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Don't Rush a Bad Bill

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Don't Rush a Bad Bill

June 17, 2022

Democrats' poorly-drafted antitrust bill will do little for Republicans, and its consumer backlash will undermine future legislative efforts

Republicans and Democrats alike have grown increasingly mistrustful of large online platforms in recent years. But the basis for this mistrust comes from two conflicting lines of thinking. Whereas Democrats are primarily concerned with market power and misinformation, Republicans care more about political power and free expression online.

As a bipartisan Senate coalition pushes for legislation regulating Big Tech before the end of the year, Republicans in Congress should be wary of helping Democrats pass antitrust legislation that would do nothing to address their own concerns. Republicans are projected to gain control of the House and possibly the Senate following the November midterms. In expectation of this shift in power, conservatives should run out the clock on Democrat-led antitrust legislation and work on preparing their own ideas for 2023.

State of Play

Late last month, Sen. Amy Klobuchar (D-MN) released a revised version of the American Innovation and Choice Online Act (AICOA). At its heart, AICOA would prohibit large online platforms from preferencing their own products and services or discriminating against the products and services of third party users. This bill—the cornerstone of Sen. Klobuchar’s attempt to rein in Big Tech through antitrust law—was advanced out of the Senate Judiciary Committee in mid-January on a bipartisan vote of 16-6.

Now that AICOA is on the Senate calendar of business awaiting floor consideration, Sen. Klobuchar intends for the revised version to serve as a substitute amendment to be offered on the floor. Majority Leader Chuck Schumer (D-NY) has said that he intends to put the bill up for a vote early this summer.

The new draft language ostensibly addresses some of the concerns raised by members of the Judiciary Committee. However, several Senate Democrats, including Sen. Maggie Hassan (D-NH) and Sen. Michael Bennet (D-CO), have already expressed reservations about the latest version of AICOA behind closed doors. “​​Nobody can quite figure out why it would be a priority,” one Senate aide told Politico.

It is not only Democrats who are split on AICOA. Sen. Chuck Grassley (R-IA) is an original cosponsor of the bill, and Sens. Lindsay Graham (R-SC), John Kennedy (R-LA), Cynthia Lummis (R-WY), Josh Hawley (R-MO), and Steve Daines (R-MT) have all signed on. But Sen. Mike Lee (R-UT) and others like Sen. Marsha Blackburn (R-TN) have expressed serious concern. “I worry a lot about the broad scope and the vague language that it contains,” said Sen. Lee during the January markup. He continued: “I believe this would lead to an untold number of unintended and unforeseen consequences, like harming many of the very same consumers that we are trying to protect.”

Such abnormal coalitions of proponents and opponents demonstrate how disunited Congress is on how to regulate Big Tech even though most members support reform in the abstract. It also means that garnering 60 votes to pass the Senate will be a challenge for any legislation this year.

The House Judiciary Committee passed a similar piece of legislation last June, under the leadership of Subcommittee Chairman David Cicilline (D-RI). Dubbed the American Choice and Innovation Online Act, this companion bill has since languished in the House and is still waiting for a floor vote. Given the current makeup of Congress where the split Senate holds most of the power, it is most likely that Speaker Nancy Pelosi (D-CA) has kept the bill off the floor as a way to prevent her colleagues from being forced to take a hard vote. Thus, the House is likely waiting on the Senate to move first on antitrust legislation.

An Overview of the Revised AICOA

AICOA in its latest form remains a broad piece of legislation. As Sen. Klobuchar stated in a press release following the passage of AICOA out of the Judiciary Committee:

As dominant digital platforms – some of the biggest companies our world has ever seen – increasingly give preference to their own products and services, we must put policies in place to ensure small businesses and entrepreneurs still have the opportunity to succeed in the digital marketplace. This bill will do just that, while also providing consumers with the benefit of greater choice online.

The bill applies only to large online platforms that have 50 million US-based monthly active users or 100,000 U.S.-based monthly active business users as well as inflation-adjusted net annual sales or a market capitalization of over $550 billion. It notably excludes internet service providers (ISPs). The bill grants the Federal Trade Commission (FTC), Department of Justice (DOJ), and state attorneys general the authority to enforce the new rules.

Under AICOA, “covered platforms” would be prohibited from:

  1. Preferencing their own products and services over those of business users;
  2. Limiting the ability of the products and services of a business user from being able to compete relative to the platform’s products and services;
  3. Discriminating in the application or enforcement of the platform’s terms of service for business users;
  4. Restricting or impeding the capacity of a business user to access or interoperate with the platform except when such access would present a cybersecurity risk;
  5. Conditioning access to the platform on the purchase or use of other products or services offered by the platform;
  6. Using nonpublic data that are generated by business users to support the platform’s own products or services;
  7. Restricting business users from accessing data generated on the platform by the business’s own activities;
  8. Restricting any user from uninstalling software applications or changing default settings that have been preinstalled on the platform unless necessary for the security or functioning of the platform;
  9. Treating the products and services of the platform more favorably than those of a business user;
  10. Retaliating against any business user for raising good-faith concerns to law enforcement or other governmental authorities;

In other words, large tech platforms would be legally barred from practically any action intended to preference their own products and services over those of third parties. For example, Google would no longer be allowed to recommend its own products, such as Google Maps, over third-party products in search queries. Amazon would no longer be allowed to feature its Amazon Basics products and Prime service.

Covered platforms would be granted an affirmative defense to litigation if their actions are reasonably tailored and necessary to prevent violations of federal or state law; to protect safety, user privacy, or data security; or to maintain or substantially enhance the core functionality of the platform. For provisions 4-10, platforms would be granted an additional affirmative defense if they can prove that their actions do not materially harm competition.

While there is room to reframe our antitrust regime to address some of the ills of Big Tech, AICOA is far from the panacea it is touted as. And, given the expressed concerns of senators on both sides of the aisle, the revised version is still not ready for primetime when it will have to pass a 60-vote threshold in the Senate.

Problems with the Revised AICOA

There are several problems with AICOA’s approach to reigning in Big Tech.

First, the definition of what constitutes a covered platform is clearly targeted at a select few firms, namely Amazon, Apple, Google, and Meta. But this definition is also unworkably vague. Regardless of one’s opinion as to whether these companies should be restricted in this way, the way AICOA defines covered platforms means that it is very likely that other firms will be unintentionally captured in the future. Furthermore, using federal law to target just a few firms runs entirely counter to the rule of law. Laws should only be used to establish clear rules of the road that are applied equally, not to punish perceived wrongdoing after the fact.

Second, the restrictions placed on covered platforms are incredibly vague. As drafted, AICOA would practically grant both the FTC and DOJ who enforce antitrust law carte blanche to be judge, jury, and executioner over Big Tech. Without proper statutory explanation or guardrails, AICOA would allow the antitrust enforcers to interpret vague provisions however they choose. AICOA effectively gives the FTC and DOJ a new hammer and allows them to determine what constitutes a nail.

At what point does limiting the ability of third-party products and services to compete on a platform materially harm competition? How can federal agencies determine whether a platform is using nonpublic data generated by business users to benefit their own competing products and services as opposed to, say, directing targeted advertising? AICOA directs the FTC and DOJ to issue guidance and implementing regulations to clarify such questions, granting them the power to write the rules. Even after guidance and implementing regulations are established, it will take an enormous amount of litigation to determine where the lines are—or should be—drawn.

This issue is magnified when the penalties for violation are considered. In the latest draft of AICOA, companies that are found in violation can be forced to pay a civil penalty of up to “10 percent of the total United States revenue of the person for the period of time the violation occurred.” For Alphabet (the parent company of Google), which reported $31.7 billion in U.S.-based revenue for Q1 of 2022, the civil penalty for a single violation could top $12 billion. What’s more, if a company is found to be a repeat offender, the CEO and other corporate officers can be forced to forfeit “any compensation received … during the 12 months preceding the filing of a complaint.” With such exorbitant penalties, any self-respecting federal agency would interpret the vague AICOA provisions as loosely as possible to maximize the number of enforcement actions.

Finally, and perhaps most importantly for Republicans, AICOA does nothing to address the concerns that are most important to conservatives.

Generally, Republican lawmakers care most about issues of privacy and free expression online. “Big tech is silencing everyone they disagree with,” said Sen. Chuck Grassley (R-IA), the original Republican cosponsor of AICOA. He continued: “We must stop these companies from arbitrarily deciding what speech is acceptable for the country.”

For many, these questions of content moderation and user privacy are inextricably linked to market dominance. It is precisely because large online platforms have massive user bases (and thus massive societal impact) that privacy and free expression rise to the level of national importance. The link between Big Tech’s market dominance and its cultural dominance is one of the primary reasons that so many Republican members of Congress have signed on to antitrust reform efforts. However, supporting antitrust reform in the abstract is not the same as supporting specific legislation.

It is unquestionable that AICOA would hurt Big Tech. If that were an end unto itself, then Republicans members might be forgiven for helping pass flawed legislation. But banning self preferencing would neither benefit user privacy nor address the issue of free expression online. It would be far better for Republicans to work on drafting their own legislative approach to Big Tech to be put forward when they are likely to gain the gavel next year.

A More Thoughtful Approach to Regulating Big Tech

The mounting animosity towards Big Tech is not likely to recede any time soon and lawmakers have made it clear that they intend to take action. From Public Knowledge to the Heritage Foundation, organizations on both sides of the aisle have expressed a similar desire to pass antitrust reform targeted at Big Tech. Antitrust legislation of some sort may very well be a fait accompli at this point. The question then becomes: what sort of approach should a Republican Congress take?

With serious concerns being raised both on and off Capitol Hill, Sen. Klobuchar’s approach should not be the front runner, even though it has garnered the most media attention. Instead, lawmakers should consider a more moderated approach. The Tougher Enforcement Against Monopolies Act, or TEAM Act, led by Sen. Mike Lee (R-UT) presents a good starting point. Sen. Lee’s approach is preferable to Sen. Klobuchar’s because it builds off of existing antitrust law rather than running counter to it.

At its heart, the TEAM Act codifies and expands upon the consumer welfare standard. More specifically, it would clarify that courts can only consider harms related to consumer welfare during enforcement actions, including price, quality, innovation, and consumer choice. When looking at market benefits, courts would be directed to consider only matters that are in-market and quantifiable. The TEAM Act would change merger guidelines such that there would be a rebuttable presumption that a merger resulting in over 33% market share would substantially lessen competition, and it would ban mergers that result in over 66% market share, with some exceptions. It would also create a safe harbor from antitrust enforcement for private entities that collaborate on interoperability and data portability.

However, the TEAM Act may need refinement to pass through Congress. One major impediment to passage is its inclusion of the One Agency Act, a standalone bill that would remove practically all antitrust authority from the FTC and hand it over to the DOJ. Currently, antitrust enforcement is split between these two agencies. Since the primary function of the FTC is to be an antitrust enforcer, this provision would effectively neuter the FTC. Any attempt to remove the majority of authority from a federal agency is liable to run up against fierce opposition from Democrats.

Looking Ahead to the 118th Congress

The desire to punish Big Tech is far from a justifiable reason for Republicans to advance problematic legislation that would do nothing to address their primary concerns. AICOA fails to touch issues of free expression and user privacy, and banning a select few firms from self preferencing based purely on their size runs entirely counter to traditional conservative principles of free markets. It is past time for Republican lawmakers to abandon AICOA and work towards crafting more reasonable legislation to regulate Big Tech. Whether it be some derivative of the TEAM Act or entirely separate legislation, Republicans are surely capable of crafting better legislation than AICOA between now and the 118th Congress.

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