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Congress just signaled that the era of Big Tech acquisitions is over

For decades, tech giants have swallowed up startups with minimal government interference. This week’s antitrust hearings suggest that could change.

Congress just signaled that the era of Big Tech acquisitions is over
Facebook CEO Mark Zuckerberg testifies before the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law on “Online Platforms and Market Power” in the Rayburn House office Building on Capitol Hill in Washington, DC on July 29, 2020. [Photo: GRAEME JENNINGS/POOL/AFP via Getty Images]

The CEOs of Amazon, Apple, Facebook, and Google testified in front of the House Judiciary’s antitrust committee Wednesday, and it quickly became apparent that this was a very different affair than past tech hearings.

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The hearing comes after a year of digging by committee members and staff into the tech giants’ business practices and acquisitions, and the Democrats on the committee had clearly strategized on their various lines of questioning beforehand. In this face-off with Big Tech, the committee brought a gun to a gun fight.

The format of the hearings, where each member got five minutes to question the CEOs, proved unwieldy. In many of the exchanges, committee members asked specific questions and the CEOs provided the beginnings of long, context-filled answers until the time clock ran out.

In the end the questions may prove more important, especially the ones to which the CEOs provided no definitive answers.

George Washington University antitrust law professor (and former FTC chair) William Kovacic points out that the function of the hearing was to gather more information from the CEOs for a report that the antitrust committee, led by David Cicilline (D-RI), plans to submit to Congress. The central question addressed by the report is whether or not existing antitrust law is robust enough, and current enough, to curb anticompetitive behavior by Big Tech.

Kovacic says many of the facts loaded into the questions asked of the CEOs come directly from the information that will be in the committee’s report.

But changing the current antitrust legal framework is a long process. And the debate over whether or not to reign in Big Tech could take on a different complexion if November’s election results in Joe Biden being inaugurated in January.

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Chilling effect

A more immediate effect of the hearing may be a chilling of the air around approval of new acquisitions. Tech companies have been accused of stifling consumer choice by using their market power to buy up any competing product or service they see as a threat. And regulatory agencies such as the FTC and the Department of Justice have been accused of too easily approving such acquisitions.

“This adds some additional momentum to the scrutiny that the antitrust agencies are applying today to acquisitions by leading firms of small firms,” Kovacic says.

This is exactly the type of competitive acquisition that the antitrust laws were designed to prevent.”

Rep. Jerry Nadler (D-NY)
As Kovacic points out, regulatory agencies have been more likely to approve mergers if the companies could demonstrate some benefit to consumers in the deals. But the FTC’s approval of Facebook’s 2012 acquisition of Instagram is now seen by many as a case where the acquirer benefited hugely, while consumer choice suffered. Had Facebook continued to contend with a stand-alone Instagram, for instance, competitive pressure might have made both companies’ products better and more respectful of user privacy.

The chairman of the full Judiciary Committee, Jerry Nadler (D-NY), hit directly on this issue during his round of questions for Facebook CEO Mark Zuckerberg. He referenced internal Facebook communiques to demonstrate the reasons the social network wanted Instagram.

“In early 2012 you told your CFO that ‘though nascent, Instagram could be very disruptive to us,’ Nadler said to Zuckerberg, “and in the months leading up to the deal you described Instagram as a threat, saying ‘Instagram can meaningfully hurt us without becoming a huge business.'”

“This is exactly the type of competitive acquisition that the antitrust laws were designed to prevent,” Nadler concluded. “This should never have been permitted to happen and it cannot be allowed to happen again.”

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Mark Zuckerberg [Screenshot: House Judiciary]
Zuckerberg pointed out that the FTC had all these documents at the time and voted unanimously not to challenge the acquisition.

After Nadler yielded back, committee chair Cicilline addressed Zuckerberg’s statement directly: “I would like to remind the witness that the failures of the FTC in 2012 of course do not alleviate the antitrust challenges that the chairman described.”

Some minutes later, Rep. Pramila Jayapal (D-WA) took up the cause, pressing Zuckerberg on the means Facebook used to acquire Instagram, and later in its attempt to buy Snap.

Jayapal, also armed with internal Facebook documents, pushed Zuckerberg to admit that his company had pressured Instagram to sell by making clear that it had its own photo sharing app in the works and that it might force Instagram out of business before it had a chance to grow.

“Mr. Zuckerberg, you suggested by email to your management team that moving faster and copying other apps could ‘prevent our competitors from getting footholds,'” Jayapal said. “[Facebook COO] Sheryl Sandberg responded that ‘it is better to do more and move faster especially if that means you don’t have competitors build products that take some of our users.'”

Jayapal also produced a statement from Instagram cofounder Kevin Systrom stating that he indeed felt he had no choice but to sell out to Facebook or face extinction. Facebook bought Instagram for $1 billion in 2012.

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George Washington Law’s Kovacic told me members on the committee were obviously sending a message to the FTC:

“Notice that a theme here is that ‘you guys didn’t do your damn job,” Kovacic says. “You blew the call. Don’t do it again. And when in doubt, err on the side of blocking the deals instead of letting them go.'”

Today’s hearing may indeed add fuel to an already growing belief that the FTC should get much more aggressive with Big Tech. “I think they are very effectively creating that atmosphere and expectation now,” Kovacic says.

Part of the regulatory agencies’ unwillingness to challenge acquisitions stems from the language of the antitrust law we have today, and the way the courts have interpreted it.

“In recent years, the FTC has declined to sue companies like Facebook over controversial acquisitions, like the purchase of Instagram, because the government has worried that it might not win the case,” says Howard Yu, a professor at the Institute for Management Development in Switzerland.

“If a shift in the law that tips the balance of that calculation, making it easier for antitrust regulators to win a court case,” Yu says, “then we might see it become far more difficult for tech giants to ‘innovate via acquisition.'”

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Stay tuned

The acquisition question is part of the larger question of how the government can prevent giant tech companies from leveraging their power to force smaller competitors out of the market, reducing consumer choice.

The substance of the committee’s questions is likely a preview of the contents of the report it will soon provide to Congress. Its effects could break a number of ways. It may result in Congress formally urging the FTC and DOJ to use tools in the existing law and get more aggressive in enforcement. It could also start a legislative process that ends with Congress updating antitrust law to better deal with huge companies that operate in digital space. Congress might even decide to form a completely new regulatory agency designed to control the digital economy, Kovacic says.

At today’s face-off, we saw something new in Washington: a Congressional committee giving Big Tech CEOs a well-orchestrated, deeply researched grilling on a serious tech policy issue. The CEOs, meanwhile, came with mainly the same arguments we’ve heard before, such as “we face plenty of competition” and “we’re an American success story,” and with wandering answers to specific questions.

“I think the committee is trying to build support for what it means to do later by putting these guys on the back foot . . . making them seem a little bit evasive, and making them confront some of the complaints that committee’s been getting,” George Washington Law’s Kovacic told me. “And it’s a way for the committee to signal to the larger population that ‘we’re doing our job here; you can have confidence in us.'”

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About the author

Fast Company Senior Writer Mark Sullivan covers emerging technology, politics, artificial intelligence, large tech companies, and misinformation. An award-winning San Francisco-based journalist, Sullivan's work has appeared in Wired, Al Jazeera, CNN, ABC News, CNET, and many others.

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