Congress called the leaders of the four biggest tech companies — Amazon, Apple, Facebook, and Google — to testify on July 29 about their practices around competition. To understand the arguments made during the hearing, and if any will lead to further action, GLG on July 30 spoke with Peter Gray, a former trial attorney at the U.S. Department of Justice. Below are select excerpts from our broader discussion.

Although the hearing also centered on Apple, Facebook, and Google, most attention was paid to Amazon. What were the key arguments against it during the July 29 hearing?

Amazon was the focus of approximately 10 different sets of questions, more than twice the others. Concerns were basically around a pattern of Amazon taking the information that third-party sellers give them, and then using that information to create knockoffs and start selling them in competition with a third party, underpricing them and driving those third parties out of business. There was some mention of predatory pricing a couple of times, both with regards to Diapers.com and some of the smart home devices like Alexa. Predatory pricing is a tough legal theory to prove in a lawsuit. I’m not sure what kind of legislation would be proffered to try to cover that kind of allegation.

It wasn’t clear how many documentary pieces there were to underlie the allegations made by committee members. There must have been emails, and probably some Amazon documents, but it wasn’t clear how strong the evidence was. There’s a lot of smoke, but it isn’t clear how much fire is there.

What do you make of allegations against Facebook and its acquisitions of potential rivals?

The violation in question when it bought Instagram has to do with the Clayton Act, which governs mergers and acquisitions. Legislators had specific emails from Mark Zuckerberg and others who were talking about how in the mobile photo sharing tool context, Instagram seemed to be eating Facebook’s lunch, and that it would be good to neutralize that competitor.

To put my enforcer’s hat back on, there are a lot of reasons why documents that look incendiary don’t really mean much in the context of violating the Clayton Act or Sherman Act. There needs to be more than just bad intent. The government must show that there are economic reasons why the deal should not have been okayed. The case law is difficult to overcome. Judges who’ve been appointed since Ronald Reagan was president have interpreted the Clayton Act and the Sherman Act in a manner that makes it difficult to bring a case based on potential competition. Certainly, there could be legislative action to break companies up, or antitrust enforcement action by the executive.

What is the antitrust argument lodged against Google?

Google drew some bipartisan antitrust attention. The argument was that Google has access to a lot of data, and it uses it to screw around with people who have content that is either competitive to them or it wants in some way for its own purposes.

What was most substantive in my mind was this conversation about the ad exchange with regards to independent journalists. Google, of course, is known as having huge market share in the digital ad space. In this one ad exchange, there seemed to be a built-in conflict for Google because it was both the buyer and seller of ads. That is clearly something that needs to be investigated more. It’s nonsensical for Google to say that users have control over this stuff in any way, shape, or form. It’s more of a privacy issue than anything else, but Google’s use of user data also helps Google’s business because then it gets information about people who are competitors in some way.

The question is how Google’s use of this data is possibly violating antitrust law. Ad markets are wholly unregulated, and Rep. Pramila Jayapal pointed out that where a company is the buyer and seller, there are potential insider trading problems. The question is, is there a way to regulate those kinds of markets? That’s not clear to me at all.

What were the arguments made against Apple and its practices?

Tim Cook really skated by unharmed. Apple sets up its contracts related to the App Store and with wireless carriers in a manner that’s opaque, complicated, and successful in keeping a universe of things under Apple’s control. Apple sets the rules for the App Store, and developers must comply. To be on the App Store, just like with Amazon’s marketplace, Apple gets a lot of data from developers. It was irritating and nonsensical for Cook to argue, “Well, those developers could go develop Android stuff or Xbox stuff.” These are people who have a lot of specialty with the APIs that Apple developed. There isn’t an option for developers to go elsewhere if they’ve developed this expertise over years.

Clearly the committee, through documents and witness testimony, had gotten information about Apple’s use of data to develop replacements for certain apps. Cook kept insisting that Apple has only 60 apps, but clearly some of them have replaced third-party apps. There also was this thing about screen time and how Apple basically, through the rules that it set for the App Store, developed a replacement for a screen time tool and forced a developer out of the market. The other allegation that’s similar to this was regarding Random House being forced into an arrangement with iBooks that it didn’t want, because the publisher was basically threatened with not having access at all to the App Store. Therefore, it gave in and joined iBooks, even though it wanted to develop its own reading app.

There is evidence about Apple’s control of the App Store to narrow consumer choices, and that would be a Sherman Act violation, if it could be proved.

What is the likelihood of congressional action because of this hearing?

There could be some movement toward proposing some regulations of these companies by the Democrats in the House, but likely not before the November elections. How that legislation would be tailored and what it would be aimed at exactly is not clear to me.

In terms of next steps by antitrust enforcement agencies, the next shoe to drop is some sort of lawsuit by the DOJ’s Antitrust Division against Google. That will allege violation of monopolization laws under Section 2 of the Sherman Act, or it will use the Fitbit merger as leverage to say that merger would add to Google’s market power in the ad and data space. It seems like Bill Barr is interested in that happening. Still, the case is certainly not a slam dunk.

I don’t think that investigations against Facebook, Amazon, or Apple have developed to the point where something could happen this year.

What impact did the hearing have on the ecosystem around these companies?

Part of the frustration I had with the format was that given the five-minute limitation that each member had when they were undertaking questioning, their ability to really get into the weeds and be very specific about any of this stuff was limited. My takeaway from the hearing is there are a lot of specific allegations, particularly in the use of data these companies are forcing competitors or customers to give to them, and then using that to disrupt the businesses of those competitors and customers. This kind of attention can make these companies more cautious about being aggressive with respect to those tactics, but it doesn’t usually result in them changing their tactics wholesale, unless more pressure, like a lawsuit against Google or a piece of legislation, is brought.

Until that happens, I wouldn’t be very sanguine on the idea that there’s going to be a huge amount of disruption. The biggest disruption that they’re fearing is that somebody else comes up with a better way to do what they’re doing already and to do it in a way that will be more attractive to consumers. In terms of what the government will do to them, their general attitude is, “Whatever. We’ll pay fines, cost-of-business stuff, but we’re not going to really change.”

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About Peter Gray

Peter Gray served as a trial attorney with the U.S. Department of Justice, where he specialized in mergers and acquisitions and investigations pertaining to the tech, media, and telecoms sector. During his time at the Department of Justice, he served as one of the agency’s key officials on every major telecom and media deal since the mid-1990s, including Bell Atlantic-NYNEX, AT&T-TCI, WorldCom-Sprint, SBC-AT&T, Comcast-NBCU, AT&T-T-Mobile, and Comcast-Time Warner Cable. He has looked at markets involving cable TV, internet interconnection, wireless telephony, broadcast television stations, and long- and short-haul data.

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This article is adapted from the July 30, 2020, GLG teleconference “Big Tech House Hearing: Potential for Further Action Against Amazon, Apple, Facebook, and Google.” If you would like access to this teleconference or would like to speak with Peter Gray, or any of our more than 700,000 experts, contact us.