[House Prints 117-8, Part I]
[From the U.S. Government Publishing Office]
117 Congress } { CP 117-8
COMMITTEE PRINT REPORT
2d Session } { PART I
_______________________________________________________________________
INVESTIGATION OF COMPETITION IN
DIGITAL MARKETS
----------
MAJORITY STAFF REPORT AND RECOMMENDATIONS
SUBCOMMITTEE ON ANTITRUST,
COMMERCIAL, AND ADMINISTRATIVE LAW
OF THE COMMITTEE ON THE JUDICIARY OF
THE HOUSE OF REPRESENTATIVES
PART I
----------
JERROLD NADLER, CHAIR, COMMITTEE ON THE JUDICIARY
DAVID N. CICILLINE, CHAIR, SUBCOMMITTEE ON ANTITRUST,
COMMERCIAL, AND ADMINISTRATIVE LAW
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
ORIGINALLY RELEASED OCTOBER 2020
ADOPTED BY COMMITTEE APRIL 2021
PUBLISHED JULY 2022
INVESTIGATION OF COMPETITION IN DIGITAL MARKETS
PART I
17 Congress } { CP 117-8
COMMITTEE PRINT REPORT
2d Session } { PART I
_______________________________________________________________________
INVESTIGATION OF COMPETITION IN
DIGITAL MARKETS
__________
MAJORITY STAFF REPORT AND RECOMMENDATIONS
SUBCOMMITTEE ON ANTITRUST,
COMMERCIAL, AND ADMINISTRATIVE LAW
OF THE COMMITTEE ON THE JUDICIARY OF
THE HOUSE OF REPRESENTATIVES
PART I
__________
JERROLD NADLER, CHAIR, COMMITTEE ON THE JUDICIARY
DAVID N. CICILLINE, CHAIR, SUBCOMMITTEE ON ANTITRUST,
COMMERCIAL, AND ADMINISTRATIVE LAW
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
ORIGINALLY RELEASED OCTOBER 2020
ADOPTED BY COMMITTEE APRIL 2021
PUBLISHED JULY 2022
______
U.S. GOVERNMENT PUBLISHING OFFICE
47-832 WASHINGTON : 2022
MAJORITY STAFF
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL,
AND ADMINISTRATIVE LAW
SLADE BOND
Chief Counsel
LINA KHAN AMANDA LEWIS
Counsel Counsel on Detail
PHILLIP BERENBROICK MARY HELEN WIMBERLY
Counsel Counsel on Detail
ANNA LENHART JOSEPH VAN WYE
Technologist Legislative Aide
JOSEPH EHRENKRANTZ CATHERINE LARSEN
Special Assistant Special Assistant
COMMITTEE ON THE JUDICIARY
PERRY APELBAUM AMY RUTKIN JOHN DOTY
Staff Director and Chief Chief of Staff Senior Advisor
Counsel
JOHN WILLIAMS DAVID GREENGRASS
AARON HILLER Parliamentarian Senior Counsel
Deputy Chief Counsel DANIEL SCHWARZ ARYA HARIHARAN
Director of Strategic Deputy Chief Oversight
SHADAWN REDDICK- Communications Counsel
SMITH
Communications MOH SHARMA MATTHEW ROBINSON
Director Director of Member Counsel
Services and Outreach KAYLA HAMEDI
JESSICA PRESLEY & Policy Advisor Deputy Press Secretary
Director of Digital
Strategy
MADELINE STRASSER
Chief Clerk
NATHAN ADAL BENJAMIN FEIS ARMAN RAMNATH
Legal Fellow Legal Fellow Legal Fellow
REED SHOWALTER
KARNA ADAM CORY GORDON Legal Fellow
Legal Fellow Legal Fellow
ETHAN GURWITZ JOEL THOMPSON
WILLIAM BEKKER Legal Fellow
Legal Fellow
Legal Fellow
KYLE BIGLEY DOMENIC POWELL KURT WALTERS
Legal Fellow Legal Fellow
Legal Fellow
MICHAEL ENSEKI- KRYSTALYN WEAVER
FRANK Legal Fellow
Legal Fellow
C O N T E N T S
PART I
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I. INTRODUCTION.................................................. 1
A. Chairs' Foreword............................................ 1
B. Executive Summary........................................... 4
1. Subcommittee's Investigation.............................. 4
2. Findings.................................................. 5
3. Recommendations........................................... 13
II. THE INVESTIGATION OF COMPETITION IN DIGITAL MARKETS.......... 14
A. Requests for Information and Submissions.................... 14
1. First-Party Requests for Information...................... 14
2. Process for Obtaining Responses to First-Party Requests... 18
3. Third-Party Requests for Information...................... 18
4. Antitrust Agencies Requests for Information............... 20
B. Hearings.................................................... 21
C. Roundtables................................................. 23
D. Prior Investigations........................................ 24
III. BACKGROUND.................................................. 27
A. Overview of Competition in Digital Markets.................. 27
1. The Role of Competition Online............................ 27
2. Market Structure.......................................... 28
3. Barriers to Entry......................................... 30
B. Effects of Platform Market Power............................ 35
1. Innovation and Entrepreneurship........................... 35
2. Privacy and Data Protection............................... 39
3. The Free and Diverse Press................................ 44
4. Political and Economic Liberty............................ 58
IV. MARKETS INVESTIGATED......................................... 61
A. Online Search............................................... 61
B. Online Commerce............................................. 68
C. Social Networks and Social Media............................ 71
1. Social Networks Are Distinguishable from Social Media..... 73
2. Market Concentration...................................... 74
D. Mobile App Stores........................................... 75
E. Mobile Operating Systems.................................... 82
F. Digital Mapping............................................. 88
G. Cloud Computing............................................. 91
H. Voice Assistant............................................. 100
I. Web Browsers................................................ 105
J. Digital Advertising......................................... 107
V. DOMINANT ONLINE PLATFORMS..................................... 110
A. Facebook.................................................... 110
1. Overview.................................................. 110
2. Social Networking......................................... 111
3. Digital Advertising....................................... 141
B. Google...................................................... 144
1. Overview.................................................. 144
2. Search.................................................... 146
3. Digital Advertisements.................................... 173
4. Android and Google Play Store............................. 177
5. Chrome.................................................... 186
6. Maps...................................................... 193
7. Cloud..................................................... 205
C. Amazon...................................................... 207
1. Overview.................................................. 207
2. Amazon.com................................................ 212
3. Fulfillment and Delivery.................................. 254
4. Alexa's Internet of Things Ecosystem...................... 256
5. Amazon Web Services....................................... 265
D. Apple....................................................... 277
1. Overview.................................................. 277
2. iOS and the App Store..................................... 281
3. Siri Intelligent Voice Assistant.......................... 314
VI. RECOMMENDATIONS.............................................. 317
A. Restoring Competition in the Digital Economy................ 318
1. Reduce Conflicts of Interest Through Structural
Separations and Line of Business Restrictions.............. 319
2. Implement Rules to Prevent Discrimination, Favoritism, and
Self-Preferencing.......................................... 322
3. Promote Innovation Through Interoperability and Open
Access..................................................... 324
4. Reduce Market Power Through Merger Presumptions........... 326
5. Create an Even Playing Field for the Free and Diverse
Press...................................................... 328
6. Prohibit Abuse of Superior Bargaining Power and Require
Due Process................................................ 329
B. Strengthening the Antitrust Laws............................ 330
1. Restore the Antimonopoly Goals of the Antitrust Laws...... 330
2. Invigorate Merger Enforcement............................. 331
3. Rehabilitate Monopolization Law........................... 334
4. Additional Measures to Strengthen the Antitrust Laws...... 337
C. Strengthening Antitrust Enforcement......................... 337
1. Congressional Oversight................................... 337
2. Agency Enforcement........................................ 339
3. Private Enforcement....................................... 341
VII. APPENDIX: MERGERS AND ACQUISITIONS BY DOMINANT PLATFORMS.... 343
A. Amazon...................................................... 344
B. Apple....................................................... 346
C. Facebook.................................................... 349
D. Google...................................................... 351
VIII. APPENDIX: ADDITIONAL VIEWS OF MEMBERS OF JUDICIARY
COMMITTEE...................................................... 357
A. The Honorable Eric Swalwell................................. 358
B. The Honorable Zoe Lofgren................................... 359
C. The Honorable Jim Jordan.................................... 362
PART II
----------
IX. APPENDIX: TRANSCRIPTS OF HEARINGS IN ``ONLINE PLATFORMS AND
MARKET POWER'' SERIES
A. Online Platforms and Market Power, Part 1: The Free and
Diverse Press................................................ 367
B. Online Platforms and Market Power, Part 2: Innovation and
Entrepreneurship............................................. 589
C. Online Platforms and Market Power, Part 3: The Role of Data
and Privacy in Competition................................... 1204
D. Online Platforms and Market Power, Part 4: Perspectives of
the Antitrust Agencies....................................... 1419
PART III
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E. Online Platforms and Market Power, Part 5: Competitors in
the Digital Economy.......................................... 1573
F. Online Platforms and Market Power, Part 6: Examining the
Dominance of Amazon, Apple, Facebook, and Google............. 1709
G. Proposals to Strengthen the Antitrust Laws and Restore
Competition Online........................................... 2695
I. INTRODUCTION
A. Chairs' Foreword
In June 2019, the Committee on the Judiciary initiated a
bipartisan investigation into the state of competition online,
spearheaded by the Subcommittee on Antitrust, Commercial, and
Administrative Law. As part of a top-to-bottom review of the
market, the Subcommittee examined the dominance of Amazon,
Apple, Facebook, and Google, and their business practices to
determine how their power affects our economy and our
democracy. Additionally, the Subcommittee performed a review of
existing antitrust laws, competition policies, and current
enforcement levels to assess whether they are adequate to
address market power and anticompetitive conduct in digital
markets.
Over the course of our investigation, we collected
extensive evidence from these companies as well as from third
parties--totaling nearly 1.3 million documents. We held seven
hearings to review the effects of market power online--
including on the free and diverse press, innovation, and
privacy--and a final hearing to examine potential solutions to
concerns identified during the investigation and to inform this
Report's recommendations.
A year after initiating the investigation, we received
testimony from the Chief Executive Officers of the investigated
companies: Jeff Bezos, Tim Cook, Mark Zuckerberg, and Sundar
Pichai. For nearly six hours, we pressed for answers about
their business practices, including about evidence concerning
the extent to which they have exploited, entrenched, and
expanded their power over digital markets in anticompetitive
and abusive ways. Their answers were often evasive and non-
responsive, raising fresh questions about whether they believe
they are beyond the reach of democratic oversight.
Although these four corporations differ in important ways,
studying their business practices has revealed common problems.
First, each platform now serves as a gatekeeper over a key
channel of distribution. By controlling access to markets,
these giants can pick winners and losers throughout our
economy. They not only wield tremendous power, but they also
abuse it by charging exorbitant fees, imposing oppressive
contract terms, and extracting valuable data from the people
and businesses that rely on them. Second, each platform uses
its gatekeeper position to maintain its market power. By
controlling the infrastructure of the digital age, they have
surveilled other businesses to identify potential rivals, and
have ultimately bought out, copied, or cut off their
competitive threats. And, finally, these firms have abused
their role as intermediaries to further entrench and expand
their dominance. Whether through self-preferencing, predatory
pricing, or exclusionary conduct, the dominant platforms have
exploited their power in order to become even more dominant.
To put it simply, companies that once were scrappy,
underdog startups that challenged the status quo have become
the kinds of monopolies we last saw in the era of oil barons
and railroad tycoons. Although these firms have delivered clear
benefits to society, the dominance of Amazon, Apple, Facebook,
and Google has come at a price. These firms typically run the
marketplace while also competing in it--a position that enables
them to write one set of rules for others, while they play by
another, or to engage in a form of their own private quasi
regulation that is unaccountable to anyone but themselves.
The effects of this significant and durable market power
are costly. The Subcommittee's series of hearings produced
significant evidence that these firms wield their dominance in
ways that erode entrepreneurship, degrade Americans' privacy
online, and undermine the vibrancy of the free and diverse
press. The result is less innovation, fewer choices for
consumers, and a weakened democracy.
Nearly a century ago, Supreme Court Justice Louis Brandeis
wrote: ``We must make our choice. We may have democracy, or we
may have wealth concentrated in the hands of a few, but we
cannot have both.'' Those words speak to us with great urgency
today.
Although we do not expect that all of our Members will
agree on every finding and recommendation identified in this
Report, we firmly believe that the totality of the evidence
produced during this investigation demonstrates the pressing
need for legislative action and reform. These firms have too
much power, and that power must be reined in and subject to
appropriate oversight and enforcement. Our economy and
democracy are at stake.
As a charter of economic liberty, the antitrust laws are
the backbone of open and fair markets. When confronted by
powerful monopolies over the past century--be it the railroad
tycoons and oil barons or Ma Bell and Microsoft--Congress has
acted to ensure that no dominant firm captures and holds undue
control over our economy or our democracy. We face similar
challenges today. Congress--not the courts, agencies, or
private companies--enacted the antitrust laws, and Congress
must lead the path forward to modernize them for the economy of
today, as well as tomorrow. Our laws must be updated to ensure
that our economy remains vibrant and open in the digital age.
Congress must also ensure that the antitrust agencies
aggressively and fairly enforce the law. Over the course of the
investigation, the Subcommittee uncovered evidence that the
antitrust agencies failed, at key occasions, to stop
monopolists from rolling up their competitors and failed to
protect the American people from abuses of monopoly power.
Forceful agency action is critical.
Lastly, Congress must revive its tradition of robust
oversight over the antitrust laws and increased market
concentration in our economy. In prior Congresses, the
Subcommittee routinely examined these concerns in accordance
with its constitutional mandate to conduct oversight and
perform its legislative duties. As a 1950 report from the then-
named Subcommittee on the Study of Monopoly Power described its
mandate: ``It is the province of this subcommittee to
investigate factors which tend to eliminate competition,
strengthen monopolies, injure small business, or promote undue
concentration of economic power; to ascertain the facts, and to
make recommendations based on those findings.'' \1\
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\1\ H. Rep. No. 82-255, at 2 (1951) (Aluminum: Report of the
Subcomm. on Study of Monopoly Power of the H. Comm. on the Judiciary).
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Similarly, the Subcommittee has followed the facts before
it to produce this Report, which is the product of a
considerable evidentiary and oversight record. This record
includes: 1,287,997 documents and communications; testimony
from 38 witnesses; a hearing record that spans more than 1,800
pages; 38 submissions from 60 antitrust experts from across the
political spectrum; and interviews with more than 240 market
participants, former employees of the investigated platforms,
and other individuals totaling thousands of hours. The
Subcommittee has also held hearings and roundtables with
industry and government witnesses, consultations with subject-
matter experts, and a careful--and at times painstaking--review
of large volumes of evidence provided by industry participants
and regulators.
In light of these efforts, we extend our deep gratitude to
the staff of the Subcommittee and Full Committee for their
diligent work in this regard, particularly during the COVID-19
pandemic and other challenging circumstances over the past
year.
Finally, as an institutional matter, we close by noting
that the Committee's requests for information from agencies and
any non-public briefings were solely for the purpose of
carrying out our constitutionally based legislative and
oversight functions. In particular, the information requested
was vital to informing our assessment of whether existing
antitrust laws are adequate for tackling current competition
problems, as well as in uncovering potential reasons for under-
enforcement. The Report is based on the documents and
information collected during its investigation, and the
Committee fully respects the separate and independent
decisional processes employed by enforcement authorities with
respect to such matters.
Although the companies provided substantial information and
numerous documents to the Subcommittee, they declined to
produce certain critical information and crucial documents we
requested. The material withheld was identified by the
Committee as relevant to the investigation and included,
primarily, two categories of information: (1) documents the
companies claimed were protected by common law privileges; and
(2) documents that were produced to antitrust authorities in
ongoing investigations, or that related to the subject matter
of these ongoing investigations.
Institutionally, we reject any argument that the mere
existence of ongoing litigation prevents or prohibits Congress
from obtaining information relevant to its legislative and
oversight prerogatives. We strongly disagree with the assertion
that any requests for such materials and any compliance with
those requests interfere with the decisional processes in
ongoing investigations. Furthermore, while Congress is fully
subject to constitutional protections, we cannot agree that we
are bound by common law privileges as asserted by the
companies. While we determined that insufficient time exists to
pursue these additional materials during this Congress, the
Committee expressly reserves the right to invoke other
available options, including compulsory process, to obtain the
requested information in the future.
B. Executive Summary
1. Subcommittee's Investigation
On June 3, 2019, the House Judiciary Committee announced a
bipartisan investigation into competition in digital
markets,\2\ led by the Subcommittee on Antitrust, Commercial,
and Administrative Law.\3\ The purpose of the investigation was
to: (1) document competition problems in digital markets; (2)
examine whether dominant firms are engaging in anticompetitive
conduct; and (3) assess whether existing antitrust laws,
competition policies, and current enforcement levels are
adequate to address these issues.\4\ The Committee initiated
the investigation in response to broad-ranging investigative
reporting, and activity by policymakers and enforcers, that
raised serious concerns about the platforms' incentives and
ability to harm the competitive process.\5\
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\2\ Press Release, H. Comm. on the Judiciary, House Judiciary
Committee Launches Bipartisan Investigation into Competition in Digital
Markets (June 3, 2019), https://judiciary.house.gov/news/press-
releases/house-judiciary-committee-launches-bipartisan-investigation-
competition-digital.
\3\ We extend our sincere thanks to Peter Karafotas, Rich Luchette,
and Francis Grubar, in the Office of Congressman David N. Cicilline,
for their relentless work and selfless devotion throughout the
investigation. We would also like to recognize the following staff for
their significant contributions during the investigation: Dick Meltzer,
Michael Tecklenburg, Kenneth DeGraff, and Victoria Houed in the Office
of the Speaker of the U.S. House of Representatives; Daniel Flores,
former Minority Chief Counsel, Subcommittee on Antitrust, Commercial,
and Administrative Law; Danny Johnson, former Minority Counsel,
Committee on the Judiciary; Jacqui Kappler, Legislative Director, the
Honorable Henry ``Hank'' Johnson, Jr.; Devon Ombres, Legislative
Counsel, the Honorable Jamie Raskin; Elly Kugler, Senior Counsel, the
Honorable Pramila Jayapal; Jennifer Chan, Legislative Director, the
Honorable Pramila Jayapal; Stuart Styron, Senior Legislative Assistant,
the Honorable Val Demings; Keanu Rivera, Legislative Assistant, the
Honorable Mary Gay Scanlon; Lindsey Garber, Legislative Counsel, the
Honorable Joe Neguse; Miya Patel, former Legislative Assistant, the
Honorable Joe Neguse; and Natalie Knight, Legislative Counsel, the
Honorable Lucy McBath. Staff would also like to thank Matthew Bisenius
in the Office of Congressman F. James Sensenbrenner, as well as Garrett
Ventry in the Office of Congressman Ken Buck, for their commitment to
bipartisan cooperation. We also thank Hillary Marston, Legal Intern for
the Committee on the Judiciary, for her assistance. Finally, we thank
Clare Cho and Mari Lee at the Congressional Research Service for their
support, as well as graphics and data visualization used within this
Report.
\4\ Press Release, H. Comm. on the Judiciary, House Judiciary
Committee Launches Bipartisan Investigation into Competition in Digital
Markets (June 3, 2019), https://judiciary.house.gov/news/press-
releases/house-judiciary-committee-launches-bipartisan-investigation-
competition-digital.
\5\ See, e.g., Meehreen Khan, EU Targets Tech Giants over Unfair
Business Practices, Fin. Times (Apr. 25, 2018), https://www.ft.com/
content/d7228bec-4879-11e8-8ee8-cae73aab7ccb; Adam Satariano, Google Is
Fined $57 Million Under Europe's Data Privacy Law, N.Y. Times (Jan. 21,
2019), https://www.nytimes.com/2019/01/21/technology/google-europe-
gdpr-fine. html; Richard Waters et al., Global Regulators' Net Tightens
Around Big Tech, Fin. Times (June 5, 2019), https://www.ft.com/content/
973f8b36-86f0-11e9-97ea-05ac2431f453.
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As part of the investigation, the Subcommittee held seven
oversight hearings that provided Members of the Subcommittee
with an opportunity to examine the state of competition in
digital markets and the adequacy of existing antitrust laws. A
diverse group of witnesses offered testimony on topics related
to the effects of market power on the free and diverse press,
on innovation, and on privacy. Other witnesses who testified
included executives from businesses with concerns about the
dominance of the investigated firms. The hearings also provided
an opportunity for key executives from Facebook, Google,
Amazon, and Apple--including the Chief Executive Officers of
these firms--to address evidence that was uncovered during the
investigation in a public-facing venue. After each of the
hearings, Members of the Subcommittee submitted questions for
the record (QFRs) to the witnesses.
The Committee requested information from the dominant
platforms, from market participants, from the Federal antitrust
agencies, and from other relevant parties, for the purpose of
obtaining information that was not otherwise publicly available
but was important to assembling a comprehensive record. The
Committee also sent requests for submissions to various experts
in the field, including academics, representatives of public
interest groups, and practicing antitrust lawyers. The
responses to these requests were indispensable to staff's
ability to complete this Report and its recommendations for
congressional oversight of the antitrust agencies and
legislative action.
This Report is intended to provide policymakers, antitrust
enforcers, market participants, and the public with a
comprehensive understanding of the state of competition in the
online marketplace. The Report also provides recommendations
for areas of legislative activity to address the rise and abuse
of market power in the digital economy, as well as areas that
warrant additional congressional attention.
2. Findings
(a) Overview. The open internet has delivered significant
benefits to Americans and the U.S. economy. Over the past few
decades, it has created a surge of economic opportunity,
capital investment, and pathways for education. The COVID-19
pandemic has underscored the importance of internet access that
is affordable, competitive, and widely available for workers,
families, and businesses.
The online platforms investigated by the Subcommittee--
Amazon, Apple, Facebook, and Google--also play an important
role in our economy and society as the underlying
infrastructure for the exchange of communications, information,
and goods and services. As of September 2020, the combined
valuation of these platforms is more than $5 trillion--more
than a third of the value of the S&P 100. As we continue to
shift our work, commerce, and communications online, these
firms stand to become even more interwoven into the fabric of
our economy and our lives.
Over the past decade, the digital economy has become highly
concentrated and prone to monopolization. Several markets
investigated by the Subcommittee--such as social networking,
general online search, and online advertising--are dominated by
just one or two firms. The companies investigated by the
Subcommittee--Amazon, Apple, Facebook, and Google--have
captured control over key channels of distribution and have
come to function as gatekeepers. Just a decade into the future,
30 percent of the world's gross economic output may lie with
these firms, and just a handful of others.\6\
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\6\ Catherine Fong et al., Prime Day and the Broad Reach of
Amazon's Ecosystem, McKinsey & Co. (Aug. 2, 2019), https://
www.mckinsey.com/business-functions/marketing-and-sales/our-insights/
prime-day-and-the-broad-reach-of-amazons-ecosystem (``This ecosystem
strategy in particular has significant competitive implications because
McKinsey estimates that in ten years, 30 percent of the world's gross
economic output will be from companies that operate a network of
interconnected businesses, such as those run by Amazon, Alibaba,
Google, and Facebook.'').
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In interviews with the Subcommittee, numerous businesses
described how dominant platforms exploit their gatekeeper power
to dictate terms and extract concessions that no one would
reasonably consent to in a competitive market. Market
participants indicated that their dependence on these
gatekeepers to access users and markets requires concessions
and demands that carry significant economic harm, but that are
``the cost of doing business'' given the lack of options.
This significant and durable market power is due to several
factors, including a high volume of acquisitions by the
dominant platforms. Together, the firms investigated by the
Subcommittee have acquired hundreds of companies just in the
last ten years. In some cases, a dominant firm evidently
acquired nascent or potential competitors to neutralize a
competitive threat or to maintain and expand the firm's
dominance. In other cases, a dominant firm acquired smaller
companies to shut them down or discontinue underlying products
entirely--transactions aptly described as ``killer
acquisitions.'' \7\
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\7\ Colleen Cunningham, Florian Ederer & Song Ma, Killer
Acquisitions 1 (Yale Sch. of Mgmt., Working Paper, Mar. 2019), https://
perma.cc/L6YL-YL8K (describing the practice of ``acquir[ing] innovative
targets solely to discontinue the target's innovative projects and
preempt future competition''). See also C. Scott Hemphill & Tim Wu,
Nascent Competitors, 168 U. Pa. L. Rev. 1879, 1880 (2020), https://
perma.cc/62HH-34ZL (``A nascent competitor is a firm whose prospective
innovation represents a serious future threat to an incumbent.'').
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In the overwhelming number of cases, the antitrust agencies
did not request additional information and documentary material
under their pre-merger review authority in the Clayton Act to
examine whether the proposed acquisition may substantially
lessen competition or tend to create a monopoly if allowed to
proceed as proposed. For example, of Facebook's nearly 100
acquisitions, the Federal Trade Commission (FTC) engaged in an
extensive investigation of just one acquisition: Facebook's
purchase of Instagram in 2012.
During the investigation, the Subcommittee found evidence
of monopolization and monopoly power. For example, the strong
network effects associated with Facebook has tipped the market
toward monopoly such that Facebook competes more vigorously
among its own products--Facebook, Instagram, WhatsApp, and
Messenger--than with actual competitors.
As demonstrated during a series of hearings held by the
Subcommittee and as detailed in this Report,\8\ the online
platforms' dominance carries significant costs. It has
diminished consumer choice, eroded innovation and
entrepreneurship in the U.S. economy, weakened the vibrancy of
the free and diverse press, and undermined Americans' privacy.
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\8\ See infra Section V.
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These concerns are shared by the majority of Americans. On
September 24, 2020, Consumer Reports (CR) published a survey
titled ``Platform Perceptions: Consumer Attitudes on
Competition and Fairness in Online Platforms.'' \9\ Among its
findings:
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\9\ Consumer. Reps., Platform Perceptions: Consumer Attitudes on
Competition and Fairness in Online Platforms (2020), https://
advocacy.consumerreports.org/wp-content/uploads/2020/09/FINAL-CR-
survey-report.platform-perceptions-consumer-attitudes-.september-
2020.pdf.
LEighty-five percent of Americans are concerned--
either very concerned or somewhat concerned--about the amount
of data online platforms store about them, and eighty-one
percent are concerned that platforms are collecting and holding
this data in order to build out more comprehensive consumer
profiles.
LFifty-eight percent are not confident that they
are getting objective and unbiased search results when using an
online platform to shop or search for information.
LSeventy-nine percent say Big Tech mergers and
acquisitions unfairly undermine competition and consumer
choice.\10\
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\10\ Id.
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LSixty percent support more government regulation
of online platforms, including mandatory interoperability
features, to make it easier for users to switch from one
platform to another without losing important data or
connections.
(b) Facebook. Facebook has monopoly power in the market for
social networking. Internal communications among the company's
Chief Executive Officer, Mark Zuckerberg, and other senior
executives indicate that Facebook acquired its competitive
threats to maintain and expand its dominance. For example, a
senior executive at the company described its acquisition
strategy as a ``land grab'' to ``shore up'' Facebook's
position,\11\ while Facebook's CEO said that Facebook ``can
likely always just buy any competitive startups,'' \12\ and
agreed with one of the company's senior engineers that
Instagram was a threat to Facebook.\13\
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\11\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045388 (Feb. 18, 2014), https://judiciary.house.gov/
uploadedfiles/0004538800045389.pdf (``[W]e are going to spend 5-10% of
our market cap every couple years to shore up our position . . . I hate
the word `land grab' but I think that is the best convincing argument
and we should own that.'').
\12\ Id. at FB-HJC-ACAL-00067600 (Apr. 9, 2012), https://
judiciary.house.gov/uploadedfiles/0006760000067601.pdf.
\13\ Id.
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Facebook's monopoly power is firmly entrenched and unlikely
to be eroded by competitive pressure from new entrants or
existing firms. In 2012, the company described its network
effects as a ``flywheel'' in an internal presentation prepared
for Facebook at the direction of its Chief Financial
Officer.\14\ This presentation also said that Facebook's
network effects get ``stronger every day.'' \15\
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\14\ Id. at FB-HJC-ACAL-00049006 (Apr. 18, 2012) (on file with
Comm.) (``Network effects make it very difficult to compete with us--In
every country we've tipped we are still winning.'').
\15\ Id.
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More recent documents produced during the investigation by
Facebook show that it has tipped the social networking market
toward a monopoly, and now considers competition within its own
family of products to be more considerable than competition
from any other firm. These documents include an October 2018
memorandum by Thomas Cunningham, a senior data scientist and
economist at Facebook,\16\ for Mr. Zuckerberg and Javier
Olivan, Facebook's Director of Growth.\17\ Among other things,
the Cunningham Memo found that the network effects of Facebook
and its family of products as ``very strong'' \18\ and that
there are strong tipping points in the social networking market
that create competition for the market, rather than competition
within the market.\19\
---------------------------------------------------------------------------
\16\ Id. at FB-HJC-ACAL-00111406 (Oct. 2018) [hereinafter
Cunningham Memo] (``Facebook has high reach and time-spent in most
countries. User growth is tracking internet growth: global reach is
roughly stable.'').
\17\ Id.
\18\ Id. at 11.
\19\ Id. at 9.
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According to a former senior employee at Instagram who was
involved in the preparation of this document for review by Mr.
Zuckerberg and Mr. Olivan, the Cunningham Memo guided
Facebook's growth strategy, particularly with regard to Insta-
gram.\20\ They explained:
---------------------------------------------------------------------------
\20\ Id.
LThe question was how do we position Facebook and
Instagram to not compete with each other. The concern was that
Instagram would hit a tipping point . . . . There was brutal
in-fighting between Instagram and Facebook at the time. It was
very tense. It was back when Kevin Systrom was still at the
company. He wanted Instagram to grow naturally and as widely as
possible. But Mark was clearly saying ``do not compete with
us.'' . . . It was collusion, but within an internal monopoly.
If you own two social media utilities, they should not be
allowed to shore each other up. It's unclear to me why this
should not be illegal. You can collude by acquiring a
company.\21\
---------------------------------------------------------------------------
\21\ Interview with Former Instagram Employee (Oct. 2, 2020).
Facebook has also maintained its monopoly through a series
of anticompetitive business practices. The company used its
data advantage to create superior market intelligence to
identify nascent competitive threats and then acquire, copy, or
kill these firms. Once dominant, Facebook selectively enforced
its platform policies based on whether it perceived other
companies as competitive threats. In doing so, it advantaged
its own services while weakening other firms.
In the absence of competition, Facebook's quality has
deteriorated over time, resulting in worse privacy protections
for its users and a dramatic rise in misinformation on its
platform.
(c) Google. Google has a monopoly in the markets for
general online search and search advertising. Google's
dominance is protected by high entry barriers, including its
click-and-query data and the extensive default positions that
Google has obtained across most of the world's devices and
browsers. A significant number of entities--spanning major
public corporations, small businesses, and entrepreneurs--
depend on Google for traffic, and no alternate search engine
serves as a substitute.
Google maintained its monopoly over general search through
a series of anticompetitive tactics. These include an
aggressive campaign to undermine vertical search providers,
which Google viewed as a significant threat. Documents show
that Google used its search monopoly to misappropriate content
from third parties and to boost Google's own inferior vertical
offerings, while imposing search penalties to demote third-
party vertical providers. Since capturing a monopoly over
general search, Google has steadily proliferated its search
results page with ads and with Google's own content, while also
blurring the distinction between paid ads and organic results.
As a result of these tactics, Google appears to be siphoning
off traffic from the rest of the web, while entities seeking to
reach users must pay Google steadily increasing sums for ads.
Numerous market participants analogized Google to a gatekeeper
that is extorting users for access to its critical distribution
channel, even as its search page shows users less relevant
results.
A second way Google has maintained its monopoly over
general search has been through a series of anticompetitive
contracts. After purchasing the Android operating system in
2005, Google used contractual restrictions and exclusivity
provisions to extend Google's search monopoly from desktop to
mobile. Documents show that Google required smartphone
manufacturers to pre-install and give default status to
Google's own apps, impeding competitors in search as well as in
other app markets. As search activity now migrates from mobile
to voice, third-party interviews suggest Google is again
looking for ways to maintain its monopoly over search access
points through a similar set of practices.
Since capturing the market for online search, Google has
extended into a variety of other lines of business. Today,
Google is ubiquitous across the digital economy, serving as the
infrastructure for core products and services online. Through
Chrome, Google now owns the world's most popular browser--a
critical gateway to the internet that it has used to both
protect and promote its other lines of business. Through Google
Maps, Google now captures over eight percent of the market for
navigation mapping services--a key input over which Google
consolidated control through an anticompetitive acquisition and
which it now leverages to advance its position in search and
advertising. And through Google Cloud, Google has another core
platform in which it is now heavily investing through
acquisitions, positioning itself to dominate the ``Internet of
Things,'' the next wave of surveillance technologies.
Internal communications also reveal that Google exploits
information asymmetries and closely tracks real-time data
across markets, which--given Google's scale--provide it with
near-perfect market intelligence. In certain instances, Google
has covertly set up programs to more closely track its
potential and actual competitors, including through projects
like Android Lockbox.
Each of its services provides Google with a trove of user
data, reinforcing its dominance across markets and driving
greater monetization through online ads. Through linking these
services together, Google increasingly functions as an
ecosystem of interlocking monopolies.
(d) Amazon. Amazon has significant and durable market power
in the U.S. online retail market. This conclusion is based on
the significant record that the Subcommittee collected and
reviewed, including testimonials from third-party sellers,
brand manufacturers, publishers, former employees, and other
market participants, as well as Amazon's internal documents.
Although Amazon is frequently described as controlling about
forty percent of U.S. online retail sales, this market share is
likely understated, and estimates of about 50 percent or higher
are more credible.
As the dominant marketplace in the United States for online
shopping, Amazon's market power is at its height in its
dealings with third-party sellers. The platform has monopoly
power over many small- and medium-sized businesses that do not
have a viable alternative to Amazon for reaching online
consumers. Amazon has 2.3 million active third-party sellers on
its marketplace worldwide, and a recent survey estimates that
about 37 percent of them--about 850,000 sellers--rely on Amazon
as their sole source of income.\22\
---------------------------------------------------------------------------
\22\ JungleScout, The State of the Amazon Seller 2020, at 4 (2020),
https://www.
junglescout.com/wp-content/uploads/2020/02/State-of-the-Seller-
Survey.pdf.
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Amazon achieved its current dominant position, in part,
through acquiring its competitors, including Diapers.com and
Zappos. It has also acquired companies that operate in adjacent
markets, adding customer data to its stockpile and further
shoring up its competitive moats. This strategy has entrenched
and expanded Amazon's market power in e-commerce, as well as in
other markets. The company's control over and reach across its
many business lines enable it to self-preference and
disadvantage competitors in ways that undermine free and fair
competition. As a result of Amazon's dominance, other
businesses are frequently beholden to Amazon for their success.
Amazon has engaged in extensive anticompetitive conduct in
its treatment of third-party sellers. Publicly, Amazon
describes third-party sellers as ``partners.'' But internal
documents show that, behind closed doors, the company refers to
them as ``internal competitors.'' Amazon's dual role as an
operator of its marketplace that hosts third-party sellers, and
a seller in that same marketplace, creates an inherent conflict
of interest. This conflict incentivizes Amazon to exploit its
access to competing sellers' data and information, among other
anticompetitive conduct.
Voice assistant ecosystems are an emerging market with a
high propensity for lock-in and self-preferencing. Amazon has
expanded Alexa's ecosystem quickly through acquisitions of
complementary and competing technologies, and by selling its
Alexa-enabled smart speakers at deep discounts. The company's
early leadership in this market is leading to the collection of
highly sensitive consumer data, which Amazon can use to promote
its other business, including e-commerce and Prime Video.
Finally, Amazon Web Services (AWS) provides critical
infrastructure for many businesses with which Amazon competes.
This creates the potential for a conflict of interest where
cloud customers are forced to consider patronizing a
competitor, as opposed to selecting the best technology for
their business.
(e) Apple. Apple has significant and durable market power
in the mobile operating system market. Apple's dominance in
this market, where it controls the iOS mobile operating system
that runs on Apple mobile devices, has enabled it to control
all software distribution to iOS devices. As a result, Apple
exerts monopoly power in the mobile app store market,
controlling access to more than 100 million iPhones and iPads
in the U.S.
Apple's mobile ecosystem has produced significant benefits
to app developers and consumers. Launched in 2008, the App
Store revolutionized software distribution on mobile devices,
reducing barriers to entry for app developers and increasing
the choices available to consumers. Despite this, Apple
leverages its control of iOS and the App Store to create and
enforce barriers to competition and discriminate against and
exclude rivals while preferencing its own offerings. Apple also
uses its power to exploit app developers through
misappropriation of competitively sensitive information and to
charge app developers supra-competitive prices within the App
Store. Apple has maintained its dominance due to the presence
of network effects, high barriers to entry, and high switching
costs in the mobile operating system market.
Apple is primarily a hardware company that derives most of
its revenue from sales of devices and accessories. However, as
the market for products like the iPhone has matured, Apple has
pivoted to rely increasingly on sales of its applications and
services, as well as collecting commissions and fees in the App
Store. In the absence of competition, Apple's monopoly power
over software distribution to iOS devices has resulted in harm
to competitors and competition, reducing quality and innovation
among app developers, and increasing prices and reducing
choices for consumers.
(f) Effects of Market Power. The Subcommittee also examined
the effects of market power in digital markets on the free and
diverse press, innovation, privacy and data, and other relevant
matters summarized below for ease of reference.
As part of this process, the Subcommittee received
testimony and submissions showing that the dominance of some
online platforms has contributed to the decline of trustworthy
sources of news, which are essential to our democracy.\23\ In
several submissions, news publishers raised concerns about the
``significant and growing asymmetry of power'' between dominant
platforms and news organizations, as well as the effect of this
dominance on the production and availability of trustworthy
sources of news. Other publishers said that they are
``increasingly beholden'' to these firms, and in particular, to
Google and Facebook.\24\ Google and Facebook have an outsized
influence over the distribution and monetization of trustworthy
sources of news online,\25\ undermining the quality and
availability of high-quality sources of journalism.\26\ This
concern is underscored by the COVID-19 pandemic, which has laid
bare the importance of preserving a vibrant free press in both
local and national markets.
---------------------------------------------------------------------------
\23\ Online Platforms and Market Power, Part 1: The Free and
Diverse Press: Hearing Before the Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary, 116th Cong. 71-73 (2019)
[hereinafter Free and Diverse Press Hearing] (statement of David
Pitofsky, Gen. Couns., News Corp).
\24\ Submission from Source 53, to H. Comm. on the Judiciary, 7
(Oct. 14, 2019) (on file with Comm.). Although Apple News and Apple
News Plus are increasingly popular news aggregators, most market
participants that the Subcommittee received evidence from during the
investigation do not view it as a critical intermediary for online news
at this time. Some publishers raised competition concerns about the
tying of payment inside Apple's news product. Others, however, did
raise concerns about Apple News and Apple News Plus, noting that it is
``not creating any original journalism itself'' and competes ``against
publishers' news products . . . for subscription revenues.'' Id. at 6.
\25\ Submission from Source 52, to H. Comm. on the Judiciary, 12
(Oct. 30, 2019) (on file with Comm.).
\26\ Free and Diverse Press Hearing at 20 (statement of David
Chavern, President & CEO, News Media All.) (``In effect, a couple of
dominant tech platforms are acting as regulators of the digital news
industry.'').
---------------------------------------------------------------------------
The rise of market power online has also materially
weakened innovation and entrepreneurship in the U.S.
economy.\27\ Some venture capitalists, for example, report that
there is an innovation ``kill zone'' that insulates dominant
platforms from competitive pressure simply because investors do
not view new entrants as worthwhile investments.\28\ Other
investors have said that they avoid funding entrepreneurs and
other companies that compete directly or indirectly with
dominant firms in the digital economy.\29\ In an interview with
the Subcommittee, a prominent venture capital investor
explained that due to these factors, there is a strong economic
incentive for other firms to avoid head-on competition with
dominant firms.\30\
---------------------------------------------------------------------------
\27\ Online Platforms and Market Power, Part 2: Innovation and
Entrepreneurship: Hearing Before the Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 116th Cong. 76 (2019)
[hereinafter Innovation and Entrepreneurship Hearing] (statement of
Timothy Wu, Julius Silver Prof. of Law, Columbia Law Sch.); Online
Platforms and Market Power, Part 3: The of Role of Data and Privacy in
Competition: Hearing Before the Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary, 116th Cong. 58-60 (2019)
[hereinafter Data and Privacy Hearing] (statement of Jason Furman,
Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.).
\28\ Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill
Zone (Univ. of Chi., Becker Friedman Inst. for Econ., Working Paper No.
2020-19, Apr. 2020), https://ssrn.com/abstract
=3555915.
\29\ See generally U.S. Dep't of Justice Antitrust Div., Public
Workshop on Venture Capital and Antitrust (Feb. 12, 2020) [hereinafter
Venture Capital and Antitrust Workshop], https://www.justice.gov/atr/
page/file/1255851/download; Chi. Booth Stigler Ctr. for the Study
of Econ. & State, Stigler Cmte. on Dig. Platforms, Final Report, 9
(2019) [herein-
after Stigler Report], https://www.chicagobooth.edu/-/media/research/
stigler/pdfs/digital-
platforms---committee-report---stigler-center.pdf.
\30\ See Interview with Source 146 (May 28, 2020).
---------------------------------------------------------------------------
Additionally, in the absence of adequate privacy guardrails
in the United States, the persistent collection and misuse of
consumer data is an indicator of market power online.\31\
Online platforms rarely charge consumers a monetary price--
products appear to be ``free'' but are monetized through
people's attention or with their data.\32\ In the absence of
genuine competitive threats, dominant firms offer fewer privacy
protections than they otherwise would, and the quality of these
services has deteriorated over time. As a result, consumers are
forced to either use a service with poor privacy safeguards or
forgo the service altogether.\33\
---------------------------------------------------------------------------
\31\ Howard A. Shelanski, Information, Innovation, and Competition
Policy for the Internet, 161 U. Pa. L. Rev. 1663, 1689 (2013) (``One
measure of a platform's market power is the extent to which it can
engage in [privacy exploitation] without some benefit to consumers that
offsets their reduced privacy and still retain users.'').
\32\ Data and Privacy Hearing at 60 (statement of Jason Furman,
Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.); Data and
Privacy Hearing at 54-55 (statement of Tommaso Valletti, Prof. of
Econ., Imperial Coll. Bus. Sch.)
\33\ Dig. Competition Expert Panel, Unlocking Digital Competition
43 (2019) (``[T]he misuse of consumer data and harm to privacy is
arguably an indicator of low quality caused by a lack of
competition.'') [hereinafter Dig. Competition Expert Panel Report];
Dina Srinivasan, The Antitrust Case Against Facebook: A Monopolist's
Journey Towards Pervasive Surveillance in Spite of Consumers'
Preference for Privacy, 16 Berkeley Bus. L.J. 39, 88 (2019)
(``Consumers effectively face a singular choice--use Facebook and
submit to the quality and stipulations of Facebook's product or forgo
all use of the only social network.'').
---------------------------------------------------------------------------
Finally, the market power of the dominant platforms risks
undermining both political and economic liberties. The
Subcommittee encountered a prevalence of fear among market
participants that depend on the dominant platforms, many of
whom expressed unease that the success of their business and
their economic livelihood depend on what they viewed as the
platforms' unaccountable and arbitrary power. Additionally,
courts and enforcers have found the dominant platforms to
engage in recidivism, repeatedly violating laws and court
orders. This pattern of behavior raises questions about whether
these firms view themselves as above the law, or whether they
simply treat lawbreaking as a cost of business. Lastly, the
growth in the platforms' market power has coincided with an
increase in their influence over the policymaking process.
Through a combination of direct lobbying and funding think
tanks and academics, the dominant platforms have expanded their
sphere of influence, further shaping how they are governed and
regulated.
3. Recommendations
As part of the investigation of competition in digital
markets, the Subcommittee conducted a thorough examination of
the adequacy of current laws and enforcement levels. This
included receiving submissions from experts on antitrust and
competition policy who were selected on a careful, bipartisan
basis to ensure the representation of a diverse range of views
on these matters. The Subcommittee also received other
submissions from leading experts--including Executive Vice
President Margrethe Vestager of the European Commission and
Chair Rod Sims of the Australian Competition and Consumer
Commission--to inform this inquiry. Most recently, on October
1, 2020, the Subcommittee held an oversight hearing on
``Proposals to Strengthen the Antitrust Laws and Restore
Competition Online'' to examine potential solutions to concerns
identified during the investigation to further inform the
Report's recommendations.
Based on this oversight activity, Subcommittee Chair
Cicilline requested that staff provide a menu of reforms to
Members of the Subcommittee for purposes of potential
legislative activity during the remainder of the 116th Congress
and thereafter. As he noted in remarks to the American
Antitrust Institute in June 2019:
L[I]t is Congress' responsibility to conduct oversight of
our antitrust laws and competition system to ensure that they
are properly working and to enact changes when they are not.
While I do not have any preconceived ideas about what the right
answer is, as Chair of the Antitrust Subcommittee, I intend to
carry out that responsibility with the sense of urgency and
serious deliberation that it demands.\34\
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\34\ Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, Keynote
Address at American Antitrust Institute's 20th Annual Policy Conference
(June 20, 2019), https://cicilline.house.gov/press-release/cicilline-
delivers-
keynote-address-american-antitrust-institute%E2%80%99s-20th-annual-
policy.
In response to this request, the Subcommittee identified a
broad set of reforms for further examination by the Members of
the Subcommittee for purposes of crafting legislative responses
to the findings of this Report. These reforms include proposals
to: (1) address anticompetitive conduct in digital markets; (2)
strengthen merger and monopolization enforcement; and (3)
improve the sound administration of the antitrust laws through
other reforms. We intend these recommendations to serve as a
complement to vigorous antitrust enforcement. Consistent with
the views expressed by Chair Nadler and Subcommittee Chair
Cicilline in the Foreword to this Report, we view these
recommendations as complements, and not substitutes, to
forceful antitrust enforcement.
For ease of reference, these recommendations for further
examination are summarized below.
(a) Restoring Competition in the Digital Economy
LStructural separations and prohibitions of
certain dominant platforms from operating in adjacent lines of
business;
LNondiscrimination requirements, prohibiting
dominant platforms from engaging in self-preferencing, and
requiring them to offer equal terms for equal products and
services;
LInteroperability and data portability, requiring
dominant platforms to make their services compatible with
various networks and to make content and information easily
portable between them;
LPresumptive prohibition against future mergers
and acquisitions by the dominant platforms;
LSafe harbor for news publishers in order to
safeguard a free and diverse press; and
LProhibitions on abuses of superior bargaining
power, proscribing dominant platforms from engaging in
contracting practices that derive from their dominant market
position, and requirement of due process protections for
individuals and businesses dependent on the dominant platforms.
(b) Strengthening the Antitrust Laws
LReasserting the anti-monopoly goals of the
antitrust laws and their centrality to ensuring a healthy and
vibrant democracy;
LStrengthening Section 7 of the Clayton Act,
including through restoring presumptions and bright-line rules,
restoring the incipiency standard and protecting nascent
competitors, and strengthening the law on vertical mergers;
LStrengthening Section 2 of the Sherman Act,
including by introducing a prohibition on abuse of dominance
and clarifying prohibitions on monopoly leveraging, predatory
pricing, denial of essential facilities, refusals to deal,
tying, and anticompetitive self-preferencing and product
design; and
LTaking additional measures to strengthen overall
enforcement, including through overriding problematic
precedents in the case law.
(c) Reviving Antitrust Enforcement
LRestoring robust congressional oversight of the
antitrust laws and their enforcement;
LRestoring the federal antitrust agencies to full
strength, by triggering civil penalties and other relief for
``unfair methods of competition'' rules, requiring the Federal
Trade Commission to engage in regular data collection on
concentration, enhancing public transparency and accountability
of the agencies, requiring regular merger retrospectives,
codifying stricter prohibitions on the revolving door, and
increasing the budgets of the FTC and the Antitrust Division of
the U.S. Department of Justice (DOJ); and
LStrengthening private enforcement through
elimination of obstacles such as forced arbitration clauses,
limits on class action formation, judicially created standards
constraining what constitutes an antitrust injury, and unduly
high pleading standards.
II. THE INVESTIGATION OF COMPETITION IN DIGITAL MARKETS
A. Requests for Information and Submissions
1. First-Party Requests for Information
On September 13, 2019, the Committee sent bipartisan
requests for information (RFIs) to each of the four
investigated platforms: Alphabet,\35\ Amazon, Apple, and
Facebook. For each company, the RFI asked for a comprehensive
set of information about each of the company's products and
services. In addition, the RFI asked the company to submit
communications among high-level executives relating to various
potentially anticompetitive acquisitions and conduct. The
Committee requested that the platforms respond to the RFIs by
October 14, 2019.
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\35\ In 2015, Google reorganized under a new name and parent
company, Alphabet, separated various businesses, and placed Sundar
Pichai as chief executive of Google. Larry Page, Chief Executive of
Google, became head of Alphabet with Sergey Brin. See Conor Dougherty,
Google to Reorganize as Alphabet to Keep Its Lead as an Innovator, N.Y.
Times (Aug. 10, 2015), https://www.nytimes.com/2015/08/11/technology/
google-alphabet-restructuring.html.
(a) Alphabet. The Committee's RFI to Alphabet, the parent
company of Google, asked for information necessary to
understand how the company operates and its role in the digital
marketplace.\36\ For example, in Request A, the RFI asked for
detailed financial statements and a description of Alphabet's
relevant products and services, including Google Ads, Google
Search, YouTube, and Waze. In addition, the RFI asked for
information helpful for determining whether Alphabet has
monopoly power for any of its products or services, including
for each product or service: (i) a list of Alphabet's top ten
competitors; and (ii) internal or external analyses of
Alphabet's market share relative to its competitors. Request A
also asked for copies of documents and information that
Alphabet had submitted to any U.S. or international antitrust
enforcement agency for antitrust investigations that took place
in any of those agencies within the past decade.\37\
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\36\ Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the
Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary,
Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary & Hon. F. James
Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary to Larry Page, CEO,
Alphabet Inc. (Sept. 13, 2019) [hereinafter Committee Request for
Information, Alphabet], https://judiciary.house.gov/sites/democrats
.judiciary.house.gov/files/documents/alphabet%20inc.%20rfi%20-
%20signed%20(003).pdf.
\37\ Id. at 1-4.
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Request B asked for all communications from high-level
executives, including former CEO Larry Page and current CEO
Sundar Pichai, relating to a number of Alphabet's key
acquisitions and potentially anticompetitive conduct, most of
which have been widely reported in the news.\38\ The RFI asked
for communications, including, but not limited to, discussions
relating to the deal rationale and any competitive threat posed
by the acquired company for the following acquisitions: Google/
Android in 2005, Google/YouTube in 2006, Google/DoubleClick in
2007, Google/AdMob in 2009, and Google's acquisition of a
minority stake in Vevo in 2013. Request B of the Alphabet RFI
also requested executive communications relating to certain
categories of potential anticompetitive conduct.\39\
---------------------------------------------------------------------------
\38\ The Alphabet RFI defines the term ``Relevant Executives'' as
Larry Page, Sergey Brin, Ruth Porat, David Drummond, Eric Schmidt,
Sundar Pichai, Susan Wojcicki, Philipp Schindler, Prabhakar Raghavan,
Thomas Kurian, Hiroshi Lockheimer, Rishi Chandra, Keith Enright, and
Kent Walker. See id. at 4.
\39\ Id. at 4-9.
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In response to this request, Alphabet produced 1,135,398
documents, including strategy memoranda, presentations, and
materials produced in prior investigations. Although Google
produced a significant amount of material, the Subcommittee did
not view this volume as a proxy for quality.
(b) Amazon. The Committee's RFI to Amazon asked for similar
types of information helpful for understanding the competitive
dynamics of the digital marketplace and the company's role.\40\
For example, in Request A, the RFI asked for detailed financial
statements and a description of Amazon's relevant products and
services, including Alexa, Amazon Marketplace, Amazon Prime,
and Amazon Web Services (AWS). In addition, the RFI asked for
information helpful for determining whether Amazon has monopoly
power for any of its products or services, including for each
product or service: (i) a list of Amazon's top ten competitors;
and (ii) internal or external analyses of Amazon's market share
relative to its competitors. Request A also asked for copies of
documents and information that Amazon had submitted to any U.S.
or international antitrust enforcement agency for antitrust
investigations that took place in any of those agencies within
the past decade.\41\
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\40\ Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the
Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary,
Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary & Hon. F. James
Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary to Jeff Bezos, CEO,
Amazon.com, Inc. (Sept. 13, 2019) [hereinafter Committee Request for
Information, Amazon], https://judiciary.house.gov/sites/democrats
.judiciary.house.gov/files/documents/amazon%20rfi%20-%20signed.pdf.
\41\ Id. at 1-3.
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Request B asked for all communications from high-level
executives, including CEO Jeff Bezos and Jay Carney, Senior
Vice President for Global Corporate Affairs, relating to a
number of Amazon's key acquisitions and potentially
anticompetitive conduct, most of which have been widely
reported in the news.\42\ The RFI asked for communications,
including, but not limited to, discussions relating to the deal
rationale and any competitive threat posed by the acquired
company for the following acquisitions: Amazon/Audible in 2008,
Amazon/Zappos in 2009, Amazon/Quidsi (Diapers.com) in 2010,\43\
Amazon/Whole Foods in 2017, and Amazon/Ring in 2018. Request B
of the Amazon RFI also requested executive communications
relating to certain categories of potential anticompetitive
conduct.\44\
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\42\ The Amazon RFI defines the term ``Relevant Executives'' as
Jeff Bezos, Jeff Wilke, Andy Jassy, Jeff Blackburn, Dave Limp, Brian
Olsavsky, David Zapolsky, and Jay Carney. See id. at 3.
\43\ Amazon acquired ``Quidsi, the e-commerce company that runs
Diapers.com'' in 2010. Claire Cain Miller, Amazon Has a Reported Deal
to Buy Parent of Diapers.com, N.Y. Times (Nov. 7, 2010), https://
www.nytimes.com/2010/11/08/technology/08amazon.html.
\44\ Committee Request for Information, Amazon at 3-7.
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In response to the Committee's requests, Amazon produced
24,299 documents, including internal emails among the company's
senior executives, memoranda, presentations, and other
materials.
(c) Apple. The Committee's RFI to Apple also asked for
information helpful for understanding the company's role in the
digital marketplace. For example, in Request A, the RFI asked
for detailed financial statements and a description of Apple's
relevant products and services, including the iPhone, App
Store, and Apple Pay.\45\ In addition, the RFI asked for
information helpful for determining whether Apple has monopoly
power for any of its products or services, including for each
product or service: (i) a list of Apple's top ten competitors;
and (ii) internal or external analyses of Apple's market share
relative to its competitors. Request A also asked for copies of
documents and information that Apple had submitted to any U.S.
or international antitrust enforcement agency for antitrust
investigations that took place in any of those agencies within
the past decade.\46\
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\45\ Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the
Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary,
Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and
Admin. Law of the H.Comm. on the Judiciary & Hon. F. James
Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary to Tim Cook, CEO, Apple,
Inc. (Sept. 13, 2019) [hereinafter Committee Request for Information,
Apple], https://judiciary.house.gov/sites/democrats.judiciary
.house.gov/files/documents/apple%20rfi%20-%20signed.pdf.
\46\ Id. at 1-3.
---------------------------------------------------------------------------
Request B asked for all communications from high-level
executives, including CEO Tim Cook and Eddy Cue, Senior Vice
President of Internet Software and Services, relating to
potentially anticompetitive conduct, most of which has been
widely reported in the news.\47\ The RFI asked for
communications, including, but not limited to, discussions
relating to certain categories of potentially anticompetitive
conduct.\48\
---------------------------------------------------------------------------
\47\ The Apple RFI defines the term ``Relevant Executives'' as Tim
Cook, Katherine Adams, Eddy Cue, Philip Schiller, Johny Srouji, Dan
Riccio, Jonathan Ive, Craig Frederighi, Luca Maestri, Jeff Williams,
Steve Dowling, Tor Myhren, Lucas Maestri, and Jane Horvath. See id. at
3.
\48\ Id. at 3-6.
---------------------------------------------------------------------------
In response to the Committee's requests, Apple produced
2,246 documents. These documents include internal
communications among the company's senior executives describing
governance of the App Store, as well as the company's internal
deliberations and strategy responding to recent controversies.
(d) Facebook. The Committee's RFI to Facebook also asked
for information helpful for understanding how the company
operates and its role in the digital marketplace.\49\ For
example, in Request A, the RFI asked for detailed financial
statements and a description of Facebook's relevant products
and services, including Facebook, Instagram, and WhatsApp. In
addition, the RFI asked for information helpful for determining
whether Facebook has monopoly power for any of its products or
services, including for each product or service: (i) a list of
Facebook's top ten competitors; and (ii) internal or external
analyses of Facebook's market share relative to its
competitors. Request A also asked for copies of documents and
information that Facebook had submitted to any U.S. or
international antitrust enforcement agency for antitrust
investigations that took place in any of those agencies within
the past decade.\50\
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\49\ Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the
Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary,
Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary & Hon. F. James
Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary to Mark Zuckerberg, CEO,
Facebook, Inc. (Sept. 13, 2019) [hereinafter Committee Request for
Information, Facebook], https://judiciary.house.gov/sites/democrats
.judiciary.house.gov/files/documents/facebook%20rfi%20-%20signed.pdf.
\50\ See id. at 1-2.
---------------------------------------------------------------------------
Request B asked for all communications from high-level
executives, including Founder and CEO Mark Zuckerberg and
Sheryl Sandberg, Chief Operating Officer, relating to a number
of Facebook's key acquisitions and potentially anticompetitive
conduct, most of which have been widely reported in the
news.\51\ The RFI asked for communications, including, but not
limited to, discussions relating to the deal rationale and any
competitive threat posed by the acquired company for the
following acquisitions: Facebook/Instagram in 2012, Facebook/
Onavo in 2013, and Facebook/WhatsApp in 2014. Request B of the
Facebook RFI also requested executive communications relating
to certain categories of potentially anticompetitive
conduct.\52\
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\51\ The Facebook RFI defines the term ``Relevant Executives'' as
Mark Zuckerberg, Sheryl Sandberg, Jennifer Newstead, Javier Olivan,
Chris Cox, Mike Schroepfer, David Wehner, Colin Stretch, Will Cathcart,
Adam Mosseri, Stan Chudnovsky, Fidji Simo, Chris Daniels, Erin Egan,
and Kevin Martin. See id. at 2-3.
\52\ See id. at 2-5.
---------------------------------------------------------------------------
In response to the Committee's requests, Facebook produced
41,442 documents, including documents produced in response to
prior investigations into Facebook's acquisitions and into
whether it had abused its dominance. Facebook also produced
83,804 documents in connection with litigation in an ongoing
matter. Among other items, these documents include internal
communications among the company's senior executives describing
Facebook's acquisition and overall competition strategy. In
response to supplemental requests by the Subcommittee, Facebook
produced internal market data over a multi-year period, as well
as a memorandum prepared by a senior data scientist and
economist at the company related to competition among
Facebook's family of products and other social apps.
2. Process for Obtaining Responses to First-Party Requests
After sending the RFIs, Subcommittee staff invested
considerable time and resources in making themselves available
for calls with the platforms to answer any questions the
platforms had about responding to the requests, on a nearly
weekly basis from October 2019 through March 2020. On these
calls, staff addressed a range of issues, including clarifying
the meaning and intent of language in the request; maintaining
the confidentiality of sensitive business information; and,
where appropriate, narrowing requests in an effort to balance
the Committee's need for relevant information against the
platforms' burden of production. Each of the investigated
platforms failed to meet the October 14, 2019 deadline, citing
various difficulties.
On December 4, 2019, nearly three months after the deadline
for submitting the RFI responses, the Committee sent a letter
to the platforms' CEOs pointing out their failure to comply.
The Committee stated its expectation that the platforms would
complete production by December 18, 2019 for Request A and
January 2, 2020 for Request B, to avoid the need to invoke
other processes and procedures to obtain the requested
materials.\53\
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\53\ See, e.g., Letter from Hon. Jerrold Nadler, Chair, H. Comm. on
the Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on the
Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary to Mark Zuckerberg,
CEO, Facebook, Inc. (Dec. 4, 2019) (on file with Comm.).
---------------------------------------------------------------------------
After the platforms failed to meet the revised deadlines,
in early February 2020, staff asked for the companies' outside
counsel to attend in-person meetings to discuss the substantial
gaps in production that remained, and to identify ways to
address any obstacles the platforms identified to filling those
gaps. Despite the Committee's best efforts to address those
obstacles--and allowing substantial time for the platforms to
navigate delays relating to the COVID-19 pandemic--staff again
had to reach out to the platforms regarding the deficiency of
their responses. On June 9, 2020, in a final effort to avoid
resorting to issuing subpoenas to the platforms to compel the
production of documents and information, staff requested that
the platforms voluntarily provide information responsive to a
reduced list of targeted requests by June 22, 2020.
3. Third-Party Requests for Information
As part of the investigation, the Subcommittee collected a
large amount of information from market participants, including
customers and competitors of Amazon, Apple, Facebook, and
Google. Staff also received information and analysis from other
third parties, including academics, former antitrust government
officials, public interest organizations, and trade
associations.
(a) Market Participants. In September, the Committee sent a
request for information to over 80 market participants. The RFI
asked the recipient to voluntarily provide information
regarding the state of competition in the digital marketplace
for various products and services, including the number and
identity of market participants, market shares, and barriers to
entry. These third-party RFIs also asked for a description of
any conduct by Amazon, Apple, Facebook, or Google that raises
competition concerns, and the impact of such conduct on the
recipient's business. The Committee also sought to gather
information through these RFIs regarding broader questions
based on the recipient's experience in the digital marketplace,
including (i) whether market participants are able to compete
on the merits of their goods and services; (ii) the adequacy of
antitrust enforcement relating to merger review and
anticompetitive conduct; (iii) the adequacy of current
antitrust law to address anticompetitive mergers and
anticompetitive conduct; and (iv) suggestions for improving
enforcement of antitrust law and making changes to antitrust
law itself, statutory or otherwise.
On January 7, 2020, the Committee sent a second round of
RFIs to 29 market participants. These RFI recipients consisted
of additional businesses and individuals that staff had
identified during the first half of the investigation as likely
to have relevant information and an interest in sharing that
information with the Committee. These RFIs asked for similar
information to the September RFIs and provided staff with
additional valuable information and insights into the
functioning and challenges of operating in the digital
marketplace.
Unfortunately, some market participants did not respond to
substantive inquiries due to fear of economic retaliation.
These market participants explained that their business and
livelihoods rely on one or more of the digital platforms. One
response stated, ``Unfortunately, [the CEO] is not able to be
more public at this time out of concern for retribution to his
business,'' adding, ``I am pretty certain we are not the only
ones that are afraid of going public.'' \54\ Another business
that ultimately declined to participate in the investigation
expressed similar concerns, stating, ``We really appreciate you
reaching out to us and are certainly considering going on the
record with our story . . . . Given how powerful Google is and
their past actions, we are also quite frankly worried about
retaliation.'' \55\ Stacy Mitchell, Co-Director of the
Institute for Local Self-Reliance, similarly testified that
many businesses have a fear of speaking out about Amazon,
stating, ``I spend a lot of time interviewing and talking with
independent retailers, manufacturers of all sizes. Many of them
are very much afraid of speaking out publicly because they fear
retaliation.'' \56\
---------------------------------------------------------------------------
\54\ Submission from Source 685, to Hon. Jerrold Nadler, Chair, H.
Comm. on the Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary (July 11, 2020) (on
file with Comm.).
\55\ Submission from Source 147, to Hon. Jerrold Nadler, Chair, H.
Comm. on the Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary (July 15, 2019) (on
file with Comm.).
\56\ Innovation and Entrepreneurship Hearing at 250 (statement of
Stacy F. Mitchell, Co-Dir., Inst. for Local Self-Reliance).
(b) Antitrust Experts. The Committee's final round of
outreach to third parties involved sending letters on March 13,
2020, soliciting insights and analysis from several dozen
antitrust experts who were identified on a bipartisan basis and
whose submissions represent a diverse range of experience and
perspectives. In support of the investigation's objective to
assess the adequacy of existing antitrust laws, competition
policies, and current enforcement levels, the Committee invited
submissions on three main topics. The first topic covered the
adequacy of existing laws--case law and statutes--that prohibit
monopolization and monopolistic conduct. The second topic
similarly dealt with the adequacy of existing law, but focused
on its sufficiency to address anticompetitive mergers and
acquisitions, including vertical and conglomerate mergers,
serial acquisitions, data acquisitions, and strategic
acquisitions of potential competitors. Third, the Committee
sought feedback on whether the institutional structure of
antitrust enforcement is adequate to promote the robust
enforcement of the antitrust laws, including current levels of
appropriations to the antitrust agencies, existing agency
---------------------------------------------------------------------------
authorities, and congressional oversight of enforcement.
(c) Additional Outreach and Submissions. In addition to
sending the RFIs in September and January, the Subcommittee
engaged in extensive outreach to additional third parties based
on public reports and non-public information gathered
throughout the investigation, suggesting that such entities had
relevant information.
The Subcommittee also received submissions from numerous
individuals and businesses throughout the course of the
investigation. These submissions came from a wide range of
sources and in a variety of forms. For example, an anonymous
source sent thumb drives to the Committee's main office in the
Rayburn House Office Building. Other examples included former
or current employees submitting tips to the Subcommittee's
investigation email address, or through the form for anonymous
submissions posted on the Subcommittee's investigation website.
4. Antitrust Agencies Requests for Information
As part of the Committee's September 2019 efforts to gather
information, the Committee also sent requests for information
to the Federal Trade Commission (FTC) and the Department of
Justice (DOJ). In part, the Committee sought this information
to carry out its function as the principal oversight authority
for the DOJ, including its component agencies, its personnel,
and its law enforcement activities.\57\ Similarly, the
Committee's jurisdiction extends to the FTC's antitrust-related
work, and to administrative practice and procedure, including
at the FTC.\58\ The Committee's RFIs requested documents
relating to the agencies' decisions to open or close
investigations into potential violations of antitrust law in
digital markets, decisions to challenge mergers or conduct in
Federal district court or in administrative action, and
decisions to forego litigation in favor of a settlement
agreement.\59\ Senior officials from the FTC and the Antitrust
Division also provided several briefings to Members of the
Subcommittee and staff in response to the requests of the
Subcommittee Chair and Ranking Member. These briefings served
as an opportunity for Members to obtain information and updates
about the current state of antitrust law and enforcement in
digital markets.
---------------------------------------------------------------------------
\57\ Government Oversight, H. Comm. on the Judiciary, https://
judiciary.house.gov/issues/government-oversight/.
\58\ Rules of The House of Representatives, 116th Cong., lst Sess.,
Rule X, cl. 1(l)(2) (2019), http://clerk.house.gov/legislative/house-
rules.pdf.
\59\ The Subcommittee recognizes that publication of these
documents could cause competitive injury to firms that cooperated with
prior investigations or in ongoing investigations. Where possible, this
Report summarizes or draws conclusions from these sources without
reproducing them.
---------------------------------------------------------------------------
B. Hearings
On June 11, 2019, the Subcommittee held part one of its
series of investigation hearings titled ``Online Platforms and
Market Power, Part 1: The Free and Diverse Press.'' At this
hearing, the Subcommittee heard testimony from the following
Majority witnesses: David Chavern, President of the News Media
Alliance; Gene Kimmelman, President and CEO of Public
Knowledge; Sally Hubbard, Director of Enforcement Strategy at
Open Markets Institute (OMI); and Matthew Schruers, Vice
President for Law and Policy at Computer and Communications
Industry Association (CCIA). The Minority witnesses were David
Pitofsky, General Counsel for News Corp; and Kevin Riley,
Editor of The Atlanta Journal-Constitution.\60\
---------------------------------------------------------------------------
\60\ Free and Diverse Press Hearing, https://judiciary.house.gov/
legislation/hearings/online-platforms-and-market-power-part-1-free-and-
diverse-press.
---------------------------------------------------------------------------
On July 16, 2019, the Subcommittee held its second hearing,
a two-paneled hearing titled ``Online Platforms and Market
Power, Part 2: Innovation and Entrepreneurship.'' On the first
panel, the Subcommittee heard testimony from the following:
Adam Cohen, Director of Economic Policy at Google; Nate Sutton,
Associate General Counsel, Competition, at Amazon; Matt
Perault, Head of Global Policy Development at Facebook; and
Kyle Andeer, Vice President and Corporate Law and Chief
Compliance Officer at Apple. On the second panel, the
Subcommittee heard testimony from the following Majority
witnesses: Timothy Wu, Julius Silver Professor of Law, Science
and Technology at Columbia Law School; Fiona Scott Morton,
Theodore Nierenberg Professor of Economics at Yale University
School of Management; and Stacy Mitchell, Co-Director of the
Institute for Local Self-Reliance. On the second panel, the
Minority witnesses were Maureen Ohlhausen, Partner at Baker
Botts and former Commissioner and Acting Chair of the Federal
Trade Commission; Morgan Reed, Executive Director of The App
Association; and Carl Szabo, Vice President and General Counsel
at NetChoice.\61\
---------------------------------------------------------------------------
\61\ Innovation and Entrepreneurship Hearing, https://
judiciary.house.gov/legislation/hearings/online-platforms-and-market-
power-part-2-innovation-and-entrepreneurship.
---------------------------------------------------------------------------
On October 18, 2019, the Subcommittee held its third
hearing titled ``Online Platforms and Market Power, Part 3: The
Role of Data and Privacy in Competition.'' At this hearing, the
Subcommittee heard testimony from the following Majority
witnesses: The Honorable Rohit Chopra, Commissioner at the
Federal Trade Commission; Dr. Jason Furman, Professor of the
Practice of Economic Policy at Harvard Kennedy School and
former Chair of the Council of Economic Advisers (CEA); and Dr.
Tommaso Valletti, Professor of Economics and Head of the
Department of Economics & Public Policy at Imperial College
Business School and former Chief Competition Economist of the
European Commission's Directorate General for Competition (DG-
Comp). The Minority witness at the hearing was Dr. Roslyn
Layton, Visiting Scholar at the American Enterprise
Institute.\62\
---------------------------------------------------------------------------
\62\ Data and Privacy Hearing, https://judiciary.house.gov/
calendar/eventsingle.aspx?Event
ID=2248.
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On November 13, 2019, the Subcommittee held its fourth
hearing titled ``Online Platforms and Market Power, Part 4:
Perspectives of the Antitrust Agencies.'' At this hearing, the
Subcommittee heard testimony from the following witnesses: The
Honorable Makan Delrahim, Assistant Attorney General for the
Antitrust Division at the Department of Justice; and the
Honorable Joseph J. Simons, Chair of the Federal Trade
Commission.\63\
---------------------------------------------------------------------------
\63\ Online Platforms and Market Power, Part 4: Perspectives of the
Antitrust Agencies: Hearing Before the Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, 116th Cong.
(2019) [hereinafter Antitrust Agencies Hearing], https://
judiciary.house
.gov/calendar/eventsingle.aspx?EventID=2287.
---------------------------------------------------------------------------
On January 17, 2020, the Subcommittee held its fifth
hearing titled ``Field Hearing: Online Platforms and Market
Power, Part 5: Competitors in the Digital Economy.'' At this
hearing, which took place in the congressional district of
Subcommittee Vice-Chair Joe Neguse (D-CO) at the University of
Colorado School of Law, the Subcommittee heard testimony from
the following Majority witnesses: Patrick Spence, Chief
Executive Officer of Sonos; David Barnett, Founder and Chief
Executive Officer of PopSockets; and Kirsten Daru, Vice
President and General Counsel at Tile. The Minority witness at
the hearing was David Heinemeier Hansson, Cofounder and Chief
Technology Officer of Basecamp.\64\
---------------------------------------------------------------------------
\64\ Online Platforms and Market Power, Part 5: Competitors in the
Digital Economy: Hearing Before the Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 116th Cong. (2020)
[hereinafter Competitors Hearing], https://judiciary.house.gov/
calendar/eventsingle.aspx?EventID=2386.
---------------------------------------------------------------------------
On July 29, 2020, the Subcommittee held its sixth hearing
titled ``Online Platforms and Market Power, Part 6: Examining
the Dominance of Amazon, Apple, Facebook, and Google.'' At this
hearing, the Subcommittee heard testimony from the following
witnesses: Jeff Bezos, Chief Executive Officer at Amazon;
Sundar Pichai, Chief Executive Officer at Alphabet and Google;
Tim Cook, Chief Executive Officer at Apple; and Mark
Zuckerberg, Chief Executive Officer at Facebook.\65\
---------------------------------------------------------------------------
\65\ Online Platforms and Market Power, Part 6: Examining the
Dominance of Amazon, Apple, Facebook, and Google: Hearing Before the
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 116th Cong. (2020) [hereinafter CEO Hearing], https://
judiciary.house.gov/calendar/eventsingle.aspx?EventID=3113.
---------------------------------------------------------------------------
On October 1, 2020, the Subcommittee held its seventh
hearing titled ``Proposals to Strengthen the Antitrust Laws and
Restore Competition Online.'' The Majority witnesses at the
hearing included: William Baer, Visiting Fellow, Brookings
Institution, and former Associate Attorney General, Department
of Justice; Zephyr Teachout, Associate Professor of Law,
Fordham University School of Law; Michael Kades, Director of
Markets and Competition Policy, Washington Center for Equitable
Growth; Sabeel Rahman, Associate Professor of Law, Brooklyn Law
School and President, Demos; and Sally Hubbard, Director of
Enforcement Strategy, Open Markets Institute. The Minority
witnesses at the hearing were Christopher Yoo, John H. Chestnut
Professor of Law, Communication, and Information Science,
University of Pennsylvania Carey Law School; Rachel Bovard,
Senior Director of Policy, Conservative Partnership Institute;
and Tad Lipsky, Antonin Scalia Law School, George Mason
University.\66\
---------------------------------------------------------------------------
\66\ Online Platforms and Market Power, Part 7: Proposals to
Strengthen the Antitrust Laws and Restore Competition Online: Hearing
Before the Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary, 116th Cong. (2020) [hereinafter Remedies
Hearing], https://judiciary.house.gov/calendar/
eventsingle.aspx?EventID=3367.
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C. Roundtables
In addition to holding public hearings, the Subcommittee
also held a series of bipartisan roundtables for Members of the
Subcommittee and staff to provide Members with an opportunity
to conduct further oversight of: (1) the state of competition
and problems in digital markets; (2) whether dominant firms
have engaged in anticompetitive conduct; and (3) if antitrust
laws, competition policies, and current enforcement levels are
adequate to address these issues. In total, the Subcommittee
held twelve briefings and roundtables in Washington, DC; four
roundtables in Boulder, Colorado; and a virtual roundtable with
stakeholders from Rhode Island and elsewhere in New
England.\67\
---------------------------------------------------------------------------
\67\ This roundtable was originally scheduled to take place
physically as a field hearing in Providence, Rhode Island, but was held
virtually due to the COVID-19 pandemic.
---------------------------------------------------------------------------
The Subcommittee hosted multiple briefings and roundtables
with experts on the digital economy on a range of topics.
Experts included state antitrust enforcers, former officials
from the Antitrust Division of the DOJ and the FTC, former
technology industry executives, small business owners,
representatives from the news industry, entrepreneurs,
antitrust scholars, representatives from civil society, and
representatives from libraries.
The briefings and roundtables covered a broad array of
topics related to competition in the digital marketplace. These
topics included:
LThe effect that small algorithm changes by
dominant platforms can have on small businesses that rely on
the platform;
LThe data advantages that dominant online
platform companies have over smaller competitors and startups,
and how those data advantages can reinforce dominance and serve
as a barrier to entry;
LThe effect of dominant online platform company
power and practices on a free and diverse press, local
newsgathering and reporting;
LThe impact of dominant online platform company
power and practices on investment in startups by venture
capital firms;
LThe fear of economic retaliation by dominant
platforms against smaller companies that raise concerns about
anticompetitive conduct in the digital marketplace;
LOther features of digital markets--including,
but not limited to, network effects, economies of scale and
scope, and barriers to entry--that make them prone to high
concentration and monopolization;
LEnforcement of the antitrust laws; and
LModernization of antitrust statutes and
competition policy.
Additionally, the Subcommittee held briefings that also
allowed representatives from Google, Amazon, Facebook, and
Apple to make their own presentations to the Subcommittee and
to answer questions and provide details regarding their
companies' business practices, structures, and strategies in
the marketplace.
D. Prior Investigations
The Subcommittee's current review of competition in the
digital marketplace continues a long oversight tradition. Over
many decades, the House Judiciary Committee and its antitrust
subcommittee have conducted careful, fact-based inquiries into
industrial sectors showing signs of undue concentration and
anticompetitive conduct. As a 1951 report from the then-named
Subcommittee on the Study of Monopoly Power described its
mandate, ``It is the province of this subcommittee to
investigate factors which tend to eliminate competition,
strengthen monopolies, injure small business, or promote undue
concentration of economic power; to ascertain the facts, and to
make recommendations based on those findings.'' \68\
---------------------------------------------------------------------------
\68\ H. Rep. No. 82-255, at 2 (1951) (Aluminum: Report of the
Subcomm. on Study of Monopoly Power of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
The Subcommittee followed the same process ``to ascertain
the facts'' in this investigation. It has included hearings
with industry and government witnesses, consultations with
subject-matter experts, and a careful--and at times
painstaking--review of large volumes of evidence provided by
industry participants and regulators. Recognizing that
antitrust investigations are by their nature fact-dependent,
teams of investigators invested significant resources to study
the structure of the relevant markets and the important firms
in those markets.\69\
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\69\ See, e.g., H. Rep. No. 87-1419, at 2 (1962) (The Ocean Freight
Industry: Report of the Antitrust Subcomm. of the H. Comm. on the
Judiciary) [hereinafter 1962 Ocean Freight Industry Report] (describing
how Subcommittee staff spent more than nine months examining ``tens of
thousands of documents in the files of over 50 ocean-freight
conferences'' and other materials).
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The purpose of these exercises was not to supersede the
activities of antitrust enforcers such as the FTC and the DOJ,
but to compile the Committee's own record about current market
conditions; to assess how antitrust laws and principles are
being applied in the current business environment; and to
determine whether revised laws, or new laws, or better
enforcement are needed to protect competition.
While the Committee's investigations were not intended to
interfere with the enforcement activities of antitrust
enforcers or regulators, they often conducted inquiries into
the same sectors and issues that the DOJ, the FTC, the Federal
Communications Commission (FCC), and other agencies with
authority over competition policy or enforcement were also
examining. As Members and staff of the Committee charged with
the ``protection of trade and commerce against unlawful
restraints and monopolies,'' \70\ these investigators exercised
their legislative authority to probe any aspect of antitrust
that they deemed warranted attention.
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\70\ Rules of the House of Representatives, 116th Cong., lst Sess.,
Rule X, cl. 1(l)(2) (2019), http://clerk.house.gov/legislative/house-
rules.pdf.
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These investigations were guided by the principle that
``[h]istory has proven that the most conducive environment for
innovation and new product availability is a competitive
market,'' \71\ and that a ``free competitive economy'' is an
important American value.\72\ It was a value that had been
formally embedded in our economy and society by the Sherman Act
of 1890, ``the peculiarly American charter of economic
freedom.'' \73\ In a 1958 report on the airline industry, the
then-named Antitrust Subcommittee explained that Americans'
social and political freedoms depended on ``opportunity for
market access and market rivalries in a private-enterprise
economy.'' \74\ The ``freedom of entry into any industry or
field of endeavor,'' a 1962 Subcommittee report explained, is a
cornerstone of U.S. antitrust policy that has ``encouraged
extensive individual proprietorship . . . and has made our free
enterprise system great and strong.'' \75\ A 1992 Committee
report recommended restrictions on the monopolistic Regional
Bell Operating Companies (RBOCs) ``[f]or the sake of the
democratic economic and political values which depend on the
preservation of free markets.'' \76\
---------------------------------------------------------------------------
\71\ H. Rep. No. 102-850, at 15 (1992) (Report on Antitrust Reform
Act of 1992, H. Comm. on the Judiciary) [hereinafter Antitrust Reform
Act of 1992].
\72\ H. Rep. No. 82-1217, at 1 (1951) (The Mobilization Program:
Report of the Subcomm. on Study of Monopoly Power of the H. Comm. on
the Judiciary).
\73\ Id. at 2.
\74\ H. Rep. No. 85-1328, at 1 (1958) (The Airlines Industry:
Report of the Antitrust Subcomm. of the H. Comm. on the Judiciary)
[hereinafter Airlines Industry Report].
\75\ 1962 Ocean Freight Industry Report at 394.
\76\ Antitrust Reform Act of 1992 at 10.
---------------------------------------------------------------------------
In some cases, antitrust investigations exposed antitrust
problems that the Committee concluded required attention from
regulators. For example, a 1958 Antitrust Subcommittee report
on the rapidly growing domestic airline industry exposed the
behind-the-scenes anticompetitive campaign that incumbent air
carriers and their advocacy group, the Air Transport
Association of America (ATA), had been waging to prevent the
Civil Aeronautics Board (CAB) from approving market entry by
new air carriers (known at the time as ``nonskeds'').\77\ The
Committee found the conduct of the ATA so egregious that it
recommended an investigation by the DOJ Antitrust Division.\78\
As for international air transportation, the report concluded
that Pan American's dominance in the market was the ``result of
its use of devices to foreclose competition in order to secure
and maintain control over markets in which it does business,''
and recommended that the CAB undertake a broad investigation of
the company.\79\
---------------------------------------------------------------------------
\77\ Airlines Industry Report at 268-69.
\78\ Id. at 272.
\79\ Id. at 278.
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In other cases, the Committee investigated matters that
were currently under review by antitrust enforcers. In a 1957
report on the broadcast television industry, which was quickly
reshaping Americans' consumption of news and entertainment, the
then-named Antitrust Subcommittee described the anticompetitive
tactics CBS and NBC were using to promote their own content at
the expense of independent content producers.\80\ According to
the report, networks were improperly using their power as
vertical distributors of content to extract financial
concessions from independent competitors seeking to place their
programming on network affiliates.\81\ There was also evidence
that the networks were using their substantial power with
advertisers to unfairly favor their own content.\82\ After
praising the DOJ Antitrust Division's ``alertness to vindicate
the competitive dictates of the antitrust laws,'' the
Subcommittee urged the Division to press its investigation into
this conduct with ``vigor and dispatch.'' \83\
---------------------------------------------------------------------------
\80\ H. Rep. No. 85-607, at 143 (1957) (The Television Broadcasting
Industry: Report of the Antitrust Subcomm. of the Comm. on the
Judiciary).
\81\ Id.
\82\ Id.
\83\ Id.
---------------------------------------------------------------------------
In the case of the Committee's inquiry into the RBOCs'
conduct in the aftermath of the 1984 breakup of AT&T, we
concluded that federal courts and regulators were not
adequately protecting competition in the telecommunications
marketplace and that new legislation was necessary. A 1992
Committee report reviewed the long, troubled history of
attempts by DOJ and the FCC \84\ to check the monopolistic
power of AT&T, culminating in the famous Modified Final
Judgment (the MFJ) that Judge Harold Greene approved in August
1982 to break up the company.\85\ But even after the MFJ, the
report found, the FCC had failed to prevent the RBOCs from
using their local monopolies to commit a number of
anticompetitive violations, ``many eerily reminiscent of pre-
divestiture Bell System abuses.'' \86\ We were also critical of
the DOJ's actions to water down the MFJ's procompetitive line-
of-business restrictions on the RBOCs. Describing the massive
lobbying campaign that the RBOCs were waging to enter the
business lines the MFJ had opened up to competitors, we
observed, ``The thousands upon thousands of competitive
enterprises now thriving in information service,
telecommunications equipment, and long distance markets face
the prospect of their future prosperity being decided by the
self-interested designs of a monopoly with `bottleneck' control
over the local telephone exchange on which they all depend.''
\87\ In light of the antitrust agencies' demonstrated failure
to protect competition, the Committee approved legislation that
would codify the MFJ's line-of-business restrictions into
law.\88\
---------------------------------------------------------------------------
\84\ Antitrust Reform Act of 1992 at 39 (``The FCC, while claiming
boldly to be a forum where complaints about monopolistic practices
would be received and vigorously pursued had, instead, become a
regulatory `graveyard' for telecommunications competition policy,
characterized by inaction and equivocation.'').
\85\ Id. at 45.
\86\ Id. at 51.
\87\ Id. at 10. The report explained that the RBOCs' bottleneck, in
antitrust terminology, functioned as an ``essential facility,'' which
gave them ``an inherent ability and--for activities in which they are
engaged themselves--a natural incentive to impede competition in lines
of business dependent upon that essential facility.'' Id. at 13.
\88\ H.R. 5096 (102nd Cong.); H.R. 3626 (103rd Cong.); see H. Rep.
No. 103-559, pt. II, at 25 (1994) (Report on Antitrust and
Communications Reform Act of 1994, H. Comm. on the Judiciary) (``The
Judiciary Committee has resolved that the Government not lose its nerve
once again and allow an industry born in monopoly to be reborn in
monopoly.''). The procompetitive policies proposed in this legislation
later became law, in modified form, as part of the Telecommunications
Act of 1996. See Pub. L. No. 104-104, 151(a), 110 Stat. 56, 86-107
(codified at 42 U.S.C. 271-276).
---------------------------------------------------------------------------
Finally, in these prior investigations, the Committee has
not hesitated to recommend that antitrust authorities further
investigate suspicious conduct. After examining the conduct of
the Air Transport Association of America, the industry group
representing the established passenger airline carriers in the
1950s, the Antitrust Subcommittee recommended that the
Antitrust Division of the DOJ further investigate the ``serious
antitrust problems'' it had identified.\89\
---------------------------------------------------------------------------
\89\ Airlines Industry Report at 272.
---------------------------------------------------------------------------
III. BACKGROUND
A. Overview of Competition in Digital Markets
1. The Role of Competition Online
At a fundamental level, competition has been a key engine
of economic activity in the United States,\90\ resulting in the
``pioneering of entire industries that, in time, come to employ
millions and generate trillions.'' \91\ This is especially true
in the digital economy. As in other industries, competition in
digital markets incentivizes incumbent firms and new entrants
to build new technologies and improve business processes.\92\
It spurs capital investment and incentivizes firms to improve
the quality of their offerings.\93\ In its absence, incumbent
firms lack the incentive to invest in research and
development.\94\ This in turn slows the rate of innovation
across the industry.\95\ Disruptive new products or services
are replaced with slow, incremental alterations \96\ ``designed
to protect [incumbent firms'] existing revenue streams.'' \97\
Slowly but surely, venture capitalists lose the incentive to
invest in new entrants willing to challenge the dominance of
incumbent firms through direct competition.\98\ What we are
left with are so-called ``kill zones''--the near-complete
absence of competition.
---------------------------------------------------------------------------
\90\ Innovation and Entrepreneurship Hearing at 76 (statement of
Tim Wu, Julius Silver Prof. of Law, Columbia Univ. Sch. of Law).
\91\ Id.; Roger McNamee, Co-Founder & Managing Dir., Elevation
Partners, Remarks at Venture Capital and Antitrust Workshop 34 (Feb.
12, 2020), https://www.justice.gov/atr/page/file/1255851/download
(``[T]here is a case that antitrust has in fact been a major catalysis
of growth in every wave of technology.'').
\92\ Antitrust Agencies Hearing at 37 (statement of Makan Delrahim,
Assistant Att'y Gen., U.S. Dep't of Justice, Antitrust Div.)
(``Competition also promotes improvements and upgrades to the quality
and functionality of existing offerings.''); Jeffrey A. Rosen, Deputy
Att'y Gen., U.S. Dep't of Justice, Speech at the Free State
Foundation's 12th Annual Telecom Policy Conference (Mar. 10, 2020),
https://www.justice.gov/opa/speech/deputy-attorney-general-jeffrey-
rosen-speaks-free-state-foundations-12th-annual-telecom; Giulio
Federico, Fiona Scott Morton & Carl Shapiro, Antitrust and Innovation:
Welcoming and Protecting Disruption 1 (Nat'l Bur. of Econ. Rsch.,
Working Paper No. 26005, June 2019), https://www.nber.org/papers/
w26005.pdf.
\93\ Innovation and Entrepreneurship Hearing at 209 (statement of
Maureen K. Ohlhausen, Partner, Baker Botts L.L.P.) (``Antitrust law's
focus on protecting the competitive process does not mean that it
cannot reach many of the competitive concerns . . . [that] may include
price effects, reductions in quality, and impacts on innovation, as
well as the ability of a dominant player to acquire and neutralize a
nascent competitor.''); id. at 84 (statement of Fiona Scott Morton,
Theodore Nierenberg Prof. of Econ., Yale Sch. of Mgmt.) (``The harms
from insufficient competition appear in prices that are higher than
competitive prices, quality that is lower than competitive quality, and
less innovation than consumers would benefit from in competitive
markets.'').
\94\ Id. at 84.
\95\ See generally Jeffrey A. Rosen, Deputy Att'y Gen., U.S. Dep't
of Justice, Speech at the Free State Foundation's 12th Annual Telecom
Policy Conference (Mar. 10, 2020), https://www.justice.gov/opa/speech/
deputy-attorney-general-jeffrey-rosen-speaks-free-state-foundations-
12th-annual-telecom (referencing research by economist Kenneth Arrow).
\96\ Data and Privacy Hearing at 60 (statement of Jason Furman,
Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.).
\97\ Innovation and Entrepreneurship Hearing at 79 (statement of
Tim Wu, Julius Silver Prof. of Law, Columbia Univ. Sch. of Law).
\98\ Id. at 84. See also Sai Krishna Kamepalli, Raghuram Rajan &
Luigi Zingales, Kill Zone (Univ. of Chi., Becker Friedman Inst. for
Econ., Working Paper No. 2020-19, Apr. 2020), https://ssrn.com/
abstract=3555915.
---------------------------------------------------------------------------
The benefits of robust competition in the digital economy
go beyond innovation and productivity. It can also spur firms
to compete along other dimensions such as privacy and data
protection. As a general matter, inadequate competition not
only leads to higher prices and less innovation in many cases,
but it can also reduce the quality of goods and services.\99\
Given that many digital products do not charge consumers
directly for services, these firms often compete on
quality.\100\ Along these lines, lack of competition can result
in eroded privacy and data protection.\101\ Growing evidence
indicates that a lack of competition goes hand in hand with
just such quality degradation.\102\
---------------------------------------------------------------------------
\99\ Data and Privacy Hearing at 54 (statement of Tommaso Valletti,
Prof. of Econ., Imperial Coll. Bus. Sch.) (``Quality, choice, and
innovation are also important aspects for competition and for consumer
welfare.''); Innovation and Entrepreneurship Hearing at 207-09
(statement of Maureen K. Ohlhausen, Partner, Baker Botts L.L.P.).
\100\ Data and Privacy Hearing at 42 (statement of Rohit Chopra,
Comm'r, Fed. Trade Comm'n) (``These services do have a price, and you
are paying for them with your data.''); id. at 60 (statement of Jason
Furman, Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.)
(``Consumers may think they are receiving `free' products but they are
paying a price for these products in a number of ways.'').
\101\ Innovation and Entrepreneurship Hearing at 209 (statement of
Maureen K. Ohlhausen, Partner, Baker Botts L.L.P.); Data and Privacy
Hearing at 60-61 (statement of Jason Furman, Prof. of the Prac. of
Econ. Pol'y, Harvard Kennedy Sch.); id. at 138 (George Slover, Senior
Pol'y Couns., Consumer Reps., Justin Brookman, Dir., Privacy & Tech.
Pol'y, Consumer Reps. & Jonathan Schwantes, Senior Pol'y Couns.,
Consumer Reps.) (``[A] dominant platform can disregard the interests of
consumers in protecting their privacy, and design their platform to
maximize its ability to monitor, monetize, and manipulate our personal
interactions as consumers and as citizens.'').
\102\ Data and Privacy Hearing at 55 (statement of Tommaso
Valletti, Prof. of Econ., Imperial Coll. Bus. Sch.).
---------------------------------------------------------------------------
2. Market Structure
(a) Winner-Take-All Markets. Certain features of digital
markets-such as network effects, switching costs, the self-
reinforcing advantages of data, and increasing returns to
scale-make them prone to winner-take-all economics.\103\ As a
result, many technology markets ``tip'' in favor of one or two
large companies,\104\ shifting the ``the competitive process
from competition in the market to competition for the market.''
\105\ In turn, high barriers to entry may diminish the ability
of new firms to challenge incumbent firms, further undermining
the competitive process and protecting the dominance of
existing firms.\106\ As the United Kingdom's Competition and
Markets Authority explains:
---------------------------------------------------------------------------
\103\ Id. at 59 (statement of Jason Furman, Prof. of the Prac. of
Econ. Pol'y, Harvard Kennedy Sch.). Other anticompetitive practices in
digital markets--such as product design, self-preferencing, and
anticompetitive contracting, among others--may also contribute to
barriers that impede entry by rivals or new firms. While these issues
are also present in other markets, they are much more pronounced in
digital markets.
\104\ Id.
\105\ Stigler Report at 29, 35.
\106\ Data and Privacy Hearing at 59-60 (statement of Jason Furman,
Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.).
L[I]f potential competitors face substantial barriers to
entry and expansion, such that the market is no longer properly
contestable, then a high market share can translate into market
power, giving the platform the opportunity to increase prices,
reduce quality or leverage market power to undermine
competition in potentially competitive markets and deny
innovative rivals the chance to bring new services to
market.\107\
---------------------------------------------------------------------------
\107\ U.K. Competition & Mkts. Auth., Online Platforms and Digital
Advertising, Market Study Final Report 10-11 (2020) [hereinafter
Competition & Mkts. Auth. Report].
(b) Market Concentration. Consistent with winner-take-all
dynamics, the digital economy is highly concentrated.\108\ A
number of key markets online--such as social media, general
online search, and online advertising--are dominated by just
one or two firms.\109\ In some instances, this concentration is
the result of a high volume of acquisitions by the dominant
digital platforms. Together, the largest technology firms have
acquired hundreds of companies in the last ten years.\110\
Antitrust enforcers in the United States did not block any of
these transactions,\111\ many of which eliminated actual or
potential competitors.\112\ In some instances these
acquisitions enabled the dominant firm to neutralize a
competitive threat; in other instances, the dominant firm shut
down or discontinued the underlying product entirely--
transactions aptly described as ``killer acquisitions.'' \113\
---------------------------------------------------------------------------
\108\ Data and Privacy Hearing at 58 (statement of Jason Furman,
Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.).
\109\ Id. at 59; Innovation and Entrepreneurship Hearing at 78
(statement of Tim Wu, Julius Silver Prof. of Law, Columbia Univ. Sch.
of Law).
\110\ Tim Wu & Stuart A. Thompson, The Roots of Big Tech Run
Disturbingly Deep, N.Y. Times (June 7, 2019), https://www.nytimes.com/
interactive/2019/06/07/opinion/google-facebook-mergers-acquisitions-
antitrust.html; see Visualizing Tech Giants' Billion-Dollar
Acquisitions, CB Insights (May 5, 2020), https://perma.cc/KJD9-HT3Z.
\111\ Although several transactions, including Google's acquisition
of ITA in 2010, were subject to settlements, U.S. antitrust enforcers
did not attempt to prevent the consummation of these transactions.
\112\ Tim Wu & Stuart A. Thompson, The Roots of Big Tech Run
Disturbingly Deep, N.Y. Times (June 7, 2019), https://www.nytimes.com/
interactive/2019/06/07/opinion/google-facebook-mergers-acquisitions-
antitrust.html; Carl Shapiro, Antitrust in a Time of Populism, 61
Int'l. J. Indus. Org. 714, 739-40 (2018), https://
faculty.haas.berkeley.edu/shapiro/antitrustpopulism
.pdf.
\113\ Colleen Cunningham, Florian Ederer & Song Ma, Killer
Acquisitions 1 (Yale Sch. of Mgmt., Working Paper, 2020), https://
ssrn.com/abstract=3241707 (describing the practice whereby ``an
incumbent firm may acquire an innovative target and terminate the
development of the target's innovations to preempt future
competition''). See also C. Scott Hemphill & Tim Wu, Nascent
Competitors, 168 U. Pa. L. Rev. 1879, 1880 (2020), https://perma.cc/
62HH-34ZL (``A nascent competitor is a firm whose prospective
innovation represents a serious future threat to an incumbent.'').
---------------------------------------------------------------------------
Evidence also suggests that the venture capital industry,
which plays a critical role in funding innovative startups,
contributes to market consolidation by encouraging startups to
exit via a sale to an incumbent firm.\114\ As initial public
offerings (IPOs) have become more expensive and time-consuming
in recent decades, venture capitalists have shown a preference
for realizing their investments through acquisitions rather
than through public markets.\115\
---------------------------------------------------------------------------
\114\ Mark Lemley & Andrew McCreary, Exit Strategy 24-45 (Stanford
Law Sch., John M. Olin Program in Law & Econ., Working Paper No. 542,
2020), https://ssrn.com/abstract=3506919.
\115\ Id.
(c) The Role of Online Platforms as Gatekeepers. As Amazon,
Apple, Facebook, and Google have captured control over key
channels of distribution, they have come to function as
gatekeepers. A large swath of businesses across the U.S.
economy now depend on these gatekeepers to access users and
markets. In interviews with the Subcommittee, numerous
businesses described how dominant platforms exploit this
gatekeeper power to dictate terms and extract concessions that
third parties would not consent to in a competitive
market.\116\ According to these companies, these types of
concessions and demands carry significant economic harm but are
``the cost of doing business'' given the lack of options.
---------------------------------------------------------------------------
\116\ See infra Section V.
---------------------------------------------------------------------------
Their role as gatekeepers also gives the dominant platforms
outsized power to control the fates of other businesses.
Reflecting this fact, several major publicly owned firms that
rely on the dominant platforms have noted in investor
statements that this dependent relationship creates an inherent
risk to their businesses.\117\ For example, Lyft, a ride-
sharing company, has cited its use of Amazon's cloud services
and Google Maps as a potential risk to its business model.\118\
As Lyft stated in a filing, ``Some of our competitors or
technology partners may take actions which disrupt the
interoperability of our platform with their own products or
services.'' \119\ Pinterest, a photo-sharing service, likewise
noted in a financial filing that changes to Google's search
algorithm may harm Pinterest. As it noted, Pinterest's
``ability to maintain and increase the number of visitors
directed to our service from search engines is not within our
control. Search engines, such as Google, may modify their
search algorithms and policies or enforce those policies in
ways that are detrimental to us.'' \120\ In submissions and
interviews with the Subcommittee, many companies reiterated the
general concern that a single act or decision by one of the
dominant platforms could wreck their businesses.
---------------------------------------------------------------------------
\117\ Gerrit De Vynck, The Power of Google and Amazon Looms Over
Tech IPOs, Bloomberg (July 1, 2019), https://www.bloomberg.com/news/
articles/2019-07-01/google-s-and-amazon-s-power-looms-over-procession-
of-tech-ipos (noting that 17 of 22 initial public offerings by
technology companies cited online platforms as competitors or risks to
their businesses).
\118\ Id.
\119\ Id.
\120\ Id.
---------------------------------------------------------------------------
Since the dominant platforms in many cases have also
integrated into adjacent lines of business, these firms operate
both as key intermediaries for third-party companies as well as
direct competitors to them. Numerous entrepreneurs, small
businesses, and major companies told the Subcommittee that the
dominant platforms' dual role raises significant competition
concerns.\121\ In recent years, significant reporting has
documented how the dominant platforms can exploit this dual
role, through data exploitation,\122\ self-preferencing,\123\
appropriation of key technologies,\124\ and abrupt changes to a
platform's policies.\125\ The Subcommittee's investigation
uncovered numerous examples of this exploitative conduct,
suggesting that these are increasingly systemic, rather than
isolated, business practices.
---------------------------------------------------------------------------
\121\ See infra Section V.
\122\ See Press Release, Eur. Comm'n, Antitrust: Commission Opens
Investigation into Possible Anti-competitive Conduct of Amazon (July
17, 2019), https://ec.europa.eu/commission/presscorner/detail/en/
IP_19_4291 (``Based on the Commission's preliminary fact-finding,
Amazon appears to use competitively sensitive information--about
marketplace sellers, their products and transactions on the
marketplace.'').
\123\ Tripp Mickle, Apple Dominates App Store Search Results,
Thwarting Competitors, Wall St. J. (July 23, 2019), https://
www.wsj.com/articles/apple-dominates-app-store-search-results-
thwarting-competitors-11563897221.
\124\ Jack Nicas & Daisuke Wakabayashi, Sonos, Squeezed by the Tech
Giants, Sues Google, N.Y. Times (Jan. 7, 2020), https://
www.nytimes.com/2020/01/07/technology/sonos-sues-google.html.
\125\ Reed Albergotti, Apple Says Recent Changes to Operating
System Improve User Privacy, but Some Lawmakers See Them as an Effort
to Edge out Its Rivals, Wash. Post (Nov. 26, 2019), https://
www.washingtonpost.com/technology/2019/11/26/apple-emphasizes-user-
privacy-lawmakers-see-it-an-effort-edge-out-its-rivals/; Jason Del Rey,
An Amazon Revolt Could Be Brewing as the Tech Giant Exerts More Control
over Brands, Vox: Recode (Nov. 29, 2018), https://www.vox.com/2018/11/
29/18023132/amazon-brand-policy-changes-marketplace-control-one-vendor.
---------------------------------------------------------------------------
3. Barriers to Entry
(a) Network Effects. Digital markets tend to be
characterized by strong network effects, making them prone to
concentration and monopolization.\126\ There are two types of
network effects: direct and indirect. In markets with direct
network effects, the more people who use a product or service,
the more valuable that product or service becomes to other
users.\127\ By contrast, indirect network effects arise when
greater use of a product or service forms a new type of
standard and increases the incentive for third parties to
invest in developing compatible technologies, which in turn
reinforces the popularity of the original product or service
with users.\128\
---------------------------------------------------------------------------
\126\ Jay Shambaugh, Ryan Nunn, Audrey Breitwiser & Patrick Liu,
Brookings Inst., The State of Competition and Dynamism: Facts About
Concentration, Start-Ups, and Related Policies 10 (2018), https://
www.brookings.edu/wp-content/uploads/2018/06/ES_
THP_20180611_CompetitionFacts_20180611.pdf.
\127\ See Luigi Zingales & Guy Rolnik, A Way To Own Your Social-
Media Data, N.Y. Times (June 30, 2017), https://www.nytimes.com/2017/
06/30/opinion/social-data-google-facebook-
europe.html.
\128\ Maurice E. Stucke & Allen P. Grunes, Big Data and Competition
Policy 163 (2016).
---------------------------------------------------------------------------
Online platforms display strong network effects because
they connect disparate market segments. For example, online
commerce platforms like Amazon connect buyers and sellers. Just
as with social networks, the value of Amazon Marketplace
increases as more users--both sellers and buyers--engage with
the platform.\129\ Similarly, the value of online platforms
that facilitate advertising, such as Google, increases with the
number of users, as advertisers gain access to a larger
consumer base and therefore to a larger trove of consumer
data.\130\
---------------------------------------------------------------------------
\129\ Id.
\130\ Id.
---------------------------------------------------------------------------
Similarly, social networks like Facebook exhibit powerful
direct network effects because they become more valuable as
more users engage with the network--no person wants to be on a
social network without other users.\131\ Meanwhile, once a firm
captures a network it can become extremely difficult to
dislodge or replace. As Mark Zuckerberg explained to then-CFO
David Ebersman the benefits that would accrue to Facebook from
acquiring Instagram:
---------------------------------------------------------------------------
\131\ Stigler Report at 38.
L[T]here are network effects around social products and a
finite number of different social mechanics to invent. Once
someone wins at a specific mechanic, it's difficult for others
to supplant them without doing something different. It's
possible someone beats Instagram by building something that is
better to the point that they get network migration, but this
is harder as long as Instagram keeps running as a product.\132\
---------------------------------------------------------------------------
\132\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00063222 (Feb. 27, 2012), https://judiciary.house.gov/
uploadedfiles/0006322000063223.pdf.
Strong network effects serve as a powerful barrier to entry
for new firms to enter a market and displace the
incumbent.\133\ When combined with other entry barriers such as
restrictions on consumers or businesses easily switching
services, network effects all but ensure not just market
concentration but durable market power.\134\
---------------------------------------------------------------------------
\133\ See Stigler Report at 40.
\134\ See Dig. Competition Expert Panel Report at 35.
(b) Switching Costs. Switching costs present another
barrier for potential market entrants. In many cases, large
technology firms can maintain market power in part because it
is not easy for users to switch away from the incumbent's
technology. A market exhibits ``lock-in'' when switching costs
are sufficiently high that users stay with an incumbent firm
rather than switch to a firm whose product or service they
would prefer.\135\ Over time, lock-in tends to reduce
competition, deter market entry, and may even worsen data
privacy.\136\
---------------------------------------------------------------------------
\135\ Maurice E. Stucke & Allen P. Grunes, Big Data and Competition
Policy 159 (2016).
\136\ Id.
---------------------------------------------------------------------------
High switching costs are a central feature of digital
search and social media platforms, such as Google and Facebook,
where users contribute data to the platform but may not be able
to migrate that data to a competing platform. For example, a
user may upload a variety of data to Facebook, including photos
and personal information, but may not be able to easily
download that data and move it to another social media site;
instead, the user would have to start from scratch, re-
uploading her photos and re-entering her personal information
to the new platform.\137\ An online seller who has generated
hundreds of product reviews and ratings on Amazon may face a
similar challenge when considering migrating to a different
platform. Other significant factors that contribute to
switching costs in digital markets include anticompetitive
contracting terms, default settings, and product design that
favor dominant platforms.\138\
---------------------------------------------------------------------------
\137\ Data and Privacy Hearing at 134 (statement of Dina
Srinivasan, Fellow, Yale Thurman Arnold Project).
\138\ Dig. Competition Expert Panel Report at 36. Unlike the
European Union, which provides internet users with a right to data
portability, the U.S. does not have any law requiring online platforms
to make data portable. Platforms like Google and Facebook are therefore
largely uninhibited in imposing switching costs for users, hurting
competition in the process. Allen St. John, Europe's GDPR Brings Data
Portability to U.S. Consumers, Consumer Reps. (May 25, 2018), https://
www.consumerreports.org/privacy/gdpr-brings-data-portability-to-us-
consumers; see also Chris Dixon, The Interoperability of Social
Networks, Bus. Insider (Nov. 10, 2010), https://
www.businessinsider.com/the-interoperability-of-social-networks-2011-2;
Josh Constine, Friend Portability Is the Must-Have Facebook Regulation,
TechCrunch (May 12, 2019), https://technologycrunch.com/2019/05/12/
friends-wherever.
(c) Data. The accumulation of data can serve as another
powerful barrier to entry for firms in the digital economy.
Data allows companies to target advertising with scalpel-like
precision, improve services and products through a better
understanding of user engagement and preferences, and more
quickly identify and exploit new business opportunities.\139\
---------------------------------------------------------------------------
\139\ Dig. Competition Expert Panel Report at 23.
---------------------------------------------------------------------------
Much like a network effect, data-rich accumulation is self-
reinforcing. Companies with superior access to data can use
that data to better target users or improve product quality,
drawing more users and, in turn, generating more data--an
advantageous feedback loop.\140\ In short, new users and
greater engagement bring in more data, which enables firms to
improve user experiences and develop new products--in turn
capturing more data.\141\ While data is non-rivalrous--meaning
that one party's use does not prevent or diminish use by
another--firms may nonetheless exclude rivals from using their
data through technical restrictions and legal contracts.\142\
These exclusionary tactics can close off markets and shield
incumbents from competition.\143\
---------------------------------------------------------------------------
\140\ Maurice E. Stucke, Should We Be Concerned About Data-
opolies?, 2 Geo. L. Tech. Rev. 275, 323 (2018) (discussing the dynamics
of data-driven network effects).
\141\ Maurice E. Stucke & Allen P. Grunes, Big Data and Competition
Policy 36-50 (2016); Patrick Barwise & Leo Watkins, The Evolution of
Digital Dominance: How and Why We Got to GAFA, in Digital Dominant: The
Power of Google, Amazon, Facebook, and Apple 21, 28-29 (2018), http://
www.lse.ac.uk/law/Assets/Documents/orla-lynskey/orla-3.pdf.
\142\ Maurice E. Stucke & Allen P. Grunes, Big Data and Competition
Policy 23-34 (2016).
\143\ Id. at 34.
---------------------------------------------------------------------------
In addition to serving as a barrier to entry, superior
access to data can enable and exacerbate anticompetitive
conduct in digital markets. This is particularly true when a
dominant platform operates as both a marketplace for third-
party goods as well as a seller of its own products on that
same marketplace.\144\ Through this dual role, a dominant
platform can mine commercially valuable information from third-
party businesses to benefit its own competing products.\145\
Additionally, a dominant platform can use its market power to
extract more data from users, undermining their privacy.\146\
---------------------------------------------------------------------------
\144\ Jacques Cremer, Yves-Alexandre de Monjoye & Heike Scwheitzer,
Eur. Comm'n, Competition Policy for the Digital Era 66-67 (2019)
[hereinafter Eur. Comm'n Competition Report].
\145\ Id. at 66.
\146\ See Dina Srinivasan, The Antitrust Case Against Facebook: A
Monopolist's Journey Towards Pervasive Surveillance in Spite of
Consumers' Preference for Privacy, 16 Berkeley Bus. L.J. 39, 70 (2019);
Data and Privacy Hearing at 132 (statement of Dina Srinivasan, Fellow,
Yale Thurman Arnold Project).
---------------------------------------------------------------------------
Persistent data collection can also create information
asym-metries and grant firms access to non-public information
that gives them a significant competitive edge. These insights
include information on user behavior as well as on broader
usage trends that enable the dominant platforms to track
nascent competitive threats. In an interview with the
Subcommittee, a senior executive at a social media company
referred to this ability as akin to having ``a spy camera on
the production floor'' of a competitive threat.\147\ Roger
McNamee, the Co-Founder of Elevation Partners, has noted that
the dominant platforms' role as digital infrastructure gives
them both leverage and insights that other competitors lack:
---------------------------------------------------------------------------
\147\ Interview with Source 247 (June 4, 2020).
LEssentially, the interplay of Google's dominant position
in . . . infrastructure elements [such as] ad tech
infrastructure, Chrome browser, [and Nest] . . . collectively
provide leverage over other market participants, which include
not just startups, but also advertisers, and other would-be
competitors. And the key thing is, it's not just about Google's
infrastructure. When you add in Gmail, Search, Maps, apps, and
all the other things that Google does so well . . . [t]hey
provide further levels of user lock-in-further protective modes
that really limit the opportunity of competitors and even,
frankly, suppliers and advertisers, to do the things that they
should be able to do in a freely competitive economy.\148\
---------------------------------------------------------------------------
\148\ Roger McNamee, Co-Founder & Managing Dir., Elevation
Partners, Remarks at Venture Capital and Antitrust Workshop 30 (Feb.
12, 2020), https://www.justice.gov/atr/page/file/1255851/download.
This significant data advantage also enables dominant
platforms to identify and acquire rivals early in their
lifecycle. Leading economists and antitrust experts have
expressed concern that serial acquisitions of nascent
competitors by large technology firms have stifled competition
and innovation.\149\ This acquisition strategy exploits
dominant firms' information advantages in order to acquire
rapidly growing companies just before those companies become
true threats.\150\ Lacking access to this same information or
failing to appreciate its significance, enforcers may fail to
identify these acquisitions as anticompetitive. This is more
likely when the dominant platform buys a nascent threat before
it has fully developed into a rival.
---------------------------------------------------------------------------
\149\ See, e.g., Stigler Report at 74, 87.
\150\ See Maurice E. Stucke, Should We Be Concerned About Data-
opolies?, 2 Geo. L. Tech. Rev. 275, 309 (2018) (discussing the growing
concern with ``kill zone'' tactics and the chilling effect on
``entrepreneurism and autonomy'').
---------------------------------------------------------------------------
In a briefing before Members of the Subcommittee, Jonathan
Sallet, former Deputy Assistant Attorney General at the
Antitrust Division, explained that data-driven acquisitions of
nascent or potential rivals can significantly undermine
competition while systematically evading antitrust
scrutiny.\151\ One reason is that upstart competitors are often
data-rich but cash-poor, a combination that is unlikely under a
price-centric framework to trigger antitrust scrutiny if the
acquisition is priced below the relevant threshold for merger
review.\152\ For example, had Microsoft sought to exploit its
monopoly power in the market for personal computer operating
systems by acquiring Netscape--rather than by foreclosing it--
it is unlikely that antitrust enforcers would have taken
action. He noted that this type of acquisition can tip the
market in favor of a dominant firm, having the same ultimate
effect as monopolistic conduct but escaping the antitrust
enforcement that monopolistic conduct has triggered in the
past.\153\
---------------------------------------------------------------------------
\151\ Briefing by Jonathan Sallet, Deputy Assistant Att'y Gen.,
U.S. Dep't of Justice, Antitrust Div. (July 11, 2020).
\152\ Colleen Cunningham, Florian Ederer & Song Ma, Killer
Acquisitions 53 (Yale Sch. of Mgmt., Working Paper, Apr. 2020), https:/
/ssrn.com/abstract=3241707 (finding that killer acquisitions
``routinely avoid regulatory scrutiny'' because they
``disproportionately occur just below [HSR] thresholds for antitrust
scrutiny'').
\153\ Jonathan Sallet, Competitive Edge: Five Building Blocks For
Antitrust Success: The Forthcoming FTC Competition Report, Wash. Ctr.
for Equitable Growth (Oct. 1, 2019), https://equitablegrowth.org/
competitive-edge-five-building-blocks-for-antitrust-success-the-
forthcoming-ftc-competition-report/.
(d) Economies of Scale and Scope. Increasing returns to
scale are another feature of technology markets that make them
prone to tip towards concentration and monopolization.\154\ In
markets with increasing returns to scale, as sales increase,
average unit cost decreases.\155\ Because entry into these
markets requires significant up-front costs, the market favors
firms that are already large, making it difficult for new firms
to enter the market and challenge large incumbents.\156\
---------------------------------------------------------------------------
\154\ Innovation and Entrepreneurship Hearing at 81 (statement of
Fiona Scott Morton, Theodore Nierenberg Prof. of Econ., Yale Sch. of
Mgmt.); Dig. Competition Expert Panel Report at 32; Stigler Report at
13; see also Jay Shambaugh, Ryan Nunn, Audrey Breitwieser & Patrick
Liu, The Brookings Inst., The State of Competition and Dynamism: Facts
About Concentration, Start-Ups, and Related Policies 10 (2018), https:/
/www.brookings.edu/wp-
content/uploads/2018/06/ES_THP_20180611_CompetitionFacts_20180611.pdf.
\155\ Stigler Report at 36.
\156\ Dig. Competition Expert Panel Report at 32.
---------------------------------------------------------------------------
Likewise, a dominant firm that enjoys economies of scope
can extend its reach across adjacent markets through an
expansive ecosystem of its own products while incurring
relatively low cost.\157\ For example, if a firm has sufficient
technical expertise or access to consumer data, the cost of
applying this resource into a new market is relatively low.
---------------------------------------------------------------------------
\157\ Id.
---------------------------------------------------------------------------
Businesses that specialize in providing information, such
as Google, frequently benefit from increasing returns to
scale.\158\ These businesses require high upfront fixed costs,
but then may scale with relatively low increases in cost. For
example, ``Google can update Google Calendar for 100 million
users with similar fixed expenses as would be needed for only a
fraction of such users.'' \159\ Facebook is another company
that benefits from increasing returns to scale.\160\ Although
building the Facebook platform required a large upfront
investment, the platform was able to grow exponentially with
relatively little increase in costs. With the benefit of
increasing returns to scale, Facebook was able to grow from one
million users in 2004, the year of its founding, to more than
350 million users in only five years.\161\
---------------------------------------------------------------------------
\158\ Stigler Report at 37.
\159\ Id.
\160\ Id.
\161\ Id. at 36-37.
---------------------------------------------------------------------------
Recent economic evidence indicates that economies of scale
achieved through data collection allow platforms to get more
out of consumers than consumers get out of platforms.\162\ In
exchange for ``free'' services, users provide valuable social
data--information that may also shed light on other people's
behavior--in addition to their own personal information. For
instance, a person's location history using Google Maps reveals
valuable and sensitive information about others as well--such
as traffic patterns and other data. According to Professors
Dirk Bergemann, Alessandro Bonatti, and Tan Gan, the creation
of this ``data externality'' means that, for firms like Google,
Amazon, and Facebook, ``the cost of acquiring . . . individual
data can be substantially below the value of the information to
the platform.''\163\ In other words, notwithstanding claims
that services such as Google's Search or Maps products or
Facebook are ``free'' or have immeasurable economic value to
consumers,\164\ the social data gathered through these services
may exceed their economic value to consumers.
---------------------------------------------------------------------------
\162\ See generally Dirk Bergemann, Alessandro Bonatti & Tan Gan,
The Economics of Social Data (Cowles Found., Discussion Paper No.
2203R, Sept. 2019), https://ssrn.com/abstract
=3459796.
\163\ Id. at 4.
\164\ See, e.g., Erik Brynjolfsson & Avinash Collis, How Should We
Measure the Digital Economy?, Harv. Bus. Rev. (Nov.-Dec. 2019), https:/
/hbr.org/2019/11/how-should-we-measure-the-digital-economy.
---------------------------------------------------------------------------
B. Effects of Platform Market Power
1. Innovation and Entrepreneurship
Competition is a critical source of innovation, business
dynamism, entrepreneurship, and the ``launching of new
industries.'' \165\ Vigorously contested markets have been a
critical competitive asset for the United States over the past
century.\166\ While large firms with significant resources may
invest in research and development for new products and
services, competition forces companies to ``run faster'' in
order to offer improved products and services.\167\ Without
competitive pressure, some level of innovation may still occur,
but at a slower, iterative pace than would be present under
competitive market conditions.\168\
---------------------------------------------------------------------------
\165\ Innovation and Entrepreneurship Hearing at 76 (statement of
Tim Wu, Julius Silver Prof. of Law, Columbia Univ. Sch. of Law).
\166\ Id.
\167\ Stigler Report at 74.
\168\ Innovation and Entrepreneurship Hearing at 76 (statement of
Tim Wu, Julius Silver Prof. of Law, Columbia Univ. Sch. of Law).
---------------------------------------------------------------------------
In recent decades, however, there has been a sharp decline
in new business formation as well as early-stage startup
funding.\169\ The number of new technology firms in the digital
economy has declined,\170\ while the entrepreneurship rate--the
share of startups and young firms in the industry as a whole--
has also fallen significantly in this market.\171\
Unsurprisingly, there has also been a sharp reduction in early-
stage funding for technology startups.\172\
---------------------------------------------------------------------------
\169\ This trend is also present in the broader U.S. economy as
well. See, e.g., Ufuk Akcigit & Sina T. Ates, Knowledge in the Hands of
the Best, Not the Rest: The Decline of U.S. Business Dynamism, VoxEU
(July 4, 2019), https://voxeu.org/article/decline-us-business-dynamism.
\170\ Ian Hathway, Ewing Marion Kauffman Found., Tech Starts: High-
Technology Business Formation and Job Creation in the United States 5
(2013), https://www .kauffman.org/-/media/kauffman_org/research-
reports-and-covers/2013/08/bdstechnology startsreport.pdf.
\171\ Id.
\172\ The number of technology startup financings fell from above
10,000 startup financings in 2015 to just above 6,000 in 2018. In 2014,
startups closed 4,255 deals in which they raised seed money from
investors. By 2018, however, that figure had dropped by nearly a half,
to 2,206. Gene Teare, Decade in Review: Trends in Seed- and Early-Stage
Funding, TechCrunch (Mar. 13, 2019), https://technologycrunch.com/2019/
03/16/decade-in-review-trends-in-seed-and-early-stage-funding. See also
American Technology Giants Are Making Life Tough for Startups,
Economist (June 2, 2018), https://www.economist.com/business/2018/06/
02/american-technology-giants-are-making-life-tough-for-startups.
---------------------------------------------------------------------------
The rates of entrepreneurship and job creation have also
declined over this period. The entrepreneurship rate--defined
as the ``share of startups and young firms'' in the industry as
a whole--fell from 60 percent in 1982 to a low of 38 percent as
of 2011.\173\ As entry slows, the average age of technology
firms has skewed older.\174\ Job creation in the high-
technology sector has likewise slowed considerably.\175\ In
2000, the job creation rate in the high-technology sector was
approaching 20 percent year-over-year. Within a decade, the
rate had halved to about 10 percent.\176\ Although the job
creation rate in the high-technology sector has fallen
substantially since the early 2000s, the job destruction rate
in 2011 was roughly unchanged from 2000.\177\ As a result, in
2011 the rate of job destruction in the high-technology sector
was higher than the rate of job creation, a reversal from the
year 2000, when the job-creation rate far outpaced the job-
destruction rate.\178\
---------------------------------------------------------------------------
\173\ John Haltiwanger et al., Ewing Marion Kauffman Found.,
Declining Business Dynamism in the U.S. High-Technology Sector 8
(2014).
\174\ Id.
\175\ Id.
\176\ Id. at 4.
\177\ Id. at 5.
\178\ Id. at 4.
---------------------------------------------------------------------------
In line with this trend, there is mounting evidence that
the dominance of online platforms has materially weakened
innovation and entrepreneurship in the U.S. economy.\179\ Some
venture capitalists, for example, report that they avoid
funding entrepreneurs and other companies that compete directly
with dominant firms in the digital economy.\180\
---------------------------------------------------------------------------
\179\ Innovation and Entrepreneurship Hearing at 76 (statement of
Tim Wu, Julius Silver Prof. of Law, Columbia Univ. Sch. of Law); Data
and Privacy Hearing at 58-60 (statement of Jason Furman, Prof. of the
Prac. of Econ. Pol'y, Harvard Kennedy Sch.).
\180\ See generally Venture Capital and Antitrust Workshop; Stigler
Report at 9.
---------------------------------------------------------------------------
Often referred to as an innovation ``kill zone,'' this
trend may insulate powerful incumbent firms from competitive
pressure simply because venture capitalists do not view new
entrants as good investments.\181\ Albert Wenger, the managing
partner of Union Square Ventures, commented that the ``scale of
these companies and their impact on what can be funded, and
what can succeed, is massive.'' \182\ Paul Arnold, an early-
stage investor and founder of Switch Ventures, commented at the
Justice Department's recent workshop on the intersection
between venture capital and antitrust law that he considers
markets dominated by large platforms to be kill zones.\183\ He
explained:
---------------------------------------------------------------------------
\181\ Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill
Zone (Univ. of Chi., Becker Friedman Inst. for Econ., Working Paper No.
2020-19, Apr. 2020).
\182\ Asher Schechter, Google and Facebook's ``Kill Zone'': ``We've
Taken the Focus Off of Rewarding Genius and Innovation to Rewarding
Capital and Scale,'' ProMarket (May 25, 2018),
Continued
https://promarket.org/2018/05/25/google-facebooks-kill-zone-weve-taken-
focus-off-rewarding-
genius-innovation-rewarding-capital-scale/.
\183\ Venture Capital and Antitrust Workshop at 24 (statement of
Paul Arnold, Founder & Partner, Switch Partners).
L[T]here's an incredibly, concentrated market share
because of the economies of scale or because of network
effects, it's a really hard barrier to overcome. And sometimes
there's an answer and often, that will kill things. And I think
that that's my view, that's my, sort of, lived experience as a
venture investor, but I think it's a common view of a lot of
venture investors.\184\
---------------------------------------------------------------------------
\184\ Id.
In the same vein, Mr. Arnold said in a submission to the
---------------------------------------------------------------------------
Subcommittee that:
LVenture capitalists are less likely to fund startups that
compete against monopolies' core products . . . . As a startup
investor, I see this often. For example, I will meet yet
another founder who wants to disrupt Microsoft's LinkedIn. They
will have a clever plan to build a better professional social
network. I always pass on the investment. It is nearly
impossible to overcome the monopoly LinkedIn enjoys. It is but
one example of an innovation kill zone.\185\
---------------------------------------------------------------------------
\185\ Submission from Paul Arnold, General Partner, Switch
Ventures, to H. Comm. on the Judiciary, 2 (Sept. 3, 2020) (on file with
Comm.).
For example, the entrenched power of firms with weak
privacy protections has created a kill zone around the market
for products that enhance privacy online.\186\ To the extent
that a firm successfully offers a service to give people tools
to control their privacy, ``Google or Facebook are going to
want to pull that back as fast as they possibly can. They don't
want you aggressively limiting their extremely valuable
information collection.'' \187\
---------------------------------------------------------------------------
\186\ Venture Capital and Antitrust Workshop at 24 (Paul Arnold,
Founder & Partner, Switch Partners).
\187\ Id.
---------------------------------------------------------------------------
Other prominent venture capitalists, such as Roger McNamee,
the Co-Founder of Elevation Partners, have commented that these
trends harm more than just startups. The advantages of dominant
firms online--access to competitively significant sources of
data, network effects, intellectual property, and excess
capital--are ``a barrier to a wide range of activities, not
just startups, but actually a lot of other market
participants.'' \188\
---------------------------------------------------------------------------
\188\ Id. at 29 (statement of Roger McNamee, Cofounder & Managing
Dir., Elevation Partners).
---------------------------------------------------------------------------
Merger activity may be another contributor to reduced
venture capital investment of startups. In a recent study,
several leading economists and researchers at the University of
Chicago--Raghuram G. Rajan, Luigi Zingales, and Sai Krishna
Kamepalli--found that major acquisitions by larger firms in
sectors of the digital economy led to significantly less
investment in startups in this same sector.\189\ As they note,
in the wake of an acquisition by Facebook or Google,
investments in startups in the same space ``drop by over 40%
and the number of deals falls by over 20% in the three years
following an acquisition.'' \190\
---------------------------------------------------------------------------
\189\ Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill
Zone (Univ. of Chi., Becker Friedman Inst. for Econ., Working Paper No.
2020-19, Apr. 2020).
\190\ Id.
---------------------------------------------------------------------------
The threat of entry from a large platform has had
significant effects on other firms' incentives to
innovate,\191\ while the actual entry of the larger online
platform can result in less innovation and an additional
increase in prices.\192\ During the investigation, a prominent
venture capital investor in the cloud marketplace explained
that this power imbalance creates a strong economic incentive
for other firms to avoid head-on competition. As he noted:
---------------------------------------------------------------------------
\191\ See Wen Wen & Feng Zhu, Threat of Platform-Owner Entry and
Complementor Responses: Evidence from the Mobile App Market, 40
Strategic Mgmt. J. 1336 (2019); Feng Zhu & Qihong Liu, Competing with
Complementors: An Empirical Look at Amazon.com, 39 Strategic Mgmt. J.
2618 (2018).
\192\ Id.
LI think of Amazon as the sun. It is useful but also
dangerous. If you're far enough away you can bask. If you get
too close you'll get incinerated. So, you have to be far enough
from Amazon and be doing something that they wouldn't do. If
you're a net consumer of Amazon's infrastructure, like Uber,
then you're okay. As long as Amazon doesn't want to get into
ridesharing. But it's hard to predict what Amazon wants to get
into. If they were going to stop at retail and computing,
you're safe. But you can't know.\193\
---------------------------------------------------------------------------
\193\ Interview with Source 146 (May 28, 2020).
As discussed in this Report, other behavior by dominant firms--
such as cloning the products of new entrants--may also
undermine the likelihood that new entrants will be able to
compete directly or that early adopters will switch to a new
entrant's product, lowering the valuation of these companies as
well as their profitability.\194\
---------------------------------------------------------------------------
\194\ Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill
Zone (Univ. of Chi., Becker Friedman Inst. for Econ., Working Paper No.
2020-19, Apr. 2020).
---------------------------------------------------------------------------
In July 2019, the Subcommittee held a hearing to examine
the effects of market power on innovation and entrepreneurship.
There, a panel of experts noted that the lack of competitive
pressure in the U.S. economy has reduced innovation and
business formation, while also allowing dominant firms to
control innovation.\195\ Professor Tim Wu of Columbia Law
School, a pioneer in internet policy, said that there is:
---------------------------------------------------------------------------
\195\ Innovation and Entrepreneurship Hearing at 81 (statement of
Fiona Scott Morton, Theodore Nierenberg Prof. of Econ., Yale Sch. of
Mgmt.).
L[N]o question as to whether there were barriers to entry
and whether the tech economies have, in fact, become a very
difficult place for people to get started . . . the decline in
the number of startups, almost unthinkable in the United
States, which has always had a comparative advantage in being
the place where startups will get their start.\196\
---------------------------------------------------------------------------
\196\ Id. at 74 (statement of Tim Wu, Julius Silver Prof. of Law,
Columbia Univ. Sch. of Law).
Professor Fiona Scott Morton of the Yale University School of
Management reinforced this concept in her testimony, noting
that insufficient competition has given dominant firms the
ability to channel innovation in the direction they prefer
``rather than being creatively spread across directions chosen
by entrants.'' \197\
---------------------------------------------------------------------------
\197\ Id. at 81 (statement of Fiona Scott Morton, Theodore
Nierenberg Prof. of Econ., Yale Sch. of Mgmt.); Data and Privacy
Hearing at 60 (statement of Jason Furman, Prof. of the Prac. of Econ.
Pol'y, Harvard Kennedy Sch.) (``[M]ajor platforms have reduced
incentives to innovate and incumbents have distorted incentives to make
more incremental improvements that can be incorporated into the
dominant platforms rather than more paradigmatic changes that could
challenge these platforms.'').
---------------------------------------------------------------------------
In addition to innovation harms in the digital marketplace,
Stacy Mitchell, the Co-Director of the Institute for Local Self
Reliance, explained that entrepreneurism among locally owned
businesses has also suffered as a result of this power. As she
noted, ``Local businesses are disappearing and, with them, a
pathway to the middle class. Producers are struggling to invest
in new products and grow their companies. New business
formation is down to historic lows.'' \198\
---------------------------------------------------------------------------
\198\ Innovation and Entrepreneurship Hearing at 187 (statement of
Stacy F. Mitchell, Co-Dir., Inst. for Local Self-Reliance).
---------------------------------------------------------------------------
At the Subcommittee's field hearing, senior executives
representing different businesses across the economic spectrum
offered similar testimony about the effects of market power on
innovation and entrepreneurship. Patrick Spence, the CEO of
Sonos, testified that the lack of fair competition diminishes
innovation, particularly for firms that cannot afford to sell
products at a loss.\199\ He explained:
---------------------------------------------------------------------------
\199\ Competitors Hearing at 7 (statement of Patrick Spence, CEO,
Sonos, Inc.).
LThese companies have gone so far as demanding that we
suppress our inventions in order to work with them. The most
recent example of this is Google's refusal to allow us to use
multiple voice assistants on our product simultaneously . . . .
I think the whole spirit of trying to encourage small
companies, encourage new innovations and new startups is at
risk, given how dominant these companies are.\200\
---------------------------------------------------------------------------
\200\ Id. at 8.
Furthermore, the ability of a dominant firm to extract
economic concessions from smaller companies that rely on it to
reach the market can also depress innovation. David Barnett,
the CEO and Founder of PopSockets, testified at the field
hearing that Amazon required his company ``to pay almost two
million in marketing dollars in order to remove illegal product
from the Amazon marketplace.'' \201\ In response to questions
from Representative Ken Buck (R-CO) on the effect of this
policy on innovation, Mr. Barnett testified that this money
could have been used to double the number of employees
dedicated to developing innovative products at the
company.\202\
---------------------------------------------------------------------------
\201\ Id. at 20 (statement of David Barnett, Founder & CEO,
PopSockets LLC).
\202\ Id. at 57.
---------------------------------------------------------------------------
2. Privacy and Data Protection
The persistent collection and misuse of consumer data is an
indicator of market power in the digital economy.\203\
Traditionally, market power has been defined as the ability to
raise prices without a loss to demand, such as fewer sales or
customers.\204\ Scholars and market participants have noted
that even as online platforms rarely charge consumers a
monetary price--products appear to be ``free'' but are
monetized through people's attention or with their data \205\--
traditional assessments of market power are more difficult to
apply to digital markets.\206\
---------------------------------------------------------------------------
\203\ Howard A. Shelanski, Information, Innovation, and Competition
Policy for the Internet, 161 U. Pa. L. Rev. 1663, 1689 (2013) (``One
measure of a platform's market power is the extent to which it can
engage in [privacy exploitation] without some benefit to consumers that
offsets their reduced privacy and still retain users.'').
\204\ W. Kip Viscusi et al., Economics of Regulation and Antitrust
164 (3d ed. 2000).
\205\ Data and Privacy Hearing at 60 (statement of Jason Furman,
Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.); id. at 55
(statement of Tommaso Valletti, Prof. of Econ., Imperial Coll. Bus.
Sch.).
\206\ Howard A. Shelanski, Information, Innovation, and Competition
Policy for the Internet, 161 U. Pa. L. Rev. 1663, 1687 (2013) (``While
increased competition, at least on its own, will not always cause firms
to better use or protect customer information, any competitive effects
analysis that misses these two nonprice dimensions of platform market
performance will be incomplete and could be biased toward
underenforcement.'').
---------------------------------------------------------------------------
The best evidence of platform market power therefore is not
prices charged but rather the degree to which platforms have
eroded consumer privacy without prompting a response from the
market.\207\ As scholars have noted, a platform's ability to
maintain strong networks while degrading user privacy can
reasonably be considered equivalent to a monopolist's decision
to increase prices or reduce product quality.\208\ A firm's
dominance can enable it to abuse consumers' privacy without
losing customers.\209\ In the absence of genuine competitive
threats, a firm offers fewer privacy protections than it
otherwise would. In the process, it extracts more data, further
entrenching its dominance.\210\ When paired with the tendency
toward winner-take-all outcomes, consumers are forced to either
use a service with poor privacy safeguards or forgo the service
altogether.\211\ As the United Kingdom's Competition and
Markets Authority observes, ``The collection and use of
personal data by Google and Facebook for personalised
advertising, in many cases with no or limited controls
available to consumers, is another indication that these
platforms do not face a strong enough competitive constraint.''
\212\
---------------------------------------------------------------------------
\207\ See, e.g., Makan Delrahim, Assistant Att'y Gen., U.S. Dep't
of Justice, Antitrust Div., Remarks for the Antitrust New Frontiers
Conference (June 11, 2019), https://www.justice.gov/opa/speech/
assistant-attorney-general-makan-delrahim-delivers-remarks-antitrust-
new-frontiers (``It is well-settled, however, that competition has
price and non-price dimensions.''); Maurice E. Stucke & Ariel Ezrachi,
When Competition Fails to Optimize Quality: A Look at Search Engines,
18 Yale J.L. & Tech. 70, 103 (2016); Eleonora Ocello & Cristina
Sjoodin, Eur. Comm'n, Competition Merger Brief: Microsoft/LinkedIn: Big
Data and Conglomerate Effects in Tech Markets 5 (2017), http://
ec.europa.eu/competition/publications/cmb/2017/kdal17001 enn.pdf.
\208\ Dina Srinivasan, The Antitrust Case Against Facebook: A
Monopolist's Journey Towards Pervasive Surveillance in Spite of
Consumers' Preference for Privacy, 16 Berkeley Bus. L.J. 39, 44 (2019)
(``Facebook is a monopolist, and what Facebook extracts overtly from
consumers today, from a quality perspective, is a direct function of
Facebook's monopoly power.''); see also Katharine Kemp, Concealed Data
Practices and Competition Law: Why Privacy Matters (Univ. of N.S.W.,
Fac. of Law, Research Paper No. 19-53, 2019), https://papers.ssrn.com/
sol3/papers
.cfm?abstract_id=3432769; OECD, Big Data: Bringing Competition Policy
to the Digital Era (2016), https://one.oecd.org/document/DAF/
COMP(2016)14/en/pdf.
\209\ Data and Privacy Hearing at 55 (statement of Tommaso
Valletti, Prof. of Econ., Imperial Coll. Bus. Sch.); Dig. Competition
Expert Panel Report at 42-45.
\210\ David N. Cicilline & Terrell McSweeny, Competition Is at the
Heart of Facebook's Privacy Problem, Wired (Apr. 24, 2018), https://
www.wired.com/story/competition-is-at-the-heart-of-facebooks-privacy-
problem.
\211\ Dig. Competition Expert Panel Report at 43 (``[T]he misuse of
consumer data and harm to privacy is arguably an indicator of low
quality caused by a lack of competition.''); Dina Srinivasan, The
Antitrust Case Against Facebook: A Monopolist's Journey Towards
Pervasive Surveillance in Spite of Consumers' Preference for Privacy,
16 Berkeley Bus. L.J. 39, 40 (2019) (``Consumers effectively face a
singular choice-use Facebook and submit to the quality and stipulations
of Facebook's product or forgo all use of the only social network.'').
\212\ Competition & Mkts. Auth. Report at 318.
---------------------------------------------------------------------------
Given the increasingly critical role platforms play in
mediating access to everyday goods and services, users are also
far more likely to surrender more information than to cease
using the service entirely.\213\ Without adequate competition,
firms are able to collect more data than a competitive market
would allow,\214\ further entrenching their market power while
diminishing privacy in the process.\215\
---------------------------------------------------------------------------
\213\ Giuseppe Colangelo & Mariateresa Maggiolino, Data Protection
in Attention Markets: Protecting Privacy through Competition?, 8 J. of
Eur. Competition L. & Prac. 363, 365 (2017).
\214\ Data and Privacy Hearing at 135 (statement of Dina
Srinivasan, Fellow, Yale Thurman Arnold Project); Innovation and
Entrepreneurship Hearing at 82 (statement of Fiona Scott Morton,
Theodore Nierenberg Prof. of Econ., Yale Sch. of Mgmt.).
\215\ Data and Privacy Hearing at 59 (statement of Jason Furman,
Prof. of the Prac. of Econ. Pol'y, Harvard Kennedy Sch.); id. at 55
(statement of Tommaso Valletti, Prof. of Econ., Imperial Coll. Bus.
Sch.); Dig. Competition Expert Panel Report at 4 (``It can be harder
for new companies to enter or scale up.''); Giuseppe Colangelo &
Mariateresa Maggiolino, Data Protection in Attention Markets:
Protecting Privacy Through Competition?, 8 J. of Eur. Competition L. &
Prac. 363, 365 (2017) (``Similarly, in such a market, a dominant firm
could abuse its power to exclude a rival producing privacy-friendly
goods that consumer would otherwise prefer.''); Stigler Report at 67
(``When facing a zero-money price, and when quality is difficult to
observe, consumers
Continued
are not receiving salient signals about the social value of their
consumption because the price they believe they face does not reflect
the economics of the transaction, and they are ignorant of those
numbers.'').
---------------------------------------------------------------------------
Because persistent data collection online is often
concealed,\216\ it is more difficult to compare privacy costs
across different products and services.\217\ Consumers are
largely unaware of firms' data collection practices, which are
presented in dense and lengthy disclosures.\218\ The use of
manipulative design interfaces has also become a pervasive tool
``to increase the likelihood of users consenting to tracking.''
\219\ These behavioral nudges--referred to as dark patterns--
are commonly used in online tracking and advertising markets to
enhance a firm's market power and ``maximize a company's
ability to extract revenue from its users.'' \220\ And in e-
commerce, Jamie Luguri and Lior Strahilevitz observe that dark
patterns ``are harming consumers by convincing them to
surrender cash or personal data in deals that do not reflect
consumers' actual preferences and may not serve their
interests. There appears to be a substantial market failure
where dark patterns are concerned--what is good for ecommerce
profits is bad for consumers.'' \221\
---------------------------------------------------------------------------
\216\ Data and Privacy Hearing at 54-55 (statement of Tommaso
Valletti, Prof. of Econ., Imperial Coll. Bus. Sch.).
\217\ Maurice E. Stucke, Should We Be Concerned About Data-
opolies?, 2 Geo. L. Tech. Rev. 275, 311 (2018).
\218\ See, e.g., Paul Hitlin & Lee Rainie, Facebook Algorithms and
Personal Data, Pew Rsch. Ctr. (Jan. 16. 2019), https://
www.pewinternet.org/2019/01/16/facebook-algorithms-and-
personal-data/. See Austl. Competition & Consumer Comm'n, Digital
Platforms Inquiry Final Report 11 (2019) [hereinafter Austl.
Competition & Consumer Comm'n Report]; Ryan Calo & Alex Rosenblat, The
Taking Economy: Uber, Information, and Power, 117 Colum. L. Rev. 1623
(2017); Dina Srinivasan, The Antitrust Case Against Facebook: A
Monopolist's Journey Towards Pervasive Surveillance in Spite of
Consumers' Preference for Privacy, 16 Berkeley Bus. L.J. 39, 41 (2019)
(``[A]ccepting Facebook's policies in order to use its service means
accepting broad-scale commercial surveillance.'').
\219\ Arvind Narayanan, Arunesh Mathur, Marshini Chetty & Mihir
Kshirsagar, Dark Patterns: Past, Present, and Future, 18(2) ACM Queue
67, 77 (2020), https://queue.acm.org/detail.cfm
?id=3400901.
\220\ Id.; Norwegian Consumer Council, Deceived by Design (2018),
https://fil
.forbrukerradet.no/wp-content/uploads/2018/06/2018-06-27-deceived-by-
design-final.pdf (describing the use of ``dark patterns'').
\221\ Jamie Luguri & Lior Strahilevitz, Shining a Light on Dark
Patterns 29 (Univ. of Chi. Law Sch. Pub. Law Working Paper, Paper No.
719, 2019), https://papers.ssrn.com/sol3/papers.cfm
?abstract_id=3431205.
---------------------------------------------------------------------------
More recently, as remote work became commonplace during the
COVID-19 pandemic, Google attempted to manipulate users into
using its Google Meet videoconferencing tool instead of upstart
competitor Zoom. As Zoom emerged as the market leader during
the early stages of the pandemic, Google introduced a new
widget for Meet inside Gmail. A similar message could be found
inside Google Calendar, which prompted users to ``Add Google
Meet video conferencing'' to their appointments. ``For people
with the Zoom Video Communications Inc. extension on their
Chrome browsers, the prompt sits directly above the option to:
`Make it a Zoom Meeting.' '' \222\
---------------------------------------------------------------------------
\222\ Mark Bergen, Google Really Wants You to Try Its New Video
Tool, Bloomberg (May 19, 2020), https://www.bloomberg.com/news/
newsletters/2020-05-19/google-really-wants-you-to-try-its-new-video-
tool.
---------------------------------------------------------------------------
To the extent that consumers are aware of data collection
practices, it is often in the wake of scandals involving large-
scale data breaches or privacy incidents such as Cambridge
Analytica.\223\ As Dina Srinivasan notes, ``Today, nuances in
privacy terms are relegated to investigative journalists to
discover and explain. When the media does report on them--as
they did around Google's practice of letting employees and
contractors read Gmail users' emails--consumers often switch to
a competitor that offers a better product or service.'' \224\
The opacity of data collection and use contributes to consumer
confusion and the misperception that consumers do not care
about their privacy--the so-called privacy paradox--simply
because they use services that have become essential.\225\
---------------------------------------------------------------------------
\223\ Dig. Competition Expert Panel Report at 45; David N.
Cicilline & Terrell McSweeny, Competition Is at the Heart of Facebook's
Privacy Problem, Wired (Apr. 24, 2018), https://www.wired.com/story/
competition-is-at-the-heart-of-facebooks-privacy-problem.
\224\ Data and Privacy Hearing at 135 (statement of Dina
Srinivasan, Fellow, Yale Thurman Arnold Project).
\225\ Brooke Auxier et al., Americans and Privacy: Concerned,
Confused and Feeling Lack of Control Over Their Personal Information,
Pew Rsch. Ctr. (Nov. 15 2019), https://www
.pewresearch.org/internet/2019/11/15/americans-and-privacy-concerned-
confused-and-feeling-lack-of-control-over-their-personal-information/;
Daniel J. Solove, The Myth of the Privacy Paradox, 89 Geo. Wash. L.
Rev. 1 (2021).
---------------------------------------------------------------------------
While insufficient competition can lead to reduced quality
in many markets, the loss of quality due to monopolization--and
in turn, privacy and data protection--is even more pronounced
in digital markets because product quality is often the
``relevant locus of competition.'' \226\ Without transparency
or effective choice, dominant firms may impose terms of service
with weak privacy protections that are designed to restrict
consumer choice,\227\ creating a race to the bottom.\228\ As
David Heinemeier Hansson, the Co-Founder and Chief Technology
Officer of Basecamp,\229\ explained in his testimony before the
Subcommittee:
---------------------------------------------------------------------------
\226\ Data and Privacy Hearing at 54 (statement of Tommaso
Valletti, Prof. of Econ., Imperial Coll. Bus. Sch.).
\227\ Id.
\228\ Competitors Hearing at 36 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp); Dig. Competition
Expert Panel Report at 6 (``[W]ell-functioning competitive digital
markets have the potential to develop new solutions and increased
choice for consumers, where privacy and quality of service can be
differentiating factors.''); Howard A. Shelanski, Information,
Innovation, and Competition Policy for the Internet, 161 U. Pa. L. Rev.
1663, 1691 (2013) (``Competition, however, may drive platforms to adopt
and adhere to stronger privacy policies, making it worthwhile for a
platform to advertise such policies to consumers in order to
differentiate itself from its competitors.'').
\229\ Basecamp is an internet software firm based in Chicago,
Illinois, that sells project-management and team-collaboration tools.
Competitors Hearing at 27 (statement of David Heinemeier Hansson,
Cofounder & Chief Tech. Officer, Basecamp).
LWhen businesses do not have to account for the negative
externalities they cause, it's a race to the bottom. The
industrial-scale exploitation of privacy online is much the
same. Facebook and Google have built comprehensive dossiers on
almost everyone, and they can sell incredibly targeted
advertisement on that basis. When Facebook knows you're
pregnant, or worse, thinks it knows when you're pregnant, they
can target ads for baby clothes or strollers with striking
efficiency. But doing so represents an inherent violation of
the receiver's privacy. Every ad targeted using personal
information gathered without explicit, informed consent is at
some level a violation of privacy. And Facebook and Google are
profiting immensely by selling these violations to advertisers.
Advertisers who may well feel that purchasing these violations
go against their ethics, but see no choice to compete without
participating.\230\
---------------------------------------------------------------------------
\230\ Id. at 36.
In addition to creating a race to the bottom, this same
dynamic can also prevent new firms from offering products with
strong privacy protections or reduce the incentive of new
entrants or rivals to compete directly.\231\ Roger McNamee, the
Co-Founder and Managing Director of Elevation Partners, has
also explained that to the extent there is direct competition
between a firm with a privacy-centric business model, such as
DuckDuckGo's search engine, they can ``still have trouble
applying different business models once they're not compatible
with the business models that have made the Internet platforms
so successful.'' \232\
---------------------------------------------------------------------------
\231\ Data and Privacy Hearing at 134-35 (statement of Dina
Srinivasan, Fellow, Yale Thurman Arnold Project); Venture Capital and
Antitrust Workshop at 24 (Paul Arnold, Founder & Partner, Switch
Partners).
\232\ Venture Capital and Antitrust Workshop at 30 (statement of
Roger McNamee, Co-Founder & Managing Dir., Elevation Partners).
---------------------------------------------------------------------------
Conversely, without adequate safeguards in place, measures
that appear to improve privacy for consumers may also have
anticompetitive effects. Kirsten Daru, Chief Privacy Officer
and General Counsel of Tile, told the Subcommittee: ``Apple has
used the concept of privacy as a shield by making changes in
the name of privacy that at the same time give it a competitive
advantage.'' \233\ In particular, she testified at the
Subcommittee's field hearing:
---------------------------------------------------------------------------
\233\ Competitors Hearing at 85 (response to Questions for the
Record of Kirsten Daru, Chief Priv. Officer & Gen. Couns., Tile, Inc.).
LApple has attempted to justify its own collection of
sensitive information and disparate treatment of competitors
because FindMy is ``part of the OS,'' as well as due to a need
for enhanced consumer privacy. But the changes don't
meaningfully improve or enhance privacy of third-party app
developers.\234\
---------------------------------------------------------------------------
\234\ Id. at 43 (statement of Kirsten Daru, Chief Priv. Officer &
Gen. Couns., Tile, Inc.).
Ram Shriram, a prominent investor who is a founding board
member of Google, noted that ``[p]rivacy does impact how you
think about dominance, for example, in a market because Google
and Apple both eliminated third-party cookies, which then makes
your data a little more private. But it ironically will hurt
the young companies that are trying to build digital
advertising businesses while improving user privacy.'' \235\
---------------------------------------------------------------------------
\235\ Venture Capital and Antitrust Workshop at 36 (Ram Shriram,
Managing Partner, Sherpalo Ventures LLC).
---------------------------------------------------------------------------
The Subcommittee held several hearings during the
investigation that examined the role of competition and privacy
online.
In September 2016, the Subcommittee held a hearing on the
role of data and privacy in competition. There, FTC
Commissioner Rohit Chopra testified that dominant firms have
the ability to impose ``complex and draconian'' terms of
service that can change suddenly ``to collect and use data more
expansively and more intensely.'' \236\ As he noted, this
behavior is the equivalent of a price hike that would be
difficult to impose unilaterally in a competitive
marketplace.\237\ Without sufficient competition, however,
``companies can focus on blocking new entrants and limiting
choice to protect their dominance and pricing power.'' \238\
Tommaso Valletti, the former Chief Competition Economist for
the European Commission, noted that it is ``self-evident that
data is key to digital platforms, and that some applications
imply real-time knowledge of consumer behaviour as well as
cross linkages across apps that only very few digital players
have access to.'' \239\ And finally, Jason Furman, the former
Chair of the Council of Economic Advisers and an author of the
``Unlocking Digital Competition'' report, said that ``the
misuse of consumer data and harm to privacy is arguably an
indicator of low quality caused by a lack of competition.''
\240\
---------------------------------------------------------------------------
\236\ Data and Privacy Hearing at 42 (statement of Rohit Chopra,
Comm'r, Fed. Trade Comm'n).
\237\ Id.
\238\ Id.
\239\ Id. at 52 (statement of Tommaso Valletti, Prof. of Econ.,
Imperial Coll. Bus. Sch.).
\240\ Dig. Competition Expert Panel Report at 43.
---------------------------------------------------------------------------
At the Subcommittee's oversight hearing in November 2019,
Makan Delrahim, the Assistant Attorney General of the Justice
Department's Antitrust Division, testified that because privacy
is a dimension of quality, protecting competition ``can have an
impact on privacy and data protection.'' \241\ And finally,
Maureen Ohlhausen, the former Acting Chair of the FTC, echoed
this point at the Subcommittee's hearing on innovation and
entrepreneurship, noting that quality reductions online could
``include factors such as reduced features, restricted consumer
choice, or lessened control over privacy.'' \242\
---------------------------------------------------------------------------
\241\ Antitrust Agencies Hearing at 44 (statement of Makan
Delrahim, Assistant Att'y Gen., U.S. Dep't of Justice, Antitrust Div.).
\242\ Innovation and Entrepreneurship Hearing at 209 n.14
(statement of Maureen K. Ohlhausen, Partner, Baker Botts, L.L.P.).
---------------------------------------------------------------------------
Leading international antitrust enforcers offered similar
testimony before the Subcommittee. Margrethe Vestager, the
European Union's Competition Commissioner, testified that due
to the Commission's finding that data protection is an
important dimension of competition that could be undermined by
certain merger activity, the Commission ``has . . . integrated,
where appropriate, data protection as a quality parameter for
the assessment of merger cases.'' \243\ Similarly, Rod Sims,
the Chair of the Australian Competition and Consumer
Commission, told the Subcommittee that the ACCC's ``Digital
Platforms Inquiry'' report recommends ``[u]pdating Australia's
merger law to incorporate . . . the nature and significance of
assets, including data and technology, acquired through a
merger.'' \244\
---------------------------------------------------------------------------
\243\ Data and Privacy Hearing at 171 (statement of Margrethe
Vestager, Eur. Comm'r for Competition).
\244\ Id. at 129 (statement of Rod Sims, Chair, Austl. Competition
& Consumer Comm'n).
---------------------------------------------------------------------------
3. The Free and Diverse Press
A free and diverse press is essential to a vibrant
democracy. Whether exposing corruption in government, informing
citizens, or holding power to account, independent journalism
sustains our democracy by facilitating public discourse.
Since 2006, newspaper advertising revenue, which is
critical for funding high-quality journalism, fell by over 50
percent.\245\ Despite significant growth in online traffic
among the nation's leading newspapers,\246\ print and digital
newsrooms across the country are laying off reporters or
folding altogether.\247\ As a result, communities throughout
the United States are increasingly going without sources for
local news. The emergence of platform gatekeepers--and the
market power wielded by these firms--has contributed to the
decline of trustworthy sources of news.\248\
---------------------------------------------------------------------------
\245\ Noah Smith, Opinion, Goodbye, Newspapers. Hello, Bad
Government, Bloomberg (June 1, 2018), https://www.bloomberg.com/
opinion/articles/2018-06-01/goodbye-newspapers-hello-bad-government.
\246\ Free and Diverse Press Hearing at 19 (statement of David
Chavern, President & CEO, News Media All.).
\247\ Douglas McLennan & Jack Miles, Opinion, A Once Unimaginable
Scenario: No More Newspapers, Wash. Post: The Worldpost (Mar. 21,
2018), https://www.washingtonpost.com/news/theworldpost/wp/2018/03/21/
newspapers/?utm_term=.c1b57c9efcd7.
\248\ Free and Diverse Press Hearing at 72-73 (statement of David
Pitofsky, Gen. Couns., News Corp).
(a) Journalism in Decline. Since 2006, the news industry
has been in economic freefall, primarily due to a massive
decrease in advertising revenue. Both print and broadcast news
organizations rely heavily on advertising revenue to support
their operations, and as the market has shifted to digital
platforms, news organizations have seen the value of their
advertising space plummet steeply.\249\ For newspapers,
advertising has declined from $49 billion in 2006 to $16.5
billion in 2017.\250\ This decrease has been felt by national
and local news sources alike. As total annual advertising
revenues have fallen over 62 percent across the industry since
2008, one major national newspaper told the Subcommittee that
its annual advertising revenue has fallen 48 percent over that
period.\251\ Additionally, ethnic news outlets have suffered
from the shift from broadcast and print ads to digital
ads.\252\ Regarding television and radio broadcast news, the
National Association of Broadcasters told the Subcommittee,
``[T]his year, the U.S. advertising revenue of a single
company--Google--are projected to exceed the combined ad
revenue of all TV and radio stations in the country by over $8
billion.'' \253\
---------------------------------------------------------------------------
\249\ eMarketer estimates that Google's and Facebook's U.S. ad
revenues will be $39.58 billion and $31.43 billion, respectively, in
2020. eMarketer, Google Ad Revenues to Drop for the First Time (June
23, 2020), https://www.emarketer.com/content/google-ad-revenues-drop-
first-time. According to BIA, local TV and radio station ad revenues
(counting both their OTA and much more limited digital revenues) will
total $31.3 billion this year. See BIA Revises Local Radio Advertising
Estimates Down to $12.8B in 2020 Due to Pandemic, BIA Advisory Servs.
(June 25, 2020), http://www.biakelsey.com/bia-revises-local-radio-
advertising-estimates-12-8-b-2020-due-pandemic-transition-digital-
accelerating/; BIA Lowers 2020 Local Television Station Advertising
Revenue Forecast to $18.5B, BIA Advisory Servs. (May 21, 2020), http://
www.biakelsey.com/bia-lowers-2020-local-television-station-advertising-
revenue-forecast-18-5b/.
\250\ Michael Barthel, Despite Subscription Surges for Largest U.S.
Newspapers, Circulation and Revenue Fall for Industry Overall, Pew
Rsch. Ctr.: FactTank (June 1, 2017), https://www .pewresearch.org/fact-
tank/2017/06/01/circulation-and-revenue-fall-for-newspaper-industry;
Newspapers Fact Sheet, Pew Rsch. Ctr. (June 13, 2018), https://
www.journalism.org/fact-sheet/newspapers.
\251\ Submission from Source 220, to H. Comm. on the Judiciary, 7
(Oct. 14, 2019) (on file with Comm.).
\252\ See Penelope Muse Abernathy, Univ. N.C. Sch. of Media &
Journalism, News Deserts and Ghost Newspapers: Will Local News Survive
45 (2020), https://www.usnews
deserts.com/wp-content/uploads/2020/06/
2020_News_Deserts_and_Ghost_Newspapers
.pdf.
\253\ Submission from Nat'l Ass'n of Broads., to H. Comm. on the
Judiciary, 2 (Oct. 14, 2019), http://www.nab.org/documents/newsRoom/
pdfs/09220_HJC_Local_Journalism_At_Risk _Submission.pdf.
---------------------------------------------------------------------------
While the decline of advertising revenue has most severely
affected local news publishers, prominent digital publishers
have also been affected. In January 2019, Buzzfeed announced
layoffs of 220 employees, about 15 percent of its workforce,
due to advertising losses.\254\ Jonah Peretti, the Chief
Executive Officer of BuzzFeed, commented prior to the layoffs
that consolidation of digital publishers into a single large
digital media company may be the only path forward for
profitability, suggesting that publishers' lack of bargaining
power in negotiations with online platforms is the central
obstacle to long-term survival.\255\
---------------------------------------------------------------------------
\254\ Oliver Darcy & Tom Kludt, Media Industry Loses About 1,000
Jobs as Layoffs Hit News Organizations, CNN (Jan. 24, 2019), https://
edition.cnn.com/2019/01/24/media/media-layoffs-buzzfeed-huffpost-
gannett/index.html; Edmund Lee, Founder's Big Idea to Revive BuzzFeed's
Fortunes? A Merger with Rivals, N.Y. Times (Nov. 19, 2018), https://
www.nytimes.com/2018/11/19/business/media/buzzfeed-jonah-peretti-
mergers.html.
\255\ Edmund Lee, Founder's Big Idea to Revive BuzzFeed's Fortunes?
A Merger with Rivals, N.Y. Times (Nov. 19, 2018), https://
www.nytimes.com/2018/11/19/business/media/buzzfeed-jonah-peretti-
mergers.html.
---------------------------------------------------------------------------
Despite a recent boost in the number of digital
subscriptions and the level of online traffic for the top
newspapers in the United States, these increases did not offset
losses in online advertising or circulation in the industry
overall.\256\ As one news publisher told the Subcommittee,
``For the vast majority of news publishers, digital
subscription revenues remain a minor revenue stream and do not
appear to be on a path to replace the decline in print
subscriptions.'' \257\ Over the past two decades, hundreds of
local news publishers have been acquired or gone bankrupt.\258\
In some cases, private equity firms and hedge funds have
purchased major regional chains and newspapers, resulting in
mass layoffs of journalists and increased debt burdens for
publishers.\259\
---------------------------------------------------------------------------
\256\ Michael Barthel, Despite Subscription Surges for Largest U.S.
Newspapers, Circulation and Revenue Fall for Industry Overall, Pew
Rsch. Ctr.: FactTank (June 1, 2017), https://www.pewresearch.org/fact-
tank/2017/06/01/circulation-and-revenue-fall-for-newspaper-industry/;
Newspapers Fact Sheet, Pew Rsch. Ctr. (July 9, 2019), https://
www.journalism.org/fact-sheet/newspapers; David Chavern, Opinion,
Protect the News From Google and Facebook, Wall St. J. (Feb. 25, 2018),
https://www.wsj.com/articles/protect-the-news-from-google-and-facebook-
1519594942.
\257\ Submission from Source 220, to H. Comm. on the Judiciary, 7
(Oct. 14, 2019) (on file with Comm.).
\258\ Penelope Muse Abernathy, Univ. N.C. Sch. of Media &
Journalism, The Expanding News Desert 33 (2018), https://www.cislm.org/
wp-content/uploads/2018/10/The-Expanding-News-Desert-10_14-Web.pdf.
\259\ Alex Shephard, Finance Is Killing the News, New Republic
(Apr. 18, 2018), https://newrepublic.com/article/148022/finance-
killing-news.
---------------------------------------------------------------------------
In recent years, news consumption has largely shifted to a
model of content aggregation, through which platforms
consolidate content from multiple news sources.\260\ In
submissions to the Subcommittee and public statements,
publishers across the spectrum say they have little choice but
to participate in content aggregation, particularly those run
by dominant platforms because the aggregators' ``use of news
publishers' content does send substantial traffic to news
publishers.'' \261\ But this can also prevent traffic from
flowing to newspapers. As some publishers have noted, news
aggregators package and present content to users using
attention-grabbing quotes from high points of stories, which
can make it unnecessary for the user to click through to the
publisher's website.\262\ As these publishers noted, this
dynamic forces news organizations to effectively compete with
their own content, lowering the potential revenue from user
traffic to news organizations' websites.\263\
---------------------------------------------------------------------------
\260\ Lesley Chiou & Catherine Tucker, Content Aggregation by
Platforms: The Case of the News Media (Nat'l Bureau of Econ. Rsch.,
Working Paper No. 21404, 2015), https://www.nber.org/papers/w21404.pdf.
\261\ News Media All., How Google Abuses Its Position as a Market
Dominant Platform to Strong-Arm News Publishers and Hurt Journalism 2
(2020), http://www
.newsmediaalliance.org/wp-content/uploads/2020/06/Final-Alliance-White-
Paper-June-18-2020.pdf.
\262\ Id. at 12.
\263\ Id. at 12-14.
---------------------------------------------------------------------------
As a result of falling revenues, newspapers and broadcast
stations are steadily losing the ability to financially support
their newsrooms, which are costly to maintain but provide
immense value to their communities.\264\ A robust local
newsroom requires the financial freedom to support in-depth,
sometimes years-long reporting, as well as the ability to hire
and retain journalists with expertise in fundamentally local
issues, such as coverage of state government.\265\
---------------------------------------------------------------------------
\264\ Submission from the Nat'l Ass'n of Broads., to H. Comm. on
the Judiciary, 9 (Sept. 2, 2020), http://www.nab.org/documents/
newsRoom/pdfs/09220_HJC_Local_Journalism_At _Risk_Submission.pdf.
\265\ Free and Diverse Press Hearing at 83-84 (statement of Kevin
Riley, Ed., The Atlanta Journal-Constitution).
---------------------------------------------------------------------------
The societal value of local news is significant. As noted
by the National Association of Broadcasters, local broadcast
stations provide on-the-air programming which is ``rooted in
localism and the public interest,'' offering content which
``[is] still free to the public and accessible to all
Americans.'' \266\ Kevin Riley, the editor of The Atlanta
Journal-Constitution, similarly testified before the
Subcommittee that ``it would be impossible to even put a cost
estimate on the work'' of local journalists.\267\
---------------------------------------------------------------------------
\266\ Submission from the Nat'l Ass'n of Broads., to H. Comm. on
the Judiciary, 1 (Sept. 2, 2020), http://www.nab.org/documents/
newsRoom/pdfs/09220_HJC_Local_Journalism_At _Risk_Submission.pdf.
\267\ Free and Diverse Press Hearing at 82 (statement of Kevin
Riley, Ed., The Atlanta Journal-Constitution).
---------------------------------------------------------------------------
The COVID-19 pandemic has particularly highlighted the
importance of local news sources. Despite taking major revenue
losses,\268\ local journalists have provided valuable reporting
on the transmission of the novel coronavirus, particularly for
underserved and vulnerable communities.\269\ For example, PBS
New Mexico provided an in-depth focus on the effects of the
coronavirus on Native Americans ``dealing with scarce resources
as they respond to novel coronavirus outbreaks on tribal
lands.'' \270\ Apart from serving their communities, local news
stories bring national attention to these critical issues.\271\
In addition to news coverage, the National Association of
Broadcasters aired public-service announcements in response to
the pandemic ``more than 765,000 times for an estimated ad
value of more than $156,500,000,'' a number which ``do[es] not
include the likely much greater number of other coronavirus-
related PSAs'' aired by local television and radio stations
across the United States.\272\
---------------------------------------------------------------------------
\268\ Sara Fischer & Margaret Harding McGill, Coronavirus Sends
Local News into Crisis, Axios (Mar. 21, 2020), https://www.axios.com/
coronavirus-local-news-853e96fa-51aa-43cc-a990-eb48cc896b17.html.
\269\ Mark Glaser, 6 Ways Local News Makes a Crucial Impact
Covering COVID-19, Knight Found. (Apr. 20, 2020), https://
knightfoundation.org/articles/6-ways-local-news-makes-a-
crucial-impact-covering-covid-19/.
\270\ COVID-19 Response from Native Tribes, NMPBS (Mar. 30, 2020),
https://www
.newmexicopbs.org/productions/newmexicoinfocus/covid-19-response-from-
native-tribes/.
\271\ See, e.g., Bill Chappell, Coronavirus Cases Spike in Navajo
Nation, Where Water Service Is Often Scarce, NPR (Mar. 26, 2020),
https://www.npr.org/sections/coronavirus-live-updates/2020/03/26/
822037719/coronavirus-cases-spike-in-navajo-nation-where-water-service-
is-often-scarce.
\272\ Submission from the Nat'l Ass'n of Broads., to H. Comm. on
the Judiciary, 2 (Sept. 2, 2020), http://www.nab.org/documents/
newsRoom/pdfs/09220_HJC_Local_Journalism_At _Risk_Submission.pdf.
---------------------------------------------------------------------------
To run a new operation, broadcast stations must be able to
sustain ``the basic costs of running a station, including
engineering, sales, [and] programming'' costs, and must make
significant capital expenditures in equipment, such as
satellite trucks.\273\ These expenses must be satisfied before
broadcast stations can invest in improvements to keep pace with
changing technologies, ``including ultra-high definition
programming, better emergency alerting, mobile services,
interactivity, hyper-local content and more.'' \274\
---------------------------------------------------------------------------
\273\ Id. at 4, 7 n.16.
\274\ Id. at 7.
---------------------------------------------------------------------------
The costs of news production add up. From 2003 to 2013,
these costs ``accounted for nearly 24 percent of TV stations'
total expenses (and nearly 26 percent of the total expenses of
ABC/CBS/Fox/NBC stations).'' \275\ In light of the expenses
associated with producing high-quality journalism, declining
revenue has major implications for the maintenance--let alone
enrichment--of quality news production.
---------------------------------------------------------------------------
\275\ Id. at 4 (citing NAB Television Financial Reports 2004-2019).
---------------------------------------------------------------------------
Budget cuts have also led to a dramatic number of newsroom
job losses. This decline has been primarily driven by a
reduction in newspaper employees, who have seen employment fall
by half over a recent eight-year period, from 71,000 in 2008 to
35,000 in 2019.\276\ In 2019 alone, 7,800 media industry
employees were laid off.\277\ The Bureau of Labor Statistics
estimates that the total employment of reporters,
correspondents, and broadcast news analysts will continue to
decline by about 11 percent between 2019 and 2029.\278\
---------------------------------------------------------------------------
\276\ Elizabeth Grieco, U.S. Newspapers Have Shed Half of Their
Newsroom Employees Since 2008, Pew Rsch. Ctr.: FactTank (Apr. 20,
2020), https://www.pewresearch.org/fact-tank/2020/04/20/u-s-newsroom-
employment-has-dropped-by-a-quarter-since-2008/.
\277\ Benjamin Goggin, 7,800 People Lost Their Media Jobs in a 2019
Landslide, Bus. Insider (Dec. 10, 2019), https://
www.businessinsider.com/2019-media-layoffs-job-cuts-at-buzzfeed-huff
post-vice-details-2019-2#spin-media-group-29-jobs-september-and-
january-18.
\278\ Occupational Outlook Handbook: Reporters, Correspondents, and
Broadcast News Analysts, U.S. Dep't of Labor: Bureau of Labor Stats.,
https://www.bls.gov/ooh/media-and-
communication/reporters-correspondents-and-broadcast-news-analysts.htm
(last modified Apr. 12, 2019).
---------------------------------------------------------------------------
Researchers at the University of North Carolina School of
Media and Journalism found that the United States has lost
nearly 1,800 newspapers since 2004 either to closure or merger,
70 percent of which were in metropolitan areas.\279\ As a
result, the majority of counties in America no longer have more
than one publisher of local news, and 200 are without any
paper.\280\ At the Subcommittee's hearing on online platforms'
effects on a free and diverse press, Mr. Riley described this
new media landscape as characterized by digital platform
dominance and disappearing local newspapers:
---------------------------------------------------------------------------
\279\ Penelope Muse Abernathy, Univ. N.C. Sch. of Media &
Journalism, The Expanding News Desert 10-11 (2018), https://
www.cislm.org/wp-content/uploads/2018/10/The-Expanding-News-Desert-
10_14-Web.pdf.
\280\ Id. at 8, 10.
LWe produce journalism that is distinguished by its depth,
accuracy and originality. That costs money and is expensive,
but if the system works correctly, it also makes money that the
paper uses to investigate and develop the next story or cover
the next local event. If others repackage our journalism and
make money off it, yet none of that money makes its way back to
the local paper, then it makes breaking that next story or
exposing the next scandal more challenging. If that cycle
continues indefinitely, quality local journalism will slowly
wither and eventually cease to exist.\281\
---------------------------------------------------------------------------
\281\ Free and Diverse Press Hearing at 83 (statement of Kevin
Riley, Ed., The Atlanta Journal-Constitution).
This cycle has a profoundly negative effect on American
democracy and civic life. Communities without quality local
news coverage have lower rates of voter turnout.\282\
Government corruption may go unchecked, leaving communities
vulnerable to serious mismanagement.\283\ Relatedly, these
communities see local government spending increase.\284\ Towns
without robust local news coverage also exhibit lower levels of
social cohesion, undermining a sense of belonging in a
community.\285\ As fewer publishers operate in local markets,
local news is supplanted by aggregation of national coverage,
reducing residents' knowledge of local happenings and events,
and generally leaving them less connected to their
communities.\286\
---------------------------------------------------------------------------
\282\ Matthew Gentzkow et al., The Effects of Newspaper Entry and
Exit on Electoral Politics, 101 Am. Econ. Rev. 2980, 2980 (2011) (``We
find that newspapers have a robust positive effect on political
participation, with one additional newspaper increasing both
presidential and congressional turnout by approximately 0.3 percentage
points.'' (italics removed)).
\283\ Mary Ellen Klas, Less Local News Means Less Democracy, Nieman
Reps. (Sept. 20, 2019), https://niemanreports.org/articles/less-local-
news-means-less-democracy/.
\284\ Noah Smith, Opinion, Goodbye Newspapers. Hello, Bad
Government, Bloomberg (June 1, 2018), https://www.bloomberg.com/
opinion/articles/2018-06-01/goodbye-newspapers-hello-bad-government
(``[T]he authors show that without local newspapers, local governments
tend to engage in more inefficient or dubious financing
arrangements.'').
\285\ Amy Mitchell et al., Civic Engagement Strongly Tied to Local
News Habits, Pew Rsch. Ctr. (Nov. 3, 2016), https://www.journalism.org/
2016/11/03/civic-engagement-strongly-tied-to-local-news-habits.
\286\ Danny Hayes & Jennifer L. Lawless, As Local News Goes, So
Goes Citizen Engagement: Media, Knowledge, and Participation in U.S.
House Elections, 77 J. Pol. 447, 447 (2014).
---------------------------------------------------------------------------
Compounding this problem, the gap created by the loss of
trustworthy and credible news sources has been increasingly
filled by false and misleading information. Once communities
lack a local newspaper source, people tend to get their local
news from social media. As local news dies, it is filled by
unchecked information, some of which can spread quickly and can
have severe consequences.
(b) The Effect of Market Power on Journalism. During the
Subcommittee's investigation, news publishers raised concerns
about the ``significant and growing asymmetry of power''
between dominant online platforms and news publishers, as well
as the effect of this dominance on the production and
availability of trustworthy sources of news. In interviews,
submissions, and testimony before the Subcommittee, publishers
with distinct business models and distribution strategies said
they are ``increasingly beholden'' to these firms, and in
particular, Google and Facebook.\287\ As a result, several
dominant firms have an outsized influence over the distribution
and monetization of trustworthy sources of news online,\288\
undermining the availability of high-quality sources of
journalism.\289\
---------------------------------------------------------------------------
\287\ Submission from Source 220, to H. Comm. on the Judiciary, 7
(Oct. 14, 2019) (on file with Comm.). Although Apple News and Apple
News Plus are increasingly popular news aggregators, most market
participants interviewed by the Subcommittee do not view Apple as a
critical intermediary for online news at this time, although some
publishers raised concerns about the tying of payments inside Apple's
news product.
\288\ Submission from Source 955, to H. Comm. on the Judiciary, 12
(Oct. 30, 2019) (on file with Comm.).
\289\ Free and Diverse Press Hearing at 20 (statement of David
Chavern, President & CEO, News Media All.) (``In effect, a couple of
dominant tech platforms are acting as regulators of the digital news
industry.'').
---------------------------------------------------------------------------
(i) Distribution of News Online. Several dominant platforms
function as intermediaries to news online. Due to their
outsized role as digital gateways to news, a change to one of
these firms' algorithms can significantly affect the online
referrals to news publishers,\290\ directly affecting their
advertising revenue.\291\ One news publisher stated in its
submission to the Subcommittee that it and other news
organizations ``depend on a few big tech platforms to help them
distribute their journalism to consumers.'' \292\
---------------------------------------------------------------------------
\290\ See, e.g., Submission from Source 140, to H. Comm. on the
Judiciary, 2 (Oct. 15, 2019) (on file with Comm.) (``Facebook's
decision, announced in June 2016, to make significant changes to its
algorithm to [favor] content from friends and family, which was made
without notice, consultation or warning to the market, and which led to
significant disruption for a range of businesses.'').
\291\ Submission from Source 114, to H. Comm. on the Judiciary, 12
(Oct. 2, 2019) (on file with Comm.); Data and Privacy Hearing at 127
(statement of Rod Sims, Chair, Austl. Competition & Consumer Comm'n).
\292\ Submission from Source 220, to H. Comm. on the Judiciary, 3
(Mar. 10, 2020) (on file with Comm.).
---------------------------------------------------------------------------
In submissions to the Subcommittee, several news publishers
noted that the dominance of Google and Facebook allows them to
``pick winners'' online by adjusting visibility and
traffic.\293\ For example, an update to Google's search
algorithm in June 2019 decreased a major news publisher's
online traffic ``by close to 50%'' even as their referrals from
other sources--such as their home page and apps--grew during
the same period.\294\ As they noted, a ``smaller business would
have been crushed'' by this decline.\295\
---------------------------------------------------------------------------
\293\ Submission from Source 955, to H. Comm. on the Judiciary, 12
(Oct. 15, 2019) (on file with Comm.).
\294\ Id. at 17.
\295\ Id.
---------------------------------------------------------------------------
Similarly, news organizations were negatively affected
when, in January 2018, Facebook adjusted its News Feed
algorithm to prioritize content based on audience
engagement.\296\ According to an internet analytics firm, these
changes significantly affected the visibility of news content
on Facebook, resulting in a 33 percent decrease in referral
traffic from Facebook to news publishers' sites.\297\ As one
publisher noted in its submission to the Subcommittee, this
change ``was made without notice, consultation or warning to
the market, [leading] to significant disruption for a range of
businesses.'' \298\ Nicholas Thompson, the Editor-in-Chief of
Wired magazine, and Wired contributing editor Fred Vogelstein
described the relationship between publishers and Facebook as
being ``sharecroppers on Facebook's massive industrial farm,''
writing that:
---------------------------------------------------------------------------
\296\ Adam Mosseri, Bringing People Closer Together, Facebook:
Newsroom (Jan. 11, 2018), https://newsroom.fb.com/news/2018/01/news-
feed-fyi-bringing-people-closer-together.
\297\ How Much Have Facebook Algorithm Changes Impacted
Publishers?, Marketing Charts (Apr. 4, 2019), https://
www.marketingcharts.com/digital/social-media-107974.
\298\ Submission from Source 140, to H. Comm. on the Judiciary, 2
(Oct. 15, 2019) (on file with Comm.).
LEven at the best of times, meetings between Facebook and
media executives can feel like unhappy family gatherings. The
two sides are inextricably bound together, but they don't like
each other all that much . . . . And then there's the simple,
deep fear and mistrust that Facebook inspires. Every publisher
knows that, at best, they are sharecroppers on Facebook's
massive industrial farm. The social network is roughly 200
times more valuable than the Times. And journalists know that
the man who owns the farm has the leverage. If Facebook wanted
to, it could quietly turn any number of dials that would harm a
publisher--by manipulating its traffic, its ad network, or its
readers.\299\
---------------------------------------------------------------------------
\299\ Nicholas Thompson & Fred Vogelstein, Inside the Two Years
That Shook Facebook--and the World, Wired (Feb. 12, 2018), https://
www.wired.com/story/inside-facebook-mark-zuckerberg-2-years-of-hell/
(emphasis added).
The Subcommittee has also received evidence that the
dominance of several online platforms has created a significant
imbalance of bargaining power. In several submissions, news
publishers note that dominant firms can impose unilateral terms
on publishers, such as take-it-or-leave-it revenue sharing
agreements.\300\ A prominent publisher described this
relationship as platforms having a ``finger on the scales''
with the ability to suppress publishers that do not ``appease
platforms' business terms.'' \301\
---------------------------------------------------------------------------
\300\ See, e.g., Submission from Source 140, to H. Comm. on the
Judiciary, 2 (Oct. 15, 2019) (on file with Comm.) (describing ``Apple's
decision to tie all payments made through iOS apps to its own payment
system, which takes a 30 percent share of any contributions and
subscriptions made to news [publishers] through news apps downloaded
from the Apple store'').
\301\ Submission from Source 114, to H. Comm. on the Judiciary, 12
(Oct. 2, 2019) (on file with Comm.).
---------------------------------------------------------------------------
During the Subcommittee's hearing on the effects of market
power on journalism,\302\ several witnesses also testified
about the lack of equal bargaining power between news
publishers and dominant platforms.\303\ At the Subcommittee's
hearing on market power and the free and diverse press, Sally
Hubbard, Director of Enforcement Strategy at the Open Markets
Institute, testified that the lack of competition online has
led to diminished bargaining power among news publishers.
Consequently, in response to changing terms and algorithmic
treatment by platforms, ``publishers have little choice but to
adapt and accommodate regardless of how the changes may
negatively affect their own profitability.'' \304\ David
Chavern, President of the News Media Alliance, similarly
testified that publishers have a ``collective action problem,''
stating that ``no news organization on its own can stand up to
the platforms. The risk of demotion or exclusion from the
platforms is simply too great.'' \305\
---------------------------------------------------------------------------
\302\ Free and Diverse Press Hearing.
\303\ Data and Privacy Hearing at 125 (statement of Rod Sims,
Chair, Austl. Competition & Consumer Comm'n) (testifying that the power
of dominant platforms ``creates an imbalance of bargaining power
between digital platforms and news media businesses, meaning that
agreements they reach are likely much different to those that would be
reached in a competitive market'').
\304\ Free and Diverse Press Hearing at 45 (statement of Sally
Hubbard, Dir. of Enf't Strategy, Open Mkts. Inst.).
\305\ Id. at 22 (statement of David Chavern, President, News Media
All.).
---------------------------------------------------------------------------
In June 2020, the News Media Alliance published a white
paper examining the relationship between news publishers and
Google based on interviews with its members over the course of
more than a year.\306\ As it notes, ``Google has exercised
control over news publishers to force them into several
relationships that benefit Google at the publishers' expense.''
\307\ In the context of Google's placement of news on
accelerated mobile pages (AMP)--a format for displaying web
pages on mobile devices--publishers raised concerns that
``Google effectively gave news publishers little choice but to
adopt it,'' requiring the creation of parallel websites ``that
are hosted, stored and served from Google's servers rather than
their own.'' \308\
---------------------------------------------------------------------------
\306\ News Media All., How Google Abuses Its Position as a Market
Dominant Platform to Strong-Arm News Publishers and Hurt Journalism
(2020), http://www
.newsmediaalliance.org/wp-content/uploads/2020/06/Final-Alliance-White-
Paper-June-18-2020
.pdf.
\307\ Id. at 1.
\308\ Id. at 5.
---------------------------------------------------------------------------
While this format has benefits in terms of loading
information quickly on mobile devices, publishers argue that
these benefits ``could have been achieved through means that
did not so significantly increase Google's power over
publishers or so favor its ability to collect data to foster
its market domination.'' \309\ And when a publisher attempts to
avoid this cost by moving its content behind a paywall, its
rise in subscriptions was offset by declines in traffic from
Google and other platforms.\310\ Referring to this tradeoff as
a ``Hobson's choice,'' the News Media Alliance explained:
---------------------------------------------------------------------------
\309\ Id. at 7.
\310\ Id. at 6.
LNewspapers such as The Wall Street Journal employ a
highly customized paywall on their websites, significantly
varying the number of free articles that a user is permitted to
read before being asked to subscribe to the newspaper. This
flexibility is highly beneficial, allowing them to maximize
engagement and increase subscriptions. For AMP articles,
however, Google restricts the paywall options. Unless
publishers rebuild their paywall options and their meters for
AMP, they can only provide all of their content for free or
none of their content for free. The only other option is to use
Subscribe with Google, which has many benefits for Google and
downsides for news publishers.\311\ Accordingly, unless they
invest in building another and separate paywall, news
publishers who do not want to use Subscribe with Google have a
de facto all-or-nothing choice regarding the imposition of a
paywall, which lowers subscriber conversion rates.\312\
---------------------------------------------------------------------------
\311\ Id. at 8 n.14 (``These include the following: (1) Google gets
the subscriber data; (2) the user must use Google Wallet or Google Pay,
instead of providing its credit card to the news publisher and
establishing a direct relationship with the publisher; and (3) Google
takes a 5-15% cut. See Nushin Rashidian, George Civeris & Pete Brown,
Platforms and Publishers: The End of an Era, Colum. Journalism Rev.
(Nov. 22, 2019), https://www.cjr.org/tow_center_reports/
platforms-and-publishers-end-of-an-era.php.'').
\312\ Id. at 8.
Google has responded to this concern by noting that AMP does
not prevent publishers from placing ads on AMP pages, but
restricting the number of ads ``leads to improved page load
times, increased site traffic, superior ad engagement, and thus
typically increases advertising revenue overall.'' \313\ Google
also said in its responses to Subcommittee Chair David N.
Cicilline's questions for the record that it ``does not
privilege publishers who use AMP over publishers that adopt
non-Google technical solutions that would also guarantee fast-
loading pages.'' \314\
---------------------------------------------------------------------------
\313\ Submission from Google Austl. Pty. Ltd., to Austl.
Competition & Consumer Comm'n, 45-46 (Feb. 18, 2019), https://
www.accc.gov.au/system/files/Google%20%28February%202019 %29.PDF. But
see Austl. Competition & Consumer Comm'n Report at 240 (``[T]here is a
broader issue about the extent to which Google, by way of AMP, retains
users within its ecosystem and reduces monetisation opportunities for
media businesses outside of AMP. That is, rather than directing users
to the websites of media businesses, AMP's design encourages users to
stay within the Google ecosystem. As a result, media businesses are
less likely to monetise content on their own properties, either through
advertising or subscription revenue.'').
\314\ Innovation and Entrepreneurship Hearing at 422 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
---------------------------------------------------------------------------
Finally, because news is often accessed online through
channels other than the original publication--including search
results, voice assistants, social platforms, or news
aggregators--journalism has increasingly become ``atomized'' or
removed from its source and placed alongside other
content.\315\ In the context of audio news, one market
participant noted that aggregating different news sources can
create a bad experience for users.\316\ The aggregation of
different news sources without editorial oversight can also
cause reputational harm to news publishers, such as when highly
credible reporting appears alongside an opinion-based news
source.\317\
---------------------------------------------------------------------------
\315\ Austl. Competition & Consumer Comm'n at 297 (describing
atomization as ``the process by which news is `decoupled from its
source' and consumed on a `story-by-story basis' ''); Free and Diverse
Press Hearing at 20 (statement of David Chavern, President, News Media
All.) (``These tech giants use secret, unpredictable algorithms to
determine how and even whether content is delivered to readers. They
scrape news organizations' content and use it to their own ends,
without permission or remuneration for the companies that generated the
content in the first place. They also suppress news organizations'
brands, control their data, and refuse to recognize and support quality
journalism.'').
\316\ Submission from Source 114, to H. Comm. on the Judiciary, 12
(Oct. 2, 2019) (on file with Comm.).
\317\ Interview with Source 114 (Oct. 2, 2019).
---------------------------------------------------------------------------
Indirectly, the atomization of news may increase the
likelihood that people are exposed to disinformation or
untrustworthy sources of news online. When online news is
disintermediated from its source, people generally have more
difficulty discerning the credibility of reporting online. This
process may also ``foster ambivalence about the quality and
nature of content that garners users' attention,'' particularly
among young people.\318\
---------------------------------------------------------------------------
\318\ Submission from Source 140, to H. Comm. on the Judiciary, 2
(Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
For example, during the Subcommittee's sixth hearing,
Subcommittee Chair Cicilline presented Facebook CEO Mark
Zuckerberg with evidence of a Breitbart video that claimed that
``you don't need a mask and hydroxychloroquine is a cure for
COVID.'' \319\ As he noted, within the first five hours of this
video being posted, it had nearly ``20 million views and over
100,000 comments before Facebook acted to remove it.'' \320\
Mr. Zuckerberg responded that ``a lot of people shared that,
and we did take it down because it violate[d] our policies.''
\321\ In response, Chair Cicilline asked if ``20 million people
saw it over the period of five hours . . . doesn't that
suggest, Mr. Zuckerberg, that your platform is so big that,
even with the right policies in place, you can't contain deadly
content?'' \322\ Mr. Zuckerberg responded by claiming that
Facebook has a ``relatively good track record of finding and
taking down lots of false content.'' \323\
---------------------------------------------------------------------------
\319\ CEO Hearing at 143 (statement of Rep. David N. Cicilline (D-
RI), Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
\320\ Id.
\321\ Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).
\322\ Id. at 143-44 (statement of Rep. David N. Cicilline (D-RI),
Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm.
on the Judiciary).
\323\ Id. at 144 (statement of Mark Zuckerberg, CEO, Facebook,
Inc.).
---------------------------------------------------------------------------
Moreover, because there is not meaningful competition,
dominant firms face little financial consequence when
misinformation and propaganda are promoted online.\324\
Platforms that are dependent on online advertising have an
incentive to prioritize content that is addictive or
exploitative to increase engagement on the platform.\325\ And
the reliance on platforms by advertisers has generally
diminished their ability to push for improvements in content
standards. As a news publisher explained in a submission to the
Subcommittee:
---------------------------------------------------------------------------
\324\ Free and Diverse Press Hearing at 45 (statement of Sally
Hubbard, Dir. of Enf't Strategy, Open Mkts. Inst.); Charlie Warzel,
Opinion, Facebook Can't Be Reformed, N.Y. Times (July 1, 2020), https:/
/www.nytimes.com/2020/07/01/opinion/facebook-zuckerberg.html.
\325\ Conversely, the decline of trustworthy sources of news due to
rising market power and declining ad revenue has also contributed to
this harm. Competition & Mkts. Auth. Report at 9 (``[C]oncerns relating
to online platforms funded by digital advertising can lead to wider
social, political and cultural harm through the decline of
authoritative and reliable news media, the resultant spread of `fake
news' and the decline of the local press which is often a significant
force in sustaining communities.'').
LAs advertisers have become more reliant on dominant
search and social platforms to reach potential consumers, they
have lost any leverage to demand change in the policies or
practices of the platforms. In the era of newspapers,
television, radio, or indeed direct sales of digital
advertising online, there was a connection between advertising
and the content it funds, creating a high degree of
accountability for both parties in that transaction. This
maintained high content standards, and enabled advertisers to
demand or pursue change from publishers whose content standards
fell. While many high-quality publishers continue to operate
stringent policies in relation to the digital advertising that
they permit to appear within their services, in a world of
programmatic audience trading that self-regulated compact
between advertisers and platform does not exist.\326\
---------------------------------------------------------------------------
\326\ Submission from Source 140, to H. Comm. on the Judiciary, 5
(Oct. 15, 2019) (on file with Comm.).
During the Subcommittee's sixth hearing, Representative
Jamie Raskin (D-MD) raised this concern. As he noted, in July
2020, Facebook faced an advertiser boycott by hundreds of
companies.\327\ This effort was spearheaded by the Stop Hate
for Profit campaign, a coalition of civil rights groups
organizing in protest of ``the rapid spread of hate messages
online, the presence of boogaloo and other right-wing extremist
groups trying to infiltrate and disrupt Black Lives Matter
protests and the fact that alt-right racists and anti-Semitic
content flourishes on Facebook.'' \328\
---------------------------------------------------------------------------
\327\ CEO Hearing at 57 (statement of Rep. Jamie Raskin (D-MD),
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
\328\ Id. Stop Hate for Profit was established by the Anti-
Defamation League, the NAACP, Color of Change, and other civil rights
groups in the wake of the May 2020 police killing of George Floyd, an
unarmed Black man, in Minneapolis and the ensuing national protests.
Shirin Ghaffary & Rebecca Heilweil, Why Facebook Is ``The Front Line in
Fighting Hate Today,'' Vox: Recode (July 15, 2020), https://
www.vox.com/recode/2020/7/15/21325728/facebook-stop-hate-for-profit-
campaign-jonathan-greenblatt-anti-defamation-league.
---------------------------------------------------------------------------
As a result of this campaign, more than a thousand major
companies--including Disney, Coca-Cola, and General Motors--
announced that they would pull $7 billion in advertisements on
Facebook as part of the Stop Hate for Profit boycott.\329\ But,
as Representative Raskin pointed out during the hearing,
Facebook does not ``seem to be that moved by their campaign.''
\330\
---------------------------------------------------------------------------
\329\ Steven Levy, Facebook Has More to Learn from the Ad Boycott,
Wired (Aug. 6, 2020), https://www.wired.com/story/rashad-robinson-
facebook-ad-boycott/.
\330\ CEO Hearing at 57 (statement of Rep. Jamie Raskin (D-MD),
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
---------------------------------------------------------------------------
Representative Pramila Jayapal (D-WA) also noted during the
hearing that Mr. Zuckerberg reportedly told Facebook's
employees at an internal meeting that the company is ``not
gonna change our policies or approach on anything because of a
threat to a small percent of our revenue, or to any percent of
our revenue.'' \331\ During that meeting, Mr. Zuckerberg
reportedly acknowledged that the boycott ``hurts us
reputationally,'' but said that the company was insulated from
threats by large advertisers due to advertising revenue from
small businesses.\332\ In response to this report, Ms. Jayapal
asked Mr. Zuckerberg whether Facebook is ``so big that you
don't care how you're impacted by a major boycott of 1,100
advertisers?'' \333\ Mr. Zuckerberg responded that ``[o]f
course we care. But we're also not going to set our content
policies because of advertisers. I think that that would be the
wrong thing for us to do.'' \334\
---------------------------------------------------------------------------
\331\ Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).
\332\ Id.
\333\ Id. at 216 (question of Rep. Pramila Jayapal (D-WA), Subcomm.
on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary).
\334\ Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).
---------------------------------------------------------------------------
Since then, the civil rights groups have said that,
although Facebook made some changes in response to the
boycott--such as the creation of a position within the company
dedicated to overseeing civil rights and algorithmic bias--it
ultimately has not made meaningful changes at scale, and it
``lags competitors in working systematically to address hate
and bigotry on their platform.'' \335\
---------------------------------------------------------------------------
\335\ Statement from Stop Hate for Profit on July 2020 Ad Pause
Success and #StopHateFor Profit Campaign, Stop Hate for Profit (July
30, 2020), https://www.stophateforprofit.org/.
---------------------------------------------------------------------------
The group organized further action in September 2020, when
it called for companies and public figures to stop posting on
Instagram beginning September 16th.\336\ This protest, aimed
again at Facebook's treatment of hate groups, was spurred by
the police shooting of Jacob Blake in Kenosha, Wisconsin.\337\
In the aftermath, Facebook failed to remove a group promoting
the coalescence of an armed militia in the streets of Kenosha,
despite numerous users reporting the page.\338\ Mr. Zuckerberg
called this failure an ``operational mistake.'' \339\
---------------------------------------------------------------------------
\336\ Donie O'Sullivan, Group That Led Facebook Boycott Is Back
With New Action, CNN Bus. (Sept. 14, 2020), https://www.cnn.com/2020/
09/14/tech/facebook-boycott-return/index.html.
\337\ Id.
\338\ Brian Fung, Facebook CEO Admits ``Operational Mistake'' in
Failure to Remove Kenosha Militia Page, CNN Bus. (Sept. 4, 2020),
https://www.cnn.com/2020/08/28/tech/zuckerberg-
kenosha-page/index.html.
\339\ Id.
---------------------------------------------------------------------------
(ii) Monetization. The rise of market power online has
severely affected the monetization of news, diminishing the
ability of publishers to deliver valuable reporting.\340\
---------------------------------------------------------------------------
\340\ See, e.g., Austl. Competition & Consumer Comm'n Report at 7;
David Chavern, Opinion, Protect the News from Google and Facebook, Wall
St. J. (Feb. 25, 2018), https://www.wsj.com/articles/protect-the-news-
from-google-and-facebook-1519594942; supra Section III.C.3(b)(i).
---------------------------------------------------------------------------
The digital advertising market is highly concentrated, with
Google and Facebook controlling the majority of the online
advertising market in the United States,\341\ capturing nearly
all of its growth in recent years.\342\ Although Amazon has
grown its digital advertising business to become the third
largest competitor in the market,\343\ it still accounts for a
relatively small percentage.\344\
---------------------------------------------------------------------------
\341\ See, e.g., Hamza Shaban, Digital Advertising to Surpass Print
and TV for the First Time, Report Says, Wash. Post: Tech. (Feb. 20,
2019), https://www.washingtonpost.com/technology/2019/02/20/digital-
advertising-surpass-print-tv-first-time-report-says/.
\342\ Sarah Sluis, Digital Ad Market Soars to $88 Billion, Facebook
and Google Contribute 90% of Growth, Ad Exchanger (May 10, 2018),
https://adexchanger.com/online-advertising/
digital-ad-market-soars-to-88-billion-facebook-and-google-contribute-
90-of-growth.
\343\ Jean Baptiste Su, Amazon Is Now the #3 Digital Ad Platform in
the U.S. Behind Google and Facebook, Says eMarketer, Forbes (Sept. 20,
2018), https://www.forbes.com/sites/jeanbaptiste/2018/09/20/amazon-is-
now-the-3-digital-ad-platform-in-the-u-s-behind-google-and-facebook-
says-emarketer/#333342de3926.
\344\ Id.
---------------------------------------------------------------------------
News publishers have raised concerns that this significant
level of concentration in the online advertising market--
commonly referred to as the digital ad duopoly--has harmed the
quality and availability of journalism.\345\ They note that, as
a result of this dominance, there has been a significant
decline in advertising revenue to news publishers,\346\
undermining publishers' ability to deliver valuable reporting,
and ``siphon[ing] revenue away from news organizations.'' \347\
---------------------------------------------------------------------------
\345\ See, e.g., Shannon Bond, Google and Facebook Build Digital Ad
Duopoly, Fin. Times (Mar. 14, 2017), https://www.ft.com/content/
30c81d12-08c8-11e7-97d1-5e720a26771b; John Diaz, Opinion, How Google
and Facebook Suppress the News, S.F. Chron. (Apr. 5, 2019), https://
www.sfchronicle.com/opinion/diaz/article/How-Google-and-Facebook-
suppress-the-news-13745431.php.
\346\ Data and Privacy Hearing at 126 (statement of Rod Sims,
Chair, Austl. Competition & Consumer Comm'n); Free and Diverse Press
Hearing at 73 (statement of David Pitofsky, Gen. Couns., News Corp).
\347\ Free and Diverse Press Hearing at 20 (statement of David
Chavern, President, News Media All.).
---------------------------------------------------------------------------
Jason Kint, the CEO of Digital Content Next, a trade
association that represents both digital and traditional news
publishers, notes that there is ``a clear correlation between
layoffs and buyouts with the growth in market share for the
duopoly--Google and Facebook.'' \348\ David Chavern, the
President and CEO of the News Media Alliance, has likewise said
that ``[t]he problem is that today's internet distribution
systems distort the flow of economic value derived from good
reporting.'' \349\ The effects of this revenue decline are most
severe at the local level, where the decimation of local news
sources is giving rise to local news deserts.\350\
---------------------------------------------------------------------------
\348\ Daniel Funke, What's Behind the Recent Media Bloodbath? The
Dominance of Google and Facebook, Poynter (June 14, 2017), https://
www.poynter.org/business-work/2017/whats-
behind-the-recent-media-bloodbath-the-dominance-of-google-and-facebook.
\349\ David Chavern, Opinion, How Antitrust Undermines Press
Freedom, Wall St. J. (July 9, 2017), https://www.wsj.com/articles/how-
antitrust-undermines-press-freedom-1499638532.
\350\ Penelope Muse Abernathy, Univ. N.C. Sch. of Media &
Journalism, The Expanding News Desert 33 (2018), https://www.cislm.org/
wp-content/uploads/2018/10/The-Expanding-News-Desert-10_14-Web.pdf.
---------------------------------------------------------------------------
Other news publishers have expressed concerns about the
dual role of platforms as both intermediaries and platforms for
people's attention.\351\ By keeping people inside a ``walled
garden,'' platforms can monetize their attention through ads,
creating a strong economic incentive to minimize outbound
referrals that lead to a decline in users' attention and
engagement. In turn, this diminishes the incentives of
publishers to invest in high-quality journalism.\352\ David
Pitofsky, the General Counsel of News Corp, described this as a
free-riding problem in his testimony before the Subcommittee,
explaining that platforms:
---------------------------------------------------------------------------
\351\ Submission from Source 140, to H. Comm. on the Judiciary, 11
(Oct. 15, 2019) (on file with Comm.); Submission from Source 114, to H.
Comm. on the Judiciary, 13 (Oct. 2, 2019) (on file with Comm.).
\352\ Competition & Mkts. Auth. Report at 319.
L[D]eploy our highly engaging news content to target our
audiences, then turn around and sell that audience engagement
to the same advertisers news publishers are trying to serve.
Dominant platforms take the overwhelming majority of
advertising revenue without making any investment in the
production of the news, all while foreswearing any
responsibility for its quality and accuracy. As a result, one
of the pillars of the news industry's business model,
advertising revenue, is crumbling.\353\
---------------------------------------------------------------------------
\353\ Free and Diverse Press Hearing at 72 (statement of David
Pitofsky, Gen. Couns., News Corp).
(c) International Scrutiny. Several of the concerns
regarding the distribution and monetization of news through
platform intermediaries were raised as part of a comprehensive
inquiry by the Australian Competition and Consumer Commission
(ACCC). Over the span of several years, the Commission
collected evidence from more than a hundred market participants
and organizations as part of its review. Following its
publication of a Preliminary Report in December 2018 and an
Issues Paper in February 2018, the ACCC issued an extensive
Final Report spanning more than 600 pages and including
submissions from more than 100 market participants.\354\
---------------------------------------------------------------------------
\354\ Press Release, Austl. Competition & Consumer Comm'n,
Holistic, Dynamic Reforms Needed to Address Dominance of Digital
Platforms (July 26, 2019), https://www.accc.gov.au/media-release/
holistic-dynamic-reforms-needed-to-address-dominance-of-digital-
platforms.
---------------------------------------------------------------------------
Among its findings, the ACCC concluded that Facebook and
Google have significant and durable market power over the
distribution of news online.\355\ As the ACCC noted, ``Google
and Facebook are the gateways to online news media for many
consumers,'' accounting for a significant amount of referral
traffic to news publishers' websites.\356\ As a result, news
publishers are reliant on these platforms for reaching people
online, which affects publishers' ability to monetize
journalism, particularly on formats such as Google's
Accelerated Mobile Pages (AMP).\357\
---------------------------------------------------------------------------
\355\ Austl. Competition & Consumer Comm'n Report at 226.
\356\ Id. at 296.
\357\ Id. at 206, 247 (concluding that AMP is a ``must have''
product for publishers).
---------------------------------------------------------------------------
The ACCC made 23 recommendations to address concerns across
a broad range of issues, including antitrust, privacy, and
consumer protection.\358\ Within the context of addressing the
effects of market power on the news industry--particularly as
it relates to the imbalance of bargaining power between
platforms and publishers--the Commission recommended developing
``a code of conduct to govern the relationship between media
businesses and digital platforms [which] seeks, among other
things, to address this imbalance.'' \359\
---------------------------------------------------------------------------
\358\ Press Release, Austl. Competition & Consumer Comm'n, ACCC
Commences Inquiry into Digital Platforms (Dec. 4, 2017), https://
www.accc.gov.au/media-release/accc-commences-
inquiry-into-digital-platforms.
\359\ Austl. Competition & Consumer Comm'n Report at 245.
---------------------------------------------------------------------------
On July 31, 2020, the Commission released a draft code to
address a ``fundamental bargaining power imbalance'' between
news publishers and dominant platforms that has led to ``news
media businesses accepting less favourable terms for the
inclusion of news on digital platform services than they would
otherwise agree to in response to a request by the Australian
government.'' \360\
---------------------------------------------------------------------------
\360\ Draft News Media Bargaining Code, Austl. Competition &
Consumer Comm'n, https://www.accc.gov.au/focus-areas/digital-platforms/
draft-news-media-bargaining-code (last visited Sept. 27, 2020).
---------------------------------------------------------------------------
Under this code, Facebook, Google, and other platforms with
significant bargaining power designated by Australia's
Treasurer must negotiate with covered news publishers ``in good
faith over all issues relevant to news on digital platform
services.'' \361\ News publishers may negotiate either
individually or collectively over a three-month period,
allowing local and rural publishers ``to negotiate from a
stronger position than negotiating individually.'' \362\
---------------------------------------------------------------------------
\361\ Austl. Competition & Consumer Comm'n, Q&As: Draft News Media
and Digital Platforms Mandatory Bargaining Code 7 (July 2020), https://
www.accc.gov.au/system/files/DPB%20-
%20Draft%20news%20media%20and%20digital%20platforms%20mandatory%20
bargaining%20code%20Q%26As.pdf.
\362\ Id. at 6.
---------------------------------------------------------------------------
If publishers are unable to reach an agreement during the
mediated negotiation period, they may bring the dispute to
compulsory arbitration. As part of this process, the arbitrator
must consider the parties' final offers covering: (1) the
benefits of news content to the platform; (2) the costs of
producing news by the publisher; and (3) whether a payment
model would unduly burden the commercial interests of the
platform.\363\ The arbitrator must choose one of the parties'
proposals, encouraging both parties to make reasonable
offers.\364\
---------------------------------------------------------------------------
\363\ Id. at 9.
\364\ Id.
---------------------------------------------------------------------------
Facebook and Google have responded to the draft code by
warning that they may no longer display news on their
respective platforms in Australia. Despite an ``unprecedented
surge in audiences for news websites and TV news,'' \365\
Google claims that the draft code does not reflect the ``more
than $200 million in value that Google provides to publishers
each year by sending people to their websites.'' \366\ Facebook
described the draft code as ``unprecedented in its reach,''
notwithstanding similar proposals in other countries, including
France,\367\ as well as the United States.\368\
---------------------------------------------------------------------------
\365\ Amanda Meade, News Corp to Suspend Print Editions of 60 Local
Newspapers as Advertising Revenue Slumps, Guardian (Mar. 31, 2020),
https://www.theguardian.com/media/2020/apr/01/news-corp-to-suspend-
print-editions-of-60-local-newspapers-as-advertising-revenue-slumps.
\366\ Update to Our Open Letter to Australians, Google, https://
about.google/google-in-
australia/an-open-letter/ (last visited Oct. 5, 2020).
\367\ Natasha Lomas, France's Competition Watchdog Orders Google to
Pay for News Reuse, TechCrunch (Apr. 9, 2020), https://techcrunch.com/
2020/04/09/frances-competition-watchdog-orders-google-to-pay-for-news-
reuse/.
\368\ Ashley Cullins, National Association of Broadcasters Warns
Congress Tech Giants Could Kill Local Journalism, Hollywood Rep. (Sept.
3, 2020), https://www.hollywoodreporter
.com/thr-esq/national-association-of-broadcasters-warns-congress-tech-
giants-could-kill-local-journalism.
---------------------------------------------------------------------------
In response to Google's threat to boycott journalism in
Australia, ACCC Chair Rod Sims said that Google's statement
contained ``misinformation'' about the draft code, asserting
that the draft code responds to ``a significant bargaining
power imbalance between Australian news media businesses and
Google and Facebook.'' \369\ Australia's Treasurer, Josh
Frydenberg, similarly said that the country would not ``respond
to coercion or heavy-handed threats wherever they come from.''
\370\
---------------------------------------------------------------------------
\369\ Naaman Zhou, Google's Open Letter to Australians About News
Code Contains ``Misinformation,'' ACCC Says, Guardian (Aug. 17, 2020),
https://www.theguardian.com/technology/2020/aug/17/google-open-letter-
australia-news-media-bargaining-code-free-services-risk-contains
-misinformation-accc-says.
\370\ Jamie Smyth & Alex Barker, Battle Lines Drawn as Australia
Takes on Big Tech Over Paying for News, Fin. Times (Sept. 2, 2020),
https://www.ft.com/content/0834d986-eece-4e66-ac55-f62e1331f7f7.
---------------------------------------------------------------------------
4. Political and Economic Liberty
During the investigation, the Subcommittee examined the
effects of market power on political and economic liberty.
Concerns about the democratic effects of private monopolies
trace back to the foundational antitrust statutes, where
lawmakers worried that monopolies were ``a menace to republican
institutions themselves.'' \371\ The Subcommittee's examination
of these matters follows a long tradition of congressional
attention to this issue.\372\
---------------------------------------------------------------------------
\371\ 21 Cong. Rec. 3146 (1890) (statement of Sen. George F. Hoar).
\372\ Id. at 2459 (statement of Sen. John Sherman); see also 95
Cong. Rec. 11,486 (1949) (statement of Rep. Emanuel Celler)
(``[B]usiness concentration is politically dangerous, leading
inevitably to increasing Government control.''); 96 Cong. Rec. 16,452
(1950) (statement of Sen. Estes Kefauver) (``[T]he history of what has
taken place in other nations where mergers and concentrations have
placed economic control in the hands of a very few people is too clear
to pass over easily. A point is eventually reached, and we are rapidly
reaching that point in this country, where the public steps in to take
over when concentration and monopoly gain too much power. The taking
over by the public through its government always follows one or two
methods and has one or two political results. It either results in a
Fascist state or the nationalization of industries and thereafter a
Socialist or Communist state.'').
---------------------------------------------------------------------------
Based on interviews and submissions from market
participants, along with other evidence examined by the
Subcommittee, there are several ways in which the market power
of the dominant platforms affects political and economic power.
First, the Subcommittee encountered a prevalence of fear
among market participants who depend on the dominant platforms.
Repeatedly, market participants expressed deep concern that
speaking about the dominant platforms' business practices--even
confidentially without attribution--would lead a platform to
retaliate against them, with severe financial repercussions.
The source of this fear was twofold. Some firms were so
dependent on the platform that even potentially risking
retaliation caused alarm. Others had previously seen a platform
retaliate against someone for raising public concerns about
their business practices and wanted to avoid the same fate.
Several market participants told the Subcommittee that they
``live in fear'' of the platforms. One said, ``It would be
commercial suicide to be in Amazon's crosshairs . . . . If
Amazon saw us criticizing, I have no doubt they would remove
our access and destroy our business.'' \373\ Another told the
Subcommittee, ``Given how powerful Google is and their past
actions, we are also quite frankly worried about retaliation.''
\374\ An attorney representing app developers said they ``fear
retaliation by Apple'' and are ``worried that their private
communications are being monitored, so they won't speak out
against abusive and discriminatory behavior.'' \375\
---------------------------------------------------------------------------
\373\ Interview with Source 636 (Mar. 11, 2020).
\374\ Submission from Source 147, to H. Comm. on the Judiciary (on
file with Comm.).
\375\ Submission from Source 88, to H. Comm. on the Judiciary (on
file with Comm.).
---------------------------------------------------------------------------
Market participants also expressed unease about the success
of their business and their economic livelihood depending on
the decision-making of the platforms. A single tweak of an
algorithm, intentional or not, could cause significant costs if
not financial disaster--with little recourse. Market
participants routinely characterized the platforms as having
arbitrary and unaccountable power--the same forms of undue
power that antitrust laws were designed to prevent. As Senator
John Sherman (R-OH) explained, antitrust was essential to
preserve liberty ``at the foundation of the equality of all
rights and privileges'' because concentrations of power outside
of democratic institutions were a ``kingly prerogative,
inconsistent with our form of government.'' \376\
---------------------------------------------------------------------------
\376\ 21 Cong. Rec. 2457 (1890) (statement of Sen. John Sherman).
---------------------------------------------------------------------------
Additionally, courts and regulators have found that several
of the dominant platforms have engaged in recidivism. For
example, Facebook settled charges brought in 2012 by the
Federal Trade Commission (FTC) that it had ``deceived consumers
by telling them they could keep their information on Facebook
private, and then repeatedly allowing it to be shared and made
public.'' \377\ As part of this settlement, Facebook agreed to
abide by an administrative order requiring that Facebook not
misrepresent its privacy protections.\378\ Seven years later,
the FTC concluded that Facebook had almost immediately begun
violating that order following its adoption.\379\ Ruling on the
FTC's subsequent settlement with Facebook, District Court Judge
Timothy Kelley wrote that ``the unscrupulous way in which the
United States alleges Facebook violated both the law and the
administrative order is stunning.'' \380\ The FTC has similarly
sanctioned Google on several occasions for privacy
violations.\381\ In 2010, Apple settled charges it had entered
into no-poach agreements with six other technology
companies.\382\ Two years later, Apple was found liable for
orchestrating a price-fixing conspiracy.\383\ In that case, the
presiding judge stated that the record ``demonstrated a blatant
and aggressive disregard'' by Apple ``for the requirements of
the law,'' noting that the conduct ``included Apple lawyers and
its highest level executives.'' \384\
---------------------------------------------------------------------------
\377\ Press Release, Federal Trade Comm'n, Facebook Settles FTC
Charges that It Deceived Consumers by Failing to Keep Privacy Promises
(Nov. 29, 2011), https://www.ftc.gov/news-events/press-releases/2011/
11/facebook-settles-ftc-charges-it-deceived-consumers-failing-keep
(proposed settlement).
\378\ Id.
\379\ United States v. Facebook, Inc., 456 F. Supp. 3d 115, 119
(D.D.C. 2020) (``The United States now alleges that Facebook violated
the 2012 Order by `subvert[ing] users privacy choices to serve its own
business interests' in several ways, starting almost immediately after
agreeing to comply with the 2012 Order.'').
\380\ Id. at 117.
\381\ Press Release, Federal Trade Comm'n, Google and YouTube Will
Pay Record $170 Million for Alleged Violations of Children's Privacy
Law (Sept. 4, 2019), https://www.ftc.gov/news-events/press-releases/
2019/09/google-youtube-will-pay-record-170-million-alleged-violations.
\382\ Press Release, Dep't of Justice, Justice Department Requires
Six High Tech Companies to Stop Entering into Anticompetitive Employee
Solicitation Agreements (Sept. 24, 2010), https://www.justice.gov/opa/
pr/justice-department-requires-six-high-tech-companies-stop-
entering-anticompetitive-employee.
\383\ United States v. Apple, Inc., 952 F. Supp. 2d 638, 644
(S.D.N.Y. 2013), aff'd, 791 F.3d 290 (2d Cir. 2015).
\384\ Aug. 27, 2013 Hr'g Tr. at 17:1-6, United States v. Apple,
Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013) (No. 12-cv-2826). During the
investigation, the Subcommittee also encountered instances in which the
platforms did not appear fully committed to telling lawmakers the
truth, including one incident in which members of the Subcommittee were
forced to question whether Amazon had committed perjury. Letter from
Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary, et al., to Jeff
Bezos, CEO, Amazon.com, Inc. (May 1, 2020), https://
judiciary.house.gov/uploadedfiles/2020-05-
01_letter_to_amazon_ceo_bezos.pdf.
---------------------------------------------------------------------------
Lastly, the growth in the platforms' market power has
coincided with an increase in their influence over the
policymaking process. Over the past decade, the dominant online
platforms have significantly increased their lobbying
activity,\385\ which tends to create a feedback loop for large
companies. More money spent on lobbying may deliver higher
equity returns and market share,\386\ which, in turn, may spur
more lobbying.
---------------------------------------------------------------------------
\385\ See, e.g., Spencer Soper et al., Amazon's Jeff Bezos Can't
Beat Washington, so He's Joining It: The Influence Game, Bloomberg
(Feb. 14, 2018), https://www.bloomberg.com/graphics/2018-amazon-
lobbying/. This is a trend for the industry. The total reported
lobbying expenditures by digital platforms increased from $1,190,000 a
year in 1998, to $74,285,000 in 2019 as the industry consolidated and
gained market power. Lobbying Spending Database, Ctr. for Responsive
Pol., https://www.opensecrets.org/lobby/
top.php?indexType=i&showYear=2019 (last visited Sept. 27, 2020).
\386\ See J.H. Kim, Corporate Lobbying Revisited, 10 Bus. & Pol. 1
(2008) (analyzing lobbying's effect on equity returns); Brian Shaffer
et al., Firm Level Performance Implications of Nonmarket Actions, 39
Bus. & Soc. 126 (2000) (analyzing lobbying's effect on market share).
---------------------------------------------------------------------------
Outside of traditionally reported and regulated lobbying,
firms with market power and dispensable income fund think tanks
and nonprofit advocacy groups to steer policy discussion. For
example, Facebook, Google, and Amazon reportedly donated
significant amounts to the American Enterprise Institute (AEI),
which, in turn, has argued that antitrust critiques of the big
platforms are ``astonishingly weak.'' \387\ More recently,
Google and Amazon have contributed significant funding to the
Global Antitrust Institute at the George Mason University's
Antonin Scalia Law School, which advocates against antitrust
scrutiny of the dominant platforms.\388\ By funding academics
and advocacy groups, the dominant platforms can expand their
sphere of influence, further shaping how they are governed and
regulated.
---------------------------------------------------------------------------
\387\ Andrew Perez & Tim Zelina, Facebook, Google, Amazon Are
Ramping up Their Secretive Influence Campaigns in D.C., Fast Co. (Oct.
31, 2019), https://www.fastcompany.com/9042
4503/facebook-google-amazon-are-ramping-up-their-secretive-influence-
campaigns-in-dc.
\388\ Daisuke Wakabayashi, Big Tech Funds a Think Tank Pushing for
Fewer Rules. For Big Tech., N.Y. Times (July 24, 2020), https://
www.nytimes.com/2020/07/24/technology/global-antitrust-institute-
google-amazon-qualcomm.html.
---------------------------------------------------------------------------
At several hearings, Members of the Subcommittee noted that
the outsized political influence of dominant firms has adverse
effects on the democratic process. At the Subcommittee's field
hearing in Colorado, Representative Ken Buck (R-CO) asked each
of the witnesses about this issue.\389\ As Representative Buck
noted, the dominant platforms are generally well represented in
the policymaking process:
---------------------------------------------------------------------------
\389\ Competitors Hearing at 57 (question of Rep. Ken Buck (R-CO),
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm
on the Judiciary).
LPart of what we are dealing with here is the reality that
[dominant firms] walk into our offices and they tell us their
side of the story and we very rarely hear the other side of the
story, and somehow part of this solution has to be that public
policymakers elected, appointed, have to have access to that
kind of information. So I thank you for being here and I also
would encourage you to make sure that, you know, we are
accessible. We are trying our best to make sure that we
continue to create the environment for your kinds of
companies.\390\
---------------------------------------------------------------------------
\390\ Id.
During the Subcommittee's sixth hearing, Subcommittee Chair
David N. Cicilline (D-RI) noted the democratic stakes of the
Subcommittee's work. He said, ``Because concentrated economic
power also leads to concentrated political power, this
investigation also goes to the heart of whether we, as a
people, govern ourselves, or whether we let ourselves be
governed by private monopolies.'' \391\
---------------------------------------------------------------------------
\391\ CEO Hearing at 7 (statement of Rep. David N. Cicilline (D-
RI), Chair, Subcomm. on Antitrust, Commercial and Admin Law of the H.
Comm. on the Judiciary).
---------------------------------------------------------------------------
IV. MARKETS INVESTIGATED
A. Online Search
Online search engines enable users to retrieve webpages and
information stored on the internet. After a user enters a query
into the search engine, the search provider returns a list of
webpages and information that are relevant to the search term
entered.
There are two types of search engines: horizontal and
vertical. Horizontal search engines are designed to retrieve a
comprehensive list of general search results. Vertical search
engines are designed to retrieve a narrower category of
content, such as photo images (e.g., Dreamstime) or travel
(e.g., Expedia). The majority of general search engines
monetize the service through selling ad placements rather than
charging search users a monetary price. The overwhelmingly
dominant provider of general online search is Google, which
captures around 81 percent of all general search queries in the
U.S. on desktop and 94 percent on mobile. Other search
providers include Bing, which captures six percent of the
market, Yahoo (three percent), and DuckDuckGo (one
percent).\392\
---------------------------------------------------------------------------
\392\ Search Engine Market Share United States of America: Sept.
2019-Sept. 2020, Stat
Counter, http://gs.statcounter.com/search-engine-market-share/all/
united-states-of-america (last visited Oct. 3, 2020).
---------------------------------------------------------------------------
Desktop and Mobile Search Market Share \393\
---------------------------------------------------------------------------
\393\ Prepared by the Subcommittee based on Desktop & Mobile Search
Engine Market Share United States of America, January 2009-September
2020, StatCounter, https://gs.statcounter .com/search-engine-market-
share/desktop-mobile/united-states-of-america/#monthly-200901-202009
(last visited Oct. 3, 2020). The ``Other'' category includes AOL, Ask
Jeeves, DuckDuckGo, MSN, Webcrawler, Windows Live, AVG Search, Baidu,
Comcast, Babylon, Dogpile, Earthlink, Norton Safe Search, and YANDEX
RU. Id.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Online search comprises three distinct activities. First,
an engine must ``crawl'' the Internet by using an automated bot
to collect copies of all of the webpages it can find. Once a
crawler has recorded all of this material, it must be collated
and organized into an ``index,'' or a map of the Internet that
can be searched in real-time. Indexing organizes the
information into the formats and databases required for the
querying function. When a user enters a query into the search
engine, the engine draws from the index to pull a list of
responsive websites, ordered in terms of relevance. The
relevance, in turn, is determined by the search algorithm
applied by the search engine. A search engine can function only
if it has access to an index, and an index can exist only once
web pages have been crawled and collated into a
repository.\394\ Indexing has high fixed costs and requires
significant server storage and compute power.\395\ The ability
to invest heavily in computing power and storage yields a
significant advantage.\396\
---------------------------------------------------------------------------
\394\ Submission from Source 531, to H. Comm. on the Judiciary,
Source 531-000017 (Nov. 21, 2011) (on file with Comm.). According to
one market participant, ``[t]he greatest challenges in building a
search index are finding the URLs for documents stored on the Web and
then being able to parse the best URLs and documents to include in the
index. Overcoming these challenges requires massive amounts of data on
user interactions with websites to discover new URLs and then filter
down to the 5% of known URLs [the search engine] uses to determine
which documents to index, and how frequently these documents should be
refreshed.'' Id.
\395\ Id. at Source 531-000016 to -000019.
\396\ Submission from Source 209, to H. Comm. on the Judiciary,
Source 209-000537 to -000538 (Aug. 24, 2009) (on file with Comm.)
(``Comprehensiveness, freshness, and responsiveness are all directly
related to the amount of computing power and storage capacity brought
to bear on the problem of crawling and indexing the web. It would
therefore be implausible to attribute Google's massive search advantage
to superior technology. Rather, the main driver of search performance
is scale. Scale is driven primarily by the level of financial
investment in search infrastructure.'').
---------------------------------------------------------------------------
Several online search features tilt the market towards the
dominant incumbent and make entry by new market participants
difficult. First, web crawling is costly and strongly favors
first-movers.\397\ In a submission to the Subcommittee, one
expert described how Google's early efforts have locked in its
dominance.\398\ In particular, Google was the first company to
crawl the entirety of the Internet, a feat motivated in part
due to its PageRank algorithm, which used links between pages
to identify the most relevant webpages for specific topics and
queries. Unlike most search engine algorithms at the time, the
quality of PageRank results improved with more webpages,
incentivizing Google to crawl a greater portion of the web.
---------------------------------------------------------------------------
\397\ See, e.g., Submission from Source 534, to H. Comm. on the
Judiciary, 1 (Oct. 14, 2019) (on file with Comm.) (``[The Company] does
not own its own search index and is not planning to invest into
building an own index because of the high investment costs.''); Case
AT.39740, Google Search (Shopping), Eur. Comm'n Decision C(2017) 4444,
para. 304 (June 27, 2017), https://ec.europa.eu/competition/antitrust/
cases/dec_docs/39740/39740_14996_3.pdf (``Bing and Google each spend
hundreds of millions of dollars a year crawling and indexing the deep
Web. It costs so much that even big companies like Yahoo and Ask are
giving up general crawling and indexing. Therefore, it seems silly to
compete on crawling and, besides, we do not have the money to do
so.'').
\398\ Submission from Zack Maril, to H. Comm. on the Judiciary
(Sept. 30, 2019) (on file with Comm.).
---------------------------------------------------------------------------
The web has grown exponentially over the last two
decades,\399\ which means the cost of crawling the entire
Internet has increased too, despite advances in crawling
technology. Today several major webpage owners block all but a
select few crawlers, in part because being constantly crawled
by a large number of bots can hike costs for owners and lead
their webpages to crash. The one crawler that nearly all
webpages will allow is Google's ``Googlebot,'' as disappearing
from Google's index would lead most webpages to suffer dramatic
drops in traffic and revenue.\400\ Any new search engine
crawler, by contrast, would likely be blocked by major webpage
owners unless that search engine was driving significant
traffic to webpages--which a search engine cannot do until it
has crawled enough webpages.\401\
---------------------------------------------------------------------------
\399\ Total Number of Websites, Internet Live Stats, https://
www.internetlivestats.com/total-number-of-websites (last visited Oct.
3, 2020) (showing that, in 2000, the internet had around 17,000,000
websites; today, it has more than 1.8 billion).
\400\ Submission from Zack Maril, to H. Comm. on the Judiciary
(Sept. 30, 2019) (on file with Comm.); see also Submission from Source
481, to H. Comm on the Judiciary (Feb. 20, 2020) (on file with Comm.);
Innovation and Entrepreneurship Hearing at 340 (statement of Megan
Gray, Gen. Couns. & Pol'y Advoc., DuckDuckGo).
\401\ Submission from Zack Maril, to H. Comm. on the Judiciary
(Sept. 30, 2019) (on file with Comm.).
---------------------------------------------------------------------------
The high cost of maintaining a fresh index and the decision
by many large webpages to block most crawlers significantly
limits new search engine entrants. In 2018, Findx--a privacy-
oriented search engine that had attempted to build its own
index--shut down its crawler, citing the impossibility of
building a comprehensive search index when many large websites
only permit crawlers from Google and Bing.\402\ Today the only
English-language search engines that maintain their own
comprehensive webpage index are Google and Bing.\403\ Other
search engines--including Yahoo and DuckDuckGo--must purchase
access to the index from Google and/or Bing through syndication
agreements that provide syndicated search engines with access
to search results and search advertising.\404\ While Yahoo
previously maintained an independent index, it entered a deal
with Microsoft in 2009 to integrate search technologies--a move
driven by the two firms' belief that combining was necessary to
provide a real alternative to Google.\405\
---------------------------------------------------------------------------
\402\ Game over, Findx (Sept. 21, 2019), https://web.archive.org/
web/20190921180535/https://privacore.github.io (``Many large websites
like LinkedIn, Yelp, Quora, Github, Facebook and others only allow
certain specific crawlers like Google and Bing to include their
webpages in a search engine index . . . . That meant that the Findx
search index was incomplete and was not able to return results that
were likely both relevant and good quality. When you compare any
independent search engine's results to Google for example, they have no
chance to be as relevant or complete because many large websites refuse
to allow any other search engine to include their pages.''); Submission
from Source 407, to H. Comm. on the Judiciary, Source 407-000024 (Nov.
21, 2011) (on file with Comm.); Competition & Mkts. Auth. Report at 91.
\403\ Competition & Mkts. Auth. Report at 89.
\404\ Innovation and Entrepreneurship Hearing at 341 (statement of
Megan Gray, Gen. Couns. & Pol'y Advoc., DuckDuckGo) (noting that
alternatives to serving ads through Google or Microsoft, such as only
showing product ads from Amazon or travel ads from Booking.com, are
``not sufficiently lucrative to cover the costs of purchasing organic
links,'' which means ``an aspiring search engine start-up today (and in
the foreseeable future) cannot avoid the need to sign a search
syndication contract'').
\405\ Submission from Source 209, to H. Comm. on the Judiciary,
Source 209-0000346 (Aug. 24, 2009) (on file with Comm.).
---------------------------------------------------------------------------
A second major competitive advantage enjoyed by search
engine incumbents is their access to voluminous click-and-query
data. This data, which tracks what users searched for and how
they interacted with the search results, benefits search
engines in several key ways.\406\ First, search engines rely on
click-and-query data to guide their search index's upkeep, as
this data helps identify which webpages are most relevant and
should be most regularly updated in the index.\407\ Second,
click-and-query data is used to refine the search algorithm and
the relevance of search results, as past user interactions
improve the algorithm's ability to predict future
interactions.\408\ In particular, data on ``tail'' (or rare)
queries enable a search engine to offer relevant results across
a higher set of potential queries--improving the overall
quality of the search engine--and Google's internal documents
show that the company recognizes its long-tail advantage.\409\
And third, increased query scale increases advertiser
engagement rates, given that more user queries generally
translate to more advertisement clicks, generating greater
revenue for advertisers.\410\
---------------------------------------------------------------------------
\406\ Competition & Mkts. Auth. Report at 11-12.
\407\ Submission from Source 26, to H. Comm. on the Judiciary,
Source 26-000016 (Nov. 21, 2011) (on file with Comm.) (``Queries are a
critical component of the user data necessary to identify and rank URLs
and documents for inclusion in a search index. Fewer queries mean fewer
opportunities to identify relevant URLs and documents, which ultimately
means a smaller usable search index.''); id. at Source 26-000026 (Nov.
21, 2011) (``Index freshness also is an important factor in the quality
of a search engine's result . . . . A [] survey found that a lack of
freshness was a significant driver of dissatisfaction among users
searching in the Entertainment and News categories.'').
\408\ Submission from Source 531, to H. Comm. on the Judiciary,
Source 531-000015 (``The more user queries the search engine handles,
the more data it obtains to improve the relevance of the search results
it serves.''); id. at Source 531-000060 (``The secret to successful
algorithmic search matching algorithms is user feedback . . . .
Ultimately this feedback helps the engine improve core relevance and
other experience factors--driving higher engagement.''); Innovation and
Entrepreneurship Hearing at 341 (statement of Megan Gray, Gen. Couns. &
Pol'y Advoc., DuckDuckGo) (``Another barrier facing a start-up search
engine is that it needs data, such as the most commonly clicked links
for a particular query, in order to produce a useful ranking of organic
links, i.e., what organic link is first, second, etc.''); Submission
from Source 209, to H. Comm. on the Judiciary, Source 209-0000346 to -
0000352 (Aug. 24, 2009) (on file with Comm.) (``Increased search
traffic brings more indications of user intent, facilitating more
experimentation and allowing a search platform to generate more
relevant natural and paid search results.''); see also Di He et al.,
Scale Effects in Web Search, in Web and Internet Economics 294, 294-310
(Nikhil R. Devanur & Pinyan Lu eds., 2017).
\409\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-03815864 (Apr. 23, 2010) (``Google leads competitors . . . . Our
long-tail precision is why users continue to come to Google. Users may
try the bells and whistles of Bing and other competitors, but Google
still produces the results. As soon as this ceases to be the case, our
business is in jeopardy.''); Competition & Mkts. Auth. Report app. I,
at 15 (``[A]round 1% of Google `tail' search events are for queries
which are seen by Bing,'' whereas ``31% of Bing `tail' search events
are for queries which are seen by Google.'' Furthermore, ``0.8% of
Google's `tail' distinct queries are seen by Bing, whereas 30% of
Bing's `tail' distinct queries are seen by Google.''); see also
Submission from Source 209, to H. Comm. on the Judiciary, Source 209-
0000532 (Feb. 17, 2011) (on file with
Continued
Comm.) (``[W]ithout strong tail performance, a horizontal search engine
cannot compete against Google.''); id. at Source 209-0000535 to -
0000536 (``[P]oor search engine performance in the tail means overall
weak search engine performance.'').
\410\ See, e.g., Submission from Source 531, to H. Comm. on the
Judiciary, Source 531-000056 (July 11, 2011) (on file with Comm.)
(stating that query scale increases advertiser engagement, since at
scale the platform ``makes better matches, has higher value
generation'').
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Overall there are significant advantages to scale in click-
and-query data, though the marginal benefit of additional data
on tail queries is higher than the marginal benefit of
additional data on ``head'' (or relatively common)
queries.\411\ Some market participants also stated that the
benefits of scale diminish once a search engine reaches a
certain size.\412\ The benefits of scale create a feedback
loop, where access to greater click-and-query data improves
search quality, which drives more usage and generates
additional click-and-query data.
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\411\ See Competition & Mkts. Auth. Report app. I, at 18.
\412\ Submission from Source 531, to H. Comm. on the Judiciary,
Source 531-000874 (May 5, 2011) (on file with Comm.) (``As a platform
gains more and more scale, the associated benefits begin to taper off
such that eventually additional scale provides only modest returns.'');
id. at Source 531-000025 (Nov. 21, 2011) (on file with Comm.) (``Above
30 billion documents, user satisfaction improves rapidly with increased
index size; above 90 billion documents, it still continues to improve
albeit at a slower rate.'').
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A third barrier to competition in general online search is
that Google has established extensive default positions across
both browsers and mobile devices. Among desktop browsers,
Google enjoys default placement in Chrome (which captures 51
percent of the U.S. market), Safari (31 percent), and Firefox
(5 percent)--or 87 percent of the browser market.\413\
Meanwhile, Microsoft's Edge, which captures four percent of the
desktop browser market, sets Bing as its search default,
leaving little opening for independent search engines.\414\ In
mobile, Google Search is primarily the default on Android and
on Apple's iOS mobile operating system--together, Android and
iOS account for over 99 percent of smartphones in the United
States.\415\ This default position provides Google with a
significant advantage over other search engines, given users'
tendency to stick with the default choice presented. Moreover,
market participants identified several ways Google dissuades
even those users who do attempt to switch default search
engines on Chrome.\416\
---------------------------------------------------------------------------
\413\ Innovation and Entrepreneurship Hearing at 342 (statement of
Megan Gray, Gen. Couns. & Pol'y Advoc., DuckDuckGo).
\414\ Id.
\415\ Mobile Operating System Market Share in United States of
America--September 2020, StatCounter, https://gs.statcounter.com/os-
market-share/mobile/united-states-of-america (last visited Oct. 3,
2020).
\416\ Submission from Source 534, to H. Comm. on the Judiciary, 1
(Oct. 14, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Google won itself default placement across the mobile and
desktop ecosystem through both integration and contractual
arrangements. By owning Android, the world's most popular
mobile operating system, Google ensured that Google Search
remained dominant even as mobile replaced desktop as the
critical entry point to the Internet. Documents submitted to
the Subcommittee show that, at certain key moments, Google
conditioned access to the Google Play Store on making Google
Search the default search engine, a requirement that gave
Google a significant advantage over competing search
engines.\417\ Through revenue-sharing agreements amounting to
billions of dollars in annual payments, Google also established
default positions on Apple's Safari browser (on both desktop
and mobile) and Mozilla's Firefox.\418\
---------------------------------------------------------------------------
\417\ See infra Section V.
\418\ Innovation and Entrepreneurship Hearing at 595 (response to
Questions for the Record of Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.).
---------------------------------------------------------------------------
In public statements, Google has downplayed the
significance of default placement, claiming that ``competition
is just a click away.'' \419\ However, Google's internal
documents show that when Google was still jostling for search
market share, Google executives closely tracked search defaults
on Microsoft's Internet Explorer and expressed concern that
non-Google defaults could impede Google Search.\420\ In an
internal presentation about Internet Explorer's default search
selection, Google recommended that users be given an initial
opportunity to select a search engine and that browsers
minimize the steps required to change the default search
engine.\421\ These discussions--along with the steep sums
Google pays Apple and various browsers for default search
placement--further highlight the competitive significance of
default positions.
---------------------------------------------------------------------------
\419\ See, e.g., Adam Kovacevich, Google's Approach to Competition,
Google Pub. Pol'y Blog (May 8, 2009), https://
publicpolicy.googleblog.com/2009/05/googles-approach-to-competition
.html.
\420\ See, e.g., Submission from Google, to H. Comm. on the
Judiciary, GOOG-HJC-01196214 (May 31, 2005) (on file with Comm.).
\421\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-01680749 (Feb. 16, 2006) (on file with Comm.) (identifying several
recommendations, including, ``[f]ewest clicks required to change
default, which promotes search innovation by facilitating the user's
ability to switch'').
---------------------------------------------------------------------------
Independent search engines told the Subcommittee that
because they are not set as the default search engine on
popular browsers, they face significant business challenges. As
a result, DuckDuckGo said it was compelled to invest in browser
technology, including creating its own browser for Android and
iOS and various browser extensions.\422\ It noted, however,
that ``the same default placement challenges exist in the
browser market, just one level up--with the device makers
requiring millions or billions of dollars to become a default
browser on a device.'' \423\
---------------------------------------------------------------------------
\422\ Innovation and Entrepreneurship Hearing at 343 (statement of
Megan Gray, Gen. Couns. & Pol'y Advoc., DuckDuckGo).
\423\ Id. at 343-44.
---------------------------------------------------------------------------
A fourth challenge facing upstart search engines is the
growing number of features and services that a general search
provider must offer to be competitive with Google. Through the
mid-2000s, a general search engine could compete through
providing organic links alone. Since Google and Bing now
incorporate information boxes and various specialized services
directly onto their general search results page, a market
entrant would similarly need to provide a broader set of search
features and services. One market participant told the
Subcommittee that this set of ``mandatory high-quality search
features'' includes maps, local business answers, news, images,
videos, definitions, and ``quick answers.'' \424\ Delivering
this variety of features requires access to various sources of
data, raising the overall costs of entry.
---------------------------------------------------------------------------
\424\ Id. at 339.
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Vertical search providers differ from horizontal search
engines in several ways. By offering specialized search focused
on a particular topic or activity, they fulfill a separate role
and require distinct tools and expertise. The necessary inputs
vary by search vertical. Flight search, for example, requires
access to flight software and data, whereas certain local
search providers rely on user-generated content such as
reviews. Many vertical providers use structured data feeds that
pull from third-party databases, rather than from a general
index.
A significant challenge for vertical providers is reaching
users. Although they serve distinct needs, most vertical search
providers still depend on horizontal search engines--and
specifically on Google--to reach users.\425\ In submissions to
the Subcommittee, even some of the largest and most well-known
verticals stated that they depend on Google for up to 80-95
percent of their traffic.\426\ Since Google now also provides
vertical search services, it has the incentive and ability to
use its dominance in horizontal search to disfavor vertical
providers that compete with its own vertical search services.
Internal documents from Google show that it has used its
dominance in general search to closely track traffic to
competing verticals, demanding that certain verticals permit
Google to scrape their user-generated content and demote
several verticals. Several market participants told the
Subcommittee that Google's preferential treatment of its own
verticals, as well as its direct listing of information in the
``OneBox'' that appears at the top of Google search results,
has the net effect of diverting traffic from competing
verticals and jeopardizing the health and viability of their
business.\427\
---------------------------------------------------------------------------
\425\ Submission from Source 564, to H. Comm. on the Judiciary, 5
(Nov. 12, 2019) (on file with Comm.) (``The most important source of
traffic for local search services are general search websites.'').
\426\ Id.; Submission from Source 115, to H. Comm. on the
Judiciary, 19 (Dec. 27, 2019) (on file with Comm.); Submission from
Source 887, to H. Comm. on the Judiciary, 3 (Oct. 28, 2019) (on file
with Comm.); Submission from Foundem, to H. Comm. on the Judiciary, 9
(Dec. 12, 2016) (on file with Comm.).
\427\ Submission from Source 564, to H. Comm. on the Judiciary, 5
(Nov. 12, 2019) (on file with Comm.); Submission from Source 115, to H.
Comm. on the Judiciary, 19 (Dec. 27, 2019) (on file with Comm.);
Submission from Source 887, to H. Comm. on the Judiciary, 3 (Oct. 28,
2019) (on file with Comm.); Submission from Foundem, to H. Comm. on the
Judiciary, 9 (Dec. 12, 2016) (on file with Comm.).
---------------------------------------------------------------------------
Google's internal documents and submissions from third-
party market participants suggest that verticals are both a
complement to horizontal search as well as a competitive threat
to it. One market participant explained that, while vertical
search providers can increase demand for horizontal search
engines in the short-term, they can divert traffic from
horizontal search providers in the long-term, as the growing
popularity of a vertical may lead users to navigate to it
directly.\428\ Diverting traffic from general search providers,
in turn, would deprive them of both advertiser revenue as well
as valuable click-and-query data. Given these dynamics, a
dominant horizontal search provider that also enters vertical
search faces a significant conflict of interest that can skew
search results to the detriment of third-party businesses and
users alike.
---------------------------------------------------------------------------
\428\ Submission from Source 407, to H. Comm. on the Judiciary,
Source 407-000071 (Nov. 12, 2019) (on file with Comm.).
---------------------------------------------------------------------------
B. Online Commerce
Online commerce, also known as e-commerce, is the activity
of buying or selling products or services using the
Internet.\429\ E-commerce transactions take place through a
variety of channels, including online marketplaces like Amazon
Marketplace, where a wide variety of brands and products from
different sellers are sold in one place, or a business's
direct-to-consumer website like Nike.com. In 2019, the U.S.
Census Bureau estimated e-commerce retail sales to be about
$600 billion,\430\ compared to just under $33 billion in
2001.\431\ As the COVID-19 pandemic pushes more American
shoppers online, e-commerce growth has exploded.\432\ This is
particularly true for online marketplaces, where sales for
essential items like groceries, masks, and electronics for home
offices increased sharply in the wake of the pandemic.\433\
---------------------------------------------------------------------------
\429\ Press Release, U.S. Dep't of Commerce, U.S. Census Bureau,
Retail E-Commerce Sales in Fourth Quarter 2001 Were $10.0 Billion, up
13.1 Percent from Fourth Quarter 2000, Census Bureau Reports (Feb. 20,
2002), https://www2.census.gov/retail/releases/historical/ecomm/
01q4.pdf (defining e-commerce as ``sales of goods and services where an
order is placed by the buyer or price and terms of sale are negotiated
over an Internet, extranet, Electronic Data Interchange (EDI) network,
electronic mail, or other comparable online system'' and noting that
``[p]ayment may or may not be made online'').
\430\ Press Release, U.S. Dep't of Commerce, U.S. Census Bureau,
Quarterly Retail E-Commerce Sales 4th Quarter 2019 (Feb. 19, 2020),
https://www2.census.gov/retail/releases/
historical/ecomm/19q4.pdf.
\431\ Press Release, U.S. Dep't of Commerce, U.S. Census Bureau,
Retail E-Commerce Sales in Fourth Quarter 2001 Were $10.0 Billion, up
13.1 Percent from Fourth Quarter 2000, Census Bureau Reports (Feb. 20,
2002), https://www2.census.gov/retail/releases/historical/ecomm/
01q4.pdf.
\432\ Gayle Kesten, As Online Prices Increase, Consumers'
Purchasing Power Declines, Adobe: Retail (July 13, 2020), https://
blog.adobe.com/en/2020/07/13/as-online-prices-increase-consumers-
purchasing-power-declines.html (``[T]otal online spending of $73
billion in June marked a 76.2 percent increase year-over-year.''); see
also Andrew Lipsman, Emarketer, US Ecommerce by Category 2020: How the
Pandemic is Reshaping the Product Category Landscape (July 22, 2020),
https://www.emarketer.com/content/us-ecommerce-by-category-2020 (``US
ecommerce sales will surge 18.0% to $709.78 billion, while brick-and-
mortar retail sales will experience a historically significant decline
of 14.0% to $4.184 trillion.'').
\433\ Feedvisor, 2020 Q4 Trends and Projections: The Digital
Revolution of Retail and E-Marketplaces 2-3, 5 (2020) (showing that
Grocery and Gourmet sales on Amazon and Walmart were up 91 percent and
46 percent over the months of March and April 2020, respectively,
compared to February); see also Giselle Abramovich, How COVID-19 Is
Impacting Online Shopping Behavior, Adobe: COVID-19 (Mar. 26, 2020),
https://blog.adobe.com/en/2020/03/26/how-covid-19-is-impacting-online-
shopping-behavior.html (reporting that, after the COVID-19 outbreak,
``purchases for cold, cough & flu products increased 198%, while online
purchases for pain relievers increased 152%'').
---------------------------------------------------------------------------
An online marketplace's most basic function is to serve as
a platform that connects buyers and sellers. Marketplaces
include product listings from a variety of sellers. Some online
marketplaces, such as Amazon and eBay, aim to be fully
integrated, multi-category e-commerce sites. Other
marketplaces, however, operate as vertical, single-category
sites, such as Newegg.com, for computer hardware and consumer
electronics. The primary customers of e-commerce marketplaces
are customers looking to buy an item or service online, and
businesses looking to sell goods or services to customers
online. Because of this, a successful marketplace must be
attractive to consumers and third-party sellers.
The consumer-facing side of the marketplace allows users to
search for and purchase products. Most online marketplaces
offer features that enable users to compare competing products
based on details like their price, popularity, and customer
satisfaction reviews. Amazon is by far the largest
marketplace.\434\ Other marketplaces that are popular with
consumers include eBay, Walmart, and Wayfair.\435\
---------------------------------------------------------------------------
\434\ See, e.g., Andrew Lipsman, Emarketer, Top 10 US Ecommerce
Companies 2020 (Mar. 10, 2020), https://www.emarketer.com/content/top-
10-us-ecommerce-companies-2020 (forecasting Amazon's e-commerce market
share for 2020 at 38.7 percent, compared to second-place Walmart at 5.3
percent and third-place eBay at 4.7 percent); see also Submission from
Amazon, to H. Comm. on the Judiciary, AMAZON_HJC_00061156 (Oct. 30,
2019) (on file with Comm.) (showing that Amazon.com was about five
times larger than eBay in 2018, its next closest marketplace competitor
at the time).
\435\ Andrew Lipsman, Emarketer, Top 10 US Ecommerce Companies 2020
(Mar. 10, 2020), https://www.emarketer.com/content/top-10-us-ecommerce-
companies-2020.
---------------------------------------------------------------------------
Online marketplaces also serve third-party sellers. Third-
party sellers have needs that are distinct from consumers
visiting the marketplace to make a purchase. The seller-facing
side of the business consists of providing third-party sellers
with a platform to list their products for consumers to
purchase. Often, the marketplace will supply vendors with
services such as inventory tracking and pricing
recommendations. Online marketplaces usually offer additional
paid services to third-party sellers such as advertising and
fulfillment services, consisting of warehousing, packing, and
shipping.
The businesses that own and operate e-commerce marketplaces
may host only independent, third-party seller listings, or list
their own items for sale alongside third-party sellers. Amazon
Marketplace is an example of the latter, in that customers view
Amazon Retail offers for its own private-label brands, such as
AmazonBasics,\436\ alongside independent, third-party seller
offers. Amazon Retail also acts as a reseller of brand-name
items, purchasing items like Levi's jeans from a wholesaler,
and then reselling them on the marketplace. In these
circumstances, third-party sellers are both customers and
competitors of online marketplaces.
---------------------------------------------------------------------------
\436\ Submission from Amazon, to H. Comm. on the Judiciary, 1 (Oct.
14, 2019) (on file with Comm.) (``AmazonBasics is an Amazon private
brand that launched in 2009. The brand offers a number of products,
including electronics accessories, luggage, and office products.'').
---------------------------------------------------------------------------
Marketplace operators benefit financially from the sale of
services to third-party sellers and consumers.\437\ On the
seller-facing side of their business, marketplaces usually take
a cut of third-party sales and charge fees for sales-related
services like fulfillment, payment, and advertising. If the
marketplace operators also sell products on their own
platforms, they make money like a typical retailer from the
difference between the wholesale and retail price. Marketplaces
may also make money from fees paid by customers to participate
in membership programs. For example, Amazon offers Amazon Prime
for $119 per year as a paid membership program that provides
customers with benefits such as unlimited free shipping on
eligible items and digital streaming video.\438\ Other revenue
sources for marketplaces may include credit card and gift card
services that are tied to the platform.\439\
---------------------------------------------------------------------------
\437\ See, e.g., Amazon.com, Inc., Quarterly Report (Form 10-Q) 18
(July 31, 2020), http://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/
a77b5839-99b8-4851-8f37-0b012f9292b9.pdf (showing net sales for third-
party seller services increased from $23 billion in the first six
months of 2019 to $32 billion in the first six months of 2020).
\438\ Submission from Amazon, to H. Comm. on the Judiciary, 1-2
(Oct. 14, 2019) (on file with Comm.).
\439\ See, e.g., Amazon.com, Inc., Annual Report (Form 10-K) 23, 47
(Jan. 31, 2017), https://www.sec.gov/Archives/edgar/data/1018724/
000101872417000011/amzn-20161231x10k.htm.
---------------------------------------------------------------------------
A few large companies dominate the e-commerce industry, and
Amazon is the clear leader among them. The market research
company eMarketer estimates that Amazon is about eight times
larger than eBay and Walmart in terms of market share.\440\
Other metrics further demonstrate Amazon's role as a gatekeeper
for e-commerce. Amazon is the most-visited website globally for
e-commerce and shopping,\441\ and recent analyses suggest that
over 60 percent of all online product searches in the U.S.
begin on Amazon.com.\442\
---------------------------------------------------------------------------
\440\ Andrew Lipsman, Emarketer, Top 10 US Ecommerce Companies 2020
(Mar. 10, 2020), https://www.emarketer.com/content/top-10-us-ecommerce-
companies-2020.
\441\ Worldwide E-Commerce and Shopping Category Performance,
SimilarWeb (July 2020), https://pro.similarweb.com/#/industry/overview/
E-commerce_and_Shopping/999/1m/?web Source=Total (showing that Amazon
had 2.6 billion visits compared to 940.8 million for eBay in July
2020).
\442\ Lucy Koch, Emarketer, Looking for a New Product? You Probably
Searched Amazon (Mar. 31, 2019), https://www.emarketer.com/content/
looking-for-a-new-product-you-probably-searched-amazon (citing
FeedVisor, The 2019 Amazon Consumer Behavior Report 14 (2019)); see
also Wunderman Thompson Commerce, The Future Shopper Report 2020, at 11
(2020) (on file with Comm.).
---------------------------------------------------------------------------
Amazon's dominance in e-commerce extends to its role as a
marketplace operator and its relationship with sellers. Because
of its size and scale, no other marketplace comes close to
providing sellers with access to such a large pool of buyers,
as well as sales-related services. There are over 112 million
Prime members in the United States--about 44 percent of the
adult population. The number of Prime members has doubled since
reaching 50 million members in 2015, with Amazon projecting
additional growth.\443\ Amazon.com has 2.3 million active
sellers on its marketplace worldwide.\444\ In comparison,
Amazon's closest e-commerce competitor, Walmart, has roughly
54,000 sellers on its marketplace.\445\ In general, the more
sellers a platform has, the more buyers it can attract and vice
versa.\446\ According to a competing online marketplace,
sellers feel forced to be on Amazon because that is where the
buyers are.\447\
---------------------------------------------------------------------------
\443\ Press Release, Consumer Intel. Rsch. Partners, LLC, U.S.
Amazon Prime Members--Slow, Steady Growth (Jan. 16, 2020), https://
files.constantcontact.com/150f9af2201/9f9e47b4-0d66-4366-ad76-
552ae3daa4f0.pdf; see Todd Bishop, Amazon Tops 150M Paid Prime
Subscribers Globally After Record Quarter for Membership Program,
GeekWire (Jan. 30, 2020), https://www.geekwire.com/2020/breaking-
amazon-tops-150m-paid-prime-members-globally-record-quarter/; Parkev
Tatevosian, Will Amazon Prime Reach 200 Million Members by the End of
2020?, Motley Fool (July 18, 2020), https://www.fool.com/investing/
2020/07/18/will-amazon-prime-reach-200-million-members-by-the.aspx
(noting a 29 percent increase in Amazon's revenue in the second quarter
of 2020 versus the same quarter in 2019, primarily as a result of
COVID-19).
\444\ Number of Sellers on Amazon Marketplace, Marketplace Pulse,
https://www.market placepulse.com/amazon/number-of-sellers (last
visited Oct. 3, 2020).
\445\ Walmart's Fulfillment Service for Sellers Not Seeing
Adoption, Marketplace Pulse (Sept. 1, 2020), https://
www.marketplacepulse.com/articles/walmarts-fulfillment-service-for-
sellers-not-seeing-adoption.
\446\ Stigler Report at 38 (describing indirect, multi-sided
network effects in e-commerce, noting that ``in ecommerce platforms,
which intermediate trade between sellers and buyers, a buyer does not
directly benefit from the presence of other buyers but does benefit
from the presence of more sellers--who are in turn attracted by the
presence of the buyers'').
\447\ Submission from Source 718, to H. Comm. on the Judiciary, 5
(Oct. 14, 2019) (on file with Comm.).
---------------------------------------------------------------------------
If current trends continue, no company is likely to pose a
threat to Amazon's dominance in the near or distant future.
Although some alternatives to Amazon have experienced growth
during the pandemic, there is still a massive gap between the
market leader and its competitors.\448\ Several factors
privilege Amazon as the dominant e-commerce marketplace, and
also make entry or expansion by a challenger unlikely. While
some of these barriers to entry are inherent to e-commerce--
such as economies of scale and network effects--others result
from Amazon's anticompetitive conduct. As discussed elsewhere
in the Report, Amazon's acquisition strategy and many of its
business practices were successfully designed to protect and
expand its market power. An Amazon executive referred to some
of these tactics as the company's ``Big Moats,'' and suggested
``doubl[ing] down'' on them in a business strategy
document.\449\ Similarly, in 2018, an investment analyst report
expressed skepticism about Walmart's ability to challenge
Amazon, commenting, ``[W]e are concerned Amazon's Prime
membership program is fortifying an impenetrable moat around
its customers.'' \450\
---------------------------------------------------------------------------
\448\ Andrew Lipsman, Emarketer, Top 10 US Ecommerce Companies 2020
(Mar. 10, 2020), https://www.emarketer.com/content/top-10-us-ecommerce-
companies-2020 (illustrating that, although Walmart's increased share
of the U.S. retail e-commerce market will allow it to overtake eBay for
second place, it will remain a distant second to Amazon).
\449\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON_HJC_00068510 (Sept. 8, 2010) (on file with Comm.).
\450\ See Lydia Ramsey Pflanzer, Walmart's Talks with an Insurance
Giant Could Be Part of an Assault on Amazon Prime, Bus. Insider (Apr.
3, 2018), https://www.businessinsider.com/
morgan-stanley-why-walmart-could-bid-on-humana-2018-4.
---------------------------------------------------------------------------
C. Social Networks and Social Media
Social media products and services include social
networking, messaging, and media platforms designed to engage
people by facilitating sharing, creating, and communicating
content and information online.\451\ Although the boundaries of
the social media market are imprecise,\452\ social media
platforms generally allow users on their networks to interact
with people or groups they know, display content through linear
feeds, or otherwise add socially layered functionality for
services online, usually through a mobile app. In response to
the Committee's requests for information, several market
participants said they view social media as driven by networks,
while many social media products and services include common
functionalities, such as public profiles, curated feeds,
followers, messaging, and other use cases.\453\ Others focus on
certain aspects of public and private communications.\454\
---------------------------------------------------------------------------
\451\ Competition & Mkts. Auth. Report at 53.
\452\ Jan H. Kietzmann, Kristopher Hermkens, Ian P. McCarthy &
Bruno S. Silvestre, Social Media? Get Serious! Understanding the
Functional Building Blocks of Social Media, 54 Bus. Horizons 241
(2011), http://summit.sfu.ca/system/files/iritems1/18103/
2011_social_media _bh.pdf.
\453\ Submission from Source 247, to H. Comm. on the Judiciary,
Source 247-0000000006 (Oct. 23, 2019) (on file with Comm.); Competition
& Mkts. Auth. Report at 53.
\454\ Submission from Source 471, to H. Comm. on the Judiciary, 4
(Oct. 15, 2019) (on file with Comm.) (``[T]here are a number of other
competitors who focus on different or additional aspects of public and
private communication. For example, some competitors focus on sharing
and expression though images and other media (e.g., Instagram, YouTube,
and Pinterest). Some companies focus more on private communications
(e.g., WhatsApp, Snap (for the most part), Facebook, Signal, and
Telegram). Other companies focus on communications about specific
topics (e.g., Discord for gaming and Slack for workplace
communications).'').
---------------------------------------------------------------------------
A principal feature of social media platforms is that they
typically offer their services for a zero monetary price to the
platform's users.\455\ The platform develops a service it hopes
will attract a critical mass of users to then attract
advertisers to the platform.\456\ Some social media companies
offer additional services to users for a price or allow users
to pay for additional functionality. For example, LinkedIn
Premium provides users with an option to pay for additional
features, such as their network and in-app messaging
insights.\457\
---------------------------------------------------------------------------
\455\ Submission from Source 164, to H. Comm. on the Judiciary,
Source 164-000015 (Oct. 28, 2019) (on file with Comm.) (describing how
online advertising requires building an ad product, a sales team to
sell that product, and the engineering and product capacity to target
and measure the effectiveness of those ads).
\456\ Fiona M. Scott Morton & David C. Dinielli, Omidyar Network,
Roadmap for an Antitrust Case Against Facebook 3 (2020) [hereinafter
Omidyar Network Report], https://www.omidyar.com/wp-content/uploads/
2020/06/Roadmap-for-an-Antitrust-Case-Against-Facebook.pdf.
\457\ LinkedIn Premium, https://premium.linkedin.com/ (last visited
Oct. 3, 2020).
---------------------------------------------------------------------------
Social media platforms with a larger network of users are
more likely to attract users and advertisers.\458\ In a
briefing to Subcommittee members and staff, Brad Smith, the
President of Microsoft, described this value:
---------------------------------------------------------------------------
\458\ Production from Facebook, to H. Comm. on the Judiciary,
FB_HJC_ACAL_00059100 (Apr. 6, 2012) (on file with Comm.) (``Advertising
is a scale thing, it wasn't until we reached 350 million users did we
become interesting to big brands.'').
LYou don't always need to have a proven business model to
attract capital. You just need an idea that will get a lot of
users. And then people assume you'll find a way to turn that
usage into a business model that will produce revenue. That's
been very important for the US. It distinguishes us and allows
venture funding. There's something magical about 100 million
active monthly users (MAU) in the United States. At that level
a company becomes a force unto themselves. If you see a company
acquire another company that's in the same product market and
is on the path to reach 100 million MAU, that's more likely to
raise a competitive concern. Historically, I think regulators
were slow to notice that issue.\459\
---------------------------------------------------------------------------
\459\ Briefing with Brad Smith, President, Microsoft, in
Washington, D.C. (June 23, 2020).
As another market participant describes it, ``attracting a
critical mass of users is essential to delivering a viable
social network, as there is no reason for users to start using
a social network if there is no one there with whom they can
connect.'' \460\
---------------------------------------------------------------------------
\460\ Submission from Source 164, to H. Comm. on the Judiciary,
Source 164-000014 (Oct. 28, 2019) (on file with Comm.). But see
Bundeskartellamt [Federal Cartel Office], Case Summary: Facebook,
Exploitative Business Terms Pursuant to Section 19(1) GWB for
Inadequate Data Processing 5 (Feb. 15, 2019), https://
www.bundeskartellamt.de/SharedDocs/Ent scheidung/EN/Fallberichte/
Missbrauchsaufsicht/2019/B6-22-16.pdf?_blob=publicationFile &v=4 (``At
least as far as the services affected in this case are concerned, it is
not sufficient to have a `critical mass' of users or technical,
financial and personal expertise in order to be able to enter
neighbouring markets and be as successful as on the original market. As
the example of Google+ has shown, a service cannot expect to have the
same reach when providing a different type of service, due to strong
direct network effects.'').
---------------------------------------------------------------------------
Social media companies may also focus on attracting
particular types or groups of consumers to differentiate
themselves from larger companies.\461\ Many of the top-ranking
apps on iOS are complementary to popular social media
applications. For example, Dazz Cam, a vintage-inspired photo-
editing app used with TikTok, was popular in the U.S. in
2020.\462\ Similarly, Lens is a popular iOS app that allows
users to browse, like, and comment on photos and videos on
Instagram using the Apple Watch.\463\
---------------------------------------------------------------------------
\461\ Competition & Mkts. Auth. Report at 115.
\462\ Michelle Santiago Cortes, These Are the TikTok Editing Apps
You've Been Seeing on Your ``For You'' Page, Refinery29 (Mar. 25,
2020), https://www.refinery29.com/en-us/tik-tok-editing-apps.
\463\ Zac Hall, Lens Is a Modern and Feature-Packed Instagram App
for Apple Watch that Works Without the iPhone, 9to5Mac (Apr. 24, 2019),
https://9to5mac.com/2019/04/24/lens-instagram-for-apple-watch/.
---------------------------------------------------------------------------
Due to network effects in the social media market, new
entrants may choose to begin as a complement by relying on the
incumbent platform's application programming interfaces (APIs),
such as Facebook's Open Graph or Twitter's search API.\464\
However, because incumbent platforms control access to these
APIs and can foreclose access to a complementary app that is
successful or gaining users,\465\ some market participants view
relying on these platforms to reach users as a constant
business risk.\466\ One market participant noted that, in
addition to harming its business, these actions also ``restrict
users' ability to multi-home and increase barriers to entry,
including network effects and switching costs.'' \467\
---------------------------------------------------------------------------
\464\ Omidyar Network Report at 22.
\465\ Id. at 22-25; Submission from Source 471, to H. Comm. on the
Judiciary, 8 (Oct. 15, 2019) (on file with Comm.) (``In or around 2010,
[Source 471] restricted the access of our API by some
Continued
third-party developers because we had significant concerns regarding
some third-partydevelopers use of [Source 471]'s private data. In order
to protect private data, [Source 471] determined such changes were
necessary to ensure that these data were not used improperly.'').
\466\ Submission from Source 164, to H. Comm. on the Judiciary,
Source 164-00023 (Oct. 28, 2019) (on file with Comm.); Submission from
Source 471, to H. Comm. on the Judiciary, 10 (Oct. 15, 2019) (on file
with Comm.) (``[Our company's] business would be affected if other
social networking networks were to disallow cross-posting . . . to
their platforms or discontinue APIs central to the functionality of our
products or services.'').
\467\ Submission from Source 471, to H. Comm. on the Judiciary, 10
(Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Given Facebook's dominance, the primary way for new
entrants to compete is to attract a subgroup or niche.\468\ One
market participant explained, ``competitors may be limited to
niche strategies that do not challenge the incumbent directly.
For example, Facebook (including Instagram) is by far the most
popular social networking platform. Although there are several
competitors, such as LinkedIn, and fast-growing new entrants,
such as TikTok, most or all employ niche strategies to varying
degrees, and most have far less user engagement, attention, and
data and a smaller share of advertising revenue than
Facebook.'' \469\
---------------------------------------------------------------------------
\468\ Omidyar Network Report at 16.
\469\ Submission from Source 407, to H. Comm. on the Judiciary, 4
(Nov. 1, 2019); Competition & Mkts. Auth. Report at 55
(``Differentiation can incentivise consumers to access multiple
platforms, allowing for the co-existence of platforms.'').
---------------------------------------------------------------------------
1. Social Networks Are Distinguishable from Social Media
While a broad view of the social media market is useful for
considering the wider landscape for social data and online
advertising,\470\ it is important to focus on the actual use,
demand, and substitutability of social products when examining
competition among social platforms online.\471\ The critical
distinction between social networking and social media markets
is how people use the platform. As Germany's Federal Cartel
Office (Bundeskartellamt) and the United Kingdom's Competition
and Markets Authority (CMA) have noted, the specific demand for
social networks ``is fundamentally different from the demand
for other social media.'' \472\
---------------------------------------------------------------------------
\470\ Submission from Source 164, to H. Comm. on the Judiciary,
Source-32-000014 (Oct. 28, 2019) (on file with Comm.) (discussing how
they see ``social media sites'' as competitors for ads even though they
don't think they are in that market).
\471\ See United States v. Microsoft Corp., 253 F.3d 34, 51-52
(D.C. Cir. 2001) (``[T]he relevant market must include all products
`reasonably interchangeable by consumers for the same purposes.' '')
(quoting United States v. E.I. du Pont de Nemours, 351 U.S. 377, 395
(1956)); see also Competition & Mkts. Auth. Report at 117-18 (``[T]he
closeness of competition between different platforms depends on the
degree to which consumers consider them substitutes, rather than the
extent to which they share common functionalities.'').
\472\ Competition & Mkts. Auth. Report at 54 (citing
Bundeskartellamt, Feb. 6, 2019, B6-22/16, para. 249, https://
www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Entscheidun gen/
Missbrauchsaufsicht/2019/B6-22-16.pdf?_blob=publicationFile&v=5).
---------------------------------------------------------------------------
Social network platforms facilitate their users finding,
interacting, and networking with other people they already know
online, and by providing a ``rich social experience'' through
features on their products.\473\ People regularly use social
network platforms to exchange ``experiences, opinions and
contents among specific contacts which the users define based
on identity.'' \474\
---------------------------------------------------------------------------
\473\ Id.
\474\ Id.
---------------------------------------------------------------------------
In contrast, social media platforms principally facilitate
the distribution and consumption of content. Much of the
content on YouTube, for example, can be enjoyed by users with a
wide range of relationships to the person posting, including by
strangers.\475\ Similarly, TikTok describes itself as a
``global platform for users to express their ideas by sharing
videos with a broader community.'' \476\ In light of this
distinction, the CMA concluded that YouTube is focused on
offering content and does not compete with Facebook,
facilitating communication and sharing content among groups of
friends who choose each other and enjoy content in large part
because of those relationships.\477\
---------------------------------------------------------------------------
\475\ Omidyar Network Report at 6.
\476\ Letter from Michael Beckerman, Vice President, Head of U.S.
Pub. Pol'y, TikTok, to Hon. David N. Cicilline, Chair, Subcomm. on
Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,
Hon. F. James Sensenbrenner, Ranking Member, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, Hon.
Jerrold Nadler, Chair, H. Comm. on the Judiciary & Hon. Jim Jordan,
Ranking Member, H. Comm. on the Judiciary 1 (July 29, 2020), https://
docs.house.gov/meetings/JU/JU05/20200729/110883/HHRG-116-JU05-20200729-
SD005.pdf.
\477\ Omidyar Network Report at 6.
---------------------------------------------------------------------------
In sum, social networking sites have a robust social graph,
whereas content-centric sites do not.\478\ Although users can
share videos or stream events on Facebook and YouTube in
similar ways, there is a fundamental difference between sharing
a video among a person's social network on Facebook, Instagram,
or WhatsApp--such as a child's first steps--and broadcasting it
publicly on YouTube. While people may spend significant time on
both YouTube and Facebook,\479\ these firms provide distinct
services to their users, and including both in the same market
would be inconsistent with how users engage with each platform.
---------------------------------------------------------------------------
\478\ Thomas Cunningham, Possible End States for the Family of Apps
(2018) (on file with Comm.) (discussing social networking platforms
with comparable and orthogonal social graphs).
\479\ Average Time Spent Daily on Social Media (Latest 2020 Data),
Broadband Search, https://www.broadbandsearch.net/blog/average-daily-
time-on-social-media#post-navigation-4 (last visited Oct. 3, 2020).
---------------------------------------------------------------------------
2. Market Concentration
Social platforms that are within a broad definition of
social media include YouTube, Facebook and its family of
products--Instagram, Messenger, and WhatsApp--as well as
TikTok, Twitter, LinkedIn, Pinterest, Reddit, and Tumblr.\480\
According to Facebook's internal market data, YouTube and
Facebook's family of products were by far the most popular
social media sites by Monthly Active Persons (MAP) as of
December 2019.\481\
---------------------------------------------------------------------------
\480\ Competition & Mkts. Auth. Report at 115 n.140 (indicating
that there are several other smaller firms that conform to this
definition of social media but lack a significant user base).
\481\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-00086585 (Jan. 2020) (on file with Comm.).
---------------------------------------------------------------------------
Social Media Companies by Monthly Active Persons (MAP) in
Millions \482\
---------------------------------------------------------------------------
\482\ Prepared by the Subcommittee based on the Submission from
Facebook, to H. Comm. on the Judiciary, FB-HJC-00086585 (Jan. 2020) (on
file with Comm.) (metrics collected by Facebook, Inc.).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The social network marketplace is highly concentrated.
Facebook (1.8 billion users) and its family of products--
WhatsApp (2.0 billion users) and Instagram (1.4 billion
users)--have significantly more users and time spent on its
platform than its closest competitors, Snapchat (443 million
users) or Twitter (582 million users).\483\ TikTok is growing
quickly and is often referenced as evidence that the social
media landscape is competitive.\484\ Although it meets the
broad definition of social media as a social app for
distributing and consuming video content, TikTok is not a
social network.
---------------------------------------------------------------------------
\483\ Thomas Cunningham, Possible End States for the Family of Apps
(2018) (on file with Comm.) (discussing social networking platforms
with comparable and orthogonal social graphs).
\484\ See Alex Sherman, TikTok Reveals Detailed User Numbers for
the First Time, CNBC (Aug. 24, 2020), https://www.cnbc.com/2020/08/24/
tiktok-reveals-us-global-user-growth-numbers-for-first-time.html.
---------------------------------------------------------------------------
D. Mobile App Stores
Mobile application stores (app stores) are digital stores
that enable software developers to distribute software
applications (apps) to mobile device users.\485\ A mobile app
is a standardized piece of software optimized for use on a
mobile device. Users can install this software to access
digital content or services, share content, play games, or make
transactions for physical goods and services.
---------------------------------------------------------------------------
\485\ See, e.g., Submission from Apple, to H. Comm. on the
Judiciary, HJC_APPLE_000003 (Oct. 14, 2019) (on file with Comm.);
Letter from Exec. at Source 736, to Members of the Subcomm. on
Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,
4 (Oct. 31, 2019) (on file with Comm.); Brics Competition, Innovation,
Law & Pol'y Ctr., Digital Era Competition: A Brics View 347 (2019),
http://bricscompetition.org/upload/iblock/6a1/brics%20book%20full.pdf.
---------------------------------------------------------------------------
Apps are configured to run on a device's operating system as ``native
apps.'' These apps may be pre-installed on a mobile device as a
component of the operating system or by the device manufacturer,
downloaded from an app store, or loaded directly from the web using a
browser--a process referred to as sideloading. Software developers
upload apps and updates to app stores, and mobile device users can then
install apps by downloading them from the app store to their device.
App stores include free and paid apps that charge a fee. In
addition to allowing users to install apps, app stores enable
users to search, browse, and find reviews for apps, as well as
remove apps from their devices.\486\ The leading app stores
also offer tools and services to support developers building
apps for the app store.\487\ App stores have rules that govern
the types of apps permitted in the app store, conduct of app
developers, how users pay for apps, the distribution of revenue
between the app and the app store, and other details regarding
the relationship between the app store operator and the app
developers that distribute apps through the store.\488\
---------------------------------------------------------------------------
\486\ Neth. Auth. for Consumers & Mkts., Market Study into Mobile
App Stores 20 (2019), https://www.acm.nl/sites/default/files/documents/
market-study-into-mobile-app-stores
.pdf [hereinafter Neth. Auth. for Consumers & Mkts. Study].
\487\ Id.
\488\ See Apple App Store Review Guidelines, Apple, https://
developer.apple.com/app-store/
review/guidelines/#legal (last visited Oct. 3, 2020); Apple Developer
Program License Agreement, Apple, https://developer.apple.com/services-
account/agreement/XV2A27GUJ6/content/pdf (last visited Oct. 3, 2020);
Google Play Developer Policy Center, Google, https://play.google
.com/about/developer-content-policy/ (last visited Oct. 3, 2020);
Google Play Developer Distribution Agreement, Google, https://
play.google.com/intl/ALL_us/about/developer-distribution-agreement.html
(last visited Oct. 3, 2020).
---------------------------------------------------------------------------
App stores provide mobile device users with a sense of
trust and security that the apps they install from an app store
have been reviewed, will not harm the user's mobile device,
will function as intended, and will not violate user
privacy.\489\ App stores also reduce customer acquisition costs
for app developers by allowing developers to reach an
extraordinarily large consumer base--every mobile device user
in the U.S. is addressable by developing for the Apple App
Store and the Google Play Store. By reducing the costs of app
developers, app stores help make software applications more
affordable for consumers.\490\
---------------------------------------------------------------------------
\489\ See CEO Hearing at 397 (response to Questions for the Record
of Tim Cook, CEO, Apple, Inc.); see also John Bergmayer, Pub.
Knowledge, Tending the Garden: How to Ensure that App Stores Put Users
First 1, 5, 18 (2020), https://www.publicknowledge.org/wp-
content/uploads/2020/06/Tending_the_Garden.pdf.
\490\ Submission from Apple, to H. Comm. on the Judiciary,
HJC_APPLE_000003 (Oct. 14, 2019) (on file with Comm.); Neth. Auth. for
Consumers & Mkts. Study at 108.
---------------------------------------------------------------------------
Deloitte has explained that app stores provide developers
with various benefits, including providing a consistent
interface and experience for users on a mobile operating
system, a secure platform for apps, storage systems for hosting
apps and managing downloads and updates, and billing and
payment management systems that can reduce overhead for
developers.\491\ Apple and Google also provide developers with
software-development tools to create, test, and publish apps;
technical support and analytics tools; and tutorials.\492\
---------------------------------------------------------------------------
\491\ Deloitte, The App Economy in the United States 8 (2018),
https://www.ftc.gov/
system/files/documents/public_comments/2018/08/ftc-2018-0048-d-0121-
155299.pdf.
\492\ Neth. Auth. for Consumers & Mkts. Study at 29.
---------------------------------------------------------------------------
The mobile operating system on a device determines which
app stores the user can access. The provider of the mobile
operating system determines which app stores may be pre-
installed on devices running the operating system, and whether
and how additional app stores may be installed. As discussed
elsewhere in the Report, both Apple and Google have durable and
persistent market power in the mobile operating system market;
iOS and Android run on more than 99 percent of mobile devices
in the U.S. and globally.\493\ There are high switching costs
in the mobile operating system market and high barriers to
entry. Due to their dominance in the mobile operating system
market, Apple and Google have the power to dictate the terms
and extent of competition for distributing software on mobile
devices running their respective mobile operating systems.\494\
---------------------------------------------------------------------------
\493\ Id. at 15.
\494\ See Data and Privacy Hearing at 155 (statement of Maurice E.
Stucke, Prof. of Law, Univ. of Tenn., & Ariel Ezrachi, Slaughter & May
Prof. of Competition Law, Univ. of Oxford, Fellow, Pembroke Coll.,
Dir., Oxford Ctr. for Competition Law & Pol'y).
---------------------------------------------------------------------------
The Google Play Store is the primary app store installed on
all Android devices. The Apple App Store is the only app store
available on iOS devices.\495\ Apps are not interoperable
between operating systems--native apps developed for iOS only
work on iOS devices, and native apps developed for Android only
work on Android devices.\496\ The App Store and the Play Store
do not compete against one another. Android users cannot access
the Apple App Store, and iOS users cannot access the Google
Play Store, so the dominance of the Play Store is not
constrained by the App Store and vice versa.\497\
---------------------------------------------------------------------------
\495\ Neth. Auth. for Consumers & Mkts. Study at 4, 21.
\496\ See Interview with Source 407 (Sept. 10, 2020); Interview
with Source 143 (Aug. 27, 2020); Neth. Auth. for Consumers & Mkts.
Study at 51-52, 67, 73.
\497\ See Press Release, Eur. Comm'n, Antitrust: Commission Fines
Google =4.34 Billion for Illegal Practices Regarding Android Mobile
Devices to Strengthen Dominance of Google's Search Engine (July 18,
2018), https://ec.europa.eu/commission/presscorner/detail/en/
IP_18_4581; Letter from Exec. at Source 181, to Members of the Subcomm.
on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 4 (Oct. 31, 2019) (on file with Comm.); Submission from
Source 301, to H. Comm. on the Judiciary, 5, 7 (Oct. 15, 2019) (on file
with Comm.).
---------------------------------------------------------------------------
Statista reports that in the first quarter of 2020 there
were approximately 2.56 million apps available in the Google
Play Store and 1.847 million apps available in Apple's App
Store.\498\ Apple's App Store is the only means to distribute
software on iOS devices.\499\ The Google Play Store is the
dominant app store on Android devices; however, Google does
permit users to sideload alternative app stores. Some Android
device partners, such as Samsung, pre-install their own app
stores on their devices.\500\ Leading alternative Android app
stores include Amazon's Appstore, Aptoide, F-Droid, and the
Samsung Galaxy Store.\501\ App developers who want to reach the
entire addressable market of U.S. or global smartphone users
must have an app in both the App Store and the Play Store.\502\
Apple and Google also determine the terms and conditions app
developers must agree to in order to distribute software
through the App Store and Play Store, respectively. As a
result, app developers and industry observers agree that Apple
and Google control the app distribution market on mobile
devices.\503\
---------------------------------------------------------------------------
\498\ Number of Apps Available in Leading App Stores as of 1st
Quarter 2020, Statista, https://www.statista.com/statistics/276623/
number-of-apps-available-in-leading-app-stores/ (last visited Oct. 5,
2020).
\499\ Neth. Auth. for Consumers & Mkts. Study at 50; Interview with
Source 766 (July 2, 2020).
\500\ Neth. Auth. for Consumers & Mkts. Study at 50. See also Press
Release, Eur. Comm'n, Antitrust: Commission Fines Google =4.34 Billion
for Illegal Practices Regarding Android Mobile Devices to Strengthen
Dominance of Google's Search Engine (July 18, 2018), https://
ec.europa.eu/commission/presscorner/detail/en/IP_18_4581 (explaining
that worldwide, excluding China, ``the Play Store accounts for more
than 90% apps downloaded on Android devices'').
\501\ Joe Hindy, 10 Best Third Party App Stores for Android and
Other Options Too, Android Auth. (Aug. 28, 2020), https://
www.androidauthority.com/best-app-stores-936652/.
\502\ Neth. Auth. for Consumers & Mkts. Study at 15.
\503\ See, e.g., Interview with Source 143 (Aug. 27, 2020);
Submission from Facebook, to H. Comm. on the Judiciary, FB-HJC-ACAL-
00045377 (Feb. 14, 2014) (on file with Comm.) (demonstrating that
Facebook COO Sheryl Sandberg explained to Facebook's Board of Directors
that Apple's and Google's positions as dominant mobile operating system
and app store operators posed a ``significant strategic threat'' to
Facebook's business and adding another popular mobile app to Facebook's
suite of apps ``would make it more difficult for operating system
providers to exclude the Company's mobile applications from mobile
platforms''); Letter from Exec. at Source 181, to Members of the
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 4 (Oct. 31, 2019) (on file with Comm.); Kara Swisher, Is It
Finally Hammer Time for Apple and Its App Store, N.Y. Times (June 19,
2020), https://www.nytimes.com/2020/06/19/opinion/apple-app-store-
hey.html?referringSource=articleShare.
---------------------------------------------------------------------------
There is no method for a third-party app store to challenge
the App Store on iOS devices. Apple CEO Tim Cook told the
Subcommittee that Apple has no plans to open iOS to alternative
app stores.\504\ For a third-party app store to successfully
challenge the Play Store, consumers must be able to install the
app store, and the store must have popular apps that users
want. As with mobile operating systems, network effects create
momentum so that as more consumers install software from the
app store, more developers will build apps for the app store,
increasing the value of the app store for users and attracting
more consumers. Once users have migrated to a large platform--
such as an operating system and its app store, it is difficult
for smaller competitors to attract users and app
developers.\505\
---------------------------------------------------------------------------
\504\ CEO Hearing at 397 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\505\ Data and Privacy Hearing at 145 (statement of Maurice E.
Stucke, Prof. of Law, Univ. of Tenn., & Ariel Ezrachi, Slaughter & May
Prof. of Competition Law, Univ. of Oxford, Fellow, Pembroke Coll.,
Dir., Oxford Ctr. for Competition Law & Pol'y).
---------------------------------------------------------------------------
The United Kingdom's Competition and Markets Authority
observed that ``almost all mobile app downloads are made
through the App Store, on iOS devices, or Google Play, on
Android devices.'' \506\ Alternatives app distribution methods
such as third-party app stores, gaming platforms, or
sideloading are often irrelevant to the mobile applications
market, not always practical options for users, have
significant disadvantages compared to the pre-installed app
stores, and offer only limited functionality.\507\
---------------------------------------------------------------------------
\506\ Competition & Mkts. Auth. Report at 29; see also Press
Release, Japan Fair Trade Comm'n, Report Regarding Trade Practices on
Digital Platforms: Business-to-Business Transactions on Online Retail
Platform and App Store 24-25 (Oct. 2019), https://www.jftc.go.jp/en/
pressreleases/yearly-2019/October/191031Report.pdf (explaining that
consumers rely on pre-installed app stores to install apps, so
developers believe they ``have no choice but to use the app store
services'' to reach consumers).
\507\ See Submission from Facebook, to H. Comm. on the Judiciary,
FB-HJC-ACAL-00068877 (Feb. 21, 2012) (on file with Comm.) (``Native
apps will dominate over mobile-web for a long time (maybe forever) and
we cannot prop up HTML-5 / are not strong enough to lead a shift--The
mobile OS makers have a strong incentive in native apps performing
better / working better than the web? so theory / what is possible
aside, native apps will work better & be better experiences than the
mobile web.''); Neth. Auth. for Consumers & Mkts. Study at 42-51, 69.
---------------------------------------------------------------------------
Websites and web apps are not competitively significant
alternatives to the dominant app stores on iOS and Android
devices for distributing software to mobile devices. Apps
provide a deeper, richer user experience and can provide
additional functionality by accessing features within the
mobile device's hardware and operating system, such as a camera
or location services.\508\ Web apps and browsers are also
reliant on the device being connected to the internet. Native
apps can continue to work even when a device loses access to
the internet.\509\ Apple's App Store Review Guidelines
differentiate apps from websites, explaining that apps
submitted to the App store ``should include features, content
and [a user interface] that elevate [the app] beyond a
repackaged website.'' \510\ Curation and centralized review of
apps is an advantage touted by app store operators. Apple CEO
Tim Cook explained to the Subcommittee that on iOS devices,
Apple's control of software installation through the App Store
ensures downloaded apps ``meet our high standards for privacy,
performance, and security,'' which is important for maintaining
user trust.\511\ Additionally, distributing software via app
stores lowers customer acquisition costs for software
developers.\512\
---------------------------------------------------------------------------
\508\ See Letter from Exec. at Source 181, to Members of the
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 1 (Oct. 31, 2019) (on file with Comm.); Neth. Auth. for
Consumers & Mkts. Study at 59, 81.
\509\ See Interview with Source 88 (May 12, 2020).
\510\ App Store Review Guidelines, Apple Sec. 4.2, https://
developer.apple.com/app-store/review/guidelines/#design (last visited
Oct. 4, 2020).
\511\ CEO Hearing at 397 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\512\ See Submission from Apple, to H. Comm. on the Judiciary,
HJC_APPLE_000003 (Oct. 14, 2019) (on file with Comm.); Neth. Auth. for
Consumers & Mkts. Study at 102.
---------------------------------------------------------------------------
Consumers do access content on their mobile devices via the
open internet. However, mobile apps are the primary way users
access content and services on mobile devices and have become
integral in Americans' daily lives for basic communication,
business transactions, entertainment, and news. In the U.S.,
nearly 90 percent of the time users spend online on mobile
devices occurs in apps.\513\ Software distribution via web apps
or through a website accessible on a browser is not a
competitively significant alternative to distributing apps
through the dominant app store on a mobile device and does not
discipline the market power of the dominant app stores
controlled by Apple and Google.
---------------------------------------------------------------------------
\513\ Comscore, 2019 Report Global State of Mobile 7 (2019); see
also Letter from Exec. at Source 181, to Members of the Subcomm. on
Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,
1 (Oct. 31, 2019) (on file with Comm.); Submission from Source 301, to
H. Comm. on the Judiciary, 7 (Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Similarly, the ability for consumers to sideload apps--
installing apps without using an app store--does not discipline
the dominance of Apple and Google in the mobile app store
market. Apple does not permit users to sideload apps on iOS
devices, and few consumers have the technical savvy to
``jailbreak'' an iOS device to sideload apps.\514\ Google does
permit sideloading on Android devices, but developers find
that, given the option, consumers prefer to install apps from
app stores, and few opt for sideloading.\515\ Google has
created significant friction for sideloading apps to Android
devices. One developer explained to the Subcommittee that
sideloading entails a complicated twenty-step process, and
users encounter multiple security warnings designed to
discourage sideloading.\516\ Additionally, software developers
that have left the Play Store to distribute software to Android
users via sideloading have experienced precipitous declines in
downloads and revenue and report problems updating their
apps.\517\ Thus, the option for sideloading apps on mobile
devices does not discipline the market power of dominant app
stores.
---------------------------------------------------------------------------
\514\ Neth. Auth. for Consumers & Mkts. Study at 45-46; Submission
from Source 736, to H. Comm. on the Judiciary, Source 736-00000166
(July 1, 2019).
\515\ Interview with Source 59 (May 13, 2020).
\516\ Interview with Source 83 (June 30, 2020).
\517\ See Neth. Auth. for Consumers & Mkts. Study at 48; John
Bergmayer, Pub. Knowledge, Tending the Garden: How to Ensure that App
Stores Put Users First 44 (2020), https://www.publicknowledge.org/wp-
content/uploads/2020/06/Tending_the_Garden.pdf; Interview with Source
83 (June 30, 2020).
---------------------------------------------------------------------------
There are no competitive constraints on the power Apple and
Google have over the software distribution marketplace on their
mobile ecosystems. The core benefit of mobile app stores--
centralizing and curating software distribution--also gives
Apple and Google control over which apps users discover and can
install.\518\ As the gateways to the primary way users access
content and services on mobile devices, the App Store and the
Play Store can extract revenue from and exercise control over
everything users do on their devices.\519\ This dominance
enables Apple and Google to establish terms and conditions app
developers have to comply with, leaving developers with the
choice of complying or losing access to consumers. The terms
and conditions app stores impose include requirements regarding
app functionality, content, interactions with consumers,
collection, and distribution of revenue between the app and app
store.\520\
---------------------------------------------------------------------------
\518\ See John Bergmayer, Pub. Knowledge, Tending the Garden: How
to Ensure that App Stores Put Users First 19 (2020), https://
www.publicknowledge.org/wp-content/uploads/2020/06/
Tending_the_Garden.pdf.
\519\ See id. at 7, 19.
\520\ See Neth. Auth. for Consumers & Mkts. Study at 3, 15.
---------------------------------------------------------------------------
Mobile app stores charge app developers commissions on
sales of paid apps through the app store. Apple and Google,
along with other mobile app stores on Android devices, charge a
30 percent commission when users install the app.\521\ Apple
established its 30 percent commission on paid apps in 2009 with
the introduction of the App Store, and that rate has become the
industry standard.\522\
---------------------------------------------------------------------------
\521\ See Analysis Grp., Apple's App Store and Other Digital
Marketplaces: A Comparison of Commission Rates 4-6 (2020), https://
www.analysisgroup.com/globalassets/insights/publishing/
apples_app_store_and_other_digital_marketplaces_a_comparison_of_
commission_rates.pdf.
\522\ See id. at 4.
---------------------------------------------------------------------------
Apple and Google have both developed mechanisms for
collecting payments from users for purchases within
applications--these transactions are called in-app purchases
(IAP). Apple and Google both charge developers a standard 30
percent for IAP.\523\ In collecting IAP, Apple and Google
collect user personal and payment information, process the
payment, and then remit the payment to the app developer, minus
a processing fee or commission.\524\ Developers selling digital
content through their apps on iOS and Android devices are
required to use the app store operator's IAP.\525\ For
subscription services, like news apps or streaming media, the
commission is 15 percent for the second year and
thereafter.\526\ IAP systems provide mobile device users with
convenience by allowing consumers to make transactions in their
apps and only enter their payment details a single time, and
they protect user privacy by limiting sharing of sensitive
financial information.\527\ However, developers have noted that
the lack of competition in pricing by app stores, particularly
given the scale the App Store and Play Store have achieved
since introducing their standard commission rates for paid apps
and in-app purchases, demonstrates the lack of competition in
the software distribution market on both the iOS and Android
ecosystems.\528\ Developers have also said that the 30 percent
commissions charged by app stores have led them to increase
prices for consumers and diminished innovation by software
developers.\529\
---------------------------------------------------------------------------
\523\ See Neth. Auth. for Consumers & Mkts. Study at 23, 29, 86,
89.
\524\ See, e.g., Letter from Exec. at Source 181, to Members of the
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 3, 5-6 (Oct. 31, 2019) (on file with Comm.); Submission from
Source 736, to H. Comm. on the Judiciary, Source 736-00000009 (on file
with Comm.); Submission from Source 304, to H. Comm. on the Judiciary,
7-8 (Sept. 3, 2020); see also Reed Albergotti & Tony Romm, Tinder and
Fortnite criticize Apple for Its ``App Store Monopoly,'' Wash. Post
(June 16, 2020), https://www.washingtonpost.com/technology/2020/06/16/
apple-antitrust-european-commission/.
\525\ See Neth. Auth. for Consumers & Mkts. Study at 29.
\526\ Id. at 29.
\527\ Id. at 7.
\528\ See Interview with Source 83 (June 30, 2020); Competitors
Hearing at 33 (statement of David Heinemeier Hansson, Cofounder & Chief
Tech. Officer, Basecamp).
\529\ See Letter from Exec. at Source 181, to Members of the
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 9-10 (Oct. 31, 2019) (on file with Comm.) (internal
citations omitted); Submission from Source 736, to H. Comm. on the
Judiciary, Source 736-00000236 (Oct. 23, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Apple and Google also develop and distribute apps that
directly compete against third-party developers in their app
stores.\530\ This dynamic, coupled with the fact that App Store
and Play Store are dominant distribution channels and can exert
gatekeeper power over their platforms, has the potential to
distort competition, lead to discrimination and higher entry
barriers for third-party developers, and result in the app
store operator self-preferencing its own apps, harming
consumers and competition.\531\
---------------------------------------------------------------------------
\530\ Press Release, Japan Fair Trade Comm'n, Report Regarding
Trade Practices on Digital Platforms: Business-to-Business Transactions
on Online Retail Platform and App Store 21 (Oct. 2019), https://
www.jftc.go.jp/en/pressreleases/yearly-2019/October/191031Report.pdf.
\531\ See, e.g., Neth. Auth. for Consumers & Mkts. Study at 22, 31-
32, 69, 89-90, 95-99.
---------------------------------------------------------------------------
New app stores face high barriers to entry. It is unlikely
that a third strong mobile app ecosystem can emerge. To offer a
new mobile app store that is compelling to consumers, the app
store must have a built-in customer base to attract developers
to build apps for the store and must have popular apps to
attract customers. Before the introduction of the App Store,
third-party apps were not a central component of the user
experience on mobile devices. New entrants, such as Apple,
could disrupt the mobile device and operating system market by
offering superior handset design, user interface, and first-
party applications. Now, third-party apps are critical to the
success of any mobile ecosystem. Millions of apps are developed
for iOS and Android, and leading device manufacturers have
built their device ecosystems around those operating systems.
As a result, it is unlikely that a new mobile operating system
entrant can disrupt the current market dynamics.\532\ Because
of the control that Apple and Google exert over software
distribution on their mobile ecosystems and the unlikelihood of
entry by a new competitive mobile operating system, it is
unlikely that a new, competitive app store will be able to
successfully challenge the existing, dominant app store
operators.
---------------------------------------------------------------------------
\532\ Dig. Competition Expert Panel Report at 29-30.
---------------------------------------------------------------------------
E. Mobile Operating Systems
A mobile operating system (OS) provides a mobile device
with its underlying functionality, such as user interface,
motion commands, and button controls, and it facilitates the
operation of the device's features, such as the microphone,
camera, and GPS. The mobile OS is the interface between the
mobile device hardware, such as the smartphone handset or
tablet, and the applications that run on the device, like email
or streaming apps. The mobile OS is pre-installed on mobile
devices; an alternative mobile OS cannot be installed or
substituted. The characteristics of the mobile OS determine
aspects of the mobile device's performance and functionality,
including the app stores and apps that can run on the device.
The mobile OS also determines which company's ecosystem of
products and services the device is integrated with.\533\
---------------------------------------------------------------------------
\533\ See Steven Bohm, Fabian Adam & Wendy Colleen Farrell, Impact
of the Mobile Operating System on Smartphone Buying Decisions: A
Conjoint-Based Empirical Analysis, in Mobile Web and Intelligent
Information Systems 198, 198-210 (Muhammad Younas, Irfan Awan & Massimo
Mecella eds., 2015), https://doi.org/10.1007/978-3-319-23144-0_18.
---------------------------------------------------------------------------
Google's Android and Apple's iOS are the two dominant
mobile operating systems.\534\ Combined, they run on more than
99 percent of all smartphones in the world.\535\ The third-
largest mobile operating system is KaiOS, which runs on feature
phones (i.e., non-smartphone mobile devices).\536\ Apple's
mobile devices run on Apple's proprietary iOS operating system,
while other leading handset manufacturers, such as Samsung, LG,
and Motorola, run on Android.\537\ iOS is not available on non-
Apple devices.
---------------------------------------------------------------------------
\534\ See GSMA Intel., Global Mobile Trends 2020: New Decade, New
Industry?, 6, 26 (2019), https://data.gsmaintelligence.com/api-web/v2/
research-file-download?id=47743151& file=2863-071119-GMT-2019.pdf.
\535\ Neth. Auth. for Consumers & Mkts. Study at 15; see also Dig.
Competition Expert Panel Report at 29 (``However market shares are
measured, Google (Android) and Apple (iOS) have a global duopoly over
mobile phone operating systems.''); Michael Muchmore, Android vs. iOS:
Which Mobile OS Is Best?, PCMag (Aug. 11, 2020), https://www.pcmag.com/
comparisons/
android-vs-ios-which-mobile-os-is-best (``[W]e're locked in a duopoly
when it comes to mobile operating system choice.'').
\536\ A Short History of KaiOS, KaiOS, https://
developer.kaiostech.com/introduction/history (last visited Oct. 4,
2020); Stephen Shankland, Mozilla Helps Modernize Feature Phones
Powered by Firefox Tech, CNET (Mar. 11, 2020), https://www.cnet.com/
news/mozilla-helps-modernize-feature-phones-powered-by-firefox-tech/.
\537\ See Submission from Apple, to H. Comm. on the Judiciary,
HJC_APPLE_000021 (Oct. 14, 2019) (on file with Comm.) (``Many
smartphone brands around the world compete with iPhone on the basis of
price, performance, features, and design. These smartphones generally
incorporate Google's Android operating system.'').
Mobile OS Market Share Worldwide \538\
---------------------------------------------------------------------------
\538\ Prepared by the Subcommittee based on Felix Richter, The
Smartphone Market: The Smartphone Duopoly, Statista (July 27, 2020),
https://www.statista.com/chart/3268/smartphone-os-market-share/ (citing
Mobile Operating System Market Share Worldwide, StatCounter
GlobalStats) (StatCounter ``calculates the data based on more than 1.7
billion page views per month worldwide. StatCounter defines a mobile
device as a pocket-sized computing device. As a result, tablets are not
included . . . . Nokia devices (including some S40 devices) had been
grouped largely under Symbian OS.'').
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Over the past decade, once-strong competitors have exited
the mobile OS market, and Google and Apple have built dominant
positions that are durable and persistent.\539\ While there are
other mobile OSs--such as Tizen, Sailfish OS, and Ubuntu
Touch--those OSs make up less than 1 percent of the global
mobile OS market.\540\
---------------------------------------------------------------------------
\539\ See Felix Richter, The Smartphone Market: The Smartphone
Duopoly, Statista (July 27, 2020), https://www.statista.com/chart/3268/
smartphone-os-market-share/ (citing Mobile Operating System Market
Share Worldwide, StatCounter GlobalStats) (``Having started out as a
multi-platform market, the smartphone landscape has effectively turned
into a duopoly in recent years, after Apple's iOS and Google's Android
crowded out any other platform including Microsoft's Windows Phone,
BlackBerry OS and Samsung's mobile operating system called Bada.'');
Data and Privacy Hearing at 147 (statement of Maurice E. Stucke, Prof.
of Law, Univ. of Tenn, & Ariel Ezrachi, Slaughter & May Prof. of
Competition Law, Univ. of Oxford, Fellow, Pembroke Coll., Dir., Oxford
Ctr. for Competition Law & Pol'y) (``The mobile operating system market
went from multiple competitors in 2010 (with Google and Apple
collectively accounting for 39 percent of unit sales), to a duopoly
eight years later.''); Matthew Feld, Microsoft Is Finally Killing Off
the Windows Phone, Telegraph (Oct. 9, 2017), https://
www.telegraph.co.uk/technology/2017/10/09/microsoft-finally-killing-
windows-phone/; Arjun Kharpal, TCL Launches New $549 Smartphone Under
BlackBerry's Banner, Featuring Android Software, CNBC (Feb. 25, 2017),
https://www.cnbc.com/2017/02/25/blackberry-keyone-launch-physical-
keyboard-android-specs-price.html); Jack Schofield, Can I Buy a Phone
that Doesn't Use Anything from Google or Apple?, Guardian (July 4,
2019), https://www.theguardian.com/technology/askjack/2019/jul/04/can-
i-buy-a-phone-that-does-not-use-anything-from-google-or-apple.
\540\ See, e.g., Simon O'Dea, Market Share of Mobile Operating
Systems in the United States from January 2012 to December 2019,
Statista (Feb. 27, 2020), https://www.statista.com/statistics/272700/
market-share-held-by-mobile-operating-systems-in-the-us-since-2009/.
---------------------------------------------------------------------------
Market Share of Mobile Operating Systems
in the U.S. \541\
---------------------------------------------------------------------------
\541\ Prepared by the Subcommittee based on Simon O'Dea, Market
Share of Mobile Operating Systems in the United States from January
2012 to December 2019, Statista (Feb. 27, 2020), https://
www.statista.com/statistics/272700/market-share-held-by-mobile-
operating-systems-in-the-us-since-2009/ (citing Mobile Operating System
Market Share in United States of America, StatCounter).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Although Google Android and Apple iOS both have dominant
positions in the mobile OS market, high switching costs and a
lack of on-device competition mean that neither firm's market
power is disciplined by the presence of the other. The European
Commission's investigation into Google's Android platform found
that, because iOS is not available on non-Apple devices, it
cannot constrain Google's dominance in the mobile OS
market.\542\ Conversely, Android is not available on Apple
devices and does not constrain Apple's dominant position and
conduct on Apple mobile devices. An investment research firm
recently noted that switching costs were high for Apple users
because iOS is not available on non-Apple devices.\543\
---------------------------------------------------------------------------
\542\ Press Release, Eur. Comm'n, Antitrust: Commission Fines
Google =4.34 Billion for Illegal Practices Regarding Android Mobile
Devices to Strengthen Dominance of Google's Search Engine (July 18,
2018), https://ec.europa.eu/commission/presscorner/detail/en/
IP_18_4581.
\543\ Morningstar Equity Analyst Report: Apple Inc 1 (Aug. 6, 2020)
(on file with
Comm.).
---------------------------------------------------------------------------
There are significant barriers to switching between the
dominant mobile operating systems. As a general matter,
consumers rarely switch mobile operating systems. SellCell's
2019 survey found that more than 90 percent of users with
iPhones tend to stick with Apple when they replace their
current device.\544\ In 2018, Consumer Intelligence Research
Partners reported that more than 85
---------------------------------------------------------------------------
\544\ iPhone vs. Android--Cell Phone Brand Loyalty Survey 2019,
SellCell (Aug. 20, 2019), https://www.sellcell.com/blog/iphone-vs-
android-cell-phone-brand-loyalty-survey-2019/; see also Morningstar
Equity Analyst Report: Apple Inc 2 (Aug. 6, 2020) (on file with Comm.)
(``Recent survey data shows that iPhone customers are not even
contemplating switching brands today. In a December 2018 survey by
Kantar, 90% of U.S.-based iPhone users said they planned to remain
loyal to future Apple devices.'').
---------------------------------------------------------------------------
percent of iOS users who purchased a new device purchased
another iOS device, and more than 90 percent of Android users
who bought a new device purchased a new Android device.\545\ A
2017 study from Morgan Stanley found that 92 percent of iPhone
owners intending to buy a new mobile device planned to buy
another iPhone.\546\ Mobile carriers--a main retail
distribution channel for mobile devices--agreed that it is rare
for customers to switch from one mobile OS because, once
customers are used to the mobile OS, they generally do not
switch.\547\ App developers also said in interviews with the
Subcommittee that they observed minimal customer switching
between iOS and Android.\548\
---------------------------------------------------------------------------
\545\ Press Release, Consumer Intel. Rsch. Partners, LLC, Mobile
Operating System Loyalty: High and Steady (Mar. 8, 2018), http://
files.constantcontact.com/150f9af2201/4bca9a19-a8b0-46bd-95bd-
85740ff3fb5d.pdf.
\546\ Martin Armstrong, Most iPhone Users Never Look Back, Statista
(May 22, 2017), https://www.statista.com/chart/9496/most-iphone-users-
never-look-back/.
\547\ Interview with Source 72 (June 23, 2020).
\548\ Interview with Source 83 (June 30, 2020).
---------------------------------------------------------------------------
In addition to the cost of buying a new mobile device,
consumers encounter other costs to switch to a new operating
system. Android and iOS have different operating concepts, user
interface designs, and setting and configuration options. As a
result, instead of switching operating systems, ``users pick
one, learn it, invest in apps and storage, and stick with it.''
\549\
---------------------------------------------------------------------------
\549\ Press Release, Consumer Intel. Rsch. Partners, LLC, Mobile
Operating System Loyalty: High and Steady (Mar. 8, 2018), http://
files.constantcontact.com/150f9af2201/4bca9a19-a8b0-46bd-95bd-
85740ff3fb5d.pdf.
---------------------------------------------------------------------------
Other barriers to switching include the loss of
compatibility with other smart devices designed to work in
conjunction with the mobile device and its OS, the hassle of
porting data from one OS to another, re-installing apps and
configuring settings, and learning an unfamiliar user
interface.\550\ Apple's cofounder and former CEO Steve Jobs
advocated for this approach, noting that Apple should ``[t]ie
all of our products together, so we further lock customers into
our ecosystem.'' \551\ Recently, Morningstar observed that
people using Apple's other products such as the Apple Watch and
AirPods ``lose significant functionality when paired with a
smartphone other than the iPhone,'' locking iPhone users into
the iOS ecosystem.\552\ Competition regulators in the
Netherlands explained that this strategy creates ``path
dependency'' for consumers. Although mobile devices have a
limited lifespan, and consumers might be expected to ``break
the lock-in cycle'' when it is time to upgrade to a new device,
consumers often have software, data and files, and other
hardware and accessories that are only compatible with one
product ecosystem, making it unlikely that they switch to a
non-compatible mobile device.\553\
---------------------------------------------------------------------------
\550\ See Neth. Auth. for Consumers & Mkts. Study at 55-56; Press
Release, Eur. Comm'n, Antitrust: Commission Fines Google =4.34 Billion
for Illegal Practices Regarding Android Mobile Devices to Strengthen
Dominance of Google's Search Engine (July 18, 2018), https://
ec.europa.eu/commission/presscorner/detail/en/IP_18_4581; see also
iPhone vs. Android--Cell Phone Brand Loyalty Survey 2019, SellCell
(Aug. 20, 2019), https://www.sellcell.com/blog/iphone-vs-android-cell-
phone-brand-loyalty-survey-2019/ (finding ``21% of iPhone users might
be tempted to switch if they weren't too tied into the Apple Ecosystem
or it wasn't so much hassle changing operating system from iOS to
Android'' and ``13% of Samsung users might be tempted to switch if they
weren't too tied into the Google/Android Ecosystem or it wasn't so much
hassle changing operating system'').
\551\ Don Reisinger, Steve Jobs Wanted to ``Further Lock
Customers'' into Apple's ``Ecosystem,'' CNET (Apr. 2, 2014), https://
www.cnet.com/news/steve-jobs-wanted-to-further-lock-customers-into-
apples-ecosystem/.
\552\ Morningstar Equity Analyst Report: Apple Inc 2 (Aug. 6, 2020)
(on file with Comm.).
\553\ Neth. Auth. for Consumers & Mkts. Study at 21, 55-56.
---------------------------------------------------------------------------
There are significant entry barriers in the mobile
operating system market. One former mobile OS competitor
observed that its experience showed that it was doubtful that a
new, competitive mobile OS will emerge in the U.S.\554\ Another
former mobile OS provider explained that it exited the market
after concluding ``the market for mobile operating systems was
too established for a new entry.'' \555\ To compete, a new OS
must offer a superior product packaged in an attractive
handset, as well as a fully realized suite of apps and
compatible devices comparable to what Apple and Google (and
Google's hardware partners) currently offer. Industry experts
have testified before the Subcommittee that the ``reality is
that it would be very difficult for a new mobile phone
operating system today'' to compete with Apple and Google,
``even if it offered better features.'' \556\ Investment
analysts agree, noting it is likely Android and iOS ``will
continue to power nearly every smartphone around the world in
the long run.'' \557\
---------------------------------------------------------------------------
\554\ Interview with Source 407 (Sept. 10, 2020).
\555\ Submission from Source 385, to H. Comm. on the Judiciary, 2
(Sept. 18, 2020) (on file with Comm.).
\556\ Data and Privacy Hearing at 148 (statement of Maurice E.
Stucke, Prof. of Law, Univ. of Tenn., & Ariel Ezrachi, Slaughter & May
Prof. of Competition Law, Univ. of Oxford, Fellow, Pembroke Coll.,
Dir., Oxford Ctr. for Competition Law & Pol'y); see also Richard
Trenholm, Elegant Ubuntu Touch OS Impresses for Phones and Tablets
(Hands-On), CNET (Feb. 28, 2013), https://www.cnet.com/reviews/ubuntu-
touch-preview/; Adrian Covert, The Ubuntu Smartphone (Which No One Will
Use) Is a Glimpse of the Future, CNN Bus. (Jan. 2, 2013), https://
money.cnn.com/2013/01/02/technology/mobile/ubuntu-smartphone-linux/
(explaining success in the mobile market required more than merely
building a superior OS to Android or iOS; it also requires a robust app
ecosystem).
\557\ Morningstar Equity Analyst Report: Apple Inc 3 (Aug. 6, 2020)
(on file with Comm.).
---------------------------------------------------------------------------
The mobile OS market is also characterized by strong
network effects. In short, a new mobile OS must have a
sufficiently large user base to attract app developers to build
apps to run on the OS. An OS with an insufficient number of
users and developers is unlikely to receive support from mobile
device manufacturers that will install the OS on their devices,
or mobile network operators that will support those devices on
their networks.\558\
---------------------------------------------------------------------------
\558\ Interview with Source 407 (Sept. 10, 2020).
---------------------------------------------------------------------------
The most important factor that developers consider before
building apps for an OS is the install base of the OS--how many
users have devices running the OS that can install the app.
Developers will not build apps for an OS with few users.\559\
This reinforces the power of dominant mobile operating systems.
The more consumers use the OS, the more developers will build
apps for the OS, increasing the value of the OS for users and
attracting more consumers.\560\ Consumers are unlikely to
purchase a device with an OS that cannot run the most popular
apps and lacks a robust app ecosystem comparable to what is
offered by iOS and Android. Due to the dominance of Apple and
Google in the mobile OS and app store markets, ``there is
little incentive for app developers to go to the trouble and
expense of ensuring their apps work on any smaller rival
operating systems,'' because the user base would be too
small.\561\
---------------------------------------------------------------------------
\559\ Id.
\560\ Morningstar Equity Analyst Report: Apple Inc 3 (Aug. 1, 2020)
(on file with Comm.).
\561\ Dig. Competition Expert Panel Report at 29.
---------------------------------------------------------------------------
Additionally, the third-party app ecosystem advantages of
iOS and Android make new market entry unlikely. The U.K.'s
Competition and Markets Authority explained that, before the
iPhone, third-party apps were not part of the mobile
experience. As a result, new entrants like Apple could enter
the market and compete by offering a superior product. But now,
there are ``millions of apps that have been written for Apple's
iOS and Google's Android, making it hard for a new entrant
mobile operating system to offer a competitive and attractive
product.'' \562\ The European Commission (E.C.) has similarly
observed that strong network effects have created high entry
barriers in the mobile OS market.\563\
---------------------------------------------------------------------------
\562\ Id. at 40.
\563\ See Press Release, Eur. Comm'n, Antitrust: Commission Fines
Google =4.34 Billion for Illegal Practices Regarding Android Mobile
Devices to Strengthen Dominance of Google's Search Engine (July 18,
2018), https://ec.europa.eu/commission/presscorner/detail/en/
IP_18_4581.
---------------------------------------------------------------------------
Over the past decade, several large technology companies
have attempted and failed to leverage their large user bases to
compete against Apple and Google in the mobile OS market.\564\
Facebook and Amazon both tried to enter the market with
variants of Google's Android OS. Both companies quickly exited
the market because consumers were mostly accessing Facebook and
Amazon content through apps on iOS and Android devices.\565\
Technology reviewers also expressed disappointment that
Amazon's Fire Phone did not offer the same extensive library of
apps and services as iOS or Android devices.\566\
---------------------------------------------------------------------------
\564\ See GSMA Intel., Global Mobile Trends 2020: New Decade, New
Industry? 26 (2019), https://data.gsmaintelligence.com/api-web/v2/
research-file-download?id=47743151&
file=2863-071119-GMT-2019.pdf; Interview with Source 83 (June 30,
2020).
\565\ See Ryan Mac, What Amazon Can Learn from the Failed Facebook
Phone, Forbes (June 17, 2014), https://www.forbes.com/sites/ryanmac/
2014/06/17/what-amazon-can-learn-from-the-failed-facebook-phone/
#7f7d402f47de; Roger Cheng, Here's Why the Facebook Phone Flopped, CNET
(May 8, 2013), https://www.cnet.com/news/heres-why-the-facebook-phone-
flopped/; Marcus Wohlsen, The Amazon Fire Phone Was Always Going to
Fail, Wired (Jan. 6, 2015), https://www.wired.com/2015/01/amazon-fire-
phone-always-going-fail/; Austin Carr, The Inside Story of Jeff Bezos'
Fire Phone Debacle, Fast Co. (Jan. 6, 2015), https://www.fastcompany
.com/3039887/under-fire.
\566\ See Austin Carr, The Inside Story of Jeff Bezos' Fire Phone
Debacle, Fast Co. (Jan. 6, 2015), https://www.fastcompany.com/3039887/
under-fire.
---------------------------------------------------------------------------
Companies like Mozilla and Alibaba have also attempted to
enter the mobile OS market. Mozilla unveiled its Firefox OS in
2013 and exited the market altogether by 2016.\567\ In 2012,
Chinese tech giant Alibaba developed a mobile OS called Aliyun
for the Chinese market. However, Acer, Alibaba's hardware
partner, abruptly canceled its collaboration with Alibaba
before the launch of Acer's device running the OS.\568\
---------------------------------------------------------------------------
\567\ See J. Sullivan, Firefox OS: Looking Ahead, Mozilla Blog
(Jan. 6, 2014), https://blog.mozilla.org/blog/2014/01/06/firefox-os-
looking-ahead/; Ingrid Lunden, Mozilla Will Stop Developing and Selling
Firefox OS Smartphones, TechCrunch (Dec. 8, 2015), https://
techcrunch.com/2015/12/08/mozilla-will-stop-developing-and-selling-
firefox-os-smartphones/; Chris Hoffman, Mozilla Is Stopping All
Commercial Development on Firefox OS, PC World (Sept. 28, 2016),
https://www.pcworld.com/article/3124563/mozilla-is-stopping-all-
commercial-development-on-firefox-os.html.
\568\ See Don Reisinger, Acer Taps Alibaba's Aliyun OS for New
Smartphone, CNET (Sept. 12, 2012), https://www.cnet.com/news/acer-taps-
alibabas-aliyun-os-for-new-smartphone/; Edward Moyer, Alibaba: Google
Just Plain Wrong About Our OS, CNET (Sept. 15, 2012), https://
www.cnet.com/news/alibaba-google-just-plain-wrong-about-our-os/; Roger
Cheng, Alibaba: Google Forces Acer to Drop Our New Mobile OS, CNET
(Sept. 13, 2012), https://www.cnet.com/news/alibaba-google-forced-acer-
to-drop-our-new-mobile-os/; T.C. Sottek, Acer Cancels Phone Launch with
Alibaba, Allegedly in Response to Threats from Google, Verge (Sept. 13,
2012), https://www.theverge.com/2012/9/13/3328690/acer-google-alibaba-
phone; Dieter Bohn, Google Explains Why It Stopped Acer's Aliyun
Smartphone Launch (Updated), Verge (Sept. 14, 2012), https://
www.theverge.com/2012/9/14/3335204/google-statement-acer-smartphone-
launch-aliyun-android; Jon Brodkin, Google Blocked Acer's Rival Phone
to Prevent Android ``Fragmentation,'' ARS Technica (Sept. 14, 2012),
https://arstechnica.com/gadgets/2012/09/google-blocked-acers-rival-
phone-to-prevent-android-fragmentation/.
---------------------------------------------------------------------------
Over the past decade, once-competitive mobile operating
systems like Nokia, BlackBerry, and Microsoft struggled to
survive as Apple and Google grew more dominant, eventually
exiting the marketplace altogether. BlackBerry--once a leading
mobile OS developer--now licenses the BlackBerry name to TCL to
market TCL's smartphones. TCL's BlackBerry phones run on
Android.\569\ In the last quarter of 2016, Windows devices
accounted for less than half of 1 percent of new smartphone
sales.\570\ In 2017, Microsoft abandoned its mobile OS
business, and by that time, more than 99 percent of all new
smartphones were running on iOS or Android, and market
observers expressed no confidence that new competition would
emerge.\571\ One key factor leading to Microsoft's withdrawal
from the mobile marketplace was that developers were reluctant
to develop apps for a third mobile operating system when
already building apps for iOS and Android.\572\ These market
dynamics remain in place today.
---------------------------------------------------------------------------
\569\ See Arjun Kharpal, TCL Launches New $549 Smartphone Under
BlackBerry's Banner, Featuring Android Software, CNBC (Feb. 27, 2017),
https://www.cnbc.com/2017/02/25/blackberry-keyone-launch-physical-
keyboard-android-specs-price.html.
\570\ See Press Release, Gartner, Gartner Says Worldwide Sales of
Smartphones Grew 7 Percent in the Fourth Quarter of 2016 (Feb. 15,
2017), https://www.gartner.com/en/newsroom/press-releases/2017-02-15-
gartner-says-worldwide-sales-of-smartphones-grew-7-percent-in-the-
fourth-quarter-of-2016).
\571\ Tom Warren, Windows Phone Dies Today, Verge (July 11, 2017),
https://www .theverge.com/2017/7/11/15952654/microsoft-windows-phone-
end-of-support; see also Press Release, Gartner, Gartner Says Worldwide
Sales of Smartphones Grew 7 Percent in the Fourth Quarter of 2016 (Feb.
15, 2017), https://www.gartner.com/en/newsroom/press-releases/2017-02-
15-gartner-says-worldwide-sales-of-smartphones-grew-7-percent-in-the-
fourth-quarter-of-2016; James Vincent, 99.6 Percent of New Smartphones
Run on Android or iOS, Verge (Feb. 16, 2017), https://www.theverge.com/
2017/2/16/14634656/android-ios-market-share-blackberry-2016.
\572\ Dig. Competition Expert Panel Report at 40.
---------------------------------------------------------------------------
F. Digital Mapping
Digital mapping provides users with virtual maps of the
physical world. There are two sets of customers for mapping
services: consumers, who use map products for navigation, and
businesses, who use underlying mapping libraries and design
tools to produce customized maps. With the proliferation of
smart devices, digital mapping has become a critical resource
for users and businesses alike.
The essential input for both types of services is a
digital-map database. Mapping data can be gathered in a few
ways, including through the collection of imagery from
satellites and streets, the tracking of global positioning
system (GPS) traces, and the collation of public domain mapping
data. Building a digital map database is costly and time-
intensive, requiring significant investment in mapping
technologies and data collection.\573\ The leading provider of
digital mapping data is Google. Smaller providers include HERE
and TomTom, as well as open-source providers like OpenStreetMap
(OSM).\574\ Waze, which developed navigable maps by relying on
driver-generated live maps and crowd-sourced updates, was an
additional mapping provider purchased by Google in June 2013.
---------------------------------------------------------------------------
\573\ Innovation and Entrepreneurship Hearing at 589 (response to
Questions for the Record by Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.); Submission from Google, to H. Comm. on the Judiciary,
GOOG-HJC-04208423 (June 2013) (on file with Comm.) (showing that, prior
to being acquired by Google, a Waze presentation stated, ``There are
very few companies in the world that are making navigable maps, and the
process is very expensive.''); Submission from Source 531, to H. Comm.
on the Judiciary, Source 531-000628 (on file with Comm.).
\574\ Submission from Source 531, to H. Comm. on the Judiciary,
Source 531-000628 (on file with Comm.).
---------------------------------------------------------------------------
Consumer-facing providers of mapping services license map
databases and layer search and traffic technologies atop of the
map data. Consumers use these search and traffic tools either
through a standalone turn-by-turn navigation service that
licenses the underlying data--like MapQuest or Bing Maps--or
through a vertically integrated provider, like Google Maps,
Waze, or Apple Maps.\575\ The dominant providers of consumer
mapping applications are Google Maps and Google-owned Waze,
followed by Apple Maps and MapQuest.\576\ Google and Apple set
their mapping products as the default options on Android and
iOS products--their respective devices--which also enables them
to maintain and expand their market position.
---------------------------------------------------------------------------
\575\ Although Apple Maps licensed U.S. mapping data from TomTom
upon launching in 2012, in 2015, it began developing its own map
database by deploying cars with cameras and sensors to collect images
and mapping data that it could combine with anonymized iPhone data to
create an independent underlying base map. Lauren Goode, The Biggest
Apple Maps Change Is One You Can't See, Wired (Jan. 31, 2020), https://
www.wired.com/story/apple-maps-redesign/.
\576\ Submission from Source 572, to H. Comm. on the Judiciary, 1
(Oct. 29, 2019) (on file with Comm.) (``For vehicle navigation, and
excluding OEM-provided in-console automotive systems, Google's Waze and
Google Maps are currently the most used consumer apps by a wide
margin.''); Submission from Source 333, to H. Comm. on the Judiciary, 2
(Oct. 21, 2019) (on file with Comm.).
---------------------------------------------------------------------------
These providers of consumer mapping services generally do
not charge users a monetary fee. Instead, they monetize maps
through selling location-based advertisements or by subsidizing
consumer-facing mapping with enterprise contracts or other
lines of business. Although data on the value of the consumer-
facing digital mapping industry is not publicly available,
analysts have estimated that Google Maps earned Google around
$2.95 billion in revenue last year and that the standalone
product is worth up to $60 billion.\577\
---------------------------------------------------------------------------
\577\ Daniel Schaal, Google Maps Poised to Be an $11 Billion
Business in 4 Years, Skift (Aug. 30, 2019), https://skift.com/2019/08/
30/google-maps-poised-to-be-an-11-billion-business-in-4-years/; Ross
Sandler, Barclays, Alphabet Inc.: Steady Compounder, With Plenty of
Innovation Ahead 20 (Mar. 28, 2017) (on file with Comm.).
---------------------------------------------------------------------------
Business-facing providers serve map design tools and
mapping libraries required to produce customized maps. The
leading providers of business-to-business mapping software are
Google, HERE, Mapbox, and TomTom, followed by Apple Maps, Bing,
ESRI, Comtech, and Telenav.\578\ Some of these providers
operate in more specialized markets. For example, HERE and
TomTom primarily serve automotive customers, while ESRI
provides desktop GIS software used by governments and spatial
analysts.\579\
---------------------------------------------------------------------------
\578\ Submission from Source 572, to H. Comm. on the Judiciary, 1
(Oct. 29, 2019) (on file with Comm.).
\579\ Id.
---------------------------------------------------------------------------
Market participants cite several factors that privilege
dominant digital map incumbents and impede entry. First is the
capacity of dominant firms to invest heavily in creating
mapping databases and technology without needing to turn a
profit. For example, prior to its acquisition by Google, Waze
executives observed that Google Maps had ``disrupted the
market'' primarily through ``financial disruption,'' namely
that it had ``unlimited funds'' and was giving away Google Maps
to users for free.\580\ Startups seeking to enter this market--
yet lacking the financial cushion that permits them to incur
losses while developing the product--will be at a relative
disadvantage.
---------------------------------------------------------------------------
\580\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04209630 (Nov. 2012) (on file with Comm.).
---------------------------------------------------------------------------
Another factor is that incumbents that are integrated can
collect relevant map and location data from across
complementary lines of business, feeding this data back into
mapping. For example, one market participant noted that Google
``collects an unparalleled amount of data used in digital
mapping from users of its dominant search engine and Android
smartphone OS.'' \581\ Another market participant stated that
Google's dominant position in search and advertising
incentivizes businesses to closely monitor and maintain the
accuracy of their information in Google's systems, ``leading to
a dynamic by which Google enjoys a free, crowdsource effort to
improve and maintain their data's quality,'' thereby improving
the quality of Google Maps.\582\ Firms without concurrent
positions in web search and the smartphone market are
comparatively disadvantaged.
---------------------------------------------------------------------------
\581\ Submission from Source 531, to H. Comm. on the Judiciary,
Source 531-000624 (on file with Comm.). Google made a similar
observation in July 2013. In a letter responding to the FTC's request
for information relating to its acquisition of Waze, Google wrote,
``Apple has access to as much or more US GPS traffic data than Google
does, with tens of millions of Apple iOS users potentially providing
Apple with real-time traffic speed and flow information throughout the
country.'' Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04211078 (July 24, 2013) (on file with Comm.).
\582\ Submission from Source 572, to H. Comm. on the Judiciary, 3
(Oct. 29, 2019) (on file with Comm.).
---------------------------------------------------------------------------
A third factor is the superior distribution that integrated
firms in maps-adjacent lines of business can provide their own
mapping product at the expense of third-party mapping products.
Google gives Google Maps default placement on its Android
devices, while Apple does the same with Apple Maps on iOS
devices. Together, Android and iOS account for 99 percent of
the smartphone operating systems in the United States.\583\
---------------------------------------------------------------------------
\583\ Neth. Auth. for Consumers & Mkts. Study at 15.
---------------------------------------------------------------------------
Market participants explained that the default placement of
Google Maps on Android devices also disadvantages third-party
mapping providers technologically. If a developer chooses a
third-party mapping provider when building an app, downloading
that app on Android would involve downloading both the app
features and the mapping functionality. Choosing to develop the
app with Google Maps, by contrast, would reduce the app's file
size on Android, as Google Maps is already on the device.
Lastly, incumbents benefited from a lack of prohibitions on
collecting location data--an advantage that startups today lack
given the passage of new data restrictions that limit the
development of digital mapping technology. Notably, many of
these rules came into existence following public outrage
prompted by Google Street View. By the time these rules were
implemented, Google had already mapped out most of the planet.
Except for Apple's independent mapping database, there has
been no recent entry in the market for underlying mapping data.
Similarly, the list of leading providers of consumer mapping
services and business-to-business services has mostly been
unchanged since 2013.
G. Cloud Computing
Cloud computing refers to the service that enables remote
storage and software programs on demand through the internet.
Prior to cloud computing, data was stored locally on a
computer's hard drive, in a local server room, or in a remote
data center where companies managed all of the information
technology (I.T.) services.\584\ Today, companies can
essentially rent ``network access to a shared pool of
configurable computing resources . . . [including] networks,
servers, storage, applications and services.'' \585\ As a
result of the convenience and cost savings associated with the
ability to scale up or down on demand, cloud computing has
grown into one of the technology sector's largest and most
lucrative businesses.\586\ It has enabled the growth of
enterprise businesses such as Netflix, Airbnb, Lyft, Slack, and
the Weather Channel, as well as new startups that are not yet
household names.
---------------------------------------------------------------------------
\584\ See generally Heidi M. Peters, Cong. Rsch. Serv., R45847, The
Department of Defense's Jedi Cloud Program (2019).
\585\ See Nat'l Inst. of Standards & Tech., The NIST Definition of
Cloud Computing 2 (2011), https://nvlpubs.nist.gov/nistpubs/Legacy/SP/
nistspecialpublication800-145.pdf.
\586\ Gartner, Market Share Analysis: Iaas and IUS, Worldwide (July
5, 2019); Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON_HJC_00219352 (on file with Comm.).
---------------------------------------------------------------------------
Cloud computing is a critical input to many of the digital
markets the Subcommittee investigated, providing infrastructure
for online commerce, social media and networking, digital
advertising, voice assistants, and digital mapping--
technologies that benefit from dynamic storage and
computational power. In a future with smart homes, autonomous
vehicles, and artificial intelligence applications in nearly
every sector from agriculture to healthcare, understanding the
dynamics of the cloud market becomes critical. These ground-
breaking technologies work because they can access and analyze
massive amounts of data in real time. Companies looking to
innovate in these spaces will struggle to rely solely on
traditional I.T. and will likely turn to public cloud vendors.
The testimony of Morgan Reed on behalf of ACT, the App
Association, illustrates how important ``continuous cloud
access [is] to create custom software solutions that adapt
quickly and rival the products and services of larger SaaS
companies.'' \587\
---------------------------------------------------------------------------
\587\ Innovation and Entrepreneurship Hearing at 240 (statement of
Morgan Reed, President, ACT | The App Ass'n).
---------------------------------------------------------------------------
Cloud computing service models vary by vendor, and new
models are being developed continually. The Subcommittee's
investigation focused on the dynamics between the three models
most referenced and defined by the National Institute of
Standards and Technology.
Cloud Computing Services \588\
---------------------------------------------------------------------------
\588\ Prepared by the Subcommittee based on data from the National
Institute of Standards and Technology.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In the Software as a Service (SaaS) model, the user
accesses applications from various client devices ``through
either a thin client interface, such as a web browser, or a
program interface.'' \589\ Common examples include Google Docs,
Slack, and Mailchimp. In the Platform as a Service (PaaS)
model, the user, most often a cloud application developer,
builds new applications by accessing programming languages,
libraries, services, and tools supported by the cloud
provider.\590\ Common PaaS tools include AWS Elastic Beanstalk,
Google App Engine, and Salesforce's Heroku. In the
Infrastructure as a Service (IaaS) model, the user, most often
an engineer, can deploy and run software, which can include
operating systems and applications while the cloud provider
provisions fundamental computing resources including
processing, storage, and network applications.\591\ Common IaaS
tools include Amazon Elastic Compute Cloud (EC2), Google
Compute Engine, and Microsoft Azure.\592\
---------------------------------------------------------------------------
\589\ Nat'l Inst. of Standards & Tech., The NIST Definition of
Cloud Computing 2 (2011), https://nvlpubs.nist.gov/nistpubs/Legacy/SP/
nistspecialpublication800-145.pdf.
\590\ Id.
\591\ Id. at 3.
\592\ Heidi M. Peters, Cong. Rsch. Serv., R45847, The Department of
Defense's Jedi Cloud Program 1 (2019).
---------------------------------------------------------------------------
SaaS, PaaS, and IaaS can be deployed through several
different models.\593\ The Subcommittee focused primarily on
the market for public cloud services in which the cloud
provider provisions infrastructure for open use by the general
public. The infrastructure resides on the premises of the cloud
provider.\594\
---------------------------------------------------------------------------
\593\ Nat'l Inst. of Standards & Tech., The NIST Definition of
Cloud Computing 3 (2011), https://nvlpubs.nist.gov/nistpubs/Legacy/SP/
nistspecialpublication800-145.pdf.
\594\ Id.
---------------------------------------------------------------------------
To review market dynamics, the Subcommittee examined two
types of cloud service providers. The first type is
infrastructure providers. Amazon Web Services (AWS), Microsoft
Azure, and Google Cloud Platform (GCP) are the most common
domestic infrastructure providers. They offer customers IaaS,
PaaS, and SaaS offerings through their customer consoles or
portals, but are distinct in their ability to offer IaaS at
scale. This Report refers to them as infrastructure providers.
They also operate online marketplaces for third-party software
vendors to list cloud offerings that integrate with their
infrastructure services.
The second type is third-party software vendors, sometimes
referred to as Independent Software Vendors (ISVs). Companies
such as Salesforce, MariaDB, and The Apache Foundation provide
operating systems, databases, security, and applications.
Third-party software can be delivered as a packaged software or
managed service. When a third party provides packaged software,
it can be installed onto a customer's existing cloud
infrastructure. The packaged software can be listed on the
infrastructure provider's marketplace or through a third-party
vendor's website.
When third-party software is sold as a managed service, the
customer pays a subscription based on the number of services
used, and the third-party software vendor manages all the
underlying infrastructure.\595\ In this scenario, the software
has become a cloud offering sold ``as-a-service.'' The
underlying infrastructure can be owned and managed by the
third-party software vendor or the third-party software vendor
may have contracts with an infrastructure provider, and in some
cases, the software vendor uses a combination of owned and
rented servers. For example, Salesforce's Heroku--a PaaS
product--is built using AWS IaaS offerings.\596\ When a company
purchases a Heroku license, Salesforce's use of AWS is included
in the price. In the case that a PaaS or SaaS offering uses its
own infrastructure, it is likely it will need to be able to
integrate with products managed by the infrastructure providers
as it grows and, to expand to new regions, it will need to
contract with infrastructure providers.\597\
---------------------------------------------------------------------------
\595\ Id.
\596\ See, e.g., Kelly Cochran, Simplify Your Customer Engagement
with AWS and Salesforce Heroku, AWS Partner Network (APN) Blog (June 9,
2017), https://aws.amazon.com/blogs/apn/simplify-your-customer-
engagement-with-aws-and-salesforce-heroku/.
\597\ Mark Innes, Salesforce Is Live on AWS Cloud Infrastructure in
Australia, Salesforce Blog (Oct. 17, 2017), https://www.salesforce.com/
au/blog/2017/10/salesforce-is-live-on-aws-cloud-infrastructure-in-
australia.html. For example, for many years Salesforce.com's CRM ran on
self-managed infrastructure but when the company expanded to Australia
in 2007, they entered into a contract with AWS.
---------------------------------------------------------------------------
In 2018, public cloud services, including IaaS, PaaS, SaaS,
and management services, accounted for $182.4 billion of the
overall $3.7 trillion I.T. infrastructure spending worldwide--
less than one percent.\598\ Despite being a small fraction of
I.T. spending, Gartner projects the market size of the cloud
services industry to increase at nearly three times the rate of
overall I.T. services through 2022, to reach $331 billion.\599\
AWS is the market leader, capturing approximately 24 percent of
the U.S. spending on cloud computing in 2018.\600\
---------------------------------------------------------------------------
\598\ Letter from David Zapolsky, Gen. Couns., Amazon.com, Inc., to
Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary, 6 (July 26, 2019) (on file
with Comm.).
\599\ Press Release, Gartner, Gartner Says Global IT Spending to
Reach $3.7 Trillion in 2018 (July 29, 2019), https://www.gartner.com/
en/newsroom/press-releases/2019-07-29-gartner-says-worldwide-iaas-
public-cloud-services-market-grew-31point3-percent-in-2018.
\600\ Letter from David Zapolsky, Gen. Couns., Amazon.com, Inc., to
Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary, 6 (July 26, 2019) (on file
with Comm.).
---------------------------------------------------------------------------
Amazon--the leading cloud platform--is dominant in the
cloud market due to the concentration of the IaaS market.\601\
According to Gartner, ``the worldwide IaaS market grew 31.3% in
2018 to total $32.4 billion, up from $24.7 billion in 2017.''
\602\ As seen in the chart below, AWS is the unquestioned
leader in the cloud computing infrastructure market, with
triple the market share of Microsoft. Alibaba, Google, and
Microsoft are growing at the fastest rates--rates double that
of Amazon. Gartner expects the IaaS worldwide public cloud
service revenue to grow faster than any other set of services,
and to be worth $76.6 billion in 2022.\603\
---------------------------------------------------------------------------
\601\ Submission from Source 170, to H. Comm. on the Judiciary, 6
(Nov. 21, 2011) (on file with Comm.).
\602\ Press Release, Gartner, Gartner Forecasts Worldwide Public
Cloud Revenue to Grow 17.5 Percent in 2019 (Apr. 2, 2019), https://
www.gartner.com/en/newsroom/press-releases/2019-07-29-gartner-says-
worldwide-iaas-public-cloud-services-market-grew-31point3-percent-in-
2018.
\603\ Id.
IaaS Worldwide Public Cloud Services Revenue
(Millions of U.S. Dollars) \604\
---------------------------------------------------------------------------
\604\ Prepared by the Subcommittee based on Press Release, Gartner,
Gartner Forecasts Worldwide Public Cloud Revenue to Grow 17.5 Percent
in 2019 (Apr. 2, 2019), https://www
.gartner.com/en/newsroom/press-releases/2019-07-29-gartner-says-
worldwide-iaas-public-cloud-services-market-grew-31point3-percent-in-
2018.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Industry reports suggest that the cloud computing market is
consolidating around three providers domestically--AWS,
Microsoft Azure, and Google Cloud Platform.\605\
---------------------------------------------------------------------------
\605\ Submission from Amazon, to H. Comm. on the Judiciary, AMAZON-
HJC-00219350 (July 5, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Market leaders benefit from early-mover advantage coupled
with network effects and high switching costs that lock-in
customers.
AWS pioneered cloud computing, launching officially in March 2006 with
Simple Storage Service (S3) and Elastic Compute Cloud (EC2), two
fundamental IaaS offerings.\606\ Microsoft announced Azure in October
2008 along with core services that made up the ``Azure Services
Platform.'' \607\ Google's first public cloud service, App Engine, a
PaaS offering, was released in 2008.\608\ Google's Compute Engine, an
AWS Elastic Compute Cloud and Microsoft Azure Virtual Machines
competitor, went live as a preview in June 2012.\609\
---------------------------------------------------------------------------
\606\ What's New, Amazon (Oct. 4, 2006), https://aws.amazon.com/
about-aws/whats-new/
2006/.
\607\ Press Release, Microsoft, Microsoft Unveils Windows Azure at
Professional Developers Conference (Oct. 27, 2008), https://
news.microsoft.com/2008/10/27/microsoft-unveils-windows-azure-at-
professional-developers-conference/#IP8XlBTCMpvORgaV.97.
\608\ Paul McDonald, Introducing Google App Engine + Our New Blog,
Google Dev. Blog (Apr. 7, 2008), http://googleappengine.blogspot.com/
2008/04/introducing-google-app-engine-our-new
.html.
\609\ Ryan Lawler, Google Launches Computer Engine to Take on
Amazon Web Services, TechCrunch (June 28, 2012), https://
techcrunch.com/2012/06/28/google-compute-engine/.
---------------------------------------------------------------------------
A 2010 Google strategy document predicted that the cloud
computing market would concentrate. An internal document,
titled ``Where Industry is Headed in 5 Years,'' stated that
there would be some concentration in the market within five
years, with cloudservice providers consisting of Google,
Amazon, Microsoft, and a hybrid of Cisco and VMWare.\610\
According to this document, each company would offer cloud-
based apps and other tools.\611\ Later, in a 2018 strategy
document, Google emphasized the importance of first-mover
advantage in the space, writing ``AWS and Azure have had more
years to gain customers, and cloud customers typically grow
[in] scale over time; in contrast'' reiterating the tendency
for cloud customers to choose a single vendor as their primary
cloud service provider.\612\ In a roundtable held by
Subcommittee Chair Cicilline, Mark Tracy, the CEO of
Cloudacronomics, described these concerns:
---------------------------------------------------------------------------
\610\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-01777633 (on file with Comm.).
\611\ Id.
\612\ Id. at GOOG-HJC-04167638 to -04167666 (June 3, 2019).
LWe pull down terabytes of data, and they have to upload
it to the cloud to improve farmers practices. The two cloud
providers are AWS and Azure. Since so many businesses and so
much value can be extracted by improving health and data, this
concentration of cloud services is a concern.\613\
---------------------------------------------------------------------------
\613\ Roundtable Discussion of Mar. 17, 2020, Before the Subcomm.
on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 116th Cong. (2020) (statement of Mark Tracy, CEO,
Cloudacronomics) (on file with Comm.).
As seen in the figure below, IaaS prices have decreased
over time, with the three dominant U.S. providers able to price
their services at less than $30/GB RAM according to a 2018 RBC
Capital Markets report.\614\ Market participants reference
economies of scale and a focus on increasing revenue from PaaS
and SaaS offerings, as opposed to IaaS offerings, as an
explanation for this trend. IaaS vendors benefit from economies
of scale both with regards to the size of the data centers and
the ability to operate multiple data centers across the globe.
To enter the market and reach the economies of scale needed to
compete with the incumbents, infrastructure providers must
invest significant capital and be able to offer competitive
prices to lure customers.
---------------------------------------------------------------------------
\614\ Submission from Amazon, to H. Comm. on the Judiciary, AMAZON-
HJ-00183326 (Dec. 4, 2018) (on file with Comm.) (showing a 2018 RBC
Capital Markets Report which analyzed the cost of IaaS across five
usage scenarios--Standard, High Compute, High Memory, High Storage, and
High Input/Output (I/O)--and three workload sizes--small, medium and
large--to create 15 cases).
---------------------------------------------------------------------------
Average Monthly Costs Per GB RAM Across 15 Use Cases \615\
---------------------------------------------------------------------------
\615\ Prepared by the Subcommittee based on the Submission from
Amazon, to H. Comm. on the Judiciary, AMAZON-HJC-00183326 (Dec. 4,
2018) (on file with Comm.) (2018 RBC Capital Markets Report which
analyzed the cost of IaaS across five usage scenarios--Standard, High
Compute, High Memory, High Storage, and High Input/Output (I/O)--and
three workload sizes--small, medium and large--to create 15 cases).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The ``cloud'' is a system of cables connected to a wide
network of data centers--all underground, underwater, or in
large industrial buildings. Building data centers in dozens of
regions worldwide costs billions of dollars.\616\ Market
participants described the investment as ``bigger than building
a cellular network'' and only ``for countries and major
companies.'' \617\
---------------------------------------------------------------------------
\616\ Submission from Source 170, to H. Comm. on the Judiciary, 8
(Nov. 21, 2011) (on file with Comm.).
\617\ Interview with Source 144 (April 17, 2020).
---------------------------------------------------------------------------
Two additional inputs that can provide a barrier to
becoming a leading infrastructure provider are compliance
certifications and reputation. Federal Risk and Authorization
Management Program (FedRAMP) authorization is required for any
service that holds U.S. federal data.\618\ The FedRAMP
authorization process can be resource intensive and time
consuming as vendors have to undergo a process of technical and
security reviews and audits.\619\
---------------------------------------------------------------------------
\618\ Off. of Mgmt. & Budget, Exec. Off. of the President, Security
Authorization of Information Systems in Cloud Computing Environments
(2011), https://www.fedramp.gov/assets/resources/documents/
FedRAMP_Policy_Memo.pdf.
\619\ Get Authorized: Joint Authorization Board, FedRAMP, https://
www.fedramp.gov/jab-
authorization/ (last visited Sept. 26, 2020).
---------------------------------------------------------------------------
When customers choose to use cloud computing, they must
trust that their data will be secure and available to access
quickly. The leading cloud infrastructure providers are major
technology companies that handle massive amounts of data and
run large technical operations before offering managed
services. Market participants said in interviews with the
Subcommittee that a smaller company attempting to enter the
IaaS market to contest these firms must convince large
customers that they can provide a reliable service that is
compliant with industry-specific regulations.\620\
---------------------------------------------------------------------------
\620\ Interview with Source 407 (Sept. 10, 2020).
---------------------------------------------------------------------------
Market participants and industry reports highlight that
IaaS offerings have become commoditized. To compete,
infrastructure providers must offer a range of PaaS and SaaS
services to attract users and developers to their
platform.\621\ First-party PaaS and SaaS offerings are made
available in the infrastructure provider's console. As of this
Report, AWS, Azure, and GCP all list over 100 first-party cloud
offerings.\622\ Each cloud infrastructure provider has taken
its own approach to building its platform, but all involve
acquisitions, in-house software development, and the use of
open-source software. Google and Azure have also relied on
their company's existing products--Microsoft leveraging its
Office 360 Suite and Google leveraging its collection of
APIs.\623\
---------------------------------------------------------------------------
\621\ Submission from Source 264, to H. Comm. on the Judiciary, 58
(Nov. 21, 2011) (on file with Comm.).
\622\ AWS Marketplace, Amazon, https://aws.amazon.com/marketplace
(last visited Oct. 4 2020); Find Solutions to Support Innovation,
Microsoft Azure, https://azure.microsoft.com/en-us/marketplace/ (last
visited Oct. 4, 2020); Google Cloud Platform, https://console
.cloud.google.com/marketplace (last visited Oct. 4, 2020).
\623\ Submission from Source 170, to H. Comm. on the Judiciary
(Nov. 21, 2011) (on file with Comm.); Submission from Google, to H.
Comm. on the Judiciary, GOOG-HJC-02456801 (2010) (on file with Comm.).
---------------------------------------------------------------------------
In the case that a new entrant can overcome this entry
barrier, it must also invest substantial resources to overcome
network effects within the market. Infrastructure providers
benefit from network effects--the more customers on a platform,
the more third parties build services that integrate well with
that platform leading to more services to attract customers.
Amazon, Microsoft, and Google all have hundreds of products
listed in their third-party marketplace, while Amazon lists
9,250.\624\ In interviews with the Subcommittee, third-party
software vendors said that they had little choice but to
integrate their products with the incumbents, most notably,
AWS.
---------------------------------------------------------------------------
\624\ AWS Marketplace, Amazon, https://aws.amazon.com/marketplace
(last visited Oct. 4, 2020).
---------------------------------------------------------------------------
Cloud infrastructure providers also need to ensure that the
knowledge and expertise of their platform's technology are
available to their customers. To achieve this, cloud
infrastructure providers launch partner networks that include
consulting firms trained to help enterprise customers move to
the public cloud, such as AWS Partner Network (APN) Consulting
Partners \625\ and Microsoft Solution Providers.\626\ Cloud
infrastructure providers also offer trainings and exams to
certify members of the workforce as proficient in various uses
of their technology. Additionally, infrastructure providers
have programs to support third-party software vendors working
to integrate with the infrastructure provider's cloud.
---------------------------------------------------------------------------
\625\ Partners, Amazon, https://aws.amazon.com/partners/ (last
visited Sept. 26, 2020).
\626\ Solution Providers, Microsoft, https://www.microsoft.com/en-
us/solution-providers/home (last visited Oct. 4, 2020).
---------------------------------------------------------------------------
Many market participants interviewed by the Subcommittee
believe that surpassing the incumbents in the market will be
challenging because of the potential for vendor lock-in. Other
evidence reviewed by the Subcommittee bolsters this concern,
suggesting that lock-in exists because switching costs for
cloud computing customers are high.\627\
---------------------------------------------------------------------------
\627\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04215099 (Dec. 31, 2018) (on file with Comm.).
---------------------------------------------------------------------------
The Subcommittee has identified several common techniques
infrastructure providers use to initially lock-in customers,
including contract terms, free tier offerings, and egress fees.
The first is long-term contracts. In several responses to the
Committee's requests for information, third parties explained
they have contracts lasting from three to five years with the
infrastructure providers.
Another common technique is using free tier products, where
each cloud platform offers a free tier of services ranging from
always free to trial offers.\628\ Market participants suggest
that while the free tier products vary slightly among the major
firms, they are relatively similar. When a customer's free
trial expires, it is faced with switching to another provider
or starting to pay for service. Switching requires an
investment of time and resources to adapt to the new service
provider, as well as possibly paying egress fees to the prior
vendor. As a result, customers may decline to switch at the
conclusion of free trials.
---------------------------------------------------------------------------
\628\ See, e.g., AWS Free Tier, Amazon, https://aws.amazon.com/
free/ (last visited Oct. 4, 2020).
---------------------------------------------------------------------------
Whether a customer begins using cloud on free tier products
or not, once they have substantially built and migrated to a
platform, they face high switching costs in the form of fees to
move the data, along with the technical and labor costs
associated with switching the data. When a company moves data
into the cloud from hard drives or private servers, they are
often charged ingress fees, which are generally low or
free.\629\ When a company, however, chooses to move data to
another infrastructure provider, they are charged an egress
fee. Egress fees vary slightly by company and region.
---------------------------------------------------------------------------
\629\ All Network Pricing, Google Cloud, https://cloud.google.com/
vpc/network-pricing (last visited Oct. 4, 2020).
---------------------------------------------------------------------------
Market participants explain that egress fees are often not
transparent and are sometimes charged even when data is not
leaving the data center.\630\ One market participant said that
these fees ``can create significant financial barriers to
migrating away from particular cloud storage providers.'' \631\
---------------------------------------------------------------------------
\630\ Interview with Source 465 (May 27, 2020).
\631\ Submission from Source 264, to H. Comm. on the Judiciary, 6
(Nov. 21, 2011) (on file with Comm.).
---------------------------------------------------------------------------
Additionally, when a customer decides to move any of its
operations to a different infrastructure provider, it often
must overcome technical design challenges. Several market
participants spoke to the challenges of finding cloud
developers that know the underlying technology of multiple
cloud infrastructures as a barrier to both switching, either
from one cloud to another or to set up multi-cloud operations.
As one third party describes, ``businesses often have to
calibrate a complex set of technical frameworks, settings, and
customized interfaces to adapt their business to the
potentially unique way the cloud storage provider has chosen to
operate their service.'' \632\ For example, in an investor
statement in 2020, Snap explained:
---------------------------------------------------------------------------
\632\ Id. at 5.
L[T]he vast majority of our computing [runs] on Google
Cloud and AWS, and our systems are not fully redundant on the
two platforms. Any transition of the cloud services currently
provided by either Google Cloud or AWS to the other platform or
to another cloud provider would be difficult to implement and
will cause us to incur significant time and expense.\633\
---------------------------------------------------------------------------
\633\ Snap Inc., Annual Report (Form 10-K) 11 (Dec. 31, 2019),
http://d18rn0p25nwr6d .cloudfront.net/CIK-0001564408/0cfebc98-816e-
44ac-8351-5067b4f88f0c.pdf.
When asked about lock-in, many market participants
discussed how in response to the rise of a few dominant
platforms in the cloud market, new strategies have emerged to
increase portability between vendors and allow customers to use
multiple clouds. Market participants note, however, that today
interoperability is a challenge, and it is unclear how
cooperative dominant cloud infrastructure providers will be in
supporting partnerships and standards to facilitate these
strategies. Given the current trends toward concentration in
the cloud infrastructure market, further scrutiny of the role
standards play toward decreasing switching costs and enabling
portability and interoperability is warranted.
Finally, the Subcommittee interviewed market participants
about related competition concerns facing third-party software
vendors. Many third-party software vendors compete with first-
party products listed in the infrastructure provider's console.
Market participants explain that these competitive offerings
are often the first products customers see because they are
displayed within the customer's existing console in a format
that makes it easier for users to add to their existing cloud
stack, seamlessly including the product in their billing and
licenses and with minimal technical set-up.\634\
---------------------------------------------------------------------------
\634\ Getting Started, Amazon Web Servs., https://
docs.aws.amazon.com/awsaccount
billing/latest/aboutv2/billing-getting-started.html (last visited Oct.
4, 2020).
---------------------------------------------------------------------------
As a result, it is difficult for customers to compare
prices and features included in the offerings when they are not
listed side-by-side. Although third-party vendors can sell
their service directly to consumers through their own websites,
many smaller cloud vendors use the marketplaces of the dominant
infrastructure providers to reach customers, which require fees
and are subject to competition concerns that are similar to
other marketplaces examined by the Subcommittee during the
investigation. Market participants have raised concerns that
cloud infrastructure providers can preference their own
offerings, or offer these products with exceedingly steep
discounts, making it difficult for third-party software vendors
with fewer products to compete.\635\
---------------------------------------------------------------------------
\635\ Submission from Source 170, to H. Comm. on the Judiciary, 7
(Oct. 18, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Significantly, because the leading infrastructure providers
have access to competitively significant data in the
marketplace, they have insight into usage metrics regarding any
managed service that runs on their infrastructure.\636\ Market
participants told the Subcommittee that they have concerns that
this data can be used by infrastructure providers to make
decisions regarding which types of software to acquire or
replicate to offer through their first-party console.\637\
---------------------------------------------------------------------------
\636\ Innovation and Entrepreneurship Hearing at 488 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC), id. at 540-41 (response to Questions for the Record of Nate
Sutton, Assoc. Gen. Couns., Competition, Amazon.com, Inc.).
\637\ See Alistair Barr, Amazon Finds Startup Investments in the
``Cloud,'' Reuters (Nov. 9, 2011), http://www.reuters.com/article/
amazon-cloud-idUSN1E7A727Q20111109.
---------------------------------------------------------------------------
H. Voice Assistant
Voice assistants act as a user interface that enables
exchanges between computing devices through a person's
voice.\638\ Today users can ask their electronic devices to
play the morning news or start a conference call.\639\ When
combined with smart speakers, voice assistants can become a
gateway to the internet, and can also be used to connect other
``smart'' devices, such as lighting, thermostats, security
monitors, and even kitchen appliances.\640\ While voice
assistants began as mobile phone apps, they have become
integrated into other devices, including cars and homes.\641\
---------------------------------------------------------------------------
\638\ Submission from Source 301, to H. Comm. on the Judiciary,
Source 301-00000080, at 2 (Oct. 15, 2019) (on file with Comm.).
\639\ Submission from Source 918, to H. Comm. on the Judiciary, 2
(Nov. 4, 2019) (on file with Comm.).
\640\ Id. at Source 918-0002029.
\641\ Submission from Source 711, to H. Comm. on the Judiciary,
Source 711-00000080, at 13 (Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
There are two types of voice assistants on the market:
general and specialized. General voice assistants--such as
Siri, Alexa, and Google Assistant--can respond to queries and
interact with a range of applications. Specialized voice
assistants focus on a specific vertical--such as healthcare or
banking--where there is a limited vocabulary universe and more
specific responses.\642\ For example, Snips, a privacy-centric
voice assistant owned by Sonos, specializes in commands for
playing music on smart speakers.\643\
---------------------------------------------------------------------------
\642\ Id.
\643\ Thomas Ricker, Sonos Buys Snips, a Privacy-Focused Voice
Assistant, Verge (Nov. 21, 2019), https://www.theverge.com/2019/11/21/
20975607/sonos-buys-snips-ai-voice-assistant-
privacy.
---------------------------------------------------------------------------
Today, voice assistants interact with humans by receiving
specific requests and sending feedback through a voice
response. The first step is to deliver the ``wake word''--such
as ``hey, Siri'' on iPhones--designed to activate the system.
Once activated, a voice assistant can execute a command, which
triggers a voice application.\644\
---------------------------------------------------------------------------
\644\ Hyunji Chung, Jungheum Park & Sangjin Lee, Digital Forensic
Approaches for Amazon Alexa Ecosystem, 22 Digit. Investigations S15
(2017), https://dfrws.org/wp-content/uploads/2019/06/
paper_digital_forensic_approaches_for_amazon_alexa_ecosystem.pdf.
---------------------------------------------------------------------------
Voice Assistant Ecosystem \645\
---------------------------------------------------------------------------
\645\ Prepared by the Subcommittee based on Hyunji Chung, Jungheum
Park & Sangjin Lee, Digital Forensic Approaches for Amazon Alexa
Ecosystem, 22 Digit. Investigations S15 (2017), https://dfrws.org/wp-
content/uploads/2019/06/paper_digital_forensic_approaches_for_
amazon_alexa_ecosystem.pdf.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Although there are multiple types of voice assistants
within the ecosystem, the Subcommittee focused primarily on
voice assistant platform vendors and third-party hardware
manufacturers, including smart speaker manufacturers and
internet of Things (IoT) compatible device manufacturers. The
business model for these two groups varies. A voice assistant
platform vendor can monetize its platform by using its
ecosystem to drive revenue to complementary lines of business
such as e-commerce, search, or entertainment.\646\ It can also
charge voice-application developers to be the recommended
application for a specific command.\647\ As they become widely
adopted, stores on voice assistant platforms--such as the
``Alexa Skills Store''--can offer premium content and collect
revenue share on payments.\648\ Third-party hardware
manufacturers generate income by selling hardware, and in some
cases, by offering subscription services such as home
monitoring.\649\
---------------------------------------------------------------------------
\646\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04257931 (Mar. 9, 2017) (on file with Comm.).
\647\ Id.
\648\ Id.
\649\ Alison DeNisco Rayome, How to Monetize Your IoT Project,
TechRepublic (June 20, 2018), https://www.techrepublic.com/article/6-
steps-to-monetizing-your-iot-project/.
---------------------------------------------------------------------------
Voice assistants have grown in popularity over recent years
due to technological advancements in natural language
processing. Although the market is nascent, market participants
and industry experts view voice-enabled devices as an
opportunity to lock consumers into information ecosystems. The
smartphone and smart speaker are the two main portals for voice
assistants. Apple and Google lead in the smartphone market, and
Amazon leads in the smart speaker market.\650\ According to one
consulting firm, of the 1.1 billion shipments of virtual
assistants in 2019, Apple's Siri (35
---------------------------------------------------------------------------
\650\ Submission from Source 918, to H. Comm. on the Judiciary,
Source 918-0002763 (Nov. 4, 2019) (on file with Comm.).
---------------------------------------------------------------------------
percent) has the highest market share globally, followed by Google
Assistant (9 percent) and Amazon Alexa (4 percent).\651\ Although a
significant share of shipments is attributed to Microsoft Cortana (22
percent) because of the popularity of Windows PCs globally, Cortana is
generally not considered a voice assistant platform.\652\
---------------------------------------------------------------------------
\651\ Press Release, Futuresource Consulting, Virtual Assistants to
Exceed 2.5 Billion Shipments in 2023 (Dec. 18, 2019), https://
www.futuresource-consulting.com/press-release/
consumer-electronics-press/virtual-assistants-to-exceed-25-billion-
shipments-in-2023/.
\652\ Id.; Mary Jo Foley, Microsoft CEO Nadella Makes It Official:
Cortana Is an App, not a Standalone Assistant, ZDNet (Jan. 18, 2019),
https://www.zdnet.com/article/microsoft-ceo-nadella-makes-it-official-
cortana-is-an-app-not-a-standalone-assistant/.
---------------------------------------------------------------------------
Market participants emphasize that smart speakers represent
an essential ``hub'' or gateway for smart homes and are driving
voice-assistant adoption.\653\ Smart speakers are estimated to
currently have 35 percent U.S. household penetration, which is
predicted to grow to 75 percent by 2025.\654\ As of January
2019, Amazon had a significant lead in the U.S. market at 61.1
percent, followed by Google at 23.8 percent, Apple at 2.7
percent, and Sonos at 2.2 percent.\655\
---------------------------------------------------------------------------
\653\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04258666 (Jan. 28, 2019) (on file with Comm.) (``Speakers are still
going to be very important. [Company] cited stats that suggested that
only 20 percent of their `smart home' customers are new to the
category. And it's fair to say that many/most of these existing smart
home customers started with sound.'').
\654\ See generally Submission from Source 918, to H. Comm. on the
Judiciary (Nov. 4, 2019) (on file with Comm.).
\655\ Id. at 7.
---------------------------------------------------------------------------
A voice assistant platform vendor can expand its ecosystem
by adding IoT devices and voice applications. Both IoT devices
and voice applications can be first-party--owned by the voice
assistant platform vendor--or third-party, if the vendor has
set up services to allow for manufacturers to create voice
assistant-enabled devices. Amazon's Alexa ecosystem, measured
in terms of compatible IoT devices and voice applications, is
the largest of the three primary ecosystems. In 2017, voice
assistants made their first serious moves beyond smart speakers
into other product categories.\656\ The voice assistant-
compatible device market is vast and includes kitchen
appliances, security cameras, and even trash cans.\657\
---------------------------------------------------------------------------
\656\ Submission from Source 918, to H. Comm. on the Judiciary,
Source 918-0002024 (Nov. 4, 2019) (on file with Comm.).
\657\ See, e.g., Christopher Mims, All Ears: Always-On Listening
Devices Could Soon Be Everywhere, Wall St. J. (July 12, 2018), https://
www.wsj.com/articles/all-ears-always-on-listening-devices-could-soon-
be-everywhere-1531411250.
---------------------------------------------------------------------------
Market participants suggest there are several barriers to
entry to compete with general voice assistant platforms. These
include overcoming the network effects early entrants have
benefited from, including financial investment in hardware,
software, and infrastructure, and the ability to sell voice
assistant-enabled devices at a discount.
Like many platform-based businesses, the voice assistant
market benefits from network effects. The more users on a
platform, the more third-party devices and applications become
available, which attracts more users to the platform.\658\
These network effects for voice assistant platforms are
amplified by machine learning and artificial intelligence (AI).
Improvements in Natural Language Processing (NLP) and AI are
expected to improve the quality of voice assistants and
contribute to wider adoption.\659\ Voice assistant technology
improves at a faster rate when there are more users providing
the voice samples needed to train AI. In testimony to the
Subcommittee, Professors Maurice Stucke and Ariel Ezrachi
describe this as ``Learning-by-Doing.'' As they note:
---------------------------------------------------------------------------
\658\ Submission from Source 918, to H. Comm. on the Judiciary,
Source 918-0002025, at 12 (Oct. 15, 2019) (on file with Comm.).
\659\ Submission from Source 711, to H. Comm. on the Judiciary,
Source 711-00000080, at 12 (Oct. 15, 2019) (on file with Comm.).
LLearning-by-doing network effect is not limited to online
searches, but will be present in any environment in which
algorithms evolve and adapt based on experience, such [as], for
example, the development of voice recognition or other
instances based on machine learning.\660\
---------------------------------------------------------------------------
\660\ Data and Privacy Hearing at 146-47 (statement of Maurice E.
Stucke, Prof. of Law, Univ. of Tenn., & Ariel Ezrachi, Slaughter & May
Prof. of Competition Law, Univ. of Oxford, Fellow, Pembroke Coll.,
Dir., Oxford Ctr. for Competition Law & Pol'y).
The scale of users generating data is arguably the most
important asset in terms of AI.\661\ The incumbents have access
to large data sets that--when combined with machine learning
and AI--position them to benefit from economies of scope in the
smart home.\662\
---------------------------------------------------------------------------
\661\ Submission from Source 918, to H. Comm. on the Judiciary,
Source 918-0002763, at 12 (Oct. 15, 2019) (on file with Comm.).
\662\ Submission from Source 918, to H. Comm. on the Judiciary, 37
(Sept. 1, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Competing as a voice assistant platform also requires
significant financial resources. A firm must make significant
investments to design and train a voice assistant, as well as
to acquire the physical infrastructure: hardware and cloud
computing. Additionally, incumbents have also acquired various
firms that specialize in voice recognition and natural language
processing, a functionality that is used in their voice
assistants. For example, both Apple and Amazon acquired
companies to develop their core voice recognition technologies,
and every incumbent has continually invested in AI startups to
improve their voice assistant ecosystem.\663\
---------------------------------------------------------------------------
\663\ See, e.g., How Big Tech Is Battling to Own the $49B Voice
Market, CB Insights (Feb. 13, 2019), https://www.cbinsights.com/
research/facebook-amazon-microsoft-google-apple-voice/.
---------------------------------------------------------------------------
Currently, voice assistant software is built on cloud
computing infrastructure. In the case of Amazon Alexa and
Google Assistant, the voice assistant platforms also own the
underlying cloud infrastructure, AWS and GCP, respectively.
Market participants note that advancements in voice assistant
ecosystems are beginning to rely on edge computing technology,
which brings the computation and data storage closer to the
device and is a technology in which the incumbent cloud market
leaders have a head start.\664\
---------------------------------------------------------------------------
\664\ Future Today Inst., 2020 Tech Trends Report (2020), https://
futuretoday
institute.com/2020-tech-trends/.
---------------------------------------------------------------------------
Market participants have also raised concerns about
incumbent firms offering voice-enabled hardware--specifically
hubs such as smart speakers--to both collect large amounts of
personal user data and strengthen other lines of business. At
the Subcommittee's field hearing, Sonos CEO Patrick Spence
explained:
LGoogle and Amazon have flooded the market with
dramatically price-subsidized products. Indeed, they make no
pretense of the fact that the products themselves are money
losers and they routinely give them away at steep discounts,
even for free. It is difficult to predict the impact that voice
assistants will have on search and e-commerce, but voice
activated speakers have the potential to dramatically alter the
way that consumers interact with the internet. We believe that
Google and Amazon have been willing to forgo profits in smart
speakers for this reason, in addition to their ability to
monetize the valuable household data that these products vacuum
up. And if voice purchasing and voice search do become the next
big thing, they will own the market because their strategy is
succeeding. Those two companies now control roughly 85% of the
U.S. smart speaker market . . . . It's not because their
hardware businesses are profitable in and of themselves.\665\
---------------------------------------------------------------------------
\665\ Competitors Hearing at 11 (statement of Patrick Spence, CEO,
Sonos, Inc.).
As the voice assistant market expands, it may be difficult
for users to switch between platforms. Because voice assistant
platforms are not always interoperable, users would incur costs
to purchase one or more new devices. Moreover, voice assistant
technology is designed to learn its user's preferences over
time. These preferences range from settings like billing
information and default services for responding to music
commands to more advanced learning like past voice commands and
shopping history. As a voice assistant improves its
``understanding'' of its user, it may increase the costs
associated with switching to another platform. As one market
participant noted in a submission to the Subcommittee, ``the
user may become more dependent on that particular voice
assistant and be far less likely to use a rival voice assistant
that has not yet `caught up' with the user's preferences.''
\666\
---------------------------------------------------------------------------
\666\ Submission from Source 711, to H. Comm. on the Judiciary,
Source 711-00000080, at 20 (Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
The design of most voice assistants--specifically on
screenless devices--amplifies the ability of voice assistant
platforms to favor their services as a default or as a response
with limited choice.\667\ This dynamic makes it easier for
popular voice assistants to favor their first-party services.
---------------------------------------------------------------------------
\667\ Id. at 17.
---------------------------------------------------------------------------
There is also a significant potential for misuse of data to
harm competition or consumers. Similar to other platforms, such
as cloud and operating systems, voice assistant platforms
collect and store users' interactions with the voice
assistant.\668\ During the investigation, several companies
shared concerns that voice assistant platforms would be able to
use this vantage to glean competitive insights from third-party
voice applications or smart appliances that are performing
well. As a result, platforms could use that data to acquire
competitive threats or integrate their features into the
company's product.
---------------------------------------------------------------------------
\668\ Innovation and Entrepreneurship Hearing at 481-82 (response
to Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
---------------------------------------------------------------------------
Privacy and data experts have also commented that the smart
home ecosystem has access to some of the most sensitive data
that can be collected.\669\ Voice assistant platforms not only
record voice interactions, but also receive information about
the skills used--``whether a light is on or off. Or, if a
customer links Alexa to a third-party calendar skill, Alexa may
receive information about the events on the customer's
calendar.'' \670\ This raises significant concerns regarding
whether a person has provided consent to data collection. Voice
assistants not only collect information on the primary user,
but also people in their environment, including children.
---------------------------------------------------------------------------
\669\ See generally Shoshana Zuboff, The Age of Surveillance
Capitalism (2019).
\670\ Innovation and Entrepreneurship Hearing at 536 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
---------------------------------------------------------------------------
Finally, leaders in the voice assistant ecosystem set the
rules for third parties. To make a voice assistant enabled
device, market participants must comply with voice assistant
platform vendor specifications. As Mr. Spence of Sonos noted in
his testimony before the Subcommittee:
LTo gain access to their platforms and integrate with
their services, these companies issue all manner of take-it-or-
leave-it demands, from early and technically detailed access to
our product roadmaps, to proprietary business data, including
sales forecasts, to waivers of essential contractual
rights.\671\
---------------------------------------------------------------------------
\671\ Competitors Hearing at 12 (statement of Patrick Spence, CEO,
Sonos, Inc.).
The Subcommittee also heard from multiple voice assistant
developers that have struggled to gain access to key
functionality needed to build their applications, such as the
unprocessed user commands.\672\ While still developing, the
voice assistant market shows early signs of market
concentration.
---------------------------------------------------------------------------
\672\ Submission from Source 301, to H. Comm. on the Judiciary,
Source 301-00000080, at 23 (Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
I. Web Browsers
A web browser is software that retrieves and displays pages
from the internet. People often use browsers to navigate to and
spend time on websites and to search the web. Most other
activities online, whether it is on a mobile phone or a
television screen, are made possible through a browser.\673\
---------------------------------------------------------------------------
\673\ Submission from Source 385, to H. Comm. on the Judiciary, 3
(Oct. 11, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Behind every browser is a ``browser engine,'' also known as
a layout engine or rendering engine. A browser engine is the
central software component of a web browser, transforming
content hosted on web servers into a graphic depiction that
people can interact with. Browsers interpret control codes
within web pages, which indicate the structure of the data,
such as the beginning and end of an item, and the way to
present it to the user, such as headings, paragraphs, lists, or
embedded images. The browser engine takes this code to ``draw
the web page'' on the user's screen and notes which parts of it
are interactive. The non-engine components of the browser
typically include the menus, toolbars, and other user-facing
features, which are layered on top of the engine.\674\
---------------------------------------------------------------------------
\674\ Id. at 4.
---------------------------------------------------------------------------
Browsers abide by standards to ensure that anyone can
properly use features within a website on any browser. For
example, standards such as CSS and XML help ensure that a
website functions the same in every browser.\675\ Web browser
standards organizations include the World Wide Web Consortium
(W3C), Web Hypertext Application Technology Working Group
(WHATWG), and Internet Engineering Task Force (IETF). Through
these organizations, stakeholders work in partnership to ensure
that browser engines and web pages are interoperable.\676\ W3C
has become one of the most important organizations for browser
standards. W3C standards undergo a rigorous review process
prior to implementation.\677\
---------------------------------------------------------------------------
\675\ Standards, W3C, https://www.w3.org/standards/ (last visited
Sept. 26, 2020).
\676\ Submission from Source 993, to H. Comm. on the Judiciary
(Oct. 11, 2019) (on file with Comm.).
\677\ Process for 2020, W3C, https://www.w3.org/wiki/Process2020
(last visited Sept. 26, 2020).
---------------------------------------------------------------------------
Browser vendors monetize their access to users, usually
through search royalties. For example, whenever someone types a
search query into the search bar on Firefox, Google records
that action, and the Mozilla corporation receives a
royalty.\678\ Browsers also bring in ad revenues. For example,
Brave sells advertisers the option to run desktop notification
ads to users who choose to see ads.\679\
---------------------------------------------------------------------------
\678\ Innovation and Entrepreneurship Hearing at 437 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\679\ Expand Your Business with Brave Ads, Brave, https://
brave.com/brave-ads-waitlist/ (last visited Sept. 26, 2020).
---------------------------------------------------------------------------
The browser market is highly concentrated. Google's Chrome
and Apple's Safari control roughly 80 percent of the browser
market.\680\ As of August 2020, Chrome is the leader in the
U.S. desktop browser market (58.6 percent), followed by Safari
(15.8 percent), Edge (8.76 percent), Firefox (7.6 percent), and
Internet Explorer (5.36 percent).\681\ On mobile devices,
Safari (55.5 percent) and Chrome (37.4 percent) have
significant leads on their rivals, such as Samsung Internet
(5.01 percent), Firefox (0.77 percent), and Opera (0.44
percent).\682\ Additionally, the browser market has
concentrated around three browser engines: Gecko, WebKit, and
Blink, used in Firefox, Apple's Safari, and Google's Chrome,
respectively.\683\
---------------------------------------------------------------------------
\680\ U.S. Browser Market Share, StatCounter, https://
gs.statcounter.com/browser-market-share/all/united-states-of-america
(last visited Sept. 26, 2020).
\681\ U.S. Desktop Market Share, StatCounter, https://
gs.statcounter.com/browser-market-share/desktop/united-states-of-
america (last visited Sept. 26, 2020).
\682\ U.S. Mobile Market Share, StatCounter, https://
gs.statcounter.com/browser-market-share/mobile/united-states-of-america
(last visited Sept. 26, 2020).
\683\ Submission from Source 993, to H. Comm. on the Judiciary, 5
(Oct. 11, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Google's hold on the browser market extends beyond Chrome.
Google releases the code base used to make the Chrome browser
as the free, open-source project Chromium.\684\ Chromium is
used in Microsoft's Edge browser, Amazon's Silk browser, Opera,
and other browsers that are often referred to as ``Chromium-
based.'' \685\ Similarly, Apple extends its power by mandating
that all browser applications on the iPhone use Apple's browser
engine, WebKit.\686\
---------------------------------------------------------------------------
\684\ The Chromium Projects, https://www.chromium.org/ (last
visited Sept. 26, 2020).
\685\ Submission from Source 993, to H. Comm. on the Judiciary, 3
(Oct. 11, 2019) (on file with Comm.).
\686\ Innovation and Entrepreneurship Hearing at 584-85 (response
to Questions for the Record of Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.).
---------------------------------------------------------------------------
Browser competition has also led to the creation of a
browser extension submarket. A browser extension adds
additional features to a web browser, including user interface
modifications and ad-blocking. They can also provide for niche
browser customization and experimentation of new functionality
before it is implemented into the main browser
functionality.\687\ Popular add-ons include ad blockers,
LastPass, and Grammarly.\688\
---------------------------------------------------------------------------
\687\ Interview with Source 27 (June 29, 2020).
\688\ Tyler Lacoma, The Best Google Chrome Extensions, Dig. Trends
(Apr. 4, 2020), https://www.digitaltrends.com/computing/best-google-
chrome-extensions/.
---------------------------------------------------------------------------
Competition in this market is important to promoting
innovation online. In a submission to the Subcommittee, a
market participant explained:
LCompeting browser engines push each other for innovations
in raw performance in several respects, including faster
rendering, greater reliability, and a number of other technical
improvements; this competition is qualitatively different from,
and greater than, competition over just the browser
product.\689\
---------------------------------------------------------------------------
\689\ Submission from Source 993, to H. Comm. on the Judiciary, 5
(Oct. 11, 2019) (on file with Comm.).
Browser diversity is also important for ensuring an open
internet and reduces the risk that web developers will build
sites optimized for the leading engine as opposed to web
standards.\690\ Moreover, as developers work on advancing
browser engine technology, they create technologies that can
improve the overall internet ecosystem. For example, Rust is a
programming language that Mozilla engineers developed while
writing the Servo layout technology for browser engines.\691\
Developers use Rust for other applications today, including
gaming, operating systems, and other new software
applications.\692\ There is a general concern that, without
vibrant competition, this form of innovation will suffer,
discouraging the development of new browser engine
technology.\693\
---------------------------------------------------------------------------
\690\ Id.
\691\ Rust Language, Mozilla Rsch., https://research.mozilla.org/
rust/ (last visited Sept. 26, 2020).
\692\ Id.
\693\ Interview with Source 481 (July 2, 2020).
---------------------------------------------------------------------------
Browsers protect their dominance through default settings,
which create a barrier to entry.\694\ Defaults exist in both
desktop and mobile markets. Although users can set different
browsers more easily for desktop computers than on mobile
devices, ``settings can impact the stickiness over time,'' such
as when a software update overrides a user's preference,
requiring them to take ``complex steps to restore their browser
choice.'' \695\ In some cases, consumers are unable to delete
the preloaded browser. For example, on Apple iOS devices and
Facebook's Oculus, users are unable to delete the preloaded
browser. Some popular mobile applications can preset webpage
links to a predetermined browser, such as the Apple Mail App
(Safari) and the Search widget on an Android device
(Chrome).\696\
---------------------------------------------------------------------------
\694\ Submission from Source 993, to H. Comm. on the Judiciary, 10-
11 (Oct. 11, 2019) (on file with Comm.); Submission from Source 269, to
H. Comm. on the Judiciary, 2-3 (July 23, 2019) (on file with Comm.).
\695\ Submission from Source 993, to H. Comm. on the Judiciary, 10
(Oct. 11, 2019) (on file with Comm.).
\696\ Id. at 5; Submission from Source 269, to H. Comm. on the
Judiciary, 2 (July 23, 2019) (on file with Comm.).
---------------------------------------------------------------------------
J. Digital Advertising
There are two principal forms of digital advertising:
search advertising and display advertising. Search advertising
refers to digital ads on desktop or mobile search engines, such
as the Google.com homepage, displayed via ``search ad tech''
alongside search engine results. Search advertising is often
bought and sold via real-time bidding (RTB) auctions among
advertisers, where advertisers set the prices they are willing
to pay for a specific keyword in a query.\697\ Display
advertising refers to the delivery of digital ad content to ad
space on websites and mobile apps, which is referred to as
``inventory.'' Like search advertising, buying and selling
display ads often involves real-time bidding.\698\
---------------------------------------------------------------------------
\697\ Submission from Source 465, to H. Comm. on the Judiciary, 6
(June 3, 2019) (on file with Comm.).
\698\ Id.
---------------------------------------------------------------------------
Within display advertising, there are two separate ``ad
tech'' markets that the Subcommittee reviewed during the
investigation: first-party and third-party. ``First-party''
platforms refer to companies such as Facebook, Twitter, and
Snap, which sell ad space on their own platforms directly to
advertisers. Google also uses first-party ad tech to sell
display ads on its own properties, most notably YouTube. Third-
party display ad tech platforms are run by intermediary vendors
and facilitate the transaction between third-party advertisers,
such as the local dry cleaner or a Fortune 500 company, and
third-party publishers, such as The Washington Post or a
blog.\699\ Third-party ad tech providers include Google, Flash-
talking, Sizmek (owned by Amazon), and the Trade Desk, among
others.\700\
---------------------------------------------------------------------------
\699\ Id. at 5.
\700\ Competition & Mkts. Auth. Report at 266.
---------------------------------------------------------------------------
Software in display ads is programmatic, meaning that
specialized software automates the buying and selling of
digital ads. Market participants explain that this automated
approach provides greater liquidity, better return-on-
investment metrics, more precise ad targeting, and lower
transaction costs. One major drawback, however, is that this
process lacks transparency.\701\ Google, specifically, ``does
not disclose to the publishers on the other ends of these
trades what their space ultimately sold for and how much Google
keeps as its share.'' \702\ As another market participant told
the Subcommittee, Google could make the process ``more
transparent,'' but given Google's financial stake in
maintaining secrecy, ``there is no incentive to.'' \703\
---------------------------------------------------------------------------
\701\ Dina Srinivasan, Why Google Dominates Advertising Markets, 24
Stan. Tech. L. Rev. 55, 63-64 (2020).
\702\ Id. at 64.
\703\ Interview with Source 004 (Apr. 23, 2020).
The Ad-Tech Suite \704\
---------------------------------------------------------------------------
\704\ Prepared by the Subcommittee based on Dina Srinivasan, Why
Google Dominates Advertising Markets, 24 Stan. Tech. L. Rev. 55, 77
(2020).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ad exchanges refer to the ``ad trafficking system that
connects advertisers looking to buy inventory with publishers
selling inventory.'' \705\ Sales on ad exchanges occur
primarily through: (1) open real-time bidding auctions; (2)
closed real-time bidding auctions; or (3) programmatic direct
deals.\706\
---------------------------------------------------------------------------
\705\ Submission from Source 465, to H. Comm. on the Judiciary, 9
(June 3, 2019) (on file with Comm.).
\706\ Id.
---------------------------------------------------------------------------
Sell-side software includes publisher ad servers.\707\ The
primary function of a publisher ad server is to fill ad space
on a publisher's website that is personalized to the interests
of a specific website viewer.\708\ Sell-side software also
includes ad networks, which aggregate ad inventory from many
different publishers and divide that inventory based on user
characteristics--such as age or location. Ad networks sell the
pool of inventory through ad exchanges or demand-side platforms
(DSPs).\709\
---------------------------------------------------------------------------
\707\ Competition & Mkts. Auth. Report at 263.
\708\ Submission from Source 465, to H. Comm. on the Judiciary, 8
(June 3, 2019) (on file with Comm.).
\709\ Id. at 9.
---------------------------------------------------------------------------
Buy-side software includes advertiser ad servers--software
that stores, maintains, and delivers digital ads to the
available inventory. Ad servers facilitate the programmatic
process that makes instantaneous decisions about which ads to
display on which websites to which users and helps display the
ad on that site. Ad servers collect and report data, such as ad
impressions and clicks, for advertisers to monitor ad
performance and track conversion metrics.\710\ Buy-side
software also includes demand-side platforms--software that
allows advertisers to buy advertising inventory from a range of
publishers. Demand-side platforms use data to create targeted
ad audiences and engage in purchasing and bidding.\711\
---------------------------------------------------------------------------
\710\ Competition & Mkts. Auth. Report at 263.
\711\ Submission from Source 888, to H. Comm. on the Judiciary, 8
(June 3, 2019) (on file with Comm.).
---------------------------------------------------------------------------
The ad tech suite also includes analytics tools that allow
advertisers and publishers to measure ad campaign efficiency,
including consumers' interactions with an ad. Similarly, data
management platforms (DMPs) aggregate and store consumer data
from various sources and process the data for analysis.
Advertisers and publishers use data management platforms to
track, partition, and target consumer audiences across
websites.\712\
---------------------------------------------------------------------------
\712\ Id. at 10.
---------------------------------------------------------------------------
Over the last decade, the digital advertising market has
experienced double-digit year-over-year growth. The market,
however, has become increasingly concentrated since the advent
of programmatic trading. In 2017, Business Insider reported
that Google and Facebook accounted for 99 percent of year-over-
year growth in U.S. digital advertising revenue.\713\ Today,
advertisers and publishers alike have few options when deciding
how to buy and sell online ad space.\714\
---------------------------------------------------------------------------
\713\ Alex Heath, Facebook and Google Completely Dominate the
Digital Ad Industry, Bus. Insider (Apr. 26, 2017), https://
www.businessinsider.com/facebook-and-google-dominate-ad-
industry-with-a-combined-99-of-growth-2017-4.
\714\ Dina Srinivasan, Why Google Dominates Advertising Markets, 24
Stan. Tech. L. Rev. 55, 59 (2020).
---------------------------------------------------------------------------
Market participants suggest this concentration likely
exists in part due to high barriers to entry. Google and
Facebook both have a significant lead in the market due to
their significant collection of behavioral data online, which
can be used in targeted advertising. Additionally, Google and
Facebook do not provide access to this unique data in open data
exchanges. Advertisers' only access to this information is
indirect--through engagement with Google and Facebook's ad
tech.\715\
---------------------------------------------------------------------------
\715\ Id. at 93.
---------------------------------------------------------------------------
Amazon's advertising business is starting to obtain a
portion of the U.S. year-over-year digital advertising revenue
growth.\716\ Amazon has been able to enter the market because
it has its own trove of user data--namely, competitively
significant first-party data related to retail searches and
purchases. Moreover, Amazon's 50 percent penetration across
U.S. households and its reach with high-income customers are
likely to help drive its ad revenue growth.\717\ While Amazon
can leverage its ecosystem to overcome some of the barriers to
entry in ad tech, the recent U.K. Competition and Markets
Authority report found that, as of today, Amazon's ad tech
likely only has advantages in the retail sector.\718\
---------------------------------------------------------------------------
\716\ Kiri Masters, What's Driving Amazon's $10 Billion Advertising
Business, Forbes (July 26, 2019), https://www.forbes.com/sites/
kirimasters/2019/07/26/whats-driving-amazons-10bn-
advertising-business/#4cc9c84aa043.
\717\ Id.
\718\ Competition & Mkts. Auth. Report at 282.
---------------------------------------------------------------------------
V. DOMINANT ONLINE PLATFORMS
A. Facebook
1. Overview
Founded in 2004 by Mark Zuckerberg, Eduardo Saverin, Chris
Hughes, and Dustin Moskowitz,\719\ Facebook is the largest
social networking platform in the world. Its business operates
around five primary product offerings, including: (1) Facebook,
a social network platform; (2) Instagram, a social network app
for photos and videos; (3) Messenger, a cross-platform
messaging app for Facebook users; (4) WhatsApp, a cross-
platform messaging app; and (5) Oculus, a virtual reality
gaming system.
---------------------------------------------------------------------------
\719\ Steven Levy, Facebook: The Inside Story 65-69 (2020).
---------------------------------------------------------------------------
Facebook reported in July 2020 that its platform includes
1.79 billion daily active users (DAUs),\720\ 2.7 billion
monthly active users (MAUs),\721\ and an average revenue per
user (ARPU) of $7.05.\722\ Last year, Facebook's businesses
collected about $70 billion in revenue--a 27 percent increase
from the prior year--earning about $24 billion in income from
its operations.\723\ Facebook reported that its family of
products--including Facebook, Instagram, Messenger, and
WhatsApp--includes 2.47 billion daily active people (DAP),\724\
3.14 billion monthly active people (MAP), and a family average
revenue per person (ARPP) of $6.10.\725\
---------------------------------------------------------------------------
\720\ Facebook, Inc., Quarterly Report (Form 10-Q) 29 (July 31,
2020), https://investor
.fb.com/financials/sec-filings-details/default.aspx?FilingId=14302237.
\721\ Id. at 30.
\722\ Id. at 32.
\723\ Id. at 35. See generally Howard A. Shelanski & J. Gregory
Sidak, Antitrust Divestiture in Network Industries, 68 U. Chi. L. Rev.
1, 6 (2001) (``High profit margins might appear to be the benign and
necessary recovery of legitimate investment returns in a Schumpeterian
framework, but they might represent exploitation of customer lock-in
and monopoly power when viewed through the lens of network
economics.'').
\724\ Facebook, Inc., Quarterly Report (Form 10-Q) 25 (July 31,
2020), https://investor
.fb.com/financials/sec-filings-details/default.aspx?FilingId=14302237.
\725\ Id. at 35.
---------------------------------------------------------------------------
In addition to the Subcommittee's investigation of
Facebook's monopoly power, state and federal antitrust
authorities are investigating Facebook for potential violations
of the U.S. antitrust laws. In July 2019, Facebook disclosed
that the Federal Trade Commission (FTC) had opened an antitrust
investigation of Facebook in June 2019.\726\ Facebook also
disclosed that in July 2019 the Department of Justice announced
that it would begin an antitrust review of market-leading
online platforms.\727\ In September 2019, New York Attorney
General Letitia James announced that she joined with eight
other attorneys general to lead a multistate investigation of
Facebook.\728\ In October 2019, Attorney General James reported
that the investigation into Facebook had grown to include 47
attorneys general.\729\
---------------------------------------------------------------------------
\726\ Facebook, Inc., Quarterly Report (Form 10-Q) 42 (July 24,
2019), https://investor
.fb.com/financials/sec-filings-details/default.aspx?FilingId=13550646.
\727\ Id. at 53.
\728\ Press Release, N.Y. Att'y Gen., AG James Investigating
Facebook for Possible Antitrust Violations (Sept. 6, 2009), https://
ag.ny.gov/press-release/2019/ag-james-investigating-facebook-possible-
antitrust-violations.
\729\ Press Release, N.Y. Att'y Gen., Attorney General James Gives
Update On Facebook Antitrust Investigation (Oct. 22, 2019), https://
ag.ny.gov/press-release/2019/attorney-general-james-gives-update-
facebook-antitrust-investigation.
---------------------------------------------------------------------------
2. Social Networking
(a) Market Power. Facebook has monopoly power in the market
for social networking.\730\ According to internal documents
produced by Facebook to the Committee, it has high reach, time-
spent, and significantly more users than its rivals in this
market. Despite significant changes in the market--such as the
advent of mobile devices, applications, and operating systems--
Facebook has held an unassailable position in the social
network market for nearly a decade, demonstrating its monopoly
power.\731\
---------------------------------------------------------------------------
\730\ Facebook has argued to other antitrust enforcement bodies
that limiting the product market to social networks at the exclusion of
other markets, such as user attention, ``would be artificial and would
not reflect the competitive realities,'' and that ``competitive
pressures to which Facebook reacts are global in nature.'' See, e.g.,
Submission from Facebook, to H. Comm. on the Judiciary, FB-HJC-ACAL-
00012074 (2016) (on file with Comm.) (White Paper on Relevant Markets
and Lack of Dominance for Federal Cartel Office).
\731\ Omidyar Network Report.
---------------------------------------------------------------------------
Facebook's monopoly power is firmly entrenched and unlikely
to be eroded by competitive pressure from new entrants or
existing firms. Documents produced during the investigation by
Facebook, including communications among its senior executives
on market strategy, as well as a memorandum by a senior data
scientist and economist at Facebook,\732\ support the
conclusion that Facebook's monopoly is insulated from
competitive threats. The social network market has high entry
barriers--including strong network effects, high switching
costs, and Facebook's significant data advantage--that
discourage direct competition by other firms to offer new
products and services.\733\ Facebook has also maintained and
expanded its dominance through a series of acquisitions of
companies it viewed as competitive threats, and selectively
excluded competitors from using its platform to insulate itself
from competitive pressure. Together, these factors have tipped
the social networking market toward a monopoly.\734\
---------------------------------------------------------------------------
\732\ Cunningham Memo at 16 (``Facebook has high reach and time-
spent in most countries. User growth is tracking internet growth:
global reach is roughly stable.'').
\733\ Instead of competing directly with Facebook, such as Google
attempted but failed to do with Google+, other social platforms provide
niche products with social graphs that are orthogonal to Facebook's
graph. See id. at 4 (``LinkedIn[ ] and Nextdoor coexist in the US with
similar userbases but orthogonal graphs: Facebook connects friends and
family, LinkedIn connects coworkers, Nextdoor connects neighbors.'').
\734\ See Bundeskartellamt, Case Summary: Facebook, Exploitative
Business Terms Pursuant to Section 19(1) GWB for Inadequate Data
Processing 6 (2019) (``The facts that competitors can be seen to exit
the market and that there is a downward trend in the user-based market
shares of the remaining competitors strongly indicate a market tipping
process which will result in Facebook.com becoming a monopolist.''),
https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/
Fallberichte/Missbrauchsaufsicht/2019/B6-22-16.pdf?_blob=
publicationFile&v=4.
---------------------------------------------------------------------------
Several antitrust enforcement agencies have examined
Facebook's monopoly in recent years and reached similar
conclusions. In July 2020, the United Kingdom's Competition and
Markets Authority (CMA) found that Facebook is dominant in the
markets for social networks and digital display ads, and that
its market power ``derives in large part from strong network
effects stemming from its large network of connected users and
the limited interoperability it allows to other social media
platforms.'' \735\ In July 2019, Germany's Federal Cartel
Office (Bundeskartellamt) found that ``Facebook is the dominant
company in the market for social networks,'' and that in
Germany's social network market, ``Facebook achieves a user-
based market share of more than 90%.'' \736\ And in June 2019,
the Australian Competition & Consumer Commission (ACCC) found
that ``Facebook has substantial market power in a number of
markets and that this market power is unlikely to erode in the
short to medium terms.'' \737\
---------------------------------------------------------------------------
\735\ Competition & Mkts. Auth. Report at 26.
\736\ In addition to Facebook's high market share, the
Bundeskartellamt also found that Facebook has market power based on
other measures, including its ``access to competitively relevant data,
economies of scale based on network effects, the behaviour of users who
can use several different services or only one service and the power of
innovation-driven competitive pressure.'' Press Release,
Bundeskartellamt, Bundeskartellamt Prohibits Facebook from Combining
User Data from Different Sources 4 (Feb. 7, 2019), https://
www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/
2019/07_02_2019_Facebook_FAQs.pdf? _ _blob=publicationFile&v=6. The
Bundeskartellamt also noted that, in terms of assessing market share by
time spent on the network, ``the Facebook group would have a combined
market share far beyond the market dominance threshold pursuant to
Section 18(4) GWB, even if YouTube, Snapchat, Twitter, WhatsApp, and
Instagram were included in the relevant market.'' Id. at 6.
\737\ Austl. Competition & Consumer Comm'n Report at 9; see also
id. at 78 (adopting a broader view on Facebook's product market to
include Twitter and Snapchat).
---------------------------------------------------------------------------
Facebook's responses to the Committee's requests for
information claimed that it competes in a ``rapidly evolving
and dynamic marketplace in which competition is vigorous,''
citing Twitter, Snapchat, Pinterest, and TikTok as examples of
competition Facebook faces for ``every product and service''
that it offers.\738\ According to Facebook, its users ``have
many choices and can leave Facebook if they're not happy,''
\739\ allowing people to quickly abandon it. The ability of
users to ``explore the myriad other options available . . .
creates strong competition for every product and service
Facebook offers, as well as pressure to develop new products to
attract and retain users.'' \740\
---------------------------------------------------------------------------
\738\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-APP0004 (Oct. 14, 2019); Innovation and Entrepreneurship
Hearing at 17 (statement of Matt Perault, Dir. of Pub. Pol'y, Facebook,
Inc.).
\739\ Innovation and Entrepreneurship Hearing at 567 (response to
Questions for the Record of Matt Perault, Dir. of Pub. Pol'y, Facebook,
Inc.).
\740\ Id.
---------------------------------------------------------------------------
In response to other antitrust inquiries, Facebook said
that it competes for users' attention broadly.\741\ In a 2016
white paper prepared in response to an investigation by
Germany's Federal Cartel Office, Facebook stated that it
``faces intense competition for user attention and engagement
at every level,'' listing companies as diverse as Candy Crush
and Clash of the Clans--popular mobile gaming apps--along with
YouTube, Twitter, Pinterest, Snapchat and others as competitors
for users' attention.\742\ Facebook similarly submitted to the
ACCC that, if the company does not compete vigorously, users
will go to other ``platforms, websites, apps, and other
services--not just social media services--that compete for
their attention.'' \743\ In an interview conducted by the
Subcommittee, a former employee explained that, as a product
manager at Facebook, ``your only job is to get an extra minute.
It's immoral. They don't ask where it's coming from. They can
monetize a minute of activity at a certain rate. So the only
metric is getting another minute.'' \744\
---------------------------------------------------------------------------
\741\ See, e.g., Submission from Facebook, to H. Comm. on the
Judiciary, FB-HJC-ACAL-00012074 (2016) (on file with Comm.).
\742\ Id.
\743\ Facebook, Facebook's Response to the Digital Platforms
Inquiry for Australian Competition and Consumer Commission 25 (Sept.
12, 2019), https://fbnewsroomus.files
.wordpress.com/2019/09/facebook-submission-to-treasury-on-digital-
platforms-inquiry.pdf.
\744\ Interview with Former Instagram Employee (Oct. 2, 2020).
---------------------------------------------------------------------------
Facebook describes a diverse list of other firms as
competitive substitutes for Facebook, including Microsoft's
Bing, a search engine; Yelp, a publisher of crowd-sourced
business reviews; and BuzzFeed, a digital news publisher.\745\
According to Facebook, these firms exert competitive pressure
on Facebook in the market for users' attention.\746\ Most
recently, in response to an inquiry by the United Kingdom's
Competition and Markets Authority, Facebook calculated its
market share as ``time captured by Facebook as a percentage of
total user time spent on the internet, including social media,
dating, news and search platforms.'' \747\ Based on these
measures, Facebook concluded that it lacks monopoly power.
---------------------------------------------------------------------------
\745\ Id.
\746\ Id.
\747\ Competition & Mkts. Auth. Report at 121 n.152.
---------------------------------------------------------------------------
Facebook's position that it lacks monopoly power and
competes in a dynamic market is not supported by the documents
it produced to the Committee during the investigation. Instead,
Facebook's internal business metrics show that Facebook wields
monopoly power. In response to a supplemental information
request by the Subcommittee,\748\ Facebook produced industry
updates prepared in the ordinary course of business by
Facebook's Market Strategy team.\749\ It has described these
reports as both ``internal competitive metrics'' and as a
``competitive survey regularly prepared for Facebook's
management team [that] tracks a variable set of competitors not
by specific products or features, but by the degree of user
attention and engagement that they command in terms of monthly
active users (`MAU') and daily active users (`DAU').'' \750\
---------------------------------------------------------------------------
\748\ The Subcommittee made a supplemental request after
identifying Facebook's industry updates during the review of documents
produced in response to the Committee's September 2019 request for
information.
\749\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-000025 (Mar. 5, 2020) (on file with Comm.).
\750\ Id. at FB-HJC-ACAL-00012074, FB-HJC-ACAL-00012090 (2016) (on
file with Comm.).
---------------------------------------------------------------------------
Facebook's industry updates were shared internally with
senior executives, including Mark Zuckerberg, Facebook's
CEO.\751\ Facebook used data collected through Onavo, a virtual
private network (VPN) app, to provide detailed competitive
insights into the usage and engagement of other firms.\752\
Facebook also relied on this data in response to inquiries by
the European Commission and the Bundeskartellamt,\753\ as well
as to prepare detailed internal reports on market
strategy.\754\
---------------------------------------------------------------------------
\751\ Id. at FB-HJC-ACAL-00054944 (Apr. 27, 2012) (on file with
Comm.).
\752\ Although it does not include data from users of Apple's
iMessage, which is relevant for purposes of usage on WhatsApp and
Messenger, Facebook's documents note that iMessage's growth is limited
by the adoption of iPhones, whereas Facebook's products can be used
across different devices. See generally Cunningham Memo at 15.
\753\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00012090 (2016) (on file with Comm.).
\754\ Cunningham Memo at 9 (citing data from MINT, another name
used for Onavo within Facebook, Inc.).
(i) Usage and Reach. Facebook has monopoly power in the
social networking market. Based on its internal documents,
Facebook and its family of products--Facebook, Instagram,
Messenger, and WhatsApp--control a significant share of users
and have high reach in the social networking market.\755\
Facebook's family of products includes three of the seven most
popular mobile apps in the United States by monthly active
persons, reach, and percentage of daily and monthly active
persons.\756\
---------------------------------------------------------------------------
\755\ Id. at 2; see also id. at 16 (``Facebook has high reach and
time-spent in most countries. User growth is tracking internet growth:
global reach is roughly stable.'').
\756\ Submission from Facebook, to Comm. on the Judiciary, 38 (Jan.
2020) (on file with Comm.) (Monthly Update for December 2019, based on
Facebook's internal calibrations of App Annie data). According to
Facebook, the monthly active persons (MAP) metric is ``based on the
activity of users who visited at least one of Facebook, Instagram,
Messenger, and WhatsApp (collectively, our `Family' of products) during
the applicable period of measurement.'' Facebook, Inc., Quarterly
Report (Form 10-Q) 4 (Apr. 30, 2020), http://
d18rn0p25nwr6d.cloudfront.net/CIK-0001326801/5fc46b22-5cb5-4014-bcb7-
7edc64f2d963.pdf.
---------------------------------------------------------------------------
As a standalone product, the Facebook app had the third
highest reach of all mobile apps,\757\ with 200.3 million users
in the United States, reaching 74 percent of smartphone users
as of December 2019.\758\ Facebook Messenger had the fourth
highest reach, with 183.6 million monthly active persons,
reaching 54.1 percent of U.S. smartphone users.\759\ Finally,
Instagram had the sixth highest reach, with 119.2 million
users, reaching 35.3 percent of smartphone users.\760\ In
contrast, Snapchat, the mobile app with the seventh highest
reach, had 106.5 million users in the United States, reaching
31.4 percent of smartphone users.\761\
---------------------------------------------------------------------------
\757\ Interview with Former Instagram Employee (Oct. 2, 2020)
(``Reach is closer to market penetration [than usage and engagement].
It applies to the number of internet users we think are in that
country, how many use a Facebook Family app and have taken one
meaningful action. What people forget is that Facebook believes its
total addressable market being anyone that has access to the
internet.'').
\758\ Submission from Facebook, to H. Comm. on the Judiciary, 38
(Jan. 2020) (on file with Comm.) (Monthly Update for December 2019);
Submission from Facebook, to H. Comm. on the Judiciary, 32 (Oct. 2019)
(on file with Comm.) (Monthly Update for September 2019, based on
Facebook's internal calibrations of App Annie data).
\759\ Id.
\760\ Id.
\761\ Id.
---------------------------------------------------------------------------
Facebook's maintenance of these high market shares over a
long time period demonstrates its monopoly power.\762\ From
September 2017 to September 2018, Facebook reached more than 75
percent of users internationally with at or near 100 percent
market penetration in nine of the twenty most populous
countries in the world.\763\ In the United States, Facebook
alone reached more than 75 percent of internet users during
this period, while Messenger and Instagram both achieved
significant reach as well.\764\ According to a white paper
prepared by a senior data scientist and economist at Facebook,
the Facebook app has high reach in most countries, and its
growth is in line with that of the internet, whereas Instagram
and WhatsApp are still growing ``very rapidly.'' \765\ For
Instagram, ``there appear to be no countries in which growth
has hit a ceiling.'' \766\
---------------------------------------------------------------------------
\762\ See generally Omidyar Network Report at 11.
\763\ Cunningham Memo at 2.
\764\ Id.
\765\ Id. at 12.
\766\ Id. at 16 (emphasis added).
---------------------------------------------------------------------------
Facebook's family of products are more immersive of users'
attention.\767\ According to Facebook's internal market data,
its users spend significantly more time on its family of
products than on competing services. For example, social media
users spent more time on Facebook (48.6 minutes) than on
Snapchat (21 minutes) or Twitter (21.6 minutes) in 2018.\768\
---------------------------------------------------------------------------
\767\ Id. (``Facebook has high reach and time-spent in most
countries. User growth is tracking internet growth: global reach is
roughly stable.'').
\768\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00086798 (Aug. 22, 2020) (on file with Comm.) (Monthly Update
for August 2018).
---------------------------------------------------------------------------
Since at least 2012, Facebook's documents show that
Facebook believed it controlled a high share of the social
networking market.\769\ In a presentation prepared for Sheryl
Sandberg, Facebook's Chief Operating Officer, to deliver at a
large telecommunications firm, Facebook said that it controlled
``95% of all social media'' in the United States in terms of
monthly minutes of use--as compared to Twitter, Tumblr,
Myspace, and all other social media--and noted that the
``industry consolidates as it matures.'' \770\
---------------------------------------------------------------------------
\769\ Id. at FB-HJC-ACAL-00057113, https://judiciary.house.gov/
uploadedfiles/00057113_
picture.pdf; id. at FB-HJC-ACAL-00049006 (Jan. 28, 2012) (on file with
Comm.).
\770\ Id. at FB-HJC-ACAL-00057113, https://judiciary.house.gov/
uploadedfiles/00057113_ picture.pdf.
---------------------------------------------------------------------------
Facebook Investor Presentation \771\
---------------------------------------------------------------------------
\771\ Prepared by Subcommittee staff based on id.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
A 2012 investor presentation prepared for Facebook
described it as having an ``enduring competitive advantage''
similar to other historically dominant firms.\772\ According to
this document, which was reviewed and edited by Facebook's
Chief Financial Officer to present to investors,\773\ Facebook
had nearly 100 percent market penetration among 25-34 year-olds
in the United States.\774\ It also had more than 85 percent
penetration in certain countries.\775\ As noted in the
presentation, ``In every country we've tipped, we have
maintained that penetration.'' \776\ This point was underscored
by a suggestion in the presentation that within a decade, it
would be doubtful that entrepreneurs could compete with
Facebook.\777\
---------------------------------------------------------------------------
\772\ Id. at FB-HJC-ACAL-00049006 (Apr. 30, 2012) (on file with
Comm.).
\773\ Id. at FB-HJC-ACAL-00064320 (Apr. 18, 2012).
\774\ Id. at FB-HJC-ACAL-00049006 (Apr. 30, 2012) (on file with
Comm.).
\775\ Id.
\776\ Id.
\777\ Id. (``Imagine 10 years from now . . . [a] [l]ocal TV show
asking an entrepreneur how he can hope to compete with Facebook.'').
---------------------------------------------------------------------------
At the Subcommittee's sixth hearing, Subcommittee Vice
Chair Joe Neguse (D-CO) asked Mr. Zuckerberg about Facebook's
monopoly power.\778\ As Mr. Neguse noted, based on this
evidence, ``most folks would concede Facebook was a monopoly as
early as 2012.'' \779\ Since then, he added that Facebook's
strategy has been to ``protect what I describe as a monopoly''
by acquiring, copying, or eliminating its competitors.\780\ Mr.
Zuckerberg responded by characterizing the social networking
market as ``a very large space.'' \781\ However, Facebook did
not corroborate this claim through the evidence it produced
during the investigation.
---------------------------------------------------------------------------
\778\ CEO Hearing at 85 (question of Rep. Joe Neguse (D-CO), Vice
Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm
on the Judiciary).
\779\ Id. at 86.
\780\ Id.
\781\ Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).
---------------------------------------------------------------------------
Lastly, after reviewing relevant market data and documents
provided during the investigation, the Subcommittee found that
there are distinct, relevant markets for social networking and
social media. Facebook proposes that online services with
social functions, such as YouTube, are social networks that
compete in the same product market as Facebook and its other
products for user attention.\782\ For example, in a white paper
submission, Facebook compares its News Feed, which includes a
stream of posts and videos uploaded by users, as similar to the
content feed that users encounter on YouTube.\783\ However,
longstanding antitrust doctrine describes relevant product
markets as those that are ``reasonably interchangeable by
consumers for the same purposes.'' \784\ Although YouTube is a
dominant social app, it is primarily used to consume video
content online. It does not provide the core functionality of
Facebook or its family of products, such as Pages, Marketplace,
or limited sharing within a person's network.
---------------------------------------------------------------------------
\782\ Facebook, Facebook's Response to the CMA's Interim Report 13-
14 (Feb. 14, 2020), https://assets.publishing.service.gov.uk/media/
5e8c827ae90e070774c61fdb/Facebook_response
_to_interim_report_with_cover_letter.pdf.
\783\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00012074 (2016) (on file with Comm.).
\784\ See United States v. Microsoft Corp., 253 F.3d 34, 51-52
(D.C. Cir. 2001); see also Competition & Mkts. Auth. Report at 117-18
(``[T]he closeness of competition between different platforms depends
on the degree to which consumers consider them substitutes, rather than
the extent to which they share common functionalities.'').
---------------------------------------------------------------------------
The United Kingdom's Competition and Markets Authority
reached a similar conclusion, finding that YouTube is primarily
a market for consuming video content rather than a market for
communication.\785\ As it noted, ``consumers use YouTube for
particularly distinctive reasons . . . . YouTube does not
currently appear to provide a strong competitive constraint on
Facebook, despite its comparable reach and levels of consumer
engagement.'' \786\ Internal documents produced to the United
Kingdom bolstered this finding, indicating ``that the most
common reasons consumers in the UK access YouTube are for
entertainment and to view `how-to' videos on the platform.''
\787\
---------------------------------------------------------------------------
\785\ Competition & Mkts. Auth. Report at 120 (``[T]here are
particularly important differences between YouTube, which most
consumers use for video streaming, and platforms such as those of
Facebook, which focus more on consumer needs related to social
networking.'').
\786\ Id. at 126, 128.
\787\ Id. at 127.
(ii) Barriers to Entry. Facebook's persistently high market
share is not contestable due to high barriers to entry that
discourage competition. These barriers to entry include its
strong network effects, high switching costs for consumers, and
data advantages.
(1) Network Effects. Facebook's significant reach among
users, and high levels of engagement, create very strong
network effects.\788\
---------------------------------------------------------------------------
\788\ See United States v. Microsoft Corp., 84 F. Supp. 2d 9, 20
(D.D.C. 1999) (``A positive network effect is a phenomenon by which the
attractiveness of a product increases with the number of people using
it.''). The corollary is that, when fewer people use the product, it
becomes less attractive, which can tip the market in favor of another
firm if there are low entry barriers. Dig. Competition Expert Panel
Report at 35.
---------------------------------------------------------------------------
As a result, Facebook has tipped the market in its
favor,\789\ primarily facing competitive pressure from within
its own family of products--such as through Instagram competing
with Facebook or WhatsApp competing with Messenger--rather than
actual competition from other firms in the market.\790\ This
finding is supported by Facebook's documents and internal
analysis. These include a memorandum on Facebook's family of
products prepared in October 2018 by Thomas Cunningham, a
senior data scientist and economist,\791\ as well as
communications among senior executives.\792\
---------------------------------------------------------------------------
\789\ See generally Omidyar Network Report at 18.
\790\ See, e.g., Cunningham Memo at 7 (``Messenger and WhatsApp
clearly compete for time-spent.''). While Facebook's overall
penetration and network effects are high in the United States and
across many other large countries, Facebook appears to have
intermediate reach in some countries due to differing levels of
adoption among users of certain ages. Id. at 12 (``In Japan and South
Korea Facebook has significantly higher penetration among youth than
among elderly. The role of an intergenerational social network is
partly filled by other apps (LINE and Kakao).'').
\791\ The Subcommittee requested the 2018 memorandum prepared by
Tom Cunningham on July 1, 2020 in response to earlier reporting about
the memorandum. See Alex Heath, Facebook Secret Research Warned of
``Tipping Point'' Threat to Core App, Information (July 23, 2020),
https://www.theinformation.com/articles/facebook-secret-research-
warned-of-tipping-point-threat-to-core-app. The Subcommittee
appreciates that Facebook cooperated with this supplemental request.
\792\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00063222 (Feb. 27, 2012), https://judiciary.house.gov/
uploadedfiles/0006322000063223.pdf.
---------------------------------------------------------------------------
Mr. Cunningham's 2018 memorandum on ``Possible End States
for the Family of Apps'' is an analysis of user trends among
Facebook's products and other competitors.\793\ It is based on
the company's Onavo data from September 2017 to September
2018.\794\ It was prepared for review by Facebook's senior
executives, including Mr. Zuckerberg and Mr. Olivan, Facebook's
Director of Growth.\795\ The Subcommittee's staff interviewed a
former senior employee at the company who attended meetings
preparing the document for presentation to Mr. Zuckerberg and
Mr. Olivan. The former employee noted that ``this specific
working group--and Tom Cunningham's work in particular--was
guiding Mark's views'' on the company's growth strategy.\796\
The former employee explained the purpose of the Cunningham
Memo:
---------------------------------------------------------------------------
\793\ Cunningham Memo at 1, 3.
\794\ During this period, Facebook referred to data derived from
Onavo as MINT data.
\795\ Interview with Former Instagram Employee (Oct. 2, 2020).
\796\ Id.
LThe question was how do we position Facebook and
Instagram to not compete with each other. The concern was that
Instagram would hit a tipping point . . . . There was brutal
in-fighting between Instagram and Facebook at the time. It was
very tense. It was back when Kevin Systrom was still at the
company. He wanted Instagram to grow naturally and as widely as
possible. But Mark was clearly saying ``do not compete with
us.'' . . . It was collusion, but within an internal monopoly.
If you own two social media utilities, they should not be
allowed to shore each other up. It's unclear to me why this
should not be illegal. You can collude by acquiring competitors
and forbidding competition.\797\
---------------------------------------------------------------------------
\797\ Id.
The Cunningham Memo characterized the network effects of
Facebook, WhatsApp, and Messenger as ``very strong.'' \798\ The
memorandum notes that social apps have tipping points such that
``either everyone uses them, or no-one uses them.'' \799\
Importantly, it distinguishes between apps with a social graph
that are used for broadcast sharing and messaging--Facebook,
Instagram, Messenger, WhatsApp, and Snapchat--and social apps
for music or video consumption, such as YouTube or
Spotify.\800\ In contrast, non-social apps ``can exist along a
continuum of adoption.'' \801\
---------------------------------------------------------------------------
\798\ Cunningham Memo at 11.
\799\ Id. at 9.
\800\ To underscore this point, the Cunningham Memo does not
characterize YouTube as a direct competitor, noting that YouTube would
only be a danger if it ``becomes more social.'' Id. at 16.
\801\ Id. at 9.
---------------------------------------------------------------------------
Network effects and tipping points are particularly strong
in messaging apps. Because WhatsApp and other regional
messaging apps have bimodal distribution of reach in
countries--an all-or-nothing reach at above 90 percent or below
10 percent--messaging tends toward consolidation and market
tipping.\802\ Most countries have a single messaging app or
protocol because they cannot support multiple messaging
apps.\803\ As a result of this dynamic, there are ``tradeoffs
in time-spent between Messenger and WhatsApp,'' \804\
demonstrating ``very strong tipping points.'' \805\
---------------------------------------------------------------------------
\802\ Id. at 10; see also id. at 14 (``Most countries have a single
messaging app with 70%+ daily reach. The most common app is WhatsApp.
Others include Messenger, LINE, and Kakotalk.'').
\803\ Id. at 3.
\804\ Id.
\805\ Id. at 12 (``WhatsApp does very well when it is the market-
leader (in many Latin American countries WhatsApp has nearly 90% daily
reach and users spend 60 minutes/day), this suggests that it would be
worth a substantial investment to try to push WhatsApp over its tipping
point in other countries.''). An exception to this trend appears to be
where a messaging app exists as part of a social network--such as
messaging services on Snapchat--but these apps operate with reduced
reach. Another exception is in markets with high penetration by Apple's
iPhone, but this growth is limited by adoption of iPhones since
iMessage is its native app. Id. at 15.
---------------------------------------------------------------------------
Facebook already has high reach in many countries,\806\
including the United States, so a primary concern addressed in
Mr. Cunningham's ``Possible End States'' memorandum is whether
cross-app sharing among Facebook's family of products poses a
competitive threat to its flagship product, the Facebook
app.\807\ While the Cunningham Memo concluded that it is
unclear whether Instagram and Facebook can coexist, it is much
less concerned with Facebook's user loss due to cannibalization
by Instagram than with market tipping (i.e., Instagram tipping
the market in its favor and Facebook rapidly losing value due
to network effects). It notes:
---------------------------------------------------------------------------
\806\ Id. at 16 (``Facebook has high reach and time-spent in most
countries. User growth is tracking internet growth: global reach is
roughly stable. DAP is showing weakness in developed countries and
especially teens.'').
\807\ The Cunningham Memo refers to Facebook's flagship product as
``Facebook-Blue'' or ``Blue'' as a reference to the app's color. Id. at
15. There is overlap and cross-use among Facebook's products in the
United States. While 40 percent of Instagram users' friends are also
their friends on Facebook, only 12 percent of Facebook users' friends
are ``reciprocal follows'' on Instagram. Id. at 9.
LThe most important concern should be network effects, not
within-user cannibalization. We have reviewed many studies
which estimate cannibalization among apps for individual users,
all of which find positive incrementality across the family:
i.e. when a user increases their use of one app, they tend to
decrease their use of other apps, but the total family effect
is positive. This should not be surprising--it is unlikely that
any of our apps are perfect substitutes for an individual user.
However a serious concern is network effects: when you use an
app less, that makes it less appealing to other people, and at
certain times and places those effects could be very
large.\808\
---------------------------------------------------------------------------
\808\ Id. at 9.
As a result of this dynamic, even though there may be
several social apps that exist in an ecosystem, they are
unlikely to gain traction among users once a firm has tipped
the market in its favor or is otherwise dominant. As the study
notes, while mobile phone users tend to use five different
social maps in a month, they only use ``1.5 messaging apps and
1 social app, out of 10 total apps per day.'' \809\
---------------------------------------------------------------------------
\809\ Id. at 6. A recent investor report similarly noted that
although ``many users access more than one social network per day, it
does not appear to be at the cost of declining users or user
engagements within the Facebook ecosystem.'' Morningstar Equity Analyst
Report: Facebook Inc 3 (Aug. 3, 2020) (on file with Comm.).
---------------------------------------------------------------------------
Facebook's executives--including Mr. Zuckerberg--have
extensively discussed the role of network effects and tipping
points as part of the company's acquisition strategy and
overall competitive outlook. For example, Mr. Zuckerberg told
the company's Chief Financial Officer in 2012 that network
effects and winner-take-all markets were a motivating factor in
acquiring competitive threats like Instagram. He said:
L[T]here are network effects around social products and a
finite number of different social mechanics to invent. Once
someone wins at a specific mechanic, it's difficult for others
to supplant them without doing something different. It's
possible someone beats Instagram by building something that is
better to the point that they get network migration, but this
is harder as long as Instagram keeps running as a product . . .
one way of looking at this is that what we're really buying is
time. Even if some new competitors springs [sic] up, buying
Instagram now . . . will give us a year or more to integrate
their dynamics before anyone can get close to their scale
again. Within that time, if we incorporate the social mechanics
they were using, those new products won't get much traction
since we'll already have their mechanics deployed at
scale.\810\
---------------------------------------------------------------------------
\810\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00063222 (Feb. 28, 2012), https://judiciary.house.gov/
uploadedfiles/0006322000063223.pdf.
Mr. Zuckerberg also stressed the competitive significance
of having a first-mover advantage in terms of network effects
prior to acquiring WhatsApp.\811\ In the context of market
strategies for Messenger competing with WhatsApp, Mr.
Zuckerberg told the company's growth and product management
teams that ``being first is how you build a brand and a network
effect.'' \812\ He also told them that Facebook has ``an
opportunity to do this at scale, but that opportunity won't
last forever. I doubt we have even a year before WhatsApp
starts moving in this direction.'' \813\
---------------------------------------------------------------------------
\811\ Id. at FB-HJC-ACAL-00046826 to -00046834 (Dec. 13, 2013) (on
file with Comm.).
\812\ Id.
\813\ Id.
---------------------------------------------------------------------------
In 2012, the company described its network effects as a
``flywheel'' in an internal presentation prepared for Facebook
at the direction of its Chief Financial Officer.\814\ This
presentation also said that Facebook's network effects get
``stronger every day.'' \815\ Around that time, prominent
investors similarly noted that the social networking market had
``extreme network effects,'' making it ``increasingly hard to
see a materially successful new entrant, even with all of
Google's resources.'' \816\
---------------------------------------------------------------------------
\814\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00049006 (Apr. 18, 2012) (on file with Comm.) (``Network
effects make it very difficult to compete with us--In every country
we've tipped we are still winning.'').
\815\ Id.
\816\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00086834 to -00086838 (Apr. 3, 2012) (on file with Comm.)
(Citi Summary of Investment Outlook). Comscore noted in 2012 that
``Facebook has proven to be a dominant global force in social
networking that shows no immediate signs of slowing down.'' According
to Comscore, Facebook was the ``third largest web property in the world
. . . and accounted for approximately 3 in every 4 minutes spent on
social networking sites and 1 in every 7 minutes spent online around
the world.'' FB-HJC-ACAL-00051905 (Mar. 12, 2012) (Comscore 2012
Report).
---------------------------------------------------------------------------
(2) Switching Costs. In addition to the competitive
insulation resulting from strong network effects, Facebook is
also unlikely to face direct competition from other firms or
new entrants due to the high costs for users to switch from
Facebook to a competing social network.\817\
---------------------------------------------------------------------------
\817\ Omidyar Network Report at 11 (``A very significant reason
that Facebook has market power is that a user cannot change platforms
and expect to be able to stay in contact with her friends. Because
Facebook has a near monopoly, the vast majority of the people with whom
they want to exchange feeds are likely on Facebook already. The
switching cost for any one user is therefore enormous.'').
---------------------------------------------------------------------------
Other social network platforms are not interoperable with
Facebook. Facebook users invest significant time building their
networks on Facebook. This investment includes uploading and
curating photos; engaging with their friends, other users, and
businesses; and otherwise interacting with their social
graph.\818\ To switch to another platform, Facebook users have
to rebuild their social graph elsewhere. In the process, they
lose access to their data--including photos, posts, and other
content--along with other elements of their social graph.\819\
They also have to learn how to use a new service and rebuild
their network.\820\ As a result, Facebook's users are
effectively ``locked in'' to its platform.\821\
---------------------------------------------------------------------------
\818\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045349 (Feb. 15, 2014) (on file with Comm.).
\819\ See, e.g., Nicole Nguyen, If You Created a Spotify Account
with Facebook, It Is Forever Tied to Facebook, BuzzFeed (Oct. 3, 2018),
https://www.buzzfeednews.com/article/nicolenguyen/disconnect-facebook-
account-from-spotify.
\820\ See, e.g., Danny Crichton, Why No One Really Quits Google or
Facebook, TechCrunch (Feb. 4, 2019), https://techcrunch.com/2019/02/04/
why-no-one-really-quits-google-or-facebook/ (``I have 2,000 contacts on
Facebook Messenger--am I just supposed to text them all to use Signal
from now on? Am I supposed to completely relearn a new photos app, when
I am habituated to the taps required from years of practice on
Instagram?''); United States v. Microsoft Corp., 84 F. Supp. 2d 9, 15
(D.D.C. 1999) (noting that switching costs include ``the effort of
learning to use the new system, the cost of acquiring a new set of
compatible applications, and the work of replacing files and documents
that were associated with the old applications'').
\821\ See generally Austl. Competition & Consumer Comm'n Report at
99; Dig. Competition Expert Panel Report at 42.
---------------------------------------------------------------------------
Facebook's internal documents and communications reveal
that Facebook employees recognize that high switching costs
insulate Facebook from competition. In 2014, Facebook's Chief
Financial Officer told the company's director of growth that
investors like this quality about Facebook and ``the idea is
that after you have invested hours and hours in your friend
graph or interest graph or follower graph, you are less likely
to leave for a new or different service that offers similar
functionality.'' \822\ Similarly, an internal survey prepared
for Facebook's senior management team about Google+ explained
that ``[p]eople who are big fans of G+ are having a hard time
convincing their friends to participate because . . . switching
costs would be high due to friend density on Facebook.'' \823\
And in 2012, the company indicated that people's significant
time investment on Facebook building their identity and
connections on the platform increased the company's
``stickiness.'' \824\
---------------------------------------------------------------------------
\822\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045349 (Feb. 15, 2014) (on file with Comm.).
\823\ Id. at FB-HJC-ACAL-00048755 to -00048757 (Dec. 14, 2011).
\824\ Id. at FB-HJC-ACAL-00049006 (Apr. 18, 2012).
---------------------------------------------------------------------------
In contrast to its public statements, Facebook has not done
enough to facilitate data portability for its consumers.
Facebook offers a tool called ``Download Your Information,''
which provides users with a limited ability to download their
data and upload it elsewhere. But in practice, this tool is
unusable for switching purposes given that it allows users to
do little other than move their photos from Facebook to Google
Photos. Another barrier for switching associated with this tool
is that Facebook's users can only download their data in PDF or
.zip format. The result is that, while Facebook publicly claims
to support data portability,\825\ its users seldom leave
Facebook due to the challenges of migrating their data. An
interview with a former employee at the company reinforces this
conclusion. As the former employee noted, this tool is behind a
series of menus, explaining:
---------------------------------------------------------------------------
\825\ See, e.g., Data Transfer Project, https://
datatransferproject.dev/ (last visited Sept. 28, 2020).
LIf you hide something behind more than one menu, no one
sees it and they know it. Then they advertise features that
they don't expect anyone to find or use. They say: ``It's data
portable, you can send it to Google drive?'' But who cares?
They've just done it to generate talking points. They are not
allowing you to export your social graph, which is actually
valuable.\826\
---------------------------------------------------------------------------
\826\ Interview with Former Instagram Employee (Oct. 2, 2020).
Leaving Facebook may create additional costs in other key
respects. Switching from Facebook may degrade a person's other
social apps that integrate with Facebook's Platform APIs. For
example, Spotify users who signed up with Facebook ``can't
disconnect it.'' \827\ To leave Facebook, they must set up a
new account on Spotify.\828\ In the process, they lose access
to their playlists, listening history, social graph of other
friends on Spotify, and their other data on the app.\829\
---------------------------------------------------------------------------
\827\ Facebook Login Help, Spotify, https://support.spotify.com/us/
article/using-spotify-with-facebook/ (last visited Oct. 5, 2020).
\828\ Id.
\829\ Spotify users can manually attempt to recreate playlists or
request that Spotify transfer their data, but this is not intuitive.
Samantha Cole, How to Unlink Spotify from Your Facebook Account, Vice
(Dec. 21, 2018), https://www.vice.com/en_us/article/wj3anm/how-to-
unlink-spotify-from-your-facebook-account.
---------------------------------------------------------------------------
People who leave Facebook may also lose access to popular
features on Facebook that, due to its scale and network
effects, are not available on other social apps (e.g., events,
marketplace, and groups).\830\ For example, a church may
actively maintain a Facebook page for its parishioners and not
on other social apps. Furthermore, some Facebook users who
believe they are switching from the company's platform may
nevertheless continue using its family of products, such as
Instagram or WhatsApp.\831\ As the United Kingdom's Competition
and Markets Authority noted, this reinforces Facebook's market
power.\832\
---------------------------------------------------------------------------
\830\ See Cunningham Memo at 3.
\831\ See, e.g., Tiffany Hsu, For Many Facebook Users, a ``Last
Straw'' that Led Them to Quit, N.Y. Times (Mar. 21, 2018), https://
www.nytimes.com/2018/03/21/technology/users-abandon-facebook.html
(``The Cambridge Analytica scandal led her to remove the Facebook app
from her phone . . . . But she is keeping the messaging function open
for professional purposes and will continue using Instagram.'').
\832\ Competition & Mkts. Auth. Report at 179, 256.
---------------------------------------------------------------------------
In response to the concern about switching costs, Facebook
replied that its users have meaningful choices and alternatives
to Facebook.\833\ Additionally, Facebook notes that its users
have been able to download their data since 2010.\834\ The
company describes its users' ability to download their data as
a ``robust portability tool.'' \835\ However, in March 2019,
Mr. Zuckerberg explained that a Facebook user's ability to
download their data is not ``[t]rue data portability.'' \836\
Instead, he said its users should be able to sign in to other
services in ``the way people use our platform to sign into an
app.'' \837\
---------------------------------------------------------------------------
\833\ Innovation and Entrepreneurship Hearing at 567 (response to
Questions for the Record of Matt Perault, Dir. of Pub. Pol'y, Facebook,
Inc.).
\834\ Erin Egan, Facebook, Charting a Way Forward: Data Portability
and Privacy 6 (2019), https://about.fb.com/wp-content/uploads/2020/02/
data-portability-privacy-white-paper
.pdf.
\835\ Id.
\836\ Mark Zuckerberg, The Internet Needs New Rules, Wash. Post
(Mar. 29, 2019), https://www.washingtonpost.com/opinions/mark-
zuckerberg-the-internet-needs-new-rules-lets-start-in-these-four-areas/
2019/03/29/9e6f0504-521a-11e9-a3f7-78b7525a8d5f_story.html.
\837\ Id.
---------------------------------------------------------------------------
Currently, Facebook's users lack the ability to port their
social networks to a different platform. To switch social
networking platforms, a Facebook user can import their contacts
from their mobile devices, such as email addresses or phone
numbers, to build a network on a different platform. But
importing contacts is not a substitute for a person's social
graph and, as the CMA concluded, this method is likely limited
to a person's close friends.\838\ In recognition of this,
Javier Olivan, Facebook's Director of Growth, told the
company's senior management team that information from a
person's address book on their mobile device is ``incomplete''
because people typically only store limited information in
their contacts (e.g., a person's first name, last name, and
their phone number).\839\ In contrast, Facebook users ``have a
much richer profile--which creates a much richer experience (we
have data that shows how . . . profile pictures make for
better/more functional [user interfaces]).'' \840\
---------------------------------------------------------------------------
\838\ Competition & Mkts. Auth. Report at 137.
\839\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045364 (Feb. 4, 2014) (on file with Comm.).
\840\ Id.
---------------------------------------------------------------------------
(3) Access to Data. Facebook has a significant data
advantage in the social networking market. While data may be
non-rivalrous--meaning users can provide the same piece of data
to more than one platform--it creates another entry barrier,
reinforcing Facebook's monopoly power.
The Subcommittee conducted interviews with market
participants that described Facebook as having nearly perfect
market intelligence. Facebook's data dominance creates self-
reinforcing advantages through two types of ``feedback loops.''
\841\ First, by virtue of its significant number of users,
Facebook has access to and collects more user data than its
competitors.\842\ And second, Facebook uses this data to create
a more targeted user experience, which in turn attracts more
users and leads those users to spend more time on the
platform.\843\ In contrast, smaller platforms with less access
to data must compete by providing a different user experience
with less targeting capacity. Facebook's data advantage is thus
compounded over time, cementing Facebook's market position and
making it even more difficult for new platforms to provide a
competitive user experience.
---------------------------------------------------------------------------
\841\ Dig. Competition Expert Panel Report at 33.
\842\ Competition & Mkts. Auth. Report at 143-44.
\843\ Id.
---------------------------------------------------------------------------
Facebook's data advantages also provide a monetization
feedback loop. Revenue generated through targeted advertising
to existing users can be reinvested into the platform, thereby
attracting more users. Facebook's ability to provide targeted
advertising is highly valuable to advertisers and allows
Facebook to monetize its service. Meanwhile, smaller entrants
are less attractive to advertisers since ``no de novo entrant
[has] access to anywhere near the volume or quality of data''
as Facebook.\844\ As with its user feedback loop, Facebook's
monetization feedback loop creates a runaway virtuous circle
that serves as a powerful barrier to entry.
---------------------------------------------------------------------------
\844\ Omidyar Network Report at 18.
---------------------------------------------------------------------------
Facebook's data also enables it to act as a gatekeeper
because Facebook can exclude other firms from accessing its
users' data.\845\ Beginning in 2010, Facebook's Open Graph
provided other companies with the ability to scale through its
user base by interconnecting with Facebook's platform. Some
companies benefited immensely from this relationship,
experiencing significant user growth from Open Graph and in-app
signups through Facebook Connect, now called Facebook
Login.\846\ Around that time, investors commented that Open
Graph gave some companies ``monstrous growth,'' referring to it
as ``steroids for startups.'' \847\ For example, documents
produced by Facebook indicate that it was the top referrer of
traffic to Spotify, driving seven million people ``to install
Spotify in the month after [Facebook] launched Open Graph.''
\848\ At one point, nearly all of Spotify's growth originated
from Facebook, while Pinterest ``grew to 10 million users
faster than any standalone site in the history of the
Internet.'' \849\
---------------------------------------------------------------------------
\845\ See, e.g., Maurice Stucke & Allen Grunes, Big Data and
Competition Policy 46 (2017).
\846\ Also referred to as Facebook Login, Facebook Connect allowed
its users to connect their Facebook identity--their profile, friends,
and other data--to other social apps through Facebook's APIs. The
company explained in 2008 that, ``[w]ith Facebook Connect, users can
bring their real identity information with them wherever they go on the
Web, including: basic profile information, profile picture, name,
friends, photos, events, groups, and more.'' Dave Morin, Announcing
Facebook Connect, Facebook (Mar. 9, 2008), https://developers.facebook
.com/blog/post/2008/05/09/announcing-facebook-connect/.
\847\ Ben Popper, Startup Steroids: Pinterest Feels the Burn of
Facebook's Open Graph, Verge (May 3, 2012), https://www.theverge.com/
2012/5/3/2993999/pinterest-burn-facebook-open-graph-startup-steroids.
\848\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00049471 (on file with Comm.) (Script of Keynote for Mobile
World Congress).
\849\ Id.
---------------------------------------------------------------------------
Conversely, interconnecting with the Facebook Platform also
gave the company the ability to prioritize access to its social
graph--effectively picking winners and losers online.\850\
These tools also gave Facebook advanced data insights into
other companies' growth and usage trends. For example, a daily
report on metrics for Facebook Login included daily and monthly
active users for companies interconnecting with Facebook,
referral traffic, and daily clicks, among other metrics. As
this report noted, 8.3 million distinct sites used Facebook
Connect on a monthly basis in March 2012.\851\ Facebook was
also able to exclude others from accessing this data.\852\ As
the United Kingdom's Competition and Markets Authority
observed, ``the inability of smaller platforms and publishers
to access user data creates a significant barrier to entry.''
\853\
---------------------------------------------------------------------------
\850\ See, e.g., Maurice Stucke & Allen Grunes, Big Data and
Competition Policy 46 (2017).
\851\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
FTC-CID-00364078 to -00364147 (Mar. 24, 2012) (on file with Comm.)
(email on Daily Metrics Report).
\852\ See Stigler Report at 43.
\853\ Competition & Mkts. Auth. Report at 15.
---------------------------------------------------------------------------
(b) Relevant Acquisitions
(i) Overview. Since its founding in 2004, Facebook has
acquired at least 63 companies.\854\ The majority of these
acquisitions have involved software firms, such as Instagram,
WhatsApp, Face.com, Atlas, LiveWire, and Onavo.\855\ Facebook
has also acquired several virtual reality and hardware
companies, such as Oculus.\856\ More recently, the company has
acquired several niche social apps,\857\ a blockchain
platform,\858\ Oculus game developers,\859\ and a prominent
GIF-making and sharing company.\860\
---------------------------------------------------------------------------
\854\ See Aoife White, Facebook Told by U.K. Watchdog to Monitor
Giphy Independence, Bloomberg (Aug. 10, 2020), https://
www.bloomberg.com/news/articles/2020-08-10/facebook-told-by-u-k-
watchdog-to-monitor-giphy-independence.
\855\ Id.; Berkeley, The Acquisition Takeover by the 5 Tech Giants,
http://people. ischool.berkeley.edu/#neha01mittal/infoviz/dashboard/
(last visited Sept. 28, 2020).
\856\ See, e.g., Josh Constine, Facebook's $2 Billion Acquisition
of Oculus Closes, Now Official, TechCrunch (July 21, 2014), https://
techcrunch.com/2014/07/21/facebooks-acquisition-of-oculus-closes-now-
official/.
\857\ See, e.g., Jacob Kastrenakes, Facebook Is Shutting Down a
Teen App It Bought Eight Months Ago, Verge (July 2, 2018), https://
www.theverge.com/2018/7/2/17528896/facebook-tbh-moves-hello-shut-down-
low-usage.
\858\ Stan Schroeder, Facebook Acquires Team Behind Blockchain
Startup Chainspace, Mashable (Dec. 5, 2019), https://mashable.com/
article/facebook-acquires-blockchain-team-chainspace/.
\859\ Dean Takahashi, Facebook Acquires Lone Echo VR Game Maker
Ready at Dawn, Venture Beat (June 22, 2020), https://venturebeat.com/
2020/06/22/facebook-acquires-lone-echo-vr-game-maker-ready-at-dawn/;
Lucas Matney, Facebook Acquires the VR Game Studio Behind One of the
Rift's Best Titles, TechCrunch (Feb. 25, 2020), https://techcrunch.com/
2020/02/25/facebook-acquires-the-vr-game-studio-behind-one-of-the-
rifts-best-games/.
\860\ Chaim Gartenberg, Facebook Is Buying Giphy and Integrating It
with Instagram, Verge (May 15, 2020), https://www.theverge.com/2020/5/
15/21259965/facebook-giphy-gif-acquisition
-buy-instagram-integration-cost.
---------------------------------------------------------------------------
Facebook's internal documents indicate that the company
acquired firms it viewed as competitive threats to protect and
expand its dominance in the social networking market. As
discussed earlier in this Report, Facebook's senior executives
described the company's mergers and acquisitions strategy in
2014 as a ``land grab'' to ``shore up our position.'' \861\ In
2012, Mr. Zuckerberg told Facebook's former Chief Financial
Officer that the purpose of acquiring nascent competitors like
Instagram was to neutralize competitive threats and to maintain
Facebook's position. Documents show that when Facebook acquired
WhatsApp, Mr. Zuckerberg and other senior executives, as well
as data scientists, viewed WhatsApp as a potential threat to
Facebook Messenger, as well as an opportunity to further
entrench Facebook's dominance. Facebook used critical
acquisitions to increase the adoption of its social graph and
expand its reach in markets. Finally, Facebook's serial
acquisitions reflect the company's interest in purchasing firms
that had the potential to develop into rivals before they could
fully mature into strong competitive threats.\862\
---------------------------------------------------------------------------
\861\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045388 (Feb. 18, 2014), https://judiciary.house.gov/
uploadedfiles/0004538800045389.pdf (``[W]e are going to spend 5-10% of
our market cap every couple years to shore up our position . . . . I
hate the word `land grab' but I think that is the best convincing
argument and we should own that.''). Mr. Wehner is currently Facebook's
Chief Financial Officer. He replaced David Ebersman, Facebook's former
Chief Financial Officer, in June 2014. David Cohen, Facebook CFO David
Ebersman Leaving Company; David Wehner to Assume Post June 1, AdWeek
(Apr. 23, 2014), https://www.adweek.com/digital/cfo-david-ebersman-
leaving-david-wehner/.
\862\ Austl. Competition & Consumer Comm'n Report at 81 (``While
any of these acquisitions may not have amounted to a substantial
lessening of competition, there appears to be a pattern of Facebook
acquiring businesses in related markets which may or may not evolve
into potential competitors, which has the effect of entrenching its
market power.'').
(ii) Instagram. Instagram was founded in February 2010 by
Kevin Systrom and Mike Krieger.\863\ Originally launched as
Burbn, a location-sharing social app,\864\ the company released
Instagram as a photo-sharing app for Apple iPhones in October
2010,\865\ and released its app in the Google Play Store on
April 3, 2012.\866\
---------------------------------------------------------------------------
\863\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00087590 (July 19, 2011) (on file with Comm.) (Valuation of
Burbn, Inc. as of May 31, 2011).
\864\ Id.
\865\ MG Siegler, Instagram Launches with the Hope of Igniting
Communication Through Images, TechCrunch (Oct. 6, 2010), https://
techcrunch.com/2010/10/06/instagram-launch/. The company received
$500,000 in seed funding in March 2010 from Baseline Ventures and
Andreessen Horowitz. It later received $7 million in another round of
financing in December 2010 primarily from Benchmark Capital and
Baseline Ventures. Submission from Facebook, to H. Comm. on the
Judiciary, FB-HJC-ACAL-00101426 (Dec. 5, 2011) (on file with Comm.)
(Instagram Financial History and Projections).
\866\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00106124 (Apr. 13, 2012) (on file with Comm.) (Instagram Chat
Log); see also Matt Burns, Instagram's User Count Now at 40 Million,
Saw 10 Million New Users in Last 10 Days, TechCrunch (Apr. 13, 2012),
https://techcrunch.com/2012/04/13/instagrams-user-count-now-at-40-
million-saw-10-million-new-users-in-last-10-days/.
---------------------------------------------------------------------------
On April 9, 2012, Facebook proposed its acquisition of
Instagram for approximately $1 billion.\867\ Facebook formally
acquired Instagram in August 2012.\868\ The Federal Trade
Commission (FTC) opened an investigation into the acquisition
but closed it in August 2012 without taking action.\869\
According to the FTC, ``Upon further review of this matter, it
now appears that no further action is warranted by the
Commission at this time.'' \870\ The letter added that the
FTC's closing of the investigation ``is not to be construed as
a determination that a violation may not have occurred . . . .
The Commission reserves the right to take such further action
as the public interest may require.'' \871\
---------------------------------------------------------------------------
\867\ The transaction's value was approximately $300 million in
cash and roughly $700 million in shares of Facebook at the time of the
transaction. Due to changes in the company's value following the launch
of its IPO, the final transaction value was worth about $300 million in
cash and $460 million in Facebook stock. See Facebook, Inc., Quarterly
Report (Form 10-Q) 9 (Sept. 30, 2012), https://www.sec.gov/Archives/
edgar/data/1326801/000132680112000006/fb-9302012x10q.htm.
\868\ Facebook, Inc., Annual Report (Form 10-K) 5 (Dec. 31, 2012),
https://www.sec.gov/
Archives/edgar/data/1326801/000132680113000003/fb-12312012x10k.htm.
\869\ Letter from April Tabor, Acting Sec'y, Fed. Trade Comm'n, to
Thomas Barnett, Covington & Burling LLP (Aug. 22, 2012), https://
www.ftc.gov/sites/default/files/documents/closing_
letters/facebook-inc./instagram-inc./120822barnettfacebookcltr.pdf.
\870\ Id.
\871\ Id.
---------------------------------------------------------------------------
In the context of reports that Facebook was planning to
integrate Whatsapp, Instagram, and Facebook Messenger,\872\ and
concerns about the company's motives for doing so,\873\ a
former employee of Instagram explained the ease with which
Facebook and Instagram came together--and could potentially be
pulled apart. They explained:
---------------------------------------------------------------------------
\872\ See, e.g., Mike Isaac, Zuckerberg Plans to Integrate
WhatsApp, Instagram and Facebook Messenger, N.Y. Times (Jan. 25, 2019),
https://www.nytimes.com/2019/01/25/technology/facebook-instagram-
whatsapp-messenger.html.
\873\ See, e.g., Makena Kelly, Facebook's Messaging Merger Leaves
Lawmakers Questioning the Company's Power, Verge (Jan. 28, 2019),
https://www.theverge.com/2019/1/28/18200658/facebook-messenger-
instagram-whatsapp-google-congress-markey-blumenthal-schatz-william-
barr-doj-ftc.
LWhy can't Facebook fork the backend of the product?
Facebook makes an odd argument that they use the same system.
But you can just copy and paste code, make a copy of the
system, and give it to the new company. If you can put them
together, you can pull them apart. Facebook can always pull out
the data that Instagram would not need. They spent the last
year pushing the two products together, it just simply doesn't
make sense that they can't work back to where they were in
2019. It's not like building a skyscraper and then suddenly
needing to knock the building down again. They can just roll
back the changes they've been making over the past year and
you'd have two different apps again. It's not about the
pipeline. It's an intangible object. You can just copy and
paste. Right now, they have a switch inside the app. They could
just change something from true to false and it would work.
It's not building a skyscraper; it's turning something on and
off.\874\
---------------------------------------------------------------------------
\874\ Email from Former Instagram Employee (Oct. 4, 2020).
According to Facebook's internal documents, Facebook
acquired Instagram to neutralize a nascent competitive threat.
In 2012, Mark Zuckerberg wrote to several Facebook executives
citing concerns that Instagram posed a risk to Facebook. In
February 2012, he said to David Ebersman, Facebook's Chief
Financial Officer, that he had ``been thinking about . . . how
much [Facebook] should be willing to pay to acquire mobile app
companies like Instagram . . . that are building networks that
are competitive with our own.'' \875\ Mr. Zuckerberg told Mr.
Ebersman that these ``businesses are nascent but the networks
are established, the brands are already meaningful and if they
grow to a large scale they could be very disruptive to us.''
\876\
---------------------------------------------------------------------------
\875\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00063220 to -00063223 (Feb. 27, 2012) (on file with Comm.).
\876\ Id.
---------------------------------------------------------------------------
In response, Mr. Ebersman asked Mr. Zuckerberg whether the
goals of the acquisition would be to: (1) neutralize a
potential competitor; (2) acquire talent; or (3) integrate
Instagram's product with Facebook's to improve its
service.\877\ Mr. Zuckerberg replied that a purpose of the
transaction would be to neutralize Instagram, saying that the
goals of the deal were ``a combination of (1) and (3).'' He
explained:
---------------------------------------------------------------------------
\877\ Id.
LOne thing that may make (1) more reasonable here is that
there are network effects around social products and a finite
number of different social mechanics to invent. Once someone
wins at a specific mechanic, it's difficult for others to
supplant them without doing something different. It's possible
someone beats Instagram by building something that is better to
the point that they get network migration, but this is harder
as long as Instagram keeps running as a product.\878\
---------------------------------------------------------------------------
\878\ Id.
Mr. Zuckerberg wrote that acquiring Instagram would allow
Facebook to integrate the product to improve its service. But,
he added, that ``in reality we already know these companies'
social dynamics and will integrate them over the next 12-24
months anyway.'' \879\ He explained:
---------------------------------------------------------------------------
\879\ Id.
LBy a combination of (1) and (3), one way of looking at
this is that what we're really buying is time. Even if some new
competitors springs [sic] up, buying Instagram, Path,
Foursquare, etc. [sic] now will give us a year or more to
integrate their dynamics before anyone can get close to their
scale again. Within that time, if we incorporate the social
mechanics they were using, those new products won't get much
traction since we'll already have their mechanics deployed at
scale.\880\
---------------------------------------------------------------------------
\880\ Id. (emphasis added).
In March 2012, Mr. Zuckerberg told Mike Schroepfer,
Facebook's Chief Technology Officer,\881\ that acquiring
Instagram would provide the company with ``[i]nsurance'' for
Facebook's main product.\882\ Mr. Schroepfer agreed, responding
that ``not losing strategic position in photos is worth a lot
of money.'' \883\ He added that the ``biggest risk'' would be
if Facebook were to ``kill'' Instagram ``by not investing in
the company and thereby opening a window for a new entrant.''
\884\
---------------------------------------------------------------------------
\881\ Mr. Schroepfer was Facebook's Vice President of Engineering
at the time of the Instagram acquisition. He was elevated to Chief
Technology Officer in March 2013. See Tomio Geron, Facebook Names Mike
Schroepfer CTO, Forbes (Mar. 15, 2013), https://www.forbes.com/sites/
tomiogeron/2013/03/15/facebook-names-mike-schroepfer-cto/#1a88880b20e3.
\882\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00063184 to -00063185 (Mar. 9, 2012), https://
judiciary.house.gov/uploadedfiles/0006318000063197.pdf. These documents
are consistent with reporting. Following the acquisition, Gregor
Hochmuth, an Instagram engineer, was reportedly told by employees on
the Facebook Camera team that ``our job was to kill you guys.''
Following the acquisition, Instagram's employees were also reportedly
told by Facebook's growth team ``Instagram wouldn't get any help adding
users unless they could determine, through data, that the product
wasn't competitive with Facebook.'' Sarah Frier, No Filter 90 (2020).
\883\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00063180, https://judiciary.house.gov/uploadedfiles/0006318
000063197.pdf.
\884\ Id. at FB-HJC-ACAL-00063184 to -00063185, https://
judiciary.house.gov/uploadedfiles/0006318 000063197.pdf.
---------------------------------------------------------------------------
In a message to another Facebook employee on April 5, 2012,
Mr. Zuckerberg said that ``Instagram can hurt us meaningfully
without becoming a huge business.'' \885\ In contrast, he did
not view other smaller firms, such as Pinterest and Foursquare,
as comparable competitive threats.\886\ As he noted, if these
companies ``become big we'll just regret not doing them . . . .
Or we can buy them then, or build them along the way.'' \887\
In an all-hands meeting the following day, Mr. Zuckerberg
responded to a question about Instagram's rapid growth by
saying that ``we need to dig ourselves out of a hole.'' \888\
He also told employees at the company that Instagram is
``growing really quickly'' and that it would be ``tough to
dislodge them.'' \889\
---------------------------------------------------------------------------
\885\ Id. at FB-HJC-ACAL-00063319, https://judiciary.house.gov/
uploadedfiles/00063316 00063321.pdf.
\886\ Id. at FB-HJC-ACAL-00063319 to -00063320 (Apr. 5, 2012),
https://judiciary.house.gov/uploaded files/0006331600063321.pdf.
\887\ Id.
\888\ Id. at FB-HJC-ACAL-00047340 (Apr. 6, 2012) (on file with
Comm.).
\889\ Id.
---------------------------------------------------------------------------
Following the announcement of the transaction, Mr.
Zuckerberg said internally that Facebook ``can likely always
just buy any competitive startups,'' and agreed with one of the
company's senior engineers that Instagram was a ``threat'' to
Facebook.\890\ Mr. Zuckerberg concluded that ``[o]ne thing
about startups though is you can often acquire them.'' \891\
---------------------------------------------------------------------------
\890\ Id. at FB-HJC-ACAL-00067600 (Apr. 9, 2012), https://
judiciary.house.gov/uploaded files/0006760000067601.pdf.
\891\ Id. at FB-HJC-ACAL-00063341 (Apr. 9, 2012), https://
judiciary.house.gov/uploaded files/0006334000063341.pdf.
---------------------------------------------------------------------------
At the Subcommittee's sixth hearing, Judiciary Committee
Chair Jerrold Nadler (D-NY) asked Mr. Zuckerberg about his
characterization of Instagram as a competitive threat prior to
the acquisition.\892\ In response, Mr. Zuckerberg said that
Facebook has always viewed Instagram as ``both a competitor and
as a complement to our services.'' \893\ He added that at the
time of the transaction, Instagram was a competitor in mobile
photos and camera apps.\894\
---------------------------------------------------------------------------
\892\ CEO Hearing at 43 (question of Rep. Jerrold Nadler (D-NY),
Chair, H. Comm. on the Judiciary).
\893\ Id. at 44 (statement of Mark Zuckerberg, CEO, Facebook,
Inc.).
\894\ Id.
---------------------------------------------------------------------------
Chair Nadler also asked that if this ``was an illegal
merger at the time of the transaction, why shouldn't Instagram
now be broken off into a separate company?'' \895\ In response,
Mr. Zuckerberg said that ``with hindsight, it probably looks
obvious that Instagram would have reached the scale that it has
today.'' \896\ But he elaborated:
---------------------------------------------------------------------------
\895\ Id. at 45 (question of Rep. Jerrold Nadler (D-NY), Chair, H.
Comm. on the Judiciary).
\896\ Id. at 46 (statement of Mark Zuckerberg, CEO, Facebook,
Inc.).
LIt was not a guarantee that Instagram was going to
succeed. The acquisition has done wildly well, largely because
not just of the founders' talent but because we invested
heavily in building up the infrastructure and promoting it and
working on security and working on a lot of things around this,
and I think that this has been an American success story.\897\
---------------------------------------------------------------------------
\897\ Id.
This response, however, is not consistent with many of the
documents Facebook provided to the Subcommittee.\898\
---------------------------------------------------------------------------
\898\ Id. (statement of the Rep. Jerrold Nadler (D-NY), Chair, H.
Comm. on the Judiciary) (``Facebook, by Mr. Zuckerberg's own admission
and by the documents we have from the time, Facebook saw Instagram as a
threat that could potentially syphon business away from Facebook. And
so, rather than compete with it, Facebook bought it. This is exactly
the type of anticompetitive acquisition that the antitrust laws were
designed to prevent. This should never have happened in the first
place. It should never have been permitted to happen, and it cannot
happen again.'').
---------------------------------------------------------------------------
Instagram was growing significantly at the time of the
transaction. In December 2011, with only 13 employees,
Instagram already had 14 million users.\899\ Instagram's
internal financial history and projections noted that it did
not plan to charge for its app or for downloading filters due
to its ``rapid user growth'' and ``implied network value.''
\900\ Instagram's internal market projections showed the
company growing to nearly 20 million users by January 2012 with
a 22 percent monthly growth rate.\901\ By March 31, 2012,
Instagram had 30.2 million users and a 17 percent user growth
rate.\902\ After releasing its app in the Google Play Store on
April 3, 2012, Instagram added ten million users within ten
days,\903\ growing to nearly 50 million users by April 30,
2012,\904\ and 100 million users by the time the acquisition
closed in August 2012.\905\
---------------------------------------------------------------------------
\899\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00101426 (Dec. 5, 2011) (on file with Comm.) (Instagram
Financial History and Projections).
\900\ Id.
\901\ Id. at FB-HJC-ACAL-00101473 (Dec. 5, 2011) (Instagram
Budget).
\902\ Id. at FB-HJC-ACAL-0110268 (2012) (Instagram Growth and
Projections).
\903\ Id. at FB-HJC-ACAL-00106124 (Apr. 13, 2012) (Instagram Chat
Log).
\904\ Id. at FB-HJC-ACAL-00106131 (Apr. 30, 2012).
\905\ Facebook, Inc., Annual Report (Form 10-K) 5 (Dec. 31, 2012),
https://www.sec.gov/
Archives/edgar/data/1326801/000132680113000003/fb-12312012x10k.htm.
---------------------------------------------------------------------------
Instagram's growth also appeared to be sustainable. In an
email between senior executives at both companies on April 16,
2012, Instagram's head of business operations said that
Instagram had not had difficulties with scaling or cloud
storage availability, noting that ``[s]caling has been really
easy'' despite the need to ``keep adding machine capacity.''
\906\ They also noted that user uptake on Android devices
exceeded the company's expectations, but did not raise concerns
about their ability to scale in response to this demand.\907\
---------------------------------------------------------------------------
\906\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00110279 (Apr. 16, 2012) (on file with Comm.) (Instagram's
Growth Projections); see generally Sarah Frier, No Filter (2020)
(``Every hour, Instagram seemed to grow faster. D'Angelo eventually
helped the company transition to renting server space from Amazon Web
Services instead of buying their own.'').
\907\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00110279 (Apr. 16, 2012) (on file with Comm.) (Instagram's
Growth Projections).
---------------------------------------------------------------------------
Facebook's support of Instagram's growth after acquiring it
is overstated. Before acquiring Instagram, Mr. Zuckerberg said
that Facebook should ``invest a few more engineers in it'' but
let Instagram ``run relatively independently.'' \908\ Prior to
being acquired, Instagram's internal projections showed the
company gaining nearly 88 million users by January 2013,\909\
and that its growth trajectory would not be significantly
affected by the transaction.\910\
---------------------------------------------------------------------------
\908\ Id. at FB-HJC-ACAL-00063184 to -00063185 (Mar. 9, 2012),
https://judiciary
.house.gov/uploadedfiles/0006318000063197.pdf.
\909\ Id. at FB-HJC-ACAL-0110268 (2012) (on file with Comm.)
(Instagram's Growth Projections).
\910\ Id.
(iii) WhatsApp
(1) Overview. WhatsApp was founded in February 2009 by Jan
Koum and Brian Acton.\911\ Originally designed to allow users
to provide temporary updates to their contacts,\912\ WhatsApp
is a cross-platform messaging and calling service.\913\ Unlike
traditional text and multimedia messages sent over a cellular
network at the time, WhatsApp messages and calls do not require
a cellular connection, and are transmitted by an internet
connection.\914\ A main distinction between Facebook Messenger
and WhatsApp is the network that people are able to communicate
with on each messaging service. A Facebook user can only send
messages to other Facebook users on the Messenger app, whereas
a WhatsApp user can send messages to other people based on
contacts on their mobile device.\915\
---------------------------------------------------------------------------
\911\ Steven Levy, Facebook: The Inside Story 317-18 (2020).
\912\ Id. at 319.
\913\ Letter from Reginald Brown & Jon Yarowsky to H. Comm. on the
Judiciary (Oct. 14, 2019), FB-AJC-ACAL-APP00003.
\914\ Id. Although WhatsApp originally charged a subscription fee
after the first year of use, it removed fees in January 2016. See
Making WhatsApp Free and More Useful, WhatsApp (Jan. 18, 2016), https:/
/blog.whatsapp.com/making-whats-app-free-and-more-useful.
\915\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00042171 (2014) (on file with Comm.).
---------------------------------------------------------------------------
Until 2016, WhatsApp monetized its service through
subscriptions for a nominal fee after the first year of
use.\916\ Around that time, WhatsApp was the only messaging app
that competed using this business model.\917\ Importantly,
WhatsApp's founders strongly opposed an advertisement-based
business model. In June 2012, they wrote that ``when
advertising is involved you the user are the product,''
explaining:
---------------------------------------------------------------------------
\916\ Steven Levy, Facebook: The Inside Story 320 (2020) (`` `We
were building a communication service,' says Acton. `You pay forty
bucks a month to Verizon for their service, I figured a dollar a year
was enough for a messaging service.' '').
\917\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00042157 (2014) (on file with Comm.) (``To the best of
WhatsApp's knowledge, Threema is the only other provider that has
adopted a model based on usage fees. In contrast to WhatsApp's
subscription model, users of Threema pay a one-time fee for a life-time
service.'').
LAdvertising isn't just the disruption of aesthetics, the
insults to your intelligence and the interruption of your train
of thought. At every company that sells ads, a significant
portion of their engineering team spends their day tuning data
mining, writing better code to collect all your personal data,
upgrading the servers that hold all the data and making sure
it's all being logged and collated and sliced and packaged and
shipped out.\918\
---------------------------------------------------------------------------
\918\ Why We Don't Sell Ads, WhatsApp (June 18, 2012), https://
blog.whatsapp.com/why-we-don-t-sell-ads (``Advertising has us chasing
cars and clothes, working jobs we hate so we can buy shit we don't
need.'').
WhatsApp also maintained robust privacy policies. In its June
2012 privacy policy, WhatsApp stated that it does not collect
names, emails, location data, or the contents of messages sent
through WhatsApp.\919\ According to its policy, ``WhatsApp is
currently ad-free and we hope to keep it that way forever.''
\920\
---------------------------------------------------------------------------
\919\ Privacy Notice, WhatsApp (July 7, 2012), https://
www.whatsapp.com/legal?doc=privacy-policy&version=20120707.
\920\ Id.
---------------------------------------------------------------------------
(2) Acquisition Review. On February 19, 2014, Facebook
announced its proposed acquisition of WhatsApp for
approximately $16 billion at the time of the announcement.\921\
Following the transaction, WhatsApp's cofounder wrote that the
company would ``remain autonomous and operate independently''
from Facebook, and that ``nothing'' will change for users
because there ``would have been no partnership between our two
companies if we had to compromise on the core principles that
will always define our company, our vision and our product.''
\922\ Mr. Zuckerberg said that ``[w]e are absolutely not going
to change plans around WhatsApp and the way it uses user
data.'' \923\
---------------------------------------------------------------------------
\921\ The transaction included $4 billion in cash and approximately
$12 billion of Facebook shares. Facebook to Acquire WhatsApp, Facebook
(Feb. 19, 2014), https://about.fb.com/news/2014/02/facebook-to-acquire-
whatsapp/. The final value of WhatsApp exceeded $21 billion due to
changes in the value of Facebook's stock during the transaction and due
to the addition of granting $3 billion in Facebook shares following the
closing of the transaction. Sarah Frier, Facebook $22 Billion WhatsApp
Deal Buys $10 Million in Sales, Bloomberg (Oct. 29, 2014), https://
www.bloomberg.com/news/articles/2014-10-28/facebook-s-22-billion-
whatsapp-deal-buys-10-million-in-sales.
\922\ Facebook, WhatsApp (Feb. 19, 2014), https://
blog.whatsapp.com/facebook (``Here's what will change for you, our
users: Nothing.'').
\923\ Jessica Guynn, Mark Zuckerberg: WhatsApp Worth Even More than
$19 Billion, L.A. Times (Feb. 24, 2014), https://www.latimes.com/
business/la-xpm-2014-feb-24-la-fi-tn-mark-zuckerberg-whatsapp-worth-
even-more-than-19-billion-20140224-story.html.
---------------------------------------------------------------------------
The Federal Trade Commission opened an initial
investigation into the proposed transaction on March 13, 2014.
On April 10, 2014, the FTC's Director of the Bureau of Consumer
Protection sent a letter advising the companies that WhatsApp
``must continue to honor'' its privacy data security
commitments to its users, and that ``a failure to keep promises
made about privacy constitutes a deceptive practice under
section 5 of the FTC Act.'' \924\ The Commission did not
initiate a full-phase investigation into the acquisition.
---------------------------------------------------------------------------
\924\ Letter from Jessica Rich, Dir., Bureau of Consumer Prot.,
Fed. Trade Comm'n, to Erin Egan, Chief Priv. Officer, Facebook, Inc., &
Anne Hoge, Gen. Couns., WhatsApp, 1-2 (Apr. 10, 2014), https://
www.ftc.gov/system/files/documents/public_statements/297701/
140410facebook whatappltr.pdf.
---------------------------------------------------------------------------
In September 2014, the European Commission initiated a
review of Facebook's proposed acquisition of WhatsApp.\925\ At
the time of the transaction, Facebook calculated that the
combined share of Facebook Messenger and WhatsApp in February
2014 was approximately 36 percent of the European Economic Area
(EEA) market.\926\ In a filing in support of the transaction,
Facebook told the European Commission that multi-homing--the
use of multiple apps with similar features--was a key
characteristic of the messaging market, saying that
``approximately 70% of consumers use at least two, and 43% use
at least three, communications apps in parallel.'' \927\
Facebook characterized the WhatsApp product market as being
distinct from the social networking market because WhatsApp
``does not offer social features,'' and represented that it had
``no plans to make changes to WhatsApp's current strategy''
after closing the proposed acquisition.\928\
---------------------------------------------------------------------------
\925\ Facebook gave notice of the proposed transaction to the
European Commission on August 29, 2014. Press Release, Eur. Comm'n,
Mergers: Commission Approves Acquisition of WhatsApp by Facebook (Oct.
3, 2014), https://ec.europa.eu/commission/presscorner/detail/en/IP_14_
1088.
\926\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00042161 (on file with Comm.).
\927\ Id. at FB-HJC-ACAL-00042160.
\928\ Id. at FB-HJC-ACAL-00042173.
---------------------------------------------------------------------------
On October 3, 2014, the European Commission approved the
proposed transaction, finding that ``Facebook Messenger and
WhatsApp are not close competitors and that consumers would
continue to have a wide choice of alternative consumer
communications apps after the transaction.'' \929\ Although the
European Commission noted that the messaging apps are
characterized by network effects, it concluded that Facebook
would ``continue to face sufficient competition after the
merger.'' \930\ The Commission acknowledged that there is
overlap between social networking and messaging apps. As it
noted, the distinction between these apps is ``becoming blurred
and each of these services adopts traditional functionalities
of the other.'' \931\ However, the Commission concluded that
social networking services generally provide more social
features than messaging apps--such as commenting on or
``liking'' other users' posts and photos--whereas messaging
apps had more limited functionality that is focused on real-
time communication.\932\
---------------------------------------------------------------------------
\929\ Press Release, Eur. Comm'n, Mergers: Commission Approves
Acquisition of WhatsApp by Facebook (Oct. 3, 2014), https://
ec.europa.eu/commission/presscorner/detail/en/IP_14_1088.
\930\ Id.
\931\ Case COMP/M.7217, Facebook/WhatsApp, Eur. Comm'n Decision
C(2014) 7239, para. 52 (Oct. 3, 2014), https://ec.europa.eu/
competition/mergers/cases/decisions/m7217_20141003_20310
_3962132_EN.pdf.
\932\ Id. para. 54.
---------------------------------------------------------------------------
In 2016, the European Commission fined Facebook after it
concluded that Facebook provided ``incorrect or misleading
information'' during the Commission's review of the
transaction.\933\ In its Statement of Objections to Facebook,
the Commission concluded that Facebook provided misleading
evidence on whether the company could match its users' accounts
with those of WhatsApp's users.\934\ In August 2016, WhatsApp
had updated its policies to allow the linking of Facebook user
identities with WhatsApp user phone numbers.\935\ As discussed
below, Facebook intended to create this functionality at the
time of the transaction.\936\
---------------------------------------------------------------------------
\933\ Press Release, Eur. Comm'n, Mergers: Commission Fines
Facebook =110 Million for Providing Misleading Information About
WhatsApp Takeover (May 18, 2017), https://ec.europa.eu/commission/
presscorner/detail/en/IP_17_1369.
\934\ Id.
\935\ Id.
\936\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045364 (Feb. 4, 2014) (on file with Comm.).
---------------------------------------------------------------------------
Documents obtained by the Subcommittee indicate that
Facebook acquired WhatsApp to expand its dominance. Prior to
acquiring WhatsApp, Facebook viewed the acquisition as
providing an opportunity to expand its reach in countries with
intermediate levels of penetration.\937\ Facebook's internal
documents at the time of the transaction reveal that WhatsApp
had already tipped markets in its favor where it had high
penetration.\938\
---------------------------------------------------------------------------
\937\ Id.
\938\ See, e.g., id.
---------------------------------------------------------------------------
In an internal email to Facebook's management team,
Facebook Director of Growth Javier Olivan wrote that WhatsApp
had higher levels of reach and usage than Facebook in countries
that it had penetrated. For example, based on Facebook's
internal data, WhatsApp reached 99.9 percent of the smartphone
population in Spain, or as Mr. Olivan described it, ``literally
everyone.'' \939\ By purchasing WhatsApp, Mr. Olivan suggested
that they could ``grow Facebook even further'' by exposing new
users to Facebook.\940\ Additionally, by bundling free services
with WhatsApp and Facebook's other services, the transaction
could serve as another mechanism to expand Facebook's reach
among WhatsApp users.\941\ Mr. Zuckerberg responded
supportively, saying that ``I really agree with this
analysis.'' \942\
---------------------------------------------------------------------------
\939\ Id.
\940\ Id.
\941\ Id.
\942\ Id. at FB-HJC-ACAL-00045363.
---------------------------------------------------------------------------
In an email to David Ebersman, Facebook's Chief Financial
Officer, Mr. Olivan wrote that WhatsApp's ``reach amongst
smartphone users is actually bigger than ours . . . . [W]e have
close to 100% overlap, our user-base being a subset of
theirs.'' \943\ He explained that, ``in markets where they do
well, they literally reach 100% of smartphone users--which is a
big part of the population.'' \944\ In the company's internal
documents describing the transaction rationale, there was a
heavy emphasis on WhatsApp's growth and usage--450 million
users, a clear path to a billion users, and adding one million
new users every day with no marketing--and expanding Facebook's
social graph to phones.\945\ Prior to the acquisition, Mr.
Zuckerberg had requested a list of all mobile apps with more
than 100 million daily and monthly active users globally.\946\
Facebook's data showed that WhatsApp had the second most daily
active users and fourth most monthly active users of any
freestanding mobile app.\947\
---------------------------------------------------------------------------
\943\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045388 (Feb. 18, 2014), https://judiciary.house.gov/
uploadedfiles/0004538800045389.pdf.
\944\ Id.
\945\ Id. at FB-HJC-ACAL-00045379 to -00045387 (Feb. 19, 2014) (on
file with Comm.).
\946\ Id.
\947\ Id.
---------------------------------------------------------------------------
Finally, a week after announcing the transaction, David
Wehner, then-Vice President of Corporate Finance and Business
Planning at Facebook, said to Mr. Ebersman that ``we are going
to spend 5-10% of our market cap every couple years to shore up
our position.'' \948\ Mr. Wehner said that ``I hate the word
`land grab' but I think that is the best convincing argument
and we should own that.'' \949\
---------------------------------------------------------------------------
\948\ Id. at FB-HJC-ACAL-00045388 (Feb. 18, 2014), https://
judiciary.house.gov/uploaded files/0004538800045389.pdf.
\949\ Id.
---------------------------------------------------------------------------
Other documents indicate that Facebook viewed WhatsApp as a
maverick competitor. In December 2013, Mr. Zuckerberg sent an
email to Facebook's management team on competitive issues
facing the company. In this email, he called attention to a
feature that WhatsApp had implemented on its platform, and
warned that Facebook should move quickly:
LI want to call out two competitive near term issues we
face. The first is WhatsApp adding a feature like this for
public figures . . . . If the space is going to move in this
direction, being the leader and establishing the brand and
network effects matters a lot. This alone should encourage us
to consider this soon . . . . When the world shifts like this,
being first is how you build a brand and network effect. We
have an opportunity to do this at scale, but that opportunity
won't last forever. I doubt we even have a year before WhatsApp
starts moving in this direction.\950\
---------------------------------------------------------------------------
\950\ Id. at FB-HJC-ACAL-00046826 to -00046834 (Dec. 13, 2013) (on
file with Comm.).
Facebook's documents also indicate that the company
monitored WhatsApp closely to determine whether it was a threat
to the Messenger app. Prior to consummating the merger,
Facebook's data scientists used Onavo data to model WhatsApp's
engagement and reach to determine whether it was ``killing
Facebook Messenger,'' \951\ as well as how its usage trends
compared to Snap-
chat.\952\
---------------------------------------------------------------------------
\951\ Id. at FB-HJC-ACAL-00014564 to -00014574 (Mar. 27, 2014).
\952\ Id. at FB-HJC-ACAL-00014575.
---------------------------------------------------------------------------
(c) Conduct. In addition to protecting and expanding its
dominance by acquiring firms that Facebook identified as
competitive threats over the past decade, Facebook abused its
monopoly power to harm competition in the social networking
market. Facebook used its data advantage to create superior
market intelligence to identify nascent competitive threats and
then acquire, copy, or kill these firms. Once dominant,
Facebook selectively enforced its platform policies based on
whether it perceived other companies as competitive threats. In
doing so, it advantaged its own services while weakening other
firms.
(i) Facebook's Use of Non-Public Data to Identify
Competitive Threats. Prior to Facebook's acquisition of
Instagram, Facebook used internal data to track the growth of
Instagram and other popular apps. While this data was probative
for companies that interconnected with Facebook through Open
Graph, it was incomplete for studying mobile app usage trends
across the entire mobile ecosystem. In April 2012, Facebook's
Director of Growth Javier Olivan emailed Mr. Zuckerberg and
Facebook Chief Product Officer Chris Cox about improving
Facebook's ``competitive research.'' \953\ He said that
``getting our data in great shape is going to require effort.''
\954\ Although the company had made ``some good progress''
using data from Comscore, a data analytics and measurement
firm, Mr. Olivan said that, with a significant investment,
Facebook could build its own custom panel for mobile data that
would ``allow us to get 10 better at understanding''
the mobile ecosystem:
---------------------------------------------------------------------------
\953\ Id. at FB-HJC-ACAL-00068928 (Apr. 3, 2012).
\954\ Id.
LI keep seeing the same suspects (instagram, pinterest, .
. . [sic] both on our competitive radar/platform strategy as
wins . . . . I think having the exact data about their users
[sic] engagement, value they derive from [Facebook] . . . would
help us make more bold decisions on whether they are friends or
foes. Back to your thread about ``copying'' vs. ``innovating''
we could also use this info to inspire our next moves.\955\
---------------------------------------------------------------------------
\955\ Id.
Mr. Zuckerberg responded: ``Yeah, let's do it. We can find some
time periodically during my weekly reviews to go over this
stuff.'' \956\
---------------------------------------------------------------------------
\956\ Id. at FB-HJC-ACAL-00068929.
---------------------------------------------------------------------------
A year later, on October 14, 2013, Facebook acquired Onavo,
a virtual private network (VPN), for $115 million and other
consideration.\957\ In an email to Facebook's board, Facebook's
Vice President and Deputy General Counsel said the purpose of
the acquisition was to ``enhance our analytics related to
cross-app user engagement data, as well as user behavior and
market trends, and also to improve advertising effectiveness
through demand data and audience targeting in the long term.''
\958\ Importantly, Facebook planned to place the incoming Onavo
employees, including its cofounder, Guy Rosen, under Facebook's
Growth team reporting to Javier Olivan.\959\
---------------------------------------------------------------------------
\957\ Hayley Tsukayama, Facebook Acquires Israeli Start-up Onavo to
Bolster Data Compression and Mobile Tech, Wash. Post (Oct. 14, 2013),
https://blogs.wsj.com/digits/2013/10/14/facebook-deal-gives-it-office-
in-israel/.
\958\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00072168 (Oct. 9, 2013) (on file with Comm.).
\959\ Id.
---------------------------------------------------------------------------
Facebook's acquisition of Onavo provided the company with
the ability to track potential competitors through non-public,
real-time data about engagement, usage, and how much time
people spend on apps. Following this acquisition, Facebook used
Onavo data as an ``early bird warning system,'' \960\
identifying fast-growing apps that could potentially threaten
Facebook's market position or enable it to protect and expand
its dominance. For instance, days prior to Facebook's
acquisition of WhatsApp in 2014, Facebook senior executives
provided Mark Zuckerberg with a list of all mobile apps with
greater than 90 million monthly active users--WhatsApp, one of
the only top mobile apps not owned at the time by either
Facebook or Google, was fourth on the list.\961\
---------------------------------------------------------------------------
\960\ Betsy Morris & Deepa Seetharaman, The New Copycats: How
Facebook Squashes Competition from Startups, Wall St. J. (Aug. 9,
2017), https://www.wsj.com/articles/the-new-copycats-how-facebook-
squashes-competition-from-startups-1502293444.
\961\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00045412 to -00045414 (Feb. 16, 2014), https://
judiciary.house.gov/uploadedfiles/0004541200045414.pdf.
---------------------------------------------------------------------------
In August 2018, Apple removed Onavo from its app store
following reporting that Facebook was using the app to track
users and other apps.\962\ An Apple spokesperson said the
company intended to make ``it explicitly clear that apps should
not collect information about which other apps are installed on
a user's device for the purposes of analytics or advertising/
marketing and must make it clear what user data will be
collected and how it will be used.'' \963\ In January 2019,
Apple removed Facebook's functional successor to Onavo, the
Facebook Research app, following reports by TechCrunch that
Facebook paid ``teenagers and adults to download the Research
app and give it root access to network traffic in what may be a
violation of Apple policy so the social network can decrypt and
analyze their phone activity.'' \964\
---------------------------------------------------------------------------
\962\ Deepa Seetharaman, Facebook Removes Data-Security App from
Apple Store, Wall St. J. (Aug. 22, 2018), https://www.wsj.com/articles/
facebook-to-remove-data-security-app-from-apple-store-1534975340.
\963\ Taylor Hatmaker, Apple Removed Facebook's Onavo from the App
Store for Gatherine App Data, TechCrunch (Aug. 22, 2018), https://
techcrunch.com/2018/08/22/apple-facebook-
onavo/.
\964\ Josh Constine, Facebook Pays Teens to Install VPN that Spies
on Them, TechCrunch (Jan. 29, 2019), https://techcrunch.com/2019/01/29/
facebook-project-atlas/; Josh Constine, Apple Bans Facebook's Research
App that Paid Users for Data, TechCrunch (Jan. 30, 2019), https://
techcrunch.com/2019/01/30/apple-bans-facebook-vpn/.
---------------------------------------------------------------------------
Most recently, Facebook acquired Giphy, a platform for
sharing GIFs online and through messaging apps, for $400
million in May 2020.\965\ As several reporters have noted, this
transaction would give Facebook competitive insights into other
messaging apps. One commenter said, ``While you may
successfully block trackers like the Facebook ad pixel
following you around online, or even delete your Facebook
account, the majority of us wouldn't suspect we're being
monitored when we're sending funny images to friends.'' \966\
---------------------------------------------------------------------------
\965\ Kurt Wagner & Sarah Frier, Facebook Buys Animated Image
Library Giphy for $400 Million, Bloomberg (May 15, 2020), https://
www.bloomberg.com/news/articles/2020-05-15/facebook-buys-animated-
image-library-giphy-to-boost-messaging; see, e.g., Vivek Karuturi
(@VivekxK), Twitter (May 15, 2020, 11:43 a.m.), https://twitter.com/
VivekxK/status/12613212 01210626048.
\966\ Owen Williams, How Facebook Could Use Giphy to Collect Your
Data, Onezero (May 15, 2020), https://onezero.medium.com/how-facebook-
could-use-giphy-to-collect-your-data-70824 aa2647b.
(ii) Facebook's Strategy to Acquire, Copy, or Kill
Competitors. Facebook's internal documents indicate that once
it identified a competitive threat, it attempted to buy or
crush them by cloning their product features or foreclosing
them from Facebook's social graph. Facebook took these steps to
harm competitors and insulate Facebook from competition, not
just to grow or offer better products and services.
In a March 2012 email to other senior executives at
Facebook, Mr. Zuckerberg wrote that cloning other apps could
help Facebook move faster by ``building out more of the social
use cases ourselves and prevent our competitors from getting
footholds.'' \967\ Other senior employees at Facebook agreed
with this strategy. Sheryl Sandberg, Facebook's Chief Operating
Officer, said that ``it is better to do more and move faster,
especially if that means you don't have competitors build
products that takes some of our users.'' Sam Lessin, Facebook's
Product Management Director, added, ``I would love to be far
more aggressive and nimble in copying competitors . . . . Let's
`copy' (aka super-set) Pinterest!'' \968\ Another senior
executive responded, ``I've been thinking about why we haven't
moved faster on Roger and Snap . . . I'm increasingly concerned
as I watch startups siphon our graph and create awesome new
experiences faster than we can.'' \969\
---------------------------------------------------------------------------
\967\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00053511 to -00053516 (Mar. 30, 2012) (on file with Comm.).
\968\ Id.
\969\ Id. at FB-HJC-ACAL-00067549 (Apr. 3, 2012).
---------------------------------------------------------------------------
Prior to its acquisition of Instagram in 2012, Facebook's
senior executives had identified Instagram as a growing threat.
Mr. Zuckerberg told employees at an internal meeting that the
``bad news is that [Instagram is] growing really quickly, they
have a lot of momentum, and it's going to be tough to dislodge
them.'' \970\ One engineer wrote in an internal company chat
that ``Instagram is eating our lunch. We should've owned this
space but we're already losing quite badly.'' \971\ In
response, another engineer asked, ``Isn't that why we're
building an Instagram clone?'' referencing Facebook's
development of Facebook Camera, a standalone photo app.\972\
---------------------------------------------------------------------------
\970\ Id. at FB-HJC-ACAL-00047340 (Apr. 6, 2012).
\971\ Id. at FB-HJC-ACAL-00063367 (Jan. 26, 2012), https://
judiciary.house.gov/uploaded files/0006336700063373.pdf.
\972\ Josh Constine, FB Launches Facebook Camera--An Instagram-
Style Photo Filtering, Sharing, Viewing iOS App, TechCrunch (May 24,
2012), https://techcrunch.com/2012/05/24/facebook-camera/.
---------------------------------------------------------------------------
During negotiations to acquire Instagram, Mr. Zuckerberg
referenced Facebook's development of a similar app to Kevin
Systrom, Instagram's Chief Executive Officer.\973\ In messages
between Mr. Zuckerberg and Mr. Systrom, Mr. Systrom said that
it was difficult to evaluate the transaction independently of
reports that Facebook was developing a similar product. He told
Mr. Zuckerberg that he ``wouldn't feel nearly as strongly
[about the acquisition] if independently you weren't building a
mobile photos app that makes people choose which engine to
use.'' \974\ Similarly, Mr. Zuckerberg suggested that refusing
to enter into a partnership with Facebook, including an
acquisition, would have consequences for Instagram, referencing
the product Facebook was developing at the time:
---------------------------------------------------------------------------
\973\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00091648 to -00091650 (Mar. 20, 2012) (on file with Comm.).
\974\ Id.
LAt some point soon, you'll need to figure out how you
actually want to work with us. This can be an acquisition,
through a close relationship with Open Graph, through an arms
length relationship using our traditional APIs, or perhaps not
at all . . . . Of course, at the same time we're developing our
own photos strategy, so how we engage now will determine how
much we're partners vs. competitors down the line--and I'd like
to make sure we decide that thoughtfully as well.\975\
---------------------------------------------------------------------------
\975\ Id.
In an earlier conversation with Matt Cohler, an Instagram
investor and former senior Facebook adviser, Mr. Systrom asked
whether Mr. Zuckerberg would ``go into destroy mode if I say
no'' to being acquired, saying that the companies ``have
overlap in features.'' \976\ Mr. Cohler responded ``probably''
and that Mr. Zuckerberg would ``conclude that it's best to
crush [I]nstagram.'' \977\
---------------------------------------------------------------------------
\976\ Id. at FB-AJC-ACAL-0010438 (Feb. 13, 2012), https://
judiciary.house.gov/uploaded files/0010143800101441.pdf.
\977\ Id.
---------------------------------------------------------------------------
Facebook's approach towards rival social networking app
Snapchat is another case study in how Facebook enters ``destroy
mode'' when its market position is threatened. In 2013, as the
company was growing rapidly, Snapchat cofounder Evan Spiegel
turned down an offer from Mr. Zuckerberg to acquire the company
for $3 billion.\978\ Thereafter, Instagram--owned by Facebook--
introduced the Instagram Stories feature, which allows users to
post content that is available for only 24 hours, and which was
``nearly identical to the central feed in Snapchat, which [was]
also called Stories.'' \979\
---------------------------------------------------------------------------
\978\ Evelyn Rusli & Douglas MacMillan, Messaging Service Snapchat
Spurned $3 Billion Facebook Bid, Wall St. J. (Nov. 13, 2013), https://
www.wsj.com/articles/messaging-service-snapchat-spurned-facebook-bid-
1384376628.
\979\ Casey Newton, Instagram's New Stories Are a Near-Perfect Copy
of Snapchat Stories, Verge (Aug. 2, 2016), https://www.theverge.com/
2016/8/2/12348354/instagram-stories-
announced-snapchat-kevin-systrom-interview.
---------------------------------------------------------------------------
Less than a year after its introduction, Instagram Stories
had more daily active users (200 million) than Snapchat Stories
(161 million).\980\ By 2018, Instagram Stories had doubled the
number of Snapchat Stories daily users.\981\ When discussing
Instagram's decision to clone the Snapchat feature, Instagram
VP of Product Kevin Weil remarked: ``This is the way the tech
industry works.'' \982\
---------------------------------------------------------------------------
\980\ Kaya Yurieff, Instagram's Snapchat Clone Is More Popular than
Snapchat, CNN Bus. (Apr. 13, 2017), https://money.cnn.com/2017/04/13/
technology/instagram-stories-snapchat/index .html.
\981\ Id.
\982\ Josh Constine, Instagram on Copying Snapchat: ``This Is the
Way the Tech Industry Works,'' TechCrunch (May 16, 2017), https://
techcrunch.com/2017/05/16/to-clone-or-not-to-clone/.
---------------------------------------------------------------------------
In another example, Facebook executives approached
Houseparty, a social networking app,\983\ about a potential
acquisition. Houseparty's founders turned down Facebook's
offer, and released the product they referred to as ``the
internet's living room.'' \984\ Shortly thereafter, Facebook
announced that its Messenger app would become a ``virtual
living room.'' \985\ Houseparty's active user base fell by half
between 2017 and 2018.\986\
---------------------------------------------------------------------------
\983\ Betsy Morris & Deepa Seetharaman, The New Copycats: How
Facebook Squashes Competition from Startups, Wall St. J. (Aug. 9,
2017), https://www.wsj.com/articles/the-new-copycats-how-facebook-
squashes-competition-from-startups-1502293444.
\984\ Id.
\985\ Id.
\986\ Mansoor Iqbal, Houseparty Revenue and Usage Statistics
(2020), Bus. of Apps (June 23, 2020), https://www.businessofapps.com/
data/houseparty-statistics/.
---------------------------------------------------------------------------
At the Subcommittee's sixth hearing, Representative Henry
C. ``Hank'' Johnson, Jr. (D-GA) asked Mr. Zuckerberg about
Facebook's use of data to identify competitive threats.
Representative Johnson noted that ``over nearly a decade, Mr.
Zuckerberg, you led a sustained effort to surveil smaller
competitors to benefit Facebook . . . . These were steps taken
to abuse data, to harm competitors, and to shield Facebook from
competition.'' \987\ He asked Mr. Zuckerberg whether Facebook
used Onavo data to purchase WhatsApp. Mr. Zuckerberg responded:
---------------------------------------------------------------------------
\987\ CEO Hearing at 147 (question of Rep. Henry C. ``Hank''
Johnson, Jr. (D-GA), Chair, Subcomm. on Courts & Intell. Prop., H.
Comm. on the Judiciary).
LI think every company engages in research to understand
what their customers are enjoying so they can learn and make
their products better. And that's what we were trying to do.
That is what our analytics team was doing. And I think, in
general, that allowed us to make our services better for people
to be able to connect in a whole lot of different ways, which
is our goal . . . . [Onavo] was one of the signals that we had
about WhatsApp's trajectory, but we didn't need it. Without a
doubt, it was pretty clear that WhatsApp was a great
product.\988\
---------------------------------------------------------------------------
\988\ Id. at 148 (statement of Mark Zuckerberg, CEO, Facebook,
Inc.).
(iii) Facebook Weaponized Access to Its Platform. Internal
communications by Facebook's senior executives and interviews
with former employees at the company indicate that Facebook
selectively enforced its platform policies based on whether it
perceived other companies as competitive threats.
Facebook developed the Facebook Platform to connect other
applications to Facebook's social graph. In an interview in
2007, Mr. Zuckerberg described the goals of the Facebook
Platform as making ``Facebook into something of an operating
system so you can run full applications.'' \989\ A year later,
in an email to senior executives at Facebook, Mr. Zuckerberg
described Facebook Platform as key to the company's long term
success:
---------------------------------------------------------------------------
\989\ David Kirkpatrick, Facebook's Plan to Hook up the World, CNN
Money (May 29, 2007), https://money.cnn.com/2007/05/24/technology/
facebook.fortune/.
LPlatform is key to our strategy because we believe that
there will be a lot of different social applications and ways
that people communicate and share information, and we believe
we can't develop all of them ourselves. Therefore, even though
it's a challenge for us to get this right, it's important for
us to focus on it because the company that defines this social
platform will be in the best position to offer the most good
ways for people to communicate and succeed in the long
term.\990\
---------------------------------------------------------------------------
\990\ Submission from Facebook, to H. Comm. on the Judiciary,
FB_FTC_CID_00072185-88 (Feb. 14, 2008) (on file with Comm.).
Over the next few years, Facebook recognized that access to its
social graph provided other applications with a tool for
significant growth. In exchange, Facebook hosted content that
kept users engaged on its social graph, and considered other
ways to monetize this relationship, such as through revenue
sharing or advertisements.
By 2012, however, Facebook's senior executives realized
that apps could use the Facebook Platform to build products
that were competitive with Facebook and ``siphon our users.''
\991\ Mike Vernal, Facebook's Vice President of Product and
Engineer, described this dynamic to Doug Purdy, Facebook's
Director of Product Management:
---------------------------------------------------------------------------
\991\ Id. at FB_FTC_CID_00072020-23 (Feb. 14, 2013).
LWhen we started Facebook Platform, we were small and
wanted to make sure we were an essential part of the fabric of
the Internet. We've done that--we're now the biggest service on
earth. When we were small, apps helped drive our ubiquity. Now
that we are big, (many) apps are looking to siphon off our
users to competitive services. We need to be more thoughtful
about what integrations we allow and we need to make sure that
we have sustainable, long-term value exchanges.\992\
---------------------------------------------------------------------------
\992\ Id. (emphasis added).
In another conversation between Sam Lessin, Facebook's
Director of Product Engagement, and other executives,
Facebook's senior employees agreed that competitive apps used
Facebook Platform to ``steal our engagement'' and ``could be
viewed as replacing Facebook functionality,'' adding that they
planned to raise this concern with Mr. Zuckerberg.\993\ Mr.
Lessin raised these concerns with Mr. Zuckerberg in October
2012. In response, Mr. Zuckerberg agreed with this conclusion:
---------------------------------------------------------------------------
\993\ Id. at FB_FTC_CID_0008058182 (Sept. 15, 2012).
LReading your responses, I do think you are right . . . .
I would be more comfortable with competition if I thought we
knew better how to leverage our scale asset (and if scale
weren't becoming cheaper and cheaper to achieve every day).
What I think is that we should effectively not be helping our
competitors more/much more than how they could get help from
elsewhere in the market. They can acquire users in ways other
than us so obviously we shouldn't be failing to take their
money when they will just give it to someone else and get the
same outcome. I do, however, again think that we want as much
control here as we can get. I agree we shouldn't help our
competitors whenever possible. I think the right solution here
is to just be a lot stricter about enforcing our policies and
identifying companies as competitors.\994\
---------------------------------------------------------------------------
\994\ Id. at FB_FTC_CID_00491746-63 (Oct. 27, 2012) (emphasis
added); see also Elena Botella, Facebook Earns $132.80 from Your Data
per Year, Slate (Nov. 15, 2019), https://slate.com/technology/2019/11/
facebook-six4three-pikinis-lawsuit-emails-data.html.
Recognizing that some social apps had grown too popular and
could compete with Facebook's family of products, Facebook cut
off their access to Facebook's social graph.\995\
---------------------------------------------------------------------------
\995\ Olivia Solon & Cyrus Farivar, Mark Zuckerberg Leveraged
Facebook User Data to Fight Rivals and Help Friends, Leaked Documents
Show, NBC News (Apr. 16, 2019), https://www.nbcnews.com/tech/social-
media/mark-zuckerberg-leveraged-facebook-user-data-fight-rivals-help-
friends-n994706.
---------------------------------------------------------------------------
In 2013, Facebook claimed that the short-form video app
Vine, a video-sharing app that Twitter acquired in 2012,
``replicated Facebook's core News Feed functionality.'' \996\
In response, Facebook cut off Vine's access to Facebook
APIs.\997\ In doing so, ``Facebook was able to degrade
consumers' experience of Vine and reduce the platform's
competitive threat.'' \998\ Twitter shut down Vine in
2016.\999\
---------------------------------------------------------------------------
\996\ Innovation and Entrepreneurship Hearing at 569 (response to
Questions for the Record of Matt Perault, Dir. of Pub. Pol'y, Facebook,
Inc.).
\997\ Rachel Kraus, Mark Zuckerberg Gave the Order to Kneecap Vine,
Emails Show, Mashable (Dec. 5, 2018), https://mashable.com/article/
mark-zuckerberg-helped-thwart-vine/.
\998\ Competition & Mkts. Auth. Report at 141.
\999\ Casey Newton, Why Vine Died, Verge (Oct. 28, 2016), https://
www.theverge.com/2016/10/28/13456208/why-vine-died-twitter-shutdown.
---------------------------------------------------------------------------
Facebook's actions in the wake of the Cambridge Analytica
scandal raise concerns about pretextual anticompetitive
enforcement in the name of privacy. In 2019, Facebook cut off
marketing firm Stackla's access to its APIs ``due to data
scraping, which violates [Facebook's] policies.'' \1000\ Damien
Mahoney, the Chief Executive Officer of Stackla, denied these
allegations.\1001\ In an interview with the Subcommittee, Mr.
Mahoney explained the economic harm of the company's
foreclosure from the Facebook Platform:
---------------------------------------------------------------------------
\1000\ Innovation and Entrepreneurship Hearing at 19 (statement of
Matt Perault, Dir. of Pub. Pol'y, Facebook, Inc.).
\1001\ Rob Price, Facebook Is Reviewing Hundreds of Its Official
``Facebook Marketing Partners'' over Instagram Data-Scraping Issues,
Bus. Insider (Aug. 23, 2019), https://www.business
insider.com/facebook-review-all-marketing-partners-instagram-data-
scraping-2019-8.
LWhat we went through with Facebook was company altering,
and if not for the resolve of our team and board, would have
destroyed it. We had to lay off half our team. We made huge
investments in the company in the previous 12 months, having
raised $4m to increase our sales capacity by 160% and other
functions in the business, then this occurred. It was a
critical blow that almost forced us to close the doors. We were
approaching 75 employees and 30% growth after 8 long years of
toil. Now we have 26 employees, declining revenue and ongoing
collateral damage that we continue to sink time and money into.
While we try and stabilize, and get the company back to a
position of growth, it's a long way off as we continue, to this
very day, [to] deal with the after-effects. The fact this all
resulted from a single erroneous and factually incorrect news
article, combined with zero consultation from Facebook prior to
their damaging actions, remains baffling and completely
unfair.\1002\
---------------------------------------------------------------------------
\1002\ Interview with Damien Mahoney, CEO, Stackla (Apr. 14, 2020).
Around that time, Facebook became aware of MessageMe, a
fast-growing app that used Facebook graph data to support its
``Find Friends'' feature. Recognizing that MessageMe could
compete with Facebook Messenger, Facebook's then-director of
platform partnerships cut off the app's access to Facebook's
Graph API.\1003\
---------------------------------------------------------------------------
\1003\ Olivia Solon & Cyrus Farivar, Mark Zuckerberg Leveraged
Facebook User Data to Fight Rivals and Help Friends, Leaked Documents
Show, NBC News (Apr. 16, 2019), https://www.nbcnews.com/tech/social-
media/mark-zuckerberg-leveraged-facebook-user-data-fight-rivals-help-
friends-n994706.
---------------------------------------------------------------------------
In a submission to the Subcommittee, a former Facebook
employee who handled platform management at the company said
that Facebook unevenly enforced its platform policies based on
the degree of another firm's competition with Facebook and
whether it could extract concessions from other firms.
According to this former employee, Facebook was primarily
concerned with whether a company was ``a competitive threat,''
and it ``was biasing its enforcement actions against [firms]
they saw as competitors.'' \1004\ In a submission to the
Subcommittee, the former Facebook employee provided an example:
---------------------------------------------------------------------------
\1004\ Interview with Former Facebook Employee (Jan. 14, 2020).
L[I]n one Facebook Messages conversation involving the
CEO, Mr. Zuckerberg, and various executives in mid-2012, Mr.
Zuckerberg expressed concern about an app called Ark that was
accessing large amounts of user data in a way that could enable
showing user content to people who didn't have permission to
see the content. An investigation was conducted, and it was
determined that Ark was violating Facebook's platform policies
regarding the use of data from friends of Facebook users.
Ultimately, leadership decided to terminate Ark's access to
Facebook's APIs and ban Ark from the platform for six months.
This was a harsh punishment relative to other developers
conducting similar activity--indeed, Mr. Zuckerberg had been
informed on the thread that ``tons'' of other apps were
acquiring data the same way and there was not further
investigation or action taken against those apps. Other apps
that had been accused of violating data policies similarly had
been treated much more leniently. It seemed clear that
leadership imposed the more severe punishment against Ark
because Mr. Zuckerberg viewed Ark as competitive with Facebook,
as Facebook was exploring an acquisition of Ark at the same
time as it was being investigated for policy violations.\1005\
---------------------------------------------------------------------------
\1005\ Submission from Former Facebook Employee, to H. Comm. on the
Judiciary, 2 (Apr. 2, 2020) (on file with Comm.).
In contrast to punishing rivals, according to the former
employee and other market participants interviewed by the
Subcommittee, Facebook used ``whitelists'' to give preferential
treatment to friends of the company.\1006\ For example, in a
report published by NBC, Facebook gave Amazon extended API
access because Amazon was spending money on advertising and
partnering with Facebook on the launch of its Fire smartphone.
Facebook's Director of Business Development asked, ``Remind me,
why did we allow them to do this? Do we receive any cut of
purchases?'' In response, a Facebook employee who worked with
Facebook's ``strategic partners'' responded, ``No, but Amazon
is an advertiser and supporting this with advertisement . . .
and working with us on deeper integrations for the Fire.''
\1007\
---------------------------------------------------------------------------
\1006\ Id.
\1007\ Olivia Solon & Cyrus Farivar, Mark Zuckerberg Leveraged
Facebook User Data to Fight Rivals and Help Friends, Leaked Documents
Show, NBC News (Apr. 16, 2019), https://www
.nbcnews.com/tech/social-media/mark-zuckerberg-leveraged-facebook-user-
data-fight-rivals-help-friends-n994706.
---------------------------------------------------------------------------
In response to these concerns, Facebook told the
Subcommittee that it ``does not restrict access to its Platform
APIs simply because an app competes with a Facebook product or
service; but Facebook will restrict apps that violate its
policies.'' \1008\ This is, however, inconsistent with the
company's internal communications and other evidence examined
by the Subcommittee during the investigation.
---------------------------------------------------------------------------
\1008\ Innovation and Entrepreneurship Hearing at 569 (response to
Questions for the Record of Matt Perault, Dir. of Pub. Pol'y, Facebook,
Inc.).
---------------------------------------------------------------------------
3. Digital Advertising
(a) Overview. Facebook monetizes its platform through the
sales of digital advertising.\1009\ Facebook garnered over $70
billion in revenue in 2019, a nearly 27 percent increase from
2018.\1010\ It generates this revenue predominately from
selling advertisement placements.
---------------------------------------------------------------------------
\1009\ Transcript of Mark Zuckerberg's Senate Hearing, Wash. Post
(Apr. 10, 2018), https://www.washingtonpost.com/news/the-switch/wp/
2018/04/10/transcript-of-mark-zuckerbergs-
senate-hearing(`` `Senator, we run ads,' Zuckerberg replied.'').
\1010\ Id.
---------------------------------------------------------------------------
Facebook has monopoly power in online advertising in the
social networking market.\1011\ Notwithstanding Google's
dominance, Facebook also has a significant share of revenue and
growth in online advertising with many market participants
referring to them as duopolies in this broad market. Some
market participants interviewed by the Subcommittee consider
Facebook ``unavoidable'' or ``must have'' due to the reach and
scale of its platform. In particular, some businesses consider
Facebook's identity product--its ability to persistently track
users' online and offline conduct to serve tailored ads--as a
unique feature.\1012\ For example, at the Subcommittee's fifth
hearing, David Heinemeier Hansson, the Chief Technology Officer
and Cofounder of Basecamp, testified that the nature of
Facebook's targeted advertising makes it difficult to replace,
saying:
---------------------------------------------------------------------------
\1011\ Competition & Mkts. Auth. Report at 211.
\1012\ Competitors Hearing at 36 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp).
LAt Basecamp, we ultimately ended up swearing off the use
of targeted advertisement based on the exploitation of personal
data. Facebook's record of protecting people's privacy, and
gathering their consent in the exploitation of their data for
advertisement purposes, is atrocious, and we decided that we
wanted no part of it. But choosing to opt out of targeted
advertisement on the internet is like competing with one arm
behind your back. It is very clear why most companies feel
compelled to do this kind of advertisement, even if it's a
violation of their ethics. If their competitors are doing it,
they're at a significant disadvantage if they don't. And the
same is true for us. We have undoubtedly given up growth to
competitors because we've refrained from pursuing targeted
ads.\1013\
---------------------------------------------------------------------------
\1013\ Id.
Facebook's advantages in terms of access to data and its
reach contribute to its ability to earn higher revenue per user
than other firms in the social networking market.\1014\
Facebook reported an average revenue per user (ARPU) of $7.05
worldwide and $36.49 in the United States and Canada in July
2020.\1015\ It has also averaged significant annual growth--26
percent on average over the past five years.\1016\ In contrast,
its closest competitor, Snap, reported in July 2020 that its
ARPU ``remained flat'' at $1.91 worldwide and $3.48 in North
America.\1017\ A recent investment report underscored this
point, noting that Facebook enjoys a significant economic moat
illustrated by the inability of Snap and other firms to
meaningfully challenge its dominance.\1018\ As a result, entry
or success by other firms is unlikely:
---------------------------------------------------------------------------
\1014\ Competition & Mkts. Auth. Report at 211.
\1015\ Facebook, Facebook Q2 2020 Results (July 31, 2020), https://
s21.q4cdn.com/399680738/files/doc_financials/2020/q2/Q2-2020-FB-
Earnings-Presentation.pdf.
\1016\ Morningstar Equity Analyst Report: Facebook Inc 2 (Aug. 3,
2020) (on file with Comm.) (``The value of such data and advertisers'
willingness to use it is demonstrated by the 26% average annual growth
of Facebook's average ad revenue per user, or ARPU, during the past
five years, which we view as indicative of the price that advertisers
pay Facebook for ad placement. During the same period, Facebook's
monthly average users have grown 12% annually.'').
\1017\ Snap, Inc., Quarterly Report (Form 10-Q) 25, 27 (June 30,
2020), https://d18rn0p 25nwr6d.cloudfront.net/CIK-0001564408/9aacfdca-
55a1-4928-9a31-c2462d2386c0.pdf.
\1018\ Morningstar Equity Analyst Report: Facebook Inc 1-2 (Aug. 3,
2020) (on file with Comm.).
LWith more users and usage time than any other social
network, Facebook provides the largest audience and the most
valuable data for social network online advertising. Facebook's
ad revenue per user is growing, demonstrating the value that
advertisers see in working with the firm . . . . Facebook has
also expanded its user base in the growing mobile market, which
positively affected the network effect as it became more
valuable to advertisers, and resulted in more ad revenue
growth. The main drivers behind growth in online advertising
have been growths in the mobile ad market and the video ad
format. Most Facebook users are now accessing Facebook and its
apps via mobile devices.\1019\
---------------------------------------------------------------------------
\1019\ Id.
Facebook's internal documents reinforce this finding. In a
presentation prepared to deliver to investors ahead of the
company's initial public offering, Facebook characterized its
advertising product as having a significant advantage over the
industry average in accuracy and narrowly targeted campaigns
due to its reach, engagement, and using people's ``real
identity--people as their real selves.'' \1020\ In comparison
to television broadcasters, the company noted that in the
United States, ``everyday on Facebook is like the season finale
of American [I]dol--the most popular show on TV--times two.''
\1021\
---------------------------------------------------------------------------
\1020\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00054106 (Apr. 9, 2012) (on file with Comm.).
\1021\ Id.
---------------------------------------------------------------------------
These findings are also consistent with those of
Australian,\1022\ British,\1023\ French,\1024\ and German
antitrust authorities, which conducted an extensive examination
of Facebook's market power in the social networking market and
in digital advertising. For example, the United Kingdom's
Competition and Markets Authority (CMA) found in July 2020 that
Facebook and Instagram generated over half of display
advertising revenues in 2019 in the United Kingdom, which it
found to be a relevant market.\1025\ In contrast to other firms
in the same market, Facebook's lead was significantly larger
than its closes competitor, YouTube, which ``earned between 5
and 10%.'' \1026\ In June 2019, the Australian Competition and
Consumer Commission (ACCC) found that Facebook has
``substantial market power in the supply of display advertising
in Australia.'' \1027\ Similar to the CMA's findings, the ACCC
concluded that the share of the display advertising market
controlled by Facebook and Instagram is significant--more than
half--and growing, while the rest of the market is highly
fragmented.\1028\
---------------------------------------------------------------------------
\1022\ Competition & Mkts. Auth. Report at 9.
\1023\ Id. at 11-12, 211.
\1024\ French Autorite de la Concurrence & Bundeskartellamt,
Competition Law and Data (2016), https://www.bundeskartellamt.de/
SharedDocs/Publikation/DE/Berichte/Big%20
Data%20Papier.pdf;jsessionid=D86CD9D13899F2590F84E82092187858.2_cid362?_
_blob=
publicationFile&v=2.
\1025\ Competition & Mkts. Auth. Report at 10.
\1026\ Id.
\1027\ Austl. Competition & Consumer Comm'n Report at 97.
\1028\ Id.
(b) Relevant Acquisitions. On February 27, 2013, Facebook
executed an agreement to purchase Atlas, an advertiser-side
platform to manage and measure ad performance, from Microsoft
for $100 million.\1029\ At the time of the transaction, Atlas
captured data to track conversions--when a specific action is
taken in response to an ad, such as making a purchase--through
clicks and impressions.\1030\ In other words, if someone saw a
BestBuy ad, Atlas enabled serving the ad, recording the user
seeing the ad via a browser identifier, and recorded the
impression as well as if the person clicked on the ad. Later,
if the same user bought the item from BestBuy.com, Atlas
recognized the user through their browser and would record the
conversion if the user purchased the item advertised.
---------------------------------------------------------------------------
\1029\ Submission from Facebook, to H. Comm. on the Judiciary, FB-
HJC-ACAL-00043659 (Mar. 2013) (on file with Comm.).
\1030\ Id.
---------------------------------------------------------------------------
Prior to the acquisition, Amin Zoufonoun, Facebook's Vice
President for Corporate Development, described the ``primary
thesis'' of the acquisition to Sheryl Sandberg as giving
Facebook ``immediate scale to retarget, provide premium
insights, do look-alike modeling, prove and measure efficacy of
[Facebook] as a marketing medium, [and] enhance custom
audiences and associated revenue.'' \1031\ Facebook's primary
strategic rationale for integrating Atlas into its ad product
was to improve its ability to measure ad performance and use
identity-based targeting through Facebook Identity--its unique
identifier for Facebook users across all browsers and devices--
to serve highly targeted ads.\1032\ Facebook described the
value of Facebook Identity as its ability to ``target people
across browsers and devices'' and to ``activate offline data to
enrich online targeting,'' among other features.\1033\ The
company believed that its ``unique data'' and ``unique reach
and engagement (across devices and platforms)'' would boost its
value to advertisers.\1034\
---------------------------------------------------------------------------
\1031\ Id. at FB-HJC-ACAL-00043509 (Oct. 18, 2012) (internal
punctuation omitted).
\1032\ Id. at FB-HJC-ACAL-00043660.
\1033\ Id. at FB-HJC-ACAL-00043680 (emphasis in original).
\1034\ Id. at FB-HJC-ACAL-00043705.
LFacebook also noted in its summary of the deal at the
time of the transaction that the major opportunities of the
transaction were: (1) to become the ``buy-side desktop tool
that media planners fire up first thing in the day''; and (2)
to acquire ``a deep installed base of pixels which we can
immediately turn on to power conversion tracking and
attribution of ads across offerings.'' \1035\
---------------------------------------------------------------------------
\1035\ Id. at FB-HJC-ACAL-00043710.
Absent the transaction, Facebook raised concerns that
Google's ``lead in this market may become insurmountable'' and
limit Facebook's ads in other ways.\1036\ The company also
raised concerns that Facebook's Custom Audiences tool would not
be able ``to scale beyond click-oriented advertisers.'' \1037\
Among other potential risks of the deal, such as rebuilding the
product on Facebook's ad stack, the company identified
``[m]anaging perceptions around privacy'' as an area of
concern.\1038\
---------------------------------------------------------------------------
\1036\ Id. at FB-HJC-ACAL-00043660.
\1037\ Id. at FB-HJC-ACAL-00043697.
\1038\ Id. at FB-HJC-ACAL-00043658.
---------------------------------------------------------------------------
B. Google
1. Overview
Google was launched in 1998 as a general online search
engine.\1039\ Founded by Larry Page and Sergey Brin, the
corporation got its start by serving users web results in
response to online queries. Google's key innovation was its
PageRank algorithm, which ranked the relevance of a webpage by
assessing how many other webpages linked to it.\1040\ In
contrast with the technology used by rival search engines,
PageRank enabled Google to improve the quality of its search
results even as the web rapidly grew. While Google had entered
a crowded field, by 2000 it had become the world's largest
search engine.\1041\ Later that year, Google launched AdWords,
an online advertising service that let businesses purchase
keywords advertising to appear on Google's search results
page--an offering that would evolve to become the heart of
Google's business model.\1042\
---------------------------------------------------------------------------
\1039\ Google Inc., Registration Statement (Form S-1) 1 (Apr. 29,
2004), https://www.sec.gov/Archives/edgar/data/1288776/
000119312504073639/ds1.htm.
\1040\ Id. at 65 (``PageRank is a query-independent technique for
determining the importance of web pages by looking at the link
structure of the web.'').
\1041\ Press Release, Google, Google Launches World's Largest
Search Engine (June 26, 2000), http://googlepress.blogspot.com/2000/06/
google-launches-worlds-largest-search.html (stating that Google had
indexed over 1 billion webpages).
\1042\ Press Release, Google, Google Launches Self-Service
Advertising Program (Oct. 23, 2000), http://googlepress.blogspot.com/
2000/10/google-launches-self-service.html.
---------------------------------------------------------------------------
Today, Google is ubiquitous across the digital economy,
serving as the infrastructure for core products and services
online. It has grown and maintained its search engine
dominance, such that ``Googling'' something is now synonymous
with online search itself. The company is now also the largest
provider of digital advertising; a leading web browser; a
dominant mobile operating system; and a major provider of
digital mapping, email, cloud computing, and voice assistant
services, alongside dozens of other offerings. Nine of Google's
products--Android, Chrome, Gmail, Google Search, Google Drive,
Google Maps, Google Photos, Google Play Store, and YouTube--
have more than a billion users each.\1043\ Each of these
services provides Google with a trove of user data, reinforcing
its dominance across markets and driving greater monetization
through online ads.
---------------------------------------------------------------------------
\1043\ Harry McCracken, How Google Photos Joined the Billion-User
Club, Fast Co. (July 24, 2019), https://www.fastcompany.com/90380618/
how-google-photos-joined-the-billion-user-club.
---------------------------------------------------------------------------
In several markets, Google established its position through
acquisition, buying up successful technologies that other
businesses had developed. In a span of 20 years, Google
purchased well over 260 companies--a figure that likely
understates the full breadth of Google's acquisitions, given
that many of the firm's purchases have gone unreported.\1044\
Documents collected by the Subcommittee reveal that executives
recognized as early as 2006 that Google's ``tremendous cash
resources'' could be deployed to help execute Google's
``strategic plan.'' \1045\
---------------------------------------------------------------------------
\1044\ See infra Appendix; Leena Rao, Google Spent Nearly $2
Billion on 79 Acquisitions in 2011, TechCrunch (Jan. 27, 2012), https:/
/techcrunch.com/2012/01/27/google-spent-nearly-2-billion-on-79-
acquisitions-in-2011/ (``As of Q3, Google had spent over $1.4 billion
on 55 acquisitions for the year. Google ended 2011 spending $1.9
billion (including cash and stock) on completing 79 acquisitions during
the entirety of the year.'').
\1045\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04232284, at 2 (Sept. 25, 2006) (on file with Comm.) (stating that
Google viewed transactions as falling into three categories: (1) bolt-
on; (2) outside existing efforts; and (3) around existing efforts).
---------------------------------------------------------------------------
Google is now one of the world's largest corporations. For
2019, Google reported total revenues of $160.7 billion--up 45
percent from 2017--and more than $33 billion in net
income.\1046\ Although Google has diversified its offerings, it
generates the vast majority of its money through digital ads,
which accounted for over 83 percent of Google's revenues in
2019.\1047\ Search advertising, in particular, is critical to
Google, accounting for approximately 61 percent of its total
sales.\1048\ In recent months Google reported a drop in ad
revenue due to pandemic-related cuts in spending, though the
company partly made up for the decline through revenue growth
in Google Cloud, Google Play, and YouTube.\1049\ Google has
enjoyed strong and steady profits, with profit margins greater
than 20 percent for nine out of the last 10 years, close to
three times larger than the average for a U.S. firm.\1050\
Financial analysts predict that Google is well positioned to
maintain its dominance, noting that ``Alphabet has established
unusually deep competitive moats around its business.'' \1051\
---------------------------------------------------------------------------
\1046\ Alphabet Inc., Annual Report (Form 10-K) 26-30 (Feb. 3,
2020), https://www.sec.gov/Archives/edgar/data/1652044/
000165204420000008/goog10-k2019.htm.
\1047\ Id. at 30.
\1048\ Id.
\1049\ Alphabet Inc., Quarterly Report (Form 10-Q) (June 30, 2020),
https://abc.xyz/
investor/static/pdf/20200731_alphabet_10Q.pdf?cache=f16f989; Alphabet
Q2 Earnings Call, Alphabet (July 30, 2020), https://abc.xyz/investor/
static/pdf/2020_Q2_Earnings_
Transcript.pdf?cache=6bfce23.
\1050\ See Alphabet Inc., Annual Reports (Form 10-K) (2016-2019);
Google Inc., Annual Reports (Form 10-K) (2009-2016).
\1051\ Marc S.F. Mahaney, Royal Bank of Can., Digging for Buried
Treasure--The Google Maps Opportunity 2 (2019) (on file with Comm.)
[hereinafter Royal Bank of Canada Report].
---------------------------------------------------------------------------
In 2015, Google underwent a reorganization, introducing
Alphabet as a parent company under which Google would reside as
a wholly owned subsidiary.\1052\ Alphabet also houses the
company's non-search ventures, such as Calico, the biotech
company focused on longevity, and Waymo, which develops self-
driving cars.\1053\ In December 2019, Page and Brin stepped
down from their management roles at Alphabet, though they
remain on the board and together control approximately 51.3
percent of the voting power.\1054\ Sundar Pichai now serves as
the CEO of both Google and Alphabet.\1055\
---------------------------------------------------------------------------
\1052\ Letter from Larry Page, CEO, Alphabet Inc., & Sundar Pichai,
CEO, Google LLC, to Shareholders (2015), https://abc.xyz/investor/
founders-letters/2015/index.html#2015-larry-
alphabet-letter.
\1053\ Id.
\1054\ Alphabet Inc., Quarterly Report (Form 10-Q) 60 (June 30,
2020), https://abc.xyz/investor/static/pdf/
20200731_alphabet_10Q.pdf?cache=f16f989 (``The concentration of our
stock ownership limits our stockholders' ability to influence corporate
matters. Through their stock ownership, Larry and Sergey have
significant influence over all matters requiring stockholder approval,
including the election of directors and significant corporate
transactions, such as a merger or other sale of our company or our
assets, for the foreseeable future.'').
\1055\ Letter from Larry Page, CEO, Alphabet Inc., & Sundar Pichai,
CEO, Google LLC, to Shareholders (2015), https://abc.xyz/investor/
founders-letters/2015/index.html#2015-larry-
alphabet-letter.
---------------------------------------------------------------------------
For years Google has been the subject of antitrust
investigations and enforcement actions around the world. From
2011 to 2013, the Federal Trade Commission investigated
Google's role in search and advertising markets, culminating in
a staff recommendation to file a complaint against Google--
although the Commission ultimately decided not to do so. At
various points over the last decade, Mississippi, Missouri, and
Texas have each separately investigated Google for antitrust
violations, and, in September 2019, attorneys general from 50
U.S. states and territories announced that they were opening a
fresh antitrust inquiry into the search and advertising
giant.\1056\ The Department of Justice has also been
investigating Google since the summer of 2019, and recent news
reports state that a lawsuit may be imminent.\1057\ These
ongoing U.S. investigations follow multiple antitrust inquiries
worldwide, as well as antitrust-related penalties levied on
Google by the European Commission, France, India, and
Russia.\1058\
---------------------------------------------------------------------------
\1056\ Tony Romm, 50 U.S. States and Territories Announce Broad
Antitrust Investigation of Google, Wash. Post (Sept. 9, 2019), https://
www.washingtonpost.com/technology/2019/09/09/states-us-territories-
announce-broad-antitrust-investigation-google/.
\1057\ Alphabet Inc., Quarterly Report (Form 10-Q) 27 (July 30,
2020), https://abc.xyz/
investor/static/pdf/20200731_alphabet_10Q.pdf?cache=f16f989; Leah
Nylen, Trump Administration to Launch Antitrust Suit Against Google as
Soon as Next Week, Politico (Oct. 2, 2020), https://www.politico.com/
news/2020/10/02/trump-doj-google-antitrust-lawsuit-425617.
\1058\ Aditya Kalra & Aditi Shah, Exclusive: Google Faces Antitrust
Case in India Over Payments App--Sources, Reuters (May 27, 2020),
https://www.reuters.com/article/us-india-google-antitrust-exclusive/
exclusive-google-faces-antitrust-case-in-india-over-pagos-app-sources-
idUSK
BN2331G3; Thomas Grove, Russia Fines Google $6.75 Million in Antitrust
Case, Wall St. J. (Aug. 11, 2016), https://www.wsj.com/articles/russia-
fines-google-6-75-million-in-antitrust-case-1470920410; Charles Riley &
Ivana Kottasova, Europe Hits Google with a Third, $1.7 Billion
Antitrust Fine, CNN (Mar. 20, 2019), https://www.cnn.com/2019/03/20/
tech/google-eu-antitrust/index.html; Natasha Lomas, France Slaps Google
with $166M Antitrust Fine for Opaque and Inconsistent Ad Rules,
TechCrunch (Dec. 20, 2019), https://techcrunch.com/2019/12/20/france-
slaps-google-with-166m-antitrust-fine-for-opaque-and-inconsistent-ad-
rules/.
---------------------------------------------------------------------------
2. Search
(a) Market Power. Google overwhelmingly dominates the
market for general online search. Publicly available data
suggests the firm captures over 87 percent of U.S. search and
over 92 percent of queries worldwide.\1059\ Despite notable
changes in the market--such as the switch from desktop to
mobile--Google has maintained this dominance for more than a
decade, a period during which its lead over its most
significant competitors has only increased.\1060\ Over that
time, Google benefited from economies of scale and the self-
reinforcing advantages of data, as well as from aggressive
business tactics that Google wielded at key moments to thwart
competition. The combined result is that Google now enjoys
durable monopoly power in the market for general online search.
---------------------------------------------------------------------------
\1059\ Search Engine Market Share Worldwide, StatCounter, https://
gs.statcounter.com/search-engine-market-share (last visited Sept. 29,
2020).
\1060\ Enforcers and courts have found that Google dominates the
market for online search in various cases stretching back over a
decade. See, e.g., Press Release, U.S. Dep't of Justice, Yahoo! Inc.
and Google Inc. Abandon Their Advertising Agreement (Nov. 5, 2008),
https://www.justice.gov/archive/opa/pr/2008/November/08-at-981.html
(``The Department's investigation revealed that Internet search
advertising and Internet search syndication are each relevant antitrust
markets and that Google is by far the largest provider of such
services, with shares of more than 70 percent in both markets.'');
Press Release, U.S. Dep't of Justice, Statement of the Department of
Justice Antitrust Division on Its Decision to Close Its Investigation
of the Internet Search and Paid Search Advertising Agreement Between
Microsoft Corporation and Yahoo! Inc. (Feb. 18, 2010), https://
www.justice.gov/opa/pr/statement-department-justice-antitrust-division-
its-decision-close-its-investigation-internet (``The proposed
transaction will combine the back-end search and paid search
advertising technology of both parties. U.S. market participants
express support for the transaction and believe that combining the
parties' technology would be likely to increase competition by creating
a more viable competitive alternative to Google, the firm that now
dominates these markets.''); Author's Guild v. Google Inc., 770 F.
Supp. 2d 666, 683 (S.D.N.Y. 2011) (recognizing ``Google's market power
in the online search market'').
---------------------------------------------------------------------------
Several factors render Google's power in online search
generally immune to competition or threat of entry. General
online search strongly favors scale due to: (1) the high fixed
costs of servers needed for crawling and indexing the entire
web; and (2) the self-reinforcing advantages of click-and-query
data, which let a search engine constantly improve the
relevance of search results. Even an upstart that was able to
secure the necessary capital to invest heavily in computing
infrastructure would find itself at a considerable disadvantage
given that Google's search algorithm has been refined through
trillions upon trillions of queries.\1061\ Meanwhile, steps
that website owners take to block non-Google crawlers have
rendered the task of creating an independent comprehensive
index extremely challenging, if not effectively impossible.
---------------------------------------------------------------------------
\1061\ See Innovation and Entrepreneurship Hearing at 396 (response
to Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC) (``Google Search responds to trillions of user queries from around
the world every year.''); see also Maurice E. Stucke & Allen P. Grunes,
Big Data and Competition Policy para. 12.10 (2016) (``Entry barriers
into the search engine market are already high. Microsoft reportedly
invested in 2010 `more than $4.5 billion into developing its algorithm
and building the physical capacity necessary to operate Bing.' '').
---------------------------------------------------------------------------
Even search engines that choose to syndicate their search
results rather than create their own index and algorithm face
major obstacles. This is primarily because Google--through both
integration and contractual agreements--has established itself
as the default search provider on 87 percent of desktop
browsers and the vast majority of mobile devices. Specifically,
Google used its search dominance to promote the use of its
Chrome browser on laptops, personal computers, and
workstations, which sets Google Search as its default. For
mobile devices, Google imposed a set of restrictive contractual
terms effectively requiring manufacturers of devices that used
its Android operating system to pre-install both Chrome and
Google Search. Additionally, Google pays Apple an undisclosed
amount, estimated to be $12 billion per year, to secure the
search default across iOS devices.\1062\ In general, users tend
to stick with the default presented.\1063\ Moreover, Google
takes steps to hamper and dissuade even those users that do
attempt to switch search engines on Chrome.\1064\ With these
factors combined, Google's conduct significantly impedes other
search providers from reaching users at scale--and further
expands and entrenches Google's dominance.
---------------------------------------------------------------------------
\1062\ Lisa Marie Segarra, Google to Pay Apple $12 Billion to
Remain Safari's Default Search Engine in 2019: Report, Fortune (Sept.
29, 2018), https://fortune.com/2018/09/29/google-apple-safari-search-
engine/.
\1063\ Competition & Mkts. Auth. Report at 194.
\1064\ See, e.g., Submission from Source 481, to H. Comm. on the
Judiciary (Jan. 30, 2020) (on file with Comm.).
---------------------------------------------------------------------------
In submissions to the Committee, Google states that Google
Search ``operates in a highly competitive environment,'' facing
a ``vast array of competitors'' in general online search,
including Bing, DuckDuckGo, and Yahoo.\1065\ Google also claims
that, for any given search query, Google competes against a
``wide range of companies'' including Amazon, eBay, Kayak, and
Yelp.\1066\ Google argues that this broader set of competitors
means that public estimates of its share of general online
search ``do not capture the full extent of Google's competition
in search.'' \1067\
---------------------------------------------------------------------------
\1065\ Submission from Google, to H. Comm. on the Judiciary, A-11
(Nov. 22, 2019) (on file with Comm.).
\1066\ Id.; see also Innovation and Entrepreneurship Hearing at 401
(statement of Adam Cohen, Dir. of Econ. Pol'y, Google LLC). Although
the specialized search providers that Google lists as competitors may,
in some instances, compete with Google for queries, ``[t]he competition
between Google and vertical search engines'' is ``to some extent
asymmetrical. From a user's point of view, a generalist search engine
that fully covers a given vertical can be a complete substitute for the
vertical search engine, while the reverse is not generally true.
Consequently, Google imposes more significant competitive constraints
on a vertical search engine than vice versa.'' Submission from Source
209, to H. Comm. on the Judiciary, Source 209-0000540 (Feb. 17, 2011)
(on file with Comm.).
\1067\ Submission from Google, to H. Comm. on the Judiciary, A-11
(Nov. 22, 2019) (on file with Comm.). In certain regards, Google's
argument echoes the claim Microsoft made when it contested the district
court's decision to exclude ``middleware'' from its definition of the
relevant market. The court found that, although it was true that
middleware could ``usurp the operating system's platform function and
might eventually take over other operating system functions,'' it was
also true that no middleware product ``could now, or would soon, expose
enough APIs to serve as a platform for popular applications, much less
take over all operating system functions.'' United States v. Microsoft
Corp., 253 F.3d 34, 53-54 (D.C. Cir. 2001). Similarly, although certain
vertical search providers could under certain circumstances ``usurp''
the horizontal provider's platform function, no vertical provider does
or would soon serve this function.
---------------------------------------------------------------------------
Despite these statements, Google failed to provide the
Subcommittee with contemporary market share data that would
corroborate its claims. In response to the Committee's written
request for market share data, combined with several follow-ups
from the Subcommittee, Google stated that the company ``doesn't
maintain information in the normal course of business about
market share in its products.'' \1068\ After the Subcommittee
identified communications where Google executives had discussed
regularly tracking search market share data and further
developing internal tools for doing so, Google told the
Subcommittee that this data is either no longer collected or no
longer used for examining site traffic.\1069\ It added,
``[W]hile Google may have examined certain `shares' of usage,
clicks, queries, or traffic in limited and incomplete data sets
over time, we do not believe any of this constitutes `market
share' analysis.'' \1070\
---------------------------------------------------------------------------
\1068\ Meeting with Google (Feb. 10, 2020).
\1069\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-01967913 (Jan. 27, 2007) (on file with Comm.) (``Each quarter we
gather comprehensive search and market share data even though we [do]
NOT share it with the board anymore. I am pleased to say that we've
finally turned the corner on getting decent data of our own rather than
ComScore . . . . Next steps include further work on internal sources
such as the toolbar and AFC referrals which we believe will give us
more data to model and help us adjust for the biases of external
sources.''); id. at GOOG-HJC-01529590 (Oct. 11, 2011) (listing
``internal US search share metrics'' for Q2 2011); Email from Google to
Staff of the H. Comm on the Judiciary (Apr. 16, 2020) (on file with
Comm.).
\1070\ Email from Google to Staff of the H. Comm. on the Judiciary
(Apr. 16, 2020) (on file with Comm.).
---------------------------------------------------------------------------
Market share information that Google did provide from over
a decade ago reveals that Google viewed itself as a leader in
general search as early as 2007. One slide deck tracking search
query volume and revenues stated that ``[c]ontinued leadership
in search underpins the whole business.'' \1071\ In 2009, a top
executive circulated market share analysis documenting that
Google captured 71.5 percent of general search in the United
States, followed by Yahoo with 17 percent, and Bing with 7.5
percent.\1072\ And in 2010, one Google employee observed,
``Google leads competitors. This is our bread-and-butter. Our
long-tail precision is why users continue to come to Google.
Users may try the bells and whistles of Bing and other
competitors, but Google still produces the best results.''
\1073\ Noting that Bing was ``making clear, significant
progress'' on ``bringing the two search engines closer to
parity,'' the employee stated it was ``critical to redouble our
efforts to maintain our lead.'' \1074\
---------------------------------------------------------------------------
\1071\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04231168, at 2 (on file with Comm.).
\1072\ Id. at GOOG-HJC-01207063 (Oct. 27, 2009) (attachment to
email from Marissa Mayer).
\1073\ Id. at GOOG-HJC-03815864 (Apr. 23, 2010).
\1074\ Id.
---------------------------------------------------------------------------
The Subcommittee has not seen any compelling evidence to
suggest that Google's dominance over the last decade has
diminished; to the contrary, there is compelling evidence that
Google has only strengthened and solidified what was already a
leading market position. For example, in 2009, Microsoft and
Yahoo--Google's closest competitors--entered an agreement to
integrate their search platforms, an effort to team up to
tackle Google's dominance.\1075\ A decade later, the two
collectively have a lower share of the general search market
than they did at the time of their deal, whereas Google's share
has increased.\1076\ As of 2016, Google employees were
calculating that Bing had suffered a 30 percent year-over-year
decline in query volume and that Bing's revenue per million
impressions (RPM) was ``70-77% lower'' than Google's own U.S.
search RPM.\1077\ More recently, the United Kingdom's
Competition and Markets Authority found that Google's index of
the web is anywhere from three to five times the size of
Bing's.\1078\ Furthermore, the fact that no new general search
entrant over the last decade has ever accounted for more than
one percent of all U.S. searches in any given year further
confirms that Google's monopoly power is durable and its lead
insurmountable.\1079\
---------------------------------------------------------------------------
\1075\ Submission from Source 209, to H. Comm. on the Judiciary,
Source 209-0000346, at 351-52 (Aug. 24, 2009) (on file with Comm.).
\1076\ Search Engine Market Share Worldwide, StatCounter, https://
gs.statcounter.com/search-engine-market-share (last visited Sept. 29,
2020).
\1077\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04259758 to -04259759 (Apr. 20, 2016) (on file with Comm.).
\1078\ Competition & Mkts. Auth. Report at 89.
\1079\ Submission from Source 115, to H. Comm. on the Judiciary, 6
(Oct. 22, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Google's claim that it ``operates in a highly competitive
environment'' is also at odds with the lived reality of market
participants. Numerous companies--spanning major public
corporations, small businesses, and upstart entrepreneurs--told
the Subcommittee that they overwhelmingly depend on Google for
traffic and that no alternate search engine even remotely
approaches serving as a substitute. For example, J&J Smith, a
printer repair shop based in Rhode Island, stated, ``Google is
our lifeblood.'' \1080\ Foundem, a UK-based comparison shopping
search provider, has noted that Google's ``overwhelming global
dominance'' of horizontal search creates for most websites an
``uncomfortable but unavoidable reliance on Google.'' \1081\
Many other companies described their dependence on Google in
similar terms.
---------------------------------------------------------------------------
\1080\ Interview with J&J Smith (Aug. 24, 2020).
\1081\ Submission from Foundem, to H. Comm. on the Judiciary, 4
(Jan. 21, 2018) (on file with Comm.).
---------------------------------------------------------------------------
Furthermore, some of the same specialized search providers
that Google identifies as competitors stated that their own
businesses heavily rely on Google, in some cases for up to 80
percent of traffic on both desktop and mobile devices.\1082\
One specialized search provider wrote that Google's business
practices ``have a very material effect on [our] business, but
due to Google's monopoly power in search, there is nowhere else
for [us] to turn for additional search traffic. The company is
beholden to how Google decides to structure its search results
page and algorithm.'' \1083\ Another told the Subcommittee,
``From [our] perspective, there are no adequate substitutes for
Google,'' \1084\ and, ``[T]hanks to its monopoly in general
internet search, Google has become the gatekeeper for vertical
search rivals.'' \1085\ One specialized search provider said
that 97.6 percent of its traffic comes from Google; another
said that Google accounted for such an outsized share of
traffic that ``we don't even track non-Google sources.'' \1086\
---------------------------------------------------------------------------
\1082\ Submission from Source 564, to H. Comm. on the Judiciary, 5
(Nov. 13, 2019) (on file with Comm.); Submission from Source 3, to H.
Comm. on the Judiciary, 34 (Nov. 22, 2019) (on file with Comm.).
\1083\ Submission from Source 887, to H. Comm. on the Judiciary, 4
(Oct. 28, 2019) (on file with Comm.).
\1084\ Submission from Source 626, to H. Comm. on the Judiciary, 2
(Oct. 15, 2019) (on file with Comm.).
\1085\ Submission from Source 972, to H. Comm. on the Judiciary, 10
(Dec. 9, 2019) (on file with Comm.).
\1086\ Interview with Source 147 (June 26, 2019).
---------------------------------------------------------------------------
At the Subcommittee's field hearing in January 2020, David
Heinemeier Hansson, Cofounder and Chief Technology Officer of
Basecamp, testified that Google increasingly functions as ``the
front door of the internet.'' \1087\ He noted, ``[Google is]
the start page for millions. It's a form of navigation around
the internet. People these days rarely bother to remember the
specific internet address of a company they want to do business
with, they just google it.'' \1088\ Commenting on the stark
asymmetry in the general search market, Hansson stated that
Yahoo, Bing, and DuckDuckGo all ``could drop [Basecamp] from
their listings tomorrow and we'd barely notice,'' but ``[w]e
lose our listing in Google and we may go out of business.''
\1089\
---------------------------------------------------------------------------
\1087\ Competitors Hearing at 28 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp).
\1088\ Id.
\1089\ Id.
---------------------------------------------------------------------------
Google obtained default placement across the mobile and
desktop ecosystem through both integration and contractual
arrangements. Through owning Android, the world's dominant
mobile operating system, Google was able to ensure that Google
Search remained dominant even as mobile replaced desktop as the
critical entry point to the internet. As discussed elsewhere in
the Report, documents submitted to the Subcommittee show that,
at certain key moments, Google conditioned access to the Google
Play Store on exclusively pre-installing Google Search, a
requirement that gave Google a significant advantage over
competing search engines. Through revenue-sharing agreements
amounting to billions of dollars in annual payments, Google
also established default positions on Apple's Safari browser
(on both desktop and mobile) and on Mozilla's Firefox.\1090\
---------------------------------------------------------------------------
\1090\ Innovation and Entrepreneurship Hearing at 595 (response to
Questions for the Record by Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.).
---------------------------------------------------------------------------
In public statements, Google has downplayed the
significance of default placement, claiming that ``competition
is just a click away.'' \1091\ However, Google's internal
documents show that, at a time when Google was still jostling
for search market share, Google executives closely tracked
search defaults on Microsoft's Internet Explorer and expressed
concern that non-Google defaults could impede Google
Search.\1092\ In an internal presentation about Internet
Explorer's default search selection, Google recommended that
users be given an initial opportunity to select a search engine
and that browsers minimize the steps required to change the
default search provider.\1093\ These discussions, as well as
the steep sums Google pays Apple and various browsers for
default search placement, further highlight the competitive
significance of default positions.
---------------------------------------------------------------------------
\1091\ See, e.g., Adam Kovacevich, Google's Approach to
Competition, Google Pub. Pol'y Blog (May 8, 2009), https://
publicpolicy.googleblog.com/2009/05/googles-approach-to-competition
.html.
\1092\ See, e.g., Submission from Google, to H. Comm. on the
Judiciary, GOOG-HJC-01196214 (May 3, 2005) (on file with Comm.).
\1093\ Id. at GOOG-HJC-01680749 (2006) (identifying several
recommendations, including ``[f]ewest clicks required to change
default, which promotes search innovation by facilitating the user's
ability to switch'').
---------------------------------------------------------------------------
Independent search engines told the Subcommittee that the
lack of defaults available to them creates significant business
challenges. DuckDuckGo said this lack of options compelled it
to invest in browser technology, including the creation of its
own browser for Android and iOS and various browser
extensions.\1094\ It noted, however, that ``the same default
placement challenges exist in the browser market, just one
level up--with the device makers requiring millions or billions
of dollars to become a default browser on a device.'' \1095\
---------------------------------------------------------------------------
\1094\ Innovation and Entrepreneurship Hearing at 343 (statement of
Megan Gray, Gen. Couns. & Pol'y Advoc., DuckDuckGo).
\1095\ Id. at 5.
---------------------------------------------------------------------------
Lastly, the Subcommittee's findings are consistent with
conclusions reached by several enforcement bodies that recently
have investigated Google's market dominance. For example, in
July 2020, the United Kingdom's Competition and Markets
Authority found that ``Google has significant market power in
the general search sector,'' a position maintained through
``three key barriers to entry: economies of scale in developing
a web index; access to click-and-query data at scale; and
Google's extensive default positions.'' \1096\ In July 2019,
the Australian Competition and Consumer Commission (ACCC) found
that Google has ``substantial market power in supplying general
search services'' and that it is ``likely to retain its
dominant share of the market at least in the short- to medium-
term.'' \1097\ And in two separate enforcement actions in 2017
and 2018, the European Commission found that Google possessed
market power in the market for online general search.\1098\
While each of these enforcers focused on their respective
national and regional markets, Google has failed to identify
any factors that would compel the Subcommittee to reach a
different conclusion for the U.S. market.
---------------------------------------------------------------------------
\1096\ Competition & Mkts. Auth. Report at 73.
\1097\ Austl. Competition & Consumer Comm'n Report at 58.
\1098\ Case AT.39740, Google Search (Shopping), Eur. Comm'n
Decision C(2017) 4444, para. 271 (June 27, 2017), https://ec.europa.eu/
competition/antitrust/cases/dec_docs/39740/39740_
14996_3.pdf [hereinafter Google Search (Shopping) Comm'n Decision]
(``The Commission concludes that Google holds a dominant position in
each national market for general search services since 2008, apart from
in the Czech Republic, where Google holds a dominant position since
2011.''); Case AT.40099, Google Android, Eur. Comm'n Decision C(2018)
4761, para. 439 (July 18, 2018), https://ec.europa.eu/competition/
antitrust/cases/dec_docs/40099/40099_9993_3.pdf [hereinafter Google
Android Comm'n Decision] (``[T]he Commission concludes that Google
holds a dominant position in the following relevant markets since 2011:
. . . (3) each national market for general search services in the
EEA.'').
---------------------------------------------------------------------------
(b) Conduct
(i) Google Leverages Dominance Through Data
Misappropriation and Self-Preferencing. When Google launched in
1998, the search listings it delivered were ``ten blue links,''
or a set of organic results that guided users off Google's
webpage to locate relevant information. In the years since,
Google, as well as Bing, has evolved to displaying blue links
alongside a variety of Google's own content, as well as
``information boxes'' that list responses directly on the
search results page.
While this model may, in certain instances, provide users
with direct information more quickly, documents collected by
the Subcommittee show that Google built some of these features
through aggressive tactics that exploited its search dominance.
Google's conduct helped maintain its monopoly in online search
and search advertising while dissuading investment in nascent
competitors, undermining innovation, and harming users and
businesses alike.
According to internal documents, Google executives
recognized as early as 2005 that specialized--or ``vertical''--
search engines could pose a threat to Google's long-term
dominance. That year, one program manager wrote:
L[W]hat is the real threat if we don't execute on
verticals?
(a) L[L]oss of traffic from google.com because folks
search elsewhere for some queries[;]
(b) Lrelated revenue loss for high spend verticals like
travel[;]
(c) Lmissing [opportunity] if someone else creates the
platform to build verticals[;] [and]
(d) Lif one of our big competitors builds a constellation
of high quality verticals, we are hurt badly[.]\1099\
---------------------------------------------------------------------------
\1099\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04137557 (Nov. 29, 2005) (on file with Comm.).
Google's apprehension about vertical search providers
persisted. For example, a 2006 strategy memo identifying
challenges asked, ``How do we deal with the problem of
`proliferating verticals?' '' \1100\ Another message noted,
``Vertical search is of tremendous strategic importance to
Google. Otherwise, the risk is that Google is the go-to place
for finding information only in the cases where there is
sufficiently low monetization potential that no niche vertical
search competitor has filled the space with a better
alternative.'' \1101\ In short, Google executives feared that
vertical search providers would build direct relationships with
users, thereby bypassing Google Search and diverting traffic,
valuable data, and ad revenue. While vertical search providers
were complements to Google in the short term, Google recognized
their potential for disintermediating Google and therefore
viewed them as a major competitive threat. The fact that
several of these verticals specialized in commercial queries
that were among the most valuable for Google further raised the
stakes.\1102\
---------------------------------------------------------------------------
\1100\ Id. at GOOG-HJC-01099230 (Oct. 20, 2006).
\1101\ Id. at GOOG-HJC-03815865 (Apr. 23, 2010).
\1102\ Id. at GOOG-HJC-04276684 to -04276687 (Sept. 21, 2012).
---------------------------------------------------------------------------
Documents show that Google developed a multi-pronged
strategy to thwart the threat. Two of these tactics included:
(1) misappropriating third-party content; and (2) privileging
Google's own services while demoting those of third parties.
Through these practices, Google exploited its dominance to
weaken potential rivals and boost its search advertising
revenue.
(1) Misappropriating Third-Party Content. In the years
following 2005, Google invested in building out its own
vertical services. Documents reveal that Google partly did so
through lifting content directly from third-party providers to
bootstrap Google's own vertical services. In the process,
Google leveraged its search dominance--demanding that third
parties permit Google to take their content, or else be removed
from Google's search results entirely.
For example, after identifying local search as a
``particularly important'' vertical to develop, Google built
Google Local, which licensed content from local providers,
including Yelp.\1103\ In 2010, Google rolled out a service
directly competing with Yelp, even as Google continued to
license Yelp's content--prompting Yelp's CEO to request that
Google immediately remove Yelp's proprietary content from
Google's own service.\1104\ At a time when Google Local was
failing to gain momentum, Google told Yelp that the only way to
have its content removed from Google's competing product was to
be removed from Google's general results entirely.\1105\ Yelp
relied so heavily on Google for user traffic that the company
could not afford to be delisted--a fact that Google likely
knew.\1106\ In short, Google weaponized its search dominance,
demanding that Yelp surrender valuable content to Google's
competing product or else risk heavy losses in traffic and
revenue.
---------------------------------------------------------------------------
\1103\ Id. at GOOG-HJC-03665122 to -03665126 (Apr. 24, 2007)
(internal Google discussion noting the strength of Yelp's local
product) (``[T]here is nothing else `yelp like' in our current
lineup,'' and also noting that ``[Yelp's CEO] just contacted the
account manager here and asked that their contract be revised so that
they could cancel it immediately if we launch reviews, that doesn't
mean that they would do it, but clearly this is a big deal to them.'').
\1104\ Id. at GOOG-HJC-03249494 (Aug. 10, 2010) (``Given that this
App directly competes with the Yelp App and offers little value to Yelp
we cannot allow Google to continue leveraging our content in this way.
We've communicated to Patrick and Carter that your team needs to remove
our content within the next week. Since you already communicated to me
that it would be un-Googley to not remove our content when requested,
I'm confident your team will do the right thing.'').
\1105\ See, e.g., id. at GOOG-HJC-03255279 (Oct. 28, 2010) (``[I]
want to tell you that my feelings are really hurt by the `local is a
failure' stuff that Nikesh has been lobbing around.''); id. at GOOG-
HJC-03790807 to -03790808 (Apr. 24, 2007) (``[W]e are still waiting to
be removed from Places (while remaining in organic and local merge
results), which you initially agreed to (but more recently pulled away
from).''); id. at GOOG-HJC-01234494 (Aug. 10, 2011) (``I was surprised
to find that by opting out of Google's local product, Yelp was
automatically opted out of portions of Google's search results. Carter
Maslan and John Hanke last year said they couldn't/wouldn't remove Yelp
content from Google's local product because local was powered by the
same index as web search, sounds like this was never really the
case.''); id. at GOOG-HJC-012344946 (``To be able to reference Yelp's
content in the parts of search results we discussed, our local service
needs to be at least aware of the existence of Yelp pages. Since we
stopped using any crawled Yelp pages for our local services in response
to your request, this currently isn't possible. That said, I think that
the approach we discussed, with Google making limited use of Yelp data
in the ways you described, is a constructive way to get a comprehensive
view for our users.'').
\1106\ See, e.g., id. at GOOG-HJC-03664462 (Apr. 23, 2007) (``78%
of their uniques come from google. [I]f they are acquired, [I] would
assume that they wouldn't turn us off.'').
---------------------------------------------------------------------------
Evidence gathered by the Subcommittee identifies additional
instances in which Google has intercepted traffic from third-
party websites by forcibly scraping their content and placing
it directly on Google's own site. For example, a submission
from entrepreneur Brian Warner described how he built a
database from scratch and developed it into a sustainable and
growing business--only to watch Google lift his content and
sink his traffic.\1107\ Warner, the founder of Celebrity Net
Worth, told the Subcommittee that, in 2012, the content he had
initially developed as a side project had such high demand that
Warner was able to quit his day job and hire 12 staff members.
In 2014, Google contacted Warner to ask if he would provide
Google with an API that would display his webpage's content in
an ``answer box'' that would appear directly on Google's search
results page. Warner declined, observing that handing over his
company's ``most valuable asset'' would ``cause a catastrophic
drop in traffic.'' \1108\ Within two years, Google began
populating its answer boxes with Celebrity Net Worth's content
anyway--displaying net worth results for each of the 25,000+
celebrities from Warner's database directly on Google's search
results page.\1109\
---------------------------------------------------------------------------
\1107\ See generally Innovation and Entrepreneurship Hearing at
354-60 (statement of Brian Warner, Founder, Celebrity Net Worth).
\1108\ Id. at 357.
\1109\ Id. Because Warner had added several conjured celebrities to
his site to gauge whether Google was scraping his content or lifting it
from elsewhere, he was able to determine that Google was sourcing its
answers directly from Celebrity Net Worth.
---------------------------------------------------------------------------
Combined with changes that pushed Warner's webpage from the
top of organic listings to the middle of the second page,
Google's scraping caused traffic to Celebrity Net Worth to drop
by 50 percent overnight.\1110\ Warner wrote, ``With the flip of
a switch, Google turned our original content into its own
content. And with that move, Google would keep the searcher
within its walled garden indefinitely. That is far more
valuable to Google than taking a small cut of our AdSense
revenue.'' \1111\ Today, Celebrity Net Worth's traffic is down
80 percent from 2014, and--due to the resulting drop in
revenue--Warner has had to lay off half of his staff.\1112\
---------------------------------------------------------------------------
\1110\ Id. at 358.
\1111\ Id.
\1112\ Id.
---------------------------------------------------------------------------
In a submission to the Subcommittee, lyrics site Genius
described similar misappropriation by Google. Genius noted that
it has invested ``a decade and millions of dollars'' developing
a lyrics repository that relies on user-generated content as
well as partnerships with songwriters.\1113\ For years,
however, Google has copied lyrics from Genius's website and
displayed them in information boxes that it places at the top
of its search results page.\1114\ Although Genius shared with
Google evidence showing that the platform was scraping lyrics
directly from Genius, Google for two years ``did nothing to
address the issue.'' \1115\ It was only after The Wall Street
Journal published Genius's claims that Google responded, taking
steps to remove the evidence that Google had copied the lyrics
but leaving the lyrics in place.\1116\ Google later announced
that it would attribute lyrics placed in the information box to
the underlying content provider. ``This would be encouraging,''
Genius wrote, ``except for the fact that all of the lyrics we
flagged for Google as featuring our watermark--and thus clearly
copied from Genius--are currently attributed to another
company.'' \1117\
---------------------------------------------------------------------------
\1113\ Id. at 306 (statement of Ben Gross, Chief Strategy Officer,
Genius).
\1114\ Id. at 307.
\1115\ Id.
\1116\ Id.
\1117\ Id.
---------------------------------------------------------------------------
At the Subcommittee's hearing on July 29, 2020, multiple
members questioned Mr. Pichai about Google's misappropriation
of third-party content. Subcommittee Chair David N. Cicilline
(D-RI) recounted Google's scraping of Celebrity Net Worth,
asking, ``[W]hy does Google steal content from honest
businesses?'' \1118\ Mr. Pichai responded that he ``disagree[d]
with that categorization.'' Representative Ken Buck (R-CO)
followed up by noting that Genius seemed to have collected
clear evidence of Google's misappropriation:
---------------------------------------------------------------------------
\1118\ CEO Hearing at 72 (question of Rep. David N. Cicilline (D-
RI), Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm on the Judiciary).
LWhen Genius suspected this corporate theft was occurring,
the company incorporated a digital watermark in its lyrics that
spelled out red-handed in Morse code. Google's lyric boxes
contained the watermark showing that your company stole what
you couldn't or didn't want to produce yourself. After Google
executives stated that they were investigating this problematic
behavior, Genius created another experiment to determine the
scope of the misappropriation. It turns out that, out of 271
songs where the watermark was applied, 43 percent showed clear
evidence of matching. Your company, which advertises itself as
a doorway to freedom, took advantage of this small company, all
but extinguishing Genius' freedom to compete.\1119\
---------------------------------------------------------------------------
\1119\ Id. at 79 (statement of Rep. Ken Buck (R-CO), Member,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary).
Mr. Pichai responded that Google ``license[s] content from
other companies,'' and that this issue was ``a dispute between
Genius and other companies in terms of where the source of the
content is.'' \1120\ In its response to Questions for the
Record from the Subcommittee, Google also stated that it now
gives webpage owners the ability to exclude certain content
from appearing in information boxes on Google's search results
page.\1121\ However, multiple webpage publishers stated that,
in practice, this option fails to mitigate the harm, given that
Google will continue to source and display content from others,
thereby still intercepting traffic and displacing organic
listings. One publisher described Google's claim to give
webpage owners more control as ``an empty offering.'' \1122\
---------------------------------------------------------------------------
\1120\ Id.
\1121\ Innovation and Entrepreneurship Hearing at 403 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1122\ Interview with Source 489 (Sept. 19, 2020).
---------------------------------------------------------------------------
In an interview with the Subcommittee, one webpage owner
stated that he felt deceived by Google's decision to use its
crawling advantages to misappropriate third-party content. The
webpage owner said:
LA major violation occurred when Google used robotic
information scraped by its crawler to create content of its own
which is displayed in the search result page. We never would
have created sitemaps for Google if those were the terms.
Google wouldn't have had sitemaps from every website on earth
feeding it content if those were the terms from the beginning.
They would have been forced to create a new system in order to
convince sites to comply or a new search service would have
been born that had different options.\1123\
---------------------------------------------------------------------------
\1123\ Id.
Google's practice of misappropriating third-party content
to bootstrap its own rival search services and to keep users on
Google's own webpage is further evidence of its monopoly power
and an example of how Google has abused that power. Google
seized value from third-party businesses without their consent.
These businesses had no effective choice but to allow Google's
misappropriation to continue, given Google's search dominance.
In this way, Google leveraged its search dominance to
misappropriate third-party content, free-riding on others'
---------------------------------------------------------------------------
investments and innovations.
(2) Self-Preferencing. Evidence shows that once Google
built out its vertical offerings, it introduced various changes
that had the effect of privileging Google's own inferior
services while demoting competitors' offerings. This conduct
has undermined the vertical search providers that Google viewed
as a threat. It has also boosted Google's ad revenue by keeping
users on Google's domains for longer and by compelling demoted
firms to pay Google more ad fees to reach users.
In 2007, Google introduced ``Universal Search,'' which
presented users with search results that integrated Google's
various specialized search services, including Google Images,
Google Local, and Google News.\1124\ Universal Search was
designed to improve users' search experience, as well as to
increase traffic to Google's own offerings--even when those
offerings weren't the best or most relevant for users.\1125\
Google's documents suggest that shortly after launching
Universal Search, traffic to Google's own vertical services
increased.\1126\ Even early in its conception, Google
executives were exploring how Universal Search could be used to
show a ``results page promo'' to ``bootstrap traffic'' to
Google's other products.\1127\
---------------------------------------------------------------------------
\1124\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-01230600 (Dec. 8, 2004) (on file with Comm.) (``Googlers have long
argued for some type of `universal' search that integrates all of
Google's indices, including those that contain different media, like
Images, and those that contain structured data, like Local and
Froogle.''); id. at GOOG-HJC-03815864 to -03815865 (Apr. 23, 2010)
(noting that Universal Search marked a shift to ``increase our ability
to provide new types of media in search results'').
\1125\ Id. at GOOG-HJC-02734893 (Dec. 15, 2006) (introducing
Universal Search to help solve the problem that ``Google search user
experience has been internally and externally perceived as stagnant for
the last 7 years'').
\1126\ Id. at GOOG-HJC-03804474 (May 23, 2007) (on file with Comm.)
(noting ``large increases in absolute coverage for all five purposes,
including a 4.5% increase in News and 4% increase in Local Search'').
\1127\ Id. at GOOG-HJC-01230599 (Dec. 8, 2004) (on file with Comm.)
(``Including some of Urs ideas around promoting the Labs property on
the Google.com results pages for some subset of users (`New! Try your
search on the next version of Google'). Urs main concern was that Lab
gets limited traffic, and the set of users is not representative of
Google's user base. He didn't mind the idea of a Labs launch in
principle, but he suggested we show a results page promo for some small
percentage of users to bootstrap traffic to the property with a more
diverse set of users.'').
---------------------------------------------------------------------------
When Google launched Universal Search, it gave prominent
placement to Google's vertical content over superior, more
relevant competitors' products. Google's documents show that
Google adjusted its search algorithm to automatically elevate
the ranking of some of Google's services above those offered by
rivals.\1128\ These perks are generally not available to
competing verticals, placing them at an instant
disadvantage.\1129\ Given that the likelihood that a user will
click on a listing sharply declines with each drop in
placement, traffic to rivals demoted by Google has fallen
significantly.\1130\ The effect is magnified on mobile search,
where the small screen means fewer results are displayed on the
first page of results.\1131\
---------------------------------------------------------------------------
\1128\ See, e.g., id. at GOOG-HJC-01081099 (Oct. 11, 2007) (``We
added a `cooccurring sites' signal to bias ourselves towards triggering
when a local-oriented aggregator site (i.e. Citysearch) shows up in the
web results.'').
\1129\ Submission from Source 564, to H. Comm. on the Judiciary, 9
(Nov. 13, 2020) (on file with Comm.).
\1130\ Matt Southern, Over 25% of People Click the First Google
Search Result, Search Engine J. (July 14, 2020), https://
www.searchenginejournal.com/google-first-page-clicks/374516/#close.
\1131\ Why Page 2 of Google Search Results Is the Best Place to
Hide a Dead Body, Dig. Synopsis (Oct. 29, 2019), https://
digitalsynopsis.com/tools/google-serp-design/ (stating that the first
organic result on the first search engine results page receives around
32.5 percent of overall click-based traffic, the second result receives
around 17.6 percent, and the seventh receives 3.5 percent).
---------------------------------------------------------------------------
In a submission to the Subcommittee, one vertical search
provider described the practical effects of Google's
discriminatory treatment:
LWhen the Local OneBox appears on the page, links to [the
company's] website with highly relevant [results] get pushed
down the page into the lower section for organic search
results. This demotion puts [the company] at a competitive
disadvantage relative to Google's local search results and
jeopardizes the health of [our] business--and this problem is
further exacerbated in the growing mobile context where links
to [our] website may be pushed off the small screen or the
first page of search results altogether. In evaluating options
to reduce this harm, [the company] has reached out to Google to
explore whether [we] or [our] providers' listings on [our]
website could be included in Google's local search results, but
Google has either refused outright or taken no steps to allow
such inclusion.\1132\
---------------------------------------------------------------------------
\1132\ Submission from Source 887, to H. Comm. on the Judiciary, 4
(Oct. 28, 2019) (on file with Comm.).
A submission from another vertical search provider stated
that once Google began automatically placing its own competing
service at the top of its search results page, the vertical
provider's organic search traffic fell by approximately 20
percent.\1133\ The vertical provider observed that Google's
service is worse for users--showing higher prices and fewer
choices than Google's competitors.\1134\ However, Google
continues to give its service top placement, occupying close to
100 percent of the above-the-fold mobile search results page
and around 25 percent of desktop.\1135\
---------------------------------------------------------------------------
\1133\ Submission from Source 925, to H. Comm on the Judiciary, 11
(Nov. 4, 2019) (on file with Comm.).
\1134\ Id.
\1135\ Id. at 9.
---------------------------------------------------------------------------
Additional market participants echoed the view that
Google's self-preferencing comes at the expense of users. One
search provider stated that Google prohibits it from displaying
live prices on Google's results page, even as Google's own
competing service is permitted to do so. Stating that there was
no procompetitive justification for this differential
treatment, the firm also noted that Google's limits on rival
vertical search providers likely prevent consumers from seeing
the cheapest or best-valued prices.\1136\
---------------------------------------------------------------------------
\1136\ Submission from Source 3, to H. Comm. on the Judiciary, 32
(Oct. 29, 2019) (on file with Comm.).
---------------------------------------------------------------------------
In addition to placing its vertical offerings at the top of
the search results page, Google has also actively demoted
certain rivals through imposing algorithmic penalties. For
example, in 2007 and in 2011, Google launched an algorithm that
demoted sites that Google considered ``low quality.''\1137\
Among the websites especially hit were comparison shopping
providers, which enable users to compare product offers from
multiple merchant websites.\1138\ In a submission to the
Subcommittee, one publisher stated that Google's algorithmic
penalty caused search leads and revenues to its website to fall
by 85 percent.\1139\ Kelkoo, previously a leading comparison
shopping site, explained that Google's demotion set off a
``cyclic trend'' whereby a reduction in traffic leads to fewer
consumers, which leads to fewer listings and less revenue,
which leads to reduced investment--which, in turn, contributes
to a further decline in traffic, a ``network effect in
reverse.'' \1140\
---------------------------------------------------------------------------
\1137\ Amit Singhal & Matt Cutts, Finding More High-Quality Sites
in Search, Google: Off. Blog (Feb. 24, 2011), https://
googleblog.blogspot.com/2011/02/finding-more-high-quality-sites-in.html
(defining ``low-quality sites'' as those that are ``low-value add for
users'' and ``copy content from other websites or sites that are just
not very useful'' and defining ``high-quality sites'' as ``sites with
original content and information such as research, in-depth reports,
thoughtful analysis and so on'').
\1138\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-00090248 to -00090249 (Jan 27, 2011) (on file with Comm.).
\1139\ Submission from Kelkoo, to H. Comm. on the Judiciary,
Kelkoo-0032 (Nov. 4, 2019) (on file with Comm.).
\1140\ Id. at Kelkoo-0006, Kelkoo-0044.
---------------------------------------------------------------------------
In external messaging, Google justified the algorithmic
penalties it imposed on third-party sites as a response to
users' desire to see fewer ``low quality'' sites in their
search results.\1141\ However, Google did not subject its own
vertical sites to the same algorithmic demotion, even though
Google's vertical services aggregated and copied content from
around the web--just like the third-party sites that Google had
demoted.\1142\ Indeed, Google's documents reveal that employees
knew Google's own vertical sites would likely fit the demotion
criteria that Google applied to other sites. When one employee
suggested that Google index its comparison shopping site,
Froogle, another responded that it was unlikely Froogle would
get crawled ``without special treatment,'' noting, ``We'd
probably have to provide a lot of special treatment to this
content in order to have it be crawled, indexed, and rank
well.'' \1143\
---------------------------------------------------------------------------
\1141\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-00632668 (on file with Comm.).
\1142\ Id. at GOOG-HJC-02507422 (Apr. 4, 2006) (on file with Comm.)
(``Keep in mind that, as we discussed, most of the information that is
on pages that we create is aggregated from various sources, and those
sources often have that material online already. Because of this, the
search quality team has some concerns as to if/when this Google-created
content will be indexed. And once it is indexed, it is unlikely to
appear high in the search results.'').
\1143\ Id.
---------------------------------------------------------------------------
Despite the fact that Google's own comparison shopping
service was of such low quality that Google's product team
couldn't even get it indexed, Google continued to give Froogle
top placement on its search results page, listing its results
in the OneBox, a display box that Google populates with
information on its search results page.\1144\ Bill Brougher, a
product manager, acknowledged that Google was privileging low-
quality content, writing:
---------------------------------------------------------------------------
\1144\ Id.
LOur algorithms specifically look for pages like
[Froogle's] to either demote or remove from our index, and
there are active projects to improve the integration into web
search. The bigger problem these projects have is to improve
their own result quality. For instance with Froogle, the onebox
trigger is now very good and relevant, but the three results we
show from Froogle in that onebox generally rate very low in our
search quality evaluation. It is often the same with
Local.\1145\
---------------------------------------------------------------------------
\1145\ Id.; see also id. at GOOG-HJC-03201904 (Mar. 22, 2006) (on
file with Comm.) (``Generally we like to have the destination page in
the index, not the aggregated pages. So if our local pages are lists of
links to other pages, its [sic] more important that we have the other
pages in the index. In addition, our pages would probably not rank well
because of this.'').
Another Google team member replied: ``Yes, you're right that
the Onebox result items often stink.'' \1146\ A few years
later, a Google employee again acknowledged that, if Google
ranked its own content according to the same criteria that it
applied to competitors, ``it will never rank.'' \1147\
---------------------------------------------------------------------------
\1146\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-02507420 (Apr. 5, 2006) (on file with Comm.).
\1147\ Id. at GOOG-HJC-01069289 (May 6, 2009) (on file with Comm.)
(``From a principal perspective it would be good if we could actually
just crawl our product pages and then have the rank organically.
Problem is that today if we crawl it will never rank.'').
---------------------------------------------------------------------------
In an interview with the Subcommittee, one vertical site
stated that Google had not only demoted the firm, but had in at
least one instance removed it from Google's index
entirely.\1148\ The search provider stated that, after Google
purchased its rival, Google demoted the provider in search
rankings while vaulting those of its rival.\1149\ The search
provider observed that Google's demotions sometimes followed
favorable press that highlighted the search provider's
popularity with users. ``There was an article that came out in
the press that painted [us] in a positive light and quoted an
executive noting that [we are] the top result when a user
searches [for a particular search term]. The next day, Google
de-indexed [us] for [that search term].'' \1150\
---------------------------------------------------------------------------
\1148\ Interview with Source 147 (June 2019).
\1149\ Id.
\1150\ Id.
---------------------------------------------------------------------------
In July, The Wall Street Journal reported that Google also
gives preferential treatment to YouTube.\1151\ Tests conducted
by the Journal found that searching Google for videos delivered
YouTube in results much more prominently than competing video
providers, even when competitor videos had more engagement.
Reflecting interviews with those familiar with the matter, the
piece stated that Google engineers:
---------------------------------------------------------------------------
\1151\ Sam Schechner, Kristen Grind & John West, Searching for
Video? Google Pushes YouTube over Rivals, Wall St. J. (July 14, 2020),
https://www.wsj.com/articles/google-steers-users-to-youtube-over-
rivals-11594745232.
L[M]ade changes that effectively preference YouTube over
other video sources. Google executives in recent years made
decisions to prioritize YouTube on the first page of search
results, in part to drive traffic to YouTube rather than to
competitors, and also to give YouTube more leverage in business
deals with content providers seeking traffic for their
videos.\1152\
---------------------------------------------------------------------------
\1152\ Id.
In response to Questions for the Record from Subcommittee
Chair David N. Cicilline (D-RI), the company denied that Google
Search is designed to favor YouTube. Although Google stated
that it disagreed with the methodology used by the Journal,
Google did not provide the Subcommittee with any data or
internal reports that would support its claim.\1153\
---------------------------------------------------------------------------
\1153\ Innovation and Entrepreneurship Hearing at 408 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
---------------------------------------------------------------------------
Numerous market participants noted that Google's favoring
of its own sites and demoting those of third parties have
effectively increased their cost of distribution. Since demoted
sites can generally only recover traffic through advertising on
Google, the platform ``essentially requires competitors to pay
for their websites to appear above Google's own links,''
according to one market participant.\1154\ Another business
recalled that, in 2016, Google demoted one of its vertical
offerings, citing a policy of diversifying content.\1155\ The
firm stated that, once it was penalized in organic rankings, it
``could not get an appropriate customer service response for
months'' and ultimately ``had to increase [marketing spend on
Google] to regain lost traffic--a win-win for Google but a loss
for [our business] and its users.'' \1156\
---------------------------------------------------------------------------
\1154\ Submission from Source 3, to H. Comm. on the Judiciary, 32
(Oct. 29, 2019) (on file with Comm.).
\1155\ Submission from Source 972, to H. Comm. on the Judiciary, 9
(Dec. 9, 2019) (on file with Comm.).
\1156\ Id.
---------------------------------------------------------------------------
Meanwhile, Google's own competing vertical ``is always
listed at the top'' of search results.\1157\ The incident
highlights how demoting rivals can enrich Google in two ways:
first, through diverting greater traffic and business to its
own products; and second, through earning ad revenues from the
penalized sites that are subsequently scrambling to recover
their search placement. When demoting firms that Google views
as actual or potential competitive threats, Google is
effectively raising rivals' costs.
---------------------------------------------------------------------------
\1157\ Id.
---------------------------------------------------------------------------
Another firm noted that demoted vertical providers that go
on to buy ads on Google not only feed revenue to a potential or
actual competitor in specialized search, but also risk handing
Google more commercially sensitive information. The market
participant wrote:
LGoogle thus deceptively siphons internet traffic away
from its vertical competitors in online travel and forces them
to pay more for [search engine monetization] and [] Ads in
order to get meaningful placement on Google's [search engine
results page]. Importantly, Google also requires its vertical
competitors to provide their inventory feed to populate the
ads, allowing Google to appropriate vertical service providers'
valuable inventory data.\1158\
---------------------------------------------------------------------------
\1158\ Submission from Source 115, to H. Comm. on the Judiciary, 16
(Oct. 22, 2019) (on file with Comm.).
A significant number of the website publishers that the
Subcommittee interviewed noted the outsized effect that a
single algorithmic change by Google can have on their business.
Brian Warner, Celebrity Net Worth founder, stated, ``All
website owners live in constant fear of Google's algorithm
updates. Without explanation or recourse, Google can deliver a
fatal blow to a website's search ranking visibility.'' \1159\
Foundem, the UK-based comparison shopping site, wrote, ``An
unjustified Google search penalty, whether imposed
anticompetitively or in error, has the power to cause grave and
irreparable harm to virtually any online business.'' \1160\
---------------------------------------------------------------------------
\1159\ Submission from Celebrity Net Worth, to H. Comm. on the
Judiciary, 10 (Oct. 14, 2019) (on file with Comm.).
\1160\ Submission from Foundem, to H. Comm. on the Judiciary, 42
(Oct. 22, 2019) (on file with Comm.). Foundem was the lead complainant
in the European Commission's antitrust investigation and case on Google
Shopping.
(3) Threatening Innovation and the Open Internet. Through
misappropriating third-party content and giving preferential
treatment to its own vertical sites, Google abused its
gatekeeper power over online search to coerce vertical websites
to surrender valuable data and to leverage its search dominance
into adjacent markets. Google's conduct both thwarted
competition and diminished the incentive of vertical providers
to invest in new and innovative offerings.
In an interview with the Subcommittee, one market
participant observed that Google's conduct has sapped
investment, as ``investors don't want to invest in companies
that are producing content that relies on Google traffic,''
resulting in ``less capital invested in companies reliant on
traffic from Google.'' \1161\ The website noted that Google's
business practices have also skewed the website's own
investment decisions, leading it to allocate the vast majority
of its revenue to creating ``news-like temporary content''
rather than ``evergreen content.'' \1162\ It added, ``If we
could trust that Google was not engaging in unfair search
practices, we would be producing different content.'' \1163\
---------------------------------------------------------------------------
\1161\ Interview with Source 507 (July 10, 2019).
\1162\ Id.
\1163\ Id.
---------------------------------------------------------------------------
A vertical provider, meanwhile, said that Google's conduct
had held the firm's growth ``at bay'' and risks reducing
innovation over the long term, as providers whose growth is
capped by Google may be more reluctant to invest and
expand.\1164\ It added:
---------------------------------------------------------------------------
\1164\ Submission from Source 564, to H. Comm. on the Judiciary, 4
(Nov. 13, 2019) (on file with Comm.).
LCompetitors are not the only ones who have a reduced
incentive to innovate as a result of Google's conduct. The
anticompetitive effects reduce Google's own incentives to
improve the quality of its services, because it does not need
to compete on the merits with rival services.\1165\
---------------------------------------------------------------------------
\1165\ Id.
To illustrate this point, Yelp offers a contrast between its
own efforts to maintain high-quality user reviews and Google's
efforts. It states that, of the approximately 150 million user
reviews submitted to Yelp since 2005, Yelp has displayed only
72 percent of them to users, while flagging 21 percent as ``not
recommended.'' \1166\ Yelp cites investment research noting
that Google, by contrast, does not invest in curating its
reviews: ``25% of Google's reviews have zero characters and are
simply Netflix-style one-click star ratings from which the user
can derive few, if any, insights about the trustworthiness of
the submission.'' \1167\
---------------------------------------------------------------------------
\1166\ PiperJaffray, Introducing Review Growth for Yelp vs. Google
Plus (Apr. 16, 2014) (on file with Comm.).
\1167\ Id.
---------------------------------------------------------------------------
Several market participants told the Subcommittee that
Google's business practices in online search have already
foreclosed opportunity. In a submission, Celebrity Net Worth
founder Brian Warner wrote:
LIt is my view that Google has removed essentially all of
the oxygen from the open internet ecosystem. There is no longer
any incentive or even basic opportunity to innovate as I did
back in 2008. If someone came to me with an idea for a website
or a web service today, I would tell them to run. Run as far
away from the web as possible. Launch a lawn care business or a
dog grooming business--something Google can't take away as soon
as he or she is thriving.\1168\
---------------------------------------------------------------------------
\1168\ Innovation and Entrepreneurship Hearing at 359 (statement
from Brian Warner, Founder, Celebrity Net Worth).
More broadly, market participants expressed concern that
Google has evolved from a ``turnstile'' to the rest of the web
to a ``walled garden'' that increasingly keeps users within its
sites.\1169\ Many observers have noted that when Google filed
its initial public offering, Google cofounder Larry Page
identified the company's mission as the following: ``We want
you to come to Google and quickly find what you want. We want
you to get you out of Google and to the right place as fast as
possible.'' \1170\ In recent years, however, studies have shown
that more than half of all queries on Google either terminate
on Google or result in a click to Google's own properties--a
share that is growing over time.\1171\ In July, The Markup
published results showing that Google allocated 41 percent of
the first search results page on mobile devices to Google's own
content.\1172\
---------------------------------------------------------------------------
\1169\ See, e.g., Submission from Source 972, to H. Comm. on the
Judiciary, 9 (Dec. 9, 2019) (on file with Comm.) (``As opposed to
cataloguing the internet and sending travelers to the most relevant
websites, Google is instead creating a walled garden, using its place
at the top of the internet funnel to ensure that the majority of users
transact on Google's own pages and products.'').
\1170\ Google Inc., Registration Statement (Form S-1) app. B at B-6
(2004), https://www
.sec.gov/Archives/edgar/data/1288776/000119312504139655/ds1a.htm.
\1171\ Rand Fishkin, Less than Half of All Google Searches Now
Result in a Click, Sparktoro (Aug. 13, 2019), https://sparktoro.com/
blog/less-than-half-of-google-searches-now-result-in-a-click/.
\1172\ Adrianne Jeffries & Leon Yin, Google's Top Search Result?
Surprise! It's Google, Markup (July 28, 2020), https://themarkup.org/
google-the-giant/2020/07/28/google-search-results-
prioritize-google-products-over-competitors.
---------------------------------------------------------------------------
On several occasions over the course of the investigation,
Subcommittee Chair David N. Cicilline (D-RI) asked Google about
this trend.\1173\ At the Subcommittee's July 16, 2019 hearing,
Google's Director of Economic Policy, Adam Cohen, stated that
Google's goal is ``to provide users information as quickly and
efficiently as possible,'' adding that he was ``not familiar''
with studies showing that a majority of queries now terminate
on Google.\1174\ In its July 26, 2019 response to a follow-up
letter from Chair Cicilline, Google wrote that it strives to
``give users the most relevant, highest quality information as
quickly as possible,'' a goal that Google claims is
``[c]onsistent with Mr. Page's comments in 2004.'' \1175\ When
asked whether it was true that less than 50 percent of all
searches on Google resulted in clicks to non-Google websites,
Google responded that it ``has long sent large amounts of
traffic to other sites.'' \1176\ In response to the
Subcommittee's request for query metrics that would document
the underlying trends, however, Google did not produce the
relevant data.\1177\
---------------------------------------------------------------------------
\1173\ See, e.g., Innovation and Entrepreneurship Hearing at 433-
435 (response to Questions for the Record of Adam Cohen, Dir. of Econ.
Pol'y, Google LLC); CEO Hearing at 337 (response to Questions for the
Record from Sundar Pichai, CEO, Alphabet Inc.).
\1174\ Innovation and Entrepreneurship Hearing at 433-35 (response
to Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC); id. at 437 (statement of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1175\ Letter from Kent Walker, Senior Vice President, Glob. Affs.
& Chief Legal Officer, Google, to Hon. David N. Cicilline, Chair,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 1 (July 26, 2019).
\1176\ Id. at 2.
\1177\ In a September 2020 response to Chair Cicilline on this same
question, Google disputed Fishkin's analysis of the data. Google wrote:
``The fact that a user does not click on a link on a Google Search
results page does not mean that the user has been `kept' on Google
properties. Searches on Google may result in zero website clicks for
many reasons, which is not discernable without directly asking the user
why they did not click a link.'' CEO Hearing at 338 (response to
Questions for the Record of Sundar Pichai, CEO, Alphabet Inc.).
---------------------------------------------------------------------------
Several enforcement bodies have examined these business
practices. Between 2011 and 2013, the Federal Trade Commission
pursued an inquiry into Google's data misappropriation and
self-preferencing, among other conduct. Staff at the Bureau of
Competition concluded that ``the natural and probable effect''
of Google's misappropriation was ``to diminish the incentives
of vertical websites to invest in, and to develop, new and
innovative content.'' \1178\ On Google's self-preferencing,
staff concluded that Google's conduct had ``resulted in
anticompetitive effects,'' \1179\ but that Google had offered
``strong procompetitive justifications.'' \1180\ In 2017, the
European Commission concluded that Google's self-preferencing
in comparison shopping services constituted an illegal abuse of
dominance and ordered Google to implement a remedy of ``equal
treatment.'' \1181\ The European Commission stated that Google
had not ``provided verifiable evidence to prove that its
conduct is indispensable'' to any procompetitive effects.\1182\
---------------------------------------------------------------------------
\1178\ Memorandum from Staff, Fed. Trade Comm'n, to the Commission
iii (Aug. 8, 2012), in The FTC Report on Google's Business Practices,
Wall St. J. (Mar. 24, 2015), http://graphics.wsj.com/google-ftc-report/
\1179\ Id. at 80.
\1180\ Id. at 86.
\1181\ Google Search (Shopping) Comm'n Decision para. 671.
\1182\ Summary of Google Search (Shopping) Comm'n Decision, 2018
O.J. (C 9) 11, 13, para. 26 (Jan. 12, 2018), https://eur-lex.europa.eu/
legal-content/EN/TXT/PDF/?uri=CELEX:52018XC 0112(01)&from=EN.
(ii) Google Increased Prices for Market Access and Degraded
Search Quality. In 2000, Google launched AdWords, which allowed
advertisers to pay for keyword-based ads that would appear to
the right of Google's search results.\1183\ In the years since,
Google has changed the display of the ads on its search engine
results page in several ways, most notably by (1) increasing
the number of ads placed above organic search results, and (2)
blurring the distinction between how ads and organic listings
are presented on Google's search results page. These changes
have effectively raised the price that businesses must pay to
access users through Google. Market participants told the
Subcommittee that Google's conduct has undermined competition,
misled consumers, and degraded the overall quality of Google's
search results--all while enabling Google to further exploit
its monopoly over general online search.
---------------------------------------------------------------------------
\1183\ Press Release, Google, Google Launches Self-Service
Advertising Program (Oct. 23, 2000), http://googlepress.blogspot.com/
2000/10/google-launches-self-service.html.
---------------------------------------------------------------------------
Google's clear dominance in online search also gives it
significant control over the search advertising market.
Publicly available data suggests Google captured around 73
percent of the search advertising market in 2019.\1184\
Submissions from market participants show that many firms spend
the vast majority of their ad budgets on Google. For example,
one major vertical provider spent significantly more than half
of its total ad spend on Google each year from 2016 to 2019,
with the second top provider receiving less than 15
percent.\1185\ Public reporting suggests that, as of 2019,
Google had increased the price of search ads by about five
percent per year, exceeding the U.S. inflation rate at that
time of 1.6 percent.\1186\
---------------------------------------------------------------------------
\1184\ Submission from Source 115, to H. Comm. on the Judiciary, 6
(Oct. 22, 2019) (on file with Comm.) (citing Megan Graham, Amazon Is
Eating into Google's Most Important Business: Search Advertising, CNBC
(Oct. 15, 2019), https://www.cnbc.com/2019/10/15/amazon-is-
eating-into-googles-dominance-in-search-ads.html).
\1185\ Submission from Source 3, to H. Comm. on the Judiciary, 8
(Oct. 29, 2019) (on file with Comm.).
\1186\ Alistair Barr & Garrit De Vynck, Airlines, Hotels and Other
Brands Are Tired of Paying Google for Their Own Names, Bloomberg (Mar.
9, 2019); see also Mark Irvine, Average Cost per Click by Country:
Where in the World Are the Highest CPCs?, Wordstream Blog (Nov. 8,
2018), https://www.wordstream.com/blog/ws/2015/07/06/average-cost-per-
click (showing that the cost-per-click that Google charges search
advertisers in the United States is notably higher than the rate it
charges in countries where Google faces more competition).
---------------------------------------------------------------------------
Several market participants told the Subcommittee that
their ad spend on Google has increased in large part because
Google has made it more difficult for businesses to obtain
organic traffic. Partly, this follows from Google's
preferencing of its own products, which compels demoted firms
to pay Google for ad placement as a way to regain visibility.
Another notable factor has been Google's decision to increase
the number of ads posted above organic search results.
Prior to 2016, Google's design of its search results page
placed eight ads to the right of organic search listings and
three ads above them.\1187\ Google's internal communications
show that, as of 2011, the rate of user engagement with right-
hand side ads was declining.\1188\ Since Google made money from
search ads only when users clicked on them, less user
engagement meant those ads were becoming less valuable to
Google. In February 2011, Sridhar Ramaswamy, senior vice
president of ads at Google, noted that ``users are no longer
looking at the [right-hand side ads],'' and stated that Google
either needed to ``retrain people to look there by putting
really good stuff there,'' or ``live with the fact that users
are going to stop looking there.'' \1189\ By August 2011, a
team at Google known as ``Project Manhattan'' was working on a
redesign of Google's desktop search results page that focused
on reducing or eliminating right-hand side ads.\1190\
---------------------------------------------------------------------------
\1187\ Dr. Peter J. Meyers, Four Ads on Top: The Wait Is Over, Moz
(Feb. 19, 2016), https://moz.com/blog/four-ads-on-top-the-wait-is-over.
\1188\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-02981172 to -02981173 (Aug. 12, 2011) (on file with Comm.) (``RHS
CTR has been steadily dropping over time to today's level. For the best
ads on the RHS, some indication that CTR is lower than quality would
suggest it should be.''); id. at GOOG-HJC-02983169 to -02983193 (Aug.
12, 2011) (stating that RHS is 16.5 percent of search revenue, 26
percent of queries have a RHS ad, and``[o]pportunity is accelerating
due to declining RHS CTR'').
\1189\ Id. at GOOG-HJC-02983830 (Feb. 16, 2011).
\1190\ Id. at GOOG-HJC-00482674 to -00482676 (Aug. 18, 2011).
---------------------------------------------------------------------------
In 2016, Google rolled out the redesigned page, which
eliminated the right-hand side ads while adding a fourth ad
above organic listings and three at the bottom of the
page.\1191\ The practical effect of adding a fourth ad at the
top of the search results page was to push organic listings
further down, requiring users to scroll down further before
reaching a non-paid result. According to Bloomberg, when Google
tested the addition of a fourth ad, some employees objected on
the grounds that the fourth ad would be of lower quality than
the first organic result, but Google altered the search results
page anyway.\1192\
---------------------------------------------------------------------------
\1191\ Matt McGee, Confirmed: Google to Stop Showing Ads on Right
Side of Desktop Search Results Worldwide, Search Engine Land (Feb. 19,
2016), https://searchengineland.com/google-no-ads-right-side-of-
desktop-search-results-242997.
\1192\ Gerrit De Vynck, Google Search Upgrades Make It Harder for
Websites to Win Traffic, Bloomberg (July 13, 2020), https://
www.bloomberg.com/news/articles/2020-07-13/how-google-search-changes-
make-it-more-expensive-to-win-traffic.
---------------------------------------------------------------------------
Google's decision to monetize a fourth ad at the expense of
an organic listing fits a broader pattern of steps taken by
Google to rank search results based on what is best for Google,
rather than what is best for search users--be it preferencing
its own vertical sites or allocating more space for ads.
Several market participants noted that Google could afford to
make these changes only once it had achieved a dominant
position in the market for general search and search
advertising.\1193\ Now that Google is ``unconstrained by
competitors,'' one market participant noted, it ``consistently
reserves the top of the [search engine results page] for its
own vertical products or advertisements paid for through search
engine marketing, pushing its rivals' organic results to the
bottom, regardless of how relevant or useful they might be.''
\1194\
---------------------------------------------------------------------------
\1193\ See, e.g., Submission from Source 972, to H. Comm. on the
Judiciary, 14 (Dec. 9, 2019) (on file with Comm.); Submission from
Source 115, to H. Comm. on the Judiciary, 10 (Oct. 22, 2019) (on file
with Comm.); Submission from Source 3, to H. Comm. on the Judiciary, 34
(Oct. 29, 2019) (on file with Comm.); Competitors Hearing at 28
(statement of David Heinemeier Hansson, Cofounder & Chief Tech.
Officer, Basecamp).
\1194\ Submission from Source 972, to H. Comm. on the Judiciary, 14
(Dec. 9, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Internal data shown by one market participant to the
Subcommittee demonstrates that ``organic search listings have
been pushed down over time, and `click-throughs' (clicking to
visit a site) on the first organic results have decreased by
two-thirds over the past 3 years.'' \1195\ The market
participant's analysis also shows that the first organic
listing on mobile now appears on the bottom of the third search
results screen, which ``effectively forces advertising
customers to bid for a paid advertisement listing if they want
their service or product to meaningfully reach consumers in a
mobile search.'' \1196\
---------------------------------------------------------------------------
\1195\ Submission from Source 3, to H. Comm. on the Judiciary, 33
(Oct. 29, 2019) (on file with Comm.).
\1196\ Id.
---------------------------------------------------------------------------
Google Search on Desktop Ad Placement \1197\
---------------------------------------------------------------------------
\1197\ Prepared by the Subcommittee.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Google Search on Mobile Phone \1198\
---------------------------------------------------------------------------
\1198\ Prepared by the Subcommittee.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Google Search on Desktop \1199\
---------------------------------------------------------------------------
\1199\ Prepared by the Subcommittee.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Google Search on Mobile Phone \1200\
---------------------------------------------------------------------------
\1200\ Prepared by the Subcommittee.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
One result of these changes is that users click less on
organic search results. As Google has reduced the share of top
real estate that it devotes to organic listings, studies show
that organic click-through as a share of all click-through plus
zero-click searches has fallen.\1201\ According to an analysis
by Rand Fishkin, the trend is especially pronounced in mobile,
where organic click-through rates fell by more than 30 percent
between January 2016 and June 2019, while paid click-through
rates over that same period more than tripled.\1202\
---------------------------------------------------------------------------
\1201\ Rand Fishkin, Less than Half of Google Searches Now Result
in a Click, Sparktoro (Aug. 13, 2019), https://sparktoro.com/blog/less-
than-half-of-google-searches-now-result-in-a-click/.
\1202\ Id. (showing organic fell from 41.1 percent in January 2016
to 26.68 percent in June 2019, a period over which paid click-through
rates increased from 3.29 percent to 11.38 percent).
---------------------------------------------------------------------------
For businesses that depend on Google to reach users, these
trends amount to a toll hike, as traffic that firms could
previously draw through organic listings is now increasingly
pay-for-play. Instead of competing for users by offering high-
quality webpages and services that should lead to better
organic search listings, these businesses must now compete for
users based on how much money they pay Google. Several market
participants analogized Google to a gatekeeper that is
extorting users for access to its critical distribution
channel.
At the Subcommittee's January 2020 field hearing in
Colorado, David Heinemeier Hansson, chief technology officer
and cofounder of Basecamp, testified that Google's decision to
increase the number of ads listed above organic search results
has hurt search users.\1203\ Expanding on his criticism,
Hansson stated that Google's decision to sell ad placement
against a company's brand name is another way that Google
extracts revenue from dependent businesses.
---------------------------------------------------------------------------
\1203\ Competitors Hearing at 62 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp) (``Today, if a
consumer goes to Google on their mobile device and search [sic] for
Basecamp, the first thing that they will find is whoever bought that
trademark term, which is usually one of our competitors. Ergo,
consumers are not finding what they are looking for . . . . They are
being presented with an ad and that is the tollbooth that [Google is]
erecting.'').
---------------------------------------------------------------------------
Hansson said, ``Google uses this monopoly to extort
businesses like ours to pay for the privilege that consumers
who search for our trademarked brand name can find us because
if we don't they will sell our brand name as misdirection to
our competitors.'' \1204\ He noted that, while Google purports
to recognize trademark law by prohibiting the use of trademark
terms in ad copy, Google ``puts the onus of enforcement on
victims and does nothing to stop repeat offenders, unless, of
course, the trademark terms are belonging to Google itself.''
\1205\ Hansson added, ``You will find no competitor ads for any
of Google's own important properties.'' \1206\
---------------------------------------------------------------------------
\1204\ Id. at 23.
\1205\ Id.
\1206\ Id.
---------------------------------------------------------------------------
Basecamp's Ad \1207\
---------------------------------------------------------------------------
\1207\ Jason Fried (@jasonfried), Twitter (Sept. 3, 2019, 4:39
p.m.), https://twitter.com/jasonfried/status/
1168986962704982016?lang=en.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Other market participants generally echoed these views in
submissions to the Subcommittee. One wrote that Google
``effectively forces its advertising customers to pay for the
ability to reach consumers who are searching specifically for
the customer's brand.'' \1208\ The business added, ``Facing no
remotely comparable advertising and search engine alternative,
Google has the ability to charge potentially inflated prices
for its advertising services by
---------------------------------------------------------------------------
\1208\ Submission from Source 3, to H. Comm. on the Judiciary, 32
(Oct. 29, 2019) (on file with Comm.).
---------------------------------------------------------------------------
forcing customers to increase their bids in order to receive a
more favorable position.'' \1209\
---------------------------------------------------------------------------
\1209\ Id.
---------------------------------------------------------------------------
A second factor that several third parties cited as
contributing to both higher ad prices and the degradation of
search for users is Google's effort over the years to blur the
distinction between organic listings and paid ads.
Google's Ad Shading and Labeling: 2007-2013 \1210\
---------------------------------------------------------------------------
\1210\ Ginny Marvin, A Visual History of Google Ad Labeling in
Search Results, Search Engine Land (Jan. 28, 2020), https://
searchengineland.com/search-ad-labeling-history-google-bing-254332.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The diagram above depicts Google's practice, between 2007
and 2013, of labeling its paid ads with a shaded background. As
shown below, in 2013, Google abandoned the shaded background
and instead inserted a small yellow square that states ``Ad.''
Since 2016, Google has made various changes that make ads more
subtle, culminating in a label that renders the overall
appearance of paid ads much more similar to organic listings.
Market participants have noted that Google also neglects to
label some paid ads entirely, particularly those that appear in
Google's vertical search offerings, such as listings for hotels
that appear alongside maps.\1211\
---------------------------------------------------------------------------
\1211\ Google Hotel Ads, Google, https://ads.google.com/hotels/
(last visited Oct. 5, 2020) (offering paid listings to hotels, but
neglecting to designate these listings as ``ads'' on the search results
page).
Google's Ad Shading and Labeling: 2013-2019 \1212\
---------------------------------------------------------------------------
\1212\ Ginny Marvin, A Visual History of Google Ad Labeling in
Search Results, Search Engine Land (Jan. 28, 2020), https://
searchengineland.com/search-ad-labeling-history-google-bing-254332.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The natural result of Google's decision to blur the
distinction between paid ads and organic listings is that users
click on more ads and fewer organic search results. This
misleading practice has likely contributed to the growth of
paid click-through rates on Google. One study found that over
59 percent of consumers were not aware of the difference
between organic results and paid ads on Google, and about 34
percent of those who did recognize paid ads said they would
deliberately avoid clicking on them.\1213\ The Federal Trade
Commission (FTC) has recognized that search engines that fail
to ``prominently distinguish'' paid ads from organic listings
could be liable for deceiving consumers under Section 5 of the
FTC Act.\1214\
---------------------------------------------------------------------------
\1213\ Mark Jones, Two-Thirds of People Don't Know the Difference
Between Google Paid and Organic Search Results, Marketing Tech News
(Sept. 6, 2018), https://marketingtechnews
.net/news/2018/sep/06/two-thirds-people-dont-know-difference-between-
google-paid-and-organic
-search-results/.
\1214\ Letter from Mary K. Engle, Assoc. Dir. for Advert. Pracs.,
Fed. Trade Comm'n (June 24, 2013), https://www.ftc.gov/sites/default/
files/attachments/press-releases/ftc-consumer-protec-
tion-staff-updates-agencys-guidance-search-engine-industryon-need-
distinguish/130625search
enginegeneralletter.pdf.
---------------------------------------------------------------------------
Making ads less conspicuous makes it more likely that users
will unwittingly click on them. Market participants note that,
like Google's decision to increase the number and prominence of
paid ads, Google's decision to blur the distinction between
paid listings
and organic results deceives consumers and compels businesses
to purchase ads from Google in order to be located by
users.\1215\
---------------------------------------------------------------------------
\1215\ Submission from Source 115, to H. Comm. on the Judiciary,
10-12 (Oct. 22, 2019) (on file with Comm.); Submission from Source 972,
to H. Comm. on the Judiciary, 21 (Dec. 9, 2019) (on file with Comm.);
Submission from Source 3, to H. Comm. on the Judiciary (Oct. 29, 2019)
(on file with Comm.).
---------------------------------------------------------------------------
In submissions and interviews with the Subcommittee,
businesses noted that higher advertising costs come at the
expense of investments in innovation and consumer
benefits.\1216\ One vertical search provider stated:
---------------------------------------------------------------------------
\1216\ Submission from Source 3, to H. Comm. on the Judiciary, 32
(Oct. 29, 2019) (on file with Comm.).
LIf the search market were fair, the internet would have
four times more content on it, dramatically improving the web
for consumers. Google's gatekeeper power allows it to show more
advertisements for search queries with higher commercial intent
. . . . The harm to consumers is not necessarily a lack of
content, but a lack of quality content (requiring money to
produce).\1217\
---------------------------------------------------------------------------
\1217\ Interview with Source 507 (July 10, 2019).
At the Subcommittee's January 2020 field hearing, Hansson
testified that Google's conduct, which harms business customers
---------------------------------------------------------------------------
and users alike, is enabled by its dominance:
LGoogle's monopoly on internet search must be broken up
for the sake of a fair marketplace. Google would never be able
to get away with such a user-hostile design as showing a full-
page ad for something other than what you were searching for,
if it had real competition. They would never have been able to
establish their monopoly if this had been the design from the
get-go. These are the monopoly spoils of complete
domination.\1218\
---------------------------------------------------------------------------
\1218\ Competitors Hearing at 32 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp).
At the Subcommittee's sixth hearing, Subcommittee Chair
David N. Cicilline (D-RI) noted that Google's search results
page now features more ads and more of Google's own sites and
asked Google CEO Sundar Pichai whether this trend highlights a
misalignment of Google's incentives.\1219\ He asked, ``Isn't
there a fundamental conflict of interest between serving users
who want to access the best and most relevant information and
Google's business model, which incentivizes Google to sell ads
and keep users on Google's own sites?'' \1220\ In response, Mr.
Pichai stated that Google has ``always focused on providing
users the most relevant information,'' and stated that Google
shows ads ``only for a small subset of queries where the intent
from users is highly commercial.'' \1221\ However, Mr. Pichai
did not explain why the percentage of queries for which Google
shows ads would implicate whether or not Google's business
model compromises the integrity of its search results. Google
also failed to produce data that would enable the Subcommittee
to make an independent assessment of Mr. Pichai's assertion.
---------------------------------------------------------------------------
\1219\ CEO Hearing at 72 (question of Rep. David N. Cicilline (D-
RI), Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm on the Judiciary); Submission from Google, to H. Comm. on the
Judiciary, GOOG-HJC-01099375 (Mar. 30, 2012) (on file with Comm.);
Sergey Brin & Larry Page, The Anatomy of a Large-Scale Hypertextual
Search Engine, Stanford Univ. InfoLab, http://infolab.stanford.edu/
#backrub/google.html (last visited Oct. 4, 2020) (expressing
reservations about an ad-based business model, noting that ``the goals
of the advertising business model do not always correspond to providing
quality search to users,'' and given the conflicting motives that a
search engine might face between serving users the most relevant
information and selling more ads, arguing that ``advertising funded
search engines will be inherently biased towards the advertisers and
away from the needs of the consumers'').
\1220\ CEO Hearing at 72 (question of Rep. David N. Cicilline (D-
RI), Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
\1221\ Id. (statement of Sundar Pichai, CEO, Alphabet Inc.);
Submission from Google, to H. Comm. on the Judiciary, GOOG-HJC-01099375
(Mar. 30, 2012) (on file with Comm.).
---------------------------------------------------------------------------
3. Digital Advertisements
(a) Overview and Dominance. Google makes the vast majority
of its revenue by selling advertising placement across the
internet. In 2019, Google's ad revenue accounted for
approximately 83.3 percent of Alphabet's overall sales.\1222\
Google is a prominent player in both search advertising and
digital display advertising, and it captures over 50 percent of
the market across the ad tech stack, or the set of
intermediaries that advertisers and publishers must use to buy,
sell, and place ads. Specifically, Google runs the leading ad
exchange, while also running buy-side and sell-side
intermediary platforms' trade on the exchange.\1223\
---------------------------------------------------------------------------
\1222\ Alphabet Inc., Annual Report (Form 10-K) 10 (Feb. 3, 2020),
https://www.sec.gov/
Archives/edgar/data/1652044/000165204420000008/goog10-k2019.htm.
\1223\ Competition & Mkts. Auth. Report at 10.
---------------------------------------------------------------------------
Internationally, antitrust enforcers are currently
investigating Google's dominance in digital advertising,
including the United Kingdom's Competition and Markets
Authority (CMA),\1224\ and the Australian Competition and
Consumer Commission (ACCC).\1225\ In July 2020, the CMA
concluded that Google has ``significant market power'' in
search advertising and its market power had enabled it to
charge prices 30-40 percent higher than those set by
Bing.\1226\ In September 2020, the Senate Judiciary Committee
held a hearing on the effects of Google's dominance in digital
ads, where members expressed bipartisan concern that Google's
market power across the ad tech stack was enabling
anticompetitive conduct and harming publishers and advertisers
alike.\1227\ Lastly, public reports note that both the Justice
Department and several state attorneys general are
investigating Google's market power and conduct in digital ads,
with reports that a lawsuit may be imminent.\1228\ In light of
the extensive attention already given to this issue, a
comprehensive examination of the digital advertising market is
beyond the scope of this Report.
---------------------------------------------------------------------------
\1224\ Id.
\1225\ See generally Austl. Competition & Consumer Comm'n Report.
\1226\ Competition & Mkts. Auth. Report at 211.
\1227\ Stacking the Tech: Has Google Harmed Competition in Online
Advertising?: Hearing Before the S. Subcomm. on Antitrust and Consumer
Rights of the S. Comm. on the Judiciary, 116th Cong. (2019), https://
www.judiciary.senate.gov/meetings/stacking-the-tech-has-google-harmed-
competition-in-online-advertising.
\1228\ Sara Forden & David McLaughlin, DOJ Scrutinizes Google
Advertising, Search in Antitrust Probe, Bloomberg (Aug. 8, 2019),
https://www.bloomberg.com/news/articles/2019-08-08/doj-scrutinizes-
google-advertising-search-in-antitrust-probe.
---------------------------------------------------------------------------
Market participants and Google's documents suggest that
Google is likely to maintain its lead in search and display
advertising due to high entry barriers. Most critically, as
other sections of this Report found, Google can mine its
ecosystem--including Search, Chrome, Android, and Maps--to
combine a unique set of user data points and build troves of
online behavioral data that drive its ad business. Furthermore,
its dominance across markets increasingly enables Google to set
the terms of commerce. One third party described:
LGoogle is now not only a seller and broker of digital
advertising across the Internet, but they now also control
significant portions of the web browsers, operating systems,
and platforms upon which these digital ads are delivered. This
gives Google the ability to single-handedly shift an entire
ecosystem in nearly any direction they decide, based simply on
their scale. Google can then use its dominance to demand a
higher share of ad revenues from buyers and sellers, and there
is little leverage available to counteract this position in a
negotiation.\1229\
---------------------------------------------------------------------------
\1229\ Submission from Source 688, to H. Comm. on the Judiciary, 2
(Oct. 24, 2019) (on file with Comm.).
One key factor that market participants and industry
experts cite when accounting for why Google is likely to
maintain its dominance in digital ads is its conflict of
interest. With a sizable share in the ad exchange market and
the ad intermediary market, and as a leading supplier of ad
space, Google simultaneously acts on behalf of publishers and
advertisers, while also trading for itself--a set of
conflicting interests that market participants say enable
Google to favor itself and create significant information
asymmetries from which Google benefits.\1230\ At the
Subcommittee's sixth hearing, Representative Pramila Jayapal
(D-WA) questioned Google CEO Sundar Pichai about this conflict
of interest:
---------------------------------------------------------------------------
\1230\ Dina Srinivasan, Why Google Dominates Advertising Markets,
24 Stan. Tech. L. Rev. 55, 63-64 (2020).
LSo, [Google is] running the marketplace, it's acting on
the buy side, and it's acting on the sell side at the same
time, which is a major conflict of interest. It allows you to
set rates very low as a buyer of ad space from newspapers,
depriving them of their ad revenue, and then also to sell high
to small businesses who are very dependent on advertising on
your platform. It sounds a bit like a stock market, except,
unlike a stock market, there's no regulation on your ad
exchange market.\1231\
---------------------------------------------------------------------------
\1231\ CEO Hearing at 169 (Rep. Pramila Jayapal (D-WA), Member,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm on the
Judiciary).
Mr. Pichai responded by citing the sums that Google has paid to
publishers, describing it as a ``low-margin business'' for
Google that it pursues ``because we want to help support
publishers.'' \1232\ Google's overall margins have averaged
over 20 percent for nine of the last ten years.\1233\
---------------------------------------------------------------------------
\1232\ Id. at 170.
\1233\ Data compiled by the Congressional Research Service (on file
with Comm.).
(b) Merger Activity. Google came to control a sizable
market share across the ad tech stack through acquisitions.
Google acquired DoubleClick in 2007 for $3.1 billion.\1234\ At
the time of the acquisition, The New York Times described
DoubleClick as a ``Nasdaq-like exchange for online ads,'' and
Google's own early description of DoubleClick describes it as
``a stock exchange,'' such as ``the NYSE.'' \1235\ Google
purchased DoubleClick to enter the display advertising market,
a segment that Google's internal documents calculated at around
$4.3 billion in 2006--and an area where Google at the time
noted it ``has no meaningful presence.'' \1236\ A presentation
from July 2006 included a slide titled ``Build a Self-
Reinforcing Online Ads Ecosystem,'' which noted that acquiring
DoubleClick or Atlas could create these ``self-reinforcing
benefits'' for Google's ecosystem.\1237\ The slide asked,
``[I]s there some framework we have to demonstrate the
synergies/inter-relationships from owning all these pieces?''
\1238\ Nine months later, Google announced its bid to buy
DoubleClick.
---------------------------------------------------------------------------
\1234\ Louise Story & Miguel Helft, Google Buys DoubleClick for
$3.1 Billion, N.Y. Times (Apr. 14, 2007), https://www.nytimes.com/2007/
04/14/technology/14DoubleClick.html.
\1235\ Id. See also The DoubleClick Ad Exchange, Google, https://
static.googleusercontent
.com/media/www.google.com/en//adexchange/AdExchangeOverview.pdf (last
visited Oct. 4, 2020).
\1236\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04189346 (July 26, 2006) (on file with Comm.).
\1237\ Id. at GOOG-HJC-04189347.
\1238\ Id.
---------------------------------------------------------------------------
When reviewing the deal, the Federal Trade Commission
assessed both horizontal and non-horizontal theories of harm
and noted that, prior to announcing the acquisition, Google had
been planning to enter the market and compete against
DoubleClick directly.\1239\ Ultimately the Commission concluded
that the display advertising market was highly competitive, and
therefore the loss of Google's potential entry would not be
competitively significant.\1240\ Examining the potential
effects of the deal on privacy, the FTC said it found no
evidence that competition between Google and DoubleClick
affected their respective privacy policies.\1241\ In December
2007, the FTC approved the acquisition.\1242\
---------------------------------------------------------------------------
\1239\ Press Release, Fed. Trade Comm'n, Federal Trade Commission
Closes Google/DoubleClick Investigation (Dec. 20, 2007), https://
www.ftc.gov/news-events/press-releases/2007/12/federal-trade-
commission-closes-googledoubleclick-investigation.
\1240\ Id.
\1241\ Id.
\1242\ Id.
---------------------------------------------------------------------------
In 2010, Google acquired AdMob, the leading mobile ad
network at the time. In the FTC's approval of the merger, it
stated that ``the combination of the two leading mobile
advertising networks raised serious antitrust issues,'' but
that these concerns were ``overshadowed by recent developments
in the market, most notably a move by Apple Computer Inc.--the
maker of the iPhone--to launch its own competing mobile ad
network.'' \1243\ The Commission's assumption that Apple would
continue to build its presence in the mobile ad market prompted
it to approve the deal.\1244\ In the coming years, however,
Apple's product never fully took off and, in 2016, Apple
abandoned the effort completely.\1245\
---------------------------------------------------------------------------
\1243\ Press Release, Fed. Trade Comm'n, FTC Closes Its
Investigation of Google AdMob Deal (May 21, 2010), https://www.ftc.gov/
news-events/press-releases/2010/05/ftc-closes-its-investigation-google-
admob-deal.
\1244\ Id.
\1245\ About the iAd App Network Shutdown, Apple: Dev. (Dec. 31,
2016), https://developer.apple.com/support/iad/.
---------------------------------------------------------------------------
In 2011, Google also acquired AdMeld, a leading supply-side
platform.\1246\ The Justice Department's Antitrust Division
investigated the acquisition and concluded that the deal was
``unlikely to cause consumer harm.'' \1247\
---------------------------------------------------------------------------
\1246\ Press Release, Fed. Trade Comm'n, FTC Closes Its
Investigation of Google AdMob Deal (May 21, 2010), https://www.ftc.gov/
news-events/press-releases/2010/05/ftc-closes-its-investigation-google-
admob-deal.
\1247\ Press Release, U.S. Dep't of Justice, Statement of the
Department of Justice's Antitrust Division on Its Decision to Close Its
Investigation of Google Inc.'s Acquisition of Admeld Inc. (Dec. 2,
2011), https://www.justice.gov/opa/pr/statement-department-justices-
antitrust-division-its-decision-close-its-investigation-google.
---------------------------------------------------------------------------
(c) Conduct
(i) Combination of Data. When Google purchased DoubleClick,
it told Congress and the FTC that it would not combine the data
collected on internet users via DoubleClick with the data
collected throughout Google's ecosystem.\1248\ In 2016,
however, Google reversed this commitment and subsequently
combined DoubleClick data with personal information collected
through other Google services--effectively combining
information from a user's personal identity with their location
on Google Maps, information from Gmail, and their search
history, along with information from numerous other Google
products. At the Subcommittee's sixth hearing, Representative
Val Demings (D-FL) asked Mr. Pichai about his direct
involvement in the decision to renege on Google's commitment to
lawmakers:
---------------------------------------------------------------------------
\1248\ Dina Srinivasan, Why Google Dominates Advertising Markets,
24 Stan. Tech. L. Rev. 55, 92-93 (2020).
LWhen Google proposed the merger[,] alarm bells were
raised about the access to data Google would have, specifically
the ability to connect to users' personal identity with their
browsing activity. Google, however, committed to Congress and
to the antitrust enforcers that the deal would not reduce user
privacy. Google's chief legal adviser testified before the
Senate Antitrust Subcommittee that Google wouldn't be able to
merge this data even if it wanted to, given contractual
restrictions. But in June of 2016, Google went ahead and merged
its data anyway, effectively destroying anonymity on the
internet . . . . Did you sign off on this decision to combine
the sets of data with--that Google had told Congress would be
kept separate? \1249\
---------------------------------------------------------------------------
\1249\ CEO Hearing at 105 (question of Rep. Val Demings (D-FL),
Member, Subcomm. on Antitrust, Commercial and Admin Law of the H. Comm.
on the Judiciary).
Mr. Pichai confirmed that he approved the deal, claiming
that, ``Today [we] make it very easy for users to be in control
of their data.'' \1250\ Representative Demings also noted that,
at the time of the transaction, DoubleClick executives had
noted that Google's founders were concerned that combining the
data in this way--through a cross-site cookie--would lead to a
privacy backlash. She stated:
---------------------------------------------------------------------------
\1250\ Id. at 106.
LSo, in 2007, Google's founders feared making this change
because they knew it would upset their users, but in 2016,
Google didn't seem to care. Mr. Pichai, isn't it true that what
changed between 2007 and 2016 is that Google gained enormous
market power. So. While Google had to care about user privacy
in 2007. It no longer had to in 2016? Would you agree that what
changed was Google gained enormous market power? \1251\
---------------------------------------------------------------------------
\1251\ Id.
She closed by noting she was concerned that Google's
``bait-and-switch'' was ``part of a broader pattern where
Google buys up companies for the purposes of surveilling
Americans, and because of Google's dominance users have no
choice but to surrender.'' \1252\ In recent months, Google's
reversal on this commitment has become salient for enforcers
now assessing Google's bid to purchase FitBit.\1253\
---------------------------------------------------------------------------
\1252\ Id.
\1253\ Id. at 368 (response to Questions for the Record of Sundar
Pichai, CEO, Alphabet, Inc.).
(ii) Other Areas of Concern. While a comprehensive
examination of this market is beyond the scope of this Report,
the Subcommittee heard from numerous market participants about
a set of alleged practices by Google that invite investigation.
---------------------------------------------------------------------------
These include:
LDepriving advertisers and publishers of key
market and pricing information and maintaining market opacity;
LLeveraging its market power in search
advertising to compel advertisers to use Google's products in
the display market;
LLeveraging control over YouTube to foreclose
competition in digital video ad serving, in part by excluding
rival ad servers from having access to YouTube;
LInhibiting interoperability between Google's ad
platforms and non-Google ad platforms; and
LUsing its search dominance to impose standards
like AMP that, by further depriving publishers of user data,
benefit Google's ad business.
4. Android and Google Play Store
(a) Android
(i) Overview. Android is a dominant mobile operating
system, running on approximately 75 percent of the world's
mobile devices.\1254\ In the United States, the only
alternative to Android is Apple's iOS. Android captures about
47 percent of the U.S. mobile operating system market, and
Apple captures about 52 percent of it.\1255\
---------------------------------------------------------------------------
\1254\ Felix Richter, The Smartphone Market: The Smartphone
Duopoly, Statista (July 27, 2020), https://www.statista.com/chart/3268/
smartphone-os-market-share/ (citing Mobile Operating System Market
Share Worldwide, Statcounter GlobalStats).
\1255\ S. O'Dea, Market Share of Mobile Operating Systems in the
United States from January 2012 to December 2019, Statista (Feb. 27,
2020), https://www.statista.com/statistics/272700/market-share-held-by-
mobile-operating-systems-in-the-us-since-2009/ (citing Mobile Operating
System Market Share in United States of America, Statcounter
GlobalStats).
---------------------------------------------------------------------------
Google acquired Android in July 2005 for an estimated $50
million.\1256\ Since then, Google has purchased a set of
technologies to strengthen its mobile ecosystem, including both
software and hardware.\1257\ Notably, Google purchased Motorola
Mobility in 2011 for $12.5 billion, the largest acquisition in
Google's history.\1258\
---------------------------------------------------------------------------
\1256\ Farhad Manjoo, A Murky Road Ahead for Android, Despite
Market Dominance, N.Y. Times (May 27, 2015), https://www.nytimes.com/
2015/05/28/technology/personaltech/a-murky-road-ahead-for-android-
despite-market-dominance.html.
\1257\ See infra Appendix.
\1258\ Google Buys Motorola Mobility for $12.5B, Says ``Android
Will Stay Open,'' TechCrunch (Aug. 15, 2011), https://techcrunch.com/
2011/08/15/breaking-google-buys-motorola-for-12-5-billion/ (reporting
that Google purchased Motorola primarily to protect the Android
ecosystem from patent litigation). In 2014, Google sold Motorola to
Lenovo. Facts About Google's Acquisition of Motorola, Google, https://
www.google.com/press/motorola/ (last visited Oct. 4, 2020).
---------------------------------------------------------------------------
Google describes Android as ``a free, open-source mobile
operating system'' that is available to anyone to download and
modify on a royalty-free basis.\1259\ Indeed, Android is unique
in that Google does not generally monetize its operating system
by selling proprietary hardware or demanding licensing fees. In
practice, however, smartphone manufacturers that seek to use
Android must sign Google's licensing agreements, as Google
limits the functionality of non-licensed usage. Only through
Google's licensing agreements can smartphone manufacturers
access Google's proprietary apps, such as Gmail, YouTube,
Chrome, Google Maps, and Google Play Store.\1260\ In return,
Google requires that certain apps must be pre-installed and
must receive prominent placement on mobile devices.\1261\
Device manufacturers must also enter an agreement that prevents
them from customizing Android,\1262\ and from building an
Android fork that would make the version of Android running on
a device incompatible with apps built for the Android
ecosystem.\1263\
---------------------------------------------------------------------------
\1259\ Submission from Google, to H. Comm. on the Judiciary, A-6
(Nov. 22, 2019) (on file with Comm.). Android is managed by the Open
Handset Alliance, a group of more than eighty hardware, software, and
mobile network operators, including Samsung, LG, HTC, and Lenovo. See
Members, Open Handset All., https://www.openhandsetalliance.com/
oha_members.html (last visited Oct. 4, 2020); Licenses, Android Open
Source Project, https://source.android.com/setup/start/licenses (last
visited Oct. 4, 2020) (stating that the Android source code is freely
available for use under an open-source license).
\1260\ See Google Android Comm'n Decision para.para. 160-63.
\1261\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-02393308 (Mar. 11, 2011) (on file with Comm.) (describing the
Mobile Application Distribution Agreement (MADA) as an agreement that
specifies which apps Google requires hardware manufacturers to pre-
install and where on the phone the apps should be placed).
\1262\ Id. at GOOG-HJC-02393318 (Feb. 25, 2011) (Google's
Antifragmentation Agreement).
\1263\ Id.; Google Android Comm'n Decision para.para. 170-71; see
also Device Compatibility Overview, Android Devs., https://
developer.android.com/guide/practices/compatibility (lastvisited Oct.
4, 2020). In 2017, Google released an alternative to its
Antifragmentation Agreement called the Android Compatibility Commitment
(ACC), which ``would permit OEMs to manufacture incompatible Android
devices for a third party that are marketed under a third-party
brand.'' Google Android Comm'n Decision para.para. 170-71.
---------------------------------------------------------------------------
The Subcommittee's investigation revealed that Google has
used Android to entrench and extend its dominance in a host of
ways that undermine competition. These include: (1) using
contractual restrictions and exclusivity provisions to extend
Google's search monopoly from desktop to mobile and to favor
its own applications; and (2) devising Android Lockbox, a
covert effort to track real-time data on the usage and
engagement of third-party apps, some of which were Google's
competitors. Additionally, Google's Play Store now functions as
a gatekeeper, which Google is increasingly using to hike fees
and favor its own apps. Overall, Android's business practices
reveal how Google has maintained its search dominance through
relying on various contractual restrictions that blocked
competition and through exploiting information asymmetries,
rather than by competing on the merits.
(ii) Using Contracts to Extend Google's Search Monopoly and
Self-Preference. Early communications within Google show that
it began investing in the mobile ecosystem because it
recognized that the rise of smartphone usage threatened to
disintermediate Google Search. Since losing its monopoly on
search would mean losing its valuable trove of user data,
maintaining dominance over search access points was paramount.
To maintain its search dominance, Google invested in
Android, which it recognized it could use to extend its search
dominance onto mobile devices.\1264\ Google required that any
smartphone manufacturer seeking to license Android preinstall
Google Search and Google Play Store, alongside a host of other
rotating apps selected by Google.\1265\ Google also offered
mobile device manufacturers revenue-share agreements, under
which smartphone manufacturers would receive a cut of the
search advertising revenue that Google made from the use of
Google's apps on their devices,\1266\ as well as a cut of Play
Store revenues.\1267\ In return, however, manufacturers had to
not only carry Google's apps, but also ensure that Google
Search was the default and exclusive search app pre-installed
on the manufacturers' devices. For example, one revenue share
agreement reviewed by the Subcommittee stated that hardware
manufacturers shall not ``pre-install, install, or incorporate
on any Covered Device any application which is the same or
substantially similar to a Google Search Client or the Google
Search Services.'' \1268\
---------------------------------------------------------------------------
\1264\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04216470 (May 2009) (on file with Comm.).
\1265\ Id. at GOOG-HJC-02393308 (Mar. 11, 2011) (on file with
Comm.) (Mobile Application Distribution Agreement).
\1266\ Id. at GOOG-HJC-00660371 (Apr. 11, 2011).
\1267\ Id. at GOOG-HJC-04216470 (May 2009).
\1268\ Id. at GOOG-HJC-00660364 (Apr. 11, 2011).
---------------------------------------------------------------------------
Documents show that Google executives knew that
conditioning access to Android and to Google's suite of apps on
the prominent placement of Google Search would disrupt existing
partnerships between mobile network operators and rival search
engines. For example, a 2009 slide deck stated that
``[p]artners may have deals in place with other search
providers,'' and noted that ``T-Mobile and AT&T have closed
deals with Yahoo . . . . Verizon has tight relationship with
MSFT re: search . . . . Expect MSFT & Yahoo to aggressively
pursue `pre-load' deals on Android phones.'' \1269\ Google's
strategy of licensing Android for free to hardware partners and
conditioning access to Google's must-have apps on favorable
treatment for Google Search enabled Google to box out rivals in
mobile search and other markets. Google's strategy was
successful. These agreements, which were reached with the
leading smartphone providers, solidified Google Search as the
default search option on a majority of the world's smartphones.
---------------------------------------------------------------------------
\1269\ Id. at GOOG-HJC-04217467 (May 2009) (on file with Comm.).
---------------------------------------------------------------------------
As Android gained market share, its demands grew and
hardened. The European Commission found that between 2009 and
2014, Google increased the number of pre-installed Google apps
that it required from 12 to 30.\1270\ Documents submitted to
the Subcommittee also show that instructions to heavily push
Google Search were coming from the company's top management.
Summarizing a meeting with Sundar Pichai, then-Vice President
of Product Development, Director of Engineering for Android
Patrick Brady recalled, ``His main feedback was . . . [s]earch
is sacred, must be front and center.'' \1271\ He added, ``Our
proposal covers that through more prescriptive search placement
requirements.'' \1272\
---------------------------------------------------------------------------
\1270\ Google Android Comm'n Decision para. 182.
\1271\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-00050146 (May 23, 2013) (on file with Comm.).
\1272\ Id.
---------------------------------------------------------------------------
Google's licensing agreement gave Google the right to amend
the list of apps it required device manufacturers to pre-
install.\1273\ Documents show that market participants
expressed frustration at Google's ability to set the terms and
also change them routinely. Explaining the situation, Mr. Brady
wrote, ``Some OEMs . . . do not like the idea of signing up to
undefined requirements, but most of our partners are somewhat
used to this as the [c]ompatibility requirements evolve with
each release, and our [Google Mobile Services] suite expands
(incl. mandatory apps) over time.'' \1274\ When one hardware
manufacturer attempted to secure additional rights, Google
pushed back. In 2014, John Lagerling, Senior Director of
Android Global Partnerships, responded to such an effort:
---------------------------------------------------------------------------
\1273\ See Google Android Comm'n Decision para. 183.
\1274\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-00050145 (May 23, 2013).
LIn your redlines on [the contract], you are suggesting
[OEM] approves any new additions to GMS. This has never been
the case in our past history[,] and I think it is the wrong
message for [OEM] to send Google. We just spent some hours
explaining . . . that one of the main reasons we do Android is
in order to secure distribution of Google services.\1275\
---------------------------------------------------------------------------
\1275\ Id. at GOOG-HJC-04300658 (Jan. 21, 2014).
Other smartphone manufacturers also attempted to resist
Google's terms, noting that the requirements were crowding out
placement for other apps while also taking up significant
memory. For example, in 2014, one hardware manufacturer
requested that Google ``reduce the number of preloaded apps on
the device . . . so that we don't clutter our products with
apps that may not be necessary for the majority of users and we
give them as much space as possible,'' adding that this would
also ``help us deal with complaints from governments, NGOs and
end users.'' \1276\ Forwarding the email to others at Google,
Mr. Langerling noted that the manufacturer's grievance was
``not about clutter but about system memory,'' adding that
``[u]sers have been complaining to [the device maker] that [it]
sells them a 16Gb phone and delivers something that only has 7-
8Gb free.'' \1277\
---------------------------------------------------------------------------
\1276\ Id. at GOOG-HJC-04308614 (Jan. 17, 2014).
\1277\ Id.
---------------------------------------------------------------------------
Despite complaints that Android's pre-install conditions
favored Google's products at the expense of user experience,
Google maintained its requirements. Interviews with market
participants suggest that Google's ability to set the terms of
commerce hurt mobile device manufacturers as well as third-
party developers, both of which had their own apps they were
seeking to distribute. In a submission to the Subcommittee, one
third party recalled being informed by a device manufacturer
``that it could not provide home screen placement for our
preloaded app due in part to contractual agreements to preload
[Google's competing app].'' \1278\
---------------------------------------------------------------------------
\1278\ Submission from Source 104, to H. Comm. on the Judiciary,
Source 104-00000439 (Jan. 18, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Market participants noted that pre-installation on devices
can be critical for successful distribution. One developer
explained that ``integration into the initial device setup,''
in particular, can ``meaningfully drive the acquisition of new
users.'' \1279\ Google's documents show that it recognized the
importance of pre-installation, with one internal presentation
stating that ``activation and defaults are a known issue that
we should explore, as OEM/carrier pre-installed apps are among
the most used.'' \1280\
---------------------------------------------------------------------------
\1279\ Id. at Source 104-00000437.
\1280\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04200778 (May 25, 2017) (on file with Comm.).
---------------------------------------------------------------------------
Documents also show that Google uses its leverage to push
hardware manufacturers to privilege Google's products over the
manufacturers' products. Discussing the agenda for an upcoming
meeting with a hardware manufacturer, one Google manager noted
that the manufacturer should discourage the use of its email
client for Gmail accounts, stating, ``They should use Gmail
native app.'' \1281\ In a separate discussion in 2016, Google
employees explained how Android Pay, a predecessor to Google
Pay, would be given preferential treatment over the
manufacturer's own mobile payment app.\1282\ Recent reporting
that Google is pressuring Samsung to promote Google apps over
those offered by Samsung is consistent with the company's past
conduct.\1283\
---------------------------------------------------------------------------
\1281\ Id. at GOOG-HJC-04204875 (Jan. 18, 2014).
\1282\ Id. at GOOG-HJC-04299009 (Feb. 4, 2016) (discussing how the
manufacturer's mobile payment app would be placed inside of an apps
folder while Google's mobile payment app would be placed more
prominently outside the folder of Google apps).
\1283\ See, e.g., Mark Bergen & Sohee Kim, Google in Talks to Take
Over More Search Tasks on Samsung Phones, Bloomberg (July 28, 2020),
https://www.bloomberg.com/news/articles/2020-07-29/google-in-talks-to-
take-over-more-search-tasks-on-samsung-phones; Paresh Dave & Hyunjoo
Jin, Samsung Weighs Dropping Bixby as Google Dangles New Mobile Apps
Deal, Reuters (July 29, 2020), https://www.reuters.com/article/us-
google-samsung/samsung-weighs-dropping-bixby-as-google-dangles-new-
mobile-apps-deal-idUSKCN24U0TF.
---------------------------------------------------------------------------
Lastly, Google appears to use its licensing agreements to
deter mobile device manufacturers from collaborating with
alternative mobile operating system providers. In 2012, for
example, Acer, a hardware manufacturer, and Alibaba had planned
to release a variant of Android, called Aliyun OS.\1284\
Reporting suggests that Google threatened to terminate its
partnership with Acer in retaliation, leading Acer to cancel
the launch of devices running on the Aliyun OS.\1285\ Google
also requires hardware partners to agree that they will not run
unsanctioned versions of Android on other hardware products,
with the understanding that any manufacturer who violates this
condition risks losing access to the Google Play Store and
other popular apps across all of the manufacturer's
devices.\1286\
---------------------------------------------------------------------------
\1284\ See, e.g., Dieter Bohn, Google Explains Why It Stopped
Acer's Aliyun Smartphone Launch (Updated), Verge (Sept. 14, 2012),
https://www.theverge.com/2012/9/14/3335204/google-statement-acer-
smartphone-launch-aliyun-android; Roger Cheng, Alibaba: Google Forced
Acer to Drop Our New Mobile OS, CNET (Sept. 13, 2012), https://
www.cnet.com/news/alibaba-google-forced-acer-to-drop-our-new-mobile-os/
; T.C. Sottek, Acer Cancels Phone Launch with Alibaba, Allegedly in
Response to Threats from Google, Verge (Sept. 13, 2012), https://
www.theverge.com/2012/9/13/3328690/acer-google-alibaba-phone.
\1285\ See id.
\1286\ See, e.g., Janko Roettgers, How Google Kneecapped Amazon's
Smart TV Efforts, Protocol (Mar. 11, 2020), https://www.protocol.com/
google-android-amazon-fire-tv; James Brumley, Google Just Made Sure
It's Going to Win the Smart TV War, Motley Fool (Mar. 20, 2020),
https://www.fool.com/investing/2020/03/20/google-just-made-sure-its-
going-to-win-the-smart-t.aspx.
---------------------------------------------------------------------------
After investigating Google's licensing agreements, the
European Commission concluded in 2018 that Google's conduct had
illegally benefited Google's own services while blocking the
rise of rival operating systems.\1287\ Although Google argued
that users were free to download other apps and that Google's
own apps were superior, the Commission determined that ``users
who find search and browser apps pre-installed on their devices
are likely to stick to these apps.'' \1288\ Responding to
Google's claims that its tying agreements were necessary in
order for Google to be able to monetize its investment in
Android, the European Commission stated:
---------------------------------------------------------------------------
\1287\ Press Release, Eur. Comm'n, Antitrust: Commission Fines
Google =4.34 Billion for Illegal Practices Regarding Android Mobile
Devices to Strengthen Dominance of Google's Search Engine (July 18,
2018), https://ec.europa.eu/commission/presscorner/detail/en/
IP_18_4581.
\1288\ Id.
LGoogle achieves billions of dollars in annual revenues
with the Google Play Store alone, it collects a lot of data
that is valuable to Google's search and advertising business
from Android devices, and it would still have benefitted from a
significant stream of revenue from search advertising without
the restrictions.\1289\
---------------------------------------------------------------------------
\1289\ Id.
(iii) Accessing Real-Time Market Data. The Subcommittee's
investigation also revealed that Android gives Google
unparalleled access to data on its users and developers. This
includes information that Google can monetize through its ad
business, as well as strategic intelligence that lets Google
track emerging competitors and general business trends.
Android's dominance in the mobile operating system market
enables it to extensively surveil its users. This surveillance
is partly enabled through Google's technology. In key ways,
Google also uses its dominance and its integration across
markets to increase the number of touchpoints from which it is
constantly mining user data.
Google's documents show that it has used its leverage over
hardware manufacturers to demand that they structure their
devices in ways that facilitate Google's data collection
efforts. Google's agreements with device manufacturers, for
example, require that manufacturers configure a ``Client ID,''
which is a unique alphanumeric code incorporated in the
smartphone that enables Google to combine metrics tracked via
the hardware with all the other data Google collects on
users.\1290\ Additionally, Google's own documents also show
that it has asked device manufacturers to use a Google Account
as their identifier rather than a non-Google account--a way of
ensuring that Google can capture a broader picture of its
users.\1291\ On the Play Store, meanwhile, Google does not
permit users to download apps unless they have a Google
Account, further funneling users into the Google
ecosystem.\1292\ Combined with location data, which Android
also extensively collects, Google can build sophisticated user
profiles reflecting a person's demographic, where they are, and
where they go, as well as which apps they use at what time and
for how long.\1293\ These intimate user profiles, spanning
billions of people, are a key source of Google's advantage in
its ad business. In this way, Android's location data feeds
into Google's dominance in ads.
---------------------------------------------------------------------------
\1290\ Google Android Comm'n Decision para. 187.
\1291\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04204875 (Jan. 18, 2014) (on file with Comm.).
\1292\ Innovation and Entrepreneurship Hearing at 471 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1293\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04198806 to -04198855 (Jan. 13, 2017) (on file with Comm.).
---------------------------------------------------------------------------
Documents and information reviewed by the Subcommittee also
show that Google has used Android to closely monitor competing
apps--data that amounts to near-perfect market intelligence.
Since at least 2012, Google has collected installation metrics
for third-party apps,\1294\ which it combined with data
analyzing search queries.\1295\ These early documents outline
the early stages of Google's ``Lockbox,'' a project to collate
data that provided Google with a range of competitor insights
and market intelligence, ranging from an understanding of how
installation of the Amazon app corresponded to a trend in
Amazon shopping queries \1296\ to a close tracking of trends
relating to Candy Crush and Angry Birds.\1297\
---------------------------------------------------------------------------
\1294\ Id. at GOOG-HJC-00055102 (Nov. 2013).
\1295\ Id. at GOOG-HJC-02598471 (June 6, 2010).
\1296\ Id. at GOOG-HJC-00055102 (Nov. 2013).
\1297\ Id.
---------------------------------------------------------------------------
While Lockbox began as a way to collect data on the
installation of apps, Google quickly realized it could harness
it to yield other insights as well. One document from 2013
identified a list of additional data points that the company
desired, including ``[m]ore signals (including uninstalls and
device app mapping)'' and ``reliable and long term app usage
data,'' for which the document noted Google Play Services could
help.\1298\ In short, Google began seeking out ways to collect
specific usage data that enabled Google to track not just which
apps a user has, but also how frequently they use the apps and
for how long.
---------------------------------------------------------------------------
\1298\ Id.
---------------------------------------------------------------------------
Documents obtained by the Subcommittee suggest that by
2015, Google's Lockbox data had succeeded in tracking more than
just install rates.\1299\ Google's internal reports show that
Google was tracking in real-time the average number of days
users were active on any particular app,\1300\ as well as their
``total time spent'' in first- and third-party apps.\1301\
Google subsequently used this data to benchmark the company's
first-party apps against third-party apps, suggesting that
Google was using Lockbox data to assess the relative strengths
and weaknesses of its own offerings.\1302\ Google's documents
show how Lockbox furnishes Google with near-perfect market
intelligence, which Google has used to inform strategic moves
and potential business transactions.\1303\ Recent reporting by
The Information documented how YouTube employees used Lockbox
data to track TikTok usage in India as Google was developing
and planning its own rival to TikTok.\1304\
---------------------------------------------------------------------------
\1299\ Alex Heath, Nick Bastone & Amir Efrati, Internal Google
Program Taps Data on Rival Android Apps, Information (July 23, 2020),
https://www.theinformation.com/articles/internal-google-program-taps-
data-on-rival-android-apps.
\1300\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04198806 to -04198855 (Jan. 13, 2017) (on file with Comm.).
\1301\ Id. at GOOG-HJC-04198814 (Jan. 13, 2017).
\1302\ Id. at GOOG-HJC-04198812 (Jan. 13, 2017).
\1303\ Id. at GOOG-HJC-04199726 (Jan. 13, 2017).
\1304\ Alex Heath, Nick Bastone & Amir Efrati, Internal Google
Program Taps Data on Rival Android Apps, Information (July 23, 2020),
https://www.theinformation.com/articles/internal-google-program-taps-
data-on-rival-android-apps.
---------------------------------------------------------------------------
During the Subcommittee's sixth hearing, Subcommittee Vice
Chair Joe Neguse (D-CO) asked Mr. Pichai about allegations that
Google had used Android to surveil rival apps and develop
competing products.\1305\ Mr. Pichai responded, ``Congressman,
because we try to understand what's going on in [the] market
and we are aware of, you know, popularity of apps,'' adding,
``But, in general, the primary use for that data is to improve
the health of Android.'' \1306\
---------------------------------------------------------------------------
\1305\ Jon Porter, Google Reportedly Keeps Tabs on Usage of Rival
Android Apps to Develop Competitors, Verge (July 24, 2020), https://
www.theverge.com/2020/7/24/21336946/google-android-lockbox-data-rival-
apps-antitrust-scrutiny.
\1306\ CEO Hearing at 164 (statement of Sundar Pichai, CEO,
Alphabet, Inc.).
---------------------------------------------------------------------------
In follow-up questions to Mr. Pichai, Google was asked to
identify all acquisitions or product decisions that had been
informed by data from Android Lockbox. Google's answer was not
responsive to the question.\1307\
---------------------------------------------------------------------------
\1307\ Id. at 346 (response to Questions for the Record of Sundar
Pichai, CEO, Alphabet, Inc.).
(b) Play Store. The Play Store is the dominant app store on
Android devices. Early documents reviewed by the Subcommittee
show that Google chose for a single app store to control
software distribution on the Android ecosystem, with one
executive noting that ``we would strongly prefer to have one
Market that everyone focuses on.'' \1308\
---------------------------------------------------------------------------
\1308\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04218465 (Nov. 26, 2009) (on file with Comm.).
---------------------------------------------------------------------------
Because Google's Play Store is the primary way that users
install applications on Android devices, the Play Store
effectively functions as a gatekeeper for software distribution
on a majority of the world's mobile devices. The Subcommittee's
investigation reveals that Google uses this gatekeeper power in
several key ways.
First, Google uses its Play Store gatekeeper power to
charge high fees to mobile developers. Amazon, Spotify,
Netflix, Epic Games, and Tinder have all expressed public
concerns about Google's app store fees, along with
Apple's.\1309\ As a lawsuit recently filed by Epic Games
stated, ``Google has thus installed itself as an unavoidable
middleman for app developers who wish to reach Android users
and vice versa. Google uses this monopoly power to impose a tax
that siphons monopoly profits for itself every time an app
developer transacts with a consumer for the sale of an app or
in-app digital content.'' \1310\
---------------------------------------------------------------------------
\1309\ See infra Section V.D.2(c)(i).
\1310\ Complaint for Injunctive Relief at 2, Epic Games, Inc. v.
Google LLC, No. 3:20-cv-05671 (N.D. Cal. Aug. 13, 2020).
---------------------------------------------------------------------------
Although Google doesn't block off all alternative channels
for accessing apps--allowing, for example, both some app stores
and sideloading--in practice, these options do not provide
meaningful alternatives to the Google Play Store. In contrast,
the dual dominance of the Play Store and the Android ecosystem
enables Google to exert control and engage in conduct that
harms competition by exploiting, excluding, and discriminating
against rivals.
Google charges developers of paid apps a 30 percent
commission for downloads from the Play Store.\1311\ Google also
charges developers a 30 percent fee for in-app purchases.\1312\
According to documents obtained by the Subcommittee, from 2011
to 2015, revenue from the Play Store accounted for 85 percent
of Google's total revenue from the Android operating system,
hardware sales, and the Play Store.\1313\
---------------------------------------------------------------------------
\1311\ Play Console Help: Service Fees, Google, https://
support.google.com/googleplay/
android-developer/answer/112622?hl=en (last visited Oct. 4, 2020).
\1312\ Transaction Fees for Merchants, Google Payments Help Ctr.,
https://support
.google.com/paymentscenter/answer/
7159343?hl=en#:#:text=The%20transaction%20fee%20for%
20all,distribution%20partner%20and%20operating%20fees (last visited
Oct. 4, 2020).
\1313\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04217474 (on file with Comm.).
---------------------------------------------------------------------------
Third-party apps can also avoid the Play Store's
commissions and fees by directing consumers to sideload the
app--that is, to install the app using a browser, outside of an
app store. Rival app stores that are not pre-installed on the
device, such as the Amazon Appstore, must be sideloaded.
Although sideloading is technically an option for rival app
stores and app developers, market participants explained that
Google goes out of its way to make sideloading difficult.
Epic's recent lawsuit against Google alleges:
LGoogle ensures that the Android process is technically
complex, confusing and threatening, filled with dire warnings
that scare most consumers into abandoning the lengthy process.
For example, depending on the version of Android running on a
mobile device, downloading and installing Fortnite on an
Android device could take as many as 16 steps or more,
including requiring the user to make changes to the device's
default settings and manually granting various permissions
while being warned that doing so is dangerous.\1314\
---------------------------------------------------------------------------
\1314\ Complaint for Injunctive Relief at 7, Epic Games, Inc. v.
Google LLC, No. 3:20-cv-05671 (N.D. Cal. Aug. 13, 2020).
Additionally, Epic's complaint notes that when it attempted
to work with LG, another Android device manufacturer, LG told
Epic that it had a contract with Google ``to block side
downloading off Google Play Store this year.'' \1315\ If a user
is able to install the competing app store, Google blocks them
``from offering basic functions, such as automatic updating of
apps in the background, which is available for apps downloaded
from the Google Play Store.'' \1316\
---------------------------------------------------------------------------
\1315\ Id. at 28.
\1316\ Id. at 7.
---------------------------------------------------------------------------
The Play Store's dominance over app distribution on Android
devices has enabled Google to begin to require the use of its
in-app payment system (IAP). As a result, Google has become the
middleman between app developers and their customers. This was
not always the case. Market participants explain that Google
has changed its stance and re-interpreted policies over time to
require more app developers to use Google Pay. Beginning in
2014, for example, Google designated specific categories of
applications--including mobile games--that would be required to
use Google Play In-App Billing.\1317\ Recently, however,
several market participants have informed the Subcommittee that
Google has begun insisting that a broader category of apps will
be required to use Google IAP exclusively, no longer allowing
the option of a third-party payment processor.\1318\
---------------------------------------------------------------------------
\1317\ Innovation and Entrepreneurship Hearing at 480 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1318\ Submission from Source 736, to H. Comm. on the Judiciary
(Sept. 25, 2020) (on file with Comm.).
---------------------------------------------------------------------------
In interviews with the Subcommittee, developers state that
one way Google exercises its gatekeeper power over third-party
app developers is through its arbitrary and unaccountable
enforcement of Play Store policies. One developer that spoke
with the Subcommittee described Google's Play Store policies as
an ``opaque system [that] threatens the ability of app
developers to develop and compete in the market for consumers,
who should ultimately determine which apps they use.'' \1319\
Another developer explained, ``When apps allegedly violate
Google Play Store standards, Google does not ever explain how,
other than to quote the policy above and attach pictures of the
allegedly violating image. When the imagery does not fit the
above definitions, app publishers such as [third party] are put
in a position of having to guess how to apply these
standards.'' \1320\
---------------------------------------------------------------------------
\1319\ Submission from Source 62, to H. Comm. on the Judiciary, 1
(July 31, 2020) (on file with Comm.).
\1320\ Submission from Source 685, to H. Comm. on the Judiciary, 12
(Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Developers also alleged that Google uses control over the
Play Store to protect the dominance of its own services and
stifle rivals. For example, Callsome, a mobile app that
provided productive follow-up to phone calls or text messages,
such as prompting a calendar entry or a reminder to text back,
has sued Google and claimed it was banned from the Google Play
store for ``Ad Policy'' violations only to later learn that a
``fundamentally identical product'' was able to stay and thrive
in the Play Store.\1321\ Callsome believes it was banned
because of its partnership with StartApp, which--at the time--
was widely considered a nascent but rising rival to Google in
the Russian search market.\1322\
---------------------------------------------------------------------------
\1321\ Submission from Callsome, to H. Comm. on the Judiciary, 3
(Apr. 28, 2020) (on file with Comm.).
\1322\ Id. at 7.
---------------------------------------------------------------------------
The Subcommittee also spoke with several market
participants that said Google has abused its control of the
Play Store by using rule violations as a pretext for
retaliatory conduct. For example, one third party described
how, soon after it ceased using Google's AdMob, an in-app ads
monetization tool,\1323\ Google began sending the third party
notifications of policy violations related to content the third
party had included in its app for years.\1324\
---------------------------------------------------------------------------
\1323\ Google AdMob, Google, https://admob.google.com/home/ (last
visited Oct. 4, 2020).
\1324\ Submission from Source 685, to H. Comm. on the Judiciary (on
file with Comm.).
---------------------------------------------------------------------------
In response to questions from the Subcommittee, Google
stated that it ``only suspends apps from the Google Play Store
if it finds the app in violation of Google Play Program
Policies . . . or in violation of the Developer Distribution
Agreement.'' \1325\ Google also stated that it gives developers
opportunities to address what they may view as incorrect
enforcement decisions of Play Store policies, adding that a
``developer can easily contact the Policy Support Team
(Appeals) in order to challenge the enforcement decision or
receive additional clarification on the infraction.'' \1326\
---------------------------------------------------------------------------
\1325\ Innovation and Entrepreneurship Hearing at 478 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1326\ Id. at 479.
---------------------------------------------------------------------------
App developers, in contrast, said that challenging a Play
Store decision was like navigating a black box. One third party
explained that it ``tried for over a month through several
channels to get a full explanation from Google of the problem
and resolve it amicably. Google responded with silence, then
roadblocks and runarounds.'' \1327\ However, one third party
told the Subcommittee:
---------------------------------------------------------------------------
\1327\ Submission from Callsome, to H. Comm. on the Judiciary, 5
(Apr. 28, 2020) (on file with Comm.).
LWhen apps allegedly violate Google Play Store standards,
Google does not ever explain how, other than to quote the
policy above and attach pictures of the allegedly violating
image. When the imagery does not fit the above definitions, app
publishers such as [third party] are put in a position of
having to guess how to apply these standards.\1328\
---------------------------------------------------------------------------
\1328\ Submission from Source 685, to H. Comm. on the Judiciary, 12
(Oct. 15, 2019) (on file with Comm.).
In theory, one way that app developers could avoid Google's
commissions and fees would be to negotiate with a mobile device
manufacturer to have the app pre-installed on the device. In
practice, however, Google's restrictive contracts with
smartphone manufacturers have strictly limited--if not
excluded--third-party apps from being pre-installed. In this
way, Google's licensing agreements not only preclude the vast
majority of third-party apps from being pre-installed, but they
also funnel those apps into the Google Play Store, subject to
Google's commissions and arbitrarily enforced policies.
5. Chrome
(a) Overview. Google launched its web browser, Google
Chrome, in 2008.\1329\ Chrome makes a significant portion of
its underlying code base available through the open-source
Chromium Project,\1330\ which has been used to build a series
of ``chromium-based'' browsers such as Microsoft Edge and
Opera.\1331\ In 2010, Google introduced the Chrome web store,
which enables users to access and install browser extensions,
such as Easy Ad Blocker, Grammarly, and Netflix Party.\1332\
---------------------------------------------------------------------------
\1329\ Google Chrome: A New Take on the Browser, Google Press
(Sept. 2, 2008), http://googlepress.blogspot.com/2008/09/google-chrome-
new-take-on-browser_02.html.
\1330\ Chromium, The Chromium Projects, https://www.chromium.org/
Home (last visited Oct. 4, 2020).
\1331\ Catalin Cimpanu, All the Chromium-Based Browsers, ZDNet
(Jan. 29, 2019), https://www.zdnet.com/pictures/all-the-chromium-based-
browsers/4/.
\1332\ An Update on Chrome, the Web Store and Chrome OS, Chrome
Blog (Dec. 7, 2010), https://chrome.googleblog.com/2010/12/update-on-
chrome-web-store-and-chrome.html.
---------------------------------------------------------------------------
Prior to Chrome's launch, Internet Explorer, Firefox, and
Safari were the most popular browsers. Firefox leaned heavily
on a partnership with Google Search, which documents show
enabled Google to closely track Firefox's growth.\1333\
---------------------------------------------------------------------------
\1333\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-00125917 to -00125929, GOOG-HJC-00125937 (Apr. 25, 2005) (on file
with Comm.).
---------------------------------------------------------------------------
Chrome initially set itself apart by offering an address
bar that also functioned as a Google search bar, and by
enabling users to sign in to the browser, offering a faster
browsing experience compared to other browsers.\1334\ Chrome
was also integrated with other Google products. By signing in
to the browser, Chrome automatically signed users into Gmail,
YouTube, and additional Google services when users visited
those sites, while also allowing users to sync their bookmarks,
passwords, and other browser settings.\1335\ While automatic
sign-in provided a more streamlined user experience, it also
helped Google build more detailed user profiles by connecting
activity data to the user's Google Account.\1336\
---------------------------------------------------------------------------
\1334\ Trefis Team, Great Speculations, Rising Chrome Use Means
Search Advertising Growth for Google, Forbes (Aug. 23, 2012), https://
www.forbes.com/sites/greatspeculations/2012/08/23/rising-chrome-use-
means-search-advertising-growth-for-google/#579c604f2d66; MG Siegler,
Here It Is: Google's Kick-Ass Chrome Speed Test Video, TechCrunch (May
5, 2010), https://techcrunch.com/2010/05/05/google-chrome-video-test/.
\1335\ Turn Sync On and Off in Chrome, Google Chrome Help, https://
support.google.com/chrome/answer/
185277?co=GENIE.Platform%3DDesktop&hl=en (last visited Oct. 4, 2020).
\1336\ Google Privacy Policy, Google Priv. & Terms, https://
policies.google.com/privacy (last visited Oct. 4, 2020) (``When you're
signed in, we also collect information that we store with your Google
Account.'').
---------------------------------------------------------------------------
In a 2019 presentation to the Justice Department's
Antitrust Division, Google explained that it had launched
Chrome as a defensive move to protect users' access to Google's
products.\1337\ Internally, however, Google frequently referred
to Chrome as part of Google's growth strategy. For example, in
2010, one of Google's strategy documents listed Chrome as a
driver of ``significant value,'' \1338\ and Eric Schmidt gave a
company-wide speech stating that the rise of cloud computing
meant that the browser--the primary way users access the
cloud--would be increasingly critical to Google's
success.\1339\
---------------------------------------------------------------------------
\1337\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04214204 (Sept. 17, 2019) (on file with Comm.) (``Alternatives to
IE (Firefox, Opera, Safari) proved unattractive[:] Google initially
partnered with Mozilla, but Firefox had technical limitations and faced
uncertain prospects[.] Apple launched Safari for Windows in 2007. If
Firefox was displaced by Safari, Apple could further constrain user
access to Google[.]'' (bullets and emphasis removed)).
\1338\ Id. at GOOG-HJC-00005661.
\1339\ Id. at GOOG-HJC-00086891 (Jan. 24, 2011).
---------------------------------------------------------------------------
Perhaps most critically, Chrome serves as a way for Google
to control the entry points for its core markets: online search
and online advertising.\1340\ Chrome uses Google Search as its
default search engine--a default setting that market
participants say Google makes difficult to change.\1341\ Chrome
also provides Google with another source of user data that the
company can feed into its ad business to offer behavioral
ads.\1342\
---------------------------------------------------------------------------
\1340\ Competition & Mkts. Auth. Report at 18-19.
\1341\ Submission from Source 534, to H. Comm. on the Judiciary, 3
(Oct. 14, 2019) (on file with Comm.).
\1342\ Google Privacy Policy, Google Priv. & Terms, https://
policies.google.com/privacy (last visited Sept. 29, 2020) (``We collect
information to provide better services to all our users . . . which ads
you'll find most useful . . . which YouTube videos you might like.'').
At the Subcommittee's sixth hearing, Committee Chair Jerrold Nadler (D-
NY) asked Google CEO Sundar Pichai to explain how Google uses data on
browsing activity, asking, ``Does Google use that data for its own
purposes, either in advertising or to develop and refine its
algorithms?'' Mr. Pichai responded that Google uses data ``to improve
our products and services for our users.'' CEO Hearing at 73.
(b) Market Power. Chrome became a leading web browser as
early as 2012.\1343\ In the U.S. market, Chrome captures an
estimated 59 percent of desktop browser usage and 37 percent of
mobile browser usage,\1344\ while capturing an estimated 66
percent of overall browser usage worldwide.\1345\
---------------------------------------------------------------------------
\1343\ Id.; Trefis Team, Great Speculations, Rising Chrome Use
Means Search Advertising Growth for Google, Forbes (Aug. 23, 2012),
https://www.forbes.com/sites/greatspeculations/2012/08/23/rising-
chrome-use-means-search-advertising-growth-for-google/#579c604f2d66
(observing that Google captured 67 percent of desktop searches across
all browsers and 95 percent of searches conducted on Chrome, and noting
that ``[t]his large discrepancy in search market share, depending on
which browser is used, is one of the reasons why we think that the
Chrome browser has helped increase Google's revenues'').
\1344\ Desktop Browser Market Share in the United States,
StatCounter, https://gs
.statcounter.com/browser-market-share/desktop/united-states-of-america
(last visited Sept. 27, 2020); Mobile Browser Market Share in the
United States, StatCounter, https://gs
.statcounter.com/browser-market-share/mobile/united-states-of-america
(last visited Sept. 27, 2020).
\1345\ Browser Market Share, StatCounter, https://
gs.statcounter.com/browser-market-share/all/united-states-of-america
(last visited Sept. 27, 2020).
---------------------------------------------------------------------------
Several factors suggest that Google is likely to maintain
its lead in the browser market. First, Google has established
Chrome as the default browser on the majority of Android
devices, which make up around 75 percent of smartphones
globally.\1346\ While Google does allow users to change default
browsers on Android, in practice users rarely do. As the United
Kingdom's Competition and Markets Authority recently found,
even platforms that do provide users with options often end up
using ``defaults and choice architecture that make it difficult
for consumers to exercise this choice.'' \1347\
---------------------------------------------------------------------------
\1346\ Mobile Operating Systems' Market Share Worldwide from
January 2012 to July 2020, Statista (July 2020), https://
www.statista.com/statistics/272698/global-market-share-held-by-mobile-
operating-systems-since-2009/.
\1347\ Competition & Mkts. Auth. Report at 149.
---------------------------------------------------------------------------
Second, Chrome is likely to remain dominant because it
benefits from network effects. Web developers design and build
for the Chrome browser because it has the most users, and
users, in turn, are drawn to Chrome because webpages work well
on it. And third, Chrome is likely to maintain its lead because
Google can leverage the popularity of its apps to favor Chrome.
Specifically, Google's documents show that the company has
focused on designing Chrome features to provide a better
experience of apps like YouTube and Search, advantages that
other browsers lack.
(c) Conduct. Google used its search engine dominance and
control over the Android operating system to grow its share of
the web browser market and favor its other lines of business.
Reciprocally, Chrome's dominance in the browser market gives it
significant gatekeeper power over managing and monitoring
users' browsing activity--power Google can wield to shape
outcomes across markets for search, mobile operating systems,
and digital advertising. These advantages across markets feed
back into and reinforce one another--advantages that standalone
browsers lack.
(i) Exploiting Information Asymmetries. Even before it
developed Chrome, Google's search business and popular web-
based applications gave it unique insights into the browser
market. Because Google.com is accessible through all browsers,
Google Search usage data includes data on the browser where the
search query began. Documents show that Google used search
origination trends as early as 2004 to track Firefox's growth--
and Internet Explorer's decline--in the browser market.\1348\
Google's collection of Google Apps has also enabled it to
monitor browser growth and performance. For example, in 2009, a
Chrome team member explained:
---------------------------------------------------------------------------
\1348\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-00126978 to -00126985 (Nov. 2004) (on file with Comm.).
LI've looked at the Gmail numbers a little--enough to know
that we have per-browser breakdowns of performance already. In
the Gmail case, it's quite clear which browsers are faster.
There are a zillion numbers we collect, including Gmail startup
times. I am confident that the other Google Apps teams also
have numbers. We could pull together a collection of 2-3 stats
from each app, normalize the scores somehow, and produce a
number.\1349\
---------------------------------------------------------------------------
\1349\ Id. at GOOG-HJC-04214714 (Jan. 4, 2009) (on file with
Comm.).
This data from Google's adjacent lines of business helped the
Chrome team track their performance against competitors. Most
of Chrome's competitors then and now lack access to this type
---------------------------------------------------------------------------
of data at Google's scale.
(ii) Favoring Google's Products in Adjacent Markets.
Through design choices and default settings, Google can use its
dominance in any one market to favor its other lines of
business. For example, when Chrome launched in 2008, Google
Search was already the most popular search engine in the
world.\1350\ Shortly after releasing Chrome, Google began
promoting the browser in the top corner of the Google.com
homepage. The display was referred to internally as the
``Google Chrome Promotion,'' and it was frequently discussed by
Google's Chrome team within the company.\1351\ Internet
Explorer users that visited Google's home page would see the
Google Chrome installation button in the top-right corner, as
shown below:
---------------------------------------------------------------------------
\1350\ Danny Sullivan, Search Market Share 2008: Google Grew, Yahoo
& Microsoft Dropped & Stabilized, Search Engine Land (Jan. 26, 2009),
https://searchengineland.com/search-market-share-2008-google-grew-
yahoo-microsoft-dropped-stabilized-16310.
\1351\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-01465906 (Apr. 22, 2009) (on file with Comm.) (``We've been
experimenting with some novel homepage promos for Chrome in preparation
for the IE8 autoupgrade [sic]. Using 0.1% experiments, we found a few
that performed very well. The promo on the homepage right now should be
running for IE users only.''); id. at GOOG-HJC-01164689 (Apr. 23,
2009).
Google Chrome Promotion on Google.com Homepage \1352\
---------------------------------------------------------------------------
\1352\ Christopher Williams, Google Chrome Takes Second Place from
Firefox, Telegraph (Dec. 2, 2011), https://www.telegraph.co.uk/
technology/news/8930759/Google-Chrome-takes-second-place-from-
Firefox.html.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
At the time, several Google employees expressed concerns
internally that this promotion strategy was unfairly harnessing
Google's search dominance to boost Chrome. In an email among
Chrome employees in 2009, one employee wrote, ``I find the
very, very high-profile promotion of Google Chrome on
Google.com quite frankly, startling.'' \1353\ Senior executives
at the company pushed to continue this strategy. For example,
in 2009, Sundar Pichai, then-Vice President of Product
Development, encouraged the Chrome team to ``promote through
Google.com'' and to push users to set Chrome as their default
browser.\1354\
---------------------------------------------------------------------------
\1353\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-01465903 (Apr. 22, 2009) (on file with Comm.).
\1354\ Id. at GOOG-HJC-04214743 (Apr. 3, 2009).
---------------------------------------------------------------------------
This strategy drove significant growth to Chrome. In 2009,
Director of Product Management Brian Rakowski informed his team
that the promotion was ``performing exceptionally well'' and
was ``driving tremendous number[s] of downloads.'' \1355\ When
Google halted the promotion, Chrome's growth rate dropped. In
2011, Chrome employees noted that ``organic growth slowed a bit
because our homepage promo was down for a couple of weeks.''
\1356\
---------------------------------------------------------------------------
\1355\ Id. at GOOG-HJC-01465906 (Apr. 22, 2009).
\1356\ Id. at GOOG-HJC-04195391 (Mar. 4, 2011) (``[O]rganic growth
slowed a bit because our homepage promo was down for a couple of weeks
due to a change in the HPP system. It's back up now.'').
---------------------------------------------------------------------------
Market participants view this behavior as an example of how
Chrome does not compete on the merits. One firm stated,
``Google has abused its dominant position in the search space
to build up another dominant position in the browser space.''
\1357\ In response to questions about this use of Google's
search page, Google told the Subcommittee that these
``promotional campaigns on Google.com on Internet Explorer have
been run for over a decade.'' \1358\
---------------------------------------------------------------------------
\1357\ Submission from Source 534, to H. Comm. on the Judiciary, 2
(Oct. 14, 2019) (on file with Comm.).
\1358\ CEO Hearing at 348 (response to Questions for the Record by
Sundar Pichai, CEO, Alphabet, Inc.).
---------------------------------------------------------------------------
Google has reinforced its market power in the browser
market through its dominance in the mobile operating system
market. Chrome is preinstalled on every mobile device that runs
Google's Android operating system, and Android powers
approximately 75 percent of the world's mobile devices.
Beginning in 2014, Google mandated that Chrome be pre-installed
and prominently placed on all certified Android devices that
had entered a Mobile Application Distribution Agreement (MADA),
which grants smartphone manufacturers access to Google's Play
Store and other proprietary Google applications.\1359\ During
negotiations with Android manufacturers for revenue share
agreements, meanwhile, Google required that Chrome be set as
the default browser.\1360\
---------------------------------------------------------------------------
\1359\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-02393308 (Mar. 1, 2011) (on file with Comm.).
\1360\ See generally Press Release, Eur. Comm'n, Antitrust:
Commission Fines Google =14.34 Billion for Illegal Practices Regarding
Android Mobile Devices to Strengthen Dominance of Google's Search
Engine (July 17, 2018), https://europa.eu/rapid/press-release_IP-18-
4581_en.htm.
---------------------------------------------------------------------------
For the remaining portion of the global mobile phone
market--Apple iOS--Google uses the popularity of its mobile
applications to promote Chrome installations. Although Apple
does not permit Chrome to be set as the default browser on an
iPhone, Google provides users the option to use Chrome whenever
a user selects a link within a Google application, such as
Gmail or YouTube.\1361\
---------------------------------------------------------------------------
\1361\ Submission from Source 269, to H. Comm. on the Judiciary, 3
(July 23, 2019) (on file with Comm.).
---------------------------------------------------------------------------
While Apple requires that Safari also be included as a
choice,\1362\ Google does not allow any other browser to be
listed. If the user has not previously installed the Chrome
browser, then the menu displays a ``Get'' button that prompts
the user to install Google's browser.\1363\
---------------------------------------------------------------------------
\1362\ Id.
\1363\ Id.
---------------------------------------------------------------------------
Similarly, Google privileges its own line of business by
setting Google Search as the default in Chrome. Although users
can change this setting, the process is not intuitive and
involves multiple steps, including:
L1. At the top right, click More :> Settings.
L2. Under ``Search engine,'' click Manage search engines.
L3. Find ``Other search engines.''
LAdd: To the right of ``Other search engines,''
click Add. Fill out the text fields and click Add.
LSet as default: To the right of the search
engine, click More :> Make default.
LEdit: To the right of the search engine, click
More :> Edit.
LDelete: To the right of the search engine,
click More :> Remove from list.\1364\
---------------------------------------------------------------------------
\1364\ Set Your Default Search Engine, Google Chrome Help, https://
support.google.com/chrome/answer/
95426?co=GENIE.Platform%3DDesktop&hl=en (last visited Oct. 2, 2020).
One third party told the Subcommittee that, in some cases,
Google prompts users to change their default search engine back
---------------------------------------------------------------------------
to Google Search even after they have switched:
LAfter a user installs the extension, Chrome is showing
continuous warning prompts which ask users to restore their
search settings back to Google. In user tests, we observe that
most people are very confused about this prompt and often click
``restore settings'' even though they actually want to keep
using [our search engine]. In many Chrome versions the button
``restore settings'' is even highlighted which makes it highly
likely that users will click this button and thereby completely
remove [our search engine] from their computers. We believe
that we have already lost millions of users because of this
prompt.\1365\
---------------------------------------------------------------------------
\1365\ Submission from Source 534, to H. Comm. on the Judiciary, 3
(Oct. 14, 2019) (on file with Comm.).
(iii) Unilaterally Setting Standards. By virtue of its
dominance in the browser market, Google can effectively set
standards for the industry in two ways.
First, changes to Chrome's functionality create de facto
standards. Market participants must adhere to these standards
or risk their technology no longer being compatible with most
websites. Market participants explain that Google will often
build features quickly, without using the standard-setting
process or giving smaller browsers time to implement the new
features. Once web developers start building to these
specifications, however, smaller browsers are under pressure to
quickly implement these changes, often with little
notice.\1366\ If smaller browsers cannot keep up, users are
flooded with ``[b]rowser not supported'' messages on webpages
that have already been built to Chrome's specifications.\1367\
Several market participants told the Subcommittee that they
felt ``bullied'' by this process.\1368\
---------------------------------------------------------------------------
\1366\ Submission from Source 269, to H. Comm. on the Judiciary
(Jan. 2020) (on file with Comm.).
\1367\ Martin Brinkmann, The New Skype for Web Does Not Work in
Firefox or Opera, ghacks.net (Mar. 8, 2019), https://www.ghacks.net/
2019/03/08/the-new-skype-for-web-does-not-work-in-firefox-or-opera/.
\1368\ Interview with Source 482 (July 2, 2020).
---------------------------------------------------------------------------
Second, Google has an outsized role in the formal
stakeholder standards-making processes. As explained earlier in
this Report, the World Wide Web Consortium (W3C) is one of the
leading standards organizations in the browser market. Its
stated mission is to be ``open and collectively empowering.''
\1369\ Other market participants believe that Google is
significantly overrepresented in the W3C web platform incubator
community group (WICG). They note that Google's employees
comprise 106 members--more than eight times the number of
employees from Microsoft, the next largest stakeholder
represented. Most companies, meanwhile, have only one
representative.\1370\ One market participant explained that,
although standards bodies like the W3C give the impression of
being a place where browser vendors collaborate to improve the
web platform; in reality, Google's monopoly position and
aggressive rate of shipping non-standard features frequently
reduce standards bodies to codifying web features and decisions
Google has already made.\1371\
---------------------------------------------------------------------------
\1369\ W3C Mission, W3C, https://www.w3.org/Consortium/mission
(last visited Oct. 4, 2020).
\1370\ Submission from Source 269, to H. Comm. on the Judiciary, 4
(July 23, 2019) (on file with Comm.).
\1371\ Id.
---------------------------------------------------------------------------
Recent events underscore how Google's ad-based business
model can prompt questions about whether the standards Google
chooses to introduce are ultimately designed primarily to serve
Google's interests. In January 2020, Google announced that it
plans to phase out third-party cookies in Chrome within two
years.\1372\ Unlike other browsers that have limited cross-site
tracking, Google's decision appears to be motivated by ``trying
to cut down on tracking without kneecapping revenue for
websites.'' \1373\
---------------------------------------------------------------------------
\1372\ Sarah Sluis, Google Chrome Will Drop Third-Party Cookies in
2 Years, Ad Exchanger (Jan. 14, 2020), https://www.adexchanger.com/
online-advertising/google-chrome-will-drop-third-party-cookies-in-2-
years/.
\1373\ Dieter Bohn, Google to ``Phase Out'' Third-Party Cookies in
Chrome, but Not for Two Years, Verge (Jan. 14, 2020), https://
www.theverge.com/2020/1/14/21064698/google-third-party-cookies-chrome-
two-years-privacy-safari-firefox.
---------------------------------------------------------------------------
Several observers have noted that this change would have
the likely effect of reinforcing Google's power and harming
rivals, shifting more advertisers toward Google.\1374\ In
particular, market participants are concerned that, while
Google phases out third-party cookies needed by other digital
advertising companies, Google can still rely on data collected
throughout its ecosystem.
---------------------------------------------------------------------------
\1374\ Nick Bastone, In Ironic Twist, Google's Pro-Privacy Move
Boosted U.S. Antitrust Probe, Information (Sept. 18, 2020), https://
www.theinformation.com/articles/in-ironic-twist-googles-pro-privacy-
move-boosted-u-s-antitrust-probe.
---------------------------------------------------------------------------
During the Subcommittee's sixth hearing, Representative
Kelly Armstrong (R-ND) asked Mr. Pichai, ``[D]o you have other
ways of collecting it [data] through Gmail or consumer facing
platforms?'' \1375\ Mr. Pichai responded, ``[T]o the extent on
the services where we provide ads and if users have consented
to ads personalization, yes, we do have data.'' \1376\
---------------------------------------------------------------------------
\1375\ CEO Hearing at 133 (question of Rep. Kelly Armstrong (R-ND),
Member, Subcomm. on Antitrust, Commercial & Admin. Law of the H. Comm
on the Judiciary).
\1376\ Id. (statement of Sundar Pichai, CEO, Alphabet, Inc.).
---------------------------------------------------------------------------
6. Maps
(a) Overview. Google dominates the market for digital maps
with over a billion users.\1377\ Between Google Maps and Waze--
which Google also owns--the corporation captures an estimated
80 percent of the navigation app market.\1378\ Financial
analysts have described navigation maps as a ``utility'' that
people cannot do without,\1379\ and one bank estimated that if
Google Maps were a standalone product, its market
capitalization would hit $61.5 billion.\1380\
---------------------------------------------------------------------------
\1377\ Ethan Russell, 9 Things to Know About Google's Maps Data:
Beyond the Map, Google Cloud (Sept. 30, 2019), https://
cloud.google.com/blog/products/maps-platform/9-things-know-about-
googles-maps-data-beyond-map.
\1378\ Royal Bank of Canada Report at 5.
\1379\ Id.
\1380\ Ross Sandler, Barclays, Alphabet Inc.: Steady Compounder,
With Plenty of Innovation Ahead 20 (Mar. 28, 2017) (on file with
Comm.).
---------------------------------------------------------------------------
Google Maps can be traced to a series of acquisitions. In
September 2003, Google Labs launched ``Search by Location,'' a
feature that sought to filter search results based on a user's
geographic location.\1381\ Because Google lacked mapping data,
however, the feature stalled.\1382\ In October 2004, a few
months after Google's IPO, Google acquired Where 2
Technologies, an Australian startup that created web-based
dynamic maps.\1383\ Google soon followed this acquisition with
two additional purchases: Keyhole, a firm that used satellite
images and aerial photos to create digital-mapping software;
and ZipDash, a provider of real-time traffic information
captured through GPS.\1384\ In February 2005, Google launched
Google Maps.\1385\
---------------------------------------------------------------------------
\1381\ Scarlett Pruitt, Google Test Drives New Search Tool, PC
World (Sept. 23, 2003), https://www.pcworld.com/article/112604/
article.html.
\1382\ Google Maps, Acquired (Aug. 26, 2019), https://
www.acquired.fm/episodes/google-maps.
\1383\ Id.
\1384\ Google Acquires Keyhole, Wall St. J.: News Roundup (Oct. 27,
2004), https://www.wsj.com/articles/SB109888284313557107; Michael
Bazeley, Google Acquires Traffic Info Start-up ZipDash, VentureBeat
(Mar. 30, 2005), https://venturebeat.com/2005/03/30/google-acquires-
traffic-info-start-up-zipdash/.
\1385\ Elizabeth Reid, A Look Back at 15 Years of Mapping the
World, Google: The Keyword (Feb. 6, 2020), https://blog.google/
products/maps/look-back-15-years-mapping-world/.
---------------------------------------------------------------------------
The following year, Google introduced Google Maps API,
which enabled developers to use and build on top of its digital
maps.\1386\ In 2008, it launched ``Ground Truth,'' a project
devoted to assembling and refining underlying mapping data and
images.\1387\ This effort included Google Street View Cars,
which drove around the country--and, eventually, the world--
taking pictures of the surrounding buildings and landscapes,
and delivering Google structured data that it could use to
create digital maps.\1388\ As part of Project Ground Truth,
Google also obtained mapping information from satellite and
aerial imagery, as well as from public databases.\1389\
---------------------------------------------------------------------------
\1386\ Id.
\1387\ Frederic Lardinois, Google's Ground Truth Initiative for
Building More Accurate Maps Now Covers 50 Countries, TechCrunch (Sept.
3, 2014), https://techcrunch.com/2014/09/03/googles-ground-truth-
initiative-for-building-more-accurate-maps-now-covers-50-countries/.
\1388\ Greg Miller, The Huge, Unseen Operation Behind the Accuracy
of Google Maps, Wired (Dec. 8, 2014), https://www.wired.com/2014/12/
google-maps-ground-truth/ (``As of December 2014, Google's `Street View
cars ha[d] driven over 7 million miles, including 99 percent of the
public roads in the U.S.' '').
\1389\ Id.
---------------------------------------------------------------------------
A 2008 budget request for Ground Truth stated that the goal
of the project was ``long term independence from Tele Atlas and
Navteq,'' two sources of mapping data that Google had been
using at the time and that were owned by TomTom and Nokia,
respectively.\1390\ The presentation stated that achieving
independence would take several years and requested a five-to-
seven-year renewal of the Tele Atlas contract to help Google
bridge ``between now and completion of Google Truth
initiatives.'' \1391\ Although Google Maps was not generating
revenues, Google was investing in it heavily. Google's
documents show that, from 2008 to 2009, the company spent $32
million on the Street View program and $88.7 million on Ground
Truth overall.\1392\ When Google launched Google Maps in 2005,
MapQuest had been the ``king of Internet-based maps and driving
directions,'' with Yahoo gearing up to heavily compete.\1393\
By 2008, Google's internal documents show that Google was ``#1
in Maps usage'' as well as at the top in capturing online local
search.\1394\
---------------------------------------------------------------------------
\1390\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-03386002 (Dec. 6, 2007) (on file with Comm.).
\1391\ Id.
\1392\ Id. at GOOG-HJC-04211018 (Oct. 17, 2010).
\1393\ Chris Gaither, Overtaking MapQuest a Challenge for Yahoo,
L.A. Times (Jan. 10, 2005), https://www.latimes.com/archives/la-xpm-
2005-jan-10-fi-maps10-story.html.
\1394\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-03610422 (Oct. 28, 2008) (on file with Comm.).
---------------------------------------------------------------------------
In 2009, Google introduced Google Maps for Mobile, a
navigation service featuring turn-by-turn directions, live
traffic updates, and automatic rerouting.\1395\ Whereas market
leaders TomTom and Garmin sold navigation services through
subscriptions, Google was offering its service for free
\1396\--a fact widely seen as disfavoring the incumbents, whose
stock prices fell upon Google's announcement.\1397\ As one
analyst noted at the time, ``If it's free and a good service,
why would you pay for something you can get for free?'' \1398\
---------------------------------------------------------------------------
\1395\ Announcing Google Maps Navigation for Android 2.0, Google:
Off. Blog (Oct. 28, 2009), https://googleblog.blogspot.com/2009/10/
announcing-google-maps-navigation-for.html.
\1396\ Jenna Wortham & Miguel Helft, Hurting Rivals, Google Unveils
Free Phone GPS, N.Y. Times (Oct. 28, 2009), https://www.nytimes.com/
2009/10/29/technology/companies/29gps .html.
\1397\ Arik Hesseldahl, Garmin, TomTom Slash Prices Amid Google
Threat, Bloomberg (Dec. 8, 2009), https://www.bloomberg.com/news/
articles/2009-12-08/garmin-tomtom-slash-prices-amid-google-threat
(stating that upon Google's announcement, Garmin stock dropped around
16 percent and TomTom stock fell by around 29 percent).
\1398\ Jenna Wortham & Miguel Helft, Hurting Rivals, Google Unveils
Free Phone GPS, N.Y. Times (Oct. 28, 2009), https://www.nytimes.com/
2009/10/29/technology/companies/29gps .html (internal quotation marks
omitted).
---------------------------------------------------------------------------
As smartphones overtook personal navigation devices, Google
Maps further eclipsed TomTom and Garmin.\1399\ When asked in
2015 what had accounted for TomTom's decline, its CEO cited two
factors: the 2008 economic crisis and the fact that ``Google
began offering navigation for free.'' \1400\
---------------------------------------------------------------------------
\1399\ Kevin J. O'Brien, Smartphone Sales Taking Toll on G.P.S.
Devices, N.Y. Times (Nov. 14, 2010), https://www.nytimes.com/2010/11/
15/technology/15iht-navigate.html.
\1400\ Charles Arthur, Navigating Decline: What Happened to
TomTom?, Guardian (July 21, 2015), https://www.theguardian.com/
business/2015/jul/21/navigating-decline-what-happened-to-tomtom-satnav.
---------------------------------------------------------------------------
Some market participants at the time questioned whether
Google was using its search dominance to give Google Maps a
boost. In 2009, one publisher noted that ``61% of visits to
Google Maps came directly from Google,'' giving it an advantage
over MapQuest.\1401\ The publisher wrote, ``As long as Google
dominates search, MapQuest will face a tough battle for
visits.'' \1402\ A few years later, Consumer Watchdog wrote a
letter to the Antitrust Division noting that Google ``was able
to muscle its way to dominance by unfairly favoring its own
service ahead of such competitors as Mapquest in its online
search results.'' \1403\
---------------------------------------------------------------------------
\1401\ Experian Mktg. Servs., Google Maps Edges Closer to Mapquest,
Experian Blog (Feb. 11, 2009), http://www.experian.com/blogs/marketing-
forward/2009/02/11/google-maps-edges-
closer-to-mapquest/.
\1402\ Id.
\1403\ Letter from John M. Simpson, Priv. Project Dir., Consumer
Watchdog, to William J. Baer, U.S. Dep't of Justice, Assistant Att'y
Gen., Antitrust Div. (June 12, 2013), https://www
.consumerwatchdog.org/resources/cltrdojwaze061213.pdf.
---------------------------------------------------------------------------
In 2013, Google purchased Waze, an Israeli crowd-sourced
mapping provider, for $1.3 billion.\1404\ The acquisition
solidified Google's dominance in turn-by-turn navigation,
eliminating its only meaningful competitive threat.
---------------------------------------------------------------------------
\1404\ Brian McClendon, Google Maps and Waze, Outsmarting Traffic
Together, Google Blog (June 11, 2013), https://googleblog.blogspot.com/
2013/06/google-maps-and-waze-outsmarting
.html; Vindu Goel, Google Expands Its Boundaries, Buying Waze for $1
Billion, N.Y. Times (June 11, 2013), https://bits.blogs.nytimes.com/
2013/06/11/google-expands-its-boundaries-
buying-waze-for-1-billion/.
---------------------------------------------------------------------------
While Google captured the navigation market by offering
Google Maps for free, even as it generated no revenue, Google
now monetizes both Waze and Google Maps through selling ads. In
2013, Google introduced a limited form of maps advertising, and
in recent years, it has expanded the program, allowing local
businesses to purchase advertising on maps to maximize foot
traffic.\1405\ Research by Google shows that 76 percent of
users who search for locations nearby end up visiting a related
business within a day and that 28 percent of those searches
ultimately lead to a purchase.\1406\ This high conversion rate
leads analysts to believe that Google Maps alone could help
drive between $1.9 billion and $3.7 billion of incremental
revenue by 2021.\1407\ Commenting on the value of Google Maps
to the Google ecosystem, one analyst noted:
---------------------------------------------------------------------------
\1405\ Royal Bank of Canada Report at 10-11.
\1406\ How Mobile Search Connects Users to Stores, Think With
Google (May 2016), https://www.thinkwithgoogle.com/marketing-
strategies/app-and-mobile/mobile-search-trends-consumers
-to-stores/.
\1407\ See, e.g., Royal Bank of Canada Report at 20.
L[Google Maps'] user base has been impressive for years,
crossing 1B a few years ago, but monetization is just getting
started . . . . Maps is the closest thing to a platform that
Google has at the application layer, with three stakeholders in
the ecosystem: (1) users; (2) publishers; and (3) advertisers.
The importance of Maps to mobile, including both the
advertising and transportation-on-demand spaces, is one of the
biggest potential markets Google is servicing in the
future.\1408\
---------------------------------------------------------------------------
\1408\ Ross Sandler, Barclays, Alphabet, Inc.: Steady Compounder,
With Plenty of Innovation Ahead 20 (Mar. 28, 2017) (on file with
Comm.).
(b) Market Power. Google Maps is the dominant provider of
mapping data and turn-by-turn navigation services. The company
declined to provide the Committee with information about the
market share captured by Google Maps.\1409\ According to a
third-party estimate, however, Google Maps combined with Waze
captures 81 percent of the market for turn-by-turn navigation
services.\1410\ One market participant, meanwhile, estimated
that Google Maps' API captures over 90 percent of the business-
to-business market.\1411\
---------------------------------------------------------------------------
\1409\ Submission from Google, to H. Comm. on the Judiciary, A-4
(Nov. 22, 2019) (on file with Comm.) (``Google Maps has a number of
features, including maps, turn-by-turn navigation and directions,
Street View, and information on local businesses (such as restaurants
and services) and travel destinations (such as hotels and tourist
spots) that are also offered by competitors. These competitors include
Apple Maps, Bing Maps, TomTom, Yelp, TripAdvisor, Angie's List, and
Facebook . . . . All of these competitors are widely used, with some
having a strong presence on key platforms: for example, one report from
2015 estimated that iPhone users use Apple Maps three times more than
Google Maps. However, we are not aware of any public market share
estimates that reflect the frequency of multi-homing among users or
that account for competitors like TripAdvisor, OpenTable, Yelp, or
directory apps such as Yellow Pages that overlap with many of the
features of Google Maps, which would reflect the full range of robust
competition in maps that drives Google to continually invest and
innovate in the Google Maps product.'').
\1410\ Royal Bank of Canada Report at 4.
\1411\ Submission from Source 564, to H. Comm. on the Judiciary, 2
(Nov. 13, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Several developers stated that Google Maps introduced
greater licensing restrictions as it gained a stronger market
position. One noted that Google's control over what now serves
as a key mapping technology has allowed Google to call all the
shots.\1412\ ``We license Google Maps and it's essentially a
contract of adhesion. It's full of restrictions and we aren't
able to negotiate any changes,'' the developer said.\1413\ The
developer added that they have explored switching to
alternative mapping providers, but that no other provider has
the same geographic depth and coverage as Google Maps. ``Other
providers still value us and want to know how they can
accommodate us,'' they said. ``With Google, we just have to
comply with all their restrictions.'' \1414\
---------------------------------------------------------------------------
\1412\ Interview with Source 703 (June 22, 2020).
\1413\ Id.
\1414\ Id.
---------------------------------------------------------------------------
Several factors suggest that Google Maps is well-positioned
to maintain its dominance. The high fixed costs of creating
mapping data pose a significant barrier to entry. Apple, which
recently built its mapping database from the ground up, told
the Subcommittee that the effort required billions of
dollars.\1415\ Google, moreover, also benefits from an enormous
lead in the tracking and processing of location data, as well
as from the prevalence of tracking-enabled Android
devices.\1416\ Commenting on its monetization potential, an
analyst recently wrote that Google Maps has ``reasonably
sustainable moats.'' \1417\
---------------------------------------------------------------------------
\1415\ Innovation and Entrepreneurship Hearing at 589 (response to
Questions for the Record from Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.).
\1416\ Royal Bank of Canada Report at 10-11.
\1417\ Id. at 1.
---------------------------------------------------------------------------
Certain businesses have made public disclosures about their
reliance on Google Maps. For example, in 2019, Uber disclosed
that it relies on Google Maps for ``the mapping function that
is critical to the functionality'' of its platform.\1418\ It
added, ``We do not believe that an alternative mapping solution
exists that can provide the global functionality that we
require to offer our platform in all of the markets in which we
operate.'' \1419\ Uber disclosed that between January 1, 2016
and December 31, 2018, the company paid Google $58 million for
use of Google Maps.\1420\
---------------------------------------------------------------------------
\1418\ Uber Techs., Inc., Registration Statement (Form S-1) 46
(Apr. 11, 2019), https://www.sec.gov/Archives/edgar/data/1543151/
000119312519103850/d647752ds1.htm.
\1419\ Id. It is unclear whether Uber pays Google for the
underlying maps data or for the place search function, both of which
are part of ``Google Maps Core Services.''
\1420\ Id. at 254.
---------------------------------------------------------------------------
In a submission to the Subcommittee, one market participant
who uses Google Maps to power its reservation system, website,
and mobile app, stated that there are no alternatives to using
Google Maps. It wrote, ``Local businesses are most likely to
use Google's tools to index their websites because Google
controls the search engine space, which has the ability to
deliver--or restrict--whether these websites appear in
corresponding links in consumer search results.'' \1421\ The
market participant added that this dependence reinforces
Google's market power, as it ``provides Google with another
opportunity to monetize companies' supply chains and leverage
its pricing power over companies that need to promote their
businesses and/or purchase ad space to grow.'' \1422\ This
business predicted that ``the data advantages that Google
incorporates into its tools will only grow with time, making it
impossible for a new player to ever achieve the scale, user
base, or database necessary to compete.'' \1423\
---------------------------------------------------------------------------
\1421\ Submission from Source 333, to H. Comm. on the Judiciary, 5
(Oct. 21, 2019) (on file with Comm.).
\1422\ Id.
\1423\ Id.
(c) Merger Activity. Google has made several acquisitions
related to digital mapping: Where2Technologies (2004); Keyhole
(2004); Skybox (2011); and Waze (2013). Of these acquisitions,
only Waze--for which Google paid $1.1 billion--was subject to
an antitrust investigation. Although Google did not originally
report the Waze transaction, both the Federal Trade Commission
(FTC) and the United Kingdom's Office of Fair Trading (OFT)
reviewed the deal.\1424\ Both enforcers initially approved the
transaction but have since revisited the decision. In 2019, the
OFT commissioned a study reviewing its past merger cases,
including Google/Waze, and the FTC is reportedly examining the
Waze deal as part of its broader review of previous tech
mergers.\1425\
---------------------------------------------------------------------------
\1424\ Mark Bergen & Ben Brody, Google's Waze Deal Is a Likely
Target in FTC Antitrust Sweep, Bloomberg (Feb. 14, 2020), https://
www.bloomberg.com/news/articles/2020-02-14/google-s-waze-deal-is-a-
likely-target-in-new-ftc-antitrust-sweep.
\1425\ Id.
---------------------------------------------------------------------------
Materials that the FTC produced to the Subcommittee suggest
that the Commission's analysis of the Google/Waze deal was
limited. A document from the FTC shows that the agency focused
on assessing the quality of Waze's data and concluded that its
maps were ``not a Google maps replacement.'' \1426\ It is
unclear if or how closely the agency considered that Google was
acquiring Waze not for its mapping features (which Google's own
documents had suggested were inferior to Google's), but in
order to eliminate an independent source of mapping data.\1427\
---------------------------------------------------------------------------
\1426\ Id.
\1427\ Id.
---------------------------------------------------------------------------
In acquiring Waze, Google bought out one of the few
companies in the world making navigable maps while also
providing turn-by-turn navigation service.\1428\ Founded in
Israel, Waze had entered the U.S. market by initially relying
on public domain data, which it refined through input from
drivers.\1429\ Waze's model has relied on user-generated maps,
whereby drivers using Waze's app feed real-time data back into
the app, and volunteer ``editors'' proactively fine-tune the
maps by fixing street names, adding businesses, and making
other updates. Waze's documents reveal that, through 2012, the
firm had prioritized achieving growth and attracting users over
earning revenue, although it had begun to monetize its
navigation app through location-based advertising.\1430\
---------------------------------------------------------------------------
\1428\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04208423 (June 2013) (on file with Comm.).
\1429\ Id. at GOOG-HJC-04211080 (July 24, 2013) (citing the U.S.
Census Bureau's TIGER mapping data as one source).
\1430\ Id. at GOOG-HJC-04208066 (June 2013) (Waze was ``earning
$250k in revenue in January 2013 and less than $1 million in revenue in
2012'').
---------------------------------------------------------------------------
Internal Waze presentations stated that its crowd-sourced
data was one of the company's defining features. One
presentation stated, ``The DNA of the company is of a social
network, and user generated, we are merely the stage, and not
the performers.'' \1431\ In a 2013 document, Waze identified
its two main competitive advantages: first, the fact that Waze
was a real-time map with fresh data, accounting for updates
such as car accidents and road closures; and, second, that its
business involved ``zero cost.'' \1432\
---------------------------------------------------------------------------
\1431\ Id. at GOOG-HJC-04208423.
\1432\ Id.
---------------------------------------------------------------------------
Google's documents reveal that, by 2012, Google Maps was
the top provider of digital maps in desktop, mobile, and
API,\1433\ and it was closely tracking Waze's fast growth. One
Google presentation in 2012 noted that Waze was the most-
downloaded app in the navigation category, and that it was
seeing a 30 percent increase in daily downloads and averaging
around 100,000 downloads a day.\1434\ Google also honed in on
the fact that Waze was the only other mapping provider that was
vertically integrated across the full stack, spanning the
provider, application, map, traffic, and search layers.\1435\
---------------------------------------------------------------------------
\1433\ Id. at GOOG-HJC-04208281 (May 2012).
\1434\ Id. at GOOG-HJC-04208072 (Nov. 2012).
\1435\ Id. at GOOG-HJC-04209632.
---------------------------------------------------------------------------
In an internal presentation, Google identified several
strategic rationales for acquiring Waze.\1436\ These included
obtaining a ``highly-engaged community of map contributors and
expertise'' in order to ``nurture/grow communities,'' which
Google said it struggled with; achieving a ``scalable
solution'' for maintaining a fresh map with ``real-time
incident data''; using Waze as a ``sandbox'' to ``test map/
navigation features''; and acquiring a ``highly-talented team''
with ``deep experience in maps.'' \1437\ Google also ranked
Waze poorly on several metrics, including the accuracy of its
results in smaller cities and its limited map search
capabilities.\1438\ Commenting on Waze's mapping tiles, Google
wrote, ``[D]ata is missing and rendering is overly simple and
missing detail.'' \1439\ Meanwhile, Google described Waze's
future financial projections as ``highly speculative,'' \1440\
and noted that its purchase price of just under $1 billion was
``expensive for a company with <$1 million in 2012 revenue.''
\1441\
---------------------------------------------------------------------------
\1436\ Id. at GOOG-HJC-04208127 (May 2013).
\1437\ Id.
\1438\ Id. at GOOG-HJC-04208140.
\1439\ Id.
\1440\ Id. at GOOG-HJC-04213996 (June 2013).
\1441\ Id. at GOOG-HJC-04208047.
---------------------------------------------------------------------------
In its correspondence with the FTC, Google stated that
``there is no shortage of full-featured navigation alternatives
for users,'' which it said reflected the ``low (and continually
decreasing) barriers to entry.'' \1442\ Google emphasized
Waze's entry, in particular, focusing on how Waze ``spent far
less than $20 million for all purposes in the two years
preceding its US launch'' and noting that it was able to enter
the market using only public domain data.\1443\
---------------------------------------------------------------------------
\1442\ Id. at GOOG-HJC-04211046 (July 24, 2013).
\1443\ Id. at GOOG-HJC-04211080.
---------------------------------------------------------------------------
In contrast, market participants viewed Google and Waze as
close competitors in a ``highly concentrated'' market for
navigable digital map databases and turn-by-turn navigation
applications. Prior to the transaction, Waze had observed that
it and Google were ``the only vertically integrated stacks.''
\1444\ One market participant told antitrust enforcers that it
viewed Waze as ``Google's closest competitor for real-time,
updated [turn-by-turn] navigation services'' and that Waze
``was the digital-map competitor with the best opportunity to
overcome Google's significant data and funding advantage.''
\1445\
---------------------------------------------------------------------------
\1444\ Id. at GOOG-HJC-04208696.
\1445\ Submission from Source 26, to H. Comm. on the Judiciary,
Source 26-000622 (Sept. 21, 2013) (on file with Comm.).
---------------------------------------------------------------------------
Market participants cited a few reasons the transaction
would undermine competition. First, they noted that barriers to
entry in the market for turn-by-turn navigation providers were
high and that it would be difficult for new firms to enter. One
market participant stated, ``Navigable digital map databases
contain far more information than maps and addresses. For
example, Google's database includes a range of other
information, including traffic, conditions and rerouting
information, interior and exterior photographs, reviews,
commentary from Google+ friends.'' \1446\ And Waze, in
particular, had a unique crowd-sourced model that would be
difficult for other firms to replicate. Although Waze had
secured a ``first-mover advantage'' and acquired a ``critical
mass of users,'' the group of self-selected volunteers who
edited Waze's maps were ``unlikely to fill such a role (without
payment) for more than one set of mapping data.'' \1447\ The
market participant added, ``Once those editors provide the
benefit of their input into Waze they create a powerful map
that passive Waze users will turn to as well given the lack of
other real-time-updated maps of comparable quality. As a
result, passive Waze users likely will have no incentive to
multi-home.'' \1448\
---------------------------------------------------------------------------
\1446\ Id. See also Interview with Source 572 (Sept. 24, 2020).
\1447\ Interview with Source 572 (Sept. 24, 2020).
\1448\ Id.
---------------------------------------------------------------------------
Second, market participants pointed to the fact that Waze
was the only firm meaningfully positioned to dislodge Google
Maps because it--like Google--lacked financial pressures. One
entrepreneur noted, ``Google and Waze do not care how much it
costs to keep the maps up-to-date. Google because it has a lot
of money, and Waze because it relies on the community.'' \1449\
One market participant stated:
---------------------------------------------------------------------------
\1449\ Id.
LThe acquisition would effectively lead to the elimination
of Waze as a market disrupting force that would otherwise be
capable of challenging the model adopted by Google's dominant
Google Maps. In essence, Google's acquisition of Waze is
defensive--seeking to remove a disruptive force from the
market.\1450\
---------------------------------------------------------------------------
\1450\ Id.
Several market participants and advocates who opposed the
deal noted that Waze's own CEO, Noam Bardin, had recently
stated that Waze was ``the only reasonable competition'' to
Google Maps, which would suggest that Google may have been
pursuing the acquisition in efforts to quash its most
significant competitor.\1451\
---------------------------------------------------------------------------
\1451\ Letter from John M. Simpson, Priv. Project Dir., Consumer
Watchdog, to William J. Baer, Assistant Att'y Gen., U.S. Dep't of
Justice, Antitrust Div. (June 12, 2013), https://www.
consumerwatchdog.org/resources/cltrdojwaze061213.pdf.
---------------------------------------------------------------------------
And third, market participants argued that the acquisition
would give Google both the incentive and ability to foreclose
rivals, including those apps that offer mobile navigation and
social networking services. Seeking to mitigate this concern,
Google's letter to the FTC emphasized the ``numerous providers
who license mapping, traffic, and incident'' data for use in
mobile apps.\1452\
---------------------------------------------------------------------------
\1452\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04211030 (July 24, 2013) (on file with Comm.).
---------------------------------------------------------------------------
Today, the Google Maps and Waze teams remain separate.
Analysts have reported that Google has used Waze as a tool to
``test and iterate on monetizing Navigation without disrupting
its much larger Google Maps asset.'' \1453\ One market
participant stated, ``Google has used Waze as an ads guinea
pig,'' \1454\ noting that Waze has released efficacy reports of
location-tailored ads, information that seems to have informed
Google Maps' recent expansion of advertising.\1455\
---------------------------------------------------------------------------
\1453\ Royal Bank of Canada Report at 14.
\1454\ Interview with Source 572 (Sept. 24, 2020).
\1455\ Id.
---------------------------------------------------------------------------
Since completing the Waze acquisition, Google has
reportedly come to capture 81 percent of the market for
navigation mapping services.\1456\ Despite Google's claims that
entry barriers were low and alternate offerings abundant, no
meaningful competitor has emerged since Google acquired Waze.
Based on the materials the FTC provided to the Subcommittee, it
is unclear whether the Commission fully assessed the barriers
to entry. It instead appears the FTC primarily took a static
view--focusing on the existing quality of Waze's maps--rather
than assessing the dynamic effects of the acquisition.
---------------------------------------------------------------------------
\1456\ Royal Bank of Canada Report at 5.
---------------------------------------------------------------------------
(d) Conduct
(i) Raising Prices. For years, Google offered a free tier
of the Maps API, incentivizing developers to build their apps
with Google Maps. In 2018, however, Google Maps introduced a
single ``pay-as-you-go'' pricing plan for the core mapping
APIs.\1457\ This shift dramatically reduced the number of free
Maps API calls a firm could make--from 25,000 per day to around
930 per day.\1458\ Developers stated that the change amounted
to a price increase of 1,400 percent.\1459\
---------------------------------------------------------------------------
\1457\ Jagmeet Singh, Google Maps API Price Hike Is Threatening the
Future of Some Companies, Gadgets 360 (Aug. 28, 2018), https://
gadgets.ndtv.com/apps/features/google-maps-apis-new-pricing-impact-
1907242.
\1458\ Id.
\1459\ Ishveena Singh, Insane, Shocking, Outrageous: Developers
React to Changes in Google Maps API, Geo Awesomeness (May 3, 2018),
https://geoawesomeness.com/developers-up-in-arms-over-google-maps-api-
insane-price-hike/ (``The Standard (no access to customer support) and
Premium plans are being merged into one pay-as-you-go pricing plan. And
the new fee structure is not pretty. Google is raising its prices by
more than 1,400%. Obviously, no direct comparison figures of old and
new prices have been provided by Google, but that's the average surge
that is being reported by developers.'').
---------------------------------------------------------------------------
In a submission to the Subcommittee, one market participant
said that Google instituted this price hike after ``gaining
dominance.'' \1460\ Since becoming a Google Maps customer, the
market participant's costs ``have increased over 20 '' and
``there are no viable alternatives.'' \1461\ Another developer
stated that the 2018 pricing change ``took our bill from $90/
month in October to $20,000/month in December.'' \1462\ The
developer stated that it was able to subsequently reduce its
bill through making a change that enabled the location-
retrieval function to occur directly on a user's device--a
change that gave Google a ``greater ability to identify and
track'' the device user.\1463\
---------------------------------------------------------------------------
\1460\ Submission from Source 564, to H. Comm. on the Judiciary, 2
(Nov. 13, 2019) (on file with Comm.).
\1461\ Id. at 4.
\1462\ Submission from Source 685, to H. Comm. on the Judiciary, 4
(Oct. 15, 2019) (on file with Comm.).
\1463\ Id.
---------------------------------------------------------------------------
Several developers expressed their frustrations publicly,
noting that Google's decision to hike prices so sharply, and
without giving developers significant notice, underscored its
power to set the terms of commerce. One developer stated:
LI understand that Google wants to make this into a line
of business. But it feels like they're taking advantage of us.
They know that they're the best, and that no one else is even
close. Instead of just giving us Maps for free or very cheap,
in exchange for collecting all our usage data, they now feel
they need to charge really high prices.\1464\
---------------------------------------------------------------------------
\1464\ Jagmeet Singh, Google Maps API Price Hike Is Threatening the
Future of Some Companies, Gadgets 360 (Aug. 28, 2018), https://
gadgets.ndtv.com/apps/features/google-maps-apis-new-pricing-impact-
1907242.
In effect, Google makes market participants pay twice to access
Google Maps--first by giving Google their valuable usage data
and then again by paying Google's volume-based fees for API
---------------------------------------------------------------------------
calls.
(ii) Tying. Business-facing mapping products usually
consist of a core set of features to provide greater mapping
functionality. For example, the ``Google Maps Platform'' offers
developers traffic data and places data (also known as place
search), as well as map data.\1465\ Some developers choose to
mix and match, using map data from one firm but placing data
from another. Google, however, prohibits developers from using
any part of its mapping tools alongside any non-Google mapping
features. Until April 2020, Google's Maps Platform Terms of
Service included the following provision:
---------------------------------------------------------------------------
\1465\ Google Maps Platform Terms of Service, Google Sec. 21,
https://cloud.google.com/maps-platform/terms (last visited Oct. 3,
2020) (`` `Google Maps Content' means any content provided through the
Service (whether created by Google or its third-party licensors),
including map and terrain data, imagery, traffic data, and places data
(including business listings).'').
L(e) No Use With Non-Google Maps. Customer will not use
the Google Maps Core Services in a Customer Application that
contains a non-Google map. For example, Customer will not (i)
display Places listings on a non-Google map, or (ii) display
Street View imagery and non-Google maps in the same Customer
Application.\1466\
---------------------------------------------------------------------------
\1466\ Id. Sec. 3.2.2(e).
---------------------------------------------------------------------------
In April 2020, Google amended the language slightly:
L(e) No Use With Non-Google Maps. To avoid quality issues
and/or brand confusion, Customer will not use the Google Maps
Core Services with or near a non-Google Map in a Customer
Application. For example, Customer will not (i) display or use
Places content on a non-Google map, (ii) display Street View
imagery and non-Google maps on the same screen, or (iii) link a
Google Map to non-Google Maps content or a non-Google
map.\1467\
---------------------------------------------------------------------------
\1467\ Id.
Both versions of this provision prohibit developers from
using any component of the Google Maps Core Service with
mapping services provided by non-Google firms. The April 2020
change to the terms of service is even more restrictive: It
prohibits developers from even displaying any component of
Google Maps ``near'' any other map. In practice, Google's
contractual provision has led several major companies to switch
entirely to Google's ecosystem, even in cases where they
preferred mapping services from a non-Google provider, such as
Mapbox.
Through interviews with market participants, the
Subcommittee learned that Google now enforces this provision
aggressively. According to one firm, Google closely tracks and
pressures developers who use Google's place data in conjunction
with mapping data from a non-Google firm, effectively forcing
them to choose whether they will use all of Google's mapping
services or none of them.\1468\ One firm described Google's
coercive tactics, stating, ``It's a bigger player putting a gun
to our head saying `switch or else.' '' \1469\
---------------------------------------------------------------------------
\1468\ Interview with Source 572 (Sept. 24, 2020).
\1469\ Interview with Source 157 (Sept. 25, 2020).
---------------------------------------------------------------------------
Because Google's monopoly in online search has furnished it
with a trove of data, as well as a robust index, its place
search feature is also seen by many market participants
effectively as a must-have. One market participant that has
lost business partnerships due to Google's coercive
restrictions stated that Google is ``using access to its
dominant search products as leverage to intimidate businesses
out of working with other map providers.'' \1470\ He noted that
Google's conduct now threatens his firm's survival, saying,
``This is existential for us.'' \1471\
---------------------------------------------------------------------------
\1470\ Interview with Source 572 (Sept. 24, 2020).
\1471\ Id.
---------------------------------------------------------------------------
Google was asked to identify and justify any limits it
places on the ability of app developers who use the Google Maps
Platform to use non-Google mapping services.\1472\ Google
responded that it does ``restrict developers from incorporating
Google Maps Core Services into an application that uses a non-
Google map'' in order to ``prevent brand confusion and other
negative user experiences.'' \1473\ As described above, Google
subsequently changed its terms of service to mirror its
response to the Subcommittee's question. However, developers
and mapping providers questioned Google's rationale, noting
that developers were the ones best positioned to determine
whether combining mapping services from multiple providers
created a ``negative user experience.'' One provider added,
``The developers we partner with are extremely sophisticated.
They're not confused.'' \1474\
---------------------------------------------------------------------------
\1472\ Innovation and Entrepreneurship Hearing at 424 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1473\ Id.
\1474\ Interview with Source 572 (Sept. 24, 2020).
---------------------------------------------------------------------------
Google has also used its dominance in mapping to acquire
cloud computing customers for its Google Cloud Platform (GCP).
Specifically, in 2018, Google implemented a change requiring
all API calls to use a valid API key, which must be linked to a
Google Cloud Platform account. All keyless calls to the Maps
JavaScript API and Street View API trigger low-resolution maps
that are watermarked with ``for development purposes only.''
\1475\ Developers who do not have a Google Cloud account, and
therefore do not have an API key, are effectively locked out of
Google Maps. Even if an application is built on a non-Google
cloud platform, developers are forced to use GCP for the Maps
API portion of their app.\1476\ By one estimate, revenue from
Google Cloud Platform has more than tripled since 2017, the
year before Google began tying access to Google Maps to Google
Cloud Platform.\1477\
---------------------------------------------------------------------------
\1475\ Guide for Existing Users, Google Cloud, https://
cloud.google.com/maps-platform/user-guide (last visited Oct. 3, 2020).
\1476\ Daria Bulatovych, Mapbox as a Worthy Alternative to Google
Maps Price Hike, Yalantis, https://yalantis.com/blog/mapbox-maps-ready-
mobile-apps/ (last visited Oct. 5, 2020).
\1477\ Larry Dignan, Top Cloud Providers in 2020: AWS, Microsoft
Azure, and Google Cloud, Hybrid, SaaS Players, ZDNet (Oct. 1, 2020),
https://www.zdnet.com/article/the-top-cloud-
providers-of-2020-aws-microsoft-azure-google-cloud-hybrid-saas/.
(iii) Self-Preferencing Through Contractual Restrictions.
Some developers told the Subcommittee that Google uses its
control over digital mapping to favor its own products in other
lines of business. Since Google provides mapping services but
also offers non-mapping products that use mapping as an input,
Google can selectively degrade access for third parties that
rely on its mapping product to disfavor them as competitors to
its non-mapping products. For example, market participants
noted that Google has added various restrictions to the license
agreement for Google Maps API--restrictions that apply to
third-party developers but not to Google's own competing
products.
One example is unequal rights to map caching. Map caching
occurs when a server stores copies of map images that it can
speedily distribute when next recalled. Without caching, a map
is drawn each time it is requested, a much slower
process.\1478\ Although previous versions of the Google Maps
API agreement permitted caching by developers, the recent
versions prohibit caching of maps with limited
exceptions.\1479\ Third-party apps built on Google Maps API can
no longer store a map cache. Market participants note, however,
that Google's own products built on Google Maps--ranging from
its local search service to its hotel finder--face no similar
restrictions, enabling them to load faster than those run by
third parties.
---------------------------------------------------------------------------
\1478\ What Is Map Caching?, ArcGIS Enter., https://
enterprise.arcgis.com/en/server/latest/publish-services/linux/what-is-
map-caching-.htm (last visited Oct. 3, 2020).
\1479\ Places API Policies, Google Maps Platform, Google, https://
developers.google.com/places/web-service/policies (last visited Oct. 3,
2020) (stating ``that you must not pre-fetch, index, store, or cache
any Content except under the limited conditions stated in the terms'').
---------------------------------------------------------------------------
Commenting on the asymmetry, one market participant stated
that Google's decision to deny third parties caching
``denigrates the service that our maps can provide compared to
Google's.'' \1480\ They added, ``[T]hat's why we can't create
an app that provides directions as well as Google or we can't
update a user's location as quickly as Google.'' \1481\
---------------------------------------------------------------------------
\1480\ Interview with Source 521 (June 22, 2020).
\1481\ Id.
(iv) Strategic Platform Mismanagement. Although Google's
responses to the Subcommittees' questions about its conduct
regarding Google Maps emphasized ``quality'' and ``user
experience,'' \1482\ public reporting has documented that
Google Maps' listings are ``overrun with millions of false
business addresses and fake names.'' \1483\ A fake listing can
occur when a business creates a fake listing or when a
fraudulent business hijacks the name of a legitimate business
on Google Maps, diverting user calls or visits from the
legitimate business to a fraudulent one. A survey of experts
conducted by The Wall Street Journal estimated that Google Maps
hosts around 11 million falsely listed businesses on any given
day.\1484\ The same experts stated that ``a majority'' of the
listings on Google Maps for businesses such as ``contractors,
electricians, towing and car repair services, movers and
lawyers,'' as well as others, are not actually located at the
location given by Google Maps.\1485\
---------------------------------------------------------------------------
\1482\ Innovation and Entrepreneurship Hearing at 403 (response to
Questions for the Record of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1483\ Rob Copeland & Katherine Bindley, Millions of Business
Listings on Google Maps Are Fake--and Google Profits, Wall St. J. (June
20, 2019), https://www.wsj.com/articles/google-maps-littered-with-fake-
business-listings-harming-consumers-and-competitors-11561042283.
\1484\ Id.
\1485\ Id.
---------------------------------------------------------------------------
These fake listings endanger consumer safety, giving rise
to situations where users of Google Maps have unknowingly
requested home repairs and other services from fraudulent
providers, ultimately, paying inflated prices for shoddy
work.\1486\ The fraudulent listings also disadvantage
legitimate businesses, both those whose listings have been
hijacked as well as those whose own listings appear below those
of sham businesses. Marketers have weaponized this problem to
demand ransom payments from businesses under the threat of
wiping out their listings through a flood of fake businesses.
When the listing of one auto junkyard fell from the first to
the second page of Google Maps results, the owner's income fell
by half and pushed him to the edge of closing shop
entirely.\1487\
---------------------------------------------------------------------------
\1486\ Id. (Reporting that a 67-year-old woman contacted a local
home repair service she found through Google, only to be serviced by a
man who was pretending to be from the company she had hired. The man
charged almost twice the cost of previous repairs and demanded a
personal check or cash. The woman told The Wall Street Journal, ``I'm
at my house by myself with this guy. He could have knocked me over
dead.'').
\1487\ Id.
---------------------------------------------------------------------------
Legitimate businesses hurt by fake listings say that
contacting Google to report the situation generally fails to
resolve the problem. In practice, the only way legitimate
businesses can shield themselves from fake listings is to buy
ads from Google. Ad prices for categories that are most
susceptible to ad fraud have increased more than 50 percent
over the last two years.\1488\
---------------------------------------------------------------------------
\1488\ Id.
---------------------------------------------------------------------------
The Subcommittee asked Google about this practice on
several occasions. At the Subcommittee's July 16, 2019 hearing,
Representative Lucy McBath (D-GA) asked Adam Cohen, Google's
director of economic policy, what steps Google was taking to
identify and remove fraudulent listings on Google Maps.\1489\
She added, ``Is it a lack of competition in online search that
allows Google to be so complacent by addressing this problem
head on?'' \1490\ Mr. Cohen responded that he was ``not
familiar'' with the relevant facts.\1491\ In response to a
follow-up letter sent by Chair Cicilline, Google wrote that it
has ``no evidence'' that the number of fake listings on Google
Maps is around 10 million.\1492\ Google stated that, as of July
2019, it had taken down more than 3 million fake business
profiles and that it has ``implemented strict policies and
created tools that enable people to flag false content.''
\1493\
---------------------------------------------------------------------------
\1489\ Innovation and Entrepreneurship Hearing at 69 (question of
Rep. Lucy McBath (D-GA), Member, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary).
\1490\ Id.
\1491\ Id. (statement of Adam Cohen, Dir. of Econ. Pol'y, Google
LLC).
\1492\ Letter from Kent Walker, Senior Vice President, Glob. Affs.
& Legal Officer, Google, to Hon. David N. Cicilline, Chair, Subcomm. on
Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary
(July 26, 2019), https://judiciary.house.gov/sites/democrats.
judiciary.house.gov/files/documents/07.26.19%20-
%20google%20response.pdf.
\1493\ Id.
---------------------------------------------------------------------------
Both digital advertisement experts and individuals engaging
in fraudulent activity believe that Google has turned a blind
eye to the problem. According to The Wall Street Journal, one
ad specialist who was invited by Google to help root out the
problem left after concluding that Google ``has obviously
chosen not to solve the problem.'' \1494\ A business owner who
helps facilitate the fake listings says his activity leaves a
``huge footprint'' and yet Google is ``just letting it
happen.'' He added, ``I know Google knows.'' \1495\
---------------------------------------------------------------------------
\1494\ Rob Copeland & Katherine Bindley, Millions of Business
Listings on Google Maps Are Fake--and Google Profits, Wall St. J. (June
20, 2019), https://www.wsj.com/articles/google-maps-littered-with-fake-
business-listings-harming-consumers-and-competitors-11561042283
(internal quotation marks omitted).
\1495\ Id. (internal quotation marks omitted).
---------------------------------------------------------------------------
7. Cloud
Google Cloud Platform (GCP) is Google's suite of public
cloud computing services that first launched in 2008.\1496\
Today, Google Cloud is Alphabet's fastest-growing line of
business, with revenues in Q1 2020 hitting $2.78 billion, up 52
percent from $1.83 billion in Q1 2019.\1497\ Documents provided
to the Subcommittee make clear that the cloud market is a
priority for the company.\1498\ GCP is the third largest
provider of IaaS services in the United States and has a year-
over-year growth rate twice that of Amazon Web Services--the
current market leader.\1499\ Today, GCP boasts long term
contracts with data-intensive companies such as Snap, Spotify,
and TikTok.\1500\
---------------------------------------------------------------------------
\1496\ Michael Arrington, Google Jumps Head First into Web Services
with Google App Engine, TechCrunch (Apr. 8, 2008), https://
techcrunch.com/2008/04/07/google-jumps-head-first-into-web-services-
with-google-app-engine/ (reporting that GCP's first public cloud
offering, App Engine, launched as a private preview for developers in
April 2008).
\1497\ Benjamin Pimentel, Google Just Reported Cloud Revenue for
the First Time Ever, Showing that It's Growing Fast but Nowhere Close
to Amazon Web Services, Bus. Insider (Feb. 3, 2020), https://
www.businessinsider.com/google-cloud-revenue-first-time-thomas-kurian-
2020-2.
\1498\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04266215 (on file with Comm.).
\1499\ GCP's position in the cloud market is explained in the cloud
computing market overview section. See supra Section IV.
\1500\ Snap Inc., Annual Report (Form 10-K) 11 (Feb. 4, 2020)
(indicating that Snap had committed to spend $2.0 billion with Google
Cloud over five years beginning January 2017); Kevin McLaughlin and
Amir Efrati, TikTok Agreed to Buy More than $800 Million in Cloud
Services from Google, Information (July 14, 2020), https://
www.theinformation.com/articles/tiktok-agreed-to-buy-more-than-800-
million-in-cloud-services-from-google (reporting that TikTok signed a
three-year agreement with GCP in 2019, with a minimum commitment of
$800 million over the time period).
---------------------------------------------------------------------------
The Subcommittee reviewed internal documents that outline
Google's plans to invest significantly in acquisitions.\1501\
To date, these acquisitions include Orbitera,\1502\ Cask Data,
Velostrata, and Elastifile, among others.\1503\ Most recently,
Google purchased Looker for $2.6 billion to ``add a new
analytics tool for Google Cloud's customers.'' \1504\ In some
instances, Google acquired firms that were multi-cloud
solutions but, after acquisition, Google made them compatible
only with Google's cloud infrastructure, at times integrating
them into first-party PaaS and SaaS offerings only available
through the Google Cloud Portal.\1505\
---------------------------------------------------------------------------
\1501\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04266215 (on file with Comm.).
\1502\ Nan Boden, Orbitera Joins the Google Cloud Platform Team,
Google (Aug. 8, 2016), https://cloud.google.com/blog/products/gcp/
orbitera-joins-the-google-cloud-platform-team (noting that GCP
leveraged Orbitera technology to offer automated test drives and lead
management, custom pricing and billing, cloud cost visibility and
control, and self-serve onboarding to be fully integrated into the GCP
console).
\1503\ Ingrid Lunden, Google Acquires Cask Data to Beef Up Its
Tools for Building and Running Big Data Analytics, TechCrunch (May 16,
2018), https://techcrunch.com/2018/05/16/google-acquires-cask-data-to-
beef-up-its-tools-for-building-and-running-big-data-analytics/.
\1504\ Lauren Feiner & Jordan Novet, Google Cloud Boss Thomas
Kurian Makes His First Big Move--Buys Looker for $2.6 Billion, CNBC
(June 6, 2019), https://www.cnbc.com/2019/06/06/google-buys-cloud-
company-looker-for-2point6-billion.html.
\1505\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04167298 to -04167381 (July 2, 2019) (on file with Comm.). See also
Donna Goodison, Google Cloud's New Alooma Migration Service Won't
Accept New AWS, Microsoft Azure Customers, CRN (Feb 20, 2019), https://
www.crn.com/news/cloud/google-cloud-s-new-alooma-migration-service-won-
t-accept-new-aws-microsoft-azure-customers.
---------------------------------------------------------------------------
According to interviews with market participants and
Google's internal documents, Google employs two strategies that
raise concerns about potential anticompetitive conduct. First,
Google appears to leverage its dominant business lines,
including popular APIs such as Google Search and Maps, along
with machine learning services, to attract customers to its
platform through discounts and free tier services.\1506\ For
example, according to internal strategy documents, in 2018,
Google ``launched a program with the Play team to provide GCP
credits to game developers based on their Play Store spend, to
increase focus on Play and incentivize migration to GCP.''
\1507\ By harnessing Google's advantages in existing markets,
GCP is undermining competition on the merits.
---------------------------------------------------------------------------
\1506\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-02456801 (on file with Comm.). See also id. at GOOG-HJC-04214427
(Aug 4, 2016).
\1507\ Id. at GOOG-HJC-04266213 (May 23, 2018).
---------------------------------------------------------------------------
Second, Google's documents suggest the company is
considering bundling its popular machine learning service with
other services that Google is seeking to promote. One recent
Google cloud pricing strategy document explains, ``the question
that we need to think about is whether we use our entry point
with Big Query to get a customer to use all the services such
as Data Proc, Data Flow, as a suite and give them a price break
on the Analytics Suite because it will be much harder for them
to migrate away from us if they use all the other services.''
\1508\ The document goes on to describe potential discounts and
ultimately a plan to have ``a pricing model that makes it
advantageous for customers to put 80 percent of their workload
on GCP.'' \1509\ As described elsewhere in this Report, absent
interventions, the barriers to entry and network effects in
this market mean there is a high potential for single-homing
and an overall concentrated market.\1510\ As Google grows in
this space, regulators and enforcers should be watchful for
potential anticompetitive conduct.
---------------------------------------------------------------------------
\1508\ Id. at GOOG-HJC-04215099 (Dec. 31, 2018).
\1509\ Id.
\1510\ See supra Section IV.
---------------------------------------------------------------------------
C. Amazon
1. Overview
Amazon.com, Inc. was founded in 1994 as an online
bookseller.\1511\ Today, it is one of the largest companies in
the world. Based in Seattle, Amazon is estimated to be the
second-largest private employer in the United States, with over
500,000 employees.\1512\ The company operates across a wide
range of direct-to-consumer and business-to-business markets,
including e-commerce, consumer electronics, television and film
production, groceries, cloud services, book publishing, and
logistics. Amazon went public in 1997 but did not post its
first full-year profit until 2003.\1513\ This is partly because
Amazon's business strategy has generally focused on long-term
growth over short-term profits.\1514\ Amazon is currently one
of the most valuable companies in the world, and its CEO, Jeff
Bezos, is reported to be the wealthiest person in the
world.\1515\
---------------------------------------------------------------------------
\1511\ Amazon.com, Inc., Annual Report (Form 10-K) 3 (Jan. 31,
2020), http://d18rn0p25
nwr6d.cloudfront.net/CIK-0001018724/4d39f579-19d8-4119-b087-
ee618abf82d6.pdf.
\1512\ Press Release, Amazon, Amazon.com Announces Second Quarter
Results 2 (July 30, 2020), https://s2.q4cdn.com/299287126/files/
doc_financials/2020/q2/Q2-2020-Amazon-Earnings-Release.pdf; Charles
Duhigg, Is Amazon Unstoppable?, New Yorker (Oct. 21, 2019), https://
www.newyorker.com/magazine/2019/10/21/is-amazon-unstoppable.
\1513\ Amazon.com, Inc., Annual Report (Form 10-K) 83-84 (Mar. 9,
2005), https://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2004.pdf; Saul Hansell, Amazon Reports First Full-Year
Profit, N.Y. Times (Jan. 28, 2004), https://www
.nytimes.com/2004/01/28/business/technology-amazon-reports-first-full-
year-profit.html.
\1514\ See, e.g., CEO Hearing at 15 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.) (``As I have said since my first shareholder letter
in 1997, we make decisions based on the long-term value we create . . .
.''); Submission from Amazon, to H. Comm. on the Judiciary, AMAZON-HJC-
00035545 (July 14, 2010) (on file with Comm.) (``Membership programs
are created with a long-term, company-wide perspective with the goal of
increasing loyalty and cross-category shopping behavior. The programs
do not optimize for short-term gain or profitability in a single
category.'').
\1515\ See, e.g., Annie Palmer, Jeff Bezos Is Now Worth More than
$200 Billion, CNBC (Aug. 26, 2020), https://www.cnbc.com/2020/08/26/
amazon-ceo-jeff-bezos-worth-more-than-200-
billion.html.
---------------------------------------------------------------------------
Amazon's Annual Revenue, Operating Expenses,
and Profits \1516\
---------------------------------------------------------------------------
\1516\ Prepared by the Subcommittee based on Amazon.com, Inc.,
Annual Reports (Form 10-K) (1997-2019).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Amazon reports financial information for three business
segments: North America, International, and Amazon Web Services
(AWS), Amazon's cloud services business.\1517\ Despite the fact
that Amazon is already so large that it dominates several
important industries, it continues to report strong and steady
growth--as well as increasing profits. For 2019, Amazon
reported total revenue of about $280 billion, up 20 percent
from the previous year, and a net income of over $11
billion.\1518\ AWS's revenue increased by 37 percent in 2019 to
$35 billion.\1519\ Retail operations continue to be the
platform's largest source of revenue, but AWS is a key source
of its overall profits.\1520\ In 2019, Amazon's cloud business
contributed over 60 percent of Amazon's total operating income,
despite accounting for only 12.5 percent of its total
revenue.\1521\
---------------------------------------------------------------------------
\1517\ Amazon.com, Inc., Annual Report (Form 10-K) 3 (Jan. 31,
2020), http://d18rn0p25
nwr6d.cloudfront.net/CIK-0001018724/4d39f579-19d8-4119-b087-
ee618abf82d6.pdf.
\1518\ Id. at 18.
\1519\ Id. at 24.
\1520\ Id. at 3; see also Nathan Reiff, How Amazon Makes Money,
Investopedia (Aug. 12, 2020), https://www.investopedia.com/how-amazon-
makes-money-4587523 (``Retail remains Amazon's primary source of
revenue, with online and physical stores accounting for the biggest
share.'').
\1521\ Amazon.com, Inc., Annual Report (Form 10-K) 24-25 (Jan. 31,
2020), http://d18rn0p25
nwr6d.cloudfront.net/CIK-0001018724/4d39f579-19d8-4119-b087-
ee618abf82d6.pdf.
---------------------------------------------------------------------------
Sales on Amazon.com fall into one of two categories. First-
party sales are those where Amazon retails its own private-
label products or sources products wholesale from a vendor or
manufacturer. Third-party sales, in contrast, refer to sales by
independent merchants who sell through the Amazon Marketplace.
When a consumer visits Amazon.com, Amazon's private-label
products, such as AmazonBasics or its Kindle E-Readers, are
listed for sale alongside independent merchants' offers.
One of the unique features of Amazon's e-commerce site is
its fast and free shipping on an extremely broad selection of
products. Amazon Prime Members can choose from over 100 million
items that are available for free two-day delivery in the
continental United States. Walmart, by contrast, has only
single-digit millions of products eligible for free two-day
shipping.\1522\ In response to questions from the Subcommittee,
Amazon represented that it offers approximately 158,000
private-label products across 45 in-house brands, not including
some additional private-label products sold through Amazon
Fresh.\1523\ Amazon also hosts 2.3 million active third-party
sellers from around the world,\1524\ about 45 times more than
the 52,000 third-party sellers that Walmart hosts on its
marketplace.\1525\ A recent survey estimated that about 37
percent of Amazon's third-party sellers, representing over
850,000 sellers, rely on Amazon as their sole source of
income.\1526\
---------------------------------------------------------------------------
\1522\ J.P. Morgan, Retail vs. Amazon: Life in a Post COVID-19
World (2020), https://
markets.jpmorgan.com/research/email/-lbk68f4/Alp1kP9tQUPS29jlzW_3bOg/
GPS-3397412-0.
\1523\ Innovation and Entrepreneurship Hearing at 499 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\1524\ Number of Sellers on Amazon Marketplace, Marketplace Pulse,
https://www .marketplacepulse.com/amazon/number-of-sellers (last
visited Sept. 25, 2020); see also CEO Hearing at 17 (statement of Jeff
Bezos, CEO, Amazon.com, Inc.) (``There are now 1.7 million small and
medium-sized businesses around the world selling in Amazon's
stores.'').
\1525\ Number of Sellers on Amazon Marketplace, Marketplace Pulse,
https://www .marketplacepulse.com/amazon/number-of-sellers (last
visited Oct. 5, 2020).
\1526\ Junglescout, The State of the Amazon Seller 2020, at 4
(2020), https://www .junglescout.com/wp-content/uploads/2020/02/State-
of-the-Seller-Survey.pdf.
---------------------------------------------------------------------------
Amazon does not limit the number of sellers that can offer
the same product for sale on its platform. Because of this, the
same product may be sold by multiple sellers, as well as by
Amazon. Each time a consumer clicks on a product, Amazon
chooses a single seller from all the vendors offering that
product to display as the featured offer in the ``Buy Box.''
\1527\ In its response to questions from the Subcommittee,
Amazon stated that the featured merchant algorithm, also
commonly referred to as the Buy Box algorithm, is designed to
predict the offer that consumers would choose after comparing
all the available offers in detail.\1528\
---------------------------------------------------------------------------
\1527\ Innovation and Entrepreneurship Hearing at 498 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\1528\ Id.
---------------------------------------------------------------------------
The Amazon Buy Box Playbook, a well-known guide for
sellers, explains this in lay terms:
LWhen a shopper lands on a product detail page, Amazon
chooses one seller whose details appear in the Buy Box--the
white box on the right-hand side of the page. When a customer
clicks on the ``Add to Cart'' button, the sale goes to the
seller in this box.\1529\
---------------------------------------------------------------------------
\1529\ Feedvisor, The Amazon Buy Box Playbook for Sellers and
Retailers 4 (2020).
Industry experts estimate that about 80 percent of Amazon
sales go through the Buy Box, and the percentage is even higher
for mobile purchases.\1530\ In response to a question from the
Subcommittee, Amazon provided only high-level information about
how it chooses which offer will win the Buy Box, stating that
the algorithm considers criteria such as price, delivery speed
and cost, Prime eligibility, and seller performance.\1531\
Despite the importance of winning the Buy Box to sellers on its
platform, only Amazon knows exactly how its featured merchant
algorithm works.
---------------------------------------------------------------------------
\1530\ Id. at 5.
\1531\ CEO Hearing at 282 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
---------------------------------------------------------------------------
As Amazon's e-commerce business has grown, it has also
developed a significant logistics business providing
fulfillment and delivery services to third-party sellers
through its Fulfillment by Amazon (FBA) program. Nearly 85
percent of the top 10,000 Amazon Marketplace sellers reportedly
rely on this program to fulfill and deliver their orders.\1532\
Third-party sellers that use FBA keep their inventory in
Amazon's fulfillment centers.\1533\ After a consumer places an
order online, Amazon does the picking, packing, and shipping,
and provides customer service to complete the order.\1534\ The
figure below explains the different types of sellers on
Amazon.com and the various modes of delivery and fulfillment
they use.
---------------------------------------------------------------------------
\1532\ FBA Usage Among Amazon Marketplace Sellers, Marketplace
Pulse, https://www.marketplacepulse.com/amazon/fulfillment-by-amazon-
fba (last visited Oct. 5, 2020).
\1533\ Fulfillment by Amazon, Amazon, https://sell.amazon.com/
fulfillment-by-amazon.html (last visited Sept. 28, 2020).
\1534\ Id.
Types of Sellers on Amazon and Shipping Options \1535\
---------------------------------------------------------------------------
\1535\ Prepared by the Subcommittee based on Amazon 1P vs. 3P: What
Are the Differences?, Feedvisor, https://feedvisor.com/university/
amazon-1p-vs-3p/ (last visited Sept. 24, 2020).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Amazon generates a significant amount of revenue from the
fees that it charges third-party sellers. According to a recent
SEC filing, net sales for services provided to third-party
sellers increased from $23 billion in the first six months of
2019 to $32 billion over the same period in 2020--an increase
of 39 percent.\1536\ For the ability to sell a product on the
platform, a seller might pay the company a monthly subscription
fee, a high-volume listing fee, a referral fee on each item
sold, and a closing fee on each item sold.\1537\ Amazon charges
additional fees for fulfillment and delivery services, as well
as for advertising.\1538\
---------------------------------------------------------------------------
\1536\ Amazon.com, Inc., Quarterly Report (Form 10-Q) 18 (July 31,
2020), http://d18rn0p25
nwr6d.cloudfront.net/CIK-0001018724/a77b5839-99b8-4851-8f37-
0b012f9292b9.pdf.
\1537\ Selling on Amazon Fee Schedule, Amazon Seller Cent., https:/
/sellercentral
.amazon.com/gp/help/external/200336920 (last visited Sept. 25, 2020).
\1538\ Pricing Overview, Amazon Seller Cent. (2020), https://
sell.amazon.com/pricing.html (last visited Sept. 25, 2020); see also
Submission from Amazon, to H. Comm. on the Judiciary, 12 (Oct. 14,
2019) (on file with Comm.) (noting that advertising revenue is not
included in seller services).
---------------------------------------------------------------------------
AWS, the company's cloud services business, offers digital
infrastructure services to businesses that require increased
computing infrastructure, such as increased capacity for
servers to host or store data. Amazon is the dominant provider
of infrastructure as a service. AWS accounts for close to half
of all global spending on cloud infrastructure services, and
the business has three times the market share of Microsoft, its
closest competitor.\1539\ Cloud services are an essential and
increasingly expensive line item for many companies. Given
AWS's role as a dominant cloud provider, some of Amazon's
competitors in other business lines often end up dependent on
the platform. For example, Netflix, a competitor of Amazon
Prime Video, paid AWS $500 million in 2018 to store its
streaming video library.\1540\
---------------------------------------------------------------------------
\1539\ Press Release, Gartner, Gartner Says Worldwide IaaS Public
Cloud Services Market Grew 31.3% in 2018 (July 29, 2019), https://
www.gartner.com/en/newsroom/press-releases/2019-07-29-gartner-says-
worldwide-iaas-public-cloud-services-market-grew-31point3-percent-in-
2018; see also Letter from David Zapolsky, Gen. Couns., Amazon.com,
Inc., to Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, 6 (July 26,
2019) (on file with Comm.).
\1540\ Kevin McLaughlin, Amazon's Cloud King: Inside the World of
Andy Jassy, Information (Jan. 23, 2019), https://
www.theinformation.com/articles/amazons-cloud-king-inside-the-world-of-
andy-jassy.
---------------------------------------------------------------------------
While the pandemic has harmed many businesses, Amazon has
experienced a surge in sales.\1541\ The company's operating
profit of $5.8 billion during the second quarter of 2020
significantly outperformed the -$1.5 billion to +$1.5 billion
projection that Amazon had issued to investors.\1542\ One
analyst described the magnitude of Amazon's recent sales growth
outperformance as a ``paradigm-shifting update.'' \1543\ In
October 2020, Amazon's stock price was about $3,000, giving it
a market valuation of about $1.5 trillion \1544\--greater than
that of Walmart, Target, Salesforce, IBM, eBay, and Etsy,
combined.\1545\ The company is consistently one of the highest-
priced stocks on Wall Street,\1546\ which is a clear indication
investors expect Amazon to maintain and expand its market
power.
---------------------------------------------------------------------------
\1541\ See, e.g., Alana Semeuls, Many Companies Won't Survive the
Pandemic. Amazon Will Emerge Stronger Than Ever, Time (July 28, 2020),
https://time.com/5870826/amazon-coronavirus-jeff-bezos-congress/
(``Consumer spending on Amazon between May and July was up 60% from the
same time frame last year.'').
\1542\ Morningstar Equity Analyst Report: Amazon.com, Inc 6 (Aug.
27, 2020) (on file with Comm.); Press Release, Amazon, Amazon.com
Announces First Quarter Results (Apr. 30, 2020), https://s2.q4cdn.com/
299287126/files/doc_financials/2020/Q1/AMZN-Q1-2020-Earnings-
Release.pdf.
\1543\ Morningstar Equity Analyst Report: Amazon.com, Inc 6 (Aug.
27, 2020) (on file with Comm.).
\1544\ Amazon.com, Inc. Common Stock (AMZN), Nasdaq, https://
www.nasdaq.com/market-
activity/stocks/amzn (last visited Oct. 3, 2020).
\1545\ See Walmart, Inc. Common Stock (WMT), Nasdaq, https://
www.nasdaq.com/market-activity/stocks/wmt (last visited Oct. 5, 2020)
($398 billion); Target Corp. Common Stock (TGT), Nasdaq, https://
www.nasdaq.com/market-activity/stocks/tgt (last visited Oct. 5, 2020)
($79.6 billion); Salesforce.com, Inc. Common Stock (CRM), Nasdaq,
https://www.nasdaq.com/market-activity/stocks/crm (last visited Oct. 5,
2020) ($225.5 billion); Int'l Bus. Machines Corp. Common Stock (IBM),
Nasdaq, https://www.nasdaq.com/market-activity/stocks/ibm (last visited
Oct. 5, 2020) ($107 billion); eBay, Inc. Common Stock (EBAY), Nasdaq,
https://www.nasdaq.com/
market-activity/stocks/ebay (last visited Oct. 5, 2020) ($36.2
billion); Etsy, Inc. Common Stock (ETSY), Nasdaq, https://
www.nasdaq.com/market-activity/stocks/etsy (last visited Oct. 3, 2020)
($16.7 billion).
\1546\ See, e.g., Gabe Alpert, Top 5 Highest Priced Stocks in
America, Investopedia (May 19, 2020), https://www.investopedia.com/
financial-edge/0711/the-highest-priced-stocks-in-america .aspx.
---------------------------------------------------------------------------
The Subcommittee initiated its investigation of Amazon's
market power and its role as a gatekeeper for digital markets
in June 2019. Before and concurrent with the Subcommittee's
investigation, many international and U.S. enforcement
authorities also opened antitrust investigations into Amazon's
business practices. Some of these investigations have led to
Amazon making policy changes.\1547\ The European Commission
began its in-depth antitrust investigation of Amazon on July
17, 2019.\1548\ According to Executive Vice President Margrethe
Vestager, the European Commission's investigation ``focuses on
the use by Amazon of accumulated, competitively sensitive
information about marketplace sellers, their products and
transactions on the Amazon marketplace, which may inform
Amazon's retail business decisions.'' \1549\ In the United
States, the Federal Trade Commission (FTC) is investigating
Amazon's past acquisition activity.\1550\ The FTC is also
reportedly investigating Amazon's treatment of third-party
sellers and its cloud services business.\1551\ Additionally,
Amazon reportedly faces antitrust scrutiny by state attorneys
general offices in California, Washington, and New York.\1552\
---------------------------------------------------------------------------
\1547\ See, e.g., Data and Privacy Hearing at 170 (statement of
Margrethe Vestager, Eur. Comm'r for Competition) (``[I]n 2017 we
accepted commitments from Amazon not to introduce or enforce what are
sometimes called `most-favoured nation' clauses in the e-books
market.''); Press Release, Bundeskartellamt, Bundeskartellamt Obtains
Far-Reaching Improvements in the Terms of Business for Sellers on
Amazon's Online Marketplaces (July 17, 2019), https://
www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2019/
17_07_2019_
Amazon.html (``In response to the competition concerns expressed by the
Bundeskartellamt, Amazon is amending its terms of business for sellers
on Amazon's online marketplaces.''); Amazon Online Retailer:
Investigation into Anticompetitive Practices, U.K. Competition & Mkts.
Auth. (Oct. 1, 2013), https://www.gov.uk/cma-cases/amazon-online-
retailer-investigation-into-anticompetitive-practices (``In light of
[Amazon's] decision to remove the price parity policy and subsequent
steps to implement that decision . . . the [Office of Fair Trading] has
decided to close its investigation on administrative priority
grounds.'').
\1548\ Press Release, Eur. Comm'n, Antitrust: Commission Opens
Investigation into Possible Anti-competitive Conduct of Amazon (July
17, 2019), https://ec.europa.eu/commission/presscorner/detail/en/
IP_19_4291.
\1549\ Submission from Margrethe Vestager, Exec. Vice President,
Eur. Comm'n, to H. Comm. on the Judiciary, 4 (July 24, 2020) (on file
with Comm.).
\1550\ Press Release, Fed. Trade Comm'n, FTC to Examine Past
Acquisitions by Large Technology Companies (Feb. 11, 2020), https://
www.ftc.gov/news-events/press-releases/2020/02/ftc-examine-past-
acquisitions-large-technology-companies.
\1551\ Jason Del Rey, Amazon May Soon Face an Antitrust Probe. Here
Are 3 Questions the FTC Is Asking About It, Vox: Recode (June 4, 2019),
https://www.vox.com/recode/2019/6/4/18651694/amazon-ftc-antitrust-
investigation-prime; Dina Bass, David McLaughlin & Naomi Nix, Amazon
Faces Widening U.S. Antitrust Scrutiny in Cloud Business, Bloomberg
(Dec. 4, 2019), https://www.bloomberg.com/news/articles/2019-12-04/
amazon-faces-widening-u-s-antitrust-scrutiny-in-cloud-business.
\1552\ Tyler Sonnemaker, Amazon Is Reportedly Facing a New
Antitrust Investigation into Its Online Marketplace Led by the FTC and
Attorneys General in New York and California, Bus. Insider (Aug. 3,
2020), https://www.businessinsider.com/amazon-antitrust-probe-ftc-new-
york-california-online-marketplace-2020-8; Karen Weise & David McCabe,
Amazon Said to Be Under Scrutiny in 2 States for Abuse of Power, N.Y.
Times (June 12, 2020), https://www.nytimes.com/2020/06/12/technology/
state-inquiry-antitrust-amazon.html.
---------------------------------------------------------------------------
During the course of the investigation, Amazon displayed a
lack of candor to the Subcommittee in response to questions
about its business practices. As Chair Nadler, Subcommittee
Chair Cicilline, and Ranking Member Sensenbrenner, along with
other members of the Committee, wrote to Mr. Bezos in a
bipartisan letter in May of this year, the Subcommittee was
troubled that some of the ``statements Amazon made to the
Committee about the company's business practices appear to be
misleading, and possibly criminally false or perjurious.''
\1553\ In light of this concern, the Subcommittee views
Amazon's other claims and representations with a degree of
skepticism in instances where they conflict with credible
sources, such as investigative reporting, interviews with
market participants, or other evidence uncovered by the
Subcommittee during the investigation.
---------------------------------------------------------------------------
\1553\ Bipartisan Letter from the Chair, Ranking Member, and
Members of H. Comm. on the Judiciary, to Jeff Bezos, CEO, Amazon.com,
Inc. (May 1, 2020), https://judiciary.house.gov/uploadedfiles/2020-05-
01_letter_to_amazon_ceo_bezos.pdf.
---------------------------------------------------------------------------
2. Amazon.com
(a) Market Power. Amazon has significant and durable market
power in the U.S. online retail market.\1554\ The company's
actual share of U.S. e-commerce is unknown outside of Amazon
because it does not report the gross merchandise volume of
third-party sales made on its marketplace. A frequently cited
analysis by market research company eMarketer estimates that
Amazon's share in this market is 38.7 percent.\1555\
eMarketer's estimate, however, is likely understated because
its definition of e-commerce is overly broad. For example,
under eMarketer's approach to e-commerce, the Auto and Parts
category includes online sales of cars.\1556\ In contrast,
marketing analytics company Jumpshot estimates that Amazon
captures an average of 74 percent of digital transactions
across a wide range of product categories.\1557\ The Jumpshot
analysis may overstate Amazon's share because it calculates
market share as a percentage of transactions made on well-known
market participants' websites, like Amazon, Walmart, and
Target, but excludes small, online retailers.\1558\ Based on
the information the Subcommittee gathered during its
investigation, estimates that place Amazon's share of U.S. e-
commerce at about 50 percent or higher are more credible than
lower estimates of 30-40 percent.\1559\
---------------------------------------------------------------------------
\1554\ See generally Dig. Competition Expert Panel Report at 30
(finding that recent financial indicators suggest Amazon's
``dominan[ce] in a meaningfully distinct sector of online retail'' will
endure and that ``investors are expecting it to retain its dominant
position, and to earn significantly higher profits in future'');
Stigler Report at 78 (``[T]he evidence thus far does suggest that
current digital platforms face very little threat of entry . . . .
[T]he key players in this industry remained the same over the last two
technology waves, staying dominant through the shift to mobile and the
rise of AI. In the past, dominant business found it difficult to
navigate innovation or disruption waves. By contrast, Facebook, Google,
Amazon, Apple, and even Microsoft were able to ride these waves without
significant impact on market share or profit margins.'').
\1555\ Andrew Lipsman, Top 10 US Ecommerce Companies 2020,
Emarketer (Mar. 10, 2020), https://www.emarketer.com/content/top-10-us-
ecommerce-companies-2020.
\1556\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00206583 (2019) (on file with Comm.) (eMarketer Inc.--Global
Ecommerce 2019 Report).
\1557\ See Kimberly Collins, Google + Amazon: Data on Market Share,
Trends, Searches from Jumpshot, Search Engine Watch (Aug. 1, 2019),
https://www.searchenginewatch.com/2019/08/01/amazon-google-market-
share/.
\1558\ See id.
\1559\ See Submission from Source 11, to H. Comm. on the Judiciary,
2 (Oct. 14, 2019) (on file with Comm.) (``Amazon has amassed at least a
50% share of the ecommerce market and continues to expand, both its
market share and the breadth of its offerings.''); Pymnts.com, Walmart
vs. Amazon, Whole Paycheck Tracker: Battle for the Digital First
Consumer 6 (2020), https://securecdn.pymnts.com/wp-content/uploads/
2020/09/Amazon-Walmart-Whole-Paycheck-092020.pdf (estimating Amazon's
market share at 51.2 percent in Q1 2020 and 44.4 percent in Q2 2020,
but noting U.S. e-commerce increased by 44 percent over the same
period, and that ``[f]or Amazon to drop only 7 percent in total
eCommerce share with that kind of overall increase is actually quite an
achievement'').
---------------------------------------------------------------------------
In a number of key product categories, ranging from
household essentials to sports, fitness and outdoors, Amazon is
reported to account for well over 50 percent of online
sales.\1560\ The platform also has significant market power
over the entire book industry, including sales, distribution,
and publishing. In the U.S. market, Amazon accounts for over
half of all print book sales and over 80 percent of e-book
sales.\1561\
---------------------------------------------------------------------------
\1560\ See, e.g., Kimberly Collins, Google + Amazon: Data on Market
Share, Trends, Searches from Jumpshot, Search Engine Watch (Aug. 1,
2019), https://www.searchenginewatch.com/2019/08/01/amazon-google-
market-share/; see also J.P. Morgan, Retail vs. Amazon: Life in a Post
COVID-19 World 13 (2020) (Amazon's market share of online sales of
``Books & Magazines'' is 75 percent).
\1561\ See, e.g., Ben Evans, What's Amazon's Market Share?,
Benedict Evans, https://www.ben-evans.com/benedictevans/2019/12/
amazons-market-share19#:#:text=Amazon%20has%
2050%25%20or%20more,it%20has%20over%2050%25 (``Amazon has 50% or more
of the US print book market.''); Submission from Source 17, to H. Comm.
on the Judiciary, 33 (Nov. 14, 2019) (on file with Comm.) (``Amazon
accounts for roughly 83 percent of all e-book sales, about 90 percent
of online print sales, and about 90 percent of digital audiobook
sales.''); Dig. Competition Expert Panel Report at 30 (``In the e-book
market, Amazon was reported in February 2017 to account for around 88%
of total annual unit sales.'').
---------------------------------------------------------------------------
Amazon is the dominant online marketplace. It reportedly
controls about 65-70 percent of all U.S. online marketplace
sales.\1562\ The platform's market power is at its height in
its dealings with third-party sellers, as well as many of its
suppliers, which Amazon refers to as vendors. Increasingly,
Amazon is also gaining market power in certain business-to-
business (B2B) online markets through Amazon Business, its B2B
marketplace.\1563\
---------------------------------------------------------------------------
\1562\ Submission from Top Shelf Brands, to H. Comm. on the
Judiciary, 26 (Oct. 26, 2019) (on file with Comm.) (citing Dig.
Commerce 360, 2019 Online Marketplaces Report).
\1563\ See Marketplace Pulse, Marketplaces Year in Review 48
(2019), https://cdn .marketplacepulse.com/misc/marketplaces-year-in-
review-2019.pdf (``Amazon's `business-to-business,' or B2B, marketplace
is gaining market share faster than its retail operation.''); Phone
Interview with Nat'l Ass'n of Wholesaler-Distributors (Sept. 3, 2020);
Stacy Mitchell & Olivia Lavecchia, Report: Amazon's Next Frontier: Your
City's Purchasing 4 (2018), https://ilsr.org/amazon-and-local-
government-purchasing/ (``Amazon is leveraging its growing relationship
with local governments to induce more businesses to join its
Marketplace.'').
---------------------------------------------------------------------------
In response to the Committee's requests for information,
Amazon claims that ``estimates of total retail share are the
most appropriate and relevant method of estimating'' Amazon's
market share.\1564\ This approach is inconsistent with evidence
gathered by the Subcommittee, conventional antitrust analysis
of relevant product markets, and common sense. In a recent
investigation, for example, the FTC concluded that a ``relevant
market may be divided by channel of sale, resulting in separate
markets for brick-and-mortar sales and online sales.'' \1565\
Illustrating the extent of Amazon's overly broad approach to
identifying the relevant market and its top competitors, in
response to the Committee's request for ``[a] list of the
Company's top ten competitors,'' Amazon identified 1,700
companies, including Eero (a company Amazon owns), a discount
surgical supply distributor, and a beef jerky company.\1566\
---------------------------------------------------------------------------
\1564\ Submission from Amazon, to H. Comm. on the Judiciary, 3
(Oct. 14, 2019).
\1565\ See Complaint at 4, In re Edgewell Personal Care Co., No.
9390 (Fed. Trade Comm'n Feb. 2, 2020), https://www.ftc.gov/system/
files/documents/cases/public_p3_complaint_-_edge
well-harrys.pdf.
\1566\ See Submission from Amazon, to H. Comm. on the Judiciary, 17
(Oct. 14, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Amazon also included single-category companies in response
to the Committee's request for a list of Amazon's top ten
competitors. Yet documents produced by Amazon suggest that even
in its early days it did not view such retailers as direct
competitors. For instance, a recap of an Amazon marketing
presentation identified one of its key points as: ``No direct
competitors, closest competitors would be what you refer to as
category driven, i.e. Best Buy, Barnes and Noble . . . etc.''
\1567\
---------------------------------------------------------------------------
\1567\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-0059575 (Nov. 22, 2010) (on file with Comm.).
---------------------------------------------------------------------------
Regardless of the precise boundaries of e-commerce or
online marketplaces, the sum of evidence that the Subcommittee
examined demonstrates that Amazon functions as a gatekeeper for
e-commerce. Amazon is the most-visited website in the world for
e-commerce and shopping.\1568\ In a submission to the
Committee, an e-commerce market participant said that ``many of
the 64% of American households that have Prime memberships are
effectively locked into Amazon for their online shopping.''
\1569\ Meanwhile, recent market analysis suggests that over 60
percent of all online product searches in the U.S. begin on
Amazon.com.\1570\
---------------------------------------------------------------------------
\1568\ Similarweb, Worldwide E-Commerce and Shopping Category
Performance (July 2020), https://pro.similarweb.com/#/industry/
overview/E-commerce_and_Shopping/999/1m/?webSource=Total (Amazon had
2.6 billion visits in July 2020 compared to 940.8 million visits for
eBay).
\1569\ Submission from Source 11, to H. Comm. on the Judiciary, 5
(Oct. 14, 2019) (on file with Comm.).
\1570\ Lucy Koch, Looking for a New Product? You Probably Searched
Amazon, Emarketer (Mar. 31, 2019), https://www.emarketer.com/content/
looking-for-a-new-product-you-probably-searched-amazon (citing
Feedvisor, The 2019 Amazon Consumer Behavior Report 14 (2019)); see
also Wunderman Thompson, The Future Shopper Report 2020, at 11 (2020),
https://
insights.wundermanthompsoncommerce.com/hubfs/@UK/Landing%20Pages/2020/
The%20
Future%20Shopper%202020/WTC%20-
%20The%20Future%20Shopper%20Report%202020.pdf.
---------------------------------------------------------------------------
At the Subcommittee's hearing on innovation and
entrepreneurship, Stacy Mitchell, the Co-Director of the
Institute for Local Self-Reliance, described one independent
retailer's attempt to survive in e-commerce independent of
Amazon:
LAs its customers moved online, so too did the company.
Gazelle Sports built a robust e-commerce site. With scores of
enthusiastic reviews on Google and Yelp, the site came right up
in online searches, yielding a brisk stream of customers and
sales.
LBut, in 2014, sales began to decline. The problem was
that many people in Michigan and across the country were no
longer starting their online shopping on a search engine, where
they might find Gazelle Sports. Instead, they were going
straight to Amazon. By 2016, the share of online shoppers
bypassing search engines and beginning their product search on
Amazon had grown to 55 percent. With sales flagging and staff
reductions underway, the owner of Gazelle Sports . . . made
what seemed like a necessary decision: Gazelle Sports would
join Amazon Marketplace, becoming a third-party seller on the
digital giant's platform. ``If the customer is on Amazon, as a
small business you have to say, `That is where I have to go,'
'' he explained. ``Otherwise, we are going to close our
doors.'' \1571\
---------------------------------------------------------------------------
\1571\ Innovation and Entrepreneurship Hearing at 190-191
(statement of Stacy F. Mitchell, Co-Dir., Inst. for Local Self-
Reliance).
Interviews with sellers, as well as documents that the
Subcommittee reviewed, make clear that Amazon has monopoly
power over most third-party sellers and many of its
suppliers.\1572\ Numerous sellers told the Subcommittee in
interviews that they cannot turn to alternative marketplaces,
regardless of how much Amazon may increase their costs of doing
business or how badly they are treated. David Barnett, the CEO
and Founder of PopSockets, a former third-party seller and
current Amazon supplier, testified about Amazon's coercive
tactics at one of the Subcommittee's hearings:
---------------------------------------------------------------------------
\1572\ See, e.g., Submission from Top Shelf Brands, to H. Comm. on
the Judiciary, 49 (Oct. 26, 2019) (``98% of all of Top Shelf's
transaction[s] has taken place on Amazon's platform.''); see also Dig.
Competition Expert Panel Report at 30 (``Regardless of the view on
dominance over a particular defined market, it is clear that for
thousands of smaller independent online sellers in particular, Amazon's
marketplace is a strategically important gateway to consumers.'').
LI suspect that Amazon is accustomed to behaving this way
because most brands cannot afford to leave Amazon. They
evidently have no choice but to endure tactics that would be
rejected out of hand in any ordinary relationship whereby the
two parties enter into the relationship by preference rather
than necessity.\1573\
---------------------------------------------------------------------------
\1573\ Competitors Hearing at 20 (statement of David Barnett, CEO &
Founder, PopSockets LLC).
Sellers feel forced to be on Amazon because that is where
the buyers are.\1574\ At the Subcommittee's sixth hearing,
Representative Lucy McBath (D-GA) noted that the evidence the
Subcommittee collected is at odds with how Amazon describes its
relationship with third-party sellers. She asked Mr. Bezos:
---------------------------------------------------------------------------
\1574\ Submission from Source 11, to H. Comm. on the Judiciary, 5
(Oct. 14, 2019) (on file with Comm.).
L[Y]ou referred to third party sellers today as ``Amazon's
partners'' and that your success depends on their success. But,
over the past year, we've heard a completely different story.
As part of this investigation, we've interviewed many small
businesses, and they use the words like ``bullying,'' ``fear,''
and ``panic'' to describe their relationship with Amazon . . .
. You said that sellers have many other attractive options to
reach customers, but that's not at all what we found in our
investigation . . . . If Amazon didn't have monopoly power over
these sellers, do you think they would choose to stay in a
relationship that is characterized by bullying, fear, and
panic? \1575\
---------------------------------------------------------------------------
\1575\ CEO Hearing at 114-15 (question of Rep. Lucy McBath (D-GA),
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
Mr. Bezos responded that ``there are a lot of options'' for
sellers, and that ``[t]here are more and more every day.''
\1576\ This claim is inconsistent with the Subcommittee's
investigative record. In a submission to the Committee, the
Online Merchants Guild, a trade association for small- and
medium-sized online sellers, said that its members who try to
diversify sales across multiple platforms often report that
they are unable to generate many sales outside of Amazon.\1577\
---------------------------------------------------------------------------
\1576\ Id. at 115 (statement of Jeff Bezos, CEO, Amazon.com, Inc.).
\1577\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 4 (Oct. 23, 2019) (on file with Comm.) (``Members who sell
across multiple platforms often report the amount of revenue generated
outside of Amazon including their own eCommerce site, is insignificant,
with over 90% of their sales being generated on the platform.''); see
also Submission from Top Shelf Brands, to H. Comm. on the Judiciary,
60-61 (Oct. 26, 2019) (explaining that it has ``no viable
alternatives'' to Amazon, where 98 percent of its transactions have
taken place on Amazon's platform, eBay accounts for one percent of its
income, and Walmart accounts for less than one percent).
---------------------------------------------------------------------------
An important limit on a seller's ability to switch from
selling on Amazon to selling on its own site or a competing
platform is that Amazon generally forbids sellers from
contacting their customers.\1578\ The packaging and even the
order confirmation email for third-party sales feature the
Amazon brand prominently and do not reference the seller. A
typical Amazon customer is unaware of the source of the
sale.\1579\ According to the Online Merchants Guild, ``Many
Amazon sellers use websites such as Shopify to try and
establish their own eCommerce presence, but without the ability
to market to their supposed core customer base, their Amazon
customers, it's pretty futile.'' \1580\
---------------------------------------------------------------------------
\1578\ Selling Polices and Seller Code of Conduct, Amazon Seller
Cent., https://sellercentral.amazon.com/gp/help/external/
G1801?language=en_US&ref=efph_G1801_cont
_200386250 (last visited Sept. 28, 2020); see also Submission from
Source 100, to H. Comm. on the Judiciary (Sept. 26, 2020) (raising
concerns that Amazon permits itself to contact customers about negative
reviews for Amazon-branded products, while third-party sellers are
largely barred from customer engagement).
\1579\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 4 (Oct. 23, 2019) (on file with Comm.); see also Submission
from Source 11, to H. Comm. on the Judiciary, 3 (Oct. 14, 2019) (on
file with Comm.) (explaining that, ``[w]henever an order is shipped
through [Fulfillment by Amazon], even if the purchase is made through
another marketplace, it is likely to arrive in an Amazon-branded box,
creating confusion'' for customers).
\1580\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 5 (Oct. 23, 2019) (on file with Comm.).
---------------------------------------------------------------------------
The Subcommittee heard from several market participants
that Amazon also has significant market power over suppliers.
For example, third-party sellers told the Subcommittee that
Amazon frequently ignores manufacturer policies that bind
sellers.\1581\ For example, brand manufacturers may establish
minimum advertised pricing guidelines (MAP) to prevent online
retailers from freeriding off brick-and-mortar stores'
investments in product display or expertise--such as how to fit
a running shoe. Amazon's leverage over suppliers gives it the
ability to ``break'' minimum advertised pricing rules and
undercut competing sellers on price. In contrast, third-party
sellers must abide by the rules. As a former third-party seller
explained, ``Given Amazon's immense clout, we believe that
suppliers have no realistic threat to stop selling on Amazon in
response to Amazon `breaking' MAP.'' \1582\ Amazon's internal
documents suggest that it does not fear any consequences for
failing to comply with most vendor policies.\1583\
---------------------------------------------------------------------------
\1581\ See, e.g., Phone Interview with Source 84 (Mar. 4, 2020).
\1582\ Submission from Source 48, to H. Comm. on the Judiciary, 8
(Nov. 8, 2019) (on file with Comm.).
\1583\ See, e.g., Submission from Amazon, to H. Comm. on the
Judiciary, AMAZON-HJC-00151722 (Feb. 9, 2009) (on file with Comm.)
(``[P]lease audit that we are price matching . . . any diapers.com
pricing. If this puts us in the soup with P&G on their pampers map
price, so be it.''); id. at AMAZON-HJC-00206714 (Mar. 8, 2018) (``Why
did Walmart break MAP and we didn't?'').
---------------------------------------------------------------------------
Another way that Amazon leverages its market power is to
force certain brand manufacturers that would prefer to be
third-party sellers into being wholesalers. A discussion among
Amazon executives suggests that certain brands may only be
allowed to have a wholesale relationship with Amazon even if
the brand would prefer to be a third-party seller. In 2016,
Sebastian Gunningham, then senior vice president of Amazon
Marketplace, commented on a list of proposed seller tenets, ``I
would add that there are x,000 suppliers around the world that
do not get this choice . . . I am talking about the apple,
nikes and p&g, etc . . . . We don't want to open that door,
relationship has to be reseller.'' \1584\ Consistent with this
stance, Popsockets CEO and Founder David Barnett testified that
Amazon attempted to force him into maintaining a wholesale
relationship with Amazon Retail despite his preference to be a
third-party seller or make sales on the marketplace through an
authorized distributor.\1585\ A former Amazon employee
confirmed that it was not uncommon for Amazon to use its brand
standards policy to shut down a brand's third-party seller
account and force brands into an exclusive wholesaler
relationship.\1586\
---------------------------------------------------------------------------
\1584\ Id. at AMAZON-HJC-00190108 (June 6, 2016) (on file with
Comm.).
\1585\ Competitors Hearing at 20 (statement of David Barnett, CEO &
Founder, PopSockets LLC).
\1586\ Submission from Source 91, to H. Comm. on the Judiciary
(Sept. 22, 2020) (on file with Comm.).
---------------------------------------------------------------------------
Amazon also enjoys significant market power over online
consumers. Amazon uses Prime and its other membership programs
to lock consumers into the Amazon ecosystem. According to an
internal analysis, Amazon was willing to pay a credit card
company a significant sum in 2013 for signing up new Prime
members under the assumption that each new member would
contribute $527 to Amazon's gross merchandise sales and $46 of
gross profit.\1587\ Amazon estimated that the deal had a five-
year net present value of $17 million, assuming that it
delivered 100,000 paid Prime members.\1588\
---------------------------------------------------------------------------
\1587\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00199845 (Oct. 23, 2013) (on file with Comm.).
\1588\ Id.
---------------------------------------------------------------------------
Once Prime members pay the upfront annual membership fee,
they are likely to concentrate their online purchases with
Amazon.\1589\ According to a recent survey, Prime members spend
an average of $1,400 annually on Amazon, versus $600 for non-
members.\1590\ As one market participant observed, ``Prime
members will continue to use Amazon and not switch to competing
platforms, despite higher prices and lower-quality items on
Amazon compared to other marketplaces, and despite recent
increases in the price of a Prime membership.'' \1591\
---------------------------------------------------------------------------
\1589\ See Submission from Source 11, to H. Comm. on the Judiciary,
3 (Oct. 14, 2019) (on file with Comm.) (``Amazon has been quite frank
about the reality that once consumers invest in Prime, they do most of
their online shopping on Amazon in order to gain value from the
investment in shipping, whereas they might otherwise multisource.'').
\1590\ Tonya Garcia, Amazon Prime Membership Exceeds 100 Million,
Marketwatch (Jan. 17, 2019), https://www.marketwatch.com/story/amazon-
prime-membership-exceeds-100-million-2019-01-17; see also Brian
Olsavsky, Senior Vice President & Chief Fin. Officer, Amazon.com, Inc.,
Q1 2020 Earnings Call (Apr. 30, 2020, 5:30 p.m.) (``We see our Prime
customers are shopping more often and they have larger basket
sizes.'').
\1591\ Submission from Source 11, to H. Comm. on the Judiciary, 3
(Oct. 14, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Other retailers are unable to match Amazon on its ability
to provide free and fast delivery for such a large volume and
inventory of products. Even Walmart, with its extensive
national distribution network, does not come close to matching
Amazon on this measure.\1592\ Amazon currently offers Prime
members free, next-day delivery on over 10 million items
anywhere in the continental United States.\1593\ Walmart, by
contrast, has only about 200,000 products eligible for two-day
shipping in select markets.\1594\
---------------------------------------------------------------------------
\1592\ See J.P. Morgan, Retail vs. Amazon: Life in a Post COVID-19
World (2020), https://markets.jpmorgan.com/research/email/-lbk68f4/
Alp1kP9tQUPS29jlzW_bOg/GPS-3397412-0 (``We believe there are no
comparable unlimited free shipping offerings available at scale, with
Amazon's large and growing infrastructure investments serving as a
significant barrier to entry.'').
\1593\ Prime, Amazon, https://www.amazon.com/
b?ie=UTF8&node=15247183011 (last visited Sept. 28, 2020) (``Free One-
Day Delivery . . . . Available coast-to-coast on more than 10 million
items with no minimum purchase.'').
\1594\ Press Release, Marc Lore, President & CEO, Walmart eCommerce
US, Free NextDay Delivery Without a Membership Fee (May 14, 2019),
https://corporate.walmart.com/newsroom/2019/05/14/free-nextday-
delivery-without-a-membership-fee; Walmart Help Center: NextDay
Delivery, Walmart, https://www.walmart.com/help/article/nextday-
delivery/fd3f1c5cf0ec4682
abca8c83f5f0e977 (last visited Sept. 28, 2020) (``Currently, NextDay
Delivery is only available in select markets.'').
---------------------------------------------------------------------------
Amazon's market power is durable and unlikely to erode in
the foreseeable future. There are several factors that make
successful entry or expansion by a challenger to Amazon
unlikely. Barriers to entry include: (1) network effects, which
make it difficult for another marketplace to achieve a
comparable number of buyers and sellers; (2) switching costs
associated with consumers shopping outside of the Amazon
ecosystem; and (3) the steep costs of building a logistics
network comparable in size and scope to Amazon's massive
international footprint in fulfillment and delivery. Amazon's
internal documents recognize that entry into online commerce
``require[s] significant incremental investments in brand
development, inventory, and marketing/customer acquisition.''
\1595\ Further, Amazon expanded its market power by avoiding
taxes, extracting state subsidies, and engaging in
anticompetitive conduct--tactics that have given the company an
unfair advantage over actual and potential competitors.
---------------------------------------------------------------------------
\1595\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00154659 (Nov. 23, 2010) (on file with Comm.).
---------------------------------------------------------------------------
As the COVID-19 pandemic pushes more American shoppers
online, Amazon's market power has grown. Evidence shows that
Amazon is willing to use its increased market power in e-
commerce during this crisis to exert pressure on suppliers and
favor its own first-party products over those sold by third-
party sellers. Amazon initially responded to the sudden surge
in sales by refusing to accept or deliver non-essential
supplies from its third-party sellers--a stance that would seem
reasonable except that Amazon continued to ship its own non-
essential products while restricting third-party sellers'
ability to use alternative distribution channels to continue
selling through Prime.\1596\ As for suppliers, the Subcommittee
heard concerns that the platform used its power as a large
buyer to pressure suppliers into prioritizing Amazon over other
retail customers such as independent grocers.\1597\ Meanwhile,
numerous reports suggest that Amazon is in talks to convert
real estate in vacated malls into additional Amazon
distribution centers, further highlighting how it will continue
to amass further scale even as its brick-and-mortar
counterparts crater.\1598\
---------------------------------------------------------------------------
\1596\ Ron Knox & Shaoul Sussman, How Amazon Used the Pandemic to
Amass More Monopoly Power, Nation (June 26, 2020), https://
www.thenation.com/article/politics/amazon-bezos-pandemic-monopoly/.
\1597\ Phone Interview with Nat'l Grocers Ass'n (May 28, 2020)
(raising concerns that Amazon and some Big Box retailers may have used
their buyer power over suppliers during the pandemic to secure
inventory at the expense of smaller businesses); Letter from Int'l Bhd.
of Teamsters, Commc'n Workers of Am., United Food & Commercial Workers
Int'l Union & Change to Win, to Comm'rs of the Fed. Trade Comm'n, 6
(July 23, 2020) (stating that, if seller reports are true, ``Amazon's
hold over sellers effectively took food from the shelves of
neighborhood grocery stores . . . and moved it to Amazon's own
warehouses, where it earned fees for Amazon''); see also Renee Dudley,
The Amazon Lockdown: How an Unforgiving Algorithm Drives Suppliers to
Favor the E-Commerce Giant over Other Retailers, ProPublica (Apr. 26,
2020), https://www.propublica.org/article/the-amazon-lockdown-how-an-
unforgiving-algorithm-drives-suppliers-to-favor-the-e-commerce-giant-
over-other-retailers.
\1598\ Esther Fung & Sebastian Herrera, Amazon and Mall Operator
Look at Turning Sears, J.C. Penney Stores into Fulfillment Centers,
Wall St. J. (Aug. 9, 2017), https://www.wsj.com/articles/amazon-and-
giant-mall-operator-look-at-turning-sears-j-c-penney-stores-into-
fulfillment-centers-11596992863.
(b) Merger Activity. Amazon's acquisition strategy has
primarily focused on purchasing its competitors and companies
that operate in adjacent markets, providing access to
additional valuable customer data. This strategy has
effectively protected and expanded Amazon's market power in e-
commerce and helped Amazon extend that power to other markets.
Over the past two decades, Amazon has acquired at least 100
companies.\1599\ It has been particularly aggressive over the
past few years, making deals that are bigger and more ambitious
relative to its historical approach.\1600\ In 2017, the company
made its largest acquisition to date by purchasing Whole Foods
for $13.7 billion.\1601\ Amazon's other large purchases include
Ring, which it bought for $1.2 billion in 2018; PillPack, which
it bought for $1 billion in 2018; and Zappos, which it bought
for $1.2 billion in 2009.\1602\ Over the years, Amazon has
acquired an assortment of highly recognizable companies,
including IMDB.com, which it bought in 1998; Audible, which it
bought in 2008; Goodreads, which it bought in 2013; and Twitch,
which it bought in 2014.\1603\
---------------------------------------------------------------------------
\1599\ See infra Appendix.
\1600\ Infographic: Amazon's Biggest Acquisitions, CB Insights
(June 19, 2019), https://www.cbinsights.com/research/amazon-biggest-
acquisitions-infographic/.
\1601\ Id.
\1602\ Id.
\1603\ Amazon Acquisitions, Microacquire, https://acquiredby.co/
amazon-acquisitions/ (last visited Oct. 3, 2020).
---------------------------------------------------------------------------
Amazon's acquisition strategy has led to fewer choices for
consumers in terms of differentiated online retail channels, as
well as reduced competitive pressure in terms of price and
quality. Additionally, Amazon's expansion into a diverse array
of business lines--from brick-and-mortar supermarkets to home
security--has reinforced its significant stockpile of consumer
data. With more data about online and offline consumer
behavior, Amazon's acquisitions set in motion a self-
reinforcing cycle, creating an ever-widening gap between the
platform and its competitors. As one former Amazon employee
told the Subcommittee, ``Amazon is first and foremost a data
company[;] they just happen to use it to sell stuff.'' \1604\
---------------------------------------------------------------------------
\1604\ Interview with Source 91 (May 8, 2020); see also Submission
from Artist Rights Alliance, to H. Comm. on the Judiciary, 2 (July 31,
2019) (on file with Comm.) (``With respect to the music world, at the
heart of this problem lies a simple, economic truth--companies like . .
. Amazon are not music businesses. They are advertising platforms and
data machines. As our then-President, Melvin Gibbs, told the New York
Times back in 2017, `None of these companies that are supposedly in the
music business are actually in the music business. They are in the
data-aggregation business. They're in the ad-selling business. The
value of music means nothing to them.' '').
---------------------------------------------------------------------------
Over its history, Amazon has acquired a number of its
rivals.\1605\ A decade ago, Amazon acquired two of its direct
competitors: Zappos and Quidsi.\1606\ Documents reviewed by the
Subcommittee show that Amazon viewed both online retailers as
competitive threats prior to acquiring them.
---------------------------------------------------------------------------
\1605\ See Stigler Report at 75 n.152 (``The number of potential
competitors purchased by the tech giants is large. For example, Amazon
has purchased Zappos, Fabric, CDNow, Quorus, Audible, Goodreads, and
Quidsi.''); Tim Wu, The Curse of Bigness: Antitrust in the New Gilded
Age 124 (2018) (``Amazon acquired would-be competitors like Zappos,
Diapers.com, and Soap.com.'').
\1606\ Amazon Closes Zappos Deal, Ends Up Paying $1.2 Billion,
TechCrunch (Nov. 2, 2009), https://techcrunch.com/2009/11/02/amazon-
closes-zappos-deal-ends-up-paying-1-2-billion/; Confirmed: Amazon
Spends $545 Million on Diapers.com Parent Quidsi, TechCrunch (Nov. 8,
2010), https://techcrunch.com/2010/11/08/confirmed-amazon-spends-545-
million-on-diapers-com-parent-quidsi/.
---------------------------------------------------------------------------
Amazon's 2009 acquisition of Zappos, an online shoe
retailer, marked the company's first $1 billion-plus
purchase.\1607\ Acquiring Zappos provided Amazon with two
important advantages. First, it enabled Amazon to add
significant selection to its category of shoes and other
fashion-related items at a time when expanding its selection
was critical to the company's success.\1608\ The added
selection included access to ``hold-out'' brands, which had
previously refused to sell on Amazon.com or Amazon's other
online retail store Endless.com.\1609\ Second, Zappos's unique
approach to customer service, marked by ``a deeply felt
connection with customers,'' added an emotional and
psychological element to Amazon's relationship with
consumers.\1610\ An Amazon internal planning document from 2008
referred to Zappos as one of Endless's ``primary competitors,''
and noted that ``Zappos offers the largest selection of brands
and styles and carries all of our top holdouts including Nike,
Merrell, Keen, Cole Haan and Michael Kors.'' \1611\
---------------------------------------------------------------------------
\1607\ Eric Engleman, Amazon and Zappos, Six Months Later: How
They're Fitting Together, Puget Sound Bus. J. (May 21, 2010), https://
www.bizjournals.com/seattle/blog/techflash/2010/05/
amazon_and_zappos_how _theyre_fitting_together.html.
\1608\ Bill Taylor, Amazon and Zappos: A Savvy Deal, Harv. Bus.
Rev. (July 23, 2009), https://hbr.org/2009/07/a-savvy-deal-from-amazon-
to-za.
\1609\ Alistair Barr, Amazon to Close Fashion Website Endless.com,
Reuters: Indus., Materials & Utils. (Sept. 18, 2012), https://
www.reuters.com/article/amazon-endless/amazon-to-close-fashion-website-
endless-com-idUSL1E8KINKD20120918 (quoting an Amazon spokesman who
stated that Amazon shut down Endless.com as an independent site in 2012
and incorporated it into Amazon's main website, Amazon.com, ``in order
to focus on the Amazon Fashion experience'').
\1610\ Bill Taylor, Amazon and Zappos: A Savvy Deal, Harv. Bus.
Rev. (July 23, 2009), https://hbr.org/2009/07/a-savvy-deal-from-amazon-
to-za.
\1611\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00170649 (Sept. 23, 2008) (on file with Comm.).
---------------------------------------------------------------------------
About a year later, Amazon acquired Quidsi, the parent
company of Diapers.com and Soap.com, for about $540
million.\1612\ Prior to buying it, Amazon identified
Diapers.com as its ``largest and fastest growing competitor in
the on-line diaper and baby care space,'' \1613\ and its ``#1
short term competitor.'' \1614\ Amazon's internal documents
said that Diapers.com ``keep[s] the pressure on pricing on us''
and provided extremely high customer service levels, which--
prior to the merger--had forced Amazon to up its game.\1615\
Amazon executives took swift and predatory action in response
to this competitive threat. As Representative Mary Gay Scanlon
(D-PA) summarized at the Subcommittee's sixth hearing, Amazon's
internal documents ``show that Amazon employees began
strategizing about ways to weaken this company, and, in 2010,
Amazon hatched a plot to go after Diapers.com and take it
out.'' \1616\ Specifically, Amazon's documents show that the
firm entered into an aggressive price war, in which Amazon was
willing to bleed over $200 million in losses on diapers in one
month.\1617\ Addressing Mr. Bezos, Representative Scanlon
added, ``Your own documents make clear that the price war
against Diapers.com worked, and within a few months it was
struggling, and so then Amazon bought it.'' \1618\
---------------------------------------------------------------------------
\1612\ Claire Cain Miller, Amazon Has a Reported Deal to Buy Parent
of Diapers.com, N.Y. Times (Nov. 7, 2010), https://www.nytimes.com/
2010/11/08/technology/08amazon.html.
\1613\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00142833 (May 12, 2009) (on file with Comm.).
\1614\ Id. at AMAZON-HJC-00151722 (Feb. 9, 2009).
\1615\ Id. at AMAZON-HJC-00151722 to -00151724.
\1616\ CEO Hearing at 109 (question of Rep. Mary Gay Scanlon (D-
PA), Vice Chair, H. Comm. on the Judiciary).
\1617\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00057007 (Apr. 5. 2010) (on file with Comm.).
\1618\ CEO Hearing at 110 (question of Rep. Mary Gay Scanlon (D-
PA), Vice Chair, H. Comm. on the Judiciary).
---------------------------------------------------------------------------
In 2017, Amazon shut down Diapers.com, citing profitability
issues, though some industry experts questioned the legitimacy
of this rationale.\1619\ In shutting down the company, Amazon
eliminated a differentiated online retailer that consumers
loved \1620\--reducing the number of online options for
consumers in the diaper and baby care markets. Further, it
eliminated a potential competitor in other verticals such as
household goods, toys, and pets.\1621\
---------------------------------------------------------------------------
\1619\ See, e.g., Jason Del Rey, Why Amazon's Explanation for
Shutting Down Diapers.com and Quidsi Stunned Employees, Vox: Recode
(Apr. 2, 2017), https://www.vox.com/2017/4/2/15153844/amazon-quidsi-
shutdown-explanation-profits.
\1620\ See, e.g., Submission from Amazon, to H. Comm. on the
Judiciary, AMAZON-HJC-00034097 (Nov. 8, 2010) (on file with Comm.)
(email from Diapers.com founder Vinit Bharara forwarding a customer
testimonial in the form of a poem titled ``An Ode to Diapers.com,''
beginning, ``Oh how do I love thee, my Diapers.com?'' and ending with
``Don't ever leave me, my Diapers.com'').
\1621\ Id. at AMAZON-HJC-00154656 (noting that, ``[a]lthough Quidsi
is still primarily an online baby care specialty retailer, it has
recently begun selling new items such as household goods and personal-
care products with the launch of Soap.com . . . . In the future,
management intends to launch additional vertical shopping categories
such as beauty, toys and pets.''); id. at AMAZON-HJC-00132026 (June 8,
2010) (email from Doug Herrington, Vice President of Consumables, to
Jeff Bezos stating, ``While we find no evidence that alice.com has
gotten traction with vendors or customers, and can't see an economic
model for them that pencils out, soap.com feels like a more credible
threat'').
---------------------------------------------------------------------------
More recently, Amazon acquired Whole Foods, a strategic
move to acquire both a competitor \1622\ and a new source of
customer data.\1623\ Amazon purchased Whole Foods at around
$13.7 billion, more than 10 times the cost of its second-most
expensive acquisition.\1624\ In addition to bolstering its
position in the grocery market, Amazon's purchase of Whole
Foods expanded its touchpoints with Prime members and gave it
access to a unique set of customer information.\1625\
Specifically, the deal enabled Amazon to monitor and compile
data on how the same person shops both online and in person,
data that is particularly useful for targeted advertising and
promotional campaigns.\1626\
---------------------------------------------------------------------------
\1622\ Id. at AMAZON-HJC-00172932 (June 22, 2017) (showing analysis
that, for Amazon Fresh customers who don't do 100 percent shopping on
Amazon Fresh, Whole Foods is consistently among the top 5 stand-alone
national chains where Amazon Fresh customers do their grocery
shopping).
\1623\ Lauren Hirsch, A Year After Amazon Announced Its Acquisition
of Whole Foods, Here's Where We Stand, CNBC (June 15, 2018), https://
www.cnbc.com/2018/06/15/a-year-after-
amazon-announced-whole-foods-deal-heres-where-we-stand.html.
\1624\ Infographic: Amazon's Biggest Acquisition, CB Insights (June
19, 2019), https://www.cbinsights.com/research/amazon-biggest-
acquisitions-infographic/.
\1625\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00172090 (June 22, 2017) (on file with Comm.) (``[A] survey
said about 45% of [Whole Foods Market] customers are Prime; and about
20% of Prime members shop at [Whole Foods Market].''); id. at AMAZON-
HJC-00173652 (June 23, 2017) (on file with Comm.) (``Based on our
survey results, we estimate that approximately 46% of Prime members
have shopped at a [Whole Foods] store in the last four weeks.'').
\1626\ Lauren Hirsch, A Year After Amazon Announced Its Acquisition
of Whole Foods, Here's Where We Stand, CNBC (June 15, 2018), https://
www.cnbc.com/2018/06/15/a-year-after-
amazon-announced-whole-foods-deal-heres-where-we-stand.html.
---------------------------------------------------------------------------
While the deal was under review by the FTC, then-Ranking
Member Cicilline raised concerns that ``the proposed
acquisition w[ould] result in additional consolidation in the
retail sector, erode American jobs through increased
automation, and threaten local communities through diminished
economic opportunity for hardworking Americans.'' \1627\
Amazon's acquisition of Whole Foods has added to the platform's
market power in retail by increasing its buyer power over
suppliers,\1628\ adding to the platform's capabilities in
online grocery, and expanding the company's brick-and-mortar
retail footprint. In addition, it appears that concerns about
diminished economic opportunities may have been well-founded as
Amazon reportedly plans to implement cashier-less technology
across all of its Whole Foods stores.\1629\
---------------------------------------------------------------------------
\1627\ Letter from Hon. David N. Cicilline, Ranking Member,
Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the H.
Comm. on the Judiciary, to Hon. Bob Goodlatte, Chair, H. Comm. on the
Judiciary, & Hon. Tom Marino, Chair, Subcomm. on Regulatory Reform,
Commercial and Antitrust Law of the H. Comm. on the Judiciary, 3 (July
13, 2017), https://cicilline.house.gov/sites/cicilline.house.gov/files/
images/
Amazon_Whole_ Foods_Acquistion.pdf.
\1628\ See, e.g., Interview with Source 153 (May 11, 2020);
Interview with Nat'l Grocers Ass'n (May 28, 2020).
\1629\ Taylor Lyles, Amazon Go's Cashierless Tech May Come to Whole
Foods As Soon As Next Year, Verge (Aug. 24, 2020), https://
www.theverge.com/2020/8/24/21399607/amazon-cashier
less-go-technology-whole-foods-2021-rumor.
---------------------------------------------------------------------------
In recent years, Amazon has also made several significant
acquisitions of home security companies, further expanding its
reach and visibility into Americans' homes. An Amazon executive
described the company's in-home strategy by noting, ``Two
senses matter--eyes and ears.'' \1630\ In 2017, Amazon paid $90
million to acquire Blink, a home security camera company whose
technology and energy-efficient chips could be used by Amazon
in its Echo speakers and other products.\1631\ In 2018, Amazon
spent $1.2 billion to acquire Ring, a home-security system
spanning cameras, doorbells, and floodlights.\1632\ Ring's
``eyes and ears'' add significant value to Amazon's smart home,
allowing customers to virtually interact with Amazon delivery
personnel and instruct them on where to drop off Amazon
packages.\1633\ Amazon's significant investments in the
Internet of Things ecosystem and its strategy, centered on
Amazon's voice assistant, Alexa, are discussed in other parts
of this Report.
---------------------------------------------------------------------------
\1630\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00170877 (Oct. 11, 2017) (on file with Comm.).
\1631\ Jeffrey Dastin, Amazon Quietly Dropped $90 Million on a
Camera Startup Last Year to Acquire Its Unique Chip Technology, Bus.
Insider (Feb. 12, 2018), https://www.business
insider.com/amazon-blink-camera-maker-acquisition-2018-2.
\1632\ Dennis Green, Amazon's $1 Billion Acquisition of the Door
Camera Startup Ring Is the Company Doing What It Does Best--and It
Should Terrify Every Other Retailer, Bus. Insider (Mar. 3, 2018),
https://www.businessinsider.com/why-amazon-acquired-ring-2018-3.
\1633\ Id.
---------------------------------------------------------------------------
Other notable acquisitions include Kiva Systems in 2012,
which provided Amazon with a robotics company that accelerated
its ability to streamline picking, packing, and shipping e-
commerce products; \1634\ and PillPack in 2018, which equips
Amazon with an online pharmacy and marks its entry into the
pharmaceutical market.\1635\
---------------------------------------------------------------------------
\1634\ Leena Rao, Amazon Acquires Robot-Coordinated Order
Fulfillment Company Kiva Systems for $775 Million in Cash, TechCrunch
(Mar. 19, 2012), https://techcrunch.com/2012/03/19/amazon-acquires-
online-fulfillment-company-kiva-systems-for-775-million-in-cash/.
\1635\ Christina Farr, The Inside Story of Why Amazon Bought
PillPack in Its Effort to Crack the $500 Billion Prescription Market,
CNBC (May 13, 2019), https://www.cnbc.com/2019/05/10/why-amazon-bought-
pillpack-for-753-million-and-what-happens-next.html.
---------------------------------------------------------------------------
Amazon's acquisition of Kiva gave it power over an
important input for competitors. When Amazon bought the
robotics company, Kiva was supplying technology to a large
number of retailers, including Gap, Staples, and
Walgreens.\1636\ Many of these customers had invested a sunk
cost of $4 million to $6 million per warehouse in order to make
use of Kiva's technologies.\1637\ Kiva had promised to keep
shipping its technology to non-Amazon customers--regardless of
whether they competed with Amazon--but in 2015, Amazon
rebranded the company as Amazon Robotics and announced it would
stop servicing other firms.\1638\ Amazon stated that retailers
seeking to use Kiva's robots would need to use Amazon Services
to fulfill orders with Amazon's technology in Amazon's
warehouses.\1639\
---------------------------------------------------------------------------
\1636\ Evelyn M. Rusli, Amazon.com to Acquire Manufacturer of
Robotics, N.Y. Times: Dealbook (Mar. 19, 2012), https://
dealbook.nytimes.com/2012/03/19/amazon-com-buys-kiva-systems-for-775-
million/.
\1637\ Mick Mountz, Kiva the Disrupter, Harv. Bus. Rev. (Dec.
2012), https://hbr.org/2012/12/kiva-the-disrupter.
\1638\ Adam Putz, M&A Flashback: Amazon Announces $775 M Kiva
Systems Acquisition, Pitchbook (Mar. 19, 2018), https://pitchbook.com/
news/articles/ma-flashback-amazon-
announces-775m-kiva-systems-acquisition.
\1639\ Id.
---------------------------------------------------------------------------
Documents the Subcommittee reviewed relating to the
PillPack deal, meanwhile, give insight into how Amazon views
some acquisitions as opportunities to collect additional
customer data and to cross-sell across its different business
lines. One Amazon executive summarized a potential upside of
the PillPack deal, asking, ``Is there a cross-selling
opportunity with amazon.com based on known maladies from
prescriptions? Or is this prohibited by privacy law? My
understanding is there is a number of different ways we could
cross-sell customers in both directions (Rx< >non-Rx).'' \1640\
Though it is unclear whether, and the extent to which, Amazon
implemented this strategy, the exchange reveals how Amazon
assesses potential acquisitions and the cross-business
opportunities they create, suggesting that the firm views its
vast operations in a highly integrated manner.
---------------------------------------------------------------------------
\1640\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00172665 (May 23, 2018) (on file with Comm.).
---------------------------------------------------------------------------
The FTC investigated several of these transactions,
including Amazon's acquisition of Quidsi, the parent company of
Diapers.com,\1641\ and Whole Foods.\1642\ The agency declined,
however, to challenge any of them as a violation of antitrust
law, despite: (1) strong evidence, in some cases, of direct
head-to-head competition on price and quality between the
merging firms; and (2) evidence that many of these mergers
would enable Amazon to expand or entrench its market power,
particularly in e-commerce. For most, if not all, of the
acquisitions discussed in this Report, the FTC had advance
notice of the deals but did not attempt to block any of them.
---------------------------------------------------------------------------
\1641\ Letter from April Tabor, Acting Sec'y, Fed. Trade Comm'n, to
Thomas Barnett, Covington & Burling LLP (Aug. 22, 2012).
\1642\ Press Release, Fed. Trade Comm'n, Statement of Federal Trade
Commission's Acting Director of the Bureau of Competition on the
Agency's Review of Amazon.com, Inc.'s Acquisition of Whole Foods Market
Inc. (Aug. 23, 2017), https://www.ftc.gov/news-events/press-releases/
2017/08/statement-federal-trade-commissions-acting-director-bureau.
---------------------------------------------------------------------------
In addition to eliminating competitive threats, Amazon's
acquisition strategy has expanded and protected the company's
dominance. The company's significant expansion into new
markets, paired with Amazon's wealth of data from its retail
business, has fueled the platform's increasing market power.
Amazon Associate General Counsel Nate Sutton testified at the
Subcommittee's hearing last July that ``Amazon is proud to be a
company of builders and we have built our company from within,
not through acquisitions.'' \1643\ But the evidence examined
during the investigation demonstrates that Amazon's
acquisitions--including acquisitions of its direct
competitors--have been key to Amazon's attainment, maintenance,
and expansion of market power.
---------------------------------------------------------------------------
\1643\ Innovation and Entrepreneurship Hearing at 39 (statement of
Nate Sutton, Assoc. Gen. Couns., Competition, Amazon.com, Inc.).
---------------------------------------------------------------------------
(c) Conduct
(i) Treatment of Third-Party Sellers
(1) Bullying. While Amazon has referred to third-party
sellers on its Marketplace as ``partners'' and ``customers,''
\1644\ numerous small- and medium-sized businesses told the
Subcommittee that Amazon routinely bullies and mistreats them.
The Online Merchants Guild, a trade association representing
the interests of sellers engaged in online commerce, stated
that they ``have seen Amazon use their position of strength to
take advantage of sellers.'' \1645\
---------------------------------------------------------------------------
\1644\ See, e.g., CEO Hearing at 323 (response to Questions for the
Record of Jeff Bezos, CEO, Amazon.com, Inc.) (``Amazon makes
significant investments to support Amazon's selling partners.''); id.
at 41 (``Amazon recognizes that third-party sellers are our customers
too, and their trust is critical to Amazon's success.'').
\1645\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 3 (Oct. 29, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Underlying Amazon's public-facing rhetoric is the reality
that it views many of the sellers on its platform as
competitors. In its internal documents, Amazon refers to third-
party sellers as ``internal competitors.'' \1646\ At the
Subcommittee's sixth hearing, Subcommittee Chair Cicilline
asked Mr. Jeff Bezos about Amazon's apparent doublespeak.\1647\
In response, Mr. Bezos conceded, ``[I]t wouldn't surprise me.
In some ways, we are competing.'' \1648\
---------------------------------------------------------------------------
\1646\ See, e.g., Submission from Amazon, to H. Comm. on the
Judiciary, AMAZON-HJC-00206715 (Mar. 8, 2016) (on file with Comm.)
(describing changes to manual Pricing Rules when Amazon offer is
competing with ``internal 3P competitor'' offers); id. at AMAZON-HJC-
00038917 (Sept. 2009) (describing a proposal on ``how to treat FBA
sellers differently from other Buy Box (BB) eligible 3P sellers when
we're matching internal competitors for non-media categories''); id. at
AMAZON-HJC-00171079 (defining Amazon's ``Standard Price Matching
Policy'' and conditions when ``Internal competitors (3P merchants) are
matched on box price'').
\1647\ CEO Hearing at 115 (question of Rep. David N. Cicilline (D-
RI), Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
\1648\ Id. (statement of Jeff Bezos, CEO, Amazon, Inc.).
---------------------------------------------------------------------------
Over the course of the investigation, the Subcommittee
heard from numerous sellers who described abusive tactics or
mistreatment by Amazon in a variety of circumstances. For
example, at the Subcommittee's fifth hearing, CEO and Founder
of PopSockets David Barnett testified about Amazon's bullying
tactics, which he said were enabled by ``the asymmetry in power
between Amazon and its partners.'' \1649\ He stated that after
the two companies decided on a minimum price at which Amazon
would sell PopSockets, Amazon sold the products for a lower
price and then demanded that PopSockets pay for the lost
margin.\1650\ As a result, PopSockets decided to end its
relationship with Amazon Retail.\1651\ When PopSockets
communicated this intent to Amazon, its response was, ``No, you
are not leaving the relationship.'' \1652\ PopSockets did sever
its relationship with Amazon Retail for a period of time, but
reestablished it about a year later.\1653\ Mr. Barnett
estimates that, in 2019, his company incurred losses of $10
million in revenue from when he stopped selling to Amazon
Retail and Amazon blocked one of his authorized distributors
from selling on the marketplace.\1654\
---------------------------------------------------------------------------
\1649\ Competitors Hearing at 22 (statement of David Barnett, CEO &
Founder, PopSockets LLC).
\1650\ Id. at 20.
\1651\ Id.
\1652\ Id. at 17.
\1653\ Id. at 20-21.
\1654\ Id. at 4.
---------------------------------------------------------------------------
The Subcommittee learned about numerous other instances of
Amazon employing strong-arm tactics in negotiations. A company
that conducts business with multiple divisions of Amazon
described how the platform leveraged its dominance in e-
commerce to force acceptance of certain terms and conditions
during negotiations over a different part of its
business.\1655\ According to this company, Amazon knows the
power they have as a retailer. In the midst of negotiations,
the platform repeatedly referenced its power to destock the
company's products on Amazon.com as a ``bargaining chip to
force terms'' unrelated to retail distribution on the
company.\1656\ The company added, ``Amazon know[s] they have a
lot of power [in retail e-commerce] and they are not afraid to
use it to get terms they want in other markets.'' \1657\
---------------------------------------------------------------------------
\1655\ Interview with Source 148 (Aug. 26, 2020).
\1656\ Id.
\1657\ Id.
---------------------------------------------------------------------------
Book publishers described a similar asymmetric power
dynamic with Amazon. According to one publisher, ``Amazon has
used retaliation . . . to coerce publishers to accept
contractual terms that impose substantial penalties for
promoting competition'' with Amazon's rivals.\1658\ The
publisher added that the platform's retaliatory conduct shows
``Amazon's ability and willingness to leverage its market power
to prevent publishers from working effectively with rival e-
book retailers and, thereby, maintain and enhance its dominance
in e-book distribution.'' \1659\ Amazon's retaliatory tactics
against publishers include removing the ``buy'' button, which
blocks a customer's ability to purchase a publisher's current
titles; \1660\ and removing the ``pre-order'' button, which
eliminates the ability for a consumer to pre-order a
publisher's forthcoming titles.\1661\ Another form of
retaliation that Amazon reportedly engaged in was showing
publishers' titles as out of stock or with delayed shipping
times.\1662\ According to credible reports, Amazon used these
tactics in its public battle with Hachette Book Group in 2014
over e-book pricing,\1663\ and it has used them or threatened
to use them in more recent negotiations.\1664\ Publishers,
authors, and booksellers have ``significant fear'' because of
Amazon's dominance.\1665\
---------------------------------------------------------------------------
\1658\ Submission from Source 17, to H. Comm. on the Judiciary, 13
(Nov. 14, 2019) (on file with Comm.).
\1659\ Id. at 3 (Sept. 22, 2020) (on file with Comm.).
\1660\ See, e.g., David Streitfeld, Amazon Pulls Thousands of E-
Books in Dispute, N.Y Times: Bits (Feb. 22, 2012), https://
bits.blogs.nytimes.com/2012/02/22/amazon-pulls-thousands-of-e-books-in-
dispute/?hpw.
\1661\ See, e.g., Polly Mosendz, Amazon Blocks Pre-orders of
Hachette Books, Atlantic (May 23, 2014), https://www.theatlantic.com/
business/archive/2014/05/amazon-blacklists-hachette-books/371545/.
\1662\ See, e.g., David Streitfeld, Writers Feel an Amazon-Hachette
Spat, N.Y. Times (May 9, 2014), https://www.nytimes.com/2014/05/10/
technology/writers-feel-an-amazon-hachette-spat
.html.
\1663\ Id.
\1664\ See Interview with Source 155 (Sept. 29, 2020); Submission
from Source 17, to H. Comm. on the Judiciary, 13-18 (Nov. 14, 2019) (on
file with Comm.).
\1665\ Interview with Ass'n of Am. Publishers, Authors Guild & Am.
Booksellers Ass'n (Aug. 26, 2020).
---------------------------------------------------------------------------
Amazon can treat sellers in this manner because it knows
that sellers have no other realistic alternatives to the
platform. As Mr. Barnett noted in his testimony:
LWhen there is bullying by an extremely successful company
with all these partners that continue to do business with it,
one has to ask how is it that such a successful business
maintains partnerships with so many companies while bullying
them. It is because of the power asymmetry . . . that companies
tolerate this.\1666\
---------------------------------------------------------------------------
\1666\ Competitors Hearing at 17 (statement of David Barnett, CEO &
Founder, PopSockets LLC).
A recent complaint filed against Amazon described the
situation as follows: ``From the third-party retailers'
perspective, Amazon Marketplace is like Hotel California, a
lovely place to start or expand an online retail business, but
check out from Amazon Marketplace and you can quickly find your
business in bankruptcy.'' \1667\ Additional comments from
sellers that the Subcommittee interviewed include, ``We're
stuck. We don't have a choice but to sell through Amazon,''
\1668\ and, referring to Amazon, ``They've never been a great
partner, but you have to work with them.'' \1669\
---------------------------------------------------------------------------
\1667\ Class Action Complaint at 20, Frame-Wilson v. Amazon.com,
Inc., No. 20-cv-00424 (W.D. Wash. Mar. 9, 2020).
\1668\ Interview with Source 150 (July 11, 2020).
\1669\ Interview with Source 151 (July 2, 2020).
---------------------------------------------------------------------------
As Stacy Mitchell, Co-Director of the Institute for Local
Self-Reliance, noted during the Subcommittee's hearing on
Innovation and Entrepreneurship, ``Among the most egregious
examples of Amazon's arbitrary treatment of sellers are its
abrupt suspensions of their accounts, frequently made without
explanation.'' \1670\ Once Amazon suspends a seller's account
or delists its products, the business is left with largely
ineffective remedies as they watch their sales disappear.
Sellers shared with the Subcommittee that communications to
Amazon's Seller Support Central generally prompt automated,
unhelpful responses, which may be entirely unrelated to the
specific case, question, or concern raised by the seller.\1671\
---------------------------------------------------------------------------
\1670\ Innovation and Entrepreneurship Hearing at 196 (statement of
Stacy F. Mitchell, Co-Dir., Inst. for Local Self-Reliance).
\1671\ Interview with Source 125 (Jan. 9, 2020); see also
Submission from Joel Hellmann, to H. Comm. on the Judiciary (July 31,
2019) (on file with Comm.) (responding to an automated message, ``If
you were a person and not a robot you would have read that I already
tried this and it failed'').
---------------------------------------------------------------------------
The founder of an infant product sold on Amazon told the
Subcommittee that, after her products were mistakenly delisted,
``[i]t would take weeks of repeated calls--at least 10 or 15
contacts with Seller Support--before somebody inside would
determine that it was a mistake and error,'' and take action to
fix the problem.\1672\ She stated that this happened at least
six times, and that, in each instance, her listings would be
down for two to three weeks at a time.\1673\ Describing how
Amazon's mistakes can threaten a new business's survival, this
small-business owner said:
---------------------------------------------------------------------------
\1672\ Interview with Source 149 (July 22, 2020).
\1673\ Id.
LWhen you're a new company and Amazon suddenly delists
you, it creates fear in the customer. ``Where did it go? Is
there something wrong with the product? What happened?'' If a
customer searched and it's no longer there, they're unlikely to
ever come back and buy it . . . . You've probably lost that
customer for good.\1674\
---------------------------------------------------------------------------
\1674\ Id.
In another example, a third-party bookseller told the
Subcommittee that Amazon delisted 99 percent of his business's
inventory in September 2019.\1675\ The bookseller requested
that Amazon return its products, which were stored in Amazon's
warehouses.\1676\ As of July 2020, Amazon had only returned a
small fraction of the bookseller's inventory and continued to
charge him storage fees.\1677\ Amazon blocked the bookseller
both from selling its products on its marketplace and from
retrieving its inventory, precluding the seller from trying to
recover some of his losses by making sales through another,
albeit lesser, channel. At the Subcommittee's sixth hearing,
Representative Lucy McBath (D-GA) presented the bookseller's
story to Mr. Bezos, who responded that this treatment is ``not
the systematic approach that [Amazon] take[s].'' \1678\
However, evidence the Subcommittee collected through extensive
seller interviews shows that Amazon's poor treatment of sellers
is far from an isolated incident--a fact supported both by
public posts on Amazon's Seller Central forum,\1679\ as well as
pleas for help routinely sent directly to Mr. Bezos.\1680\
---------------------------------------------------------------------------
\1675\ Interview with Source 125 (July 7, 2020).
\1676\ Id.
\1677\ Id.
\1678\ CEO Hearing at 113 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.).
\1679\ See, e.g., iNOVATECH_MEDICAL, Inventory Being Held Hostage
by Amazon for 3 Months, Amazon Servs. Seller Forums (Apr. 8, 2020,
10:30 p.m.), https://sellercentral
.amazon.com/forums/t/inventory-being-held-hostage-by-amazon-for-3-
months/607892.
\1680\ See Josh Dzieza, Prime and Punishment: Dirty Dealing in the
$175 Billion Amazon Marketplace, Verge (Dec. 19, 2018), https://
www.theverge.com/2018/12/19/18140799/amazon-marketplace-scams-seller-
court-appeal-reinstatement (``Emailing the richest man in the world is
actually the standard method of escalating an Amazon seller appeal.
It's called a Jeff Bomb, or . . . a Jeff Letter.''); Interview with
Chris McCabe, Founder, ecommerceChris LLC (Dec. 30, 2019) (``Out of
desperation, some sellers try to email Jeff Bezos directly.'');
Submission from Source 125, to H. Comm. on the Judiciary (Jan. 27,
2020) (on file with Comm.); Submission from Source 150, to H. Comm. on
the Judiciary (Aug. 16, 2017) (on file with Comm.).
---------------------------------------------------------------------------
Because of the severe financial repercussions associated
with suspension or delisting, many Amazon third-party sellers
live in fear of the company.\1681\ For sellers, Amazon
functions as a ``quasi-state,'' and many ``[s]ellers are more
worried about a case being opened on Amazon than in actual
court.'' \1682\ This is because Amazon's internal dispute
resolution system is characterized by uncertainty,
unresponsiveness, and opaque decision-making processes.
---------------------------------------------------------------------------
\1681\ See, e.g., Submission from Source 125, to H. Comm. on the
Judiciary (July 17, 2020) (on file with Comm.) (``My pregnant wife had
to visit the ER due to increased anxiety and fear for the future . . .
. Due to Amazon's stature, influence, and bullying nature, we are
afraid of retaliation.''); Interview with Source 154 (July 2, 2019)
(``[Amazon] know[s] that small sellers have no power and no ability to
avoid them'' because ``they are the powerhouse giant in the transaction
and they could crush us.''). See also Submission from Nat'l Ass'n of
Wholesaler-Distributors, to H. Comm. on the Judiciary, 3 (July 22,
2020) (on file with Comm.) (``Small businesses that depend upon Amazon
for access to their markets, including many of our members, fear
retribution by Amazon if they speak up.'').
\1682\ Josh Dzieza, Prime and Punishment: Dirty Dealing in the $175
Billion Amazon Marketplace, Verge (Dec. 19, 2018), https://
www.theverge.com/2018/12/19/18140799/amazon-
marketplace-scams-seller-court-appeal-reinstatement.
---------------------------------------------------------------------------
Additionally, the sellers interviewed by the Subcommittee
generally indicated that Amazon's customer service and
treatment towards them have declined significantly in recent
years. One business owner, who has been selling on Amazon for
over a decade, told the Subcommittee that, in the past, a
seller could get meaningful assistance by talking to an Amazon
representative over the phone.\1683\ He said, ``I used to think
that Amazon was a partner,'' but, now, ``I don't think they
care about the third party seller . . . . They treat us as a
commodity.'' \1684\ Internal Amazon documents suggest that the
company's hyper-focus on a cost-cutting strategy to adopt
automated processes for nearly everything--which Amazon refers
to as ``HOTW'' or ``Hands off the wheel'' \1685\--combined with
the platform's monopoly power over sellers may be to blame for
Amazon's atrocious levels of customer service for sellers.
---------------------------------------------------------------------------
\1683\ Interview with Source 152 (Sept. 18, 2020).
\1684\ Id.
\1685\ See, e.g., Submission from Amazon, to H. Comm. on the
Judiciary, AMAZON-HJC-00227277 (on file with Comm.) (``The
implementation of Hands Off the Wheel in [Site Merchandising] will mean
that through automation . . . there is less work for humans . . . .
Project Tiger combines all Hands off the Wheel (HOTW) programs and
Amazon spans of control guidelines.''); id. at AMAZON-HJC-00227278
(Apr. 27, 2017) (``We are pursuing three tracks to drive Productivity
savings: (1) FCF initiatives; (2) HOTW; and (3) Defect Reduction &
Catalog Improvement.'').
---------------------------------------------------------------------------
Amazon has recently monetized the degradation of its seller
services, rolling out a program where sellers can pay an extra
fee for a dedicated account representative. Sellers are
supposed to pay for representatives to help them solve the very
problems that Amazon created in the first place. Many sellers
say, however, that even with paid Amazon account managers they
are often unable to get their issues resolved. One seller told
the Subcommittee, ``It [i]s a problem that an algorithm can
make a decision that just shuts off my income stream and
there's nothing I can do to get it back . . . . The only thing
I can do to get it back is pay $6,000 a month for a dedicated
rep and even then, it doesn't always work.'' \1686\
---------------------------------------------------------------------------
\1686\ Interview with Source 149 (July 22, 2020). See also
Submission from Source 100, to H. Comm. on the Judiciary (identifying
one concern with Amazon's treatment of sellers as, ``Pay or Die--
Forcing sellers to pay for their support services to correct Amazon's
wrong doings'').
---------------------------------------------------------------------------
The last resort for sellers facing these circumstances is
the ``Jeff Bomb,'' or ``Jeff Letter,'' in which a seller sends
an email to Mr. Bezos to plead their case.\1687\ As the Online
Merchants Guild explained in its submission, ``a `Jeff Letter'
is almost like a Writ of Certiorari within Amazon's internal
kangaroo court system.'' \1688\ But by the time this point is
reached, ``a seller could be locked out of their account, or
denied funds, for weeks, losing hundreds of thousands of
dollars even if the mistake was Amazon's.'' \1689\ Because of
the large volume of sellers who reach this point of last
resort, sending a ``Jeff Letter'' is not a realistic avenue for
most sellers to get their issues addressed.
---------------------------------------------------------------------------
\1687\ Josh Dzieza, Prime and Punishment: Dirty Dealing in the $175
Billion Amazon Marketplace, Verge (Dec. 19, 2018), https://
www.theverge.com/2018/12/19/18140799/amazon-
marketplace-scams-seller-court-appeal-reinstatement (``Emailing the
richest man in the world is actually the standard method of escalating
an Amazon seller appeal. It's called a Jeff Bomb,
Continued
or . . . a Jeff Letter.''). See also Interview with Chris McCabe,
Founder, ecommerceChris LLC (Dec. 30, 2019) (``Out of desperation, some
sellers try to email Jeff Bezos directly.''); Submission from Source
125, to H. Comm. on the Judiciary (Jan. 27, 2020) (on file with Comm.);
Submission from Source 150, to H. Comm. on the Judiciary (Aug. 16,
2017) (on file with Comm.).
\1688\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 3 (Oct. 29, 2019) (on file with Comm.).
\1689\ Id.
(2) Forced Arbitration. All of Amazon's third-party sellers
and most of its vendors are subject to a pre-dispute, binding
(forced) arbitration clause,\1690\ requiring them to sign away
the right to their day in court if a dispute with Amazon
arises. The Subcommittee heard from sellers who said that if it
were not for Amazon's market power over them, they would not
agree to this term.\1691\ As noted by the Online Merchants
Guild, ``Through arbitration, Amazon knows it holds all the
cards, and in many ways has the final say whenever there is a
dispute.'' \1692\ As a result, sellers rarely initiate
arbitration actions against Amazon. Between 2014 and 2019, even
as the number of Amazon sellers continued to grow by hundreds
of thousands per year, only 163 sellers and 16 vendors
initiated arbitration proceedings.\1693\ Because sellers are
generally aware that the process is unfair and unlikely to
result in a meaningful remedy, they have little incentive to
bring an action.
---------------------------------------------------------------------------
\1690\ Innovation and Entrepreneurship Hearing at 545-46 (response
to Questions for the Record, Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.); Amazon Services Business Solutions
Agreement, Amazon Seller Cent., https://sellercentral.amazon.com/gp/
help/external/G1791 (last visited Sept. 29, 2020).
\1691\ See, e.g., Interview with Source 125 (Jan. 9, 2020)
(explaining the reason for agreeing to Amazon's terms, ``What can I do?
They don't give me much choice. You are so small that you don't have
any leverage.'').
\1692\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 3 (Oct. 29, 2019) (on file with Comm.).
\1693\ Innovation and Entrepreneurship Hearing at 545-47 (response
to Questions for the Record, Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
---------------------------------------------------------------------------
As extensive scholarship has shown, forced arbitration
often fails to provide a legitimate forum for resolving
disputes and instead usually serves to insulate those engaging
in wrongdoing from liability.\1694\ The case of Amazon sellers
is no different. In practice, arbitration functions as a way
for Amazon to keep disputes within its control, with the scales
tipped heavily in its favor. As such, Amazon can withhold
payments from sellers, suspend their accounts without cause,
and engage in other abusive behavior without facing any legal
consequences for its actions.\1695\
---------------------------------------------------------------------------
\1694\ See Cynthia Estlund, The Black Hole of Mandatory
Arbitration, 96 N.C. L. Rev. 679, 684 (2018) (stating that mandatory
arbitration ``effectively enables employers to nullify employee rights
and to insulate themselves from the liabilities that back up crucial
public policies''); see also Judith Resnik, Diffusing Disputes: The
Public in the Private of Arbitration, the Private in Courts, and the
Erasure of Rights, 124 Yale L.J. 2804, 2873 (2015) (``Mandated
arbitration is also common in web-based sales.'').
\1695\ See Submission from Online Merchants Guild, to H. Comm. on
the Judiciary, 3 (Oct. 29, 2019) (on file with Comm.).
---------------------------------------------------------------------------
(3) Seller Fee Increases. Amazon's treatment of sellers
indicates that it sees them as a source of profit, rather than
``partners.'' \1696\ Individuals and small businesses who
depend on access to the platform to make sales report that
Amazon has raised seller fees significantly over the past
decade. Over the past five years, a recent Institute for Local
Self-Reliance report estimates that Amazon added an extra 11
percent to its cut of third-party sales.\1697\ The platform now
takes an average of 30 percent of each sale compared to 19
percent in 2015.\1698\ In 2018, third-party sellers paid Amazon
$39.7 billion in fees, which totaled about 25 percent of
Amazon's $160 billion in Gross Merchandise Volume.\1699\ This
amount includes commissions, fulfillment and shipping fees, and
other third-party seller services, but does not include revenue
from the advertising fees for third-party sellers,\1700\ which
are often substantial.\1701\ An internal Amazon document
suggests the company can increase fees to third-party sellers
without concern for them switching to another marketplace. The
document notes that the amount of ``seller attrition as a
result of [2018] fee increases'' for its Fulfillment by Amazon
program was ``[n]othing significant.'' \1702\
---------------------------------------------------------------------------
\1696\ See, e.g., Submission from Amazon, to H. Comm. on the
Judiciary, AMAZON-HJC-00206936 (Nov. 8, 2013) (on file with Comm.)
(``Seems like we should be making more on the seller loans . . . . Net
takeaway is that sellers may be getting too good of a deal . . . .
There are different ways to fix . . . commitment fees, higher rates,
etc. We should get rewarded for satisfying a timing spike like
this.'').
\1697\ Stacy Mitchell, Ron Knox & Zach Freed, Inst. of Local Self-
Reliance, Report: Amazon's Monopoly Tollbooth 3 (2020), https://
ilsr.org/amazons_tollbooth/.
\1698\ Id. See also Interview with Jason Boyce, Founder & CEO,
Avenue7Media, LLC (Sept. 15, 2020) (estimating that most sellers are
currently paying an average of 35 percent in fees to Amazon when you
add up the referral fees and payments for ads based on his experience).
\1699\ Marketplace Pulse, Marketplaces Year in Review 4 (2019),
https://cdn .marketplacepulse.com/misc/marketplaces-year-in-review-
2019.pdf.
\1700\ Id.
\1701\ See, e.g., Interview with Top Shelf Brands (Sept. 29. 2020)
(estimating Top Shelf paid Amazon over $1 million in fees for
advertising in one year); Submission from Top Shelf, to H. Comm. on the
Judiciary, Ex. 1 (Oct. 26, 2019) (on file with Comm.).
\1702\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00186540 (Jan. 30, 2018) (on file with Comm.).
---------------------------------------------------------------------------
Amazon's pattern of exploiting sellers, enabled by its
market dominance, raises serious competition concerns. For many
sellers, there is no viable alternative to Amazon, and a
significant number of sellers rely on its marketplace for their
entire livelihood.\1703\
---------------------------------------------------------------------------
\1703\ See, e.g., JungleScout, The State of the Amazon Seller 2020,
at 4 (2020), https://www.junglescout.com/wp-content/uploads/2020/02/
State-of-the-Seller-Survey.pdf (``More than a third (37%) of sellers
[surveyed] earn income from Amazon sales alone.'').
(4) Appropriation of Third-Party Seller Data. One of the
widely reported ways in which Amazon treats third-party sellers
unfairly centers on Amazon's asymmetric access to and use of
third-party seller data.\1704\ During the investigation, the
Subcommittee heard repeated concerns that Amazon leverages its
access to third-party sellers' data to identify and replicate
popular and profitable products from among the hundreds of
millions of listings on its marketplace.\1705\ Armed with this
information, it appears that Amazon would: (1) copy the product
to create a competing private-label product \1706\; or (2)
identify and source the product directly from the manufacturer
to free ride off the seller's efforts, and then cut that seller
out of the equation.\1707\
---------------------------------------------------------------------------
\1704\ Innovation and Entrepreneurship Hearing at 5 (statement of
Stacy Mitchell, Co-Dir., Inst. for Local Self-Reliance) (``Amazon's
[gatekeeper power] allows it to maintain a God-like view of the
transactions of rival businesses and customers, and use this data to
move into new markets with a built-in advantage.'').
\1705\ See, e.g., Interview with Source 158 (July 2, 2020);
Submission from Nat'l Ass'n of Wholesaler-Distributors, to H. Comm. on
the Judiciary (July 22, 2020) (on file with Comm.).
\1706\ See, e.g., Interview with Jason Boyce, Founder & CEO,
Avenue7Media (Sept. 15, 2020).
\1707\ See, e.g., Submission from Nat'l Ass'n of Wholesaler-
Distributors, to H. Comm. on the Judiciary (July 22, 2020) (on file
with Comm.).
---------------------------------------------------------------------------
Amazon claims that it has no incentive to abuse sellers'
trust because third-party sales make up nearly 60 percent of
its sales, and that Amazon's first-party sales are relatively
small.\1708\ Amazon has similarly pointed out that third-party
listings far outnumber Amazon's first-party listings.\1709\ In
a recent shareholder letter, CEO Jeff Bezos wrote, ``Third-
party sellers are kicking our first-party butt. Badly.'' \1710\
In response to a question from the Subcommittee, however,
Amazon admitted that by percentage of sales--a more telling
measure--Amazon's first-party sales are significant and growing
in a number of categories. For example, in books, Amazon owns
74 percent of sales, whereas third-party sellers only account
for 26 percent of sales.\1711\ At the category level, it does
not appear that third-party sellers are kicking Amazon's first-
party butt. Amazon may, in fact, be positioned to overtake its
third-party sellers in several categories as its first-party
business continues to grow.
---------------------------------------------------------------------------
\1708\ CEO Hearing at 302 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
\1709\ Id. at 303.
\1710\ Jeff Bezos, 2018 Letter to Shareholders, The Amazon Blog:
Day One (Apr. 11, 2019), https://blog.aboutamazon.com/company-news/
2018-letter-to-shareholders.
\1711\ CEO Hearing at 304 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
Third-Party vs. First-Party Listings
and Sales on Amazon \1712\
---------------------------------------------------------------------------
\1712\ Id. at 303-04.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Amazon recognizes that it competes against many of its
third-party sellers.\1713\ In response to concerns about its
unfair use of third-party seller data, Amazon points to its
Seller Data Protection Policy, which it instituted in
2014.\1714\ According to the company:
---------------------------------------------------------------------------
\1713\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00142724 (on file with Comm.).
\1714\ CEO Hearing at 281 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
LAmazon recognizes that third-party sellers are our
customers too, and their trust is critical to Amazon's success.
In an effort to further this partnership, Amazon decided years
ago to take additional voluntary steps to protect seller data
by instituting its voluntarily-adopted Seller Data Protection
Policy, which prohibits Amazon Retail teams from using non-
public seller-specific data to compete against third-party
sellers.\1715\
---------------------------------------------------------------------------
\1715\ Id. at 320.
Following up on public reporting and information collected
during the investigation suggesting that Amazon might be
abusing its access to third-party sellers' data, Representative
Pramila Jayapal (D-WA) asked Amazon lawyer Nate Sutton about
this precise issue at a Subcommittee hearing in July 2019.
Sutton testified: ``We do not use [third-party sellers']
individual data when we're making decisions to launch private
brands.'' \1716\
---------------------------------------------------------------------------
\1716\ Innovation and Entrepreneurship Hearing at 42 (statement of
Nate Sutton, Assoc. Gen. Couns., Competition, Amazon.com, Inc.).
---------------------------------------------------------------------------
Since the July 2019 hearing, public reporting has made
clear that, contrary to its own internal policy and testimony
before Congress, Amazon routinely appropriates seller data to
benefit its own private-label and retail businesses. After the
hearing, according to a July 2019 report, a former employee who
worked in product management told The Capitol Forum, ``I used
to pull sellers' data to look at what the best products were
when I was there . . . . That was my job.'' \1717\ In September
2019, employees reported to Yahoo Finance that access to data
is a ``free-for-all'' and that Amazon Retail and Marketplace
teams ``share the same access to the data warehouse, which
makes it possible for the retail team to use the data from
marketplace sellers to develop private labels.'' \1718\
---------------------------------------------------------------------------
\1717\ Amazon: Former Employee Challenges Executives' Denial About
Company's Use of Sellers' Data, Capitol Forum (July 18, 2019).
\1718\ Krystal Hu, Amazon Uses Third-Party Seller Data to Build a
Private Label Juggernaut, Yahoo Fin. (Sept. 27, 2019), https://
finance.yahoo.com/news/amazon-uses-thirdparty-sellers-data-to-build-
private-labels-145813238.html.
---------------------------------------------------------------------------
Earlier this year, in a groundbreaking article, The Wall
Street Journal reported that executives in Amazon's private-
label division ``had access to data containing proprietary
information that they used to research bestselling items they
might want to compete against, including on individual sellers
on Amazon's website.'' \1719\ In one case, Amazon employees
reportedly used non-public sales data about a third-party
seller of car-trunk organizers named Fortem to develop an
Amazon private-label version of the very same product.\1720\
---------------------------------------------------------------------------
\1719\ Dana Mattioli, Amazon Scooped Up Data from Its Own Sellers
to Launch Competing Products, Wall St. J. (Apr. 23, 2020), https://
www.wsj.com/articles/amazon-scooped-up-data-from-its-own-sellers-to-
launch-competing-products-11587650015.
\1720\ Id.
---------------------------------------------------------------------------
In light of the April 2020 report from The Wall Street
Journal, the Committee requested that Jeff Bezos testify before
Congress to address the possibility that Amazon's lawyer had
misled Congress.\1721\ Despite significant public reporting on
the issue and references to it in Amazon's internal documents,
Mr. Bezos claimed to be unaware of these practices. According
to Mr. Bezos, ``Amazon first learned about the alleged
violations of Amazon's voluntarily adopted Seller Data
Protection Policy recently reported in The Wall Street Journal
from The Wall Street Journal.'' \1722\ When Representative
Pramila Jayapal (D-WA) again asked in July 2020 about whether
Amazon uses third-party seller data to benefit its private-
label products, Bezos could only respond: ``I can't answer that
question yes or no . . . . [W]e have a policy against using
seller-specific data to aid our private-label business, but I
can't guarantee you that that policy has never been violated.''
\1723\
---------------------------------------------------------------------------
\1721\ Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the
Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, Hon. Joe Neguse, Vice
Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm.
on the Judiciary, Hon. Pramila Jayapal, Member, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, Hon. Ken
Buck, Member, Subcomm. on Antitrust, Commercial and Admin. Law of the
H. Comm. on the Judiciary & Hon. Matt Gaetz, Member, Subcomm. on
Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,
to Jeff Bezos, CEO, Amazon.com, Inc. (May 1, 2020) (on file with
Comm.).
\1722\ CEO Hearing at 280 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
\1723\ Id. at 66 (statement of Jeff Bezos, CEO, Amazon.com, Inc.).
---------------------------------------------------------------------------
Representative Ken Buck (R-CO) similarly raised this issue
with Mr. Bezos, stating, ``I'm concerned that you've used
Amazon's dominant market position to unfairly harm competition.
We've heard from a number of companies that Amazon uses
proprietary data from third-party companies to launch its own
private-label products.'' \1724\ Later in the hearing,
Representative Kelly Armstrong (R-ND) described this as an
``important issue,'' and asked whether ``Amazon is conducting
an internal investigation into the use of third-party data,''
to which Mr. Bezos answered in the affirmative. Mr. Bezos
agreed to inform the Subcommittee of the outcome of that
investigation.
---------------------------------------------------------------------------
\1724\ Id. at 121 (question of Rep. Ken Buck (R-CO), Member,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary).
---------------------------------------------------------------------------
In October 2020, approximately six months after Amazon said
that it had initiated the investigation,\1725\ the company
informed the Committee that it had completed it.\1726\
According to Amazon's Vice President of Public Policy, Brian
Huseman, ``Amazon's records of past data queries related to the
two products cited in The Wall Street Journal report show that
a single former employee pulled and analyzed only aggregate
data for both products in compliance with the Seller Data
Protection Policy.'' \1727\ The results of this limited
investigation do not alter the views of the Subcommittee on
Amazon's use of third-party seller data as set forth in this
Report.
---------------------------------------------------------------------------
\1725\ Amazon Policy (@amazon_policy), Twitter (Apr. 24, 2020, 3:36
p.m.), https://twitter
.com/amazon_policy/status/1253769684425625601.
\1726\ Letter from Brian Huseman, Vice President, Pub. Pol'y,
Amazon.com, Inc., to Hon. Jerrold Nadler, Chair, H. Comm. on the
Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary & Hon. Jim Jordan,
Ranking Member, H. Comm. on the Judiciary (Oct. 4, 2020) (on file with
Comm.).
\1727\ Id.
---------------------------------------------------------------------------
The Subcommittee uncovered evidence in interviews with
former Amazon employees, as well as current and former sellers,
that is consistent with the public reporting about Amazon's
misuse of seller data.\1728\ In a submission to the
Subcommittee, a former employee said:
---------------------------------------------------------------------------
\1728\ See Submission from Nat'l Ass'n of Wholesaler-Distributors,
to H. Comm. on the Judiciary (July 22, 2020) (on file with Comm.)
(describing a member's experience in which Amazon allowed a distributor
to sell a product for about a year, ``then went out and replicated the
product and began selling their own branded product, terminating the
distributor . . . . Amazon became the winner and the distributor was
left empty handed'').
LIn 2010, I started working on the Amazon marketplace team
. . . . It was widely known that many (10+) of my peers were
running very successful [third-party] accounts, where they were
pulling private data on Amazon seller activity, so they could
figure out market opportunity, etc. Totally not legitimate, but
no one monitored or seemed to care.\1729\
---------------------------------------------------------------------------
\1729\ Submission from Source 91, to H. Comm. on the Judiciary
(Sept. 16, 2020) (on file with Comm.).
Referring to accessibility of third-party seller data, the same
individual told the Subcommittee, ``It's a candy shop, everyone
can have access to anything they want,'' and added, ``There's a
rule, but there's nobody enforcing or spot-checking. They just
say, don't help yourself to the data . . . it was `wink wink,'
don't access.'' \1730\
---------------------------------------------------------------------------
\1730\ Id.
---------------------------------------------------------------------------
The Subcommittee interviewed a third-party seller who
described how Amazon uses a request for proof of authenticity
to collect proprietary information about a seller's business.
According to the seller, Amazon will submit a product
authenticity claim to sellers, forcing the retailer to submit
their original sales receipts as proof that the items are
authentic.\1731\ Although a seller is supposed to be able to
black out price information, sometimes the platform will reject
a submission on the basis that it is an ``altered document.''
\1732\ With insight into the seller's costs and supplier,
combined with its knowledge of the seller's retail price among
a virtually unfathomable amount of other data, it appears that
Amazon Retail can easily replicate the seller's listing to
offer a competing product.
---------------------------------------------------------------------------
\1731\ Interview with Source 154 (July 2, 2019).
\1732\ Id.
---------------------------------------------------------------------------
A former third-party seller and retired U.S. Marine told
the Subcommittee about several instances over his seventeen
years as a seller when Amazon leveraged his work, undercut him
on price, and eventually drove him out of business. In each
instance, he had to change his business model after Amazon took
over the Buy Box for his listings, ``killing'' his sales.\1733\
On at least two different occasions, his company did all the
legwork to create a new, top-selling product or product line,
as well as creating the product listings, only to have Amazon
copy the idea and offer a competing product. Amazon used
different tactics each time, but the result was always the
same: Amazon profited from his work and made it impossible for
him to fairly compete.\1734\
---------------------------------------------------------------------------
\1733\ Interview with Jason Boyce, Founder & CEO, Avenue7Media
(Sept. 15, 2020).
\1734\ Id.
---------------------------------------------------------------------------
As part of his last attempt to sell on Amazon, his business
created its own line of table game products with a unique
design and color palette. Once these products became top
sellers, Amazon again swooped in to reap the rewards of his
work. Amazon copied his designs, down to the color palette, and
started selling their competing products at unsustainable
prices. Ultimately, he exited his seller business, gave up on
trying to bring new products to consumers, and founded a
consulting agency for Amazon sellers.\1735\
---------------------------------------------------------------------------
\1735\ Id.
---------------------------------------------------------------------------
In addition to its private-label business, Amazon also uses
third-party seller data to benefit its Amazon Retail business,
where the company functions more like a retailer. At the
Subcommittee's sixth hearing, Chair David N. Cicilline (D-RI)
asked Mr. Bezos about this conduct, recounting the story that a
former third-party seller shared with the Subcommittee:
LDuring this investigation, we have heard so many
heartbreaking stories of small businesses who sunk significant
time and resources into building a business and selling on
Amazon, only to have Amazon poach their best-selling items and
drive them out of business.
LSo I want to talk to you about one company that really
stood out from the rest. I want you to pay close attention to
how they described your partnership, Mr. Bezos. We heard from a
small apparel company that makes and sells what they call
``useful apparel'' for people who work on their feet and with
their hands, like construction workers and firefighters.
LThis particular business discovered and started selling a
unique item that had never been a top seller for the brand.
They were making about $60,000 a year on just this one item.
One day, they woke up and found that Amazon had started listing
the exact same product, causing their sales to go to zero
overnight. Amazon had undercut their price, setting it below
what the manufacturer would generally allow it to be sold so
that, even if they wanted to, they couldn't match the
price.\1736\
---------------------------------------------------------------------------
\1736\ CEO Hearing at 116 (question of Rep. David N. Cicilline (D-
RI), Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
Amazon has tried to draw a meaningful distinction between
individual and aggregate data, but this is largely beside the
point when it comes to the concerns that Subcommittee members
have about the platform's conduct and its effect on
competition. Amazon says it only uses ``aggregate'' seller data
across multiple sellers, not ``individual'' data about any
specific seller.\1737\ Importantly, though, it chooses how
those terms are defined and uses various methods to deem seller
data as aggregate rather than individual. According to The Wall
Street Journal report, because Fortem accounted for 99.95
percent of total sales in the car-trunk organizer product
category, not 100 percent, Amazon considered that data
aggregate rather than individual.\1738\ And at the
Subcommittee's hearing in July 2020, Bezos confirmed that
Amazon indeed allows the use of aggregate data to inform
private-label brands when there are only two or three sellers
of a product.\1739\ Separately, if there is only one seller of
an item, and Amazon is selling returned or damaged versions of
that item through its Amazon Warehouse Deals program, that data
is considered aggregate.\1740\
---------------------------------------------------------------------------
\1737\ Letter from David Zapolsky, Gen. Couns., Amazon.com, Inc.,
to Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary (July 26, 2019) (on
file with Comm.).
\1738\ Dana Mattioli, Amazon Scooped Up Data from Its Own Sellers
to Launch Competing Products, Wall St. J. (Apr. 23, 2020), https://
www.wsj.com/articles/amazon-scooped-up-data-from-its-own-sellers-to-
launch-competing-products-11587650015.
\1739\ CEO Hearing at 132 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.).
\1740\ Dana Mattioli, Amazon Scooped Up Data from Its Own Sellers
to Launch Competing Products, Wall St. J. (Apr. 23, 2020), https://
www.wsj.com/articles/amazon-scooped-up-data-from-its-own-sellers-to-
launch-competing-products-11587650015.
---------------------------------------------------------------------------
An Amazon ``Frequently Asked Questions'' (FAQ) document
from 2014 suggests that Amazon was aware that the Seller Data
Protection Policy had significant loopholes. For example, the
document indicates that even seller-specific data can be used
for ``strategic business decision at the category level or
above.'' \1741\ The answer to an FAQ also makes clear that the
line between ``aggregated'' data and ``Seller-specific'' data
is fuzzy: ``As a general rule, if information isn't directly
tied or easily attributed to a specific Seller, it can be
considered aggregated and non-Seller-specific.'' As to how
aggregated information attributed to a small group of Sellers
should be treated, the guidance is also ambiguous: ``This is a
high judgment area. If Seller-specific information could be
easily derived from aggregated information, it should be
treated as Seller-specific.'' \1742\
---------------------------------------------------------------------------
\1741\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00221869 (June 30, 2014) (on file with Comm.).
\1742\ Id.
---------------------------------------------------------------------------
In addition to collecting data relating to sales, Amazon
may also be able to reverse engineer third-party sellers' cost
structures through the tools that it offers sellers to track
profits, costs, ad spend, and other expenses, as well as
fulfillment services through Fulfillment by Amazon (FBA). An
internal document suggests that Amazon may use its FBA service
as an avenue to identify popular third-party seller items and
gather competitively sensitive information about them.\1743\
FBA provides another avenue for Amazon to access competing
sellers' third-party data.
---------------------------------------------------------------------------
\1743\ See, e.g., id. at AMAZON-HJC-00207035 to -00207036 (Sept.
19, 2013) (on file with Comm.) (``On the top selling Owl necklace . . .
we should go deep and see what we can learn including how much it would
costs [sic] to manufacture this?'').
---------------------------------------------------------------------------
The documents and information that the Subcommittee
reviewed suggest that instances of Amazon's data
misappropriation go beyond what is in the public domain.
Furthermore, the Subcommittee rejects Amazon's contention that
Amazon's use of third-party seller data is no different from a
traditional brick-and-mortar retailer's use of data. The
Subcommittee also does not believe that the marketplace-derived
data the platform uses to inform Amazon Retail's product
pipeline, among other decisions, is equally available to all
Amazon Marketplace sellers.
On many fronts, Amazon makes inconsistent arguments
depending on the forum and issue in support of its attempts to
escape liability. In the context of lawsuits regarding
liability for counterfeits and unsafe products sold on its
site, Amazon insists it is a marketplace and not a
retailer.\1744\ By contrast, in his testimony before the
Subcommittee, Mr. Bezos referred to Amazon as a ``store'' and a
``retailer.'' \1745\ Similarly, when Nate Sutton testified
before the Subcommittee, he stated, ``Amazon is one of the
leading retailers.'' \1746\ In response to price gouging
allegations, Amazon switches back to the position that it is
just a marketplace. As Public Citizen observed in a recent
report titled Prime Gouging:
---------------------------------------------------------------------------
\1744\ See Colin Lecher, How Amazon Escapes Liability for the
Riskiest Products on Its Site, Verge (Jan. 28, 2020), https://
www.theverge.com/2020/1/28/21080720/amazon-product-liability-lawsuits-
marketplace-damage-third-party.
\1745\ See generally CEO Hearing (statements of Jeff Bezos, CEO,
Amazon.com, Inc.).
\1746\ See generally Innovation and Entrepreneurship Hearing
(statements of Nate Sutton, Assoc. Gen. Couns., Competition,
Amazon.com, Inc.).
LAmazon is trying to have the best of both worlds by
enabling third-party sellers to exploit the crisis (and
benefiting from facilitating those sales), but also seeking to
immunize itself from responsibility for directly engaging in
price gouging by shifting the focus on to the unscrupulous
actions of third-party sellers, not only in the eye of the
public but also in the eye of the law.\1747\
---------------------------------------------------------------------------
\1747\ Pub. Citizen, Prime Gouging: How Amazon Raised Prices to
Profit from the Pandemic 5 (2020), https://www.citizen.org/article/
prime-gouging/ (also noting ``a pattern of
Continued
significant price increases on essential products sold directly by
Amazon, as well as price gouging by third-party sellers'').
Amazon identified a few types of non-public seller data
that it has access to, but which are supposed to be protected
by its Seller Data Protection Policy.\1748\ It is obvious from
this small glimpse into the data Amazon has at its disposal
that the type and scope of data the platform can access is very
different from the information available to traditional brick-
and-mortar stores. Physical stores have much less detailed
information about the competing products they offer for sale
alongside their private-label items. Physical stores also have
far less information about customers' shopping habits and
preferences.\1749\
---------------------------------------------------------------------------
\1748\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00221867 (June 30, 2014) (on file with Comm.) (listing
information protected by the Seller Data Protection Policy as ``Seller
pricing plans (e.g., future promotions), Seller inventory levels,
Seller sourcing information, Seller sales (e.g., unit sales, GMS),
[and] Seller performance (e.g., non-public metrics)'').
\1749\ See Stigler Report at 45 (``Traditional brick-and-mortar
stores and online platforms differ greatly in their advertising and
personalization capabilities.'').
(5) Self-Preferencing. By virtue of its role as an
intermediary in the marketplace, Amazon can give itself
favorable treatment relative to competing sellers. It has done
so through its control over the Buy Box, as well as by granting
itself access to data and tools that are off-limits for third-
party sellers. Most recently, there have been reports that
Amazon has given preferential treatment to its own non-
essential products over competitors' non-essential products
---------------------------------------------------------------------------
during the pandemic.
(a) Critical Inputs. Amazon has control over critical
inputs for competing sellers and other types of competitors--
including consumer data, fulfillment and delivery services, and
advertising and other marketing tools--that give it the ability
to advantage itself over rivals. During the investigation, the
Subcommittee conducted numerous interviews with market
participants that, along with credible public reporting and
Amazon's documents, confirm that Amazon employed this business
strategy as early as 2009 and continues to do so today.
(b) Access to Market Data. Amazon has access to data that
gives it greater insight into consumer behavior and preferences
than competing sellers on its platform. A former Amazon
employee that the Subcommittee interviewed summarized the
significance of this information asymmetry:
LIt's important to understand that Amazon has access to
every piece of data on what products each customer has searched
and purchased [or] not purchased . . . . With information about
what customers have searched, Amazon is able to create
customized marketing [and] targeting of products for the
individual customer. ``Is Amazon using a particular [third-
party] seller's data here? No,'' but it is using all of the
aggregate site data to develop a highly targeted marketing plan
for each customer. Should Amazon choose to use that targeting
information to focus [on] its own products, it can, while
[third-party] sellers don't have access to similar data.\1750\
---------------------------------------------------------------------------
\1750\ Submission from Source 91, to H. Comm. on the Judiciary
(Sept. 22, 2020) (on file with Comm.).
Although Amazon provides its sellers with access to some
helpful data and tools--which is a key differentiator from
other marketplaces with no or limited seller tools--there is a
large amount of data that is off-limits, only available at a
largely prohibitive cost, or unhelpful because it is outdated
or inaccurate. One paid service that Amazon offered sellers was
called Amazon Retail Analytics Premium. Sellers who paid extra
to participate in this program could access some, but not all,
of the data Amazon collected on marketplace activity. But the
program was expensive: Vendors reportedly had to pay a minimum
of $30,000 to get access to this database.\1751\
---------------------------------------------------------------------------
\1751\ Robyn Johnson, Amazon Just Made the $30k Amazon Retail
Analytics Premium Data Free, Search Engine J. (Feb. 26, 2020), https://
www.searchenginejournal.com/amazon-retail-analytics-premium-data-free/
350692.
---------------------------------------------------------------------------
Another example of this asymmetric access to data is
evident from an Amazon internal email discussion. The
discussion began with a consultant alerting Amazon employees
about a problem with its Marketplace Web Services APIs that
caused it to report information to sellers that is
``disconnected from the reality and often misleading.'' \1752\
According to the representative, ``This is a huge issue and
causes sellers losses and inconvenience.'' \1753\ In response,
an Amazon employee said that there was not a problem with the
API functionality; rather, the Pricing APIs just do not provide
sellers with information at the level of granularity requested.
Further, she explained that this is ``a feature request for
adding location aware information to the Pricing APIs,'' which
is ``currently below the line for 2018 for the pricing team.''
\1754\
---------------------------------------------------------------------------
\1752\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00188405 to -00188406 (Dec. 14, 2017) (on file with Comm.).
\1753\ Id.
\1754\ Id. at AMAZON-HJC-00188536 (Dec. 15, 2017).
(c) Marketing Tools. One tool that Amazon Retail uses to
benefit its own business is Amazon Vine, a review-generating
program.\1755\ In interviews with market participants, many
sellers said that good reviews are critical for a product to be
successful online.\1756\ Accordingly, sellers aim to obtain as
many positive reviews as possible early in a product's life
cycle. At one time, it was permissible for Amazon sellers to
provide incentives such as free samples to reviewers. However,
in 2016, it was widely reported that some sellers were
generating fake reviews.\1757\ In response to these reports,
Amazon announced that it would ban incentivized reviews except
for those obtained through its own incentivized review program,
Amazon Vine.\1758\ As a result, sellers lost access to this
program, regardless of whether they were engaged in bad conduct
or not.
---------------------------------------------------------------------------
\1755\ Innovation and Entrepreneurship Hearing at 509 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\1756\ See, e.g., Interview with Source 125 (July 7, 2020)
(explaining that the inability to move customer reviews from Amazon to
other marketplaces is a barrier to use of other marketplaces, due to
the importance of customer feedback for seller reputation).
\1757\ Elizabeth Weise, Amazon Bans ``Incentivized'' Reviews, USA
Today (Oct. 3, 2016), https://www.usatoday.com/story/tech/news/2016/10/
03/amazon-bans-incentivized-reviews/91488702/.
\1758\ Id.
---------------------------------------------------------------------------
For many years, including after the incentivized-reviews
ban, the Amazon Vine program was not available to third-party
sellers, while Amazon continued to enjoy the program's ability
to ``minimize marketing costs associated with generating
awareness early in a product's lifecycle,'' among other
benefits.\1759\ An Amazon internal document describes other
advantages of the program as, ``[d]rive conversion and sales
with more insightful reviews on detail pages,'' and ``can
contribute to higher order counts and sales.'' \1760\
---------------------------------------------------------------------------
\1759\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00146732 (Dec. 14, 2017) (on file with Comm.); Spencer
Soper, Amazon Doles Out Freebies to Juice Sales of Its Own Brands,
Bloomberg News (Oct. 16, 2018), https://www.bloomberg.com/news/
articles/2018-10-16/amazon-doles-out-freebies-to-juice-sales-of-its-
own-brands.
\1760\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00146732 (Dec. 14, 2017) (on file with Comm.); see also id.
at AMAZON-HJC-0059576 (Nov. 22, 2010) (describing the program as
``[g]reat for new product launches--good for seeding'').
---------------------------------------------------------------------------
By both banning incentivized reviews and excluding third-
party sellers from the Amazon Vine program, Amazon allocated to
itself a significant marketing advantage over the other
businesses with which it competes on its platform.
Amazon's dual position as both operator and seller on its
online marketplace also provides it with the ability to
disadvantage competitors that seek to sell or advertise on its
platform. One way that Amazon does this is by limiting certain
rivals' ability to buy Amazon.com search advertising--ads that
present products at the top of the search results when
consumers enter specific search terms or a product name.
Although ``search advertising is a lucrative part of the
company's business,'' Amazon ``won't let some of its own large
competitors buy sponsored-product ads tied to searches for
Amazon's own devices.'' \1761\ The Wall Street Journal reported
this month that Roku, Inc. ``can't even buy [ ] Amazon ads tied
to its own products.'' \1762\ Consistent with this report, a
competitor of Amazon that manufacturers voice-enabled devices
told the Subcommittee that Amazon prohibited it from buying ads
on Amazon.com.\1763\ The competitor expressed concerns about
the harm this could cause consumers, who may be confused or
deceived when they receive ads promoting Amazon products even
when they specifically search for a competitor's product on
Amazon.com.\1764\
---------------------------------------------------------------------------
\1761\ Dana Mattioli et al., Amazon Restricts How Rival Device
Makers Buy Ads on Its Site, Wall St. J. (Sept. 22, 2020), https://
www.wsj.com/articles/amazon-restricts-advertising-
competitor-device-makers-roku-arlo-11600786638.
\1762\ Id.
\1763\ Interview with Source 148 (Aug. 26, 2020).
\1764\ Id.
---------------------------------------------------------------------------
The Subcommittee's investigation also uncovered internal
documents showing that Amazon executives have long understood
the competitive advantage Amazon wields due to the company's
control over search advertising on Amazon.com. In an internal
email describing an ad block against Groupon and other ``deal
site ecommerce competitors,'' \1765\ an Amazon executive wrote
that ``Groupon is blocked + let's keep a clear line on this. No
deal site ecommerce competitors allowed to advertise on
amazon.x sites.'' \1766\
---------------------------------------------------------------------------
\1765\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00129156 (Dec. 14, 2017) (on file with Comm.).
\1766\ Id.
---------------------------------------------------------------------------
Similarly, an email discussion in 2009 among high-level
Amazon executives discussed the possibility of implementing an
ad block against Diapers.com, saying:
LDo we really think it is ok that Diapers.com flipped from
selling on the platform to being a large scale user of Product
Ads totally unscrrutinized [sic]? I don't . . . . We're under
no obligation to allow them to advertise on our site. I'd argue
we should block them from buying Product Ads immediately or at
minimum price those ads so they truly reflect the opportunity
cost of a lost diaper buyer (or to reflect the true value of a
new customer to such a competitor[ ]).\1767\
---------------------------------------------------------------------------
\1767\ Id. at AMAZON-HJC-00065094 (May 28, 2009) (on file with
Comm.).
The executive suggests that Amazon should maintain a
``watch list'' of strategic competitors and set up ``[a]n
automatic trigger when a merchant on [the] watch list . . .
attempts to launch a significant quantity of product ads--with
escalated approval required to allow their ads to launch.''
\1768\ The Wall Street Journal's report, based on discussions
with Amazon employees, confirms that Amazon ultimately
implemented a plan of this type. According to the report,
``Tier 1 Competitors'' are blocked from buying certain ads and
employees are allegedly instructed to ``mark any discussion of
this practice . . . with `privileged and confidential' to evade
regulators.'' \1769\
---------------------------------------------------------------------------
\1768\ Id.
\1769\ Dana Mattioli et al., Amazon Restricts How Rival Device
Makers Buy Ads on Its Site, Wall St. J. (Sept. 22, 2020), https://
www.wsj.com/articles/amazon-restricts-advertising-
competitor-device-makers-roku-arlo-11600786638.
---------------------------------------------------------------------------
In March 2020, Amazon announced that it would begin
temporarily delaying shipments of all non-essential products
from its warehouses, regardless of whether they were sold by
Amazon or by competing third-party sellers.\1770\ The company
claimed it was doing so to better serve customers in need while
also helping to ensure the safety of warehouse workers. The
effect of this change was to block third-party sellers of items
that Amazon designated ``non-essential'' from shipping new
inventory using Fulfillment by Amazon.
---------------------------------------------------------------------------
\1770\ CEO Hearing at 286-87 (response to Questions for the Record
of Jeff Bezos, CEO, Amazon.com, Inc.).
---------------------------------------------------------------------------
Amazon reportedly excepted itself from this policy and
continued to ship non-essential items sold by Amazon Retail
from its warehouses. According to a survey of Amazon workers
conducted by Change to Win between April 29 and May 9, 2020,
workers reported that Amazon had ``continued to ship non-
essential items such as hammocks, fish tanks, sex toys, and
pool floaties.'' \1771\ More than two-thirds of fulfillment
center workers reported that 50 percent or more of the items
they handled during this period were non-essential. Based on
the survey results, Change to Win concluded that ``Amazon has
continued to place workers in danger of contracting COVID-19 in
order to ship non-essential goods.'' \1772\ A number of market
participants that the Subcommittee interviewed also indicated
that Amazon prioritized shipping its own items over those sold
by third-party sellers.\1773\ Amazon confirmed that it did give
preferential treatment to its own products for a period of
time, but claimed it was ``unintentional.'' \1774\
---------------------------------------------------------------------------
\1771\ Change to Win, Amazon COVID-19 Worker Survey Data Brief 3
(2020), https://static1.squarespace.com/static/
5d374de8aae9940001c8ed59/t/5ec67b15a155792a0f9ef435/15900
65963743/Amazon-Worker-COVID-19-Data-Brief.pdf.
\1772\ Id.
\1773\ See, e.g., Submission from Source 91, to H. Comm. on the
Judiciary (Sept. 16, 2020) (``When we looked at Amazon private-label
products during April/early May, they were almost all available for
immediate Prime delivery, while comparable national brands were not
able to get the same shipment times. Definitely preference was given to
many Amazon private-label products during times of `essential'/`non-
essential' classification.''); Interview with Source 152 (Sept. 18,
2020).
\1774\ CEO Hearing at 287 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.) (``After instituting these changes,
Amazon became aware that shipments of certain Amazon devices that did
not fall into the priority categories had been inadvertently included
in the list of products with faster delivery promises. This was
unintentional.'').
(6) Tying and Bundling--Fulfillment by Amazon and
---------------------------------------------------------------------------
Advertising
(a) Fulfillment by Amazon. There is a strong link between
Amazon Marketplace and Fulfillment by Amazon (FBA), Amazon's
paid logistics service. Amazon uses its dominance in each of
these markets to strengthen and reinforce its position in the
other.
Amazon's FBA program combines warehousing, packing, and
shipping services, and most importantly, access to Prime
customers.\1775\ For a seller's products to get the Prime
badge, which is essential to making sales on the platform, a
seller must either qualify for Amazon's Seller Fulfilled Prime
(SFP) program or use Amazon's FBA service. On August 18, 2020,
Amazon informed sellers of changes to Seller Fulfilled Prime
which render it an entirely impractical option for most
sellers.\1776\ Even before this change, only a very small
percentage of sellers could meet the onerous eligibility
requirements for Seller Fulfilled Prime.\1777\ This means FBA
is functionally the only way for sellers to get the Prime badge
for their product listings.\1778\ A document setting forth
draft Q&A before a 2018 earnings call for Amazon Chief
Financial Officer Brian Olsavsky explained the connection
between Prime and FBA: ``Prime and FBA reinforce each other--
they are inextricably linked. FBA adds Prime eligible
selection. Prime member growth and purchasing habits attract
sellers to FBA.'' \1779\
---------------------------------------------------------------------------
\1775\ Fulfillment by Amazon, Amazon, https://sell.amazon.com/
fulfillment-by-amazon.html (last visited Oct. 4, 2020).
\1776\ Pascal, The Seller Fulfilled Prime Team, Important Updates
to Seller Fulfilled Prime, Amazon Servs. Seller Forums (Aug. 18, 2020),
https://sellercentral.amazon.com/forums/t/important-updates-to-seller-
fulfilled-prime/682240.
\1777\ See, e.g., Interview with Jason Boyce, Founder & CEO,
Avenue7Media, LLC (Sept. 15, 2020) (``It used to be possible, but hard,
to be a Seller Fulfilled Prime seller. There were only 200 sellers that
were able to meet the requirements. What's changing recently is that
they used to allow you to have the Prime badge in certain regions, but
now they say you need the Prime badge nationally, i.e., you need to
have multiple warehouses across the country plus ship on Saturdays,
etc.'').
\1778\ Regan McPhee, How to Sell on Amazon Prime in 2020,
JungleScout (May 27, 2020), https://www.junglescout.com/blog/how-to-
sell-on-amazon-prime/.
\1779\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00186643 (July 23, 2018) (on file with Comm.).
---------------------------------------------------------------------------
Due to a lack of alternatives, third-party sellers have no
choice but to purchase fulfillment services from Amazon. More
than 73 percent of all Marketplace sellers worldwide reportedly
rely on FBA services.\1780\ Numerous third-party sellers told
the Subcommittee that they feel they have no choice but to pay
for FBA to maintain a favorable search result position, to
reach Amazon's more than 112 million Prime members, and to win
the Buy Box--through which the vast majority of Amazon sales
are made.\1781\ A recent consumer survey indicated that 75
percent of Amazon Prime customers specifically search for
products flagged as Prime-eligible.\1782\ As a result, as the
Online Merchant's Guild told the Subcommittee, many sellers
will ``say that without Prime you are dead.'' \1783\
---------------------------------------------------------------------------
\1780\ See J. Clament, Fulfillment by Amazon (FBA) Usage Among Top
Marketplace Sellers Worldwide 2017-2018, Statista (Jan. 7, 2020),
https://www.statista.com/statistics/1020046/global-fba-usage-top-
amazon-sellers/.
\1781\ See, e.g., Submission from Source 43, to H. Comm. on the
Judiciary, 30 (Oct. 26, 2019) (on file with Comm.).
\1782\ Feedvisor, The 2019 Amazon Consumer Behavior Report 10
(2019), https://fv.feedvisor.com/CN_2019_Amazon-Consumer-Behavior-
Report.html.
\1783\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 7 (Oct. 23, 2019) (on file with Comm.).
---------------------------------------------------------------------------
In response to concerns about Amazon tying a seller's
ability to make sales on its platform to participation in FBA,
Amazon has offered contradictory statements. In the
Subcommittee's second hearing, Representative Lucy McBath (D-
GA) asked Amazon's Associate General Counsel, Nate Sutton,
whether Amazon ``privilege[d] vendors who use Amazon
Fulfillment Services over those who chose not to.'' \1784\ Mr.
Sutton asserted that Amazon ``do[es] not favor . . . products
that use FBA over others.'' \1785\ He also indicated that
Fulfillment by Amazon is not a factor in Amazon's ranking
algorithm.\1786\
---------------------------------------------------------------------------
\1784\ Innovation and Entrepreneurship Hearing at 50 (question of
Rep. Lucy McBath (D-GA), Member, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary).
\1785\ Id.
\1786\ Id. at 499 (response to Questions for the Record of Nate
Sutton, Assoc. Gen. Couns., Competition, Amazon.com, Inc.).
---------------------------------------------------------------------------
At the Subcommittee's sixth hearing, Representative Mary
Gay Scanlon (D-PA) asked Mr. Bezos about whether there is a
connection between a seller's use of FBA and its ability to win
the Buy Box.\1787\ In response, Mr. Bezos said, ``I'm not sure
if it's direct, but, indirectly, I think the Buy Box does favor
products that can be shipped with Prime.'' \1788\ Given that
FBA is effectively the only way for sellers to get a Prime
badge, this indicates that Amazon does favor sellers who use
FBA over those who do not for both its search rankings and the
Buy Box. Amazon claims that it favors sellers who use FBA
because it is in the best interest of consumers and that it
``does not consider profitability as part of the Featured
Merchant Algorithm.'' \1789\ Documents reviewed by the
Subcommittee, however, suggest that Amazon has used
profitability--also referred to internally as ``contribution
profit'' or ``CP''--as a factor in awarding the Buy Box.\1790\
---------------------------------------------------------------------------
\1787\ CEO Hearing at 161 (question of Rep. Mary Gay Scanlon (D-
PA), Vice Chair, H. Comm. on the Judiciary).
\1788\ Id. (statement of Jeff Bezos, CEO, Amazon.com, Inc.).
\1789\ Id. at 282 (response to Questions for the Record of Jeff
Bezos, CEO, Amazon.com, Inc.).
\1790\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00141750 (Mar. 25, 2010) (on file with Comm.).
---------------------------------------------------------------------------
Furthermore, Amazon's own documents show that it has
considered FBA participation for purposes of determining the
Buy Box winner.\1791\ An Amazon document that sets forth
pricing rules for a pilot program appears to favor third-party
sellers that use FBA over those who do not for awarding the Buy
Box.
---------------------------------------------------------------------------
\1791\ Id. at AMAZON-HJC-00142724.
---------------------------------------------------------------------------
One third-party seller provided the Subcommittee with
anecdotal evidence that Amazon favors sellers who participate
in Amazon's fulfillment program over sellers who do not. The
seller set up an experiment where he sold the same product, one
self-fulfilled and the other fulfilled through FBA, and ran
different test cases.\1793\ The seller found that, ``Even when
the consumer price of the self-fulfilled order was reduced and
sold for a lower price (7% lower) than the FBA offer, the FBA
still `won' the `Buy Box.' '' \1794\ The seller indicated that,
without this favorable treatment for FBA, they would not choose
to use FBA, as they found Amazon's fulfillment service was
often slower and less reliable than self-fulfillment.\1795\
---------------------------------------------------------------------------
\1793\ Submission from Source 43, to H. Comm. on the Judiciary, 29
(Oct. 26, 2019) (on file with Comm.).
\1794\ Id.
\1795\ Id.; see also Interview with Source 920 (July 14, 2020);
Interview with Source 100 (July 24, 2020).
Internal Pricing Strategy Document \1792\
---------------------------------------------------------------------------
\1792\ Prepared by the Subcommittee based on Submission from
Amazon, to H. Comm. on the Judiciary, AMAZON-HJC-00141750 (Mar. 25,
2010) (on file with Comm.).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Although Jeff Bezos told the Subcommittee that Fulfillment
by Amazon ``is probably the greatest invention that we ever
created for sellers,'' and that ``it's working for sellers,''
information that the Subcommittee reviewed suggests that it has
significant shortfalls.\1796\ One third-party seller told the
Subcommittee, ``We use both FBA and self-fulfillment, [and] all
of our negative comments are on items shipped through FBA.''
\1797\ According to another seller that uses FBA, at one point,
Amazon decided to change the packaging on her products from
cardboard boxes to padded envelopes, causing damage to her
products in transit. When the damaged items started arriving at
her customers' homes in a damaged state, this caused a surge of
negative reviews and requests for returns. When she asked
Amazon to remove these bad reviews, which were caused by FBA's
shipping methods, Amazon refused.\1798\
---------------------------------------------------------------------------
\1796\ CEO Hearing at 161 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.).
\1797\ Interview with Source 89 (July 22, 2020).
\1798\ Interview with Source 149 (Feb. 26, 2020).
---------------------------------------------------------------------------
A competing online marketplace described how Amazon's
effectively forced-on-sellers FBA program makes it more
difficult to compete with Amazon for sellers, stating,
``[T]hrough anticompetitive strategies and practices by Amazon,
many . . . sellers are being pulled into Amazon's tied
marketplace-and-ecommerce-fulfilment ecosystem in a manner that
makes them not only less independent
but directly dependent on Amazon.'' \1799\ It further explained
that,
because of Amazon's dominance in online commerce, ``Even
sellers who sell on other marketplaces are pushed into FBA,
because it is the only practicable way to obtain sales on the
Amazon marketplace.'' \1800\ In addition to the Subcommittee's
investigation, antitrust enforcement agencies are currently
investigating Amazon for tying these two services
together.\1801\
---------------------------------------------------------------------------
\1799\ Submission from Source 11, to H. Comm. on the Judiciary, 1
(Oct. 14, 2019) (on file with Comm.).
\1800\ Id. at 2.
\1801\ See. e.g., Press Release, It. Competition Auth., Amazon:
Investigation Launched on Possible Abuse of a Dominant Position in
Online Marketplaces and Logistic Services (Apr. 15, 2019), https://
en.agcm.it/en/media/press-releases/2019/4/A528 (announcing the launch
of an investigation into whether ``Amazon would unduly exploit its
dominant position in the market for e-commerce platforms intermediary
services in order to significantly restrict competition in the e-
commerce logistics market, as well as--potentially--in the e-commerce
platform market, to the detriment of final consumers'').
(b) Advertising. Consistent with public reporting,\1802\
evidence that the Subcommittee reviewed suggests that Amazon
may require sellers to purchase their advertising services as a
condition of making sales on the platform. Because 44 percent
of consumers tend to only look through the first two search
pages when shopping on Amazon, a seller is practically
invisible if it does not show up on one of the first two
pages.\1803\ Amazon's Sponsored Products and Sponsored Brand
tools allow sellers to ensure they are prioritized in search
results for specific key terms. A 2020 survey of large brands
found that at least 73 percent used Amazon's advertising
services, with 65 percent spending at least $40,000 a month on
advertising on the site.\1804\ In just one year, the number of
brands with this monthly advertising spend increased by 33
percent.\1805\ A recent report issued by the Institute for
Local Self-Reliance explained:
---------------------------------------------------------------------------
\1802\ See, e.g., Shira Ovide, Amazon Advertising Is Just a Toll in
Disguise, Bloomberg (July 15, 2019), https://www.bloomberg.com/opinion/
articles/2019-07-15/amazon-advertising-is-just-a-toll-in-disguise.
\1803\ Feedvisor, The 2019 Amazon Consumer Behavior Report 5
(2019), https://fv.feedvisor.com/CN_2019_Amazon-Consumer-Behavior-
Report.html.
\1804\ Feedvisor, Brands and Amazon in the Age of E-Commerce, 2020
Edition 12 (2020), https://fv.feedvisor.com/CN_2020_Brands-and-Amazon-
in-the-Age-of-E-Commerce.html.
\1805\ Id.
LSellers that decline to advertise risk losing their place
in Amazon's organic search results, no matter how many glowing
customer reviews they have. That's because the Amazon algorithm
that delivers the search results favors products with more
sales. As more orders are driven by ads, sellers than don't
advertise lose out on those sales and, as their share of sales
declines, they also slip in the search rankings, further
reducing their sales in a negative cycle.\1806\
---------------------------------------------------------------------------
\1806\ Stacy Mitchell, Ron Knox & Zach Freed, Inst. of Local Self-
Reliance, Report: Amazon's Monopoly Tollbooth 9 (2020), https://
ilsr.org/amazons_tollbooth/.
Similarly, the Online Merchants Guild told the Subcommittee
in a submission, ``[i]t is now common belief in the Amazon
seller community that the only way to sell on Amazon is through
Amazon's Pay-Per-Click (`PPC') offering.'' The submission
describes the situation as ``pay-to-play,'' adding that ``[Pay-
Per-Click advertising] has become a major point of frustration
for many sellers, with many sellers left feeling as if they are
paying a mandatory fee, and have even described [Pay-Per-Click]
as a way for Amazon to increase their seller fees without
looking like they are increasing their seller fees.'' \1807\
---------------------------------------------------------------------------
\1807\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 8 (Oct. 23, 2019) (on file with Comm.); see also Interview
with Jason Boyce, Founder & CEO, Avenue7Media, LLC (Sept. 15, 2020)
(``Pay-Per-Click is now mandatory.'').
---------------------------------------------------------------------------
At the same time that advertising services have become
``less of an option and more of a requirement for sellers to
compete'' on the platform, Amazon's ads have also become more
expensive.\1808\ The ads' costs are determined by reverse
auction--businesses bid on keywords that customers may use to
search for a given product. In just a year, ``the cost-per-
click for sponsored ads increased by about 15% on average,''
and for some, by as much as 127 percent.\1809\ A former third-
party seller told the Subcommittee that this harms both sellers
and consumers, adding that ``those were the good old days;
before [Pay-Per-Click], products would rise on the merits.''
\1810\ Similarly, the Online Merchants Guild said, ``[i]n the
past, the belief was more reviews would create a trending
product.'' \1811\
---------------------------------------------------------------------------
\1808\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 8 (Oct. 23, 2019) (on file with Comm.).
\1809\ Stacy Mitchell, Ron Knox & Zach Freed, Inst. of Local Self-
Reliance, Report: Amazon's Monopoly Tollbooth 10 (2020), https://
ilsr.org/amazons_tollbooth/.
\1810\ Interview with Jason Boyce, Founder & CEO, Avenue7Media, LLC
(Sept. 15, 2020).
\1811\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 8 (Oct. 23, 2019) (on file with Comm.).
---------------------------------------------------------------------------
In response to concerns about tying, Amazon claims that it
provides non-discriminatory access to the Buy Box and that
participation in Fulfillment by Amazon and its Pay-Per-Click
advertising program is voluntary.\1812\ Amazon's revenue from
these sources is increasing, however, and sellers continue to
raise concerns that increased fees for compulsory fulfillment
and advertising services are squeezing their business.
---------------------------------------------------------------------------
\1812\ See, e.g., CEO Hearing at 131 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.) (``I think what you're referring to is the fact that
we offer an advertising service basically for third party sellers to
drive additional promotion to their products. That is a voluntary
program. Some sellers use it. Some don't.'').
(7) Strategic Platform Management and Mismanagement. During
the investigation, the Subcommittee also heard concerns that
Amazon engages in strategic mismanagement of its platform by:
(1) allowing the proliferation of counterfeit and unsafe goods;
(2) using its ability to control the flow of counterfeits as
leverage; and (3) putting in place ineffective counterfeit
prevention tools that result in the suspension of a large
number of innocent sellers.\1813\
---------------------------------------------------------------------------
\1813\ During the investigation, the Committee also heard concerns
about Amazon using ``brand gating'' to block competitors from selling
certain products on its platform. See, e.g., Submission from Source 5,
to H. Comm. on the Judiciary (Sept. 15, 2020) (on file with Comm.)
(raising concerns about ``brand gating,'' which allows Amazon, on its
own, or in concert with ``a trademark owner/manufacturer/seller, who is
registered on the Brand Registry, to block other third party sellers
from selling a particular brand, unless certain conditions are met'');
Submission from Source 100, to H. Comm. on the Judiciary (Jan. 10,
2020) (on file with Comm.) (raising concerns that Amazon ``gates'' a
brand when it decides that it wants to source items directly from the
manufacturer and limit competition from third-party sellers and
stating, ``[w]e have lost literally millions of dollars on [inventory
from] brands that Amazon has gated, purchases directly from
manufacturers and we are no longer able to sell on Amazon'').
---------------------------------------------------------------------------
As Amazon's dominance in e-commerce has grown, so has the
proliferation of dangerous and counterfeit products on its
marketplace.\1814\ A 2019 Wall Street Journal investigation
found that Amazon had active listings for over 4,000 items
``that have been declared unsafe by federal agencies [and] are
deceptively labeled or are banned by federal regulators.''
\1815\ In the worst cases, these products have even caused
bodily injury or even death to unsuspecting consumers.\1816\ As
recently as September 2020, CNN released a report describing
multiple instances in which Amazon's own private-label
products, such as a phone charging cable, have caught fire
while in use by consumers.\1817\
---------------------------------------------------------------------------
\1814\ Alexandra Berzon, Shane Shifflett & Justin Scheck, Amazon
Has Ceded Control of Its Site. The Result: Thousands of Banned, Unsafe
or Mislabeled Products, Wall St. J. (Aug. 23, 2019), https://
www.wsj.com/articles/amazon-has-ceded-control-of-its-site-the-result-
thousands-of-banned-unsafe-or-mislabeled-products-11566564990.
\1815\ Id.
\1816\ Id.
\1817\ Blake Ellis & Melanie Hicken, Dozens of Amazon's Own
Products Have Been Reported as Dangerous--Melting, Exploding or Even
Bursting into Flames. Many Are Still on the Market, CNN Bus. (Sept. 10,
2020), https://www.cnn.com/2020/09/10/business/amazonbasics-
electronics-fire-safety-invs/index.html.
---------------------------------------------------------------------------
The spread of counterfeit products also has serious
consequences for vendors and brand manufacturers who rely on
their reputations, and consumer trust, to maintain successful
businesses. Amazon's marketplace platform is designed in a way
that makes it difficult for consumers to identify counterfeit
products. As the Retail Industry Leaders Association (RILA)
noted in a submission to the Subcommittee, ``Where a platform
both obfuscates the origin or source and provides fulfillment
services, a seller of counterfeits is harder for consumers to
uncover because the item appears to have the backing of the
platform.'' \1818\
---------------------------------------------------------------------------
\1818\ Submission from Retail Industry Leaders Ass'n, to H. Comm.
on the Judiciary, 9 (July 16, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Although it claims to take its counterfeit problem
seriously, Amazon's business model incentivizes it to do less,
not more. Because Amazon's profits increase with the number of
sales on the platform, the company has an incentive to turn a
blind eye to counterfeit products that contribute to its
increased sales volume. Regardless of the source, more sales
generally result in more profits for Amazon because it
typically ``profits twice from a sale through purchase and
fulfillment[,] and potentially three times through
advertising.'' \1819\
---------------------------------------------------------------------------
\1819\ Id.
---------------------------------------------------------------------------
For example, the Subcommittee uncovered evidence during the
investigation that Amazon has used its ability to police
counterfeits more or less aggressively as leverage in contract
negotiations with brands who attempt to resist Amazon pressure
to sell on its platform--referred to internally at Amazon as
``holdouts.'' \1820\ This recently occurred when it agreed to
increase efforts to crack down on counterfeit Apple products as
part of Apple's agreeing to establish a wholesale relationship
with Amazon Retail.\1821\ Documents received by the
Subcommittee suggest that Apple was dissatisfied with Amazon's
anti-counterfeiting program and sought the following as a
condition of selling Apple products wholesale to Amazon:
``Amazon must proactively monitor platform for counterfeits/
knockoffs and cooperate with Apple to remove and prevent
them.'' \1822\
---------------------------------------------------------------------------
\1820\ Competitors Hearing at 19-20 (statement of David Barnett,
CEO & Founder, PopSockets LLC); see also Laura Stevens & Sara Germano,
Nike Thought It Didn't Need Amazon--Then the Ground Shifted, Wall St.
J. (June 28, 2017), https://www.wsj.com/articles/how-nike-resisted-
amazons-dominance-for-years-and-finally-capitulated-1498662435.
\1821\ Jouzas Kaziukenas, Amazon's Apple Moment, Marketplace Pulse
(Nov. 27, 2018), https://www.marketplacepulse.com/articles/amazon-
apple-moment.
\1822\ See Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00190195 (Feb. 15, 2018) (on file with Comm.) (``We
understand Apple's IP team may not be happy with elements of our anti-
counterfeiting program.'').
---------------------------------------------------------------------------
At the Subcommittee's field hearing in Colorado, PopSockets
founder David Barnett testified that ``Amazon was aware that
large quantities'' of counterfeit PopSockets products were
selling on its platform, but that Amazon allowed the problem to
continue until PopSockets agreed to spend nearly two million
dollars on Amazon marketing services.\1823\ Mr. Barnett further
testified that Amazon was not just facilitating the sale of
counterfeit PopSockets products, but that Amazon itself was
engaged in selling knockoffs. Representative Ken Buck (R-CO)
and Representative Henry C. ``Hank'' Johnson, Jr. (D-GA)
confronted Mr. Bezos on Amazon's behavior towards PopSockets at
the Subcommittee's sixth hearing. Mr. Bezos responded, ``if
those are the facts and if someone somewhere inside Amazon
said, you know, `Buy X dollars in ads, and then we'll help you
with your counterfeit problem,' that is unacceptable. And I
will look into that, and we'll get back to your office with
that.'' To date, however, Amazon has not followed up with the
Subcommittee to provide additional information.
---------------------------------------------------------------------------
\1823\ Competitors Hearing at 19-20 (statement of David Barnett,
CEO & Founder, PopSockets LLC).
---------------------------------------------------------------------------
In response to criticism and negative publicity about the
proliferation of counterfeit products on its platform, Amazon
announced several initiatives to combat fake products.\1824\
During the Subcommittee's sixth hearing, Mr. Bezos testified
that Amazon ``invest[s] hundreds of millions of dollars in
systems'' that police counterfeits.\1825\ However, Amazon's
approach appears to be ineffective, resulting in suspensions of
many innocent, third-party sellers, with devastating effects on
some sellers' businesses.\1826\
---------------------------------------------------------------------------
\1824\ See, e.g., Press Release, Amazon, Amazon Establishes
Counterfeit Crimes Unit to Bring Counterfeiters to Justice (June 24,
2020), https://press.aboutamazon.com/news-releases/news-release-
details/amazon-establishes-counterfeit-crimes-unit-bring-
counterfeiters.
\1825\ CEO Hearing at 131 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.).
\1826\ See, e.g., Submission from Amazon, to H. Comm. on the
Judiciary, AMAZON-HJC-00173394 (Sept. 6, 2016) (on file with Comm.)
(``Additional gating requirements were put in place to reduce
counterfeit and improve product safety, but did not have the right
processes in place to limit the number of false negatives (declining
Seller applications despite the seller's ability to provide the correct
documentation).'').
---------------------------------------------------------------------------
For example, the Subcommittee interviewed a former Amazon
employee and current consultant for Amazon sellers who
described recent unfair changes in Amazon's treatment of
sellers suspected of being counterfeiters. He said that, in the
past, Amazon would only suspend accounts and withhold funds
from third-party sellers it confirmed were selling counterfeit
goods.\1827\ However, increasingly, ``Amazon rejects invoices
or fails to verify suppliers without any justification or basis
as to why . . . and they are using that as a reason to hold
funds indefinitely.'' \1828\
---------------------------------------------------------------------------
\1827\ Interview with Chris McCabe, Founder, ecommerceChris, LLC
(June 12, 2020).
\1828\ Id.
---------------------------------------------------------------------------
One third-party seller told the Subcommittee that Amazon
blocked some of her listings, citing a number of her products
as ``inauthentic.'' \1829\ The seller provided evidence to
Amazon that, not only were her vendor's products authentic, but
Amazon actively sold the same products, sourced from the same
vendor, through its first-party sales.\1830\ Despite elevating
the issue to Amazon executives in July 2020, this issue has
still not been resolved as of September 2020.\1831\
---------------------------------------------------------------------------
\1829\ Submission from Source 100, to H. Comm. on the Judiciary
(Sept. 18, 2020) (on file with Comm.).
\1830\ Id.
\1831\ Id.
(ii) Most-Favored-Nation and Price Parity Provisions.
Amazon also uses its dominant position in e-commerce as
leverage with other businesses to require most-favored-nation
(MFN) clauses or similar price parity provisions to guarantee
that it will always receive the best prices and most favorable
terms. While these clauses are not inherently anticompetitive,
Amazon has a history of using MFN clauses to ensure that none
of its suppliers or third-party sellers can collaborate with an
existing or potential competitor to make lower-priced or
innovative product offerings available to consumers.
The anticompetitive effects of Amazon's use of MFN clauses
are particularly pronounced in the book market. According to a
book publisher, Amazon used its market power in print and e-
book sales to force a price MFN on it and other book
publishers.\1832\ As the publisher explained, the result has
been that ``publishers are completely handcuffed from
stimulating platform competition because Amazon's price MFN
causes publishers to incur significant financial penalties if
they offer Amazon's rivals better pricing.'' \1833\ Another
publisher told the Subcommittee that ``Amazon always has and
still does require MFNs.'' \1834\ According to this publisher,
the MFN provisions prevent publishers from partnering with any
of Amazon's competitors and reinforces Amazon's
``stranglehold'' and ``control'' over book distribution.\1835\
Although Amazon has changed the name and specific mechanisms
over the years, it appears that the company continues to impose
contract provisions that effectively function as MFNs on book
publishers.
---------------------------------------------------------------------------
\1832\ Submission from Source 17, to H. Comm. on the Judiciary, 9
(Nov. 15, 2019) (on file with Comm.).
\1833\ Id. at 10.
\1834\ Interview with Source 155 (Sept. 29, 2020).
\1835\ Id.
---------------------------------------------------------------------------
In a joint letter to Subcommittee Chair Cicilline following
the Subcommittee's sixth hearing, a group of organizations
representing authors, publishers, and booksellers wrote that
Amazon's use of MFNs has ``stifle[d] the emergence and growth
of competitive alternatives in the book distribution
marketplace.'' \1836\ When Amazon entered the e-book market
through its release of the Kindle and Kindle Store in 2007, it
unseated incumbent booksellers in market position by offering
steep discounts on best-selling books.\1837\ Over a decade
later, Amazon's dominance in e-books and its anticompetitive
application of price parity clauses to its business
relationships in this market ``eliminate the ability of rivals
or new entrants to gain any meaningful competitive advantage
relative to Amazon.'' \1838\ Essentially, Amazon disrupted this
market, dominated it, and now wields its immense power to
effectively guarantee that no competitor could possibly do the
same.
---------------------------------------------------------------------------
\1836\ Letter from Maria A. Pallante, President & CEO, Ass'n of Am.
Publishers, Mary E. Rasenberger, Exec. Dir., Authors Guild, Allison K.
Hill, CEO, Am. Booksellers Ass'n, to Hon. David. N. Cicilline, Chair,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 2 (Aug. 17, 2020), https://publishers.org/wp-content/
uploads/2020/08/Joint-Letter-to-Rep-Cicilline-081720.pdf.
\1837\ George Packer, Cheap Words, New Yorker (Feb. 10, 2014),
https://www.newyorker.com/magazine/2014/02/17/cheap-words (noting that,
in 2007, the prices of e-books on Kindle were ``below wholesale in some
cases, and so low that [they] represented a serious threat to the
market . . . . By 2010, Amazon controlled ninety per cent of the market
in digital books--a dominance that almost no company, in any industry,
could claim.'').
\1838\ Letter from Maria A. Pallante, President & CEO, Ass'n of Am.
Publishers, Mary E. Rasenberger, Exec. Dir., Authors Guild, Allison K.
Hill, CEO, Am. Booksellers Ass'n, to Hon. David. N. Cicilline, Chair,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 3 (Aug. 17, 2020), https://publishers.org/wp-content/
uploads/2020/08/Joint-Letter-to-Rep-Cicilline-081720.pdf.
---------------------------------------------------------------------------
Amazon also aggressively enforces price parity rules on
Amazon Marketplace's third-party sellers. It imposed MFN
provisions on U.S. sellers until 2019. In response to antitrust
scrutiny, the platform replaced those provisions with a ``Fair
Pricing Policy,'' which has the same effect of blocking sellers
from offering lower prices to consumers on other retail
sites.\1839\ To enforce the policy, Amazon uses ``computer
software to regularly scan listings on competitors' websites,
and pressuring their sellers to change their price if their
Amazon price is substantially higher.'' \1840\ A violation, or
even a perceived violation, of the policy can lead to
suspension of a seller's account, with dire consequences for
the seller. A former third-party seller explained that Amazon
uses ``Buy Box Suppression,'' where Amazon will remove a
seller's ability to win the Buy Box, as a way to penalize
sellers that offer products at a lower price on competing
sites.\1841\
---------------------------------------------------------------------------
\1839\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 7 (Oct. 29, 2019) (on file with Comm.).
\1840\ Id. at 8.
\1841\ Submission from Jason Boyce, Founder & CEO, Avenue7Media
(Sept. 25, 2020) (on file with Comm.).
---------------------------------------------------------------------------
One of Amazon's competitors told the Subcommittee that,
``as Amazon raises the costs to sellers, and requires that
Amazon have the lowest prices available, for a seller to be
able to make significant sales on its marketplace, these
sellers will raise the price on competitor sites to match
Amazon's price.'' \1842\ Amazon's ``Fair Price Policy,'' which
has been described as a ``thinly-veiled MFN restriction,'' is
likely anticompetitive with respect to blocking competition
from other marketplaces, and does not result in lower prices
for consumers as Amazon has claimed.\1843\
---------------------------------------------------------------------------
\1842\ Submission from Source 11, to H. Comm. on the Judiciary, 4
(Oct. 14, 2019) (on file with Comm.); see also Submission from Jason
Boyce, Founder & CEO, Avenue7Media (Sept. 25, 2020) (on file with
Comm.) (``Amazon prohibiting sellers from offering lower prices on
other online retail platforms clearly hurts consumers if the only way
for sellers to regain their listing on Amazon is to raise their prices
on other platforms or remove their listings all together, therefore
limiting competition.'').
\1843\ Submission from Int'l Bhd. Of Teamsters, Commc'n Workers of
Am., United Food & Commercial Workers Int'l Union, Serv. Emps. Int'l
Union & Change to Win, to H. Comm. on the Judiciary, 4 (Mar. 10, 2020)
(on file with Comm.).
(iii) Predatory Pricing. As part of its business strategy,
Amazon has historically placed a higher premium on long-term
growth at the expense of short-term profitability. As noted
earlier in this Report, Amazon did not post its first full-year
profit until 2003--a decade after the company was
founded.\1844\ Consistent with this trend, Amazon has adopted a
predatory-pricing strategy across multiple business lines at
various stages in the company's history.\1845\
---------------------------------------------------------------------------
\1844\ Saul Hansen, Technology; Amazon Reports First Full-Year
Profit, N.Y. Times (Jan. 28, 2004), https://www.nytimes.com/2004/01/28/
business/technology-amazon-reports-first-full-year-profit.html.
\1845\ In this Report, the term ``predatory pricing'' should be
understood in its broadest sense to refer to any situation where a
dominant firm prices a good or service below cost in a way that is
harmful to competition.
---------------------------------------------------------------------------
Because of the nature of its marketplace business, Amazon's
below-cost prices on products and services tend to lock
customers into Amazon's full marketplace ecosystem. As a former
Amazon employee told the Subcommittee, ``[A]bove all else,
Amazon's goal is to keep the customer shopping on Amazon.''
\1846\ Once a customer is locked in, they are less likely to
change their behavior even when Amazon's pricing is not
competitive.
---------------------------------------------------------------------------
\1846\ Submission from Source 91, to H. Comm. on the Judiciary
(Sept. 22, 2020) (on file with Comm.).
(1) Prime. The most prominent example of Amazon's use of
strategic losses to lock customers into the platform's
ecosystem is its popular membership program, Amazon Prime. As
of August 2020, a Prime membership costs $119 per year, up from
its original $79 at its launch in February 2005 and $99 from
March 2014 to April 2018. An Amazon executive wrote in 2013, in
reference to pricing Prime, ``the better course is to let the
existing Prime program grow . . . and then raise prices later
assuming a lower elasticity in future years,'' \1847\ once
customers are locked in.
---------------------------------------------------------------------------
\1847\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00216088 (Oct. 28, 2013) (on file with Comm.).
---------------------------------------------------------------------------
An Amazon internal document describes the rationale behind
Amazon Prime and its other membership programs: ``Membership
programs are created with a long-term, company-wide perspective
with the goal of increasing loyalty and cross-category shopping
behavior. The programs do not optimize for short-term gain or
profitability in a single category.'' \1848\ Another internal
Amazon document describes these membership programs as,
``[d]oubl[ing] down on `Big Moats,' '' aiming to create an
impenetrable barrier around its dominant position.\1849\
---------------------------------------------------------------------------
\1848\ Id. at AMAZON-HJC-00068510 (Sept. 8, 2010).
\1849\ Id.; see also id. at AMAZON-HJC-00184863 (May 7, 2015)
(``The value differentiation for Prime members accelerates the Prime
flywheel creating an additional reason to become a Prime member and
concentrate household spend with Amazon.'').
---------------------------------------------------------------------------
Despite Amazon Prime's popularity and wide membership base,
it is a loss-leader for the company. Many industry analysts
have estimated Amazon's Prime losses over the years, finding
that it is unprofitable, and that Amazon is willing to spend
significant amounts of money to prop up the program.\1850\ In
2016, a Forrester Research analysis estimated that Prime costs
Amazon $1 billion per year.\1851\ In 2019, J.P. Morgan
estimated that, though priced at $119, a Prime subscription is
valued at about $860, up 10 percent from its estimated value in
2018.\1852\ A Prime membership also includes access to Prime
Video, Amazon's library of digital video content, and Amazon
Music, its music streaming service.
---------------------------------------------------------------------------
\1850\ See, e.g., Stu Woo, Amazon ``Primes'' Pump for Loyalty, Wall
St. J. (Nov. 14, 2011), http://www.wsj.com/articles/
SB10001424052970203503204577036102353359784.
\1851\ Nanette Byrnes, How Amazon Loses on Prime and Still Wins,
MIT Tech. Rev. (July 12, 2016), https://www.technologyreview.com/2016/
07/12/158869/how-amazon-loses-on-prime-and-still-wins/ (last visited
Oct. 4, 2020).
\1852\ J.P. Morgan, Retail vs. Amazon: Life in a Post COVID-19
World (2020), https://markets.jpmorgan.com/research/email/-lbk68f4/
Alp1kP9tQUPS29jlzW_bOg/GPS-3397412-0; Submission from Amazon, to H.
Comm. on the Judiciary, AMAZON-HJC-00184863 (May 7, 2015) (on file with
Comm.).
---------------------------------------------------------------------------
The Artist Rights Alliance, an advocacy group for the
digital rights of music creators, raised concerns that Amazon's
inclusion of a streaming music service in its Prime program
poses a severe risk of ``driv[ing] down royalties in an
uncompetitive way.'' \1853\ According to its submission:
---------------------------------------------------------------------------
\1853\ Submission from Artist Rights Alliance, to H. Comm. on the
Judiciary, 5 (July 31, 2019) (on file with Comm.).
LAmazon's ongoing efforts to launch a streaming music
service as part of its Prime family of products should be
carefully scrutinized . . . . [W]e are concerned about the
dangers of predatory/sub-market pricing in a service that
Amazon operates as a ``loss leader.'' In general, creators need
an economy that more accurately sees and values their work; not
one with cut-rate prices that entangles music even more deeply
in a web of soulless data collection and ``content
distribution'' operations.\1854\
---------------------------------------------------------------------------
\1854\ Id.
Although Amazon Prime is a loss-leader for the company, it
is one of Amazon's most effective drivers of growth. Amazon
Prime members account for 65 percent of Amazon shoppers as of
Q4 2019.\1855\ While the average Amazon customer spends about
$600 per year on Amazon.com, Prime members reportedly spend
more than double that--an average of $1400 per year.\1856\
---------------------------------------------------------------------------
\1855\ Fareeha Ali, Amazon Prime Has 112 Million Members in the
U.S., Dig. Commerce 360 (Jan. 24, 2020), https://
www.digitalcommerce360.com/article/amazon-prime-membership/.
\1856\ Jack Houston & Irene Anna Kim, How Amazon Gets You to Spend
More Money, Bus. Insider (Sept. 17, 2020), https://
www.businessinsider.com/amazon-prime-members-spend-more-money-sneaky-
ways-2019-9.
---------------------------------------------------------------------------
In 2010, Amazon started its Amazon Mom program, now called
Amazon Family, another membership service that offers discounts
on diapers and other items associated with parenthood.\1857\ At
the outset, Amazon was willing to lose money to ensure the
success of this program. A 2010 document outlining the lead-up
to the official launch of Amazon Mom included a plan to
discount diapers and wipes at a rate that would ``put [their]
product below cost.'' \1858\ And selling diapers was not the
goal of this program--instead Amazon recognized that ``a long-
lasting, sticky relationship'' with Amazon Mom members was the
source of its true value.\1859\ Additionally, an internal
presentation observed that ``[e]arly results from our Amazon
Mom program'' showed that ``[n]ew Amazon customers, whose first
purchase included diapers, spend over three times as much ($292
vs. $91) during their first year as the average new Amazon
customer.'' \1860\
---------------------------------------------------------------------------
\1857\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00130737 (Aug. 31, 2010) (on file with Comm.).
\1858\ Id. at AMAZON-HJC-00159560 (Apr. 2010).
\1859\ Id. at AMAZON-HJC-00035545 (July 20, 2010) (``[W]e can see
that Moms . . . have a favorable year one downstream value relative to
the average customer.'').
\1860\ Id. at AMAZON-HJC-00154656.
---------------------------------------------------------------------------
Some of Amazon's rivals view this dynamic as harmful to
competition, saying that Amazon is ``[u]nderpricing Prime to
consumers to build a huge and highly targetable share of
ecommerce demand.'' \1861\ Once consumers have paid the yearly
fee for Prime, they are incentivized to use it as much as
possible to maximize return on their investment, ``whereas they
might otherwise multisource.'' \1862\
---------------------------------------------------------------------------
\1861\ Submission from Source 11, to H. Comm. on the Judiciary, 2
(Oct. 14, 2019) (on file with Comm.).
\1862\ Id. at 3.
(2) Diapers.com. The Amazon Mom program served another
important function and had a central role in one of Amazon's
early applications of its predatory-pricing strategy. In 2009,
Bezos and other Amazon executives noticed and began discussing
the rise of Diapers.com, a competitor in the baby and personal-
care product markets.\1863\ What followed was a year-long price
war, ending in Amazon's eventual acquisition of Quidsi, the
parent company of Diapers.com.
---------------------------------------------------------------------------
\1863\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00151723 (Feb. 9, 2009) (on file with Comm.).
---------------------------------------------------------------------------
At the Subcommittee's hearing, Mr. Bezos testified that
Amazon was always a price follower in its war with Diapers.com.
\1864\ However, Amazon's `` `plan to win' against
[D]iapers.com'' explicitly included price-leading on
diapers.\1865\ Recognizing that Diapers.com was the company's
``#1 short term competitor,'' Amazon executives decided that
going after them required a ``need to match pricing . . . no
matter what the cost.'' \1866\ Amazon internal documents
indicate that Amazon was willing to lose $200 million in one
month alone on products in the relevant competitive
categories.\1867\ Offering 30 percent cash back on diapers and
a free year's worth of Prime membership to Amazon Mom members,
an Amazon executive predicted in November 2010 that it would
seriously wound Quidsi, stating, ``[T]hey expect to lose lots
of money over the nxt [sic] few yrs [sic]--this will make it
worse.'' \1868\ Quidsi explicitly identified ``Predatory
Pricing'' as a ``Near-Term Risk'' in a 2009 presentation.\1869\
In November 2010, Amazon acquired its self-described ``largest
and fastest growing competitor in the on-line diaper and baby
care space.'' \1870\
---------------------------------------------------------------------------
\1864\ CEO Hearing at 110 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.).
\1865\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00132026 (June 8, 2010) (on file with Comm.).
\1866\ Id. at AMAZON-HJC-00151722 (Feb. 9, 2009).
\1867\ Id. at AMAZON-HJC-00057007 (Apr. 5, 2010).
\1868\ Id. at AMAZON-HJC-00009716 (Sept. 21, 2010).
\1869\ Id. at AMAZON-HJC-00009596 (Nov. 2, 2010).
\1870\ Id. at AMAZON-HJC-00142833 (May 12, 2009).
(3) ``Can't Realize Any Profit''. Once Amazon succeeds in
trapping enough customers in its ``flywheel'' to secure
dominant position across varied markets, it can then raise
prices or remove incentives or allowances for Marketplace
sellers to sell products at favorable prices for consumers. One
example of the latter is Amazon's treatment of ``CRAP,'' a term
coined internally which refers to products on which Amazon
``Can't Realize Any Profit.'' \1871\ CRAP products are low-
priced items that are heavy and expensive to ship--often
consumables, like packs of bottled water.\1872\
---------------------------------------------------------------------------
\1871\ Id. at AMAZON-HJC-00167480.
\1872\ Laura Stevens, Sharon Terlep & Annie Gasparro, Amazon
Targets Unprofitable Items, with a Sharper Focus on the Bottom Line,
Wall St. J. (Dec. 16, 2018), https://www.wsj.com/
articles/amazon-targets-unprofitable-items-with-a-sharper-focus-on-the-
bottom-line-11544965201.
---------------------------------------------------------------------------
These items were integral to Amazon's pursuit of dominance
in the e-commerce market. But once Amazon began to switch its
focus from pure growth to profitability, it reversed course on
these products, engaging in an ongoing ``CRAP-Out Process,'' by
which Amazon attempts to make CRAP profitable through a variety
of methods, such as raising delivery fees or requiring vendors
to repackage products.\1873\ This increases costs for sellers
and brands, who have no choice but to acquiesce to the changed
shipping and packaging rules given their dependence on Amazon
for e-commerce sales. Amazon executives acknowledged that CRAP
was an element of its plan for growth, noting in a strategy
session that, ``We want to ensure that if despite all our
efforts to improve our cost structure, we lose money on an ASIN
[Amazon Standard Identification Number] it is for the long term
strategic growth of Amazon.'' \1874\
---------------------------------------------------------------------------
\1873\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00167484 (on file with Comm.) (``How to deal with CRAP.'').
\1874\ Id.
---------------------------------------------------------------------------
Amazon documents provided in response to the Committee's
requests show the extent to which Amazon was committed to
below-cost pricing. A 2010 review of its baby formula business
identified Amazon's ``most frequently matched internal
competitor'' as ABCBabyFormula, which ``typically [ ] price[d]
15-20% below [Amazon's] cost.'' \1875\ Identifying this company
as the most significant influence on Amazon's baby formula
profit loss, the document notes of ABCBabyFormula that
``[m]anufacturers do not sell to them directly and believe they
are sourcing black market stolen goods.'' \1876\ Amazon
frequently price-matched, at significantly below cost, a
competitor that it had reason to believe was sourcing baby
formula from illegal and potentially dangerous sources--
indicating the lengths to which Amazon was willing to go to
ensure product selection and, in turn, growth.
---------------------------------------------------------------------------
\1875\ Id. at AMAZON-HJC-0014302 (Sept. 30, 2010).
\1876\ Id.
(4) Amazon Devices. Finally, Amazon sells its own branded
hardware devices on its Marketplace and has often priced those
devices below cost in an attempt to corner the market for those
devices and adjacent markets. In Amazon's effort to ``own the
smart home,'' for example, Amazon sometimes prices its Echo
Speaker below cost. Market estimates suggest that Amazon's Echo
Dot third generation materials cost is $37.68,\1877\ while the
company listed it at $22 during its 2019 Prime Day.\1878\ Other
market research of Amazon products found that Amazon Echo
products are on sale as often as they are at full price.\1879\
Illustrating how low prices may not always be in consumers'
best interest, Patrick Spence, the CEO of Sonos, testified
before the Subcommittee that these pricing habits ``hamstring[]
those companies that have better products that cannot be sold
at a loss.'' \1880\ At the Subcommittee's hearing,
Representative Jamie Raskin (D-MD) raised this concern with Mr.
Bezos.\1881\ In response, Mr. Bezos responded that the Amazon
Echo is ``often on promotion, and sometimes when it's on
promotion it may be below cost.'' \1882\
---------------------------------------------------------------------------
\1877\ Submission from Source 38, to H. Comm. on the Judiciary, 19
(Sept. 1, 2019) (citing TechInsights).
\1878\ Id.; see also Samantha Gordon, Prime Day Is Almost Over--
These Are the Best Deals You Can Still Get, USA Today (July 15, 2019),
https://www.usatoday.com/story/tech/reviewedcom/2019/07/15/prime-day-
2019-best-amazon-deals-you-can-get-during-massive-sale/1683589001/
(``Echo Dot--$22.'').
\1879\ Sean Hollister, Amazon Doesn't Sell Echo Speakers at a Loss,
Says Bezos--Unless They're on Sale, Verge (July 29, 2020), https://
www.theverge.com/2020/7/29/21347121/amazon-echo-speaker-price-undercut-
rivals-loss-sale-antitrust-hearing.
\1880\ Competitors Hearing at 12-13 (statement of Patrick Spence,
CEO, Sonos, Inc.).
\1881\ CEO Hearing at 123 (question of Rep. Jamie Raskin (D-MD),
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
\1882\ Id. at 124 (statement of Jeff Bezos, CEO, Amazon.com, Inc.).
---------------------------------------------------------------------------
3. Fulfillment and Delivery
(a) Market Power. As Amazon's e-commerce business has
grown, it has also developed a significant logistics business
surrounding fulfillment and delivery of third-party orders with
its Fulfillment by Amazon (FBA) program. More than 73 percent
of all Amazon Marketplace sellers reportedly rely on this
program to fulfill their orders.\1883\ Because of this, a trade
association that represents third-party sellers refers to
Amazon's fulfillment operation ``as the railroad of [e-
commerce].'' \1884\ In addition to its fulfillment operation,
Amazon is also one of the largest shippers in the world. The
company provides global shipping services for its own products
and independent sellers that sell on Amazon.com, as well as
other e-commerce sites.\1885\
---------------------------------------------------------------------------
\1883\ See Fulfillment by Amazon Usage Among Top Sellers Worldwide
2017-2018, Statista, https://www.statista.com/statistics/1020046/
global-fba-usage-top-amazon-sellers/ (last visited Oct. 4, 2020).
\1884\ Submission from Online Merchants Guild, to H. Comm. on the
Judiciary, 8 (Oct. 23, 2019) (on file with Comm.).
\1885\ Fill Orders from Other Sales Channels (Multi-Channel
Fulfillment), Amazon Seller Cent., https://sellercentral.amazon.com/gp/
help/external/200332450 (last visited Oct. 4, 2020) (explaining that
``Multi-Channel Fulfillment (MCF) is a program within Fulfillment by
Amazon (FBA),'' that fills orders from sales channels placed on sites
other than Amazon.com).
---------------------------------------------------------------------------
Amazon's ground shipping infrastructure consists of
``trucks, trailers, intermodal containers, and delivery
vehicles.'' \1886\ Its truck fleet consists of more than 10,000
trailers.\1887\ It also has its own freight airline, Amazon
Air, with about 50 leased aircrafts,\1888\ and plans to expand
its fleet to 70 by 2021.\1889\ Amazon has also built hundreds
of package sorting and delivery centers across the United
States and has established its own network of contracted
delivery providers exclusively dedicated to delivering packages
for Amazon.\1890\
---------------------------------------------------------------------------
\1886\ Innovation and Entrepreneurship Hearing at 515 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\1887\ Press Release, Amazon, Continued Growth for Amazon's Air
Network (June 28, 2019), https://press.aboutamazon.com/news-releases/
news-release-details/continued-growth-amazons-air-network-expand-prime-
fast-free.
\1888\ Innovation and Entrepreneurship Hearing at 515 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\1889\ Press Release, Amazon, Continued Growth for Amazon's Air
Network (June 28, 2019), https://press.aboutamazon.com/news-releases/
news-release-details/continued-growth-amazons-air-network-expand-prime-
fast-free.
\1890\ Inst. for Local Self-Reliance, Amazon's Monopoly Tollbooth 8
(2020), https://cdn.ilsr.org/wp-content/uploads/2020/07/
ILSR_Report_Amazon Tollbooth_Final.pdf.
---------------------------------------------------------------------------
In recent years, the size and scope of Amazon's delivery
services network have grown significantly. When Amazon first
launched Fulfillment by Amazon, it stored products and packed
orders in its warehouses, but relied on other carriers to
handle shipping and delivery. Today, Amazon ships a growing
number of products itself. In 2019, ``Amazon delivered about
half of its own packages, up from 15 percent just two years
before.'' \1891\ Amazon has also lessened its use of large
delivery companies during this time, using ``800 small,
independent contractors [which] are now responsible for around
48 percent of Amazon's last mile deliveries.'' \1892\ These
smaller providers are economically dependent on Amazon, and
``many are in fact reliant on Amazon for 100 percent of their
business.'' \1893\
---------------------------------------------------------------------------
\1891\ Id.
\1892\ Submission from Int'l Bhd. of Teamsters, Commc'n Workers of
Am., United Food & Commercial Workers Int'l Union, Serv. Emps. Int'l
Union & Change to Win, to H. Comm. on the Judiciary, 13 (Mar. 10, 2020)
(on file with Comm.).
\1893\ Id. at 14.
---------------------------------------------------------------------------
Parcel volume handled by Amazon's delivery service now
rivals the top carriers, including UPS, FedEx, and the U.S.
Postal Service. ``In 2019, Amazon delivered 2.5 billion
parcels, or about one-fifth of all e-commerce deliveries,''
\1894\ and anticipates growth. In a July 2020 investor call,
Amazon CFO Brian Olsavsky stated that Amazon ``expect[s] a
meaningfully higher year-over-year square footage growth of
approximately 50%,'' which includes ``strong growth in new
fulfillment center space as well as sort centers and delivery
stations.'' \1895\
---------------------------------------------------------------------------
\1894\ Inst. for Local Self-Reliance, Amazon's Monopoly Tollbooth 8
(2020), https://cdn.ilsr.org/wp-content/uploads/2020/07/
ILSR_Report_Amazon Tollbooth_Final.pdf.
\1895\ Rachel Premack, Amazon Is Piling Up Fulfillment Center
Square Footage, and It Shows Bezos Thinks the Pandemic-Driven Online
Shopping Surge Is Here to Stay, Bus. Insider: Mkts. (July 31, 2020),
https://markets.businessinsider.com/news/stocks/amazon-fulfillment-
center-growth-reveals-pandemic-online-ordering-surge-2020-7-1029456709#
(last visited Oct. 4, 2020).
---------------------------------------------------------------------------
An analysis by Morgan Stanley concluded that Amazon will
overtake UPS and FedEx in market share for delivery by 2022.
Amazon has already surpassed the U.S. Postal Service, which has
been downsized dramatically under its current leadership.\1896\
Last year, the U.S. Postal Service had a decrease in parcel
volume for the first time in nearly a decade.\1897\
---------------------------------------------------------------------------
\1896\ Inst. for Local Self-Reliance, Amazon's Monopoly Tollbooth 8
(2020), https://cdn.ilsr.org/wp-content/uploads/2020/07/
ILSR_Report_Amazon Tollbooth_Final.pdf.
\1897\ Id.
(b) Monopsony Power. Amazon exercises monopsony power in
labor markets directly and indirectly. As one of the largest
employers in America, Amazon exercises direct power over
hundreds of thousands of workers across the United
States.\1898\ Amazon employees make up 22 percent of the U.S.
labor market in warehousing and storage, excluding seasonal
workers.\1899\ There has been a growing amount of public
reporting in recent years regarding Amazon's treatment of
warehouse employees, including strenuous working conditions,
unforgiving packing and sorting quotas, and unfair
firings.\1900\ Amazon warehouses also have a tendency to
depress wages when they enter a local labor market. For
example, since Amazon opened a warehouse in Lexington County,
South Carolina in 2011, the county has seen average annual
wages for warehouse workers fall more than 30 percent, from
$47,000 to $32,000 annually.\1901\
---------------------------------------------------------------------------
\1898\ Submission from Int'l Bhd. Of Teamsters, Commc'n Workers of
Am., United Food & Commercial Workers Int'l Union, Serv. Emps. Int'l
Union & Change to Win. to H. Comm. on the Judiciary, 12 (Mar. 10, 2020)
(on file with Comm.).
\1899\ What Amazon Does to Wages, Economist (Jan. 20, 2018),
https://www.economist
.com/united-states/2018/01/20/what-amazon-does-to-wages.
\1900\ See, e.g., Colin Lecher, How Amazon Automatically Tracks and
Fires Warehouse Workers for ``Productivity,'' Verge (Apr. 25, 2019),
https://www.theverge.com/2019/4/25/18516004/amazon-warehouse-
fulfillment-centers-productivity-firing-terminations.
\1901\ What Amazon Does to Wages, Economist (Jan. 20, 2018),
https://www.economist
.com/united-states/2018/01/20/what-amazon-does-to-wages.
---------------------------------------------------------------------------
Indirectly, Amazon has wage-setting power through its
ability to set route fees and other fixed costs for independent
contractors in localities in which it dominates the delivery
labor market. These entities are dependent on Amazon for a
large majority--or even 100 percent--of their delivery
business.\1902\ As a result, they have little choice but to
``submit to Amazon's prices and other terms.'' \1903\ Amazon's
dominance also enables it to compel logistics employees to quit
their jobs and instead act as independent contractors, removing
employment protections. A group of labor unions stated in their
submission to the Subcommittee, ``By virtue of its size and
power as a buyer of delivery services, Amazon can impose
monopolistic restraints on the treatment of workers within its
supply chain while, at the same time, avoiding legal
responsibility for their fair treatment.'' \1904\
---------------------------------------------------------------------------
\1902\ Submission from Int'l Bhd. Of Teamsters, Commc'n Workers of
Am., United Food & Commercial Workers Int'l Union, Serv. Emps. Int'l
Union & Change to Win, to H. Comm. on the Judiciary, 14 (Mar. 10, 2020)
(on file with Comm.).
\1903\ Id.
\1904\ Id. at 13.
---------------------------------------------------------------------------
Despite the loss of jobs and economic activity in the wake
of the COVID-19 pandemic, Amazon's monopsony power has likely
increased. In response to higher demand for goods and services,
Amazon hired 175,000 temporary workers in March and April of
2020, making 125,000 of those jobs permanent in May 2020.\1905\
---------------------------------------------------------------------------
\1905\ Sebastian Herrera, Amazon to Keep Most of the Jobs It Added
During Pandemic, Wall St. J. (May 28, 2020), https://www.wsj.com/
articles/amazon-to-keep-most-of-the-jobs-it-added-during-pandemic-
11590661802.
---------------------------------------------------------------------------
4. Alexa's Internet of Things Ecosystem
(a) Overview. Amazon has significant investments in the
Internet of Things ecosystem, centering its strategy around
Amazon's voice assistant, Alexa. In 2014, Amazon launched the
Alexa-enabled Echo smart speaker.\1906\ Since then, Amazon has
built the largest ecosystem of devices and applications
connected to the Internet of Things,\1907\ creating a broad
portfolio of services, development tools, and devices for its
Alexa platform. Amazon's research and development team, Lab126,
leads the development of Amazon's Internet of Things hardware
expansion, including the development of Amazon Echo and Fire
TV.\1908\ These devices represent a ``critical touchpoint that
generates insights into user behavior, which can then be used
to deepen the relationship with consumers and expose them to
new products through personalized recommendations.'' \1909\
Amazon encourages consumers to use Alexa through its Echo smart
speakers and other Alexa compatible devices, ranging from smart
microwaves to its Echo Frames.\1910\
---------------------------------------------------------------------------
\1906\ See, e.g., Chris Welch, Amazon Just Surprised Everyone with
a Crazy Speaker that Talks to You, Verge (Nov. 6, 2014), https://
www.theverge.com/2014/11/6/7167793/amazon-echo-speaker-announced; Nick
Statt, Amazon Wants Alexa to Be the Operating System for Your Life,
Verge (Sept. 27, 2018), https://www.theverge.com/2018/9/27/17911300/
amazon-alexa-echo-smart-home-eco-system-competition.
\1907\ See supra Section IV.
\1908\ Amazon Lab126, Amazon Jobs, https://amazon.jobs/en/teams/
lab126/ (last visited Sept. 29, 2020).
\1909\ See Johanna Ambrosio, Amazon Smart Devices to Expand in
Homes and Businesses, TechTarget (Mar. 23, 2020), https://
searchaws.techtarget.com/feature/Amazon-smart-devices-to-expand-in-
homes-and-businesses.
\1910\ Echo Frames--Eyeglasses with Alexa--Black--A Day 1 Editions
Product, Amazon, https://www.amazon.com/dp/B07W72XKPJ. See also
AmazonBasics Microwave, Small, 0.7 Cu. Ft., 700-W, Works with Alexa,
Amazon, https://www.amazon.com/dp/B07894S727 (last visited Sept. 29,
2020).
---------------------------------------------------------------------------
In 2015, Amazon launched a kit for independent developers
to access Alexa in the cloud and create new Alexa apps, which
Amazon refers to as ``skills.'' \1911\ Two years later, in an
effort to expand its ecosystem of devices, Amazon launched
Alexa Voice Service. This suite of services allows
manufacturers of hardware with microphones and speakers to
receive and respond to Alexa voice commands, making the device
``Alexa-enabled,'' \1912\ or ``Alexa built-in.'' \1913\
Additionally, Amazon oversees Works with Alexa, an Alexa-
compatible device certification program for devices that
receive commands through an Alexa-enabled device, such as a
smart speaker.\1914\ Amazon does not charge third-party device
manufacturers for access to its integration services, which
promotes rapid adoption of Alexa in a larger number of devices,
which, in turn, drives greater adoption by consumers.\1915\
---------------------------------------------------------------------------
\1911\ David Isbitski, Introducing the Alexa Skills Kit, Enabling
Developers to Create Entirely New Voice Driven Capabilities, Amazon
Dev. (June 25, 2015), https://developer
.amazon.com/blogs/post/Tx205N9U1UD338H/Introducing-the-Alexa-Skills-
Kit-Enabling-Developers-to-Create-Entirely-New-Voic.
\1912\ Satish Iyer, Introducing the Alexa Voice Service Device SDK
for Commercial Device Makers, Amazon Alexa (Aug. 17, 2017), https://
developer.amazon.com/blogs/alexa/post/7a72f14e-66d6-42fb-b369-
c60af364489a/introducing-the-alexa-voice-service-avs-device-sdk-for-
commercial-device-makers.
\1913\ What Are Alexa Built-in Devices?, Amazon Alexa, https://
developer.amazon.com/en-US/alexa/devices/alexa-built-in (last visited
Sep. 29, 2020).
\1914\ Works with Alexa Program, Amazon Alexa, https://
developer.amazon.com/en-US/alexa/connected-devices/launch/works-with-
alexa (last visited Sept. 29, 2020).
\1915\ Class Action Complaint at 8, B.F. v. Amazon.com, Inc., No.
2:19-cv-910 (W.D. Wash. June 11, 2019).
---------------------------------------------------------------------------
These programs indicate that Amazon is focused on expanding
Alexa's reach rather than short-term profitability, consistent
with the early stages of its marketplace strategy. Amazon CFO
Brian Olsavsky confirmed this in an earnings call in July 2019,
saying that the company's ``emphasis is around expanding the
reach of Alexa and the usefulness.'' \1916\ He added that, at
the time, Alexa had ``over 45,000 skills'' and was in ``over
13,000 smart home devices from 2,500 unique brands.'' \1917\
---------------------------------------------------------------------------
\1916\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00200464 (July 26, 2018) (on file with Comm.).
\1917\ Id.
---------------------------------------------------------------------------
Lastly, Amazon's Alexa ecosystem is a major source of
consumer data; it tracks if the home owner's lights are off and
the events on their calendar.\1918\ Amazon is also building a
series of devices that allow people to have ``Alexa in [their]
ears, on [their] eyes, and around [their] fingers.'' \1919\
---------------------------------------------------------------------------
\1918\ Innovation and Entrepreneurship Hearing at 536 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\1919\ Daniel Newman, Opinion, Amazon's Alexa Is About to Become
Even More of a Fixture in Our Lives, MarketWatch (Sept. 30, 2019),
https://www.marketwatch.com/story/amazons-alexa-is-about-to-become-
even-more-of-a-fixture-in-our-lives-2019-09-27.
(b) Market Power. Amazon's Alexa represents one of three
emerging voice assistant platforms domestically, along with
Google Assistant and Apple's Siri, but has a more expansive
collection of integrated devices and voice applications than
its competitors.\1920\ The Echo collection of smart speakers--
the hub of Alexa's ecosystem--captures over 60 percent of the
smart speaker market in the U.S.\1921\
---------------------------------------------------------------------------
\1920\ See supra Section IV.
\1921\ Submission from Source 38, to H. Comm. on the Judiciary, 7
(Sept. 1, 2019).
---------------------------------------------------------------------------
As of September 2019, there were 85,000 Works with Alexa
devices available for consumers to purchase.\1922\ The current
network of Alexa-enabled devices includes companies like Sonos,
Hewlett-Packard, and BMW.\1923\ The U.S.-based Alexa Skills
Store as of January 2020 includes 70,729 skills.\1924\ In
comparison, as of December 2019, Google's voice application
ecosystem had just over 18,826 Google Actions.\1925\
---------------------------------------------------------------------------
\1922\ Kyle Wiggers, The Alexa Skills Store Now Has More than
100,000 Voice Apps, VentureBeat (Sept. 25, 2019), https://
venturebeat.com/2019/09/25/the-alexa-skills-store-now-has-more-than-
100000-voice-apps/.
\1923\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00200465 (July 26, 2018) (on file with Comm.).
\1924\ H. Tankovska, Total Number of Amazon Alexa Skills in
Selected Countries as of January 2020, Statista (Aug. 27, 2020),
https://www.statista.com/statistics/917900/selected-countries-amazon-
alexa-skill-count/722/worldwide-google-action-disappearance-by-
language.
\1925\ Shanhong Liu, Number of Google Assistant Actions Worldwide
2019, by Language, Statista (June 17, 2020), https://www.statista.com/
statistics/1062.
---------------------------------------------------------------------------
The voice assistant market has strong entry barriers due to
the significant investments required to compete in the market.
These include investments in artificial intelligence, voice-
enabled hardware, and cloud computing infrastructure, which are
critical inputs Amazon has been developing for years. Amazon's
Alexa Voice Service is also hosted on Amazon Web Services,
allowing it to bind products and developers to its cloud
platform.\1926\ In turn, this relationship gives Amazon a
potential head-start on turning its Alexa business partners
into customers through the cross-sale of Amazon Web Services
and other Amazon products and services down the line.
---------------------------------------------------------------------------
\1926\ Build the Future of the Connected Home with AWS IoT and
Amazon Alexa, Amazon Web Servs., https://aws.amazon.com/iot/solutions/
connected-home/iot-and-alexa/ (last visited Sept. 29, 2020).
---------------------------------------------------------------------------
Voice assistants collect significant amounts of personal
data and learn users' preferences over time. For example, when
Alexa users add more devices that integrate with Alexa, they
often manage the settings for these devices through mobile
applications and websites that are tied to their Amazon
credentials, thereby creating a robust user profile.\1927\ As
Amazon continues to expand Alexa's reach, this customization of
features allows Amazon to better ``understand'' its users,
which may affect their willingness to retrain a new voice
assistant.\1928\ In addition to the cost of replacing their
devices, this friction--retraining a new voice assistant--may
increase costs associated with switching to another voice
assistant ecosystem.
---------------------------------------------------------------------------
\1927\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00172104 (Mar. 9, 2018) (on file with Comm.).
\1928\ Submission from Source 39, to H. Comm. on the Judiciary,
Source 39-00000098, at 19 (Sept. 16, 2019) (on file with Comm.).
(c) Merger Activity. Amazon has expanded its voice
assistant ecosystem by acquiring artificial intelligence
companies to strengthen Alexa's functionality and voice-enabled
device manufacturers to expand Alexa's reach.\1929\ In 2011,
Amazon acquired Yap, a speech recognition platform.\1930\ The
next year, in 2012, Amazon acquired Evi, a technology for
understanding natural language.\1931\ Over the years, Amazon
has continued to acquire other businesses engaged in natural
language processing, machine learning, and other related
technologies in support of its continued efforts to improve
Alexa's artificial intelligence functionality.\1932\
---------------------------------------------------------------------------
\1929\ See infra Appendix.
\1930\ Sam Byford, Amazon Acquires Yap, Move into Speech
Recognition?, Verge (Nov. 9, 2011), https://www.theverge.com/2011/11/9/
2550764/amazon-acquires-yap-speech-recognition-siri.
\1931\ Emma Bryce, How Amazon's Alexa Was ``Born'' and Where Voice-
Controlled Tech Will Take Us Next, Wired (Feb. 14, 2017), https://
www.wired.co.uk/article/amazon-alexa-ai-evi.
\1932\ See infra Appendix.
---------------------------------------------------------------------------
One of Amazon's strategic goals for Alexa has been to use
its voice assistant to reinforce the company's dominance in e-
commerce and strengthen its presence in offline retail. In
2017, Amazon acquired Graphiq, a technology company that
collects and organizes details about ``products, places, and
people to simplify online research.'' \1933\ This acquisition
appears to have been part of Amazon's effort to improve Alexa's
overall search capabilities, most notably product search, as
the technology includes ``features to tailor comparisons around
individual preferences.'' \1934\
---------------------------------------------------------------------------
\1933\ Paresh Dave, Amazon Acquires Santa Barbara Start-Up Graphiq
to Try to Bolster Alexa, L.A. Times (July 20, 2017), https://
www.latimes.com/business/technology/la-fi-tn-graphiq-
amazon-20170719-story.html.
\1934\ Id.
---------------------------------------------------------------------------
In 2017, Amazon purchased Blink, followed by Ring in 2018--
both to solidify its position in the home security
market.\1935\ In an internal document, Amazon recognized that
security could ``feed our flywheels (Prime, Alexa) while being
a large, profitable business in its own right.'' \1936\ Prior
to these acquisitions Jeff Helbling, Vice President at Amazon,
emailed a group of Amazon executives, recapping a discussion on
the transactions he had with Mr. Bezos. There, he detailed the
twin justification for the acquisitions, saying that ``two
senses matter--eyes and ears.'' \1937\ Amazon had already
locked down ``ears'' through its continued development of
Alexa. Ring and Blink would act as Amazon's ``eyes'' right
outside the home.
---------------------------------------------------------------------------
\1935\ Jacob Kastrenakes, Amazon Buys Smart Camera and Doorbell
Startup Blink, Verge (Dec. 22, 2017), https://www.theverge.com/
circuitbreaker/2017/12/22/16810516/amazon-blink-acquisition-smart-
camera-doorbell-company; see also Samuel Gibbs, Amazon Buys Video
Doorbell Firm Ring for Over $1bn, Guardian (Feb. 28, 2018), https://
www.theguardian
.com/technology/2018/feb/28/amazon-buys-video-doorbell-ring-smart-home-
delivery.
\1936\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00169702 (Mar. 9, 2018) (on file with Comm.).
\1937\ Id. at AMAZON-HJC-00170877 (Oct. 11, 2017).
---------------------------------------------------------------------------
Amazon's internal documents show that, in large part, it
purchased Ring to capture the company's share of the smart home
security market. In December 2017, Mr. Bezos wrote to Dave
Limp, the Senior Vice President of Devices & Services, that
Amazon was really ``buying market position'' by acquiring
Ring.\1938\ During the Subcommittee's sixth hearing,
Representative Jamie Raskin (D-MD) asked Mr. Bezos about this
exchange.\1939\ Mr. Bezos responded:
---------------------------------------------------------------------------
\1938\ Id. at AMAZON-HJC-00173560 (Dec. 15, 2017).
\1939\ CEO Hearing at 124 (question of Rep. Jamie Raskin (D-MD),
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
LSir, market position is valuable in almost any business,
and it's one of the primary things that one would look at in an
acquisition. There are multiple reasons that we might buy a
company. Sometimes we're trying to buy some technology or some
IP. Sometimes it's a talent acquisition. But the most common
case is market position, that the company has traction with
customers, they've built a service, maybe they were the first
mover. There could be any number of reasons why they have that
market position. But that's a very common reason to acquire a
company.\1940\
---------------------------------------------------------------------------
\1940\ Id. (statement of Jeff Bezos, CEO, Amazon.com, Inc.).
This response suggests that adding Ring's users to the Alexa
ecosystem quickly was also important to Amazon's rationale.
A 2017 internal memorandum further explains Amazon's
strategy behind these acquisitions. As the memorandum notes,
while acquiring each company independently would make Amazon
stronger, acquiring both ``would put us in a meaningfully
better position than we are today (and we would not want to
stake our chances in the segment on closing any one
opportunity).'' \1941\ Douglas Booms, the Vice President of
Corporate Development at Amazon, sent an email summarizing the
thoughts of other senior executives at the company, which
included: ``I don't know how we can get big fast in that
segment without an [sic] acquiring someone.'' \1942\
---------------------------------------------------------------------------
\1941\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00169706 (Mar. 9, 2018) (on file with Comm.).
\1942\ Id. at AMAZON-HJC-00170869 (Nov. 1, 2017).
---------------------------------------------------------------------------
The documents and other relevant information reviewed by
the Subcommittee demonstrate that Amazon acquiring Ring and
Blink was in part to expand and reinforce its market power for
its other business lines. Internally, Amazon executives
discussed how home surveillance acquisitions would help them
implement unattended package delivery. Similarly, they
discussed the idea that the acquisitions would help Amazon
develop its Alexa Doorbell application program interface, an
AWS service that allows Alexa Skills developers to build apps
that respond to a ringing doorbell.\1943\ Amazon referred to
this strategy as an ``integration approach'' to ``remove
impediments to future growth.'' \1944\
---------------------------------------------------------------------------
\1943\ Id. at AMAZON-HJC-00169706 (Mar. 9, 2018);
Alexa.DoorbellEventSource Interface, Amazon Alexa, https://
developer.amazon.com/en-US/docs/alexa/device-apis/alexa-doorbell
eventsource.html (last visited Sept. 30, 2020).
\1944\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00172104 (Mar. 9, 2018) (on file with Comm.).
---------------------------------------------------------------------------
More recently, Amazon purchased Eero, a mesh networking
company, for $97 million in 2019.\1945\ The purchase was part
of Amazon's strategy to offer ``frustration-free setup'' for
smart home devices in the Alexa ecosystem, another move aimed
at removing impediments to growing the platform's presence in
the home.\1946\ ``Amazon Wi-Fi Simple Setup'' scans the user's
Eero network during the initial set-up of an Alexa-enabled
device, applying the user's stored credentials to automatically
connect to other smart devices, such as outlets and Fire TV
devices.\1947\ To achieve this, Eero must continually
understand which devices are connected to the network,
including the IP addresses of those devices.\1948\ This
acquisition gives Amazon access to another important input for
consumer data.\1949\
---------------------------------------------------------------------------
\1945\ Lisa Eadicicco & Alexei Oreskovic, Amazon Paid $97 Million
to Acquire Eero in a Fire Sale Deal that Left Some Shareholders with
Practically Nothing, According to Leaked Documents, Bus. Insider (Apr.
5, 2019), https://www.businessinsider.com/amazon-paid-97-million-to-
acquire-eero-in-fire-sale-leaked-documents-2019-4.
\1946\ See Lisa Eadicicco, A Year After Selling to Amazon for $1
Billion, the Chief Inventor of the Ring Video Doorbell Explains How
He's Bringing His Entrepreneurial Spirit to the Online Retailer, Bus.
Insider (Apr. 9, 2019), http://static7.businessinsider.com/ring-
founder-jamie-siminoff-life-after-amazon-acquisition-2019-4 (quoting
Jamie Siminoff, Founder of Ring, describing the importance of Eero and
his support of Amazon's acquisition, ``[Ring is] a product that
requires great Wi-Fi connectivity. We use a lot of bandwidth so we
we're certainly very sensitive to Wi-Fi networks.'').
\1947\ Amazon Frustration-Free Setup Frequently Asked Questions,
Amazon, https://www
.amazon.com/gp/help/customer/display.html?nodeId=GMPKVYDBR223TRPY (last
visited Oct. 4, 2020).
\1948\ Legal: Privacy Policy for Eero Devices, Applications and
Services, Eero, https://eero.com/legal/privacy (last visited Sept. 29,
2020); Legal: Privacy Policy for Eero Websites, Eero, https://eero.com/
legal/privacy-website (last visited Sept. 29, 2020).
\1949\ Innovation and Entrepreneurship Hearing at 537 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
(d) Conduct. During the Subcommittee's investigation,
market participants raised concerns about Amazon's business
practices in the smart home market. As these market
participants note, Amazon uses Alexa to favor its own goods and
services, including AmazonBasics and Prime Music. Amazon has
also imposed barriers to entry for other voice-enabled device
manufacturers through predatory pricing of Alexa-enabled
devices, and through its dominance as a leading distribution
---------------------------------------------------------------------------
channel for smart home devices.
(i) Self-Preferencing. Amazon has the largest voice
application ``store'' of third-party skills, as well as first-
party services that represent popular voice assistant
applications, such as Amazon Music and an e-commerce platform
that it can favor over third-party applications.\1950\ Amazon
favors its services in Alexa by making them defaults for common
voice commands. For example, Amazon.com is the default store
for basic voice commands related to shopping. ``Alexa, add milk
to my cart,'' adds milk to the user's Amazon shopping
cart.\1951\
---------------------------------------------------------------------------
\1950\ Competitors Hearing at 12 (statement of Patrick Spence, CEO,
Sonos, Inc.).
\1951\ Do More with Alexa, Amazon, https://www.amazon.com/alexa-
voice-shopping/b?ie=UTF8&node=14552177011 (last visited Sept. 30,
2020).
---------------------------------------------------------------------------
Besides favoring Amazon services with default voice
commands, Alexa also allows Amazon to favor its retail products
over products offered by third-party sellers. When users shop
via voice command, they are presented with one spoken offer and
an option for a follow-up question, which is distinct from an
online user interface that shows the additional offers ranked.
This increases the importance of being Alexa's featured
offer.\1952\
---------------------------------------------------------------------------
\1952\ Submission from Source 39, to H. Comm. on the Judiciary,
Source 39-00000097, at 19 (Sept. 16, 2019) (on file with Comm.).
---------------------------------------------------------------------------
For example, The New York Times reported in 2018 that when
a user says, ``Alexa, buy batteries,'' Alexa responds with the
AmazonBasics option.\1953\ Similarly, a study conducted by Bain
& Company found that for categories in which Amazon offered a
private-label product, Alexa recommended those products 17
percent of the time, despite its private-label goods
representing only about 2 percent of total volume sold.\1954\
During the Subcommittee's sixth hearing, Representative Jamie
Raskin (D-MD) asked Mr. Bezos, ``[H]as Alexa ever been trained
to favor Amazon products when users shop by voice?'' \1955\ Mr.
Bezos responded that he didn't ``know if it's been trained in
that way,'' but ``it wouldn't surprise me if Alexa sometimes
does promote our own products.'' \1956\ Amazon chooses the
products Alexa suggests based on a range of features, including
products that ``customers frequently purchase based on their
past orders'' and Amazon's Choice designation.\1957\ Amazon's
method for determining ``Amazon's Choice'' is opaque.\1958\
---------------------------------------------------------------------------
\1953\ Julie Creswell, How Amazon Steers Shoppers to Its Own
Products, N.Y. Times (June 23, 2018), https://www.nytimes.com/2018/06/
23/business/amazon-the-brand-buster.html.
\1954\ Aaron Cheris, Darrell Rigby & Suzanne Tager, Dreaming of an
Amazon Christmas, Bain & Co. (Nov. 9, 2017), https://www.bain.com/
insights/retail-holiday-newsletter-2017-issue-2/.
\1955\ CEO Hearing at 125 (question of Rep. Jamie Raskin (D-MD),
Member, Subcomm. on Antirust, Commercial and Admin. Law of the H. Comm.
on the Judiciary).
\1956\ Id. (statement of Jeff Bezos, CEO, Amazon.com, Inc.).
\1957\ Id. at 284 (response to Questions for the Record of Jeff
Bezos, CEO, Amazon.com, Inc.); see also Aaron Cheris, Darrell Rigby &
Suzanne Tager, Dreaming of an Amazon Christmas, Bain & Co. (Nov. 9,
2017), https://www.bain.com/insights/retail-holiday-newsletter-2017-
issue-2/.
\1958\ Aaron Cheris, Darrell Rigby & Suzanne Tager, Dreaming of an
Amazon Christmas, Bain & Co. (Nov. 9, 2017), https://www.bain.com/
insights/retail-holiday-newsletter-2017-issue-2/.
---------------------------------------------------------------------------
Amazon minimizes concerns about favoring its first-party
goods through voice shopping by highlighting how rare it is for
people to purchase goods through Alexa.\1959\ Reporting
suggests, however, that there is an increasing number of
queries from users who expect to hear product information or to
complete a transaction while interacting with a voice
assistant.\1960\ Amazon also justified the fact that third-
party sales through Alexa are lower than third-party sales on
Amazon.com--42 percent compared to 58 percent--by saying that
``customers disproportionately use Alexa to order household
consumable items (like paper towels or batteries) for which
Amazon's offers are particularly competitive.'' \1961\ This
demonstrates the problem, however, given that voice shopping is
most useful for products in which consumers do not have to do
much research or engage in price comparison. Alexa's algorithm,
in conjunction with the AmazonBasics business model, provides a
convenient avenue for Amazon to favor first-party products.
---------------------------------------------------------------------------
\1959\ Innovation and Entrepreneurship Hearing at 535 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\1960\ Khari Johnson, Voicelabs Ditches Analytics Service to Launch
Alpine.ai for Ecommerce Voice Apps, VentureBeat (Jan. 29, 2018),
https://venturebeat.com/2018/01/29/voicelabs-ditches-analytics-service-
to-launch-alpine-ai-for-ecommerce-voice-apps/.
\1961\ CEO Hearing at 5 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
---------------------------------------------------------------------------
Although it is technically possible for Alexa users to
voice shop at other stores, there is significant friction.
Users must first enable the shopping skills for other online
retailers, which then requires the user to set up a completely
separate billing profile, even though it contains similar
information to their Amazon user profile.\1962\ Alexa-enabled
devices are tied to the user's Amazon account, which populates
the user's saved credit card and shipping information for use
during general shopping commands.\1963\
---------------------------------------------------------------------------
\1962\ See Alexa Skills: Shopping, Amazon, https://www.amazon.com/
s/ref=lp_13727921011
_nr_n_16?fst=as%3Aoff&rh=n%3A13727921011%2Cn%3A%2113727922011%2Cn%3A1428
48
62011&bbn=13727922011&ie=UTF8&qid=1600864849&rnid=13727922011 (last
visited Sept. 30, 2020).
\1963\ Set Up Your Echo, Amazon, https://www.amazon.com/gp/help/
customer/display.html?
nodeId=GKFJXZCLQ83HGHQZ (last visited Oct. 3, 2020).
(ii) Predatory Pricing and Bundling. Amazon uses a
predatory pricing strategy to increase its sales of smart home
devices by pricing its products below cost.\1964\ It is common
for Amazon to sell these products in bundles at steep
discounts. Several smart home device manufacturers told the
Subcommittee that, when Amazon sells certain devices in a
bundle or at a steep discount, it makes it nearly impossible
for companies who specialize in making one piece of voice-
assistant enabled hardware to compete on its merits.\1965\
Furthermore, as described earlier in this Report, aggressive
pricing of smart home devices--specifically ``hubs'' such as
the Echo--has created a significant barrier to entry for
companies that want to compete with the leading voice assistant
platforms.
---------------------------------------------------------------------------
\1964\ See CEO Hearing at 124 (statement of Jeff Bezos, CEO,
Amazon.com, Inc.).
\1965\ Competitors Hearing at 11-12 (statement of Patrick Spence,
CEO, Sonos, Inc.).
(iii) Use of Gatekeeper Power. Amazon Marketplace is an
important distribution channel for voice-enabled electronics in
its Alexa ecosystem. Amazon decides the availability and
placement of products on its site. As a result, Amazon can use
the threat of delisting a product on its marketplace to ensure
that Alexa is enabled on other companies' devices or to secure
other favorable contractual terms.
In an interview with the Subcommittee, a seller that sells
a significant number of its device on Amazon.com said that,
during contract negotiations, Amazon repeatedly refers to its
power to delist the company's product if Amazon's services are
not prominent enough on the device.\1966\ In 2017, Amazon also
reportedly informed one of its main home security competitors--
the Google-owned smart home company Nest--that it would not
list any of its recently announced products, including its
latest smart thermostat and home security system.\1967\
Notwithstanding its own market power, Google's internal
communications describe Amazon as having ``changed the
dynamics,'' observing that there is a ``built in incentive to
partner with Alexa, since [Amazon] will pull you from their
store if you don't support it.'' \1968\
---------------------------------------------------------------------------
\1966\ Interview with Source 148 (Aug. 26, 2020).
\1967\ Steve Kovach, Amazon Will Stop Selling Nest Smart Home
Devices, Escalating Its War with Google, Bus. Insider (Mar. 2, 2018),
https://www.businessinsider.com/amazon-wont-sell-nest-products-from-
google-2018-3.
\1968\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04258793-993 (Jan. 29, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Additionally, Amazon controls the prominence of competing
voice-enabled devices on its marketplace and promotes its
first-party voice-enabled devices on Amazon.com. In an internal
memorandum to Amazon executives about the Ring acquisition,
Michael Deal, Amazon's Vice President and Associate General
Counsel, said that Amazon ``can promote Ring's products and
subscription plans heavily on our sites as we do with our
current [first-party] devices.'' \1969\
---------------------------------------------------------------------------
\1969\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00172104 (Mar. 9, 2018) (on file with Comm.).
---------------------------------------------------------------------------
Relatedly, Amazon can also use advertisement placement as
leverage during negotiations with other device manufacturers.
In interviews with and submissions to the Subcommittee, several
market participants said that ad placement was used as leverage
in negotiations. In one instance, Amazon placed a competing
brand's ad beneath the product of the firm it was negotiating
with ``to influence negotiations.'' \1970\ Additionally, the
Subcommittee heard from a voice-enabled device manufacturer
that offers a competitive product to Amazon's first-party
devices that it was prohibited from buying ads on
Amazon.com.\1971\ The competitor expressed concern about the
harm this causes consumers, who may be confused or deceived
when they receive ads promoting Amazon products even when they
specifically search for a competitor's product on
Amazon.com.\1972\
---------------------------------------------------------------------------
\1970\ Submission from Source 38, to H. Comm. on the Judiciary, 27
(Sept. 1, 2019) (on file with Comm.).
\1971\ Interview with Source 148 (Aug. 26, 2020).
\1972\ Id.
---------------------------------------------------------------------------
Even Google, which ranks just behind Amazon in online
shopping queries, believes it has a disadvantage with Amazon.
In an internal email about smart speakers, a Google employee
noted that ``fighting Amazon with a very-hard-to-differentiate
product and a channel disadvantage and a huge economic
disadvantage (due to channel mix margin differences) is already
like fighting a shark on a surfboard.'' \1973\
---------------------------------------------------------------------------
\1973\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04261582 to -04261585 (Nov. 27, 2018) (on file with Comm.).
(iv) Misuse of Data. Amazon has access to information about
consumer use of third-party applications on Alexa-enabled
devices and uses its dominant position in the voice assistant
market to collect more data from within the Alexa ecosystem.
Amazon has insight into which Alexa skills are invoked by
Alexa users and the frequency of usage.\1974\ Considering
Amazon's use of third-party seller's data in e-commerce and
cloud customer's data on Amazon Web Services, Amazon may use
the same tactics with other firms' voice application data to
determine which voice assistant skills it should invest in.
---------------------------------------------------------------------------
\1974\ Innovation and Entrepreneurship Hearing at 536 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
---------------------------------------------------------------------------
Additionally, Amazon uses its market power to collect
third-party voice application data. According to a July 2020
report by The Wall Street Journal, Amazon told Vivint, a
manufacturer of smart-home devices that, ``it would only allow
the company to remain on the Echo if Vivint agreed to give it
not only the data from its Vivint function on Echo, but from
every Vivint device in those customers' homes at all times.''
\1975\
---------------------------------------------------------------------------
\1975\ Dana Mattioli & Cara Lombardo, Amazon Met with Startups
About Investing, Then Launched Competing Products, Wall St. J. (July
23, 2020), https://www.wsj.com/articles/amazon-tech-startup-echo-bezos-
alexa-investment-fund-11595520249.
---------------------------------------------------------------------------
Amazon has also faced civil suits related to its storage of
voice data.\1976\ When Alexa hears a ``wake'' word--such as
``Alexa'' or ``Echo''--it records the user's voice command,
including conversations in the background, and saves a
permanent recording of the user's voice to its own servers, as
opposed to temporary storage for artificial intelligence
training purposes.\1977\
---------------------------------------------------------------------------
\1976\ See Tice v. Amazon.com, Inc., No. 5:10-cv-1311 (C.D. Cal.
Mar. 25, 2020); C.O. v. Amazon.com, Inc., No. C19-910 (W.D. Wash. Sept.
23, 2019).
\1977\ See id.
(v) Copying Nascent Competitors' Technology. The
Subcommittee's investigation produced evidence consistent with
public reporting that Amazon uses information collected through
Alexa Fund investments to inform and improve Amazon's smart
home ecosystem. When Amazon invests in a startup, it obtains
access to the company's non-public financial information,
strategic plans, and other proprietary information.\1978\
According to a recent Wall Street Journal report, eight months
after Alexa Fund invested in Nucleus, Amazon announced the Echo
Show, a very similar Alexa-enabled video-chat device.\1979\
This report described several other examples, including
Vocalife, the inventors of a ``speech-detection technology,''
which filed a lawsuit against Amazon alleging it improperly
used proprietary technology.\1980\ At the Subcommittee's sixth
hearing, Representative Ken Buck (R-CO) said that allegations
that Amazon incorporated features demonstrated to it by
Vocalife's founders during an investment meeting ``are serious,
especially because the size and scope of these practices
couldn't happen without Amazon's monopolistic control of the
marketplace.'' \1981\
---------------------------------------------------------------------------
\1978\ Dana Mattioli & Cara Lombardo, Amazon Met with Startups
About Investing, Then Launched Competing Products, Wall St. J. (July
23, 2020), https://www.wsj.com/articles/
amazon-tech-startup-echo-bezos-alexa-investment-fund-11595520249.
\1979\ Id.
\1980\ Id.
\1981\ CEO Hearing at 121 (statement of Rep. Ken Buck (R-CO),
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary).
---------------------------------------------------------------------------
Prior to Amazon's acquisition of Ring, Amazon invested in
Ring through the Alexa Fund, and internal emails about meetings
during this time demonstrate how Amazon is able to obtain
crucial insights into young companies. Amazon was able to learn
about Ring's ``roadmap, future products, [and] two acquisitions
they have done.'' \1982\ While Amazon often denies public
reporting that it steals and copies technology from young
startups, Amazon's emails suggest that it does replicate some
of the startups it meets with or invests in. An email out of
Amazon's Lab126 regarding Ring indicated that Amazon ``could
easily replicate all of their hardware to be better, [and]
operate in a more secure and robust infrastructure, for a LOT
less than [the] cost of buying them.'' \1983\ In the same email
chain, Amazon employees wondered, ``[I]f we move forward with
due diligence, then decide not to buy [Ring], could we have
legal issues if we go into the market by ourselves as a
competitor and materially impact their business?'' \1984\
---------------------------------------------------------------------------
\1982\ Production from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00214240 (Oct. 18, 2017) (on file with Comm.).
\1983\ Id. at AMAZON-HJC-00220705 (Nov. 4, 2017).
\1984\ Id. at AMAZON-HJC-00220703.
---------------------------------------------------------------------------
5. Amazon Web Services
(a) Overview. Amazon Web Services (AWS) is considered the
pioneer of cloud computing and has sustained a first-mover
advantage for over a decade.\1985\ AWS officially launched in
2006, featuring two of its core IaaS offerings, Simple Storage
Service (S3) and Elastic Compute Cloud (EC2).\1986\ While
Amazon.com was AWS's first customer, in the early 2000s AWS
began creating cloud offerings for third-party merchants, who
could use AWS to ``build online shopping sites on top of
Amazon's e-commerce engine.'' \1987\ For AWS, meanwhile, this
partnership with third parties gave the company experience in
creating well-documented APIs for internal developers.\1988\
Over the next few years, AWS rolled out additional programs to
expand its network of third-party software vendors and
implementation partners, including AWS Marketplace \1989\ and
the AWS Partnership Network (APN) in 2012.\1990\
---------------------------------------------------------------------------
\1985\ Ron Miller, How AWS Came To Be, TechCrunch (July 2, 2016),
https://techcrunch.com/2016/07/02/andy-jassys-brief-history-of-the-
genesis-of-aws/.
\1986\ What's New, Amazon Web Servs. (Oct. 4, 2006), https://
aws.amazon.com/about-aws/whats-new/2006/.
\1987\ Id.
\1988\ Ron Miller, How AWS Came To Be, TechCrunch (July 2, 2016),
https://techcrunch.com/2016/07/02/andy-jassys-brief-history-of-the-
genesis-of-aws/.
\1989\ Introducing AWS Marketplace, Amazon Web Servs. (Apr. 19,
2012), https://aws
.amazon.com/about-aws/whats-new/2012/04/19/introducing-aws-marketplace/
\1990\ Jeff Barr, Announcing the AWS Partner Network, AWS News Blog
(Apr. 17, 2012), https://aws.amazon.com/blogs/aws/announcing-the-aws-
partner-network/ (in beta).
---------------------------------------------------------------------------
Over the last decade, AWS has also secured significant
government contracts. Most notably, in 2014, AWS signed a $600
million Commercial Cloud Services (C2S) contract to build the
AWS Secret Region, a cloud offering tailored for the U.S.
intelligence community.\1991\ The deal marked the largest cloud
infrastructure contract at the time and signaled the
government's shift from investing in on-premise server capacity
to cloud services.\1992\ Today, AWS boasts work ``with over
6,500 government agencies'' and states that Amazon has been
``among the first to solve government compliance challenges
facing cloud computing,'' while also ``consistently help[ing]
our customers navigate procurement and policy issues related to
adoption of cloud computing.'' \1993\
---------------------------------------------------------------------------
\1991\ Frank Konkel, Federal Cloud Spending Trends Toward All-Time
High, Nextgov (Sept. 12, 2018), https://www.nextgov.com/it-
modernization/2018/09/federal-cloud-spending-trends-toward-all-time-
high/151221/.
\1992\ Id.
\1993\ The Trusted Cloud for Government, Amazon Web Servs., https:/
/aws.amazon.com/government-education/government/ (last visited Sept.
30, 2020).
---------------------------------------------------------------------------
AWS contributes immense value to Amazon's overall business.
In each quarter since Amazon began publicly reporting its
financials for cloud, AWS has accounted for an outsized share
of Amazon's operating profits. While AWS contributes to less
than 15 percent of Amazon's annual revenue, it consistently
accounts for over 50 percent of the company's operating income.
In 2017, AWS accounted for over 100 percent of Amazon's
operating income, due to losses in the company's international
business.\1994\ In the first quarter of 2020, AWS accounted for
13.5 percent of Amazon's total revenues but 77 percent of its
operating income.\1995\
---------------------------------------------------------------------------
\1994\ Amazon.com, Inc., Annual Report (Form 10-K) 26 (Feb. 1,
2018), https://s2.q4cdn.com/299287126/files/doc_financials/annual/
Amazon_AR.PDF.
\1995\ Amazon.com, Inc., Quarterly Report (Form 10-Q) 17 (Apr. 30,
2020), http://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/708a19c5-
7d8c-4fc9-ab37-bfaa7a31629b.pdf.
---------------------------------------------------------------------------
Contributions to Amazon's Revenue and Operating Profit
over Time \1996\
---------------------------------------------------------------------------
\1996\ Prepared by the Subcommittee based on Amazon.com, Inc.,
Annual Reports (Form 10-K) (2015-2019).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Profits earned through its cloud services enable Amazon to
invest heavily in expanding its cloud operation, as well as to
support its other lines of business. Several market
participants expressed concerns to the Subcommittee that Amazon
uses its high and steady profits from AWS to subsidize these
other lines of business, including its retail operation.\1997\
In an internal document produced in response to the Committee's
requests for information, Amazon instructs its employees to
rebut this claim by referring to it as a ``myth.'' \1998\
However, Amazon failed to produce the financial data that would
have enabled the Subcommittee to make an independent
assessment.\1999\
---------------------------------------------------------------------------
\1997\ Submission from Source 48, to H. Comm. on the Judiciary, 8
(Nov. 8, 2019) (on file with Comm.).
\1998\ Submission from Amazon, to H. Comm on the Judiciary, AMAZON-
HJC-00216209 (Aug. 24, 2018) (on file with Comm.).
\1999\ See Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the
Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary,
Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary & Hon. F. James
Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary, to Jeff Bezos, CEO,
Amazon.com, Inc., attach. Sec. A.6, at 2-3 (Sept. 13, 2019) (on file
with Comm.) (requesting data).
(b) Market Power. As discussed earlier in this Report, AWS
is the largest provider of cloud computing services, capturing
approximately 24 percent of the U.S. spend in 2018 on cloud
computing services, including IaaS, PaaS, and SaaS.\2000\ AWS
represents close to half of global spending on cloud
infrastructure services, with three times the market share of
Microsoft, its closest competitor.\2001\ Its growth continues
to soar. In the first quarter of 2020, AWS crossed $10 billion
in quarterly revenue while growing 33 percent on an annualized
basis.\2002\
---------------------------------------------------------------------------
\2000\ Letter from David Zapolsky, Gen. Couns., Amazon.com, Inc.,
to Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 6 (July 26, 2019) (on
file with Comm.).
\2001\ Id.; Press Release, Katie Costello, Gartner, Gartner
Forecasts Worldwide Public Cloud Revenue to Grow 17.5 Percent in 2019
(Apr. 2, 2019), https://www.gartner.com/en/newsroom/press-releases/
2019-04-02-gartner-forecasts-worldwide-public-cloud-revenue-to-g.
\2002\ Jordan Novet, AWS Tops $10 Billion in Quarterly Revenue for
the First Time, CNBC (Apr. 30, 2020), https://www.cnbc.com/2020/04/30/
aws-earnings-q1-2020.html.
---------------------------------------------------------------------------
Amazon has a ``lion's share of the government cloud
infrastructure market.'' \2003\ Exact data on AWS's share of
government cloud expenditure is opaque because most of AWS's
public sector revenue comes through subcontracts, which are
harder to track, and contracts related to the intelligence
community, which are listed as classified spending and are
rarely reported. Market participants, however, emphasize that
AWS is considered a major player in federal cloud
contracts.\2004\
---------------------------------------------------------------------------
\2003\ David Ramel, AWS vs. Azure Heats Up in Federal Market, Wash.
Tech. (Sept. 14, 2018), https://washingtontechnology.com/articles/2018/
09/14/aws-vs-azure-public-sector.aspx.
\2004\ Interview with Source 31 (May 27, 2020).
---------------------------------------------------------------------------
In its submissions to the Subcommittee, Amazon describes
itself as a relatively small player representing ``less than 1%
of IT spending globally and less than 2% in the United
States.'' \2005\ Amazon states that AWS competes with a large
array of offerings including on-premise computing.\2006\ In
other contexts, however, Amazon has highlighted its leading
position, describing itself as the ``largest cloud software
marketplace'' and the ``only cloud provider with existing
classified infrastructure.'' \2007\
---------------------------------------------------------------------------
\2005\ Letter from David Zapolsky, Gen. Couns., Amazon.com, Inc.,
to Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 6 (July 26, 2019) (on
file with Comm.).
\2006\ Id.
\2007\ Complaint at 5, Amazon Web Servs, Inc. v. United States, 147
Fed. Cl. 146 (2020) (No. 1:19-cv-01796), https://
www.courthousenews.com/wp-content/uploads/2019/12/amazon-trump
-cafc.pdf.
---------------------------------------------------------------------------
Through a careful review of Amazon's internal documents and
other evidence during the investigation, the Subcommittee found
that Amazon has a dominant position in cloud computing.
Amazon's dominance in cloud computing traces in part to its
first-mover advantage and the high fixed costs and economies of
scale associated with this market.\2008\ But evidence suggests
that Amazon has also taken steps to lock in and extend this
dominance in ways that risk harming customers, businesses, and
the broader public.
---------------------------------------------------------------------------
\2008\ See supra Section IV.
---------------------------------------------------------------------------
Network effects incentivized Amazon to build out AWS
offerings quickly. As with other sectors of the digital
economy, the value of Amazon's cloud offerings increases with
the number of businesses and customers that use it. Introducing
more services and partnership programs draws more customers and
attracts more developers and implementation partners, which, in
turn, draws additional customers.\2009\
---------------------------------------------------------------------------
\2009\ Submission from Google, to H. Comm. on the Judiciary, GOOG-
HJC-04260401 (Aug. 25, 2016) (on file with Comm.).
---------------------------------------------------------------------------
AWS is considered to have the largest collection of cloud
offerings. Its AWS Management Console and supporting
technologies span many categories, including storage and
computing, databases, migration services, and machine learning
tools.\2010\ Many of these products are based on open-source
software or on the technology of companies that Amazon
acquired.\2011\ In addition to selling cloud offerings
directly, AWS also runs a cloud marketplace where third-party
vendors can list their products. The AWS Marketplace enjoys
over 1,300 vendors as of 2018, and over 9,000 products,
functioning as the largest cloud marketplace in the
sector.\2012\
---------------------------------------------------------------------------
\2010\ AWS Marketplace, Amazon Web Servs., https://aws.amazon.com/
marketplace (last visited Sept. 30, 2020).
\2011\ CEO Hearing at 285 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
\2012\ AWS Marketplace, Amazon Web Servs., https://aws.amazon.com/
marketplace (last visited Sept. 30, 2020); Brad Lyman, See What's New
for AWS Marketplace Sellers, AWS Partner Network Blog (Mar. 9, 2018),
https://aws.amazon.com/blogs/apn/see-whats-new-for-aws-
marketplace-sellers.
---------------------------------------------------------------------------
The widespread adoption of AWS's developer certification
programs, partner networks, and student programs has meant that
there are far more engineers familiar with AWS technology than
with any other platform.\2013\ Several market participants
listed the availability of AWS-trained engineers as a reason
for selecting AWS over other cloud vendors and as a barrier for
switching platforms or attempting to multi-cloud.\2014\
---------------------------------------------------------------------------
\2013\ Interview with Source 736 (June 10, 2020).
\2014\ Interview with Source 126 (June 29, 2020).
---------------------------------------------------------------------------
High switching costs reinforce Amazon's dominance in the
cloud market.\2015\ A cloud-based application company
interviewed by the Subcommittee explained these costs:
---------------------------------------------------------------------------
\2015\ See supra Section IV.
LWe've looked at other services (Google, Microsoft,
Oracle) but we've relied on AWS for so long that we couldn't
just flip a switch, and we've run down a lot of engineering
problems with AWS . . . . There are other providers we could go
to, but it would take work. We could also build some
functionality internally, but that would also take a lot of
work.\2016\
---------------------------------------------------------------------------
\2016\ Interview with Source 111 (Apr. 6, 2020).
For cloud-based application developers, whose entire
product is dependent on AWS, the fears of lock-in are even
---------------------------------------------------------------------------
greater. One marketplace participant said:
L[A]ny transition of the cloud services currently provided
by AWS to another cloud service provider would be difficult to
implement and would cause us to incur significant time and
expense and could disrupt or degrade our ability to deliver our
products and services. Our business relies on the availability
of our services for [users] and advertisers.\2017\
---------------------------------------------------------------------------
\2017\ Submission from Source 32, to H. Comm. on the Judiciary,
Source 32-000009 (Oct. 29, 2019) (on file with Comm.).
Amazon has also taken steps to lock-in its position,
including through long-term contracts, volume minimums, and the
use of fees to move data to other cloud providers, which are
also known as egress fees. In submissions to the Subcommittee,
numerous market participants noted that AWS often seeks multi-
year contracts during negotiations.\2018\ These contracts are
also commonplace in companies' investor statements. For
example, according to Lyft's 2020 investor filing, it agreed to
pay ``an aggregate of at least $300 million between January
2019 and December 2021 on AWS services.'' \2019\ According to
Slack's investor filling, in 2018, it committed to a five-year
contract with minimum annual commitments of $50 million.\2020\
---------------------------------------------------------------------------
\2018\ Id. at Source 32-000017.
\2019\ Lyft, Annual Report (Form 10-K) 7 (Feb. 28, 2020), https://
investor.lyft.com/static-files/981ad93a-5d97-4f7f-8937-5682ca83cba7.
\2020\ Slack, Registration Statement (Form S-1) 90 (Apr. 26, 2019),
http://d18rn0p25 nwr6d.cloudfront.net/CIK-0001764925/b6da15ae-25c5-
4447-ba38-c287bf11e624.pdf.
---------------------------------------------------------------------------
The Subcommittee also uncovered evidence that Amazon
sometimes requires a volume agreement when a large company
seeks to negotiate lower prices. In an internal email
discussion on this topic, a senior executive at AWS wrote that
Amazon has ``a private rate card which has a commit level for
bandwidth pricing. Rates at or above the private rate card are
pre-approved. Anything below that has to be first approved by
me and then the price goes to service GM.'' \2021\
---------------------------------------------------------------------------
\2021\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00206893 (May 11, 2017) (on file with Comm.).
---------------------------------------------------------------------------
When an Amazon customer chooses to move data to another
cloud provider, they are charged an egress fee. Market
participants told the Subcommittee that they view these fees
less as a cost for Amazon to transport data and more as
friction imposed by Amazon for switching providers, noting that
Amazon charges egress fees even when data is staying locally
within the same data center.\2022\
---------------------------------------------------------------------------
\2022\ Interview with Source 170 (May 27, 2020).
---------------------------------------------------------------------------
The COVID-19 pandemic has underscored the centrality of
cloud computing to the functioning of an increasing swath of
businesses--highlighting how cloud services have come to
resemble critical infrastructure. Reporting by The Information
in April 2020 discussed how the major cloud providers are
facing requests from many customers for financial relief, while
the demand for cloud computing has increased.\2023\ As this
reporting noted, ``AWS has been the least willing to offer
flexible terms on customer bills, according to numerous
customers. That stands in contrast to Microsoft and Google
which have shown some flexibility, partners say.'' \2024\
---------------------------------------------------------------------------
\2023\ Kevin McLaughlin & Amir Efrati, AWS Holds the Line on Cloud
Bills as Customers Ask for Relief, Information (Apr. 17, 2020), https:/
/www.theinformation.com/articles/aws-holds-the-line-on-cloud-bills-as-
customers-ask-for-relief.
\2024\ Id.
(c) Merger Activity. Amazon has acquired a significant
number of cloud computing firms over the past decade. Although
a full discussion of this activity is beyond the scope of this
Report, Amazon's acquisition activity in the cloud market
appears to be part of a broader trend among dominant cloud
providers to make serial acquisitions, any one of which may
seem insignificant, but which collectively serve to solidify
and expand their dominance.\2025\ In some instances AWS has
acquired cloud technologies that previously integrated with
multiple clouds, only for AWS to make it an AWS-specific
product after acquisition, foreclosing competitors and
increasing consumers' switching costs.\2026\
---------------------------------------------------------------------------
\2025\ See supra Section IV.
\2026\ Ron Miller, Update: Amazon Has Acquired Israeli Disaster
Recovery Service CloudEndure for Around $200M, TechCrunch (Jan. 8,
2019), https://techcrunch.com/2019/01/08/
Continued
amazon-reportedly-acquired-israeli-disaster-recovery-service-
cloudendure-for-around-200m/. See also CloudEndure Deprecation, Google
Cloud, https://cloud.google.com/compute/docs/deprecations/cloudendure
(last visited Oct. 4, 2020).
(d) Competitive Significance of AWS to Amazon's Other Lines
of Business. Amazon's dual role as a dominant provider of cloud
infrastructure and as a dominant firm in other markets creates
a conflict of interest that Amazon has the incentive and
ability to exploit.
Amazon's dominance in cloud computing alongside its
integration across an array of businesses--online retail, music
and video, and smart home devices--creates a core conflict of
interest. Cloud computing customers like Netflix and Target are
in the position of competing with Amazon while also relying on
AWS. Firms in their position effectively have to choose between
switching to one of the alternative cloud infrastructure
providers or funding their primary competitor.\2027\ One
venture capitalist described Amazon as ``useful but dangerous''
because ``it's hard to predict what Amazon wants to get into .
. . . [Y]ou can't know.'' \2028\ Similarly, a business-to-
business application developer told the Subcommittee that they
felt pressure to switch their entire product to Microsoft Azure
because of its client's concerns with Amazon's anticompetitive
conduct in the online retail sector.\2029\
---------------------------------------------------------------------------
\2027\ Christina Farr & Ari Levy, Target Is Plotting a Big Move
Away from AWS as Amazon Takes Over Retail, CNBC (Aug. 29, 2017),
https://www.cnbc.com/2017/08/29/target-is-moving-away-from-aws-after-
amazon-bought-whole-foods.html). See also Netflix on AWS, Amazon Web
Servs., https://aws.amazon.com/solutions/case-studies/netflix/ (last
visited Sept. 30, 2020).
\2028\ Interview with Source 146 (May 28, 2020).
\2029\ Interview with Source 126 (June 29, 2020).
---------------------------------------------------------------------------
Amazon acknowledges that its cloud customers--which are
also its competitors--are wary of using AWS. One internal
document had guidance on how to discuss the issue with
customers. One FAQ sheet listed, ``What do you say to customers
who are worried that using AWS services will support Amazon's
competitive growth in the retail space?'' Amazon's sample
answer stated, ``How can you afford to not compete with the
best possible tools in such a tough market like retail?''
\2030\
---------------------------------------------------------------------------
\2030\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00216210 (Aug. 24, 2018) (on file with Comm.).
---------------------------------------------------------------------------
The Subcommittee also spoke with market participants that
expressed concern about how this conflict of interest shapes
Amazon's behavior in its other lines of business. For example,
in 2015, Amazon kicked Google Chromecast and Apple TV--direct
competitors with the Amazon Fire Stick and Fire TV Cube--out of
its retail store.\2031\ AWS is also positioned to use customer
and seller data from one line of business to inform decisions
in other lines of business, analogous to its conduct in Amazon
Retail. At least one market participant who spoke with the
Subcommittee had evidence that AWS engaged in this cross-
business data sharing.\2032\ In another internal document with
guidance for staff on ``AWS Competitive Messaging,'' employees
were advised to offer the following response:
---------------------------------------------------------------------------
\2031\ Barb Darrow, Why Cloud Users Should Care that Amazon Just
Kicked Apple TV to the Curb, Fortune (Oct. 2, 2015), http://
fortune.com/2015/10/02/why-aws-users-should-care-that-amazon-nixed-
apple-tv/.
\2032\ Interview with Source 126 (June 29, 2020).
Q: LWalmart is warning its suppliers that they don't want
them to be running on AWS because they don't want Amazon.com, a
competitor of Walmart's, to have access to their data. How are
you addressing that?
A: LEven though Amazon's consumer business has no access
to any customer data in AWS, I can understand why Walmart would
be paranoid in making sure that their data is private. So, I
think it's a pretty reasonable expectation for them to ask
their suppliers to encrypt that data in AWS.\2033\
---------------------------------------------------------------------------
\2033\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00216213 (Aug. 24, 2018) (on file with Comm.).
Engineers and market participants have also raised concerns
that AWS employees may have access to Amazon's Key Management
Services (KMS), which customers can use to store encryption
keys.\2034\ If an employee were able to access a customer's
encryption keys, they could potentially see the contents of a
customer's application, including proprietary code, business
transactions, and data on their users. In response to questions
from the Subcommittee, Amazon said that the company's
``policies prohibit employees from accessing and reading
customer keys in KMS. KMS is designed such that customer keys
in the service cannot be retrieved in plain text (unencrypted)
form by anybody, including AWS employees.'' \2035\ Even if AWS
employees can never access the content of their customers
applications, AWS tracks a host of commercially sensitive
metrics, including any changes in demand for storage and
compute services, the components of their application's
architecture, the requests to a specific database per second,
database size, and the types of requests.\2036\ One industry
expert told the Subcommittee:
---------------------------------------------------------------------------
\2034\ Interview with Source 146 (May 28, 2020).
\2035\ CEO Hearing at 296 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
\2036\ Interview with Source 146 (May 28, 2020); Innovation and
Entrepreneurship Hearing at 44 (response to Questions for the Record of
Nate Sutton, Assoc. Gen. Couns., Competition, Amazon.com, Inc.).
LThey don't need to see the encrypted content of a movie
to see that there are a ton of requests to particular data . .
. . [If Netflix] announced five new movies this weekend and
there's a ton of data to five new objects . . . , you don't
need all the information to know what's happening.\2037\
---------------------------------------------------------------------------
\2037\ Interview with Source 146 (May 28, 2020).
Finally, AWS provides Amazon with unparalleled insights
into the trajectory of startups using its services--information
that it can use to guide acquisitions and replicate promising
technology. Data that AWS collects on cloud computing customers
can provide unique business intelligence--information that
investors, other firms, and entrepreneurs lack.
A report from 2011 published in Reuters, profiling the AWS
Start-up Challenge, describes cases where AWS has used insights
gleaned from its cloud computing service to inform its venture
capital investment decisions.\2038\ Adam Selipsky, then Vice
President of AWS, told Reuters, ``AWS has great relationships
with many young companies and there have been cases where we've
been able to help with investment opportunities.'' \2039\
Today, one way Amazon leverages AWS is through relationships
with startups. The AWS Activate program provides startups with
free credits, technical support, and training.\2040\
---------------------------------------------------------------------------
\2038\ Alistair Barr, Amazon Finds Startup Investments in the
``Cloud,'' Reuters (Nov. 9, 2011), http://www.reuters.com/article/
amazon-cloud-idUSN1E7A727Q20111109.
\2039\ Id.
\2040\ AWS Activate, Amazon Web Servs., https://aws.amazon.com/
activate/ (last visited Sept. 30, 2020).
---------------------------------------------------------------------------
The Subcommittee interviewed a startup and beneficiary of
AWS Activate that had engaged in partnership conversations with
Amazon. During these discussions, the startup shared
information about how its product was built with AWS. Within a
few years, the startup learned that Amazon had introduced a
replica product. This company said that Amazon ``had so many
incentives[,] [r]ate cuts, and free services. Not having a lot
of resources, it's hard to turn that down. But fast forward, we
basically helped them build their offering that they copied
from us.'' \2041\
---------------------------------------------------------------------------
\2041\ Interview with Source 126 (May 11, 2020).
---------------------------------------------------------------------------
As part of its investigation, the Subcommittee asked Amazon
whether it uses or has ever used AWS usage patterns or data to
inform its investment decisions. Amazon responded:
LAWS uses data on individual customers' use of AWS to
provide or improve the AWS services and grow the business
relationship with that customer. This data may inform AWS's
decisions about how AWS invests in infrastructure, such as data
centers, edge networks, hardware, and related software
solutions in order improve the customer experience.\2042\
---------------------------------------------------------------------------
\2042\ Innovation and Entrepreneurship Hearing at 541 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
Amazon's response leaves unclear whether it would view it as
appropriate to use a firm's AWS data to develop products
competing with that firm, so long as Amazon could identify some
benefit to the broader ``customer experience.''
Prior to 2017, Amazon also required that AWS customers
agree ``not to assert any intellectual property claim against
any AWS service used by that customer.'' \2043\ Amazon removed
that condition from the AWS online customer agreement on June
28, 2017.\2044\
---------------------------------------------------------------------------
\2043\ Id. at 539.
\2044\ Id. at 538.
---------------------------------------------------------------------------
In addition to creating a significant information advantage
for Amazon, AWS may also reinforce its market power in other
ways. Because startups often rely heavily on AWS, Amazon is a
natural choice when pursuing a sale or seeking investment. In
an internal email produced to the Subcommittee, Peter Krawiec,
Amazon's Vice President of Worldwide Corporate Development,
recapped a meeting with a recently acquired company, noting
that the company was ``[s]uper excited about Amazon and
relieved that Walmart will not be the buyer. Engineering team
thrilled that they won't have to unplug from AWS under a
Walmart world.'' \2045\
---------------------------------------------------------------------------
\2045\ Submission from Amazon, to H. Comm. on the Judiciary,
AMAZON-HJC-00225832 (June 15, 2018) (on file with Comm.).
(e) Conduct. The leading position AWS enjoys in the market
traces in part to its first-mover advantage, network effects,
and steep investments that the company made in building out the
physical infrastructure on which the cloud resides. However,
AWS has also engaged in a series of business practices designed
to maintain its market dominance at the expense of choice and
innovation. Through a combination of self-preferencing,
misappropriation, and degradation of interoperability, Amazon
has sought to eliminate cross-platform products with Amazon-
only products. Amazon's conduct has already led several open-
source projects to become more closed--a move driven by a need
for protection from Amazon's misappropriation. If unchecked,
Amazon's tactics over the long-term risk solidifying lock-in
and diminishing the incentive to invest. Because the cloud is
the core infrastructure on which the digital economy runs,
---------------------------------------------------------------------------
ensuring its openness and competitiveness is paramount.
(i) Misappropriation of Data. As described earlier in this
Report, cloud platform vendors compete by expanding their
first-party cloud offerings, such as those offered through the
AWS Management Console.\2046\ Market participants note that one
way AWS has expanded its offerings is by creating proprietary
versions of products that have been developed under open-source
licenses.\2047\
---------------------------------------------------------------------------
\2046\ See supra Section IV.
\2047\ Interview with Source 152 (Apr. 15, 2020).
---------------------------------------------------------------------------
Open-source licenses allow software to be freely used,
modified, and shared.\2048\ Open-source software can run on any
infrastructure, local machine, server room, or on the cloud,
reducing lock-in to a specific hardware vendor.\2049\ Companies
based on open-source software bring in revenue by selling
additional features under proprietary licenses or
services.\2050\ In recent years, open-source development has
been a leading model for software development, attracting
significant venture capital investment.\2051\
---------------------------------------------------------------------------
\2048\ Open Source Licenses by Category, Open Source Initiative,
https://opensource.org/
licenses/category (last visited Sept. 30, 2020).
\2049\ Nicholas Loulloudes et al., Enabling Interoperable Cloud
Application Management Through an Open Source Ecosystem, 19 IEEE
Internet Computing 54 (2015), https://ieeexplore.ieee.org/document/
7111887.
\2050\ Max Schireson & Dharmesh Thakker, The Money in Open-Source
Software, TechCrunch (Feb. 9, 2016), https://techcrunch.com/2016/02/09/
the-money-in-open-source-software/.
\2051\ Interview with Source 152 (Apr. 15, 2020).
---------------------------------------------------------------------------
Market participants note that the rise of cloud computing
services has led to a shift in the way open-source software is
delivered and used. Many open-source software companies allowed
engineers to download free versions of their software from
their website, often without collecting any personal data about
their users. As engineers outgrew the functionality of the free
version, they would purchase more powerful versions.\2052\ As
cloud computing grew in popularity, open-source software
vendors began offering versions of their software on the AWS
Marketplace, where application developers could easily
integrate the software. Market participants explain that AWS
was able to use the data collected on their customers,
including usage metrics, to learn which third-party software
was performing well and ultimately to create their own
proprietary version offered as a managed service. Creating a
``knock-off'' version of software was particularly easy when
the product was using an open-source license, which provides
more visibility to the underlying code.\2053\
---------------------------------------------------------------------------
\2052\ Id.
\2053\ Id.
---------------------------------------------------------------------------
In interviews with the Subcommittee, market participants
repeatedly said that AWS relied on innovations from open-source
software communities to gain dominance. A venture capitalist
told the Subcommittee that ``open-source is critical for AWS
getting market power. They're standing on the shoulders of
giants and they're not paying the giants.'' \2054\ A long-time
cloud vendor likewise said that ``Amazon never built a
database, never built cloud services, never built any of their
AWS offerings. They took open source and offered it out on
[the] cloud. At the time that was innovative.'' \2055\
---------------------------------------------------------------------------
\2054\ Interview with Source 146 (May 28, 2020).
\2055\ Interview with Source 31 (May 27, 2020).
---------------------------------------------------------------------------
AWS has developed many of its offerings using this practice
and has created products that are only accessible as first-
party offerings through the AWS Management Console.\2056\ An
example frequently cited by market participants is Amazon
Elasticsearch Service (AESS), a tool for searching and
analyzing data, and a first-party product listed on the AWS
Management Console.\2057\ According to public reporting and
interviews with market participants, this product is a copy of
Elastic's Elasticsearch open-source product that was available
for purchase on the AWS Marketplace.\2058\ According to public
reporting, within a year of introducing the product, Amazon was
generating more money from its replica of Elasticsearch than
Elasticsearch itself was generating. One key advantage that
Amazon's ``knock-off'' had was that Amazon had given it
superior placement in AWS Management Console.\2059\
Additionally, as described in the Elasticsearch v. Amazon case,
AWS can name their open-source ``knock-off'' products in a way
that can mislead customers into believing that the ``knock-
off'' product is sponsored by the open-source software
vendor.\2060\
---------------------------------------------------------------------------
\2056\ What Is the AWS Management Console, Amazon Web Servs.,
https://docs.aws
.amazon.com/awsconsolehelpdocs/latest/gsg/getting-started.html#learn-
whats-new (last visited Sept. 30, 2020).
\2057\ Daisuke Wakabayashi, Prime Leverage: How Amazon Wields Power
in the Technology World, N.Y. Times (Dec. 16, 2019), https://
www.nytimes.com/2019/12/15/technology/amazon-aws-cloud-
competition.html. See also Interview with Source 152 (Apr. 15, 2020).
\2058\ Id.
\2059\ Id.
\2060\ Complaint at 2, Elasticsearch, Inc. v. Amazon.com, Inc., No.
4:19-cv-06158 (N.D. Cal. Sept. 27, 2019), http://ipcasefilings.com/wp-
content/uploads/2019/10/ElasticSearch_Amazon .pdf.
---------------------------------------------------------------------------
The Subcommittee's investigation uncovered evidence
relating to numerous instances in which Amazon has offered
proprietary managed services based on knock-offs of open-source
code. One open-source market participant interviewed by the
Subcommittee said that, because of this conduct, the benefits
of open source ``weren't accruing to [the] open-source
community. People were feeling, we develop all this work and
then some large company comes and monetizes that.'' \2061\
MongoDB, a document-based database, has similarly commented
that, ``once an open source project becomes interesting, it is
too easy for large cloud vendors to capture all the value but
contribute nothing back to the community.'' \2062\
---------------------------------------------------------------------------
\2061\ Interview with Source 144 (Apr. 17, 2020).
\2062\ Server Side Public License FAQ, MongoDB, https://
www.mongodb.com/licensing/server-side-public-license/faq (last visited
Sept. 30, 2020).
---------------------------------------------------------------------------
When the Subcommittee inquired about this practice, Amazon
responded that, ``Projects where AWS has developed
distributions on top of OSS [open-source software], like Open
Distro for Elastic-search and Amazon Corretto, add to, not
supplant, the set of capabilities provided by the upstream
open-source projects . . . . [I]t allows them to move between
deploying OSS themselves and using managed services for open-
source.'' \2063\ Market participants told the Subcommittee,
however, that in the instances when AWS creates a ``knock-off''
version of an open-source software by adding ``additional
developments,'' those additional developments often only work
with AWS infrastructure and are no longer cross-platform--
heightening the risk of lock-in.\2064\ As one third-party
explains, ``So, the earlier benefits of open-source go out the
window as Amazon takes over each of these product areas.''
\2065\
---------------------------------------------------------------------------
\2063\ CEO Hearing at 285 (response to Questions for the Record of
Jeff Bezos, CEO, Amazon.com, Inc.).
\2064\ Interview with Source 152 (Sept. 24, 2020).
\2065\ Id.
---------------------------------------------------------------------------
For example, while MongoDB is an open-source document-based
database project, Amazon offers a proprietary product called
Amazon DocumentDB. According to AWS, DocumentDB implements the
open-source MongoDB API and is designed to ``emulate the
responses that a MongoDB client expects from a MongoDB
server.''\2066\ When a cloud customer chooses to build an
application using DocumentDB they are tied to AWS's
infrastructure. If they ever wanted to switch to another
provider they would have to extensively re-engineer their
product in another software, whereas, had they built their
application using MongoDB--on AWS or any other cloud provider's
infrastructure--their applications could move to other
platforms.\2067\
---------------------------------------------------------------------------
\2066\ Jeff Barr, New-Amazon DocumentDB (with MongoDB
Compatibility): Fast, Scalable, and Highly Available, Amazon Web
Servs.: AWS News Blog (Jan. 9, 2019), https://aws
.amazon.com/blogs/aws/new-amazon-documentdb-with-mongodb-compatibility-
fast-scalable-and-highly-available/.
\2067\ Interview with Source 152 (Sept. 24, 2020).
(ii) Harms to Innovation. Amazon's practice of offering
managed service versions of open-source software has prompted
open-source software companies to make defensive changes, such
as closing off advanced features and changing their open-source
license to be less permissive.\2068\ One open-source vendor
that recently started offering premium closed-sourced features
said they were ``paranoid'' in light of Amazon cloning
Elastic's features, noting that if this had happened to them
they ``would not have a business.'' \2069\ Amazon's conduct has
also reduced the availability of features in open-source
software. Confluent,\2070\ Redis Labs,\2071\ and
CochroachDB,\2072\ along with several other open-source
software vendors, have made similar license and business model
changes, reducing the level of access to their software.\2073\
---------------------------------------------------------------------------
\2068\ Open Source Licenses by Category, Open Source Initiative,
https://opensource.org/faq#permissive (last visited Sept. 30, 2020)
(``A `permissive' license is simply a non-copyleft open source
license--one that guarantees the freedoms to use, modify, and
redistribute, but that permits proprietary derivative works.'').
\2069\ Interview with Source 144 (Apr. 17, 2020).
\2070\ Confluent Community License FAQ, Confluent, https://
www.confluent.io/confluent-
community-license-faq/ (last visited Sept. 30, 2020).
\2071\ Frederic Lardinois, Redis Labs Changes Its Open-Source
License--Again, TechCrunch (Feb. 21, 2019), https://techcrunch.com/
2019/02/21/redis-labs-changes-its-open-source-license-again/.
\2072\ Tom Krazit, Another Open-Source Database Company Will
Tighten Its Licensing Strategy, Wary of Amazon Web Services, GeekWire
(June 4, 2019), https://www.geekwire.com/2019/another-open-source-
database-company-will-tighten-licensing-strategy-wary-amazon-web-
services/.
\2073\ Interview with Source 152 (Apr. 15, 2020).
---------------------------------------------------------------------------
Market participants believe that these changes
significantly undermine innovation. Several noted that more
closed-off licenses will result in fewer free, open-source
features available to startups building prototypes and research
labs that cannot afford access to paid features.\2074\ The
Subcommittee also spoke with cloud computing customers in the
public sector who worry about the changes and ambiguity in
open-source licenses. One cloud computing customer told the
Subcommittee that three pieces of open-source software that
they use underwent license changes in the last year and that,
due to strict ``open source only'' policies, they are ``now
stuck using older versions of the software [from] before the
license change which requires additional work to improve the
code base, implement the same functionality in-house or switch
to a competitive product.'' \2075\
---------------------------------------------------------------------------
\2074\ Interview with Source 146 (May 28, 2020).
\2075\ Interview with Source 49 (May 20, 2020).
(iii) Self-Preferencing. According to market participants,
once a product--based on open source or otherwise--is available
in the AWS Management Console, it becomes an easier choice for
existing AWS customers relative to purchasing a managed service
from a third-party vendor or self-managing open-source
software. In an interview with the Subcommittee, one startup
said they purchased software services through the AWS
Management Console as opposed to identical or nearly identical
software from a third-party vendor because they were a small
company and, ``instead of us managing everything, it was hit a
button . . . they are all in one, it was easier.'' \2076\ As
with all cloud services offered through the AWS Management
Console, customers benefit from a single sign-on with billing
information already in place.\2077\
---------------------------------------------------------------------------
\2076\ Interview with Source 126 (June 29, 2020).
\2077\ Interview with Source 146 (May 28, 2020).
---------------------------------------------------------------------------
Market participants also note that Amazon makes certain
functionality available to its first-party products that it
doesn't make available to the companies managing the original
version of the open-source software.\2078\ For example, AWS
services can run inside Amazon's Virtual Private Cloud (Amazon
VPC) offering, which allows users to provision an ``isolated
section of the AWS Cloud,'' but third-party services cannot do
so.\2079\
---------------------------------------------------------------------------
\2078\ Interview with Source 152 (Sept. 24, 2020).
\2079\ Amazon Virtual Private Cloud, Amazon Web Servs., https://
aws.amazon.com/vpc/ (last visited Sept. 30, 2020).
---------------------------------------------------------------------------
While Amazon failed to provide the Subcommittee with
financial data identifying what AWS makes in revenue from
individual cloud offerings, many marketplace participants
believe that AWS makes more from managed versions of open-
source software than the third-party vendors and managers of
the software. In 2019, The New York Times reported that the
Chief Executive of MariaDB, an open-source relational database
company, estimated that ``Amazon made five times more revenue
from running MariaDB software than his company generated from
all of its businesses.'' \2080\ Market participants suggest
this multiple of difference in income is likely for other AWS
products based on open-source projects.\2081\
---------------------------------------------------------------------------
\2080\ Daisuke Wakabayashi, Prime Leverage, How Amazon Wields Power
in the Technology World, N.Y. Times (Dec. 16, 2019), https://
www.nytimes.com/2019/12/15/technology/amazon-aws-cloud-
competition.html.
\2081\ Interview with Source 146 (May 28, 2020).
---------------------------------------------------------------------------
D. Apple
1. Overview
Apple was incorporated in 1977 and is headquartered in
Cupertino, California.\2082\ Apple was an early pioneer in
designing and marketing mass-produced personal computers.\2083\
Today, the company ``designs, manufacturers, and markets
smartphones, personal computers, tablets, wearables, and
accessories, and sells a variety of related services.'' \2084\
Apple's hardware products include the iPhone, iPad, Mac, Apple
TV, and AirPods; its Services business segment includes the App
Store, iCloud, AppleCare, Apple Arcade, Apple Music, Apple TV+,
and other services and software applications.\2085\ Apple
tightly integrates its services and software applications with
its products to ensure a seamless experience for
consumers.\2086\
---------------------------------------------------------------------------
\2082\ Apple, Inc., Annual Report (Form 10-K) 1 (Sept. 28, 2019),
https://s2.q4cdn.com/470004039/files/doc_financials/2019/ar/_10-K-2019-
(As-Filed).pdf.
\2083\ See Angelique Richardson & Ellen Terrell, Apple Computer,
Inc., Lib. of Cong. (Apr. 2008), https://www.loc.gov/rr/business/
businesshistory/April/apple.html.
\2084\ Apple, Inc., Annual Report (Form 10-K) 1 (Sept. 28, 2019),
https://s2.q4cdn.com/470004039/files/doc_financials/2019/ar/_10-K-2019-
(As-Filed).pdf.
\2085\ Id. at 1-2.
\2086\ See Apple, Apple: Distinctive Products with a Seamless,
Integrated User Experience 1 (July 13, 2020) (unpublished white paper)
(on file with Comm.).
---------------------------------------------------------------------------
Apple's Ecosystem: Hardware, Software Infrastructure,
Apple & Third-Party Apps \2087\
---------------------------------------------------------------------------
\2087\ Are Domestic Investors Missing Out?, Swell, (June 22, 2018),
https://swellasset.com.au/2018/06/domestic-investors-missing/.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Apple reports financial information for two business
categories: Products and Services.\2088\ For Fiscal Year 2019,
Apple reported total revenue of approximately $260 billion,
down 2 percent from 2018, but up nearly 13.5 percent from
2017.\2089\ Apple's margins totaled 37.8 percent, with profits
of $98.3 billion.\2090\ As of September
---------------------------------------------------------------------------
\2088\ Apple, Inc., Annual Report (Form 10-K) 19 (Sept. 28, 2019),
https://s2.q4cdn.com/470004039/files/doc_financials/2019/ar/_10-K-2019-
(As-Filed).pdf.
\2089\ Id. at 17-19; see also Apple's 1 Crazy Number Key to $800
Billion in Stock Growth, Forbes (July 13, 2020), https://
www.forbes.com/sites/greatspeculations/2020/07/13/how-did-apple-add-
800-billion-in-value-over-3-years/#5b9250df20f8.
\2090\ Id. at 21, 29.
---------------------------------------------------------------------------
2020, Apple is the most valuable public company in the world and, in
August 2020, became the first publicly traded U.S. firm to be valued at
$2 trillion.\2091\ Apple's stock rose by 60 percent in the first 8
months of 2020.\2092\
---------------------------------------------------------------------------
\2091\ Jessica Bursztynsky, Apple Becomes First U.S. Company to
Reach a $2 Trillion Market Cap, CNBC (Aug. 19, 2020), https://
www.cnbc.com/2020/08/19/apple-reaches-2-trillion-market-cap.html.
\2092\ Kif Leswing, Apple's $2 Trillion Value Is Proof that Tim
Cook's Services Plan Worked, CNBC (Aug. 19, 2020), https://
www.cnbc.com/2020/08/19/apples-2-trillion-value-proof-that-tim-cooks-
services-plan-worked.html.
---------------------------------------------------------------------------
Apple is the leading smartphone vendor in the U.S.,
accounting for approximately 45 percent of the domestic
market,\2093\ with more than 100 million iPhone users
nationwide.\2094\ Apple's iOS is also one of two dominant
mobile operating systems--the other operating system, Android,
is discussed elsewhere in this Report. iOS runs on more than
half of U.S. smartphones and tablets.\2095\ Globally, Apple
accounts for less than 20 percent of the smartphone market, and
roughly 25 percent of smartphones and tablets run on iOS
worldwide.\2096\ In 2018, Apple sold its two-billionth iOS
device and is projected to sell its two-billionth iPhone by
2021.\2097\
---------------------------------------------------------------------------
\2093\ See S. O'Dea, Manufacturers' Market Share of Smartphone
Sales in the United States from 2016 to 2020, Statista (Sept. 3, 2020),
https://www.statista.com/statistics/620805/smartphone-sales-market-
share-in-the-us-by-vendor/; S. O'Dea, Manufacturers' Market Share of
Smartphone Subscribers in the United States from 2013 and 2019, by
Month*, Statista (June 9, 2020), https://www.statista.com/statistics/
273697/market-share-held-by-the-leading-smart
phone-manufacturers-oem-in-the-us/; US Smartphone Market Share: By
Quarter, Counterpoint Rsch. (Aug. 17, 2020), https://
www.counterpointresearch.com/us-market-smartphone-share/; S. O'Dea,
Share of Smartphone Users that Use an Apple iPhone in the United States
from 2014 to 2021, Statista (Sept. 10, 2020), https://www.statista.com/
statistics/236550/percentage-of-us-population-that-own-a-iphone-
smartphone/.
\2094\ S. O'Dea, Share of Smartphone Users that Use an Apple iPhone
in the United States from 2014 to 2021, Statista (Sept. 10, 2020),
https://www.statista.com/statistics/236550/percentage-of-us-population-
that-own-a-iphone-smartphone/.
\2095\ See S. O'Dea, Subscriber Share Held by Smartphone Operating
Systems in the United States from 2012 to 2020, Statista (Aug. 17,
2020), https://www.statista.com/statistics/266572/market-share-held-by-
smartphone-platforms-in-the-united-states/; Mobile Operating System
Market Share United States of America Aug. 2019-Aug. 2020, GlobalStats
(on file with Comm.).
\2096\ See Global Smartphone Market Share: By Quarter, Counterpoint
Rsch., (Aug. 18, 2020), https://www.counterpointresearch.com/global-
smartphone-share/; Mobile Operating System Market Share Worldwide Aug.
2019-Aug. 2020, GlobalStats (on file with Comm.).
\2097\ Malcolm Owen, How Apple Has Hit 2 Billion iOS Devices Sold,
and When It Will Hit 2 Billion iPhones, Apple Insider (Sept. 13, 2018),
https://appleinsider.com/articles/18/09/13/how-apple-has-hit-2-billion-
ios-devices-sold-and-when-it-will-hit-2-billion-iphones.
---------------------------------------------------------------------------
Apple also owns and operates the App Store for iOS devices.
Launched in 2008, Apple highlights that the App Store allows
app developers to reach consumers in 155 countries, and that
more than 27 million app developers have published millions of
apps in the App Store. Apple credits the App Store with
creating 1.5 million jobs in the United States and more than
$120 billion in worldwide revenue for app developers.\2098\
According to Apple, the App Store ecosystem, including direct
sales of apps, sales of goods and services inside of apps, and
in-app advertising, facilitated more than $138 billion in
economic activity in the U.S. last year.\2099\
---------------------------------------------------------------------------
\2098\ See Letter from Kyle Andeer, Vice President Legal & Chief
Compliance Officer, Apple, Inc., to Hon. Jerrold Nadler, Chair, H.
Comm. on the Judiciary, Hon. Doug Collins, Ranking Member, H. Comm. on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 2 (Oct. 14, 2019) (on
file with Comm.); Letter from Kyle Andeer, Vice President, Corp. Law &
Chief Compliance Officer, Apple, Inc., to Hon. Jerrold Nadler, Chair,
H. Comm. on the Judiciary, Hon. Jim Jordan, Ranking Member, H. Comm. on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 3 (Sept. 21, 2020) (on
file with Comm.).
\2099\ Letter from Kyle Andeer, Vice President, Corp. Law & Chief
Compliance Officer, Apple, Inc., to Hon. Jerrold Nadler, Chair, H.
Comm. on the Judiciary, Hon. Jim Jordan, Ranking Member, H. Comm. on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 2 (Sept. 21, 2020) (on
file with Comm.) (citing Jonathan Borck et al., Analysis Grp., How
Large Is the Apple App Store Ecosystem: A Global Perspective for 2019,
at 4 (2020), https://www.apple.com/newsroom/pdfs/app-store-study-
2019.pdf).
---------------------------------------------------------------------------
In addition to the Subcommittee's investigation of Apple's
market power and conduct, federal antitrust authorities are
investigating the company for potential violations of the U.S.
antitrust laws. In June 2019, The New York Times and The Wall
Street Journal reported that the Justice Department had opened
investigations into potential violations of the antitrust laws
by Apple.\2100\ Apple is also under investigation by multiple
international competition authorities for antitrust violations
and anticompetitive practices,\2101\ in addition to facing
private antitrust lawsuits in the U.S.\2102\
---------------------------------------------------------------------------
\2100\ See Celia Kang et al., Antitrust Troubles Snowball for Tech
Giants as Lawmakers Join In, N.Y. Times (June 3, 2019), https://
www.nytimes.com/2019/06/03/technology/facebook-ftc-antitrust.html;
Brent Kendall & John McKinnon, Congress, Enforcement Agencies Target
Tech, Wall St. J. (June 3, 2019), https://www.wsj.com/articles/ftc-to-
examine-how-facebook-s-practices-affect-digital-competition-
11559576731.
\2101\ See, e.g., Press Release, Eur. Comm'n, Antitrust: Commission
Opens Investigation into Apple Practices Regarding Apple Pay (June 16,
2020), https://ec.europa.eu/commission/presscorner/detail/en/
ip_20_1075; Foo Yun Chee, Apple in Dutch Antitrust Spotlight for
Allegedly Promoting Own Apps, Reuters (Apr. 11, 2019), https://
www.reuters.com/article/us-apple-antitrust-netherlands/apple-in-dutch-
antitrust-spotlight-for-allegedly-promoting-own-apps-idUSKCN1RN215;
Italy Antitrust Opens Inquiry into Google, Apple, Dropbox on Cloud
Computing, Reuters (Sept. 7, 2020), https://www.reuters.com/article/us-
google-italy-antitrust/italy-antitrust-opens-inquiry-into-google-apple-
dropbox-on-cloud-computing-idUSKBN25Y0YM; Tim Hardwick, Apple and
Amazon Under Investigation by Italian Watchdog for Alleged Price
Fixing, Apple Insider (July 22, 2020), https://www.macrumors.com/2020/
07/22/apple-amazon-italy-alleged-price-fixing/.
\2102\ See, e.g., Nick Statt, Epic Games Is Suing Apple, Verge
(Aug. 13, 2020), https://www
.theverge.com/2020/8/13/21367963/epic-fortnite-legal-complaint-apple-
ios-app-store-removal-injunctive-relief; Reed Albergotti, Apple
Suppressed Competitors in Its App Store--Until It Got Caught, a Lawsuit
Alleges, Wash. Post (Dec. 20, 2019), https://www.washingtonpost
.com/technology/2019/12/20/apple-suppressed-competitors-its-app-store-
until-it-got-caught-lawsuit-alleges/; Bob Van Voris & Peter Blumberg,
Apple App Developers Jump on Silicon Valley Antitrust Bandwagon,
Bloomberg (June 4, 2019), https://www.bloomberg.com/news/articles/2019-
06-04/apple-inc-sued-by-app-developers-claiming-antitrust-violations;
David G. Savage & Suhauna Hussain, Supreme Court Rules Apple Can Face
Antitrust Suits from iPhone Owners over App Store Sales, L.A. Times
(May 13, 2019), https://www.latimes.com/politics/la-na-pol-
supreme-court-apple-smart-phone-20190513-story.html.
---------------------------------------------------------------------------
Previously, the Justice Department and attorneys general of
33 states sued Apple for orchestrating a conspiracy to fix
prices in the eBooks market in 2012.\2103\ Apple was found to
have violated state and federal antitrust laws and was forced
to pay $450 million.\2104\ In 2010, Apple settled an antitrust
complaint with the Department of Justice alleging that it had
conspired with several other technology companies to eliminate
competition for employees through non-solicitation
agreements.\2105\ It later entered into a $415 million joint
settlement agreement in a class-action lawsuit filed by
affected employees.\2106\
---------------------------------------------------------------------------
\2103\ See Complaint, United States v. Apple, Inc., 952 F. Supp. 2d
638 (S.D.N.Y. 2013) (No.12-cv-2826).
\2104\ See United States v. Apple, Inc., 952 F. Supp. 2d 638
(S.D.N.Y. 2013), aff'd, 791 F.3d 209 (2d Cir. 2015); Dawn Chmielewski,
Apple to Pay $450 Million E-Book Settlement After Supreme Court Waves
Off Case, Vox: Recode (Mar. 7, 2016), https://www.vox.com/2016/3/7/
11586748/apple-to-pay-450-million-e-book-settlement-after-supreme-
court-waves; see also Aug. 27, 2013 Hr'g Tr. at 17:1-6, United States
v. Apple, Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013) (No. 12-cv-2826)
(``The record at trial demonstrated a blatant and aggressive disregard
at Apple for the requirements of the law. Apple executives used their
considerable skills to orchestrate a price-fixing scheme that
significantly raised the prices of E-books. This conduct included Apple
lawyers and its highest level executives.''); Philip Elmer-Dewitt,
``I'd Do It Again,'' Says the Man at the Center of Apple's E-book Case,
Fortune (Dec. 2, 2014), https://fortune.com/2014/12/02/id-do-it-again-
says-the-man-at-the-center-of-apples-e-book-case/.
\2105\ Press Release, U.S. Dep't of Justice, Department Requires
Six High Tech Companies to Stop Entering into Anticompetitive Employee
Solicitation Agreements (Sept. 24, 2010), https://www.justice.gov/opa/
pr/justice-department-requires-six-high-tech-companies-stop-entering-
anticompetitive-employee.
\2106\ Dawn Chmielewski, Silicon Valley Companies Agree to Pay $415
Million to Settle ``No Poaching'' Suit, Vox: Recode (Jan. 15, 2015),
https://www.vox.com/2015/1/15/11557814/
silicon-valley-companies-agree-to-pay-415-million-to-settle-no.
---------------------------------------------------------------------------
2. iOS and the App Store
(a) Market Power. Apple has significant and durable market
power in the market for mobile operating systems and mobile app
stores, both of which are highly concentrated.\2107\ Apple's
iOS mobile operating system is one of two dominant mobile
operating systems, along with Google's Android, in the U.S. and
globally.\2108\ Apple installs iOS on all Apple mobile devices
and does not license iOS to other mobile device manufacturers.
More than half of mobile devices in the U.S. run on iOS or
iPadOS, an iOS derivation for tablets introduced in 2019.\2109\
Apple's market power is durable due to high switching costs,
ecosystem lock-in, and brand loyalty. It is unlikely that there
will be successful market entry to contest the dominance of iOS
and Android.
---------------------------------------------------------------------------
\2107\ See Stigler Report at 78 (``[T]he evidence thus far does
suggest that current digital platforms face very little threat of entry
. . . . [T]he key players in this industry remained the same over the
last two technology waves, staying dominant through the shift to mobile
and the rise of AI. In the past, dominant businesses found it difficult
to navigate innovation or disruption waves. By contrast, Facebook,
Google, Amazon, Apple, and even Microsoft were able to ride these waves
without significant impact on market share or profit margins. This
indirect evidence corroborates the argument that these companies are
facing few competitive threats.'').
\2108\ See supra Section IV.
\2109\ See S. O'Dea, Subscriber Share Held by Smartphone Operating
Systems in the United States from 2012 to 2020, Statista (Aug. 17,
2020), https://www.statista.com/statistics/266572/market-share-held-by-
smartphone-platforms-in-the-united-states/; Mobile Operating System
Market Share United States of America Aug. 2019-Aug. 2020, GlobalStats
(on file with Comm.); Jason Cipriani, iPad Turns 10: Why Did It Take a
Decade for Apple's Tablet to Get Its Own Operating System, ZDNet (Jan.
24, 2020), https://www.zdnet.com/article/a-decade-old-device-why-did-
it-take-nine-years-for-the-ipad-to-get-its-own-operating-system/.
---------------------------------------------------------------------------
As a result, Apple's control over iOS provides it with
gatekeeper power over software distribution on iOS devices.
Consequently, it has a dominant position in the mobile app
store market and monopoly power over distribution of software
applications on iOS devices.\2110\
---------------------------------------------------------------------------
\2110\ See supra Section IV.
---------------------------------------------------------------------------
Apple's App Store is the only method to distribute software
applications on iOS devices.\2111\ It does not permit
installation of alternative app stores on iOS devices, nor does
it permit apps to be sideloaded. As discussed earlier in this
Report, consumers have a strong preference for native apps to
web apps,\2112\ and Apple has acknowledged key differences
between them. Developers have explained that Apple actively
undermines the open web's progress on iOS ``to push developers
toward building native apps on iOS rather than using web
technologies.'' \2113\ As a result, Apple's position as the
sole app store on iOS devices is unassailable. Apple fully
controls how software can be installed on iOS devices, and CEO
Tim Cook has explained that the company has no plan to permit
an alternative app store.\2114\ The former director of the app
review team for the App Store observed that Apple is ``not
subject to any meaningful competitive constraint from
alternative distribution channels.'' \2115\
---------------------------------------------------------------------------
\2111\ CEO Hearing at 80 (statement of Tim Cook, CEO, Apple, Inc.)
(responding to a question about whether Apple alone determines whether
apps are admitted to the App Store, Mr. Cook replied, ``If it's a
native app, yes, sir. If it's a web app, no.'').
\2112\ See supra Section IV.
\2113\ Owen Williams, Apple Is Trying to Kill Web Technology,
OneZero (Nov. 7, 2019), https://onezero.medium.com/apple-is-trying-to-
kill-web-technology-a274237c174d.
\2114\ CEO Hearing at 397 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\2115\ Phillip Shoemaker, Apple v. Everybody, Medium (Mar. 29,
2019), https://medium.com/@phillipshoemaker/apple-v-everybody-
5903039e3be.
---------------------------------------------------------------------------
In response to these concerns, Apple has not produced any
evidence that the App Store is not the sole means of
distributing apps on iOS devices and that it does not exert
monopoly power over app distribution. Apple says it does not
create data--nor is it aware of third-party data--that tracks
market share in the app distribution market.\2116\ Apple claims
the App Store competes in a larger software distribution market
that includes other mobile app stores as well as the open
internet, personal computers, gaming consoles, smart TVs, and
online and brick-and-mortar retail stores.\2117\ While
consumers can access software and developers can distribute
software through those platforms, none of those platforms
permit consumers to access apps on an iOS device or developers
to distribute apps to iOS devices.
---------------------------------------------------------------------------
\2116\ Submission from Apple, to H. Comm. on the Judiciary, HJC-
APPLE-000008 (Oct. 14, 2019) (on file with Comm.).
\2117\ See CEO Hearing at 27, 81 (statement of Tim Cook, CEO,
Apple, Inc.); see also Submission from Apple, to H. Comm. on the
Judiciary, HJC-APPLE-000012 to -000013 (Oct. 14, 2019) (on file with
Comm.).
---------------------------------------------------------------------------
Apple's monopoly power over software distribution on iOS
devices appears to allow it to generate supranormal profits
from the App Store and its Services business. Apple CEO Tim
Cook set a goal in 2017 to rapidly double the size of the
Services business by the end of 2020.\2118\ Apple met this goal
by July 2020, six months ahead of schedule.\2119\ The Services
business accounted for nearly 18 percent of total revenue in
Fiscal Year 2019, about $46.2 billion. Services grew faster
than Products in recent years, increasing by more than 41
percent since 2017.\2120\ The Services category is also Apple's
highest margin business at 63.7 percent in Fiscal Year 2019 and
67.2 percent for the quarter ending in June 2020.\2121\
---------------------------------------------------------------------------
\2118\ Anita Balakrishnan, Tim Cook: Goal Is to Double Apple's
Services Revenue by 2020, CNBC (Jan. 31, 2017), https://www.cnbc.com/
2017/01/31/tim-cook-on-apple-earnings-call-double-services-revenue-by-
2020.html.
\2119\ See Apple (AAPL) Q3 2020 Earnings Call Transcript, Motley
Fool (July 31, 2020), https://www.fool.com/earnings/call-transcripts/
2020/07/31/apple-aapl-q3-2020-earnings-call-transcript.aspx.
\2120\ Apple, Inc., Annual Report (Form 10-K) 19 (Sept. 28, 2019),
https://s2.q4cdn.com/470004039/files/doc_financials/2019/ar/_10-K-2019-
(As-Filed).pdf.
\2121\ Id. at 21; Apple, Inc., Quarterly Report (Form 10-Q) 28
(June 27, 2020), https://s2.q4cdn.com/470004039/files/doc_financials/
2020/q3/_10-Q-Q3-2020-(As-Filed).pdf.
---------------------------------------------------------------------------
Annual Revenue by Segment \2122\
---------------------------------------------------------------------------
\2122\ Prepared by the Subcommittee based on Apple, Inc., Annual
Reports (Form 10-K) (2017-2019).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Industry observers credit Apple's successful focus on
growing the Services business for its rising valuation and
long-term future.\2123\ Apple has attributed the growth of
Services as a driver of the firm's profits from sales and an
important factor supporting Apple's overall margins as hardware
sales slowed or declined.\2124\ The company has consistently
credited the App Store, licensing sales, and AppleCare for the
success of Services.\2125\
---------------------------------------------------------------------------
\2123\ See, e.g., Kif Leswing, Apple's $2 Trillion Value Is Proof
that Tim Cook's Services Plan Worked, CNBC (Aug. 19, 2020), https://
www.cnbc.com/2020/08/19/apples-2-trillion-value-proof-that-tim-cooks-
services-plan-worked.html; Anne Sraders, As Apple Stock Tops $500,
Bulls Cite These Key Reasons It Could Still Go Higher, Fortune (Aug.
24, 2020), https://fortune.com/2020/08/24/apple-stock-tops-500-can-it-
go-higher/.
\2124\ Apple, Inc., Annual Report (Form 10-K) 22, 26 (Sept. 29,
2018), https://www.sec.gov/Archives/edgar/data/320193/
000032019318000145/a10-k20189292018.htm; Apple, Inc., Annual Report
(Form 10-K) 22, 26 (Sept. 30, 2017), https://www.sec.gov/Archives/
edgar/data/320193/000032019317000070/a10-k20179302017.htm.
\2125\ Apple, Inc., Annual Report (Form 10-K) 19 (Sept. 28, 2019),
https://s2.q4cdn.com/470004039/files/doc_financials/2019/ar/_10-K-2019-
(As-Filed).pdf; Apple, Inc., Annual Report (Form 10-K) 25 (Sept. 29,
2018), https://www.sec.gov/Archives/edgar/data/320193/
000032019318000145/a10-k20189292018.htm; Apple, Inc., Annual Report
(Form 10-K) 25 (Sept. 30, 2017), https://www.sec.gov/Archives/edgar/
data/320193/000032019317000070/a10-k20179302017.htm. AppleCare is
Apple's extended warranty product for Apple devices. See Jason Cross,
AppleCare+: Everything You Need to Know About Apple's Extended Warranty
Program, MacWorld (Sept. 16, 2020), https://www.macworld.com/article/
3227045/applecare-warranty-faq.html. In addition to the markets
discussed in this Section, the Committee sought information and
continues to investigate competition and conduct in the resale and
repair markets for Apple products.
(b) Merger Activity. In 2019, Apple CEO Tim Cook told CNBC
that Apple buys a new company every two-to-three weeks,
focusing on acquiring ``talent and intellectual property.''
\2126\ In July 2020, Mr. Cook explained that Apple's ``approach
on acquisitions has been to buy companies where we have
challenges, and IP, and then
---------------------------------------------------------------------------
\2126\ Lauren Feiner, Apple Buys a Company Every Few Weeks, Says
CEO Tim Cook, CNBC (May 6, 2019), https://www.cnbc.com/2019/05/06/
apple-buys-a-company-every-few-weeks-says-ceo-tim-cook.html.
---------------------------------------------------------------------------
make them a feature of the phone.'' \2127\ An Apple submission to the
Subcommittee explains that it:
---------------------------------------------------------------------------
\2127\ Kif Leswing, Tim Cook Says Apple Buys Innovation, not
Competitors, CNBC (July 31, 2020), https://www.cnbc.com/2020/07/31/tim-
cook-contrasts-apple-ma-with-other-big-tech.html.
L[H]as not embarked on a strategy of acquiring nascent
competitors in service of its growth and market position.
Instead, Apple's acquisitions generally are meant to complement
its product business by accelerating innovation and building
out new features and technologies for Apple's hardware and
software offerings.\2128\
---------------------------------------------------------------------------
\2128\ Apple, Apple: Distinctive Products with a Seamless,
Integrated User Experience 2 (July 13, 2020) (unpublished white paper)
(on file with Comm.).
In 2020, Apple continued acquiring small firms, including
artificial intelligence and virtual reality startups, an
enterprise software maker, a contactless payment startup, and a
weather application, among others.\2129\ One of Apple's largest
transactions occurred in 2019 when it paid $1 billion to
acquire Intel's smartphone modem business.\2130\
---------------------------------------------------------------------------
\2129\ See Jordan Novet, Apple Buys an A.I. Start-up that Came from
Microsoft Co-Founder Paul Allen's Research Lab, CNBC (Jan. 15, 2020),
https://www.cnbc.com/2020/01/15/apple-acquires-xnor-ai-startup-that-
spun-out-of-allen-institute.html; Mark Gurman, Apple Acquires AI
Startup to Better Understand Natural Language, Bloomberg (Apr. 3,
2020), https://www.bloomberg.com/news/articles/2020-04-03/apple-
acquires-ai-startup-to-better-understand-natural-language; Kif Leswing,
Apple Buys Virtual Reality Company NextVR, CNBC (May 14, 2020), https:/
/www.cnbc.com/2020/05/14/apple-buys-virtual-reality-company-
nextvr.html; Kif Leswing, Apple Buys Fleetsmith, a Company Making It
Easier to Deploy iPhones and Macs at Workplaces, CNBC (June 24, 2020),
https://www.cnbc.com/2020/06/24/apple-acquires-device-management-
company-fleetsmith.html; Jessica Bursztynsky, Apple Buys Popular
Weather App Dark Sky and Plans to Shut Down Android Versions, CNBC
(Mar. 31, 2020), https://www.cnbc.com/2020/03/31/apple-buys-popular-
weather-app-dark-sky.html; Mark Gurman, Apple Buys Startup to Turn
iPhones into Payment Terminals, Bloomberg (July 31, 2020), https://
www.bloomberg.com/news/articles/2020-08-01/apple-buys-startup-to-turn-
iphones-into-payment-terminals.
\2130\ Press Release, Apple, Apple to Acquire the Majority of
Intel's Smartphone Modem Business (July 25, 2019), https://
www.apple.com/newsroom/2019/07/apple-to-acquire-the-majority-of-intels-
smartphone-modem-business/.
---------------------------------------------------------------------------
Apple has also recently acquired software companies to
create a foundation from which it could launch new apps. For
example, after purchasing the digital magazine subscription
service Texture in 2018, Apple integrated most of Texture's
functionality into its own Apple News+ service, which debuted
the following year.\2131\ Similarly, one of Apple's largest
purchases to date--its $3 billion acquisition of Beats
Electronics in 2014--was instrumental to the 2015 launch of
Apple Music.\2132\ Apple sought to grow Apple Music quickly
after its introduction. Apple pre-installed the service on
iPhones and made it the only music service accessible through
Siri, Apple's virtual assistant. Apple also offered Apple Music
with a free month trial period and made it available on Android
devices. The strategy saw Apple gain 10 million paying
subscribers within six months.\2133\ Apple supplemented its
music services business in 2018 by acquiring the music
recognition app Shazam, and most recently, by acquiring podcast
app Scout FM in 2020.\2134\
---------------------------------------------------------------------------
\2131\ Anita Balakrishnan, Apple Buys Texture, a Digital Magazine
Subscription Service, CNBC (Mar. 12, 2018), https://www.cnbc.com/2018/
03/12/apple-buys-texture-a-digital-magazine-subscription-service.html.
\2132\ Billy Steele, Apple's $3 Billion Purchase of Beats Has
Already Paid Off, Engadget (May 28, 2019), https://www.engadget.com/
2019-05-28-apple-beats-five-years-later.html.
\2133\ Neth. Auth. for Consumers & Mkts. Study at 62.
\2134\ Press Release, Apple, Apple Acquires Shazam, Offering More
Ways to Discover and Enjoy Music (Sept. 24, 2018), https://
www.apple.com/newsroom/2018/09/apple-acquires-shazam-offering-more-
ways-to-discover-and-enjoy-music/; Mark Gurman, Apple Buys Startup that
Creates Radio-Like Stations for Podcasts, Bloomberg (Sept. 24, 2020),
https://www.bloomberg.com/news/articles/2020-09-24/apple-buys-startup-
that-creates-radio-like-stations-for-podcasts.
---------------------------------------------------------------------------
It is common for Apple to integrate apps it purchases into
its own pre-existing apps or into the iOS mobile operating
system. Examples of this include the 2014 acquisition of Swell,
a podcast app, and the 2013 acquisition of HopStop, a transit
navigation app.\2135\
---------------------------------------------------------------------------
\2135\ Chris Gayomali, Swell Shuts Down Following Apple
Acquisition, Fast Co. (July 29, 2014), https://www.fastcompany.com/
3033698/swell-shuts-down-following-apple-acquisition; Andrew Nusca,
Apple Maps vs. Google Maps Heats Up as Apple Shuts Down HopStop,
Fortune (Sept. 12, 2015), https://fortune.com/2015/09/12/hopstop-apple-
shutdown/.
---------------------------------------------------------------------------
Apple has followed a similar strategy for integrating the
Dark Sky weather app. Apple shut down Dark Sky's Android app in
August 2020 and plans to integrate the app's features with the
iPhone's Weather widget on iOS 14.\2136\ In addition to its
app, Dark Sky supplied data to independent weather apps, like
Carrot, Weather Line, and Partly Sunny. As a result of Apple's
takeover of Dark Sky, independent weather apps will lose access
to the inexpensive, hyper-local weather data that Dark Sky
supplied, leading some weather apps to shut down and others to
rely on higher-priced suppliers for forecast data.\2137\
---------------------------------------------------------------------------
\2136\ Hannah Klein, The Dark Sky Android App is Officially Kaput,
Slate (Aug. 4, 2020), https://slate.com/technology/2020/08/dark-sky-
app-android-shuts-down.html.
\2137\ Jared Newman, Apple's Dark Sky Acquisition Could Be Bad News
for Indie Weather Apps, Fast Co. (Apr. 2, 2020), https://
www.fastcompany.com/90485131/apples-dark-sky-acquisition-could-be-bad-
news-for-indie-weather-apps. But see CEO Hearing at 403 (response to
Questions for the Record of Tim Cook, CEO, Apple, Inc.) (noting Dark
Sky will ``continue to make its API available to Dark Sky's existing
customers until the end of 2021'').
(c) Conduct
(i) Commissions and In-App Purchases. The Committee sought
information regarding Apple's policy of collecting commissions
from apps sold through the App Store and purchases made in iOS
apps. Apple charges a 30 percent commission on paid apps--those
that charge a fee for users to download--downloaded from the
App Store. It also takes a 30 percent fee for in-app purchases
(IAP) of ``digital goods and services.''\2138\ For app
subscriptions, Apple charges a 30 percent commission for the
first year and a 15 percent commission for subsequent
years.\2139\ Apps are not permitted to communicate with iOS
users that the app may be available for purchase at a lower
price outside the App Store, provide links outside of the app
that may lead users to find alternative subscription and
payment methods, or offer their own payment processing
mechanism in the app to avoid using Apple's IAP.\2140\ Apps
that violate Apple's policies can be removed from the App
Store, losing access to the only means of distributing apps to
consumers with iOS devices.\2141\
---------------------------------------------------------------------------
\2138\ App Store: Dedicated to the Best Store Experience for
Everyone, Apple, https://www.apple.com/ca/ios/app-store/principles-
practices/ (last visited Oct. 4, 2020).
\2139\ Id.
\2140\ See Innovation and Entrepreneurship Hearing at 584-85
(response to Questions for the Record of Kyle Andeer, Vice President,
Corp. Law, Apple, Inc.); Submission from ProtonMail, to H. Comm. on the
Judiciary, 5 (Aug. 22, 2020) (on file with Comm.); Interview with
Source 143 (Aug. 27, 2020).
\2141\ See, e.g., Sara Morrison, Apple's Fortnite Ban, Explained,
Vox: Recode (Sept. 8, 2020), https://www.vox.com/recode/2020/8/20/
21373780/fortnite-epic-apple-lawsuit-app-store-antitrust; Nick Statt,
Apple Doubles Down on Controversial Decision to Reject Email App Hey,
Verge (June 18, 2020), https://www.theverge.com/2020/6/18/21296180/
apple-hey-email-app-basecamp-rejection-response-controversy-antitrust-
regulation.
---------------------------------------------------------------------------
Apple describes its policies as standard industry practice
and says that other app stores charge the same fees.\2142\ In
2020, Apple funded a study that concluded that other software
distribution platforms run by Google, Amazon, Samsung,
Microsoft, and others charge identical or similar commissions
on software downloads and transactions, and that commissions
are common in other digital markets.\2143\ Apple also
highlighted that its commissions are lower than the cost of
software distribution by brick-and-mortar retailers, which
dominated the marketplace prior to the introduction of the App
Store.\2144\ The Apple-commissioned study explained that Apple
funds the App Store through a $99 annual fee it charges to
developers and $299 for developers building enterprise apps, as
well as the commission and fees collected on apps and in-app
purchases.\2145\
---------------------------------------------------------------------------
\2142\ Innovation and Entrepreneurship Hearing at 585 (response to
Questions for the Record of Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.); see also Mark Gurman, Apple Defends App Store Revenue
Take Ahead of Antitrust Hearing, Bloomberg (July 22, 2020), https://
www.bloomberg.com/news/articles/2020-07-22/apple-defends-app-store-
revenue-cut-ahead-of-antitrust-hearing; David Pierce & Emily Birnbaum,
Apple Defends Its App Store Tax Ahead of Antitrust Hearings, Protocol
(July 22, 2020), https://www.protocol.com/apple-app-store-commission-
study.
\2143\ See Jonathan Borck et al., Analysis Grp., Apple's App Store
and Other Digital Marketplaces: A Comparison of Commission Rates 2, 5-6
(2020), https://www .analysisgroup.com/globalassets/insights/
publishing/apples_app_store_and_other_digital
_marketplaces_a_comparison_of_commission_rates.pdf.
\2144\ See CEO Hearing at 150 (statement of Tim Cook, CEO, Apple,
Inc.); Letter from Kyle Andeer, Vice President, Corp. Law & Chief
Compliance Officer, Apple, Inc., to Hon. Jerrold Nadler, Chair, H.
Comm. on the Judiciary, Hon. Jim Jordan, Ranking Member, H. Comm. on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 3 (Sept. 21, 2020) (on
file with Comm.).
\2145\ See Jonathan Borck et al., Analysis Grp., Apple's App Store
and Other Digital Marketplaces: A Comparison of Commission Rates 4 n.5,
app. A1 at A-3 (2020), https://www.analysisgroup.com/globalassets/
insights/publishing/apples_app_store_and_other_
digital_marketplaces_a_comparison_of_ commission_rates.pdf.
---------------------------------------------------------------------------
Apple also noted that 84 percent of all apps distributed
through the App Store pay no commissions or fees.\2146\ Apple
does not take a commission on purchases from apps like Uber or
Etsy that sell ``physical goods or services that will be
consumed outside the app.'' \2147\ Apple also makes some
exceptions to its rules and may change or update its
rules.\2148\ For example, Apple has an exception for ``Reader''
apps such as Netflix and Kindle that permit users to access
content purchased outside the app, but do not allow for in-app
subscriptions or purchases.\2149\ Apple also makes exceptions
for ``third-party premium video apps'' that integrate with
Apple TV and other Apple services.\2150\ Mr. Cook explained,
``[t]oday, there are over 130 apps that participate in this
program,'' and ``[t]he reduced 15 percent commission is
available to all developers offering premium video content on
the same terms as Amazon Prime Video, with the same
qualification criteria.'' \2151\ Amazon Prime Video, Altice
One, and Canal+ have been publicly confirmed as
participants.\2152\
---------------------------------------------------------------------------
\2146\ See, e.g., Innovation and Entrepreneurship Hearing at 68
(statement of Kyle Andeer, Vice President, Corp. Law, Apple, Inc.);
Letter from Timothy Powderly, Apple, Inc., to Hon. David N. Cicilline,
Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm.
on the Judiciary & Hon. F. James Sensenbrenner, Ranking Member,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary, 3 (July 15, 2019).
\2147\ App Store Review Guidelines 3.1.3(e): Goods and Services
Outside of the App, Apple, https://developer.apple.com/app-store/
review/guidelines/#goods-and-services-outside-of-the-app (last visited
Sept. 27, 2020).
\2148\ See, e.g., Sarah Perez & Anthony Ha, Apple Revises App Store
Rules to Permit Game Streaming Apps, Clarify In-App Purchases and More,
TechCrunch (Sept. 11, 2020), https://techcrunch.com/2020/09/11/apple-
revises-app-store-rules-to-permit-game-streaming-apps-clarify
-in-app-purchases-and-more/; Phillip Shoemaker, Apple v. Everybody,
Medium (Mar. 29, 2019), https://medium.com/@phillipshoemaker/apple-v-
everybody-5903039e3be.
\2149\ App Store Review Guidelines 3.1.3(a): ``Reader'' Apps,
Apple, https://developer
.apple.com/app-store/review/guidelines/#reader-apps (last visited Sept.
27, 2020).
\2150\ CEO Hearing at 402 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\2151\ Id.
\2152\ Nick Statt, Apple Now Lets Some Video Streaming Apps Bypass
the App Store Cut, Verge (Apr. 1, 2020), https://www.theverge.com/2020/
4/1/21203630/apple-amazon-prime-video-ios-app-store-cut-exempt-program-
deal. See also Submission from Apple, to H. Comm. on the Judiciary,
HJC-APPLE-015111 (Nov. 1, 2016) (on file with Comm.) (showing details
of negotiations between Eddy Cue, Senior Vice President, Internet
Software and Services, Apple, Inc., and Jeff Bezos, CEO, Amazon.com,
Inc.).
---------------------------------------------------------------------------
During the investigation, the Subcommittee received
evidence from app developers regarding Apple's commissions and
fees for IAPs. ProtonMail, a secure email provider, explained
that Apple's justification of its 30 percent commission
overlooks the dynamics of the marketplace for distributing
software to consumers with iOS devices--conflating practices
that may be unremarkable in competitive markets but abusive in
monopoly markets.\2153\
---------------------------------------------------------------------------
\2153\ See Submission from ProtonMail, to H. Comm. on the
Judiciary, 11-12 (Aug. 22, 2020) (on file with Comm.).
---------------------------------------------------------------------------
For example, personal computer (PC) users can install
software from app stores run by Microsoft, Google, Amazon, and
others or download software directly from the software
developer's website and bypass app stores altogether.
Similarly, Apple's Mac App Store is one of many options for Mac
users to download software. While Samsung is a global leader in
smartphones, the Samsung Galaxy Store is one of several app
stores available on Samsung's mobile devices. Google's Play
Store dominates app distribution on Android devices and is the
most apt comparison to the App Store, but Google permits some
competition via sideloading and alternative app stores.\2154\
---------------------------------------------------------------------------
\2154\ See id. Apple has pointed to these as benchmarks for the App
store. See Jonathan Borck et al., Analysis Grp., Apple's App Store and
Other Digital Marketplaces: A Comparison of Commission Rates 4-6
(2020), https://www.analysisgroup.com/globalassets/
insights/publishing/
apples_app_store_and_other_digital_marketplaces_a_comparison_
of_commission_rates.pdf.
---------------------------------------------------------------------------
In contrast, Apple owns the iOS operating system as well as
the only means to distribute software on iOS devices. Using its
role as an operating system provider, Apple prohibits
alternatives to the App Store and charges fees and commissions
for some categories of apps to reach customers. It responds to
attempts to circumvent its fees and commissions with removal
from the App Store.\2155\ Because of this policy, developers
have no other option than to play by Apple's rules to reach
customers who own iOS devices. Owners of iOS devices have no
alternative means to install apps on their phones. Apple notes
that its 30 percent commission has remained static for most
apps for more than a decade.\2156\ A group of developers that
filed a lawsuit against Apple challenging this policy argue
that the persistence of Apple's 30 percent rate over time,
``despite the inevitable accrual of experience and economies of
scale,'' indicates there is insufficient competition.\2157\
Additionally, as previously noted, there is little likelihood
for new market entry in the mobile operating system or mobile
app store markets to compel Apple to lower its rates.\2158\
---------------------------------------------------------------------------
\2155\ See Submission from ProtonMail, to H. Comm. on the
Judiciary, 5 (Aug. 22, 2020) (on file with Comm.).
\2156\ See CEO Hearing at 151 (statement of Tim Cook, CEO, Apple,
Inc.); Letter from Kyle Andeer, Vice President, Corp. Law & Chief
Compliance Officer, Apple, Inc., to Hon. Jerrold Nadler, Chair, H.
Comm. on the Judiciary, Hon. Jim Jordan, Ranking Member, H. Comm. on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 3 (Sept. 21, 2020) (on
file with Comm.).
\2157\ Class Action Complaint at 2, Cameron v. Apple, Inc., No.
5:19-cv-3074 (N.D. Cal. June 4, 2019).
\2158\ See supra Section IV.
---------------------------------------------------------------------------
Industry observers have also challenged Apple's implicit
claim that the iPhone was the start of the online software
distribution market. For example, Mac and iOS developer Brent
Simmons remarked that, ``when the App Store was created,
developers were selling and distributing apps over the web, and
it worked wonderfully,'' noting that, he began distributing
software over the internet in the 1990s.\2159\ Software
designer and technology writer John Gruber agreed, explaining
that, in the mid-1990s, there was ``a thriving market for
software sold directly over a thing called `The Internet,' ''
and that Apple's omission of the fact that ``direct downloads
and sales over the web'' pre-dated the iPhone by more than a
decade ``is flat-out dishonest.'' \2160\
---------------------------------------------------------------------------
\2159\ See Rob Pegoraro, What Tim Cook Left Out of His Version of
App Store History, Forbes (July 29, 2020), https://www.forbes.com/
sites/robpegoraro/2020/07/29/what-tim-cook-left-out-of-his-version-of-
app-store-history/.
\2160\ John Gruber, Parsing Tim Cook's Opening Statement from
Today's Congressional Antitrust Hearing, Daring Fireball (July 29,
2020), https://daringfireball.net/2020/07/
parsing_cooks_opening_statement.
---------------------------------------------------------------------------
Many developers have stressed that, because Apple dictates
that the App Store is the only way to install software on iOS
devices and requires apps offering ``digital goods and
services'' to implement the IAP mechanism, Apple has illegally
tied IAP to the App Store.\2161\ Consumers with iOS devices
account for a disproportionately high amount of spending on
apps--spending twice as much as Android users.\2162\ Further,
iOS users seldom switch to Android.\2163\ Thus, developers
cannot abandon the App Store--it is where the highest value
customers are and will remain. As a result, developers say that
Apple abuses control over its valuable user base by prohibiting
alternative payment processing options to compete with Apple's
IAP mechanism.
---------------------------------------------------------------------------
\2161\ See, e.g., Submission from Source 711, to H. Comm. on the
Judiciary, app. A, at 4-8 (Oct. 15, 2019) (on file with Comm.);
Submission from Source 202, to H. Comm. on the Judiciary, 22-41 (Oct.
18, 2018); Submission from Source 736, to H. Comm. on the Judiciary, 6-
10 (Oct. 31, 2019) (on file with Comm.).
\2162\ See Global App Revenue Grew 23% Year-Over-Year Last Quarter
to $21.9 Billion, SensorTower (Oct. 23, 2019), https://sensortower.com/
blog/app-revenue-and-downloads-q3-2019; Prachi Bhardwaj & Shayanne Gal,
Despite Android's Growing Market Share, Apple Users Continue to Spend
Twice as Much Money on Apps as Android Users, Bus. Insider (July 6,
2018), https://www.businessinsider.com/apple-users-spend-twice-apps-vs-
android-charts-2018-7.
\2163\ See Mobile Operating System Loyalty: High and Steady,
Consumer Intel. Rsch. Partners (Mar. 8, 2018), http://
files.constantcontact.com/150f9af2201/4bca9a19-a8b0-46bd-95bd-
85740ff3fb5d.pdf; iPhone vs. Android--Cell Phone Brand Loyalty Survey
2019, SellCell (Aug. 20, 2019), https://www.sellcell.com/blog/iphone-
vs-android-cell-phone-brand-loyalty-survey-2019/; see also Morningstar
Equity Analyst Report: Apple, Inc. 3 (Aug. 6, 2020) (on file with
Comm.) (``Recent survey data shows that iPhone customers are not even
contemplating switching brands today. In a December 2018 survey by
Kantar, 90% of U.S.-based iPhone users said they planned to remain
loyal to future Apple devices.''); Martin Armstrong, Most iPhone Users
Never Look Back, Statista (May 22, 2017), https://www.statista.com/
chart/9496/most-iphone-users-never-look-back/.
---------------------------------------------------------------------------
Developers further argue that Apple's 30 percent commission
from IAP is a ``payment processing'' fee and not a distribution
fee.\2164\ In a submission to the Committee, Match Group said,
``Apple distorts competition in payment processing by making
access to its App Store conditional on the use of IAP for in-
app purchases, thus excluding alternative payment processors.
IAP eventually becomes the vessel through which Apple extracts
its extraordinary commissions.'' \2165\ Two app developers that
offer services that compete with Apple explained that IAP is a
payment processing fee and not a distribution fee. Both pointed
out that Apple does not charge apps for distribution, evidenced
by the fact that Apple admits to distributing most apps for
free. Instead, Apple generates revenue by adding a 30 percent
processing fee on transactions in the App Store and using
IAP.\2166\ Apple's Developer Program website explains that
Apple does charge for distribution--it requires enrollment in
the Apple Developer Program and payment of a $99 fee to
distribute apps on the App Store.\2167\
---------------------------------------------------------------------------
\2164\ See, e.g., Competitors Hearing at 34 (statement of David
Heinemeier Hansson, Cofounder & Chief Tech. Officer, Basecamp);
Interview with Source 143 (Aug. 27, 2020); Submission fromMatch Group,
to H. Comm. on the Judiciary, MATCH-GRP-00000168 (July 1, 2019) (on
file
Continued
with Comm.); Submission from Source 482, to H. Comm. on Judiciary, 9
(Oct. 15, 2019) (on file with Comm.).
\2165\ Submission from Match Group, to H. Comm. on the Judiciary,
MATCH-GRP-00000238 (Nov. 1, 2019) (on file with Comm.).
\2166\ See Submission from ProtonMail, to H. Comm. on the
Judiciary, 11 (Aug. 22, 2020) (on file with Comm.); Submission from
Spotify, to H. Comm. on the Judiciary, app. A, at 7-8 (Oct. 15, 2019)
(on file with Comm.).
\2167\ See Apple Developer Program, How the Program Works, Apple,
https://developer
.apple.com/programs/how-it-works/ (last visited Sept. 27, 2020) (``If
you're new to development on Apple Platforms, you can get started with
our tools and resources for free. If you're ready to build more
advanced capabilities and distribute your apps on the App Store, enroll
in the Apple Developer Program. The cost is 99 USD per membership
year.'').
---------------------------------------------------------------------------
Apple responded that its ``commission is not a payment
processing fee'' and that it ``reflects the value of the App
Store as a channel for the distribution of developers' apps and
the cost of many services'' it incurs to maintain the App
Store.\2168\ It said that ``[t]he commission also enables Apple
to realize a return on its investment in the App Store and in
Apple's intellectual property, and to fund future App Store
innovation.'' \2169\ Similarly, a study commissioned by Apple
in 2020 explained that the annual fees paid by developers,
commissions, and charges for in-app purchases fund investments
in the App Store ecosystem, such as app review, developer
tools, marketing, search functionality, application program
interfaces, and software development kits.\2170\ Apple has also
argued that its App Store Developer Guidelines--including its
requirement to use Apple's in-app purchase mechanism--is
``designed to keep the store safe for our users.'' \2171\
---------------------------------------------------------------------------
\2168\ Letter from Kyle Andeer, Vice President, Corp. Law & Chief
Compliance Officer, Apple, Inc. to Hon. Jerrold Nadler, Chair, H. Comm.
on the Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on the
Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 3 (Feb. 17, 2020),
https://docs.house.gov/meetings/JU/JU05/20200117/110386/HHRG-116-JU05-
20200117-SD004.pdf; see also Letter from Kyle Andeer, Vice President,
Corp. Law & Chief Compliance Officer, Apple, Inc., to Hon. Jerrold
Nadler, Chair, H. Comm. on the Judiciary, Hon. Jim Jordan, Ranking
Member, H. Comm. on the Judiciary, Hon. David N. Cicilline, Chair,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary & Hon. F. James Sensenbrenner, Ranking Member, Subcomm. on
Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,
3 (Sept. 21, 2020) (on file with Comm.).
\2169\ Apple, Apple: Distinctive Products with a Seamless,
Integrated User Experience 14 (July 13, 2020) (unpublished white paper)
(on file with Comm.); see also Letter from Kyle Andeer, Vice President,
Corp. Law & Chief Compliance Officer, Apple, Inc., to Hon. Jerrold
Nadler, Chair, H. Comm. on the Judiciary, Hon. Jim Jordan, Ranking
Member, H. Comm. on the Judiciary, Hon. David N. Cicilline, Chair,
Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the
Judiciary & Hon. F. James Sensenbrenner, Ranking Member, Subcomm. on
Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,
3 (Sept. 21, 2020) (on file with Comm.).
\2170\ See Jonathan Borck et al., Analysis Grp., Apple's App Store
and Other Digital Marketplaces: A Comparison of Commission Rates 2-3
(2020), https://www.analysis
group.com/globalassets/insights/publishing/
apples_app_store_and_other_digital_
marketplaces_a_ comparison_of_commission_rates.pdf; see also Letter
from Kyle Andeer, Vice President, Corp. Law & Chief Compliance Officer,
Apple, Inc. to Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary,
Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary, Hon. David
N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and Admin. Law
of the H. Comm. on the Judiciary & Hon. F. James Sensenbrenner, Ranking
Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.
Comm. on the Judiciary, 2 (Feb. 17, 2020), https://docs.house.gov/
meetings/JU/JU05/20200117/110386/HHRG-116-JU05-20200117-SD004.pdf.
\2171\ Kif Leswing, Apple Sued by Fortnite Maker After Kicking the
Game out of the App Store for Payment Policy Violations, CNBC (Aug. 13,
2020), https://www.cnbc.com/2020/08/13/apple-kicks-fortnite-out-of-app-
store-for-challenging-payment-rules.html.
---------------------------------------------------------------------------
Apple's rationale for its commissions and fees has evolved
over time. Its recent explanations of the basis for its 30
percent commission differs significantly from its explanation
of its fee and revenue expectations in the early years of the
App Store. Prior to the App Store's debut in 2008, Apple's
then-CEO Steve Jobs explained, ``We don't intend to make any
money off the App Store . . . . We're basically giving all the
money to the developers and the 30 percent that pays for
running the store, that'll be great.'' \2172\ In 2011, Apple's
Chief Financial Officer Peter Oppenheimer explained to Apple's
shareholders that Apple runs the App Store ``just a little over
break even.'' \2173\
---------------------------------------------------------------------------
\2172\ Peter Cohen, ``App Store'' Will Distribute iPhone Software,
Macworld (Mar. 6, 2008), https://www.macworld.com/article/1132402/
appstore.html.
\2173\ Daniel Eran Dilger, Inside Apple's Shareholder Meeting and
Q&A with Tim Cook, Apple Insider (Feb. 23, 2011), https://
appleinsider.com/articles/11/02/23/tim_cook_presides
_over_annual_apple_shareholder_meeting.
---------------------------------------------------------------------------
Apple's financial reports indicate that the App Store is
faring far better than the modest business Apple originally
contemplated. According to a 2019 market analysis, Apple's net
revenue from the App Store is projected to be $17.4 billion for
Fiscal Year 2020.\2174\ CNBC estimated the App Store had total
sales of nearly $50 billion in 2019, generating ``about $15
billion in revenue for Apple.'' With $50 billion in annual
sales, CNBC explained, ``the App Store alone would be no. 64 on
the Fortune 500, ahead of Cisco and behind Morgan Stanley.''
\2175\ An analytics firm concluded that Apple likely made $15.5
billion from the App Store in 2018, and estimated $18.8 billion
for 2022. Bloomberg reported that analysts forecasting Apple's
third-quarter 2020 performance predicted growth from Services
``up 15% from a year earlier,'' and that growth would largely
be attributable to the App Store and licensing, not new
services.\2176\ In addition to Apple's commissions and fees for
IAP, App Store revenue also includes $2.67 billion Apple would
make through the $99 annual fee paid by Apple's 27 million iOS
developers.\2177\ Apple also reportedly made $9 billion in 2018
and $12 billion in 2019 to set Google as the default search
engine on the Safari browser.\2178\ Revenue from setting Google
as Safari's default search engine is attributed to Apple's
Services business, which is the business unit that includes the
App Store.\2179\
---------------------------------------------------------------------------
\2174\ Eric J. Savitz, App Stores Could Be Ripe for Regulation.
Here's Who Benefits if Commissions Fall, Barrons (July 25, 2019),
https://www.barrons.com/articles/news-updates-51599747657.
\2175\ Kif Leswing, Apple's App Store Had Gross Sales Around $50
Billion Last Year, but Growth Is Slowing, CNBC (Jan. 8, 2020), https://
www.cnbc.com/2020/01/07/apple-app-store-
had-estimated-gross-sales-of-50-billion-in-2019.html.
\2176\ Mark Gurman, Apple's New Services Off to a Slow Start in
First Year, Bloomberg (July 28, 2020), https://www.bloombergquint.com/
business/apple-s-new-services-off-to-a-slow-start-in-first-year.
\2177\ See Letter from Kyle Andeer, Vice President, Corp. Law &
Chief Compliance Officer, Apple, Inc., to Hon. Jerrold Nadler, Chair,
H. Comm. on the Judiciary, Hon. Jim Jordan, Ranking Member, H. Comm. on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H.
Continued
Comm. on the Judiciary, 3 (Sept. 21, 2020) (on file with Comm.)
(``[T]here are more than 1.8 million apps on the App Store, and a
thriving community of more than 27 million iOS developers.'');
Developer Support, Purchase and Activation, Apple, https://
developer.apple.com/support/purchase-activation/ (last visited Sept.
27, 2020) (``The Apple Developer Program annual fee is $99 USD and the
Apple Developer Enterprise Program annual fee is $299 USD.'').
\2178\ See Lisa Marie Segarra, Google to Pay Apple $12 Billion to
Remain Safari's Default Search Engine in 2019: Report, Fortune (Sept.
29, 2018), https://fortune.com/2018/09/29/google-apple-safari-search-
engine/.
\2179\ See Mark Gurman, Apple's New Services Off to a Slow Start in
First Year, Bloomberg (July 28, 2020), https://www.bloombergquint.com/
business/apple-s-new-services-off-to-a-slow-start-in-first-year.
---------------------------------------------------------------------------
In an interview with the Subcommittee, Phillip Shoemaker,
Apple's former Senior Director of App Store Review, estimated
that Apple's costs for running the App Store are less than $100
million. Other analysts estimate that the App Store has
significantly higher profits. A gaming developer explained that
the fees it pays Apple add up to millions of dollars--and for
some developers, those fees are in the tens or hundreds of
millions of dollars--far in excess of the developer's estimate
of Apple's costs of reviewing and hosting those apps.\2180\
Although only estimates, these figures indicate that, as the
mobile app economy has grown, Apple's monopoly power over app
distribution on iPhones permits the App Store to generate
supra-normal profits. These profits are derived by extracting
rents from developers, who either pass on price increases to
consumers or reduce investments in innovative new services.
Apple's ban on rival app stores and alternative payment
processing locks out competition, boosting Apple's profits from
a captured ecosystem of developers and consumers.\2181\
---------------------------------------------------------------------------
\2180\ Interview with Source 143 (Aug. 27, 2020).
\2181\ Dr. Carl Shapiro of the University of California, Berkeley--
the former top economist for the Justice Department's Antitrust
Division during the Obama Administration--has noted that persistently
high corporate profits that are not eroded by competitive forces over
time are an indicator of market power. Such profits also suggest the
rise of incumbency rents, or the earning of excess profits ``by firms
whose positions are protected by high barriers to entry.'' Carl
Shapiro, Antitrust in a Time of Populism, 61 Int'l J. Indus. Org. 714,
733-37 (2018), https://faculty
.haas.berkeley.edu/shapiro/antitrustpopulism.pdf.
---------------------------------------------------------------------------
To address this concern without compromising the security
or quality of the App Store, some developers argue in favor of
allowing third-party payment processors like PayPal, Square,
and Stripe to compete in the App Store. They explain that the
most likely competitors are already trusted and widely used for
e-commerce transactions.\2182\ David Heinemeier Hansson,
Cofounder and CTO of Basecamp, testified at the Subcommittee's
fifth hearing that Apple's market power allows it to keep fees
``exorbitantly high.'' \2183\ By comparison, he noted that
other markets, such as credit card processes, are ``only able
to sustain a two percent fee for merchants. Apple, along with
Google, has been able to charge an outrageous 30 percent for
years on end.'' \2184\ Several other firms observed that
Apple's control over app distribution allows it to extract high
fees on a minority of apps, and that competition for processing
payments would drive prices down. For example, developers
explain that payment processing typically costs less than five
percent of the transaction value.\2185\ Before the App Store,
one developer reportedly explained that ``[w]e typically paid
about 5%--not 30%--to a payment processor,'' and it ``worked
just as well for small developers as for large.'' \2186\
---------------------------------------------------------------------------
\2182\ Submission from ProtonMail, to H. Comm. on the Judiciary, 13
(Aug. 22, 2020) (on file with Comm.).
\2183\ Competitors Hearing at 33 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp); see also Interview
with Source 88 (May 12, 2020).
\2184\ Competitors Hearing at 33 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp); see also Interview
with Source 873 (May 12, 2020).
\2185\ See, e.g., Competitors Hearing at 33 (statement of David
Heinemeier Hansson, Cofounder & Chief Tech. Officer, Basecamp);
Submission from Source 202, to H. Comm. on the Judiciary, 15 (Oct. 18,
2018) (on file with Comm.).
\2186\ Rob Pegoraro, What Tim Cook Left Out of His Version of App
Store History, Forbes (July 29, 2020), https://www.forbes.com/sites/
robpegoraro/2020/07/29/what-tim-cook-left-out-of-his-version-of-app-
store-history/.
---------------------------------------------------------------------------
Other developers have noted that alternative payment
processing providers charge significantly lower rates than
Apple's fee for IAP. Match Group estimates that Apple's
expenses related to payment processing ``justify charging no
more than 3.65% of revenue.'' \2187\ Some app developers would
prefer to implement in-house payment processing. In August
2020, Epic Games introduced a direct payment option in its
Fortnite app, allowing gamers to elect to use Apple's IAP or
pay Epic directly. Epic's payment processing option charged
consumers 10 percent--a 20 percent discount from purchases
using IAP.\2188\ In response, Apple disabled updates for
Fortnite for violating the App Store Guidelines.\2189\
---------------------------------------------------------------------------
\2187\ Submission of Match Group, to H. Comm. on the Judiciary, 6
(Oct. 31, 2019) (on file with Comm.).
\2188\ See Andrew Webster, Epic Offers New Direct Payment in
Fortnite on iOS and Android to Get Around App Store Fees, Verge (Aug.
13, 2020), https://www.theverge.com/2020/8/13/21366259/epic-fortnite-
vbucks-mega-drop-discount-iphone-android.
\2189\ Nick Statt, Apple Just Kicked Fortnite off the App Store,
Verge (Aug. 13, 2020), https://www.theverge.com/2020/8/13/21366438/
apple-fortnite-ios-app-store-violations-epic-payments.
---------------------------------------------------------------------------
Developers have also detailed that Apple attempts to lock
in its fees by preventing apps from communicating with
customers about alternatives. Under the App Store Guidelines,
apps may not provide any information ``that direct[s] customers
to purchasing mechanisms other than in-app purchase.'' \2190\
They also cannot communicate with iOS app customers about
purchasing methods other than IAP.\2191\
---------------------------------------------------------------------------
\2190\ App Store Developer Guidelines 3.1.1: In-App Purchase,
Apple, https://developer
.apple.com/app-store/review/guidelines/#in-app-purchase (last visited
Sept. 27, 2020).
\2191\ App Store Developer Guidelines 3.1.3: Other Purchase
Methods, Apple, https://developer
.apple.com/app-store/review/guidelines/#other-purchase-methods (last
visited Sept. 27, 2020).
---------------------------------------------------------------------------
In an interview with the Subcommittee, one developer that
offers a ``freemium'' app--a popular business model where the
app is available for free but users can purchase upgrades--
recalled that it sent an email to customers with iOS devices
with information about how to upgrade to a paid subscription,
including a link to the service's website where customers could
upgrade their subscription. Apple responded by threatening to
remove the app from the App Store and blocked its updates,
including security patches.\2192\ A game developer described
Apple's rules as reaching outside the App Store itself to
police the communications that an app can have with its own
customers, including communications intended to improve
customer experience and offer discounts.\2193\
---------------------------------------------------------------------------
\2192\ Submission from ProtonMail, to H. Comm. on the Judiciary, 5
(Aug. 22, 2020) (on file with Comm.).
\2193\ Interview with Source 143 (Aug. 27, 2020).
---------------------------------------------------------------------------
In his questions for the record for the Subcommittee's
second hearing, Representative W. Gregory Steube (R-FL) asked
Apple about banning communications to customers by app
providers. Apple responded that its restrictions on
communications between apps and customers are to ensure Apple
can collect commissions and ``prevent free-riding.'' \2194\
Apple explained that it restricts developers from using the iOS
ecosystem to ``direct customers they have acquired through
Apple to purchase content elsewhere for the purpose of avoiding
Apple's rightful commission.'' \2195\ The company described its
policy as a prohibition ``on developers promoting, via the App
Store, transactions outside the App Store,'' and said Apple's
policies were no different than most other retailers.\2196\
---------------------------------------------------------------------------
\2194\ Innovation and Entrepreneurship Hearing at 585 (response to
Questions for the Record of Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.).
\2195\ Id. at 584.
\2196\ Id. at 584-85.
---------------------------------------------------------------------------
In June 2020, the European Commission announced that it had
opened a formal antitrust investigation of Apple's App Store
rules and conduct, including ``the mandatory use of Apple's own
proprietary in-app purchase system and restrictions on the
availability of developers to inform iPhone and iPad users of
alternative cheaper purchasing possibilities outside of apps.''
\2197\
---------------------------------------------------------------------------
\2197\ Press Release, Eur. Comm'n, Antitrust: Commission Opens
Investigations into Apple's App Store Rules (June 16, 2020), https://
ec.europa.eu/commission/presscorner/detail/en/ip_
20_1073.
---------------------------------------------------------------------------
As Apple has emphasized growing its Services business, app
developers and technology writers have observed Apple is
increasingly insistent that apps implement IAP--cutting Apple
in on revenue from more developers--and threatening apps that
do not comply with expulsion from the App Store.\2198\ In June
2020, HEY, an email app developed by Basecamp, was approved by
the App Store and then abruptly told it would have to implement
Apple in-app purchasing or face removal from the
platform.\2199\ While HEY's app updates were eventually
allowed, Apple did force it to create a free trial option for
iOS customers.\2200\ Basecamp Cofounder and CTO David
Heinemeier Hansson observed that Apple threatened and abused
small app developers for years, and that the conflict with HEY
amounted to a ``shakedown.'' \2201\ In August 2020, Apple
denied WordPress the ability to update its app unless it
implemented IAP, even though the WordPress app does not sell
anything. Apple ultimately backed off its demands only after
the issue received negative attention on social media.\2202\
ProtonMail told the Subcommittee that its privacy-focused email
app competes with Apple's email app, and after being in the App
Store for two years, Apple demanded the ProtonMail implement
IAP or be removed from the App Store. ProtonMail complied to
avoid damage to its business.\2203\
---------------------------------------------------------------------------
\2198\ See, e.g., Jeremy Howitz, Apple's Antitrust Woes Stem from
Its Obsessions with Control and Money, Venture Beat (Aug. 7, 2020),
https://venturebeat.com/2020/08/07/apples-antitrust-woes-stem-from-its-
obsessions-with-control-and-money/ (``Apple might act like it's too
large to care about money, but the company has recently sniped at
developers who have succeeded on iOS without paying Apple anything,
while doing as much as possible to push other developers--and users--
into coughing up recurring subscription fees for both apps and
games.'').
\2199\ See, e.g., Nilay Patel, Apple Approves Hey Email App, but
the Fight's Not Over, Verge (June 22, 2020), https://www.theverge.com/
2020/6/22/21298552/apple-hey-email-app-approval-rules-basecamp-launch;
Rob Pegoraro, Apple to Basecamp's Hey: Expect to Pay Us If You Want to
Sell Privacy, Forbes (June 17, 2020), https://www.forbes.com/sites/
robpegoraro/2020/06/17/apple-to-basecamps-hey-expect-to-pay-us-if-you-
want-to-sell-privacy/.
\2200\ Chaim Gartenberg, Hey Opens Its Email Service to Everyone as
Apple Approves Its App for Good, Verge (June 25, 2020), https://
www.theverge.com/2020/6/25/21302931/hey-email-service-public-launch-
apple-approves-app-fight-policy-price.
\2201\ Apple v. Hey, Hey, https://hey.com/apple/ (last visited
Sept. 27, 2020).
\2202\ See Sean Hollister, WordPress Founder Claims Apple Cut Off
Updates to His Completely Free App Because It Wants 30 Percent, Verge
(Aug. 21, 2020), https://www.theverge.com/2020/8/21/21396316/apple-
wordpress-in-app-purchase-tax-update-store; Sean Hollister, Apple
Apologizes to WordPress, Won't Force the Free App to Add Purchases
After All, Verge (Aug. 23, 2020), https://www.theverge.com/2020/8/22/
21397424/apple-wordpress-apology-iap-free-ios-app.
\2203\ Submission from ProtonMail, to H. Comm. on the Judiciary, 5
(Aug. 22, 2020) (on file with Comm.).
---------------------------------------------------------------------------
Internal Apple communications reviewed by the Subcommittee
indicate that Apple has leveraged its power over the App Store
to require developers to implement IAP or risk being thrown out
of the App Store.\2204\ Apple's then-CEO Steve Jobs once
explained, ``there will be some roadkill because of it. I don't
feel guilty'' when confronted with developer complaints about
Apple's commission and requirement to use IAP.\2205\ The
Netherlands Authority for Consumers and Markets has noted that
some app developers attribute Apple's inconsistent application
of its rules to inattention to apps that are infrequently
updated, and that Apple likely focuses on requiring IAP for
high revenue-generating apps.\2206\
---------------------------------------------------------------------------
\2204\ See Submission from Apple, to H. Comm. on the Judiciary,
HJC-APPLE-014701 to -014702 (Nov. 23, 2010) (on file with Comm.).
\2205\ Patrick McGee & Javier Espinoza, Apple Conflict with
Developers Escalates Ahead of Worldwide Conference, Fin. Times (June
22, 2020), https://www.ft.com/content/733ae8d4-e516-4418-9998-
30414c368c6f.
\2206\ See Neth. Auth. for Consumers & Mkts. Study at 89, 92-93.
---------------------------------------------------------------------------
In response to the COVID-19 pandemic, some businesses moved
physical events online, often booking through an app and
holding the event through a video chat application. Educators
have also shifted resources online, including through apps. The
New York Times reported that Apple demanded a 30 percent
commission from these virtual class offerings. As a result, one
company stopped offering virtual classes to users of its iOS
app. The Times reported that Apple threatened Airbnb that it
would remove its app from the App Store if Airbnb did not
comply with Apple's demand for a share of its revenues.\2207\
---------------------------------------------------------------------------
\2207\ Jack Nicas & David McCabe, Their Business Went Virtual. Then
Apple Wanted a Cut, N.Y. Times (July 28, 2020), https://
www.nytimes.com/2020/07/28/technology/apple-app-store-airbnb-
classpass.html.
---------------------------------------------------------------------------
In interviews with the Subcommittee, multiple app
developers confirmed The New York Times's reporting.\2208\
Airbnb spoke with the Subcommittee and described conversations
with the App Store team in which Apple said it had observed an
uptick in the number of apps offering virtual classes in lieu
of in-person classes due to the COVID-19 pandemic. As a result,
Apple began canvassing the App Store to require that app
developers implement IAP, entitling Apple to take 30 percent of
in-app sales. Airbnb explained that Apple's commission, plus
compliance with Apple's pricing tiers for in-app purchases,
would ultimately result in a 50-60 percent price increase for
consumers.\2209\
---------------------------------------------------------------------------
\2208\ See, e.g., Interview with Airbnb; Interview with Source 147
(Sept. 10, 2020).
\2209\ See Interviews with Airbnb.
---------------------------------------------------------------------------
Technology industry observers have reported similar
conduct. On June 17, 2020, Ben Thompson, a prominent business
analyst, wrote that app developers told him that Apple was
demanding 30 percent commissions from businesses that have had
to change their business models from live, in-person events to
virtual events as a result of the COVID-19 pandemic. Mr.
Thompson quoted one developer who explained that Apple was
taking advantage of small businesses in the midst of the
ongoing public health crisis.\2210\
---------------------------------------------------------------------------
\2210\ See Ben Thompson, Xscale and ARM in the Cloud, Hey Versus
Apple, Apple's IAP Campaign, Stratechery (June 17, 2020), https://
stratechery.com/2020/xscale-and-arm-in-the-cloud-hey-versus-apple-
apples-iap-campaign/.
---------------------------------------------------------------------------
At the Subcommittee's sixth hearing, Chair Jerrold Nadler
(D-NY) asked Mr. Cook about the allegations that Apple was
canvassing the App Store to extract commissions from businesses
that have been forced to change their business model in order
to survive during the pandemic. Mr. Cook responded that Apple
``would never take advantage'' of the pandemic, but justified
the conduct, explaining that the app developers were now
offering what Apple defined as a ``digital service'' and Apple
was entitled to commissions.\2211\ Responding to The New York
Times's reporting on the matter, Apple defended its conduct,
explaining that, ``[t]o ensure every developer can create and
grow a successful business, Apple maintains a clear, consistent
set of guidelines that apply equally to everyone.'' \2212\
---------------------------------------------------------------------------
\2211\ CEO Hearing at 150 (statement of Tim Cook, CEO, Apple,
Inc.).
\2212\ Jack Nicas & David McCabe, Their Business Went Virtual. Then
Apple Wanted a Cut, N.Y. Times (July 28, 2020), https://
www.nytimes.com/2020/07/28/technology/apple-app-store-airbnb-
classpass.html.
---------------------------------------------------------------------------
App developers affected by these changes said that, after
Apple's conduct became public, it created an exception to its
policies until the end of 2020. However, on January 1, 2021,
those businesses will be required to implement IAP or remove
the ability to book virtual classes from their apps.\2213\
---------------------------------------------------------------------------
\2213\ Interview with Airbnb (Aug. 31, 2020).
---------------------------------------------------------------------------
Developers have submitted evidence that Apple's commissions
and fees, combined with the lack of competitive alternatives to
the App Store and IAP, harm competition and consumers. For
instance, Match Group called Apple's fee for IAP
``unreasonable,'' saying that it leads to higher prices for
consumers and ``an inferior user experience and a reduction of
innovation.'' \2214\
---------------------------------------------------------------------------
\2214\ Submission from Match Group, to H. Comm. on the Judiciary,
MATCH_GRP_00000236, MATCH_GRP_00000238 (Oct. 23, 2019) (on file with
Comm.).
---------------------------------------------------------------------------
One developer that offers an app that directly competes
with Apple told the Subcommittee it was forced to raise prices
to pay Apple's commission. As a result, it was less
competitive, and fewer iOS users purchased its service. The
company said that, because apps often have small margins, they
cannot absorb Apple's fees, so the price consumers pay for its
app is more than 25 percent higher than it would otherwise
be.\2215\ Small developers described Apple's 30 percent cut as
``onerous.'' \2216\ Epic Games, which recently filed an
antitrust complaint against Apple, has told a federal court
that Apple's fees and commissions force developers ``to
increase the prices they charge in order to pay Apple's app
tax. There is no method app developers can use to avoid this
tax.'' \2217\ Mac and iOS app developer Brent Simmons explained
that Apple's fees reduce innovation and lead to fewer apps in
the marketplace, observing:
---------------------------------------------------------------------------
\2215\ Submission from ProtonMail, to H. Comm. on the Judiciary, 6
(Aug. 22, 2020) (on file with Comm.); see also Neth. Auth. for
Consumers & Mkts. Study at 91.
\2216\ Interview with Source 143 (Aug. 27, 2020).
\2217\ Complaint at 3, Epic Games, Inc. v. Apple, Inc., 4:20-cv-
05640 (N.D. Cal. Aug. 13, 2020), https://cdn2.unrealengine.com/apple-
complaint-734589783.pdf.
L[T]he more money Apple takes from developers, the fewer
resources developers have. When developers have to cut costs,
they stop updating apps, skimp on customer support, put off
hiring a graphic designer, etc. They decide not to make apps at
all that they might have made were it easier to be
profitable.\2218\
---------------------------------------------------------------------------
\2218\ Brent Simmons, I Got Teed Off and Went on a Long Rant About
This Opinion Piece on the App Store, Inessential (July 28, 2020),
https://inessential.com/2020/07/28/untrue.
In Apple's internal documents and communications, the
company's senior executives previously acknowledged that the
IAP requirement would stifle competition and limit the apps
available to Apple's customers. For example, in an email
conversation with other senior leaders at Apple about whether
to require IAP for e-Book purchases, then-CEO Steve Jobs
concluded, ``I think this is all pretty simple--iBooks is going
to be the only bookstore on iOS devices. We need to hold our
heads high. One can read books bought elsewhere, just not buy/
rent/subscribe from iOS without paying us, which we acknowledge
is prohibitive for many things.'' \2219\
---------------------------------------------------------------------------
\2219\ Submission from Apple, to H. Comm. on the Judiciary, HJC-
APPLE-014816 to -014818 (Feb. 6, 2011) (on file with Comm.).
---------------------------------------------------------------------------
International competition authorities have also examined
the competitive effects of Apple's App Store commissions and
fees. The Australian Competition and Consumer Commission (ACCC)
observed that Apple's control over app distribution on iOS
devices gives it leverage to extract commissions from apps,
reducing the revenue that app providers like media businesses
can invest in content.\2220\ The Netherlands Authority for
Consumers and Markets, which completed a comprehensive study of
mobile app stores in 2019, noted that developers have increased
prices to account for commissions and fees.\2221\ The study
also remarked that Apple's 30 percent commission on in-app
purchases may distort competition because Apple's requirement
to use IAP often applies to apps competing directly against
Apple's apps. As a result, app developers with small margins
cannot simply absorb the cost of Apple's commission, so they
increase their price, which gives Apple's competing service an
advantage.\2222\ Developers cited in the study ``mentioned that
it is highly unlikely that it is a coincidence that these
digital services that are required to use IAP face competition
from Apple's own apps, or possibly will do so in the future.''
\2223\
---------------------------------------------------------------------------
\2220\ See Austl. Competition & Consumer Comm'n Report at 223, 225
(2019); see also Ben Thompson, Antitrust, the App Store, and Apple,
Stratechery (Nov. 27, 2018), https://www.
stratechery.com/2018/antitrust-the-app-store-and-apple (``Apple makes a
huge amount of money, with massive profit margins, by virtue of its
monopolistic control of the App Store. It doesn't make the games or the
productivity applications or the digital content, it simply skims off
30%, and not because its purchasing experience is better, but because
it is the only choice.'').
\2221\ Neth. Auth. for Consumers & Mkts. Study at 91.
\2222\ See id. at 7.
\2223\ Id. at 89.
(ii) Pre-Installed Apps, Default Settings, Private App
Programming Interfaces (APIs), and Device Functionality. In
addition to investigating whether Apple abuses its monopoly
power over app distribution to leverage high commissions and
fees from app developers, the Subcommittee also examined
whether Apple abuses its role as the owner of iOS and the App
Store to preference its own apps or harm rivals. The Committee
requested information regarding Apple's practice of locking-in
Apple's apps as defaults on the iPhone, and Subcommittee Chair
David N. Cicilline (D-RI) requested information from Apple
regarding its practice of pre-installing its own apps on the
iPhone. Subcommittee Chair Cicilline also asked whether Apple's
policy of reserving certain application programming interfaces
(APIs) and access to certain device functionalities for its
apps gives Apple's services a competitive advantage.
It is widely understood that consumers usually do not
change default options.\2224\ This is the case ``even if they
can freely change them or choose a competitive alternative.''
\2225\ The Subcommittee reviewed communications between Apple
employees that demonstrate an internal understanding that pre-
loading apps could be advantageous when competing against
third-party apps.\2226\
---------------------------------------------------------------------------
\2224\ See, e.g., Dig. Competition Expert Panel Report at 36
(``[C]onsumers in digital markets display strong preferences for
default options and loyalty to brands they know.''); Stigler Report at
8; id. at 41 (``Consumers do not replace the default apps on their
phones . . . and take other actions that may look like poor decisions
if those consumers like to choose among options and experience
competition.'').
\2225\ John Bergmayer, Pub. Knowledge, Tending the Garden: How to
Ensure That App Stores Put Users First 19 (2020), https://
www.publicknowledge.org/wp-content/uploads/2020/06/
Tending_the_Garden.pdf.
\2226\ See Submission from Apple, to H. Comm. on the Judiciary,
HJC-APPLE-011035 to -011036 (Mar. 12, 2019) (on file with Comm.)
(noting that Apple pre-loading software products onto iOS devices
``would clearly be even more problematic'' than ``Apple releasing its
apps via the App Store'').
---------------------------------------------------------------------------
Apple pre-installs about 40 Apple apps into current iPhone
models.\2227\ Several of these apps are set as defaults and are
``operating system apps'' that are ``integrated into the
phone's core operating system and part of the combined
experience of iOS and iPhone.'' \2228\ According to Apple,
users can delete most of these pre-installed apps.\2229\ Apple
does not pre-install any third-party apps, and until the
September 2020 release of iOS 14, it did not allow consumers to
select third-party web browsers or email apps as
defaults.\2230\ Apple says that it is making ``more than
250,000 APIs available to developers in iOS 14.'' \2231\
---------------------------------------------------------------------------
\2227\ CEO Hearing at 395 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\2228\ Id. at 396.
\2229\ Id.
\2230\ Id. See also Press Release, Apple, Apple Reveals New
Developer Technologies to Foster the Next Generation of Apps (June 22,
2020), https://www.apple.com/newsroom/2020/06/apple-reveals-new-
developer-technologies-to-foster-the-next-generation-of-apps/ (``Email
and browser app developers can offer their apps as default options,
selectable by users.'').
\2231\ CEO Hearing at 397 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
---------------------------------------------------------------------------
The Netherlands Authority for Consumers and Markets report
on mobile app stores observed that app providers believe they
``have a strong disadvantage'' when competing with Apple's apps
due to the fact that those services are often pre-installed on
iOS devices.\2232\ The study also noted that ``pre-installation
of apps can create a so-called status-quo bias. Consumers are
more likely to use the apps that are pre-installed on their
smartphones.'' \2233\ Consumers will download apps that compete
with pre-installed apps only when there is a noted quality
difference, and even then, lower-quality pre-installed apps
will still enjoy an advantage over third-party apps.\2234\ The
European Commission's 2019 report on competition in digital
markets explained that privileging access to APIs can provide
an advantage to those with greater access over those with more
innovative products.\2235\ Public Knowledge concluded that
Apple's control of iOS and the App store enables it to
advantage its own apps and services by pre-installing them on
iOS devices, leading consumers to rely on the pre-installed
apps rather than looking for alternatives in the App
Store.\2236\
---------------------------------------------------------------------------
\2232\ Neth. Auth. for Consumers & Mkts. Study at 5, 15, 85-86.
\2233\ Id. at 84 (citing Press Release, Eur. Comm'n, Antitrust:
Commission Fines Google =4.34 Billion for Illegal Practices Regarding
Android Mobile Devices to Strengthen Dominance of Google's Search
Engine (July 18, 2018), https://ec.europa.eu/commission/presscorner/
detail/en/ip_18_4581).
\2234\ Id.
\2235\ Eur. Comm'n Competition Report at 34.
\2236\ John Bergmayer, Pub. Knowledge, Tending the Garden: How to
Ensure That App Stores Put Users First 20 (2020), https://
www.publicknowledge.org/wp-content/uploads/2020/06/
Tending_the_Garden.pdf. See also Dig. Competition Expert Panel, Public
Responses to Call for Evidence from Organisations 44 (2018), https://
assets
.publishing.service.gov.uk/government/uploads/system/uploads/
attachment_data/file/785549/
DCEP_Public_responses_to_call_for_evidence_from_organisations.pdf (BBC
response) (``Apple's control of devices and operating system allows it
to pre-load and favour its own services i.e. Apple Podcasts.'').
---------------------------------------------------------------------------
Mobile operating system providers develop APIs to permit
apps to access a device's features, such as the microphone,
camera, or GPS, or other software programs, and determine what
information on the device apps can access.\2237\ Public APIs
for iOS are made available to app developers to ensure apps are
integrated with the device and function as intended. These
public APIs also control the services that are opened via
default when users click a link to open a webpage or an address
to open a map application. Private APIs access functionality
that is not publicly released. Apple is permitted to use
private APIs on iOS devices, but third-party developers are
not.\2238\
---------------------------------------------------------------------------
\2237\ Competition & Mkts. Auth. Report at 42; Neth. Auth. for
Consumers & Mkts. Study at 59.
\2238\ See Thomas Claburn, Apple Frees a Few Private APIs, Makes
Them Public, Register (June 13, 2017), https://www.theregister.com/
2017/06/13/apple_inches_toward_openness/.
---------------------------------------------------------------------------
Apple's public APIs default to Apple's pre-installed
applications. As a result, when an iPhone user clicks on a
link, the webpage opens in the Safari Browser, a song request
opens in Apple Music, and clicking on an address launches Apple
Maps.\2239\ With some recent exceptions, iPhone users are
unable to change this default setting.\2240\ However, they are
able to send app-specific links from inside many popular apps.
For example, a person can share a link to a song in a third-
party music streaming app such that it would open that song in
the same app if it is already downloaded on the recipient's
smartphone. One app developer has argued, however, that Apple
uses its control over iOS to give its own apps and services
advantages that are not available to competitors. For example,
the developer explained that for years it was barred from
integrating with Siri, Apple's intelligent virtual assistant
that is built into Apple devices. Although Siri can now
integrate with the app, users must explicitly request that Siri
launch the third-party app. Otherwise, it will default to
launch Apple's service.\2241\
---------------------------------------------------------------------------
\2239\ Neth. Auth. for Consumers & Mkts. Study at 59-60.
\2240\ See Press Release, Apple, Apple Reveals New Developer
Technologies to Foster the Next Generation of Apps (June 22, 2020),
https://www.apple.com/newsroom/2020/06/apple-reveals-new-developer-
technologies-to-foster-the-next-generation-of-apps/ (``Email and
browser app developers can offer their apps as default options,
selectable by users.'').
\2241\ Submission from Source 711, to H. Comm. on the Judiciary,
Source 711-00000080, at 23 (Oct. 15, 2019) (on file with Comm.).
---------------------------------------------------------------------------
Like setting advantageous defaults and pre-installing its
own apps, Apple is also able to preference its own services by
reserving access to APIs and certain device functionalities for
itself. ACM and technology reporters have noted both that
``private APIs have the potential to give Apple apps a
competitive advantage,'' and that ``Apple has for a long time
favored its own services through APIs.'' \2242\ For example,
from the release of iOS 4.3 until iOS 8, ``third-party
developers had to rely on the UIWebView API to render web pages
in iOS apps, while Apple gave its own apps access to a private,
faster API,'' and as a result, ``Google's mobile version of
Chrome for iOS could not compete with Apple's mobile version of
Safari in terms of speed.'' \2243\
---------------------------------------------------------------------------
\2242\ Thomas Claburn, Apple Frees a Few Private APIs, Makes Them
Public, Register (June 13, 2017), https://www.theregister.com/2017/06/
13/apple_inches_toward_openness/; see also Neth. Auth. for Consumers &
Mkts. Study at 82.
\2243\ Thomas Claburn, Apple Frees a Few Private APIs, Makes Them
Public, Register (June 13, 2017), https://www.theregister.com/2017/06/
13/apple_inches_toward_openness/.
---------------------------------------------------------------------------
Apple's mobile payments service, Apple Pay, is an example
of an in-house app that enjoys an advantage due to its ability
to access certain functionalities, such as near-field
communication (NFC), on the iPhone that are off-limits to
third-party apps. According to Apple, ``NFC is an industry-
standard, contactless technology'' that enables communications
between the mobile device and the payment terminal.\2244\ Apple
Pay uses the iPhone's NFC chip to allow users to make
contactless payments at retail outlets that use the
technology.\2245\ However, Apple blocks access for third-party
apps. In June 2020, the European Commission opened a formal
antitrust investigation into Apple's conduct in the mobile
payments market, including ``Apple's limitation of access to
the Near Field Communication . . . functionality (`tap and go')
on iPhones for payments in stores.'' \2246\ In response to
questions from Subcommittee Chair David N. Cicilline (D-RI) and
Representative Kelly Armstrong (R-ND) about Apple's treatment
of third-party mobile payment apps and access to the iPhone's
NFC chip, Apple said that it limits access to the NFC chip to
protect the security of the iPhone and has detailed the
differences between Apple's treatment of Apple Pay and third-
party mobile payment apps.\2247\
---------------------------------------------------------------------------
\2244\ Apple Pay Security and Privacy Overview, Apple, https://
support.apple.com/en-us/HT203027 (last visited Oct. 4, 2020).
\2245\ Id.
\2246\ Press Release, Eur. Comm'n, Antitrust: Commission Opens
Investigation into Apple Practices Regarding Apple Pay (June 16, 2020),
https://ec.europa.eu/commission/presscorner/
detail/en/ip_20_1075.
\2247\ CEO Hearing at 395, 397 (response to Questions for the
Record of Tim Cook, CEO, Apple, Inc.).
---------------------------------------------------------------------------
The advantage Apple provides Apple Pay may be heightened
during the COVID-19 pandemic. During the pandemic, consumers
have accelerated their adoption of contactless payments, with
more than half of global consumers preferring contactless
payments over cash or traditional credit cards.\2248\ In April
2020, MasterCard reported a 40 percent rise in contactless
payments, with the trend expected to continue after the
pandemic. MasterCard CEO Ajay Banga explained the trend was
driven by shoppers ``looking for a quick way to get in and out
of stores without exchanging cash, touching terminals, or
anything else.'' \2249\ Apple itself has capitalized on the
perception that contactless is the safest way to make
transactions, marketing Apple Pay as ``a safer way to pay that
helps you avoid touching buttons or exchanging cash.'' \2250\
---------------------------------------------------------------------------
\2248\ See Dynata, Global Consumer Trends: COVID-19 Edition, The
New Normal, A Breakthrough for Contactless Payments 2 (2020), http://
info.dynata.com/rs/105-ZDT-791/images/Dynata-Global-Consumer-Trends-
COVID-19-The-New-Normal-Breakthrough-for-Contactless-Payments.pdf; see
also Press Release, Eur. Comm'n, Antitrust: Commission Opens
Investigation into Apple Practices Regarding Apple Pay (June 16, 2020),
https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1075
(``Executive Vice-President Margrethe Vestager, in charge of
competition policy, said: `Mobile payment solutions are rapidly gaining
acceptance among users of mobile devices, facilitating payments both
online and in physical stores. This growth is accelerated by the
coronavirus crisis, with increasing online payments and contactless
payments in stores.' '').
\2249\ Kate Rooney, Contactless Payments Jump 40% as Shoppers Fear
Germs on Cash and Credit Cards, Mastercard Says, CNBC (Apr. 29, 2020),
https://www.cnbc.com/2020/04/29/mastercard-sees-40percent-jump-in-
contactless-payments-due-to-coronavirus.html.
\2250\ Apple Pay, Apple, https://www.apple.com/apple-pay/ (last
visited Sept. 26, 2020).
---------------------------------------------------------------------------
Like Apple Pay, Safari is another pre-installed app that
enjoys advantages over rivals. Safari is Apple's default
browser on iOS and Mac devices. When someone using an Apple
device clicks on a website link, the webpage opens in the
Safari browser.\2251\ Until the September 2020 release of iOS
14, Apple did not allow consumers to select a third-party web
browser as a default.\2252\ This was unique to iOS. Other
mobile device operating systems allow the user to set a default
browser across all applications.\2253\
---------------------------------------------------------------------------
\2251\ Neth. Auth. for Consumers & Mkts. Study at 59-60.
\2252\ See Mark Gurman, Apple's Default iPhone Apps Give It Growing
Edge Over App Store Rivals, Bloomberg (Oct. 2, 2019), https://
www.bloomberg.com/news/articles/2019-10-02/iphone-ios-users-can-t-
change-default-apps-safari-mail-music; Press Release, Apple, Apple
Reveals New Developer Technologies to Foster the Next Generation of
Apps (June 22, 2020), https://www.apple.com/newsroom/2020/06/apple-
reveals-new-developer-technologies-to-foster-the-next-generation-of-
apps/ (``Email and browser app developers can offer their apps as
default options, selectable by users.'').
\2253\ See, e.g., Google Chrome Help, Google, https://
support.google.com/chrome/answer/
95417?co=GENIE.Platform%3DAndroid&hl=en-GB (last visited Sept. 26,
2020); Support, Mozilla, https://support.mozilla.org/en-US/kb/make-
firefox-default-browser-android (last visited Sept. 26, 2020); Support,
Microsoft, https://support.microsoft.com/en-us/help/4028606/windows-10-
change-your-default-browser (last visited Sept. 26, 2020).
---------------------------------------------------------------------------
Apple's policies require alternative browser apps for iOS
(iPhone) to use Apple's WebKit browser engine. As a result, all
competing web browser companies must rebuild their product to
make it available for iOS users.\2254\ Additionally, browser
engines are used in other applications that link to web
content, such as email applications.\2255\ Market participants
explained to the Subcommittee that these guidelines cost
significant internal resources and create a hurdle for market
entry on iOS. These requirements also make alternative browsers
on iOS less technically distinct from Safari, limiting product
differentiation.\2256\ Further, market participants expressed
concern that, because Apple mandates the use of WebKit, as
opposed to allowing options for developers, WebKit has become
slower to innovate and adopt standards.\2257\
---------------------------------------------------------------------------
\2254\ App Store Review Guidelines 2.5.6, Apple: Dev., https://
developer.apple.com/app-store/review/guidelines/#software-requirements
(last visited Sept. 26, 2020) (``Apps that browse the web must use the
appropriate WebKit framework and WebKit Javascript.'').
\2255\ See Michael Krasnov, Browser Engine Diversity or Internet of
Google, Everday.codes (Dec. 15, 2019), https://everyday.codes/google/
browser-engine-diversity-or-internet-of-google/.
\2256\ Interview with Source 269 (July 23, 2019) (``Apple prohibits
competitors from deploying their own web browsing engines on its mobile
operating system. Web browsing engines provide the distinctive features
of a web browser. Apple forces competitors to base their web browsers
on a reduced version of its own web browser engine, `WebKit.' '').
\2257\ See Owen Williams, Apple Is Trying to Kill Web Technology,
OneZero (Nov. 7, 2019), https://onezero.medium.com/apple-is-trying-to-
kill-web-technology-a274237c174d.
---------------------------------------------------------------------------
At the Subcommittee's second hearing, Chair Cicilline asked
Apple about its policies related to web browser engines. Apple
responded, ``By requiring use of WebKit, Apple can provide
security updates to all our users quickly and accurately, no
matter which browser they decide to download from the App
Store.'' \2258\ While market participants agree that Apple's
WebKit mandates would allow for easier updates to browser apps,
there is disagreement about whether WebKit is measurably less
secure than other browser engines.\2259\
---------------------------------------------------------------------------
\2258\ Innovation and Entrepreneurship Hearing at 585 (response to
Questions for the Record of Kyle Andeer, Vice President, Corp. Law,
Apple, Inc.).
\2259\ See Andy Greenberg, How Safari and iMessage Have Made
iPhones Less Secure, Wired (Sept. 9, 2019), https://www.wired.com/
story/ios-security-imessage-safari/.
---------------------------------------------------------------------------
The Netherlands Authority for Consumers and Markets has
noted that app providers have limited access to some APIs
``that are essential for the functioning of apps. In certain
cases, these functionalities are, however, used by Apple for
their own apps,'' \2260\ which may limit competitive
alternatives to Apple's products and services.\2261\
---------------------------------------------------------------------------
\2260\ Neth. Auth. for Consumers & Mkts. Study at 85-86.
\2261\ Id. at 103.
---------------------------------------------------------------------------
In January 2020, Kirsten Daru, Chief Privacy Officer and
General Counsel of Tile, offered testimony to the Subcommittee
about this dynamic.\2262\ Tile is a company that makes hardware
and software that helps people find lost items.\2263\ Ms. Daru
testified that for years Tile successfully collaborated with
Apple. However, reports surfaced in 2019 that Apple planned to
launch a hardware product to compete with Tile.\2264\ Ms. Daru
said that Apple's 2019 release of iOS 13 harmed Tile's service
and user experience while simultaneously introducing a new pre-
installed Apple finder app called Find My.\2265\ Changes to iOS
13 made it more difficult for Tile's customers to set up the
service, requiring several confusing steps to grant Tile
permission to track the phone's location.\2266\ Meanwhile,
Apple's Find My app was pre-installed on iOS devices and
activated by default during iOS installation. Users are unable
to opt out of Find My's location tracking ``unless they go deep
into Apple's labyrinthine menu of settings.'' \2267\ Tile's
response to the Subcommittee's Questions for the Record
included detailed location permission flow comparisons between
Tile and Find My.\2268\ Tile explained that, as a result of
Apple's changes to iOS 13, it saw significant decreases in
users and a steep drop-off in users enabling the proper
settings on iOS devices.\2269\
---------------------------------------------------------------------------
\2262\ See Competitors Hearing (statement of Kirsten Daru, Chief
Priv. Officer & Gen. Couns., Tile, Inc.).
\2263\ Id. at 41.
\2264\ See Guilherme Rambo, Apple Revamping Find My Friends & Find
My iPhone in Unified App, Developing Tile-Like Personal Item Tracking,
9to5Mac (Apr. 17, 2019), https://9to5mac.com/2019/04/17/find-my-iphone-
revamp/.
\2265\ Competitors Hearing at 42 (statement of Kirsten Daru, Chief
Priv. Officer & Gen. Couns., Tile, Inc.).
\2266\ Id.
\2267\ Reed Albergotti, Apple Says Recent Changes to Operating
System Improve User Privacy, but Some Lawmakers See Them as an Effort
to Edge Out Its Rivals, Wash. Post (Nov. 26, 2019), https://
www.washingtonpost.com/technology/2019/11/26/apple-emphasizes-user-
privacy-lawmakers-see-it-an-effort-edge-out-its-rivals/; see also
Competitors Hearing at 43 (statement of Kirsten Daru, Chief Priv.
Officer & Gen. Couns., Tile, Inc.).
\2268\ Competitors Hearing at 87-100 (response to Questions for the
Record of Kirsten Daru, Chief Priv. Officer & Gen. Couns., Tile, Inc.).
\2269\ Id. at 89; Interview with Kirsten Daru, Vice President &
Gen. Couns., Tile, Inc. (July 10, 2020).
---------------------------------------------------------------------------
A group of app developers wrote to Apple CEO Tim Cook in
2019 arguing that Apple's new location notification permission
policies will hurt their businesses and accused Apple of acting
anticompetitively by treating its own services differently:
LThe developers conclude their email by asserting that
Apple's own apps don't have to jump through similar hoops to
get access to user location. An Apple app called Find My for
tracking the location of other iPhone users, for example,
bypasses the locating tracking requests that apps from outside
developers must go through, the email reads. Instead, Find My
gains location access through a process that occurs as users
install the new operating system.\2270\
---------------------------------------------------------------------------
\2270\ Aaron Tilley, Developers Call Apple Privacy Changes Anti-
Competitive, Information (Aug. 16, 2019), https://
www.theinformation.com/articles/developers-call-apple-privacy-changes-
anticompetitive.
The app developers--including Tile, Arity, Life360, Happn,
Zenly, Zendrive, and Twenty--explained that this gives Apple
products that compete against their apps an advantage. ``Apple
says Find My and other apps are built into iOS and that it
doesn't see a need to make location-tracking requests from
users for the apps after they install the operating system.''
\2271\ Apple also differentiates Find My by pointing out that
`` `Find My' stores user location data locally on the user's
iPhone, and Apple only transmits the location upon the user's
request.'' \2272\
---------------------------------------------------------------------------
\2271\ Id.
\2272\ Letter from Kyle Andeer, Vice President, Corp. Law & Chief
Compliance Officer, Apple, Inc., to Hon. Jerrold Nadler, Chair, H.
Comm. on the Judiciary, Hon. Doug Collins, Ranking Member, H. Comm on
the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F.
James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial
and Admin. Law of the H. Comm. on the Judiciary, 3 (Feb. 17, 2020),
https://docs.house.gov/meetings/JU/JU05/20200117/110386/HHRG-116-JU05-
20200117-SD004.pdf.
---------------------------------------------------------------------------
In response to the Subcommittee's questions after its
second hearing, Apple explained that the iOS 13 changes give
users more control over background location tracking by apps.
Apple also explained that turning on location tracking to
Apple's Find My service was ``essential'' for users, and that
the disparate treatment between Find My and Tile was due to the
fact that data from Find My remains on the device, while Tile
stores data externally.\2273\ Additionally, during Apple's June
2020 World Wide Developers Conference, Apple announced that the
Find My app would work with third-party finder hardware like
Tile's.\2274\ However, Apple's service would require companies
like Tile to abandon their apps and the ability to
differentiate their service from Apple's and other
competitors.\2275\ Apple's solution would continue to put Tile
and other apps and hardware developers offering finder services
at a competitive disadvantage.\2276\
---------------------------------------------------------------------------
\2273\ See, id. at 2.
\2274\ See Ben Lovejoy, Comment: This Week's Keynote Quietly
Tackled Five of Apple's Antitrust Issues, 9to5Mac (June 24, 2020),
https://9to5mac.com/2020/06/24/apples-antitrust-issues-2/.
\2275\ See Interview with Kirsten Daru, Vice President & Gen.
Couns., Tile, Inc. (July 10, 2020); Apple, Find My Network Accessory
Specification, Developer Preview: Release R1, at 14 (2020), https://
images.frandroid.com/wp-content/uploads/2020/06/Find_My_
network_accessory_protocol_specification.pdf (prohibiting ``an
accessory that supports the Find My network accessory protocol'' from
``operat[ing] simultaneously on the Find My network and another finder
network'').
\2276\ Interview with Kirsten Daru, Vice President & Gen. Couns.,
Tile, Inc. (June 26, 2020). See Reed Albergotti, Amid Antitrust
Scrutiny, Apple Makes Quiet Power Moves over Developers, Wash. Post
(July 24, 2020), https://www.washingtonpost.com/technology/2020/07/24/
apple-find-my-competition/.
(iii) App Search Rankings. In response to extensive
reporting on the subject, the Subcommittee has also examined
the competitive effects of Apple's search rankings in its App
Store. In 2019, The Wall Street Journal and The New York Times
both conducted extensive investigations and reported that Apple
appeared to be favoring its apps in the App Store search
results.\2277\ The Wall Street Journal explained that ``Apple's
mobile apps routinely appear first in search results ahead of
competitors in its App Store, a powerful advantage that skirts
some of the company's rules on search rankings.'' \2278\ The
New York Times reported that six years of analysis of App Store
search rankings found Apple-owned apps ranked first for at
least 700 common search terms. ``Some searches produced as many
as 14 Apple apps before showing results from rivals,'' although
app developers could pay Apple to place ads at the top of the
search results.\2279\ Searches for the app titles of competing
apps even resulted in Apple's apps ranked first.\2280\
---------------------------------------------------------------------------
\2277\ See Tripp Mickle, Apple Dominates App Store Search Results,
Thwarting Competitors, Wall St. J. (July 23, 2019), https://
www.wsj.com/articles/apple-dominates-app-store-search-
results-thwarting-competitors-11563897221; Jack Nicas & Keith Collins,
How Apple's Apps Topped Rivals in the App Store It Controls, N.Y. Times
(Sept. 9, 2019), https://www.
nytimes.com/interactive/2019/09/09/technology/apple-app-store-
competition.html.
\2278\ Tripp Mickle, Apple Dominates App Store Search Results,
Thwarting Competitors, Wall St. J. (July 23, 2019), https://
www.wsj.com/articles/apple-dominates-app-store-search-results-
thwarting-competitors-11563897221.
\2279\ Jack Nicas & Keith Collins, How Apple's Apps Topped Rivals
in the App Store It Controls, N.Y. Times (Sept. 9, 2019), https://
www.nytimes.com/interactive/2019/09/09/technology/apple-app-store-
competition.html.
\2280\ Tripp Mickle, Apple Dominates App Store Search Results,
Thwarting Competitors, Wall St. J. (July 23, 2019), https://
www.wsj.com/articles/apple-dominates-app-store-search-results-
thwarting-competitors-11563897221.
---------------------------------------------------------------------------
Apple's apps ``ranked first in more than 60% of basic
searches, such as for `maps' '' and ``Apple apps that generate
revenue through subscriptions or sales, like Music or Books,
showed up first in 95% of searches related to those apps.''
\2281\ The Wall Street Journal noted that growing revenue from
its apps is core to Apple's strategy of offsetting sluggish
hardware sales by increasing revenue from its Services
business.\2282\
---------------------------------------------------------------------------
\2281\ Id.
\2282\ Id.
---------------------------------------------------------------------------
Rival app developers slipped down the search rankings as
Apple introduced new services in their product categories. For
example, Spotify had long been the top search result for the
query ``music,'' but Apple Music quickly became the top search
result shortly after it joined the App Store in June 2016. By
the end of 2018, eight of Apple's apps appeared in the first
eight search results for ``music,'' and Spotify had fallen to
the 23rd result. Similarly, Audiobooks.com was the top-ranked
result for ``audiobooks'' for nearly two years but was
overtaken by Apple Books shortly after Apple began marketing
for Books. Audiobooks explained to The Wall Street Journal that
losing the top search ranking to Apple ``triggered a 25%
decline in Audiobooks.com's daily app downloads.'' \2283\
---------------------------------------------------------------------------
\2283\ Id.
---------------------------------------------------------------------------
Reporting on App Store search revealed that Apple may also
advantage its apps by holding them to a different standard when
they appear in the App Store search rankings. Apple told The
Wall Street Journal that ``it uses 42 factors to determine
where apps rank,'' and that the four most important factors are
``downloads, ratings, relevance, and `user behavior,''' with
user behavior the most important factor because it measures how
often users select and download an app.\2284\ Approximately 40
of Apple's apps come preinstalled on iPhones. These apps do not
have reviews and consumers cannot rate them. Mr. Cook explained
at the Subcommittee's sixth hearing that Apple's ``apps that
are integrated into the iPhone are not reviewable by users on
the App Store.'' \2285\ Apple has also said that its search
algorithm works the same for all apps, including its own.\2286\
---------------------------------------------------------------------------
\2284\ Id.
\2285\ CEO Hearing at 396 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\2286\ See Tripp Mickle, Apple Dominates App Store Search Results,
Thwarting Competitors, Wall St. J. (July 23, 2019), https://
www.wsj.com/articles/apple-dominates-app-store-search-
results-thwarting-competitors-11563897221.
---------------------------------------------------------------------------
Despite the fact that Apple's pre-installed apps do not
have ratings or reviews--factors that Apple says are most
influential in determining app ranking--many of Apple's pre-
installed apps ``still tend to be ranked first, even when users
search for exact titles of other apps.'' \2287\ For example,
Apple Books has no reviews or rankings and appears first in a
search for ``books,'' while competing apps have tens-of-
thousands of customer reviews and ratings of 4.8 or 4.9 stars
on Apple's five-star rating system.\2288\ A search by the
Subcommittee of terms ``music,'' ``news,'' ``TV,'' and
``podcast'' returned Apple Music, News, TV, and Podcasts as
top-ranked search results, although those apps do not have any
reviews or ranking.\2289\
---------------------------------------------------------------------------
\2287\ Id.
\2288\ Search Results: ``books,'' iOS App Store (Sept. 17, 2020).
\2289\ Search Results: ``music,'' ``news,'' ``TV,'' ``podcast,''
iOS App Store (Sept. 17, 2020).
---------------------------------------------------------------------------
Despite the lack of reviews or rankings, Apple told The
Wall Street Journal that ``the No. 1 position for Books in a
`books' search is reasonable, since it is an exact name
match.'' \2290\ Philip Schiller, Apple's Senior Vice President,
Worldwide Marketing, who oversees the App Store, and Eddy Cue,
Apple's Senior Vice President Internet and Software Services,
said ``there was nothing underhanded about the algorithm the
company had built to display search results in the store,''
\2291\ and that Apple's apps tend to rank highly because they
are popular and their generic names like Books and Music
closely match common search terms.\2292\
---------------------------------------------------------------------------
\2290\ Tripp Mickle, Apple Dominates App Store Search Results,
Thwarting Competitors, Wall St. J. (July 23, 2019), https://
www.wsj.com/articles/apple-dominates-app-store-search-results-
thwarting-competitors-11563897221.
\2291\ Jack Nicas & Keith Collins, How Apple's Apps Topped Rivals
in the App Store It Controls, N.Y. Times (Sept. 9, 2019), https://
www.nytimes.com/interactive/2019/09/09/technology/apple-app-store-
competition.html.
\2292\ Id.; see also Apple, Apple: Distinctive Products with a
Seamless, Integrated User Experience 23 (July 13, 2020) (unpublished
white paper) (on file with Comm.) (``Because many of Apple's apps are
named after generic topics (such as Music, Maps, and Podcasts), those
apps benefit from functional queries that have essentially become
navigational.'').
---------------------------------------------------------------------------
It appears that Apple does not apply the same rule to
third-party apps. Documents reviewed by the Subcommittee show
that Apple previously punished non-Apple apps that attempted to
``cheat'' the app store rankings. Apple determined that at
least one third-party app had achieved its high search ranking
because its name was a generic name that was also a common
search term. Apple's employees determined it was cheating to
give an app the name of a common search term.
In February 2018, Apple's App Store search team noted that
an app named ``Photo Editor--Stylo'' was the top-ranked result
when users searched the App Store for ``photo editor.'' \2293\
In an email thread with Philip Schiller, Apple's Senior Vice
President, Worldwide Marketing, an Apple employee wrote that,
``[s]ince the app name matched a broad query term like `photo
editor' the developer was able to game the query with a direct
name match.'' \2294\ The Apple employee explained that ``[t]he
app has been added to the Search Penalty Box for rank
demotion,'' and the action was labeled as complete.\2295\
Additional action was slated to disable the initial boost that
new apps are given in the app store if the app name is an
``exact match to broad queries.'' \2296\ Here, Apple punished
an app for the same conduct it said justified Apple's position
atop the App Store rankings.
---------------------------------------------------------------------------
\2293\ Submission from Apple, to H. Comm. on the Judiciary, HJC-
APPLE-008082 to -008086 (Feb. 9, 2018) (on file with Comm.).
\2294\ Id.
\2295\ Id.
\2296\ Id.
---------------------------------------------------------------------------
Apple's position as the provider of iOS enables it to
designate the App Store as the sole means for app developers to
distribute software to iPhone users. Apple's public statements,
including testimony by Mr. Cook that Apple's apps ``go through
the same rules'' as more than 1.7 million third-party apps,
appear to be inconsistent with Apple's actual practices.\2297\
In this case, Apple leveraged its control of iOS and the App
Store to give its own apps preferential treatment, and it
applied a different set of rules to third-party apps, punishing
them for the very conduct Apple engaged in. The Subcommittee
did not have access to additional evidence from Apple to
determine how widespread this practice is within the company.
---------------------------------------------------------------------------
\2297\ CEO Hearing at 162 (statement of Tim Cook, CEO, Apple,
Inc.).
(iv) Competitively Sensitive Information. In addition to
investigating allegations Apple engages in self-preferencing in
the App Store, the Committee sought information regarding
whether Apple exploits third-party developers that rely on
distribution in the App Store. Developers have alleged that
Apple abuses its position as the provider of iOS and operator
of the App Store to collect competitively sensitive information
about popular apps and then build competing apps or integrate
the popular app's functionality into iOS.\2298\ The practice is
known as ``Sherlocking.'' The antitrust laws do not protect app
developers from competition, and platforms should continue to
innovate and improve their products and services. However,
Sherlocking can be anticompetitive in some instances.\2299\
---------------------------------------------------------------------------
\2298\ See, e.g., Brian Heater, The Makers of Duet Display and Luna
on Life After Apple's Sidecar, TechCrunch (June 7, 2019), https://
techcrunch.com/2019/06/07/the-makers-of-duet-
display-and-luna-on-life-after-apples-sidecar/.
\2299\ See John Bergmayer, Pub. Knowledge, Tending the Garden: How
to Ensure that App Stores Put Users First 21, 58 (2020), https://
www.publicknowledge.org/wp-content/uploads/2020/06/Tending_the
_Garden.pdf.
---------------------------------------------------------------------------
Some app developers have complained that Apple leverages
its control of iOS and the App Store to glean business
intelligence that enables it to better compete against third-
party apps.\2300\ For example, after a stress relief app called
Breathe was Sherlocked in 2016, the app's developers said that
Apple used third-party developers ``as an R&D arm.'' \2301\ The
Washington Post reported on the phenomenon, explaining:
---------------------------------------------------------------------------
\2300\ See, e.g., Reed Albergotti, How Apple Uses Its App Store to
Copy the Best Ideas, Wash. Post (Sept. 5, 2019), https://
www.washingtonpost.com/technology/2019/09/05/how-apple-uses-its-app-
store-copy-best-ideas/. See also William Gallagher, Developers Talk
About Being ``Sherlocked'' as Apple Uses Them ``For Market Research,''
Apple Insider (June 6, 2019), https://appleinsider.com/articles/19/06/
06/developers-talk-about-being-sherlocked-as-apple-uses-them-for-
market-research; John Patrick Pullen, Why These People Are Upset About
Apple's Latest Updates, Time (June 21, 2016), https://time.com/4372515/
apple-app-developers-wwdc-sherlock-sherlocked/; Adi Robertson, Apple
Restores Mail App After Developer Tries to Rally ``Sherlocked''
Victims, Verge (Feb. 11, 2020), https://www.theverge.com/2020/2/11/
21133023/apple-bluemail-blix-restored-mac-app-store-sherlocking-patent-
lawsuit.
\2301\ John Patrick Pullen, Why These People Are Upset About
Apple's Latest Updates, Time (June 21, 2016), https://time.com/4372515/
apple-app-developers-wwdc-sherlock-sherlocked/.
LDevelopers have come to accept that, without warning,
Apple can make their work obsolete by announcing a new app or
feature that uses or incorporates their ideas. Some apps have
simply buckled under the pressure, in some cases shutting down.
They generally don't sue Apple because of the difficulty and
expense in fighting the tech giant--and the consequences they
might face from being dependent on the platform.\2302\
---------------------------------------------------------------------------
\2302\ Reed Albergotti, How Apple Uses Its App Store to Copy the
Best Ideas, Wash. Post (Sept. 5, 2019), https://www.washingtonpost.com/
technology/2019/09/05/how-apple-uses-its-app-store-copy-best-ideas/.
At the Subcommittee's fifth hearing, Subcommittee Vice
Chair Joe Neguse (D-CO) asked Ms. Daru of Tile about how Apple
used competitively sensitive information it collects as the
owner of the iOS ecosystem to compete against third-party apps.
She explained that, as an operating system provider and App
Store operator, Apple knows who Tile's customers are, the types
of apps those customers preferred, and the demographics of iOS
users that look at Tile's app or search for similar apps--
information that would give Apple a competitive advantage
against Tile.\2303\ Ms. Daru testified that Apple had harmed
Tile's service and user experience while simultaneously
introducing a rival app and preparing to launch a rival
hardware product.\2304\ Blix, the developer of email management
app BlueMail, has sued Apple in federal court. They claim that
Apple has engaged in Sherlocking and infringed the patents
underlying BlueMail:
---------------------------------------------------------------------------
\2303\ Competitors Hearing at 53 (statement of Kirsten Daru, Chief
Priv. Officer & Gen. Couns., Tile, Inc.).
\2304\ See id. at 87; Guilherme Rambo, Apple Revamping Find My
Friends & Find My iPhone in Unified App, Developing Tile-Like Personal
Item Tracking, 9to5Mac (Apr. 17, 2019), https://9to5mac.com/2019/04/17/
find-my-iphone-revamp/.
LApple frequently takes other companies' innovative
features, adds those ideas to Apple's own software products
without permission, and then either ejects the original third-
party application from the App Store (as it did with Blix's
software) or causes the third-party software developer to close
its doors entirely.\2305\
---------------------------------------------------------------------------
\2305\ Amended Complaint at 4, Blix Inc. v. Apple, Inc., No. 1:19-
cv-1869-LPS (D. Del. Dec. 20, 2019).
In response to the requests for information, Match Group
told the Subcommittee that Apple has a history of ``closely
monitoring the success of apps in the App Store, only to copy
the most successful of them and incorporate them in new
iPhones'' as a pre-installed app.\2306\ Phillip Shoemaker,
Apple's former Senior Director of App Store Review, similarly
told the Subcommittee that during his time at Apple, an app
developer proposed an innovative way to wirelessly sync the
iPhone and Mac.\2307\ The app did not violate any of Apple's
Guidelines, but it was rejected from the App Store
nonetheless.\2308\ Apple then appropriated the rejected app's
feature for its own offerings.\2309\
---------------------------------------------------------------------------
\2306\ Submission from Source 736, to H. Comm. on the Judiciary,
Source 736-00000243 (Oct. 23, 2019) (on file with Comm.).
\2307\ Interview with Phillip Shoemaker, former Senior Dir., App
Store Review, Apple, Inc. (Sept. 21, 2020).
\2308\ Id.
\2309\ Id.
---------------------------------------------------------------------------
During the Subcommittee's sixth hearing, Vice Chair Neguse
asked Mr. Cook about Tile's testimony. In particular, he asked
if Apple has access to the confidential information of app
developers, and whether Apple's Developer Agreement explicitly
authorizes Apple to use developers' information to build apps
to compete against them.\2310\ Mr. Cook's answer was non-
responsive regarding allegations of Sherlocking. Instead, he
said that Apple does not violate other companies' intellectual
property rights.\2311\
---------------------------------------------------------------------------
\2310\ CEO Hearing at 162 (question of Rep. Joe Neguse (D-CO), Vice
Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm.
on the Judiciary).
\2311\ Id. at 162-63 (statement of Tim Cook, CEO, Apple, Inc.)
(``[Apple] run[s] the App Store to help developers, not hurt them. We
respect innovation. It's what our company was built on. We would never
steal somebody's IP.'').
---------------------------------------------------------------------------
In contrast, Apple cofounder and former CEO Steve Jobs once
noted that, ``[w]e have always been shameless about stealing
great ideas.'' \2312\ The Apple Developer Agreement, which
Apple requires every app developer to agree to, appears to warn
developers that, in exchange for access to the App Store, Apple
is free to build apps that ``perform the same or similar
functions as, or otherwise compete with,'' apps in the App
Store.\2313\ Additionally, ``Apple will be free to use any
information, suggestions or recommendations you provide to
Apple pursuant to this Agreement for any purpose, subject to
any applicable patents or copyrights.'' \2314\
---------------------------------------------------------------------------
\2312\ Reed Albergotti, How Apple Uses Its App Store to Copy the
Best Ideas, Wash. Post (Sept. 5, 2019), https://www.washingtonpost.com/
technology/2019/09/05/how-apple-uses-its-app-store-copy-best-ideas/.
\2313\ Apple Developer Agreement, Apple: Dev. 4, https://
developer.apple.com/terms/apple-developer-agreement/Apple-Developer-
Agreement-English.pdf (last visited Sept. 27, 2020) (Clause 11: Apple
Independent Development).
\2314\ Id.
---------------------------------------------------------------------------
Mr. Cook's statement that Apple's apps play by the same
rules as other apps appears contrary to Apple's stated
policies. While the Apple Developer Agreement provides Apple
the right to replicate third-party apps, Apple's Guidelines
direct developers not to ``copy another developer's work'' and
threaten removal of apps and expulsion from the Developer
Program for those that do.\2315\ Further, the Guidelines
instruct developers to ``[c]ome up with your own ideas'' and
admonish them to not ``simply copy the latest popular app on
the App Store, or make some minor changes to another app's name
or UI and pass it off as your own.'' \2316\ Lastly, Apple
differentiates between--rather than conflates or confuses--
copycat apps and intellectual property infringement, which are
both prohibited in the App Store.\2317\
---------------------------------------------------------------------------
\2315\ App Store Review Guidelines: Introduction, Apple: Dev.,
https://developer.apple
.com/app-store/review/guidelines/#introduction (last visited Sept. 27,
2020).
\2316\ App Store Review Guidelines 4.1: Copycats, Apple: Dev.,
https://developer.apple
.com/app-store/review/guidelines/#copycats (last visited Sept. 27,
2020).
\2317\ Id.; App Store Review Guidelines 5.2: Intellectual Property,
Apple: Dev., https://
developer.apple.com/app-store/review/guidelines/#intellectual-property
(last visited Sept. 27, 2020).
(v) Excluding Rival Apps. During the Subcommittee's sixth
hearing, Representatives Val Demings (D-FL) and Lucy McBath (D-
GA) asked questions regarding Apple's removal of parental
control apps from the App Store in 2018 and 2019. In 2018,
Apple announced its Screen Time app, a new feature bundled with
iOS 12 that helped iOS users limit the time they and their
children spent on the iPhone. Thereafter, Apple began to purge
many of the leading rival parental control apps from the App
Store. Apple explained the apps were removed because they used
a technology called Mobile Device Management (MDM). MDM
technology allowed parents to remotely take over their
children's phones and block content. Apple noted that MDM could
allow the app developer to access sensitive content on the
device.\2318\
---------------------------------------------------------------------------
\2318\ See Jack Nicas, Apple Cracks Down on Apps that Fight iPhone
Addiction, N.Y. Times (Apr. 27, 2019), https://www.nytimes.com/2019/04/
27/technology/apple-screen-time-trackers
.html. See also Sarah Perez, Apple Puts Third-Party Screen Time Apps on
Notice, TechCrunch (Dec. 5, 2018), https://techcrunch.com/2018/12/05/
apple-puts-third-party-screen-time-apps-on-notice/.
---------------------------------------------------------------------------
According to The New York Times, the parental control apps
using MDM had been offered in the App Store for years, and
hundreds of updates to those apps had been approved by
Apple.\2319\ As a result, many apps were forced to shut
down,\2320\ although some were given a reprieve.\2321\ Two
parental control apps filed a complaint with the European
Commission, alleging Apple's App Store policies were
anticompetitive. The complaint alleged that Apple purged
competitors when it introduced Screen Time, pre-installed
Screen Time on iOS 12 and activated it by default, and gave
Screen Time access to iOS functionalities it denied to
competing third-party apps.\2322\
---------------------------------------------------------------------------
\2319\ Jack Nicas, Apple Cracks Down on Apps that Fight iPhone
Addiction, N.Y. Times (Apr. 27, 2019), https://www.nytimes.com/2019/04/
27/technology/apple-screen-time-trackers.html. See also Submission from
Apple, to H. Comm. on the Judiciary, HJC-APPLE-012255 to -012259 (Apr.
28, 2019); id. at HJC-APPLE-013251 to -013253 (Apr. 28, 2019).
\2320\ See, e.g., Nick Kuh, Mute App: Startup to Shutdown, Medium
(Oct. 22, 2018), https://medium.com/@nick.kuh/mute-app-startup-to-
shutdown-a1db01440c56; Georgie Powell, In the Kill Zone--Update for
Space on iOS, Space (Nov. 6, 2018), https://findyourphonelife
balance.com/news/2018/11/6/in-the-kill-zone-an-update-for-space-on-ios;
Is Apple Systematically Destroying the Time Management Industry?,
KidsLox (Nov. 8, 2018), https://kidslox.com/blog/apple-destroying-
screen-time-industry/; OurPact, There Used To Be an App for That,
Medium (May 1, 2019), https://medium.com/@ourpactapp/there-used-to-be-
an-app-for-that-41344f61fb6f; Justin Payeur, Letter to Users About
Apple Parental Controls, Boomerang (Jan. 31, 2020), https://
useboomerang.com/2020/01/31/letter-users-apple-parental-controls/.
\2321\ See Nick Kuh, Apple Called, Medium (Oct. 27, 2018), https://
medium.com/@nick.kuh/apple-called-a229d86ece30; Georgie Powell, Space
Is Back! An Update on Our Discussions with Apple, Space (Nov. 7, 2018),
https://findyourphonelifebalance.com/news/2018/11/7/space-versus-apple.
\2322\ Press Release, Qustodio Techs. SL, Qustodio & Kidslox File a
Complaint Against Apple with the European Commission over Abuse of
Dominant Position (Apr. 30, 2019), https://www.globenewswire.com/news-
release/2019/04/30/1812192/0/en/Qustodio-Kidslox-File-a-Complaint-
Against-Apple-with-the-European-Commission-over-Abuse-of-Dominant-
Position
.html#.
---------------------------------------------------------------------------
The Subcommittee reviewed emails from parents who contacted
Apple to complain about the removal of one of the purged
parental control apps.\2323\ They said that Screen Time was a
comparably worse option for consumers--and described it as
``more complicated'' and ``less restrictive'' than
competitors.\2324\ In emails to the company reviewed by the
Subcommittee, parents complained about Apple's monopoly power
over app distribution on iOS and claimed that self-interest in
promoting Screen Time motivated Apple's actions.\2325\ In
response, Apple's Senior Vice President, Worldwide Marketing,
Phil Schiller, explained that Screen Time was ``designed to
help parents manage their children's access to technology.''
\2326\ He added that Apple would ``work with developers to
offer many great apps on the App Store for these uses, using
technologies that are safe and private for us and our
children.'' \2327\
---------------------------------------------------------------------------
\2323\ See, e.g., Submission from Apple, to H. Comm. on the
Judiciary, HJC-APPLE-012242 to -012243 (May 6, 2019), HJC-APPLE-012245
to -012246 (May 6, 2019), HJC-APPLE-012247 to -012248 (June 5, 2019),
HJC-APPLE-013220 (May 14, 2019), HJC-APPLE-013219 (May 5, 2019), HJC-
APPLE-013251 to -013253 (Apr. 28, 2019) (on file with Comm.).
\2324\ Jack Nicas, Apple Cracks Down on Apps that Fight iPhone
Addiction, N.Y. Times (Apr. 27, 2019), https://www.nytimes.com/2019/04/
27/technology/apple-screen-time-trackers.html.
\2325\ See, e.g., Submission from Apple, to H. Comm. on the
Judiciary, HJC-APPLE-013210 to -013211 (Apr. 27, 2019), HJC-APPLE-
013215 (May 17, 2019), HJC-APPLE-013216 (May 6, 2019),HJC-APPLE-013221
to -013223 (Apr. 29, 2019), HJC-APPLE-013265 to -013266 (Apr. 27, 2019)
(on file with Comm.).
\2326\ See, e.g., id. at HJC-APPLE-013210 to -013211 (Apr. 27,
2019), HJC-APPLE-013217 (Apr. 27, 2019), HJC-APPLE-013221 to -013223
(Apr. 29, 2019) (on file with Comm.).
\2327\ Id. at HJC-APPLE-013221 to -013223 (Apr. 29, 2019).
---------------------------------------------------------------------------
Internally, Apple's Vice President of Marketing
Communications, Tor Myhren, stated, ``[t]his is quite
incriminating. Is it true?'' in response to an email with a
link to The New York Times's reporting.\2328\ Apple's
communications team asked CEO Tim Cook to approve a
``narrative'' that Apple's clear-out of Screen Time's rivals
was ``not about competition, this is about protecting kids
[sic] privacy.'' \2329\
---------------------------------------------------------------------------
\2328\ Id. at HJC-APPLE-013175 (Apr. 27, 2019).
\2329\ Id. at HJC-APPLE-012223 (June 2, 2019). See also CEO Hearing
at 134 (statement of Tim Cook, CEO, Apple, Inc.) (``It was that the use
of technology called MDM, mobile device management, placed kids' data
at risk, and so we were worried about the safety of kids.''); id. at
141 (``We were concerned, Congresswoman, about the privacy and security
of kids.'').
---------------------------------------------------------------------------
Developers of the purged apps also contacted Apple,
outraged that they had been removed from the App Store while
other apps that used MDM remained.\2330\ One developer
explained it had invested more than $200,000 building its
parental control app, then another $30,000 to fix the problem
Apple identified, only to be told that Apple would no longer
support parental control apps in the App Store.\2331\
---------------------------------------------------------------------------
\2330\ See, e.g., Submission from Apple, to H. Comm. on the
Judiciary, HJC-APPLE-012255 to -012259 (Apr. 28, 2019), HJC-APPLE-
012275 to -012279 (Jan. 17, 2019), HJC-APPLE-012286 to -012287 (Jan.
17, 2019) (on file with Comm.).
\2331\ Id. at HJC-APPLE-012286 to -012287 (Jan. 17, 2019) (on file
with Comm.).,
---------------------------------------------------------------------------
Although Apple claimed its conduct was motivated to protect
privacy and not intended to clear out competitors to Screen
Time, Apple reinstated many of the apps the same day that it
was reported the Department of Justice was investigating Apple
for potential antitrust violations.\2332\ Apple's solution to
address privacy concerns was to ask the apps to promise not to
sell or disclose user data to third parties, which could have
been achieved through less restrictive means and without
removing those apps from the App Store.\2333\
---------------------------------------------------------------------------
\2332\ Jack Nicas, Apple Cracks Down on Apps that Fight iPhone
Addiction, N.Y. Times (Apr. 27, 2019), https://www.nytimes.com/2019/04/
27/technology/apple-screen-time-trackers.html.
\2333\ Id. See also App Store Review Guidelines 5.5: Mobile Device
Management, Apple, https://
developer.apple.com/app-store/review/guidelines/#mobile-device-
management (last visited Sept. 27, 2020).
---------------------------------------------------------------------------
Developers of parental control apps asked Apple to
``release a public API granting developers access to the same
functionalities that Apple's native `Screen Time' uses.''
\2334\ Eventually, Apple did grant some apps access to
APIs,\2335\ but only after rival app developers were accused of
being a risk to children's privacy, removed from the App Store,
and forced to incur significant costs.\2336\ As one developer
noted, Apple's new MDM privacy policies resulted in ``really
nothing much changing from the developer side as far as the
technology goes.'' \2337\
---------------------------------------------------------------------------
\2334\ Screen Time API, https://screentimeapi.com/ (last visited
Sept. 27, 2020).
\2335\ See Joe Rossignol, Apple Reverses Course and Allows Parental
Control Apps to Use MDM Technology with Stricter Privacy Requirements,
MacRumors (June 4, 2019), https://www.macrumors.com/2019/06/04/apple-
lets-parental-apps-use-mdm-strict-privacy/.
\2336\ See, e.g., Submission from Apple, to H. Comm. on the
Judiciary, HJC-APPLE-012275 to -012279 (Jan. 17, 2019), HJC-APPLE-
013210 to -013211 (Apr. 27, 2019) (on file with Comm.).
\2337\ Id. at HJC-APPLE-012273 to -012274 (June 4, 2019) (on file
with Comm.).
---------------------------------------------------------------------------
Here, Apple's monopoly power over app distribution enabled
it to exclude rivals to the benefit of Screen Time. Apple could
have achieved its claimed objective--protecting user privacy--
through less restrictive means, which it ultimately did only
after significant outcry from the public and a prolonged period
of harm to rivals.\2338\ Apple's conduct here is a clear
example of Apple's use of privacy as a sword to exclude rivals
and a shield to insulate itself from charges of anticompetitive
conduct.
---------------------------------------------------------------------------
\2338\ See Damien Geradin & Dimitrios Katsifis, The Antitrust Case
Against the Apple App Store 55-56 (Tilberg Univ. Law & Econ. Ctr.
Discussion Paper, Paper No. DP2020-039, 2000), https://papers.ssrn.com/
sol3/papers.cfm?abstract_id=3583029.
---------------------------------------------------------------------------
The Subcommittee learned that Apple has engaged in conduct
to exclude rivals to benefit Apple's services in other
instances. For example, Mr. Shoemaker explained that Apple's
senior executives would find pretextual reasons to remove apps
from the App Store, particularly when those apps competed with
Apple services.\2339\
---------------------------------------------------------------------------
\2339\ Interview with Phillip Shoemaker, former Senior Dir., App
Store Review, Apple, Inc. (Sept. 21, 2020).
(vi) Opaque Guidelines and Arbitrary Enforcement. At the
Subcommittee's sixth hearing, Representative Henry C. ``Hank''
Johnson, Jr. (D-GA) asked Mr. Cook about how the App Store
Developer Guidelines are interpreted and applied to developers
in the App Store. Subcommittee Chair David N. Cicilline (D-RI)
requested similar information about the Guidelines as well,
including how they have evolved and whether there are
``unwritten rules'' developers must comply with.
The Guidelines are the rules with which more than 20
million iOS app developers and more than 1.8 million apps in
the App Store must comply to reach ``hundreds of millions of
people around the world.'' \2340\ Apple notes that the App
Store is ``highly curated'' and that ``every app is reviewed by
experts.'' \2341\ The introductory section of the Guidelines
warns that Apple can create new rules at any time, and explains
that ``[w]e will reject apps for any content or behavior that
we believe is over the line. What line, you ask? Well as a
Supreme Court Justice once said, `I'll know it when I see it.'
And we think that you will also know it when you cross it.''
\2342\
---------------------------------------------------------------------------
\2340\ App Store Review Guidelines: Introduction, Apple: Dev.,
https://developer.apple
.com/app-store/review/guidelines/#introduction (last visited Sept. 27,
2020).
\2341\ Id.
\2342\ Id.
---------------------------------------------------------------------------
App developers the Subcommittee spoke with expressed
frustration with Apple's curation of the App Store. Cofounder
and Chief Technology Officer of Basecamp, David Heinemeier
Hansson, testified before the Subcommittee and explained:
LIt's complete tyranny, and the rules are often
interpreted differently by different reviewers because they're
intentionally left vague. So we live in constant fear we may
have violated these vague rules, and that the next update to
our applications will be blocked by Apple. There are countless
examples where developers large and small have been denied
access to publish their applications without explanation for
days or even weeks at a time. It's insufferable.\2343\
---------------------------------------------------------------------------
\2343\ Competitors Hearing at 34 (statement of David Heinemeier
Hansson, Cofounder & Chief Tech. Officer, Basecamp).
One social media platform expressed concern that Apple has
absolute discretion about whether to approve apps or accept
updates.\2344\ Developers are frustrated that Apple's
interpretation and enforcement of the Guidelines have changed
over time, despite prior precedents and the fact developers
rely on understanding the Guidelines to operate their
businesses. One developer described Apple's Guidelines as
``arbitrarily interpreted,'' and another party called them
``opaque and arbitrary.'' \2345\ Internally, after an app was
rejected from the App Store, an Apple employee wrote to the
leadership of the App Store that Apple's decision ``still isn't
obvious to people inside the company that work directly on the
App Store.'' \2346\
---------------------------------------------------------------------------
\2344\ Submission from Source 247, to H. Comm. on the Judiciary,
Source 247_0000000002 (Oct. 14, 2019) (on file with Comm.).
\2345\ Submission from Source 736, to H. Comm. on the Judiciary,
Source 736_00000236 (Oct. 23, 2019) (on file with Comm.); Interview
with Source 88 (May 12, 2020).
\2346\ Submission from Apple, to H. Comm. on the Judiciary, HJC-
APPLE-014848 (May 30, 2018) (on file with Comm.).
---------------------------------------------------------------------------
In 2017, Gizmodo reported that iOS app maker Deucks saw its
Finder for the AirPods app removed from the App Store. The app
used the iPhone's Bluetooth signal to locate lost AirPods,
helping its users find a missing earbud and save money by not
having to purchase replacements. After the app was reviewed and
approved, it disappeared from the App Store. Deucks told
Gizmodo that Apple's app review team ``didn't find anything
wrong with the app itself, but rather they didn't like the
`concept' of people finding their AirPods and hence [the app]
was deemed `not appropriate for the App Store.' '' \2347\ At
the time, Deucks had several other finder apps, such as Finder
for Fitbit and Finder for Jawbone, that remained available in
the App Store.\2348\
---------------------------------------------------------------------------
\2347\ Michael Nunez, ``Finder for AirPods'' App Mysteriously
Disappears from App Store Without Much Explanation from Apple, Gizmodo
(Jan. 9, 2017), https://gizmodo.com/finder-for-airpods-app-
mysteriously-disappears-from-app-1790999059.
\2348\ Id.
---------------------------------------------------------------------------
Developers also say that Apple uses its power over the App
Store to change the Guidelines when convenient in ways that
benefit Apple. The Guidelines--along with their interpretation
and enforcement--all change over time in ways that always
appear to benefit Apple.\2349\ Spotify noted that ``[t]he
reality is Apple continues to move the goal posts and change
the rules to its advantage and the detriment of developers,''
and that the company's ``selective and capricious enforcement
[of its App Store policies] is designed to put companies like
[Spotify] at an untenable competitive disadvantage.''\2350\
ProtonMail explained that it offered a free version of its app
in the App Store for years, but then Apple abruptly changed the
way it applied its IAP requirement and demanded the app add the
ability for consumers to purchase upgraded functionality
through the app--giving Apple a 30 percent cut from those
subscriptions. ProtonMail noted that its app competes with an
Apple service and that requiring it to implement IAP would
increase its customer acquisition costs and make it less
competitive, benefitting Apple.\2351\ Another third party the
Subcommittee spoke with said that when Apple introduces a new
app, developers with rival apps know they may be targeted for a
violation of a Rule Apple has suddenly decided to interpret or
enforce differently.\2352\ Another app developer that competes
with Apple services noted that the Guidelines are constantly
shifting, that Apple arbitrarily decides when an app no longer
complies with the rules, and those decisions always favor
Apple's interests.\2353\
---------------------------------------------------------------------------
\2349\ See Dieter Bohn, Apple's App Store Policies Are Bad, but Its
Interpretation and Enforcement Are Worse, Verge (June 17, 2020),
https://www.theverge.com/2020/6/17/21293813/apple-app-store-policies-
hey-30-percent-developers-the-trial-by-franz-kafka (``The key thing to
know is that the text of this policy is not actually the policy. Or
rather, as with any law, the text is only one of the things you need to
understand. You also need to know how it is enforced and how the
enforcers interpret that text.'').
\2350\ Kara Swisher, Is It Finally Hammer Time for Apple and Its
App Store, N.Y. Times (June 19, 2020), https://www.nytimes.com/2020/06/
19/opinion/apple-app-store-hey.html?referring Source=articleShare.
\2351\ Submission from ProtonMail, to H. Comm. on the Judiciary, 5
(Aug. 22, 2020) (on file with Comm.).
\2352\ Interview with Source 88 (May 12, 2020).
\2353\ Interview with Source 766 (July 2, 2020).
---------------------------------------------------------------------------
Others have noted that Apple unilaterally determines if,
how, and when to apply its Guidelines, and that it also freely
makes up ``unwritten rules'' when convenient.\2354\ For
example, Apple's distinction between ``business'' and
``consumer'' apps to justify its June 2020 decision to require
Basecamp to redesign its app to permit in-app signups--and
attempt to require implementation of IAP--was not a distinction
that appeared in Apple's Guidelines until an update on
September 11, 2020.\2355\ Apple said that it has a ``set of
standard terms for Amazon, and every other video-streaming
service that met the criteria, to launch their service on Apple
TV and iOS.'' \2356\ One of Apple's business partners told the
Subcommittee that it suspects Amazon receives preferential
treatment by being exempt from sharing revenue for some
categories of transactions.\2357\
---------------------------------------------------------------------------
\2354\ See John Bergmayer, Pub. Knowledge, Tending the Garden: How
to Ensure That App Stores Put Users First 27 (2020), https://
www.publicknowledge.org/wp-content/uploads/2020/06/
Tending_the_Garden.pdf; Bapu Kotapati et al., The Antitrust Case
Against Apple 22 (Yale Univ. Thurman Arnold Project Digital Platform
Theories of Harm Paper Series, Paper No. 2, 2020), https://
papers.ssrn.com/sol3/papers.cfm?abstract_id=3606073.
\2355\ See Ben Thompson, Xscale and ARM in the Cloud, Hey Versus
Apple, Apple's IAP Campaign, Stratechery (June 17, 2020), https://
stratechery.com/2020/xscale-and-arm-in-the-cloud-hey-versus-apple-
apples-iap-campaign/; John Gruber, The Flimsiness of ``Business vs.
Consumer'' as a Justification for Apple's Rejection of Hey from the App
Store for Not Using In-App Purchases, Daring Fireball (June 16, 2020),
https://daringfireball.net/2020/06/hey_ app_store_rejection_flimsiness;
Sarah Perez & Anthony Ha, Apple Revises App Store Rules to Permit Game
Streaming Apps, Clarify In-App Purchases and More, TechCrunch (Sept.
11, 2020), https://techcrunch.com/2020/09/11/apple-revises-app-store-
rules-to-permit-game-streaming-apps-clarify-in-app-purchases-and-more/.
\2356\ CEO Hearing at 402 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\2357\ Interview with Source 77 (Sept. 10, 2020).
---------------------------------------------------------------------------
The Subcommittee reviewed communications between Apple CEO
Tim Cook and an executive from Baidu regarding whether Apple
would provide Baidu with preferential treatment. At the
Subcommittee's sixth hearing, Representative Henry C. ``Hank''
Johnson, Jr. (D-GA) questioned Mr. Cook about whether Apple
differentiates in its treatment of app developers.
Representative Johnson also asked if it was true that Apple
assigned Baidu two employees to help it navigate the App Store
bureaucracy, and whether other app developers receive the same
access to Apple personnel. Mr. Cook responded, ``we treat every
developer the same,'' and explained the App Store Guidelines
``apply evenly to everyone.'' \2358\ He also said, ``I don't
know about that, sir,'' in response to Representative Johnson's
inquiry about Baidu, adding, ``We do a lot of things with
developers including looking at their beta test apps regardless
of whether they're large or small.'' \2359\
---------------------------------------------------------------------------
\2358\ CEO Hearing at 80 (statement of Tim Cook, CEO, Apple, Inc.).
\2359\ Id.
---------------------------------------------------------------------------
Communications reviewed by the Subcommittee show that, in
2014, Baidu requested, among other things, that Apple ``set up
a fast track for the review process for Baidu APPs,'' along
with setting Baidu as the default search and mapping services
on ``all Apple devices in China.'' \2360\ Mr. Cook solicited
feedback from Apple's senior executives regarding these and
other requests from Baidu, also noting, ``I think we should
have someone focus on them as we have done with Facebook.
Thoughts?'' \2361\ Responding to the email thread with Mr.
Cook's request that Apple focus on Baidu as it had with
Facebook, one executive explained, ``Engineering proposal is
for extensions to be our path for integration,'' and responded
to Baidu's app review fast track request, ``I believe we put a
lot of work into having a fast review process for all apps.''
\2362\
---------------------------------------------------------------------------
\2360\ Submission from Apple, to H. Comm. on the Judiciary, HJC-
APPLE-011082 (June 3, 2015) (on file with Comm.).
\2361\ Id. at HJC-APPLE-011081 (Aug. 3, 2014).
\2362\ Id. at HJC-APPLE-011079 to -011080.
---------------------------------------------------------------------------
Within two weeks, Mr. Cook responded to the Baidu
executive's requests. ``I'd like Apple to have a deeper
relationship with Baidu,'' Cook wrote, noting that ``some of''
the Baidu executive's requests were ``great starts.'' \2363\ In
response to the Baidu executive's request for ``APP Review Fast
Track,'' Mr. Cook wrote, ``We can set up a process where Baidu
could send us a beta app for review and this can often speed up
the process.'' \2364\ Mr. Cook then noted he had assigned Baidu
two employees from App Store chief Phil Schiller's team to
``help manage through Apple.'' \2365\
---------------------------------------------------------------------------
\2363\ Id. at HJC-APPLE-011083 (June 3, 2015).
\2364\ Id. at HJC-APPLE-011084.
\2365\ Id.
---------------------------------------------------------------------------
When asked about these issues in questions submitted for
the record following the hearing, Mr. Cook explained his view
that ``There is no `fast track' for App Review special to
Baidu,'' that ``any developer can request expedited review from
App Review by submitting a formal expedite request,'' and
``[t]he beta app review process I referenced in my email has
been available to developers since 2009.'' \2366\ Mr. Cook also
noted, ``The key contacts referenced in my email were focused
on other strategic opportunities outlined by Baidu. Neither
individual had responsibility for App Store review.'' \2367\
---------------------------------------------------------------------------
\2366\ CEO Hearing at 402 (response to Questions for the Record of
Tim Cook, CEO, Apple, Inc.).
\2367\ Id. at 403.
---------------------------------------------------------------------------
In a subsequent interview with Phillip Shoemaker, Apple's
former Senior Director of App Store Review, the Subcommittee
asked about Apple's treatment of app developers. Mr. Shoemaker
responded that Apple ``was not being honest'' when it claims it
treats every developer the same.\2368\ Mr. Shoemaker has also
written that the App Store rules were often ``arbitrary'' and
``arguable,'' and that ``Apple has struggled with using the App
Store as a weapon against competitors.'' \2369\ He has noted
that ``Apple has complete and unprecedented power over their
customers' devices. The decisions they make with regards to
third-party apps needs to be above reproach, and currently are
not.'' \2370\
---------------------------------------------------------------------------
\2368\ Interview with Phillip Shoemaker, former Senior Dir., App
Store Review, Apple, Inc. (Sept. 21, 2020).
\2369\ Phillip Shoemaker, A Modern Content Store, Medium (Dec. 12,
2017), https://
medium.com/@phillipshoemaker/a-modern-content-store-3344bbe79edc.
\2370\ Phillip Shoemaker, Apple v. Everybody, Medium (Mar. 29,
2019), https://medium.com/@phillipshoemaker/apple-v-everybody-
5903039e3be.
---------------------------------------------------------------------------
Mr. Shoemaker also admitted that Apple advantages its own
apps over third-party apps. In an interview with the
Subcommittee, he described it as inaccurate to say Apple does
not favor its own apps over third-party apps.\2371\ He has
previously noted that apps that compete against Apple's
services often have problems getting through the App Store's
review process. For example, Apple's gaming service, Apple
Arcade, is a type of app that was ``consistently disallowed
from the store'' when offered by third-party developers, but
Apple allowed its own app in the store, ``even though it
violates existing [App Store] guidelines.'' \2372\ Mr.
Shoemaker explained to the Subcommittee that Apple's new
Guideline 3.1.2a, related to streaming game services, was
likely written to ``specifically exclude Google Stadia,''
describing the decision as ``completely arbitrary.'' \2373\
Similar conduct has been commented on by the courts,\2374\ as
well as international antitrust authorities.\2375\
---------------------------------------------------------------------------
\2371\ Interview with Phillip Shoemaker, former Senior Dir., App
Store Review, Apple, Inc. (Sept. 21, 2020).
\2372\ Phillip Shoemaker, Apple v. Everybody, Medium (Mar. 29,
2019), https://medium.com/@phillipshoemaker/apple-v-everybody-
5903039e3be.
\2373\ Interview with Phillip Shoemaker, former Senior Dir., App
Store Review, Apple, Inc. (Sept. 21, 2020).
\2374\ United States v. Apple, Inc., 952 F. Supp. 2d 638, 662
(S.D.N.Y. 2013), aff'd, 791 F.3d 290 (2d Cir. 2015).
\2375\ See, e.g., Neth. Auth. for Consumers & Mkts. Study at 5-6,
68, 79; Killian Bell, Apple Rejects Samsung Pay App for iOS, Cult of
Mac (Dec. 12, 2016), https://www.cultofmac.com/457916/apple-rejects-
samsung-pay-app-ios/; Gil Jaeshik & Park Sora, Apple Rejects Samsung
Pay Mini To Be Registered on Its App Store, Korea IT News (Dec. 12,
2016), http://english
.etnews.com/20161212200003.
---------------------------------------------------------------------------
Apple disputes that its rules are opaque and arbitrarily
applied. In response to questions from Representative Henry C.
``Hank'' Johnson, Jr. (D-GA), Mr. Cook insisted the Guidelines
are ``open and transparent'' and that Apple ``treat[s] every
developer the same.'' \2376\ In response to Questions for the
Record from Subcommittee Chair David N. Cicilline (D-RI), Mr.
Cook reiterated that ``[t]he Guidelines provide transparency
and act as a practical guide to help developers better
understand the app approval process . . . . Apple attempts to
apply the Guidelines uniformly to all developers and all types
of apps.'' \2377\
---------------------------------------------------------------------------
\2376\ CEO Hearing at 80 (statement of Tim Cook, CEO, Apple, Inc.).
\2377\ Id. at 399 (response to Questions for the Record of Tim
Cook, CEO, Apple, Inc.).
---------------------------------------------------------------------------
Apple appears to have recently revised some of its App
Store policies under the scrutiny of the Subcommittee, the
Department of Justice, and global competition authorities. In
June 2020, Apple announced new policies for its App Store
review that will allow app developers to appeal decisions by
app reviewers and even challenge the Guidelines governing the
App Store. Apple also announced that app updates with bug fixes
would no longer be held up due to a violation of an App Store
guideline. Additionally, on September 11, 2020, Apple changed
its App Developer Guidelines to address some of the questions
which arose from recent controversies described earlier in this
Report.\2378\
---------------------------------------------------------------------------
\2378\ See Sarah Perez & Anthony Ha, Apple Revises App Store Rules
to Permit Game Streaming Apps, Clarify In-App Purchases and More,
TechCrunch (Sept. 11, 2020), https://tech
crunch.com/2020/09/11/apple-revises-app-store-rules-to-permit-game-
streaming-apps-clarify-in-app-purchases-and-more/.
---------------------------------------------------------------------------
3. Siri Intelligent Voice Assistant
(a) Market Power. Apple describes Siri as ``an intelligent
assistant that offers a faster, easier way to get things done
on Apple devices,'' helping users to ``make calls, send text
messages or email, schedule meetings and reminders, make notes,
search the Internet, find local businesses, get directions, get
answers, find facts, and more just by asking.'' \2379\ Apple
integrated Siri into iPhone 4S at its release in October 2011.
As of January 2018, Apple said Siri was active on over 500
million devices, making Siri one of the most widely used voice
assistants in the world.\2380\
---------------------------------------------------------------------------
\2379\ Submission from Apple, to H. Comm. on the Judiciary, HJC-
APPLE-000007 (Oct. 14, 2019) (on file with Comm.).
\2380\ Press Release, Apple, HomePod Arrives February 9, Available
to Order This Friday (Jan. 13, 2018), https://www.apple.com/newsroom/
2018/01/homepod-arrives-february-9-available-to-order-this-friday/.
---------------------------------------------------------------------------
In a production to the Committee, Apple stated that it
neither creates market share data for Siri nor tracks third-
party market share data for integrated voice assistants.\2381\
Market research firm FutureSource Consulting found that, as of
December 2019, Siri was the leading intelligent virtual
assistant with a 35 percent market share globally.\2382\ A
third party supplied the Subcommittee with additional market
research showing that, in the first half of 2018, Apple's Siri
was built into 42 percent of virtual-assistant-enabled devices
sold worldwide.\2383\ Apple, Google, Amazon, and Microsoft are
the leading providers of intelligent virtual assistants.\2384\
Siri's success reflects its integration into the iPhone and
other Apple hardware, such as the iPad, Mac, Apple Watch, Apple
TV, and HomePod.\2385\ Siri is the hub of Apple's ecosystem of
smart-home devices. Users can control Apple HomeKit-compatible
devices using Siri on an Apple device.\2386\
---------------------------------------------------------------------------
\2381\ Submission from Apple, to H. Comm. on the Judiciary, HJC-
APPLE-000011 (Oct. 14, 2019) (on file with Comm.).
\2382\ Press Release, FutureSource Consulting, Virtual Assistants
to Exceed 2.5 Billion Shipments in 2023 (Dec. 18, 2019), https://
www.futuresource-consulting.com/press-release/consumer-electronics-
press/virtual-assistants-to-exceed-25-billion-shipments-in-2023/.
\2383\ Submission from Source 918, to H. Comm. on the Judiciary,
Source 918-0001578 (Nov. 4, 2019) (on file with Comm.).
\2384\ See, e.g., Press Release, FutureSource Consulting, Virtual
Assistants to Exceed 2.5 Billion Shipments in 2023 (Dec. 18, 2019),
https://www.futuresource-consulting.com/press-release/consumer-
electronics-press/virtual-assistants-to-exceed-25-billion-shipments-in-
2023/; Submission from Source 918, to H. Comm. on the Judiciary, Source
918-0001578 (Nov. 4, 2019) (on file with Comm.).
\2385\ See Press Release, FutureSource Consulting, Virtual
Assistants to Exceed 2.5 Billion Shipments in 2023 (Dec. 18, 2019),
https://www.futuresource-consulting.com/press-release/consumer-
electronics-press/virtual-assistants-to-exceed-25-billion-shipments-in-
2023/; Juli Clover, Siri: Everything You Need to Know, Mac Rumors (July
27, 2020), https://www.macrumors
.com/guide/siri/.
\2386\ Daniel Wroclawski, How to Use Siri and Apple HomeKit to
Control Your Smart Home, Consumer Reps. (Oct. 5, 2019), https://
www.consumerreports.org/home-automation-systems/how-to-use-siri-to-
control-smart-home/.
(b) Merger Activity. The startup Siri, Inc launched the
Siri app for iOS in February 2010 based on a prototype
developed by Adam Cheyer while working at SRI International
Research Lab.\2387\ Apple acquired the company two months
later.\2388\ Apple has followed up on its acquisition of Siri
with a series of additional acquisitions to strengthen Siri's
underlying technology and natural language processing. For
example, in 2019, Apple acquired Laserlike, technology to help
Siri improve at delivering personalized results for
users.\2389\ In 2020, Apple acquired Inductiv, an AI technology
for correcting data flaws; Xnor.ai, which specializes in low-
power, edge-based artificial-intelligence tools needed for
smart home devices; and Voysis, to increase Siri's speech
recognition accuracy.\2390\
---------------------------------------------------------------------------
\2387\ Catherine Clifford, Here's How Siri Made It Onto Your
iPhone, CNBC (June 29, 2017), https://www.cnbc.com/2017/06/29/how-siri-
got-on-the-iphone.html.
\2388\ Jenna Wortham, Apple Buys a Start-Up for Its Voice
Technology, N.Y. Times (Apr. 29, 2010), https://www.nytimes.com/2010/
04/29/technology/29apple.html.
\2389\ Jeremy Horwitz, Apple Acquires Laserlike, an ML Startup that
Might Make Siri Smarter, Venture Beat (Mar. 13, 2019), https://
venturebeat.com/2019/03/13/apple-bought-laserlike-an-ml-startup-that-
might-make-siri-smarter/.
\2390\ See Lisa Eadicicco, Apple Just Bought Another AI Startup to
Help Siri Catch Up to Rivals Amazon and Google, Bus. Insider (May 28,
2020), https://www.businessinsider.com/apple-buys-ai-startup-inductiv-
siri-catch-up-amazon-google-2020-5; Mark Gurman, Apple Acquires AI
Startup to Better Understand Natural Language, Bloomberg (Apr. 3,
2020), https://www.
bloomberg.com/news/articles/2020-04-03/apple-acquires-ai-startup-to-
better-understand-natural-language; Charlie Wood, Apple Has Acquired
the Artificial-Intelligence Startup Xnor.ai for a Reported $200
Million, Bus. Insider (Jan. 16, 2020), https://www.businessinsider.com/
apple-reportedly-buys-xnor-ai-200-million-2020-1.
(c) Conduct. As with many of Apple's other products and
services, Apple has taken a walled garden approach to the
intelligent voice assistant market by, among other tactics,
limiting interoperability by restricting how digital voice
assistants work on Apple devices and how Siri works with non-
Apple devices, and by using Siri to guide users to its own
products and services.
Apple does not allow competing digital voice assistants to
replace Siri as the default on Apple devices. On iOS devices,
the user must download the app for a competing digital voice
assistant and then either use Siri to access that voice
assistant or use that app directly.\2391\ Additionally, Apple
does not allow third-party device manufacturers to install a
speaker that receives Siri commands; only Apple devices can
respond to the ``Hey Siri'' prompt.\2392\ While third-party
hardware manufacturers can make their products Siri-compatible
through the Works with Apple HomeKit, the voice commands needed
to control the smart devices must still be directed to Siri on
an Apple device, such as an iPhone or iPad.\2393\
---------------------------------------------------------------------------
\2391\ See, e.g., Ben Lovejoy, Alexa iPhone App Can Now Operate
Hands-Free--with a Little Help from Siri, 9to5Mac (July 8, 2020),
https://9to5mac.com/2020/07/08/alexa-iphone-
app/; Chris Welch, Google Assistant Just Got Much Better and More
Convenient on iOS Thanks to Siri Shortcuts, Verge (Nov. 20, 2018),
https://www.theverge.com/2018/11/20/18105693/google-assistant-siri-
shortcuts-feature-iphone-ios.
\2392\ How ``Hey Siri'' Works with Multiple Devices, Apple, https:/
/support.apple.com/en-us/HT208472 (last visited Sept. 27, 2020).
\2393\ HomeKit, Apple, https://developer.apple.com/homekit/ (last
visited Oct. 3, 2020).
---------------------------------------------------------------------------
In addition to keeping Siri closely tied to Apple hardware,
Apple has used its voice-enabled devices to strengthen consumer
engagement with its own services and apps. For example, as of
October 2020, by default, requests to Siri to play music open
the Apple Music app, requests for directions open the Apple
Maps app, and requests for web searches open the Safari
app.\2394\ To use a competing service through Siri, a user must
adjust the device's settings and identify the service in the
command to Siri--for example, ``Hey Siri, play the National
Anthem on Spotify.'' \2395\ For streaming music services, this
integration only became possible with the introduction of iOS
13 in 2019.\2396\ Previously, even when a user said the name of
a third-party streaming service in the voice command, Apple
opened an Apple-branded alternative.\2397\ In June 2020, Apple
announced that it would update its HomePod smart speaker system
to support third-party music services.\2398\ It remains unclear
how seamless the integration will be and if Apple Music will
remain the pre-installed default service.\2399\
---------------------------------------------------------------------------
\2394\ E.g., Use Siri to Play Music or Podcasts, Apple, https://
support.apple.com/en-us/HT208279 (last visited Sept. 27, 2020); David
Phelan, Apple Mulls Letting You Choose Default iOS 14 Apps: Why It
Matters, Forbes (Feb. 21, 2010), https://www.forbes.com/sites/
davidphelan/2020/02/21/apple-mulls-letting-you-switch-default-iphone-
apps-in-ios-14/#70330
c9c11f8.
\2395\ Kate Kozuch, How to Use Siri to Control Spotify in iOS 13,
Tom's Guide (Oct. 7, 2019), https://www.tomsguide.com/how-to/how-to-
use-siri-to-control-spotify-ios-13.
\2396\ Jason Cross, iOS 13 Enables Siri Support in Third Party
Media Apps: Spotify, Pandora, Overcast, and Much More, MacWorld (June
7, 2019), https://www.macworld.com/article/3400881/ios-13-enables-siri-
support-in-third-party-media-apps.html.
\2397\ See Submission from Source 301, to H. Comm. on the
Judiciary, Source 301-00000080, at 23 (Oct. 15, 2019) (on file with
Comm.).
\2398\ Kif Leswing, Apple Will Let iPhone Users Change Default Mail
and Browser Apps, Addressing Antitrust Concerns, CNBC (June 22, 2020),
https://www.cnbc.com/2020/06/22/apple-
allows-users-to-change-default-mail-and-browser-apps-at-wwdc.html.
\2399\ Filipe Esposito, iOS 14 Includes Option to Change Default
Services on HomePod for Each User, 9to5Mac (July 7, 2020), https://
9to5mac.com/2020/07/07/ios-14-includes-option-to-change-default-
services-on-homepod-for-each-user/.
---------------------------------------------------------------------------
One app developer that spoke with the Subcommittee
described Siri as a ``closed'' intelligent virtual assistant
that limits the types of voice interactions that voice app
developers have access to.\2400\ The app developer explained
that SiriKit, which allows iOS apps to work with Siri, relies
on a pre-designed list of basic interactions that third parties
can use, such as messaging, calling, or payments. The very
limited set of interactions permitted by Apple can make it
impossible to launch an app for the third party's services,
including those that compete with an Apple service.\2401\
---------------------------------------------------------------------------
\2400\ Submission from Source 711, to H. Comm. on the Judiciary,
Source 711-00000080, at 6-7 (Oct. 15, 2019) (on file with Comm.).
\2401\ Id.
---------------------------------------------------------------------------
These practices have recently come under scrutiny by
antitrust authorities. In March 2019, Spotify filed a complaint
against Apple before the European Commission, reportedly
alleging, among other things, that Apple is restricting
Spotify's access to Siri.\2402\ In July 2020, the European
Commission's antitrust authority announced that it had opened
an inquiry into the use of digital assistants and smart home
products by Apple, Google, and Amazon, among other
companies.\2403\ In her statement accompanying the
announcement, Margrethe Vestager, the Commission's Executive
Vice President, identified interoperability and self-
preferencing as areas of concern.\2404\
---------------------------------------------------------------------------
\2402\ Thomas Ricker, Apple To Be Formally Investigated over
Spotify's Antitrust Complaint, Says Report, Verge (May 6, 2019),
https://www.theverge.com/2019/5/6/18530894/apple-music-monopoly-
spotify-app-store-europe.
\2403\ Margrethe Vestager, Exec. Vice President, Eur. Comm'n,
Statement by Executive Vice President Margrethe Vestager on the Launch
of a Sector Inquiry on the Consumer Internet of Things (July 16, 2020),
https://ec.europa.eu/commission/presscorner/detail/en/speech_20_
1367.
\2404\ Id.
---------------------------------------------------------------------------
VI. RECOMMENDATIONS
As part of its top-to-bottom review of competition in
digital markets, the Subcommittee examined whether current laws
and enforcement levels are adequate to address the market power
concerns identified through this investigation. In pursuit of
this goal, on March 13, 2020, the Subcommittee requested
submissions from antitrust and competition policy experts.
These experts were chosen on a careful, bipartisan basis to
ensure the representation of a full range of views.
Throughout the investigation, the Subcommittee received
additional submissions and written statements from antitrust
enforcers and other leading experts, including Margrethe
Vestager, the Executive Vice President of the European
Commission, and Rod Sims, the Chair of the Australian
Competition and Consumer Commission. Most recently, the
Subcommittee held an oversight hearing on October 1, 2020
regarding ``Proposals to Strengthen the Antitrust Laws and
Restore Competition Online,'' its seventh and final hearing as
part of the investigation.
Subcommittee Chair David N. Cicilline (D-RI) requested that
staff provide Members of the Subcommittee with a series of
recommendations, informed by this investigation, on how to
strengthen the antitrust laws and restore competition online.
As he noted in remarks to the American Antitrust Institute in
June 2019:
LNo doubt, other branches of government have a key role to
play in the development of antitrust law. But Congress--not the
courts, agencies, or private companies--enacted the antitrust
laws, and Congress ultimately decides what the law should be
and whether the law is working for the American people. As
such, it is Congress' responsibility to conduct oversight of
our antitrust laws and competition system to ensure that they
are properly working and to enact changes when they are not.
While I do not have any preconceived ideas about what the right
answer is, as Chair of the Antitrust Subcommittee, I intend to
carry out that responsibility with the sense of urgency and
serious deliberation that it demands.\2405\
---------------------------------------------------------------------------
\2405\ Hon. David N. Cicilline, Chair, Subcomm. on Antitrust,
Commercial and Admin. Law of the H. Comm. on the Judiciary, Keynote
Address at American Antitrust Institute's 20th Annual Policy Conference
(June 20, 2019), https://cicilline.house.gov/press-release/cicilline-
delivers-keynote-address-american-antitrust-institute%E2%80%99s-20th-
annual-policy.
In response to this request, the Subcommittee identified a
broad set of reforms for further examination by the Members of
the Subcommittee for purposes of crafting legislative and
oversight responses to the findings of this Report. These
reforms include proposals to: (1) promote fair competition in
digital markets; (2) strengthen laws relating to mergers and
monopolization; and (3) restore vigorous oversight and
enforcement of the antitrust laws.
The Subcommittee intends for these recommendations to serve
as a complement, not a substitute, to strong enforcement of the
antitrust laws. This is particularly true for acquisitions by
dominant firms that may have substantially lessened competition
or tended to create a monopoly in violation of the Clayton Act.
In these cases, the Subcommittee supports as a policy matter
the examination of the full range of remedies--including
unwinding consummated acquisitions or divesting business
lines--to fully restore competition that was harmed as a result
of these acquisitions and to prevent future violations of the
antitrust laws.\2406\
---------------------------------------------------------------------------
\2406\ Due to separation of powers concerns and other relevant
considerations, we do not take a position on the outcome of any
individual matter before the Justice Department or the Federal Trade
Commission.
---------------------------------------------------------------------------
A. Restoring Competition in the Digital Economy
For more than a century, Congress has addressed the market
power of dominant intermediaries using a robust antitrust and
antimonopoly toolkit.\2407\ The antitrust laws prohibit
anticompetitive mergers and monopolistic conduct in order to
promote open markets and prevent undue concentration of
economic power. In many critical sectors of the economy--
including financial services, telecommunications, and
transportation--Congress has also relied on a broad set of
policies to create the conditions necessary for fair
competition, even when economies of scale may favor
concentration.
---------------------------------------------------------------------------
\2407\ See, e.g., Subcomm. on Study of Monopoly Power of the H.
Comm. on the Judiciary, 81st Cong. 2d Sess., The Antitrust Laws: A
Basis for Economic Freedom iii (1950) (identifying an extensive list of
statutes ``dealing directly with the preservation of the American
competitive economy'' and reflecting the legislative policy that
``under no circumstances should [laws] foster the growth of
monopoly'').
---------------------------------------------------------------------------
In a similar vein, the remedies identified in this Section
seek to restore competition online by addressing harmful
business practices as well as certain features of digital
markets that tend to tip the market towards concentration.
1. Reduce Conflicts of Interest Through Structural Separations and Line
of Business Restrictions
In addition to controlling one or multiple key channels of
distribution, the dominant firms investigated by the
Subcommittee are integrated across lines of business. When
operating in adjacent markets, these platforms compete directly
with companies that depend on them to access users, giving rise
to a conflict of interest. As discussed earlier in this Report,
the Subcommittee's investigation uncovered several ways in
which Amazon, Apple, Facebook, and Google use their dominance
in one or more markets to advantage their other lines of
business, reducing dynamism and innovation.
First, the investigation revealed that the dominant
platforms have misappropriated the data of third parties that
rely on their platforms, effectively collecting information
from customers only to weaponize it against them as rivals. For
example, the investigation produced documents showing that
Google used the Android operating system to closely track usage
trends and growth patterns of third-party apps--near-perfect
market intelligence that Google can use to gain an edge over
those same apps. Facebook used its platform tools to identify
and then acquire fast-growing third-party apps, thwarting
competitive threats at key moments. A former Amazon employee
told the Subcommittee that Amazon has used the data of third-
party merchants to inform Amazon's own private label strategy,
identifying which third-party products were selling well and
then introducing copycat versions. These and other examples
detailed in this Report demonstrate a dangerous pattern of
predatory conduct that, if left unchecked, risk further
concentrating wealth and power.
Some have suggested that there is little difference between
the dominant platforms' access to and use of this data and the
way that brick-and-mortar retailers track popular products. The
Subcommittee's investigation, however, produced evidence that
the platforms' access to competitively significant market data
is unique. Specifically, the dominant platforms collect real-
time data which, given the scale of their user-base, is akin to
near-perfect market intelligence. Whereas firms with a choice
among business partners might seek to protect their proprietary
data, the platforms' market power lets them compel the
collection of this data in the first place.
Second, dominant platforms can exploit their integration by
using their dominance in one market as leverage in negotiations
in an unrelated line of business. For example, evidence
produced during the investigation showed that Amazon has
leveraged its dominance in online commerce as pressure during
negotiations with firms in a separate line of business. Market
participants that depend on Amazon's retail platform are
effectively forced to accept its demands--even in markets where
Amazon would otherwise lack the power to set the terms of
commerce.
Third, dominant platforms have used their integration to
tie products and services in ways that can lock in users and
insulate the platform from competition. Google, for example,
required that smartphone manufacturers seeking to use Android
also pre-install and give default status to certain Google
apps--enabling Google to maintain its search monopoly and crowd
out opportunities for third-party developers.
And fourth, these firms can use supra-competitive profits
from the markets they dominate to subsidize their entry into
other markets. Documents uncovered during the Subcommittee's
investigation indicate that the dominant platforms have relied
on this strategy to capture markets, as startups and non-
platform businesses tend to lack the resources and capacity to
bleed billions of dollars over multiple years in order to drive
out rivals. For dominant platforms, meanwhile, this strategy
appears to be a race to capture ecosystems and control
interlocking products that funnel data back to the platforms,
further reinforcing their dominance.
By using market power in one area to advantage a separate
line of business, dominant firms undermine competition on the
merits. By functioning as critical intermediaries that are also
integrated across lines of business, the dominant platforms
face a core conflict of interest. The surveillance data they
collect through their intermediary role, meanwhile, lets them
exploit that conflict with unrivaled precision. Their ability
both to use their dominance in one market as negotiating
leverage in another, and to subsidize entry to capture
unrelated markets, have the effect of spreading concentration
from one market into others, threatening greater and greater
portions of the digital economy.
To address this underlying conflict of interest, the
Subcommittee recommends that Congress consider legislation that
draws on two mainstay tools of the antimonopoly toolkit:
structural separation and line of business restrictions.\2408\
Structural separations prohibit a dominant intermediary from
operating in markets that place the intermediary in competition
with the firms dependent on its infrastructure. Line of
business restrictions, meanwhile, generally limit the markets
in which a dominant firm can engage.
---------------------------------------------------------------------------
\2408\ See Submission from Sally Hubbard, Dir. of Enf't Strategy,
Open Mkts. Inst., et al., to H. Comm. on the Judiciary, 7-8 (Apr. 17,
2020) (on file with Comm.) [hereinafter Hubbard Submission]; Submission
from Stacy Mitchell, Co-Dir., Inst. for Local Self-Reliance, to H.
Comm. on the Judiciary, 4 (May 4, 2020) (on file with Comm.)
[hereinafter Mitchell Submission]; Submission from Zephyr Teachout,
Assoc. Prof. of Law, Fordham Univ. Sch. of Law, to H. Comm. on the
Judiciary, 6 (Apr. 23, 2020) (on file with Comm.) [hereinafter Teachout
Submission]; Submission from Ams. for Fin. Reform, to H. Comm. on the
Judiciary, 3-4 (Apr. 17, 2020) (on file with Comm.).
---------------------------------------------------------------------------
Congress has relied on both policy tools as part of a
standard remedy for dominant intermediaries in other network
industries, including railroads and telecommunications
services.\2409\ In the railroad industry, for example, a
congressional investigation found that the expansion of common
carrier railroads into the coal market undermined independent
coal producers, whose wares the railroads would deprioritize in
order to give themselves superior access to markets. In 1893,
the Committee on Interstate and Foreign Commerce wrote that
``[n]o competition can exist between two producers of a
commodity when one of them has the power to prescribe both the
price and output of the other.'' \2410\
---------------------------------------------------------------------------
\2409\ Mitchell Submission at 4.
\2410\ H.R. Rep. No. 52-2278, at vii-viii (1893).
---------------------------------------------------------------------------
Congress subsequently enacted a provision to prohibit
railroads from transporting any goods that they had produced or
in which they held an interest.\2411\ Congress has legislated
similar prohibitions in other markets. The Bank Holding Company
Act of 1956 broadly prohibited bank holding companies from
acquiring nonbanking companies.\2412\ Vertically integrated
television networks, meanwhile, were subject to ``fin-syn''
rules, which prohibited networks from entering production and
syndication markets.\2413\
---------------------------------------------------------------------------
\2411\ Hepburn Act, Pub. L. No. 59-337, Sec. 1, 34 Stat. 584, 585
(1906).
\2412\ Bank Holding Company Act of 1956, Pub. L. No. 84-511,
Sec. 4(a), 70 Stat. 133, 135 (codified as amended at 12 U.S.C.
1843(a)).
\2413\ Report and Order, Amendment of Rules Regarding Competition
and Responsibility in Network Television Broadcasting, 23 F.C.C.2d 382,
398 para. 30 (1970).
---------------------------------------------------------------------------
Both structural separations and line of business
restrictions seek to eliminate the conflict of interest faced
by a dominant intermediary when it enters markets that place it
in competition with dependent businesses. In certain cases,
structural separations have also been used to prevent
monopolistic firms from subsidizing entry into competitive
markets and to promote media diversity.\2414\
---------------------------------------------------------------------------
\2414\ Mitchell Submission at 4.
---------------------------------------------------------------------------
At a general level, there are two forms of structural
separation: (1) ownership separations, which require
divestiture and separate ownership of each business; and (2)
functional separations, which permit a single corporate entity
to engage in multiple lines of business but prescribe the
particular organizational form it must take.\2415\ Importantly,
both forms of structural limits apply on a market-wide basis,
while divestitures in antitrust enforcement generally apply to
a single firm or merging party.
---------------------------------------------------------------------------
\2415\ John Kwoka & Tommaso Valletti, Scrambled Eggs and Paralyzed
Policy: Breaking Up Consummated Mergers and Dominant Firms (forthcoming
Oct. 2020) (manuscript at 22) (on file with Comm.).
---------------------------------------------------------------------------
A benefit of these proposals is their administrability. By
setting rules for the underlying structure of the market--
rather than policing anticompetitive conduct on an ad hoc
basis--structural rules are easier to administer than conduct
remedies, which can require close and continuous
monitoring.\2416\
---------------------------------------------------------------------------
\2416\ OECD, Structural Separation in Regulated Industries: Report
on Implementing the OECD Recommendation 9 (2016), https://www.oecd.org/
daf/competition/Structural-separation-in-regulated-industries-
2016report-en.pdf (``[S]eparation limits the need for regulation that
is difficult and costly to devise and implement, and may be only partly
effective; it improves information; and it eliminates the risk of
cross-subsidies by the incumbent from its non-competitive to its
competitive segments.'').
---------------------------------------------------------------------------
The challenges of crafting and implementing structural
solutions vary by market and market participants. In response
to the Subcommittee's requests for comments on potential
reforms, some antitrust experts have cautioned that crafting
separations can pose a major cost and challenge, especially in
dynamic markets.\2417\ Others have responded by identifying
certain principles that can make identifying the fault lines
easier. In the case of separations undoing vertical mergers,
the fault lines designating the separate companies are likely
to still be apparent, even in the new structure.\2418\ In cases
where a firm grew through internal expansion or when the
constituent parts are no longer clearly distinguishable,
scholars have suggested identifying distinct business
operations.\2419\ Experts have also noted that business-
initiated corporate restructuring and divestitures may in some
cases also provide a guide to designing and implementing
successful break-ups.\2420\
---------------------------------------------------------------------------
\2417\ See, e.g., Submission from Maureen K. Ohlhausen, Partner,
Baker Botts L.L.P., to H. Comm. on the Judiciary, 5 (Apr. 17, 2020) (on
file with Comm.).
\2418\ John Kwoka & Tommaso Valletti, Scrambled Eggs and Paralyzed
Policy: Breaking Up Consummated Mergers and Dominant Firms (forthcoming
Oct. 2020) (manuscript at 11) (on file with Comm.).
\2419\ Id. at 15.
\2420\ Id.; Rory Van Loo, In Defense of Breakups: Administering a
``Radical'' Remedy, 105 Cornell L. Rev. (forthcoming 2020), https://
ssrn.com/abstract=3646630.
---------------------------------------------------------------------------
Several enforcement bodies around the world are exploring
the use of structural separations in digital markets. In July
2020, the United Kingdom's Competition and Markets Authority
recommended that its digital regulatory body have powers to
``implement ownership separation or operational separation,''
concluding that ``there could be significant benefits if there
were more formal separation between businesses with market
power'' in digital advertising markets in particular.\2421\
Meanwhile, the OECD in 2001 adopted recommendations to
structurally separate vertically integrated regulated firms
that operate in concentrated markets.\2422\ In its 15-year
overview, the OECD concluded that ``structural separation
remains a relevant remedy'' and identified other market areas
where it might be adopted.\2423\
---------------------------------------------------------------------------
\2421\ Competition & Mkts. Auth. Report at 405-06.
\2422\ OECD, Structural Separation in Regulated Industries: Report
on Implementing the OECD Recommendation 9 (2016), https://www.oecd.org/
daf/competition/Structural-
separation-in-regulated-industries-2016report-en.pdf.
\2423\ Id. at 3.
---------------------------------------------------------------------------
2. Implement Rules to Prevent Discrimination, Favoritism, and Self-
Preferencing
As discussed throughout this Report, the Subcommittee
identified numerous instances in which dominant platforms
engaged in preferential or discriminatory treatment. In some
cases, the dominant platform privileged its own products or
services. In others, the dominant platform gave preferential
treatment to one business partner over others. Because the
dominant platform was, in most instances, the only viable path
to market, its discriminatory treatment had the effect of
picking winners and losers in the marketplace.
Google, for example, engaged in self-preferencing by
systematically ranking its own content above third-party
content, even when its content was inferior or less relevant
for users. Web publishers of content that Google demoted
suffered economic losses and had no way of competing on the
merits. Over the course of the investigation, numerous third
parties also told the Subcommittee that self-preferencing and
discriminatory treatment by the dominant platforms forced
businesses to lay off employees and divert resources away from
developing new products and towards paying a dominant platform
for advertisements or other ancillary services. They added that
some of the harmful business practices of the platforms
discouraged investors from supporting their business and made
it challenging to grow and sustain a business even with highly
popular products. Without the opportunity to compete fairly,
businesses and entrepreneurs are dissuaded from investing and,
over the long term, innovation suffers.
In response to these concerns, the Subcommittee recommends
that Congress consider establishing nondiscrimination rules to
ensure fair competition and to promote innovation online.
Nondiscrimination rules would require dominant platforms to
offer equal terms for equal service and would apply to price as
well as to terms of access. As several experts noted,
nondiscrimination has been a mainstay principle for governing
network intermediaries, especially those that play essential
roles in facilitating transportation and communications.\2424\
---------------------------------------------------------------------------
\2424\ See, e.g., Submission from Harry First, Charles L. Denison
Prof. of Law, N.Y.U. Sch. of Law & Eleanor Fox, Walter J. Derenberg
Prof. of Trade Reg., N.Y.U. Sch. of Law, to H. Comm. on the Judiciary,
5 (Aug. 6, 2020) [hereinafter First & Fox Submission] (``[Google,
Amazon, Facebook, and Apple] are akin to essential facilities for many
smaller businesses. Many businesses, to do business, must use the
platform. They have almost no choice. The GAFA compete with the
businesses on their platforms.'') (on file with Comm.); Submission from
Albert A. Foer, Founder & Senior Fellow, Am. Antitrust Inst., to H.
Comm. on the Judiciary, 1-2 (Apr. 14, 2020) (on file with Comm.)
[hereinafter Foer Submission]; Hubbard Submission at 5-7; Remedies
Hearing 6-7 (statement of K. Sabeel Rahman, President, Demos).
---------------------------------------------------------------------------
The 1887 Interstate Commerce Act, for example, prohibited
discriminatory treatment by railroads.\2425\ In the years
since, Congress and policymakers have continued to apply
nondiscrimination principles to network monopolies, even as
technologies have rapidly evolved. Most recently, the Open
Internet Order written by the Federal Communications Commission
(FCC) in 2015 was effectively a nondiscrimination regime,
prohibiting internet service providers from picking winners and
losers among content providers and other users.\2426\ Other
jurisdictions have begun to apply nondiscrimination principles
to digital markets. For example, after determining that Google
had engaged in illegal self-preferencing, the European
Commission required that Google follow ``the simple principle
of equal treatment.'' \2427\
---------------------------------------------------------------------------
\2425\ Hubbard Submission at 4-5.
\2426\ Report and Order on Remand, Protecting and Promoting the
Open Internet, 30 FCC Rcd. 5601, 5603 para. 4 (2015) (``[C]arefully-
tailored rules that would prevent specific practices we know are
harmful to Internet openness--blocking, throttling, and paid
prioritization--as well as a strong standard of conduct designed to
prevent the deployment of new practices that would harm Internet
openness.'').
\2427\ Press Release, Eur. Comm'n, Antitrust: Commission Fines
Google =2.42 Billion for Abusing Dominance as Search Engine by Giving
Illegal Advantage to Own Comparison Shopping Service (June 27, 2017),
https://ec.europa.eu/commission/presscorner/detail/en/MEMO_17_
1785.
---------------------------------------------------------------------------
Historically, Congress has implemented nondiscrimination
requirements in a variety of markets. With railroads, the
Interstate Commerce Commission oversaw obligations and
prohibitions applied to railroads designated as common
carriers.\2428\ More recently, the Cable Act of 1992 included a
provision requiring the Federal Communications Commission to
oversee a nondiscrimination requirement for cable
operators.\2429\ Some experts have proposed establishing a
similar venue to adjudicate discrimination disputes between
dominant platforms and the third parties that depend on
them.\2430\ Others note that the Federal Trade Commission could
also use its existing competition rulemaking authority to
``require dominant gatekeepers to apply a rule of neutrality in
operating their platforms.'' \2431\
---------------------------------------------------------------------------
\2428\ Hubbard Submission at 5.
\2429\ See, e.g., Submission from Hal Singer, Managing Dir., Econ
One Research, to H. Comm. on the Judiciary, 4-5 (Mar. 30, 2020) (on
file with Comm.) [hereinafter Singer Submission].
\2430\ Id.
\2431\ First & Fox Submission at 12.
---------------------------------------------------------------------------
Finally, on several occasions, nondiscrimination rules have
been treated as an important complement to divestitures in
antitrust enforcement. For example, the Justice Department
combined AT&T's divestiture of the Regional Bell Operating
Companies with an equal access obligation, requiring AT&T to
offer independent long-distance providers access to its network
on equal terms of quality and price.\2432\ The DOJ argued that
requiring equal access without mandating divestiture would be
insufficient due to AT&T's incentive and ability to
discriminate against local carriers.\2433\
---------------------------------------------------------------------------
\2432\ See United States v. AT&T Co., 552 F. Supp. 131 (D.D.C.
1982).
\2433\ Mitchell Submission at 4 (``It's important to note here that
applying this kind of [nondiscrimination-based] regulatory oversight to
the big tech firms will not be effective unless it's done in
conjunction with breakups. In the case of Amazon, it's my view that
several factors make it virtually impossible to establish a system of
oversight and adjudication that would be robust enough to protect
competition and fair market access, absent spinning off its shopping
platform from its other divisions. These factors include the enormous
number of sellers and transactions, the low dollar value of most
transactions, and the many subtle and hard-to-detect ways that Amazon
can skew outcomes to favor its own interests. Therefore, oversight must
be combined with structural separation, which would do much of the work
by removing the underlying conflicts of interest, thus allowing for an
effective and less bureaucratic system of oversight.'').
---------------------------------------------------------------------------
3. Promote Innovation Through Interoperability and Open Access
As discussed elsewhere in the Report, digital markets have
certain characteristics--such as network effects, switching
costs, and other entry barriers--that make them prone to
tipping in favor of a single dominant firm. As a result, these
markets are no longer contestable by new entrants,\2434\ and
the competitive process shifts from ``competition in the market
to competition for the market.'' \2435\
---------------------------------------------------------------------------
\2434\ Competition & Mkts. Auth. Report at 10-11.
\2435\ See Stigler Report at 29; Michael Kades & Fiona Scott
Morton, Interoperability as a Competition Remedy for Digital Networks 1
(Wash. Ctr. for Equitable Growth Working Paper Series, 2020), https://
equitablegrowth.org/working-papers/interoperability-as-a-competition-
remedy-for-digital-networks/ (``The monopolist operates in a market
with significant network effects, scale and scope economies, and low
distribution costs. Therefore, the competition that matters most is
often for the market not within the market. Anticompetitive conduct is
more likely to succeed. And, the harm to consumers greater because the
market tends to be winner-take-all, or most, (it `tips').'').
---------------------------------------------------------------------------
This dynamic is particularly evident in the social
networking market. As discussed earlier in the Report,
Facebook's internal documents and communications indicate that,
due to strong network effects and market tipping, the most
significant competitive pressure to Facebook is from within its
own family of products--Facebook, Instagram, Messenger, and
WhatsApp--rather than from other social apps in the market,
such as Snapchat or Twitter. In the case of messaging apps,
Facebook's documents show that network effects can be even more
extreme. And because Facebook is not interoperable with other
social networks, its users face high costs to switch to other
platforms, locking them into Facebook's platform.
High switching costs are also present in other markets. In
the smartphone market, switching costs include learning a new
operating system, which can discourage users from leaving
Google or Apple due to familiarity with their distinct
operating systems, as well as the inability to easily port all
of their data, such as messages, call history, and photos. In
online commerce, sellers have high switching costs associated
with their reputation. Sellers can be locked into an incumbent
platform for online commerce if they are unable to transfer
their reputation--ratings and customer reviews accrued over a
long period of time--to a different platform. Switching costs
involving data for other services, such as email, can also
contribute to user lock-in.\2436\ In response to these
concerns, the Subcommittee recommends that Congress consider
data interoperability and portability to encourage competition
by lowering entry barriers for competitors and switching costs
for consumers. These reforms would complement vigorous
antitrust enforcement by spurring competitive entry.
---------------------------------------------------------------------------
\2436\ Chris Riley, A Framework for Forward-Looking Tech
Competition Policy 10 (Mozilla Working Paper, 2019), https://
blog.mozilla.org/netpolicy/files/2019/09/Mozilla-Competition-Working-
Paper.pdf.
(a) Interoperability. Interoperability is fundamental to
the open internet.\2437\ It is present in email, which is an
open, interoperable protocol for communicating online
regardless of a person's email service or the type of device
they use to send the email.\2438\ It has also been built into
numerous other services online \2439\ and is a ``core technical
structure of the Internet.'' \2440\ Interoperability standards
are also present in other communications systems, from
telephones to telegraphs.\2441\ Telecommunications would not
work without the ability of users on one carrier's network to
interconnect with other carriers.\2442\ And in the absence of
interoperability, dominant carriers could foreclose new
entrants from offering lower prices or better services,
reinforcing their monopoly power while harming consumers and
competition.\2443\
---------------------------------------------------------------------------
\2437\ See generally id. at 18-24.
\2438\ Michael Kades & Fiona Scott Morton, Interoperability as a
Competition Remedy for Digital Networks 14 (Wash. Ctr. for Equitable
Growth Working Paper Series, 2020), https://equitablegrowth.org/
working-papers/interoperability-as-a-competition-remedy-for-digital-
networks/.
\2439\ Becky Chao & Ross Schulman, Promoting Platform
Interoperability, New Am. Found. (May 13, 2020), https://
www.newamerica.org/oti/reports/promoting-platform-interoperability/.
\2440\ Chris Riley, A Framework for Forward-Looking Tech
Competition Policy 18 (Mozilla Working Paper, 2019), https://
blog.mozilla.org/netpolicy/files/2019/09/Mozilla-Competition-Working-
Paper.pdf.
\2441\ Becky Chao & Ross Schulman, Promoting Platform
Interoperability, New Am. Found. (May 13, 2020), https://
www.newamerica.org/oti/reports/promoting-platform-interoperability/.
\2442\ Michael Kades & Fiona Scott Morton, Interoperability as a
Competition Remedy for Digital Networks 13-14 (Wash. Ctr. for Equitable
Growth Working Paper Series, 2020), https://equitablegrowth.org/
working-papers/interoperability-as-a-competition-remedy-for-digital-
networks/.
\2443\ Id.
---------------------------------------------------------------------------
An interoperability requirement would allow competing
social networking platforms to interconnect with dominant firms
to ensure that users can communicate across services.\2444\
Foremost, interoperability ``breaks the power of network
effects'' by allowing new entrants to take advantage of
existing network effects ``at the level of the market, not the
level of the company.'' \2445\ It would also lower switching
costs for users by ensuring that they do not lose access to
their network as a result of switching.
---------------------------------------------------------------------------
\2444\ Competition in Digital Technology Markets: Examining Self-
Preferencing by Digital Platforms: Hearing Before the Subcomm. on
Antitrust, Competition Policy and Consumer Rights of the S. Comm. on
the Judiciary, 116th Cong. 21 (2020) (statement of Sally Hubbard, Dir.
of Enf't Strategy, Open Mkts. Inst.) (``Interoperability is an anti-
monopoly tool that has been used successfully many times to promote
innovation by reducing barriers to entering markets.'').
\2445\ Michael Kades & Fiona Scott Morton, Interoperability as a
Competition Remedy for Digital Networks 13-14 (Wash. Ctr. for Equitable
Growth Working Paper Series, 2020), https://equitablegrowth.org/
working-papers/interoperability-as-a-competition-remedy-for-digital-
networks/.
---------------------------------------------------------------------------
The implementation cost of requiring interoperability by
dominant firms would be relatively low. Unlike interconnecting
in traditional communications markets, there is little direct
cost associated with interoperating with dominant
platforms.\2446\
---------------------------------------------------------------------------
\2446\ Id. at 15 (``Unlike the familiar AT&T example, there would
be no cost to interconnection in the digital platform context. The
standard is simply a way to present and transfer information that is
already being presented and transferred. No wire needs to be connected
to achieve it, nor do machines need to be co-located, or special
workers employed. Transferring digital files has almost zero cost, but
regardless of that cost, Facebook would be transferring those files to
serve its users in any case. Facebook might need to pay some costs to
redesign the format in which it transfers text and images, but if it
has been found liable for monopolization by a court, it is expected
that a remedy will have costs. The real cost of ongoing
interoperability to Facebook.com is the possibility that it loses
customers once the barriers to entry fall. But that risk is what every
firm faces in a competitive market and represents a benefit to
consumers.'').
---------------------------------------------------------------------------
Finally, interoperability is an important complement, not
substitute, to vigorous antitrust enforcement. As discussed in
this Report, Facebook has tipped the social network toward a
monopoly, and due to its strong network effects, does not face
competitive pressure. On its own, interoperability is unlikely
to fully restore competition in the social networking market
due to the lack of meaningful competition in the market today.
On the other hand, in the absence of procompetitive policies
like interoperability, it is also possible that enforcement
alone may provide incomplete relief due to future market
tipping.\2447\
---------------------------------------------------------------------------
\2447\ Id. at 10 (``A divestiture may reduce the existing market
power of the dominant network but not eliminate the market power due to
network effects that was achieved through anticompetitive conduct. And,
alone, divestiture may not prevent future tipping. Thus, on their own,
they risk being insufficient to fully restore the lost competition.'').
(b) Data Portability. Data portability is also a remedy for
high costs associated with leaving a dominant platform. These
costs present another barrier to entry for competitors and a
barrier to exit for consumers. Dominant platforms can maintain
market power in part because consumers experience significant
frictions when moving to a new product.\2448\ Users contribute
data to a platform, for example, but can find it hard to
migrate that data to a rival platform.\2449\ The difficulty of
switching tends to keep users on incumbent platforms.\2450\
Providing consumers and businesses with tools to easily port or
rebuild their social graph, profile, or other relevant data on
a competing platform would help address these concerns.\2451\
Although complementary to interoperability, data portability
alone would not fully address concerns related to network
effects since consumers would still need to recreate their
networks on a new platform and would not be able to communicate
with their network on the incumbent platform.\2452\
---------------------------------------------------------------------------
\2448\ See Joshua Gans, The Hamilton Project, Enhancing Competition
with Data and Identity Portability 5 (2018), http://
www.hamiltonproject.org/assets/files/Gans_20180611
.pdf.
\2449\ See id.
\2450\ See Josh Constine, Friend Portability Is the Must-Have
Facebook Regulation, TechCrunch (May 12, 2019), https://
technologycrunch.com/2019/05/12/friends-wherever; Chris Dixon, The
Interoperability of Social Networks, Bus. Insider (Nov. 10, 2010),
https://www.businessinsider.com/the-interoperability-of-social-
networks-2011-2; Data and Privacy Hearing at 134 (statement of Dina
Srinivasan, Fellow, Yale Thurman Arnold Project).
\2451\ Submission from Charlotte Slaiman, Competition Policy Dir.,
Pub. Knowledge, to H. Comm. on the Judiciary (May 14, 2020) (on file
with Comm.) [hereinafter Slaiman Submission]; id., app. I, at 3-4
(statement of Gene Kimmelman, Senior Advisor, Pub. Knowledge).
\2452\ Competition in Digital Technology Markets: Examining Self-
Preferencing by Digital Platforms: Hearing Before the Subcomm. on
Antitrust, Competition Policy and Consumer Rights of the S. Comm. on
the Judiciary, 116th Cong. 21 (2020) (statement of Sally Hubbard, Dir.
of Enf't Strategy, Open Mkts. Inst.) (on file with Comm.). Last year,
Senators Mark R. Warner (D-VA), Josh Hawley (R-MO), and Richard
Blumenthal (D-CT) introduced S.2658, the ``Augmenting
Continued
Compatibility and Competition by Enabling Service Switching (ACCESS)
Act of 2019,'' bipartisan legislation to require that dominant
platforms make user data portable and their services interoperable.
Additionally, this proposal would also allow users to delegate
management of their privacy preferences to a third-party service. Press
Release, Sen. Mark R. Warner, Senators Introduce Bipartisan Bill to
Encourage Competition in Social Media (Oct. 22, 2019), https://
www.warner.senate.gov/public/index.cfm/2019/10/senators-introduce-
bipartisan-bill-to-encourage-competition-in-social-media.
---------------------------------------------------------------------------
4. Reduce Market Power Through Merger Presumptions
The firms investigated by the Subcommittee owe part of
their dominance to mergers and acquisitions. Several of the
platforms built entire lines of business through acquisitions,
while others used acquisitions at key moments to neutralize
competitive threats. Although the dominant platforms
collectively engaged in several hundred mergers and
acquisitions between 2000-2019, antitrust enforcers did not
block a single one of these transactions. The Subcommittee's
investigation revealed that several of these acquisitions
enabled the dominant platforms to block emerging rivals and
undermine competition.
Despite a significant number of ongoing antitrust
investigations, the dominant platforms have continued to pursue
significant deal-making. Over the last year, for example,
Google purchased Fitbit for $2.1 billion and Looker for $2.6
billion; Amazon purchased Zoox for $1.3 billion; and Facebook
acquired Giphy for an undisclosed amount.\2453\ Meanwhile, all
four of the firms investigated by the Subcommittee have
recently focused on acquiring startups in the artificial
intelligence and virtual reality spaces.\2454\
---------------------------------------------------------------------------
\2453\ Chaim Gartenberg, Google Buys Fitbit for $2.1 Billion, Verge
(Nov. 1, 2019), https://www.theverge.com/2019/11/1/20943318/google-
fitbit-acquisition-fitness-tracker-announcement; Lauren Feiner & Jordan
Novet, Google Cloud Boss Thomas Kurian Makes His First Big Move--Buys
Looker for $2.6 Billion, CNBC (June 6, 2019), https://www.cnbc.com/
2019/06/06/google-buys-cloud-company-looker-for-2point6-billion.html;
Karen Weise & Erin Griffith, Amazon to Buy Zoox, in a Move Toward Self-
Driving Cars, N.Y. Times (June 26, 2020), https://www. nytimes.com/
2020/06/26/business/amazon-zoox.html; Kurt Wagner & Sarah Frier,
Facebook Buys Animated Image Library Giphy for $400 Million, Bloomberg
(May 15, 2020), https://www.bloomberg.com/news/articles/2020-05-15/
facebook-buys-animated-image-library-giphy-to-boost-messaging.
\2454\ See infra Appendix.
---------------------------------------------------------------------------
Ongoing acquisitions by the dominant platforms raise
several concerns. Insofar as any transaction entrenches their
existing position, or eliminates a nascent competitor, it
strengthens their market power and can close off market entry.
Furthermore, by pursuing additional deals in artificial
intelligence and in other emerging markets, the dominant firms
of today could position themselves to control the technology of
tomorrow.
It is unclear whether the antitrust agencies are presently
equipped to block anticompetitive mergers in digital markets.
The record of the Federal Trade Commission (FTC) and the
Justice Department in this area shows significant missteps and
repeat enforcement failures. While both agencies are currently
pursuing reviews of pending transactions, it is not yet clear
whether they have developed the analytical tools to challenge
anticompetitive deals in digital markets. For example, the
Justice Department in February permitted Google's acquisition
of Looker, a data analytics and business intelligence startup,
despite serious risks that the deal would eliminate an
independent rival and could allow Google to cut off access to
rivals.\2455\ These concerns are especially acute today, given
the combined national health and economic crises, which have
widened the gap between the dominant platforms and businesses
across the rest of the economy.
---------------------------------------------------------------------------
\2455\ Letter from Diana L. Moss, President, Am. Antitrust Inst.,
to Hon. Makan Delrahim, Assistant Att'y Gen., U.S. Dep't of Justice,
Antitrust Div. (July 8, 2019), https://www.antitrust
institute.org/wp-content/uploads/2019/07/AAI-Ltr-to-DOJ_Google-
Looker_7.8.19.pdf.
---------------------------------------------------------------------------
To address this concern, the Subcommittee recommends that
Congress consider shifting presumptions for future acquisitions
by the dominant platforms. Under this change, any acquisition
by a dominant platform would be presumed anticompetitive unless
the merging parties could show that the transaction was
necessary for serving the public interest and that similar
benefits could not be achieved through internal growth and
expansion. This process would occur outside the current Hart-
Scott-Rodino Act (HSR) process, such that the dominant
platforms would be required to report all transactions and no
HSR deadlines would be triggered. Establishing this presumption
would better reflect Congress's preference for growth through
ingenuity and investment rather than through acquisition.
5. Create an Even Playing Field for the Free and Diverse Press
The free and diverse press--particularly local press--is
the backbone of a healthy and vibrant democracy. But as
discussed in this Report, the rise of market power online has
corresponded with a significant decline in the availability of
trustworthy sources of news.\2456\ Through dominating both
digital advertising and key communication platforms, Google and
Facebook have outsized power over the distribution and
monetization of trustworthy sources of news online,\2457\
creating an uneven playing field in which news publishers are
beholden to their decisions.\2458\
---------------------------------------------------------------------------
\2456\ Free and Diverse Press Hearing at 21 (statement of David
Chavern, President & CEO, News Media All.) (``In effect, a couple of
dominant tech platforms are acting as regulators of the digital news
industry.'').
\2457\ Submission of Source 52, to H. Comm. on the Judiciary, 12
(Oct. 30, 2019) (on file with Comm.).
\2458\ Submission from Source 53, to H. Comm. on the Judiciary, 7
(Oct. 14, 2019) (on file with Comm.). Although Apple News and Apple
News Plus are increasingly popular news aggregators, most market
participants that the Subcommittee received evidence from during the
investigation do not view Apple as a critical intermediary for online
news at this time. Some publishers raised competition concerns about
the tying of payment inside Apple's news product.
---------------------------------------------------------------------------
To address this imbalance of bargaining power, we recommend
that the Subcommittee consider legislation to provide news
publishers and broadcasters with a narrowly tailored and
temporary safe harbor to collectively negotiate with dominant
online platforms.
In April 2019, Subcommittee Chair Cicilline and Doug
Collins (R-GA), the former Ranking Member of the Committee on
the Judiciary, introduced H.R. 2054, the ``Journalism
Competition and Preservation Act of 2019.'' \2459\ H.R. 2054
would allow coordination by news publishers under the antitrust
laws if it: (1) directly relates to the quality, accuracy,
attribution or branding, or interoperability of news; (2)
benefits the entire industry, rather than just a few
publishers, and is non-discriminatory to other news publishers;
and (3) directly relates to and is reasonably necessary for
these negotiations, instead of being used for other purposes.
As Subcommittee Chair Cicilline noted at the time of the bill's
introduction:
---------------------------------------------------------------------------
\2459\ Press Release, Rep. David N. Cicilline, Cicilline, Collins
Introduce Bill to Provide Lifeline to Local News (Apr. 3, 2019),
https://cicilline.house.gov/press-release/cicilline-collins-introduce-
bill-provide-lifeline-local-news.
LThe free press is a cornerstone of our democracy.
Journalists keep the public informed, root out corruption, and
hold the powerful accountable. This bill will provide a much-
needed lifeline to local publishers who have been crushed by
Google and Facebook. It's about time we take a stand on this
issue.\2460\
---------------------------------------------------------------------------
\2460\ Id.
Mr. Collins added that the proposed legislation would allow
``community newspapers to more fairly negotiate with large tech
platforms that are operating in an increasingly anticompetitive
space,'' which would ``help protect journalism, promote
competition and allow communities to stay informed.'' \2461\
---------------------------------------------------------------------------
\2461\ Id.
---------------------------------------------------------------------------
We recommend the consideration of this legislation as part
of a broader set of reforms to address the rise of market power
online. This proposed legislation follows a long congressional
tradition of allocating coordination rights to individuals or
entities that lack bargaining power in a marketplace.\2462\
Although antitrust exemptions have been disfavored, at various
times lawmakers have created exemptions in order to rectify
imbalances of power or to promote non-competition values.\2463\
In this instance, the risk associated with antitrust exemptions
to preserve the free and diverse press--a bedrock
constitutional value--is low, while the benefits of preserving
access to high-quality journalism are difficult to overstate.
As discussed earlier in the Report, the bill would follow steps
that other jurisdictions are similarly taking to rebalance the
power between news publishers and the dominant platforms.
---------------------------------------------------------------------------
\2462\ See generally Submission from Sanjukta Paul, Assistant Prof.
of Law, Wayne State Univ., to H. Comm. on the Judiciary, 2-4 (Apr. 21,
2020) (on file with Comm.) [hereinafter Paul Submission].
\2463\ See, e.g., Clayton Act, 15 U.S.C. 17 (1914); Capper-Volstead
Act, Pub. L. No. 67-146, ch. 57, 42 Stat. 388 (1922) (codified as
amended at 7 U.S.C. 291-292).
---------------------------------------------------------------------------
6. Prohibit Abuse of Superior Bargaining Power and Require Due Process
By virtue of functioning as the only viable path to market,
dominant platforms enjoy superior bargaining power over the
third parties that depend on their platforms to access users
and markets. Their bargaining leverage is a form of market
power,\2464\ which the dominant platforms routinely use to
protect and expand their dominance.
---------------------------------------------------------------------------
\2464\ Aviv Nevo, Deputy Assistant Att'y Gen. for Econ., U.S. Dep't
of Justice, Antitrust Div., Mergers that Increase Bargaining Leverage,
Remarks at the Stanford Institute for Economic Policy Research 7 (Jan.
22, 2014), https://www.justice.gov/atr/file/517781/download (``[A]s a
matter of economic theory and case law bargaining leverage is a source
of market power.'').
---------------------------------------------------------------------------
Through its investigation, the Subcommittee identified
numerous instances in which the dominant platforms abused this
power. In several cases, dominant platforms used their leverage
to extract greater money or data than users would be willing to
provide in a competitive market. While a firm in a competitive
market would lose business if it charged excessive prices for
its goods or services because the customer would switch to a
competitor, dominant platforms have been able to charge
excessive prices or ratchet up their prices without a
significant loss of business. Similarly, certain dominant
platforms have been able to extort an ever-increasing amount of
data from their customers and users, ranging from a user's
personal data to a business's trade secrets and proprietary
content. In the absence of an alternative platform, users
effectively have no choice but to accede to the platform's
demands for payment whether in the form of dollars or data.
The Subcommittee's investigation found that dominant
platforms have also leveraged their market power in
negotiations with businesses and individuals to dictate the
terms of the relationship. The dominant platforms frequently
impose oppressive contractual provisions or offer ``take-it-or-
leave-it'' terms in contract negotiations--even when dealing
with relatively large companies represented by sophisticated
counsel.\2465\ Lacking bargaining power, dependent third
parties often find themselves at the whims of the platform's
arbitrary decisions. The Subcommittee encountered numerous
instances in which a third party had been abruptly delisted or
demoted from a platform, without notice or explanation, and
often without a clear avenue for recourse.
---------------------------------------------------------------------------
\2465\ See, e.g., Dig. Competition Expert Panel Report at 45
(noting how a report commissioned by the UK's Department for Digital,
Culture, Media & Sport found that, as ``a consequence of their high
market share, ownership of key technologies and strong user data
assets, Google and Facebook are, to some extent, able to set their own
terms to advertisers and publishers'').
---------------------------------------------------------------------------
The dominant platforms' ability to abuse their superior
bargaining power in these ways can cause long-term and far-
reaching harm. To address these issues, the Subcommittee
recommends that Congress consider prohibiting the abuse of
superior bargaining power, including by targeting potentially
anticompetitive contracts and introducing due process
protections for individuals and businesses dependent on the
dominant platforms.\2466\
---------------------------------------------------------------------------
\2466\ Foer Submission at 2-3; Submission from Marshall Steinbaum,
Assistant Prof. of Econ., Univ. of Utah, to H. Comm. on the Judiciary,
8 (Apr. 2020) (on file with Comm.) [hereinafter Steinbaum Submission].
See generally Austl. Competition & Consumer Comm'n Report at 205-79;
Competition & Mkts. Auth. Report at 328-49.
---------------------------------------------------------------------------
B. Strengthening the Antitrust Laws
1. Restore the Antimonopoly Goals of the Antitrust Laws
The antitrust laws that Congress enacted in 1890 and 1914--
the Sherman Act, the Clayton Act, and the Federal Trade
Commission Act--reflected a recognition that unchecked monopoly
power poses a threat to our economy as well as to our
democracy.\2467\ Congress reasserted this vision through
subsequent antitrust laws, including the Robinson-Patman Act of
1936, the Celler-Kefauver Act of 1950, and the Hart-Scott-
Rodino Act of 1976.\2468\
---------------------------------------------------------------------------
\2467\ See generally First & Fox Submission at 10-11; Steinbaum
Submission; Submission from Robert H. Lande, Venable Prof. of Law,
Univ. of Balt. Sch. of Law, to H. Comm. on the Judiciary (Apr. 16,
2020) (on file with Comm.) [hereinafter Lande Submission]; Paul
Submission at 2-4; Submission from Maurice Stucke, Douglas A. Blaze
Distinguished Prof. of Law, Univ. of Tennessee, to H. Comm. on the
Judiciary, 2 (Mar. 13, 2020) (on file with Comm.) [hereinafter Stucke
Submission].
\2468\ Thomas J. Horton, Rediscovering Antitrust's Lost Values, 16
U.N.H. L. Rev. 179 (2018).
---------------------------------------------------------------------------
In the decades since Congress enacted these foundational
statutes, the courts have significantly weakened these laws and
made it increasingly difficult for federal antitrust enforcers
and private plaintiffs to successfully challenge
anticompetitive conduct and mergers.\2469\ By adopting a narrow
construction of ``consumer welfare'' as the sole goal of the
antitrust laws, the Supreme Court has limited the analysis of
competitive harm to focus primarily on price and output rather
than the competitive process \2470\--contravening legislative
history and legislative intent.\2471\ Simultaneously, courts
have adopted the view that underenforcement of the antitrust
laws is preferable to overenforcement, a position at odds with
the clear legislative intent of the antitrust laws, as well as
the view of Congress that private monopolies are a ``menace to
republican institutions.'' \2472\ In recent decades, the
Justice Department and the FTC have contributed to this problem
by taking a narrow view of their legal authorities and issuing
guidelines that are highly permissive of market power and its
abuse. The overall result is an approach to antitrust that has
significantly diverged from the laws that Congress enacted.
---------------------------------------------------------------------------
\2469\ See generally Submission from Tim Wu, Julius Silver Prof. of
Law, Columbia Law Sch., to H. Comm. on the Judiciary (Apr. 25, 2020)
(on file with Comm.) [hereinafter Wu Submission];
Continued
Submission from Spencer Weber Waller, John Paul Stevens Chair in
Competition Law, Loyola Univ. Chi. Sch. of Law, to H. Comm. on the
Judiciary (Apr. 28, 2020) (on file with Comm.) [hereinafter Waller
Submission].
\2470\ Jonathan Sallet, Protecting the ``Competitive Process''--The
Evolution of Antitrust Enforcement in the United States, Wash. Ctr. for
Equitable Growth (Oct. 31, 2018), https://equitablegrowth.org/
competitive-edge-protecting-the-competitive-process-the-evolution-of-
antitrust-enforcement-in-the-united-states/.
\2471\ Submission from John Newman, Assoc. Prof. of Law, Univ. of
Miami Sch. of Law, to the Subcomm. on Antitrust, Commercial and Admin.
Law of the H. Comm. on the Judiciary, 2 (Apr. 1, 2020) (on file with
Comm.) [hereinafter Newman Submission]; Stucke Submission at 2.
\2472\ 21 Cong. Rec. 3146 (1890) (statement of Sen. George F.
Hoar).
---------------------------------------------------------------------------
In part due to this narrowing, some of the anticompetitive
business practices that the Subcommittee's investigation
uncovered could be difficult to challenge under current
law.\2473\ In response to this concern, this Section identifies
specific legislative reforms that would help renew and
rehabilitate the antitrust laws in the context of digital
markets. In addition to these specific reforms, the
Subcommittee recommends that Congress consider reasserting the
original intent and broad goals of the antitrust laws by
clarifying that they are designed to protect not just
consumers, but also workers, entrepreneurs, independent
businesses, open markets, a fair economy, and democratic
ideals.\2474\
---------------------------------------------------------------------------
\2473\ See Wu Submission at 2 (``If read broadly, the prohibitions
on `monopolization,' `unfair means of competition,' and `restraints on
trade' could be used to handle the challenges of our time. But
`broadly' is manifestly not how the laws are read by the judiciary at
this point. For the courts have grafted onto these laws burdens of
proof, special requirements and defenses that are found nowhere in the
statutes, and that have rendered the laws applicable only to the
narrowest of scenarios, usually those involving blatant price effects.
And it is this that makes the laws inadequate for the challenges
presented by digital markets.'').
\2474\ See generally First & Fox Submission at 10-11; Stucke
Submission at 2; Wu Submission; Waller Submission.
---------------------------------------------------------------------------
2. Invigorate Merger Enforcement
Section 7 of the Clayton Act, as amended, prohibits any
transaction where ``the effect of such acquisition may be
substantially to lessen competition, or to tend to create a
monopoly.'' \2475\ In 1950, Congress passed the Celler-Kefauver
Anti-Merger Act to broaden the types of transactions covered by
the Clayton Act, specifically to include vertical mergers,
conglomerate mergers, and purchases of assets.\2476\
---------------------------------------------------------------------------
\2475\ 15 U.S.C. 18; accord Clayton Antitrust Act of 1914, Pub. L.
No. 63-212, Sec. 7, ch. 323, 38 Stat. 730, 731-32 (codified as amended
at 15 U.S.C. 18).
\2476\ Celler-Kefauver Anti-Merger Act, Pub. L. No. 81-899, ch.
1184, 64 Stat. 1125, 1125-26 (1950) (amending 15 U.S.C. 18).
---------------------------------------------------------------------------
As noted above, since 1998, Amazon, Apple, Facebook, and
Google collectively have purchased more than 500
companies.\2477\ The antitrust agencies did not block a single
acquisition. In one instance--Google's purchase of ITA--the
Justice Department required Google to agree to certain terms in
a consent decree before proceeding with the transaction.\2478\
---------------------------------------------------------------------------
\2477\ See infra Appendix.
\2478\ Stipulation and Order, United States v. Google Inc. & ITA
Software Inc., No. 1:11-cv-00688 (D.D.C. Apr. 12, 2011).
---------------------------------------------------------------------------
The Subcommittee's review of the relevant documents
revealed that several of these acquisitions lessened
competition and increased market power. In several cases,
antitrust enforcers permitted dominant platforms to acquire a
competitive threat. For example, documents produced during the
investigation demonstrate that Facebook acquired Instagram to
neutralize an emerging rival, while Google purchased Waze to
eliminate an independent provider of mapping data. In other
instances, the platform engaged in a series of acquisitions
that enabled it to gain a controlling position across an entire
supply chain or ecosystem. Google's acquisitions of
DoubleClick, AdMeld, and AdMob, for example, let Google achieve
a commanding position across the digital ad tech market.
In light of this, the Subcommittee recommends that Congress
consider a series of reforms to strengthen merger enforcement.
(a) Codify Bright-Line Rules and Structural Presumptions in
Concentrated Markets. A major change in antitrust enforcement
over the last few decades has been the shift away from bright-
line rules in favor of ``rule of reason'' case-by-case
analysis. Although the rule of reason approach is said to
reduce errors in enforcement through fact-specific analysis, in
practice the standard tilts heavily in favor of
defendants.\2479\ The departure from bright-line rules and
presumptions has especially affected merger enforcement, where
enforcers seeking to challenge a merger must fully prove that
it will have anticompetitive effects, even in cases where the
merging parties are dominant firms in highly concentrated
markets. Scholarship by Professor John Kwoka of Northeastern
University shows that the antitrust agencies acted in only 38
percent of all mergers that led to price increases, suggesting
that the current approach to merger review is resulting in
significant underenforcement.\2480\
---------------------------------------------------------------------------
\2479\ Michael A. Carrier, The Rule of Reason: An Empirical Update
for the 21st Century, 16 Geo. Mason L. Rev. 827 (2009).
\2480\ John Kwoka, Mergers, Merger Control, and Remedies 155
(2014).
---------------------------------------------------------------------------
To respond to this concern, the Subcommittee recommends
that Members consider codifying bright-line rules for merger
enforcement, including structural presumptions.\2481\ Under a
structural presumption, mergers resulting in a single firm
controlling an outsized market share, or resulting in a
significant increase in concentration, would be presumptively
prohibited under Section 7 of the Clayton Act.\2482\ This
structural presumption would place the burden of proof upon the
merging parties to show that the merger would not reduce
competition. A showing that the merger would result in
efficiencies should not be sufficient to overcome the
presumption that it is anticompetitive. It is the view of the
Subcommittee that the 30 percent threshold established by the
Supreme Court in Philadelphia National Bank is appropriate,
although a lower standard for monopsony or buyer power claims
may deserve consideration by the Subcommittee.
---------------------------------------------------------------------------
\2481\ For support for codifying the structural presumption, see
Submission from John Kwoka, Finnegan Prof. of Econ., Northeastern
Univ., to H. Comm. on the Judiciary, 3 (Apr. 17, 2020) (on file with
Comm.) [hereinafter Kwoka Submission]; Submission from Michael Kades,
Dir., Mkts. & Competition Pol'y, Wash. Ctr. for Equitable Growth, et
al., to H. Comm. on the Judiciary, 9 (Apr. 30, 2020) (on file with
Comm.) [hereinafter Kades Submission]; Lande Submission at 5; Slaiman
Submission at 3; Foer Submission at 9. See also Herbert Hovenkamp &
Carl Shapiro, Horizontal Mergers, Market Structure, and Burdens of
Proof, 127 Yale L.J. 1996 (2018); Steven C. Salop, The Evolution and
Vitality of Merger Presumptions: A Decision-Theoretic Approach, 80
Antitrust L.J. 269 (2015).
\2482\ Although some courts still follow the structural presumption
adopted by the Supreme Court in United States v. Philadelphia National
Bank, 374 U.S. 321 (1963), it is not universally followed, especially
given the D.C. Circuit's decision in United States v. Baker Hughes
Inc., 908 F.2d 981 (D.C. Cir. 1990).
---------------------------------------------------------------------------
By shifting the burden of proof to the merging parties in
cases involving concentrated markets and high market shares,
codifying the structural presumption would help promote the
efficient allocation of agency resources and increase the
likelihood that anticompetitive mergers are blocked.
(b) Protect Potential Rivals, Nascent Competitors, and
Startups. The Subcommittee's investigation produced evidence
that several of the dominant platforms acquired potential
rivals and nascent competitors. Potential rivals are firms that
are planning to enter or could plausibly enter the acquirer's
market. Nascent competitors are firms whose ``prospective
innovation represents a serious future threat to an
incumbent.'' \2483\ In digital markets, potential rivals and
nascent competitors play a critical role in driving innovation,
as their prospective entry may dislodge incumbents or spur
competition. For this reason, incumbents may view potential
rivals and nascent competitors as a significant threat,
especially as their success could render the incumbent's
technologies obsolete.
---------------------------------------------------------------------------
\2483\ Wu Submission at 4-5; see also C. Scott Hemphill & Tim Wu,
Nascent Competitors, 168 U. Pa. L. Rev. 1879 (2020); Kades Submission
at 14.
---------------------------------------------------------------------------
To strengthen the law relating to potential rivals and
nascent competitors, the Subcommittee recommends strengthening
the Clayton Act to prohibit acquisitions of potential rivals
and nascent competitors. This could be achieved by clarifying
that proving harm on potential competition or nascent
competition grounds does not require proving that the potential
or nascent competitor would have been a successful entrant in a
but-for world.\2484\ Given the patchwork of cases that are
unfavorable to potential and nascent competition-based theories
of harm, this amendment should also make clear that Congress
intends to override this case law.\2485\
---------------------------------------------------------------------------
\2484\ Wu Submission at 6; Kwoka Submission at 6.
\2485\ See, e.g., United States v. Marine Bancorporation, Inc., 418
U.S. 602 (1974).
---------------------------------------------------------------------------
Since startups can be an important source of potential and
nascent competition, the antitrust laws should also look
unfavorably upon incumbents purchasing innovative startups. One
way that Congress could do so is by codifying a presumption
against acquisitions of startups by dominant firms,
particularly those that serve as direct competitors, as well as
those operating in adjacent or related markets.\2486\
---------------------------------------------------------------------------
\2486\ Submission from Mark Lemley, William H. Neukom Prof. of Law,
Stanford Law Sch., to H. Comm. on the Judiciary, 7-8 (Apr. 8, 2020) (on
file with Comm.) [hereinafter Lemley Submission].
---------------------------------------------------------------------------
Lastly, the Subcommittee's review of relevant documents
produced by the FTC and Justice Department demonstrated that
the antitrust agencies consistently underestimated--by a
significant margin--the degree to which an acquisition would
undermine competition and impede entry. In light of this
tendency, the Subcommittee recommends that Congress consider
strengthening the incipiency standard by amending the Clayton
Act to prohibit acquisitions that ``may lessen competition or
tend to increase market power.'' \2487\ Revising the law would
``arrest the creation of trusts, conspiracies, and monopolies
in their incipiency and before consummation.'' \2488\
---------------------------------------------------------------------------
\2487\ Submission from Consumer Reps., to H. Comm. on the
Judiciary, 5 (Apr. 17, 2020) (on file with Comm.) [hereinafter Consumer
Reports Submission]; Submission from Richard M. Steuer, Adjunct Prof.,
Fordham Univ. Sch. of Law, to H. Comm. on the Judiciary (Apr. 8, 2020)
(on file with Comm.) [hereinafter Steuer Submission]; Peter C.
Carstensen & Robert H. Lande, The Merger Incipiency Doctrine and the
Importance of ``Redundant'' Competitors, 2018 Wis. L. Rev. 783 (2018).
\2488\ S. Rep. No. 63-698, at 1 (1914); see also Earl W. Kintner,
The Legislative History of the Federal Antitrust Laws and Related
Statutes 1744-52 (1978) (noting that the Senate Judiciary Committee
report stated that the purpose of the bill was to supplement the
Sherman Act ``by making these practices illegal, to arrest the creation
of trusts, conspiracies, and monopolies in their incipiency and before
consummation'').
(c) Strengthen Vertical Merger Doctrine. The Subcommittee's
investigation identified several ways in which vertical
integration of dominant platforms enabled anticompetitive
conduct. For this reason, the Subcommittee recommends that
Congress examine proposals to strengthen the law relating to
vertical mergers. The current case law disfavors challenges to
vertical mergers. Specifically, courts tend to defer to claims
from the merging parties that the transaction will yield
efficiencies through the ``elimination of double
marginalization'' and are skeptical about claims that the
merger will result in foreclosure.
To address this concern, the Subcommittee recommends that
Congress explore presumptions involving vertical mergers, such
as a presumption that vertical mergers are anticompetitive when
either of the merging parties is a dominant firm operating in a
concentrated market, or presumptions relating to input
foreclosure and customer foreclosure.\2489\
---------------------------------------------------------------------------
\2489\ Kades Submission at 5; Jonathan Baker et al., Five
Principles for Vertical Merger Enforcement Policy, 33 Antitrust 3
(2019).
---------------------------------------------------------------------------
3. Rehabilitate Monopolization Law
Section 2 of the Sherman Act makes it illegal to
``monopolize, or attempt to monopolize, or combine or conspire
with any other person or persons, to monopolize any part of the
trade or commerce among the several States.'' \2490\ Over
recent decades, courts have significantly heightened the legal
standards that plaintiffs must overcome in order to prove
monopolization. Several of the business practices the
Subcommittee's investigation uncovered should be illegal under
Section 2. This Section briefly identifies the relevant
business practices and the case law that impedes effective
enforcement of Section 2 of the Sherman Act.
---------------------------------------------------------------------------
\2490\ 15 U.S.C. 2; accord Sherman Antitrust Act of 1890, Ch. 647,
Sec. 2, 26 Stat. 209, 209 (codified as amended at 15 U.S.C. 2).
(a) Abuse of Dominance. The Subcommittee's investigation
found that the dominant platforms have the incentive and
ability to abuse their dominant position against third-party
suppliers, workers, and consumers. Some of these business
practices are a detriment to fair competition, but they do not
easily fit the existing categories identified by the Sherman
Act, namely ``monopolization'' or ``restraint of trade.'' Since
courts have shifted their interpretation of the antitrust law
to focus primarily on the formation or entrenchment of market
power, and not on its exploitation or exercise, many of the
business practices that the Subcommittee identified as
undermining competition in digital markets could be difficult
to reach under the prevailing judicial approach.
To address this concern, the Subcommittee recommends that
Congress consider extending the Sherman Act to prohibit abuses
of dominance.\2491\ Furthermore, the Subcommittee should
examine the creation of a statutory presumption that a market
share of 30 percent or more constitutes a rebuttable
presumption of dominance by a seller, and a market share of 25
percent or more constitute a rebuttable presumption of
dominance by a buyer.\2492\
---------------------------------------------------------------------------
\2491\ First & Fox Submission at 2; Foer Submission at 2-4; Newman
Submission at 7-8; Stucke Submission at 14; Waller Submission at 13.
\2492\ Waller Submission at 12.
(b) Monopoly Leveraging. The Subcommittee's investigation
found that the dominant platforms have engaged in ``monopoly
leveraging,'' where a dominant firm uses its monopoly power in
one market to boost or privilege its position in another
market. For example, Google's use of its horizontal search
monopoly to advantage its vertical search offerings is a form
of monopoly leveraging. Although monopoly leveraging was
previously a widely cognizable theory of harm under antitrust
law, courts now require that use of monopoly power in the first
market ``actually monopolize'' the secondary market or
``dangerously threaten[] to do so.'' \2493\ The Subcommittee's
investigation identified several instances in which use of
monopoly power in one market to privilege the monopolist's
position in the second market injured competition, even though
the conduct did not result in monopolization of the second
market. For this reason, the Subcommittee recommends overriding
the legal requirement that monopoly leveraging ``actually
monopolize'' the second market, as set out in Spectrum Sports,
Inc. v. McQuillan.\2494\
---------------------------------------------------------------------------
\2493\ Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993).
\2494\ Id. See also Alaska Airlines, Inc. v. United Airlines, Inc.,
948 F.2d 536 (9th Cir. 1991).
(c) Predatory Pricing. The Subcommittee's investigation
identified several instances in which a dominant platform was
pricing goods or services below-cost in order to drive out
rivals and capture the market. For example, documents produced
during the investigation revealed that Amazon had been willing
to lose $200 million in a single quarter in order to pressure
Diapers.com, a firm it had recognized as its most significant
rival in the category. Amazon cut prices and introduced steep
promotions, prompting a pricing war that eventually weakened
Diapers.com. Amazon then purchased the company, eliminating its
competitor and subsequently cutting back the discounts and
promotions it had introduced.
Predatory pricing is a particular risk in digital markets,
where winner-take-all dynamics incentivize the pursuit of
growth over profits, and where the dominant digital platforms
can cross-subsidize between lines of business. Courts, however,
have introduced a ``recoupment'' requirement, necessitating
that plaintiffs prove that the losses incurred through below-
cost pricing subsequently were or could be recouped. Although
dominant digital markets can recoup these losses through
various means over the long term, recoupment is difficult for
plaintiffs to prove in the short term. Since the recoupment
requirement was introduced, successful predatory pricing cases
have plummeted.\2495\
---------------------------------------------------------------------------
\2495\ Hubbard Submission at 20; Stucke Submission at 7; Teachout
Submission at 12; Christopher R. Leslie, Predatory Pricing and
Recoupment, 113 Colum. L. Rev. 1695 (2013).
---------------------------------------------------------------------------
The Subcommittee recommends clarifying that proof of
recoupment is not necessary to prove predatory pricing or
predatory buying, overriding the Supreme Court's decisions in
Matsushita Electric Industrial Co. v. Zenith Radio Corp.,\2496\
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,\2497\
and Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co. \2498\
---------------------------------------------------------------------------
\2496\ 475 U.S. 574 (1986).
\2497\ 509 U.S. 209 (1993).
\2498\ 549 U.S. 312 (2007).
(d) Essential Facilities and Refusals to Deal. The
Subcommittee's investigation uncovered several instances in
which a dominant platform used the threat of delisting or
refusing service to a third party as leverage to extract
greater value or more data or to secure an advantage in a
distinct market. Because the dominant platforms do not face
meaningful competition in their primary markets, their threat
to refuse business with a third party is the equivalent of
depriving a market participant of an essential input. This
denial of access in one market can undermine competition across
adjacent markets, undermining the ability of market
participants to compete on the merits.
To address this concern, the Subcommittee recommends that
Congress consider revitalizing the ``essential facilities''
doctrine, the legal requirement that dominant firms provide
access to their infrastructural services or facilities on a
nondiscriminatory basis.\2499\ To clarify the law, Congress
should consider overriding judicial decisions that have treated
unfavorably essential facilities- and refusal to deal-based
theories of harm.\2500\
---------------------------------------------------------------------------
\2499\ Submission from the Am. Antitrust Inst., to H. Comm. on the
Judiciary, 4 (Apr. 17, 2020) (on file with Comm.) [hereinafter AAI
Submission]; Waller Submission at 13.
\2500\ Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko,
LLP, 540 U.S. 398 (2004); Pac. Bell Tel. Co. v. LinkLine Commc'ns,
Inc., 555 U.S. 438 (2009).
(e) Tying. The Subcommittee's investigation identified
several instances in which a dominant platform conditioned
access to a good or service that the dominant platform
controlled on the purchase or use of a separate product or
service. This business practice undermines competition on the
merits by enabling a firm with market power in one market to
privilege products or services in a distinct market.
Although antitrust law has long treated tying by a
monopolist as anticompetitive, in recent decades, courts have
moved away from this position. The Subcommittee recommends that
Congress consider clarifying that conditioning access to a
product or service in which a firm has market power to the
purchase or use of a separate product or service is
anticompetitive under Section 2, as held by the Supreme Court
in Jefferson Parish Hospital District No. 2 v. Hyde.\2501\
---------------------------------------------------------------------------
\2501\ 466 U.S.C. 2 (1984).
(f) Self-Preferencing and Anticompetitive Product Design.
The Subcommittee's investigation uncovered several instances in
which a dominant platform used the design of its platform or
service to privilege its own services or to disfavor
competitors. This practice undermines competition by enabling a
firm that controls an essential input to distort competition in
separate markets. The Subcommittee recommends that Congress
consider whether making a design change that excludes
competitors or otherwise undermines competition should be a
violation of Section 2, regardless of whether the design change
can be justified as an improvement for consumers.\2502\
---------------------------------------------------------------------------
\2502\ This would require overriding Allied Orthopedic Appliances,
Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991 (9th Cir. 2010).
---------------------------------------------------------------------------
4. Additional Measures to Strengthen the Antitrust Laws
In response to the Subcommittee's requests for submissions,
experts identified other proposals that the Subcommittee
believes warrant review by Congress. These include:
LOverriding Ohio v. American Express by
clarifying that cases involving platforms do not require
plaintiffs to establish harm to both sets of customers; \2503\
---------------------------------------------------------------------------
\2503\ AAI Submission at 4; Submission from Herbert Hovenkamp,
James G. Dinan Univ. Prof., Univ. of Pa. Law Sch., to H. Comm. on the
Judiciary, 3 (Apr. 17, 2020) (on file with Comm.) [hereinafter
Hovenkamp Submission]; Hubbard Submission at 20; Kades Submission at 8.
---------------------------------------------------------------------------
LOverriding United States v. Sabre Corp.,
clarifying that platforms that are ``two-sided,'' or serve
multiple sets of customers, can compete with firms that are
``one-sided''; \2504\
---------------------------------------------------------------------------
\2504\ United States v. Sabre Corp., 452 F. Supp. 3d 97 (D. Del.
2020). See also Kades Submission at 10.
---------------------------------------------------------------------------
LClarifying that market definition is not
required for proving an antitrust violation, especially in the
presence of direct evidence of market power; \2505\ and
---------------------------------------------------------------------------
\2505\ Hovenkamp Submission at 3-4; Newman Submission at 5-6.
---------------------------------------------------------------------------
LClarifying that ``false positives''--or
erroneous enforcement--are not more costly than ``false
negatives''--or erroneous non-enforcement--and that, in
relation to conduct or mergers involving dominant firms,
``false negatives'' are costlier.\2506\
---------------------------------------------------------------------------
\2506\ The Subcommittee believes that Congress could clarify that
the views set out by then-Professor Frank Easterbrook in The Limits of
Antitrust, 63 Tex. L. Rev. 1 (1984), do not reflect the views of the
Congress in enacting the antitrust laws. See also Submission from Bill
Baer, Visiting Fellow, Brookings Inst., to H. Comm. on the Judiciary, 3
(May 19, 2020) (on file with Comm.) [hereinafter Baer Submission]
(``That is my fundamental concern with the state of antitrust
enforcement today. It is too cautious, too worried about adverse
effects of `over enforcement' (so called Type I errors).'').
---------------------------------------------------------------------------
C. Strengthening Antitrust Enforcement
1. Congressional Oversight
As discussed earlier in the Report, Congress has a strong
tradition of performing vigorous oversight of the enforcement
and adequacy of the antitrust laws. Over the last century,
Congress at key moments responded forcefully to the courts'
narrowing of antitrust laws, the rising tide of economic
concentration, or other challenges to the sound and effective
Administration of the antitrust laws.\2507\
---------------------------------------------------------------------------
\2507\ See generally Marc Winerman, The Origins of the FTC:
Concentration, Cooperation, Control, and Competition, 71 Antitrust L.J.
1 (2003).
---------------------------------------------------------------------------
This tradition includes the creation of the FTC and
concurrent enactment of the Clayton Antitrust Act in 1914, as
both a response to the Supreme Court's narrow construction of
the Sherman Act in 1911 and an effort to limit the discretion
of the courts.\2508\ It also includes Congress's broadening of
merger enforcement to cover non-horizontal acquisitions and
other transactions in the Celler-Kefauver Anti-Merger Act of
1950 as well as establishing a mechanism for judicial oversight
of consent decrees in response to political interference in
merger enforcement with the Tunney Act of 1974.\2509\
Additionally, Congress has regularly investigated the rise and
abuse of market power in important markets.\2510\ In support of
these efforts, Congress dedicated substantial congressional and
agency resources to perform the task of identifying and
responding to anticompetitive conduct.\2511\
---------------------------------------------------------------------------
\2508\ Clayton Antitrust Act of 1914, Pub. L. No. 63-212, ch. 323,
38 Stat. 730 (codified as amended at 15 U.S.C. 12-27); Fed. Trade
Comm'n Act of 1914, Pub. L. No. 63-203, ch. 311, 38 Stat. 717 (codified
as amended at 15 U.S.C. 41-58).
\2509\ Antitrust Procedures and Penalties Act (Tunney Act), Pub. L.
No. 93-528, Sec. 2, 88 Stat. 1706, 1706-08 (1974) (amending 15 U.S.C.
16). See also Consent Decree Program of the Dep't of Justice: Hearings
Before the Subcomm. on Antitrust of the H. Comm. on the Judiciary, 85th
Cong. (1957); Subcomm. on Antitrust of the H. Comm. on the Judiciary,
86th Cong., 1st Sess., Report on the Consent Decree Program of the
Department of Justice (1959).
\2510\ In the 1990s, the Committee on the Judiciary conducted
significant oversight of competition in the telecommunications market
in the wake of the breakup of Ma Bell, including through oversight of
the 1982 consent decree. These efforts culminated in the passage of
H.R. 3626, the ``Antitrust and Communications Reform Act,'' by the
House of Representatives in 1994 by a vote of 423 to 5. Chair Jack B.
Brooks introduced this bill--a precursor to the Telecommunications Act
of 1996--to address monopolization in the telecommunications market.
See generally H. Rep. No. 103-559 (1994); Robert M. Frieden, The
Telecommunications Act of 1996: Predicting the Winners and Losers, 20
Hastings Commc'ns & Ent. L.J. 11, 57 n.8 (1997).
\2511\ Submission from Alison Jones & William E. Kovacic, to H.
Comm. on the Judiciary, 4 (Apr. 17, 2020) (on file with Comm.)
[hereinafter Jones & Kovacic Submission].
---------------------------------------------------------------------------
In recent decades, Congress has departed from this
tradition, deferring largely to the courts and to the antitrust
agencies in the crafting of substantive antitrust policy.\2512\
Its inaction has been read as acquiescence in the narrowing of
the antitrust laws and has contributed to antitrust becoming
``overly technical and primarily dependent on economics.''
\2513\
---------------------------------------------------------------------------
\2512\ Harry First & Spencer Weber Waller, Antitrust's Democracy
Deficit, 81 Fordham L. Rev. 2543, 2556 (2013) (``[D]espite a history of
bipartisan congressional support for the importance of the antitrust
laws and their enforcement, of late Congress has done little. And when
it has done something, it has focused on the micro rather than the
macro changes that have occurred in the field.'').
\2513\ Id. at 2559.
---------------------------------------------------------------------------
In other cases, congressional attention has fallen short as
lawmakers tried to address competition problems without
sustained efforts to implement enforcement changes, leading
some reform efforts in recent decades to misfire.\2514\
Responding to these concerns, Congress has increased
appropriations and provided modest improvements to the FTC's
budget and remedial authority during this period. But these
efforts were insufficient without sustained support in the face
of ``ferocious opposition'' from large defendants and
businesses lobbying Congress.\2515\
---------------------------------------------------------------------------
\2514\ Jones & Kovacic Submission at 4 (``The miscalculation of
Congress (and the agencies) about the magnitude of implementation tasks
in this earlier period came at a high price. Implementation weaknesses
undermined many investigations and cases that the federal agencies
launched in response to congressional guidance. The litigation failures
raised questions about the competence of the Federal agencies,
particularly their ability to manage large cases dealing with
misconduct by dominant firms and oligopolists. The wariness of the
federal agencies since the late 1970s to bring cases in this area--a
wariness that many observers today criticize as unwarranted--is in
major part the residue of bitter litigation experiences from this
earlier period.'').
\2515\ Id. at 6.
---------------------------------------------------------------------------
To remedy these broader trends, the Subcommittee recommends
that Congress revive its long tradition of robust and vigorous
oversight of the antitrust laws and enforcement, along with its
commitment to ongoing market investigations and legislative
activity. Additionally, greater attention to implementation
challenges will enable Congress to better see its reform
efforts through.
2. Agency Enforcement
Over the course of the investigation, the Subcommittee
uncovered evidence that the antitrust agencies consistently
failed to block monopolists from establishing or maintaining
their dominance through anticompetitive conduct or
acquisitions. This institutional failure follows a multi-decade
trend whereby the antitrust agencies have constrained their own
authorities and advanced narrow readings of the law. In the
case of the FTC, the agency has been reluctant to use the
expansive set of tools with which Congress provided it,
neglecting to fulfill its broad legislative mandate. Restoring
the agencies to full strength will require overcoming these
trends.
As a general matter, Congress created the FTC to police and
prohibit ``unfair methods of competition,'' \2516\ and to serve
as an ``administrative tribunal'' that carefully studied
ongoing business practices and economic conditions.\2517\ To
enable the agency to carry out these functions, Congress
assigned the Commission powers to ``make rules and regulations
for the purpose of carrying out the [FTC Act's] provisions,''
as well as broad investigative authority to compel business
information and conduct market studies.\2518\ Notably, Congress
established the provision prohibiting ``unfair methods of
competition'' to reach beyond the other antitrust statutes,
``to fill in the gaps in the other antitrust laws, to round
them out and make their coverage complete.'' \2519\ Lawmakers
delegated to the FTC the task of defining what constituted an
``unfair method of competition,'' recognizing that an expert
agency equipped to continuously monitor business practices
would be best positioned to ensure the legal definition kept
pace with business realities.
---------------------------------------------------------------------------
\2516\ See S. Rep. No. 63-597, at 13 (1914) (``The committee gave
careful consideration to the question as to whether it would attempt to
define the many and variable unfair practices which prevail in commerce
and to forbid [them] . . . or whether it would, by a general
declaration condemning unfair practices, leave it to the commission to
determine what practices were unfair. It concluded that the latter
course would be better, for the reason . . . that there were too many
unfair practices to define, and after writing 20 of them into the law
it would be quite possible to invent others.'').
\2517\ Neil W. Averitt, The Meaning of ``Unfair Methods of
Competition'' in Section 5 of the Federal Trade Commission Act, 21 B.C.
L. Rev. 227 (1980); see also Marc Winerman, The Origins of the FTC:
Concentration, Cooperation, Control, and Competition, 71 Antitrust L.J.
1 (2003).
\2518\ 15 U.S.C. 46.
\2519\ Neil W. Averitt, The Meaning of ``Unfair Methods of
Competition'' in Section 5 of the Federal Trade Commission Act, 21 B.C.
L. Rev. 227, 251 (1980) (``Section 5 is not confined to conduct that
actually violates, or that threatens to violate, one of the other
antitrust statutes. If it were limited to this extent it would be a
largely duplicative provision. The legislative purpose instead assigned
to Section 5 a broader role. It was to be an interstitial statute: it
was to fill in the gaps in the other antitrust laws, to round them out
and make their coverage complete. In addition to overt violations,
therefore, Section 5 would reach closely similar conduct that violates
the policy or `spirit' of the antitrust laws, even though it may not
come technically within its terms.'').
---------------------------------------------------------------------------
In practice, however, the Commission has neglected to play
this role. In its first hundred years, the FTC promulgated only
one rule defining an ``unfair method of competition.'' \2520\
In 2015, the Commission adopted a set of ``Enforcement
Principles,'' stating that the FTC's targeting of ``unfair
methods of competition'' would be guided by the ``promotion of
consumer welfare,'' a policy goal absent from any legislative
directive given to the Commission.\2521\ Since the adoption of
this framework, the FTC has brought only one case under its
standalone Section 5 authority.\2522\ The agency has also
failed to regularly produce market-wide studies, having halted
regular data collection in the 1980s.\2523\
---------------------------------------------------------------------------
\2520\ Discriminatory Practices in Men's and Boys' Tailored
Clothing Industry, 16 C.F.R. pt. 412 (1968).
\2521\ Fed. Trade Comm'n, Statement of Enforcement Principles
Regarding ``Unfair Methods of Competition'' Under Section 5 of the FTC
Act (Aug. 13, 2015), https://www.ftc.gov/system/files/documents/
public_statements/735201/150813section5enforcement.pdf.
\2522\ The one exception is the FTC's recent suit against Qualcomm.
Fed. Trade Comm'n v. Qualcomm Inc., 411 F. Supp. 3d 658 (N.D. Cal.
2019) (No. 5:17-cv-00220).
\2523\ Fed. Trade Comm'n, Bur. of Econ., Annual Line of Business
Report 1977 (1985), https://www.ftc.gov/reports/us-federal-trade-
commission-bureau-economics-annual-line-business
-report-1977-statistical.
---------------------------------------------------------------------------
Together with the DOJ, the FTC has also chosen to stop
enforcing certain antitrust laws entirely. For two decades,
neither agency has filed a suit under the Robinson-Patman Act,
which Congress passed in order to limit the power of large
chain retailers to extract concessions from independent
suppliers.\2524\ In 2008, the Justice Department issued a
report recommending that Section 2 of the Sherman Act be curbed
dramatically.\2525\ Although the report was subsequently
rescinded, the Justice Department has not filed a significant
monopolization case in two decades. Meanwhile, both agencies
have targeted their enforcement efforts on relatively small
players--including ice skating teachers and organists--raising
questions about their enforcement priorities.\2526\
---------------------------------------------------------------------------
\2524\ In a memo submitted on behalf of the United States to the
OECD, the Justice Department stated that ``a shift in emphasis based on
economic analysis resulted in a significant reduction in enforcement
actions brought by the Agencies under the Robinson-Patman Act. As a
result, current enforcement of the Act occurs mainly through private
treble damages actions.'' Note by the United States, Roundtable on
``Price Discrimination,'' OECD Doc. No. DAF/COMP/WD(2016)69, at 6 (Nov.
2016), https://www.justice.gov/atr/case-document/file/979211/download.
\2525\ Thomas O. Barnett & Hill B. Wellford, The DOJ's Single-Firm
Conduct Report: Promoting Consumer Welfare Through Clearer Standards
for Section 2 of the Sherman Act, U.S. Dep't of Justice (Sept. 8,
2008), https://www.justice.gov/sites/default/files/atr/legacy/2009/05/
11/238599.pdf.
\2526\ Sandeep Vaheesan, Accommodating Capital and Policing Labor:
Antitrust in the Two Gilded Ages, 78 Md. L. Rev. 766 (2019). See also
Brief for the United States & the Federal Trade Commission as Amicus
Curiae in Support of Appellant & in Favor of Reversal, Chamber of
Commerce of the United States v. City of Seattle, 890 F.3d 769 (9th
Cir. 2018) (No. 17-35640).
---------------------------------------------------------------------------
The agencies have also been hamstrung by inadequate
budgets. In 1981, FTC Chair Jim Miller won steep budget cuts at
the Commission, a drastic rollback from which the agency has
not yet recovered. Prior to this Congress, appropriations for
both agencies have reached historic lows.\2527\ To restore the
antitrust agencies to full strength, the Subcommittee
recommends that Congress consider the following:
---------------------------------------------------------------------------
\2527\ Michael Kades, Wash. Ctr. for Equitable Growth, The State of
U.S. Federal Antitrust Enforcement (2019), https://equitablegrowth.org/
wp-content/uploads/2019/09/091719-antitrust-enforcement-
CRPT117hrpt.pdf.
LTriggering civil penalties and other relief for
violations of ``unfair methods of competition'' rules, creating
symmetry with violations of ``unfair or deceptive acts or
practices'' rules;
LRequiring the Commission to regularly collect
data and report on economic concentration and competition in
sectors across the economy, as permitted under Section 6 of the
FTC Act;
LEnhancing the public transparency and
accountability of the antitrust agencies, by requiring the
agencies to solicit and respond to public comments for merger
reviews, and by requiring the agencies to publish written
explanations for all enforcement decisions; \2528\
---------------------------------------------------------------------------
\2528\ Mitchell Submission at 9-10.
---------------------------------------------------------------------------
LRequiring the agencies to conduct and make
publicly available merger retrospectives on significant
transactions consummated over the last three decades;
LCodifying stricter prohibitions on the revolving
door between the agencies and the companies that they
investigate, especially with regards to senior officials;
\2529\ and
---------------------------------------------------------------------------
\2529\ See Submission from Source 17, to H. Comm. on the Judiciary,
13-14 (Sept. 22, 2020).
---------------------------------------------------------------------------
LIncreasing the budgets of the Federal Trade
Commission and the Antitrust Division.\2530\
---------------------------------------------------------------------------
\2530\ See Baer Submission at 7-8; Kades Submission at 12-13.
---------------------------------------------------------------------------
3. Private Enforcement
Private enforcement plays a critical role in the nation's
antitrust system. The Sherman Act and Clayton Act both include
a private right of action. This reflected lawmakers' desire to
ensure that those abused by monopoly power have an opportunity
for direct recourse.\2531\ It also reflected a recognition that
public enforcers would be susceptible to capture by the very
monopolists that they were supposed to investigate,
necessitating other means of enforcement.
---------------------------------------------------------------------------
\2531\ See, e.g., 51 Cong. Rec. 9073 (1914) (remarks of Rep. Edwin
Y. Webb) (stating that private Section 7 remedies ``open the door of
justice to every man, whenever he may be injured by those who violate
the antitrust laws, and give the injured party ample damages for the
wrong suffered'').
---------------------------------------------------------------------------
Empirical surveys of trends in antitrust enforcement
indicate that private enforcement deters anticompetitive
conduct and strengthens enforcement overall.\2532\ In recent
decades, however, courts have erected significant obstacles for
private antitrust plaintiffs, both through procedural decisions
and substantive doctrine.
---------------------------------------------------------------------------
\2532\ Joshua P. Davis & Robert H. Lande, Toward an Empirical and
Theoretical Assessment of Private Antitrust Enforcement, 36 Seattle U.
L. Rev. 1269, 1276 (2013).
---------------------------------------------------------------------------
One major obstacle is the rise of forced arbitration
clauses, which undermine private enforcement of the antitrust
laws by allowing companies to avoid legal accountability for
their actions.\2533\ These clauses allow firms to evade the
public justice system--where plaintiffs have far greater legal
protections--and hide behind a one-sided process that is tilted
in their favor.\2534\ For example, although Amazon has over two
million sellers in the United States, Amazon's records reflect
that only 163 sellers initiated arbitration proceedings between
2014 and 2019.\2535\ This data seems to confirm studies showing
that forced arbitration clauses often fail to provide a
meaningful forum for resolving disputes and instead tend to
suppress valid claims and shield wrongdoing.\2536\
---------------------------------------------------------------------------
\2533\ Justice Denied: Forced Arbitration and the Erosion of our
Legal System: Hearing Before the Subcomm. on Antitrust, Commercial and
Admin. Law of the H. Comm. on the Judiciary, 116th Cong. 51 (2019)
(statement of Myriam Gilles, Paul R. Verkuil Rsch. Chair in Pub. Law &
Prof. of Law, Benjamin N. Cardozo Sch. of Law).
\2534\ Id. at 12 (statement of Deepak Gupta, Founding Principal,
Gupta Wessler PLLC).
\2535\ Innovation and Entrepreneurship Hearing at 545 (response to
Questions for the Record of Nate Sutton, Assoc. Gen. Couns.,
Competition, Amazon.com, Inc.).
\2536\ Judith Resnik, Diffusing Disputes: The Public in the Private
of Arbitration, the Private in Courts, and the Erasure of Rights, 124
Yale L.J. 2804 (2015).
---------------------------------------------------------------------------
Several other trends in judicial decisions have hampered
private antitrust plaintiffs, including in cases involving
dominant platforms. To address these concerns, the Subcommittee
recommends that Congress consider:
LEliminating court-created standards for
``antitrust injury'' \2537\ and ``antitrust standing,'' \2538\
which undermine Congress's grant of enforcement authority to
``any person . . . injured . . . by reason of anything
forbidden in the antitrust laws''; \2539\
---------------------------------------------------------------------------
\2537\ Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477
(1977).
\2538\ Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council
of Carpenters, 459 U.S. 519 (1983).
\2539\ 15 U.S.C. 15; accord Clayton Antitrust Act of 1914, Pub. L.
No. 63-212, Sec. 4, ch. 323, 38 Stat. 730, 731 (codified as amended at
15 U.S.C. 15).
---------------------------------------------------------------------------
LReducing procedural obstacles to litigation,
including through eliminating forced arbitration clauses \2540\
and undue limits on class action formation; \2541\ and
---------------------------------------------------------------------------
\2540\ American Express Co. v. Italian Colors Rest., 570 U.S. 228
(2013); AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).
\2541\ Comcast Corp. v. Behrend, 569 U.S. 27 (2013).
---------------------------------------------------------------------------
LLowering the heightened pleading requirement
introduced in Bell Atlantic Corp. v. Twombly.\2542\
---------------------------------------------------------------------------
\2542\ 550 U.S. 544 (2007).
?
VII. APPENDIX: MERGERS AND ACQUISITIONS BY DOMINANT PLATFORMS \2543\
\2543\ Prepared by the Subcommittee based on The Acquisition Takeover
by the 5 Tech Giants, Univ. of Cal., Berkeley, Sch. of Info., http://
people.ischool.berkeley.edu/ neha01mittal/infoviz/dashboard/ (last
visited Sept. 28, 2020). See also Big Tech Mergers, Am. Econ. Liberties
Project, https://www.economicliberties.us/big-tech-merger-tracker/
(last visited Oct. 4, 2020); Search Results: ``acquisitions'',
Crunchbase, https://www.crunchbase.com/ (last visited Oct. 4, 2020).
A. Amazon
----------------------------------------------------------------------------------------------------------------
Amazon
-----------------------------------------------------------------------------------------------------------------
Acquisition Value
Company Year Acquired Categories (USD)
----------------------------------------------------------------------------------------------------------------
Zoox 2020 Autonomous Vehicles, Robotics, Transportation 1,200,000,000
Health Navigator 2019 Health Care --
Internet Gaming 2019 Video Games, Content, Media and Entertainment --
Database (IGDB)
INLT 2019 Enterprise Applications, Freight Service, --
Logistics, SaaS, Shipping, Transportation
E8 Storage 2019 Cloud Computing, Enterprise Software, Flash 50,000,000
Storage, Software
Bebo 2019 Internet, Video Games 25,000,000
Sizmek Ad Server 2019 Advertising, Marketing --
CANVAS Technology 2019 Robotics --
Eero 2019 Internet, IoT, Wireless 97,000,000
CloudEndure 2019 Cloud Computing, Cloud Storage, Enterprise 200,000,000
Software, SaaS
TSO Logic 2019 Analytics, Cloud Computing, Cloud Management, Data --
Center, Software
Tapzo 2018 E-Commerce, Mobile, Software 40,000,000
PillPack 2018 Pharmacy, E-Commerce 753,000,000
Ring 2018 Consumer Electronics, Security, Smart Home --
Immedia 2018 Semiconductors --
Sqrrl 2018 Cybersecurity 40,000,000
Dispatch 2017 Robotics --
Blink 2017 Consumer Electronics, Electronics, Hardware, 90,000,000
Security
Goo Technologies 2017 3D Technology, Internet, Software, Web Development --
Body Labs 2017 3D Technology, Artificial Intelligence, Computer 50,000,000
Vision, Developer APIs, Machine Learning
Wing 2017 Information Technology, Logistics, Mobile, SaaS --
GameSparks 2017 E-Commerce, Mobile, Software 10,000,000
Graphiq 2017 Artificial Intelligence, Big Data, Data 50,000,000
Visualization, Market Research, Search Engine,
Semantic Web
Souq.com 2017 Consumer Electronics, E-Commerce, Shopping 580,000,000
Whole Foods 2017 Food and Beverage, Grocery, Organic Food 13,700,000,000
Do.com 2017 Internet, Meeting Software, Software --
Thinkbox Systems 2017 Software --
Colis Prive 2017 Shipping & Delivery, Logistics --
Harvest.ai 2017 Artificial Intelligence, Cloud Security, Cyber 19,000,000
Security, Predictive Analytics
Biba Systems 2016 Apps, Messaging, Mobile --
Partpic 2016 Photo Recognition --
Westland 2016 Publishing --
Curse Inc. 2016 Digital Media, Gaming, Video Games --
Cloud9 IDE 2016 Cloud Computing, Enterprise Software, Mobile, Open --
Source, Software
Orbeus 2016 Artificial Intelligence, Photo Recognition --
NICE 2016 Cloud Infrastructure, Enterprise Software, Power --
Grid
Emvantage Payments 2016 Mobile Payments, Payments --
Elemental 2015 Content Delivery Network, Enterprise Software, 500,000,000
Technologies Video, Video Streaming
Safaba Translation 2015 Software --
Systems
AppThwack 2015 Android, Cyber Security, iOS, Mobile, SaaS, Test --
and Measurement
Shoefitr 2015 E-Commerce, Fashion, Personalization, Software --
ClusterK 2015 Software --
Amiato 2015 Analytics, Real Time, Service Industry --
2lemetry 2015 Cloud Computing, IoT, Software --
Annapurna Labs 2015 Cloud Computing, Cloud Storage, Data Storage 350,000,000
GoodGame 2014 Video Games, Social Media --
Rooftop Media 2014 Content, Digital Entertainment, Audio --
ComiXology 2014 Cloud Data Services, Comics, Digital --
Entertainment, Digital Media, Reading Apps
Twitch 2014 Social Media, Video, Video Games, Video Streaming 970,000,000
Double Helix Games 2014 Developer Platform, PC Games, Video Games --
TenMarks Education 2013 E-Learning, EdTech, Education --
Liquavista 2013 Electronics, Hardware, Manufacturing, Software --
Goodreads 2013 E-Learning, Social Media --
INOVA Software 2013 Software --
UpNext 2012 3D Mapping --
Evi 2012 Mobile, Search Engine 26,000,000
Avalon Books 2012 Books, Education --
Kiva Systems 2012 Hardware, Mobile, Robotics, Software 775,000,000
Teachstreet 2012 Charter Schools, Education --
Yap 2011 Artificial Intelligence, Audio, Messaging, Mobile, --
Speech Recognition, Telecommunications
Pushbutton 2011 Content, Digital Entertainment, TV --
The Book Depository 2011 E-Commerce, Retail --
Toby Press 2010 Books --
Quidsi 2010 Beauty, Child Care, E-Commerce 545,000,000
BuyVIP 2010 E-Commerce, Marketing, Shopping 96,500,000
Amie Street 2010 Media and Entertainment, Music, Music Streaming --
Woot.com 2010 Electronics, Fashion, Wine and Spirits 110,000,000
Touchco 2010 Hardware, Software --
Zappos 2009 E-Commerce, Retail, Shoes 1,200,000,000
SnapTell 2009 Advertising, Marketing, Mobile --
Lexcycle 2009 iOS, Mobile, Software --
AbeBooks 2008 E-Commerce, Marketplace, Shopping --
Reflexive 2008 Gaming, Mobile, Video Games --
Entertainment
Shelfari 2008 Social Media --
Box Office Mojo 2008 Analytics, Film, Media and Entertainment --
Fabric.com 2008 E-Commerce, Fashion, Retail --
LoveFilm 2008 Digital Entertainment, Gaming, Internet 312,000,000
Without A Box 2008 Video --
Audible 2008 Audio, Audiobooks, Digital Entertainment, E- 300,000,000
Commerce, Media and Entertainment
Brilliance Audio 2007 E-Commerce --
Digital Photography 2007 E-Commerce, News, Publishing --
Review
Text Pay Me 2006 Messaging, Payments --
Shopbop.com 2006 E-Commerce, Lifestyle, Shopping --
CustomFlix 2005 Digital Media, DVDs --
Small Parts Inc. 2005 3D Printing, E-Commerce, Manufacturing, Retail --
MobiPocket 2005 Shopping --
Createspace 2005 Digital Media, Printing, Publishing --
Joyo.com 2004 E-Commerce, Internet, Music, Video 75,000,000
Egghead.com 2002 E-Commerce, Retail 6,100,000
OurHouse 2001 E-Commerce, Retail --
Leep Technology 1999 CRM, Information Technology, Software --
Back to Basics 1999 Internet, Toys, Video Games --
Tool Crib 1999 Tools, E-Commerce --
Convergence Corp. 1999 Enterprise Software, Internet, Wireless 23,000,000
Accept.com 1999 E-Commerce Platforms, Photography, Retail 101,000,000
Alexa 1999 Digital Marketing, SEO, Web Development 250,000,000
LiveBid 1999 Auctions --
Exchange.com 1999 Books, Music --
MindCorps 1999 Web Development, Consulting --
Bookpages 1998 E-Commerce, Internet --
Internet Movie 1998 Content, Media and Entertainment, TV 55,000,000
Database (IMDb)
Junglee 1998 E-Commerce, Retail, Shopping 250,000,000
PlanetAll 1998 Internet, Social Media, Web Development --
Telebook 1998 E-Commerce, Internet --
----------------------------------------------------------------------------------------------------------------
B. Apple
----------------------------------------------------------------------------------------------------------------
Apple
-----------------------------------------------------------------------------------------------------------------
Acquisition Value
Company Year Acquired Categories (USD)
----------------------------------------------------------------------------------------------------------------
Spaces 2020 AR/VR --
Mobeewave 2020 Software 100,000,000
Fleetsmith 2020 Software, Security --
NextVR 2020 AR/VR 100,000,000
Inductiv 2020 AI, Machine Learning, Software --
Voysis 2020 AI, Machine Learning, Software --
Dark Sky 2020 Software, Apps --
Xnor.ai 2020 AI, Machine Learning, Software 200,000,000
Spectral Edge 2019 Photography, Software, Artificial Intelligence --
iKinema 2019 Graphics, 3D Animation, Digital Media --
Intel Smartphone 2019 Hardware 1,000,000,000
Modem Business
Drive.ai 2019 Autonomous Vehicles --
Tueo Health 2019 Health Care, Information Technology --
Laserlike 2019 Machine Learning --
Stamplay 2019 Cloud Computing, Data Integration, Developer Tools, 5,600,000
SaaS, Sales Automation
DataTiger 2019 Marketing --
PullString 2019 Voice Recognition --
Platoon 2018 Talent Search/Acquisition --
Silk Labs 2018 AI, Machine Learning, Software --
Dialog 2018 Semiconductors 300,000,000
Shazam 2018 Android, iOS, Music, Audio Recognition 400,000,000
Akonia 2018 Glasses, AR --
Texture 2018 Content, Digital Entertainment, Digital Media --
Buddybuild 2018 Developer Tools, Mobile, Software --
Pop Up Archive 2017 Audio, Podcasts, Software --
Spektral 2017 Photography, Software, AR 30,000,000
InVisage 2017 Photography, Software --
Vrvana 2017 Computer, Hardware, Information Technology, Virtual 30,000,000
Reality
Init.ai 2017 Artificial Intelligence, B2B, Developer Platform, --
Developer Tools, Machine Learning, Messaging,
Natural Language Processing, Virtual Assistant
PowerbyProxi 2017 Consumer Electronics, Industrial, Wireless --
Regaind 2017 Artificial Intelligence, Computer Vision, Photo --
Sharing, Photography
SensoMotoric 2017 Computer Vision, Image Recognition, Psychology, --
Instruments Software
Beddit 2017 Fitness, Health Care, Wellness --
Lattice Data 2017 Big Data, Information Technology, Machine Learning 200,000,000
Workflow 2017 Mobile, Productivity Tools, Software --
RealFace 2017 Facial Recognition --
Indoor.io 2016 Mapping Services, Navigation, Service Industry, --
Internet
Tuplejump 2016 Analytics, Artificial Intelligence, Big Data, Data --
Visualization, Machine Learning, Software
Turi 2016 Analytics, Artificial Intelligence, Big Data, 200,000,000
Machine Learning, Software
Gliimpse 2016 Health Care, Information Technology --
Emotient 2016 Artificial Intelligence, Machine Learning, --
Software, Video
LearnSprout 2016 Analytics, Big Data, EdTech, Education, Predictive --
Analytics
Flyby Media 2016 Augmented Reality, Computer Vision, Internet, --
Location Based Services, Mobile, Social Media,
Video
Faceshift 2015 Broadcasting, Content Creators, Digital Media, --
Facial Recognition, Information Technology, Video
Conferencing
LegbaCore 2015 Consulting, Information Technology, Security --
VocalIQ 2015 Artificial Intelligence, Audio, Automotive, Machine --
Learning, Mobile, Wearables
Perceptio 2015 Artificial Intelligence, Digital Media, Machine --
Learning
Mapsense 2015 Geospatial, Location Based Services, Web Hosting 25,000,000
Coherent Navigation 2015 Apps, Software --
Metaio 2015 Advertising, Augmented Reality, Mobile, Software --
LinX 2015 Mobile, Social Media 20,000,000
Dryft 2015 Hardware, Software --
FoundationDB 2015 Analytics, Database, Enterprise Software --
Camel Audio 2015 Audio, Music --
Semetric 2015 Analytics, Content Discovery, Predictive Analytics 50,000,000
Prss 2014 iOS, Publishing --
Beats Electronics 2014 Consumer Electronics, Hardware, Manufacturing, 3,000,000,000
Media and Entertainment, Music, Software
BookLamp 2014 Content Discovery, Reading Apps, Software --
Spotsetter 2014 Big Data, Social Media --
Swell 2014 Content Discovery, Machine Learning, Mobile, 30,000,000
Personalization
LuxVue Technologies 2014 Consumer Electronics, Hardware, Software --
Burstly 2014 Advertising, Analytics, iOS, Mobile Advertising --
SnappyLabs 2014 Photography --
Acunu 2013 Analytics, Big Data, Software --
Topsy 2013 Analytics, Internet, Real Time, Search Engine, 200,000,000
Social Media
BroadMap 2013 Geospatial, Software --
PrimeSense 2013 3D Technology, Consumer Electronics, Hardware 345,000,000
Cue 2013 Internet, Mobile Apps 35,000,000
Passif Semiconductor 2013 Manufacturing, Semiconductor, Wireless --
Matcha 2013 Content, Online Portals, Video --
Embark 2013 Mobile, Mobile Apps, Public Transportation --
AlgoTrim 2013 Mobile --
Catch.com 2013 Android, iOS, Mobile --
Locationary 2013 Analytics, Crowdsourcing, Location Based Services --
HopStop.com 2013 Android, iOS, Navigation --
OttoCat 2013 Apps, Internet, Mobile --
WiFiSlam 2013 Location Based Services, Mobile, Wireless 20,000,000
Novauris Technologies 2013 Information Services, Mobile, VoIP --
Anobit 2012 Electronics, Flash Storage, Semiconductor 390,000,000
Chomp 2012 Mobile 50,000,000
AuthenTec 2012 Biometrics, Cyber Security, Identity Management, 356,000,000
NFC, Security, Semiconductor, Sensors
Particle 2012 Developer Platform, Mobile, Web Development --
Redmatica 2012 Music, Music Streaming --
C3 Technologies 2011 Assistive Technology, Enterprise Software, 240,000,000
Information Technology
Quattro Wireless 2010 Ad Network, Advertising, Advertising Platforms, 275,000,000
Mobile, Publishing
Intrinsity 2010 Manufacturing, Mobile, Semiconductor 121,000,000
Siri 2010 Consumer Electronics, iOS, Software, Virtualization --
Gipsy Moth Studios 2010 App Localization --
Poly9 2010 Geospatial, Software --
Polar Rose 2010 Internet, Browser Extensions, Image Recognition, 22,000,000
Photography
IMSense 2010 Image Recognition, Photography, Software --
Placebase 2009 Database, Developer APIs, Developer Tools --
Lala 2009 Internet, Music, Music Streaming 17,000,000
P.A. Semi 2008 Electronics, Manufacturing, Semiconductor 278,000,000
Silicon Color 2006 Film, Software, Video --
Proximity 2006 Media Asset Management --
SchemaSoft 2005 Software --
FingerWorks 2005 Hardware, Human Computer Interaction, Software --
Nothing Real 2002 Software --
Zayante 2002 Software 13,000,000
Emagic 2002 Software 30,000,000
Prismo Graphics 2002 Robotics, Software, Video 20,000,000
Silicon Grail Corp- 2002 Software 20,000,000
Chalice
Propel Software 2002 Computer, Internet, Software --
PowerSchool 2001 EdTech, Education, SaaS, Software 62,000,000
Spruce Technologies 2001 Information Technology 15,000,000
Bluebuzz 2001 Internet Service Provider --
Bluefish Labs 2001 Database, Mobile Apps, Web Apps --
Astarte 2000 DVD Authoring --
NetSelector 2000 Information Technology, Internet, Software --
SoundJam MP 2000 MP3 Player, Audio Player, Software --
Raycer Graphics 1999 3D Technology, Graphic Design, Information 15,000,000
Technology
Xemplar Education 1999 Education 5,000,000
NeXT 1997 Education, Hardware, Software 404,000,000
Power Computing Corp. 1997 Manufacturing, Software 100,000,000
Coral Software 1989 Artificial Intelligence, Information Technology, --
Software
Nashoba Systems 1988 Software --
Network Innovations 1988 Information Technology, Software, Virtualization --
Orion Network Systems 1988 Communications Infrastructure, Satellite --
Communication
Styleware 1988 Internet, IoT, Software, Web Hosting --
----------------------------------------------------------------------------------------------------------------
C. Facebook
----------------------------------------------------------------------------------------------------------------
Facebook
-----------------------------------------------------------------------------------------------------------------
Acquisition Value
Company Year Acquired Categories (USD)
----------------------------------------------------------------------------------------------------------------
Giphy 2020 Software 400,000,000
Ready at Dawn 2020 VR, Video Games --
Mapillary 2020 Software, Mapping --
Sanzaru Games 2020 VR, Video Games --
Scape Technologies 2020 AR/VR, Computer Vision, Software 40,000,000
PlayGiga 2019 Digital Media, Video Games --
Beat Games 2019 VR, Video Games --
Packagd 2019 E-Commerce, Shopping --
GrokStyle 2019 Artificial Intelligence --
CTRL-labs 2019 Augmented Reality --
Servicefriend 2019 AI, Messaging --
Chainspace 2019 Apps, Blockchain, Information Technology --
Vidpresso 2018 Broadcasting, Software --
Redkix 2018 Productivity, Enterprise Collaboration --
Bloomsbury AI 2018 AI, Machine Learning 30,000,000
Confirm.io 2018 Identity Management --
Tbh 2017 iOS, Mobile Apps, Social, Social Media --
Fayteq 2017 Software --
Source3 2017 Content Rights Management --
Ozlo 2017 Artificial Intelligence, Computer, Information --
Services, Mobile
Zurich Eye 2017 AR/VR, Computer Vision, Robotics --
CrowdTangle 2016 Brand Marketing, Non-Profit, Social Media --
FacioMetrics 2016 Machine Learning, Mobile Apps, Social Media, --
Software
InfiniLED 2016 Lighting, Hardware --
Nascent Objects 2016 Manufacturing, Product Design, Software --
Two Big Ears 2016 Audio, Consumer Electronics, Software, Virtual --
Reality
Masquerade 2016 Consumer Applications, Mobile, Photo Editing --
Endaga 2015 Communications Infrastructure, Impact Investing, --
Infrastructure, Mobile, Telecommunications
Pebbles Interfaces 2015 Digital Media, Hardware, Mobile 60,000,000
Surreal Vision 2015 Software --
TheFind 2015 Coupons, E-Commerce, Lifestyle, Local, Mobile, --
Search Engine, Shopping
QuickFire Networks 2015 Cloud Data Services, Video --
Wit.ai 2015 Artificial Intelligence, Computer, Developer APIs, --
Machine Learning, Software
WaveGroup Sound 2014 Music, Product Design --
PRYTE 2014 Mobile Devices, Emerging Markets --
PrivateCore 2014 Cyber Security, Security --
LiveRail 2014 Advertising, Enterprise Software, Video 500,000,000
ProtoGeo Oy 2014 Mobile --
Ascenta 2014 Aerospace, Manufacturing 20,000,000
WhatsApp 2014 Android, Messaging, Mobile, Subscription Service 19,000,000,000
Oculus VR 2014 Augmented Reality, Consumer Electronics, Hardware, 2,000,000,000
Video Games, Virtual Reality, Virtualization
Branch 2014 Internet, Messaging, Social 15,000,000
Little Eye Labs 2014 Android, Mobile, Test and Measurement 15,000,000
SportStream 2013 Consumer Electronics, Mobile, Sports --
Onavo 2013 Finance, Mobile, Social Network --
Jibbigo 2013 Apps, Audio, Big Data, Language Learning, Mobile --
Monoidics 2013 Analytics, Enterprise Software, Information --
Technology
Parse 2013 Android, Cloud Computing, Enterprise Software, iOS, 85,000,000
Mobile, PaaS
Hot Studio 2013 Internet, Social Media, Web Design --
Spaceport 2013 Gaming, Mobile, Mobile Devices, Online Games, Web --
Development
Atlas Solutions 2013 Advertising, Advertising Platforms, Internet 100,000,000
Osmeta 2013 Hardware, Software --
Storylane 2013 Social Media --
Threadsy 2012 Messaging, Social Media, Social Network --
Spool 2012 Enterprise Software, Mobile, Social Bookmarking, --
Video
Acrylic Software 2012 Software --
Karma 2012 Gifts, Mobile, Social --
Face.com 2012 Artificial Intelligence, Cloud Storage, Facial 100,000,000
Recognition, Machine Learning, Photography, Social
Network
TagTile 2012 Direct Marketing, Loyalty Programs, Mobile, Social --
Media
Glancee 2012 Android, Dating, iOS, Location Based Services, --
Mobile, Public Relations, Search Engine
Lightbox.com 2012 Android, Mobile, Photo Sharing --
Instagram 2012 Mobile, Photo Sharing, Photography, Social Media 1,000,000,000
Caffeinated Mind 2012 File Transfer, Big Data --
Gowalla 2011 Location Based Services, Photography, Private --
Social Networking, Travel, Internet
Strobe 2011 iOS, Mobile, Software, Web Development --
Friend.ly 2011 Blogging Platforms, Social Media --
Push Pop Press 2011 Advertising, Digital Media, Marketing --
MailRank 2011 Email, CRM, Information Technology, Software --
DayTum 2011 Analytics, Big Data, Database --
Sofa 2011 Developer Tools, Software --
RecRec 2011 Computer Vision --
Beluga 2011 Messaging, Mobile, Social Media --
Rel8tion 2011 Advertising, Advertising Platforms --
Snaptu 2011 Mobile 70,000,000
ShareGrove 2010 Real Time, Social Network, Web Hosting --
Drop.io 2010 EdTech, Education, Email, File Sharing, Finance, 10,000,000
FinTech, Flash Storage, Mobile
Hot Potato 2010 Social, Social Media, Social Media Marketing 10,000,000
Nextstop 2010 Digital Entertainment, Social, Travel 2,500,000
Chai Labs 2010 Software 10,000,000
Zenbe 2010 Android, Email, Location Based Services, Messaging, --
Mobile, Software, Web Apps
Divvyshot 2010 Photo Sharing, Social Network, Web Hosting --
Octazen 2010 Enterprise Software, Social Network, Web Browsers --
FriendFeed 2009 Social Media 47,500,000
ConnectU 2009 Social Media --
Parakey 2007 Social Media, Web Browsers, WebOS --
AboutFace 2007 Internet --
----------------------------------------------------------------------------------------------------------------
D. Google
----------------------------------------------------------------------------------------------------------------
Google
-----------------------------------------------------------------------------------------------------------------
Acquisition Value
Company Year Acquired Categories (USD)
----------------------------------------------------------------------------------------------------------------
Stratozone 2020 Cloud, Platform Migration --
North 2020 Hardware, Glasses 180,000,000
Looker 2020 Big Data, Analytics 2,600,000,000
Cornerstone 2020 Cloud, Platform Migration --
Technology
AppSheet 2020 Enterprise Software --
Pointy 2020 Software, Inventory 163,000,000
Fitbit 2019 User Data, Mobile Devices, Fitness Tracking, Health 2,100,000,000
Care
Typhoon Studios 2019 Video Games, Video Streaming --
CloudSimple 2019 Cloud --
Elastifile 2019 Cloud, Storage --
Nightcorn 2019 Internet, Social Media, Video Streaming --
Alooma 2019 Data Integration, Cloud, Platform Migration --
Superpod 2019 Software 60,000,000
DevOps Research and 2018 Cloud --
Assessment
Sigmoid Labs 2018 Software --
Workbench 2018 Software, Education --
Onward 2018 AI, Customer Service, Sales --
GraphicsFuzz 2018 Graphics Drivers, Security --
Velostrata 2018 Cloud Migration, Data Centers --
Cask Data 2018 Big Data, Analytics --
Lytro 2018 Photography, Film, Hardware, VR --
Tenor 2018 Messaging, Social Media, Video --
Socratic 2018 AI, Software --
Xively 2018 Enterprise Software, IoT, SaaS --
Redux 2018 Speakers, Mobile Devices --
HTC Smartphone 2018 Consumer Electronics, Manufacturing, Mobile 1,100,000,000
Division
Banter 2017 Mobile Software, Messaging --
Relay Media 2017 Analytics --
60db 2017 Audio, Media and Entertainment, Social Media, Video --
Streaming
Bitium 2017 Cloud Computing, Cyber Security, Identity --
Management, SaaS, Security, Software
AIMatter 2017 Artificial Intelligence, Computer Vision, Software --
Senosis Health 2017 Health, Mobile Device, Software --
Halli Labs 2017 Artificial Intelligence, Machine Learning, Software --
Engineering
Owlchemy Labs 2017 Gaming, Software Engineering, Virtual Reality --
Kaggle 2017 Analytics, Big Data, Data Mining, News, Predictive --
Analytics
AppBridge 2017 Apps, Data Storage, Google --
Crashlytics 2017 Android, iOS, Mobile, SaaS --
Fabric 2017 Cloud Infrastructure, Developer APIs, Developer --
Tools, Enterprise Software, Mobile Apps, Real Time
Limes Audio 2017 Audio, Communication Hardware, Telecommunications --
Cronologics 2016 Hardware, Software, Wearables --
LeapDroid 2016 Software --
Qwiklabs 2016 Cloud Computing, Information Technology, Software --
FameBit 2016 Internet, Music, Video --
Eyefluence 2016 Consumer Electronics, Manufacturing, Wearables --
Apigee 2016 Cloud Data Services, Enterprise Software, 625,000,000
Information Technology
Urban Engines 2016 Analytics, Big Data, GovTech, Mobile, Software, --
Transportation
Api.ai 2016 Natural Language Processing, Voice Recognition --
Orbitera 2016 Analytics, Cloud Computing, E-Commerce, Marketing 100,000,000
Automation, SaaS, Software
Apportable 2016 Developer Tools, Enterprise Software, Mobile, iOS --
Moodstocks 2016 Artificial Intelligence, Hardware, Image --
Recognition, Machine Learning, Mobile, QR Codes,
Real Time, Visual Search
Anvato 2016 Software, Video Conferencing, Video Streaming --
Kifi 2016 Analytics, Artificial Intelligence, Big Data, --
Content Discovery, Knowledge Management
LaunchKit 2016 Developer Tools, Mobile Apps --
Webpass 2016 Internet, ISP, Wireless --
Synergyse 2016 Apps, Search Engine, Software, Training --
BandPage 2016 Consumer, Facebook, Marketplace, Music --
Pie 2016 Automotive, Incubators --
Fly Labs 2015 iOS --
Bebop 2015 Business Development, Enterprise, Enterprise 380,000,000
Software
Digisfera 2015 Images --
Oyster 2015 Email, Web Design, Web Hosting --
Jibe Mobile 2015 File Sharing, Messaging, Mobile, Social Media --
Pixate 2015 Computer, Enterprise Software, Mobile --
Timeful 2015 Analytics, Artificial Intelligence, Database, --
Machine Learning, Task Management
Pulse.io 2015 Apps, Mobile --
Thrive Audio 2015 Audio, 3D Technology --
Skillman & Hackett 2015 Software, Virtual Reality --
Launchpad Toys 2015 Apps, Education, iOS --
Odysee 2015 Enterprise Software, Mobile Apps, Photo Sharing --
Softcard 2015 Apps, Mobile Payments --
Red Hot Labs 2015 Advertising Platforms, Apps, Mobile, Software --
Granata Decision 2015 Analytics, Artificial Intelligence, Machine --
Systems Learning
Vidmaker 2014 Collaboration, Social Media, Video --
Lumedyne Technologies 2014 Consumer Electronics, Information Technology, --
Semiconductors
RelativeWave 2014 Apps, Developer Tools --
Agawi 2014 EdTech, Gaming, Mobile Apps, Mobile Devices --
Firebase 2014 Cloud Infrastructure, Developer APIs, Developer --
Tools, Enterprise Software, Mobile Apps, Real Time
Dark Blue Labs 2014 Artificial Intelligence, Data Visualization, --
Machine Learning
Vision Factory 2014 Artificial Intelligence, Computer Vision, Machine --
Learning, Search Engine, Software
Revolv 2014 Internet of Things, Smart Home, Software --
Lift Labs 2014 Hardware, Health Care, Medical, Software --
Polar 2014 Fitness, Health Care, Wearables --
Skybox Imaging 2014 Cloud Security, Cyber Security, Enterprise 500,000,000
Software, Network Security, Security, Software
Emu 2014 E-Commerce --
Directr 2014 Energy, Solar --
Jetpac 2014 AI, ML --
Gecko Design 2014 Product Design --
Zync Render 2014 Digital Media, Flash Storage, Social Media --
Dropcam 2014 Consumer Electronics, Hardware, SaaS 555,000,000
Songza 2014 Music --
DrawElements 2014 Enterprise Software --
mDialog 2014 Advertising, Information Technology, Video --
Streaming
Aplental Technologies 2014 Information Technology, Wireless --
Baarzo 2014 Video, Search --
Appurify 2014 Android, Apps, iOS, Mobile, Test and Measurement --
Rangespan 2014 Analytics, E-Commerce, Supply Chain Management --
Adometry 2014 Advertising, Analytics, SaaS --
Appetas 2014 Network Security, Restaurants, SaaS --
Stackdriver 2014 Apps, Cloud Computing, Enterprise Software, --
Infrastructure
Quest Visual 2014 Data Visualization, iOS, Software --
Gridcentric 2014 Software, Virtualization --
Divide 2014 Enterprise Software, Information Technology, --
Mobile, SaaS, Software
Titan Aerospace 2014 Aerospace, Manufacturing --
GreenThrottle 2014 Console Games, Consumer Electronics, Mobile --
Nest Labs 2014 Sensor, Manufacturing, Smart Home 3,200,000,000
SlickLogin 2014 Mobile, Mobile Apps, Security --
Spider.io 2014 Advertising, Analytics, Fraud Detection, Internet, --
Security
Bitspin 2014 Apps, Web Development --
Impermium 2014 Security --
DeepMind Technologies 2014 AI, ML 500,000,000
Flutter 2013 Content, Software 40,000,000
FlexyCore 2013 Software 23,000,000
Calico 2013 Biotech, Genetics, Health Care --
Bump 2013 Mobile, Contact Sharing --
WIMM Labs 2012 Hardware, Software, Wearables --
Waze 2013 Mobile Apps, Navigation, Transportation 966,000,000
Makani Power 2013 Energy --
MyEnergy 2013 Clean Energy, Energy Efficiency --
Behavio 2013 Software --
Wavii 2013 ML, AI 30,000,000
Channel Intelligence 2013 Manufacturing, Product Search, Shopping 125,000,000
DNNresearch 2013 AI --
Talaria Technologies 2013 Software, Web Design, Web Development --
Schaft 2013 Hardware, Robotics --
Industrial Perception 2013 AI --
Redwood Robotics 2013 Robotics --
Meka Robotics 2013 Robotics --
Holomni 2013 Mobile, Robots --
Bot & Dolly 2013 Software, Robotics --
Autofuss 2013 Product Design --
Incentive Targeting 2012 Public Relations, Retail --
BufferBox 2012 E-Commerce, Marketplace, Shopping 17,000,000
Viewdle 2012 Analytics, Augmented Reality, Computer Vision, 45,000,000
Mobile, Facial Recognition
VirusTotal.com 2012 Security --
Nik Software 2012 Image Recognition, Software --
Sparrow 2012 Email, Messaging 25,000,000
Wildfire Interactive 2012 Consulting, Content, Data Integration, Developer 450,000,000
Tools
Cuban Council 2012 Consulting, Consumer Electronics, Search Engine --
Meebo 2012 Internet, Messaging, Web Development 100,000,000
Quickoffice 2012 Enterprise Software, iOS, Mobile --
TxVia 2012 Finance, FinTech, Mobile, PaaS --
Milk, Inc 2012 Apps, Mobile, Software --
RightsFlow 2011 Accounting, Music, Legal --
Clever Sense 2011 ML, AI --
Apture 2011 Advertising --
Katango 2011 Social Media --
Anthony's Robots 2011 Autonomous Vehicles --
510 Systems 2011 Autonomous Vehicles, Software --
SocialGrapple 2011 Analytics, Social Media --
Zave Networks 2011 Apps, Mobile --
Zagat 2011 Consumer Reviews 151,000,000
DailyDeal 2011 Beauty, Shopping 114,000,000
Dealmap 2011 Coupons, Local, Mobile, Search Engine, Social Media --
Motorola Mobility 2011 Mobile Apps 12,500,000,000
Punchd 2011 Android, iOS, Loyalty Programs, Mobile --
Fridge 2011 Photo Sharing --
PittPatt 2011 Facial Recognition --
PostRank 2011 Analytics, Social Media, Test and Measurement --
Admeld 2011 Advertising, Auctions, Software 400,000,000
SageTV 2011 Digital Entertainment, Events, Media and --
Entertainment
Modu 2011 Mobile, Telecommunications, Wireless --
Sparkbuy 2011 Consumer Electronics, E-Commerce, Shopping --
PushLife 2011 Digital Media, E-Commerce, Mobile 25,000,000
ITA Software 2011 Information Technology 676,000,000
TalkBin 2011 Messaging --
BeatThatQuote.com 2011 Auto Insurance, E-Commerce, Price Comparison 65,000,000
Next New Networks 2011 Video, Video Streaming --
Green Parrot Pictures 2011 Digital Media, Enterprise Software, Video --
Zynamics 2011 Security --
eBook Technologies 2011 Content, E-Books --
SayNow 2011 Messaging, Social Network, Telecommunications --
Phonetic Arts 2010 Software --
Widevine Technologies 2010 Digital Entertainment, Digital Media, Video --
Zetawire 2010 Mobile Payments, NFC --
BlindType 2010 Mobile --
Plannr 2010 Mobile --
Quiksee 2010 Digital Media 10,000,000
MentorWave 2010 Software, 3D Visualization --
Technologies
Slide.com 2010 Developer Tools, Software 228,000,000
Jambool 2010 Apps, Internet 70,000,000
Like.com 2010 Image Recognition 100,000,000
Angstro 2010 Enterprise Software, Facebook, Social Network --
SocialDeck 2010 Mobile, Social Website --
Metaweb 2010 Database, Infrastructure --
Invite Media 2010 Advertising 81,000,000
Instantiations 2010 Software --
Global IP Solutions 2010 Software 68,200,000
Simplify Media 2010 Digital Entertainment, Digital Media, Mobile --
Ruba.com 2010 Guides, Internet --
PinkArt 2010 Software --
Agnilux 2010 Hardware --
LabPixies 2010 Software --
BumpTop 2010 Software 30,000,000
Picnik 2010 Photosharing --
DocVerse 2010 Document Management 25,000,000
Episodic 2010 Broadcasting, Internet --
reMail 2010 Email, Messaging, Mobile Apps --
Aardvark 2010 Internet, Search Engine, Social 50,000,000
AdMob 2009 Ad Network, Advertising, Apps, Marketing, Mobile 750,000,000
Gizmo5 2009 Public Relations, VoIP 30,000,000
Teracent 2009 Advertising, Machine Learning --
AppJet 2009 Software, Web Development --
reCAPTCHA 2009 Security --
On2 2009 Content, Internet, SaaS, Software, Video 133,000,000
Eluceon Research 2009 Internet, Software --
TNC 2008 Google, Web Browsers, Web Hosting --
Begun 2008 Advertising --
Omnisio 2008 File Sharing, Video 15,000,000
Jaiku 2007 Mobile --
Zingku 2007 Digital Media, Social Media, Social Network --
Postini 2007 Cyber Security, Internet, Security 625,000,000
ImageAmerica 2007 Software, Document Scanning --
FeedBurner 2007 Blogging Platforms, Internet, Podcast 100,000,000
PeakStream 2007 Apps, Developer APIs, GPU, Software --
Zenter 2007 Content, E-Commerce, Web Hosting --
GrandCentral 2007 Mobile, Telecommunications, VoIP 45,000,000
GreenBorder 2007 Computer, Internet, Software --
Panoramio 2007 Photo Sharing, Photography, Social Media --
Crusix 2007 Social Networking --
DoubleClick 2007 Advertising 3,100,000,000
Tonic Systems 2007 Web Development --
Marratech 2007 Software, Video Conferencing 15,000,000
Trendalyzer 2007 Visual Statistics, Data Visualization, Software --
Adscape 2007 Advertising, Digital Media, Marketing 23,000,000
Endoxon 2006 Information Technology 28,000,000
JotSpot 2006 Collaboration, Enterprise Software, Software --
YouTube 2006 Internet, Music, Video 1,650,000,000
Neven Vision 2006 Software --
2Web Technologies 2006 Software --
Orion 2006 Content, Search Engine, Web Hosting --
Upstartle 2006 Software --
@Last Software 2006 3D Technology, Developer Tools --
Measure Map 2006 Advertising, Analytics, Big Data --
dMarc Broadcasting 2006 Advertising, Advertising Platforms, Internet Radio 102,000,000
Phatbits 2005 XML Desktop Applications --
allPAY GmbH 2005 Mobile --
bruNET GmbH 2005 Digital Entertainment, Social Media --
Skia 2005 Graphic Design --
Akwan Information 2005 Information Technology, IT Management, Search --
Technologies Engine
Android 2005 Linux, Mobile, Search Engine 50,000,000
Reqwireless 2005 Wireless --
Dodgeball 2005 Mobile Devices, Software --
Urchin Software 2005 Software --
Corporation
Where 2 Technologies 2004 Software --
Keyhole 2004 Geospatial, Software --
ZipDash 2004 Automotive, E-Commerce, Mobile, Real Time, Travel --
Picasa 2004 Photos, Photo Editing --
Ignite Logic 2004 Internet, Software, Web Design --
Sprinks 2003 Online Advertising --
Genius Labs 2003 Developer APIs, Developer Tools, Software --
Neotonic Software 2003 CRM, Software --
Applied Semantics 2003 Developer APIs, Enterprise Software, Mobile Apps 102,000,000
Kaltix 2003 SEO, Web Hosting --
Pyra Labs 2003 Blogging Platforms, Developer APIs, Developer --
Tools, Enterprise Software, Project Management,
Social Media
Outride 2001 Energy, Information Technology, Online Portals --
Deja 2001 Information Technology, Internet, Web Development --
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VIII. APPENDIX: ADDITIONAL VIEWS OF
MEMBERS OF JUDICIARY COMMITTEE
=======================================================================
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]