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House Panel Says Big Tech Wields Monopoly Power -- 3rd Update

10/06/2020 | 05:49pm EST

By Ryan Tracy

WASHINGTON -- America's biggest technology companies have leveraged their dominance to stamp out competition and stifle innovation, according to a Democratic-led House panel, which said Congress should consider forcing the tech giants to separate their dominant online platforms from other business lines.

The report released Tuesday from Democratic staff of the House Antitrust Subcommittee capped a 16-month inquiry into the market power of Amazon.com Inc., Facebook Inc., Alphabet Inc.'s Google and Apple Inc.

Republicans issued a separate response endorsing strong antitrust enforcement targeting the companies but didn't endorse many of the Democrats' policy prescriptions. It also accused the companies of bias against conservative viewpoints.

No legislative changes are imminent, but the report's sweeping conclusions boost the odds for new laws in the future and publicizes evidence that will give momentum to the companies' critics in both parties.

In one snippet, the report describes an alleged effort by Facebook's leadership to prevent the company's Instagram app from competing with the original Facebook platform.

"The question was how do we position Facebook and Instagram to not compete with each other," the report quotes a former Facebook employee as saying. "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."

A 2018 memo by Facebook executive Tom Cunningham on the possible "end states" of Facebook's family of apps concluded that "it is unclear whether Instagram and Facebook can coexist," the report said, with Mr. Cunningham worried about a possible tipping point in which one might come to dominate the other.

"Instagram and WhatsApp have reached new heights of success because Facebook has invested billions in those businesses," Facebook said in a statement. "A strongly competitive landscape existed at the time of both acquisitions and exists today."

The company is facing an antitrust investigation by the Federal Trade Commission, which is preparing a potential lawsuit, The Wall Street Journal has reported. Google is also expected to be the subject of an antitrust lawsuit filed by the Justice Department this fall.

Amazon disputed the report's conclusions.

"All large organizations attract the attention of regulators, and we welcome that scrutiny," it said in a blog post. "But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong."

Google said in a statement it disagrees with the findings, which it said "feature outdated and inaccurate allegations from commercial rivals."

"Americans simply don't want Congress to break Google's products or harm the free services they use every day," the company said.

Apple didn't immediately comment.

The Democratic staff report says all four companies wield monopoly power and criticizes U.S. antitrust enforcement agencies as failing to curb their dominance.

"These firms have too much power, and that power must be reined in and subject to appropriate oversight and enforcement," the 449-page report says. "Our economy and democracy are at stake."

The report outlines a series of responses Congress could adopt, including legislation forcing at least some of the companies to separate certain dominant online platforms from other business lines, as well as changes to antitrust laws to reinvigorate a perceived lack of strong enforcement.

"This report could end up being a turning point in antitrust and tech," said Paul Gallant, an analyst for investment bank Cowen Inc. "It creates momentum for legislation next year, and it also might nudge regulators to bring cases even under existing law knowing they've got congressional backup."

Republicans on the panel issued a 28-page response, detailing what they say are abuses of power by social-media companies in censoring online speech. "Big Tech is out to get conservatives," the report concluded, criticizing Democrats for ignoring the issue. The tech companies say they don't make content moderation decisions based on political bias.

The report concluded that Amazon has monopoly power over its third-party sellers, bullies its retail partners and improperly uses third-party data to inform its strategy for selling self-made private-label products on its e-marketplace.

The panel's legislative proposals could cause Amazon to exit that business and others, in what would be a significant blow. The tech giant has developed more than 100,000 private-label products and made significant investments in the areas of home devices, such as its Echo speakers.

In April, the Journal reported that Amazon's private-label employees had used individual third-party data to copy products for its own line of goods. The subcommittee uncovered similar behavior in its interviews with Amazon's employees.

The report lays out Google's dominance of the search industry, where it commands default placement for 87% of desktop search traffic and more than 99% of mobile traffic.

The subcommittee attributed that to Google's ability to make billions of dollars in annual payments to companies like Apple and Firefox to keep Google the first choice even on rival browsers.

Separately, the findings echoed longstanding complaints from businesses that Google's shift to trolling the internet for facts that it can place at the top of the search page has been a blow to websites that would otherwise have received incoming traffic from the search engine to answer such queries.

"With the flip of a switch," one website owner told the subcommittee, "Google turned our original content into its own content."

Google has said previously that changes to search were designed to get information to users faster. Alphabet produced 1,135,398 documents for House investigators, though the report noted that "subcommittee staff did not view this volume as a proxy for quality."

The report concluded that Apple exerts monopoly power as it controls software distribution to more than half the mobile devices in the U.S. and allows it to generate "supra-normal profits" from its App Store and service business.

Apple has said in the past that its restrictions on mobile app sales for its devices are necessary to control the quality of user experience.

The subcommittee's findings cast a harsh appraisal of Apple's control over the App Store, saying the iPhone company uses its gatekeeper power in ways that harm third-party software developers and favor its own apps on its devices. The report noted an article by the Journal last year that said Apple's app routinely appeared first in search results in its App Store ahead of rivals.

The report also casts doubt on Facebook's argument that its apps could never be separated, a case it made in a summary of its legal arguments reported by the Journal on Sunday. The report cites an unnamed former Instagram employee who told the subcommittee that Facebook and Instagram could potentially be pulled apart. "It's not building a skyscraper; it's turning something on and off," the employee said.

Ahead of the report's release, the Consumer Technology Association, an industry group, said in a statement the tech sector is "the reason for America's global innovation leadership and powers our economy" and warned against action targeting its most successful companies. "To undercut our nation's 'crown jewel' companies would take our competitiveness out at the knees."

Republicans on the House panel are split about the report's policy recommendations. Some believe U.S. antitrust laws don't need to be changed, while others support some of the Democrats' recommendations. Rep. Ken Buck (R., Colo.) said antitrust laws need updating, but "it's very important that we proceed with a scalpel and not a chain saw."

--Rob Copeland, Tim Higgins, Dana Mattioli, John D. McKinnon and Jeff Horwitz contributed to this article.

Write to Ryan Tracy at ryan.tracy@wsj.com

(END) Dow Jones Newswires

10-06-20 1949ET

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