Tech Deals, Data Come Under Fire in Biden’s Sweeping Order
(Bloomberg) -- U.S. President Joe Biden’s executive order to promote greater competition across American industries took direct aim at technology companies, promising to deepen scrutiny of deal-making and their collection of massive amounts of personal data.
The president’s action may embolden competition enforcers to go further in trying to rein in the outsize power and influence companies like Amazon.com Inc., Apple Inc., Google and Facebook Inc. have accrued.
Over the past 10 years, the largest tech companies have bought “hundreds” of companies, according to the order, including what it calls “alleged killer acquisitions” that are meant to shut down a competitive threat. “Too often, federal agencies have not blocked, conditioned, or, in some cases, meaningfully examined these acquisitions,” the document says.
“Big tech is on the radar screen more than ever,” said Eleanor Fox, a professor of trade regulation at New York University School of Law. “With Biden and the FTC on the same page, the biggest tech companies aren’t going to be able to just buy up all their competitors like before.”
Federal and state antitrust enforcers have either brought antitrust cases or are actively investigating the biggest tech companies, and the industry is facing bipartisan scrutiny in Congress as well as a vocal critic, Lina Khan, leading the Federal Trade Commission. Advocates for more aggressive antitrust enforcement applauded Biden’s order as an important step to correct decades of lax enforcement that allowed the tech industry to consolidate under a handful of giant companies.
According to the order announced Friday, the administration will be required to apply “greater scrutiny of mergers, especially by dominant internet platforms,” with particular attention to the acquisition of nascent competitors and serial mergers.
The executive order will “absolutely” make companies think twice before pursuing mergers and acquisitions, said Carl Szabo, general council of tech industry group NetChoice, which counts Amazon, Alphabet Inc.’s Google and Facebook among its members.
“It will create a disincentive,” Szabo said, warning that reviewing past deals would create endless uncertainty and deter tech companies from acquisitions that could be beneficial to both buyer and seller.
Despite government support for breaking up the big tech companies, the challenge will be winning those cases in the courts, which base their rulings on century-old statutes shaped by decades of case law that advocates of tougher enforcement see as outdated.
A monopoly lawsuit filed by the FTC that sought to break up Facebook was recently tossed out because the judge said the agency didn’t show how the company has a monopoly in a market for “personal social networking.” The FTC has the chance to refile the case within 30 days, presenting stronger evidence that Facebook is a monopoly.
The FTC and a separate complaint filed by a coalition of state attorneys general that was also dismissed had claimed Facebook violated antitrust laws by buying photo-sharing app Instagram and messaging service WhatsApp in order to cut off emerging competitive threats and protect its monopoly. The judge criticized the attorneys general for waiting too long after the Instagram and WhatsApp deals to challenge the acquisitions. Facebook bought Instagram in 2012 for $1 billion and WhatsApp in 2014 for $16 billion.
Supporters of stronger antitrust action cited the judge’s dismissal of the Facebook case as evidence that Congress needs to update current antitrust laws to give enforcement agencies better tools to address competition in the modern economy.
In June, the House Judiciary Committee approved an antitrust bill that would force some big tech companies, like Amazon, to exit certain businesses. The bill is one of six bipartisan antitrust measures, four of which would force Amazon, Facebook, Apple and Alphabet to radically change their business models. Democratic Senator Amy Klobuchar, chair of the Senate antitrust subcommittee, in February introduced her own broad antitrust proposal, and she has more recently promised Senate companion bills for the House measures.
Meanwhile, Democratic and Republican leaders are calling for the FTC to continue its effort to hold Facebook accountable for potential antitrust violations despite the court ruling. The FTC has 30 days to refile its complaint.
The increased antitrust scrutiny by federal regulators has already worked to slow merger activity in the sector as many big tech companies sought to avoid drawing further attention to their business. Apple, Microsoft Corp., Facebook, Amazon and Alphabet have pursued fewer deals in the past five years, according to data compiled by Bloomberg.
But the companies are still testing the waters. In May, Amazon agreed to buy the Metro-Goldwyn-Mayer movie company for $8.45 billion. While on the face of it the merger didn’t seem to present any obvious antitrust hurdles, Khan at the FTC will oversee an antitrust investigation of the deal. Other mergers waiting for approval include Salesforce.com Inc.’s $27.7 billion purchase of Slack, one of the biggest acquisitions last year, and Nvidia Corp.’s planned takeover of Arm Ltd. for $40 billion, the semiconductor industry’s largest-ever deal.
Health-care companies were also put on alert by the executive order’s focus on mergers.
“For a lot of biotechs, the value of the company is the opportunity or potential to be acquired by a large pharmaceutical manufacturer,” said Spencer Perlman, director of health-care research at consulting firm Veda Partners LLC. “Now companies are going to have to think hard and think twice about whether to go forward with a potential transaction. That’s a big deal.”
The executive order also encourages the FTC to establish rules on surveillance and the accumulation of data. Facebook Chief Executive Officer Mark Zuckerberg, Google CEO Sundar Pichai and other leaders have been called to Washington several times to appear before lawmakers to explain what data they obtain from people who use social media, the internet or almost any app. But so far Congress has done little about it.
“Chairwoman Khan is not known for her lack of ambition on how to use FTC authority,” said Jesse Lehrich, co-founder of advocacy group Accountable Tech. “Now that this direction is coming from the White House, it indicates that it’s more of an administration-wide viewpoint, given the long-standing failure of Congress to pass federal privacy law.”
Rules to change companies’ data collection practices could have a huge impact on Google, Facebook and Amazon, Lehrich said. “The mass surveillance and data aggregation from those dominant tech firms inherently allows anti-competitive behavior,” he said, citing examples of Amazon collecting information on third-party sellers, as well as alleged abuses by Facebook and Google.
Biden’s order also accused big tech companies of unfairly competing with small businesses. It cites companies that run “dominant online retail marketplaces” that can see how other companies’ products are selling and use that data to beef up their own offerings. The reference is likely clearly targeting Amazon, which is under investigation in the U.S. and European Union for how the e-commerce giant uses data from independent sellers on its platform.
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