Big Tech Under Fire in Congress

By Eileen McDermott
July 17, 2019

“Over the last two hours we listened to something that could have been a hearing in 2005 or maybe almost like a fantasy zone. If we’re to believe what [the tech companies] are saying, we live in a time of incredibly fierce competition…. I think everybody knows that’s not true.” – Timothy Wu

Rep. David Cicilline (D-RI)

A hearing of the House Subcommittee on Antitrust, Commercial, and Administrative Law held yesterday examined whether big tech companies—Amazon, Google, Facebook, and Apple—are becoming too powerful and deterring innovation. In “Online Platforms and Market Power, Part 2: Innovation and Entrepreneurship,” Subcommittee Chair, Representative David Cicilline (D-RI), said that Google controls search, Amazon controls nearly half of all online U.S. commerce, Facebook captures over 80% of global social media revenue, and Apple has total power over their customers’ devices.

Is Antitrust the Right Approach?

In his opening statement, Cicilline took issue with the 30% commission Apple charges on every developer sale in the first year, and 15% thereafter, pointing to this year’s Supreme Court decision in Apple v. Pepper which held that iPhone owners can sue Apple for monopolizing the retail market for the sale of apps, thereby raising prices for consumers. “A former Apple executive who oversaw app store approvals for seven years has also described Apple as having ‘complete and unprecedented power over their customers’ devices and using this power as a weapon against competitors,’” Cicilline said.

Rep. Jim Sensenbrenner (R-WI)

He added that the current environment is reminiscent of United States v. Microsoft, a landmark antitrust case that resulted in a settlement in which Microsoft agreed to loosen up the restrictions it placed on third-party companies uninstalling Microsoft programs or running their own on Microsoft PCs.

Committee Ranking Member Jim Sensenbrenner (R-WI) sought to take a more measured approach than Cicilline in his opening statement. “Just because a business is big doesn’t mean it is bad. Antitrust laws do not exist to punish success, they exist to foster it. There might be genuine issues of anticompetitive conduct but we should not rush to amend the antitrust laws or to break up companies by congressional fiat,” he said.

Addressing Matt Perault, Head of Global Policy Development at Facebook, Sensenbrenner pointed out that “there was a time when Facebook was fledgling, and people thought MySpace was the future” and asked Perault what factors allowed Facebook to prevail. Perault said it was Facebook’s innovativeness, citing features like its policy of requiring real names, the Newsfeed and the Like button. “And we continue to innovate today,” Perault said. “We competed aggressively with MySpace.”

“Did MySpace complain about what you were doing?” asked Sensenbrenner, “No, I don’t believe so,” Perault replied.

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Platform Problems

Matt Perault, Facebook

In addition to Perault, the first panel included representatives of Google, Amazon and Apple, who fielded questions from more than a dozen congress members. Cicilline, Representative Pramila Jayapal (D-WA), Representative Joe Neguse (D-CO), Representative Lucy McBath (D-GA), and Representative Jamie Raskin (D-MD) were some of the most vocal.

Several representatives questioned Amazon Associate General Counsel, Competition, Nate Sutton, about whether the platform collects data and tracks which products and sellers are doing well in order to create competing, lower priced Amazon-branded products that eventually knock the smaller sellers out. Sutton said Amazon does not use seller data, but also said that such practices have been common in brick and mortar retail stores for decades. “We don’t use individual seller data to directly compete with them. The algorithms are made to predict which products customers want, regardless of brand,” he said.

Cicilline pointed to an example of a seller who had sold headphones on Amazon and was doing well until Amazon created the same product and her product was buried in search results, but Sutton stood firm, even after Cicilline at one point reminded him he was under oath. “Our incentive is to help the seller succeed because we know they’d go elsewhere if not,” Sutton said.

Neguse had strong words for Facebook, beginning his questioning of Perault by asking, “Is Facebook in your view a monopoly?” When Perault replied “No,” Neguse continued:

“I assume the reason [you say that] is because Facebook has a number of competitors. What’s the largest social media network company by active users? I can tell you that it’s Facebook…The third largest is WhatsApp [owned by FB]… The fourth largest is Facebook messenger…The sixth largest is Instagram [owned by Facebook]. So, you can understand the skepticism.”

Jayapal was concerned about Facebook’s practices around buying up smaller competitors. She asked Perault about Facebook’s strategy for identifying promising tech startups and whether the company specifically targets startups that might otherwise be its competitors. “Our strategy is to acquire companies and services that allow us to innovate more effectively,” Perault said, pointing to its acquisition of Oculus as one example. But Jayapal asked about the acquisition of companies like TBH, a teen messaging app that was shelved eight months after Facebook purchased it, and the Fitness app Moves, which was shut down last year. “Acquisitions don’t always work, and we have to make a decision,” Perault said. Jayapal compared these acquisitions to the pharmaceutical industry’s practice of buying up smaller companies and then shutting them down to stave off drug competition.

Adam Cohen, Google

Nor did Google escape criticism; Representative Mary Gay Scanlon (D-PA) told Adam Cohen, Director of Economic Policy at Google, that she has heard concerns about copyright theft on YouTube and asked whether YouTube really has any incentive to combat widespread copyright theft. She said that pirated versions ofYouTube-created content don’t show up in search results, while pirated versions of other shows seem to proliferate. “I’ve not seen any evidence of that discrepancy,” said Cohen, who pointed to Google’s Content ID tool for combating copyright infringing content.

Apple’s Vice President, Corporate Law, Kyle Andeer, might have fared the best of all panelists. While Raskin reiterated Cicilline’s concerns about the App Store’s 30% app commission, citing written comments from Spotify about the “impossible choice” presented by the App Store’s terms, Andeer explained that this applies only to the most successful apps—”84% of apps pay nothing to Apple,” said Andeer. “Spotify is one of our most successful developers and yet they pay commission on less than 1% of their subscribers to Apple.” Later in the hearing, Morgan Reed, Executive Director at The App Association, cited Apple’s App Store as one of the biggest boons to America’s thriving app economy.

Like a Fantasy Zone

Timothy Wu, Columbia Law School

On the panel with Reed were professors, lawyers, and association representatives who weighed in on the tech giants’ testimony and offered tips for approaching the challenges. Timothy Wu, Julius Silver Professor of Law, Columbia Law School, was the most critical of the first panel. He questioned how honest the tech representatives were being and likened their characterization of the current landscape to fantasy:

“Over the last two hours we listened to something that could have been a hearing in 2005 or maybe almost like a fantasy zone. If we’re to believe what they’re saying, we live in a time of incredibly fierce competition—I could go to my garage and start a challenger to Google, Facebook and Amazon, there are no barriers to competition, and competition is only one click away. I think everybody knows that’s not true; there’s no mystery about whether the tech markets have flipped.”

Wu and Fiona Scott Morton, Theodore Nierenberg Professor of Economics at Yale School of Management, advocated for a careful investigation of the tech companies’ practices by the Committee, while many of the remaining panelists cautioned against resorting to antitrust law. Carl Szabo, Vice President and General Counsel, NetChoice, said that the “weaponization” of antitrust law does not benefit consumers. “For Americans, bigger is better,” Szabo said. “Competition is robust and constituents know it.”

Facebook also took a beating earlier in the day yesterday, when the Senate Committee on Banking, Housing and Urban Affairs tore into David Marcus, Head of Calibra, the Facebook subsidiary that is proposing to create a new currency—Libra—by 2020. Senator Martha McSally (R-AZ) summed up the comments of many of her colleagues when, pointing to the company’s various recent missteps and violations, she said, “I don’t trust Facebook…. And now instead of cleaning up your house you’re launching into another business model.”

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments. Join the discussion.

  1. Pro Say July 17, 2019 10:55 am

    The way forward for America and American innovation:

    1. Break up big tech.

    2. Pass the Section 101 / eligibility reform / restoration with the Alice / Mayo abrogations but with no changes to Sections 100 or 112.

    3. Pass the STRONGER and SUCCESS Acts.

  2. angry dude July 17, 2019 2:09 pm

    “Perault said it was Facebook’s innovativeness, citing features like its policy of requiring real names, the Newsfeed and the Like button…”

    Bu-ha-ha-har-har-ha-ha……………………..

    Even in congressional hearing those corporate guys lie straight face..

    Put them under oath … and jail them for any lies they tell to the public

    There is no real name user requirement on Facebook – its just nearly impossible to enforce – its just a lawyer written sentence NOBODY cares about

    I have multiple facebook accounts with fake names – use them to track certain chicks undercover..

    What a lying piece of sh1t

    And the “Like” button is of course the greatest invention in the history of humanity

    disgusting, simply disgusting

  3. former examiner July 17, 2019 4:57 pm

    Google tracks searches. Patent examiners use Google for searches. Google applies for patents, other inventors apply for patents that would compete with Google. What could go wrong?

  4. Benny July 18, 2019 6:55 am

    Former examiner,
    what could go wrong ? Google could rank prior art higher in your subsequent searches, thus improving the quality of your work. Google could hide prior art in your subsequent searches, and compromise its’ position by giving its’ competitors unfair advantage. The most likely scenario is that, given the huge number of patent and tech related publications you are searching for, Google will conclude that you are a nerd with no social life and you’ll see adverts for dating sites popping up on your screen (tell me that isn’t so, go on).

    Angry at 2, after considering your self proclaimed use of Facebook, all that is left for me is to quote Daffy Duck – “You are despicable”.

  5. angry dude July 18, 2019 9:59 am

    Benny @4

    “despicable” for playing with facebook profiles for fun (nobody gets hurt, nobody loses money or virginity) ???

    Dude, you have some judgement problems…

    Also, why do you always side with big corporate patent infringers ?

  6. Anon July 18, 2019 1:36 pm

    Also, why do you always side with big corporate patent infringers ?

    Anyone else note the irony of this question coming from angry dude, whose “to the morgue” mantra ALSO serves the interests of the big corporate patent infringers?

  7. PTO-Indentured July 19, 2019 7:47 pm

    Gee. Nobody wanted / thought to ask Google why they needed 427* personal visits scheduled at the White House — during just the Obama administration alone? By March 2015 Google executives, including co-founder Larry Page and CEO Eric Schmidt, had visited the White House around 230* times? *Wall Street Journal stats.

    Undoubtedly, to “Do No Evil”.

    Oh…and coincidentally…to get a Director installed at the PTO fresh from the highest ranks of Google IP attorneys. A Director who showed us all how ‘doing nothing’ to abate the fiercest killing spree of U.S. patents under the PTAB was the (Google?) way to (wink/wink) ‘improve patents’ i.e., ‘Make American Patents Great Again’. Who, when asked how things were going with the U.S. patent system–during this darkest period–would have you believe ‘things couldn’t be better.’

    Hundreds of personal visits? Really. Literally: no questions asked. Shows you how persistence pays off.

    This is Big Tech ‘under fire’ in Congress. Grind the US patent system–or at least the American inventor profession–to dust? Go to your room.

    All hail the mega-oligarchs — and the sheer clout of their unlimited golden eggs.

  8. PTO-Indentured July 19, 2019 8:54 pm

    Gee. Nobody wanted / thought to ask Google why they needed 427* personal visits scheduled at the White House — during just the Obama administration alone? Why, by March 2015 Google executives, including co-founder Larry Page and CEO Eric Schmidt, had visited the White House around 230* times. *Wall Street Journal stats.

    Undoubtedly, to “Do No Evil”.

    Oh…but coincidentally…get a Director installed at the PTO fresh from the highest ranks of Google IP attorneys. A Director who showed us all how ‘doing nothing’ to abate the fiercest killing spree of U.S. patents under the PTAB was the (Google?) way to (wink/wink) improve ‘bad’ patents i.e., ‘Make American Patents Great Again’. Who, when asked how things were going with the U.S. patent system–during this darkest period–would have you believe ‘things are looking just fine.’

    Hundreds of personal visits? Really. Literally: no questions asked.

    Shows you how persistence pays off.

    This is Big Tech ‘under fire’ in Congress. Grind the US patent system–or at least the American inventor profession–to dust? Do what you can so that no one else obtains any significant exclusive right. Go to your room.

    All hail the mega-oligarchs no one is allowed to compete with — and the sheer clout of their unlimited supply of golden eggs, unrelentingly goosing the system.

    Follow the money.

    See in their quoted comments above, the abysmal record of oligarch-alleged innovation. Apple is pointing to App Store tech introduced well over a decade ago. FB is pointing to Oculus bought 4-5 years after the core HMD patent had already expired, that product’s footing, years later, is still tenuous, struggling for differentiation. Sure, Google canned and cloned the ‘Smartphone’ but it too was introduced well over a decade ago. Amazon’s web site is very much the same platform it was well over a decade ago. Ad nauseum.

    This is the fruit anti-competition oligarchy yields. Why? Because others — for too many years now — were not allowed to compete.

    These outcomes are not inseparable from so-called anti-trust law, apparently having had little or no teeth. Competition must be allowed.

  9. Plutocracy July 19, 2019 9:54 pm

    The majority of Republicans and Democrats that sit in the house and senate take money from Silicon Valley. Patents are dead for the inventors. FAANG own all the players. There is no voice for patent rights. Looks like democracy has sold their souls to the FAANG.

  10. Edward Rothschild July 19, 2019 10:09 pm

    @plutocracy you are bang on. The AIA Act PTAB the DOJ the Alice, Mayo, EBay all spun up by FAANG. While Apple and Google sit on Billions in profits and billions more sitting in off sore accounts, Democracy in America sold its soul to the devil aka the almighty dollar. It’s a shame inventors are being pushed out of America as injunction ruling have been removed to protect Silicon Valley to continue their full out robbery of patent holders no one can say anything as their mouths and ears are stuffed with special interest dollars. Addiction to money is equal to opioid addiction America is done and the sad part is they have did them selves in. China and Germany will be the new America.

  11. Joachim Martillo July 20, 2019 11:36 am

    I am surprised that Twitter Inc. misbehavior is not an issue. Twitter manipulates public and political discussion at unprecedented levels. I am currently suing Twitter.

    Invention is a form of expression. The culture of invention requires complete freedom of expression. Twitter is an enemy of free expression.

    The Judge is currently studying the issues of the case. If we get past the Communications Decency Act (CDA), which should be completely irrelevant, I will file an amended complaint, which can be perused here.

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