# Antitrust Reform and Big Tech Firms > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3AR46875 ## Record - **Collection:** Congressional research report - **Document type:** CRS Report - **Published:** November 21, 2023 - **Citation:** R46875 ## Text Antitrust Reform and Big Tech Firms Updated November 21, 2023 Congressional Research Service https://crsreports.congress.gov R46875 SUMMARY Antitrust Reform and Big Tech Firms Antitrust has become a hot topic. After decades as a mostly technocratic discipline, competition policy now commands the attention of lawmakers, academics, and the general public. One of the driving forces behind this trend has been the rise of a handful of large technology firms: Facebook (now Meta Platforms), Google, Amazon, and Apple. While these “Big Tech” companies have affected the daily lives of billions, they are also accused of obtaining and solidifying dominant positions through anticompetitive conduct. R46875 September 13, 2023 Jay B. Sykes Legislative Attorney For a copy of the full report, please call 7-5700 or visit www.crs.gov. Meta is currently defending a Federal Trade Commission (FTC) lawsuit that seeks to unwind its acquisitions of the photo-sharing service Instagram and the messaging app WhatsApp. Google is embroiled in litigation with the Department of Justice (DOJ), state attorneys general, and private plaintiffs over alleged exclusionary conduct related to its search engine, app distribution on Android mobile devices, and its digital-advertising businesses. The FTC and a putative class of private plaintiffs have accused Amazon of stifling competition among online marketplaces. The lawsuits allege that Amazon has excluded rivals by implementing policies that punish sellers for discounting their products on other websites. The FTC’s complaint also claims that Amazon has tied its Prime subscription program to the use of its fulfillment services, hindering the development of independent fulfillment providers that could make selling on other marketplaces more attractive. Several of Apple’s practices have attracted scrutiny, including the firm’s restrictions on the distribution of iOS apps, its use of competitively sensitive information derived from third-party app developers, and its treatment of its proprietary apps. Some lawmakers have also expressed concern about the large number of acquisitions that the Big Tech firms have undertaken over the past decade. In particular, they have worried about the possibility that some of these transactions eliminated sources of potential or nascent competition. Many of these concerns have prompted calls for legal reform. Some commentators have argued that ex post adjudication is ill-equipped to grapple with competition issues in platform markets that have tipped in favor of a single dominant firm. Other critiques of the existing framework focus on specific doctrinal rules or the alleged shortcomings of the consumer-welfare standard—a general normative benchmark that has heavily influenced current law. For their part, defenders of existing law have emphasized the differences between the Big Tech firms. This heterogeneity, they contend, counsels in favor of the fact-specific approach employed by current doctrine and against categorical regulatory treatment. Supporters of the consumer-welfare standard argue that it provides a principled and coherent decision-making framework, in contrast to alternative regimes that would embrace more amorphous goals. While some reform proposals would adopt special competition regulations for large tech platforms, others would work within existing antitrust law by adjusting burdens of proof and changing certain doctrinal requirements. The regulatory route raises questions of how to scope the relevant regulations and select an appropriate regulator to administer them. On the issue of scope, two general models have emerged. One would allow a regulator to designate covered platforms that offer specified services and meet certain quantitative and qualitative criteria. Designated firms would then be subject to the same set of special competition regulations. The other approach is more targeted and would apply special regulations to individual markets. As a substantive matter, proposals to reform the competition laws governing Big Tech firms fall into five categories: (1) ex ante conduct rules, (2) structural separation and line-of-business restrictions, (3) special merger rules, (4) interoperability and data-portability mandates, and (5) changes to general antitrust doctrine. Congressional Research Service Antitrust Reform and Big Tech Firms Contents Antitrust Law: The Basics ............................................................................................................... 2 Restraints of Trade .................................................................................................................... 2 Monopolization ......................................................................................................................... 4 Monopoly Power................................................................................................................. 4 Exclusionary Conduct ......................................................................................................... 6 Mergers & Acquisitions .......................................................................................................... 16 Theoretical Approaches to Antitrust ........................................................................................ 20 The Big Tech Firms: A Summary of Selected Antitrust Allegations ............................................. 23 Meta Platforms ........................................................................................................................ 23 Allegations of Market Power ............................................................................................ 24 Allegations of Anticompetitive Conduct........................................................................... 24 Google ..................................................................................................................................... 26 Online Search .................................................................................................................... 26 Mobile Operating Systems and App Distribution ............................................................. 29 Digital Advertising ............................................................................................................ 32 Amazon ................................................................................................................................... 34 Allegations of Market Power ............................................................................................ 34 Allegations of Anticompetitive Conduct........................................................................... 37 Apple ....................................................................................................................................... 40 Allegations of Market Power ............................................................................................ 40 Allegations of Anticompetitive Conduct........................................................................... 41 Big Tech Mergers and Acquisitions ........................................................................................ 42 Antitrust Reform and Big Tech: General Issues ............................................................................ 43 Are Tech Platforms Special? ................................................................................................... 44 Revisiting the Goals of Antitrust: The Neo-Brandeisian Movement ...................................... 48 Scoping Reform Proposals ...................................................................................................... 51 The Designated-Platform Approach.................................................................................. 52 The Market-Specific Approach ......................................................................................... 56 Enforcement ............................................................................................................................ 56 Reform Proposals .......................................................................................................................... 57 Ex Ante Conduct Rules............................................................................................................ 57 Self-Preferencing .............................................................................................................. 57 Tying ................................................................................................................................. 61 Interoperability and Data Access ...................................................................................... 62 Use of Nonpublic User Data ............................................................................................. 63 Most-Favored-Nation Policies .......................................................................................... 63 App Preinstallation............................................................................................................ 64 Structural Separation and Line-of-Business Restrictions........................................................ 65 Mergers & Acquisitions .......................................................................................................... 67 Substantive Merger Law ................................................................................................... 67 The Merger Review Process ............................................................................................. 71 Interoperability & Data Portability ......................................................................................... 72 Changes to General Antitrust .................................................................................................. 74 Exclusionary Conduct ....................................................................................................... 74 Mergers ............................................................................................................................. 76 Congressional Research Service Antitrust Reform and Big Tech Firms Contacts Author Information........................................................................................................................ 77 Congressional Research Service Antitrust Reform and Big Tech Firms I n 2012, a prominent scholar lamented the diminished significance of antitrust in the United States.1 Although there was once a flourishing antitrust movement, he argued, the subject appeared to attract little interest from lawmakers, academics, and the public.2 Political candidates rarely mentioned competition issues, opinion polls reflected indifference toward economic concentration, and the enforcement agencies seemed to operate with a narrow view of antitrust’s goals.3 Things have changed. In the past several years, antitrust has resurfaced as a topic of both popular and political concern.4 The White House has issued an executive order outlining a “whole-of-government” approach to competition policy;5 advocates of reform have been appointed to lead the Federal Trade Commission (FTC) and the Department of Justice’s (DOJ’s) Antitrust Division;6 and Congress has considered a suite of proposals to overhaul various aspects of antitrust doctrine.7 In the words of one commentator, antitrust now “stands at its most fluid and negotiable moment in a generation.”8 The subject has not had such political salience, another contends, since 1912.9 Interest in reform has been wide-ranging: “[e]verything is up for grabs, and nothing is free of scrutiny.”10 One of the driving forces behind this trend has been the rise of a handful of large technology firms: Facebook (now Meta Platforms), Google, Amazon, and Apple. In 2020, a House subcommittee released a detailed report (the HJC Report) concluding that the four companies had obtained and solidified dominant positions through anticompetitive conduct.11 These “Big Tech” firms have also faced antitrust lawsuits from regulators and private plaintiffs, both in the United States and abroad.12 This report provides an overview of antitrust issues involving the four Big Tech firms and related proposals for legislative reform. It is divided into four parts. First, the report provides an introduction to basic antitrust principles. Second, it reviews selected antitrust allegations against the Big Tech companies. Third, it discusses conceptual issues with proposals to reform the 1 Maurice E. Stucke, Reconsidering Antitrust’s Goals, 53 B.C. L. REV. 551, 553 (2012). 2 Id. at 553-56. 3 Id. 4 Daniel A. Crane, Antitrust’s Unconventional Politics, 104 VA. L. REV. ONLINE 118, 118-21 (2018). 5 Exec. Order No. 14,036, Promoting Competition in the American Economy, 86 Fed. Reg. 36,987, 36,989 (July 14, 2021). 6 Brent Kendall, Senate Confirms Jonathan Kanter as Justice Department Antitrust Chief, WALL ST. J. (Nov. 16, 2021), https://www.wsj.com/articles/senate-confirms-jonathan-kanter-as-justice-department-antitrust-chief-11637104400; David McCabe & Cecilia Kang, Biden Names Lina Khan, a Big-Tech Critic, as F.T.C. Chair, N.Y. TIMES (June 15, 2021), https://www.nytimes.com/2021/06/15/technology/lina-khan-ftc.html. 7 See, e.g., American Innovation and Choice Online Act, S. 2033, 118th Cong. (2023); Prohibiting Anticompetitive Mergers Act of 2022, S. 3847, 117th Cong. (2022); Platform Competition and Opportunity Act, S. 3197, 117th Cong. (2021); Trust-Busting for the Twenty-First Century Act, S. 1074, 117th Cong. (2021); Competition and Antitrust Law Enforcement Reform Act of 2021, S. 225, 117th Cong. (2021); Ending Platform Monopolies Act, H.R. 3825, 117th Cong. (2021). 8 Crane, supra note 4, at 118. 9 Carl Shapiro, Antitrust in a Time of Populism, 61 INT’L J. INDUS. ORG. 714, 715 (2018). 10 ALAN J. DEVLIN, REFORMING ANTITRUST 265 (2021). 11 INVESTIGATION OF COMPETITION IN DIGITAL MARKETS, MAJORITY STAFF REPORT AND RECOMMENDATIONS, SUBCOMM. ON ANTITRUST, COMMERCIAL AND ADMIN. L. OF THE H. COMM. ON THE JUDICIARY 12-17 (2020) [hereinafter “HJC REPORT”]. This report lists the Big Tech firms in the same order as the subcommittee’s report. 12 See infra “The Big Tech Firms: A Summary of Selected Antitrust Allegations.” Congressional Research Service 1 Antitrust Reform and Big Tech Firms competition laws governing Big Tech. Fourth, the report analyzes the substance of specific categories of reform proposals. Antitrust Law: The Basics The antitrust laws aim to protect economic competition by prohibiting unreasonable restraints of trade,13 exclusionary conduct by dominant firms,14 and mergers and acquisitions that may “substantially” lessen competition or “tend to create a monopoly.”15 The following subsections provide a high-level overview of antitrust doctrine to lay the groundwork for later discussions of competition issues in tech markets and proposals for legal reform. Restraints of Trade Section 1 of the Sherman Act prohibits “every” contract or conspiracy “in restraint of trade.”16 Despite this categorical language, the Supreme Court has interpreted Section 1 to bar only unreasonable restraints of trade that harm competition.17 Applying this general standard, the Court has identified some types of agreements that are so likely to be anticompetitive that they are deemed per se illegal, meaning courts need not inquire into their effects in individual cases.18 Restraints in this category include agreements among competitors (“horizontal” agreements) to fix prices,19 divide markets,20 and restrain output.21 While some types of agreements are per se illegal under Section 1, most restraints are evaluated using a standard called the “rule of reason.”22 Under the rule of reason, courts conduct fact-specific assessments of a defendant’s market power and the details of a challenged agreement to determine a restraint’s competitive effects.23 This inquiry typically proceeds via a three-step burden-shifting framework. In that framework, the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect.24 Plaintiffs can make this showing directly or indirectly. Direct evidence of anticompetitive harm involves “proof of actual detrimental effects on competition,” such as reduced output, increased prices, or decreased quality.25 The indirect route involves proof of market power,26 plus “some evidence that the challenged restraint harms competition”—for 13 15 U.S.C. § 1. 14 Id. § 2. 15 Id. § 18. 16 Id. § 1. 17 Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006). 18 Id. 19 United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 218 (1940). 20 N. Pac. R.R. Co. v. United States, 356 U.S. 1, 5 (1958). 21 NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 100 (1984). 22 Ohio v. Am. Express Co. (Amex), 138 S. Ct. 2274, 2283-84 (2018). 23 Id. at 2284. 24 Id. 25 Id. (cleaned up). 26 The Supreme Court has offered various definitions of “market power,” many of which are related to a firm’s ability (continued...) Congressional Research Service 2 Antitrust Reform and Big Tech Firms example, evidence that the restraint is the type of restriction that tends to produce anticompetitive outcomes.27 If the plaintiff makes a prima facie case of anticompetitive harm, the burden shifts to the defendant to show a procompetitive justification for the challenged restraint.28 For example, a defendant might argue that the restraint increases output, creates operational efficiencies, makes a new product available, enhances product quality, or broadens consumer choice.29 If the defendant makes this showing, the burden shifts back to the plaintiff to demonstrate that the relevant procompetitive benefits could be reasonably achieved through less anticompetitive means.30 Some courts have also added a fourth step in which they balance a restraint’s anticompetitive and procompetitive effects.31 Although most agreements are evaluated under this framework, courts have also recognized a third standard that lies between the full rule of reason and per se illegality. This intermediate approach—often called “quick look” review—has been applied to agreements that are not per se unlawful but nevertheless exhibit characteristics that make their likely anticompetitive effects clear.32 Different courts have described quick-look analysis in different ways.33 The basic idea, however, is that the plaintiff in a quick-look case can discharge its initial burden without the type of detailed evidence of competitive harm required under the full rule of reason.34 Defendants in quick-look cases, meanwhile, have the opportunity to offer procompetitive justifications for their conduct, distinguishing quick-look review from per se analysis.35 to profitably charge prices higher than those that would exist in a competitive market—that is, a market with many buyers and sellers, homogeneous products, perfect information, no barriers to entry or exit, and no transaction costs. LAWRENCE A. SULLIVAN, ET AL., THE LAW OF ANTITRUST: AN INTEGRATED HANDBOOK 47-48 (4th ed. 2023). Those definitions sweep quite broadly, however, because virtually every firm selling a differentiated product has some market power in this sense; perfect competition is a theoretical abstraction that seldom—if ever—exists in the real world. Id. at 47. Commentators have thus observed that, in practice, the legal concept of market power appears to demand a substantial degree of pricing power. DANIEL FRANCIS & CHRISTOPHER JON SPRIGMAN, ANTITRUST: PRINCIPLES, CASES, AND MATERIALS 73 (2023). As discussed below, courts typically assess allegations of market power by evaluating structural factors like a firm’s market share and any entry barriers in the relevant market. Id. at 116. A market share of less than 30% is typically insufficient for market power. Id. In contrast, a share of 44% has been deemed sufficient when accompanied by evidence that entry barriers are high and that competitors cannot readily expand their output. Id. Higher shares have also supported an inference of market power when paired with evidence of entry barriers. Id. (collecting cases). The process for defining antitrust markets is discussed below. 27 Amex, 138 S. Ct. at 2284. 28 Id. 29 Law v. NCAA, 134 F.3d 1010, 1023 (10th Cir. 1998). 30 Amex, 138 S. Ct. at 2284. 31 See, e.g., Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 993-94 (9th Cir. 2023) (recognizing that Supreme Court precedent “neither requires nor disavows” a fourth step, while interpreting Ninth Circuit precedent to require a fourth balancing step); see also Michael A. Carrier, The Rule of Reason: An Empirical Update for the 21st Century, 16 GEO. MASON L. REV. 827, 827 (2009) (concluding that courts reached a fourth “balancing” step in 4% of rule-of-reason cases decided between 1977 and 1999). 32 Herbert Hovenkamp, The Rule of Reason, 70 FLA. L. REV. 81, 122-31 (2018) [hereinafter “Hovenkamp, The Rule of Reason”]. Often, “quick look” analysis is described as a type of rule-of-reason analysis, rather than a third standard of review, on the theory that the rule of reason represents a sliding scale that imposes different requirements based on the context. See id. at 123-24 (rejecting the idea that quick-look review represents a third “silo” of antitrust analysis that is distinct from the rule of reason). 33 Id. at 122. 34 FRANCIS & SPRIGMAN, supra note 26, at 191. 35 Id. Congressional Research Service 3 Antitrust Reform and Big Tech Firms Monopolization While Section 1 of the Sherman Act governs agreements between firms, Section 2 prohibits dominant companies from engaging in concerted or unilateral exclusionary conduct by making it unlawful to monopolize, attempt to monopolize, or conspire to monopolize.36 The monopolization offense has two elements: 1. the possession of monopoly power; and 2. “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident.”37 The second element is often referred to as “exclusionary” or “anticompetitive” conduct.38 Monopoly Power The Supreme Court has explained that a firm possesses monopoly power if it has the ability to “control prices or exclude competition.”39 Although that standard is similar to many descriptions of market power,40 the Court has clarified that monopoly power under Section 2 of the Sherman Act requires “something greater” than market power under Section 1.41 Courts have thus concluded that monopoly power entails a large degree of market power.42 Some courts have held that monopoly power can be established through direct evidence of supra-competitive prices and restricted output.43 However, this type of direct proof is rarely available.44 As a result, courts typically evaluate allegations of monopoly power by examining structural factors like a defendant’s market share and any entry barriers in the relevant market.45 These inquiries require a plaintiff to define the scope of the relevant market—an exercise that turns on the range of items that are reasonable substitutes for one another.46 There are two general approaches to market definition. One approach—the hypothetical monopolist test (HMT)—attempts to identify the smallest grouping of products over which a 36 15 U.S.C. § 2. 37 United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). 38 See, e.g., EINER ELHAUGE, UNITED STATES ANTITRUST LAW AND ECONOMICS 211 (3d ed. 2018). 39 United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956). 40 See, e.g., Fortner Enters. v. U.S. Steel Corp., 394 U.S. 495, 503 (1969) (defining market power as “the ability of a single seller to raise price and restrict output”). 41 Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 481 (1992). 42 See, e.g., Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 894 (10th Cir. 1991); Deauville Corp. v. Federated Dep’t Stores, Inc., 756 F.2d 1183, 1192 n.6 (5th Cir. 1985). As noted, the legal concept of “market power” in practice appears to involve a substantial degree of “market power” as that concept is used in economic theory. See supra note 26. One commentator has thus observed that monopoly power requires “a substantial degree of a sort of power that is itself defined to exist only when substantial.” Einer Elhauge, Defining Better Monopolization Standards, 56 STAN. L. REV. 253, 259 (2003). 43 Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 307 (3d Cir. 2007); PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 107 (2d Cir. 2002) (per curiam); Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768, 783 n.2 (6th Cir. 2002). 44 United States v. Microsoft Corp., 253 F.3d 34, 51 (D.C. Cir. 2001) (per curiam). Direct proof of market power is rarely available for a variety of reasons. Perhaps most significantly, it can be difficult to identify and measure a firm’s marginal costs. PHILLIP AREEDA, ET AL., ANTITRUST ANALYSIS: PROBLEMS, TEXT, AND CASES 529 (7th ed. 2013). 45 Microsoft, 253 F.3d at 51. 46 United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956). Congressional Research Service 4 Antitrust Reform and Big Tech Firms single seller could exercise significant market power.47 Under a version of the HMT known as the SSNIP test, this inquiry starts with the product at issue in a given case and asks whether a hypothetical monopolist selling that product could profitably increase its price by a significant amount (typically 5%-10%) for a non-transitory period of time (typically one year or more).48 If the answer is yes, then the product represents a relevant antitrust market. However, if consumer substitution would render such a price increase unprofitable, the SSNIP test prescribes that the market must be expanded to include substitute products. This process continues until the point at which a “small but significant non-transitory increase in price” for one of the products would be profitable.49 A second approach to market definition involves an evaluation of qualitative similarities and differences between products and services. This methodology is derived from the Supreme Court’s 1962 decision in Brown Shoe Co. v. United States, which identified a series of “practical indicia” that may be relevant to an evaluation of a market’s boundaries.50 These qualitative factors include industry or public recognition of separate markets, a product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.51 The HMT and Brown Shoe’s qualitative inquiry both attempt to determine the range of substitutes that constrain a firm’s exercise of market power,52 and judicial decisions often employ both approaches in defining markets.53 As mentioned, once a market has been defined, courts typically assess claims of monopoly power by evaluating a defendant’s market share and other structural factors like entry barriers.54 When entry barriers are present, a market share in excess of 70% can establish a prima facie case of 47 Gregory J. Werden, The 1982 Merger Guidelines and the Ascent of the Hypothetical Monopolist Paradigm, 71 ANTITRUST L.J. 253, 253-54 (2003). 48 FRANCIS & SPRIGMAN, supra note 26, at 68. 49 Id. The SSNIP test runs into a well-recognized baseline problem in cases where a firm is alleged to be charging monopoly prices. In those cases, a SSNIP above prevailing prices may prove unprofitable not because a candidate market is too small to confer significant pricing power on a hypothetical monopolist, but because the defendant is already fully exploiting its monopoly power. The use of prevailing prices to define markets in such circumstances is often called the “Cellophane fallacy,” because the Supreme Court committed this alleged error in a 1956 monopolization case involving cellophane and other packaging materials. E.I. du Pont de Nemours & Co., 351 U.S. at 400-01. Regulators and courts can avoid this problem by using competitive prices rather than prevailing prices as the baseline for evaluating whether a SSNIP would be profitable. AREEDA, ET AL., supra note 44, at 552; see also DEP’T OF JUST. & FED. TRADE COMM’N, HORIZONTAL MERGER GUIDELINES § 4.1.2 (2010) [hereinafter “HORIZONTAL MERGER GUIDELINES”] (acknowledging that use of the SSNIP test may require this modification in certain cases). That approach, however, raises the same difficulties with determining competitive prices that often bedevil attempts to establish market power with direct evidence. AREEDA, ET AL., supra note 44, at 552. A widely referenced textbook notes that the courts “have avoided tackling this issue and mostly act as if raising price above competitive levels were a self-evidently meaningful and applicable standard.” Id. 50 370 U.S. 294, 325 (1962). 51 Id. 52 FRANCIS & SPRIGMAN, supra note 26, at 74. The above discussion focuses on one component of market definition: the relevant product market. In certain cases—for example, where transportation costs are high or consumers prefer a local provider—geography may also represent an important aspect of market definition. Id. at 111. 53 E.g., United States v. Bertelsmann SE & Co., 2022 WL 16949715 at *12-13, 19-20 (D.D.C. 2022); United States v. H&R Block, Inc., 833 F. Supp. 2d 36, 50-60 (D.D.C. 2011); Olin Corp. v. FTC, 986 F.2d 1295, 1298-99 (9th Cir. 1993). 54 See, e.g., U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986, 999 (11th Cir. 1993). Congressional Research Service 5 Antitrust Reform and Big Tech Firms monopoly power.55 Courts rarely find monopoly power, by contrast, when a firm’s market share is less than 50%.56 Shares between 50% and 70% present “the greatest uncertainty,”57 with some courts deeming shares in that range to be insufficient absent additional evidence.58 To establish monopoly power, plaintiffs also typically must show that a defendant’s dominant position is likely to be durable—for example, with evidence of significant barriers to entry.59 Entry barriers may include legal and regulatory requirements, control of an essential resource, entrenched buyer preferences, and economies of scale.60 In some digital markets, entry barriers may also emerge from network effects (which cause a product’s utility to increase as it gains more users) and significant switching costs (high costs that users of a product would face in switching to a substitute).61 Exclusionary Conduct As noted, the second element of a monopolization claim is exclusionary conduct. The Supreme Court has described this element as involving “the willful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident.”62 As a general standard, many have found that description unhelpful. Firms often “willfully” try to obtain monopoly status by developing superior products and by deploying business acumen.63 Moreover, in offering the above formulation, the Supreme Court did not define “business acumen,” leaving little guidance as to when practices like aggressive price cutting, bundling separate products, or refusing to share property with rivals represent savvy strategy as opposed to unlawful exclusion.64 While academics have made several attempts to develop an alternative general standard, courts have not decisively embraced any of them.65 Instead, the doctrine contains a variety of tests that 55 1 ABA SECTION OF ANTITRUST LAW, ANTITRUST DEVELOPMENTS 230 (9th ed. 2022) [hereinafter “ANTITRUST DEVELOPMENTS”] (collecting cases). 56 Id. at 231. 57 Id. at 231-32. 58 United States v. Dentsply Int’l, Inc., 399 F.3d 181, 187 (3d Cir. 2005) (“Absent other pertinent factors, a share significantly larger than 55% has been required to establish prima facie [monopoly] power.”); PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 109 (2d Cir. 2002) (“Absent additional evidence, such as an ability to control prices or exclude competition, a 64 percent market share is insufficient to infer monopoly power.”); Colo. Interstate Gas Co. v. Natural Gas Pipeline Co. of Am., 885 F.2d 683, 694 n.18 (10th Cir. 1989) (noting that “lower courts generally require a minimum market share of between 70% and 80%” to support a finding of monopoly power); Exxon Corp. v. Berwick Bay Real Estate Partners, 748 F.2d 937, 940 (5th Cir. 1984) (per curiam) (noting that “monopolization is rarely found when the defendant’s share of the relevant market is below 70%”); United States v. Aluminum Co. of Am., 148 F.2d 416, 424 (2d Cir. 1945) (Hand, J.) (indicating that it is “doubtful” that a share of 64% is sufficient for monopoly power); but see Tops Mkts., Inc. v. Quality Mkts, Inc., 142 F.3d 90, 99 (2d Cir. 1998) (indicating that a share between 50% and 70% can “occasionally” show monopoly power if other factors support the inference). 59 See, e.g., Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 762 F.3d 1114, 1123-25 (10th Cir. 2014); W. Parcel Express v. United Parcel Serv. of Am., Inc., 190 F.3d 974, 975 (9th Cir. 1999). 60 Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1439 (9th Cir. 1995). 61 FTC v. Facebook, Inc., 581 F. Supp. 3d 34, 51 (D.D.C. 2022). 62 United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). 63 See, e.g., Daniel Francis, Making Sense of Monopolization, 84 ANTITRUST L.J. 779, 779-80 (2022). 64 Elhauge, supra note 42, at 263. 65 DEP’T OF JUST., COMPETITION AND MONOPOLY: SINGLE-FIRM CONDUCT UNDER SECTION 2 OF THE SHERMAN ACT 33 (2008) (withdrawn in 2009) [hereinafter “DOJ MONOPOLIZATION REPORT”]. Congressional Research Service 6 Antitrust Reform and Big Tech Firms govern specific categories of conduct, along with a burden-shifting framework that is similar to the usual rule-of-reason inquiry in Section 1 cases. The following sections review efforts to develop a unified theory of monopolization and several of the conduct-specific tests that courts have adopted in place of such a theory. The Debate over a General Monopolization Standard Courts have held that a wide range of behavior can violate Section 2 of the Sherman Act. As discussed below, a monopolist can—depending on the circumstances—violate Section 2 by entering into exclusive contracts with customers or suppliers, tying or bundling separate products, aggressively cutting prices to deter entry, or refusing to deal with competitors. Other conduct can also constitute monopolization even if it does not fall neatly into any particular doctrinal category. See LePage’s, Inc. v. 3M, 324 F.3d 141, 152 (3d Cir. 2003). This diversity has raised a question: is there a unifying principle that explains when conduct will qualify as “exclusionary,” as opposed to representing legitimate “competition on the merits”? Commentators have proposed different answers. One option—the “profit sacrifice” or “no economic sense” test—comes in several varieties. The basic idea, however, is that conduct is “exclusionary” only if it would have no rational purpose other than to exclude rivals. SULLIVAN, ET AL., supra note 26, at 112. Under the “profit sacrifice” version of this theory, unilateral conduct would be deemed anticompetitive only if it entails a sacrifice of short-term profits, which the defendant intends to recoup with monopoly prices after eliminating its rivals. Id. The “no economic sense” variant is potentially broader. It would condemn conduct that (1) has a tendency to eliminate competition, and (2) would make no economic sense but for that tendency. Gregory J. Werden, Identifying Exclusionary Conduct Under Section 2: The “No Economic Sense” Test, 73 ANTITRUST L.J. 413, 418 (2006). These approaches are motivated by a desire to avoid chilling procompetitive behavior and may offer greater certainty than the types of balancing tests employed in some monopolization cases. The “profit sacrifice” test has been criticized for failing to account for cases of costless or cheap exclusion, where a monopolist can exclude rivals at little expense. While the “no economic sense” test may avoid this objection, some commentators have faulted it for failing to capture conduct that causes serious anticompetitive harm while creating minor economic benefits. SULLIVAN, ET AL., supra note 26, at 115. Neither test has been adopted as a general monopolization standard, but their influence is particularly clear in the doctrine governing predatory pricing and refusals to deal. An alternative approach would provide that conduct is “exclusionary” if and only if it is likely to exclude from the defendant’s market an equally or more efficient competitor. RICHARD A. POSNER, ANTITRUST LAW 194-95 (2d. ed. 2001). Like the “profit sacrifice” and “no economic sense” theories, the “equally efficient competitor” test may avoid the uncertainties that accompany open-ended balancing tests, while still protecting a monopolist’s efficient rivals. The test’s critics have argued that competition from less efficient rivals is often desirable, including in cases where an upstart firm has not yet acquired the scale or expertise to match the incumbent’s efficiency. Administering this approach may also prove challenging, especially in cases that do not involve price predation. DOJ MONOPOLIZATION REPORT, supra note 65, at 44. While the test is grounded in principles from predatory-pricing cases, it has not been elevated to the status of a general Section 2 standard. A third theory involves the type of balancing test alluded to above, which is similar to the usual rule-of-reason inquiry under Section 1. Under this approach, conduct qualifies as “exclusionary” based on its net effect on consumer welfare. Steven C. Salop, Exclusionary Conduct, Effect on Consumers, and the Flawed Profit-Sacrifice Standard, 73 ANTITRUST L.J. 311, 330 (2006). Because it entails a totality-of-the-circumstances inquiry into competitive harm, a balancing test may avoid the allegations of underinclusiveness that have been leveled against alternative approaches. On the other hand, commentators have criticized open-ended balancing for being administratively costly and making it difficult for firms to predict whether their behavior is permissible, which may deter procompetitive conduct. DOJ MONOPOLIZATION REPORT, supra note 65, at 37-38. Many courts have employed an effects-balancing framework in Section 2 cases, but—like other theories—it has not risen to the level of an all-purpose test. ANTITRUST DEVELOPMENTS, supra note 55, at 325. Predatory Pricing Some monopolization cases involve allegations that a defendant aggressively cut prices in an attempt to exclude rivals from the market—a practice commonly known as predatory pricing. Congressional Research Service 7 Antitrust Reform and Big Tech Firms Predation has been described as “a play in two acts.”66 In the first stage of a predation scheme, a firm charges unsustainably low prices to drive rivals from the market or deter entry.67 In the second, the firm attempts to recoup the losses incurred in the first stage by raising prices to monopoly levels.68 Predatory pricing has played a notable role in antitrust history and was a part of the federal government’s landmark monopolization case against the Standard Oil Company, which was broken up in 1911.69 The practice was also a common target of antitrust enforcement through the 1960s,70 when some courts evaluated predation claims by focusing on whether the defendant intended to harm rivals.71 Today, matters are different. Beginning in the 1950s, academics affiliated with what came to be known as the Chicago School of antitrust analysis mounted a critique of prevailing theories of predatory pricing.72 They claimed, among other things, that predation is typically an irrational strategy, because monopoly prices charged during the recoupment period will often invite entry, which will in turn drive prices down to competitive levels.73 Chicago School scholars also contended that monopolists will usually suffer greater losses from a price war than their competitors, because large firms tend to make more sales than smaller ones.74 Other academics from what is often called the modern Harvard School later offered arguments for a less interventionist posture that were grounded in institutional concerns about the ability of courts to distinguish predatory pricing from vigorous price competition.75 These criticisms proved highly influential.76 In the 1970s and 1980s, many lower courts took a more restrictive approach to predation claims, often requiring plaintiffs to show that the defendant’s prices fell below its costs rather than inquiring into the defendant’s intent.77 The Supreme Court ultimately ratified this approach in its 1993 Brooke Group decision, which held that predation plaintiffs must establish that (1) the defendant charged below-cost prices, and (2) there is a “dangerous probability” that the defendant will recoup its losses by raising prices upon the elimination of competitors.78 66 FRANCIS & SPRIGMAN, supra note 26, at 341. 67 Id. 68 Id. 69 Standard Oil Co. v. United States, 221 U.S. 1 (1911). 70 William E. Kovacic, The Intellectual DNA of Modern U.S. Competition Law for Dominant Firms: The Chicago/Harvard Double Helix, 2007 COLUM. BUS. L. REV. 1, 44 (2007). 71 Elhauge, supra note 42, at 268 & n.47 (collecting cases). 72 See, e.g., ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 149-55 (1978); John S. McGee, Predatory Price Cutting: The Standard Oil (N.J.) Case, 1 J. L. & ECON. 137 (1958). 73 The Chicago critique is controversial. Economists have identified a variety of circumstances in which predation can, in theory, be a rational business strategy—for example, where entry entails large fixed costs, a dominant firm develops a predatory reputation, capital markets are imperfect, or predation can deny rivals minimum efficient scale. CHIARA FUMAGALLI, ET AL., EXCLUSIONARY PRACTICES: THE ECONOMICS OF MONOPOLISATION AND ABUSE OF DOMINANCE 16-45 (2018). 74 McGee, supra note 72, at 140. Price discrimination can mitigate this effect. For example, a monopolist may be able to limit its losses from predation by cutting prices only in certain markets. FUMAGALLI, ET AL., supra note 73, at 17. 75 See, e.g., Phillip Areeda & Donald F. Turner, Predatory Pricing and Practices Under Section 2 of the Sherman Act, 88 HARV. L. REV. 697 (1975). 76 One commentator has argued that the Areeda-Turner paper “has a strong claim to be the most influential law review article ever written on an antitrust topic.” Kovacic, supra note 70, at 45. 77 Id. at 45-50. 78 Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-24 (1993). Congressional Research Service 8 Antitrust Reform and Big Tech Firms These requirements have proven difficult to satisfy. Since the Brooke Group decision, successful predatory-pricing claims have been rare.79 Refusals to Deal Another category of potentially exclusionary conduct involves refusals to deal with rivals. In general, firms—including monopolists—have the right to choose their business partners.80 In certain cases, however, courts have held that declining to do business with competitors can harm competition without justification and thus violate the Sherman Act. In Aspen Skiing Co. v. Aspen Highlands Skiing Corp., for example, the Supreme Court held that a monopolist of downhill skiing services in Aspen, Colorado violated Section 2 by terminating an “all-Aspen” ski ticket that it had offered with the plaintiff.81 The defendant also made it difficult for the plaintiff to replicate the “all-Aspen” package, refusing to sell the plaintiff lift tickets or accept bank-guaranteed vouchers included in the plaintiff’s replacement ticket package.82 After concluding that the defendant had failed to offer a plausible efficiency justification for its conduct, the Supreme Court affirmed a verdict of Section 2 liability.83 However, the Court later cabined the scope of its decision in Aspen Skiing, explaining that the case lies “at or near the outer boundary” of monopolization law.84 The Court offered this guidance in Verizon Communications Inc. v. Trinko, in which it held that Verizon did not violate Section 2 by refusing to provide interconnection services to a rival local telephone service provider.85 The Court distinguished Aspen Skiing on the ground that the monopolist in the latter decision had terminated “a voluntary (and thus presumably profitable) course of dealing” with the plaintiff, which suggested a willingness to sacrifice short-term profits for an anticompetitive end.86 The Court also emphasized that the monopolist in Aspen Skiing refused to deal with its rival even if compensated at the prices it charged to other customers, which also revealed an anticompetitive purpose.87 Because those factors were not present in Trinko, the Court held that Verizon’s conduct did not fall within Aspen Skiing’s “limited exception” to the principle that firms are free to refuse to deal with their competitors.88 Based on the Supreme Court’s reasoning in Trinko, some lower courts have concluded that refusal-to-deal plaintiffs must establish that a defendant’s refusal entailed a sacrifice of short-term 79 SULLIVAN, ET AL., supra note 26, at 121; DEVLIN, supra note 10, at 184; Lina M. Khan, Amazon’s Antitrust Paradox, 126 YALE L.J. 710, 730 & n.107 (2017) [hereinafter “Khan, Amazon’s Antitrust Paradox”]. 80 See United States v. Colgate & Co., 250 U.S. 300 (1919). 81 472 U.S. 585, 593-94 (1985). 82 Id. 83 Id. at 608-11. 84 Verizon Commc’ns Inc. v. L. Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 409 (2004). 85 Id. at 409-16. 86 Id. at 409. 87 Id. 88 Id. Congressional Research Service 9 Antitrust Reform and Big Tech Firms profits for an exclusionary purpose.89 Some courts have also required plaintiffs to establish this type of profit sacrifice with proof that the defendant terminated a voluntary course of dealing.90 Many circuit courts have also accepted a specific theory of refusal-to-deal liability called the “essential facilities” doctrine, which the Supreme Court has declined to either recognize or repudiate.91 To prevail under the essential-facilities doctrine, plaintiffs must establish 1. 2. 3. 4. the control of an “essential facility” by a monopolist; an inability to “practically or reasonably” duplicate the facility; the denial of the use of the facility to a competitor; and the feasibility of providing access to the facility.92 While that doctrine remains on the books as a formal matter,93 two commentators have described the Supreme Court’s treatment of it as inflicting “death by dicta.”94 Its viability thus remains uncertain. Refusal-to-deal doctrine implicates a well-recognized trade-off. On the one hand, compulsory dealing will often increase static efficiency. Requiring a vertically integrated monopolist to supply necessary inputs to downstream rivals, for example, may promote price competition in the downstream market and thereby eliminate allocative inefficiencies.95 Those benefits, however, may come at the expense of dynamic competition insofar as they reduce incentives to invest and innovate.96 As Trinko makes clear, antitrust doctrine currently places greater emphasis on the latter concern.97 The Supreme Court has also expressed skepticism about the institutional competence of courts to craft appropriate remedies in refusal-to-deal cases. The worry is that compulsory dealing will often require generalist judges to set prices and other contract terms—tasks that are typically the province of a sectoral regulator.98 89 E.g., Novell, Inc. v. Microsoft Corp., 731 F.3d 1064, 1075 (10th Cir. 2013) (Gorsuch, J.); Covad Commc’ns Co. v. Bell Atl. Corp., 398 F.3d 666, 675 (D.C. Cir. 2005); but see Viamedia Inc. v. Comcast Corp., 951 F.3d 429, 462 (7th Cir. 2020) (concluding that profit sacrifice is relevant but not always dispositive for refusal-to-deal liability). 90 E.g., FTC v. Qualcomm, Inc., 969 F.3d 974, 993-94 (9th Cir. 2020); Novell, 731 F.3d at 1075; In re Elevator Antitrust Litig., 502 F.3d 47, 52 (2d Cir. 2007); Covad Commc’ns Co. v. BellSouth Corp., 374 F.3d 1044, 1049 (11th Cir. 2004). 91 Trinko, 540 U.S. at 410-11. 92 MCI Commc’ns Corp. v. AT&T Co., 708 F.2d 1081, 1132-33 (7th Cir. 1983). 93 See ELHAUGE, supra note 38, at 353 n.91 (collecting circuit court decisions recognizing the doctrine). 94 Brett Frischmann & Spencer Weber Waller, Revitalizing Essential Facilities, 75 ANTITRUST L.J. 1, 3 (2008); see also HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY: THE LAW OF COMPETITION AND ITS PRACTICE 337 (4th ed. 2011) [hereinafter “HOVENKAMP, FEDERAL ANTITRUST POLICY”] (concluding that “[n]ot many essential facility claims will survive” post-Trinko); Khan, Amazon’s Antitrust Paradox, supra note 79, at 801 (noting that commentators have wondered whether the essential-facilities doctrine is now “a dead letter”). 95 Howard A. Shelanski, Unilateral Refusals to Deal in Intellectual and Other Property, 76 ANTITRUST L.J. 369, 371 (2009). 96 Id. 97 Verizon Commc’ns Inc. v. L. Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 407-08 (2004) (“Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.”). 98 Id. at 408. Congressional Research Service 10 Antitrust Reform and Big Tech Firms As discussed below, in many cases, permissive refusal-to-deal doctrine has significant implications for the viability of antitrust action against major tech platforms under existing law. Tying Tying arrangements are vertical restraints of trade (i.e., restraints involving individuals or firms in a customer-supplier relationship) that can be challenged under several provisions of the antitrust laws, including Sections 1 and 2 of the Sherman Act.99 Tying involves a refusal to sell one product (the tying product) unless buyers also purchase another product (the tied product) from the seller.100 The basic concern with tying arrangements is that they may allow a firm with market power for the tying product to harm competition in and even monopolize the tied product market.101 Tying may also help a dominant firm preserve a monopoly in the tying market by eliminating potential rivals that may enter via the tied market.102 However, tying can also produce procompetitive benefits. For example, tying may dissuade consumers from using an inferior substitute to the tied product with the tying product, mitigating the risk of reputational damage to a seller’s brand.103 Producing and selling different products together may also reduce production, marketing, and distribution costs.104 Some ties can also serve as a means of price discrimination—for example, by allowing firms to discriminate between high-intensity and low-intensity users of a product.105 Commentators have debated the effects of these “requirements” or “variable proportion” ties, whereby consumers purchase a durable tying product (e.g., a printer) and amounts of the tied product (e.g., ink) that vary with their use of the tying product. Firms may employ these types of ties to lower the price of the tying product and raise the price of the tied product, benefitting low-volume users and harming high-volume users.106 Some commentators have argued that “requirements ties” typically increase total and consumer welfare,107 while others have come to the opposite conclusion.108 Like predatory-pricing doctrine, tying law has changed significantly over the course of antitrust history. Throughout much of the 20th century, courts were highly skeptical of tying arrangements, 99 HOVENKAMP, FEDERAL ANTITRUST POLICY, supra note 94, at 435. 100 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984). 101 FUMAGALLI, ET AL., supra note 73, at 352. 102 Id. at 386-88. 103 ELHAUGE, supra note 38, at 419. 104 FUMAGALLI, ET AL., supra note 73, at 353. 105 Dennis W. Carlton & Michael Waldman, Tying, in 3 ISSUES IN COMPETITION LAW AND POLICY 1859, 1866 (Wayne Dale Collins ed., 2008). 106 Erik Hovenkamp & Herbert J. Hovenkamp, Tying Arrangements and Antitrust Harm, 52 ARIZ. L. REV. 925, 951-52 (2010). 107 Id. at 925. One observer has analogized certain conduct in tech markets to requirements ties, arguing that restrictions on app distribution may allow Apple to cut iPhone prices, meaning high-intensity app users effectively subsidize low-intensity users. Thomas A. Lambert, Addressing Big Tech’s Market Power: A Comparative Institutional Analysis, 75 SMU L. REV. 73, 104 & n.182 (2022). 108 Einer Elhauge, Rehabilitating Jefferson Parish: Why Ties Without a Substantial Foreclosure Share Should Not Be Per Se Legal, 80 ANTITRUST L.J. 463, 476-86 (2016). Congressional Research Service 11 Antitrust Reform and Big Tech Firms which were deemed per se illegal under Section 1 of the Sherman Act.109 During this period of disapproval, the Supreme Court consistently described tying as inherently anticompetitive.110 As in other areas of antitrust, academic work challenged this attitude. Beginning in the 1950s, Chicago School scholars criticized the theory that a firm could leverage power in one market to extract additional profits from another market. They argued that when consumers use complementary products in fixed proportions—for example, nuts and bolts—a monopolist cannot extract additional profits by tying one product to the other.111 In such cases, they reasoned, there is one profit-maximizing price for the product set, meaning a monopolist of nuts could extract only one monopoly profit from the nut-bolt set. If the market for bolts is competitive, charging a monopoly price for nuts while tying them to bolts sold at a supra-competitive price would result in a price for the nut-bolt set that exceeds the profit-maximizing level.112 The Chicago critique of leverage theory thus contended that, in these circumstances, firms likely employ tying arrangements because they generate efficiencies.113 The single monopoly profit theory (SMPT) described above applies only under certain restrictive assumptions.114 In addition to being limited to complementary products used in fixed proportions,115 the SMPT does not eliminate the possibility that a firm may employ a tying arrangement to impair the efficiency of rivals in the tied market. If there are necessary scale economies in the tied market, for example, tying can potentially allow a firm to deny those economies to rivals and thus decrease the competitiveness of that market.116 The SMPT also does not preclude the use of a tying arrangement to maintain market power in the tying market (i.e., in cases where firms may enter the tying market via the tied market).117 Despite these limitations, the Chicago critique of traditional leverage theory—along with the development of various efficiency-based rationales for tying—ultimately led courts to move away from the view that ties are almost invariably anticompetitive.118 This change prompted an erosion of the per se rule. In decisions in the 1970s and 1980s, the Supreme Court retained the label of per se illegality for tying arrangements, but limited the rule’s application to firms with sufficient market power in the tying market to force purchases of the tied product.119 109 N. Pac. Ry. Co. v. United States, 356 U.S. 1, 3 (1958). 110 Fortner Enters. v. U.S. Steel Corp., 394 U.S. 495, 503 (1969) (stating that tying arrangements “generally serve no legitimate business purpose that cannot be achieved in some less restrictive way”); Standard Oil Co. v. United States, 337 U.S. 293, 305-06 (1949) (concluding that tying arrangements “serve hardly any purpose beyond the suppression of competition”). 111 Ward S. Bowman, Jr., Tying Arrangements and the Leverage Problem, 67 YALE L.J. 19, 23 (1957). 112 Id. 113 Id. at 29. 114 FUMAGALLI, ET AL., supra note 73, at 367-99. 115 As discussed, commentators have taken different views on the welfare effects of ties involving products used in variable proportions. 116 Einer Elhauge, Tying, Bundling, and the Death of the Single Monopoly Profit Theory, 123 HARV. L. REV. 397, 413 (2009). 117 Id. at 417-19. 118 Ill. Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28, 35-36 (2006) (noting that “[o]ver the years,” the Court’s “strong disapproval of tying arrangements has substantially diminished,” and that the case law had rejected the assumption that tying arrangements usually have no procompetitive purpose). 119 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 13-16 (1984); U.S. Steel Corp. v. Fortner Enters., Inc., 429 U.S. 610, 620-22 (1977). Congressional Research Service 12 Antitrust Reform and Big Tech Firms Lower courts have adopted different formulations of this modified per se rule, but the inquiries are generally similar.120 One commentator has summarized the doctrine as establishing the following requirements for a per se tying claim under Section 1: 1. The defendant offered two distinct products; 2. The defendant conditioned the sale of one product (the tying product) on the purchase of the other product (the tied product); 3. The defendant possessed sufficient economic power in the tying product market to coerce purchasers into acceptance of the tied product; and 4. The defendant’s conduct affected a “not insubstantial” amount of interstate commerce in the tied product (an inquiry that focuses on the absolute dollar amount of affected commerce).121 Some lower courts have also required plaintiffs to demonstrate that a tying arrangement had anticompetitive effects in the tied product market.122 Others have entertained and accepted business justifications for challenged ties.123 In practice, then, the modified per se rule against tying appears to be more similar to the rule of reason than it is to traditional per se rules.124 Courts have also declined to apply the modified per se rule to ties involving platform software products. In its 2001 decision in United States v. Microsoft, the D.C. Circuit held that a tie involving Microsoft’s Windows operating system and its Internet Explorer web browser was governed by the rule of reason, rather than the modified per se rule.125 In rejecting application of the per se rule, the D.C. Circuit noted that none of the Supreme Court’s tying cases had involved the physical and technological integration of separate products.126 Condemning such ties without evaluating their competitive effects, the court reasoned, would create an unacceptable risk of error and deter innovation.127 In 2023, the Ninth Circuit adopted the D.C. Circuit’s reasoning to conclude that the rule of reason applied to a tying claim challenging Apple’s requirement that software developers use Apple’s payment processor for in-app purchases as a condition of distributing apps through its App Store.128 As mentioned, tying arrangements can be challenged under Sections 1 and 2 of the Sherman Act. The key differences between the provisions are Section 1’s requirement of an agreement; the availability of the modified per se rule under Section 1; and Section 2’s requirement that challenged conduct contribute to the creation or maintenance of monopoly power (or produce a dangerous probability of those effects).129 120 HOVENKAMP, FEDERAL ANTITRUST POLICY, supra note 94, at 435 (explaining that “[i]n operation the tests are similar,” but that some courts have combined elements that other courts recognize as separate requirements). 121 Id. The Supreme Court has held that $60,800 in sales was sufficient to meet the “not insubstantial” volume requirement, while some lower courts have held that considerably lower volumes are sufficient. ANTITRUST DEVELOPMENTS, supra note 55, at 197 (collecting cases). 122 E.g., Kaufman v. Time Warner, 836 F.3d 137, 141 (2d Cir. 2016); Amey, Inc. v. Gulf Abstract & Title Inc., 758 F.2d 1486, 1503 (11th Cir. 1985); Driskill v. Dallas Cowboys Football Club, Inc., 498 F.2d 321, 323 (5th Cir. 1974). 123 ANTITRUST DEVELOPMENTS, supra note 55, at 200. 124 Viamedia, Inc. v. Comcast Corp., 951 F.3d 429, 468 (7th Cir. 2020) (making this observation). 125 253 F.3d 34, 89-91 (D.C. Cir. 2001) (per curiam). 126 Id. 127 Id. 128 Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 997 (9th Cir. 2023). 129 FRANCIS & SPRIGMAN, supra note 26, at 382. Congressional Research Service 13 Antitrust Reform and Big Tech Firms In evaluating product-design or “technological tie” claims under Section 2, some decisions have held that the integration of separate products is lawful when it improves quality or reduces cost, even if that conduct forecloses rivals.130 The Microsoft decision, by contrast, employed a rule-of-reason-like burden-shifting framework to the government’s Section 2 claims in that case.131 Another appellate decision has affirmed liability for product integration where evidence of an exclusionary motive cast doubt on the defendant’s argument that the challenged design represented a genuine improvement.132 Exclusive Dealing Like tying arrangements, exclusive contracts—in which a firm commits to refrain from dealing with its counterparty’s rivals—are vertical restraints of trade that can be challenged under Sections 1 and 2 of the Sherman Act.133 Exclusive contracts can harm competition when a dominant firm uses them to foreclose rivals from key inputs or distribution channels.134 They can also produce procompetitive benefits. For example, exclusivity may induce manufacturers to make relationship-specific investments in dealers by providing sales training, technical support, and other promotional assistance.135 To the extent that a dealer can use any of this support to promote rival brands, manufacturers may lack the incentive to provide it. Exclusive dealing can eliminate this free-rider problem and thereby encourage investment.136 Exclusivity may also mitigate uncertainty about future sales or purchases137 and encourage more intense competition for distribution, which may result in lower consumer prices.138 While exclusive dealing has never been deemed per se illegal, its treatment has evolved considerably. In its 1949 Standard Stations decision, the Supreme Court affirmed a decision finding that foreclosure of 6.7% of the relevant market was sufficient to render an exclusive contract illegal.139 In doing so, the Court appeared to approve the lower court’s refusal to engage in a full rule-of-reason analysis of competitive harm.140 The decision thus stood for what came to be called the “quantitative substantiality” approach to exclusivity, which focused on the percentage of the relevant market foreclosed by a challenged agreement.141 The Supreme Court departed from that approach twelve years later in Tampa Electric Co. v. Nashville Coal Co., where it rejected a challenge to an exclusive contract that foreclosed less than 130 See, e.g., Allied Orthopedic Appliances v. Tyco Health Care Grp., 592 F.3d 991, 1000-02 (9th Cir. 2010); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 286-87 (2d Cir. 1979). 131 Microsoft, 253 F.3d at 65-67. 132 C.R. Bard, Inc. v. M3 Systems, 157 F.3d 1340, 1382 (Fed. Cir. 1998). 133 HOVENKAMP, FEDERAL ANTITRUST POLICY, supra note 94, at 478. 134 FUMAGALLI, ET AL., supra note 73, at 239-62. 135 Id. at 273-74. 136 Id. 137 See Standard Oil Co v. United States (Standard Stations), 337 U.S. 293, 306-07 (1949). 138 Benjamin Klein & Kevin M. Murphy, Exclusive Dealing Intensifies Competition for Distribution, 75 ANTITRUST L.J. 433 (2008). Chicago School academics also questioned why a rational firm would agree to an exclusive contract that enhanced or preserved the market power of its counterparty. E.g., BORK, supra note 72, at 309. In response, economists have developed models showing that buyers may face collective action problems when a monopolist uses exclusive contracts to deny rivals necessary scale economies. FUMAGALLI, ET AL., supra note 73, at 243-54. 139 Standard Stations, 337 U.S. at 308-09. 140 Id. 141 ANTITRUST DEVELOPMENTS, supra note 55, at 209. Congressional Research Service 14 Antitrust Reform and Big Tech Firms 1% of the relevant market.142 In Tampa Electric, the Court did not limit its analysis to the low foreclosure percentage, explaining that it was necessary to also engage in a qualitative analysis of the agreement’s competitive effects.143 The quantitative aspect of foreclosure analysis has also become more permissive. In the Court’s 1984 Jefferson Parish decision, the concurring opinion of four Justices concluded, without a detailed inquiry, that foreclosure of 30% of the market was not sufficient to render an exclusive contract unlawful.144 Since these decisions, reviewing courts have tended to require foreclosure of at least 40% of the market before condemning exclusive contracts under Section 1, while also analyzing the duration of the restrictions, any business justifications, and other factors that may bear on an agreement’s competitive effects.145 Some courts have indicated that the standards for assessing exclusive dealing are more plaintiff-friendly under Section 2, and that a monopolist’s use of exclusive contracts may be illegal even if they foreclose less than the 40% figure that is typically necessary for a Section 1 violation.146 Monopoly Leveraging A firm’s possession of monopoly power has traditionally given rise to concerns that the firm may use that power to gain a competitive advantage in another market. For many years, the federal courts split over whether Section 2 precluded this type of “monopoly leveraging” in cases where a defendant utilized its monopoly power to harm competition in—but not reasonably threaten to monopolize—a second market. Elhauge, supra note 38, at 357-58 nn.97-98 (collecting cases). In 2004, the Supreme Court rejected one type of leveraging claim, remarking that the leveraging theory offered in that case would be valid only if the defendant had a “dangerous probability” of monopolizing a second market—an element of the attempt-to-monopolize offense. Verizon Commc’ns Inc. v. L. Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 410 n.4 (2004) (citation omitted). The Court thus rejected the proposition that a defendant could violate Section 2 merely by gaining an unfair advantage in a second market. As a result, “monopoly leveraging” does not denote a standalone antitrust offense that is distinct from monopolization or attempted monopolization. In its 2001 Microsoft decision, however, the D.C. Circuit endorsed what some commentators have called a “defensive leveraging” theory. See United States v. Microsoft Corp., 253 F.3d 34, 67 (D.C. Cir. 2001) (per curiam); Robin Cooper Feldman, Defensive Leveraging in Antitrust, 87 GEO. L.J. 2079 (1999). While “offensive leveraging” involves a defendant’s use of monopoly power in one market to extract additional profits from another market, “defensive leveraging” involves the use of monopoly power to gain an advantage in another market so as to prevent erosion of a primary monopoly. See Feldman, Defensive Leveraging, 87 GEO. L.J. at 2080. In Microsoft, for example, the D.C. Circuit concluded that Microsoft had leveraged its operating-system monopoly into the market for web browsers so as to protect its operating-system monopoly. Microsoft, 253 F.3d at 64. Specifically, Microsoft imposed several restrictions related to its Windows operating system that were designed to reduce the usage of rival web browsers, which threatened to supplant Windows as platforms for software development. Id. at 60. The D.C. Circuit held that some of this conduct constituted unlawful monopolization. Id. at 64. Accordingly, under current Section 2 doctrine, an “offensive leveraging” theory requires proof that a defendant’s conduct raised a “dangerous probability” of monopolizing a second market—a prerequisite for an attempt-to-monopolize claim. Simply gaining an unfair advantage in another market is not sufficient. Trinko, 540 U.S. at 410 n.4. By contrast, “defensive leveraging”—whereby a monopolist’s leveraging of its monopoly power 142 365 U.S. 320 (1961). 143 Id. at 329. 144 466 U.S. 2, 46 (1984) (O’Connor, J., concurring). 145 HOVENKAMP, FEDERAL ANTITRUST POLICY, supra note 94, at 487. 146 E.g., United States v. Microsoft Corp., 253 F.3d 34, 70 (D.C. Cir. 2001) (per curiam). Congressional Research Service 15 Antitrust Reform and Big Tech Firms into a second market helps preserve its primary monopoly—is a viable theory of monopoly maintenance, even without proof that the defendant threatens to monopolize the second market. See Microsoft, 253 F.3d at 64, 80-84. Mergers & Acquisitions The antitrust laws also place limitations on mergers and acquisitions.147 Section 7 of the Clayton Act prohibits a merger if its effect “may be substantially to lessen competition, or to tend to create a monopoly.”148 Though less common, Section 2 of the Sherman Act has also been used to challenge mergers that help a firm acquire or maintain monopoly power.149 Analysis of mergers varies based on the relationship between the merging parties—specifically, based on whether a merger is horizontal, vertical, or conglomerate. Horizontal mergers (i.e., mergers between competitors) receive the greatest scrutiny and can raise two primary types of concerns. First, horizontal mergers may allow a firm to unilaterally increase its prices or decrease the quality of its products by eliminating competition between rivals.150 Second, horizontal mergers may facilitate tacit or express collusion by increasing market concentration (so-called “coordinated effects”).151 Vertical mergers (i.e., mergers between firms in the same supply chain) receive less exacting scrutiny than horizontal ones, because they do not eliminate direct competitors and are thought to often generate efficiencies.152 The main concern with vertical mergers is foreclosure; when a firm acquires an important source of inputs or a key distribution channel, it may have the ability and incentive to raise rivals’ costs or refuse to do business with rivals altogether.153 A vertical merger may also prompt concerns if it gives a firm access to competitively sensitive information about rivals or facilitates collusion by allowing the merged entity to monitor compliance with tacit pricing agreements.154 Conglomerate mergers are mergers that are neither horizontal nor vertical.155 Challenges to such mergers are rare.156 Conglomerate mergers may raise antitrust concerns, however, if they allow a firm to acquire a potential competitor.157 147 For ease of discussion, this report will refer to both mergers and acquisitions as “mergers.” 148 15 U.S.C. § 18. 149 United States v. Grinnell Corp., 384 U.S. 563, 576 (1966); Fraser v. Major League Soccer, LLC, 284 F.3d 47, 61 (1st Cir. 2002); BRFHH Shreveport, LLC v. Willis Knighton Med. Ctr., 176 F. Supp. 3d 606, 619 (W.D. La. 2016). 150 HORIZONTAL MERGER GUIDELINES, supra note 49, at § 6. 151 Id. § 7. 152 DANIEL A. CRANE, ANTITRUST 164 (2014). By allowing a downstream firm to access inputs at cost instead of paying a markup, vertical mergers may eliminate the “double marginalization” that occurs when two firms within a supply chain each mark-up their prices. DEP’T OF JUST. & FED. TRADE COMM’N, VERTICAL MERGER GUIDELINES § 6 (2020) [hereinafter “VERTICAL MERGER GUIDELINES”] (withdrawn by the FTC in September 2021). The elimination of double marginalization is a key procompetitive benefit that is often cited in defense of vertical mergers. See id. 153 VERTICAL MERGER GUIDELINES, supra note 152, at § 4. 154 Id. §§ 4-5. 155 ELHAUGE, supra note 38, at 811. 156 Id. at 812. 157 The elimination of potential competition is sometimes described as a horizontal theory of harm, because it involves the claim that a potential competitor would likely enter the relevant market or that market participants perceive the potential competitor as being likely to enter their market. CHRISTOPHER L. SAGERS, ANTITRUST 321 n.45 (3d ed. 2021). As discussed below, however, challenges based on these theories are evaluated under different standards than challenges to other types of horizontal mergers. Congressional Research Service 16 Antitrust Reform and Big Tech Firms Merger law has evolved significantly over the last 50 years. During the Warren Court era from the early 1950s through the 1960s, the Supreme Court heard 12 merger cases, siding with the plaintiff in each case where it reached the merits.158 Some of the Court’s decisions blocked small mergers in unconcentrated markets, based in part on a concern about stopping an incipient trend toward concentration and a desire to effectuate congressional intent to protect small businesses.159 In this period, courts were heavily influenced by an approach to industrial organization often called the “structure-conduct-performance” (SCP) paradigm, which held that market concentration tended to produce less competitive markets with higher prices.160 The impact of these theories was made clear in the Supreme Court’s 1963 decision in United States v. Philadelphia National Bank, which recognized a presumption of illegality for mergers that would result in a firm controlling “an undue percentage share of the relevant market” while significantly increasing market concentration.161 This “structural presumption” remains good law, but subsequent developments have chipped away at its strength. In its 1974 decision in United States v. General Dynamics Corp., the Supreme Court held that the defendant coal-mine operator had successfully rebutted the presumption with evidence that almost all of the acquired firm’s coal reserves were depleted or committed under long-term contracts.162 Lower court decisions later interpreted General Dynamics as demanding a more detailed inquiry into a merger’s competitive effects than was evident in the Warren Court’s merger decisions.163 This shift coincided with a wave of academic criticism directed at SCP theories. Among other things, SCP’s detractors argued that high levels of market concentration are often necessary for firms to achieve economies of scale and scope and that many concentrated markets perform competitively.164 Today, much of the action in merger enforcement takes place in the antitrust agencies rather than the courts. This is partly the result of Congress’s adoption of the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) in 1976, which created a pre-merger notification regime that allows the DOJ and FTC to review mergers exceeding certain numerical thresholds before they close.165 Since 1968, the agencies have published guidelines outlining their analytical approach to merger review, including their application of the structural presumption.166 Starting with the 1982 guidelines, the agencies have relied on the Herfindahl-Hirschman Index (HHI) measure of market 158 Eleanor Fox, Antitrust, Mergers, and the Supreme Court: The Politics of Section 7 of the Clayton Act, 26 MERCER L. REV. 389, 396-97 (1975). 159 E.g., United States v. Von’s Grocery Co., 384 U.S. 270, 278 (1966) (blocking a merger that would have resulted in the merged firm occupying a 7.5% market share, based on a concern “that a market marked . . . by both a continuous decline in the number of small businesses and a large number of mergers would slowly but inevitably gravitate from a market of many small competitors to one dominated by one or a few giants”); Brown Shoe Co. v. United States, 370 U.S. 294, 343-44 (1962) (blocking a merger with both horizontal and vertical elements, based in part on the fact that the integrated firm would be able to offer lower prices than unintegrated firms); see also FTC v. Procter & Gamble Co., 386 U.S. 568, 579 (1967) (unwinding a conglomerate transaction involving a large consumer-goods firm and the leading producer of household liquid bleach, based in part on a concern that economies of scope would disadvantage smaller rivals). 160 William E. Kovacic & Carl Shapiro, Antitrust Policy: A Century of Economic and Legal Thinking, 14 J. ECON. PERSP. 43, 52 (2000). 161 374 U.S. 321, 363-64 (1963). 162 415 U.S. 486, 508-11 (1974). 163 SULLIVAN, ET AL., supra note 26, at 464 n.76 (citing examples). 164 HOVENKAMP, FEDERAL ANTITRUST POLICY, supra note 94, at 544. 165 P.L. 94-435, 90 Stat. 1383 (1976). 166 In Philadelphia National Bank, the Supreme Court held that the presumption was triggered by a post-merger market share of 30%. 370 U.S. at 364. The Court did not address market-concentration thresholds, however. Congressional Research Service 17 Antitrust Reform and Big Tech Firms concentration in applying the presumption.167 Revisions to the guidelines in 2010 increased the minimum concentration levels at which the agencies regard horizontal mergers as potentially problematic.168 While the guidelines are not legally binding, courts often treat them as persuasive authority and appear to accord some significance to the relevant HHI thresholds.169 As discussed, the structural presumption can be rebutted—for example, with evidence that the proposed market is poorly defined or that market shares do not reflect a merger’s likely competitive effects; that the entry of other firms will discipline any pricing power; or that the merger will produce efficiencies that offset any anticompetitive effects.170 Upon rebuttal of a prima facie case, the burden of producing further evidence of anticompetitive harm shifts back to the plaintiff and merges with the burden of persuasion.171 While the case law on vertical mergers is sparse,172 the most recent appellate decision reviewing a vertical deal employed a burden-shifting approach that is similar to the framework used to evaluate horizontal mergers.173 However, the court indicated that plaintiffs challenging vertical mergers cannot rely on the structural presumption to discharge their initial burden.174 Instead, the court explained that such plaintiffs must make a fact-specific showing that a transaction is likely to be anticompetitive,175 which will presumably often involve foreclosure concerns. The current state of merger law is something of an oddity. Although the Supreme Court’s 1960s merger decisions have not been formally overturned, they do not accurately reflect the “law on the ground” as applied by the antitrust agencies and the lower courts.176 Since the Warren Court, for example, merger doctrine has abandoned “non-economic” goals like the protection of small businesses.177 While structural evidence continues to play a role in merger analysis, its centrality 167 FRANCIS & SPRIGMAN, supra note 26, at 423. The HHI is a measure of market concentration calculated by summing the squares of each firm’s market share. Thus, a market with four firms that each occupy 25% of the market would have an HHI of 2,500 (252 + 252 + 252 + 252). 168 Id. 169 SULLIVAN, ET AL., supra note 26, at 500 n.41 (collecting cases). 170 Herbert J. Hovenkamp & Carl Shapiro, Horizontal Mergers, Market Structure, and Burdens of Proof, 127 YALE L.J. 1996, 1997 (2018). The availability of an efficiencies defense in merger cases is not entirely settled. In the 1960s, the Supreme Court explicitly rejected such a defense and sometimes identified efficiencies as a reason to block mergers. See FRANCIS & SPRIGMAN, supra note 26, at 494-95. More recently, though, some lower courts have indicated that evidence of efficiencies can be used to rebut a prima facie showing of competitive harm. Id. at 496 n.688 (collecting cases). The merger guidelines also provide that certain merger-specific efficiencies may be cognizable. HORIZONTAL MERGER GUIDELINES, supra note 49, at § 10 (“The Agencies will not challenge a merger if cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive in any relevant market.”). To date, however, no federal court of appeals has concluded that evidence of efficiencies was sufficient to rebut a prima facie case of anticompetitive effects. FRANCIS & SPRIGMAN, supra note 26, at 499. 171 Baker Hughes, 908 F.2d at 983. 172 In 2018, the DOJ’s challenge to AT&T’s acquisition of Time Warner became the first vertical transaction litigated to judgment since the 1970s. Fruehauf Corp. v. FTC, 603 F.3d 345 (2d Cir. 1979). 173 United States v. AT&T, Inc., 916 F.3d 1029, 1032 (D.C. Cir. 2019). 174 Id. 175 Id. 176 SULLIVAN, ET AL., supra note 26, at 466 (noting the “quasi-irrelevance” of the Supreme Court in merger law). The Supreme Court has not issued a merits opinion in a merger case since 1975. United States v. Citizens & S. Nat’l Bank, 422 U.S. 86 (1975). 177 HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE: PRINCIPLE AND EXECUTION 208 (2005) [hereinafter “HOVENKAMP, ANTITRUST ENTERPRISE”] (“While antitrust casebooks continue to print 1960s-vintage merger decisions that have never been overruled, no one, not even federal judges and certainly not the government enforcement agencies, pay much attention to them. . . . It is not merely that Supreme Court decisions are not followed on technical grounds— (continued...) Congressional Research Service 18 Antitrust Reform and Big Tech Firms has diminished as regulators and courts also consider a broader range of factors that may illuminate a transaction’s competitive effects.178 That may be changing, however. In 2023, the DOJ and FTC released draft merger guidelines that appear to place more weight on structural considerations than previous iterations of the guidelines.179 It remains to be seen whether courts will follow the agencies in this regard, should the regulators finalize the guidelines in similar form. Mergers Involving Potential Competitors Some mergers involve firms that do not compete at the time of the transaction, but may compete in the future absent the merger. These mergers between potential competitors can raise two types of concerns. First, if the perception that a potential competitor may enter a market constrains a firm’s pre-merger pricing behavior, then allowing the firm to acquire the potential competitor eliminates that constraint. In the doctrine, this concern is known as the elimination of “perceived potential competition.” Second, if a potential competitor actually would have entered the relevant market, then a merger would eliminate actual future competition, irrespective of whether the potential competitor constrained pre-merger behavior. This concern is called the elimination of “actual potential competition.” The Supreme Court has held that the elimination of perceived potential competition may render a merger unlawful, but has not expressly recognized the elimination of actual potential competition as a viable theory of harm. United States v. Marine Bancorporation, Inc., 418 U.S. 602, 624-25 (1974). The Court has identified several requirements for a perceived-potential-competition claim. A plaintiff bringing such a claim must show that • the relevant market is highly concentrated; • the potential competitor has the “characteristics, capabilities, and economic incentive to render it a perceived potential de novo entrant”; and • the potential competitor “in fact tempered oligopolistic behavior” by market participants. Id. While the Supreme Court has declined to resolve the validity of the actual-potential-competition doctrine, it has explained that plaintiffs relying on that theory must establish that • the relevant market is highly concentrated; • the potential competitor has “feasible means” of entry other than through the merger; and • the potential competitor’s entry offers a “substantial likelihood” of deconcentrating the market or producing other significant procompetitive benefits. Id. at 633. Lower courts have adopted different evidentiary requirements in analyzing whether a firm is likely to enter the market absent a challenged transaction. The Fourth Circuit demands “clear proof” of entry but for the merger. FTC v. Atlantic Richfield Co., 549 F.2d 289, 294-95 (4th Cir. 1977). Others have required that the potential competitor “probably” or “would likely” enter the relevant market. Tenneco, Inc. v. FTC, 689 F.2d 346, 352 (2d Cir. 1982) (“would likely”); Yamaha Motor Co. v. FTC, 657 F.2d 971, 977 (8th Cir. 1981) (“probably”). Another has demanded a “reasonable probability” of entry, which the court construed to be more demanding than a “probability” or “more likely than not” test. Mercantile Tex. Corp. v. Bd. of Govs. of the Fed. Res. Sys., 638 F.2d 1255, 1268-69 (5th Cir. 1981). The impact of potential-competition doctrine has been fairly modest. Three decisions have found a merger unlawful based on the perceived-potential-competition theory, all of which also relied on the actual-potential-competition theory. ANTITRUST DEVELOPMENTS, supra note 55, at 398. the fundamental ideology of mergers has shifted dramatically over the last three decades and now embodies values that are inconsistent at the most fundamental level with those that the Supreme Court last articulated.”). 178 HOVENKAMP, FEDERAL ANTITRUST POLICY, supra note 94, at 544. 179 U.S. Antitrust Agencies Propose Sweeping Changes to Merger Guidelines—5 Key Things You Need to Know, WHITE & CASE LLP (July 20, 2023), https://www.whitecase.com/insight-alert/us-antitrust-agencies-propose-sweepingchanges-merger-guidelines-5-key-things-you. For an overview of the 2023 draft guidelines, see CRS Legal Sidebar LSB11027, Antitrust Agencies Release Draft Merger Guidelines and Propose HSR Rule Changes, by Peter J. Benson, Chris D. Linebaugh, and Alexander H. Pepper. Congressional Research Service 19 Antitrust Reform and Big Tech Firms Theoretical Approaches to Antitrust As the above discussion makes clear, antitrust doctrine has changed significantly over time, often in response to shifts in political ideology and economic theory. Congress has played a limited role in this evolution; the language of the core antitrust statutes has not meaningfully changed since the Celler-Kefauver Act amended Section 7 of the Clayton Act in 1950.180 Because the flexible nature of the antitrust laws gives the judiciary broad powers to shape competition policy based on prevailing economic and political thinking,181 this section provides a brief overview of the leading theoretical approaches to antitrust and their historical influence. As discussed, SCP theories exerted a strong influence on antitrust policy in the middle of the 20th century.182 This approach to industrial organization was developed by scholars working in a tradition often referred to as the Harvard School, which posited a close causal link between market concentration, firm conduct, and competitive performance.183 In particular, the SCP literature held that there was a tight connection between high levels of market concentration and certain undesirable outcomes, such as high price-cost margins.184 For much of antitrust history—including during the heyday of the SCP paradigm— “non-economic” goals also played a major role in shaping antitrust doctrine. These goals included the protection of small businesses, the dispersion of economic power, the preservation of economic freedom, and the elimination of concentrated political power.185 From the 1940s through the 1960s, structuralist economic theories and the above normative concerns provided the theoretical architecture for a highly interventionist approach to antitrust, judged by today’s standards. As discussed, the Warren Court’s merger jurisprudence was quite restrictive, invalidating small mergers based in part on a desire to “promote competition through the protection of viable, small, locally owned business,” even if “occasional higher costs and prices might result from the maintenance of fragmented industries and markets.”186 Conduct cases during this era reflected similar attitudes. In the federal government’s monopolization case against Alcoa, for example, Judge Learned Hand of the Second Circuit reasoned that the Sherman Act was motivated in part by a belief that “great industrial consolidations are inherently undesirable, regardless of their economic results.”187 He thus construed the statute as an attempt to “put an end to great aggregations of capital because of the helplessness of the individual before them.”188 Based on these principles, the Second Circuit held 180 Pub. L. No. 81-899, 64 Stat. 1125 (1950). 181 See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 899 (2007) (“From the beginning the Court has treated the Sherman Act as a common-law statute. . . . Just as the common law adapts to modern understanding and greater experience, so too does the Sherman Act’s prohibition on ‘restraint[s] of trade’ evolve to meet the dynamics of present economic conditions.”) (brackets in original); Nat’l Soc’y of Pro. Eng’rs v. United States, 435 U.S. 679, 688 (1978) (explaining that Congress “expected the courts to give shape to [the Sherman Act’s] broad mandate by drawing on common-law tradition”). 182 See Kovacic & Shapiro, supra note 160, at 52. 183 ROGER VAN DEN BERGH, COMPARATIVE COMPETITION LAW AND ECONOMICS 33-36 (2017). 184 Id. at 35-36. 185 See, e.g., Stucke, supra note 1, at 560-62; Eleanor M. Fox, Modernization of Antitrust: A New Equilibrium, 66 CORNELL L. REV. 1140, 1182 (1981). 186 Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962). 187 United States v. Aluminum Co. of Am., 148 F.2d 416, 428 (2d Cir. 1945) (Hand, J.). 188 Id. Congressional Research Service 20 Antitrust Reform and Big Tech Firms that Alcoa violated Section 2 by expanding its capacity in ways that deterred entry.189 In its Section 1 cases during this period, the Supreme Court likewise condemned a wide range of conduct as per se illegal.190 The 1970s witnessed a marked shift in theory and doctrine. As discussed, beginning in the 1950s, lawyers and economists affiliated with what came to be known as the Chicago School challenged much of prevailing antitrust thinking.191 Chicago School scholars criticized SCP theories on a variety of grounds. Among other things, they argued that markets tend to self-correct; that high levels of concentration often reflect growth by the most efficient firms; and that many business practices that attracted antitrust scrutiny had efficiency-based rationales.192 The Chicago School’s most influential contribution, however, was its prescription that antitrust should be limited to promoting economic welfare.193 An antitrust system that instead committed itself to a series of often-conflicting social objectives, Chicago School scholars claimed, offered no principled method for distinguishing anticompetitive behavior from permissible conduct.194 Chicago’s empirical claims did not go unchallenged. Scholars working in the “Post-Chicago” tradition generally embraced the Chicago School’s focus on economic goals, but developed theories of anticompetitive harm that were not present in the Chicago literature.195 Many of these Post-Chicago models highlighted the possibility that dominant firms could employ strategic behavior to raise their rivals’ costs, relying heavily on game theory.196 Another group of academics from the so-called “modern Harvard School” tended to fall somewhere between the Chicago School and the ideology of mid-20th century antitrust, focusing on the administrability of antitrust doctrine and the institutional limitations of courts.197 Like Post-Chicago scholars, the modern Harvard School endorsed the Chicago view that the ultimate purpose of the antitrust laws is to promote economic welfare.198 The three approaches differ primarily in their empirical claims about market functioning and the competence of courts to remedy market failures.199 In general, the Chicago School and the modern Harvard School have had the greatest impact on the shape of current doctrine.200 Since the 1970s, the Supreme Court has overturned several 189 Id. at 431 (“It was not inevitable that [Alcoa] should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.”). 190 E.g., United States v. Topco Assocs., Inc., 405 U.S. 596 (1972) (joint venture involving territorial restraints); Albrecht v. Herald Co., 390 U.S. 145 (1968) (maximum resale price maintenance); United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967) (vertical territorial restraints); International Salt Co., Inc. v. United States, 332 U.S. 392 (1947) (tying). 191 See, e.g., Herbert Hovenkamp & Fiona Scott Morton, Framing the Chicago School of Antitrust Analysis, 168 U. PA. L. REV. 1843 (2020). 192 VAN DEN BERGH, supra note 183, at 45-49. 193 See Richard Schmalensee, Thoughts on the Chicago Legacy in U.S. Antitrust, in HOW THE CHICAGO SCHOOL OVERSHOT THE MARK: THE EFFECT OF CONSERVATIVE ECONOMIC ANALYSIS ON U.S. ANTITRUST 11, 12-14 (Robert Pitofsky ed. 2008); RICHARD A. POSNER, ANTITRUST LAW ix (2d ed. 2001). 194 Schmalensee, supra note 193, at 12. 195 Christopher S. Yoo, The Post-Chicago Antitrust Revolution: A Retrospective, 168 U. PA. L. REV. 2145, 2160-61 (2020). 196 Id. 197 HOVENKAMP, ANTITRUST ENTERPRISE, supra note 177, at 37-38, 45-56. 198 Id. at 31. 199 Id. 200 See Kovacic, supra note 70. Congressional Research Service 21 Antitrust Reform and Big Tech Firms decisions establishing per se Section 1 liability for certain categories of conduct201 and established restrictive standards for various types of monopolization claims.202 Similarly, the lower courts and the antitrust agencies have de-emphasized structural merger analysis in favor of more detailed inquiries into the competitive effects of individual transactions.203 Modern antitrust doctrine has also abandoned explicit consideration of “non-economic” goals like small business protectionism and the sociopolitical effects of concentrated economic power.204 Since the 1970s, the Supreme Court has repeatedly described the antitrust laws as being principally concerned with the economic welfare of consumers.205 This proposition—often called the “consumer welfare standard”—has generated an enormous amount of scholarly attention, especially in recent years. While there is disagreement about what the standard does and should mean in practice,206 contemporary doctrine clearly recognizes economic welfare as the lodestar of antitrust analysis.207 Over the past decade or so, this economic orientation has been criticized by a group of academics and policymakers often described as “Neo-Brandeisians.” Members of this movement have criticized much of existing antitrust doctrine as unduly permissive and called for increased 201 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (minimum resale price maintenance); State Oil Co. v. Khan, 522 U.S. 3 (1997) (maximum resale price maintenance); Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (vertical territorial restraints). 202 Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438 (2009) (price squeezes); Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312 (2007) (predatory buying); Verizon Commc’ns Inc. v. L. Offs. of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) (refusals to deal); Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) (predatory pricing). 203 See, e.g., United States v. Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990); HORIZONTAL MERGER GUIDELINES, supra note 49, at § 5.3. 204 See, e.g., Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 FORDHAM L. REV. 2405, 2405-06 (2013). 205 NCAA v. Alston, 141 S. Ct. 2141, 2151 (2021); Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018); Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007); Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 324 (2007); Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993); Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 15 (1984); NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 107 (1984); Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979); see also John B. Kirkwood & Robert H. Lande, The Fundamental Goal of Antitrust: Protecting Consumers, Not Increasing Efficiency, 84 NOTRE DAME L. REV. 191, 219-24 (2008) (collecting lower court cases embracing the consumer-welfare standard). 206 There are several issues here. First, Robert Bork—an influential Chicago School academic and later a federal judge—used the term “consumer welfare” to refer to a “total welfare” standard that focuses on the sum of producer and consumer surplus, while many commentators instead use the term “consumer welfare” to refer to a standard that focuses only on consumer surplus. See, e.g., Barak Y. Orbach, The Antitrust Consumer Welfare Paradox, 7 J. COMPETITION L. & ECON. 133, 142-49 (2010). Both versions of the “consumer welfare” standard have supporters. See Roger D. Blair & D. Daniel Sokol, Welfare Standards in U.S. and E.U. Antitrust Enforcement, 81 FORDHAM L. REV. 2497 (2013) (favoring a total-welfare standard); Steven C. Salop, Question: What Is the Real and Proper Antitrust Welfare Standard? Answer: The True Consumer Welfare Standard, 22 LOY. CONSUMER L. REV. 336 (2010) (favoring a consumer-surplus standard). Second, the extent to which the consumer-welfare standard recognizes harms that sellers suffer from anticompetitive conduct remains the subject of ongoing discussion. See, e.g., Herbert J. Hovenkamp, Is Antitrust’s Consumer Welfare Principle Imperiled?, 45 J. CORP. L. 101, 113-15 (2019); C. Scott Hemphill & Nancy L. Rose, Mergers That Harm Sellers, 127 YALE L.J. 2078 (2018). Third, some commentators have argued that the consumer-welfare standard does not represent an accurate description of current antitrust doctrine for other reasons. E.g., Gregory J. Werden, Antitrust’s Rule of Reason: Only Competition Matters, 79 ANTITRUST L.J. 713, 713, 743 (2014) (arguing that “the rule of reason focuses solely on how a challenged restraint affects the competitive process,” and that antitrust protects consumer welfare by protecting the “competitive process”); see also DEVLIN, supra note 10, at 254-68 (contending that the consumer-welfare standard is descriptively inaccurate in several respects). 207 See, e.g., ANTITRUST MODERNIZATION COMM’N, REPORT AND RECOMMENDATIONS 35 (Apr. 2007) (“For the last few decades courts, agencies, and antitrust practitioners have recognized consumer welfare as the unifying goal of antitrust law.”). Congressional Research Service 22 Antitrust Reform and Big Tech Firms attention to some of the “non-economic” goals that played a more prominent role in earlier periods of antitrust history.208 The Neo-Brandeisian movement’s prescriptions are discussed in greater detail below.209 The Big Tech Firms: A Summary of Selected Antitrust Allegations The Big Tech firms have achieved tremendous financial success. As of the publication of this report, the combined market capitalization of Meta, Alphabet (Google’s parent), Amazon, and Apple is more than $6.6 trillion—a figure that exceeds the value of all but the largest national equity markets.210 While some have emphasized the quality of the firms’ offerings as the primary driver of their ascent,211 others have alleged that Big Tech has obtained and cemented monopoly power through anticompetitive conduct.212 This section of the report reviews selected antitrust allegations against the Big Tech firms. Meta Platforms Meta describes itself as a company that builds technology that “helps people connect, find communities, and grow businesses.”213 More specifically, Meta offers a “family of apps” related to social networking and messaging.214 This family of apps consists of • • • • Facebook (a social network); Instagram (a photo-sharing platform); Messenger (a messaging app for Facebook users); and WhatsApp (a messaging app).215 208 The Neo-Brandeisian movement derives its name from Louis Brandeis, a former Associate Justice of the Supreme Court who was also a proponent of vigorous antitrust enforcement and a critic of large corporations. See Lina M. Khan, The New Brandeis Movement: America’s Antimonopoly Debate, 9 J. EURO. COMPETITION L. & PRACTICE 131 (2018). 209 See infra “Revisiting the Goals of Antitrust: The Neo-Brandeisian Movement.” 210 See Largest Companies by Market Cap, COMPANIESMARKETCAP (last visited Nov. 6, 2023), https://companiesmarketcap.com/; Largest Stock Exchange Operators Worldwide as of October 2022, By Market Capitalization of Listed Companies, STATISTA (Jan. 2023), https://www.statista.com/statistics/270126/largest-stockexchange-operators-by-market-capitalization-of-listed-companies/; Market Capitalization of Listed Domestic Companies, THE WORLD BANK (last visited Mar. 15, 2023), https://data.worldbank.org/indicator/CM.MKT.LCAP.CD. 211 E.g., Investigation into the State of Competition in Digital Markets, Subcomm. on Antitrust, Commercial, & Admin. L. of H. Comm. on the Judiciary (May 11, 2020) (statement of Randal C. Picker, James Parker Distinguished Service Prof. of Law, The Univ. of Chi. L. Sch. at 34), https://picker.uchicago.edu/PickerHouseStatement.100.pdf. 212 E.g., HJC REPORT, supra note 11, at 12-17. 213 Meta Platforms, Inc., Annual Report (Form 10-K) at 7 (Feb. 2, 2023). 214 Id. Meta also produces augmented and virtual reality products via its Reality Labs division. Id. at 8. 215 Id. at 7. Congressional Research Service 23 Antitrust Reform and Big Tech Firms In October 2023, Meta reported that Facebook had 2.09 billion daily active users and 3.05 billion monthly active users.216 The company’s family of apps reportedly features 3.14 billion daily active people and 3.96 billion monthly active people.217 Allegations of Market Power Some observers have argued that Meta possesses significant market power in the market for social networking.218 The Federal Trade Commission (FTC) shares that view. In an ongoing monopolization lawsuit, the Commission alleges that Meta has held monopoly power in the market for “personal social networking services” (PSNS) since at least 2011.219 To support such claims, Meta’s critics have argued that the firm has persistently maintained a large market share and benefited from substantial entry barriers, including powerful network effects and high switching costs.220 Others disagree. Meta has argued that it operates in a “dynamic, intensely competitive” industry in which there are many substitutes for its services.221 In its litigation with the FTC, the firm has criticized the Commission’s alleged PSNS market as unduly narrow insofar as it excludes rivals like YouTube, TikTok, LinkedIn, and Twitter.222 Meta and some commentators have also rejected the notion that entry barriers have caused the market to decisively tip in Meta’s favor.223 For example, observers have highlighted the ability of differentiated firms like TikTok and Snapchat to rapidly gain scale despite Meta’s ostensible network advantages.224 Allegations of Anticompetitive Conduct Meta has also been accused of engaging in anticompetitive conduct. The FTC’s lawsuit contends that Meta has maintained its dominant position through its 2012 acquisition of Instagram and its 216 Meta Platforms, Inc., Quarterly Report (Form 10-Q) at 35 (Oct. 26, 2023). 217 Id. 218 HJC REPORT, supra note 11, at 133; ONLINE PLATFORMS AND DIGITAL ADVERTISING: MARKET STUDY FINAL REPORT, U.K. COMPETITION & MKTS AUTHORITY 146 (July 1, 2020), https://assets.publishing.service.gov.uk/media/ 5fa557668fa8f5788db46efc/Final_report_Digital_ALT_TEXT.pdf [hereinafter “CMA REPORT”]; Fiona M. Scott Morton & David C. Dinielli, Roadmap for an Antitrust Case Against Facebook, OMIDYAR NETWORK 11-15 (June 2020), https://www.omidyar.com/wp-content/uploads/2020/06/Roadmap-for-an-Antitrust-Case-Against-Facebook.pdf; DIGITAL PLATFORMS INQUIRY: FINAL REPORT, AUSTRALIAN COMPETITION & CONSUMER COMM’N 9 (June 2019), https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report.pdf [hereinafter “ACCC REPORT”]. 219 Substitute Amended Complaint for Injunctive and Other Equitable Relief ¶ 164, FTC v. Facebook, Inc., No. 1:20-cv-03590 (D.D.C. Sept. 8, 2021). 220 Id. ¶ 212; HJC REPORT, supra note 11, at 136-47; Scott Morton & Dinielli, supra note 218, at 11; ACCC REPORT, supra note 218, at 58. The FTC and some commentators have also attempted to establish that Meta has monopoly power with direct evidence, arguing that the firm has degraded the quality of its products without losing significant numbers of users. Substitute Amended Complaint ¶¶ 205-09, FTC v. Facebook, Inc., No. 1:20-cv-03590 (D.D.C. Sept. 8, 2021); Dina Srinivasan, The Antitrust Case Against Facebook: A Monopolist’s Journey Towards Pervasive Surveillance in Spite of Consumer’s Preference for Privacy, 16 BERKELEY BUS. L.J. 39 (2019). 221 Memorandum in Support of Facebook, Inc.’s Motion to Dismiss FTC’s Complaint at 11, FTC v. Facebook, Inc., No. 1:20-cv-03590 (D.D.C. Mar. 10, 2021). 222 Id. at 10. 223 Id. at 13-16; Herbert J. Hovenkamp, Selling Antitrust, 73 HASTINGS L.J. 1621, 1623 (2022) [hereinafter “Hovenkamp, Selling Antitrust”]; Jay Ezrielev & Genaro Marquez, Interoperability: The Wrong Prescription for Platform Competition, COMPETITION POLICY INT’L ANTITRUST CHRON. 8, 13-14 (June 2021). 224 Hovenkamp, Selling Antitrust, supra note 223, at 1623; Ezrielev & Marquez, supra note 223, at 8. Congressional Research Service 24 Antitrust Reform and Big Tech Firms 2014 acquisition of WhatsApp.225 The Commission argues that Meta’s Instagram purchase allowed it to neutralize a rapidly growing competitive threat, giving the firm control over what became two of the most popular social networks in the world.226 The FTC also contends that Meta’s acquisition of WhatsApp preserved its monopoly by preventing WhatsApp from entering the PSNS market.227 Besides targeting Meta’s major acquisitions, the FTC and some commentators have criticized the company’s treatment of software developers.228 These allegations involve access to Facebook Platform—an initiative whereby Meta encouraged developers to create apps that interoperate with Facebook.229 As part of this initiative, Meta provided software developers with application programming interfaces (APIs) and other tools that allowed them to access certain Facebook data and functionalities.230 According to the FTC, Facebook Platform ultimately became key infrastructure for app developers because of Facebook’s large user base.231 The Commission’s lawsuit alleges that Meta leveraged control of this infrastructure to preserve its monopoly, requiring developers that participated in Facebook Platform to refrain from creating apps that would compete with Facebook products.232 Meta has denied engaging in anticompetitive conduct. The company has argued that its Instagram acquisition allowed it to invest resources and expertise in a young startup, hastening the small firm’s growth.233 Meta has also defended its WhatsApp purchase, arguing that the FTC has failed to present evidence that WhatsApp would have likely entered social networking absent the acquisition.234 Finally, Meta has argued that its policies governing access to Facebook Platform— which it has since revised—were lawful under duty-to-deal doctrine.235 As of the publication of this report, the FTC’s monopolization case against Meta is in discovery, a pre-trial stage of litigation in which the parties develop evidence that can be used at trial. Although the district court dismissed the agency’s initial complaint for failing to plausibly allege monopoly power,236 the court ultimately allowed the case to proceed after concluding that the Commission’s amended complaint was sufficiently plausible to survive a motion to dismiss.237 225 Substitute Amended Complaint ¶¶ 77-129, FTC v. Facebook, Inc., No. 1:20-cv-03590 (D.D.C. Sept. 8, 2021); see also HJC REPORT, supra note 11, at 150-60 (arguing that Meta’s Instagram and WhatsApp acquisitions harmed competition). 226 Substitute Amended Complaint ¶¶ 80-106, FTC v. Facebook, Inc., No. 1:20-cv-03590 (D.D.C. Sept. 8, 2021). 227 Id. ¶¶ 107-29. 228 Id. ¶¶ 130-163; HJC REPORT, supra note 11, at 166-70; Scott Morton & Dinielli, supra note 218, at 24-25. 229 Substitute Amended Complaint ¶¶ 25-42, FTC v. Facebook, Inc., No. 1:20-cv-03590 (D.D.C. Sept. 8, 2021). 230 Id. 231 Id. ¶ 131. 232 Id. ¶ 133. A group of state attorneys general made similar claims in a lawsuit filed in 2020. New York v. Facebook, Inc., 549 F. Supp. 3d 6 (D.D.C. 2021). A federal district court dismissed that lawsuit in 2021, concluding that the claims challenging Facebook’s acquisitions were barred by the doctrine of laches (which precludes lawsuits filed after an unreasonable delay); that Facebook’s general policy of withholding APIs from rival developers was not exclusionary standing alone; and that specific refusals to deal occurred too long ago to support injunctive relief. Id. at 27-31, 34. 233 Memorandum in Support of Facebook, Inc.’s Motion to Dismiss FTC’s Complaint at 29-30, FTC v. Facebook, Inc., No. 1:20-cv-03590 (D.D.C. Oct. 4, 2021). 234 Id. at 24. 235 Id. at 35. 236 FTC v. Facebook, Inc., 560 F. Supp. 3d 1, 4 (D.D.C. 2021). 237 FTC v. Facebook, Inc., 581 F. Supp. 3d 34, 43-52 (D.D.C. 2022). While the district court has allowed the FTC’s (continued...) Congressional Research Service 25 Antitrust Reform and Big Tech Firms Google Google is a ubiquitous presence in the digital economy. The firm began as an internet search company and is now also a major player in digital advertising, mobile operating systems, app distribution, digital maps, email, and web browsing.238 The following subsections discuss antitrust allegations involving Google’s conduct related to online search, mobile operating systems and app distribution, and digital advertising. Online Search Allegations of Market Power Some commentators have argued that Google has significant market power in the market for general online search.239 The DOJ agrees. In an ongoing monopolization lawsuit, the DOJ contends that Google has monopoly power in the market for “general search services” based on an alleged market share of 88% and the presence of substantial entry barriers, including economies of scale.240 The DOJ has also alleged monopolization of separate markets for “general search text advertising” and “search advertising.”241 For its part, Google has claimed that it operates in a “highly competitive environment” and faces a “vast array of competitors.”242 The company also argues that, for particular search queries, it competes against a range of firms—such as Amazon, eBay, and Yelp—that would not fall within a market for general search services.243 Allegations of Anticompetitive Conduct Search Distribution The DOJ’s monopolization lawsuit contends that Google has maintained its search monopoly through exclusionary agreements with firms that control search distribution.244 The agreements make Google the default search engine on various products in exchange for a share of Google’s advertising revenue.245 challenge to Meta’s Instagram and WhatsApp acquisitions to proceed, it dismissed the agency’s claims involving access to Facebook Platform. Id. at 57-59. In rejecting the latter claims, the court concluded that Meta had no general duty to allow potential rivals to access Facebook Platform. Id. at 58-59. Although the court indicated that specific refusals may be actionable, it held that the refusals alleged by the FTC could not justify injunctive relief because they occurred in 2013 and were not ongoing. Id. 238 HJC REPORT, supra note 11, at 174. 239 CMA REPORT, supra note 218, at 73; HJC REPORT, supra note 11, at 176-82; ACCC REPORT, supra note 218, at 58; Google Search (Shopping) (Case AT.39740), Commission Decision ¶ 271 (June 27, 2017), https://ec.europa.eu/competition/antitrust/cases/dec_docs/39740/39740_14996_3.pdf [hereinafter “EC Google Shopping Decision”]. 240 Amended Complaint ¶¶ 92-96, United States v. Google LLC, No. 1:20-cv-03010 (D.D.C. Jan. 15, 2021). 241 Memorandum Opinion at 5, United States v. Google LLC, No. 1:20-cv-03010 (D.D.C. Aug. 4, 2023). 242 HJC REPORT, supra note 11, at 179. 243 Id. 244 Amended Complaint ¶ 4, United States v. Google LLC, No. 1:20-cv-03010 (D.D.C. Jan. 15, 2021). A group of state attorneys general has made similar allegations in a case that has been consolidated with the DOJ’s lawsuit. Memorandum Opinion at 5, United States v. Google LLC, No. 1:20-cv-03010 (D.D.C. Aug. 4, 2023). 245 Memorandum Opinion at 3, United States v. Google LLC, No. 1:20-cv-03010 (D.D.C. Aug. 4, 2023). Congressional Research Service 26 Antitrust Reform and Big Tech Firms The lawsuit focuses on Google’s agreements with two categories of counterparties: (1) browser developers, and (2) manufacturers and wireless carriers that sell devices running the Android mobile operating system, which Google acquired in 2005.246 Under Google’s agreements with browser developers—primarily Apple and Mozilla—the developers have agreed to make Google the default search engine for all search access points on their browsers in exchange for payments from Google.247 The DOJ’s allegations regarding device manufacturers and wireless carriers involve two types of agreements. One set of contracts requires manufacturers to preinstall Google Search and place an associated search widget on device home screens as conditions of licensing other proprietary Google apps.248 Under another set of agreements, manufacturers and wireless carriers commit to make Google the only preinstalled search engine on covered devices and the default for all search access points in exchange for payments from Google.249 In its lawsuit, the DOJ contends that Google’s agreements amount to exclusive contracts that foreclose substantial channels of search distribution, depriving rivals of the scale needed to serve as effective competitors.250 Google has made several arguments in response. While Google concedes that its revenue-sharing agreements with manufacturers and carriers require exclusivity, it has denied that its contracts with browser developers and its Android licensing agreements amount to exclusive dealing.251 The browser agreements are not exclusive, Google contends, because they do not prevent developers from promoting rival search engines and users can change a browser’s default search engine.252 Similarly, Google argues that its Android licensing agreements do not prohibit manufacturers from preinstalling rival search apps or browsers.253 Google further maintains that the relevant agreements would not be anticompetitive even if they did require exclusivity. Rather, Google claims that it has successfully competed with rivals to secure the challenged agreements with browser developers, who have chosen Google as their default search engine based on considerations of quality and price.254 Google claims that this “competition for the contract” is the type of merits competition that antitrust encourages.255 Google also denies that its Android agreements result in substantial foreclosure, arguing that the appropriate measure of foreclosure requires an analysis of consumer behavior absent the agreements, rather than the percentage of the market covered by those agreements.256 Because few consumers would switch from Google to another search engine if the challenged agreements did not exist, Google argues, the agreements do not substantially foreclose rivals.257 246 Id. 247 Id. at 10. 248 Id. at 13. 249 Id. at 13-14. 250 Id. at 30. 251 Id. 252 Id. at 31-33. 253 Id. at 40. 254 Id. at 35-36. 255 Id. at 35. 256 Id. at 42-43. 257 Id. at 43. In its motion for summary judgment, Google argued that the plaintiffs’ expert evidence indicated that (continued...) Congressional Research Service 27 Antitrust Reform and Big Tech Firms In August 2023, a federal district court allowed the claims discussed above to proceed, denying in part Google’s motion for summary judgment.258 The court concluded that there were disputed issues of material fact as to whether Google’s browser agreements and Android licensing agreements were de facto exclusive, including disagreement over the competitive significance of default status.259 The court likewise held that Google’s “competition for the contract” defense and the appropriate measure of foreclosure raised issues that could not be resolved on summary judgment.260 Foreclosure metrics are likely to be a key issue at trial, which began in September 2023 and is ongoing as of the publication of this report. While courts regularly look to the share of distribution covered by exclusive contracts in evaluating foreclosure, some commentators have advocated alternative approaches, including the type of counterfactual analysis that Google proposes.261 The choice between alternative metrics may present the court with a trade-off: while Google’s preferred methodology arguably involves a more accurate assessment of the competitive impact of the challenged agreements, the DOJ’s simpler approach may be more manageable and appears to be more firmly rooted in the case law.262 The issue of procompetitive justification may also prove significant. The DOJ’s case relies heavily on the importance of scale in improving search-engine quality. If Google can establish that it has not exhausted the relevant scale economies, those economies may constitute a procompetitive justification for its distribution agreements.263 To the extent that the court accepts this justification, the DOJ may need to prove that Google can secure those economies through less restrictive means or that the anticompetitive effects of the agreements outweigh their benefits. Self-Preferencing Commentators and some foreign regulators have also argued that Google has leveraged its dominance in general search to favor its own vertical offerings. For example, the HJC Report concluded that Google has adjusted its search algorithms to automatically elevate some of Google’s vertical services, like its video-sharing platform YouTube, in search results.264 (1) approximately 1% of all search queries would shift from Google to non-Google search engines if manufacturers and carriers adopted a “choice screen” allowing consumers to select their own default search engines (a remedy implemented in an EU competition case involving Google Search), and (2) approximately 11.6% to 13.5% of search queries would shift from Google to non-Google search engines if a rival search engine was the exclusive preinstalled default on Android devices. Id. at 43. 258 Id. at 60. 259 Id. at 34-35. 260 Id. at 36-37, 43. The court granted Google’s motion for summary judgment with respect to certain other claims, some brought by the DOJ and some brought by a group of state attorneys general in a case that has been consolidated with the DOJ lawsuit. Id. at 60. 261 Joshua D. Wright, Moving Beyond Naïve Foreclosure Analysis, 19 GEO. MASON L. REV. 1163, 1177-81 (2012). 262 Id. at 1177 (observing that “most courts” rely on the share of distribution covered by a challenged agreement to evaluate foreclosure, with “some occasional modifications”). 263 See Thom Lambert, Why the Federal Government’s Antitrust Cas [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR46875. Public record. Not legal advice.