figure out
whether a harmful static effect, like a price increase, can
really be outbalanced by a beneficial, dynamic benefit like
greater innovation. So there can be difficulties in applying
it. But everybody understands in antitrust that we're concerned
with overall consumer welfare effects. And that's the question
that's going to be asked of this statute.
Senator Lee. Thank you. I see my time has expired. Thank
you.
Chair Klobuchar. Thank you, very much, Senator Lee. Next up
is Senator Durbin, our Chair. Thank you for being here.
Chair Durbin. Thanks, Madam Chairwoman, Senator Klobuchar,
I want to thank you, and Ranking Member Lee, for holding this
hearing.
My observation, in general, is that the pace of change in
the digital markets is lightning fast and evolving every day.
My observation, based on many decades of working on Capitol
Hill, is that the response of our Government is painfully slow,
often understaffed and underinformed, and usually sailing
against the wind of vested interest. It doesn't make a very
easy situation for us to respond to in a thoughtful way.
I look back when I served in the House and we passed the
Communications bill, about 30 years ago, and somehow left out
the word internet. And I would think, as we reflect on the
state of the digital market today and wonder how we're going to
solve the problem, if smarter people or, at least, more people,
are thinking about ways to avoid any kind of regulation or
restraint, aren't going to get the best of us again. How can we
avoid this? Open question.
Chair Klobuchar. Does someone want to chime in? Mr. Lewis?
Mr. Lewis. I'll take a stab at it, Senator. Senator, I
think this is why--first of all, I agree with your assessment
of the challenge for Congress to keep up with regulating a
fast-moving sector.
And like the Communications Act, which you referenced, I
think it's--a long-term solution is to look at empowering a
regulator who has the expertise in the technology, like the FCC
has in telecommunications, to be nimble, to be careful, to be
analytical in the duties that Congress charges it with to
protect consumers, to protect competition, and other harms, and
with the proper oversight from Congress. So, we believe that's
a critical part of protecting consumers online.
I know it's not the exact focus of this hearing, looking at
specific competition bills, but I think added with the
principles and ideas in these competition bills could be part
of a real long-term solution.
And your point about not having the internet in the
Telecommunications Act points to what I believe was the wisdom
of Congress. The Telecommunications Act does give the FCC
authority over communications over wire and radio. What else do
we think the internet is? It's communications going over wire
and radio. Sometimes it's a fiber optic wire. Sometimes it's
radio signal to a mobile device. This is why we've advocated
for authority over broadband at the FCC. But that's a different
topic.
Chair Durbin. But if we're dealing with digital markets so
overwhelming in size--Amazon commanding 40 percent of the e-
commerce market in the United States, 6 times its nearest
competitor. Google controls 93 percent of online searches.
Apple holds tight grip on 120,000,000 plus iPhone users. Do we
really think the Federal Trade Commission is up to the
challenge? Mr. Lewis, or whoever else----
Ms. Lewis. I'm happy to----
Chair Durbin [continuing]. Who wants to----
Ms. Lewis [continuing]. Address that.
Chair Durbin. Please, Ms. Lewis.
Ms. Lewis. As somebody who's a former employee, enforcer at
the FTC--and I know I'm not alone in that, as Professor Francis
was also a former FTC enforcer--I absolutely think that the FTC
and the DOJ are up to the task of applying the laws that we're
discussing today, should they become law, AICOA and OAMA, to
these markets.
More expertise is certainly better. Being more informed is
better. But I believe strongly that the FTC and the DOJ, as
they stand today, do have the tools and the ability to get the
expertise that they need to address the problematic conduct in
digital markets.
However, I'll say they have the ability, but they--I'll
correct myself--they don't have the tools because--and that is
wherein AICOA and OAMA come in. Current antitrust law is not
well suited to address the problems that we're seeing--the
abuse of these dominant platforms' market power. So these bills
are really necessary.
But I'll also add that AICOA is a bill that, I think, did a
lot of hard work--I think the Sponsors did a lot of hard work
to future-proof the bill. So it is specific enough that it
gives guidance to the agencies and the courts, but also leaves
room for--to adapt to future conditions.
Chair Durbin. Well, I just want to close by saying that no
reflection at all on the Senator from Minnesota who has led
this charge and revitalized this issue of antitrust debate to a
level that I've not seen in many, many years. And I think it's
long overdue.
But I think the challenge for us is to make sure there is
an agency with the authority, and the resources, and the
political support, to get the job done. Thank you, Madam Chair.
Chair Klobuchar. Well, very good. Thank you, Senator
Durbin. I would note through the work that Senator Grassley and
I did, and Senator Lee last year, the Merger Fee bill that
passed with the 88 Senators, along with the Venue bill of
Senator Lee's as an amendment, is going to amount to a billion
dollars to these agencies.
As Professor Francis, he and I agree on this, on the
resources, and what you're referring to, Ms. Lewis, that is a
significant increase. While we'd like to see more, it's a
significant increase, not on the backs of taxpayers, to help
these agencies to do their work. Okay. Next up, Senator
Grassley.
Senator Grassley. Thank you, Madam Chairwoman. My first
question is to Professor Morton, Mr. Lewis, and Ms. Lewis. In
your testimony, you expressed support for the American Online
Innovation Choice Act, how it deals with the digital market
abuses.
You've just heard testimony by Professor Francis and
Professor Candeub expressing a number of concerns with the
bill. So I'd like to have the three of you briefly explain why
you agree or disagree with Professors Candeub and Francis.
Professor Scott Morton. Thank you, Senator. I think that
the digital platforms we have today have quite a bit of
entrenched market power. When Senator Durbin said technology
moves fast, yes, it moves fast. But think of how many years
we've been using Google Search, getting onto Facebook.com,
having an Android operating system. These platforms have been
around for some time now. And that's because we haven't been
able to use current antitrust laws effectively to create
competition in this space.
So, we need an additional tool. And if a few words
describing what competition means is going to make this law
pass for Professor Francis, then I think we're done. I mean,
we've got problems, and we need solutions to those problems. A
general-purpose antitrust statute would also be good. But
because the problems in digital platforms are somewhat unique
to them, and they're so entrenched, I think we need a
particular tool. And this statute would be that.
Senator Grassley. Mr. Lewis, if you've got something to
add.
Mr. Lewis. I agree. I think AICOA is very specific in the
anticompetitive harms that it's trying to solve. Issues of
self-preferencing, issues of tying, issues of control of data.
And so I think the specificity that Mr. Francis is looking for
is in the bill.
Regarding the concerns about free expression. Free
expression is a core value for my organization. I believe that
AICOA specifically targets anticompetitive harms, and I don't
believe that content moderation on a platform--a single
platform is necessarily an anticompetitive harm.
Discrimination----
Professor Scott Morton. You have other platforms to choose
from.
Mr. Lewis. Well, you do. And discrimination looks different
on every platform. But the internet has infinite channels. And
by promoting competition, we're giving users a choice of
platforms to go to.
And I know there's going to be another hearing on content
moderation in the future. I think that's the proper place where
folks who are concerned with too much or too little content
moderation to address those concerns specifically.
But this bill dealing with anticompetitive harms has a
secondary impact, that by promoting competitive choices, lets
users vote with their feet and go elsewhere if they don't like
the moderation choices that they're given on a specific
platform. So, I don't think it's restrictive at all, and I
don't find those choices to moderate content to be
anticompetitive.
Senator Grassley. Ms. Lewis.
Ms. Lewis. Thank you. So, I do not agree with Professor
Francis' analysis here. And I also, in terms of--there was a
suggestion that adding consumer welfare--those words--into the
statute of AICOA would be a good thing. I disagree with that.
Consumer welfare is not a word that appears in any of our
antitrust statutes, and can be interpreted to be extremely
narrow and refer only to harms from price. Now, and certainly
in digital markets, the harms go far beyond price to privacy
and other non-price dimensions. So codifying that, I think,
would be a mistake.
I also find it interesting that Professor Francis has said
that the current antitrust laws is what we should work with and
what we should invest in. Those laws, those statutes are
extremely vague, very short.
And the language that was used in those antitrust statutes,
well, that was new language, when those when those laws were
passed.
Because it was using a new phrase, does that mean we
shouldn't have passed those laws? So I think that what I see as
a somewhat unfounded fear of courts interpreting harm to
competition in a way that would prohibit procompetitive
conduct. I don't think that that is a good reason to oppose
this bill.
Chair Klobuchar. Well, thank you. And thank you, Senator
Grassley, for your work on the bill, the Merger Fees, but also
for being the lead Sponsor on the bill that we're talking about
today.
And I will note the hearing you referred to, Mr. Lewis, is
actually going to be chaired by Senator Blumenthal. The Section
230 hearing with Senator Hawley--I believe, coming up tomorrow.
So, we're on top of things. Okay. Next up is Senator
Whitehouse.
Senator Whitehouse. Thank you, Chairman Klobuchar.
And let me start with a particular welcome to Ms. Lewis. As
a friend, colleague, and admirer of David Cicilline's, I'm very
glad that you are here, and thank you for his work supporting
the efforts of the House Judiciary Committee.
I have two questions, and given the short period of time, I
would invite specifically Ms. Scott Morton, Mr. Lewis, and Ms.
Lewis, to answer as questions for the record. But given that,
we'll have a little bit of time, I invite you to jump in.
The two questions are, first, we have the EU's Digital
Markets Act coming on, and I'm interested in what effect you
see that having in this marketplace, and what lessons we should
take from the effect of that law in this marketplace.
Presumably, the minimum conclusion one could draw is that you
can legislate in this space and not break everything. But I'd
be interested in your views about that.
And the second, to the point suggested just now by Chairman
Klobuchar, is how do you see Section 230? As problematic or
helpful in this space? And I'll flag my bias. I think it's
problematic. I think a lot of these problems would have sorted
themselves out a lot earlier if these industries weren't
protected from several centuries of legal tradition that govern
human behavior, so----
Professor Scott Morton. I'll just jump in on the DMA
quickly----
Senator Whitehouse. Please.
Professor Scott Morton [continuing]. And say that it's
going to be very interesting for the United States to see how
platforms respond to the DMA. Because there will be some
instances, I imagine, where it's easier, more cost effective to
have one business model and run it globally. In which case, the
changes made to comply with the DMA will be taken advantage of
by American consumers----
Senator Whitehouse. Yes.
Professor Scott Morton [continuing]. And businesses. I can
also----
Senator Whitehouse. We see that in automobiles when
California----
Professor Scott Morton. Correct.
Senator Whitehouse [continuing]. Puts its standards out.
Professor Scott Morton. Exactly.
Senator Whitehouse. Nobody makes two cars.
Professor Scott Morton. Exactly. But there will be other
cases where, look, if the platform can run an exploitative
model in the United States and a competitive one in Europe, and
they make more money doing that, then they'll choose to do
that. And so we're going to see those kinds of choices as well
as then be able to learn from the smoothness, or lack thereof,
in new products, or lack thereof, as to what are the most
effective rules.
Senator Whitehouse. And who do you expect most effectively
to look at that behavior and draw lessons from it in the U.S.
Government?
Professor Scott Morton. In the U.S. Government?
Senator Whitehouse. Mm-hmm.
Professor Scott Morton. I don't know. I mean, the European
Commission is going to get reports from platforms and
confidential information on what's changed and what they're
doing. I don't know that we have any way to study it in the
U.S. Government----
Senator Whitehouse. Do you think----
Professor Scott Morton [continuing]. That I'm aware of.
Senator Whitehouse [continuing]. The FCC would be up to the
task of looking at that.
Professor Scott Morton. Would who?
Senator Whitehouse. The FCC.
Professor Scott Morton. That would be a great idea. Ask
them to write a report. Yes.
Senator Whitehouse. Okay. Mr. Lewis.
Mr. Lewis. Senator, you asked about Section 230.
Senator Whitehouse. Yes.
Mr. Lewis. While we're very supportive of these efforts to
promote competition, I think Section 230, and the issues around
it, are a different issue. Section 230 was crafted to support
the creation of third-party content online--both the choice to
moderate it and the choice not to moderate it.
And I think it's an essential protection that, combined
with smart competition policy, actually gives folks choices to
express themselves freely on whatever platform they choose to,
based on the moderation practices that that platform uses.
I think transparency of those moderation practices is
important. I think due process is important. But it's----
Senator Whitehouse. I guess you and I are going to disagree
on that.
Mr. Lewis. We might disagree. Yes.
Senator Whitehouse. Ms. Lewis.
Ms. Lewis. Thank you. So you asked what lesson could be
learned from the enactment of the DMA. I think one important
lesson is what you referenced is, we see that you can pass
legislation here to rein in the dominant digital platforms and
stop the abuse of their market power over businesses and
consumers.
And you can do that without breaking these products and
services that consumers love. These two things are in no way
mutually exclusive. And so we are already seeing, or at least
it was reported, for example, that Apple--who said if we pass
OAMA, we're going to break the iPhone and the App Store system,
and create problems for users, in terms of safety and security.
Well, it turns out or, at least, it's reported that in
Europe, in order to comply with the DMA, that they are
preparing to allow for alternative app stores. So, how is it
that--you know, it's interesting that they say here last
Congress, to U.S. Members, oh, you cannot pass this law. It
will break the product. It will break the phone. And then there
are reports that they're voluntarily agreeing to make these
changes. I will say not purely voluntarily because it's in
response to the law.
And if we want to see similar benefits for U.S. consumers
and businesses, then I think we similarly need to pass
legislation.
Chair Klobuchar. Thank you, very much. And thank you for
that excellent point, Ms. Lewis, because I just don't think
we're just going to wait and let Europe have the benefits for
10, 15 years.
They're not going to do it unless we start moving, and then
maybe they'll negotiate with us. Okay. Next up, Senator
Blumenthal, who knows a little bit about this topic. Thank you.
Senator Blumenthal. Thanks, Madam Chair. And thank you for
your profoundly persistent and courageous work in this area.
Thanks to our Ranking Member, as well. I'm very proud to be
working with you on a number of these bills, including your
American Innovation and Choice Online Act, which does far more
than just stop self-preferencing. It is very, very potentially
significant.
And my Open App Markets Act, the reference was made earlier
to Section 230. Yes, we are having a hearing tomorrow--
Judiciary Committee hearing, the Tech and Privacy Subcommittee.
Senator Hawley and I are going to be exploring potential
reforms to Section 230.
But let me just begin with the comment that Senator
Klobuchar just made. If we wait for Big Tech to reform itself,
we're going to be old men and women. We may not be around to
see anything happen. And to the point about content moderation,
let's be very clear. Big Tech has an abysmal record on civil
rights and safety. It helped foster and fuel racial
discrimination, threats, and privacy violations that have a
material and costly impact on people's real lives.
These behemoth corporations are not protectors of
vulnerable communities nor of free expression. So if we wait
for them to do that as well, we just are not going to see it.
There is an elephant in the room, which is Big Tech's response
to this legislation. And I'm not speaking for Senator
Klobuchar, just for myself. I would say it's an unprecedented
smear campaign, a disinformation strategy. One of the elements
of that disinformation campaign is to say, it's a dire threat
to cybersecurity and privacy.
As anybody who's read both of our measures knows, we take
specific steps. We insert very explicit provisions, which Big
Tech says need to be much broader, trying to create loopholes
and exceptions that swallow the rule.
I wonder, Professor Scott Morton, whether you would
describe--you allude to some of them in your testimony. And I
know you're not a lawyer. I always think of you as a lawyer
because you know so much more law than most of us on the
Judiciary Committee--speaking, again, just for myself--but
you're also a very astute and learned economist. I wonder if
you could talk about how those exceptions provide for privacy
and security?
Professor Scott Morton. Thank you, Senator. I always get a
warm welcome from the Senator from Connecticut, which I
appreciate. The important safeguards in these bills, I think,
are doing exactly what you say. It would be counterintuitive to
have a bill that's going to promote consumers' welfare and have
there be dangerous products.
And therefore we want to give the platforms the ability to
control that. And there are many ways to do that. And it is in
the platform's interest to do that because if you want to
attract users to your platform, you want it to be safe and a
good experience.
So, I just see no reason why with all the technological
capability these platforms have, they can't design the product
to be safe. And given that both bills allow them to do that,
I'm really thinking that American ingenuity is going to make
this work out just fine.
Senator Blumenthal. Thank you. Ms. Lewis, you made the
comment just now that Apple may be developing a system to
enable apps access to their phones in Europe, but I'm not sure
we can count on those products being available here. Shouldn't
Americans have as much access to competition, fair play,
innovation, as European consumers?
Ms. Lewis. Senator Blumenthal, I agree with you 100
percent. And the--it is just critical that American businesses
and consumers can benefit from the increased choice in terms of
alternative app distribution. And this would also likely result
in not only cost savings for consumers, but also spur
innovation and growth among U.S. companies. And so it is U.S.
consumers, and it is also U.S. businesses.
The U.S. economy does not just consist of these four
dominant platforms. And so if we want to see the economy thrive
and our consumers benefit from competition, then legislation
must be passed in the United States to do that.
Senator Blumenthal. I'm at the end of my time. I have a
bunch of other questions, but I just want to thank all the
members of the panel for being here today and your last
comment. These measures are really pro-business. Maybe they're
not pro-monopolist or pro-predatory conduct, but they are pro-
business. And as complicated as it seems, the internet
befuddles a lot of people.
Think of it in terms of the old days of the railroads. If
the railroads had said you can only run our boxcars with only
our manufactured goods because we control the rails, you didn't
need any smoke-filled rooms to know that was going to be
anticonsumer and anti-business. Thank you, Madam Chair.
Chair Klobuchar. Thank you very much, Senator Blumenthal.
Someone else who knows a lot about this, has been a leader in
this area, Senator Hirono is with us. Thank you.
Senator Hirono. Thank you, Madam Chair. It's so good to be
on the Subcommittee, and I thank the Ranking Member also. It's
been really challenging to do anything to regulate these very
powerful digital platforms. So, the AICOA bill, when we start
talking about making changes to Section 230, it's just been
almost hellacious, I'd say.
So, I think Professor Scott Morton, you said something
along the lines of the current antitrust law have not been
particularly effective in regulating digital platforms. Did I
hear you correctly that you said something along those lines?
Professor Scott Morton. Yes, I did.
Senator Hirono. Mr. Lewis, do you agree with that kind of
characterization of the current antitrust laws?
Mr. Lewis. Yes.
Senator Hirono. So, what if AICOA, which is, I think,
pretty specific in what it wants to do, would it help to have a
law like that, which is much more specific than the current
antitrust laws?
Professor Scott Morton. In my opinion, it would. And that's
because the current antitrust laws have requirements such as
defining relevant markets and predicting but for outcomes that
turn out to be quite challenging in fast-moving digital
markets. And if Congress wants better enforcement here, I think
it's very helpful to give more explicit instructions to courts
on how to get there.
Senator Hirono. Mr. Lewis, did you want to add something?
Mr. Lewis. Just the thought that, you know, these are often
referred to as antitrust bills, but they're very specific in
the prohibited conduct. And that, part of what we've seen in
the weakness of the current antitrust laws, is just how they've
been interpreted.
And so I think there are ways in which, with cases brought
that challenge monopoly under the current antitrust laws, to
look at different ways to think about the power of monopoly.
But this specific bill, AICOA, I think, adds just more tools to
the toolbox for those antitrust enforcers.
Senator Hirono. Oh, back in the day when the Sherman Act
and Clayton Acts were passed--and, yes, we have decades of
interpretation of both of these laws--but nobody predicted that
we would have these kinds of hugely powerful digital platforms
that--that millions of people use. And basically, there's very
little, apparently, that we can do to make sure that consumers
are protected.
And so, Mr. Lewis, you mentioned that Public Knowledge has
called repeatedly for a new competition promoting expert
regulator for digital platforms. And I think that is
acknowledging that maybe we need a whole new kind of legal
framework for regulating digital platforms. So, can you just
explain a little bit more about what you had in mind with that
proposal?
Mr. Lewis. Sure. The idea of an expert digital regulator is
to complement antitrust enforcement, not to replace it. And a
regulator, we think, would have authority over consumer
protection, authority over, or involvement with, competition
harms and concerns.
You know, my background is in telecommunications. We're
impressed with the relationship between the FCC and the
antitrust enforcers----
Senator Hirono. Mm-hmm.
Mr. Lewis [continuing]. Where they work together when
looking at mergers, when looking at--you know, with a different
standard at the public interest harms. And so an expert digital
regulator would be able to do that to address things that can't
be dealt with through competition policy.
So, you know, I think it could be structured in a number of
different ways. It could be an existing agency. It could be a
new agency. There's interesting proposals out there from
Senator Bennet and Senator Welch that we're interested in and
supportive of. It's a challenge to set up. But I think taking
the time to look through the harms that you want an agency to
address, and giving them the proper authority to do so, and the
resources to do so, I think----
Senator Hirono. My time----
Mr. Lewis [continuing]. Would help Congress. Yes.
Senator Hirono [continuing]. Is running out. Thank you.
Ms. Scott Morton, would you agree that perhaps a new kind
of agency, or a person or two, to be focused on consumer harms
and the public interest----
Professor Scott Morton. Yes, I do.
Senator Hirono [continuing]. Would rein in digital
platforms?
Professor Scott Morton. It's what we normally do in the
United States. We invent airplanes, we have an airplane
regulator. We invent trains, we have a train regulator. We
invent drugs, we have a drug regulator. There's no regulator
for digital, and there's a lot of problems as a result. So, I
agree.
Senator Hirono. I agree with you. Thank you for talking
about that.
And Ms. Lewis, you noted that the DMA that Europe has
passed, the companies are able to make the appropriate
adjustments.
So, there's nothing to say that we can't pass something
that is--the AICOA is narrower than the DMA, isn't it, in its
focus?
Ms. Lewis. To give you a more complete answer, I would want
to get back to you in writing. But, I think--I think it is, the
AICOA is narrower, and I have done a comparison of that.
Senator Hirono. Oh, thank you. We would appreciate having
that. But the world is not going to come to an end because
Europe passed the DMA. Thank you, Madam Chair.
Chair Klobuchar. Okay. Very good. Thank you. Next up,
Senator Padilla.
Senator Padilla. Thank you, Madam Chair. And particularly,
I want to thank you for your leadership on these issues.
I think it's vitally important, not just for the
innovators, and investors, and entrepreneurs, but for
consumers, and workers, and the overall health of our economy,
that we have an open, and innovative, and competitive
technology sector.
So, I hope we can continue to work closely together, this
Congress, to build upon the great work that has already been
done to better identify market failures, and areas of
underenforcement, and to develop more precise legislative
remedies to specifically address the issues that we're facing.
Now, during the Committee's consideration last year of the
American Innovation and Choice Online Act, I expressed concerns
that provisions of the bill may open the covered platforms to
either lawsuits, or even threats of lawsuits, for decisions
they made to enforce their content moderation policies against
hate speech, misinformation, and other content that they may
want to not host.
And several academics, nonprofit groups, and other
Senators, actually voiced similar concerns. And even supporters
of the bill approached my office with differing opinions. I was
told by some supporters that no such problems existed, while
other supporters told me that, yes, the concerns raised were
indeed valid.
Question for Professor Francis. Should we be concerned
about the bill's unintended impacts on platform content
moderation, and is this an area where the bill can be improved
through additional clarity?
Professor Francis. I think so, Senator. I'm certainly not
an expert on either the practices or the law of content
moderation. But as I read this bill from the perspective of an
antitrust person thinking about what compliance would look
like, I look at two things, and they both give me the concern
you've just articulated.
So, one is Section 3(a)(3) of the bill, which prohibits
discrimination with respect to the application or enforcement
of terms of service in favor of business users against
similarly situated business users.
Now, as I read it, that would include content moderation of
various kinds that a court ultimately concluded, or even a
State attorney general alleged, was discriminatory.
And then we look at our affirmative defenses. AICOA
provides no defense on the ground that what was restricted was
spam, was supplying false, or objectionable content. Nothing in
there that one might plausibly identify with content
moderation. So, regardless of how one feels about the optimal
content moderation law, this very sharply raises the question,
but doesn't answer it.
And to my mind, what that means is litigation, threats of
litigation, a lot of uncertainty, and a lot of deterrent effect
running in ways we almost certainly don't want.
Senator Padilla. Well, the American Innovation and Choice
Online Act, as we discussed and debated in the Committee last
year, attempts to address several market problems at once.
However, I worry that in doing so, it may inadvertently do
harm to products and services that consumers actually enjoy.
For example, in broadly and presumptively making unlawful the
prefe-rencing of a platform's own product, services, or lines
of business, is it possible that basic and convenient features
of integrated products and services that consumers enjoy, and
benefit from, would be prohibited, and subject to unnecessary
and, perhaps, chilling scrutiny? Professor Francis, I'll let
you go first here.
Professor Francis. I completely share that concern. So
things that would constitute self-preferencing cover an array
of things that are clearly great for consumers. Integrating
functions like map results in search. Or better integrating
your own voice assistant because you found a way to do that.
Pre-installing apps or features on a device without doing
that for the whole world. Bundling services together, or even,
in order to create a more secure and seamless experience, just
say, hey, we're going to have a closed system on this part of
our platform where we're not going to have third-party
participation.
All of that stuff is self-preferencing, and then the whole
game is whether or not there's harm to competition. Number one,
that term is central and undefined. If nothing else, that is a
ton of uncertainty, and the prospect of being dragged through
investigations, litigations, injunctions, huge penalties, and
even having executive personal compensation taken away, that's
going to deter a lot of behavior that we would want to see from
platforms that they'd otherwise do.
Senator Padilla. Well, I'll just conclude with this, Madam
Chair, because I still agree with the stated objective here of
our legislative efforts. But I want to continue to work with
you, and the experts here, to make sure that we're getting it
right. Thank you, Madam Chair.
Chair Klobuchar. Thank you, very much.
So, Professor Francis, you said you were not an expert on
the content moderation. So I'm going to turn to some people
that I think could shed some light on it, but I appreciated
your answers.
Ms. Lewis and Mr. Lewis, we'll turn to the two Lewises
here, could you talk about what this bill is about, the
American Innovation and Choice Online Act?
And I'll start with you, Ms. Lewis, whether or not the bill
would have impact on the speech rights of anyone on a covered
platform. I point out that Senator Grassley and I worked to
ensure that the bill is focused solely on addressing digital
platform competition issues. But that, of course, hasn't
stopped the bill's opponents from raising dubious arguments
related to free speech. And so I thought you, Ms. Lewis, might
want to address that. So, please, go ahead.
Ms. Lewis. Yes, thank you, Senator Klobuchar.
Unfortunately, I think that this debate over content moderation
or, sort of, the critiques that are aimed at AICOA, are a
divisive distraction. In my view, AICOA does not impact content
moderation. It does not make it harder for a gatekeeper
platform to engage in content moderation, and it does not make
it easier for the digital gatekeeper to engage in content
moderation. The bill simply has nothing to do with it.
And in terms of the idea that certain things may be--you
mentioned the word, ``dubious,'' and the idea that certain
things may be possible, I would not even concede that it is
possible. But let's say it is possible that a State AG, or I,
could interpret the bill in that way. I don't think it's
plausible. And I don't think--when we think about very unlikely
things that could occur and possible far-fetched outcomes, I
think we should be thinking about what is plausible rather than
what is improbable and unlikely. Again, in summary, AICOA does
not affect content moderation.
Chair Klobuchar. Thank you. Senator Padilla had to leave,
but we will convey your testimony to him. Mr. Lewis, do you
want to answer that as well?
Mr. Lewis. I guess what I would add, because I agree with
Ms. Lewis, what I would add is just that the language in the
bill is so specific. Mr. Francis keeps pointing to the
competition harm phrase. But I think it's very important that
the Attorney General, the Federal antitrust official, would
have to go to court and make a case for what is materially
harming competition in the practice of the platform. And so I
don't read that phrase as referring to content moderation. But
if someone wants to bring that case, they would have to point
to what that practice is.
Simply limiting someone's content that they posted online,
I don't see how that hurts competition when there's so many
places where you can post online, and folks can create their
own websites. So there's a great opportunity to speak. So,
proving that case just seems very hard. I think that's what Ms.
Lewis----
Chair Klobuchar. Right. Yes.
Mr. Lewis [continuing]. Means by impractical.
Chair Klobuchar. We also note that the Attorney General,
the Justice Department, supports this bill as well, so.
Mr. Lewis, again, kind of changing topics here. Numerous
reports have suggested that Amazon creates knockoffs--these
are, you know, Wall Street Journal stories and the like--of
third-party sellers' products and uses its algorithm to give
its own brands an advantage.
A recent study by economists at the National Bureau of
Economic Research found that Amazon-branded products are ranked
higher than observably similar products in consumer search
results on Amazon's platform.
How do these practices affect competition and the
incentives of small businesses to create new innovative
products, and how can some common-sense rules of the road--
maybe you want to start with this--help protect small
businesses to compete against these mammoth companies?
Mr. Lewis. Right. I think the rules in AICOA go a long way
to protect those practices. The difference between an online
marketplace, like Amazon, and a brick-and-mortar marketplace
are very different. The ability to control data, to see all the
data that's coming in about sales, about the products, the
limited space, and the control of that space where products are
seen, is just very different.
The scope and scale of an online marketplace is just wholly
different from what we see in brick and mortar. And so having
these sort of specific rules protecting the small businesses
and the products that they want to bring to that market since
it's one of their few choices that they have to reach consumers
is critically important.
Chair Klobuchar. Mm-hmm.
Maybe I'll ask you this--it looks like, Ms. Lewis you want
to say something, but I want to--just very quickly.
Ms. Lewis. Yes. So, I think the self-preferencing that you
just mentioned is a perfect example of what can be
anticompetitive self-preferencing. And so you have the
situation where Amazon is putting its thumb on the scale to
distort competition. And that's the situation where third-party
sellers, who maybe come up with new ideas, or have high
quality, maybe better-quality products, are not being able to
compete on the merits of their goods and services----
Chair Klobuchar. Okay.
Ms. Lewis [continuing]. Their goods, in this case.
Chair Klobuchar. All right. And then I just want to make--
you mentioned these conflicting statements. And if you could
just quickly mention this. I think this is so important. We
made it clear in the bill that it would not impact
subscription-based services like Amazon Prime, despite Amazon's
claims. And I noticed these lying pop-up ads that I've shown to
my colleagues because that's what they're done--they're done to
scare other people if they support the bill.
And so now, Amazon in Europe has pledged to allow sellers
to use other shipping and logistics services and still be part
of Amazon Prime. And they are doing this to settle an
investigation by the European Commission.
The exact thing that they said would break Prime in the
U.S. That's what their claims are. How do we square the story
Amazon is telling us here in the Senate, and what they are
actually doing in Europe, and what they're doing to our
consumers versus what's happening in Europe?
Ms. Lewis. Unfortunately, I think it's an example of
doublespeak. I understand that Amazon has incentives to want to
hold on to the profits that they may--and the revenues that
they may get from self-preferencing. And in doing so, perhaps
they overreached in their arguments to regulators and
legislators here.
But the proof is in the pudding. If they are offering this
up, they offered this up as a voluntary commitment that, in
fact, they can do this and still continue to offer Amazon
Prime, there is your answer. I'm not sure how to square it
other than that the original argument was disingenuous.
Chair Klobuchar. Okay. I have another question about
another hypocrisy, but I'll go in, to let Senator Lee go.
Senator Lee. Thanks. Professor Candeub, did you want to
respond to that last point we were talking about? I think there
was a hanging chad there somewhere.
[Laughter.]
Professor Candeub. The content moderation issue?
Senator Lee. Yes.
Professor Candeub. Yes. I think it's an interesting
question, and it does go, as correctly pointed out, to the
Section, I guess it's 3(3), that prohibits a platform from
discriminating in the application and enforcement of the terms
of service of the covered platforms amongst similarly situated
business users----
Senator Lee. I'm having a hard time hearing you, again.
Professor Candeub. Oh.
Senator Lee. Can you move your microphone?
Chair Klobuchar. Could you move your microphone?
Professor Candeub. Yes.
Senator Lee. Yes, thanks.
Professor Candeub. Is that better?
Senator Lee. Yes, that's better.
Professor Candeub. Okay.
Senator Lee. Thanks.
Professor Candeub. So it goes back to the Section 3 that
prohibits discrimination among similarly situated business
users. And so what does that actually mean in life? Well, you
could imagine, you know, a dating app that only is for, you
know, Nazis, or, you know, Communists, or something like that,
and a platform didn't want to have it. And the question is,
what would be the remedy? I think it was pointed out they would
not have a private right of action. I mean, you'd have to find
some attorney general or the Department of Justice to take up
their cause, which I would find extremely unlikely. So, you
know, I do that in the abstract. It does present this problem.
But I think, in reality, it's not something that is likely to
occur.
Senator Lee. Right, right. And if it were to occur, we're
talking about a very weird niche market. I mean it----
Professor Candeub. Yes.
Senator Lee [continuing]. One that, that would not likely
amount to a significant percentage of the population, everyone
would hope. And so if you ended up in that circumstance, you'd
be dealing with something different than where you have
politically motivated content moderation decisions that may cut
against where roughly half of Americans are excluded from it.
Is that part of your point?
Professor Candeub. Yes, precisely, because there is no
private right of action. I mean, you'd have to have the
judgment and common sense of elected officials, and I would be
very surprised that they would take up that cause.
Senator Lee. Right. All right, back in 2021, Apple, Google,
and Amazon, as you mentioned a little while ago, de-platformed
Parler. This, of course, was a popular and quickly growing
competitor to Twitter that was favored by many in the sort of
libertarian-to-conservative community.
Conservatives have, of course, been lectured for years that
if conservatives don't like how a tech platform moderates
content, then they should just go build your own, as many of us
were told.
So the Parler example, I think, illustrated how shallow and
how empty that response would be. Do you agree that Google and
Apple ought to be barred from preventing users from installing
apps of their choice on their devices?
Professor Candeub. I think that's a reasonable, targeted
remedy. As I pointed out, Google and Apple are only able to
skew public discourse because of the market power they enjoy. I
think a targeted solution that says, you know, look, you are--
you're unusual. You're sui generis. You're the big guys. We all
depend upon you. You have general obligations to the
institutional values of the United States. And I think that
would be a targeted and limited approach that would be
effective.
Senator Lee. Part of what has left so many of us cynical
about what happened with Parler is the fact that Parler was--it
had hit its sweet spot. It had hit its stride. It was doubling.
I don't remember what the stats were, but it was doubling its
user base every 6 weeks, or something like that. It was growing
by leaps and bounds. And all of a sudden in early 2021, out of
the clear blue, some tech giants combine together and all
decide, as if miraculously, that they're going to shut them
down. And they do shut them down.
Now, they make decisions eventually that allows Parler to
come back, but by then, the party is over. By then, it had lost
the vibe. And, you know, these things are such that if you cut
that off at the wrong time, and you take them essentially
offline for a couple of months, it's a death knell. And they've
never recovered as a result.
Professor Scott Morton, could we have avoided the situation
that we're in today if we had just had better enforcement of
our antitrust laws over the last 10 or 15 years or so?
Professor Scott Morton. Thank you, Senator. I think the
answer is not so much enforcement, but the jurisprudence in the
courts. When you have rules like Brooke Group, and
jurisprudence like Amex and Trinko, it really sets such a high
bar for the plaintiffs that you can have very good enforcers,
but they just aren't going to win in the places where the
consumer needs them to win.
Senator Lee. Do you think that the antitrust law has been
weakened by lax enforcement? Is that part of your point?
Professor Scott Morton. No. I think it's been weakened by a
tradition that's very old now, from the Chicago School in the
1970s that made a lot of assumptions for courts. Like, markets
will self-correct on their own. You should be really afraid to
enforce that--that predatory pricing doesn't exist.
Oligopolists can't collude--things that we know to be actually
not part of the economic learning that we have and not part of
how markets work.
But if you make those assumptions, you don't need antitrust
enforcement. And courts have been therefore dialing it back
really quite steadily over the last 40 years.
Senator Lee. Professor Francis, how do you respond to the
same question?
Professor Francis. I agree with, I think, almost everything
Professor Scott Morton said. I think, you know, a lot of the
criticism that has been leveled at enforcement agencies would
better have been leveled at the decisions of the Federal courts
on some important margins in the last couple of decades.
But I'll add that I also think part of the problem is that
our statutory standards, even though we've been working on them
for 130-odd years, in the case of the Sherman Act, could really
use some clarification. Right.
So 1890, the Sherman Act gives us restraint of trade and
monopolies. Those are still battlegrounds in litigation today.
1914, the Clayton Act substantially lessened competition. The
courts, for sure, have been taking--you know, antitrust cases
should be hard to win, but they shouldn't be impossible to win.
So courts have been unduly, sort of, receptive to defendant
arguments for several decades.
But it's not just the courts. It's also the fact that
they're looking at statutes that really could be clarified by
Congress in some pretty common-sense ways that I think would
really sharpen antitrust on some very important margins:
monopolization law, merger law, in particular.
Senator Lee. And doesn't that suggest that a lot of these
problems could, and should, be dealt with most appropriately
through reforms to the way we enforce them? Reforms like those
suggested in the TEAM Act rather than implementing expansive,
untested new regulatory regimes?
Professor Francis. I think that antitrust enforcement, not
just for a small number of tech companies, but across the
economy, is the most important competition policy problem we
face right now and an urgent need. And I want to just respond
to the idea that AICOA is a kind of fast-track antitrust, it
really is not. Antitrust enforcement focuses on the use of
market power in ways that harm consumers. When you consider all
procompetitive justifications for a practice, it would be
protecting interplatform competition here, making sure that we
weren't suppressing or deterring the emergence of competitors
of Google, and Facebook, and Apple, and others. And it rejects
the kind of blanket duty to deal that AICOA imposes. So it's
not----
Senator Lee. So it's almost anti-antitrust.
Professor Francis. That is----
Senator Lee. Double----
Professor Francis [continuing]. Exactly----
Senator Lee [continuing]. Negative. It's just a trust at
that point.
Professor Francis. It turns the trading partners of these
platforms, who would be the very businesses best placed to
become or to sponsor competitors, into stakeholders in the
status quo. And not only is this not antitrust, it's not even
accelerated antitrust.
If Congress passes this bill, we're going to see a
generational landslide of litigation over concepts like
critical trading partner, fair and neutral search rankings,
preference--part of, or intrinsic to, a digital project. The
mechanism of enforcement is the same as antitrust. We're going
to see enforcement actions brought by agencies moving through
the Federal court at the same pace as antitrust but doing less
good.
Senator Lee. So 133 years later, we're still arguing over
meaning of things enacted in 1890. If we enact other language,
you know, sure, we're still haggling over it, but we have
developed, over time, a pretty sound understanding of what they
mean. If we develop this, this could be another 130 years of
exploratory litigation. It would be really good to fund the
private college educations of the children of lawyers
everywhere but could create chaos.
Professor Francis. This is going to cost the economy a
fortune in compliance costs and attorney fees, even before we
get to foregone innovations or failure to protect consumers. I
would love to see us take a fraction of that money and use it
to support antitrust enforcement.
Senator Lee. All right. Let's talk about the Open App
Markets Act for a minute. It, of course, banned dominant app
stores from using MFNs. Would this help bring more competition
to that space?
Professor Francis. I think it could, Senator. And one of
the things that I like about it is that this promotes
interplatform competition. So the idea is that if you take away
the power of an app store with market or monopoly power to say
to app developers, hey, don't offer a better price elsewhere--
if you take away their ability to do that, then suddenly big
app developers can sponsor competition against the app store
itself by offering discounts or other preferred terms. So I
would support an MFN ban here, as in other markets with market
or monopoly power.
Senator Lee. Professor Lewis, would AICOA prevent a company
like Amazon from charging different prices to business users on
its platform based on a user's size?
Ms. Lewis. Oh, I'm sorry. Ms. Lewis. I'm not a professor,
but----
Senator Lee. I'm sorry.
Ms. Lewis. That's okay.
Senator Lee. Today you are.
[Laughter.]
Ms. Lewis. I'm sorry. Could you repeat the question?
Senator Lee. Yes. Would AICOA, as you read it, would it
prevent a company like Amazon from charging different prices to
different business users on its platform based on their size or
the volume in which they deal?
Ms. Lewis. So, on it, my--my reading of it is that it would
not, but I would want to go back and really do an analysis to
look at the statute and confirm that that's accurate.
Senator Lee. Do you think it's unfair to charge different
businesses different prices based on their size?
Ms. Lewis. So, again, I think I would have to give that
some more thought because there's really--there's no context
there. So I would really want to look at the individual facts
of the situation before I would make a blanket statement.
Senator Lee. Okay. Professor Scott Morton, let's go back to
you for a minute. AICOA would require enforcement actions to be
brought in Federal court. While I've got concerns with the
breadth of the bill, I view this element as absolutely
essential to protecting due process. Would you agree with that?
Professor Scott Morton. Yes, that's right.
Senator Lee. What in your view--are there things that would
be better than this, or is this the right thing to do it?
Professor Scott Morton. Well, I think as I said in my
statement, in some ideal future world, we have a regulator who
is expert, and can use the public interest standard, not just
competition, but privacy, security, all these other issues
you've been raising.
In the absence of that regulator, I'm against the status
quo. I think we should try to move forward with a bill like
this. I think the possibility of public enforcement, rather
than private enforcement, limits the kinds of cases that are
being brought to ones that are meritorious and necessary.
And so with luck, you wouldn't get platforms engaging in
litigation where it's pretty clear that the instructions in the
statute require them to do something.
Senator Lee. But do you think it would be preferable to
have them handled by experts in an enforcement agency, sort of,
a beefed-up panel of uber-experts?
Professor Scott Morton. Well, as I said, when we invent
technologies, typically, in the United States, we also bring a
regulator along with them--whether that's trains, or
pharmaceuticals, or airplanes, or whatever. And I don't think
this technology is any different in that regard.
But it usually takes Congress a really long time to
regulate dangerous things. I don't know why that is. You
probably do. And so in the meanwhile, I think something like
this, where we're working through the courts and building off
of what we know from the antitrust context, is an excellent
first step.
Senator Lee. Okay. Thank you.
Chair Klobuchar. Very good. Senator Blumenthal.
Senator Blumenthal. Yes. Just a couple of quick questions.
First, let me just say on the issue of enforcement, you know, I
spent most of my career in enforcement. Some of it, in fact, in
antitrust enforcement as State attorney general. So I'm all in
on enforcement.
And I'm also--frankly, I've been critical of Federal
antitrust enforcement.
Often the States were ahead of the Federal Government in
some cases on antitrust enforcement, which I say with some
pride as a former State attorney general. But enforcement can't
invent laws. You know, people used to say to me, ``Oh, you're
too aggressive,'' even when we won cases. And I used to say,
``Well, it's not me that gives us the power, it's the law. I
can't do anything without the law on my side.''
So when we talk about clarifying or improving, we're just
giving enforcers the tools that they need. And some of it is to
avoid those loopholes, and exemptions, and exceptions that can
swallow the rules.
Let me ask you Professor Scott Morton, and others can
answer too. I understand that there have been media reports
indicating that the Department of Justice is investigating
Apple for some of the same exclusionary and tying practices
that the Open App Markets Act and the American Innovation and
Choice Online Act would help to prevent.
Why should we not just rely on the Department of Justice to
try to enforce existing law at some point, I don't know, a
year, 2 years, 5 years, a decade from now?
Professor Scott Morton. Well, I think you've answered your
own question. The Google search case, that was filed in 2020,
hasn't come to trial yet. Typically, a case takes some years of
investigation before it's brought. Then the court needs to
write an opinion. Then there's an appeal, and it goes from
there. And at the end of that process, it's not clear what the
remedy is, because the platform has become so entrenched, over
so long, that it's really hard to do anything to restore the
lost competition.
So that's why I think this bill is really useful, because
it holds out the prospect of much more immediate relief for
consumers. We would have competition on the platform, in short
order. And I think that's both safer and quicker for consumers.
Senator Blumenthal. Well----
Professor Francis. Senator, do you mind if I accept your
invitation----
Senator Blumenthal. Yes, please do.
Professor Francis [continuing]. To add something? I can't
understand why anyone thinks AICOA enforcement will be any
faster than antitrust enforcement. It's going to be complaints
filed in the same Federal courts, proceeding under the same
discovery rules, on the same slow timetables. Except, all the
terms are new, and don't have the benefit of 130 years of
precedent and doctrine to guide them.
This is not like the DMA. To make the DMA work, the
institutional structure of the European Union is critical. The
European Commission proposed it. They issue implementing Acts
to tell specific companies how to comply. They conduct
compliance audits. They take enforcement actions, and then they
issue decisions on them.
So, there's only one actor that has a bureaucratic monopoly
on the process. And whether or not one likes that system, that
is not our order.
Ms. Lewis. I----
Professor Francis. So, I don't think this would be faster
at all.
Ms. Lewis. I disagree----
Senator Blumenthal. Ms. Lewis.
Ms. Lewis. I'm sorry. I disagree with that
characterization. I mean, one important thing that AICOA and
OAMA both do is to absolutely streamline one concept that is
extremely time consuming, and expert intensive in antitrust
law, and that is market power.
And so AICOA has a definition of critical trading partner.
And yes, it may be litigated, the scope of what that means, but
Congress is telling the agencies and the courts what it means.
There is a description and explanation of that.
When it comes to OAMA, the word ``competition'' is not
there. There are much fewer terms to interpret. It is a bit
more straightforward because it is much narrower. And for OAMA,
there is no need to prove a relevant market definition, to
assign market shares, and so both bills, I believe, would
streamline the process. I'd also add that the DMA, once it was
passed, it already--the idea is to avoid litigation here by
making clear what conduct is prohibited.
And so I think you would expect to see changes. Companies
will respond differently. But some of these digital platforms,
I believe, will, if these laws are passed, make changes that
will benefit consumers and businesses in response to that.
Senator Blumenthal. Yes. I think, Professor Francis, your
comment is correct. The rules of discovery are the same. The
rules of evidence are the same. The Federal procedure is the
same, but the cause of action is different. The cause of action
is targeted and streamlined.
So, you may have discovery, but it's not going to be on a
kitchen sink. It can be on literally one topic, and it can be
streamlined. The whole process can be streamlined.
And equally important, the remedy is clearer. A lot of the
litigation--you take the Microsoft case, which I was involved
in, half the litigation was about the remedy. The judge ordered
the company broken up. He found liability. The court of appeals
reversed. And frankly, we didn't ask for the company to be
broken up.
So, you know, it's--I think it comes down to the cause of
action, defining what the wrong is, what the legal violation
is. And this is a targeted and streamlined process. Professor
Scott Morton, did you have a comment?
Professor Scott Morton. No, I just agree. In particular, if
you've got these very specific rules, you're looking for an
MFN, discovery is about whether there's an MFN--that doesn't
take years. So, I agree with your characterization.
Senator Blumenthal. Thank you.
Ms. Lewis. If I----
Senator Blumenthal. Professor Francis.
Professor Francis. Senator, I think this is exactly where
the rubber meets the road. Right? So, we were told earlier that
the harm to competition language in the bill, exactly as you
say, in the heart of the cause of action, would make sure that
this bill stopped harmful conduct and allowed good conduct. If
that's right, then litigation over harm to competition will
mean exactly litigation over market definition and market power
and effects evidence. It can't be----
Senator Blumenthal. Well, I don't know. You know, if Apple
says to an app store, or an app developer, you need to pay 30
percent of your revenue to get on our store and you show the
market power of Apple, that's pretty well defined. Right?
Professor Francis. I don't know, Senator. So, number one, I
think a lot of businesses charge 30 percent that don't have
anything like market power. And number two, I am sure that if
there's a harm to competition test in the bill, regardless of
where the burden is, there is going to be all the litigation
over it that looks exactly like any competitive effects
litigation.
Senator Blumenthal. Well, frankly, if my job is to show
that Apple has a monopoly or overwhelming market power on app
stores, I'll take that side of the case and I won't even charge
for it.
[Laughter.]
Senator Blumenthal [continuing]. Thank you, Madam Chair.
Chair Klobuchar. Very good. Thank you, Senator Blumenthal.
So, we have a vote that's been called. I thought I would
just ask one more question, and that is actually in the area of
hypocrisy, again, with what's been going on around the world.
We talked, Ms. Lewis, about how Amazon claimed we'd break
Amazon Prime and then, in fact, is agreeing to the exact same
thing they said would break Amazon Prime in other countries.
And this Committee has previously heard from small
businesses that experienced retaliation. You and I talked about
that, and I think that's very important because they've always
been emphasizing that they are promoting small businesses, yet
we now have many of them that are coming forward, even if they
don't want to come forward individually, through their trade
associations.
And then on another front, and this involves Apple, we made
improvements, as you know, to the bill to clarify that the
platforms can take actions that were reasonably necessary to
protect privacy and security. That was something that some of
the opponents of the bill--they have about, you know, 15
different things that they try out with Members and test drive,
in various ways or send emails about them.
One of them was this, we know they hired some former
security people and some of the Members thought they were
current security people at one of the hearings. They were not.
And, in fact, as I noted, the Justice Department has endorsed
this bill.
So, while we heard from Apple that the changes that we made
were not enough, they reportedly plan to allow third-party app
stores on the iPhone in Europe. Is there any reason why they
can't do the same thing in the United States?
Ms. Lewis. Senator Klobuchar, I am not aware of any reason.
And if you look to the example of the fact that a user of a
MacBook, or an Apple, a laptop--either their laptops or
desktops, are able to download apps from alternative sources
and there seems to be no problem with that.
So, I have not heard any credible explanation as to why
Apple cannot allow alternative methods of distribution for apps
on the iPhone. I see no reason why they can do it in Europe,
but they cannot do it here. I see no reason why they can do it
for desktops or laptop products, and they can't do it for the
iPhone. That just doesn't add up to me.
Chair Klobuchar. Mm-hmm. Exactly. And I think this is one
of the failed arguments that they have been trying to make. And
we clearly worked with them on making improvements to the bill,
but still they persist. So, do you believe that this bill
ensures that the companies can continue to protect privacy and
security, and even improve their security and privacy
provisions if they'd like?
Ms. Lewis. I do. And so I know that there have been changes
to the Open App Markets Act from the version that was
introduced in the House.
Chair Klobuchar. Mm-hmm.
Ms. Lewis. And as you mentioned, many of these changes have
been made to respond to criticisms of the bill that it was not
sufficiently clear that the covered app stores and the
operators would be able to protect user privacy and security.
I think that the bill Sponsors here have gone above and
beyond to respond to those criticisms, which I don't think were
necessarily valid. I think the bill was--allowed for that in
its current form.
But the bill Sponsors have gone above and beyond to add
language in response to those critiques, and work with
important and knowledgeable civil society groups that are more
expert in privacy and security than I am to ensure that the
bill does make that clear.
Chair Klobuchar. Mm-hmm. And I think that's the very point.
We made over 100 changes to the bill between the introduction,
the markup as we headed to the floor. But the point is that
they just keep moving the ball. So, they don't really want to
work with us on these changes, or they would have, you know, I
think, come to some agreement on provisions. But they don't
want to. They just want to stop it, and they keep coming up
with new arguments. I think that's unfortunate.
Maybe these Section 230 hearings, and the like, will make
people be more sensible. But right now, as I noted at the
beginning of the hearing, they are just--if we do nothing, we
are allowing other countries to come up with the solutions.
Some of them we'll like, some of them we won't. But that's
what's happening right now.
And it's clear that some of these most common-sense things,
that they just hit back at vociferously, are things they
actually could do without breaking the internet, breaking
Amazon Prime, breaking Google Maps, or breaking the app stores.
So, in any case, this has been an incredibly good hearing.
I don't want to be the last one to vote. That would be bad. And
I'm really glad one of the benefits of having a year in making
over 100 changes and hearing these same arguments over and over
again, I think, it's very important for our colleagues.
We had 11 Senators here, which is more than we have for
most Full Committee hearings. So people were really able to
engage and be part of this discussion, as well as their staffs,
either here or watching online. And so that will help to inform
them as we go forward, I think, answered a lot of the questions
that were raised.
We don't expect to agree on everything, but I am glad,
Professor Francis, that we agree on the antitrust funding, and
some of the other things that are necessary. And that we all
agree that there is a problem, and that we agree that, I would
say, just doing nothing may not be the answer here.
So thank you, so much. We're going to leave the record open
for 1 week. I imagine some of the Senators that could not join
us, or had to leave early, and we really appreciate those that
came by, may have some additional questions for the record.
And, of course, we welcome that.
So, the record will remain open for 1 week until March
14th, 2023. Thank you, very much. The hearing is adjourned.
[Whereupon, at 5:20 p.m., the hearing was adjourned.]
[Additional material submitted for the record follows.]
A P P E N D I X
Miscellaneous submission:
Professors of law, economics, and business; letter............... 236
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]