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Reining in the Digital Revolution:

In Antitrust We Trust

by Raphaëlle Soffe | Spring 2019

“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man.”

Adam Smith, The Wealth of Nations (1776)

1. Online Library Of Liberty, https://oll.libertyfund.org/quotes/367

Smith, Wealth of Nations, page 368

6. Work Kicks-off To Examine Digital Competition in UK, HM Treasury - https://www.gov.uk/government/news/work-kicks-off-to-examine-digital-competition-in-uk

7. Antitrust Alert: UK Competition & Markets Authority Issues First Order Reversing Pre-closing Integration - Anti-trust/competition Law – UK http://www.mondaq.com/uk/x/789798/Antitrust+Competition/Antitrust+Alert+UK+Competition+Markets+Authority+Issues+First+Order+Reversing+PreClosing+Integration

12. Statement By Commissioner Vestager on Commission Decision To Fine Google €4.34 Billion For Illegal Practices Regarding Android Mobile Devices To Strengthen Dominance Of Google's Search Engine

http://europa.eu/rapid/press-release_STATEMENT-18-4584_en.htm

13. Antitrust: Commission Fines Nike €12.5 Million For Restricting Cross-border Sales Of Merchandising Products

http://europa.eu/rapid/press-release_IP-19-1828_en.htm

14. Here's How We Can Break Up Big Tech, Team Warren - https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c

Adam Smith, in his book Wealth of Nations, expressed his deep fear that Parliamentarians would tremble at the notion of defying “furious” monopolists, and instead seek “great popularity and influence”[1] by strengthening a monopoly. With the creation of a pro-competition “International Grand Committee” incorporating government representatives from over nine countries, spearheaded by the UK House of Commons, Adam Smith has been proven mistaken in his political pessimism.  Despite weathering the most turbulent economic crises in modern history, generated by Brexit uncertainty, the UK Parliament continues to lead on antitrust and monopoly-evading legal mechanisms. Their next target is Facebook; and like a dog with a bone, Parliament will lock its jaws into the Zuckerberian dream, and won’t release its hold until the tech giant’s transgressions are exposed to the core.

 

SENDING A SERGEANT-AT-ARMS TO DISARM FACEBOOK

 

Announcing an inquiry into “Fake News” and disinformation in September 2017, the UK House of Commons Culture, Media and Sport (DCMS) Select Committee launched a revolutionary “International Grand Committee,” the first of its kind since 1933.[2] Representatives from nine countries (Argentina, Belgium, Brazil, Canada, France, Ireland, Latvia, Singapore and the UK) were invited to join in order to demonstrate an international response and collectiveness regarding big tech regulation and spread of fake news. The final Interim Report into Disinformation and 'fake news' was published in July 2018, and specifically focused on Facebook as a symptom of inadequate regulation and response. Importantly, antitrust was also included in the agenda, noting concerns surrounding potential violations. Issuing an invite to Mark Zuckerberg to give evidence, the International Grand Committee was refused three times. It took an extraordinary act and excision of Parliamentary power for Zuckerberg to take notice and begin to collaborate with the Committee. 

 

Six4Three, a tech company which used social media to source bikini pictures from contacts, sued Facebook in a civil lawsuit in 2017. Six4Three exercised discovery, a pre-trial procedure in which evidence can be obtained from each party involved. This meant that Six4Three obtained documents containing sensitive revelations relating to Mark Zuckerberg’s knowledge on privacy gaps in the Facebook partner API. It was the infamous Cambridge Analytica that used API to harvest data of up to 87 million users; it is therefore not surprising that Six4Three’s civil lawsuit caught the eye of UK Parliamentarians seeking to hold Facebook to account. Damian Collins, the Chair DCMS Select Committee, invoked[3] a rare parliamentary mechanism to demand Six4Thre hand over the documents. When the founder of Six4Three landed in London late last year, Parliament sent a Sergeant-at-Arms to greet him at his hotel. Upon refusing to hand over the documents, the tech firm founder was escorted to Parliament and threatened with imprisonment should he continue to object to handing over the files. It must be emphasised here that this is not normal parliamentary activity. Rather, it is an extraordinary exception and compelling example of how determined and skilled the UK Parliament is in tackling monopolistic and unfair practice activity not only in the UK, but on a global stage.

 

Despite requests by the UK Parliament for the CEO of Facebook to attend a hearing, Zuckerberg has routinely refused to do so even after his was heavily implicated in the documents obtained from Six4Three. The DCMS report was sharp in its criticism of Zuckerberg: “Choosing not to appear before the Committee and by choosing not to respond personally to any of our invitations, Mark Zuckerberg has shown contempt towards both the UK Parliament and the ‘International Grand Committee.’”[4] Facebook may be resisting attempts, or at the very least dragging its feet, by the International Grand Committee to investigate and regulate, but the UK Parliament has demonstrated with the Six4Three incident that it will pull no punches in its reinforcement of antitrust.

 

LEADING THE CHARGE TO CHARGE COLLUSION

 

The UK Executive is also playing its part in the antitrust charge, seeking to promote competition and offer a middle ground between unbridled big tech and the dismantling of monopolistic firms. Phillip Hammond, the UK Chancellor of the Exchequer since 2016, said; “The UK is leading the way in the digital revolution... This is something to be proud of, but at the same time it is only right that we ask the big questions about how to ensure these new digital markets work for everyone.” [5] As part of a series of antitrust promoting initiatives, UK Executive appointed Harvard Professor and adviser to former US President Barack Obama Jason Furman to lead a digital competition inquiry into big tech companies. The first meeting of the independent panel leading the review was hosted by the Chancellor at Number 11 on the 19th September 2018. Furman emphasised the importance of the UK’s role in antitrust: “We help to ensure that the UK remains at the forefront of the global digital economy, and that consumers continue to benefit as innovative technologies develop and evolve.”[6] Underpinning the discussion to regulate Amazon, Google, Microsoft, and Facebook is the controversial solution of forcing the larger tech companies to share user data so that smaller competing companies can enter and successfully grow within the tech market. This raises the question: is the cost of reining in monopolizing tech companies that of the everyday customer data privacy? Professor Furman, when asked this question at the Harvard Kennedy School, responded with two points. The first was that only certain aspects of the data would be shared with smaller tech companies, with specific algorithms filtering out what was needed, and general privacy preserved. The second point was that some tech sharing is in the public’s interest, beyond just competition enhancement. For example, self-driving car data is crucial for the safety of users; thus, sharing aspects of this data is critical for the cohesiveness and consumer welfare of the smaller tech startups.

 

Domestically, the UK is practising what it preaches. Over the past two years, the UK has experienced an increase in antitrust activity both in terms of government legislation and independent regulatory review. The CMA issued its first order that the merger of Tobii Smartbox in October 2018[7] ought to be reversed. The “unwinding order” was implemented during, and not after, the investigation. This led to a number of law firms and legal magazines issuing notices regarding the growing CMA intervention on antitrust issues, with one firm posting an “antitrust alert”[8] summary. The UK Financial Conduct Authority (FCA), an independent regulatory body, also recently used its powers for the first time to impose fines of £414,900 on three investment groups; Newton Investment Management, River and Mercantile Asset Management, and Hargreave Hale were all involved in an incident of price collusion. The Financial Times noted that this was the “first time the regulator has sanctioned an asset manager in relation to an IPO.” [9] Both the CMA and FCA appear to be leading the charge on antitrust on implementation of regulation, demonstrating a unified approach both in domestic and international legal attitudes on antitrust.

 

AN ANTITRUST HICCUP: THE HOLDING OF BREATH ON BREXIT

 

The Competition Act 1998 and the Enterprise Act 2002 form the foundation of UK competition law, with section 60 of the Competition Act 1998 requiring UK rulings be in line with EU law. Modern competition law also received contributions from the Sherman Act 1890 and the Clayton Act 1914, demonstrating the mutual UK-US interest in breaking up “trust” power sharing schemes. The UK Competition and Markets Authority (CMA), as a present member of the European Competition Network (ECN), spearheads the antitrust government agenda. Over time, UK and EU competition law has favoured slow and moderate regulation, and diverged from the US interventionary approach.

 

Post-Brexit, the UK’s current agenda is unlikely to significantly change, albeit weaker or distracted by the transition. Upon leaving the EEA, the CMA will have to expand its resources.

The Brexit Competition Law Working Group published a paper in 2016[10] identifying a number of areas of concern. The degree to which the CMA will continue to work with the European Commission and the European Competition Network, parallel antitrust cases between the UK and EU, and the future of private competition cases, are just a few of the concerns put forward. Longer-term considerations regarding the form change of UK antitrust law are still under speculation, from the extreme occurrence of the repeal of Chapters I and II prohibitions of the Competition Act 1998, to the possibility of a general divergence in terms of interpretation of existing EU antitrust law.[11] The UK has not obtained a deal with the EU regarding its exit and uncertainty remains. The UK and EU may, on the surface, appear to be in constant disagreement, however on the topic of promoting antitrust legislation, significant divergence from the EU is unlikely.

 

Brexit is no small matter; on trade, on movement, and on overall standards, it has confused and devastated British stability. However, on the topic of antitrust, the EU and the UK see eye to eye. EU, yielding significant collective power, fined Google $5 billion for Android antitrust violations,[12] and Nike $14 million for “restricting cross-border sales of merchandising products.”[13] EU Competition Commissioner, Margrethe Vestager, speaking at the Harvard Kennedy School on the 27th March 2019, said that there exists “obligations of the big guy” in the market, and how Big Tech companies have essentially become the “regulators in the market.” And with significant power, comes responsibility. Sitting next to Jason Furman at a Harvard Kennedy School Forum Event, Vestager was clear on the EU’s agenda. The UK, having recruited Furman to advise their agenda too, is a clear EU ally on the topic of antitrust, whether or not it exists within the EU’s body or eventually outside of it.

 

“Beware of that profound enemy of the free enterprise system who pays lip-service to free competition, but also labels every antitrust prosecution as a persecution.”

- Franklin D. Roosevelt

 

SEN. WARREN’S ANTITRUST CRUSADE: AN UNWARRENTED SOLUTION  

 

The “profound enemy” of the free enterprise system is reining free, despite Roosevelt’s warning in 1944. Elizabeth Warren, the Democratic Senator for Massachusetts and 2020 presidential candidate, has called for a radical solution to the growth of big tech: “It’s time to break up Amazon, Google, and Facebook.”[14] Described as an “antitrust crusader,”[15] Warren may not be the next President of the United States, or even be selected as the 2020 Democratic Nominee, but she is a force to be reckoned with regardless of the outcome. However, her proposals have been accused as being anti-business and reckless. The EU Commissioner for Competition, emphasising her European perspective at the Harvard Kennedy School, described splitting up companies as a “measure of last resort.” To Warren, splitting up the likes of Amazon and Facebook appears to be a measure of first resort.  Antitrust regulation is crucial, but it is there to regulate, and rarely there to disintegrate, tech companies. It is not the case of paying “lip-service” to “every antitrust prosecution as a persecution,” but simply demanding caution in one’s approach to such regulation. The UK Parliament and Executive have been clear on this topic; they seek to “rein in” big tech, not dismantle it. Vestager has a similar approach: “We don’t consider size [talking about Tech company size] to be a problem. We consider lack of competition to be a problem.”[16] Warren, by contrast, sees size as a clear symptom of antitrust violation. Her legislative proposal for “Platform Utilities” sets the annual global revenue of $25 billion as the threshold. She fails to consider that size and competition are not necessarily contending forces. As Warren continues to pursue an agenda of unwarranted antitrust toughness and response, the UK and the EU as a whole have begun to come to terms with the fact that it is not brute and hurried legislative force that will resolve the tech giant negative externalities; rather, in moderate and well-informed antitrust legislation, we must trust. 

 

A WAR OF EXPENSE: BIG TECH’S POLICY OF APPEASEMENT

 

With record breaking fines issued by the EU legislative bodies, the UK laying down a comprehensive and targeted antitrust agenda, and Sen. Warren entertaining the idea of break-up initiatives, big tech is growing increasingly concerned. Due to their relative largeness in the tech market, Vestager noted how such companies are essentially able to set the rules of the game and are becoming the de facto regulator in the market.  They decide who survives and who is absorbed into their framework. As a consequence of obtaining such significant power, big tech has begun to exercise a policy of appeasement. For example, Google is currently attempting to promote rival strength Kelkoo, a French price-comparison service, as an attempt to “stave off EU antitrust action.”[17] Perhaps, if this exceptional act by Google turns into a trend, Adam Smith was also mistaken on a second factor; antitrust legislation does not generate “furious” monopolists, but rather a conforming agenda. In response, Adam Smith may redirect the discussion to his Theory of Moral Sentiments[18]. In present society, a monopolist faces a set choice dilemmas, with their societal interest conflicting with their incentives as a price maker. A monopolist, guided by virtue, praiseworthiness, and a desire to be beloved by one’s fellow-citizens, may voluntarily relinquish their anti-competitive behavior. Perhaps, antitrust is a double-edged sword; it establishes both a binding and persuasive precedent.

REFERENCES

 

[1] Online Library Of Liberty, https://oll.libertyfund.org/quotes/367

Smith, Wealth of Nations, page 368

[2] Disinformation and 'fake News': Final Report Published - News from Parliament

https://www.parliament.uk/business/committees/committees-a-z/commons-select/digital-culture-media-and-sport-committee/news/fake-news-report-published-17-19/

[3] Parliament Seizes Cache Of Facebook Internal Papers, Carole Cadwalladr - https://www.theguardian.com/technology/2018/nov/24/mps-seize-cache-facebook-internal-papers

[4] Disinformation and 'fake News': Final Report Published - News from Parliament

https://www.parliament.uk/business/committees/committees-a-z/commons-select/digital-culture-media-and-sport-committee/news/fake-news-report-published-17-19/

[5] https://www.ft.com/content/3352b782-9593-11e8-b67b-b8205561c3fe

[6] Work Kicks-off To Examine Digital Competition in UK, HM Treasury - https://www.gov.uk/government/news/work-kicks-off-to-examine-digital-competition-in-uk

[7] Antitrust Alert: UK Competition & Markets Authority Issues First Order Reversing Pre-closing Integration - Anti-trust/competition Law – UK http://www.mondaq.com/uk/x/789798/Antitrust+Competition/Antitrust+Alert+UK+Competition+Markets+Authority+Issues+First+Order+Reversing+PreClosing+Integration

[8] UK CMA Reverses Pre-closing Integration

https://www.jonesday.com/Antitrust-Alert--UK-Competition--Markets-Authority-Issues-First-Order-Reversing-Pre-Closing-Integration-03-11-2019/

[9] Regulator Fines Two Asset Managers Over Ipo Price Collusion Siobhan Riding - https://www.ft.com/content/79de1cf8-35c7-11e9-bb0c-42459962a812

[10] Brexit Competition Law Working Group (2016), Implications of Brexit for Competition Law and Policy: Issues Paper, available at www.bclwg.org.


[11] Consequences of Brexit for competition law and policy, John Vickers, Oxford Review of Economic Policy, Volume 33, Number S1, 2017, pp. S70–S78

[12] Statement By Commissioner Vestager on Commission Decision To Fine Google €4.34 Billion For Illegal Practices Regarding Android Mobile Devices To Strengthen Dominance Of Google's Search Engine

http://europa.eu/rapid/press-release_STATEMENT-18-4584_en.htm

[13] Antitrust: Commission Fines Nike €12.5 Million For Restricting Cross-border Sales Of Merchandising Products

http://europa.eu/rapid/press-release_IP-19-1828_en.htm

[14] Here's How We Can Break Up Big Tech, Team Warren - https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c

[15] Elizabeth Warren Is the Perfect Antitrust Crusader For 2020

Ron Knox-Ron Knox - https://slate.com/news-and-politics/2019/01/elizabeth-warren-2020-antitrust-monopoly-crusader.html

[16] Is Europe Setting a New Example on Addressing Monopolies?

Harvard Kennedy School's Institute of Politics - https://www.youtube.com/watch?v=LPzahZYCCdw

[17] Google Seeking To Promote Rivals To Stave Off Eu Antitrust Action

Foo Chee - https://www.reuters.com/article/us-eu-google-antitrust/google-seeking-to-promote-rivals-to-stave-off-eu-antitrust-action-idUSKCN1QZ2AN

[18] The Theory Of Moral Sentiments

Adam Smith - Verlag Wirtschaft U. Finanzen - 1986

3. Parliament Seizes Cache Of Facebook Internal Papers, Carole Cadwalladr - https://www.theguardian.com/technology/2018/nov/24/mps-seize-cache-facebook-internal-papers

9. Regulator Fines Two Asset Managers Over Ipo Price Collusion Siobhan Riding - https://www.ft.com/content/79de1cf8-35c7-11e9-bb0c-42459962a812

10. Brexit Competition Law Working Group (2016), Implications of Brexit for Competition Law and Policy: Issues Paper, available at www.bclwg.org.

11. Consequences of Brexit for competition law and policy, John Vickers, Oxford Review of Economic Policy, Volume 33, Number S1, 2017, pp. S70–S78

15. Elizabeth Warren Is the Perfect Antitrust Crusader For 2020

Ron Knox-Ron Knox - https://slate.com/news-and-politics/2019/01/elizabeth-warren-2020-antitrust-monopoly-crusader.html

16. Is Europe Setting a New Example on Addressing Monopolies?

Harvard Kennedy School's Institute of Politics - https://www.youtube.com/watch?v=LPzahZYCCdw

18. The Theory Of Moral Sentiments

Adam Smith - Verlag Wirtschaft U. Finanzen - 1986