How to understand the extremely high stakes of Big Tech’s antitrust battle

On notice.
On notice.
Image: REUTERS/Erin Scott
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For years, governments and tech firms have been locked in a delicate dance.

Lawmakers pull the companies into the spotlight of public antitrust hearings, and their CEOs gracefully spin the narrative into one of falling prices and happy customers. Prosecutors swing the firms into courtrooms, and their attorneys gamely pirouette around the harshest penalties.

But in recent months, regulators have begun stomping on Big Tech’s toes. In 2020, American prosecutors launched two major legal salvos against Google and Facebook, and are preparing to follow up with even more lawsuits. British and European lawmakers proposed new rules explicitly forbidding tech firms’ core business practices. Prosecutors in India and South Korea have piled on as well.

The music has stopped, and the former partners are spoiling for a years-long fight that will make US v. Microsoft pale in comparison. Like the Microsoft battle, this one might end in a whimper. But in the year ahead, there’s also a very real chance that governments could rediscover their zeal for trustbusting—and rulemaking. The year 2021 could bring some of the reigning tech barons down to earth.

A new kind of antitrust fight

As we enter the new year, the stakes of the antitrust fight are undoubtedly higher than they were when Bill Gates was the chief antagonist in 2001. “The difference today is that it’s not only Microsoft,” says Michael Cusumano, a deputy dean at MIT’s Sloan School of Management who has written several books about the inner workings of Silicon Valley businesses. “There are several of these powerful digital platforms that in many ways are even more present in our lives than Microsoft was.”

So far US prosecutors have only announced lawsuits against Facebook and Google, but Apple faces its own antitrust suits from game developer Epic and class action plaintiffs, and Amazon is under the gun in Europe. Collectively, these companies serve billions of people.

It’s not just about scale. “People are starting to realize this is actually the entire future of the economy we’re talking about,” says Michelle Meagher, a senior policy fellow at University College London who studies antitrust. Antitrust enforcement has broad implications, she says, “because more and more of the economy is going to be digital and shaped by the investments and technological pipeline of these companies.”

Meagher argues that the fate of democracy has also become part of the antitrust conversation. In the wake of the Cambridge Analytica scandal, in which political operatives misused Facebook data in an effort to sway 2016 election outcomes, and social media’s growing role in amplifying election disinformation, members of the public have started to agree.

“The antitrust agencies have taken note of the academic literature that says this is a growing problem, and the larger public discussion in which people are saying, ‘You didn’t do your damn jobs,’” says William Kovacic, a former chair of the US Federal Trade Commission who now teaches law at George Washington University.

With public opinion souring on once-idolized Silicon Valley CEOs, regulators have become emboldened to take on bigger, more ambitious antitrust cases. And lawmakers are finally giving them the political cover to swing big. “The attitude of a number of elected officials seems to be: If you win, that’s terrific. If you lose, that just makes the case for new legislation,” says Kovacic.

Big Tech breakups on the horizon

On Dec. 9, prosecutors from the US Federal Trade Commission (FTC) and over 40 states did something unusual: They asked a court, in no uncertain terms, to break up Facebook. Among its proposed remedies, the FTC complaint lists the “divestiture or reconstruction of businesses (including, but not limited to, Instagram and/or WhatsApp).”

“There’s not much fuzz on that picture,” says Kovacic. “In a way that you rarely see in a government monopolization case, [a breakup] is unmistakably a core remedial aim.”

For those not steeped in legalese, the prosecutors’ language may, in fact, appear a little fuzzy. But compare the wording in the Facebook complaint to the US Department of Justice’s Oct. 20 complaint against Google, which merely asks for “structural relief as needed to cure any anticompetitive harm”—a phrase that with a little squinting could be read as a request for a breakup, but not necessarily. The Facebook complaint, on the other hand, clearly names Instagram and WhatsApp as the companies to be jettisoned.

If any court is going to dismember US-based tech giants like Facebook, it’ll have to be an American one. While European prosecutors have led the world in bringing antitrust cases against Big Tech companies, they’ve been extremely reluctant to pursue breakups. Margrethe Vestager, the EU’s competition czar, said in December that restructuring companies is a “nuclear option” of last resort.

But even now that American prosecutors have thrown down the breakup gauntlet, it won’t be easy convincing judges to go along with their request. Decades of US jurisprudence have steadily narrowed what courts consider harmful anticompetitive behavior, leaving government lawyers with a very narrow path to make their case. And just as the FTC is preparing for its biggest fight of the century, it faces budget shortfalls that have left it with little money to wage a protracted legal battle.

Big Tech companies, on the other hand, have virtually limitless legal resources and are highly motivated to fight and delay any breakup attempt. Facebook CEO Mark Zuckerberg has said that splitting the company up represents an existential threat—and it would certainly frustrate his plans to cash in on WhatsApp via a new payments feature.

“How much do you think Facebook is willing to spend to hang onto Instagram and WhatsApp?” asked Kovacic. “They will marshal the finest powers that the private bar and the economic consultancies can provide and they will be relentless and skillful in defending their conduct.”

No matter the outcome, Facebook and Google’s legal battles will drag on for years, as lawyers sift through mountains of documents, economists meticulously lay out competing analyses of the tech sector, and the companies lean on stalling tactics perfected in EU courts. “The experience of Europe, if it tells you anything, is that these companies have every incentive to delay the process,” says economist Cristina Caffarra, who heads the European competition wing of the consulting firm Charles River Associates.

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Europe leads on regulation

While lawsuits tend to command much of our attention, they’re just one anti-anticompetitive tool governments have at their disposal: They also have the power to craft new legislation and issue regulatory rules, which might be a quicker and cheaper way to achieve similar goals.

On the regulatory front, Europe clearly leads. The EU proposed a new set of tech-specific antitrust rules, dubbed the Digital Markets Act, on Dec. 15, which specifically outlaw tactics like spying on competitors who sell their products on a marketplace you control. The post-Brexit UK proposed its own version a week earlier.

Lawmakers in the US House antitrust subcommittee have called for Congress to follow suit. Updating antitrust laws to address new kinds of anticompetitive business practices used to be routine, according to Stacy Mitchell, co-director of the Institute for Local Self-Reliance, which urges legislators to curb corporate power. After passing the Sherman Antitrust Act in 1890, American legislators tweaked the law in 1914, 1936, and 1950.

“There was this rhythm of Congress investigating monopoly power and adopting new legislation to ensure that the original vision of antitrust was intact,” Mitchell says. “It’s an ongoing, iterative process by nature. We just haven’t had any iterations in a long time.”

If Europe’s proposed competition rules become law, they would make life easier for prosecutors and antitrust enforcement agencies looking to challenge tech companies’ behavior. Armed with new legislation that explicitly bans tech giants’ most problematic practices, government lawyers would have solid ground to stand on while arguing their cases. Currently, they just have the precarious toehold of a few narrow laws and legal precedents.

But the impact of the European laws will probably be limited to a new round of fines, given the bloc’s reticence to enforce its breakup power. It’s unclear how many billions of dollars you need to fine a major tech company before it changes its behavior. So far Google has run up nearly $10 billion in European fines, and has yet to make any major changes to its business practices.

US lawmakers might be able to tighten the screws even further, by reforming the way that courts consider antitrust cases. Since the 1980s, American courts have followed the so-called “Chicago School”’ of legal thought, which maintains that monopoly power is only a problem if it hurts consumers—not individual competitors. That means proving a case involves commissioning extensive economic analyses to lay out the indirect links between, say, one company’s dominance in the digital ad market, and the average consumer’s wallet.

Living up to the Chicago standard is a difficult and expensive proposition—and it makes winning a US antitrust case very hard. But Congress could override that court precedent by passing European-style competition laws banning specific practices Big Tech companies use to squash smaller rivals.

“Unless the way we see antitrust changes, we’ll just get more cases that are ineffective,” says Meagher, who previously worked with regulators in the US, the UK, and in private antitrust firms. “If we were to just give regulators more funding to bring cases under the current paradigm, they would probably continue to lose—they would just lose more cases.”

If Congress doesn’t pass new laws, the FTC could use its rulemaking power to ban certain anticompetitive practices by decree. So far the regulators have avoided that option. “The rulemaking power is like a big knife that they keep tucked away in a drawer,” says Mitchell. She argues regulatory rules would be a relatively cheap and fast way to check companies’ power.

But Kovacic, the former FTC head, argues there’s a reason for regulators’ reluctance. “I think the rulemaking advocates greatly underestimate the complexity involved,” he says. Between public comment periods, legal opposition from companies, and appeals up to the US Supreme Court, Kovacic estimates the process could take four or five years—and in the end, conservative judges on the high court might just strike the new rules down.

No matter which new steps regulators try out in the coming years, there might be a whole new dance to learn by the time the process plays out. When Microsoft’s legal drama finally ended in 2011, the company had already been supplanted by the new generation of tech giants that dominate the industry today. If they, in turn, are replaced with another crop of titans, we’ll probably be hearing the same song again in a decade or two.

Correction: Cristina Caffarra is an economist with Charles River Associates, not an antitrust attorney.