American Congress confronted with GAFA

09/12/20
American Congress confronted with GAFA

Digital economy – American Congress confronted with GAFA

 

On October 6th, the American Congress Judicial Subcommittee on Antitrust, Commercial, and Administrative Law published and signed 449 pages of a report on competition in the digital economy in which it analyzes the positions of the digital giants (GOOGLE, AMAZON, FACEBOOK and APPLE) also known as GAFA. This report concludes that the activity of the GAFA is likely to affect the economy or democracy and therefore proposes a number of recommendations.  

 

                                             

Background: a generalized mistrust of the gafa in the united states?

In June 2019, a major bipartisan Congressional investigation took place in the United States focusing on the digital economy players with the objectives of analyzing the functioning and role of the GAFAs (in 2019, Google: $160.7 billion [1]; Amazon: $280 billion [2]; Facebook: $70 billion [3]; Apple: $260 billion [4] ), examining whether these actors are engaged in anti-competitive practices, and also assessing whether the applicable regulations are capable of resolving the distortions of competition in this sector.

 

The judicial sub-commission “Antitrust, Commercial, and Administrative Law” of Congress, in the framework of this investigation, has processed nearly 1,200,000 documents, transmitted by the GAFA, conducted dozens of hearings (GAFA, actors, competitors, consumers, experts and authorities specialized in competition law) or round tables on various topics (innovation, data, etc.).

 

Among the high-profile hearings, we find those of Mark ZUKERBERG (Facebook), Tim COOK (Apple), Sundar PICHAI (Google) and Jeff BEZOS (Amazon), performed at the end of July 2020, which allowed Congress representatives to question these actors for several hours on their commercial practices and in particular their position on the evidence of abusive actions that led them to take a leading role (self-referencing, abusive prices or eviction practices).

 

The report acknowledges that GAFAs over the last few years have brought many benefits to civil society, but a price to pay also comes with them: “These companies generally lead the market while competing in it. A position that allows them to write a set of rules for all players, while they act according to other rules, or to engage in a form of private quasi-regulation for which they are accountable only to themselves. “» [5] .

 

Moreover, according to the subcommittee, the hearings provide “significant evidence that these corporations have been exercising their dominant position in ways that erode entrepreneurship, degrade the privacy of Americans online, and undermine the vibrancy of the free and diverse press” [6] .

 

Customers share the mistrust of the sub-commission. According to a survey published in September 2020 on online platform competition [7] , consumers are concerned in particular about the amount of data stored (85%), the objectivity of the platforms’ results and their lack of bias (58%). In addition, 79% of those surveyed believe that these players are reducing competition.

 

The sub-commission observes that the administrations are lacking in supervision and the American ” antitrust ” regulations have been significantly weakened by the jurisdictions. Enforcement authorities and consumers have found it difficult to ensure its application, either by setting up “consumer protection” as the sole objective or by looking only at the consequences of the practices and not at the anti-competitive process [8] . The Federal Trade Commission has also contributed to this problem by publishing recommendations that are highly permissive for stakeholders.

 

For example, in the context of the Clayton Act, out of the 100 acquisitions of Facebook, the Federal Trade Commission only requested further investigations for the acquisition of Instagram in 2012. [9]

 

Within this legislative context, the GAFAs were able to prosper and would now possess a power of control over the entry of other players which they would use concretely to maintain their positions (monitoring market players, acquisition, copying or even eviction of these players). Appendix 1 presents a list of more than 500 acquisitions made by the four players over the last few decades. The report also mentions several risks such as the use of the data collected to identify new competitors and acquire them, and abuses of dominant position (contractual, discriminatory and predatory practices). 

 

Recommendations: need to restore a balance?

Recommendations of the Judicial Subcommittee on Antitrust, Commercial, and Administrative Law of the U.S. Congress aim at restoring effective competition in the digital economy (i), strengthening antitrust laws (ii) and their enforcement (iii).

 

Among the recommendations are the following:

  • Structural separation for these platforms (so that the GAFAs do not compete with companies that depend on their infrastructure) [10];
  • Prohibition for dominant platform operators to operate in adjacent markets [11] ;
  • An anti-competitive presumption of mergers and acquisitions for these platforms [12] including an amendment to Section 7 of the Clayton Act ;
  • Strengthening of the ” essential structures ” doctrine in order to grant non-discriminatory access to them and the clarification of several prohibitions (leverage of monopolies, predatory pricing, tied selling…)[13] with, in particular, a strengthening of Section 2 of the Sherman Act ;
  • A reformulation of concentration policies with the objective of ensuring a healthy democracy [14] ;
  • A reinforced application of the regulations with an increase in the powers of the supervisory authorities (increase in the budget of the Federal Trade Commission) and a codification, for example, of the ban on revolving doors [15]; or
  • For private actions, the removal of imposed arbitration clauses or limitations on class actions [16] .

 

Such strong measures are recommended by the Judicial Subcommittee on Antitrust, Commercial, and Administrative Law of the Congress, and in terms of content, they are the most consistent reform proposal in this area for half a century. However, as they stand, they are only a starting point for reflection. It should be noted that these recommendations were adopted only by the Democratic members of the Subcommittee, as the majority of Republican members disagreed that the proposed measures were too radical.

 

Next steps: what are the implications of this report?

An American reform of competition law seems to be on the horizon, however, Congress has yet to decide on the concrete way in which the legislation will be amended in the coming months.

Will the election of Joe Biden as the new President of the United States make it possible to carry the recommendations initiated by his party?

In any case, Republican members of the Antitrust, Commercial, and Administrative Law Subcommittee of Congress have also written another report in which they agree on many, but not all, of the recommendations. The Republicans state: “These potential changes need not be dramatic to be effective. “» [17]

 

Their objectives are identical, but not the way in which these players are regulated, particularly with regard to structural separation and prohibition on adjacent markets. Their proposal includes stronger congressional oversight of the use by these companies of their dominant market positions.

 

These issues are also echoing current events in Europe and in France, the regulation of the digital economy is a hot topic.

 

The implementation of specific rules for these platforms is also becoming a necessity for the European Union since it has announced a “Digital ServicesAct” with two objectives. The European Commission would propose clear rules defining the responsibilities of digital services to deal with the risks incurred by their users and to protect their rights and would propose, ex-ante, rules covering the major online platforms acting as gatekeepers, which now set the rules of the game for their users and competitors. [18]

 

GAFA are targeted from all sides. Thus, following the failure of OECD negotiations on a tax applicable to digital giants, France will apply its suspended Law No. 2019-759 of 24 July 2019 (creating a tax on digital services and modifying the trajectory of the corporate tax reduction) and levy the companies concerned as of this year.

 

 

1] Report “Investigation of Competition in Digital Markets” of the US Congress, October 2020, page 175.
2] ibid, page 248
3] ibid, page 132
4] ibid, page 331
5] ibid, page 6
6] ibid, page 7
[7] ibid, page 12 : “Platform Perceptions: Consumer Attitudes on Competition and Fairness in Online Platforms” Consumer Reports survey of September 24, 2020
8] ibid, page 391
9] ibid, page 11
10] ibid, page 377
11] ibid, page 377
12] ibid, page 386
13] ibid, pages 394 et seq.
14] ibid, page 20
15] Principle of senior civil servants who, when they leave their position in the administration, bring with them their knowledge and network in the private sector.
16] ibid, page 403
17] “REP. KEN BUCK – THE THIRD WAY” of the Republican representatives of the “Antitrust, Commercial, and Administrative Law” sub-committee of Congress.
18] For more information on the Digital Services Act, we invite you to read the article written by the firm “Two minutes to understand the futureEuropeanDigital ServicesAct“.

 

 

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