Antitrust enforcement of Big Tech is expected to take place on a scale never before seen in 2022, following years of escalating rhetoric from Washington.
So far, Wall Street has shrugged as the five companies under the microscope — Google parent Alphabet Inc.
Facebook parent Meta Platforms Inc.
and, yes, Microsoft Corp.
— have been targeted by governments and rivals across the globe. Despite a steady drumbeat of negative headlines, tech’s quintet of heavy hitters boasted a cumulative market value of nearly $10 trillion as 2021 neared an end, after producing a collective $2.4 trillion in revenue over the past two years of pandemic misery.
The stock prices of tech companies have only been “minorly impacted because investors do not tend to make decisions based on the mere possibility of legislation,” Ashley Baker, director of public policy at the Committee for Justice, told MarketWatch.
Many investors have simply looked back on history and shrugged, according to one Silicon Valley venture capitalist.
“There is more antitrust noise, but investment people remember the Microsoft and IBM
[antitrust investigations] in which waves of innovation followed those investigations and proved they did not own the industry,” Alexandra Sasha Johnson, president of Global Tech Symposium, a Silicon Valley investment conference, told MarketWatch. “Until the Big Tech companies buy each other, this is not a problem.”
This could finally change in 2022 as it did in the late 1990s, when some tech companies struck a cautious stance during the Justice Department’s investigation of Microsoft for monopolistic practices, Syed said.
“The difference is that we’re talking about interconnected companies that own an industry versus just one company [with Microsoft],” she said. “And there is bipartisan support, which makes it easier politically.”
With more than a dozen pieces of anti-tech legislation, a plethora of lawsuits and regulatory fines escalating in the U.S. and abroad, as well as the Biden administration rounding out Big Tech’s nightmare team of government agency heads, 2022 is shaping up as a seminal year for tech regulation after decades of inaction.
In rapid succession this year, Biden named and nominated an antitrust team of Tim Wu (to the newly created position of head of competition policy at the National Economic Council), Lina Khan (chair of the Federal Trade Commission) and Jonathan Kanter (head of the antitrust division of the Justice Department). Each is a heralded anti-monopolist advocate who has written extensively on the topic or represented companies making antitrust claims against Big Tech.
The trio have been referred to as members of a “New Brandeis movement,” named after Supreme Court Justice Louis Brandeis, whose decisions limited the power of big business in the early 20th century. With the New Brandeis trifecta in place, and Congress evaluating more than dozen possible anti-tech bills, next year is “shaping up to be the year of Tech Takedown,” Bhaskar Chakravorti, dean of global business at the Fletcher School at Tufts University, told MarketWatch.
More troubling for tech CEOs, he said, are the “many tiny actions at the FTC, Justice Department and Congress that will continue to keep feeding the news cycles with a steady stream of actions” that add up to a “a year of thousands of tiny tech papercuts.”
Big Tech’s treacherous path to antitrust enforcement has three potentially damaging roads: federal agencies challenging acquisitions and mergers; legislation tailored to stimulate competition and curtail the influence of tech’s dominant platforms; and federal and state lawsuits.
Closer scrutiny of M&A activity
The biggest immediate impact from the Biden administration’s all-out assault could be a cooling-off period of frenzied mergers and acquisitions by the biggest players. Regulators have been empowered with examining past deals and more strenuously inspecting tech’s latest purchases.
Major movement is already happening on the M&A front because, as lawyers and executives told MarketWatch, the FTC and Justice Department have new leadership empowered to more closely review and approve mergers while they await legislation and court actions. A non-binding presidential executive order largely seen as aimed at Big Tech announced a policy of greater scrutiny of mergers over the summer, and the FTC and Justice Department each would receive $500 million in new funding to boost staff working on antitrust enforcement as part of the House-passed reconciliation bill awaiting Senate action.
The FTC is signaling greater oversight over deals, requiring affirmative consent on certain transactions, which may prolong uncertainty on merger agreements. The agency has already sued to block the largest semiconductor deal ever — Nvidia Corp.’s
proposed $40 billion acquisition of U.K.-based chip-design provider Arm Ltd., saying the deal would “distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.”
Another FTC antitrust probe, into Meta’s plan to acquire VR fitness app Supernatural for $400 million, is underway, according to a report by The Information.
The Justice Department’s direction is less clear at this point, but signals from Kanter’s confirmation hearing point to “vigorous enforcement” of antitrust laws.
“Personnel is policy. With the trifecta of Khan, Kanter and Wu, there is a new sheriff in town,” Luther Lowe, senior vice president of public policy at Yelp Inc.
told MarketWatch. “Efforts by Amazon and Facebook to recuse Khan, and Google’s attempt to recuse Kanter, is like arsonists asking for firefighters to be removed from a fire.”
An overwhelming swath of Americans, regardless of political affiliation, believe Big Tech wields too much power and should be held in check on acquisitions, according to a survey of 1,187 likely voters by Data for Progress in September. Wide majorities believe Big Tech “puts competitors at a disadvantage” (69%) and “shouldn’t be able to buy up smaller businesses because of the potential negative impacts on competition and consumers” (66%).
Agencies are more aggressively scrutinizing tech-related deals, antitrust attorney Valarie Williams told MarketWatch. Whether investigations block mergers, they “can be disruptive and stop mergers if not discourage them,” she said.
“Legislation or not, that will not affect at all DoJ and FTC in antitrust enforcement based on existing law,” Williams said. “The pendulum has definitely swung after years of inactivity and readily-approved mergers.”
At the very least, expect acquisitions to take longer to complete, if they can get through the regulatory process at all. And expect more scrutiny over smaller deals after an FTC study in September revealed that Amazon, Apple, Google, Meta and Microsoft made 616 acquisitions from 2010 to 2019 that fell below the FTC’s $92 million reporting threshold but were worth at least $1 million.
“Investors have told us that they have built more time into deals being done, but still expect many to go through,” Ed Mills, Washington policy analyst at Raymond James, told MarketWatch. “They are ready for a longer process and agencies to be skeptical of acquisitions of nascent competitors by larger players.”
Deep-pocketed investors in startups hoping to be acquired have noticed. Bettina Hein, co-founder and chief executive of digital-healthcare startup Juli, put it in stark terms during the Dec. 15 Senate hearing on competition: 10 times as many tech startups seek acquisitions as they do an initial public offering.
Increasingly, executives and investors have reached out to antitrust law firms to assess the legislative and political climate and its impact on Big Tech’s aggressive M&A strategy, according to Nabiha Syed, president of The Markup.
“Boards with exit strategies are huddling with antitrust lawyers to see if this lasts the next two years,” she said. “A key question is how soon the FTC shakes things up. To me, they speed up the war drums and hit the ground running in 2022. There is a public appetite and more momentum this time than around” than when the Justice Department sued Microsoft in the 1990s, she added.
Legislation is on the way, but how soon?
As U.S. regulators prepare to crack down, legislators are ramping up bills for votes, the culmination of years of hearings and policy discussions.
“This is a watershed moment for Big Tech accountability, and 2022 will be the year that these companies finally face the regulation that will end their harmful and deceptive practices,” Sen. Edward Markey, D-Mass., told MarketWatch. Markey, author of the landmark Child Online Protection Act of 1998, has toiled on a sequel for years and is confident it will happen in 2022.
Next year could shape up as the biggest for tech legislation since Bill Clinton’s presidency, when the Telecommunications Act of 1996 significantly amended the Communications Act of 1934, according to Jim Steyer, CEO of Common Sense Media, a lobbying and advocacy organization, and co-chair of the Future of Tech Commission, appointed by White House in April.
Steyer anticipates changes to privacy law, with a federal law modeled after California’s CCPA in 2018, and platform accountability in the form of revisions to Section 230 of the Communications Decency Act. Most important, the $1 billion in funding for FTC and Justice as part of the evolving Build Back Better bill would give regulators the ability to enforce.
“Laws without enforcement are like sharks without teeth,” he told MarketWatch.
Facebook whistle-blower Frances Haugen’s impact “energized Congress on bipartisan bills” while Biden’s executive order “sent a clear message” that acquisitions won’t occur at the same pace. “The federal government, in the form of the FTC and Justice, will take longer looks at potential combinations” like Nvidia and Arm, Steyer said.
The House has introduced six bills, the Senate has at least three major pieces of legislation, and more are expected. Rep. David Cicilline, D-R.I., a key architect of the House’s six bills, has said he expects “we’ll be in a position to bring the bills to the floor” by the fall.
Big Tech has attempted to throw money at the problem. Amazon ($15.33 million), Facebook ($14.65 million) and Alphabet ($8.95 million) ranked among the top 20 spenders in lobbying efforts on government policy this year, according to the nonprofit OpenSecrets, even as the debate over antitrust efforts took down a major Silicon Valley lobbying group.
And midterm elections could change the course of Democrats’ legislation. House Minority Leader Kevin McCarthy, R-Calif., in June signaled his opposition to giving regulators too much authority and that House Republicans plan to target other tech issues, namely around “free speech [Section 230] and free enterprise.”
Federal and state lawsuits
The Justice Department is rumored to be on the cusp of two major lawsuits: one targeting Google’s dominance of the digital advertising market, the other aimed at Apple, perhaps at the influence and business practices of its App Store though it remains unclear.
Justice’s next lawsuit against Google would be its second antitrust action. The first, in July, alleged Google illegally protected its monopoly over online search advertising. Separately, a group of 36 states and the District of Columbia sued Google in July, claiming its mobile app store abuses its market power and forces aggressive terms on software developers.
Perhaps the most intriguing of a handful of state-led cases against Google is one led by Texas Attorney General Ken Paxton. It claims Google commands a cut of 22% to 42% of U.S. ad spending that goes through its systems, according to a newly unredacted lawsuit.
Apple’s quandary is the ongoing Epic Games Inc. antitrust suit that is wending its way through appeals court. Though a federal judge ruled Apple did not break antitrust law, she issued an injunction that would have forced Apple to allow external payment options on its App Store by Dec. 9. [Apple recently won a stay on appeal of the injunction. The stay, however, does not reverse the earlier ruling but puts enforcement on hold until the appeals court can fully hear the case, a process that will likely take months.]
Meanwhile, the FTC continues to plow ahead on its lawsuit to force the divesture of Instagram and WhatsApp from Meta. At the very least, the lawsuit sets a template for the agency’s avowed crack down on tech M&A action, regardless of the decision in the case.
This leaves Amazon, which could be bracing for an FTC suit led by its longtime nemesis Khan. The agency is currently probing Amazon as part of a series of ongoing investigations into Big Tech, and it is looking more closely at Amazon’s planned $8.45 billion purchase of MGM Studios.
Whether any or all of these actions tamp on the brakes of Big Tech’s growth is far from certain. Despite the threat of legislation and lawsuits, Apple is on the verge of becoming the first company worth $3 trillion, Google is about to pass $2 trillion, and Meta is on the cusp of topping $1 trillion in market value — all amid record revenue during the pandemic.
“The problem is we have built an economy around monopolies. The core issue here is that Google and Facebook in particular have a culture built around the engineering value system — efficiency over everything else,” venture capitalist Roger McNamee, author of “Zucked: Waking Up to the Facebook Catastrophe,” told MarketWatch. “Democracy is built on self-determination and not compatible with efficiency. You have to limit their independence or lose democracy.”