By: Emily Lewis
“All roads lead to Rome”… or these days it seems like Big Tech. Like the fall of the Roman Empire, 2021 may mark the fall of Silicon Valley giants like Apple, Facebook, and Google.
Towards the end of 2020, the federal government filed massive lawsuits against Google and Facebook alleging violations of federal antitrust law. The Biden administration has signaled it plans of curtailing the wave of enforcement. The new administration has confirmed it plans to continue to investigate potential antitrust violations of U.S. technology companies. Amazon and Apple may be the next tech giants to see antitrust action. There is increasing bipartisan pressure calling for the breakup of tech giants; 2021 may prove to be a watershed year for antitrust action in the technology industry.
Apple’s Antitrust Threat
Apple kicked off the new year by discreetly signaling to investors that federal antitrust action may be imminent. On January 5, 2021, Apple issued its annual proxy statement, but this time it included a new section for the company, a section specifically addressing antitrust concerns. The section states:
The Audit Committee and Board regularly review and discuss with management Apple’s antitrust risks. Apple’s Antitrust Compliance Officer is responsible for the development, review, and execution of Apple’s Antitrust Compliance Program and regularly reports to the Audit Committee. These reports cover, among other matters, the alignment of the program with Apple’s potential antitrust risks, and the effectiveness of the program’s design in detecting and preventing antitrust issues and promoting compliance with laws and Apple policies.
This addition to its proxy statement should not be too much of a surprise to investors. In October 2020, the House Judiciary Subcommittee on Antitrust published a 450 report, examining the competitive practices of tech giants such as Amazon, Apple, Facebook, and Google. Mere days after the House Judiciary Subcommittee issued its report, the Department of Justice sued Google. In late December, the FTC, along with 40 state attorneys general, filed suit against Facebook alleging that the company engaged in anticompetitive behavior and calling for the breakup of Facebook, Instagram, and WhatsApp. Notably, Apple and Amazon have yet to see complaints from federal enforcement agencies.
While Apple has yet to see a complaint from a federal agency alleging antitrust violations, Apple is no stranger to private antitrust action. Currently, Apple is facing a lawsuit from Epic Games. Epic’s complaint alleges that the Apple App Store is a monopoly and violates antitrust laws by
forcing app developers to pay steep royalty fees and use products and services that are tied in together, such as the in-app payment system. The trial has been set for May 3, 2021. The Department of Justice is also reportedly investigating Apple App Store’s competitive practices. The consequences of Epic’s lawsuit and the DOJ investigation have the potential to permanently disrupt a key source of income for Apple . In 2020 alone, the App Store generated $72.3 billion in revenue for Apple.
Epic’s lawsuit has opened the floodgates for similar lawsuits. In December 2020, Cydia, a once-popular app store for the iPhone launched in 2007, sued Apple, alleging Apple used anticompetitive means to nearly destroy Cydia, clearing the way for the App Store. Further, the complaint contends Apple has an illegal monopoly over software distribution on iOS.
Antitrust liability for Apple does not stop with the App Store. Its practices related to its streaming service, Apple Music, could potentially create antitrust liability as well. In September 2020, Spotify, an Apple Music competitor, publicly criticized Apple Music. In its public statement, Spotify claimed that Apple’s bundling of the iPhone and an Apple Music subscription constituted unfair competitive practices and called for federal authorities to act. This type of public comment has carried a lot of weight in the past. In June 2020, the European Union Commission announced it opened formal antitrust investigations on the App Store rules’ impact on competition. The press release credited a complaint filed by Spotify filed in March 2019.
Amazon May Escape Unscathed
While last year’s House Subcommittee report concluded that Amazon has a monopoly over third party sellers, Amazon still may escape enforcement action. As outlined in Linda Khan’s acclaimed Yale Law Journal Note, Amazon’s Antitrust Paradox, Amazon poses a unique problem for antitrust enforcement compared to other Big Tech companies. Modern jurisprudence of antitrust law ties the perceived threat to competition to consumer welfare. Typically, the inquiry into the effect on consumer welfare looks at the impact on prices for consumers. According to David Balto, a Maryland lawyer who has worked both in the Bureau of Competition of the US Federal Trade Commission and in the US Department of Justice antitrust division, courts tend to be reluctant to challenge practices that appear to lead to lower, not higher prices. Thus, to prevail in an action challenging Amazon’s monopoly over third party sellers, there must be evidence of Amazon engaging in a predatory pricing scheme, not just providing lower prices to consumers.
The Biden administration is working with Sarah Miller, leader of the American Liberties Project antimonopoly group. The group recently issued a report calling on the DOJ to expand the scope of its suit against Google, in addition to calling on the FTC to sue Amazon for its alleged monopoly practices. Only time will tell how the Biden administration will decide to take on Big Tech.