For Big Tech, 2023 could be a watershed year for the industry’s public policy environment. Since 2020, the Federal Trade Commission and Department of Justice (along with the European Union) have filed lawsuits against major U.S. tech companies, alleging they have relied on anti-competitive methods to maintain monopolies over social media platforms, search engines, advertising and app stores.
“The agencies have started laying the foundations for a more interventionist stance over the last two years, and this year is when we’ll start to see some of those efforts come to fruition — or be stopped in their tracks by the courts,” said Colin Kass, a partner in international law firm Proskauer Rose LLP’s antitrust group.
FTC Chair Lina Kahn and Justice Antitrust Division assistant attorney general Jonathan Kanter are willing advocates of novel antitrust legal theories — even if that means sometimes losing a case. Both the FTC and Justice have major Big Tech investigations they are pursuing, or federal judicial rulings expected, in 2023, including FTC v. Facebook, FTC v. Meta/Within, FTC v. Microsoft, and U.S. v. Google (Alphabet, Inc.).
On Nov. 10, the FTC voted to replace its 2015 “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ under Section 5 of the FTC Act” with a new “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act”. This new policy statement reflects Khan’s antitrust philosophy and the Biden administration’s “Executive Order on Promoting Competition in the American Economy,” signed by President Biden in 2021.
However, according to Logan Breed, a partner at Hogan Lovells law firm in Washington, “This policy statement exists in a vacuum. There is no real clarity on what it (Section 5) means, and we’re just going to have to wait and see what the FTC decides to do — how it decides to bring cases based on this new guidance. And that’s likely going to happen in 2023.”
The new policy statement defines a method of competition as “a conduct undertaken by an actor in the marketplace” — as opposed to merely a condition of the marketplace, not of the respondent’s making, such as high concentration or barriers to entry. This conduct must implicate competition (directly or indirectly).
The term “unfair” is defined as conduct that “goes beyond competition on the merits”; for example, a firm having “superior products or services, superior business acumen, truthful marketing and advertising practices, investment in research and development that leads to innovative outputs, or attracting employees through better employment terms.”
Explicit in this new FTC policy statement is that an FTC “inquiry will not focus on the ‘rule of reason’ inquiries more common in cases under the Sherman Act, but instead focus on stopping unfair methods of competition in their incipiency based on their tendency to harm competitive conditions.”
Thus, actual harms may not always be necessary to warrant enforcement, and such “incipient threats” become challengeable conduct.
In January 2022, the FTC unveiled proposed rules prohibiting companies from asking workers to sign non-compete clauses, which limit or delay workers from starting competing businesses or moving to rival companies. The proposed ban could have the biggest effect on the tech industry, as such agreements are widely used by tech companies that say they need them to protect trade secrets and intellectual property.
Legislatively, several privacy and antitrust bills did not make it into the end-of-year, $1.7 trillion omnibus spending bill — specifically two tech industry bills: the American Innovation and Choice Act and the Open App Markets Act. Both bills were effectively “killed” by Senate Majority Leader Chuck Schumer. However, as a consolation, Schumer allocated an extra $85 million to the nation’s two antitrust enforcement agencies: $50 million to the FTC and $35 million to Justice. The majority leader also included an amendment authorizing these agencies to immediately collect higher fees — $1.4 billion over the next 10 years — from companies that require a proposed merger review.
What tech industry legislation can be expected in the 118th Congress? There will be little opportunity for antitrust legislation to be enacted under House Speaker Kevin McCarthy or Schumer. Nevertheless, there is bipartisan support in both chambers (with the House of Representatives taking the lead on legislation) to address privacy issues (including Section 230 of the Communications Decency Act) and cybersecurity issues with broadband.