Silicon Valley Takedown

On November 18, 2019, U.S. Deputy Attorney General Jeffrey A. Rosen laid out a game plan dealing with the fact that tech giants such as Amazon, Apple, Facebook, and Google are actively killing competition and forming monopolies. Congress has discussed the possibility of needing new laws to deal with advancing technology. Rosen’s speech, by contrast, showed us that our current laws have already proven themselves up to the task of returning high tech to being fair and competitive. Should “big tech” change in a significant fundamental way, that affects all of us.

The various tech giants so pervasively affect our daily lives that any significant outcome will affect each of us in fundamental, perhaps unexpected, ways. You might recall the Microsoft antitrust case decided in 2001. Microsoft had built Internet Explorer into its Windows operating system, effectively blocking both users and developers from other products such as Netscape or Java.

Now, almost 20 years later, we see the tech giants stifling competition on a much grander scale. Much of today’s retail economy comes through Amazon sales. Advertising revenue likewise flows through these tech giants. During a pandemic, Amazon’s distribution and logistics come to the fore. It’s very much a “pay to play” economy in that sense. In fact these characteristics closely match the Prohibition-era distribution and money-laundering networks.

The U.S. Department of Justice has officially noticed. I’ll start by walking through the speech, letting Rosen explain what bad behavior is in fact illegal. Rosen then explains what the government can do about it, and what the U.S. Government has done about similar situations in the past. Finally, Rosen explains that all of this can be accomplished without requiring new laws.

The speech’s net effect, for me, is to picture a steamroller coming against “big tech,” flattening everything in its path. But here in Minnesota we have something far more fearsome—the conga line.

Have you ever seen a conga line of snow plows (Figure 1, “Snow plow conga line”)? Here they are plowing six wide, six dump trucks with blades. The Minnesota “conga line” takes its name from the dance pattern where dancers follow each other in a line, following the leader through various twists and turns. The Minnesota plows spread out to cover the highway side to side in a diagonal formation. The snow flows from one plow blade off to the side to be caught by the next plow and so on down the line. It’s like a bucket brigade handing buckets of water down the line, but in this case it’s the snow being handed from plow to plow, clearing the entire highway off to one side.

As we walk through the stated game plan, I picture the Department of Justice as a six-wide plow line. It’s frustratingly slow, only 40 miles an hour, but maaaaan you don’t want to be the one standing in the way.

Or, if you prefer, visualize a platoon of steam rollers (Figure 2, “Steam roller”). They are extremely slow, but things are awfully flat once they’ve passed by. That, I suspect, is basically the DOJ game plan.

The U.S. Department of Justice has strongly hinted at how they intend to deal with the giants of Silicon Valley. Here’s the speech on the official DOJ web site, “Deputy Attorney General Jeffrey A. Rosen Delivers Remarks on the Review of Market-Leading Online Platforms at the American Bar Association’s 2019 Antitrust Fall Forum”.

James Bond movie fans will recall that arch villain Max Zorin, in A View to a Kill (1985), tried to take over Silicon Valley 35 years ago. That didn’t work. The irony is that it’s now the opposite situation. It’s Silicon Valley itself that is—allegedly—trying to take over by stifling all competition. The announced DOJ plan contains neither literal explosives nor Bond himself, but makes an interesting reference to our checkered past. Or, more precisely, to our “checkerboard” past.

Here’s the plan as Jeffrey Rosen laid it out for the American Bar Association’s 2019 Antitrust Fall Forum on November 18, 2019. I’m going to excerpt from the speech showing my perspective on the game plan. Am I twisting the words? Goodness gracious, please do read the one-page speech and judge for yourself!

Rosen is here “to share how the Department of Justice is thinking about the intersection of antitrust, data, and digital markets as we conduct our ongoing review of market leading platforms.”

Now, if I were heavily invested in Amazon, say, this might be where I’d sit up straight and take careful notice. But Amazon’s in Seattle, not Silicon Valley, so I’m safe. Right? Unless Rosen starts talking about Microsoft (which is in Seattle), we’re good. Or so I’d be thinking.

Of course, if I were a Silicon Valley tech bro, I’d know the rules don’t apply to me anyway. The industry has been disrupted. Everything is interconnected. That’s what tech does. “Ain’t” no way to untangle that. We’re good.

But if not… we just move on to found another startup with VC (Venture Capital) funding. VC funds are a bro club, so no worries. There’s an exit plan.

For example, Axios reports:

Figure, a San Francisco-based consumer lending platform, raised $103 million in Series C funding led by Morgan Creek Digital at a $1.2 billion valuation. Figure is led by Mike Cagney, who resigned as CEO of SoFi after reports of company-wide sexual harassment problems—including Cagney’s multiple relationships with female employees and at least one instance of sending unwanted texts (an incident which resulted in a financial settlement). Figure backers contacted by Axios are singing a consistent tune: We’re confident Cagney has learned from his mistakes and his new company is “doing things better.”

In a world where tech bros have an exit plan and ethics have little practical impact, we likely need government intervention. This fact is why I started out with the “snow plow conga line” analogy. Some situations (such as a Minnesota snow event) simply require government intervention. Our Minnesota transportation system requires maintenance in the form of our fleet of 30-ton snow plows.

Rosen continued:

I applaud the antitrust section for hosting today’s discussion about digital markets, machine learning, intellectual property, data, and digital platforms. The human impact of these technologies cannot be overstated. Ordinary Americans rely on them in their day-to-day lives.

Come spring, over here in Minnesota, we plow the fields. That’s when the rocks float to the top, rising out of the field being plowed. The Jones Family Farm blog laments:

Then again, maybe you’ve never even heard of “picking rocks.” Picking rocks is one of the basic truths of farm life. Every farmer has done it in their lifetime, almost regardless of where they farm in these United States. Some areas are much worse, of course, and some fields have a constant problem. But, why in the world do farmers pick rocks???

Why do I mention this? I think of lawyer speeches in the same way. It’s a word salad that I don’t see as terribly useful. Like the corn field next to my house in the spring, it’s an expanse of well-manured dirt.

But some interesting rocks arise from Rosen’s speech to be picked up. Interesting phrases pop out. “… As law enforcers … important to all of us who are charged with upholding the law…” Oh, oh! There’s a steam roller on the horizon.

Rosen announces the steam roller’s impending arrival:

Antitrust is often a forward-looking exercise… but antitrust can also be a retrospective exercise. So we should try to be students of history. I often find intriguing, and sometimes instructive, how markets have behaved over time—and how competition and antitrust enforcement have affected them.

That’s quite a statement. I want to bring out the implications there.

Do you remember how we laughed at the incompetent Congressional hearings when Mark Zuckerberg, co-founder of Facebook, and the other Silicon Valley bros were brought to town? Our congresspeople obviously didn’t have a clue about the technology involved, “high tech.”

But we were looking at this from the wrong perspective. This wasn’t about technology. They were building a case. With that in mind, take another look at any of the articles from around July 16-18, 2019. Here’s one from the New York Times, Tech Hearings: Congress Unites to Take Aim at Amazon, Apple, Facebook and Google.

We all know that with tech hearings, Congress just doesn’t get it. Most can barely use a Blackberry. But look at the slug in the web link. It’s “big-tech-antitrust-hearing”. That’s the key to the whole thing. It was never about “tech.” It was about antitrust.

Here in Minnesota, we’ve been hammered by climate change (and the so-called trade war). Road technology has changed over the years, and our roads are far more interconnected than they used to be.

But, uff da, when it snows we know what to do. Out comes the conga line of 30-ton snow plows, and it’s a government function. For sure, ya you betcha, we have countless private plows—everything from a pickup truck with hydraulic blade attachment down to a blade on the lawn mower (Figure 3, “Lawn mower with plow blade”)—but we still expect the conga line.

Rosen notes that “antitrust is often a forward-looking exercise” but then turns to drawing from historical precedent. It will become clear that it’s history that provides the game plan.

In other words, per Rosen, we won’t bother trying to create new laws to deal with Big Tech. We’ll see that we already have well-equipped steam rollers (so to speak) in place.

Rosen explained:

Looking back, it has been suggested that industries involving technology and information exchange have displayed a common pattern: they often start out as open and fragmented, with a wide range of participants, but over time they become dominated by just a few.

Radio broadcasting in the early 20th Century is one example. When radio was a nascent medium at the start of the 20th Century, amateur radio stations popped up all over the country. None were aimed at meaningful mass communication.

Starting in the 1920s, however, the transformative potential of mass communication became clearer, leading a handful of businesses to acquire and expand radio networks by the end of that decade. The most famous of these are still familiar today: the National Broadcasting Company, or NBC, and the Columbia Broadcasting System, or CBS, and the American Broadcasting Corporation, or ABC. Throughout the 1930s and 40s, these major broadcast radio networks expanded their programming and commanded steadily greater audiences.

Also in the early and middle 20th Century, economic power similarly consolidated in the film industry. This was at the expense of many smaller production companies that had, in earlier years, produced a diverse array of films.

This consolidation had some rational business explanations. Larger film companies were able to produce increasingly expensive movies more efficiently, to survive flops, and to distribute hits to a broader audience.

But some suggested more problematic explanations for this consolidation… major film and production companies engaged in a pattern of anticompetitive acts aimed at excluding competition and expanding their market power, including in adjacent markets.

Today, in the 21st Century, we marvel at the World Wide Web and mobile technology, but we once again face questions about the consolidation of power by some companies that provide platforms for information exchange and related technologies.

Some of today’s leading platforms were in their infancy, or did not even exist, just two decades ago. In a relatively short amount of time, they have disrupted industries, amassed substantial economic power, and developed business models that monetize potentially sensitive consumer information that they control.

Didn’t someone (me) point out that these government idiots don’t have a clue about high tech? On the contrary, Rosen nailed it. He’s carefully not naming any side issues. He’s limiting himself to laying out the antitrust case.

Rosen continues:

So, as with past technologies like radio and film, things today look quite different than they did in the early days of the internet revolution. Accordingly, in the face of those changes and the issues that have been raised, we are once again bound to ask whether any dominance is the result of competition on the merits and, if not, how antitrust law can cure any competitive deficiencies.

[We] rightly observe that it is possible for dominant firms to ward off—or at least delay—industrial change through practices cementing their dominance at the expense of innovative competitors. Moreover, many see the structural features of today’s major technology industries—which are characterized by network effects and “tipping”—as facilitating perpetual dominance.

We have not reached any ultimate conclusions yet. I want to underscore that. We will follow the evidence and, if it is warranted, we will enforce the law and seek appropriate remedies, just as the Department’s Antitrust Division has done with respect to titans of industry during more than 120 years of Sherman Act enforcement.

That could sound ominous. But if you’re an entitled tech bro, probably not. Laws don’t actually apply to you. Rosen’s describing the ending of the Gilded Age of tycoons and robber barons. The robber barons came back with the Roaring Twenties, so this just might be a “nothing burger.”

Rosen’s not done yet:

With regard to technological markets in particular, we are now almost twenty years past the famous Microsoft case, where…

Oh, oh. Microsoft? That’s Seattle, not Silicon Valley away south in California. Since Boeing decamped, and Microsoft got squished a bit, Seattle is now the land of cruise ships and Amazon. Perhaps our Amazon bros may encounter a twinge of concern? No, probably not.

Rosen explains about Microsoft:

…and private companies pursued antitrust damages [against Microsoft] for the violations. Those cases focused on Microsoft’s integration of its web browser into the Windows operating system.

Microsoft recognized that a web browser could become an alternative platform for developers, which could threaten its monopoly in operating systems. It therefore took a variety of steps to thwart that innovation, which the D.C. Circuit found to be anticompetitive.

Today, almost two decades after the D.C. Circuit’s opinion in Microsoft, another technological cycle has undoubtedly occurred. Innovations in browsers, search, social media, and mobile technology have introduced new platforms—and new allegations that the platform operators are preventing disruption and preserving dominance.

It is therefore unsurprising that concerns about the leading online platforms have been widely expressed, including by industry participants who have direct insight into the competitive dynamics of technology platforms.

This is getting tedious, but bear with me once more. We’ve all been assuming—or at least I have, silly me—that we’re going to need new laws to deal with Big Tech. Let’s hear Rosen explain, Nope, and jump straight to the point.

The goal of the Department’s review is to assess the competitive conditions in the online marketplace in an objective and fair-minded manner and to ensure Americans have access to free markets in which companies compete on the merits to provide services that users want.

Others, particularly in Congress, have raised concerns whether laws apart from the antitrust statutes may have produced unwanted results or otherwise need changing, and we are open to engaging on legislative proposals as well. But, for more than a century, antitrust law has proven itself powerful and flexible enough to address this country’s most daunting monopolies, including in technological markets.

I’m reminded of the exchange in Back to the Future (1985):

Marty McFly: Hey, Doc. You’d better back up, we don’t have enough road to get up to 88.

Dr. Emmett Brown: Roads? Where we’re going we don’t need roads.

Finally! Here we are. We’ve arrived at the transcontinental railroad that just might bring down bro tech—hard. Rosen explains:

Sixty years ago, as most in this room probably know, Justice Black explained in Northern Pacific Railway v. United States that:

“The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the greatest material progress, while at the same time providing an environment conductive to the preservation of our democratic political and social institutions. But even were that premise open to question, the policy unequivocally laid down by the Act is competition.”

The Sherman Act remains such a charter today. But to be clear, we do not view antitrust law as a panacea for every problem in the digital world. Indeed, we will not ignore any harms caused by online platforms that partially or completely fall outside the antitrust laws. We are keeping in mind other tools in areas such as privacy, consumer protection, and public safety as part of a broader review of online platforms, to whatever extent warranted.

So, Rosen makes it clear, we intend to deploy far more than one little ole fleet of steam rollers crushing everything in its path.

Rosen only cited one specific case—the Northern Pacific Railway case decided by the U.S. Supreme Court in 1958. He also said, “So we should be students of history.” That Northern Pacific Railway case is the key to our “checkerboard” past. We’ll be exploring that past.

Remember, Rosen was speaking to an audience of lawyers at an antitrust conference. He wasn’t there to teach antitrust law, provide a “feel good” speech, provide context, or fill in a speaking slot on behalf of the DOJ. It looks to me like he was providing these antitrust lawyers a preview of the upcoming biggest undertaking of their lives. He was providing direction, vision, and laying out the game plan.

We’ll next have some fun as students of history. I’m placing our history in chronological order. I’ll begin with the early 1800s, then look at the late 1800s, then the 1930s, along with the more recent six years (2014-2019, pre-Covid).

But first, let’s continue Justice Black’s opinion continuing from Rosen’s quote above. Don’t the following characteristics describe “big tech” and, for that matter, the price-gouging aspects of “big pharma”?

However, there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.

Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing; division of markets; group boycotts; and tying arrangements. For our purposes a tying arrangement may be defined as an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier.

I believe Rosen has provided us a road map for bringing down what I call “bro tech” because of anti-competitive practices. I’m not a lawyer, as I may have mentioned. My focus has been on preparing to share the surrounding history.

When I recently deleted my Facebook account, I noticed it was easy to export my history such as photos I had posted over the years. It’s possible that Facebook is intentionally making it easier to migrate away from Facebook as a way of showing that they are not anti-competitive. Yo, Facebook, good luck with that.