INVESTIGATION OF COMPETITION IN DIGITAL MARKETS

COMMITTEE PRINT REPORT

" !

117 Congress

2d Session

CP 117–8

PART I

INVESTIGATION OF COMPETITION IN

DIGITAL MARKETS

MAJORITY STAFF REPORT AND

RECOMMENDATIONS

SUBCOMMITTEE ON ANTITRUST,

COMMERCIAL, AND ADMINISTRATIVE LAW

OF THE COMMITTEE ON THE JUDICIARY OF

THE HOUSE OF REPRESENTATIVES

PART I

JERROLD NADLER, CHAIR, COMMITTEE ON THE JUDICIARY

DAVID N. CICILLINE, CHAIR, SUBCOMMITTEE ON ANTITRUST,

COMMERCIAL, AND ADMINISTRATIVE LAW

ORIGINALLY RELEASED OCTOBER 2020

ADOPTED BY COMMITTEE APRIL 2021

PUBLISHED JULY 2022

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INVESTIGATION OF COMPETITION IN DIGITAL MARKETS

PART I

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GOVERNMENT PUBLISHING OFFICE

WASHINGTON

47–832

COMMITTEE PRINT REPORT

" !

117 Congress

2d Session

CP 117–8

PART I

2022

INVESTIGATION OF COMPETITION IN

DIGITAL MARKETS

MAJORITY STAFF REPORT AND

RECOMMENDATIONS

SUBCOMMITTEE ON ANTITRUST,

COMMERCIAL, AND ADMINISTRATIVE LAW

OF THE COMMITTEE ON THE JUDICIARY OF

THE HOUSE OF REPRESENTATIVES

PART I

JERROLD NADLER, CHAIR, COMMITTEE ON THE JUDICIARY

DAVID N. CICILLINE, CHAIR, SUBCOMMITTEE ON ANTITRUST,

COMMERCIAL, AND ADMINISTRATIVE LAW

ORIGINALLY RELEASED OCTOBER 2020

ADOPTED BY COMMITTEE APRIL 2021

PUBLISHED JULY 2022

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MAJORITY STAFF

SUBCOMMITTEE ON ANTITRUST, COMMERCIAL,

AND ADMINISTRATIVE LAW

SLADE BOND

Chief Counsel

LINA KHAN

Counsel

PHILLIP BERENBROICK

Counsel

ANNA LENHART

Technologist

JOSEPH EHRENKRANTZ

Special Assistant

AMANDA LEWIS

Counsel on Detail

MARY HELEN WIMBERLY

Counsel on Detail

JOSEPH VAN WYE

Legislative Aide

CATHERINE LARSEN

Special Assistant

COMMITTEE ON THE JUDICIARY

PERRY APELBAUM

Staff Director and Chief

Counsel

AARON HILLER

Deputy Chief Counsel

SHADAWN REDDICK-

SMITH

Communications

Director

JESSICA PRESLEY

Director of Digital

Strategy

MADELINE STRASSER

Chief Clerk

AMY RUTKIN

Chief of Staff

JOHN WILLIAMS

Parliamentarian

DANIEL SCHWARZ

Director of Strategic

Communications

MOH SHARMA

Director of Member

Services and Outreach

& Policy Advisor

JOHN DOTY

Senior Advisor

DAVID GREENGRASS

Senior Counsel

ARYA HARIHARAN

Deputy Chief Oversight

Counsel

MATTHEW ROBINSON

Counsel

KAYLA HAMEDI

Deputy Press Secretary

NATHAN ADAL

Legal Fellow

KARNA ADAM

Legal Fellow

WILLIAM BEKKER

Legal Fellow

KYLE BIGLEY

Legal Fellow

MICHAEL ENSEKI-

FRANK

Legal Fellow

BENJAMIN FEIS

Legal Fellow

CORY GORDON

Legal Fellow

ETHAN GURWITZ

Legal Fellow

DOMENIC POWELL

Legal Fellow

ARMAN RAMNATH

Legal Fellow

REED SHOWALTER

Legal Fellow

EL THOMPSON

Legal Fellow

KURT WALTERS

Legal Fellow

KRYSTALYN WEAVER

Legal Fellow

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(III)

CONTENTS

PART I

I. INTRODUCTION ................................................................................................. 1

A. Chairs’ Foreword ............................................................................................. 1

B. Executive Summary ........................................................................................ 4

1. Subcommittee’s Investigation ...................................................................... 4

2. Findings ........................................................................................................ 5

3. Recommendations ......................................................................................... 13

II. THE INVESTIGATION OF COMPETITION IN DIGITAL MARKETS ........ 14

A. Requests for Information and Submissions ................................................... 14

1. First-Party Requests for Information ......................................................... 14

2. Process for Obtaining Responses to First-Party Requests ........................ 18

3. Third-Party Requests for Information ........................................................ 18

4. Antitrust Agencies Requests for Information ............................................ 20

B. Hearings ........................................................................................................... 21

C. Roundtables ..................................................................................................... 23

D. Prior Investigations ........................................................................................ 24

III. BACKGROUND ................................................................................................ 27

A. Overview of Competition in Digital Markets ................................................ 27

1. The Role of Competition Online .................................................................. 27

2. Market Structure .......................................................................................... 28

3. Barriers to Entry .......................................................................................... 30

B. Effects of Platform Market Power .................................................................. 35

1. Innovation and Entrepreneurship .............................................................. 35

2. Privacy and Data Protection ....................................................................... 39

3. The Free and Diverse Press ........................................................................ 44

4. Political and Economic Liberty ................................................................... 58

IV. MARKETS INVESTIGATED ............................................................................ 61

A. Online Search .................................................................................................. 61

B. Online Commerce ............................................................................................ 68

C. Social Networks and Social Media ................................................................. 71

1. Social Networks Are Distinguishable from Social Media ......................... 73

2. Market Concentration .................................................................................. 74

D. Mobile App Stores ........................................................................................... 75

E. Mobile Operating Systems .............................................................................. 82

F. Digital Mapping ............................................................................................... 88

G. Cloud Computing ............................................................................................ 91

H. Voice Assistant ................................................................................................ 100

I. Web Browsers ................................................................................................... 105

J. Digital Advertising ........................................................................................... 107

V. DOMINANT ONLINE PLATFORMS ................................................................ 110

A. Facebook ........................................................................................................... 110

1. Overview ....................................................................................................... 110

2. Social Networking ........................................................................................ 111

3. Digital Advertising ....................................................................................... 141

B. Google ............................................................................................................... 144

1. Overview ....................................................................................................... 144

2. Search ............................................................................................................ 146

3. Digital Advertisements ................................................................................ 173

4. Android and Google Play Store ................................................................... 177

5. Chrome .......................................................................................................... 186

6. Maps .............................................................................................................. 193

7. Cloud ............................................................................................................. 205

C. Amazon ............................................................................................................. 207

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Page

C. Amazon—Continued

1. Overview ....................................................................................................... 207

2. Amazon.com .................................................................................................. 212

3. Fulfillment and Delivery ............................................................................. 254

4. Alexa’s Internet of Things Ecosystem ......................................................... 256

5. Amazon Web Services .................................................................................. 265

D. Apple ................................................................................................................ 277

1. Overview ....................................................................................................... 277

2. iOS and the App Store ................................................................................. 281

3. Siri Intelligent Voice Assistant ................................................................... 314

VI. RECOMMENDATIONS .................................................................................... 317

A. Restoring Competition in the Digital Economy ............................................ 318

1. Reduce Conflicts of Interest Through Structural Separations and Line

of Business Restrictions ............................................................................... 319

2. Implement Rules to Prevent Discrimination, Favoritism, and Self-

Preferencing .................................................................................................. 322

3. Promote Innovation Through Interoperability and Open Access ............. 324

4. Reduce Market Power Through Merger Presumptions ............................. 326

5. Create an Even Playing Field for the Free and Diverse Press ................ 328

6. Prohibit Abuse of Superior Bargaining Power and Require Due Proc-

ess ................................................................................................................... 329

B. Strengthening the Antitrust Laws ................................................................. 330

1. Restore the Antimonopoly Goals of the Antitrust Laws ........................... 330

2. Invigorate Merger Enforcement .................................................................. 331

3. Rehabilitate Monopolization Law ............................................................... 334

4. Additional Measures to Strengthen the Antitrust Laws ........................... 337

C. Strengthening Antitrust Enforcement ........................................................... 337

1. Congressional Oversight .............................................................................. 337

2. Agency Enforcement ..................................................................................... 339

3. Private Enforcement .................................................................................... 341

VII. APPENDIX: MERGERS AND ACQUISITIONS BY DOMINANT PLAT-

FORMS ................................................................................................................. 343

A. Amazon ............................................................................................................. 344

B. Apple ................................................................................................................ 346

C. Facebook ........................................................................................................... 349

D. Google ............................................................................................................... 351

VIII. APPENDIX: ADDITIONAL VIEWS OF MEMBERS OF JUDICIARY

COMMITTEE ....................................................................................................... 357

A. The Honorable Eric Swalwell ......................................................................... 358

B. The Honorable Zoe Lofgren ............................................................................ 359

C. The Honorable Jim Jordan ............................................................................. 362

PART II

IX. APPENDIX: TRANSCRIPTS OF HEARINGS IN ‘‘ONLINE PLATFORMS

AND MARKET POWER’’ SERIES

A. Online Platforms and Market Power, Part 1: The Free and Diverse

Press .................................................................................................................. 367

B. Online Platforms and Market Power, Part 2: Innovation and Entrepre-

neurship ............................................................................................................ 589

C. Online Platforms and Market Power, Part 3: The Role of Data and

Privacy in Competition ..................................................................................... 1204

D. Online Platforms and Market Power, Part 4: Perspectives of the Anti-

trust Agencies ................................................................................................... 1419

PART III

E. Online Platforms and Market Power, Part 5: Competitors in the Digital

Economy ............................................................................................................ 1573

F. Online Platforms and Market Power, Part 6: Examining the Dominance

of Amazon, Apple, Facebook, and Google ....................................................... 1709

G. Proposals to Strengthen the Antitrust Laws and Restore Competition

Online ................................................................................................................ 2695

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(1)

I. INTRODUCTION

A. Chairs’ Foreword

In June 2019, the Committee on the Judiciary initiated a bipar-

tisan investigation into the state of competition online, spear-

headed by the Subcommittee on Antitrust, Commercial, and Ad-

ministrative Law. As part of a top-to-bottom review of the market,

the Subcommittee examined the dominance of Amazon, Apple,

Facebook, and Google, and their business practices to determine

how their power affects our economy and our democracy. Addition-

ally, the Subcommittee performed a review of existing antitrust

laws, competition policies, and current enforcement levels to assess

whether they are adequate to address market power and anti-

competitive conduct in digital markets.

Over the course of our investigation, we collected extensive evi-

dence from these companies as well as from third parties—totaling

nearly 1.3 million documents. We held seven hearings to review the

effects of market power online—including on the free and diverse

press, innovation, and privacy—and a final hearing to examine po-

tential solutions to concerns identified during the investigation and

to inform this Report’s recommendations.

A year after initiating the investigation, we received testimony

from the Chief Executive Officers of the investigated companies:

Jeff Bezos, Tim Cook, Mark Zuckerberg, and Sundar Pichai. For

nearly six hours, we pressed for answers about their business prac-

tices, including about evidence concerning the extent to which they

have exploited, entrenched, and expanded their power over digital

markets in anticompetitive and abusive ways. Their answers were

often evasive and non-responsive, raising fresh questions about

whether they believe they are beyond the reach of democratic over-

sight.

Although these four corporations differ in important ways, study-

ing their business practices has revealed common problems. First,

each platform now serves as a gatekeeper over a key channel of

distribution. By controlling access to markets, these giants can pick

winners and losers throughout our economy. They not only wield

tremendous power, but they also abuse it by charging exorbitant

fees, imposing oppressive contract terms, and extracting valuable

data from the people and businesses that rely on them. Second,

each platform uses its gatekeeper position to maintain its market

power. By controlling the infrastructure of the digital age, they

have surveilled other businesses to identify potential rivals, and

have ultimately bought out, copied, or cut off their competitive

threats. And, finally, these firms have abused their role as inter-

mediaries to further entrench and expand their dominance. Wheth-

er through self-preferencing, predatory pricing, or exclusionary con-

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duct, the dominant platforms have exploited their power in order

to become even more dominant.

To put it simply, companies that once were scrappy, underdog

startups that challenged the status quo have become the kinds of

monopolies we last saw in the era of oil barons and railroad ty-

coons. Although these firms have delivered clear benefits to society,

the dominance of Amazon, Apple, Facebook, and Google has come

at a price. These firms typically run the marketplace while also

competing in it—a position that enables them to write one set of

rules for others, while they play by another, or to engage in a form

of their own private quasi regulation that is unaccountable to any-

one but themselves.

The effects of this significant and durable market power are cost-

ly. The Subcommittee’s series of hearings produced significant evi-

dence that these firms wield their dominance in ways that erode

entrepreneurship, degrade Americans’ privacy online, and under-

mine the vibrancy of the free and diverse press. The result is less

innovation, fewer choices for consumers, and a weakened democ-

racy.

Nearly a century ago, Supreme Court Justice Louis Brandeis

wrote: ‘‘We must make our choice. We may have democracy, or we

may have wealth concentrated in the hands of a few, but we cannot

have both.’’ Those words speak to us with great urgency today.

Although we do not expect that all of our Members will agree on

every finding and recommendation identified in this Report, we

firmly believe that the totality of the evidence produced during this

investigation demonstrates the pressing need for legislative action

and reform. These firms have too much power, and that power

must be reined in and subject to appropriate oversight and enforce-

ment. Our economy and democracy are at stake.

As a charter of economic liberty, the antitrust laws are the back-

bone of open and fair markets. When confronted by powerful mo-

nopolies over the past century—be it the railroad tycoons and oil

barons or Ma Bell and Microsoft—Congress has acted to ensure

that no dominant firm captures and holds undue control over our

economy or our democracy. We face similar challenges today. Con-

gress—not the courts, agencies, or private companies—enacted the

antitrust laws, and Congress must lead the path forward to mod-

ernize them for the economy of today, as well as tomorrow. Our

laws must be updated to ensure that our economy remains vibrant

and open in the digital age.

Congress must also ensure that the antitrust agencies aggres-

sively and fairly enforce the law. Over the course of the investiga-

tion, the Subcommittee uncovered evidence that the antitrust agen-

cies failed, at key occasions, to stop monopolists from rolling up

their competitors and failed to protect the American people from

abuses of monopoly power. Forceful agency action is critical.

Lastly, Congress must revive its tradition of robust oversight

over the antitrust laws and increased market concentration in our

economy. In prior Congresses, the Subcommittee routinely exam-

ined these concerns in accordance with its constitutional mandate

to conduct oversight and perform its legislative duties. As a 1950

report from the then-named Subcommittee on the Study of Monop-

oly Power described its mandate: ‘‘It is the province of this sub-

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H. R

. N

. 82–255, at 2 (1951) (Aluminum: Report of the Subcomm. on Study of Monopoly

Power of the H. Comm. on the Judiciary).

committee to investigate factors which tend to eliminate competi-

tion, strengthen monopolies, injure small business, or promote

undue concentration of economic power; to ascertain the facts, and

to make recommendations based on those findings.’’

Similarly, the Subcommittee has followed the facts before it to

produce this Report, which is the product of a considerable evi-

dentiary and oversight record. This record includes: 1,287,997 docu-

ments and communications; testimony from 38 witnesses; a hear-

ing record that spans more than 1,800 pages; 38 submissions from

60 antitrust experts from across the political spectrum; and inter-

views with more than 240 market participants, former employees

of the investigated platforms, and other individuals totaling thou-

sands of hours. The Subcommittee has also held hearings and

roundtables with industry and government witnesses, consultations

with subject-matter experts, and a careful—and at times pains-

taking—review of large volumes of evidence provided by industry

participants and regulators.

In light of these efforts, we extend our deep gratitude to the staff

of the Subcommittee and Full Committee for their diligent work in

this regard, particularly during the COVID–19 pandemic and other

challenging circumstances over the past year.

Finally, as an institutional matter, we close by noting that the

Committee’s requests for information from agencies and any non-

public briefings were solely for the purpose of carrying out our con-

stitutionally based legislative and oversight functions. In par-

ticular, the information requested was vital to informing our as-

sessment of whether existing antitrust laws are adequate for tack-

ling current competition problems, as well as in uncovering poten-

tial reasons for under-enforcement. The Report is based on the doc-

uments and information collected during its investigation, and the

Committee fully respects the separate and independent decisional

processes employed by enforcement authorities with respect to such

matters.

Although the companies provided substantial information and

numerous documents to the Subcommittee, they declined to

produce certain critical information and crucial documents we re-

quested. The material withheld was identified by the Committee as

relevant to the investigation and included, primarily, two cat-

egories of information: (1) documents the companies claimed were

protected by common law privileges; and (2) documents that were

produced to antitrust authorities in ongoing investigations, or that

related to the subject matter of these ongoing investigations.

Institutionally, we reject any argument that the mere existence

of ongoing litigation prevents or prohibits Congress from obtaining

information relevant to its legislative and oversight prerogatives.

We strongly disagree with the assertion that any requests for such

materials and any compliance with those requests interfere with

the decisional processes in ongoing investigations. Furthermore,

while Congress is fully subject to constitutional protections, we can-

not agree that we are bound by common law privileges as asserted

by the companies. While we determined that insufficient time ex-

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Press Release, H. Comm. on the Judiciary, House Judiciary Committee Launches Bipartisan

Investigation into Competition in Digital Markets (June 3, 2019), https://judiciary.house.gov/

news/press-releases/house-judiciary-committee-launches-bipartisan-investigation-competition-

digital.

We extend our sincere thanks to Peter Karafotas, Rich Luchette, and Francis Grubar, in

the Office of Congressman David N. Cicilline, for their relentless work and selfless devotion

throughout the investigation. We would also like to recognize the following staff for their signifi-

cant contributions during the investigation: Dick Meltzer, Michael Tecklenburg, Kenneth

DeGraff, and Victoria Houed in the Office of the Speaker of the U.S. House of Representatives;

Daniel Flores, former Minority Chief Counsel, Subcommittee on Antitrust, Commercial, and Ad-

ministrative Law; Danny Johnson, former Minority Counsel, Committee on the Judiciary; Jacqui

Kappler, Legislative Director, the Honorable Henry ‘‘Hank’’ Johnson, Jr.; Devon Ombres, Legis-

lative Counsel, the Honorable Jamie Raskin; Elly Kugler, Senior Counsel, the Honorable

Pramila Jayapal; Jennifer Chan, Legislative Director, the Honorable Pramila Jayapal; Stuart

Styron, Senior Legislative Assistant, the Honorable Val Demings; Keanu Rivera, Legislative As-

sistant, the Honorable Mary Gay Scanlon; Lindsey Garber, Legislative Counsel, the Honorable

Joe Neguse; Miya Patel, former Legislative Assistant, the Honorable Joe Neguse; and Natalie

Knight, Legislative Counsel, the Honorable Lucy McBath. Staff would also like to thank Mat-

thew Bisenius in the Office of Congressman F. James Sensenbrenner, as well as Garrett Ventry

in the Office of Congressman Ken Buck, for their commitment to bipartisan cooperation. We also

thank Hillary Marston, Legal Intern for the Committee on the Judiciary, for her assistance. Fi-

nally, we thank Clare Cho and Mari Lee at the Congressional Research Service for their sup-

port, as well as graphics and data visualization used within this Report.

Press Release, H. Comm. on the Judiciary, House Judiciary Committee Launches Bipartisan

Investigation into Competition in Digital Markets (June 3, 2019), https://judiciary.house.gov/

news/press-releases/house-judiciary-committee-launches-bipartisan-investigation-competition-

digital.

See, e.g., Meehreen Khan, EU Targets Tech Giants over Unfair Business Practices, F

IMES

(Apr. 25, 2018), https://www.ft.com/content/d7228bec-4879-11e8-8ee8-cae73aab7ccb;

Adam Satariano, Google Is Fined $57 Million Under Europe’s Data Privacy Law, N.Y. T

IMES

(Jan. 21, 2019), https://www.nytimes.com/2019/01/21/technology/google-europe-gdpr-fine.

html; Richard Waters et al., Global Regulators’ Net Tightens Around Big Tech, F

. T

IMES

(June

5, 2019), https://www.ft.com/content/973f8b36-86f0-11e9-97ea-05ac2431f453.

ists to pursue these additional materials during this Congress, the

Committee expressly reserves the right to invoke other available

options, including compulsory process, to obtain the requested in-

formation in the future.

B. Executive Summary

1. Subcommittee’s Investigation

On June 3, 2019, the House Judiciary Committee announced a

bipartisan investigation into competition in digital markets,

led by

the Subcommittee on Antitrust, Commercial, and Administrative

Law.

The purpose of the investigation was to: (1) document com-

petition problems in digital markets; (2) examine whether domi-

nant firms are engaging in anticompetitive conduct; and (3) assess

whether existing antitrust laws, competition policies, and current

enforcement levels are adequate to address these issues.

The Com-

mittee initiated the investigation in response to broad-ranging in-

vestigative reporting, and activity by policymakers and enforcers,

that raised serious concerns about the platforms’ incentives and

ability to harm the competitive process.

As part of the investigation, the Subcommittee held seven over-

sight hearings that provided Members of the Subcommittee with an

opportunity to examine the state of competition in digital markets

and the adequacy of existing antitrust laws. A diverse group of wit-

nesses offered testimony on topics related to the effects of market

power on the free and diverse press, on innovation, and on privacy.

Other witnesses who testified included executives from businesses

with concerns about the dominance of the investigated firms. The

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hearings also provided an opportunity for key executives from

Facebook, Google, Amazon, and Apple—including the Chief Execu-

tive Officers of these firms—to address evidence that was uncov-

ered during the investigation in a public-facing venue. After each

of the hearings, Members of the Subcommittee submitted questions

for the record (QFRs) to the witnesses.

The Committee requested information from the dominant plat-

forms, from market participants, from the Federal antitrust agen-

cies, and from other relevant parties, for the purpose of obtaining

information that was not otherwise publicly available but was im-

portant to assembling a comprehensive record. The Committee also

sent requests for submissions to various experts in the field, includ-

ing academics, representatives of public interest groups, and prac-

ticing antitrust lawyers. The responses to these requests were in-

dispensable to staff’s ability to complete this Report and its rec-

ommendations for congressional oversight of the antitrust agencies

and legislative action.

This Report is intended to provide policymakers, antitrust enforc-

ers, market participants, and the public with a comprehensive un-

derstanding of the state of competition in the online marketplace.

The Report also provides recommendations for areas of legislative

activity to address the rise and abuse of market power in the dig-

ital economy, as well as areas that warrant additional congres-

sional attention.

2. Findings

(a) Overview. The open internet has delivered significant benefits

to Americans and the U.S. economy. Over the past few decades, it

has created a surge of economic opportunity, capital investment,

and pathways for education. The COVID–19 pandemic has under-

scored the importance of internet access that is affordable, competi-

tive, and widely available for workers, families, and businesses.

The online platforms investigated by the Subcommittee—Ama-

zon, Apple, Facebook, and Google—also play an important role in

our economy and society as the underlying infrastructure for the

exchange of communications, information, and goods and services.

As of September 2020, the combined valuation of these platforms

is more than $5 trillion—more than a third of the value of the S&P

100. As we continue to shift our work, commerce, and communica-

tions online, these firms stand to become even more interwoven

into the fabric of our economy and our lives.

Over the past decade, the digital economy has become highly con-

centrated and prone to monopolization. Several markets inves-

tigated by the Subcommittee—such as social networking, general

online search, and online advertising—are dominated by just one

or two firms. The companies investigated by the Subcommittee—

Amazon, Apple, Facebook, and Google—have captured control over

key channels of distribution and have come to function as gate-

keepers. Just a decade into the future, 30 percent of the world’s

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Catherine Fong et al., Prime Day and the Broad Reach of Amazon’s Ecosystem, M

INSEY

. (Aug. 2, 2019), https://www.mckinsey.com/business-functions/marketing-and-sales/our-

insights/prime-day-and-the-broad-reach-of-amazons-ecosystem (‘‘This ecosystem strategy in par-

ticular has significant competitive implications because McKinsey estimates that in ten years,

30 percent of the world’s gross economic output will be from companies that operate a network

of interconnected businesses, such as those run by Amazon, Alibaba, Google, and Facebook.’’).

Colleen Cunningham, Florian Ederer & Song Ma, Killer Acquisitions 1 (Yale Sch. of Mgmt.,

Working Paper, Mar. 2019), https://perma.cc/L6YL-YL8K (describing the practice of

‘‘acquir[ing] innovative targets solely to discontinue the target’s innovative projects and preempt

future competition’’). See also C. Scott Hemphill & Tim Wu, Nascent Competitors, 168 U. P

L. R

. 1879, 1880 (2020), https://perma.cc/62HH-34ZL (‘‘A nascent competitor is a firm whose

prospective innovation represents a serious future threat to an incumbent.’’).

See infra Section V.

gross economic output may lie with these firms, and just a handful

of others.

In interviews with the Subcommittee, numerous businesses de-

scribed how dominant platforms exploit their gatekeeper power to

dictate terms and extract concessions that no one would reasonably

consent to in a competitive market. Market participants indicated

that their dependence on these gatekeepers to access users and

markets requires concessions and demands that carry significant

economic harm, but that are ‘‘the cost of doing business’’ given the

lack of options.

This significant and durable market power is due to several fac-

tors, including a high volume of acquisitions by the dominant plat-

forms. Together, the firms investigated by the Subcommittee have

acquired hundreds of companies just in the last ten years. In some

cases, a dominant firm evidently acquired nascent or potential com-

petitors to neutralize a competitive threat or to maintain and ex-

pand the firm’s dominance. In other cases, a dominant firm ac-

quired smaller companies to shut them down or discontinue under-

lying products entirely—transactions aptly described as ‘‘killer ac-

quisitions.’’

In the overwhelming number of cases, the antitrust agencies did

not request additional information and documentary material

under their pre-merger review authority in the Clayton Act to ex-

amine whether the proposed acquisition may substantially lessen

competition or tend to create a monopoly if allowed to proceed as

proposed. For example, of Facebook’s nearly 100 acquisitions, the

Federal Trade Commission (FTC) engaged in an extensive inves-

tigation of just one acquisition: Facebook’s purchase of Instagram

in 2012.

During the investigation, the Subcommittee found evidence of

monopolization and monopoly power. For example, the strong net-

work effects associated with Facebook has tipped the market to-

ward monopoly such that Facebook competes more vigorously

among its own products—Facebook, Instagram, WhatsApp, and

Messenger—than with actual competitors.

As demonstrated during a series of hearings held by the Sub-

committee and as detailed in this Report,

the online platforms’

dominance carries significant costs. It has diminished consumer

choice, eroded innovation and entrepreneurship in the U.S. econ-

omy, weakened the vibrancy of the free and diverse press, and un-

dermined Americans’ privacy.

These concerns are shared by the majority of Americans. On Sep-

tember 24, 2020, Consumer Reports (CR) published a survey titled

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ONSUMER

. R

EPS

., P

LATFORM

ERCEPTIONS

: C

ONSUMER

TTITUDES ON

OMPETITION AND

AIRNESS IN

NLINE

LATFORMS

(2020), https://advocacy.consumerreports.org/wp-content/

uploads/2020/09/FINAL-CR-survey-report.platform-perceptions-consumer-attitudes-.september-

2020.pdf.

Id.

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–00045388 (Feb.

18, 2014), https://judiciary.house.gov/uploadedfiles/0004538800045389.pdf (‘‘[W]e are going to

spend 5–10% of our market cap every couple years to shore up our position . . . I hate the word

‘land grab’ but I think that is the best convincing argument and we should own that.’’).

Id. at FB–HJC–ACAL–00067600 (Apr. 9, 2012), https://judiciary.house.gov/uploadedfiles/

0006760000067601.pdf.

Id.

Id. at FB–HJC–ACAL–00049006 (Apr. 18, 2012) (on file with Comm.) (‘‘Network effects

make it very difficult to compete with us—In every country we’ve tipped we are still winning.’’).

Id.

Id. at FB–HJC–ACAL–00111406 (Oct. 2018) [hereinafter Cunningham Memo] (‘‘Facebook

has high reach and time-spent in most countries. User growth is tracking internet growth: glob-

al reach is roughly stable.’’).

Id.

Id. at 11.

‘‘Platform Perceptions: Consumer Attitudes on Competition and

Fairness in Online Platforms.’’

Among its findings:

• Eighty-five percent of Americans are concerned—either very concerned or

somewhat concerned—about the amount of data online platforms store about

them, and eighty-one percent are concerned that platforms are collecting and

holding this data in order to build out more comprehensive consumer profiles.

• Fifty-eight percent are not confident that they are getting objective and unbi-

ased search results when using an online platform to shop or search for infor-

mation.

• Seventy-nine percent say Big Tech mergers and acquisitions unfairly under-

mine competition and consumer choice.

• Sixty percent support more government regulation of online platforms, includ-

ing mandatory interoperability features, to make it easier for users to switch

from one platform to another without losing important data or connections.

(b) Facebook. Facebook has monopoly power in the market for so-

cial networking. Internal communications among the company’s

Chief Executive Officer, Mark Zuckerberg, and other senior execu-

tives indicate that Facebook acquired its competitive threats to

maintain and expand its dominance. For example, a senior execu-

tive at the company described its acquisition strategy as a ‘‘land

grab’’ to ‘‘shore up’’ Facebook’s position,

while Facebook’s CEO

said that Facebook ‘‘can likely always just buy any competitive

startups,’’

and agreed with one of the company’s senior engineers

that Instagram was a threat to Facebook.

Facebook’s monopoly power is firmly entrenched and unlikely to

be eroded by competitive pressure from new entrants or existing

firms. In 2012, the company described its network effects as a

‘‘flywheel’’ in an internal presentation prepared for Facebook at the

direction of its Chief Financial Officer.

This presentation also

said that Facebook’s network effects get ‘‘stronger every day.’’

More recent documents produced during the investigation by

Facebook show that it has tipped the social networking market to-

ward a monopoly, and now considers competition within its own

family of products to be more considerable than competition from

any other firm. These documents include an October 2018 memo-

randum by Thomas Cunningham, a senior data scientist and econo-

mist at Facebook,

for Mr. Zuckerberg and Javier Olivan,

Facebook’s Director of Growth.

Among other things, the

Cunningham Memo found that the network effects of Facebook and

its family of products as ‘‘very strong’’

and that there are strong

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Id. at 9.

Id.

Interview with Former Instagram Employee (Oct. 2, 2020).

tipping points in the social networking market that create competi-

tion for the market, rather than competition within the market.

According to a former senior employee at Instagram who was in-

volved in the preparation of this document for review by Mr.

Zuckerberg and Mr. Olivan, the Cunningham Memo guided

Facebook’s growth strategy, particularly with regard to Insta-

gram.

They explained:

The question was how do we position Facebook and Instagram to not compete

with each other. The concern was that Instagram would hit a tipping point ....

There was brutal in-fighting between Instagram and Facebook at the time. It

was very tense. It was back when Kevin Systrom was still at the company. He

wanted Instagram to grow naturally and as widely as possible. But Mark was

clearly saying ‘‘do not compete with us.’’ . . . It was collusion, but within an inter-

nal monopoly. If you own two social media utilities, they should not be allowed

to shore each other up. It’s unclear to me why this should not be illegal. You

can collude by acquiring a company.

Facebook has also maintained its monopoly through a series of

anticompetitive business practices. The company used its data ad-

vantage to create superior market intelligence to identify nascent

competitive threats and then acquire, copy, or kill these firms.

Once dominant, Facebook selectively enforced its platform policies

based on whether it perceived other companies as competitive

threats. In doing so, it advantaged its own services while weak-

ening other firms.

In the absence of competition, Facebook’s quality has deterio-

rated over time, resulting in worse privacy protections for its users

and a dramatic rise in misinformation on its platform.

line search and search advertising. Google’s dominance is protected

by high entry barriers, including its click-and-query data and the

extensive default positions that Google has obtained across most of

the world’s devices and browsers. A significant number of entities—

spanning major public corporations, small businesses, and entre-

preneurs—depend on Google for traffic, and no alternate search en-

gine serves as a substitute.

Google maintained its monopoly over general search through a

series of anticompetitive tactics. These include an aggressive cam-

paign to undermine vertical search providers, which Google viewed

as a significant threat. Documents show that Google used its

search monopoly to misappropriate content from third parties and

to boost Google’s own inferior vertical offerings, while imposing

search penalties to demote third-party vertical providers. Since

capturing a monopoly over general search, Google has steadily pro-

liferated its search results page with ads and with Google’s own

content, while also blurring the distinction between paid ads and

organic results. As a result of these tactics, Google appears to be

siphoning off traffic from the rest of the web, while entities seeking

to reach users must pay Google steadily increasing sums for ads.

Numerous market participants analogized Google to a gatekeeper

that is extorting users for access to its critical distribution channel,

even as its search page shows users less relevant results.

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A second way Google has maintained its monopoly over general

search has been through a series of anticompetitive contracts. After

purchasing the Android operating system in 2005, Google used con-

tractual restrictions and exclusivity provisions to extend Google’s

search monopoly from desktop to mobile. Documents show that

Google required smartphone manufacturers to pre-install and give

default status to Google’s own apps, impeding competitors in search

as well as in other app markets. As search activity now migrates

from mobile to voice, third-party interviews suggest Google is again

looking for ways to maintain its monopoly over search access points

through a similar set of practices.

Since capturing the market for online search, Google has ex-

tended into a variety of other lines of business. Today, Google is

ubiquitous across the digital economy, serving as the infrastructure

for core products and services online. Through Chrome, Google now

owns the world’s most popular browser—a critical gateway to the

internet that it has used to both protect and promote its other lines

of business. Through Google Maps, Google now captures over eight

percent of the market for navigation mapping services—a key input

over which Google consolidated control through an anticompetitive

acquisition and which it now leverages to advance its position in

search and advertising. And through Google Cloud, Google has an-

other core platform in which it is now heavily investing through ac-

quisitions, positioning itself to dominate the ‘‘Internet of Things,’’

the next wave of surveillance technologies.

Internal communications also reveal that Google exploits infor-

mation asymmetries and closely tracks real-time data across mar-

kets, which—given Google’s scale—provide it with near-perfect

market intelligence. In certain instances, Google has covertly set

up programs to more closely track its potential and actual competi-

tors, including through projects like Android Lockbox.

Each of its services provides Google with a trove of user data, re-

inforcing its dominance across markets and driving greater mone-

tization through online ads. Through linking these services to-

gether, Google increasingly functions as an ecosystem of inter-

locking monopolies.

(d) Amazon. Amazon has significant and durable market power

in the U.S. online retail market. This conclusion is based on the

significant record that the Subcommittee collected and reviewed,

including testimonials from third-party sellers, brand manufactur-

ers, publishers, former employees, and other market participants,

as well as Amazon’s internal documents. Although Amazon is fre-

quently described as controlling about forty percent of U.S. online

retail sales, this market share is likely understated, and estimates

of about 50 percent or higher are more credible.

As the dominant marketplace in the United States for online

shopping, Amazon’s market power is at its height in its dealings

with third-party sellers. The platform has monopoly power over

many small- and medium-sized businesses that do not have a via-

ble alternative to Amazon for reaching online consumers. Amazon

has 2.3 million active third-party sellers on its marketplace world-

wide, and a recent survey estimates that about 37 percent of

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UNGLE

COUT

, T

TATE OF THE

MAZON

ELLER

2020, at 4 (2020), https://www.

junglescout.com/wp-content/uploads/2020/02/State-of-the-Seller-Survey.pdf.

them—about 850,000 sellers—rely on Amazon as their sole source

of income.

Amazon achieved its current dominant position, in part, through

acquiring its competitors, including Diapers.com and Zappos. It has

also acquired companies that operate in adjacent markets, adding

customer data to its stockpile and further shoring up its competi-

tive moats. This strategy has entrenched and expanded Amazon’s

market power in e-commerce, as well as in other markets. The

company’s control over and reach across its many business lines

enable it to self-preference and disadvantage competitors in ways

that undermine free and fair competition. As a result of Amazon’s

dominance, other businesses are frequently beholden to Amazon for

their success.

Amazon has engaged in extensive anticompetitive conduct in its

treatment of third-party sellers. Publicly, Amazon describes third-

party sellers as ‘‘partners.’’ But internal documents show that, be-

hind closed doors, the company refers to them as ‘‘internal competi-

tors.’’ Amazon’s dual role as an operator of its marketplace that

hosts third-party sellers, and a seller in that same marketplace,

creates an inherent conflict of interest. This conflict incentivizes

Amazon to exploit its access to competing sellers’ data and informa-

tion, among other anticompetitive conduct.

Voice assistant ecosystems are an emerging market with a high

propensity for lock-in and self-preferencing. Amazon has expanded

Alexa’s ecosystem quickly through acquisitions of complementary

and competing technologies, and by selling its Alexa-enabled smart

speakers at deep discounts. The company’s early leadership in this

market is leading to the collection of highly sensitive consumer

data, which Amazon can use to promote its other business, includ-

ing e-commerce and Prime Video.

Finally, Amazon Web Services (AWS) provides critical infrastruc-

ture for many businesses with which Amazon competes. This cre-

ates the potential for a conflict of interest where cloud customers

are forced to consider patronizing a competitor, as opposed to se-

lecting the best technology for their business.

(e) Apple. Apple has significant and durable market power in the

mobile operating system market. Apple’s dominance in this market,

where it controls the iOS mobile operating system that runs on

Apple mobile devices, has enabled it to control all software dis-

tribution to iOS devices. As a result, Apple exerts monopoly power

in the mobile app store market, controlling access to more than 100

million iPhones and iPads in the U.S.

Apple’s mobile ecosystem has produced significant benefits to app

developers and consumers. Launched in 2008, the App Store revo-

lutionized software distribution on mobile devices, reducing bar-

riers to entry for app developers and increasing the choices avail-

able to consumers. Despite this, Apple leverages its control of iOS

and the App Store to create and enforce barriers to competition and

discriminate against and exclude rivals while preferencing its own

offerings. Apple also uses its power to exploit app developers

through misappropriation of competitively sensitive information

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Online Platforms and Market Power, Part 1: The Free and Diverse Press: Hearing Before

the Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,

116th Cong. 71–73 (2019) [hereinafter Free and Diverse Press Hearing] (statement of David

Pitofsky, Gen. Couns., News Corp).

Submission from Source 53, to H. Comm. on the Judiciary, 7 (Oct. 14, 2019) (on file with

Comm.). Although Apple News and Apple News Plus are increasingly popular news aggregators,

most market participants that the Subcommittee received evidence from during the investiga-

tion do not view it as a critical intermediary for online news at this time. Some publishers

raised competition concerns about the tying of payment inside Apple’s news product. Others,

however, did raise concerns about Apple News and Apple News Plus, noting that it is ‘‘not cre-

ating any original journalism itself’’ and competes ‘‘against publishers’ news products . . . for sub-

scription revenues.’’ Id. at 6.

Submission from Source 52, to H. Comm. on the Judiciary, 12 (Oct. 30, 2019) (on file with

Comm.).

Free and Diverse Press Hearing at 20 (statement of David Chavern, President & CEO,

News Media All.) (‘‘In effect, a couple of dominant tech platforms are acting as regulators of

the digital news industry.’’).

Online Platforms and Market Power, Part 2: Innovation and Entrepreneurship: Hearing Be-

fore the Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,

116th Cong. 76 (2019) [hereinafter Innovation and Entrepreneurship Hearing] (statement of

Timothy Wu, Julius Silver Prof. of Law, Columbia Law Sch.); Online Platforms and Market

Power, Part 3: The of Role of Data and Privacy in Competition: Hearing Before the Subcomm.

on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary, 116th Cong. 58–

Continued

and to charge app developers supra-competitive prices within the

App Store. Apple has maintained its dominance due to the pres-

ence of network effects, high barriers to entry, and high switching

costs in the mobile operating system market.

Apple is primarily a hardware company that derives most of its

revenue from sales of devices and accessories. However, as the

market for products like the iPhone has matured, Apple has

pivoted to rely increasingly on sales of its applications and services,

as well as collecting commissions and fees in the App Store. In the

absence of competition, Apple’s monopoly power over software dis-

tribution to iOS devices has resulted in harm to competitors and

competition, reducing quality and innovation among app devel-

opers, and increasing prices and reducing choices for consumers.

(f) Effects of Market Power. The Subcommittee also examined the

effects of market power in digital markets on the free and diverse

press, innovation, privacy and data, and other relevant matters

summarized below for ease of reference.

As part of this process, the Subcommittee received testimony and

submissions showing that the dominance of some online platforms

has contributed to the decline of trustworthy sources of news,

which are essential to our democracy.

In several submissions,

news publishers raised concerns about the ‘‘significant and growing

asymmetry of power’’ between dominant platforms and news orga-

nizations, as well as the effect of this dominance on the production

and availability of trustworthy sources of news. Other publishers

said that they are ‘‘increasingly beholden’’ to these firms, and in

particular, to Google and Facebook.

Google and Facebook have an

outsized influence over the distribution and monetization of trust-

worthy sources of news online,

undermining the quality and

availability of high-quality sources of journalism.

This concern is

underscored by the COVID–19 pandemic, which has laid bare the

importance of preserving a vibrant free press in both local and na-

tional markets.

The rise of market power online has also materially weakened in-

novation and entrepreneurship in the U.S. economy.

Some ven-

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60 (2019) [hereinafter Data and Privacy Hearing] (statement of Jason Furman, Prof. of the Prac.

of Econ. Pol’y, Harvard Kennedy Sch.).

Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill Zone (Univ. of Chi., Becker

Friedman Inst. for Econ., Working Paper No. 2020–19, Apr. 2020), https://ssrn.com/abstract

=3555915.

See generally U.S. Dep’t of Justice Antitrust Div., Public Workshop on Venture Capital and

Antitrust (Feb. 12, 2020) [hereinafter Venture Capital and Antitrust Workshop], https://

www.justice.gov/atr/page/file/1255851/download; C

. B

OOTH

TIGLER

FOR THE

TUDY

CON

TATE

, S

TIGLER

MTE

. P

LATFORMS

, F

INAL

EPORT

, 9 (2019) [herein-

after Stigler Report], https://www.chicagobooth.edu/-/media/research/stigler/pdfs/digital-

platforms---committee-report---stigler-center.pdf.

See Interview with Source 146 (May 28, 2020).

Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161

U. P

. L. R

. 1663, 1689 (2013) (‘‘One measure of a platform’s market power is the extent to

which it can engage in [privacy exploitation] without some benefit to consumers that offsets

their reduced privacy and still retain users.’’).

Data and Privacy Hearing at 60 (statement of Jason Furman, Prof. of the Prac. of Econ.

Pol’y, Harvard Kennedy Sch.); Data and Privacy Hearing at 54–55 (statement of Tommaso

Valletti, Prof. of Econ., Imperial Coll. Bus. Sch.)

. C

OMPETITION

XPERT

ANEL

, U

NLOCKING

IGITAL

OMPETITION

43 (2019) (‘‘[T]he mis-

use of consumer data and harm to privacy is arguably an indicator of low quality caused by

a lack of competition.’’) [hereinafter Dig. Competition Expert Panel Report]; Dina Srinivasan,

The Antitrust Case Against Facebook: A Monopolist’s Journey Towards Pervasive Surveillance

in Spite of Consumers’ Preference for Privacy, 16 B

ERKELEY

. L.J. 39, 88 (2019) (‘‘Consumers

effectively face a singular choice—use Facebook and submit to the quality and stipulations of

Facebook’s product or forgo all use of the only social network.’’).

ture capitalists, for example, report that there is an innovation ‘‘kill

zone’’ that insulates dominant platforms from competitive pressure

simply because investors do not view new entrants as worthwhile

investments.

Other investors have said that they avoid funding

entrepreneurs and other companies that compete directly or indi-

rectly with dominant firms in the digital economy.

In an inter-

view with the Subcommittee, a prominent venture capital investor

explained that due to these factors, there is a strong economic in-

centive for other firms to avoid head-on competition with dominant

firms.

Additionally, in the absence of adequate privacy guardrails in the

United States, the persistent collection and misuse of consumer

data is an indicator of market power online.

Online platforms

rarely charge consumers a monetary price—products appear to be

‘‘free’’ but are monetized through people’s attention or with their

data.

In the absence of genuine competitive threats, dominant

firms offer fewer privacy protections than they otherwise would,

and the quality of these services has deteriorated over time. As a

result, consumers are forced to either use a service with poor pri-

vacy safeguards or forgo the service altogether.

Finally, the market power of the dominant platforms risks un-

dermining both political and economic liberties. The Subcommittee

encountered a prevalence of fear among market participants that

depend on the dominant platforms, many of whom expressed

unease that the success of their business and their economic liveli-

hood depend on what they viewed as the platforms’ unaccountable

and arbitrary power. Additionally, courts and enforcers have found

the dominant platforms to engage in recidivism, repeatedly vio-

lating laws and court orders. This pattern of behavior raises ques-

tions about whether these firms view themselves as above the law,

or whether they simply treat lawbreaking as a cost of business.

Lastly, the growth in the platforms’ market power has coincided

with an increase in their influence over the policymaking process.

Through a combination of direct lobbying and funding think tanks

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Hon. David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and Admin. Law of

the H. Comm. on the Judiciary, Keynote Address at American Antitrust Institute’s 20th Annual

Policy Conference (June 20, 2019), https://cicilline.house.gov/press-release/cicilline-delivers-

keynote-address-american-antitrust-institute%E2%80%99s-20th-annual-policy.

and academics, the dominant platforms have expanded their sphere

of influence, further shaping how they are governed and regulated.

3. Recommendations

As part of the investigation of competition in digital markets, the

Subcommittee conducted a thorough examination of the adequacy

of current laws and enforcement levels. This included receiving

submissions from experts on antitrust and competition policy who

were selected on a careful, bipartisan basis to ensure the represen-

tation of a diverse range of views on these matters. The Sub-

committee also received other submissions from leading experts—

including Executive Vice President Margrethe Vestager of the Eu-

ropean Commission and Chair Rod Sims of the Australian Com-

petition and Consumer Commission—to inform this inquiry. Most

recently, on October 1, 2020, the Subcommittee held an oversight

hearing on ‘‘Proposals to Strengthen the Antitrust Laws and Re-

store Competition Online’’ to examine potential solutions to con-

cerns identified during the investigation to further inform the Re-

port’s recommendations.

Based on this oversight activity, Subcommittee Chair Cicilline re-

quested that staff provide a menu of reforms to Members of the

Subcommittee for purposes of potential legislative activity during

the remainder of the 116th Congress and thereafter. As he noted

in remarks to the American Antitrust Institute in June 2019:

[I]t is Congress’ responsibility to conduct oversight of our antitrust laws and

competition system to ensure that they are properly working and to enact

changes when they are not. While I do not have any preconceived ideas about

what the right answer is, as Chair of the Antitrust Subcommittee, I intend to

carry out that responsibility with the sense of urgency and serious deliberation

that it demands.

In response to this request, the Subcommittee identified a broad

set of reforms for further examination by the Members of the Sub-

committee for purposes of crafting legislative responses to the find-

ings of this Report. These reforms include proposals to: (1) address

anticompetitive conduct in digital markets; (2) strengthen merger

and monopolization enforcement; and (3) improve the sound admin-

istration of the antitrust laws through other reforms. We intend

these recommendations to serve as a complement to vigorous anti-

trust enforcement. Consistent with the views expressed by Chair

Nadler and Subcommittee Chair Cicilline in the Foreword to this

Report, we view these recommendations as complements, and not

substitutes, to forceful antitrust enforcement.

For ease of reference, these recommendations for further exam-

ination are summarized below.

(a) Restoring Competition in the Digital Economy

• Structural separations and prohibitions of certain dominant platforms from op-

erating in adjacent lines of business;

• Nondiscrimination requirements, prohibiting dominant platforms from engag-

ing in self-preferencing, and requiring them to offer equal terms for equal

products and services;

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In 2015, Google reorganized under a new name and parent company, Alphabet, separated

various businesses, and placed Sundar Pichai as chief executive of Google. Larry Page, Chief

Executive of Google, became head of Alphabet with Sergey Brin. See Conor Dougherty, Google

to Reorganize as Alphabet to Keep Its Lead as an Innovator, N.Y. T

IMES

(Aug. 10, 2015), https://

www.nytimes.com/2015/08/11/technology/google-alphabet-restructuring.html.

• Interoperability and data portability, requiring dominant platforms to make

their services compatible with various networks and to make content and in-

formation easily portable between them;

• Presumptive prohibition against future mergers and acquisitions by the domi-

nant platforms;

• Safe harbor for news publishers in order to safeguard a free and diverse press;

and

• Prohibitions on abuses of superior bargaining power, proscribing dominant

platforms from engaging in contracting practices that derive from their domi-

nant market position, and requirement of due process protections for individ-

uals and businesses dependent on the dominant platforms.

(b) Strengthening the Antitrust Laws

• Reasserting the anti-monopoly goals of the antitrust laws and their centrality

to ensuring a healthy and vibrant democracy;

• Strengthening Section 7 of the Clayton Act, including through restoring pre-

sumptions and bright-line rules, restoring the incipiency standard and pro-

tecting nascent competitors, and strengthening the law on vertical mergers;

• Strengthening Section 2 of the Sherman Act, including by introducing a prohi-

bition on abuse of dominance and clarifying prohibitions on monopoly

leveraging, predatory pricing, denial of essential facilities, refusals to deal,

tying, and anticompetitive self-preferencing and product design; and

• Taking additional measures to strengthen overall enforcement, including

through overriding problematic precedents in the case law.

• Restoring robust congressional oversight of the antitrust laws and their en-

forcement;

• Restoring the federal antitrust agencies to full strength, by triggering civil

penalties and other relief for ‘‘unfair methods of competition’’ rules, requiring

the Federal Trade Commission to engage in regular data collection on con-

centration, enhancing public transparency and accountability of the agencies,

requiring regular merger retrospectives, codifying stricter prohibitions on the

revolving door, and increasing the budgets of the FTC and the Antitrust Divi-

sion of the U.S. Department of Justice (DOJ); and

• Strengthening private enforcement through elimination of obstacles such as

forced arbitration clauses, limits on class action formation, judicially created

standards constraining what constitutes an antitrust injury, and unduly high

pleading standards.

II. THE INVESTIGATION OF

COMPETITION IN DIGITAL MARKETS

A. Requests for Information and Submissions

1. First-Party Requests for Information

On September 13, 2019, the Committee sent bipartisan requests

for information (RFIs) to each of the four investigated platforms:

Alphabet,

Amazon, Apple, and Facebook. For each company, the

RFI asked for a comprehensive set of information about each of the

company’s products and services. In addition, the RFI asked the

company to submit communications among high-level executives

relating to various potentially anticompetitive acquisitions and con-

duct. The Committee requested that the platforms respond to the

RFIs by October 14, 2019.

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Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary, Hon. Doug Collins,

Ranking Member, H. Comm on the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Anti-

trust, Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F. James Sensen-

brenner, Ranking Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.

Comm. on the Judiciary to Larry Page, CEO, Alphabet Inc. (Sept. 13, 2019) [hereinafter Com-

mittee Request for Information, Alphabet], https://judiciary.house.gov/sites/democrats

.judiciary.house.gov/files/documents/alphabet%20inc.%20rfi%20-%20signed%20(003).pdf.

Id. at 1–4.

The Alphabet RFI defines the term ‘‘Relevant Executives’’ as Larry Page, Sergey Brin, Ruth

Porat, David Drummond, Eric Schmidt, Sundar Pichai, Susan Wojcicki, Philipp Schindler,

Prabhakar Raghavan, Thomas Kurian, Hiroshi Lockheimer, Rishi Chandra, Keith Enright, and

Kent Walker. See id. at 4.

Id. at 4–9.

Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary, Hon. Doug Collins,

Ranking Member, H. Comm on the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Anti-

trust, Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F. James Sensen-

brenner, Ranking Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.

Comm. on the Judiciary to Jeff Bezos, CEO, Amazon.com, Inc. (Sept. 13, 2019) [hereinafter Com-

mittee Request for Information, Amazon], https://judiciary.house.gov/sites/democrats

.judiciary.house.gov/files/documents/amazon%20rfi%20-%20signed.pdf.

(a) Alphabet. The Committee’s RFI to Alphabet, the parent com-

pany of Google, asked for information necessary to understand how

the company operates and its role in the digital marketplace.

For

example, in Request A, the RFI asked for detailed financial state-

ments and a description of Alphabet’s relevant products and serv-

ices, including Google Ads, Google Search, YouTube, and Waze. In

addition, the RFI asked for information helpful for determining

whether Alphabet has monopoly power for any of its products or

services, including for each product or service: (i) a list of Alpha-

bet’s top ten competitors; and (ii) internal or external analyses of

Alphabet’s market share relative to its competitors. Request A also

asked for copies of documents and information that Alphabet had

submitted to any U.S. or international antitrust enforcement agen-

cy for antitrust investigations that took place in any of those agen-

cies within the past decade.

Request B asked for all communications from high-level execu-

tives, including former CEO Larry Page and current CEO Sundar

Pichai, relating to a number of Alphabet’s key acquisitions and po-

tentially anticompetitive conduct, most of which have been widely

reported in the news.

The RFI asked for communications, includ-

ing, but not limited to, discussions relating to the deal rationale

and any competitive threat posed by the acquired company for the

following acquisitions: Google/Android in 2005, Google/YouTube in

2006, Google/DoubleClick in 2007, Google/AdMob in 2009, and

Google’s acquisition of a minority stake in Vevo in 2013. Request B

of the Alphabet RFI also requested executive communications relat-

ing to certain categories of potential anticompetitive conduct.

In response to this request, Alphabet produced 1,135,398 docu-

ments, including strategy memoranda, presentations, and mate-

rials produced in prior investigations. Although Google produced a

significant amount of material, the Subcommittee did not view this

volume as a proxy for quality.

(b) Amazon. The Committee’s RFI to Amazon asked for similar

types of information helpful for understanding the competitive dy-

namics of the digital marketplace and the company’s role.

For ex-

ample, in Request A, the RFI asked for detailed financial state-

ments and a description of Amazon’s relevant products and serv-

ices, including Alexa, Amazon Marketplace, Amazon Prime, and

Amazon Web Services (AWS). In addition, the RFI asked for infor-

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Id. at 1–3.

The Amazon RFI defines the term ‘‘Relevant Executives’’ as Jeff Bezos, Jeff Wilke, Andy

Jassy, Jeff Blackburn, Dave Limp, Brian Olsavsky, David Zapolsky, and Jay Carney. See id.

at 3.

Amazon acquired ‘‘Quidsi, the e-commerce company that runs Diapers.com’’ in 2010. Claire

Cain Miller, Amazon Has a Reported Deal to Buy Parent of Diapers.com, N.Y. T

IMES

(Nov. 7,

2010), https://www.nytimes.com/2010/11/08/technology/08amazon.html.

Committee Request for Information, Amazon at 3–7.

Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary, Hon. Doug Collins,

Ranking Member, H. Comm on the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Anti-

trust, Commercial and Admin. Law of the H.Comm. on the Judiciary & Hon. F. James Sensen-

brenner, Ranking Member, Subcomm. on Antitrust, Commercial and Admin. Law of the

H. Comm. on the Judiciary to Tim Cook, CEO, Apple, Inc. (Sept. 13, 2019) [hereinafter Com-

mittee Request for Information, Apple], https://judiciary.house.gov/sites/democrats.judiciary

.house.gov/files/documents/apple%20rfi%20-%20signed.pdf.

Id. at 1–3.

mation helpful for determining whether Amazon has monopoly

power for any of its products or services, including for each product

or service: (i) a list of Amazon’s top ten competitors; and (ii) inter-

nal or external analyses of Amazon’s market share relative to its

competitors. Request A also asked for copies of documents and in-

formation that Amazon had submitted to any U.S. or international

antitrust enforcement agency for antitrust investigations that took

place in any of those agencies within the past decade.

Request B asked for all communications from high-level execu-

tives, including CEO Jeff Bezos and Jay Carney, Senior Vice Presi-

dent for Global Corporate Affairs, relating to a number of Amazon’s

key acquisitions and potentially anticompetitive conduct, most of

which have been widely reported in the news.

The RFI asked for

communications, including, but not limited to, discussions relating

to the deal rationale and any competitive threat posed by the ac-

quired company for the following acquisitions: Amazon/Audible in

2008, Amazon/Zappos in 2009, Amazon/Quidsi (Diapers.com) in

2010,

Amazon/Whole Foods in 2017, and Amazon/Ring in 2018.

Request B of the Amazon RFI also requested executive communica-

tions relating to certain categories of potential anticompetitive con-

duct.

In response to the Committee’s requests, Amazon produced

24,299 documents, including internal emails among the company’s

senior executives, memoranda, presentations, and other materials.

tion helpful for understanding the company’s role in the digital

marketplace. For example, in Request A, the RFI asked for detailed

financial statements and a description of Apple’s relevant products

and services, including the iPhone, App Store, and Apple Pay.

addition, the RFI asked for information helpful for determining

whether Apple has monopoly power for any of its products or serv-

ices, including for each product or service: (i) a list of Apple’s top

ten competitors; and (ii) internal or external analyses of Apple’s

market share relative to its competitors. Request A also asked for

copies of documents and information that Apple had submitted to

any U.S. or international antitrust enforcement agency for anti-

trust investigations that took place in any of those agencies within

the past decade.

Request B asked for all communications from high-level execu-

tives, including CEO Tim Cook and Eddy Cue, Senior Vice Presi-

dent of Internet Software and Services, relating to potentially anti-

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The Apple RFI defines the term ‘‘Relevant Executives’’ as Tim Cook, Katherine Adams,

Eddy Cue, Philip Schiller, Johny Srouji, Dan Riccio, Jonathan Ive, Craig Frederighi, Luca

Maestri, Jeff Williams, Steve Dowling, Tor Myhren, Lucas Maestri, and Jane Horvath. See id.

at 3.

Id. at 3–6.

Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary, Hon. Doug Collins,

Ranking Member, H. Comm on the Judiciary, Hon. David N. Cicilline, Chair, Subcomm. on Anti-

trust, Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F. James Sensen-

brenner, Ranking Member, Subcomm. on Antitrust, Commercial and Admin. Law of the H.

Comm. on the Judiciary to Mark Zuckerberg, CEO, Facebook, Inc. (Sept. 13, 2019) [hereinafter

Committee Request for Information, Facebook], https://judiciary.house.gov/sites/democrats

.judiciary.house.gov/files/documents/facebook%20rfi%20-%20signed.pdf.

See id. at 1–2.

The Facebook RFI defines the term ‘‘Relevant Executives’’ as Mark Zuckerberg, Sheryl

Sandberg, Jennifer Newstead, Javier Olivan, Chris Cox, Mike Schroepfer, David Wehner, Colin

Stretch, Will Cathcart, Adam Mosseri, Stan Chudnovsky, Fidji Simo, Chris Daniels, Erin Egan,

and Kevin Martin. See id. at 2–3.

See id. at 2–5.

competitive conduct, most of which has been widely reported in the

news.

The RFI asked for communications, including, but not lim-

ited to, discussions relating to certain categories of potentially anti-

competitive conduct.

In response to the Committee’s requests, Apple produced 2,246

documents. These documents include internal communications

among the company’s senior executives describing governance of

the App Store, as well as the company’s internal deliberations and

strategy responding to recent controversies.

(d) Facebook. The Committee’s RFI to Facebook also asked for in-

formation helpful for understanding how the company operates and

its role in the digital marketplace.

For example, in Request A,

the RFI asked for detailed financial statements and a description

of Facebook’s relevant products and services, including Facebook,

Instagram, and WhatsApp. In addition, the RFI asked for informa-

tion helpful for determining whether Facebook has monopoly power

for any of its products or services, including for each product or

service: (i) a list of Facebook’s top ten competitors; and (ii) internal

or external analyses of Facebook’s market share relative to its com-

petitors. Request A also asked for copies of documents and informa-

tion that Facebook had submitted to any U.S. or international anti-

trust enforcement agency for antitrust investigations that took

place in any of those agencies within the past decade.

Request B asked for all communications from high-level execu-

tives, including Founder and CEO Mark Zuckerberg and Sheryl

Sandberg, Chief Operating Officer, relating to a number of

Facebook’s key acquisitions and potentially anticompetitive con-

duct, most of which have been widely reported in the news.

The

RFI asked for communications, including, but not limited to, dis-

cussions relating to the deal rationale and any competitive threat

posed by the acquired company for the following acquisitions:

Facebook/Instagram in 2012, Facebook/Onavo in 2013, and

Facebook/WhatsApp in 2014. Request B of the Facebook RFI also

requested executive communications relating to certain categories

of potentially anticompetitive conduct.

In response to the Committee’s requests, Facebook produced

41,442 documents, including documents produced in response to

prior investigations into Facebook’s acquisitions and into whether

it had abused its dominance. Facebook also produced 83,804 docu-

ments in connection with litigation in an ongoing matter. Among

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See, e.g., Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary, Hon. Doug

Collins, Ranking Member, H. Comm on the Judiciary, Hon. David N. Cicilline, Chair, Subcomm.

on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon. F. James

Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and Admin. Law of the

H. Comm. on the Judiciary to Mark Zuckerberg, CEO, Facebook, Inc. (Dec. 4, 2019) (on file with

Comm.).

other items, these documents include internal communications

among the company’s senior executives describing Facebook’s ac-

quisition and overall competition strategy. In response to supple-

mental requests by the Subcommittee, Facebook produced internal

market data over a multi-year period, as well as a memorandum

prepared by a senior data scientist and economist at the company

related to competition among Facebook’s family of products and

other social apps.

2. Process for Obtaining Responses to First-Party Requests

After sending the RFIs, Subcommittee staff invested considerable

time and resources in making themselves available for calls with

the platforms to answer any questions the platforms had about re-

sponding to the requests, on a nearly weekly basis from October

2019 through March 2020. On these calls, staff addressed a range

of issues, including clarifying the meaning and intent of language

in the request; maintaining the confidentiality of sensitive business

information; and, where appropriate, narrowing requests in an ef-

fort to balance the Committee’s need for relevant information

against the platforms’ burden of production. Each of the inves-

tigated platforms failed to meet the October 14, 2019 deadline, cit-

ing various difficulties.

On December 4, 2019, nearly three months after the deadline for

submitting the RFI responses, the Committee sent a letter to the

platforms’ CEOs pointing out their failure to comply. The Com-

mittee stated its expectation that the platforms would complete

production by December 18, 2019 for Request A and January 2,

2020 for Request B, to avoid the need to invoke other processes and

procedures to obtain the requested materials.

After the platforms failed to meet the revised deadlines, in early

February 2020, staff asked for the companies’ outside counsel to at-

tend in-person meetings to discuss the substantial gaps in produc-

tion that remained, and to identify ways to address any obstacles

the platforms identified to filling those gaps. Despite the Commit-

tee’s best efforts to address those obstacles—and allowing substan-

tial time for the platforms to navigate delays relating to the

COVID–19 pandemic—staff again had to reach out to the platforms

regarding the deficiency of their responses. On June 9, 2020, in a

final effort to avoid resorting to issuing subpoenas to the platforms

to compel the production of documents and information, staff re-

quested that the platforms voluntarily provide information respon-

sive to a reduced list of targeted requests by June 22, 2020.

3. Third-Party Requests for Information

As part of the investigation, the Subcommittee collected a large

amount of information from market participants, including cus-

tomers and competitors of Amazon, Apple, Facebook, and Google.

Staff also received information and analysis from other third par-

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Submission from Source 685, to Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary,

Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary, Hon. David N. Cicilline, Chair,

Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon.

F. James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and Admin.

Law of the H. Comm. on the Judiciary (July 11, 2020) (on file with Comm.).

Submission from Source 147, to Hon. Jerrold Nadler, Chair, H. Comm. on the Judiciary,

Hon. Doug Collins, Ranking Member, H. Comm on the Judiciary, Hon. David N. Cicilline, Chair,

Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary & Hon.

F. James Sensenbrenner, Ranking Member, Subcomm. on Antitrust, Commercial and Admin.

Law of the H. Comm. on the Judiciary (July 15, 2019) (on file with Comm.).

ties, including academics, former antitrust government officials,

public interest organizations, and trade associations.

(a) Market Participants. In September, the Committee sent a re-

quest for information to over 80 market participants. The RFI

asked the recipient to voluntarily provide information regarding

the state of competition in the digital marketplace for various prod-

ucts and services, including the number and identity of market

participants, market shares, and barriers to entry. These third-

party RFIs also asked for a description of any conduct by Amazon,

Apple, Facebook, or Google that raises competition concerns, and

the impact of such conduct on the recipient’s business. The Com-

mittee also sought to gather information through these RFIs re-

garding broader questions based on the recipient’s experience in

the digital marketplace, including (i) whether market participants

are able to compete on the merits of their goods and services; (ii)

the adequacy of antitrust enforcement relating to merger review

and anticompetitive conduct; (iii) the adequacy of current antitrust

law to address anticompetitive mergers and anticompetitive con-

duct; and (iv) suggestions for improving enforcement of antitrust

law and making changes to antitrust law itself, statutory or other-

wise.

On January 7, 2020, the Committee sent a second round of RFIs

to 29 market participants. These RFI recipients consisted of addi-

tional businesses and individuals that staff had identified during

the first half of the investigation as likely to have relevant informa-

tion and an interest in sharing that information with the Com-

mittee. These RFIs asked for similar information to the September

RFIs and provided staff with additional valuable information and

insights into the functioning and challenges of operating in the dig-

ital marketplace.

Unfortunately, some market participants did not respond to sub-

stantive inquiries due to fear of economic retaliation. These market

participants explained that their business and livelihoods rely on

one or more of the digital platforms. One response stated, ‘‘Unfortu-

nately, [the CEO] is not able to be more public at this time out of

concern for retribution to his business,’’ adding, ‘‘I am pretty cer-

tain we are not the only ones that are afraid of going public.’’

An-

other business that ultimately declined to participate in the inves-

tigation expressed similar concerns, stating, ‘‘We really appreciate

you reaching out to us and are certainly considering going on the

record with our story .... Given how powerful Google is and their

past actions, we are also quite frankly worried about retalia-

tion.’’

Stacy Mitchell, Co-Director of the Institute for Local Self-

Reliance, similarly testified that many businesses have a fear of

speaking out about Amazon, stating, ‘‘I spend a lot of time inter-

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Innovation and Entrepreneurship Hearing at 250 (statement of Stacy F. Mitchell, Co-Dir.,

Inst. for Local Self-Reliance).

Government Oversight, H. C

OMM

ON THE

UDICIARY

, https://judiciary.house.gov/issues/

government-oversight/.

ULES OF

OUSE OF

EPRESENTATIVES

, 116th Cong., lst Sess., Rule X, cl. 1(l)(2)

(2019), http://clerk.house.gov/legislative/house-rules.pdf.

viewing and talking with independent retailers, manufacturers of

all sizes. Many of them are very much afraid of speaking out pub-

licly because they fear retaliation.’’

(b) Antitrust Experts. The Committee’s final round of outreach to

third parties involved sending letters on March 13, 2020, soliciting

insights and analysis from several dozen antitrust experts who

were identified on a bipartisan basis and whose submissions rep-

resent a diverse range of experience and perspectives. In support

of the investigation’s objective to assess the adequacy of existing

antitrust laws, competition policies, and current enforcement lev-

els, the Committee invited submissions on three main topics. The

first topic covered the adequacy of existing laws—case law and

statutes—that prohibit monopolization and monopolistic conduct.

The second topic similarly dealt with the adequacy of existing law,

but focused on its sufficiency to address anticompetitive mergers

and acquisitions, including vertical and conglomerate mergers, se-

rial acquisitions, data acquisitions, and strategic acquisitions of po-

tential competitors. Third, the Committee sought feedback on

whether the institutional structure of antitrust enforcement is ade-

quate to promote the robust enforcement of the antitrust laws, in-

cluding current levels of appropriations to the antitrust agencies,

existing agency authorities, and congressional oversight of enforce-

ment.

the RFIs in September and January, the Subcommittee engaged in

extensive outreach to additional third parties based on public re-

ports and non-public information gathered throughout the inves-

tigation, suggesting that such entities had relevant information.

The Subcommittee also received submissions from numerous in-

dividuals and businesses throughout the course of the investiga-

tion. These submissions came from a wide range of sources and in

a variety of forms. For example, an anonymous source sent thumb

drives to the Committee’s main office in the Rayburn House Office

Building. Other examples included former or current employees

submitting tips to the Subcommittee’s investigation email address,

or through the form for anonymous submissions posted on the Sub-

committee’s investigation website.

4. Antitrust Agencies Requests for Information

As part of the Committee’s September 2019 efforts to gather in-

formation, the Committee also sent requests for information to the

Federal Trade Commission (FTC) and the Department of Justice

(DOJ). In part, the Committee sought this information to carry out

its function as the principal oversight authority for the DOJ, in-

cluding its component agencies, its personnel, and its law enforce-

ment activities.

Similarly, the Committee’s jurisdiction extends

to the FTC’s antitrust-related work, and to administrative practice

and procedure, including at the FTC.

The Committee’s RFIs re-

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The Subcommittee recognizes that publication of these documents could cause competitive

injury to firms that cooperated with prior investigations or in ongoing investigations. Where pos-

sible, this Report summarizes or draws conclusions from these sources without reproducing

them.

Free and Diverse Press Hearing, https://judiciary.house.gov/legislation/hearings/online-

platforms-and-market-power-part-1-free-and-diverse-press.

Innovation and Entrepreneurship Hearing, https://judiciary.house.gov/legislation/hear-

ings/online-platforms-and-market-power-part-2-innovation-and-entrepreneurship.

quested documents relating to the agencies’ decisions to open or

close investigations into potential violations of antitrust law in dig-

ital markets, decisions to challenge mergers or conduct in Federal

district court or in administrative action, and decisions to forego

litigation in favor of a settlement agreement.

Senior officials

from the FTC and the Antitrust Division also provided several

briefings to Members of the Subcommittee and staff in response to

the requests of the Subcommittee Chair and Ranking Member.

These briefings served as an opportunity for Members to obtain in-

formation and updates about the current state of antitrust law and

enforcement in digital markets.

B. Hearings

On June 11, 2019, the Subcommittee held part one of its series

of investigation hearings titled ‘‘Online Platforms and Market

Power, Part 1: The Free and Diverse Press.’’ At this hearing, the

Subcommittee heard testimony from the following Majority wit-

nesses: David Chavern, President of the News Media Alliance;

Gene Kimmelman, President and CEO of Public Knowledge; Sally

Hubbard, Director of Enforcement Strategy at Open Markets Insti-

tute (OMI); and Matthew Schruers, Vice President for Law and

Policy at Computer and Communications Industry Association

(CCIA). The Minority witnesses were David Pitofsky, General

Counsel for News Corp; and Kevin Riley, Editor of The Atlanta

Journal-Constitution.

On July 16, 2019, the Subcommittee held its second hearing, a

two-paneled hearing titled ‘‘Online Platforms and Market Power,

Part 2: Innovation and Entrepreneurship.’’ On the first panel, the

Subcommittee heard testimony from the following: Adam Cohen,

Director of Economic Policy at Google; Nate Sutton, Associate Gen-

eral Counsel, Competition, at Amazon; Matt Perault, Head of Glob-

al Policy Development at Facebook; and Kyle Andeer, Vice Presi-

dent and Corporate Law and Chief Compliance Officer at Apple.

On the second panel, the Subcommittee heard testimony from the

following Majority witnesses: Timothy Wu, Julius Silver Professor

of Law, Science and Technology at Columbia Law School; Fiona

Scott Morton, Theodore Nierenberg Professor of Economics at Yale

University School of Management; and Stacy Mitchell, Co-Director

of the Institute for Local Self-Reliance. On the second panel, the

Minority witnesses were Maureen Ohlhausen, Partner at Baker

Botts and former Commissioner and Acting Chair of the Federal

Trade Commission; Morgan Reed, Executive Director of The App

Association; and Carl Szabo, Vice President and General Counsel

at NetChoice.

On October 18, 2019, the Subcommittee held its third hearing ti-

tled ‘‘Online Platforms and Market Power, Part 3: The Role of Data

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Data and Privacy Hearing, https://judiciary.house.gov/calendar/eventsingle.aspx?Event

ID=2248.

Online Platforms and Market Power, Part 4: Perspectives of the Antitrust Agencies: Hearing

Before the Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judici-

ary, 116th Cong. (2019) [hereinafter Antitrust Agencies Hearing], https://judiciary.house

.gov/calendar/eventsingle.aspx?EventID=2287.

Online Platforms and Market Power, Part 5: Competitors in the Digital Economy: Hearing

Before the Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judici-

ary, 116th Cong. (2020) [hereinafter Competitors Hearing], https://judiciary.house.gov/

calendar/eventsingle.aspx?EventID=2386.

Online Platforms and Market Power, Part 6: Examining the Dominance of Amazon, Apple,

Facebook, and Google: Hearing Before the Subcomm. on Antitrust, Commercial and Admin. Law

of the H. Comm. on the Judiciary, 116th Cong. (2020) [hereinafter CEO Hearing], https://

judiciary.house.gov/calendar/eventsingle.aspx?EventID=3113.

and Privacy in Competition.’’ At this hearing, the Subcommittee

heard testimony from the following Majority witnesses: The Honor-

able Rohit Chopra, Commissioner at the Federal Trade Commis-

sion; Dr. Jason Furman, Professor of the Practice of Economic Pol-

icy at Harvard Kennedy School and former Chair of the Council of

Economic Advisers (CEA); and Dr. Tommaso Valletti, Professor of

Economics and Head of the Department of Economics & Public Pol-

icy at Imperial College Business School and former Chief Competi-

tion Economist of the European Commission’s Directorate General

for Competition (DG–Comp). The Minority witness at the hearing

was Dr. Roslyn Layton, Visiting Scholar at the American Enter-

prise Institute.

On November 13, 2019, the Subcommittee held its fourth hearing

titled ‘‘Online Platforms and Market Power, Part 4: Perspectives of

the Antitrust Agencies.’’ At this hearing, the Subcommittee heard

testimony from the following witnesses: The Honorable Makan

Delrahim, Assistant Attorney General for the Antitrust Division at

the Department of Justice; and the Honorable Joseph J. Simons,

Chair of the Federal Trade Commission.

On January 17, 2020, the Subcommittee held its fifth hearing ti-

tled ‘‘Field Hearing: Online Platforms and Market Power, Part 5:

Competitors in the Digital Economy.’’ At this hearing, which took

place in the congressional district of Subcommittee Vice-Chair Joe

Neguse (D–CO) at the University of Colorado School of Law, the

Subcommittee heard testimony from the following Majority wit-

nesses: Patrick Spence, Chief Executive Officer of Sonos; David

Barnett, Founder and Chief Executive Officer of PopSockets; and

Kirsten Daru, Vice President and General Counsel at Tile. The Mi-

nority witness at the hearing was David Heinemeier Hansson, Co-

founder and Chief Technology Officer of Basecamp.

On July 29, 2020, the Subcommittee held its sixth hearing titled

‘‘Online Platforms and Market Power, Part 6: Examining the Domi-

nance of Amazon, Apple, Facebook, and Google.’’ At this hearing,

the Subcommittee heard testimony from the following witnesses:

Jeff Bezos, Chief Executive Officer at Amazon; Sundar Pichai,

Chief Executive Officer at Alphabet and Google; Tim Cook, Chief

Executive Officer at Apple; and Mark Zuckerberg, Chief Executive

Officer at Facebook.

On October 1, 2020, the Subcommittee held its seventh hearing

titled ‘‘Proposals to Strengthen the Antitrust Laws and Restore

Competition Online.’’ The Majority witnesses at the hearing in-

cluded: William Baer, Visiting Fellow, Brookings Institution, and

former Associate Attorney General, Department of Justice; Zephyr

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Online Platforms and Market Power, Part 7: Proposals to Strengthen the Antitrust Laws

and Restore Competition Online: Hearing Before the Subcomm. on Antitrust, Commercial and

Admin. Law of the H. Comm. on the Judiciary, 116th Cong. (2020) [hereinafter Remedies Hear-

ing], https://judiciary.house.gov/calendar/eventsingle.aspx?EventID=3367.

This roundtable was originally scheduled to take place physically as a field hearing in Prov-

idence, Rhode Island, but was held virtually due to the COVID–19 pandemic.

Teachout, Associate Professor of Law, Fordham University School

of Law; Michael Kades, Director of Markets and Competition Pol-

icy, Washington Center for Equitable Growth; Sabeel Rahman, As-

sociate Professor of Law, Brooklyn Law School and President,

Demos; and Sally Hubbard, Director of Enforcement Strategy,

Open Markets Institute. The Minority witnesses at the hearing

were Christopher Yoo, John H. Chestnut Professor of Law, Commu-

nication, and Information Science, University of Pennsylvania

Carey Law School; Rachel Bovard, Senior Director of Policy, Con-

servative Partnership Institute; and Tad Lipsky, Antonin Scalia

Law School, George Mason University.

C. Roundtables

In addition to holding public hearings, the Subcommittee also

held a series of bipartisan roundtables for Members of the Sub-

committee and staff to provide Members with an opportunity to

conduct further oversight of: (1) the state of competition and prob-

lems in digital markets; (2) whether dominant firms have engaged

in anticompetitive conduct; and (3) if antitrust laws, competition

policies, and current enforcement levels are adequate to address

these issues. In total, the Subcommittee held twelve briefings and

roundtables in Washington, DC; four roundtables in Boulder, Colo-

rado; and a virtual roundtable with stakeholders from Rhode Is-

land and elsewhere in New England.

The Subcommittee hosted multiple briefings and roundtables

with experts on the digital economy on a range of topics. Experts

included state antitrust enforcers, former officials from the Anti-

trust Division of the DOJ and the FTC, former technology industry

executives, small business owners, representatives from the news

industry, entrepreneurs, antitrust scholars, representatives from

civil society, and representatives from libraries.

The briefings and roundtables covered a broad array of topics re-

lated to competition in the digital marketplace. These topics in-

cluded:

• The effect that small algorithm changes by dominant platforms can have on

small businesses that rely on the platform;

• The data advantages that dominant online platform companies have over

smaller competitors and startups, and how those data advantages can rein-

force dominance and serve as a barrier to entry;

• The effect of dominant online platform company power and practices on a free

and diverse press, local newsgathering and reporting;

• The impact of dominant online platform company power and practices on in-

vestment in startups by venture capital firms;

• The fear of economic retaliation by dominant platforms against smaller compa-

nies that raise concerns about anticompetitive conduct in the digital market-

place;

• Other features of digital markets—including, but not limited to, network ef-

fects, economies of scale and scope, and barriers to entry—that make them

prone to high concentration and monopolization;

• Enforcement of the antitrust laws; and

• Modernization of antitrust statutes and competition policy.

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H. R

. N

. 82–255, at 2 (1951) (Aluminum: Report of the Subcomm. on Study of Monopoly

Power of the H. Comm. on the Judiciary).

See, e.g., H. R

. N

. 87–1419, at 2 (1962) (The Ocean Freight Industry: Report of the Anti-

trust Subcomm. of the H. Comm. on the Judiciary) [hereinafter 1962 Ocean Freight Industry

Report] (describing how Subcommittee staff spent more than nine months examining ‘‘tens of

thousands of documents in the files of over 50 ocean-freight conferences’’ and other materials).

ULES OF THE

OUSE OF

EPRESENTATIVES

, 116th Cong., lst Sess., Rule X, cl. 1(l)(2) (2019),

http://clerk.house.gov/legislative/house-rules.pdf.

Additionally, the Subcommittee held briefings that also allowed

representatives from Google, Amazon, Facebook, and Apple to

make their own presentations to the Subcommittee and to answer

questions and provide details regarding their companies’ business

practices, structures, and strategies in the marketplace.

D. Prior Investigations

The Subcommittee’s current review of competition in the digital

marketplace continues a long oversight tradition. Over many dec-

ades, the House Judiciary Committee and its antitrust sub-

committee have conducted careful, fact-based inquiries into indus-

trial sectors showing signs of undue concentration and anticompeti-

tive conduct. As a 1951 report from the then-named Subcommittee

on the Study of Monopoly Power described its mandate, ‘‘It is the

province of this subcommittee to investigate factors which tend to

eliminate competition, strengthen monopolies, injure small busi-

ness, or promote undue concentration of economic power; to ascer-

tain the facts, and to make recommendations based on those find-

ings.’’

The Subcommittee followed the same process ‘‘to ascertain the

facts’’ in this investigation. It has included hearings with industry

and government witnesses, consultations with subject-matter ex-

perts, and a careful—and at times painstaking—review of large

volumes of evidence provided by industry participants and regu-

lators. Recognizing that antitrust investigations are by their nature

fact-dependent, teams of investigators invested significant re-

sources to study the structure of the relevant markets and the im-

portant firms in those markets.

The purpose of these exercises was not to supersede the activities

of antitrust enforcers such as the FTC and the DOJ, but to compile

the Committee’s own record about current market conditions; to as-

sess how antitrust laws and principles are being applied in the cur-

rent business environment; and to determine whether revised laws,

or new laws, or better enforcement are needed to protect competi-

tion.

While the Committee’s investigations were not intended to inter-

fere with the enforcement activities of antitrust enforcers or regu-

lators, they often conducted inquiries into the same sectors and

issues that the DOJ, the FTC, the Federal Communications Com-

mission (FCC), and other agencies with authority over competition

policy or enforcement were also examining. As Members and staff

of the Committee charged with the ‘‘protection of trade and com-

merce against unlawful restraints and monopolies,’’

these inves-

tigators exercised their legislative authority to probe any aspect of

antitrust that they deemed warranted attention.

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H. R

. N

. 102–850, at 15 (1992) (Report on Antitrust Reform Act of 1992, H. Comm.

on the Judiciary) [hereinafter Antitrust Reform Act of 1992].

H. R

. N

. 82–1217, at 1 (1951) (The Mobilization Program: Report of the Subcomm. on

Study of Monopoly Power of the H. Comm. on the Judiciary).

Id. at 2.

H. R

. N

. 85–1328, at 1 (1958) (The Airlines Industry: Report of the Antitrust Subcomm.

of the H. Comm. on the Judiciary) [hereinafter Airlines Industry Report].

1962 Ocean Freight Industry Report at 394.

Antitrust Reform Act of 1992 at 10.

Airlines Industry Report at 268–69.

Id. at 272.

Id. at 278.

H. R

. N

. 85–607, at 143 (1957) (The Television Broadcasting Industry: Report of the

Antitrust Subcomm. of the Comm. on the Judiciary).

These investigations were guided by the principle that ‘‘[h]istory

has proven that the most conducive environment for innovation

and new product availability is a competitive market,’’

and that

a ‘‘free competitive economy’’ is an important American value.

was a value that had been formally embedded in our economy and

society by the Sherman Act of 1890, ‘‘the peculiarly American char-

ter of economic freedom.’’

In a 1958 report on the airline indus-

try, the then-named Antitrust Subcommittee explained that Ameri-

cans’ social and political freedoms depended on ‘‘opportunity for

market access and market rivalries in a private-enterprise econ-

omy.’’

The ‘‘freedom of entry into any industry or field of endeav-

or,’’ a 1962 Subcommittee report explained, is a cornerstone of U.S.

antitrust policy that has ‘‘encouraged extensive individual propri-

etorship . . . and has made our free enterprise system great and

strong.’’

A 1992 Committee report recommended restrictions on

the monopolistic Regional Bell Operating Companies (RBOCs) ‘‘[f]or

the sake of the democratic economic and political values which de-

pend on the preservation of free markets.’’

In some cases, antitrust investigations exposed antitrust prob-

lems that the Committee concluded required attention from regu-

lators. For example, a 1958 Antitrust Subcommittee report on the

rapidly growing domestic airline industry exposed the behind-the-

scenes anticompetitive campaign that incumbent air carriers and

their advocacy group, the Air Transport Association of America

(ATA), had been waging to prevent the Civil Aeronautics Board

(CAB) from approving market entry by new air carriers (known at

the time as ‘‘nonskeds’’).

The Committee found the conduct of the

ATA so egregious that it recommended an investigation by the DOJ

Antitrust Division.

As for international air transportation, the re-

port concluded that Pan American’s dominance in the market was

the ‘‘result of its use of devices to foreclose competition in order to

secure and maintain control over markets in which it does busi-

ness,’’ and recommended that the CAB undertake a broad inves-

tigation of the company.

In other cases, the Committee investigated matters that were

currently under review by antitrust enforcers. In a 1957 report on

the broadcast television industry, which was quickly reshaping

Americans’ consumption of news and entertainment, the then-

named Antitrust Subcommittee described the anticompetitive tac-

tics CBS and NBC were using to promote their own content at the

expense of independent content producers.

According to the re-

port, networks were improperly using their power as vertical dis-

tributors of content to extract financial concessions from inde-

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Id.

Antitrust Reform Act of 1992 at 39 (‘‘The FCC, while claiming boldly to be a forum where

complaints about monopolistic practices would be received and vigorously pursued had, instead,

become a regulatory ‘graveyard’ for telecommunications competition policy, characterized by in-

action and equivocation.’’).

Id. at 45.

Id. at 51.

Id. at 10. The report explained that the RBOCs’ bottleneck, in antitrust terminology, func-

tioned as an ‘‘essential facility,’’ which gave them ‘‘an inherent ability and—for activities in

which they are engaged themselves—a natural incentive to impede competition in lines of busi-

ness dependent upon that essential facility.’’ Id. at 13.

H.R. 5096 (102nd Cong.); H.R. 3626 (103rd Cong.); see H. R

. N

. 103–559, pt. II, at 25

(1994) (Report on Antitrust and Communications Reform Act of 1994, H. Comm. on the Judici-

ary) (‘‘The Judiciary Committee has resolved that the Government not lose its nerve once again

and allow an industry born in monopoly to be reborn in monopoly.’’). The procompetitive policies

proposed in this legislation later became law, in modified form, as part of the Telecommuni-

cations Act of 1996. See Pub. L. No. 104–104, §151(a), 110 Stat. 56, 86–107 (codified at 42

U.S.C. 271–276).

pendent competitors seeking to place their programming on net-

work affiliates.

There was also evidence that the networks were

using their substantial power with advertisers to unfairly favor

their own content.

After praising the DOJ Antitrust Division’s

‘‘alertness to vindicate the competitive dictates of the antitrust

laws,’’ the Subcommittee urged the Division to press its investiga-

tion into this conduct with ‘‘vigor and dispatch.’’

In the case of the Committee’s inquiry into the RBOCs’ conduct

in the aftermath of the 1984 breakup of AT&T, we concluded that

federal courts and regulators were not adequately protecting com-

petition in the telecommunications marketplace and that new legis-

lation was necessary. A 1992 Committee report reviewed the long,

troubled history of attempts by DOJ and the FCC

to check the

monopolistic power of AT&T, culminating in the famous Modified

Final Judgment (the MFJ) that Judge Harold Greene approved in

August 1982 to break up the company.

But even after the MFJ,

the report found, the FCC had failed to prevent the RBOCs from

using their local monopolies to commit a number of anticompetitive

violations, ‘‘many eerily reminiscent of pre-divestiture Bell System

abuses.’’

We were also critical of the DOJ’s actions to water down

the MFJ’s procompetitive line-of-business restrictions on the

RBOCs. Describing the massive lobbying campaign that the RBOCs

were waging to enter the business lines the MFJ had opened up

to competitors, we observed, ‘‘The thousands upon thousands of

competitive enterprises now thriving in information service, tele-

communications equipment, and long distance markets face the

prospect of their future prosperity being decided by the self-inter-

ested designs of a monopoly with ‘bottleneck’ control over the local

telephone exchange on which they all depend.’’

In light of the

antitrust agencies’ demonstrated failure to protect competition, the

Committee approved legislation that would codify the MFJ’s line-

of-business restrictions into law.

Finally, in these prior investigations, the Committee has not

hesitated to recommend that antitrust authorities further inves-

tigate suspicious conduct. After examining the conduct of the Air

Transport Association of America, the industry group representing

the established passenger airline carriers in the 1950s, the Anti-

trust Subcommittee recommended that the Antitrust Division of

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Airlines Industry Report at 272.

Innovation and Entrepreneurship Hearing at 76 (statement of Tim Wu, Julius Silver Prof.

of Law, Columbia Univ. Sch. of Law).

Id.; Roger McNamee, Co-Founder & Managing Dir., Elevation Partners, Remarks at Ven-

ture Capital and Antitrust Workshop 34 (Feb. 12, 2020), https://www.justice.gov/atr/page/file/

1255851/download (‘‘[T]here is a case that antitrust has in fact been a major catalysis of growth

in every wave of technology.’’).

Antitrust Agencies Hearing at 37 (statement of Makan Delrahim, Assistant Att’y Gen., U.S.

Dep’t of Justice, Antitrust Div.) (‘‘Competition also promotes improvements and upgrades to the

quality and functionality of existing offerings.’’); Jeffrey A. Rosen, Deputy Att’y Gen., U.S. Dep’t

of Justice, Speech at the Free State Foundation’s 12th Annual Telecom Policy Conference (Mar.

10, 2020), https://www.justice.gov/opa/speech/deputy-attorney-general-jeffrey-rosen-speaks-free-

state-foundations-12th-annual-telecom; Giulio Federico, Fiona Scott Morton & Carl Shapiro,

Antitrust and Innovation: Welcoming and Protecting Disruption 1 (Nat’l Bur. of Econ. Rsch.,

Working Paper No. 26005, June 2019), https://www.nber.org/papers/w26005.pdf.

Innovation and Entrepreneurship Hearing at 209 (statement of Maureen K. Ohlhausen,

Partner, Baker Botts L.L.P.) (‘‘Antitrust law’s focus on protecting the competitive process does

not mean that it cannot reach many of the competitive concerns . . . [that] may include price

effects, reductions in quality, and impacts on innovation, as well as the ability of a dominant

player to acquire and neutralize a nascent competitor.’’); id. at 84 (statement of Fiona Scott Mor-

ton, Theodore Nierenberg Prof. of Econ., Yale Sch. of Mgmt.) (‘‘The harms from insufficient com-

petition appear in prices that are higher than competitive prices, quality that is lower than com-

petitive quality, and less innovation than consumers would benefit from in competitive mar-

kets.’’).

Id. at 84.

See generally Jeffrey A. Rosen, Deputy Att’y Gen., U.S. Dep’t of Justice, Speech at the Free

State Foundation’s 12th Annual Telecom Policy Conference (Mar. 10, 2020), https://

www.justice.gov/opa/speech/deputy-attorney-general-jeffrey-rosen-speaks-free-state-foundations-

12th-annual-telecom (referencing research by economist Kenneth Arrow).

Data and Privacy Hearing at 60 (statement of Jason Furman, Prof. of the Prac. of Econ.

Pol’y, Harvard Kennedy Sch.).

Innovation and Entrepreneurship Hearing at 79 (statement of Tim Wu, Julius Silver Prof.

of Law, Columbia Univ. Sch. of Law).

Id. at 84. See also Sai Krishna Kamepalli, Raghuram Rajan & Luigi Zingales, Kill Zone

(Univ. of Chi., Becker Friedman Inst. for Econ., Working Paper No. 2020–19, Apr. 2020),

https://ssrn.com/abstract=3555915.

the DOJ further investigate the ‘‘serious antitrust problems’’ it had

identified.

III. BACKGROUND

A. Overview of Competition in Digital Markets

1. The Role of Competition Online

At a fundamental level, competition has been a key engine of eco-

nomic activity in the United States,

resulting in the ‘‘pioneering

of entire industries that, in time, come to employ millions and gen-

erate trillions.’’

This is especially true in the digital economy. As

in other industries, competition in digital markets incentivizes in-

cumbent firms and new entrants to build new technologies and im-

prove business processes.

It spurs capital investment and

incentivizes firms to improve the quality of their offerings.

In its

absence, incumbent firms lack the incentive to invest in research

and development.

This in turn slows the rate of innovation across

the industry.

Disruptive new products or services are replaced

with slow, incremental alterations

‘‘designed to protect [incum-

bent firms’] existing revenue streams.’’

Slowly but surely, ven-

ture capitalists lose the incentive to invest in new entrants willing

to challenge the dominance of incumbent firms through direct com-

petition.

What we are left with are so-called ‘‘kill zones’’—the

near-complete absence of competition.

The benefits of robust competition in the digital economy go be-

yond innovation and productivity. It can also spur firms to compete

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Data and Privacy Hearing at 54 (statement of Tommaso Valletti, Prof. of Econ., Imperial

Coll. Bus. Sch.) (‘‘Quality, choice, and innovation are also important aspects for competition and

for consumer welfare.’’); Innovation and Entrepreneurship Hearing at 207–09 (statement of

Maureen K. Ohlhausen, Partner, Baker Botts L.L.P.).

100

Data and Privacy Hearing at 42 (statement of Rohit Chopra, Comm’r, Fed. Trade Comm’n)

(‘‘These services do have a price, and you are paying for them with your data.’’); id. at 60 (state-

ment of Jason Furman, Prof. of the Prac. of Econ. Pol’y, Harvard Kennedy Sch.) (‘‘Consumers

may think they are receiving ‘free’ products but they are paying a price for these products in

a number of ways.’’).

101

Innovation and Entrepreneurship Hearing at 209 (statement of Maureen K. Ohlhausen,

Partner, Baker Botts L.L.P.); Data and Privacy Hearing at 60–61 (statement of Jason Furman,

Prof. of the Prac. of Econ. Pol’y, Harvard Kennedy Sch.); id. at 138 (George Slover, Senior Pol’y

Couns., Consumer Reps., Justin Brookman, Dir., Privacy & Tech. Pol’y, Consumer Reps. & Jona-

than Schwantes, Senior Pol’y Couns., Consumer Reps.) (‘‘[A] dominant platform can disregard

the interests of consumers in protecting their privacy, and design their platform to maximize

its ability to monitor, monetize, and manipulate our personal interactions as consumers and as

citizens.’’).

102

Data and Privacy Hearing at 55 (statement of Tommaso Valletti, Prof. of Econ., Imperial

Coll. Bus. Sch.).

103

Id. at 59 (statement of Jason Furman, Prof. of the Prac. of Econ. Pol’y, Harvard Kennedy

Sch.). Other anticompetitive practices in digital markets—such as product design, self-

preferencing, and anticompetitive contracting, among others—may also contribute to barriers

that impede entry by rivals or new firms. While these issues are also present in other markets,

they are much more pronounced in digital markets.

104

Id.

105

Stigler Report at 29, 35.

106

Data and Privacy Hearing at 59–60 (statement of Jason Furman, Prof. of the Prac. of

Econ. Pol’y, Harvard Kennedy Sch.).

107

U.K. C

OMPETITION &

KTS

. A

UTH

., O

NLINE

LATFORMS AND

IGITAL

DVERTISING

, M

KET

TUDY

INAL

EPORT

10–11 (2020) [hereinafter Competition & Mkts. Auth. Report].

108

Data and Privacy Hearing at 58 (statement of Jason Furman, Prof. of the Prac. of Econ.

Pol’y, Harvard Kennedy Sch.).

along other dimensions such as privacy and data protection. As a

general matter, inadequate competition not only leads to higher

prices and less innovation in many cases, but it can also reduce the

quality of goods and services.

Given that many digital products

do not charge consumers directly for services, these firms often

compete on quality.

100

Along these lines, lack of competition can re-

sult in eroded privacy and data protection.

101

Growing evidence in-

dicates that a lack of competition goes hand in hand with just such

quality degradation.

102

2. Market Structure

(a) Winner-Take-All Markets. Certain features of digital markets-

such as network effects, switching costs, the self-reinforcing advan-

tages of data, and increasing returns to scale-make them prone to

winner-take-all economics.

103

As a result, many technology mar-

kets ‘‘tip’’ in favor of one or two large companies,

104

shifting the

‘‘the competitive process from competition in the market to com-

petition for the market.’’

105

In turn, high barriers to entry may di-

minish the ability of new firms to challenge incumbent firms, fur-

ther undermining the competitive process and protecting the domi-

nance of existing firms.

106

As the United Kingdom’s Competition

and Markets Authority explains:

[I]f potential competitors face substantial barriers to entry and expansion, such

that the market is no longer properly contestable, then a high market share can

translate into market power, giving the platform the opportunity to increase

prices, reduce quality or leverage market power to undermine competition in po-

tentially competitive markets and deny innovative rivals the chance to bring new

services to market.

107

(b) Market Concentration. Consistent with winner-take-all dy-

namics, the digital economy is highly concentrated.

108

A number of

key markets online—such as social media, general online search,

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109

Id. at 59; Innovation and Entrepreneurship Hearing at 78 (statement of Tim Wu, Julius

Silver Prof. of Law, Columbia Univ. Sch. of Law).

110

Tim Wu & Stuart A. Thompson, The Roots of Big Tech Run Disturbingly Deep, N.Y. T

IMES

(June 7, 2019), https://www.nytimes.com/interactive/2019/06/07/opinion/google-facebook-

mergers-acquisitions-antitrust.html; see Visualizing Tech Giants’ Billion-Dollar Acquisitions, CB

NSIGHTS

(May 5, 2020), https://perma.cc/KJD9-HT3Z.

111

Although several transactions, including Google’s acquisition of ITA in 2010, were subject

to settlements, U.S. antitrust enforcers did not attempt to prevent the consummation of these

transactions.

112

Tim Wu & Stuart A. Thompson, The Roots of Big Tech Run Disturbingly Deep, N.Y. T

IMES

(June 7, 2019), https://www.nytimes.com/interactive/2019/06/07/opinion/google-facebook-

mergers-acquisitions-antitrust.html; Carl Shapiro, Antitrust in a Time of Populism, 61 I

’

. J.

NDUS

. O

. 714, 739–40 (2018), https://faculty.haas.berkeley.edu/shapiro/antitrustpopulism

.pdf.

113

Colleen Cunningham, Florian Ederer & Song Ma, Killer Acquisitions 1 (Yale Sch. of

Mgmt., Working Paper, 2020), https://ssrn.com/abstract=3241707 (describing the practice

whereby ‘‘an incumbent firm may acquire an innovative target and terminate the development

of the target’s innovations to preempt future competition’’). See also C. Scott Hemphill & Tim

Wu, Nascent Competitors, 168 U. P

. L. R

. 1879, 1880 (2020), https://perma.cc/62HH-34ZL

(‘‘A nascent competitor is a firm whose prospective innovation represents a serious future threat

to an incumbent.’’).

114

Mark Lemley & Andrew McCreary, Exit Strategy 24–45 (Stanford Law Sch., John M. Olin

Program in Law & Econ., Working Paper No. 542, 2020), https://ssrn.com/abstract=3506919.

115

Id.

116

See infra Section V.

and online advertising—are dominated by just one or two

firms.

109

In some instances, this concentration is the result of a

high volume of acquisitions by the dominant digital platforms. To-

gether, the largest technology firms have acquired hundreds of

companies in the last ten years.

110

Antitrust enforcers in the

United States did not block any of these transactions,

111

many of

which eliminated actual or potential competitors.

112

In some in-

stances these acquisitions enabled the dominant firm to neutralize

a competitive threat; in other instances, the dominant firm shut

down or discontinued the underlying product entirely—transactions

aptly described as ‘‘killer acquisitions.’’

113

Evidence also suggests that the venture capital industry, which

plays a critical role in funding innovative startups, contributes to

market consolidation by encouraging startups to exit via a sale to

an incumbent firm.

114

As initial public offerings (IPOs) have be-

come more expensive and time-consuming in recent decades, ven-

ture capitalists have shown a preference for realizing their invest-

ments through acquisitions rather than through public markets.

115

Apple, Facebook, and Google have captured control over key chan-

nels of distribution, they have come to function as gatekeepers. A

large swath of businesses across the U.S. economy now depend on

these gatekeepers to access users and markets. In interviews with

the Subcommittee, numerous businesses described how dominant

platforms exploit this gatekeeper power to dictate terms and ex-

tract concessions that third parties would not consent to in a com-

petitive market.

116

According to these companies, these types of

concessions and demands carry significant economic harm but are

‘‘the cost of doing business’’ given the lack of options.

Their role as gatekeepers also gives the dominant platforms out-

sized power to control the fates of other businesses. Reflecting this

fact, several major publicly owned firms that rely on the dominant

platforms have noted in investor statements that this dependent

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117

Gerrit De Vynck, The Power of Google and Amazon Looms Over Tech IPOs, B

LOOMBERG

(July 1, 2019), https://www.bloomberg.com/news/articles/2019-07-01/google-s-and-amazon-s-

power-looms-over-procession-of-tech-ipos (noting that 17 of 22 initial public offerings by tech-

nology companies cited online platforms as competitors or risks to their businesses).

118

Id.

119

Id.

120

Id.

121

See infra Section V.

122

See Press Release, Eur. Comm’n, Antitrust: Commission Opens Investigation into Possible

Anti-competitive Conduct of Amazon (July 17, 2019), https://ec.europa.eu/commission/

presscorner/detail/en/IPl19l4291 (‘‘Based on the Commission’s preliminary fact-finding,

Amazon appears to use competitively sensitive information—about marketplace sellers, their

products and transactions on the marketplace.’’).

123

Tripp Mickle, Apple Dominates App Store Search Results, Thwarting Competitors, W

ALL

. J. (July 23, 2019), https://www.wsj.com/articles/apple-dominates-app-store-search-results-

thwarting-competitors-11563897221.

124

Jack Nicas & Daisuke Wakabayashi, Sonos, Squeezed by the Tech Giants, Sues Google,

N.Y. T

IMES

(Jan. 7, 2020), https://www.nytimes.com/2020/01/07/technology/sonos-sues-

google.html.

125

Reed Albergotti, Apple Says Recent Changes to Operating System Improve User Privacy,

but Some Lawmakers See Them as an Effort to Edge out Its Rivals, W

ASH

. P

OST

(Nov. 26, 2019),

https://www.washingtonpost.com/technology/2019/11/26/apple-emphasizes-user-privacy-law-

makers-see-it-an-effort-edge-out-its-rivals/; Jason Del Rey, An Amazon Revolt Could Be Brewing

as the Tech Giant Exerts More Control over Brands, V

: R

ECODE

(Nov. 29, 2018), https://

www.vox.com/2018/11/29/18023132/amazon-brand-policy-changes-marketplace-control-one-

vendor.

relationship creates an inherent risk to their businesses.

117

For ex-

ample, Lyft, a ride-sharing company, has cited its use of Amazon’s

cloud services and Google Maps as a potential risk to its business

model.

118

As Lyft stated in a filing, ‘‘Some of our competitors or

technology partners may take actions which disrupt the interoper-

ability of our platform with their own products or services.’’

119

Pinterest, a photo-sharing service, likewise noted in a financial fil-

ing that changes to Google’s search algorithm may harm Pinterest.

As it noted, Pinterest’s ‘‘ability to maintain and increase the num-

ber of visitors directed to our service from search engines is not

within our control. Search engines, such as Google, may modify

their search algorithms and policies or enforce those policies in

ways that are detrimental to us.’’

120

In submissions and inter-

views with the Subcommittee, many companies reiterated the gen-

eral concern that a single act or decision by one of the dominant

platforms could wreck their businesses.

Since the dominant platforms in many cases have also integrated

into adjacent lines of business, these firms operate both as key

intermediaries for third-party companies as well as direct competi-

tors to them. Numerous entrepreneurs, small businesses, and

major companies told the Subcommittee that the dominant plat-

forms’ dual role raises significant competition concerns.

121

In re-

cent years, significant reporting has documented how the dominant

platforms can exploit this dual role, through data exploitation,

122

self-preferencing,

123

appropriation of key technologies,

124

and ab-

rupt changes to a platform’s policies.

125

The Subcommittee’s inves-

tigation uncovered numerous examples of this exploitative conduct,

suggesting that these are increasingly systemic, rather than iso-

lated, business practices.

3. Barriers to Entry

(a) Network Effects. Digital markets tend to be characterized by

strong network effects, making them prone to concentration and

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126

HAMBAUGH

, R

YAN

UNN

, A

UDREY

REITWISER &

ATRICK

, B

ROOKINGS

NST

., T

TATE OF

OMPETITION AND

YNAMISM

: F

ACTS

BOUT

ONCENTRATION

, S

TART

-U

AND

LATED

OLICIES

10 (2018), https://www.brookings.edu/wp-content/uploads/2018/06/ESl

THPl20180611lCompetitionFactsl20180611.pdf.

127

See Luigi Zingales & Guy Rolnik, A Way To Own Your Social-Media Data, N.Y. T

IMES

(June 30, 2017), https://www.nytimes.com/2017/06/30/opinion/social-data-google-facebook-

europe.html.

128

AURICE

E. S

TUCKE &

LLEN

P. G

RUNES

, B

ATA AND

OMPETITION

OLICY

163 (2016).

129

Id.

130

Id.

131

Stigler Report at 38.

132

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–00063222 (Feb.

27, 2012), https://judiciary.house.gov/uploadedfiles/0006322000063223.pdf.

133

See Stigler Report at 40.

134

See Dig. Competition Expert Panel Report at 35.

monopolization.

126

There are two types of network effects: direct

and indirect. In markets with direct network effects, the more peo-

ple who use a product or service, the more valuable that product

or service becomes to other users.

127

By contrast, indirect network

effects arise when greater use of a product or service forms a new

type of standard and increases the incentive for third parties to in-

vest in developing compatible technologies, which in turn reinforces

the popularity of the original product or service with users.

128

Online platforms display strong network effects because they

connect disparate market segments. For example, online commerce

platforms like Amazon connect buyers and sellers. Just as with so-

cial networks, the value of Amazon Marketplace increases as more

users—both sellers and buyers—engage with the plat-

form.

129

Similarly, the value of online platforms that facilitate ad-

vertising, such as Google, increases with the number of users, as

advertisers gain access to a larger consumer base and therefore to

a larger trove of consumer data.

130

Similarly, social networks like Facebook exhibit powerful direct

network effects because they become more valuable as more users

engage with the network—no person wants to be on a social net-

work without other users.

131

Meanwhile, once a firm captures a

network it can become extremely difficult to dislodge or replace. As

Mark Zuckerberg explained to then-CFO David Ebersman the ben-

efits that would accrue to Facebook from acquiring Instagram:

[T]here are network effects around social products and a finite number of dif-

ferent social mechanics to invent. Once someone wins at a specific mechanic, it’s

difficult for others to supplant them without doing something different. It’s pos-

sible someone beats Instagram by building something that is better to the point

that they get network migration, but this is harder as long as Instagram keeps

running as a product.

132

Strong network effects serve as a powerful barrier to entry for

new firms to enter a market and displace the incumbent.

133

When

combined with other entry barriers such as restrictions on con-

sumers or businesses easily switching services, network effects all

but ensure not just market concentration but durable market

power.

134

(b) Switching Costs. Switching costs present another barrier for

potential market entrants. In many cases, large technology firms

can maintain market power in part because it is not easy for users

to switch away from the incumbent’s technology. A market exhibits

‘‘lock-in’’ when switching costs are sufficiently high that users stay

with an incumbent firm rather than switch to a firm whose product

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135

AURICE

E. S

TUCKE &

LLEN

P. G

RUNES

, B

ATA AND

OMPETITION

OLICY

159 (2016).

136

Id.

137

Data and Privacy Hearing at 134 (statement of Dina Srinivasan, Fellow, Yale Thurman

Arnold Project).

138

Dig. Competition Expert Panel Report at 36. Unlike the European Union, which provides

internet users with a right to data portability, the U.S. does not have any law requiring online

platforms to make data portable. Platforms like Google and Facebook are therefore largely unin-

hibited in imposing switching costs for users, hurting competition in the process. Allen St. John,

Europe’s GDPR Brings Data Portability to U.S. Consumers, C

ONSUMER

EPS

. (May 25, 2018),

https://www.consumerreports.org/privacy/gdpr-brings-data-portability-to-us-consumers; see also

Chris Dixon, The Interoperability of Social Networks, B

. I

NSIDER

(Nov. 10, 2010), https://

www.businessinsider.com/the-interoperability-of-social-networks-2011-2; Josh Constine, Friend

Portability Is the Must-Have Facebook Regulation, T

ECH

RUNCH

(May 12, 2019), https://

technologycrunch.com/2019/05/12/friends-wherever.

139

Dig. Competition Expert Panel Report at 23.

140

Maurice E. Stucke, Should We Be Concerned About Data-opolies?, 2 G

. L. T

ECH

. R

275, 323 (2018) (discussing the dynamics of data-driven network effects).

141

AURICE

E. S

TUCKE &

LLEN

P. G

RUNES

, B

ATA AND

OMPETITION

OLICY

36–50

(2016); Patrick Barwise & Leo Watkins, The Evolution of Digital Dominance: How and Why We

Got to GAFA, in D

IGITAL

OMINANT

: T

OWER OF

OOGLE

, A

MAZON

, F

ACEBOOK

AND

PPLE

21, 28–29 (2018), http://www.lse.ac.uk/law/Assets/Documents/orla-lynskey/orla-3.pdf.

142

AURICE

E. S

TUCKE &

LLEN

P. G

RUNES

, B

ATA AND

OMPETITION

OLICY

23–34

(2016).

143

Id. at 34.

or service they would prefer.

135

Over time, lock-in tends to reduce

competition, deter market entry, and may even worsen data pri-

vacy.

136

High switching costs are a central feature of digital search and

social media platforms, such as Google and Facebook, where users

contribute data to the platform but may not be able to migrate that

data to a competing platform. For example, a user may upload a

variety of data to Facebook, including photos and personal informa-

tion, but may not be able to easily download that data and move

it to another social media site; instead, the user would have to

start from scratch, re-uploading her photos and re-entering her per-

sonal information to the new platform.

137

An online seller who has

generated hundreds of product reviews and ratings on Amazon may

face a similar challenge when considering migrating to a different

platform. Other significant factors that contribute to switching

costs in digital markets include anticompetitive contracting terms,

default settings, and product design that favor dominant plat-

forms.

138

barrier to entry for firms in the digital economy. Data allows com-

panies to target advertising with scalpel-like precision, improve

services and products through a better understanding of user en-

gagement and preferences, and more quickly identify and exploit

new business opportunities.

139

Much like a network effect, data-rich accumulation is self-rein-

forcing. Companies with superior access to data can use that data

to better target users or improve product quality, drawing more

users and, in turn, generating more data—an advantageous feed-

back loop.

140

In short, new users and greater engagement bring in

more data, which enables firms to improve user experiences and

develop new products—in turn capturing more data.

141

While data

is non-rivalrous—meaning that one party’s use does not prevent or

diminish use by another—firms may nonetheless exclude rivals

from using their data through technical restrictions and legal con-

tracts.

142

These exclusionary tactics can close off markets and

shield incumbents from competition.

143

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144

ACQUES

MER

, Y

VES

-A

LEXANDRE DE

ONJOYE &

EIKE

CWHEITZER

, E

. C

OMM

’

OMPETITION

OLICY FOR THE

IGITAL

66–67 (2019) [hereinafter Eur. Comm’n Competition

Report].

145

Id. at 66.

146

See Dina Srinivasan, The Antitrust Case Against Facebook: A Monopolist’s Journey To-

wards Pervasive Surveillance in Spite of Consumers’ Preference for Privacy, 16 B

ERKELEY

L.J. 39, 70 (2019); Data and Privacy Hearing at 132 (statement of Dina Srinivasan, Fellow, Yale

Thurman Arnold Project).

147

Interview with Source 247 (June 4, 2020).

148

Roger McNamee, Co-Founder & Managing Dir., Elevation Partners, Remarks at Venture

Capital and Antitrust Workshop 30 (Feb. 12, 2020), https://www.justice.gov/atr/page/file/

1255851/download.

149

See, e.g., Stigler Report at 74, 87.

150

See Maurice E. Stucke, Should We Be Concerned About Data-opolies?, 2 G

. L. T

ECH

. 275, 309 (2018) (discussing the growing concern with ‘‘kill zone’’ tactics and the chilling

effect on ‘‘entrepreneurism and autonomy’’).

In addition to serving as a barrier to entry, superior access to

data can enable and exacerbate anticompetitive conduct in digital

markets. This is particularly true when a dominant platform oper-

ates as both a marketplace for third-party goods as well as a seller

of its own products on that same marketplace.

144

Through this dual

role, a dominant platform can mine commercially valuable informa-

tion from third-party businesses to benefit its own competing prod-

ucts.

145

Additionally, a dominant platform can use its market

power to extract more data from users, undermining their pri-

vacy.

146

Persistent data collection can also create information asym-

metries and grant firms access to non-public information that gives

them a significant competitive edge. These insights include infor-

mation on user behavior as well as on broader usage trends that

enable the dominant platforms to track nascent competitive

threats. In an interview with the Subcommittee, a senior executive

at a social media company referred to this ability as akin to having

‘‘a spy camera on the production floor’’ of a competitive threat.

147

Roger McNamee, the Co-Founder of Elevation Partners, has noted

that the dominant platforms’ role as digital infrastructure gives

them both leverage and insights that other competitors lack:

Essentially, the interplay of Google’s dominant position in . . . infrastructure ele-

ments [such as] ad tech infrastructure, Chrome browser, [and Nest] . . . collec-

tively provide leverage over other market participants, which include not just

startups, but also advertisers, and other would-be competitors. And the key thing

is, it’s not just about Google’s infrastructure. When you add in Gmail, Search,

Maps, apps, and all the other things that Google does so well . . . [t]hey provide

further levels of user lock-in-further protective modes that really limit the oppor-

tunity of competitors and even, frankly, suppliers and advertisers, to do the

things that they should be able to do in a freely competitive economy.

148

This significant data advantage also enables dominant platforms

to identify and acquire rivals early in their lifecycle. Leading econo-

mists and antitrust experts have expressed concern that serial ac-

quisitions of nascent competitors by large technology firms have

stifled competition and innovation.

149

This acquisition strategy ex-

ploits dominant firms’ information advantages in order to acquire

rapidly growing companies just before those companies become true

threats.

150

Lacking access to this same information or failing to ap-

preciate its significance, enforcers may fail to identify these acqui-

sitions as anticompetitive. This is more likely when the dominant

platform buys a nascent threat before it has fully developed into a

rival.

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151

Briefing by Jonathan Sallet, Deputy Assistant Att’y Gen., U.S. Dep’t of Justice, Antitrust

Div. (July 11, 2020).

152

Colleen Cunningham, Florian Ederer & Song Ma, Killer Acquisitions 53 (Yale Sch. of

Mgmt., Working Paper, Apr. 2020), https://ssrn.com/abstract=3241707 (finding that killer ac-

quisitions ‘‘routinely avoid regulatory scrutiny’’ because they ‘‘disproportionately occur just below

[HSR] thresholds for antitrust scrutiny’’).

153

Jonathan Sallet, Competitive Edge: Five Building Blocks For Antitrust Success: The Forth-

coming FTC Competition Report, W

ASH

. C

FOR

QUITABLE

ROWTH

(Oct. 1, 2019), https://

equitablegrowth.org/competitive-edge-five-building-blocks-for-antitrust-success-the-forthcoming-

ftc-competition-report/.

154

Innovation and Entrepreneurship Hearing at 81 (statement of Fiona Scott Morton, Theo-

dore Nierenberg Prof. of Econ., Yale Sch. of Mgmt.); Dig. Competition Expert Panel Report at

32; Stigler Report at 13; see also J

HAMBAUGH

, R

YAN

UNN

, A

UDREY

REITWIESER &

ATRICK

, T

ROOKINGS

NST

., T

TATE OF

OMPETITION AND

YNAMISM

: F

ACTS

BOUT

CENTRATION

, S

TART

-U

AND

ELATED

OLICIES

10 (2018), https://www.brookings.edu/wp-

content/uploads/2018/06/ESlTHPl20180611lCompetitionFactsl20180611.pdf.

155

Stigler Report at 36.

156

Dig. Competition Expert Panel Report at 32.

157

Id.

158

Stigler Report at 37.

159

Id.

In a briefing before Members of the Subcommittee, Jonathan

Sallet, former Deputy Assistant Attorney General at the Antitrust

Division, explained that data-driven acquisitions of nascent or po-

tential rivals can significantly undermine competition while sys-

tematically evading antitrust scrutiny.

151

One reason is that up-

start competitors are often data-rich but cash-poor, a combination

that is unlikely under a price-centric framework to trigger antitrust

scrutiny if the acquisition is priced below the relevant threshold for

merger review.

152

For example, had Microsoft sought to exploit its

monopoly power in the market for personal computer operating sys-

tems by acquiring Netscape—rather than by foreclosing it—it is

unlikely that antitrust enforcers would have taken action. He noted

that this type of acquisition can tip the market in favor of a domi-

nant firm, having the same ultimate effect as monopolistic conduct

but escaping the antitrust enforcement that monopolistic conduct

has triggered in the past.

153

(d) Economies of Scale and Scope. Increasing returns to scale are

another feature of technology markets that make them prone to tip

towards concentration and monopolization.

154

In markets with in-

creasing returns to scale, as sales increase, average unit cost de-

creases.

155

Because entry into these markets requires significant

up-front costs, the market favors firms that are already large, mak-

ing it difficult for new firms to enter the market and challenge

large incumbents.

156

Likewise, a dominant firm that enjoys economies of scope can ex-

tend its reach across adjacent markets through an expansive eco-

system of its own products while incurring relatively low cost.

157

For example, if a firm has sufficient technical expertise or access

to consumer data, the cost of applying this resource into a new

market is relatively low.

Businesses that specialize in providing information, such as

Google, frequently benefit from increasing returns to scale.

158

These businesses require high upfront fixed costs, but then may

scale with relatively low increases in cost. For example, ‘‘Google

can update Google Calendar for 100 million users with similar

fixed expenses as would be needed for only a fraction of such

users.’’

159

Facebook is another company that benefits from increas-

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160

Id.

161

Id. at 36–37.

162

See generally Dirk Bergemann, Alessandro Bonatti & Tan Gan, The Economics of Social

Data (Cowles Found., Discussion Paper No. 2203R, Sept. 2019), https://ssrn.com/abstract

=3459796.

163

Id. at 4.

164

See, e.g., Erik Brynjolfsson & Avinash Collis, How Should We Measure the Digital Econ-

omy?, H

ARV

. B

. R

. (Nov.–Dec. 2019), https://hbr.org/2019/11/how-should-we-measure-the-

digital-economy.

165

Innovation and Entrepreneurship Hearing at 76 (statement of Tim Wu, Julius Silver Prof.

of Law, Columbia Univ. Sch. of Law).

166

Id.

167

Stigler Report at 74.

168

Innovation and Entrepreneurship Hearing at 76 (statement of Tim Wu, Julius Silver Prof.

of Law, Columbia Univ. Sch. of Law).

169

This trend is also present in the broader U.S. economy as well. See, e.g., Ufuk Akcigit &

Sina T. Ates, Knowledge in the Hands of the Best, Not the Rest: The Decline of U.S. Business

Dynamism, V

EU (July 4, 2019), https://voxeu.org/article/decline-us-business-dynamism.

ing returns to scale.

160

Although building the Facebook platform

required a large upfront investment, the platform was able to grow

exponentially with relatively little increase in costs. With the ben-

efit of increasing returns to scale, Facebook was able to grow from

one million users in 2004, the year of its founding, to more than

350 million users in only five years.

161

Recent economic evidence indicates that economies of scale

achieved through data collection allow platforms to get more out of

consumers than consumers get out of platforms.

162

In exchange for

‘‘free’’ services, users provide valuable social data—information

that may also shed light on other people’s behavior—in addition to

their own personal information. For instance, a person’s location

history using Google Maps reveals valuable and sensitive informa-

tion about others as well—such as traffic patterns and other data.

According to Professors Dirk Bergemann, Alessandro Bonatti, and

Tan Gan, the creation of this ‘‘data externality’’ means that, for

firms like Google, Amazon, and Facebook, ‘‘the cost of acquiring . . .

individual data can be substantially below the value of the infor-

mation to the platform.’’

163

In other words, notwithstanding claims

that services such as Google’s Search or Maps products or Facebook

are ‘‘free’’ or have immeasurable economic value to consumers,

164

the social data gathered through these services may exceed their

economic value to consumers.

B. Effects of Platform Market Power

1. Innovation and Entrepreneurship

Competition is a critical source of innovation, business dyna-

mism, entrepreneurship, and the ‘‘launching of new industries.’’

165

Vigorously contested markets have been a critical competitive asset

for the United States over the past century.

166

While large firms

with significant resources may invest in research and development

for new products and services, competition forces companies to ‘‘run

faster’’ in order to offer improved products and services.

167

Without

competitive pressure, some level of innovation may still occur, but

at a slower, iterative pace than would be present under competitive

market conditions.

168

In recent decades, however, there has been a sharp decline in

new business formation as well as early-stage startup funding.

169

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170

ATHWAY

, E

WING

ARION

AUFFMAN

OUND

., T

ECH

TARTS

: H

IGH

-T

ECHNOLOGY

USINESS

ORMATION AND

REATION IN THE

NITED

TATES

5 (2013), https://www

.kauffman.org/-/media/kauffmanlorg/research-reports-and-covers/2013/08/bdstechnology

startsreport.pdf.

171

Id.

172

The number of technology startup financings fell from above 10,000 startup financings in

2015 to just above 6,000 in 2018. In 2014, startups closed 4,255 deals in which they raised seed

money from investors. By 2018, however, that figure had dropped by nearly a half, to 2,206.

Gene

Teare, Decade in Review: Trends in Seed- and Early-Stage Funding, T

ECH

RUNCH

(Mar.

13, 2019), https://technologycrunch.com/2019/03/16/decade-in-review-trends-in-seed-and-early-

stage-funding. See also American Technology Giants Are Making Life Tough for Startups, E

CON

OMIST

(June 2, 2018), https://www.economist.com/business/2018/06/02/american-technology-

giants-are-making-life-tough-for-startups.

173

OHN

ALTIWANGER ET AL

., E

WING

ARION

AUFFMAN

OUND

., D

ECLINING

USINESS

NAMISM IN THE

U.S. H

IGH

-T

ECHNOLOGY

ECTOR

8 (2014).

174

Id.

175

Id.

176

Id. at 4.

177

Id. at 5.

178

Id. at 4.

179

Innovation and Entrepreneurship Hearing at 76 (statement of Tim Wu, Julius Silver Prof.

of Law, Columbia Univ. Sch. of Law); Data and Privacy Hearing at 58–60 (statement of Jason

Furman, Prof. of the Prac. of Econ. Pol’y, Harvard Kennedy Sch.).

180

See generally Venture Capital and Antitrust Workshop; Stigler Report at 9.

181

Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill Zone (Univ. of Chi., Beck-

er Friedman Inst. for Econ., Working Paper No. 2020–19, Apr. 2020).

182

Asher Schechter, Google and Facebook’s ‘‘Kill Zone’’: ‘‘We’ve Taken the Focus Off of Reward-

ing Genius and Innovation to Rewarding Capital and Scale,’’ P

ARKET

(May 25, 2018),

Continued

The number of new technology firms in the digital economy has de-

clined,

170

while the entrepreneurship rate—the share of startups

and young firms in the industry as a whole—has also fallen signifi-

cantly in this market.

171

Unsurprisingly, there has also been a

sharp reduction in early-stage funding for technology startups.

172

The rates of entrepreneurship and job creation have also declined

over this period. The entrepreneurship rate—defined as the ‘‘share

of startups and young firms’’ in the industry as a whole—fell from

60 percent in 1982 to a low of 38 percent as of 2011.

173

As entry

slows, the average age of technology firms has skewed older.

174

Job

creation in the high-technology sector has likewise slowed consider-

ably.

175

In 2000, the job creation rate in the high-technology sector

was approaching 20 percent year-over-year. Within a decade, the

rate had halved to about 10 percent.

176

Although the job creation

rate in the high-technology sector has fallen substantially since the

early 2000s, the job destruction rate in 2011 was roughly un-

changed from 2000.

177

As a result, in 2011 the rate of job destruc-

tion in the high-technology sector was higher than the rate of job

creation, a reversal from the year 2000, when the job-creation rate

far outpaced the job-destruction rate.

178

In line with this trend, there is mounting evidence that the domi-

nance of online platforms has materially weakened innovation and

entrepreneurship in the U.S. economy.

179

Some venture capitalists,

for example, report that they avoid funding entrepreneurs and

other companies that compete directly with dominant firms in the

digital economy.

180

Often referred to as an innovation ‘‘kill zone,’’ this trend may in-

sulate powerful incumbent firms from competitive pressure simply

because venture capitalists do not view new entrants as good in-

vestments.

181

Albert Wenger, the managing partner of Union

Square Ventures, commented that the ‘‘scale of these companies

and their impact on what can be funded, and what can succeed, is

massive.’’

182

Paul Arnold, an early-stage investor and founder of

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https://promarket.org/2018/05/25/google-facebooks-kill-zone-weve-taken-focus-off-rewarding-

genius-innovation-rewarding-capital-scale/.

183

Venture Capital and Antitrust Workshop at 24 (statement of Paul Arnold, Founder &

Partner, Switch Partners).

184

Id.

185

Submission from Paul Arnold, General Partner, Switch Ventures, to H. Comm. on the Ju-

diciary, 2 (Sept. 3, 2020) (on file with Comm.).

186

Venture Capital and Antitrust Workshop at 24 (Paul Arnold, Founder & Partner, Switch

Partners).

187

Id.

188

Id. at 29 (statement of Roger McNamee, Cofounder & Managing Dir., Elevation Partners).

189

Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill Zone (Univ. of Chi., Beck-

er Friedman Inst. for Econ., Working Paper No. 2020–19, Apr. 2020).

190

Id.

Switch Ventures, commented at the Justice Department’s recent

workshop on the intersection between venture capital and antitrust

law that he considers markets dominated by large platforms to be

kill zones.

183

He explained:

[T]here’s an incredibly, concentrated market share because of the economies of

scale or because of network effects, it’s a really hard barrier to overcome. And

sometimes there’s an answer and often, that will kill things. And I think that

that’s my view, that’s my, sort of, lived experience as a venture investor, but I

think it’s a common view of a lot of venture investors.

184

In the same vein, Mr. Arnold said in a submission to the Sub-

committee that:

Venture capitalists are less likely to fund startups that compete against monopo-

lies’ core products .... As a startup investor, I see this often. For example, I will

meet yet another founder who wants to disrupt Microsoft’s LinkedIn. They will

have a clever plan to build a better professional social network. I always pass

on the investment. It is nearly impossible to overcome the monopoly LinkedIn

enjoys. It is but one example of an innovation kill zone.

185

For example, the entrenched power of firms with weak privacy

protections has created a kill zone around the market for products

that enhance privacy online.

186

To the extent that a firm success-

fully offers a service to give people tools to control their privacy,

‘‘Google or Facebook are going to want to pull that back as fast as

they possibly can. They don’t want you aggressively limiting their

extremely valuable information collection.’’

187

Other prominent venture capitalists, such as Roger McNamee,

the Co-Founder of Elevation Partners, have commented that these

trends harm more than just startups. The advantages of dominant

firms online—access to competitively significant sources of data,

network effects, intellectual property, and excess capital—are ‘‘a

barrier to a wide range of activities, not just startups, but actually

a lot of other market participants.’’

188

Merger activity may be another contributor to reduced venture

capital investment of startups. In a recent study, several leading

economists and researchers at the University of Chicago—

Raghuram G. Rajan, Luigi Zingales, and Sai Krishna Kamepalli—

found that major acquisitions by larger firms in sectors of the dig-

ital economy led to significantly less investment in startups in this

same sector.

189

As they note, in the wake of an acquisition by

Facebook or Google, investments in startups in the same space

‘‘drop by over 40% and the number of deals falls by over 20% in

the three years following an acquisition.’’

190

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191

See Wen Wen & Feng Zhu, Threat of Platform-Owner Entry and Complementor Responses:

Evidence from the Mobile App Market, 40 S

TRATEGIC

GMT

. J. 1336 (2019); Feng Zhu & Qihong

Liu, Competing with Complementors: An Empirical Look at Amazon.com, 39 S

TRATEGIC

GMT

J. 2618 (2018).

192

Id.

193

Interview with Source 146 (May 28, 2020).

194

Raghuram Rajan, Sai Krishna Kamepalli & Luigi Zingales, Kill Zone (Univ. of Chi., Beck-

er Friedman Inst. for Econ., Working Paper No. 2020–19, Apr. 2020).

195

Innovation and Entrepreneurship Hearing at 81 (statement of Fiona Scott Morton, Theo-

dore Nierenberg Prof. of Econ., Yale Sch. of Mgmt.).

196

Id. at 74 (statement of Tim Wu, Julius Silver Prof. of Law, Columbia Univ. Sch. of Law).

197

Id. at 81 (statement of Fiona Scott Morton, Theodore Nierenberg Prof. of Econ., Yale Sch.

of Mgmt.); Data and Privacy Hearing at 60 (statement of Jason Furman, Prof. of the Prac. of

Econ. Pol’y, Harvard Kennedy Sch.) (‘‘[M]ajor platforms have reduced incentives to innovate and

incumbents have distorted incentives to make more incremental improvements that can be in-

corporated into the dominant platforms rather than more paradigmatic changes that could chal-

lenge these platforms.’’).

The threat of entry from a large platform has had significant ef-

fects on other firms’ incentives to innovate,

191

while the actual

entry of the larger online platform can result in less innovation and

an additional increase in prices.

192

During the investigation, a

prominent venture capital investor in the cloud marketplace ex-

plained that this power imbalance creates a strong economic incen-

tive for other firms to avoid head-on competition. As he noted:

I think of Amazon as the sun. It is useful but also dangerous. If you’re far

enough away you can bask. If you get too close you’ll get incinerated. So, you

have to be far enough from Amazon and be doing something that they wouldn’t

do. If you’re a net consumer of Amazon’s infrastructure, like Uber, then you’re

okay. As long as Amazon doesn’t want to get into ridesharing. But it’s hard to

predict what Amazon wants to get into. If they were going to stop at retail and

computing, you’re safe. But you can’t know.

193

As discussed in this Report, other behavior by dominant firms—

such as cloning the products of new entrants—may also undermine

the likelihood that new entrants will be able to compete directly or

that early adopters will switch to a new entrant’s product, lowering

the valuation of these companies as well as their profitability.

194

In July 2019, the Subcommittee held a hearing to examine the

effects of market power on innovation and entrepreneurship. There,

a panel of experts noted that the lack of competitive pressure in

the U.S. economy has reduced innovation and business formation,

while also allowing dominant firms to control innovation.

195

Pro-

fessor Tim Wu of Columbia Law School, a pioneer in internet pol-

icy, said that there is:

[N]o question as to whether there were barriers to entry and whether the tech

economies have, in fact, become a very difficult place for people to get started

. . . the decline in the number of startups, almost unthinkable in the United

States, which has always had a comparative advantage in being the place where

startups will get their start.

196

Professor Fiona Scott Morton of the Yale University School of Man-

agement reinforced this concept in her testimony, noting that insuf-

ficient competition has given dominant firms the ability to channel

innovation in the direction they prefer ‘‘rather than being cre-

atively spread across directions chosen by entrants.’’

197

In addition to innovation harms in the digital marketplace, Stacy

Mitchell, the Co-Director of the Institute for Local Self Reliance,

explained that entrepreneurism among locally owned businesses

has also suffered as a result of this power. As she noted, ‘‘Local

businesses are disappearing and, with them, a pathway to the mid-

dle class. Producers are struggling to invest in new products and

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198

Innovation and Entrepreneurship Hearing at 187 (statement of Stacy F. Mitchell, Co-Dir.,

Inst. for Local Self-Reliance).

199

Competitors Hearing at 7 (statement of Patrick Spence, CEO, Sonos, Inc.).

200

Id. at 8.

201

Id. at 20 (statement of David Barnett, Founder & CEO, PopSockets LLC).

202

Id. at 57.

203

Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161

U. P

. L. R

. 1663, 1689 (2013) (‘‘One measure of a platform’s market power is the extent to

which it can engage in [privacy exploitation] without some benefit to consumers that offsets

their reduced privacy and still retain users.’’).

204

W. K

ISCUSI ET AL

., E

CONOMICS OF

EGULATION AND

NTITRUST

164 (3d ed. 2000).

205

Data and Privacy Hearing at 60 (statement of Jason Furman, Prof. of the Prac. of Econ.

Pol’y, Harvard Kennedy Sch.); id. at 55 (statement of Tommaso Valletti, Prof. of Econ., Imperial

Coll. Bus. Sch.).

206

Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161

U. P

. L. R

. 1663, 1687 (2013) (‘‘While increased competition, at least on its own, will not

always cause firms to better use or protect customer information, any competitive effects anal-

ysis that misses these two nonprice dimensions of platform market performance will be incom-

plete and could be biased toward underenforcement.’’).

grow their companies. New business formation is down to historic

lows.’’

198

At the Subcommittee’s field hearing, senior executives rep-

resenting different businesses across the economic spectrum offered

similar testimony about the effects of market power on innovation

and entrepreneurship. Patrick Spence, the CEO of Sonos, testified

that the lack of fair competition diminishes innovation, particularly

for firms that cannot afford to sell products at a loss.

199

He ex-

plained:

These companies have gone so far as demanding that we suppress our inventions

in order to work with them. The most recent example of this is Google’s refusal

to allow us to use multiple voice assistants on our product simultaneously ....

I think the whole spirit of trying to encourage small companies, encourage new

innovations and new startups is at risk, given how dominant these companies

are.

200

Furthermore, the ability of a dominant firm to extract economic

concessions from smaller companies that rely on it to reach the

market can also depress innovation. David Barnett, the CEO and

Founder of PopSockets, testified at the field hearing that Amazon

required his company ‘‘to pay almost two million in marketing dol-

lars in order to remove illegal product from the Amazon market-

place.’’

201

In response to questions from Representative Ken Buck

(R–CO) on the effect of this policy on innovation, Mr. Barnett testi-

fied that this money could have been used to double the number

of employees dedicated to developing innovative products at the

company.

202

2. Privacy and Data Protection

The persistent collection and misuse of consumer data is an indi-

cator of market power in the digital economy.

203

Traditionally,

market power has been defined as the ability to raise prices with-

out a loss to demand, such as fewer sales or customers.

204

Scholars

and market participants have noted that even as online platforms

rarely charge consumers a monetary price—products appear to be

‘‘free’’ but are monetized through people’s attention or with their

data

205

—traditional assessments of market power are more dif-

ficult to apply to digital markets.

206

The best evidence of platform market power therefore is not

prices charged but rather the degree to which platforms have erod-

ed consumer privacy without prompting a response from the mar-

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207

See, e.g., Makan Delrahim, Assistant Att’y Gen., U.S. Dep’t of Justice, Antitrust Div., Re-

marks for the Antitrust New Frontiers Conference (June 11, 2019), https://www.justice.gov/

opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-antitrust-new-frontiers

(‘‘It is well-settled, however, that competition has price and non-price dimensions.’’); Maurice E.

Stucke & Ariel Ezrachi, When Competition Fails to Optimize Quality: A Look at Search Engines,

18 Y

ALE

J.L.

ECH

. 70, 103 (2016); E

LEONORA

CELLO &

RISTINA

JOODIN

, E

. C

OMM

’

OMPETITION

ERGER

RIEF

: M

ICROSOFT

INKED

: B

ATA AND

ONGLOMERATE

FFECTS IN

ECH

ARKETS

5 (2017), http://ec.europa.eu/competition/publications/cmb/2017/kdal17001

enn.pdf.

208

Dina Srinivasan, The Antitrust Case Against Facebook: A Monopolist’s Journey Towards

Pervasive Surveillance in Spite of Consumers’ Preference for Privacy, 16 B

ERKELEY

. L.J. 39,

44 (2019) (‘‘Facebook is a monopolist, and what Facebook extracts overtly from consumers today,

from a quality perspective, is a direct function of Facebook’s monopoly power.’’); see also Kath-

arine Kemp, Concealed Data Practices and Competition Law: Why Privacy Matters (Univ. of

N.S.W., Fac. of Law, Research Paper No. 19–53, 2019), https://papers.ssrn.com/sol3/papers

.cfm?abstractlid=3432769; OECD, B

ATA

: B

RINGING

OMPETITION

OLICY TO THE

IGITAL

(2016), https://one.oecd.org/document/DAF/COMP(2016)14/en/pdf.

209

Data and Privacy Hearing at 55 (statement of Tommaso Valletti, Prof. of Econ., Imperial

Coll. Bus. Sch.); Dig. Competition Expert Panel Report at 42–45.

210

David N. Cicilline & Terrell McSweeny, Competition Is at the Heart of Facebook’s Privacy

Problem, W

IRED

(Apr. 24, 2018), https://www.wired.com/story/competition-is-at-the-heart-of-

facebooks-privacy-problem.

211

Dig. Competition Expert Panel Report at 43 (‘‘[T]he misuse of consumer data and harm

to privacy is arguably an indicator of low quality caused by a lack of competition.’’); Dina

Srinivasan, The Antitrust Case Against Facebook: A Monopolist’s Journey Towards Pervasive

Surveillance in Spite of Consumers’ Preference for Privacy, 16 B

ERKELEY

. L.J. 39, 40 (2019)

(‘‘Consumers effectively face a singular choice-use Facebook and submit to the quality and stipu-

lations of Facebook’s product or forgo all use of the only social network.’’).

212

Competition & Mkts. Auth. Report at 318.

213

Giuseppe Colangelo & Mariateresa Maggiolino, Data Protection in Attention Markets: Pro-

tecting Privacy through Competition?, 8 J.

. C

OMPETITION

RAC

. 363, 365 (2017).

214

Data and Privacy Hearing at 135 (statement of Dina Srinivasan, Fellow, Yale Thurman

Arnold Project); Innovation and Entrepreneurship Hearing at 82 (statement of Fiona Scott Mor-

ton, Theodore Nierenberg Prof. of Econ., Yale Sch. of Mgmt.).

215

Data and Privacy Hearing at 59 (statement of Jason Furman, Prof. of the Prac. of Econ.

Pol’y, Harvard Kennedy Sch.); id. at 55 (statement of Tommaso Valletti, Prof. of Econ., Imperial

Coll. Bus. Sch.); Dig. Competition Expert Panel Report at 4 (‘‘It can be harder for new companies

to enter or scale up.’’); Giuseppe Colangelo & Mariateresa Maggiolino, Data Protection in Atten-

tion Markets: Protecting Privacy Through Competition?, 8 J.

. C

OMPETITION

RAC

363, 365 (2017) (‘‘Similarly, in such a market, a dominant firm could abuse its power to exclude

a rival producing privacy-friendly goods that consumer would otherwise prefer.’’); Stigler Report

at 67 (‘‘When facing a zero-money price, and when quality is difficult to observe, consumers

Continued

ket.

207

As scholars have noted, a platform’s ability to maintain

strong networks while degrading user privacy can reasonably be

considered equivalent to a monopolist’s decision to increase prices

or reduce product quality.

208

A firm’s dominance can enable it to

abuse consumers’ privacy without losing customers.

209

In the ab-

sence of genuine competitive threats, a firm offers fewer privacy

protections than it otherwise would. In the process, it extracts more

data, further entrenching its dominance.

210

When paired with the

tendency toward winner-take-all outcomes, consumers are forced to

either use a service with poor privacy safeguards or forgo the serv-

ice altogether.

211

As the United Kingdom’s Competition and Mar-

kets Authority observes, ‘‘The collection and use of personal data

by Google and Facebook for personalised advertising, in many cases

with no or limited controls available to consumers, is another indi-

cation that these platforms do not face a strong enough competitive

constraint.’’

212

Given the increasingly critical role platforms play in mediating

access to everyday goods and services, users are also far more like-

ly to surrender more information than to cease using the service

entirely.

213

Without adequate competition, firms are able to collect

more data than a competitive market would allow,

214

further en-

trenching their market power while diminishing privacy in the

process.

215

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are not receiving salient signals about the social value of their consumption because the price

they believe they face does not reflect the economics of the transaction, and they are ignorant

of those numbers.’’).

216

Data and Privacy Hearing at 54–55 (statement of Tommaso Valletti, Prof. of Econ., Impe-

rial Coll. Bus. Sch.).

217

Maurice E. Stucke, Should We Be Concerned About Data-opolies?, 2 G

. L. T

ECH

. R

275, 311 (2018).

218

See, e.g., Paul Hitlin & Lee Rainie, Facebook Algorithms and Personal Data, P

SCH

. (Jan. 16. 2019), https://www.pewinternet.org/2019/01/16/facebook-algorithms-and-

personal-data/. See A

USTL

. C

OMPETITION &

ONSUMER

OMM

’

, D

IGITAL

LATFORMS

NQUIRY

INAL

EPORT

11 (2019) [hereinafter Austl. Competition & Consumer Comm’n Report]; Ryan

Calo & Alex Rosenblat, The Taking Economy: Uber, Information, and Power, 117 C

OLUM

. L.

. 1623 (2017); Dina Srinivasan, The Antitrust Case Against Facebook: A Monopolist’s Journey

Towards Pervasive Surveillance in Spite of Consumers’ Preference for Privacy, 16 B

ERKELEY

L.J. 39, 41 (2019) (‘‘[A]ccepting Facebook’s policies in order to use its service means accepting

broad-scale commercial surveillance.’’).

219

Arvind Narayanan, Arunesh Mathur, Marshini Chetty & Mihir Kshirsagar, Dark Patterns:

Past, Present, and Future, 18(2) ACM Q

UEUE

67, 77 (2020), https://queue.acm.org/detail.cfm

?id=3400901.

220

Id.; N

ORWEGIAN

ONSUMER

OUNCIL

, D

ECEIVED BY

ESIGN

(2018), https://fil

.forbrukerradet.no/wp-content/uploads/2018/06/2018-06-27-deceived-by-design-final.pdf (de-

scribing the use of ‘‘dark patterns’’).

221

Jamie Luguri & Lior Strahilevitz, Shining a Light on Dark Patterns 29 (Univ. of Chi. Law

Sch. Pub. Law Working Paper, Paper No. 719, 2019), https://papers.ssrn.com/sol3/papers.cfm

?abstractlid=3431205.

222

Mark Bergen, Google Really Wants You to Try Its New Video Tool, B

LOOMBERG

(May 19,

2020), https://www.bloomberg.com/news/newsletters/2020-05-19/google-really-wants-you-to-try-

its-new-video-tool.

223

Dig. Competition Expert Panel Report at 45; David N. Cicilline & Terrell McSweeny, Com-

petition Is at the Heart of Facebook’s Privacy Problem, W

IRED

(Apr. 24, 2018), https://

www.wired.com/story/competition-is-at-the-heart-of-facebooks-privacy-problem.

Because persistent data collection online is often concealed,

216

is more difficult to compare privacy costs across different products

and services.

217

Consumers are largely unaware of firms’ data col-

lection practices, which are presented in dense and lengthy disclo-

sures.

218

The use of manipulative design interfaces has also become

a pervasive tool ‘‘to increase the likelihood of users consenting to

tracking.’’

219

These behavioral nudges—referred to as dark pat-

terns—are commonly used in online tracking and advertising mar-

kets to enhance a firm’s market power and ‘‘maximize a company’s

ability to extract revenue from its users.’’

220

And in e-commerce,

Jamie Luguri and Lior Strahilevitz observe that dark patterns ‘‘are

harming consumers by convincing them to surrender cash or per-

sonal data in deals that do not reflect consumers’ actual pref-

erences and may not serve their interests. There appears to be a

substantial market failure where dark patterns are concerned—

what is good for ecommerce profits is bad for consumers.’’

221

More recently, as remote work became commonplace during the

COVID–19 pandemic, Google attempted to manipulate users into

using its Google Meet videoconferencing tool instead of upstart

competitor Zoom. As Zoom emerged as the market leader during

the early stages of the pandemic, Google introduced a new widget

for Meet inside Gmail. A similar message could be found inside

Google Calendar, which prompted users to ‘‘Add Google Meet video

conferencing’’ to their appointments. ‘‘For people with the Zoom

Video Communications Inc. extension on their Chrome browsers,

the prompt sits directly above the option to: ‘Make it a Zoom Meet-

ing.’ ’’

222

To the extent that consumers are aware of data collection prac-

tices, it is often in the wake of scandals involving large-scale data

breaches or privacy incidents such as Cambridge Analytica.

223

Dina Srinivasan notes, ‘‘Today, nuances in privacy terms are rel-

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224

Data and Privacy Hearing at 135 (statement of Dina Srinivasan, Fellow, Yale Thurman

Arnold Project).

225

Brooke Auxier et al., Americans and Privacy: Concerned, Confused and Feeling Lack of

Control Over Their Personal Information, P

SCH

. C

. (Nov. 15 2019), https://www

.pewresearch.org/internet/2019/11/15/americans-and-privacy-concerned-confused-and-feeling-

lack-of-control-over-their-personal-information/; Daniel J. Solove, The Myth of the Privacy Par-

adox, 89 G

. W

ASH

. L. R

. 1 (2021).

226

Data and Privacy Hearing at 54 (statement of Tommaso Valletti, Prof. of Econ., Imperial

Coll. Bus. Sch.).

227

Id.

228

Competitors Hearing at 36 (statement of David Heinemeier Hansson, Cofounder & Chief

Tech. Officer, Basecamp); Dig. Competition Expert Panel Report at 6 (‘‘[W]ell-functioning com-

petitive digital markets have the potential to develop new solutions and increased choice for con-

sumers, where privacy and quality of service can be differentiating factors.’’); Howard A.

Shelanski, Information, Innovation, and Competition Policy for the Internet, 161 U. P

. L. R

1663, 1691 (2013) (‘‘Competition, however, may drive platforms to adopt and adhere to stronger

privacy policies, making it worthwhile for a platform to advertise such policies to consumers in

order to differentiate itself from its competitors.’’).

229

Basecamp is an internet software firm based in Chicago, Illinois, that sells project-manage-

ment and team-collaboration tools. Competitors Hearing at 27 (statement of David Heinemeier

Hansson, Cofounder & Chief Tech. Officer, Basecamp).

230

Id. at 36.

231

Data and Privacy Hearing at 134–35 (statement of Dina Srinivasan, Fellow, Yale Thurman

Arnold Project); Venture Capital and Antitrust Workshop at 24 (Paul Arnold, Founder & Part-

ner, Switch Partners).

egated to investigative journalists to discover and explain. When

the media does report on them—as they did around Google’s prac-

tice of letting employees and contractors read Gmail users’

emails—consumers often switch to a competitor that offers a better

product or service.’’

224

The opacity of data collection and use con-

tributes to consumer confusion and the misperception that con-

sumers do not care about their privacy—the so-called privacy par-

adox—simply because they use services that have become essen-

tial.

225

While insufficient competition can lead to reduced quality in

many markets, the loss of quality due to monopolization—and in

turn, privacy and data protection—is even more pronounced in dig-

ital markets because product quality is often the ‘‘relevant locus of

competition.’’

226

Without transparency or effective choice, domi-

nant firms may impose terms of service with weak privacy protec-

tions that are designed to restrict consumer choice,

227

creating a

race to the bottom.

228

As David Heinemeier Hansson, the Co-

Founder and Chief Technology Officer of Basecamp,

229

explained in

his testimony before the Subcommittee:

When businesses do not have to account for the negative externalities they

cause, it’s a race to the bottom. The industrial-scale exploitation of privacy online

is much the same. Facebook and Google have built comprehensive dossiers on

almost everyone, and they can sell incredibly targeted advertisement on that

basis. When Facebook knows you’re pregnant, or worse, thinks it knows when

you’re pregnant, they can target ads for baby clothes or strollers with striking

efficiency. But doing so represents an inherent violation of the receiver’s privacy.

Every ad targeted using personal information gathered without explicit, in-

formed consent is at some level a violation of privacy. And Facebook and Google

are profiting immensely by selling these violations to advertisers. Advertisers

who may well feel that purchasing these violations go against their ethics, but

see no choice to compete without participating.

230

In addition to creating a race to the bottom, this same dynamic

can also prevent new firms from offering products with strong pri-

vacy protections or reduce the incentive of new entrants or rivals

to compete directly.

231

Roger McNamee, the Co-Founder and Man-

aging Director of Elevation Partners, has also explained that to the

extent there is direct competition between a firm with a privacy-

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232

Venture Capital and Antitrust Workshop at 30 (statement of Roger McNamee, Co-Founder

& Managing Dir., Elevation Partners).

233

Competitors Hearing at 85 (response to Questions for the Record of Kirsten Daru, Chief

Priv. Officer & Gen. Couns., Tile, Inc.).

234

Id. at 43 (statement of Kirsten Daru, Chief Priv. Officer & Gen. Couns., Tile, Inc.).

235

Venture Capital and Antitrust Workshop at 36 (Ram Shriram, Managing Partner,

Sherpalo Ventures LLC).

236

Data and Privacy Hearing at 42 (statement of Rohit Chopra, Comm’r, Fed. Trade

Comm’n).

237

Id.

238

Id.

239

Id. at 52 (statement of Tommaso Valletti, Prof. of Econ., Imperial Coll. Bus. Sch.).

centric business model, such as DuckDuckGo’s search engine, they

can ‘‘still have trouble applying different business models once

they’re not compatible with the business models that have made

the Internet platforms so successful.’’

232

Conversely, without adequate safeguards in place, measures that

appear to improve privacy for consumers may also have anti-

competitive effects. Kirsten Daru, Chief Privacy Officer and Gen-

eral Counsel of Tile, told the Subcommittee: ‘‘Apple has used the

concept of privacy as a shield by making changes in the name of

privacy that at the same time give it a competitive advan-

tage.’’

233

In particular, she testified at the Subcommittee’s field

hearing:

Apple has attempted to justify its own collection of sensitive information and dis-

parate treatment of competitors because FindMy is ‘‘part of the OS,’’ as well as

due to a need for enhanced consumer privacy. But the changes don’t meaning-

fully improve or enhance privacy of third-party app developers.

234

Ram Shriram, a prominent investor who is a founding board

member of Google, noted that ‘‘[p]rivacy does impact how you think

about dominance, for example, in a market because Google and

Apple both eliminated third-party cookies, which then makes your

data a little more private. But it ironically will hurt the young com-

panies that are trying to build digital advertising businesses while

improving user privacy.’’

235

The Subcommittee held several hearings during the investigation

that examined the role of competition and privacy online.

In September 2016, the Subcommittee held a hearing on the role

of data and privacy in competition. There, FTC Commissioner

Rohit Chopra testified that dominant firms have the ability to im-

pose ‘‘complex and draconian’’ terms of service that can change sud-

denly ‘‘to collect and use data more expansively and more in-

tensely.’’

236

As he noted, this behavior is the equivalent of a price

hike that would be difficult to impose unilaterally in a competitive

marketplace.

237

Without sufficient competition, however, ‘‘compa-

nies can focus on blocking new entrants and limiting choice to pro-

tect their dominance and pricing power.’’

238

Tommaso Valletti, the

former Chief Competition Economist for the European Commission,

noted that it is ‘‘self-evident that data is key to digital platforms,

and that some applications imply real-time knowledge of consumer

behaviour as well as cross linkages across apps that only very few

digital players have access to.’’

239

And finally, Jason Furman, the

former Chair of the Council of Economic Advisers and an author

of the ‘‘Unlocking Digital Competition’’ report, said that ‘‘the mis-

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240

Dig. Competition Expert Panel Report at 43.

241

Antitrust Agencies Hearing at 44 (statement of Makan Delrahim, Assistant Att’y Gen.,

U.S. Dep’t of Justice, Antitrust Div.).

242

Innovation and Entrepreneurship Hearing at 209 n.14 (statement of Maureen K.

Ohlhausen, Partner, Baker Botts, L.L.P.).

243

Data and Privacy Hearing at 171 (statement of Margrethe Vestager, Eur. Comm’r for Com-

petition).

244

Id. at 129 (statement of Rod Sims, Chair, Austl. Competition & Consumer Comm’n).

245

Noah Smith, Opinion, Goodbye, Newspapers. Hello, Bad Government, B

LOOMBERG

(June

1, 2018), https://www.bloomberg.com/opinion/articles/2018-06-01/goodbye-newspapers-hello-

bad-government.

246

Free and Diverse Press Hearing at 19 (statement of David Chavern, President & CEO,

News Media All.).

247

Douglas McLennan & Jack Miles, Opinion, A Once Unimaginable Scenario: No More News-

papers, W

ASH

. P

OST

: T

ORLDPOST

(Mar. 21, 2018), https://www.washingtonpost.com/news/

theworldpost/wp/2018/03/21/newspapers/?utmlterm=.c1b57c9efcd7.

248

Free and Diverse Press Hearing at 72–73 (statement of David Pitofsky, Gen. Couns., News

Corp).

use of consumer data and harm to privacy is arguably an indicator

of low quality caused by a lack of competition.’’

240

At the Subcommittee’s oversight hearing in November 2019,

Makan Delrahim, the Assistant Attorney General of the Justice

Department’s Antitrust Division, testified that because privacy is a

dimension of quality, protecting competition ‘‘can have an impact

on privacy and data protection.’’

241

And finally, Maureen

Ohlhausen, the former Acting Chair of the FTC, echoed this point

at the Subcommittee’s hearing on innovation and entrepreneurship,

noting that quality reductions online could ‘‘include factors such as

reduced features, restricted consumer choice, or lessened control

over privacy.’’

242

Leading international antitrust enforcers offered similar testi-

mony before the Subcommittee. Margrethe Vestager, the European

Union’s Competition Commissioner, testified that due to the Com-

mission’s finding that data protection is an important dimension of

competition that could be undermined by certain merger activity,

the Commission ‘‘has . . . integrated, where appropriate, data pro-

tection as a quality parameter for the assessment of merger

cases.’’

243

Similarly, Rod Sims, the Chair of the Australian Com-

petition and Consumer Commission, told the Subcommittee that

the ACCC’s ‘‘Digital Platforms Inquiry’’ report recommends

‘‘[u]pdating Australia’s merger law to incorporate . . . the nature

and significance of assets, including data and technology, acquired

through a merger.’’

244

3. The Free and Diverse Press

A free and diverse press is essential to a vibrant democracy.

Whether exposing corruption in government, informing citizens, or

holding power to account, independent journalism sustains our de-

mocracy by facilitating public discourse.

Since 2006, newspaper advertising revenue, which is critical for

funding high-quality journalism, fell by over 50 percent.

245

Despite

significant growth in online traffic among the nation’s leading

newspapers,

246

print and digital newsrooms across the country are

laying off reporters or folding altogether.

247

As a result, commu-

nities throughout the United States are increasingly going without

sources for local news. The emergence of platform gatekeepers—

and the market power wielded by these firms—has contributed to

the decline of trustworthy sources of news.

248

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249

eMarketer estimates that Google’s and Facebook’s U.S. ad revenues will be $39.58 billion

and $31.43 billion, respectively, in 2020.

ARKETER

, G

OOGLE

EVENUES TO

ROP FOR THE

IRST

IME

(June 23, 2020), https://www.emarketer.com/content/google-ad-revenues-drop-first-

time. According to BIA, local TV and radio station ad revenues (counting both their OTA and

much more limited digital revenues) will total $31.3 billion this year. See BIA Revises Local

Radio Advertising Estimates Down to $12.8B in 2020 Due to Pandemic, BIA A

DVISORY

ERVS

(June 25, 2020), http://www.biakelsey.com/bia-revises-local-radio-advertising-estimates-12-8-b-

2020-due-pandemic-transition-digital-accelerating/; BIA Lowers 2020 Local Television Station

Advertising Revenue Forecast to $18.5B, BIA A

DVISORY

ERVS

. (May 21, 2020), http://

www.biakelsey.com/bia-lowers-2020-local-television-station-advertising-revenue-forecast-18-5b/.

250

Michael Barthel, Despite Subscription Surges for Largest U.S. Newspapers, Circulation and

Revenue Fall for Industry Overall, P

SCH

. C

.: F

ACT

ANK

(June 1, 2017), https://www

.pewresearch.org/fact-tank/2017/06/01/circulation-and-revenue-fall-for-newspaper-industry;

Newspapers Fact Sheet, P

SCH

. C

. (June 13, 2018), https://www.journalism.org/fact-

sheet/newspapers.

251

Submission from Source 220, to H. Comm. on the Judiciary, 7 (Oct. 14, 2019) (on file with

Comm.).

252

See P

ENELOPE

USE

BERNATHY

, U

NIV

. N.C. S

EDIA &

OURNALISM

, N

EWS

ESERTS AND

HOST

EWSPAPERS

: W

ILL

OCAL

EWS

URVIVE

45 (2020), https://www.usnews

deserts.com/wp-content/uploads/2020/06/2020lNewslDesertslandlGhostlNewspapers

.pdf.

253

Submission from Nat’l Ass’n of Broads., to H. Comm. on the Judiciary, 2 (Oct. 14, 2019),

http://www.nab.org/documents/newsRoom/pdfs/09220lHJClLocallJournalismlAtlRisk

lSubmission.pdf.

254

Oliver Darcy & Tom Kludt, Media Industry Loses About 1,000 Jobs as Layoffs Hit News

Organizations, CNN (Jan. 24, 2019), https://edition.cnn.com/2019/01/24/media/media-layoffs-

buzzfeed-huffpost-gannett/index.html; Edmund Lee, Founder’s Big Idea to Revive BuzzFeed’s

Fortunes? A Merger with Rivals, N.Y. T

IMES

(Nov. 19, 2018), https://www.nytimes.com/2018/

11/19/business/media/buzzfeed-jonah-peretti-mergers.html.

255

Edmund Lee, Founder’s Big Idea to Revive BuzzFeed’s Fortunes? A Merger with Rivals,

N.Y. T

IMES

(Nov. 19, 2018), https://www.nytimes.com/2018/11/19/business/media/buzzfeed-

jonah-peretti-mergers.html.

(a) Journalism in Decline. Since 2006, the news industry has

been in economic freefall, primarily due to a massive decrease in

advertising revenue. Both print and broadcast news organizations

rely heavily on advertising revenue to support their operations, and

as the market has shifted to digital platforms, news organizations

have seen the value of their advertising space plummet steeply.

249

For newspapers, advertising has declined from $49 billion in 2006

to $16.5 billion in 2017.

250

This decrease has been felt by national

and local news sources alike. As total annual advertising revenues

have fallen over 62 percent across the industry since 2008, one

major national newspaper told the Subcommittee that its annual

advertising revenue has fallen 48 percent over that period.

251

Addi-

tionally, ethnic news outlets have suffered from the shift from

broadcast and print ads to digital ads.

252

Regarding television and

radio broadcast news, the National Association of Broadcasters told

the Subcommittee, ‘‘[T]his year, the U.S. advertising revenue of a

single company—Google—are projected to exceed the combined ad

revenue of all TV and radio stations in the country by over $8 bil-

lion.’’

253

While the decline of advertising revenue has most severely af-

fected local news publishers, prominent digital publishers have also

been affected. In January 2019, Buzzfeed announced layoffs of 220

employees, about 15 percent of its workforce, due to advertising

losses.

254

Jonah Peretti, the Chief Executive Officer of BuzzFeed,

commented prior to the layoffs that consolidation of digital pub-

lishers into a single large digital media company may be the only

path forward for profitability, suggesting that publishers’ lack of

bargaining power in negotiations with online platforms is the cen-

tral obstacle to long-term survival.

255

Despite a recent boost in the number of digital subscriptions and

the level of online traffic for the top newspapers in the United

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256

Michael Barthel, Despite Subscription Surges for Largest U.S. Newspapers, Circulation and

Revenue Fall for Industry Overall, P

SCH

. C

.: F

ACT

ANK

(June 1, 2017), https://

www.pewresearch.org/fact-tank/2017/06/01/circulation-and-revenue-fall-for-newspaper-indus-

try/; Newspapers Fact Sheet, P

SCH

. C

. (July 9, 2019), https://www.journalism.org/fact-

sheet/newspapers; David Chavern, Opinion, Protect the News From Google and Facebook, W

ALL

. J. (Feb. 25, 2018), https://www.wsj.com/articles/protect-the-news-from-google-and-facebook-

1519594942.

257

Submission from Source 220, to H. Comm. on the Judiciary, 7 (Oct. 14, 2019) (on file with

Comm.).

258

ENELOPE

USE

BERNATHY

, U

NIV

. N.C. S

EDIA &

OURNALISM

, T

XPANDING

EWS

ESERT

33 (2018), https://www.cislm.org/wp-content/uploads/2018/10/The-Expanding-

News-Desert-10l14-Web.pdf.

259

Alex Shephard, Finance Is Killing the News, N

EPUBLIC

(Apr. 18, 2018), https://

newrepublic.com/article/148022/finance-killing-news.

260

Lesley Chiou & Catherine Tucker, Content Aggregation by Platforms: The Case of the News

Media (Nat’l Bureau of Econ. Rsch., Working Paper No. 21404, 2015), https://www.nber.org/

papers/w21404.pdf.

261

EWS

EDIA

., H

OOGLE

BUSES

OSITION AS A

ARKET

OMINANT

LATFORM

TRONG

-A

EWS

UBLISHERS AND

URT

OURNALISM

2 (2020), http://www

.newsmediaalliance.org/wp-content/uploads/2020/06/Final-Alliance-White-Paper-June-18-

2020.pdf.

262

Id. at 12.

263

Id. at 12–14.

264

Submission from the Nat’l Ass’n of Broads., to H. Comm. on the Judiciary, 9 (Sept. 2,

2020), http://www.nab.org/documents/newsRoom/pdfs/09220lHJClLocallJournalismlAt

lRisklSubmission.pdf.

States, these increases did not offset losses in online advertising or

circulation in the industry overall.

256

As one news publisher told

the Subcommittee, ‘‘For the vast majority of news publishers, dig-

ital subscription revenues remain a minor revenue stream and do

not appear to be on a path to replace the decline in print subscrip-

tions.’’

257

Over the past two decades, hundreds of local news pub-

lishers have been acquired or gone bankrupt.

258

In some cases, pri-

vate equity firms and hedge funds have purchased major regional

chains and newspapers, resulting in mass layoffs of journalists and

increased debt burdens for publishers.

259

In recent years, news consumption has largely shifted to a model

of content aggregation, through which platforms consolidate con-

tent from multiple news sources.

260

In submissions to the Sub-

committee and public statements, publishers across the spectrum

say they have little choice but to participate in content aggregation,

particularly those run by dominant platforms because the

aggregators’ ‘‘use of news publishers’ content does send substantial

traffic to news publishers.’’

261

But this can also prevent traffic

from flowing to newspapers. As some publishers have noted, news

aggregators package and present content to users using attention-

grabbing quotes from high points of stories, which can make it un-

necessary for the user to click through to the publisher’s

website.

262

As these publishers noted, this dynamic forces news or-

ganizations to effectively compete with their own content, lowering

the potential revenue from user traffic to news organizations’

websites.

263

As a result of falling revenues, newspapers and broadcast sta-

tions are steadily losing the ability to financially support their

newsrooms, which are costly to maintain but provide immense

value to their communities.

264

A robust local newsroom requires

the financial freedom to support in-depth, sometimes years-long re-

porting, as well as the ability to hire and retain journalists with

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265

Free and Diverse Press Hearing at 83–84 (statement of Kevin Riley, Ed., The Atlanta

Journal-Constitution).

266

Submission from the Nat’l Ass’n of Broads., to H. Comm. on the Judiciary, 1 (Sept. 2,

2020), http://www.nab.org/documents/newsRoom/pdfs/09220lHJClLocallJournalismlAt

lRisklSubmission.pdf.

267

Free and Diverse Press Hearing at 82 (statement of Kevin Riley, Ed., The Atlanta Journal-

Constitution).

268

Sara Fischer & Margaret Harding McGill, Coronavirus Sends Local News into Crisis,

XIOS

(Mar. 21, 2020), https://www.axios.com/coronavirus-local-news-853e96fa-51aa-43cc-a990-

eb48cc896b17.html.

269

Mark Glaser, 6 Ways Local News Makes a Crucial Impact Covering COVID–19, K

NIGHT

OUND

. (Apr. 20, 2020), https://knightfoundation.org/articles/6-ways-local-news-makes-a-

crucial-impact-covering-covid-19/.

270

COVID–19 Response from Native Tribes, NMPBS (Mar. 30, 2020), https://www

.newmexicopbs.org/productions/newmexicoinfocus/covid-19-response-from-native-tribes/.

271

See, e.g., Bill Chappell, Coronavirus Cases Spike in Navajo Nation, Where Water Service

Is Often Scarce, NPR (Mar. 26, 2020), https://www.npr.org/sections/coronavirus-live-updates/

2020/03/26/822037719/coronavirus-cases-spike-in-navajo-nation-where-water-service-is-often-

scarce.

272

Submission from the Nat’l Ass’n of Broads., to H. Comm. on the Judiciary, 2 (Sept. 2,

2020), http://www.nab.org/documents/newsRoom/pdfs/09220lHJClLocallJournalismlAt

lRisklSubmission.pdf.

273

Id. at 4, 7 n.16.

274

Id. at 7.

expertise in fundamentally local issues, such as coverage of state

government.

265

The societal value of local news is significant. As noted by the

National Association of Broadcasters, local broadcast stations pro-

vide on-the-air programming which is ‘‘rooted in localism and the

public interest,’’ offering content which ‘‘[is] still free to the public

and accessible to all Americans.’’

266

Kevin Riley, the editor of The

Atlanta Journal-Constitution, similarly testified before the Sub-

committee that ‘‘it would be impossible to even put a cost estimate

on the work’’ of local journalists.

267

The COVID–19 pandemic has particularly highlighted the impor-

tance of local news sources. Despite taking major revenue losses,

268

local journalists have provided valuable reporting on the trans-

mission of the novel coronavirus, particularly for underserved and

vulnerable communities.

269

For example, PBS New Mexico pro-

vided an in-depth focus on the effects of the coronavirus on Native

Americans ‘‘dealing with scarce resources as they respond to novel

coronavirus outbreaks on tribal lands.’’

270

Apart from serving their

communities, local news stories bring national attention to these

critical issues.

271

In addition to news coverage, the National Asso-

ciation of Broadcasters aired public-service announcements in re-

sponse to the pandemic ‘‘more than 765,000 times for an estimated

ad value of more than $156,500,000,’’ a number which ‘‘do[es] not

include the likely much greater number of other coronavirus-re-

lated PSAs’’ aired by local television and radio stations across the

United States.

272

To run a new operation, broadcast stations must be able to sus-

tain ‘‘the basic costs of running a station, including engineering,

sales, [and] programming’’ costs, and must make significant capital

expenditures in equipment, such as satellite trucks.

273

These ex-

penses must be satisfied before broadcast stations can invest in im-

provements to keep pace with changing technologies, ‘‘including

ultra-high definition programming, better emergency alerting, mo-

bile services, interactivity, hyper-local content and more.’’

274

The costs of news production add up. From 2003 to 2013, these

costs ‘‘accounted for nearly 24 percent of TV stations’ total ex-

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275

Id. at 4 (citing NAB Television Financial Reports 2004–2019).

276

Elizabeth Grieco, U.S. Newspapers Have Shed Half of Their Newsroom Employees Since

2008, P

SCH

. C

.: F

ACT

ANK

(Apr. 20, 2020), https://www.pewresearch.org/fact-tank/

2020/04/20/u-s-newsroom-employment-has-dropped-by-a-quarter-since-2008/.

277

Benjamin Goggin, 7,800 People Lost Their Media Jobs in a 2019 Landslide, B

. I

NSIDER

(Dec. 10, 2019), https://www.businessinsider.com/2019-media-layoffs-job-cuts-at-buzzfeed-huff

post-vice-details-2019-2#spin-media-group-29-jobs-september-and-january-18.

278

Occupational Outlook Handbook: Reporters, Correspondents, and Broadcast News Ana-

lysts, U.S. D

’

TOF

ABOR

: B

UREAU OF

ABOR

TATS

., https://www.bls.gov/ooh/media-and-

communication/reporters-correspondents-and-broadcast-news-analysts.htm (last modified Apr.

12, 2019).

279

ENELOPE

USE

BERNATHY

, U

NIV

. N.C. S

EDIA &

OURNALISM

, T

XPANDING

EWS

ESERT

10–11 (2018), https://www.cislm.org/wp-content/uploads/2018/10/The-Expand-

ing-News-Desert-10l14-Web.pdf.

280

Id. at 8, 10.

281

Free and Diverse Press Hearing at 83 (statement of Kevin Riley, Ed., The Atlanta Journal-

Constitution).

282

Matthew Gentzkow et al., The Effects of Newspaper Entry and Exit on Electoral Politics,

101 A

. E

CON

. R

. 2980, 2980 (2011) (‘‘We find that newspapers have a robust positive effect

on political participation, with one additional newspaper increasing both presidential and con-

gressional turnout by approximately 0.3 percentage points.’’ (italics removed)).

283

Mary Ellen Klas, Less Local News Means Less Democracy, N

IEMAN

EPS

. (Sept. 20, 2019),

https://niemanreports.org/articles/less-local-news-means-less-democracy/.

penses (and nearly 26 percent of the total expenses of ABC/CBS/

Fox/NBC stations).’’

275

In light of the expenses associated with

producing high-quality journalism, declining revenue has major im-

plications for the maintenance—let alone enrichment—of quality

news production.

Budget cuts have also led to a dramatic number of newsroom job

losses. This decline has been primarily driven by a reduction in

newspaper employees, who have seen employment fall by half over

a recent eight-year period, from 71,000 in 2008 to 35,000 in

2019.

276

In 2019 alone, 7,800 media industry employees were laid

off.

277

The Bureau of Labor Statistics estimates that the total em-

ployment of reporters, correspondents, and broadcast news analysts

will continue to decline by about 11 percent between 2019 and

2029.

278

Researchers at the University of North Carolina School of Media

and Journalism found that the United States has lost nearly 1,800

newspapers since 2004 either to closure or merger, 70 percent of

which were in metropolitan areas.

279

As a result, the majority of

counties in America no longer have more than one publisher of

local news, and 200 are without any paper.

280

At the Subcommit-

tee’s hearing on online platforms’ effects on a free and diverse

press, Mr. Riley described this new media landscape as character-

ized by digital platform dominance and disappearing local news-

papers:

We produce journalism that is distinguished by its depth, accuracy and origi-

nality. That costs money and is expensive, but if the system works correctly, it

also makes money that the paper uses to investigate and develop the next story

or cover the next local event. If others repackage our journalism and make

money off it, yet none of that money makes its way back to the local paper, then

it makes breaking that next story or exposing the next scandal more challenging.

If that cycle continues indefinitely, quality local journalism will slowly wither

and eventually cease to exist.

281

This cycle has a profoundly negative effect on American democ-

racy and civic life. Communities without quality local news cov-

erage have lower rates of voter turnout.

282

Government corruption

may go unchecked, leaving communities vulnerable to serious mis-

management.

283

Relatedly, these communities see local government

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284

Noah Smith, Opinion, Goodbye Newspapers. Hello, Bad Government, B

LOOMBERG

(June 1,

2018), https://www.bloomberg.com/opinion/articles/2018-06-01/goodbye-newspapers-hello-bad-

government (‘‘[T]he authors show that without local newspapers, local governments tend to en-

gage in more inefficient or dubious financing arrangements.’’).

285

Amy Mitchell et al., Civic Engagement Strongly Tied to Local News Habits, P

SCH

. (Nov. 3, 2016), https://www.journalism.org/2016/11/03/civic-engagement-strongly-tied-to-

local-news-habits.

286

Danny Hayes & Jennifer L. Lawless, As Local News Goes, So Goes Citizen Engagement:

Media, Knowledge, and Participation in U.S. House Elections, 77 J. P

. 447, 447 (2014).

287

Submission from Source 220, to H. Comm. on the Judiciary, 7 (Oct. 14, 2019) (on file with

Comm.). Although Apple News and Apple News Plus are increasingly popular news aggregators,

most market participants interviewed by the Subcommittee do not view Apple as a critical inter-

mediary for online news at this time, although some publishers raised concerns about the tying

of payments inside Apple’s news product.

288

Submission from Source 955, to H. Comm. on the Judiciary, 12 (Oct. 30, 2019) (on file

with Comm.).

289

Free and Diverse Press Hearing at 20 (statement of David Chavern, President & CEO,

News Media All.) (‘‘In effect, a couple of dominant tech platforms are acting as regulators of

the digital news industry.’’).

290

See, e.g., Submission from Source 140, to H. Comm. on the Judiciary, 2 (Oct. 15, 2019)

(on file with Comm.) (‘‘Facebook’s decision, announced in June 2016, to make significant changes

to its algorithm to [favor] content from friends and family, which was made without notice, con-

sultation or warning to the market, and which led to significant disruption for a range of busi-

nesses.’’).

291

Submission from Source 114, to H. Comm. on the Judiciary, 12 (Oct. 2, 2019) (on file with

Comm.); Data and Privacy Hearing at 127 (statement of Rod Sims, Chair, Austl. Competition

& Consumer Comm’n).

spending increase.

284

Towns without robust local news coverage

also exhibit lower levels of social cohesion, undermining a sense of

belonging in a community.

285

As fewer publishers operate in local

markets, local news is supplanted by aggregation of national cov-

erage, reducing residents’ knowledge of local happenings and

events, and generally leaving them less connected to their commu-

nities.

286

Compounding this problem, the gap created by the loss of trust-

worthy and credible news sources has been increasingly filled by

false and misleading information. Once communities lack a local

newspaper source, people tend to get their local news from social

media. As local news dies, it is filled by unchecked information,

some of which can spread quickly and can have severe con-

sequences.

(b) The Effect of Market Power on Journalism. During the Sub-

committee’s investigation, news publishers raised concerns about

the ‘‘significant and growing asymmetry of power’’ between domi-

nant online platforms and news publishers, as well as the effect of

this dominance on the production and availability of trustworthy

sources of news. In interviews, submissions, and testimony before

the Subcommittee, publishers with distinct business models and

distribution strategies said they are ‘‘increasingly beholden’’ to

these firms, and in particular, Google and Facebook.

287

As a result,

several dominant firms have an outsized influence over the dis-

tribution and monetization of trustworthy sources of news on-

line,

288

undermining the availability of high-quality sources of jour-

nalism.

289

(i) Distribution of News Online. Several dominant platforms func-

tion as intermediaries to news online. Due to their outsized role as

digital gateways to news, a change to one of these firms’ algorithms

can significantly affect the online referrals to news publishers,

290

directly affecting their advertising revenue.

291

One news publisher

stated in its submission to the Subcommittee that it and other

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292

Submission from Source 220, to H. Comm. on the Judiciary, 3 (Mar. 10, 2020) (on file with

Comm.).

293

Submission from Source 955, to H. Comm. on the Judiciary, 12 (Oct. 15, 2019) (on file

with Comm.).

294

Id. at 17.

295

Id.

296

Adam Mosseri, Bringing People Closer Together, F

ACEBOOK

: N

EWSROOM

(Jan. 11, 2018),

https://newsroom.fb.com/news/2018/01/news-feed-fyi-bringing-people-closer-together.

297

How Much Have Facebook Algorithm Changes Impacted Publishers?, M

ARKETING

HARTS

(Apr. 4, 2019), https://www.marketingcharts.com/digital/social-media-107974.

298

Submission from Source 140, to H. Comm. on the Judiciary, 2 (Oct. 15, 2019) (on file with

Comm.).

299

Nicholas Thompson & Fred Vogelstein, Inside the Two Years That Shook Facebook—and

the World, W

IRED

(Feb. 12, 2018), https://www.wired.com/story/inside-facebook-mark-

zuckerberg-2-years-of-hell/ (emphasis added).

300

See, e.g., Submission from Source 140, to H. Comm. on the Judiciary, 2 (Oct. 15, 2019)

(on file with Comm.) (describing ‘‘Apple’s decision to tie all payments made through iOS apps

to its own payment system, which takes a 30 percent share of any contributions and subscrip-

tions made to news [publishers] through news apps downloaded from the Apple store’’).

news organizations ‘‘depend on a few big tech platforms to help

them distribute their journalism to consumers.’’

292

In submissions to the Subcommittee, several news publishers

noted that the dominance of Google and Facebook allows them to

‘‘pick winners’’ online by adjusting visibility and traffic.

293

For ex-

ample, an update to Google’s search algorithm in June 2019 de-

creased a major news publisher’s online traffic ‘‘by close to 50%’’

even as their referrals from other sources—such as their home

page and apps—grew during the same period.

294

As they noted, a

‘‘smaller business would have been crushed’’ by this decline.

295

Similarly, news organizations were negatively affected when, in

January 2018, Facebook adjusted its News Feed algorithm to

prioritize content based on audience engagement.

296

According to

an internet analytics firm, these changes significantly affected the

visibility of news content on Facebook, resulting in a 33 percent de-

crease in referral traffic from Facebook to news publishers’ sites.

297

As one publisher noted in its submission to the Subcommittee, this

change ‘‘was made without notice, consultation or warning to the

market, [leading] to significant disruption for a range of busi-

nesses.’’

298

Nicholas Thompson, the Editor-in-Chief of Wired maga-

zine, and Wired contributing editor Fred Vogelstein described the

relationship between publishers and Facebook as being ‘‘share-

croppers on Facebook’s massive industrial farm,’’ writing that:

Even at the best of times, meetings between Facebook and media executives can

feel like unhappy family gatherings. The two sides are inextricably bound to-

gether, but they don’t like each other all that much .... And then there’s the

simple, deep fear and mistrust that Facebook inspires. Every publisher knows

that, at best, they are sharecroppers on Facebook’s massive industrial farm. The

social network is roughly 200 times more valuable than the Times. And journal-

ists know that the man who owns the farm has the leverage. If Facebook wanted

to, it could quietly turn any number of dials that would harm a publisher—by

manipulating its traffic, its ad network, or its readers.

299

The Subcommittee has also received evidence that the dominance

of several online platforms has created a significant imbalance of

bargaining power. In several submissions, news publishers note

that dominant firms can impose unilateral terms on publishers,

such as take-it-or-leave-it revenue sharing agreements.

300

A promi-

nent publisher described this relationship as platforms having a

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301

Submission from Source 114, to H. Comm. on the Judiciary, 12 (Oct. 2, 2019) (on file with

Comm.).

302

Free and Diverse Press Hearing.

303

Data and Privacy Hearing at 125 (statement of Rod Sims, Chair, Austl. Competition &

Consumer Comm’n) (testifying that the power of dominant platforms ‘‘creates an imbalance of

bargaining power between digital platforms and news media businesses, meaning that agree-

ments they reach are likely much different to those that would be reached in a competitive mar-

ket’’).

304

Free and Diverse Press Hearing at 45 (statement of Sally Hubbard, Dir. of Enf’t Strategy,

Open Mkts. Inst.).

305

Id. at 22 (statement of David Chavern, President, News Media All.).

306

EWS

EDIA

., H

OOGLE

BUSES

OSITION AS A

ARKET

OMINANT

LATFORM

TRONG

-A

EWS

UBLISHERS AND

URT

OURNALISM

(2020), http://www

.newsmediaalliance.org/wp-content/uploads/2020/06/Final-Alliance-White-Paper-June-18-2020

.pdf.

307

Id. at 1.

308

Id. at 5.

309

Id. at 7.

310

Id. at 6.

‘‘finger on the scales’’ with the ability to suppress publishers that

do not ‘‘appease platforms’ business terms.’’

301

During the Subcommittee’s hearing on the effects of market

power on journalism,

302

several witnesses also testified about the

lack of equal bargaining power between news publishers and domi-

nant platforms.

303

At the Subcommittee’s hearing on market power

and the free and diverse press, Sally Hubbard, Director of Enforce-

ment Strategy at the Open Markets Institute, testified that the

lack of competition online has led to diminished bargaining power

among news publishers. Consequently, in response to changing

terms and algorithmic treatment by platforms, ‘‘publishers have lit-

tle choice but to adapt and accommodate regardless of how the

changes may negatively affect their own profitability.’’

304

David

Chavern, President of the News Media Alliance, similarly testified

that publishers have a ‘‘collective action problem,’’ stating that ‘‘no

news organization on its own can stand up to the platforms. The

risk of demotion or exclusion from the platforms is simply too

great.’’

305

In June 2020, the News Media Alliance published a white paper

examining the relationship between news publishers and Google

based on interviews with its members over the course of more than

a year.

306

As it notes, ‘‘Google has exercised control over news pub-

lishers to force them into several relationships that benefit Google

at the publishers’ expense.’’

307

In the context of Google’s place-

ment of news on accelerated mobile pages (AMP)—a format for dis-

playing web pages on mobile devices—publishers raised concerns

that ‘‘Google effectively gave news publishers little choice but to

adopt it,’’ requiring the creation of parallel websites ‘‘that are

hosted, stored and served from Google’s servers rather than their

own.’’

308

While this format has benefits in terms of loading information

quickly on mobile devices, publishers argue that these benefits

‘‘could have been achieved through means that did not so signifi-

cantly increase Google’s power over publishers or so favor its abil-

ity to collect data to foster its market domination.’’

309

And when

a publisher attempts to avoid this cost by moving its content be-

hind a paywall, its rise in subscriptions was offset by declines in

traffic from Google and other platforms.

310

Referring to this trade-

off as a ‘‘Hobson’s choice,’’ the News Media Alliance explained:

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311

Id. at 8 n.14 (‘‘These include the following: (1) Google gets the subscriber data; (2) the

user must use Google Wallet or Google Pay, instead of providing its credit card to the news pub-

lisher and establishing a direct relationship with the publisher; and (3) Google takes a 5–15%

cut. See Nushin Rashidian, George Civeris & Pete Brown, Platforms and Publishers: The End

of an Era, C

OLUM

. J

OURNALISM

. (Nov. 22, 2019), https://www.cjr.org/towlcenterlreports/

platforms-and-publishers-end-of-an-era.php.’’).

312

Id. at 8.

313

Submission from Google Austl. Pty. Ltd., to Austl. Competition & Consumer Comm’n, 45–

46 (Feb. 18, 2019), https://www.accc.gov.au/system/files/Google%20%28February%202019

%29.PDF. But see Austl. Competition & Consumer Comm’n Report at 240 (‘‘[T]here is a broader

issue about the extent to which Google, by way of AMP, retains users within its ecosystem and

reduces monetisation opportunities for media businesses outside of AMP. That is, rather than

directing users to the websites of media businesses, AMP’s design encourages users to stay with-

in the Google ecosystem. As a result, media businesses are less likely to monetise content on

their own properties, either through advertising or subscription revenue.’’).

314

Innovation and Entrepreneurship Hearing at 422 (response to Questions for the Record

of Adam Cohen, Dir. of Econ. Pol’y, Google LLC).

315

Austl. Competition & Consumer Comm’n at 297 (describing atomization as ‘‘the process

by which news is ‘decoupled from its source’ and consumed on a ‘story-by-story basis’ ’’); Free

and Diverse Press Hearing at 20 (statement of David Chavern, President, News Media All.)

(‘‘These tech giants use secret, unpredictable algorithms to determine how and even whether

content is delivered to readers. They scrape news organizations’ content and use it to their own

ends, without permission or remuneration for the companies that generated the content in the

first place. They also suppress news organizations’ brands, control their data, and refuse to rec-

ognize and support quality journalism.’’).

316

Submission from Source 114, to H. Comm. on the Judiciary, 12 (Oct. 2, 2019) (on file with

Comm.).

317

Interview with Source 114 (Oct. 2, 2019).

Newspapers such as The Wall Street Journal employ a highly customized

paywall on their websites, significantly varying the number of free articles that

a user is permitted to read before being asked to subscribe to the newspaper.

This flexibility is highly beneficial, allowing them to maximize engagement and

increase subscriptions. For AMP articles, however, Google restricts the paywall

options. Unless publishers rebuild their paywall options and their meters for

AMP, they can only provide all of their content for free or none of their content

for free. The only other option is to use Subscribe with Google, which has many

benefits for Google and downsides for news publishers.

311

Accordingly, unless

they invest in building another and separate paywall, news publishers who do

not want to use Subscribe with Google have a de facto all-or-nothing choice re-

garding the imposition of a paywall, which lowers subscriber conversion rates.

312

Google has responded to this concern by noting that AMP does not

prevent publishers from placing ads on AMP pages, but restricting

the number of ads ‘‘leads to improved page load times, increased

site traffic, superior ad engagement, and thus typically increases

advertising revenue overall.’’

313

Google also said in its responses to

Subcommittee Chair David N. Cicilline’s questions for the record

that it ‘‘does not privilege publishers who use AMP over publishers

that adopt non-Google technical solutions that would also guar-

antee fast-loading pages.’’

314

Finally, because news is often accessed online through channels

other than the original publication—including search results, voice

assistants, social platforms, or news aggregators—journalism has

increasingly become ‘‘atomized’’ or removed from its source and

placed alongside other content.

315

In the context of audio news,

one market participant noted that aggregating different news

sources can create a bad experience for users.

316

The aggregation

of different news sources without editorial oversight can also cause

reputational harm to news publishers, such as when highly cred-

ible reporting appears alongside an opinion-based news source.

317

Indirectly, the atomization of news may increase the likelihood

that people are exposed to disinformation or untrustworthy sources

of news online. When online news is disintermediated from its

source, people generally have more difficulty discerning the credi-

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318

Submission from Source 140, to H. Comm. on the Judiciary, 2 (Oct. 15, 2019) (on file with

Comm.).

319

CEO Hearing at 143 (statement of Rep. David N. Cicilline (D–RI), Chair, Subcomm. on

Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary).

320

Id.

321

Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).

322

Id. at 143–44 (statement of Rep. David N. Cicilline (D–RI), Chair, Subcomm. on Antitrust,

Commercial and Admin. Law of the H. Comm. on the Judiciary).

323

Id. at 144 (statement of Mark Zuckerberg, CEO, Facebook, Inc.).

324

Free and Diverse Press Hearing at 45 (statement of Sally Hubbard, Dir. of Enf’t Strategy,

Open Mkts. Inst.); Charlie Warzel, Opinion, Facebook Can’t Be Reformed, N.Y. T

IMES

(July 1,

2020), https://www.nytimes.com/2020/07/01/opinion/facebook-zuckerberg.html.

325

Conversely, the decline of trustworthy sources of news due to rising market power and

declining ad revenue has also contributed to this harm. Competition & Mkts. Auth. Report at

9 (‘‘[C]oncerns relating to online platforms funded by digital advertising can lead to wider social,

political and cultural harm through the decline of authoritative and reliable news media, the

resultant spread of ‘fake news’ and the decline of the local press which is often a significant

force in sustaining communities.’’).

326

Submission from Source 140, to H. Comm. on the Judiciary, 5 (Oct. 15, 2019) (on file with

Comm.).

bility of reporting online. This process may also ‘‘foster ambivalence

about the quality and nature of content that garners users’ atten-

tion,’’ particularly among young people.

318

For example, during the Subcommittee’s sixth hearing, Sub-

committee Chair Cicilline presented Facebook CEO Mark

Zuckerberg with evidence of a Breitbart video that claimed that

‘‘you don’t need a mask and hydroxychloroquine is a cure for

COVID.’’

319

As he noted, within the first five hours of this video

being posted, it had nearly ‘‘20 million views and over 100,000 com-

ments before Facebook acted to remove it.’’

320

Mr. Zuckerberg re-

sponded that ‘‘a lot of people shared that, and we did take it down

because it violate[d] our policies.’’

321

In response, Chair Cicilline

asked if ‘‘20 million people saw it over the period of five hours . . .

doesn’t that suggest, Mr. Zuckerberg, that your platform is so big

that, even with the right policies in place, you can’t contain deadly

content?’’

322

Mr. Zuckerberg responded by claiming that Facebook

has a ‘‘relatively good track record of finding and taking down lots

of false content.’’

323

Moreover, because there is not meaningful competition, dominant

firms face little financial consequence when misinformation and

propaganda are promoted online.

324

Platforms that are dependent

on online advertising have an incentive to prioritize content that is

addictive or exploitative to increase engagement on the platform.

325

And the reliance on platforms by advertisers has generally dimin-

ished their ability to push for improvements in content standards.

As a news publisher explained in a submission to the Sub-

committee:

As advertisers have become more reliant on dominant search and social plat-

forms to reach potential consumers, they have lost any leverage to demand

change in the policies or practices of the platforms. In the era of newspapers,

television, radio, or indeed direct sales of digital advertising online, there was

a connection between advertising and the content it funds, creating a high de-

gree of accountability for both parties in that transaction. This maintained high

content standards, and enabled advertisers to demand or pursue change from

publishers whose content standards fell. While many high-quality publishers

continue to operate stringent policies in relation to the digital advertising that

they permit to appear within their services, in a world of programmatic audience

trading that self-regulated compact between advertisers and platform does not

exist.

326

During the Subcommittee’s sixth hearing, Representative Jamie

Raskin (D–MD) raised this concern. As he noted, in July 2020,

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327

CEO Hearing at 57 (statement of Rep. Jamie Raskin (D–MD), Member, Subcomm. on

Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary).

328

Id. Stop Hate for Profit was established by the Anti-Defamation League, the NAACP,

Color of Change, and other civil rights groups in the wake of the May 2020 police killing of

George Floyd, an unarmed Black man, in Minneapolis and the ensuing national protests. Shirin

Ghaffary & Rebecca Heilweil, Why Facebook Is ‘‘The Front Line in Fighting Hate Today,’’ V

ECODE

(July 15, 2020), https://www.vox.com/recode/2020/7/15/21325728/facebook-stop-hate-

for-profit-campaign-jonathan-greenblatt-anti-defamation-league.

329

Steven Levy, Facebook Has More to Learn from the Ad Boycott, W

IRED

(Aug. 6, 2020),

https://www.wired.com/story/rashad-robinson-facebook-ad-boycott/.

330

CEO Hearing at 57 (statement of Rep. Jamie Raskin (D–MD), Member, Subcomm. on

Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary).

331

Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).

332

Id.

333

Id. at 216 (question of Rep. Pramila Jayapal (D–WA), Subcomm. on Antitrust, Commercial

and Admin. Law of the H. Comm. on the Judiciary).

334

Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).

335

Statement from Stop Hate for Profit on July 2020 Ad Pause Success and #StopHateFor

Profit Campaign, S

TOP

ATE FOR

ROFIT

(July 30, 2020), https://www.stophateforprofit.org/.

336

Donie O’Sullivan, Group That Led Facebook Boycott Is Back With New Action, CNN B

(Sept. 14, 2020), https://www.cnn.com/2020/09/14/tech/facebook-boycott-return/index.html.

Facebook faced an advertiser boycott by hundreds of companies.

327

This effort was spearheaded by the Stop Hate for Profit campaign,

a coalition of civil rights groups organizing in protest of ‘‘the rapid

spread of hate messages online, the presence of boogaloo and other

right-wing extremist groups trying to infiltrate and disrupt Black

Lives Matter protests and the fact that alt-right racists and anti-

Semitic content flourishes on Facebook.’’

328

As a result of this campaign, more than a thousand major com-

panies—including Disney, Coca-Cola, and General Motors—an-

nounced that they would pull $7 billion in advertisements on

Facebook as part of the Stop Hate for Profit boycott.

329

But, as

Representative Raskin pointed out during the hearing, Facebook

does not ‘‘seem to be that moved by their campaign.’’

330

Representative Pramila Jayapal (D–WA) also noted during the

hearing that Mr. Zuckerberg reportedly told Facebook’s employees

at an internal meeting that the company is ‘‘not gonna change our

policies or approach on anything because of a threat to a small per-

cent of our revenue, or to any percent of our revenue.’’

331

During

that meeting, Mr. Zuckerberg reportedly acknowledged that the

boycott ‘‘hurts us reputationally,’’ but said that the company was

insulated from threats by large advertisers due to advertising rev-

enue from small businesses.

332

In response to this report, Ms.

Jayapal asked Mr. Zuckerberg whether Facebook is ‘‘so big that

you don’t care how you’re impacted by a major boycott of 1,100 ad-

vertisers?’’

333

Mr. Zuckerberg responded that ‘‘[o]f course we care.

But we’re also not going to set our content policies because of ad-

vertisers. I think that that would be the wrong thing for us to

do.’’

334

Since then, the civil rights groups have said that, although

Facebook made some changes in response to the boycott—such as

the creation of a position within the company dedicated to over-

seeing civil rights and algorithmic bias—it ultimately has not made

meaningful changes at scale, and it ‘‘lags competitors in working

systematically to address hate and bigotry on their platform.’’

335

The group organized further action in September 2020, when it

called for companies and public figures to stop posting on

Instagram beginning September 16th.

336

This protest, aimed again

at Facebook’s treatment of hate groups, was spurred by the police

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337

Id.

338

Brian Fung, Facebook CEO Admits ‘‘Operational Mistake’’ in Failure to Remove Kenosha

Militia Page, CNN B

. (Sept. 4, 2020), https://www.cnn.com/2020/08/28/tech/zuckerberg-

kenosha-page/index.html.

339

Id.

340

See, e.g., Austl. Competition & Consumer Comm’n Report at 7; David Chavern, Opinion,

Protect the News from Google and Facebook, W

ALL

. J. (Feb. 25, 2018), https://www.wsj.com/

articles/protect-the-news-from-google-and-facebook-1519594942; supra Section III.C.3(b)(i).

341

See, e.g., Hamza Shaban, Digital Advertising to Surpass Print and TV for the First Time,

Report Says, W

ASH

. P

OST

: T

ECH

. (Feb. 20, 2019), https://www.washingtonpost.com/technology/

2019/02/20/digital-advertising-surpass-print-tv-first-time-report-says/.

342

Sarah Sluis, Digital Ad Market Soars to $88 Billion, Facebook and Google Contribute 90%

of Growth, A

XCHANGER

(May 10, 2018), https://adexchanger.com/online-advertising/

digital-ad-market-soars-to-88-billion-facebook-and-google-contribute-90-of-growth.

343

Jean Baptiste Su, Amazon Is Now the #3 Digital Ad Platform in the U.S. Behind Google

and Facebook, Says eMarketer, F

ORBES

(Sept. 20, 2018), https://www.forbes.com/sites/

jeanbaptiste/2018/09/20/amazon-is-now-the-3-digital-ad-platform-in-the-u-s-behind-google-and-

facebook-says-emarketer/#333342de3926.

344

Id.

345

See, e.g., Shannon Bond, Google and Facebook Build Digital Ad Duopoly, F

. T

IMES

(Mar.

14, 2017), https://www.ft.com/content/30c81d12-08c8-11e7-97d1-5e720a26771b; John Diaz,

Opinion, How Google and Facebook Suppress the News, S.F. C

HRON

. (Apr. 5, 2019), https://

www.sfchronicle.com/opinion/diaz/article/How-Google-and-Facebook-suppress-the-news-

13745431.php.

346

Data and Privacy Hearing at 126 (statement of Rod Sims, Chair, Austl. Competition &

Consumer Comm’n); Free and Diverse Press Hearing at 73 (statement of David Pitofsky, Gen.

Couns., News Corp).

347

Free and Diverse Press Hearing at 20 (statement of David Chavern, President, News

Media All.).

348

Daniel Funke, What’s Behind the Recent Media Bloodbath? The Dominance of Google and

Facebook, P

OYNTER

(June 14, 2017), https://www.poynter.org/business-work/2017/whats-

behind-the-recent-media-bloodbath-the-dominance-of-google-and-facebook.

shooting of Jacob Blake in Kenosha, Wisconsin.

337

In the after-

math, Facebook failed to remove a group promoting the coalescence

of an armed militia in the streets of Kenosha, despite numerous

users reporting the page.

338

Mr. Zuckerberg called this failure an

‘‘operational mistake.’’

339

(ii) Monetization. The rise of market power online has severely

affected the monetization of news, diminishing the ability of pub-

lishers to deliver valuable reporting.

340

The digital advertising market is highly concentrated, with

Google and Facebook controlling the majority of the online adver-

tising market in the United States,

341

capturing nearly all of its

growth in recent years.

342

Although Amazon has grown its digital

advertising business to become the third largest competitor in the

market,

343

it still accounts for a relatively small percentage.

344

News publishers have raised concerns that this significant level

of concentration in the online advertising market—commonly re-

ferred to as the digital ad duopoly—has harmed the quality and

availability of journalism.

345

They note that, as a result of this

dominance, there has been a significant decline in advertising rev-

enue to news publishers,

346

undermining publishers’ ability to de-

liver valuable reporting, and ‘‘siphon[ing] revenue away from news

organizations.’’

347

Jason Kint, the CEO of Digital Content Next, a trade association

that represents both digital and traditional news publishers, notes

that there is ‘‘a clear correlation between layoffs and buyouts with

the growth in market share for the duopoly—Google and

Facebook.’’

348

David Chavern, the President and CEO of the News

Media Alliance, has likewise said that ‘‘[t]he problem is that today’s

internet distribution systems distort the flow of economic value de-

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349

David Chavern, Opinion, How Antitrust Undermines Press Freedom, W

ALL

. J. (July 9,

2017), https://www.wsj.com/articles/how-antitrust-undermines-press-freedom-1499638532.

350

ENELOPE

USE

BERNATHY

, U

NIV

. N.C. S

EDIA &

OURNALISM

, T

XPANDING

EWS

ESERT

33 (2018), https://www.cislm.org/wp-content/uploads/2018/10/The-Expanding-

News-Desert-10l14-Web.pdf.

351

Submission from Source 140, to H. Comm. on the Judiciary, 11 (Oct. 15, 2019) (on file

with Comm.); Submission from Source 114, to H. Comm. on the Judiciary, 13 (Oct. 2, 2019) (on

file with Comm.).

352

Competition & Mkts. Auth. Report at 319.

353

Free and Diverse Press Hearing at 72 (statement of David Pitofsky, Gen. Couns., News

Corp).

354

Press Release, Austl. Competition & Consumer Comm’n, Holistic, Dynamic Reforms Need-

ed to Address Dominance of Digital Platforms (July 26, 2019), https://www.accc.gov.au/media-

release/holistic-dynamic-reforms-needed-to-address-dominance-of-digital-platforms.

355

Austl. Competition & Consumer Comm’n Report at 226.

356

Id. at 296.

357

Id. at 206, 247 (concluding that AMP is a ‘‘must have’’ product for publishers).

rived from good reporting.’’

349

The effects of this revenue decline

are most severe at the local level, where the decimation of local

news sources is giving rise to local news deserts.

350

Other news publishers have expressed concerns about the dual

role of platforms as both intermediaries and platforms for people’s

attention.

351

By keeping people inside a ‘‘walled garden,’’ platforms

can monetize their attention through ads, creating a strong eco-

nomic incentive to minimize outbound referrals that lead to a de-

cline in users’ attention and engagement. In turn, this diminishes

the incentives of publishers to invest in high-quality journalism.

352

David Pitofsky, the General Counsel of News Corp, described this

as a free-riding problem in his testimony before the Subcommittee,

explaining that platforms:

[D]eploy our highly engaging news content to target our audiences, then turn

around and sell that audience engagement to the same advertisers news pub-

lishers are trying to serve. Dominant platforms take the overwhelming majority

of advertising revenue without making any investment in the production of the

news, all while foreswearing any responsibility for its quality and accuracy. As

a result, one of the pillars of the news industry’s business model, advertising rev-

enue, is crumbling.

353

distribution and monetization of news through platform inter-

mediaries were raised as part of a comprehensive inquiry by the

Australian Competition and Consumer Commission (ACCC). Over

the span of several years, the Commission collected evidence from

more than a hundred market participants and organizations as

part of its review. Following its publication of a Preliminary Report

in December 2018 and an Issues Paper in February 2018, the

ACCC issued an extensive Final Report spanning more than 600

pages and including submissions from more than 100 market par-

ticipants.

354

Among its findings, the ACCC concluded that Facebook and

Google have significant and durable market power over the dis-

tribution of news online.

355

As the ACCC noted, ‘‘Google and

Facebook are the gateways to online news media for many con-

sumers,’’ accounting for a significant amount of referral traffic to

news publishers’ websites.

356

As a result, news publishers are reli-

ant on these platforms for reaching people online, which affects

publishers’ ability to monetize journalism, particularly on formats

such as Google’s Accelerated Mobile Pages (AMP).

357

The ACCC made 23 recommendations to address concerns across

a broad range of issues, including antitrust, privacy, and consumer

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358

Press Release, Austl. Competition & Consumer Comm’n, ACCC Commences Inquiry into

Digital Platforms (Dec. 4, 2017), https://www.accc.gov.au/media-release/accc-commences-

inquiry-into-digital-platforms.

359

Austl. Competition & Consumer Comm’n Report at 245.

360

Draft News Media Bargaining Code, A

USTL

. C

OMPETITION &

ONSUMER

OMM

’

, https://

www.accc.gov.au/focus-areas/digital-platforms/draft-news-media-bargaining-code (last visited

Sept. 27, 2020).

361

USTL

. C

OMPETITION &

ONSUMER

OMM

’

, Q

: D

RAFT

EWS

EDIA AND

IGITAL

LATFORMS

ANDATORY

ARGAINING

ODE

7 (July 2020), https://www.accc.gov.au/system/

files/DPB%20-%20Draft%20news%20media%20and%20digital%20platforms%20mandatory%20

bargaining%20code%20Q%26As.pdf.

362

Id. at 6.

363

Id. at 9.

364

Id.

365

Amanda Meade, News Corp to Suspend Print Editions of 60 Local Newspapers as Adver-

tising Revenue Slumps, G

UARDIAN

(Mar. 31, 2020), https://www.theguardian.com/media/2020/

apr/01/news-corp-to-suspend-print-editions-of-60-local-newspapers-as-advertising-revenue-

slumps.

366

Update to Our Open Letter to Australians, G

OOGLE

, https://about.google/google-in-

australia/an-open-letter/ (last visited Oct. 5, 2020).

protection.

358

Within the context of addressing the effects of mar-

ket power on the news industry—particularly as it relates to the

imbalance of bargaining power between platforms and publishers—

the Commission recommended developing ‘‘a code of conduct to gov-

ern the relationship between media businesses and digital plat-

forms [which] seeks, among other things, to address this imbal-

ance.’’

359

On July 31, 2020, the Commission released a draft code to ad-

dress a ‘‘fundamental bargaining power imbalance’’ between news

publishers and dominant platforms that has led to ‘‘news media

businesses accepting less favourable terms for the inclusion of news

on digital platform services than they would otherwise agree to in

response to a request by the Australian government.’’

360

Under this code, Facebook, Google, and other platforms with sig-

nificant bargaining power designated by Australia’s Treasurer

must negotiate with covered news publishers ‘‘in good faith over all

issues relevant to news on digital platform services.’’

361

News pub-

lishers may negotiate either individually or collectively over a

three-month period, allowing local and rural publishers ‘‘to nego-

tiate from a stronger position than negotiating individually.’’

362

If publishers are unable to reach an agreement during the medi-

ated negotiation period, they may bring the dispute to compulsory

arbitration. As part of this process, the arbitrator must consider

the parties’ final offers covering: (1) the benefits of news content to

the platform; (2) the costs of producing news by the publisher; and

(3) whether a payment model would unduly burden the commercial

interests of the platform.

363

The arbitrator must choose one of the

parties’ proposals, encouraging both parties to make reasonable of-

fers.

364

Facebook and Google have responded to the draft code by warn-

ing that they may no longer display news on their respective plat-

forms in Australia. Despite an ‘‘unprecedented surge in audiences

for news websites and TV news,’’

365

Google claims that the draft

code does not reflect the ‘‘more than $200 million in value that

Google provides to publishers each year by sending people to their

websites.’’

366

Facebook described the draft code as ‘‘unprecedented

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367

Natasha Lomas, France’s Competition Watchdog Orders Google to Pay for News Reuse,

ECH

RUNCH

(Apr. 9, 2020), https://techcrunch.com/2020/04/09/frances-competition-watch-

dog-orders-google-to-pay-for-news-reuse/.

368

Ashley Cullins, National Association of Broadcasters Warns Congress Tech Giants Could

Kill Local Journalism, H

OLLYWOOD

. (Sept. 3, 2020), https://www.hollywoodreporter

.com/thr-esq/national-association-of-broadcasters-warns-congress-tech-giants-could-kill-local-

journalism.

369

Naaman Zhou, Google’s Open Letter to Australians About News Code Contains ‘‘Misin-

formation,’’ ACCC Says, G

UARDIAN

(Aug. 17, 2020), https://www.theguardian.com/technology/

2020/aug/17/google-open-letter-australia-news-media-bargaining-code-free-services-risk-contains

-misinformation-accc-says.

370

Jamie Smyth & Alex Barker, Battle Lines Drawn as Australia Takes on Big Tech Over

Paying for News, F

. T

IMES

(Sept. 2, 2020), https://www.ft.com/content/0834d986-eece-4e66-

ac55-f62e1331f7f7.

371

21 C

ONG

. R

. 3146 (1890) (statement of Sen. George F. Hoar).

372

Id. at 2459 (statement of Sen. John Sherman); see also 95 C

ONG

. R

. 11,486 (1949)

(statement of Rep. Emanuel Celler) (‘‘[B]usiness concentration is politically dangerous, leading

inevitably to increasing Government control.’’); 96 C

ONG

. R

. 16,452 (1950) (statement of Sen.

Estes Kefauver) (‘‘[T]he history of what has taken place in other nations where mergers and

concentrations have placed economic control in the hands of a very few people is too clear to

pass over easily. A point is eventually reached, and we are rapidly reaching that point in this

country, where the public steps in to take over when concentration and monopoly gain too much

power. The taking over by the public through its government always follows one or two methods

and has one or two political results. It either results in a Fascist state or the nationalization

of industries and thereafter a Socialist or Communist state.’’).

in its reach,’’ notwithstanding similar proposals in other countries,

including France,

367

as well as the United States.

368

In response to Google’s threat to boycott journalism in Australia,

ACCC Chair Rod Sims said that Google’s statement contained

‘‘misinformation’’ about the draft code, asserting that the draft code

responds to ‘‘a significant bargaining power imbalance between

Australian news media businesses and Google and Facebook.’’

369

Australia’s Treasurer, Josh Frydenberg, similarly said that the

country would not ‘‘respond to coercion or heavy-handed threats

wherever they come from.’’

370

4. Political and Economic Liberty

During the investigation, the Subcommittee examined the effects

of market power on political and economic liberty. Concerns about

the democratic effects of private monopolies trace back to the

foundational antitrust statutes, where lawmakers worried that mo-

nopolies were ‘‘a menace to republican institutions themselves.’’

371

The Subcommittee’s examination of these matters follows a long

tradition of congressional attention to this issue.

372

Based on interviews and submissions from market participants,

along with other evidence examined by the Subcommittee, there

are several ways in which the market power of the dominant plat-

forms affects political and economic power.

First, the Subcommittee encountered a prevalence of fear among

market participants who depend on the dominant platforms. Re-

peatedly, market participants expressed deep concern that speak-

ing about the dominant platforms’ business practices—even con-

fidentially without attribution—would lead a platform to retaliate

against them, with severe financial repercussions. The source of

this fear was twofold. Some firms were so dependent on the plat-

form that even potentially risking retaliation caused alarm. Others

had previously seen a platform retaliate against someone for rais-

ing public concerns about their business practices and wanted to

avoid the same fate.

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373

Interview with Source 636 (Mar. 11, 2020).

374

Submission from Source 147, to H. Comm. on the Judiciary (on file with Comm.).

375

Submission from Source 88, to H. Comm. on the Judiciary (on file with Comm.).

376

21 C

ONG

. R

. 2457 (1890) (statement of Sen. John Sherman).

377

Press Release, Federal Trade Comm’n, Facebook Settles FTC Charges that It Deceived

Consumers by Failing to Keep Privacy Promises (Nov. 29, 2011), https://www.ftc.gov/news-

events/press-releases/2011/11/facebook-settles-ftc-charges-it-deceived-consumers-failing-keep

(proposed settlement).

378

Id.

379

United States v. Facebook, Inc., 456 F. Supp. 3d 115, 119 (D.D.C. 2020) (‘‘The United

States now alleges that Facebook violated the 2012 Order by ‘subvert[ing] users privacy choices

to serve its own business interests’ in several ways, starting almost immediately after agreeing

to comply with the 2012 Order.’’).

380

Id. at 117.

381

Press Release, Federal Trade Comm’n, Google and YouTube Will Pay Record $170 Million

for Alleged Violations of Children’s Privacy Law (Sept. 4, 2019), https://www.ftc.gov/news-

events/press-releases/2019/09/google-youtube-will-pay-record-170-million-alleged-violations.

382

Press Release, Dep’t of Justice, Justice Department Requires Six High Tech Companies

to Stop Entering into Anticompetitive Employee Solicitation Agreements (Sept. 24, 2010),

Continued

Several market participants told the Subcommittee that they

‘‘live in fear’’ of the platforms. One said, ‘‘It would be commercial

suicide to be in Amazon’s crosshairs .... If Amazon saw us criti-

cizing, I have no doubt they would remove our access and destroy

our business.’’

373

Another told the Subcommittee, ‘‘Given how pow-

erful Google is and their past actions, we are also quite frankly

worried about retaliation.’’

374

An attorney representing app devel-

opers said they ‘‘fear retaliation by Apple’’ and are ‘‘worried that

their private communications are being monitored, so they won’t

speak out against abusive and discriminatory behavior.’’

375

Market participants also expressed unease about the success of

their business and their economic livelihood depending on the deci-

sion-making of the platforms. A single tweak of an algorithm, in-

tentional or not, could cause significant costs if not financial dis-

aster—with little recourse. Market participants routinely charac-

terized the platforms as having arbitrary and unaccountable

power—the same forms of undue power that antitrust laws were

designed to prevent. As Senator John Sherman (R–OH) explained,

antitrust was essential to preserve liberty ‘‘at the foundation of the

equality of all rights and privileges’’ because concentrations of

power outside of democratic institutions were a ‘‘kingly prerogative,

inconsistent with our form of government.’’

376

Additionally, courts and regulators have found that several of the

dominant platforms have engaged in recidivism. For example,

Facebook settled charges brought in 2012 by the Federal Trade

Commission (FTC) that it had ‘‘deceived consumers by telling them

they could keep their information on Facebook private, and then

repeatedly allowing it to be shared and made public.’’

377

As part

of this settlement, Facebook agreed to abide by an administrative

order requiring that Facebook not misrepresent its privacy protec-

tions.

378

Seven years later, the FTC concluded that Facebook had

almost immediately begun violating that order following its adop-

tion.

379

Ruling on the FTC’s subsequent settlement with Facebook,

District Court Judge Timothy Kelley wrote that ‘‘the unscrupulous

way in which the United States alleges Facebook violated both the

law and the administrative order is stunning.’’

380

The FTC has

similarly sanctioned Google on several occasions for privacy viola-

tions.

381

In 2010, Apple settled charges it had entered into no-

poach agreements with six other technology companies.

382

Two

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https://www.justice.gov/opa/pr/justice-department-requires-six-high-tech-companies-stop-

entering-anticompetitive-employee.

383

United States v. Apple, Inc., 952 F. Supp. 2d 638, 644 (S.D.N.Y. 2013), aff’d, 791 F.3d 290

(2d Cir. 2015).

384

Aug. 27, 2013 Hr’g Tr. at 17:1–6, United States v. Apple, Inc., 952 F. Supp. 2d 638

(S.D.N.Y. 2013) (No. 12–cv–2826). During the investigation, the Subcommittee also encountered

instances in which the platforms did not appear fully committed to telling lawmakers the truth,

including one incident in which members of the Subcommittee were forced to question whether

Amazon had committed perjury. Letter from Hon. Jerrold Nadler, Chair, H. Comm. on the Judi-

ciary, et al., to Jeff Bezos, CEO, Amazon.com, Inc. (May 1, 2020), https://judiciary.house.gov/

uploadedfiles/2020-05-01lletterltolamazonlceolbezos.pdf.

385

See, e.g., Spencer Soper et al., Amazon’s Jeff Bezos Can’t Beat Washington, so He’s Joining

It: The Influence Game, B

LOOMBERG

(Feb. 14, 2018), https://www.bloomberg.com/graphics/

2018-amazon-lobbying/. This is a trend for the industry. The total reported lobbying expendi-

tures by digital platforms increased from $1,190,000 a year in 1998, to $74,285,000 in 2019 as

the industry consolidated and gained market power. Lobbying Spending Database, C

FOR

SPONSIVE

., https://www.opensecrets.org/lobby/top.php?indexType=i&showYear=2019 (last

visited Sept. 27, 2020).

386

See J.H. Kim, Corporate Lobbying Revisited, 10 B

. 1 (2008) (analyzing lobbying’s

effect on equity returns); Brian Shaffer et al., Firm Level Performance Implications of Non-

market Actions, 39 B

. 126 (2000) (analyzing lobbying’s effect on market share).

387

Andrew Perez & Tim Zelina, Facebook, Google, Amazon Are Ramping up Their Secretive

Influence Campaigns in D.C., F

AST

. (Oct. 31, 2019), https://www.fastcompany.com/9042

4503/facebook-google-amazon-are-ramping-up-their-secretive-influence-campaigns-in-dc.

388

Daisuke Wakabayashi, Big Tech Funds a Think Tank Pushing for Fewer Rules. For Big

Tech., N.Y. T

IMES

(July 24, 2020), https://www.nytimes.com/2020/07/24/technology/global-

antitrust-institute-google-amazon-qualcomm.html.

389

Competitors Hearing at 57 (question of Rep. Ken Buck (R–CO), Member, Subcomm. on

Antitrust, Commercial and Admin. Law of the H. Comm on the Judiciary).

years later, Apple was found liable for orchestrating a price-fixing

conspiracy.

383

In that case, the presiding judge stated that the

record ‘‘demonstrated a blatant and aggressive disregard’’ by Apple

‘‘for the requirements of the law,’’ noting that the conduct ‘‘included

Apple lawyers and its highest level executives.’’

384

Lastly, the growth in the platforms’ market power has coincided

with an increase in their influence over the policymaking process.

Over the past decade, the dominant online platforms have signifi-

cantly increased their lobbying activity,

385

which tends to create a

feedback loop for large companies. More money spent on lobbying

may deliver higher equity returns and market share,

386

which, in

turn, may spur more lobbying.

Outside of traditionally reported and regulated lobbying, firms

with market power and dispensable income fund think tanks and

nonprofit advocacy groups to steer policy discussion. For example,

Facebook, Google, and Amazon reportedly donated significant

amounts to the American Enterprise Institute (AEI), which, in

turn, has argued that antitrust critiques of the big platforms are

‘‘astonishingly weak.’’

387

More recently, Google and Amazon have

contributed significant funding to the Global Antitrust Institute at

the George Mason University’s Antonin Scalia Law School, which

advocates against antitrust scrutiny of the dominant platforms.

388

By funding academics and advocacy groups, the dominant plat-

forms can expand their sphere of influence, further shaping how

they are governed and regulated.

At several hearings, Members of the Subcommittee noted that

the outsized political influence of dominant firms has adverse ef-

fects on the democratic process. At the Subcommittee’s field hear-

ing in Colorado, Representative Ken Buck (R–CO) asked each of

the witnesses about this issue.

389

As Representative Buck noted,

the dominant platforms are generally well represented in the pol-

icymaking process:

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390

Id.

391

CEO Hearing at 7 (statement of Rep. David N. Cicilline (D–RI), Chair, Subcomm. on Anti-

trust, Commercial and Admin Law of the H. Comm. on the Judiciary).

392

Search Engine Market Share United States of America: Sept. 2019–Sept. 2020, S

TAT

OUNTER

, http://gs.statcounter.com/search-engine-market-share/all/united-states-of-america

(last visited Oct. 3, 2020).

Part of what we are dealing with here is the reality that [dominant firms] walk

into our offices and they tell us their side of the story and we very rarely hear

the other side of the story, and somehow part of this solution has to be that pub-

lic policymakers elected, appointed, have to have access to that kind of informa-

tion. So I thank you for being here and I also would encourage you to make sure

that, you know, we are accessible. We are trying our best to make sure that we

continue to create the environment for your kinds of companies.

390

During the Subcommittee’s sixth hearing, Subcommittee Chair

David N. Cicilline (D–RI) noted the democratic stakes of the Sub-

committee’s work. He said, ‘‘Because concentrated economic power

also leads to concentrated political power, this investigation also

goes to the heart of whether we, as a people, govern ourselves, or

whether we let ourselves be governed by private monopolies.’’

391

IV. MARKETS INVESTIGATED

A. Online Search

Online search engines enable users to retrieve webpages and in-

formation stored on the internet. After a user enters a query into

the search engine, the search provider returns a list of webpages

and information that are relevant to the search term entered.

There are two types of search engines: horizontal and vertical.

Horizontal search engines are designed to retrieve a comprehensive

list of general search results. Vertical search engines are designed

to retrieve a narrower category of content, such as photo images

(e.g., Dreamstime) or travel (e.g., Expedia). The majority of general

search engines monetize the service through selling ad placements

rather than charging search users a monetary price. The over-

whelmingly dominant provider of general online search is Google,

which captures around 81 percent of all general search queries in

the U.S. on desktop and 94 percent on mobile. Other search pro-

viders include Bing, which captures six percent of the market,

Yahoo (three percent), and DuckDuckGo (one percent).

392

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393

Prepared by the Subcommittee based on Desktop & Mobile Search Engine Market Share

United States of America, January 2009–September 2020, S

TAT

OUNTER

, https://gs.statcounter

.com/search-engine-market-share/desktop-mobile/united-states-of-america/#monthly-200901-

202009 (last visited Oct. 3, 2020). The ‘‘Other’’ category includes AOL, Ask Jeeves, DuckDuckGo,

MSN, Webcrawler, Windows Live, AVG Search, Baidu, Comcast, Babylon, Dogpile, Earthlink,

Norton Safe Search, and YANDEX RU. Id.

394

Submission from Source 531, to H. Comm. on the Judiciary, Source 531–000017 (Nov. 21,

2011) (on file with Comm.). According to one market participant, ‘‘[t]he greatest challenges in

building a search index are finding the URLs for documents stored on the Web and then being

able to parse the best URLs and documents to include in the index. Overcoming these chal-

lenges requires massive amounts of data on user interactions with websites to discover new

URLs and then filter down to the 5% of known URLs [the search engine] uses to determine

which documents to index, and how frequently these documents should be refreshed.’’ Id.

395

Id. at Source 531–000016 to –000019.

396

Submission from Source 209, to H. Comm. on the Judiciary, Source 209–000537 to

–000538 (Aug. 24, 2009) (on file with Comm.) (‘‘Comprehensiveness, freshness, and responsive-

ness are all directly related to the amount of computing power and storage capacity brought

to bear on the problem of crawling and indexing the web. It would therefore be implausible to

attribute Google’s massive search advantage to superior technology. Rather, the main driver of

search performance is scale. Scale is driven primarily by the level of financial investment in

search infrastructure.’’).

Desktop and Mobile Search Market Share

393

Online search comprises three distinct activities. First, an engine

must ‘‘crawl’’ the Internet by using an automated bot to collect cop-

ies of all of the webpages it can find. Once a crawler has recorded

all of this material, it must be collated and organized into an

‘‘index,’’ or a map of the Internet that can be searched in real-time.

Indexing organizes the information into the formats and databases

required for the querying function. When a user enters a query into

the search engine, the engine draws from the index to pull a list

of responsive websites, ordered in terms of relevance. The rel-

evance, in turn, is determined by the search algorithm applied by

the search engine. A search engine can function only if it has ac-

cess to an index, and an index can exist only once web pages have

been crawled and collated into a repository.

394

Indexing has high

fixed costs and requires significant server storage and compute

power.

395

The ability to invest heavily in computing power and

storage yields a significant advantage.

396

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397

See, e.g., Submission from Source 534, to H. Comm. on the Judiciary, 1 (Oct. 14, 2019)

(on file with Comm.) (‘‘[The Company] does not own its own search index and is not planning

to invest into building an own index because of the high investment costs.’’); Case AT.39740,

Google Search (Shopping), Eur. Comm’n Decision C(2017) 4444, ¶ 304 (June 27, 2017), https://

ec.europa.eu/competition/antitrust/cases/decldocs/39740/39740l14996l3.pdf (‘‘Bing and

Google each spend hundreds of millions of dollars a year crawling and indexing the deep Web.

It costs so much that even big companies like Yahoo and Ask are giving up general crawling

and indexing. Therefore, it seems silly to compete on crawling and, besides, we do not have the

money to do so.’’).

398

Submission from Zack Maril, to H. Comm. on the Judiciary (Sept. 30, 2019) (on file with

Comm.).

399

Total Number of Websites, I

NTERNET

IVE

TATS

, https://www.internetlivestats.com/total-

number-of-websites (last visited Oct. 3, 2020) (showing that, in 2000, the internet had around

17,000,000 websites; today, it has more than 1.8 billion).

400

Submission from Zack Maril, to H. Comm. on the Judiciary (Sept. 30, 2019) (on file with

Comm.); see also Submission from Source 481, to H. Comm on the Judiciary (Feb. 20, 2020) (on

file with Comm.); Innovation and Entrepreneurship Hearing at 340 (statement of Megan Gray,

Gen. Couns. & Pol’y Advoc., DuckDuckGo).

401

Submission from Zack Maril, to H. Comm. on the Judiciary (Sept. 30, 2019) (on file with

Comm.).

402

Game over, F

INDX

(Sept. 21, 2019), https://web.archive.org/web/20190921180535/

https://privacore.github.io (‘‘Many large websites like LinkedIn, Yelp, Quora, Github, Facebook

and others only allow certain specific crawlers like Google and Bing to include their webpages

in a search engine index .... That meant that the Findx search index was incomplete and was

not able to return results that were likely both relevant and good quality. When you compare

any independent search engine’s results to Google for example, they have no chance to be as

relevant or complete because many large websites refuse to allow any other search engine to

include their pages.’’); Submission from Source 407, to H. Comm. on the Judiciary, Source 407–

000024 (Nov. 21, 2011) (on file with Comm.); Competition & Mkts. Auth. Report at 91.

Several online search features tilt the market towards the domi-

nant incumbent and make entry by new market participants dif-

ficult. First, web crawling is costly and strongly favors first-mov-

ers.

397

In a submission to the Subcommittee, one expert described

how Google’s early efforts have locked in its dominance.

398

In par-

ticular, Google was the first company to crawl the entirety of the

Internet, a feat motivated in part due to its PageRank algorithm,

which used links between pages to identify the most relevant

webpages for specific topics and queries. Unlike most search engine

algorithms at the time, the quality of PageRank results improved

with more webpages, incentivizing Google to crawl a greater por-

tion of the web.

The web has grown exponentially over the last two decades,

399

which means the cost of crawling the entire Internet has increased

too, despite advances in crawling technology. Today several major

webpage owners block all but a select few crawlers, in part because

being constantly crawled by a large number of bots can hike costs

for owners and lead their webpages to crash. The one crawler that

nearly all webpages will allow is Google’s ‘‘Googlebot,’’ as dis-

appearing from Google’s index would lead most webpages to suffer

dramatic drops in traffic and revenue.

400

Any new search engine

crawler, by contrast, would likely be blocked by major webpage

owners unless that search engine was driving significant traffic to

webpages—which a search engine cannot do until it has crawled

enough webpages.

401

The high cost of maintaining a fresh index and the decision by

many large webpages to block most crawlers significantly limits

new search engine entrants. In 2018, Findx—a privacy-oriented

search engine that had attempted to build its own index—shut

down its crawler, citing the impossibility of building a comprehen-

sive search index when many large websites only permit crawlers

from Google and Bing.

402

Today the only English-language search

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403

Competition & Mkts. Auth. Report at 89.

404

Innovation and Entrepreneurship Hearing at 341 (statement of Megan Gray, Gen. Couns.

& Pol’y Advoc., DuckDuckGo) (noting that alternatives to serving ads through Google or Micro-

soft, such as only showing product ads from Amazon or travel ads from Booking.com, are ‘‘not

sufficiently lucrative to cover the costs of purchasing organic links,’’ which means ‘‘an aspiring

search engine start-up today (and in the foreseeable future) cannot avoid the need to sign a

search syndication contract’’).

405

Submission from Source 209, to H. Comm. on the Judiciary, Source 209–0000346 (Aug.

24, 2009) (on file with Comm.).

406

Competition & Mkts. Auth. Report at 11–12.

407

Submission from Source 26, to H. Comm. on the Judiciary, Source 26–000016 (Nov. 21,

2011) (on file with Comm.) (‘‘Queries are a critical component of the user data necessary to iden-

tify and rank URLs and documents for inclusion in a search index. Fewer queries mean fewer

opportunities to identify relevant URLs and documents, which ultimately means a smaller usa-

ble search index.’’); id. at Source 26–000026 (Nov. 21, 2011) (‘‘Index freshness also is an impor-

tant factor in the quality of a search engine’s result .... A [] survey found that a lack of

freshness was a significant driver of dissatisfaction among users searching in the Entertainment

and News categories.’’).

408

Submission from Source 531, to H. Comm. on the Judiciary, Source 531–000015 (‘‘The

more user queries the search engine handles, the more data it obtains to improve the relevance

of the search results it serves.’’); id. at Source 531–000060 (‘‘The secret to successful algorithmic

search matching algorithms is user feedback .... Ultimately this feedback helps the engine im-

prove core relevance and other experience factors—driving higher engagement.’’); Innovation and

Entrepreneurship Hearing at 341 (statement of Megan Gray, Gen. Couns. & Pol’y Advoc.,

DuckDuckGo) (‘‘Another barrier facing a start-up search engine is that it needs data, such as

the most commonly clicked links for a particular query, in order to produce a useful ranking

of organic links, i.e., what organic link is first, second, etc.’’); Submission from Source 209, to

H. Comm. on the Judiciary, Source 209–0000346 to –0000352 (Aug. 24, 2009) (on file with

Comm.) (‘‘Increased search traffic brings more indications of user intent, facilitating more ex-

perimentation and allowing a search platform to generate more relevant natural and paid

search results.’’); see also Di He et al., Scale Effects in Web Search, in W

EB AND

NTERNET

NOMICS

294, 294–310 (Nikhil R. Devanur & Pinyan Lu eds., 2017).

409

Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–03815864 (Apr. 23,

2010) (‘‘Google leads competitors .... Our long-tail precision is why users continue to come to

Google. Users may try the bells and whistles of Bing and other competitors, but Google still

produces the results. As soon as this ceases to be the case, our business is in jeopardy.’’); Com-

petition & Mkts. Auth. Report app. I, at 15 (‘‘[A]round 1% of Google ‘tail’ search events are for

queries which are seen by Bing,’’ whereas ‘‘31% of Bing ‘tail’ search events are for queries which

are seen by Google.’’ Furthermore, ‘‘0.8% of Google’s ‘tail’ distinct queries are seen by Bing,

whereas 30% of Bing’s ‘tail’ distinct queries are seen by Google.’’); see also Submission from

Source 209, to H. Comm. on the Judiciary, Source 209–0000532 (Feb. 17, 2011) (on file with

Continued

engines that maintain their own comprehensive webpage index are

Google and Bing.

403

Other search engines—including Yahoo and

DuckDuckGo—must purchase access to the index from Google and/

or Bing through syndication agreements that provide syndicated

search engines with access to search results and search adver-

tising.

404

While Yahoo previously maintained an independent

index, it entered a deal with Microsoft in 2009 to integrate search

technologies—a move driven by the two firms’ belief that combining

was necessary to provide a real alternative to Google.

405

A second major competitive advantage enjoyed by search engine

incumbents is their access to voluminous click-and-query data. This

data, which tracks what users searched for and how they

interacted with the search results, benefits search engines in sev-

eral key ways.

406

First, search engines rely on click-and-query data

to guide their search index’s upkeep, as this data helps identify

which webpages are most relevant and should be most regularly

updated in the index.

407

Second, click-and-query data is used to re-

fine the search algorithm and the relevance of search results, as

past user interactions improve the algorithm’s ability to predict fu-

ture interactions.

408

In particular, data on ‘‘tail’’ (or rare) queries

enable a search engine to offer relevant results across a higher set

of potential queries—improving the overall quality of the search en-

gine—and Google’s internal documents show that the company rec-

ognizes its long-tail advantage.

409

And third, increased query scale

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Comm.) (‘‘[W]ithout strong tail performance, a horizontal search engine cannot compete against

Google.’’); id. at Source 209–0000535 to –0000536 (‘‘[P]oor search engine performance in the tail

means overall weak search engine performance.’’).

410

See, e.g., Submission from Source 531, to H. Comm. on the Judiciary, Source 531–000056

(July 11, 2011) (on file with Comm.) (stating that query scale increases advertiser engagement,

since at scale the platform ‘‘makes better matches, has higher value generation’’).

411

See Competition & Mkts. Auth. Report app. I, at 18.

412

Submission from Source 531, to H. Comm. on the Judiciary, Source 531–000874 (May 5,

2011) (on file with Comm.) (‘‘As a platform gains more and more scale, the associated benefits

begin to taper off such that eventually additional scale provides only modest returns.’’); id. at

Source 531–000025 (Nov. 21, 2011) (on file with Comm.) (‘‘Above 30 billion documents, user sat-

isfaction improves rapidly with increased index size; above 90 billion documents, it still con-

tinues to improve albeit at a slower rate.’’).

413

Innovation and Entrepreneurship Hearing at 342 (statement of Megan Gray, Gen. Couns.

& Pol’y Advoc., DuckDuckGo).

414

Id.

415

Mobile Operating System Market Share in United States of America—September 2020,

TAT

OUNTER

, https://gs.statcounter.com/os-market-share/mobile/united-states-of-america (last

visited Oct. 3, 2020).

416

Submission from Source 534, to H. Comm. on the Judiciary, 1 (Oct. 14, 2019) (on file with

Comm.).

increases advertiser engagement rates, given that more user que-

ries generally translate to more advertisement clicks, generating

greater revenue for advertisers.

410

Overall there are significant advantages to scale in click-and-

query data, though the marginal benefit of additional data on tail

queries is higher than the marginal benefit of additional data on

‘‘head’’ (or relatively common) queries.

411

Some market partici-

pants also stated that the benefits of scale diminish once a search

engine reaches a certain size.

412

The benefits of scale create a feed-

back loop, where access to greater click-and-query data improves

search quality, which drives more usage and generates additional

click-and-query data.

A third barrier to competition in general online search is that

Google has established extensive default positions across both

browsers and mobile devices. Among desktop browsers, Google en-

joys default placement in Chrome (which captures 51 percent of the

U.S. market), Safari (31 percent), and Firefox (5 percent)—or 87

percent of the browser market.

413

Meanwhile, Microsoft’s Edge,

which captures four percent of the desktop browser market, sets

Bing as its search default, leaving little opening for independent

search engines.

414

In mobile, Google Search is primarily the de-

fault on Android and on Apple’s iOS mobile operating system—to-

gether, Android and iOS account for over 99 percent of

smartphones in the United States.

415

This default position provides

Google with a significant advantage over other search engines,

given users’ tendency to stick with the default choice presented.

Moreover, market participants identified several ways Google dis-

suades even those users who do attempt to switch default search

engines on Chrome.

416

Google won itself default placement across the mobile and desk-

top ecosystem through both integration and contractual arrange-

ments. By owning Android, the world’s most popular mobile oper-

ating system, Google ensured that Google Search remained domi-

nant even as mobile replaced desktop as the critical entry point to

the Internet. Documents submitted to the Subcommittee show that,

at certain key moments, Google conditioned access to the Google

Play Store on making Google Search the default search engine, a

requirement that gave Google a significant advantage over com-

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417

See infra Section V.

418

Innovation and Entrepreneurship Hearing at 595 (response to Questions for the Record

of Kyle Andeer, Vice President, Corp. Law, Apple, Inc.).

419

See, e.g., Adam Kovacevich, Google’s Approach to Competition, G

OOGLE

. P

’

LOG

(May 8, 2009), https://publicpolicy.googleblog.com/2009/05/googles-approach-to-competition

.html.

420

See, e.g., Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–01196214

(May 31, 2005) (on file with Comm.).

421

Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–01680749 (Feb. 16,

2006) (on file with Comm.) (identifying several recommendations, including, ‘‘[f]ewest clicks re-

quired to change default, which promotes search innovation by facilitating the user’s ability to

switch’’).

422

Innovation and Entrepreneurship Hearing at 343 (statement of Megan Gray, Gen. Couns.

& Pol’y Advoc., DuckDuckGo).

423

Id. at 343–44.

424

Id. at 339.

peting search engines.

417

Through revenue-sharing agreements

amounting to billions of dollars in annual payments, Google also

established default positions on Apple’s Safari browser (on both

desktop and mobile) and Mozilla’s Firefox.

418

In public statements, Google has downplayed the significance of

default placement, claiming that ‘‘competition is just a click

away.’’

419

However, Google’s internal documents show that when

Google was still jostling for search market share, Google executives

closely tracked search defaults on Microsoft’s Internet Explorer and

expressed concern that non-Google defaults could impede Google

Search.

420

In an internal presentation about Internet Explorer’s

default search selection, Google recommended that users be given

an initial opportunity to select a search engine and that browsers

minimize the steps required to change the default search engine.

421

These discussions—along with the steep sums Google pays Apple

and various browsers for default search placement—further high-

light the competitive significance of default positions.

Independent search engines told the Subcommittee that because

they are not set as the default search engine on popular browsers,

they face significant business challenges. As a result, DuckDuckGo

said it was compelled to invest in browser technology, including

creating its own browser for Android and iOS and various browser

extensions.

422

It noted, however, that ‘‘the same default placement

challenges exist in the browser market, just one level up—with the

device makers requiring millions or billions of dollars to become a

default browser on a device.’’

423

A fourth challenge facing upstart search engines is the growing

number of features and services that a general search provider

must offer to be competitive with Google. Through the mid-2000s,

a general search engine could compete through providing organic

links alone. Since Google and Bing now incorporate information

boxes and various specialized services directly onto their general

search results page, a market entrant would similarly need to pro-

vide a broader set of search features and services. One market par-

ticipant told the Subcommittee that this set of ‘‘mandatory high-

quality search features’’ includes maps, local business answers,

news, images, videos, definitions, and ‘‘quick answers.’’

424

Deliv-

ering this variety of features requires access to various sources of

data, raising the overall costs of entry.

Vertical search providers differ from horizontal search engines in

several ways. By offering specialized search focused on a particular

topic or activity, they fulfill a separate role and require distinct

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425

Submission from Source 564, to H. Comm. on the Judiciary, 5 (Nov. 12, 2019) (on file with

Comm.) (‘‘The most important source of traffic for local search services are general search

websites.’’).

426

Id.; Submission from Source 115, to H. Comm. on the Judiciary, 19 (Dec. 27, 2019) (on

file with Comm.); Submission from Source 887, to H. Comm. on the Judiciary, 3 (Oct. 28, 2019)

(on file with Comm.); Submission from Foundem, to H. Comm. on the Judiciary, 9 (Dec. 12,

2016) (on file with Comm.).

427

Submission from Source 564, to H. Comm. on the Judiciary, 5 (Nov. 12, 2019) (on file with

Comm.); Submission from Source 115, to H. Comm. on the Judiciary, 19 (Dec. 27, 2019) (on file

with Comm.); Submission from Source 887, to H. Comm. on the Judiciary, 3 (Oct. 28, 2019) (on

file with Comm.); Submission from Foundem, to H. Comm. on the Judiciary, 9 (Dec. 12, 2016)

(on file with Comm.).

428

Submission from Source 407, to H. Comm. on the Judiciary, Source 407–000071 (Nov. 12,

2019) (on file with Comm.).

tools and expertise. The necessary inputs vary by search vertical.

Flight search, for example, requires access to flight software and

data, whereas certain local search providers rely on user-generated

content such as reviews. Many vertical providers use structured

data feeds that pull from third-party databases, rather than from

a general index.

A significant challenge for vertical providers is reaching users.

Although they serve distinct needs, most vertical search providers

still depend on horizontal search engines—and specifically on

Google—to reach users.

425

In submissions to the Subcommittee,

even some of the largest and most well-known verticals stated that

they depend on Google for up to 80–95 percent of their traf-

fic.

426

Since Google now also provides vertical search services, it

has the incentive and ability to use its dominance in horizontal

search to disfavor vertical providers that compete with its own

vertical search services. Internal documents from Google show that

it has used its dominance in general search to closely track traffic

to competing verticals, demanding that certain verticals permit

Google to scrape their user-generated content and demote several

verticals. Several market participants told the Subcommittee that

Google’s preferential treatment of its own verticals, as well as its

direct listing of information in the ‘‘OneBox’’ that appears at the

top of Google search results, has the net effect of diverting traffic

from competing verticals and jeopardizing the health and viability

of their business.

427

Google’s internal documents and submissions from third-party

market participants suggest that verticals are both a complement

to horizontal search as well as a competitive threat to it. One mar-

ket participant explained that, while vertical search providers can

increase demand for horizontal search engines in the short-term,

they can divert traffic from horizontal search providers in the long-

term, as the growing popularity of a vertical may lead users to

navigate to it directly.

428

Diverting traffic from general search pro-

viders, in turn, would deprive them of both advertiser revenue as

well as valuable click-and-query data. Given these dynamics, a

dominant horizontal search provider that also enters vertical

search faces a significant conflict of interest that can skew search

results to the detriment of third-party businesses and users alike.

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429

Press Release, U.S. Dep’t of Commerce, U.S. Census Bureau, Retail E-Commerce Sales in

Fourth Quarter 2001 Were $10.0 Billion, up 13.1 Percent from Fourth Quarter 2000, Census

Bureau Reports (Feb. 20, 2002), https://www2.census.gov/retail/releases/historical/ecomm/

01q4.pdf (defining e-commerce as ‘‘sales of goods and services where an order is placed by the

buyer or price and terms of sale are negotiated over an Internet, extranet, Electronic Data Inter-

change (EDI) network, electronic mail, or other comparable online system’’ and noting that

‘‘[p]ayment may or may not be made online’’).

430

Press Release, U.S. Dep’t of Commerce, U.S. Census Bureau, Quarterly Retail E-Com-

merce Sales 4th Quarter 2019 (Feb. 19, 2020), https://www2.census.gov/retail/releases/

historical/ecomm/19q4.pdf.

431

Press Release, U.S. Dep’t of Commerce, U.S. Census Bureau, Retail E-Commerce Sales in

Fourth Quarter 2001 Were $10.0 Billion, up 13.1 Percent from Fourth Quarter 2000, Census

Bureau Reports (Feb. 20, 2002), https://www2.census.gov/retail/releases/historical/ecomm/

01q4.pdf.

432

Gayle Kesten, As Online Prices Increase, Consumers’ Purchasing Power Declines, A

DOBE

ETAIL

(July 13, 2020), https://blog.adobe.com/en/2020/07/13/as-online-prices-increase-con-

sumers-purchasing-power-declines.html (‘‘[T]otal online spending of $73 billion in June marked

a 76.2 percent increase year-over-year.’’); see also A

NDREW

IPSMAN

, E

MARKETER

, US

COMMERCE BY

ATEGORY

2020: H

OW THE

ANDEMIC IS

ESHAPING THE

RODUCT

ATEGORY

ANDSCAPE

(July 22, 2020), https://www.emarketer.com/content/us-ecommerce-by-category-2020

(‘‘US ecommerce sales will surge 18.0% to $709.78 billion, while brick-and-mortar retail sales

will experience a historically significant decline of 14.0% to $4.184 trillion.’’).

433

EEDVISOR

, 2020 Q4 T

RENDS AND

ROJECTIONS

: T

IGITAL

EVOLUTION OF

ETAIL AND

E-M

ARKETPLACES

2–3, 5 (2020) (showing that Grocery and Gourmet sales on Amazon and

Walmart were up 91 percent and 46 percent over the months of March and April 2020, respec-

tively, compared to February); see also Giselle Abramovich, How COVID–19 Is Impacting Online

Shopping Behavior, A

DOBE

: COVID–19 (Mar. 26, 2020), https://blog.adobe.com/en/2020/03/

26/how-covid-19-is-impacting-online-shopping-behavior.html (reporting that, after the COVID–

19 outbreak, ‘‘purchases for cold, cough & flu products increased 198%, while online purchases

for pain relievers increased 152%’’).

B. Online Commerce

Online commerce, also known as e-commerce, is the activity of

buying or selling products or services using the Internet.

429

E-com-

merce transactions take place through a variety of channels, in-

cluding online marketplaces like Amazon Marketplace, where a

wide variety of brands and products from different sellers are sold

in one place, or a business’s direct-to-consumer website like

Nike.com. In 2019, the U.S. Census Bureau estimated e-commerce

retail sales to be about $600 billion,

430

compared to just under $33

billion in 2001.

431

As the COVID–19 pandemic pushes more Amer-

ican shoppers online, e-commerce growth has exploded.

432

This is

particularly true for online marketplaces, where sales for essential

items like groceries, masks, and electronics for home offices in-

creased sharply in the wake of the pandemic.

433

An online marketplace’s most basic function is to serve as a plat-

form that connects buyers and sellers. Marketplaces include prod-

uct listings from a variety of sellers. Some online marketplaces,

such as Amazon and eBay, aim to be fully integrated, multi-cat-

egory e-commerce sites. Other marketplaces, however, operate as

vertical, single-category sites, such as Newegg.com, for computer

hardware and consumer electronics. The primary customers of e-

commerce marketplaces are customers looking to buy an item or

service online, and businesses looking to sell goods or services to

customers online. Because of this, a successful marketplace must

be attractive to consumers and third-party sellers.

The consumer-facing side of the marketplace allows users to

search for and purchase products. Most online marketplaces offer

features that enable users to compare competing products based on

details like their price, popularity, and customer satisfaction re-

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434

See, e.g., A

NDREW

IPSMAN

, E

MARKETER

, T

10 US E

COMMERCE

OMPANIES

2020 (Mar.

10, 2020), https://www.emarketer.com/content/top-10-us-ecommerce-companies-2020 (fore-

casting Amazon’s e-commerce market share for 2020 at 38.7 percent, compared to second-place

Walmart at 5.3 percent and third-place eBay at 4.7 percent); see also Submission from Amazon,

to H. Comm. on the Judiciary, AMAZONlHJCl00061156 (Oct. 30, 2019) (on file with Comm.)

(showing that Amazon.com was about five times larger than eBay in 2018, its next closest mar-

ketplace competitor at the time).

435

NDREW

IPSMAN

, E

MARKETER

, T

10 US E

COMMERCE

OMPANIES

2020 (Mar. 10, 2020),

https://www.emarketer.com/content/top-10-us-ecommerce-companies-2020.

436

Submission from Amazon, to H. Comm. on the Judiciary, 1 (Oct. 14, 2019) (on file with

Comm.) (‘‘AmazonBasics is an Amazon private brand that launched in 2009. The brand offers

a number of products, including electronics accessories, luggage, and office products.’’).

437

See, e.g., Amazon.com, Inc., Quarterly Report (Form 10–Q) 18 (July 31, 2020), http://

d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/a77b5839-99b8-4851-8f37-0b012f9292b9.pdf

(showing net sales for third-party seller services increased from $23 billion in the first six

months of 2019 to $32 billion in the first six months of 2020).

438

Submission from Amazon, to H. Comm. on the Judiciary, 1–2 (Oct. 14, 2019) (on file with

Comm.).

439

See, e.g., Amazon.com, Inc., Annual Report (Form 10–K) 23, 47 (Jan. 31, 2017), https://

www.sec.gov/Archives/edgar/data/1018724/000101872417000011/amzn-20161231x10k.htm.

views. Amazon is by far the largest marketplace.

434

Other market-

places that are popular with consumers include eBay, Walmart,

and Wayfair.

435

Online marketplaces also serve third-party sellers. Third-party

sellers have needs that are distinct from consumers visiting the

marketplace to make a purchase. The seller-facing side of the busi-

ness consists of providing third-party sellers with a platform to list

their products for consumers to purchase. Often, the marketplace

will supply vendors with services such as inventory tracking and

pricing recommendations. Online marketplaces usually offer addi-

tional paid services to third-party sellers such as advertising and

fulfillment services, consisting of warehousing, packing, and ship-

ping.

The businesses that own and operate e-commerce marketplaces

may host only independent, third-party seller listings, or list their

own items for sale alongside third-party sellers. Amazon Market-

place is an example of the latter, in that customers view Amazon

Retail offers for its own private-label brands, such as

AmazonBasics,

436

alongside independent, third-party seller offers.

Amazon Retail also acts as a reseller of brand-name items, pur-

chasing items like Levi’s jeans from a wholesaler, and then resell-

ing them on the marketplace. In these circumstances, third-party

sellers are both customers and competitors of online marketplaces.

Marketplace operators benefit financially from the sale of serv-

ices to third-party sellers and consumers.

437

On the seller-facing

side of their business, marketplaces usually take a cut of third-

party sales and charge fees for sales-related services like fulfill-

ment, payment, and advertising. If the marketplace operators also

sell products on their own platforms, they make money like a typ-

ical retailer from the difference between the wholesale and retail

price. Marketplaces may also make money from fees paid by cus-

tomers to participate in membership programs. For example, Ama-

zon offers Amazon Prime for $119 per year as a paid membership

program that provides customers with benefits such as unlimited

free shipping on eligible items and digital streaming video.

438

Other revenue sources for marketplaces may include credit card

and gift card services that are tied to the platform.

439

A few large companies dominate the e-commerce industry, and

Amazon is the clear leader among them. The market research com-

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440

NDREW

IPSMAN

, E

MARKETER

, T

10 US E

COMMERCE

OMPANIES

2020 (Mar. 10, 2020),

https://www.emarketer.com/content/top-10-us-ecommerce-companies-2020.

441

Worldwide E-Commerce and Shopping Category Performance, S

IMILAR

(July 2020),

https://pro.similarweb.com/#/industry/overview/E-commercelandlShopping/999/1m/?web

Source=Total (showing that Amazon had 2.6 billion visits compared to 940.8 million for eBay

in July 2020).

442

UCY

OCH

, E

MARKETER

, L

OOKING FOR A

RODUCT?

ROBABLY

EARCHED

ZON

(Mar. 31, 2019), https://www.emarketer.com/content/looking-for-a-new-product-you-prob-

ably-searched-amazon (citing F

EED

ISOR

, T

2019 A

MAZON

ONSUMER

EHAVIOR

EPORT

(2019)); see also W

UNDERMAN

HOMPSON

OMMERCE

, T

UTURE

HOPPER

EPORT

2020, at 11

(2020) (on file with Comm.).

443

Press Release, Consumer Intel. Rsch. Partners, LLC, U.S. Amazon Prime Members—Slow,

Steady Growth (Jan. 16, 2020), https://files.constantcontact.com/150f9af2201/9f9e47b4-0d66-

4366-ad76-552ae3daa4f0.pdf; see Todd Bishop, Amazon Tops 150M Paid Prime Subscribers

Globally After Record Quarter for Membership Program, G

EEK

IRE

(Jan. 30, 2020), https://

www.geekwire.com/2020/breaking-amazon-tops-150m-paid-prime-members-globally-record-quar-

ter/; Parkev Tatevosian, Will Amazon Prime Reach 200 Million Members by the End of 2020?,

OTLEY

OOL

(July 18, 2020), https://www.fool.com/investing/2020/07/18/will-amazon-prime-

reach-200-million-members-by-the.aspx (noting a 29 percent increase in Amazon’s revenue in the

second quarter of 2020 versus the same quarter in 2019, primarily as a result of COVID–19).

444

Number of Sellers on Amazon Marketplace, M

ARKETPLACE

ULSE

, https://www.market

placepulse.com/amazon/number-of-sellers (last visited Oct. 3, 2020).

445

Walmart’s Fulfillment Service for Sellers Not Seeing Adoption, M

ARKETPLACE

ULSE

(Sept.

1, 2020), https://www.marketplacepulse.com/articles/walmarts-fulfillment-service-for-sellers-

not-seeing-adoption.

446

Stigler Report at 38 (describing indirect, multi-sided network effects in e-commerce, noting

that ‘‘in ecommerce platforms, which intermediate trade between sellers and buyers, a buyer

does not directly benefit from the presence of other buyers but does benefit from the presence

of more sellers—who are in turn attracted by the presence of the buyers’’).

447

Submission from Source 718, to H. Comm. on the Judiciary, 5 (Oct. 14, 2019) (on file with

Comm.).

448

NDREW

IPSMAN

, E

MARKETER

, T

10 US E

COMMERCE

OMPANIES

2020 (Mar. 10, 2020),

https://www.emarketer.com/content/top-10-us-ecommerce-companies-2020 (illustrating that, al-

though Walmart’s increased share of the U.S. retail e-commerce market will allow it to overtake

eBay for second place, it will remain a distant second to Amazon).

pany eMarketer estimates that Amazon is about eight times larger

than eBay and Walmart in terms of market share.

440

Other metrics

further demonstrate Amazon’s role as a gatekeeper for e-commerce.

Amazon is the most-visited website globally for e-commerce and

shopping,

441

and recent analyses suggest that over 60 percent of all

online product searches in the U.S. begin on Amazon.com.

442

Amazon’s dominance in e-commerce extends to its role as a mar-

ketplace operator and its relationship with sellers. Because of its

size and scale, no other marketplace comes close to providing sell-

ers with access to such a large pool of buyers, as well as sales-re-

lated services. There are over 112 million Prime members in the

United States—about 44 percent of the adult population. The num-

ber of Prime members has doubled since reaching 50 million mem-

bers in 2015, with Amazon projecting additional growth.

443

Ama-

zon.com has 2.3 million active sellers on its marketplace world-

wide.

444

In comparison, Amazon’s closest e-commerce competitor,

Walmart, has roughly 54,000 sellers on its marketplace.

445

In gen-

eral, the more sellers a platform has, the more buyers it can attract

and vice versa.

446

According to a competing online marketplace,

sellers feel forced to be on Amazon because that is where the buy-

ers are.

447

If current trends continue, no company is likely to pose a threat

to Amazon’s dominance in the near or distant future. Although

some alternatives to Amazon have experienced growth during the

pandemic, there is still a massive gap between the market leader

and its competitors.

448

Several factors privilege Amazon as the

dominant e-commerce marketplace, and also make entry or expan-

sion by a challenger unlikely. While some of these barriers to entry

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449

Submission from Amazon, to H. Comm. on the Judiciary, AMAZONlHJCl00068510

(Sept. 8, 2010) (on file with Comm.).

450

See Lydia Ramsey Pflanzer, Walmart’s Talks with an Insurance Giant Could Be Part of

an Assault on Amazon Prime, B

. I

NSIDER

(Apr. 3, 2018), https://www.businessinsider.com/

morgan-stanley-why-walmart-could-bid-on-humana-2018-4.

451

Competition & Mkts. Auth. Report at 53.

452

Jan H. Kietzmann, Kristopher Hermkens, Ian P. McCarthy & Bruno S. Silvestre, Social

Media? Get Serious! Understanding the Functional Building Blocks of Social Media, 54 B

. H

RIZONS

241 (2011), http://summit.sfu.ca/system/files/iritems1/18103/2011lsociallmedia

lbh.pdf.

453

Submission from Source 247, to H. Comm. on the Judiciary, Source 247–0000000006 (Oct.

23, 2019) (on file with Comm.); Competition & Mkts. Auth. Report at 53.

454

Submission from Source 471, to H. Comm. on the Judiciary, 4 (Oct. 15, 2019) (on file with

Comm.) (‘‘[T]here are a number of other competitors who focus on different or additional aspects

of public and private communication. For example, some competitors focus on sharing and ex-

pression though images and other media (e.g., Instagram, YouTube, and Pinterest). Some com-

panies focus more on private communications (e.g., WhatsApp, Snap (for the most part),

Facebook, Signal, and Telegram). Other companies focus on communications about specific top-

ics (e.g., Discord for gaming and Slack for workplace communications).’’).

455

Submission from Source 164, to H. Comm. on the Judiciary, Source 164–000015 (Oct. 28,

2019) (on file with Comm.) (describing how online advertising requires building an ad product,

a sales team to sell that product, and the engineering and product capacity to target and meas-

ure the effectiveness of those ads).

456

IONA

M. S

COTT

ORTON &

AVID

C. D

INIELLI

, O

MIDYAR

ETWORK

, R

OADMAP FOR AN

NTITRUST

ASE

GAINST

ACEBOOK

3 (2020) [hereinafter Omidyar Network Report], https://

www.omidyar.com/wp-content/uploads/2020/06/Roadmap-for-an-Antitrust-Case-Against-

Facebook.pdf.

are inherent to e-commerce—such as economies of scale and net-

work effects—others result from Amazon’s anticompetitive conduct.

As discussed elsewhere in the Report, Amazon’s acquisition strat-

egy and many of its business practices were successfully designed

to protect and expand its market power. An Amazon executive re-

ferred to some of these tactics as the company’s ‘‘Big Moats,’’ and

suggested ‘‘doubl[ing] down’’ on them in a business strategy docu-

ment.

449

Similarly, in 2018, an investment analyst report ex-

pressed skepticism about Walmart’s ability to challenge Amazon,

commenting, ‘‘[W]e are concerned Amazon’s Prime membership pro-

gram is fortifying an impenetrable moat around its customers.’’

450

C. Social Networks and Social Media

Social media products and services include social networking,

messaging, and media platforms designed to engage people by fa-

cilitating sharing, creating, and communicating content and infor-

mation online.

451

Although the boundaries of the social media mar-

ket are imprecise,

452

social media platforms generally allow users

on their networks to interact with people or groups they know, dis-

play content through linear feeds, or otherwise add socially layered

functionality for services online, usually through a mobile app. In

response to the Committee’s requests for information, several mar-

ket participants said they view social media as driven by networks,

while many social media products and services include common

functionalities, such as public profiles, curated feeds, followers,

messaging, and other use cases.

453

Others focus on certain aspects

of public and private communications.

454

A principal feature of social media platforms is that they typi-

cally offer their services for a zero monetary price to the platform’s

users.

455

The platform develops a service it hopes will attract a

critical mass of users to then attract advertisers to the plat-

form.

456

Some social media companies offer additional services to

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457

INKED

REMIUM

, https://premium.linkedin.com/ (last visited Oct. 3, 2020).

458

Production from Facebook, to H. Comm. on the Judiciary, FBlHJClACALl00059100

(Apr. 6, 2012) (on file with Comm.) (‘‘Advertising is a scale thing, it wasn’t until we reached

350 million users did we become interesting to big brands.’’).

459

Briefing with Brad Smith, President, Microsoft, in Washington, D.C. (June 23, 2020).

460

Submission from Source 164, to H. Comm. on the Judiciary, Source 164–000014 (Oct. 28,

2019) (on file with Comm.). But see B

UNDESKARTELLAMT

[Federal Cartel Office], C

ASE

UMMARY

ACEBOOK

, E

XPLOITATIVE

USINESS

ERMS

URSUANT TO

ECTION

19(1) GWB

FOR

NADEQUATE

ATA

ROCESSING

5 (Feb. 15, 2019), https://www.bundeskartellamt.de/SharedDocs/Ent

scheidung/EN/Fallberichte/Missbrauchsaufsicht/2019/B6-22-16.pdf?lblob=publicationFile

&v=4 (‘‘At least as far as the services affected in this case are concerned, it is not sufficient

to have a ‘critical mass’ of users or technical, financial and personal expertise in order to be

able to enter neighbouring markets and be as successful as on the original market. As the exam-

ple of Google+ has shown, a service cannot expect to have the same reach when providing a

different type of service, due to strong direct network effects.’’).

461

Competition & Mkts. Auth. Report at 115.

462

Michelle Santiago Cortes, These Are the TikTok Editing Apps You’ve Been Seeing on Your

‘‘For You’’ Page, R

EFINERY

29 (Mar. 25, 2020), https://www.refinery29.com/en-us/tik-tok-editing-

apps.

463

Zac Hall, Lens Is a Modern and Feature-Packed Instagram App for Apple Watch that

Works Without the iPhone, 9

(Apr. 24, 2019), https://9to5mac.com/2019/04/24/lens-

instagram-for-apple-watch/.

464

Omidyar Network Report at 22.

465

Id. at 22–25; Submission from Source 471, to H. Comm. on the Judiciary, 8 (Oct. 15, 2019)

(on file with Comm.) (‘‘In or around 2010, [Source 471] restricted the access of our API by some

Continued

users for a price or allow users to pay for additional functionality.

For example, LinkedIn Premium provides users with an option to

pay for additional features, such as their network and in-app mes-

saging insights.

457

Social media platforms with a larger network of users are more

likely to attract users and advertisers.

458

In a briefing to Sub-

committee members and staff, Brad Smith, the President of Micro-

soft, described this value:

You don’t always need to have a proven business model to attract capital. You

just need an idea that will get a lot of users. And then people assume you’ll find

a way to turn that usage into a business model that will produce revenue. That’s

been very important for the US. It distinguishes us and allows venture funding.

There’s something magical about 100 million active monthly users (MAU) in the

United States. At that level a company becomes a force unto themselves. If you

see a company acquire another company that’s in the same product market and

is on the path to reach 100 million MAU, that’s more likely to raise a competitive

concern. Historically, I think regulators were slow to notice that issue.

459

As another market participant describes it, ‘‘attracting a critical

mass of users is essential to delivering a viable social network, as

there is no reason for users to start using a social network if there

is no one there with whom they can connect.’’

460

Social media companies may also focus on attracting particular

types or groups of consumers to differentiate themselves from larg-

er companies.

461

Many of the top-ranking apps on iOS are com-

plementary to popular social media applications. For example, Dazz

Cam, a vintage-inspired photo-editing app used with TikTok, was

popular in the U.S. in 2020.

462

Similarly, Lens is a popular iOS

app that allows users to browse, like, and comment on photos and

videos on Instagram using the Apple Watch.

463

Due to network effects in the social media market, new entrants

may choose to begin as a complement by relying on the incumbent

platform’s application programming interfaces (APIs), such as

Facebook’s Open Graph or Twitter’s search API.

464

However, be-

cause incumbent platforms control access to these APIs and can

foreclose access to a complementary app that is successful or gain-

ing users,

465

some market participants view relying on these plat-

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third-party developers because we had significant concerns regarding some third-

partydevelopers use of [Source 471]’s private data. In order to protect private data, [Source 471]

determined such changes were necessary to ensure that these data were not used improperly.’’).

466

Submission from Source 164, to H. Comm. on the Judiciary, Source 164–00023 (Oct. 28,

2019) (on file with Comm.); Submission from Source 471, to H. Comm. on the Judiciary, 10 (Oct.

15, 2019) (on file with Comm.) (‘‘[Our company’s] business would be affected if other social net-

working networks were to disallow cross-posting . . . to their platforms or discontinue APIs cen-

tral to the functionality of our products or services.’’).

467

Submission from Source 471, to H. Comm. on the Judiciary, 10 (Oct. 15, 2019) (on file

with Comm.).

468

Omidyar Network Report at 16.

469

Submission from Source 407, to H. Comm. on the Judiciary, 4 (Nov. 1, 2019); Competition

& Mkts. Auth. Report at 55 (‘‘Differentiation can incentivise consumers to access multiple plat-

forms, allowing for the co-existence of platforms.’’).

470

Submission from Source 164, to H. Comm. on the Judiciary, Source–32–000014 (Oct. 28,

2019) (on file with Comm.) (discussing how they see ‘‘social media sites’’ as competitors for ads

even though they don’t think they are in that market).

471

See United States v. Microsoft Corp., 253 F.3d 34, 51–52 (D.C. Cir. 2001) (‘‘[T]he relevant

market must include all products ‘reasonably interchangeable by consumers for the same pur-

poses.’ ’’) (quoting United States v. E.I. du Pont de Nemours, 351 U.S. 377, 395 (1956)); see also

Competition & Mkts. Auth. Report at 117–18 (‘‘[T]he closeness of competition between different

platforms depends on the degree to which consumers consider them substitutes, rather than the

extent to which they share common functionalities.’’).

472

Competition & Mkts. Auth. Report at 54 (citing Bundeskartellamt, Feb. 6, 2019, B6–22/

16, ¶ 249, https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Entscheidun gen/

Missbrauchsaufsicht/2019/B6-22-16.pdf?lblob=publicationFile&v=5).

473

Id.

474

Id.

forms to reach users as a constant business risk.

466

One market

participant noted that, in addition to harming its business, these

actions also ‘‘restrict users’ ability to multi-home and increase bar-

riers to entry, including network effects and switching costs.’’

467

Given Facebook’s dominance, the primary way for new entrants

to compete is to attract a subgroup or niche.

468

One market partici-

pant explained, ‘‘competitors may be limited to niche strategies

that do not challenge the incumbent directly. For example,

Facebook (including Instagram) is by far the most popular social

networking platform. Although there are several competitors, such

as LinkedIn, and fast-growing new entrants, such as TikTok, most

or all employ niche strategies to varying degrees, and most have

far less user engagement, attention, and data and a smaller share

of advertising revenue than Facebook.’’

469

1. Social Networks Are Distinguishable from Social Media

While a broad view of the social media market is useful for con-

sidering the wider landscape for social data and online adver-

tising,

470

it is important to focus on the actual use, demand, and

substitutability of social products when examining competition

among social platforms online.

471

The critical distinction between

social networking and social media markets is how people use the

platform. As Germany’s Federal Cartel Office (Bundeskartellamt)

and the United Kingdom’s Competition and Markets Authority

(CMA) have noted, the specific demand for social networks ‘‘is fun-

damentally different from the demand for other social media.’’

472

Social network platforms facilitate their users finding, inter-

acting, and networking with other people they already know online,

and by providing a ‘‘rich social experience’’ through features on

their products.

473

People regularly use social network platforms to

exchange ‘‘experiences, opinions and contents among specific con-

tacts which the users define based on identity.’’

474

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475

Omidyar Network Report at 6.

476

Letter from Michael Beckerman, Vice President, Head of U.S. Pub. Pol’y, TikTok, to Hon.

David N. Cicilline, Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H.

Comm. on the Judiciary, Hon. F. James Sensenbrenner, Ranking Member, Subcomm. on Anti-

trust, Commercial and Admin. Law of the H. Comm. on the Judiciary, Hon. Jerrold Nadler,

Chair, H. Comm. on the Judiciary & Hon. Jim Jordan, Ranking Member, H. Comm. on the Judi-

ciary 1 (July 29, 2020), https://docs.house.gov/meetings/JU/JU05/20200729/110883/HHRG-

116-JU05-20200729-SD005.pdf.

477

Omidyar Network Report at 6.

478

HOMAS

UNNINGHAM

, P

OSSIBLE

TATES FOR THE

AMILY OF

PPS

(2018) (on file with

Comm.) (discussing social networking platforms with comparable and orthogonal social graphs).

479

Average Time Spent Daily on Social Media (Latest 2020 Data), B

ROADBAND

EARCH

https://www.broadbandsearch.net/blog/average-daily-time-on-social-media#post-navigation-4

(last visited Oct. 3, 2020).

480

Competition & Mkts. Auth. Report at 115 n.140 (indicating that there are several other

smaller firms that conform to this definition of social media but lack a significant user base).

481

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–00086585 (Jan. 2020)

(on file with Comm.).

In contrast, social media platforms principally facilitate the dis-

tribution and consumption of content. Much of the content on

YouTube, for example, can be enjoyed by users with a wide range

of relationships to the person posting, including by strang-

ers.

475

Similarly, TikTok describes itself as a ‘‘global platform for

users to express their ideas by sharing videos with a broader com-

munity.’’

476

In light of this distinction, the CMA concluded that

YouTube is focused on offering content and does not compete with

Facebook, facilitating communication and sharing content among

groups of friends who choose each other and enjoy content in large

part because of those relationships.

477

In sum, social networking sites have a robust social graph,

whereas content-centric sites do not.

478

Although users can share

videos or stream events on Facebook and YouTube in similar ways,

there is a fundamental difference between sharing a video among

a person’s social network on Facebook, Instagram, or WhatsApp—

such as a child’s first steps—and broadcasting it publicly on

YouTube. While people may spend significant time on both

YouTube and Facebook,

479

these firms provide distinct services to

their users, and including both in the same market would be incon-

sistent with how users engage with each platform.

2. Market Concentration

Social platforms that are within a broad definition of social

media include YouTube, Facebook and its family of products—

Instagram, Messenger, and WhatsApp—as well as TikTok, Twitter,

LinkedIn, Pinterest, Reddit, and Tumblr.

480

According to

Facebook’s internal market data, YouTube and Facebook’s family of

products were by far the most popular social media sites by Month-

ly Active Persons (MAP) as of December 2019.

481

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482

Prepared by the Subcommittee based on the Submission from Facebook, to H. Comm. on

the Judiciary, FB–HJC–00086585 (Jan. 2020) (on file with Comm.) (metrics collected by

Facebook, Inc.).

483

HOMAS

UNNINGHAM

, P

OSSIBLE

TATES FOR THE

AMILY OF

PPS

(2018) (on file with

Comm.) (discussing social networking platforms with comparable and orthogonal social graphs).

484

See Alex Sherman, TikTok Reveals Detailed User Numbers for the First Time, CNBC (Aug.

24, 2020), https://www.cnbc.com/2020/08/24/tiktok-reveals-us-global-user-growth-numbers-for-

first-time.html.

485

See, e.g., Submission from Apple, to H. Comm. on the Judiciary, HJClAPPLEl000003

(Oct. 14, 2019) (on file with Comm.); Letter from Exec. at Source 736, to Members of the

Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary, 4 (Oct.

31, 2019) (on file with Comm.); B

RICS

OMPETITION

, I

NNOVATION

, L

AW &

’

., D

IGITAL

OMPETITION

: A B

RICS

IEW

347 (2019), http://bricscompetition.org/upload/iblock/6a1/

brics%20book%20full.pdf.

Social Media Companies by Monthly Active Persons (MAP)

in Millions

482

The social network marketplace is highly concentrated. Facebook

(1.8 billion users) and its family of products—WhatsApp (2.0 billion

users) and Instagram (1.4 billion users)—have significantly more

users and time spent on its platform than its closest competitors,

Snapchat (443 million users) or Twitter (582 million users).

483

TikTok is growing quickly and is often referenced as evidence that

the social media landscape is competitive.

484

Although it meets the

broad definition of social media as a social app for distributing and

consuming video content, TikTok is not a social network.

D. Mobile App Stores

Mobile application stores (app stores) are digital stores that en-

able software developers to distribute software applications (apps)

to mobile device users.

485

A mobile app is a standardized piece of

software optimized for use on a mobile device. Users can install

this software to access digital content or services, share content,

play games, or make transactions for physical goods and services.

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486

ETH

. A

UTH

FOR

ONSUMERS &

KTS

., M

ARKET

TUDY INTO

OBILE

TORES

(2019), https://www.acm.nl/sites/default/files/documents/market-study-into-mobile-app-stores

.pdf [hereinafter Neth. Auth. for Consumers & Mkts. Study].

487

Id.

488

See Apple App Store Review Guidelines, A

PPLE

, https://developer.apple.com/app-store/

review/guidelines/#legal (last visited Oct. 3, 2020); Apple Developer Program License Agreement,

PPLE

, https://developer.apple.com/services-account/agreement/XV2A27GUJ6/content/pdf

(last visited Oct. 3, 2020); Google Play Developer Policy Center, G

OOGLE

, https://play.google

.com/about/developer-content-policy/ (last visited Oct. 3, 2020); Google Play Developer Distribu-

tion Agreement, G

OOGLE

, https://play.google.com/intl/ALLlus/about/developer-distribution-

agreement.html (last visited Oct. 3, 2020).

489

See CEO Hearing at 397 (response to Questions for the Record of Tim Cook, CEO, Apple,

Inc.); see also J

OHN

ERGMAYER

, P

. K

NOWLEDGE

, T

ENDING THE

ARDEN

: H

OW TO

NSURE

THAT

TORES

SERS

IRST

1, 5, 18 (2020), https://www.publicknowledge.org/wp-

content/uploads/2020/06/TendinglthelGarden.pdf.

490

Submission from Apple, to H. Comm. on the Judiciary, HJClAPPLEl000003 (Oct. 14,

2019) (on file with Comm.); Neth. Auth. for Consumers & Mkts. Study at 108.

491

ELOITTE

, T

CONOMY IN THE

NITED

TATES

8 (2018), https://www.ftc.gov/

system/files/documents/publiclcomments/2018/08/ftc-2018-0048-d-0121-155299.pdf.

492

Neth. Auth. for Consumers & Mkts. Study at 29.

Apps are configured to run on a device’s operating system as ‘‘na-

tive apps.’’ These apps may be pre-installed on a mobile device as

a component of the operating system or by the device manufac-

turer, downloaded from an app store, or loaded directly from the

web using a browser—a process referred to as sideloading. Soft-

ware developers upload apps and updates to app stores, and mobile

device users can then install apps by downloading them from the

app store to their device.

App stores include free and paid apps that charge a fee. In addi-

tion to allowing users to install apps, app stores enable users to

search, browse, and find reviews for apps, as well as remove apps

from their devices.

486

The leading app stores also offer tools and

services to support developers building apps for the app store.

487

App stores have rules that govern the types of apps permitted in

the app store, conduct of app developers, how users pay for apps,

the distribution of revenue between the app and the app store, and

other details regarding the relationship between the app store op-

erator and the app developers that distribute apps through the

store.

488

App stores provide mobile device users with a sense of trust and

security that the apps they install from an app store have been re-

viewed, will not harm the user’s mobile device, will function as in-

tended, and will not violate user privacy.

489

App stores also reduce

customer acquisition costs for app developers by allowing devel-

opers to reach an extraordinarily large consumer base—every mo-

bile device user in the U.S. is addressable by developing for the

Apple App Store and the Google Play Store. By reducing the costs

of app developers, app stores help make software applications more

affordable for consumers.

490

Deloitte has explained that app stores provide developers with

various benefits, including providing a consistent interface and ex-

perience for users on a mobile operating system, a secure platform

for apps, storage systems for hosting apps and managing

downloads and updates, and billing and payment management sys-

tems that can reduce overhead for developers.

491

Apple and Google

also provide developers with software-development tools to create,

test, and publish apps; technical support and analytics tools; and

tutorials.

492

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493

Id. at 15.

494

See Data and Privacy Hearing at 155 (statement of Maurice E. Stucke, Prof. of Law, Univ.

of Tenn., & Ariel Ezrachi, Slaughter & May Prof. of Competition Law, Univ. of Oxford, Fellow,

Pembroke Coll., Dir., Oxford Ctr. for Competition Law & Pol’y).

495

Neth. Auth. for Consumers & Mkts. Study at 4, 21.

496

See Interview with Source 407 (Sept. 10, 2020); Interview with Source 143 (Aug. 27, 2020);

Neth. Auth. for Consumers & Mkts. Study at 51–52, 67, 73.

497

See Press Release, Eur. Comm’n, Antitrust: Commission Fines Google Ö4.34 Billion for Il-

legal Practices Regarding Android Mobile Devices to Strengthen Dominance of Google’s Search

Engine (July 18, 2018), https://ec.europa.eu/commission/presscorner/detail/en/IPl18l4581;

Letter from Exec. at Source 181, to Members of the Subcomm. on Antitrust, Commercial and

Admin. Law of the H. Comm. on the Judiciary, 4 (Oct. 31, 2019) (on file with Comm.); Submis-

sion from Source 301, to H. Comm. on the Judiciary, 5, 7 (Oct. 15, 2019) (on file with Comm.).

498

Number of Apps Available in Leading App Stores as of 1st Quarter 2020, S

TATISTA

https://www.statista.com/statistics/276623/number-of-apps-available-in-leading-app-stores/

(last visited Oct. 5, 2020).

499

Neth. Auth. for Consumers & Mkts. Study at 50; Interview with Source 766 (July 2, 2020).

500

Neth. Auth. for Consumers & Mkts. Study at 50. See also Press Release, Eur. Comm’n,

Antitrust: Commission Fines Google Ö4.34 Billion for Illegal Practices Regarding Android Mobile

Devices to Strengthen Dominance of Google’s Search Engine (July 18, 2018), https://

ec.europa.eu/commission/presscorner/detail/en/IPl18l4581 (explaining that worldwide, ex-

cluding China, ‘‘the Play Store accounts for more than 90% apps downloaded on Android de-

vices’’).

501

Joe Hindy, 10 Best Third Party App Stores for Android and Other Options Too, A

NDROID

UTH

. (Aug. 28, 2020), https://www.androidauthority.com/best-app-stores-936652/.

The mobile operating system on a device determines which app

stores the user can access. The provider of the mobile operating

system determines which app stores may be pre-installed on de-

vices running the operating system, and whether and how addi-

tional app stores may be installed. As discussed elsewhere in the

Report, both Apple and Google have durable and persistent market

power in the mobile operating system market; iOS and Android run

on more than 99 percent of mobile devices in the U.S. and glob-

ally.

493

There are high switching costs in the mobile operating sys-

tem market and high barriers to entry. Due to their dominance in

the mobile operating system market, Apple and Google have the

power to dictate the terms and extent of competition for distrib-

uting software on mobile devices running their respective mobile

operating systems.

494

The Google Play Store is the primary app store installed on all

Android devices. The Apple App Store is the only app store avail-

able on iOS devices.

495

Apps are not interoperable between oper-

ating systems—native apps developed for iOS only work on iOS de-

vices, and native apps developed for Android only work on Android

devices.

496

The App Store and the Play Store do not compete

against one another. Android users cannot access the Apple App

Store, and iOS users cannot access the Google Play Store, so the

dominance of the Play Store is not constrained by the App Store

and vice versa.

497

Statista reports that in the first quarter of 2020 there were ap-

proximately 2.56 million apps available in the Google Play Store

and 1.847 million apps available in Apple’s App Store.

498

Apple’s

App Store is the only means to distribute software on iOS de-

vices.

499

The Google Play Store is the dominant app store on An-

droid devices; however, Google does permit users to sideload alter-

native app stores. Some Android device partners, such as Samsung,

pre-install their own app stores on their devices.

500

Leading alter-

native Android app stores include Amazon’s Appstore, Aptoide, F-

Droid, and the Samsung Galaxy Store.

501

App developers who want

to reach the entire addressable market of U.S. or global

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502

Neth. Auth. for Consumers & Mkts. Study at 15.

503

See, e.g., Interview with Source 143 (Aug. 27, 2020); Submission from Facebook, to H.

Comm. on the Judiciary, FB–HJC–ACAL–00045377 (Feb. 14, 2014) (on file with Comm.) (dem-

onstrating that Facebook COO Sheryl Sandberg explained to Facebook’s Board of Directors that

Apple’s and Google’s positions as dominant mobile operating system and app store operators

posed a ‘‘significant strategic threat’’ to Facebook’s business and adding another popular mobile

app to Facebook’s suite of apps ‘‘would make it more difficult for operating system providers

to exclude the Company’s mobile applications from mobile platforms’’); Letter from Exec. at

Source 181, to Members of the Subcomm. on Antitrust, Commercial and Admin. Law of the H.

Comm. on the Judiciary, 4 (Oct. 31, 2019) (on file with Comm.); Kara Swisher, Is It Finally

Hammer Time for Apple and Its App Store, N.Y. T

IMES

(June 19, 2020), https://

www.nytimes.com/2020/06/19/opinion/apple-app-store-hey.html?referringSource=articleShare.

504

CEO Hearing at 397 (response to Questions for the Record of Tim Cook, CEO, Apple, Inc.).

505

Data and Privacy Hearing at 145 (statement of Maurice E. Stucke, Prof. of Law, Univ.

of Tenn., & Ariel Ezrachi, Slaughter & May Prof. of Competition Law, Univ. of Oxford, Fellow,

Pembroke Coll., Dir., Oxford Ctr. for Competition Law & Pol’y).

506

Competition & Mkts. Auth. Report at 29; see also Press Release, Japan Fair Trade

Comm’n, Report Regarding Trade Practices on Digital Platforms: Business-to-Business Trans-

actions on Online Retail Platform and App Store 24–25 (Oct. 2019), https://www.jftc.go.jp/en/

pressreleases/yearly-2019/October/191031Report.pdf (explaining that consumers rely on pre-in-

stalled app stores to install apps, so developers believe they ‘‘have no choice but to use the app

store services’’ to reach consumers).

507

See Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–00068877

(Feb. 21, 2012) (on file with Comm.) (‘‘Native apps will dominate over mobile-web for a long time

(maybe forever) and we cannot prop up HTML–5 / are not strong enough to lead a shift—The

mobile OS makers have a strong incentive in native apps performing better / working better than

the web? so theory / what is possible aside, native apps will work better & be better experiences

than the mobile web.’’); Neth. Auth. for Consumers & Mkts. Study at 42–51, 69.

smartphone users must have an app in both the App Store and the

Play Store.

502

Apple and Google also determine the terms and con-

ditions app developers must agree to in order to distribute software

through the App Store and Play Store, respectively. As a result,

app developers and industry observers agree that Apple and Google

control the app distribution market on mobile devices.

503

There is no method for a third-party app store to challenge the

App Store on iOS devices. Apple CEO Tim Cook told the Sub-

committee that Apple has no plans to open iOS to alternative app

stores.

504

For a third-party app store to successfully challenge the

Play Store, consumers must be able to install the app store, and

the store must have popular apps that users want. As with mobile

operating systems, network effects create momentum so that as

more consumers install software from the app store, more devel-

opers will build apps for the app store, increasing the value of the

app store for users and attracting more consumers. Once users

have migrated to a large platform—such as an operating system

and its app store, it is difficult for smaller competitors to attract

users and app developers.

505

The United Kingdom’s Competition and Markets Authority ob-

served that ‘‘almost all mobile app downloads are made through

the App Store, on iOS devices, or Google Play, on Android de-

vices.’’

506

Alternatives app distribution methods such as third-

party app stores, gaming platforms, or sideloading are often irrele-

vant to the mobile applications market, not always practical op-

tions for users, have significant disadvantages compared to the pre-

installed app stores, and offer only limited functionality.

507

Websites and web apps are not competitively significant alter-

natives to the dominant app stores on iOS and Android devices for

distributing software to mobile devices. Apps provide a deeper,

richer user experience and can provide additional functionality by

accessing features within the mobile device’s hardware and oper-

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508

See Letter from Exec. at Source 181, to Members of the Subcomm. on Antitrust, Commer-

cial and Admin. Law of the H. Comm. on the Judiciary, 1 (Oct. 31, 2019) (on file with Comm.);

Neth. Auth. for Consumers & Mkts. Study at 59, 81.

509

See Interview with Source 88 (May 12, 2020).

510

App Store Review Guidelines, A

PPLE

§ 4.2, https://developer.apple.com/app-store/review/

guidelines/#design (last visited Oct. 4, 2020).

511

CEO Hearing at 397 (response to Questions for the Record of Tim Cook, CEO, Apple, Inc.).

512

See Submission from Apple, to H. Comm. on the Judiciary, HJClAPPLEl000003 (Oct.

14, 2019) (on file with Comm.); Neth. Auth. for Consumers & Mkts. Study at 102.

513

OMSCORE

, 2019 R

EPORT

LOBAL

TATE OF

OBILE

7 (2019); see also Letter from Exec.

at Source 181, to Members of the Subcomm. on Antitrust, Commercial and Admin. Law of the

H. Comm. on the Judiciary, 1 (Oct. 31, 2019) (on file with Comm.); Submission from Source 301,

to H. Comm. on the Judiciary, 7 (Oct. 15, 2019) (on file with Comm.).

514

Neth. Auth. for Consumers & Mkts. Study at 45–46; Submission from Source 736, to H.

Comm. on the Judiciary, Source 736–00000166 (July 1, 2019).

515

Interview with Source 59 (May 13, 2020).

516

Interview with Source 83 (June 30, 2020).

ating system, such as a camera or location services.

508

Web apps

and browsers are also reliant on the device being connected to the

internet. Native apps can continue to work even when a device

loses access to the internet.

509

Apple’s App Store Review Guide-

lines differentiate apps from websites, explaining that apps sub-

mitted to the App store ‘‘should include features, content and [a

user interface] that elevate [the app] beyond a repackaged

website.’’

510

Curation and centralized review of apps is an advan-

tage touted by app store operators. Apple CEO Tim Cook explained

to the Subcommittee that on iOS devices, Apple’s control of soft-

ware installation through the App Store ensures downloaded apps

‘‘meet our high standards for privacy, performance, and security,’’

which is important for maintaining user trust.

511

Additionally, dis-

tributing software via app stores lowers customer acquisition costs

for software developers.

512

Consumers do access content on their mobile devices via the open

internet. However, mobile apps are the primary way users access

content and services on mobile devices and have become integral

in Americans’ daily lives for basic communication, business trans-

actions, entertainment, and news. In the U.S., nearly 90 percent of

the time users spend online on mobile devices occurs in

apps.

513

Software distribution via web apps or through a website

accessible on a browser is not a competitively significant alter-

native to distributing apps through the dominant app store on a

mobile device and does not discipline the market power of the dom-

inant app stores controlled by Apple and Google.

Similarly, the ability for consumers to sideload apps—installing

apps without using an app store—does not discipline the domi-

nance of Apple and Google in the mobile app store market. Apple

does not permit users to sideload apps on iOS devices, and few con-

sumers have the technical savvy to ‘‘jailbreak’’ an iOS device to

sideload apps.

514

Google does permit sideloading on Android de-

vices, but developers find that, given the option, consumers prefer

to install apps from app stores, and few opt for sideloading.

515

Google has created significant friction for sideloading apps to An-

droid devices. One developer explained to the Subcommittee that

sideloading entails a complicated twenty-step process, and users

encounter multiple security warnings designed to discourage

sideloading.

516

Additionally, software developers that have left the

Play Store to distribute software to Android users via sideloading

have experienced precipitous declines in downloads and revenue

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517

See Neth. Auth. for Consumers & Mkts. Study at 48; J

OHN

ERGMAYER

, P

. K

NOWL

EDGE

, T

ENDING THE

ARDEN

: H

OW TO

NSURE THAT

TORES

SERS

IRST

44 (2020),

https://www.publicknowledge.org/wp-content/uploads/2020/06/TendinglthelGarden.pdf;

Interview with Source 83 (June 30, 2020).

518

See J

OHN

ERGMAYER

, P

. K

NOWLEDGE

, T

ENDING THE

ARDEN

: H

OW TO

NSURE THAT

TORES

SERS

IRST

19 (2020), https://www.publicknowledge.org/wp-content/

uploads/2020/06/TendinglthelGarden.pdf.

519

See id. at 7, 19.

520

See Neth. Auth. for Consumers & Mkts. Study at 3, 15.

521

See A

NALYSIS

., A

PPLE

’

TORE AND

THER

IGITAL

ARKETPLACES

: A C

OMPARI

SON OF

OMMISSION

ATES

4–6 (2020), https://www.analysisgroup.com/globalassets/insights/

publishing/appleslapplstorelandlotherldigitallmarketplaceslalcomparisonlofl

commissionlrates.pdf.

522

See id. at 4.

523

See Neth. Auth. for Consumers & Mkts. Study at 23, 29, 86, 89.

524

See, e.g., Letter from Exec. at Source 181, to Members of the Subcomm. on Antitrust,

Commercial and Admin. Law of the H. Comm. on the Judiciary, 3, 5–6 (Oct. 31, 2019) (on file

with Comm.); Submission from Source 736, to H. Comm. on the Judiciary, Source 736–00000009

(on file with Comm.); Submission from Source 304, to H. Comm. on the Judiciary, 7–8 (Sept.

3, 2020); see also Reed Albergotti & Tony Romm, Tinder and Fortnite criticize Apple for Its ‘‘App

Store Monopoly,’’ W

ASH

. P

OST

(June 16, 2020), https://www.washingtonpost.com/technology/

2020/06/16/apple-antitrust-european-commission/.

525

See Neth. Auth. for Consumers & Mkts. Study at 29.

526

Id. at 29.

and report problems updating their apps.

517

Thus, the option for

sideloading apps on mobile devices does not discipline the market

power of dominant app stores.

There are no competitive constraints on the power Apple and

Google have over the software distribution marketplace on their

mobile ecosystems. The core benefit of mobile app stores—central-

izing and curating software distribution—also gives Apple and

Google control over which apps users discover and can install.

518

As the gateways to the primary way users access content and serv-

ices on mobile devices, the App Store and the Play Store can ex-

tract revenue from and exercise control over everything users do on

their devices.

519

This dominance enables Apple and Google to es-

tablish terms and conditions app developers have to comply with,

leaving developers with the choice of complying or losing access to

consumers. The terms and conditions app stores impose include re-

quirements regarding app functionality, content, interactions with

consumers, collection, and distribution of revenue between the app

and app store.

520

Mobile app stores charge app developers commissions on sales of

paid apps through the app store. Apple and Google, along with

other mobile app stores on Android devices, charge a 30 percent

commission when users install the app.

521

Apple established its 30

percent commission on paid apps in 2009 with the introduction of

the App Store, and that rate has become the industry standard.

522

Apple and Google have both developed mechanisms for collecting

payments from users for purchases within applications—these

transactions are called in-app purchases (IAP). Apple and Google

both charge developers a standard 30 percent for IAP.

523

In col-

lecting IAP, Apple and Google collect user personal and payment

information, process the payment, and then remit the payment to

the app developer, minus a processing fee or commission.

524

Devel-

opers selling digital content through their apps on iOS and Android

devices are required to use the app store operator’s IAP.

525

For

subscription services, like news apps or streaming media, the com-

mission is 15 percent for the second year and thereafter.

526

IAP

systems provide mobile device users with convenience by allowing

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527

Id. at 7.

528

See Interview with Source 83 (June 30, 2020); Competitors Hearing at 33 (statement of

David Heinemeier Hansson, Cofounder & Chief Tech. Officer, Basecamp).

529

See Letter from Exec. at Source 181, to Members of the Subcomm. on Antitrust, Commer-

cial and Admin. Law of the H. Comm. on the Judiciary, 9–10 (Oct. 31, 2019) (on file with

Comm.) (internal citations omitted); Submission from Source 736, to H. Comm. on the Judiciary,

Source 736–00000236 (Oct. 23, 2019) (on file with Comm.).

530

Press Release, Japan Fair Trade Comm’n, Report Regarding Trade Practices on Digital

Platforms: Business-to-Business Transactions on Online Retail Platform and App Store 21 (Oct.

2019), https://www.jftc.go.jp/en/pressreleases/yearly-2019/October/191031Report.pdf.

531

See, e.g., Neth. Auth. for Consumers & Mkts. Study at 22, 31–32, 69, 89–90, 95–99.

532

Dig. Competition Expert Panel Report at 29–30.

consumers to make transactions in their apps and only enter their

payment details a single time, and they protect user privacy by

limiting sharing of sensitive financial information.

527

However, de-

velopers have noted that the lack of competition in pricing by app

stores, particularly given the scale the App Store and Play Store

have achieved since introducing their standard commission rates

for paid apps and in-app purchases, demonstrates the lack of com-

petition in the software distribution market on both the iOS and

Android ecosystems.

528

Developers have also said that the 30 per-

cent commissions charged by app stores have led them to increase

prices for consumers and diminished innovation by software devel-

opers.

529

Apple and Google also develop and distribute apps that directly

compete against third-party developers in their app stores.

530

This

dynamic, coupled with the fact that App Store and Play Store are

dominant distribution channels and can exert gatekeeper power

over their platforms, has the potential to distort competition, lead

to discrimination and higher entry barriers for third-party devel-

opers, and result in the app store operator self-preferencing its own

apps, harming consumers and competition.

531

New app stores face high barriers to entry. It is unlikely that a

third strong mobile app ecosystem can emerge. To offer a new mo-

bile app store that is compelling to consumers, the app store must

have a built-in customer base to attract developers to build apps

for the store and must have popular apps to attract customers. Be-

fore the introduction of the App Store, third-party apps were not

a central component of the user experience on mobile devices. New

entrants, such as Apple, could disrupt the mobile device and oper-

ating system market by offering superior handset design, user

interface, and first-party applications. Now, third-party apps are

critical to the success of any mobile ecosystem. Millions of apps are

developed for iOS and Android, and leading device manufacturers

have built their device ecosystems around those operating systems.

As a result, it is unlikely that a new mobile operating system en-

trant can disrupt the current market dynamics.

532

Because of the

control that Apple and Google exert over software distribution on

their mobile ecosystems and the unlikelihood of entry by a new

competitive mobile operating system, it is unlikely that a new, com-

petitive app store will be able to successfully challenge the existing,

dominant app store operators.

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533

See Steven Bo

hm, Fabian Adam & Wendy Colleen Farrell, Impact of the Mobile Operating

System on Smartphone Buying Decisions: A Conjoint-Based Empirical Analysis, in M

OBILE

AND

NTELLIGENT

NFORMATION

YSTEMS

198, 198–210 (Muhammad Younas, Irfan Awan &

Massimo Mecella eds., 2015), https://doi.org/10.1007/978-3-319-23144-0l18.

534

See GSMA I

NTEL

., G

LOBAL

OBILE

RENDS

2020: N

ECADE

, N

NDUSTRY

?, 6, 26

(2019), https://data.gsmaintelligence.com/api-web/v2/research-file-download?id=47743151&

file=2863-071119-GMT-2019.pdf.

535

Neth. Auth. for Consumers & Mkts. Study at 15; see also Dig. Competition Expert Panel

Report at 29 (‘‘However market shares are measured, Google (Android) and Apple (iOS) have

a global duopoly over mobile phone operating systems.’’); Michael Muchmore, Android vs. iOS:

Which Mobile OS Is Best?, PCM

(Aug. 11, 2020), https://www.pcmag.com/comparisons/

android-vs-ios-which-mobile-os-is-best (‘‘[W]e’re locked in a duopoly when it comes to mobile op-

erating system choice.’’).

536

A Short History of KaiOS, K

OS, https://developer.kaiostech.com/introduction/history

(last visited Oct. 4, 2020); Stephen Shankland, Mozilla Helps Modernize Feature Phones Powered

by Firefox Tech, CNET (Mar. 11, 2020), https://www.cnet.com/news/mozilla-helps-modernize-

feature-phones-powered-by-firefox-tech/.

537

See Submission from Apple, to H. Comm. on the Judiciary, HJClAPPLEl000021 (Oct.

14, 2019) (on file with Comm.) (‘‘Many smartphone brands around the world compete with

iPhone on the basis of price, performance, features, and design. These smartphones generally

incorporate Google’s Android operating system.’’).

E. Mobile Operating Systems

A mobile operating system (OS) provides a mobile device with its

underlying functionality, such as user interface, motion commands,

and button controls, and it facilitates the operation of the device’s

features, such as the microphone, camera, and GPS. The mobile OS

is the interface between the mobile device hardware, such as the

smartphone handset or tablet, and the applications that run on the

device, like email or streaming apps. The mobile OS is pre-installed

on mobile devices; an alternative mobile OS cannot be installed or

substituted. The characteristics of the mobile OS determine aspects

of the mobile device’s performance and functionality, including the

app stores and apps that can run on the device. The mobile OS also

determines which company’s ecosystem of products and services the

device is integrated with.

533

Google’s Android and Apple’s iOS are the two dominant mobile

operating systems.

534

Combined, they run on more than 99 percent

of all smartphones in the world.

535

The third-largest mobile oper-

ating system is KaiOS, which runs on feature phones (i.e., non-

smartphone mobile devices).

536

Apple’s mobile devices run on Ap-

ple’s proprietary iOS operating system, while other leading handset

manufacturers, such as Samsung, LG, and Motorola, run on An-

droid.

537

iOS is not available on non-Apple devices.

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538

Prepared by the Subcommittee based on Felix Richter, The Smartphone Market: The

Smartphone Duopoly, S

TATISTA

(July 27, 2020), https://www.statista.com/chart/3268/

smartphone-os-market-share/ (citing Mobile Operating System Market Share Worldwide,

TAT

OUNTER

LOBAL

TATS

) (StatCounter ‘‘calculates the data based on more than 1.7 billion

page views per month worldwide. StatCounter defines a mobile device as a pocket-sized com-

puting device. As a result, tablets are not included .... Nokia devices (including some S40 de-

vices) had been grouped largely under Symbian OS.’’).

539

See Felix Richter, The Smartphone Market: The Smartphone Duopoly, S

TATISTA

(July 27,

2020), https://www.statista.com/chart/3268/smartphone-os-market-share/ (citing Mobile Oper-

ating System Market Share Worldwide, S

TAT

OUNTER

LOBAL

TATS

) (‘‘Having started out as a

multi-platform market, the smartphone landscape has effectively turned into a duopoly in recent

years, after Apple’s iOS and Google’s Android crowded out any other platform including

Microsoft’s Windows Phone, BlackBerry OS and Samsung’s mobile operating system called

Bada.’’); Data and Privacy Hearing at 147 (statement of Maurice E. Stucke, Prof. of Law, Univ.

of Tenn, & Ariel Ezrachi, Slaughter & May Prof. of Competition Law, Univ. of Oxford, Fellow,

Pembroke Coll., Dir., Oxford Ctr. for Competition Law & Pol’y) (‘‘The mobile operating system

market went from multiple competitors in 2010 (with Google and Apple collectively accounting

for 39 percent of unit sales), to a duopoly eight years later.’’); Matthew Feld, Microsoft Is Finally

Killing Off the Windows Phone, T

ELEGRAPH

(Oct. 9, 2017), https://www.telegraph.co.uk/tech-

nology/2017/10/09/microsoft-finally-killing-windows-phone/; Arjun Kharpal, TCL Launches

New $549 Smartphone Under BlackBerry’s Banner, Featuring Android Software, CNBC (Feb. 25,

2017), https://www.cnbc.com/2017/02/25/blackberry-keyone-launch-physical-keyboard-android-

specs-price.html); Jack Schofield, Can I Buy a Phone that Doesn’t Use Anything from Google or

Apple?, G

UARDIAN

(July 4, 2019), https://www.theguardian.com/technology/askjack/2019/jul/

04/can-i-buy-a-phone-that-does-not-use-anything-from-google-or-apple.

540

See, e.g., Simon O’Dea, Market Share of Mobile Operating Systems in the United States

from January 2012 to December 2019, S

TATISTA

(Feb. 27, 2020), https://www.statista.com/sta-

tistics/272700/market-share-held-by-mobile-operating-systems-in-the-us-since-2009/.

Mobile OS Market Share Worldwide

538

Over the past decade, once-strong competitors have exited the

mobile OS market, and Google and Apple have built dominant posi-

tions that are durable and persistent.

539

While there are other mo-

bile OSs—such as Tizen, Sailfish OS, and Ubuntu Touch—those

OSs make up less than 1 percent of the global mobile OS mar-

ket.

540

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541

Prepared by the Subcommittee based on Simon O’Dea, Market Share of Mobile Operating

Systems in the United States from January 2012 to December 2019, S

TATISTA

(Feb. 27, 2020),

https://www.statista.com/statistics/272700/market-share-held-by-mobile-operating-systems-in-

the-us-since-2009/ (citing Mobile Operating System Market Share in United States of America,

TAT

OUNTER

542

Press Release, Eur. Comm’n, Antitrust: Commission Fines Google Ö4.34 Billion for Illegal

Practices Regarding Android Mobile Devices to Strengthen Dominance of Google’s Search En-

gine (July 18, 2018), https://ec.europa.eu/commission/presscorner/detail/en/IPl18l4581.

543

ORNINGSTAR

QUITY

NALYST

EPORT

: A

PPLE

1 (Aug. 6, 2020) (on file with

Comm.).

544

iPhone vs. Android—Cell Phone Brand Loyalty Survey 2019, S

ELL

(Aug. 20, 2019),

https://www.sellcell.com/blog/iphone-vs-android-cell-phone-brand-loyalty-survey-2019/; see also

ORNINGSTAR

QUITY

NALYST

EPORT

: A

PPLE

2 (Aug. 6, 2020) (on file with Comm.) (‘‘Re-

cent survey data shows that iPhone customers are not even contemplating switching brands

today. In a December 2018 survey by Kantar, 90% of U.S.-based iPhone users said they planned

to remain loyal to future Apple devices.’’).

Market Share of Mobile Operating Systems

in the U.S.

541

Although Google Android and Apple iOS both have dominant po-

sitions in the mobile OS market, high switching costs and a lack

of on-device competition mean that neither firm’s market power is

disciplined by the presence of the other. The European Commis-

sion’s investigation into Google’s Android platform found that, be-

cause iOS is not available on non-Apple devices, it cannot constrain

Google’s dominance in the mobile OS market.

542

Conversely, An-

droid is not available on Apple devices and does not constrain Ap-

ple’s dominant position and conduct on Apple mobile devices. An

investment research firm recently noted that switching costs were

high for Apple users because iOS is not available on non-Apple de-

vices.

543

There are significant barriers to switching between the dominant

mobile operating systems. As a general matter, consumers rarely

switch mobile operating systems. SellCell’s 2019 survey found that

more than 90 percent of users with iPhones tend to stick with

Apple when they replace their current device.

544

In 2018, Con-

sumer Intelligence Research Partners reported that more than 85

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545

Press Release, Consumer Intel. Rsch. Partners, LLC, Mobile Operating System Loyalty:

High and Steady (Mar. 8, 2018), http://files.constantcontact.com/150f9af2201/4bca9a19-a8b0-

46bd-95bd-85740ff3fb5d.pdf.

546

Martin Armstrong, Most iPhone Users Never Look Back, S

TATISTA

(May 22, 2017), https://

www.statista.com/chart/9496/most-iphone-users-never-look-back/.

547

Interview with Source 72 (June 23, 2020).

548

Interview with Source 83 (June 30, 2020).

549

Press Release, Consumer Intel. Rsch. Partners, LLC, Mobile Operating System Loyalty:

High and Steady (Mar. 8, 2018), http://files.constantcontact.com/150f9af2201/4bca9a19-a8b0-

46bd-95bd-85740ff3fb5d.pdf.

550

See Neth. Auth. for Consumers & Mkts. Study at 55–56; Press Release, Eur. Comm’n,

Antitrust: Commission Fines Google Ö4.34 Billion for Illegal Practices Regarding Android Mobile

Devices to Strengthen Dominance of Google’s Search Engine (July 18, 2018), https://

ec.europa.eu/commission/presscorner/detail/en/IPl18l4581; see also iPhone vs. Android—

Cell Phone Brand Loyalty Survey 2019, S

ELL

(Aug. 20, 2019), https://www.sellcell.com/

blog/iphone-vs-android-cell-phone-brand-loyalty-survey-2019/ (finding ‘‘21% of iPhone users

might be tempted to switch if they weren’t too tied into the Apple Ecosystem or it wasn’t so

much hassle changing operating system from iOS to Android’’ and ‘‘13% of Samsung users might

be tempted to switch if they weren’t too tied into the Google/Android Ecosystem or it wasn’t

so much hassle changing operating system’’).

551

Don Reisinger, Steve Jobs Wanted to ‘‘Further Lock Customers’’ into Apple’s ‘‘Ecosystem,’’

CNET (Apr. 2, 2014), https://www.cnet.com/news/steve-jobs-wanted-to-further-lock-customers-

into-apples-ecosystem/.

552

ORNINGSTAR

QUITY

NALYST

EPORT

: A

PPLE

2 (Aug. 6, 2020) (on file with Comm.).

percent of iOS users who purchased a new device purchased an-

other iOS device, and more than 90 percent of Android users who

bought a new device purchased a new Android device.

545

A 2017

study from Morgan Stanley found that 92 percent of iPhone owners

intending to buy a new mobile device planned to buy another

iPhone.

546

Mobile carriers—a main retail distribution channel for

mobile devices—agreed that it is rare for customers to switch from

one mobile OS because, once customers are used to the mobile OS,

they generally do not switch.

547

App developers also said in inter-

views with the Subcommittee that they observed minimal customer

switching between iOS and Android.

548

In addition to the cost of buying a new mobile device, consumers

encounter other costs to switch to a new operating system. Android

and iOS have different operating concepts, user interface designs,

and setting and configuration options. As a result, instead of

switching operating systems, ‘‘users pick one, learn it, invest in

apps and storage, and stick with it.’’

549

Other barriers to switching include the loss of compatibility with

other smart devices designed to work in conjunction with the mo-

bile device and its OS, the hassle of porting data from one OS to

another, re-installing apps and configuring settings, and learning

an unfamiliar user interface.

550

Apple’s cofounder and former CEO

Steve Jobs advocated for this approach, noting that Apple should

‘‘[t]ie all of our products together, so we further lock customers into

our ecosystem.’’

551

Recently, Morningstar observed that people

using Apple’s other products such as the Apple Watch and AirPods

‘‘lose significant functionality when paired with a smartphone other

than the iPhone,’’ locking iPhone users into the iOS eco-

system.

552

Competition regulators in the Netherlands explained

that this strategy creates ‘‘path dependency’’ for consumers. Al-

though mobile devices have a limited lifespan, and consumers

might be expected to ‘‘break the lock-in cycle’’ when it is time to

upgrade to a new device, consumers often have software, data and

files, and other hardware and accessories that are only compatible

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553

Neth. Auth. for Consumers & Mkts. Study at 21, 55–56.

554

Interview with Source 407 (Sept. 10, 2020).

555

Submission from Source 385, to H. Comm. on the Judiciary, 2 (Sept. 18, 2020) (on file

with Comm.).

556

Data and Privacy Hearing at 148 (statement of Maurice E. Stucke, Prof. of Law, Univ.

of Tenn., & Ariel Ezrachi, Slaughter & May Prof. of Competition Law, Univ. of Oxford, Fellow,

Pembroke Coll., Dir., Oxford Ctr. for Competition Law & Pol’y); see also Richard Trenholm, Ele-

gant Ubuntu Touch OS Impresses for Phones and Tablets (Hands-On), CNET (Feb. 28, 2013),

https://www.cnet.com/reviews/ubuntu-touch-preview/; Adrian Covert, The Ubuntu Smartphone

(Which No One Will Use) Is a Glimpse of the Future, CNN B

. (Jan. 2, 2013), https://

money.cnn.com/2013/01/02/technology/mobile/ubuntu-smartphone-linux/ (explaining success

in the mobile market required more than merely building a superior OS to Android or iOS; it

also requires a robust app ecosystem).

557

ORNINGSTAR

QUITY

NALYST

EPORT

: A

PPLE

3 (Aug. 6, 2020) (on file with Comm.).

558

Interview with Source 407 (Sept. 10, 2020).

559

Id.

560

ORNINGSTAR

QUITY

NALYST

EPORT

: A

PPLE

3 (Aug. 1, 2020) (on file with Comm.).

561

Dig. Competition Expert Panel Report at 29.

with one product ecosystem, making it unlikely that they switch to

a non-compatible mobile device.

553

There are significant entry barriers in the mobile operating sys-

tem market. One former mobile OS competitor observed that its ex-

perience showed that it was doubtful that a new, competitive mo-

bile OS will emerge in the U.S.

554

Another former mobile OS pro-

vider explained that it exited the market after concluding ‘‘the mar-

ket for mobile operating systems was too established for a new

entry.’’

555

To compete, a new OS must offer a superior product

packaged in an attractive handset, as well as a fully realized suite

of apps and compatible devices comparable to what Apple and

Google (and Google’s hardware partners) currently offer. Industry

experts have testified before the Subcommittee that the ‘‘reality is

that it would be very difficult for a new mobile phone operating

system today’’ to compete with Apple and Google, ‘‘even if it offered

better features.’’

556

Investment analysts agree, noting it is likely

Android and iOS ‘‘will continue to power nearly every smartphone

around the world in the long run.’’

557

The mobile OS market is also characterized by strong network

effects. In short, a new mobile OS must have a sufficiently large

user base to attract app developers to build apps to run on the OS.

An OS with an insufficient number of users and developers is un-

likely to receive support from mobile device manufacturers that

will install the OS on their devices, or mobile network operators

that will support those devices on their networks.

558

The most important factor that developers consider before build-

ing apps for an OS is the install base of the OS—how many users

have devices running the OS that can install the app. Developers

will not build apps for an OS with few users.

559

This reinforces the

power of dominant mobile operating systems. The more consumers

use the OS, the more developers will build apps for the OS, in-

creasing the value of the OS for users and attracting more con-

sumers.

560

Consumers are unlikely to purchase a device with an

OS that cannot run the most popular apps and lacks a robust app

ecosystem comparable to what is offered by iOS and Android. Due

to the dominance of Apple and Google in the mobile OS and app

store markets, ‘‘there is little incentive for app developers to go to

the trouble and expense of ensuring their apps work on any small-

er rival operating systems,’’ because the user base would be too

small.

561

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562

Id. at 40.

563

See Press Release, Eur. Comm’n, Antitrust: Commission Fines Google Ö4.34 Billion for Il-

legal Practices Regarding Android Mobile Devices to Strengthen Dominance of Google’s Search

Engine (July 18, 2018), https://ec.europa.eu/commission/presscorner/detail/en/IPl18l4581.

564

See GSMA I

NTEL

., G

LOBAL

OBILE

RENDS

2020: N

ECADE

, N

NDUSTRY?

(2019), https://data.gsmaintelligence.com/api-web/v2/research-file-download?id=47743151&

file=2863-071119-GMT-2019.pdf; Interview with Source 83 (June 30, 2020).

565

See Ryan Mac, What Amazon Can Learn from the Failed Facebook Phone, F

ORBES

(June

17, 2014), https://www.forbes.com/sites/ryanmac/2014/06/17/what-amazon-can-learn-from-

the-failed-facebook-phone/#7f7d402f47de; Roger Cheng, Here’s Why the Facebook Phone Flopped,

CNET (May 8, 2013), https://www.cnet.com/news/heres-why-the-facebook-phone-flopped/;

Marcus Wohlsen, The Amazon Fire Phone Was Always Going to Fail, W

IRED

(Jan. 6, 2015),

https://www.wired.com/2015/01/amazon-fire-phone-always-going-fail/; Austin Carr, The In-

side Story of Jeff Bezos’ Fire Phone Debacle, F

AST

. (Jan. 6, 2015), https://www.fastcompany

.com/3039887/under-fire.

566

See Austin Carr, The Inside Story of Jeff Bezos’ Fire Phone Debacle, F

AST

. (Jan. 6,

2015), https://www.fastcompany.com/3039887/under-fire.

567

See J. Sullivan, Firefox OS: Looking Ahead, M

OZILLA

LOG

(Jan. 6, 2014), https://

blog.mozilla.org/blog/2014/01/06/firefox-os-looking-ahead/; Ingrid Lunden, Mozilla Will Stop

Developing and Selling Firefox OS Smartphones, T

ECH

RUNCH

(Dec. 8, 2015), https://

techcrunch.com/2015/12/08/mozilla-will-stop-developing-and-selling-firefox-os-smartphones/;

Chris Hoffman, Mozilla Is Stopping All Commercial Development on Firefox OS, PC W

ORLD

(Sept. 28, 2016), https://www.pcworld.com/article/3124563/mozilla-is-stopping-all-commercial-

development-on-firefox-os.html.

568

See Don Reisinger, Acer Taps Alibaba’s Aliyun OS for New Smartphone, CNET (Sept. 12,

2012), https://www.cnet.com/news/acer-taps-alibabas-aliyun-os-for-new-smartphone/; Edward

Moyer, Alibaba: Google Just Plain Wrong About Our OS, CNET (Sept. 15, 2012), https://

www.cnet.com/news/alibaba-google-just-plain-wrong-about-our-os/; Roger Cheng, Alibaba:

Google Forces Acer to Drop Our New Mobile OS, CNET (Sept. 13, 2012), https://www.cnet.com/

news/alibaba-google-forced-acer-to-drop-our-new-mobile-os/; T.C. Sottek, Acer Cancels Phone

Launch with Alibaba, Allegedly in Response to Threats from Google, V

ERGE

(Sept. 13, 2012),

https://www.theverge.com/2012/9/13/3328690/acer-google-alibaba-phone; Dieter Bohn, Google

Explains Why It Stopped Acer’s Aliyun Smartphone Launch (Updated), V

ERGE

(Sept. 14, 2012),

https://www.theverge.com/2012/9/14/3335204/google-statement-acer-smartphone-launch-

aliyun-android; Jon Brodkin, Google Blocked Acer’s Rival Phone to Prevent Android ‘‘Fragmenta-

Continued

Additionally, the third-party app ecosystem advantages of iOS

and Android make new market entry unlikely. The U.K.’s Competi-

tion and Markets Authority explained that, before the iPhone,

third-party apps were not part of the mobile experience. As a re-

sult, new entrants like Apple could enter the market and compete

by offering a superior product. But now, there are ‘‘millions of apps

that have been written for Apple’s iOS and Google’s Android, mak-

ing it hard for a new entrant mobile operating system to offer a

competitive and attractive product.’’

562

The European Commission

(E.C.) has similarly observed that strong network effects have cre-

ated high entry barriers in the mobile OS market.

563

Over the past decade, several large technology companies have

attempted and failed to leverage their large user bases to compete

against Apple and Google in the mobile OS market.

564

Facebook

and Amazon both tried to enter the market with variants of

Google’s Android OS. Both companies quickly exited the market be-

cause consumers were mostly accessing Facebook and Amazon con-

tent through apps on iOS and Android devices.

565

Technology re-

viewers also expressed disappointment that Amazon’s Fire Phone

did not offer the same extensive library of apps and services as iOS

or Android devices.

566

Companies like Mozilla and Alibaba have also attempted to enter

the mobile OS market. Mozilla unveiled its Firefox OS in 2013 and

exited the market altogether by 2016.

567

In 2012, Chinese tech

giant Alibaba developed a mobile OS called Aliyun for the Chinese

market. However, Acer, Alibaba’s hardware partner, abruptly can-

celed its collaboration with Alibaba before the launch of Acer’s de-

vice running the OS.

568

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tion,’’ ARS T

ECHNICA

(Sept. 14, 2012), https://arstechnica.com/gadgets/2012/09/google-

blocked-acers-rival-phone-to-prevent-android-fragmentation/.

569

See Arjun Kharpal, TCL Launches New $549 Smartphone Under BlackBerry’s Banner,

Featuring Android Software, CNBC (Feb. 27, 2017), https://www.cnbc.com/2017/02/25/black-

berry-keyone-launch-physical-keyboard-android-specs-price.html.

570

See Press Release, Gartner, Gartner Says Worldwide Sales of Smartphones Grew 7 Per-

cent in the Fourth Quarter of 2016 (Feb. 15, 2017), https://www.gartner.com/en/newsroom/

press-releases/2017-02-15-gartner-says-worldwide-sales-of-smartphones-grew-7-percent-in-the-

fourth-quarter-of-2016).

571

Tom Warren, Windows Phone Dies Today, V

ERGE

(July 11, 2017), https://www

.theverge.com/2017/7/11/15952654/microsoft-windows-phone-end-of-support; see also Press Re-

lease, Gartner, Gartner Says Worldwide Sales of Smartphones Grew 7 Percent in the Fourth

Quarter of 2016 (Feb. 15, 2017), https://www.gartner.com/en/newsroom/press-releases/2017-

02-15-gartner-says-worldwide-sales-of-smartphones-grew-7-percent-in-the-fourth-quarter-of-2016;

James Vincent, 99.6 Percent of New Smartphones Run on Android or iOS, V

ERGE

(Feb. 16,

2017), https://www.theverge.com/2017/2/16/14634656/android-ios-market-share-blackberry-

2016.

572

Dig. Competition Expert Panel Report at 40.

573

Innovation and Entrepreneurship Hearing at 589 (response to Questions for the Record

by Kyle Andeer, Vice President, Corp. Law, Apple, Inc.); Submission from Google, to H. Comm.

on the Judiciary, GOOG–HJC–04208423 (June 2013) (on file with Comm.) (showing that, prior

to being acquired by Google, a Waze presentation stated, ‘‘There are very few companies in the

world that are making navigable maps, and the process is very expensive.’’); Submission from

Source 531, to H. Comm. on the Judiciary, Source 531–000628 (on file with Comm.).

574

Submission from Source 531, to H. Comm. on the Judiciary, Source 531–000628 (on file

with Comm.).

Over the past decade, once-competitive mobile operating systems

like Nokia, BlackBerry, and Microsoft struggled to survive as Apple

and Google grew more dominant, eventually exiting the market-

place altogether. BlackBerry—once a leading mobile OS devel-

oper—now licenses the BlackBerry name to TCL to market TCL’s

smartphones. TCL’s BlackBerry phones run on Android.

569

In the

last quarter of 2016, Windows devices accounted for less than half

of 1 percent of new smartphone sales.

570

In 2017, Microsoft aban-

doned its mobile OS business, and by that time, more than 99 per-

cent of all new smartphones were running on iOS or Android, and

market observers expressed no confidence that new competition

would emerge.

571

One key factor leading to Microsoft’s withdrawal

from the mobile marketplace was that developers were reluctant to

develop apps for a third mobile operating system when already

building apps for iOS and Android.

572

These market dynamics re-

main in place today.

F. Digital Mapping

Digital mapping provides users with virtual maps of the physical

world. There are two sets of customers for mapping services: con-

sumers, who use map products for navigation, and businesses, who

use underlying mapping libraries and design tools to produce cus-

tomized maps. With the proliferation of smart devices, digital map-

ping has become a critical resource for users and businesses alike.

The essential input for both types of services is a digital-map

database. Mapping data can be gathered in a few ways, including

through the collection of imagery from satellites and streets, the

tracking of global positioning system (GPS) traces, and the colla-

tion of public domain mapping data. Building a digital map data-

base is costly and time-intensive, requiring significant investment

in mapping technologies and data collection.

573

The leading pro-

vider of digital mapping data is Google. Smaller providers include

HERE and TomTom, as well as open-source providers like

OpenStreetMap (OSM).

574

Waze, which developed navigable maps

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575

Although Apple Maps licensed U.S. mapping data from TomTom upon launching in 2012,

in 2015, it began developing its own map database by deploying cars with cameras and sensors

to collect images and mapping data that it could combine with anonymized iPhone data to create

an independent underlying base map. Lauren Goode, The Biggest Apple Maps Change Is One

You Can’t See, W

IRED

(Jan. 31, 2020), https://www.wired.com/story/apple-maps-redesign/.

576

Submission from Source 572, to H. Comm. on the Judiciary, 1 (Oct. 29, 2019) (on file with

Comm.) (‘‘For vehicle navigation, and excluding OEM-provided in-console automotive systems,

Google’s Waze and Google Maps are currently the most used consumer apps by a wide margin.’’);

Submission from Source 333, to H. Comm. on the Judiciary, 2 (Oct. 21, 2019) (on file with

Comm.).

577

Daniel Schaal, Google Maps Poised to Be an $11 Billion Business in 4 Years, S

KIFT

(Aug.

30, 2019), https://skift.com/2019/08/30/google-maps-poised-to-be-an-11-billion-business-in-4-

years/; R

OSS

ANDLER

, B

ARCLAYS

, A

LPHABET

.: S

TEADY

OMPOUNDER

, W

ITH

LENTY OF

NOVATION

HEAD

20 (Mar. 28, 2017) (on file with Comm.).

578

Submission from Source 572, to H. Comm. on the Judiciary, 1 (Oct. 29, 2019) (on file with

Comm.).

579

Id.

580

Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–04209630 (Nov.

2012) (on file with Comm.).

by relying on driver-generated live maps and crowd-sourced up-

dates, was an additional mapping provider purchased by Google in

June 2013.

Consumer-facing providers of mapping services license map data-

bases and layer search and traffic technologies atop of the map

data. Consumers use these search and traffic tools either through

a standalone turn-by-turn navigation service that licenses the un-

derlying data—like MapQuest or Bing Maps—or through a

vertically integrated provider, like Google Maps, Waze, or Apple

Maps.

575

The dominant providers of consumer mapping applica-

tions are Google Maps and Google-owned Waze, followed by Apple

Maps and MapQuest.

576

Google and Apple set their mapping prod-

ucts as the default options on Android and iOS products—their re-

spective devices—which also enables them to maintain and expand

their market position.

These providers of consumer mapping services generally do not

charge users a monetary fee. Instead, they monetize maps through

selling location-based advertisements or by subsidizing consumer-

facing mapping with enterprise contracts or other lines of business.

Although data on the value of the consumer-facing digital mapping

industry is not publicly available, analysts have estimated that

Google Maps earned Google around $2.95 billion in revenue last

year and that the standalone product is worth up to $60 billion.

577

Business-facing providers serve map design tools and mapping li-

braries required to produce customized maps. The leading pro-

viders of business-to-business mapping software are Google, HERE,

Mapbox, and TomTom, followed by Apple Maps, Bing, ESRI,

Comtech, and Telenav.

578

Some of these providers operate in more

specialized markets. For example, HERE and TomTom primarily

serve automotive customers, while ESRI provides desktop GIS soft-

ware used by governments and spatial analysts.

579

Market participants cite several factors that privilege dominant

digital map incumbents and impede entry. First is the capacity of

dominant firms to invest heavily in creating mapping databases

and technology without needing to turn a profit. For example, prior

to its acquisition by Google, Waze executives observed that Google

Maps had ‘‘disrupted the market’’ primarily through ‘‘financial dis-

ruption,’’ namely that it had ‘‘unlimited funds’’ and was giving

away Google Maps to users for free.

580

Startups seeking to enter

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581

Submission from Source 531, to H. Comm. on the Judiciary, Source 531–000624 (on file

with Comm.). Google made a similar observation in July 2013. In a letter responding to the

FTC’s request for information relating to its acquisition of Waze, Google wrote, ‘‘Apple has ac-

cess to as much or more US GPS traffic data than Google does, with tens of millions of Apple

iOS users potentially providing Apple with real-time traffic speed and flow information through-

out the country.’’ Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–04211078

(July 24, 2013) (on file with Comm.).

582

Submission from Source 572, to H. Comm. on the Judiciary, 3 (Oct. 29, 2019) (on file with

Comm.).

583

Neth. Auth. for Consumers & Mkts. Study at 15.

this market—yet lacking the financial cushion that permits them

to incur losses while developing the product—will be at a relative

disadvantage.

Another factor is that incumbents that are integrated can collect

relevant map and location data from across complementary lines of

business, feeding this data back into mapping. For example, one

market participant noted that Google ‘‘collects an unparalleled

amount of data used in digital mapping from users of its dominant

search engine and Android smartphone OS.’’

581

Another market

participant stated that Google’s dominant position in search and

advertising incentivizes businesses to closely monitor and maintain

the accuracy of their information in Google’s systems, ‘‘leading to

a dynamic by which Google enjoys a free, crowdsource effort to im-

prove and maintain their data’s quality,’’ thereby improving the

quality of Google Maps.

582

Firms without concurrent positions in

web search and the smartphone market are comparatively dis-

advantaged.

A third factor is the superior distribution that integrated firms

in maps-adjacent lines of business can provide their own mapping

product at the expense of third-party mapping products. Google

gives Google Maps default placement on its Android devices, while

Apple does the same with Apple Maps on iOS devices. Together,

Android and iOS account for 99 percent of the smartphone oper-

ating systems in the United States.

583

Market participants explained that the default placement of

Google Maps on Android devices also disadvantages third-party

mapping providers technologically. If a developer chooses a third-

party mapping provider when building an app, downloading that

app on Android would involve downloading both the app features

and the mapping functionality. Choosing to develop the app with

Google Maps, by contrast, would reduce the app’s file size on An-

droid, as Google Maps is already on the device.

Lastly, incumbents benefited from a lack of prohibitions on col-

lecting location data—an advantage that startups today lack given

the passage of new data restrictions that limit the development of

digital mapping technology. Notably, many of these rules came into

existence following public outrage prompted by Google Street View.

By the time these rules were implemented, Google had already

mapped out most of the planet.

Except for Apple’s independent mapping database, there has

been no recent entry in the market for underlying mapping data.

Similarly, the list of leading providers of consumer mapping serv-

ices and business-to-business services has mostly been unchanged

since 2013.

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584

See generally H

EIDI

M. P

ETERS

, C

ONG

. R

SCH

. S

ERV

., R45847, T

EPARTMENT OF

FENSE

’

EDI

LOUD

ROGRAM

(2019).

585

See N

’

NST

TANDARDS &

ECH

., T

NIST D

EFINITION OF

LOUD

OMPUTING

(2011), https://nvlpubs.nist.gov/nistpubs/Legacy/SP/nistspecialpublication800-145.pdf.

586

ARTNER

, M

ARKET

HARE

NALYSIS

: I

AAS AND

IUS, W

ORLDWIDE

(July 5, 2019); Submis-

sion from Amazon, to H. Comm. on the Judiciary, AMAZONlHJCl00219352 (on file with

Comm.).

587

Innovation and Entrepreneurship Hearing at 240 (statement of Morgan Reed, President,

ACT | The App Ass’n).

G. Cloud Computing

Cloud computing refers to the service that enables remote stor-

age and software programs on demand through the internet. Prior

to cloud computing, data was stored locally on a computer’s hard

drive, in a local server room, or in a remote data center where com-

panies managed all of the information technology (I.T.) services.

584

Today, companies can essentially rent ‘‘network access to a shared

pool of configurable computing resources . . . [including] networks,

servers, storage, applications and services.’’

585

As a result of the

convenience and cost savings associated with the ability to scale up

or down on demand, cloud computing has grown into one of the

technology sector’s largest and most lucrative businesses.

586

It has

enabled the growth of enterprise businesses such as Netflix,

Airbnb, Lyft, Slack, and the Weather Channel, as well as new

startups that are not yet household names.

Cloud computing is a critical input to many of the digital mar-

kets the Subcommittee investigated, providing infrastructure for

online commerce, social media and networking, digital advertising,

voice assistants, and digital mapping—technologies that benefit

from dynamic storage and computational power. In a future with

smart homes, autonomous vehicles, and artificial intelligence appli-

cations in nearly every sector from agriculture to healthcare, un-

derstanding the dynamics of the cloud market becomes critical.

These ground-breaking technologies work because they can access

and analyze massive amounts of data in real time. Companies look-

ing to innovate in these spaces will struggle to rely solely on tradi-

tional I.T. and will likely turn to public cloud vendors. The testi-

mony of Morgan Reed on behalf of ACT, the App Association, illus-

trates how important ‘‘continuous cloud access [is] to create custom

software solutions that adapt quickly and rival the products and

services of larger SaaS companies.’’

587

Cloud computing service models vary by vendor, and new models

are being developed continually. The Subcommittee’s investigation

focused on the dynamics between the three models most referenced

and defined by the National Institute of Standards and Technology.

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588

Prepared by the Subcommittee based on data from the National Institute of Standards

and Technology.

589

’

NST

TANDARDS &

ECH

., T

NIST D

EFINITION OF

LOUD

OMPUTING

(2011), https://nvlpubs.nist.gov/nistpubs/Legacy/SP/nistspecialpublication800-145.pdf.

590

Id.

591

Id. at 3.

592

EIDI

M. P

ETERS

, C

ONG

. R

SCH

. S

ERV

., R45847, T

EPARTMENT OF

EFENSE

’

EDI

LOUD

ROGRAM

1 (2019).

593

’

NST

TANDARDS &

ECH

., T

NIST D

EFINITION OF

LOUD

OMPUTING

(2011), https://nvlpubs.nist.gov/nistpubs/Legacy/SP/nistspecialpublication800-145.pdf.

594

Id.

Cloud Computing Services

588

In the Software as a Service (SaaS) model, the user accesses ap-

plications from various client devices ‘‘through either a thin client

interface, such as a web browser, or a program interface.’’

589

Com-

mon examples include Google Docs, Slack, and Mailchimp. In the

Platform as a Service (PaaS) model, the user, most often a cloud

application developer, builds new applications by accessing pro-

gramming languages, libraries, services, and tools supported by the

cloud provider.

590

Common PaaS tools include AWS Elastic Bean-

stalk, Google App Engine, and Salesforce’s Heroku. In the Infra-

structure as a Service (IaaS) model, the user, most often an engi-

neer, can deploy and run software, which can include operating

systems and applications while the cloud provider provisions funda-

mental computing resources including processing, storage, and net-

work applications.

591

Common IaaS tools include Amazon Elastic

Compute Cloud (EC2), Google Compute Engine, and Microsoft

Azure.

592

SaaS, PaaS, and IaaS can be deployed through several different

models.

593

The Subcommittee focused primarily on the market for

public cloud services in which the cloud provider provisions infra-

structure for open use by the general public. The infrastructure re-

sides on the premises of the cloud provider.

594

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595

Id.

596

See, e.g., Kelly Cochran, Simplify Your Customer Engagement with AWS and Salesforce

Heroku, AWS P

ARTNER

ETWORK (

APN

)

LOG

(June 9, 2017), https://aws.amazon.com/blogs/

apn/simplify-your-customer-engagement-with-aws-and-salesforce-heroku/.

597

Mark Innes, Salesforce Is Live on AWS Cloud Infrastructure in Australia, S

ALESFORCE

LOG

(Oct. 17, 2017), https://www.salesforce.com/au/blog/2017/10/salesforce-is-live-on-aws-

cloud-infrastructure-in-australia.html. For example, for many years Salesforce.com’s CRM ran

on self-managed infrastructure but when the company expanded to Australia in 2007, they en-

tered into a contract with AWS.

598

Letter from David Zapolsky, Gen. Couns., Amazon.com, Inc., to Hon. David N. Cicilline,

Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,

6 (July 26, 2019) (on file with Comm.).

599

Press Release, Gartner, Gartner Says Global IT Spending to Reach $3.7 Trillion in 2018

(July 29, 2019), https://www.gartner.com/en/newsroom/press-releases/2019-07-29-gartner-says-

worldwide-iaas-public-cloud-services-market-grew-31point3-percent-in-2018.

To review market dynamics, the Subcommittee examined two

types of cloud service providers. The first type is infrastructure pro-

viders. Amazon Web Services (AWS), Microsoft Azure, and Google

Cloud Platform (GCP) are the most common domestic infrastruc-

ture providers. They offer customers IaaS, PaaS, and SaaS offer-

ings through their customer consoles or portals, but are distinct in

their ability to offer IaaS at scale. This Report refers to them as

infrastructure providers. They also operate online marketplaces for

third-party software vendors to list cloud offerings that integrate

with their infrastructure services.

The second type is third-party software vendors, sometimes re-

ferred to as Independent Software Vendors (ISVs). Companies such

as Salesforce, MariaDB, and The Apache Foundation provide oper-

ating systems, databases, security, and applications. Third-party

software can be delivered as a packaged software or managed serv-

ice. When a third party provides packaged software, it can be in-

stalled onto a customer’s existing cloud infrastructure. The pack-

aged software can be listed on the infrastructure provider’s market-

place or through a third-party vendor’s website.

When third-party software is sold as a managed service, the cus-

tomer pays a subscription based on the number of services used,

and the third-party software vendor manages all the underlying in-

frastructure.

595

In this scenario, the software has become a cloud

offering sold ‘‘as-a-service.’’ The underlying infrastructure can be

owned and managed by the third-party software vendor or the

third-party software vendor may have contracts with an infrastruc-

ture provider, and in some cases, the software vendor uses a com-

bination of owned and rented servers. For example, Salesforce’s

Heroku—a PaaS product—is built using AWS IaaS offerings.

596

When a company purchases a Heroku license, Salesforce’s use of

AWS is included in the price. In the case that a PaaS or SaaS offer-

ing uses its own infrastructure, it is likely it will need to be able

to integrate with products managed by the infrastructure providers

as it grows and, to expand to new regions, it will need to contract

with infrastructure providers.

597

In 2018, public cloud services, including IaaS, PaaS, SaaS, and

management services, accounted for $182.4 billion of the overall

$3.7 trillion I.T. infrastructure spending worldwide—less than one

percent.

598

Despite being a small fraction of I.T. spending, Gartner

projects the market size of the cloud services industry to increase

at nearly three times the rate of overall I.T. services through 2022,

to reach $331 billion.

599

AWS is the market leader, capturing ap-

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600

Letter from David Zapolsky, Gen. Couns., Amazon.com, Inc., to Hon. David N. Cicilline,

Chair, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary,

6 (July 26, 2019) (on file with Comm.).

601

Submission from Source 170, to H. Comm. on the Judiciary, 6 (Nov. 21, 2011) (on file with

Comm.).

602

Press Release, Gartner, Gartner Forecasts Worldwide Public Cloud Revenue to Grow 17.5

Percent in 2019 (Apr. 2, 2019), https://www.gartner.com/en/newsroom/press-releases/2019-07-

29-gartner-says-worldwide-iaas-public-cloud-services-market-grew-31point3-percent-in-2018.

603

Id.

604

Prepared by the Subcommittee based on Press Release, Gartner, Gartner Forecasts World-

wide Public Cloud Revenue to Grow 17.5 Percent in 2019 (Apr. 2, 2019), https://www

.gartner.com/en/newsroom/press-releases/2019-07-29-gartner-says-worldwide-iaas-public-cloud-

services-market-grew-31point3-percent-in-2018.

605

Submission from Amazon, to H. Comm. on the Judiciary, AMAZON–HJC–00219350 (July

5, 2019) (on file with Comm.).

proximately 24 percent of the U.S. spending on cloud computing in

2018.

600

Amazon—the leading cloud platform—is dominant in the cloud

market due to the concentration of the IaaS market.

601

According

to Gartner, ‘‘the worldwide IaaS market grew 31.3% in 2018 to

total $32.4 billion, up from $24.7 billion in 2017.’’

602

As seen in the

chart below, AWS is the unquestioned leader in the cloud com-

puting infrastructure market, with triple the market share of

Microsoft. Alibaba, Google, and Microsoft are growing at the fastest

rates—rates double that of Amazon. Gartner expects the IaaS

worldwide public cloud service revenue to grow faster than any

other set of services, and to be worth $76.6 billion in 2022.

603

IaaS Worldwide Public Cloud Services Revenue

(Millions of U.S. Dollars)

604

Industry reports suggest that the cloud computing market is con-

solidating around three providers domestically—AWS, Microsoft

Azure, and Google Cloud Platform.

605

Market leaders benefit from early-mover advantage coupled with

network effects and high switching costs that lock-in customers.

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606

What’s New, A

MAZON

(Oct. 4, 2006), https://aws.amazon.com/about-aws/whats-new/

2006/.

607

Press Release, Microsoft, Microsoft Unveils Windows Azure at Professional Developers

Conference (Oct. 27, 2008), https://news.microsoft.com/2008/10/27/microsoft-unveils-windows-

azure-at-professional-developers-conference/#IP8XlBTCMpvORgaV.97.

608

Paul McDonald, Introducing Google App Engine + Our New Blog, G

OOGLE

. B

LOG

(Apr.

7, 2008), http://googleappengine.blogspot.com/2008/04/introducing-google-app-engine-our-new

.html.

609

Ryan Lawler, Google Launches Computer Engine to Take on Amazon Web Services,

ECH

RUNCH

(June 28, 2012), https://techcrunch.com/2012/06/28/google-compute-engine/.

610

Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–01777633 (on file

with Comm.).

611

Id.

612

Id. at GOOG–HJC–04167638 to –04167666 (June 3, 2019).

613

Roundtable Discussion of Mar. 17, 2020, Before the Subcomm. on Antitrust, Commercial

and Admin. Law of the H. Comm. on the Judiciary, 116th Cong. (2020) (statement of Mark

Tracy, CEO, Cloudacronomics) (on file with Comm.).

614

Submission from Amazon, to H. Comm. on the Judiciary, AMAZON–HJ–00183326 (Dec.

4, 2018) (on file with Comm.) (showing a 2018 RBC Capital Markets Report which analyzed the

cost of IaaS across five usage scenarios—Standard, High Compute, High Memory, High Storage,

and High Input/Output (I/O)—and three workload sizes—small, medium and large—to create 15

cases).

AWS pioneered cloud computing, launching officially in March

2006 with Simple Storage Service (S3) and Elastic Compute Cloud

(EC2), two fundamental IaaS offerings.

606

Microsoft announced

Azure in October 2008 along with core services that made up the

‘‘Azure Services Platform.’’

607

Google’s first public cloud service,

App Engine, a PaaS offering, was released in 2008.

608

Google’s

Compute Engine, an AWS Elastic Compute Cloud and Microsoft

Azure Virtual Machines competitor, went live as a preview in June

2012.

609

A 2010 Google strategy document predicted that the cloud com-

puting market would concentrate. An internal document, titled

‘‘Where Industry is Headed in 5 Years,’’ stated that there would be

some concentration in the market within five years, with

cloudservice providers consisting of Google, Amazon, Microsoft, and

a hybrid of Cisco and VMWare.

610

According to this document, each

company would offer cloud-based apps and other tools.

611

Later, in

a 2018 strategy document, Google emphasized the importance of

first-mover advantage in the space, writing ‘‘AWS and Azure have

had more years to gain customers, and cloud customers typically

grow [in] scale over time; in contrast’’ reiterating the tendency for

cloud customers to choose a single vendor as their primary cloud

service provider.

612

In a roundtable held by Subcommittee Chair

Cicilline, Mark Tracy, the CEO of Cloudacronomics, described these

concerns:

We pull down terabytes of data, and they have to upload it to the cloud to im-

prove farmers practices. The two cloud providers are AWS and Azure. Since so

many businesses and so much value can be extracted by improving health and

data, this concentration of cloud services is a concern.

613

As seen in the figure below, IaaS prices have decreased over

time, with the three dominant U.S. providers able to price their

services at less than $30/GB RAM according to a 2018 RBC Capital

Markets report.

614

Market participants reference economies of scale

and a focus on increasing revenue from PaaS and SaaS offerings,

as opposed to IaaS offerings, as an explanation for this trend. IaaS

vendors benefit from economies of scale both with regards to the

size of the data centers and the ability to operate multiple data

centers across the globe. To enter the market and reach the econo-

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615

Prepared by the Subcommittee based on the Submission from Amazon, to H. Comm. on

the Judiciary, AMAZON–HJC–00183326 (Dec. 4, 2018) (on file with Comm.) (2018 RBC Capital

Markets Report which analyzed the cost of IaaS across five usage scenarios—Standard, High

Compute, High Memory, High Storage, and High Input/Output (I/O)—and three workload

sizes—small, medium and large—to create 15 cases).

616

Submission from Source 170, to H. Comm. on the Judiciary, 8 (Nov. 21, 2011) (on file with

Comm.).

617

Interview with Source 144 (April 17, 2020).

618

GMT

UDGET

, E

XEC

. O

OF THE

RESIDENT

, S

ECURITY

UTHORIZATION OF

NFORMATION

YSTEMS IN

LOUD

OMPUTING

NVIRONMENTS

(2011), https://www.fedramp.gov/

assets/resources/documents/FedRAMPlPolicylMemo.pdf.

mies of scale needed to compete with the incumbents, infrastruc-

ture providers must invest significant capital and be able to offer

competitive prices to lure customers.

Average Monthly Costs Per GB RAM Across 15 Use Cases

615

The ‘‘cloud’’ is a system of cables connected to a wide network of

data centers—all underground, underwater, or in large industrial

buildings. Building data centers in dozens of regions worldwide

costs billions of dollars.

616

Market participants described the in-

vestment as ‘‘bigger than building a cellular network’’ and only ‘‘for

countries and major companies.’’

617

Two additional inputs that can provide a barrier to becoming a

leading infrastructure provider are compliance certifications and

reputation. Federal Risk and Authorization Management Program

(FedRAMP) authorization is required for any service that holds

U.S. federal data.

618

The FedRAMP authorization process can be

resource intensive and time consuming as vendors have to undergo

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619

Get Authorized: Joint Authorization Board, F

RAMP, https://www.fedramp.gov/jab-

authorization/ (last visited Sept. 26, 2020).

620

Interview with Source 407 (Sept. 10, 2020).

621

Submission from Source 264, to H. Comm. on the Judiciary, 58 (Nov. 21, 2011) (on file

with Comm.).

622

AWS Marketplace, A

MAZON

, https://aws.amazon.com/marketplace (last visited Oct. 4

2020); Find Solutions to Support Innovation, M

ICROSOFT

ZURE

, https://azure.microsoft.com/en-

us/marketplace/ (last visited Oct. 4, 2020); G

OOGLE

LOUD

LATFORM

, https://console

.cloud.google.com/marketplace (last visited Oct. 4, 2020).

623

Submission from Source 170, to H. Comm. on the Judiciary (Nov. 21, 2011) (on file with

Comm.); Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–02456801 (2010)

(on file with Comm.).

624

AWS Marketplace, A

MAZON

, https://aws.amazon.com/marketplace (last visited Oct. 4,

2020).

625

Partners, A

MAZON

, https://aws.amazon.com/partners/ (last visited Sept. 26, 2020).

resource intensive and time consuming as vendors have to undergo

a process of technical and security reviews and audits.

619

When customers choose to use cloud computing, they must trust

that their data will be secure and available to access quickly. The

leading cloud infrastructure providers are major technology compa-

nies that handle massive amounts of data and run large technical

operations before offering managed services. Market participants

said in interviews with the Subcommittee that a smaller company

attempting to enter the IaaS market to contest these firms must

convince large customers that they can provide a reliable service

that is compliant with industry-specific regulations.

620

Market participants and industry reports highlight that IaaS of-

ferings have become commoditized. To compete, infrastructure pro-

viders must offer a range of PaaS and SaaS services to attract

users and developers to their platform.

621

First-party PaaS and

SaaS offerings are made available in the infrastructure provider’s

console. As of this Report, AWS, Azure, and GCP all list over 100

first-party cloud offerings.

622

Each cloud infrastructure provider

has taken its own approach to building its platform, but all involve

acquisitions, in-house software development, and the use of open-

source software. Google and Azure have also relied on their com-

pany’s existing products—Microsoft leveraging its Office 360 Suite

and Google leveraging its collection of APIs.

623

In the case that a new entrant can overcome this entry barrier,

it must also invest substantial resources to overcome network ef-

fects within the market. Infrastructure providers benefit from net-

work effects—the more customers on a platform, the more third

parties build services that integrate well with that platform leading

to more services to attract customers. Amazon, Microsoft, and

Google all have hundreds of products listed in their third-party

marketplace, while Amazon lists 9,250.

624

In interviews with the

Subcommittee, third-party software vendors said that they had lit-

tle choice but to integrate their products with the incumbents, most

notably, AWS.

Cloud infrastructure providers also need to ensure that the

knowledge and expertise of their platform’s technology are avail-

able to their customers. To achieve this, cloud infrastructure pro-

viders launch partner networks that include consulting firms

trained to help enterprise customers move to the public cloud, such

as AWS Partner Network (APN) Consulting Partners

625

and

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626

Solution Providers, M

ICROSOFT

, https://www.microsoft.com/en-us/solution-providers/

home (last visited Oct. 4, 2020).

627

Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–04215099 (Dec. 31,

2018) (on file with Comm.).

628

See, e.g., AWS Free Tier, A

MAZON

, https://aws.amazon.com/free/ (last visited Oct. 4,

2020).

629

All Network Pricing, G

OOGLE

LOUD

, https://cloud.google.com/vpc/network-pricing (last

visited Oct. 4, 2020).

630

Interview with Source 465 (May 27, 2020).

631

Submission from Source 264, to H. Comm. on the Judiciary, 6 (Nov. 21, 2011) (on file with

Comm.).

Microsoft Solution Providers.

626

Cloud infrastructure providers

also offer trainings and exams to certify members of the workforce

as proficient in various uses of their technology. Additionally, infra-

structure providers have programs to support third-party software

vendors working to integrate with the infrastructure provider’s

cloud.

Many market participants interviewed by the Subcommittee be-

lieve that surpassing the incumbents in the market will be chal-

lenging because of the potential for vendor lock-in. Other evidence

reviewed by the Subcommittee bolsters this concern, suggesting

that lock-in exists because switching costs for cloud computing cus-

tomers are high.

627

The Subcommittee has identified several common techniques in-

frastructure providers use to initially lock-in customers, including

contract terms, free tier offerings, and egress fees. The first is long-

term contracts. In several responses to the Committee’s requests

for information, third parties explained they have contracts lasting

from three to five years with the infrastructure providers.

Another common technique is using free tier products, where

each cloud platform offers a free tier of services ranging from al-

ways free to trial offers.

628

Market participants suggest that while

the free tier products vary slightly among the major firms, they are

relatively similar. When a customer’s free trial expires, it is faced

with switching to another provider or starting to pay for service.

Switching requires an investment of time and resources to adapt

to the new service provider, as well as possibly paying egress fees

to the prior vendor. As a result, customers may decline to switch

at the conclusion of free trials.

Whether a customer begins using cloud on free tier products or

not, once they have substantially built and migrated to a platform,

they face high switching costs in the form of fees to move the data,

along with the technical and labor costs associated with switching

the data. When a company moves data into the cloud from hard

drives or private servers, they are often charged ingress fees, which

are generally low or free.

629

When a company, however, chooses to

move data to another infrastructure provider, they are charged an

egress fee. Egress fees vary slightly by company and region.

Market participants explain that egress fees are often not trans-

parent and are sometimes charged even when data is not leaving

the data center.

630

One market participant said that these fees

‘‘can create significant financial barriers to migrating away from

particular cloud storage providers.’’

631

Additionally, when a customer decides to move any of its oper-

ations to a different infrastructure provider, it often must overcome

technical design challenges. Several market participants spoke to

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632

Id. at 5.

633

Snap Inc., Annual Report (Form 10–K) 11 (Dec. 31, 2019), http://d18rn0p25nwr6d

.cloudfront.net/CIK-0001564408/0cfebc98-816e-44ac-8351-5067b4f88f0c.pdf.

634

Getting Started, A

MAZON

ERVS

., https://docs.aws.amazon.com/awsaccount

billing/latest/aboutv2/billing-getting-started.html (last visited Oct. 4, 2020).

635

Submission from Source 170, to H. Comm. on the Judiciary, 7 (Oct. 18, 2019) (on file with

Comm.).

the challenges of finding cloud developers that know the underlying

technology of multiple cloud infrastructures as a barrier to both

switching, either from one cloud to another or to set up multi-cloud

operations. As one third party describes, ‘‘businesses often have to

calibrate a complex set of technical frameworks, settings, and cus-

tomized interfaces to adapt their business to the potentially unique

way the cloud storage provider has chosen to operate their serv-

ice.’’

632

For example, in an investor statement in 2020, Snap ex-

plained:

[T]he vast majority of our computing [runs] on Google Cloud and AWS, and our

systems are not fully redundant on the two platforms. Any transition of the

cloud services currently provided by either Google Cloud or AWS to the other

platform or to another cloud provider would be difficult to implement and will

cause us to incur significant time and expense.

633

When asked about lock-in, many market participants discussed

how in response to the rise of a few dominant platforms in the

cloud market, new strategies have emerged to increase portability

between vendors and allow customers to use multiple clouds. Mar-

ket participants note, however, that today interoperability is a

challenge, and it is unclear how cooperative dominant cloud infra-

structure providers will be in supporting partnerships and stand-

ards to facilitate these strategies. Given the current trends toward

concentration in the cloud infrastructure market, further scrutiny

of the role standards play toward decreasing switching costs and

enabling portability and interoperability is warranted.

Finally, the Subcommittee interviewed market participants about

related competition concerns facing third-party software vendors.

Many third-party software vendors compete with first-party prod-

ucts listed in the infrastructure provider’s console. Market partici-

pants explain that these competitive offerings are often the first

products customers see because they are displayed within the cus-

tomer’s existing console in a format that makes it easier for users

to add to their existing cloud stack, seamlessly including the prod-

uct in their billing and licenses and with minimal technical set-

up.

634

As a result, it is difficult for customers to compare prices and fea-

tures included in the offerings when they are not listed side-by-

side. Although third-party vendors can sell their service directly to

consumers through their own websites, many smaller cloud vendors

use the marketplaces of the dominant infrastructure providers to

reach customers, which require fees and are subject to competition

concerns that are similar to other marketplaces examined by the

Subcommittee during the investigation. Market participants have

raised concerns that cloud infrastructure providers can preference

their own offerings, or offer these products with exceedingly steep

discounts, making it difficult for third-party software vendors with

fewer products to compete.

635

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100

636

Innovation and Entrepreneurship Hearing at 488 (response to Questions for the Record

of Adam Cohen, Dir. of Econ. Pol’y, Google LLC), id. at 540–41 (response to Questions for the

Record of Nate Sutton, Assoc. Gen. Couns., Competition, Amazon.com, Inc.).

637

See Alistair Barr, Amazon Finds Startup Investments in the ‘‘Cloud,’’ R

EUTERS

(Nov. 9,

2011), http://www.reuters.com/article/amazon-cloud-idUSN1E7A727Q20111109.

638

Submission from Source 301, to H. Comm. on the Judiciary, Source 301–00000080, at 2

(Oct. 15, 2019) (on file with Comm.).

639

Submission from Source 918, to H. Comm. on the Judiciary, 2 (Nov. 4, 2019) (on file with

Comm.).

640

Id. at Source 918–0002029.

641

Submission from Source 711, to H. Comm. on the Judiciary, Source 711–00000080, at 13

(Oct. 15, 2019) (on file with Comm.).

642

Id.

643

Thomas Ricker, Sonos Buys Snips, a Privacy-Focused Voice Assistant, V

ERGE

(Nov. 21,

2019), https://www.theverge.com/2019/11/21/20975607/sonos-buys-snips-ai-voice-assistant-

privacy.

644

Hyunji Chung, Jungheum Park & Sangjin Lee, Digital Forensic Approaches for Amazon

Alexa Ecosystem, 22 D

IGIT

. I

NVESTIGATIONS

S15 (2017), https://dfrws.org/wp-content/uploads/

2019/06/paperldigitallforensiclapproacheslforlamazonlalexalecosystem.pdf.

Significantly, because the leading infrastructure providers have

access to competitively significant data in the marketplace, they

have insight into usage metrics regarding any managed service

that runs on their infrastructure.

636

Market participants told the

Subcommittee that they have concerns that this data can be used

by infrastructure providers to make decisions regarding which

types of software to acquire or replicate to offer through their first-

party console.

637

H. Voice Assistant

Voice assistants act as a user interface that enables exchanges

between computing devices through a person’s voice.

638

Today

users can ask their electronic devices to play the morning news or

start a conference call.

639

When combined with smart speakers,

voice assistants can become a gateway to the internet, and can also

be used to connect other ‘‘smart’’ devices, such as lighting, thermo-

stats, security monitors, and even kitchen appliances.

640

While

voice assistants began as mobile phone apps, they have become in-

tegrated into other devices, including cars and homes.

641

There are two types of voice assistants on the market: general

and specialized. General voice assistants—such as Siri, Alexa, and

Google Assistant—can respond to queries and interact with a range

of applications. Specialized voice assistants focus on a specific

vertical—such as healthcare or banking—where there is a limited

vocabulary universe and more specific responses.

642

For example,

Snips, a privacy-centric voice assistant owned by Sonos, specializes

in commands for playing music on smart speakers.

643

Today, voice assistants interact with humans by receiving spe-

cific requests and sending feedback through a voice response. The

first step is to deliver the ‘‘wake word’’—such as ‘‘hey, Siri’’ on

iPhones—designed to activate the system. Once activated, a voice

assistant can execute a command, which triggers a voice applica-

tion.

644

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101

645

Prepared by the Subcommittee based on Hyunji Chung, Jungheum Park & Sangjin Lee,

Digital Forensic Approaches for Amazon Alexa Ecosystem, 22 D

IGIT

. I

NVESTIGATIONS

S15 (2017),

https://dfrws.org/wp-content/uploads/2019/06/paperldigitallforensiclapproacheslforl

amazonlalexalecosystem.pdf.

646

Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–04257931 (Mar. 9,

2017) (on file with Comm.).

647

Id.

648

Id.

649

Alison DeNisco Rayome, How to Monetize Your IoT Project, T

ECH

EPUBLIC

(June 20, 2018),

https://www.techrepublic.com/article/6-steps-to-monetizing-your-iot-project/.

650

Submission from Source 918, to H. Comm. on the Judiciary, Source 918–0002763 (Nov.

4, 2019) (on file with Comm.).

Voice Assistant Ecosystem

645

Although there are multiple types of voice assistants within the

ecosystem, the Subcommittee focused primarily on voice assistant

platform vendors and third-party hardware manufacturers, includ-

ing smart speaker manufacturers and internet of Things (IoT) com-

patible device manufacturers. The business model for these two

groups varies. A voice assistant platform vendor can monetize its

platform by using its ecosystem to drive revenue to complementary

lines of business such as e-commerce, search, or entertain-

ment.

646

It can also charge voice-application developers to be the

recommended application for a specific command.

647

As they be-

come widely adopted, stores on voice assistant platforms—such as

the ‘‘Alexa Skills Store’’—can offer premium content and collect

revenue share on payments.

648

Third-party hardware manufactur-

ers generate income by selling hardware, and in some cases, by of-

fering subscription services such as home monitoring.

649

Voice assistants have grown in popularity over recent years due

to technological advancements in natural language processing. Al-

though the market is nascent, market participants and industry ex-

perts view voice-enabled devices as an opportunity to lock con-

sumers into information ecosystems. The smartphone and smart

speaker are the two main portals for voice assistants. Apple and

Google lead in the smartphone market, and Amazon leads in the

smart speaker market.

650

According to one consulting firm, of the

1.1 billion shipments of virtual assistants in 2019, Apple’s Siri (35

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102

651

Press Release, Futuresource Consulting, Virtual Assistants to Exceed 2.5 Billion Ship-

ments in 2023 (Dec. 18, 2019), https://www.futuresource-consulting.com/press-release/

consumer-electronics-press/virtual-assistants-to-exceed-25-billion-shipments-in-2023/.

652

Id.; Mary Jo Foley, Microsoft CEO Nadella Makes It Official: Cortana Is an App, not a

Standalone Assistant, ZDN

(Jan. 18, 2019), https://www.zdnet.com/article/microsoft-ceo-

nadella-makes-it-official-cortana-is-an-app-not-a-standalone-assistant/.

653

Submission from Google, to H. Comm. on the Judiciary, GOOG–HJC–04258666 (Jan. 28,

2019) (on file with Comm.) (‘‘Speakers are still going to be very important. [Company] cited stats

that suggested that only 20 percent of their ‘smart home’ customers are new to the category.

And it’s fair to say that many/most of these existing smart home customers started with

sound.’’).

654

See generally Submission from Source 918, to H. Comm. on the Judiciary (Nov. 4, 2019)

(on file with Comm.).

655

Id. at 7.

656

Submission from Source 918, to H. Comm. on the Judiciary, Source 918–0002024 (Nov.

4, 2019) (on file with Comm.).

657

See, e.g., Christopher Mims, All Ears: Always-On Listening Devices Could Soon Be Every-

where, W

ALL

. J. (July 12, 2018), https://www.wsj.com/articles/all-ears-always-on-listening-

devices-could-soon-be-everywhere-1531411250.

658

Submission from Source 918, to H. Comm. on the Judiciary, Source 918–0002025, at 12

(Oct. 15, 2019) (on file with Comm.).

percent) has the highest market share globally, followed by Google

Assistant (9 percent) and Amazon Alexa (4 percent).

651

Although a

significant share of shipments is attributed to Microsoft Cortana

(22 percent) because of the popularity of Windows PCs globally,

Cortana is generally not considered a voice assistant platform.

652

Market participants emphasize that smart speakers represent an

essential ‘‘hub’’ or gateway for smart homes and are driving voice-

assistant adoption.

653

Smart speakers are estimated to currently

have 35 percent U.S. household penetration, which is predicted to

grow to 75 percent by 2025.

654

As of January 2019, Amazon had

a significant lead in the U.S. market at 61.1 percent, followed by

Google at 23.8 percent, Apple at 2.7 percent, and Sonos at 2.2 per-

cent.

655

A voice assistant platform vendor can expand its ecosystem by

adding IoT devices and voice applications. Both IoT devices and

voice applications can be first-party—owned by the voice assistant

platform vendor—or third-party, if the vendor has set up services

to allow for manufacturers to create voice assistant-enabled de-

vices. Amazon’s Alexa ecosystem, measured in terms of compatible

IoT devices and voice applications, is the largest of the three pri-

mary ecosystems. In 2017, voice assistants made their first serious

moves beyond smart speakers into other product categories.

656

The

voice assistant-compatible device market is vast and includes kitch-

en appliances, security cameras, and even trash cans.

657

Market participants suggest there are several barriers to entry

to compete with general voice assistant platforms. These include

overcoming the network effects early entrants have benefited from,

including financial investment in hardware, software, and infra-

structure, and the ability to sell voice assistant-enabled devices at

a discount.

Like many platform-based businesses, the voice assistant market

benefits from network effects. The more users on a platform, the

more third-party devices and applications become available, which

attracts more users to the platform.

658

These network effects for

voice assistant platforms are amplified by machine learning and ar-

tificial intelligence (AI). Improvements in Natural Language Proc-

essing (NLP) and AI are expected to improve the quality of voice

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103

659

Submission from Source 711, to H. Comm. on the Judiciary, Source 711–00000080, at 12

(Oct. 15, 2019) (on file with Comm.).

660

Data and Privacy Hearing at 146–47 (statement of Maurice E. Stucke, Prof. of Law, Univ.

of Tenn., & Ariel Ezrachi, Slaughter & May Prof. of Competition Law, Univ. of Oxford, Fellow,

Pembroke Coll., Dir., Oxford Ctr. for Competition Law & Pol’y).

661

Submission from Source 918, to H. Comm. on the Judiciary, Source 918–0002763, at 12

(Oct. 15, 2019) (on file with Comm.).

662

Submission from Source 918, to H. Comm. on the Judiciary, 37 (Sept. 1, 2019) (on file

with Comm.).

663

See, e.g., How Big Tech Is Battling to Own the $49B Voice Market, CB I

NSIGHTS

(Feb. 13,

2019), https://www.cbinsights.com/research/facebook-amazon-microsoft-google-apple-voice/.

664

UTURE

ODAY

NST

., 2020 T

ECH

RENDS

EPORT

(2020), https://futuretoday

institute.com/2020-tech-trends/.

assistants and contribute to wider adoption.

659

Voice assistant

technology improves at a faster rate when there are more users

providing the voice samples needed to train AI. In testimony to the

Subcommittee, Professors Maurice Stucke and Ariel Ezrachi de-

scribe this as ‘‘Learning-by-Doing.’’ As they note:

Learning-by-doing network effect is not limited to online searches, but will be

present in any environment in which algorithms evolve and adapt based on expe-

rience, such [as], for example, the development of voice recognition or other in-

stances based on machine learning.

660

The scale of users generating data is arguably the most important

asset in terms of AI.

661

The incumbents have access to large data

sets that—when combined with machine learning and AI—position

them to benefit from economies of scope in the smart home.

662

Competing as a voice assistant platform also requires significant

financial resources. A firm must make significant investments to

design and train a voice assistant, as well as to acquire the phys-

ical infrastructure: hardware and cloud computing. Additionally,

incumbents have also acquired various firms that specialize in

voice recognition and natural language processing, a functionality

that is used in their voice assistants. For example, both Apple and

Amazon acquired companies to develop their core voice recognition

technologies, and every incumbent has continually invested in AI

startups to improve their voice assistant ecosystem.

663

Currently, voice assistant software is built on cloud computing

infrastructure. In the case of Amazon Alexa and Google Assistant,

the voice assistant platforms also own the underlying cloud infra-

structure, AWS and GCP, respectively. Market participants note

that advancements in voice assistant ecosystems are beginning to

rely on edge computing technology, which brings the computation

and data storage closer to the device and is a technology in which

the incumbent cloud market leaders have a head start.

664

Market participants have also raised concerns about incumbent

firms offering voice-enabled hardware—specifically hubs such as

smart speakers—to both collect large amounts of personal user

data and strengthen other lines of business. At the Subcommittee’s

field hearing, Sonos CEO Patrick Spence explained:

Google and Amazon have flooded the market with dramatically price-subsidized

products. Indeed, they make no pretense of the fact that the products themselves

are money losers and they routinely give them away at steep discounts, even for

free. It is difficult to predict the impact that voice assistants will have on search

and e-commerce, but voice activated speakers have the potential to dramatically

alter the way that consumers interact with the internet. We believe that Google

and Amazon have been willing to forgo profits in smart speakers for this reason,

in addition to their ability to monetize the valuable household data that these

products vacuum up. And if voice purchasing and voice search do become the

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104

665

Competitors Hearing at 11 (statement of Patrick Spence, CEO, Sonos, Inc.).

666

Submission from Source 711, to H. Comm. on the Judiciary, Source 711–00000080, at 20

(Oct. 15, 2019) (on file with Comm.).

667

Id. at 17.

668

Innovation and Entrepreneurship Hearing at 481–82 (response to Questions for the

Record of Adam Cohen, Dir. of Econ. Pol’y, Google LLC).

669

See generally S

HOSHANA

UBOFF

, T

GE OF

URVEILLANCE

APITALISM

(2019).

670

Innovation and Entrepreneurship Hearing at 536 (response to Questions for the Record

of Nate Sutton, Assoc. Gen. Couns., Competition, Amazon.com, Inc.).

next big thing, they will own the market because their strategy is succeeding.

Those two companies now control roughly 85% of the U.S. smart speaker market

.... It’s not because their hardware businesses are profitable in and of them-

selves.

665

As the voice assistant market expands, it may be difficult for

users to switch between platforms. Because voice assistant plat-

forms are not always interoperable, users would incur costs to pur-

chase one or more new devices. Moreover, voice assistant tech-

nology is designed to learn its user’s preferences over time. These

preferences range from settings like billing information and default

services for responding to music commands to more advanced

learning like past voice commands and shopping history. As a voice

assistant improves its ‘‘understanding’’ of its user, it may increase

the costs associated with switching to another platform. As one

market participant noted in a submission to the Subcommittee,

‘‘the user may become more dependent on that particular voice as-

sistant and be far less likely to use a rival voice assistant that has

not yet ‘caught up’ with the user’s preferences.’’

666

The design of most voice assistants—specifically on screenless de-

vices—amplifies the ability of voice assistant platforms to favor

their services as a default or as a response with limited choice.

667

This dynamic makes it easier for popular voice assistants to favor

their first-party services.

There is also a significant potential for misuse of data to harm

competition or consumers. Similar to other platforms, such as cloud

and operating systems, voice assistant platforms collect and store

users’ interactions with the voice assistant.

668

During the inves-

tigation, several companies shared concerns that voice assistant

platforms would be able to use this vantage to glean competitive

insights from third-party voice applications or smart appliances

that are performing well. As a result, platforms could use that data

to acquire competitive threats or integrate their features into the

company’s product.

Privacy and data experts have also commented that the smart

home ecosystem has access to some of the most sensitive data that

can be collected.

669

Voice assistant platforms not only record voice

interactions, but also receive information about the skills used—

‘‘whether a light is on or off. Or, if a customer links Alexa to a

third-party calendar skill, Alexa may receive information about the

events on the customer’s calendar.’’

670

This raises significant con-

cerns regarding whether a person has provided consent to data col-

lection. Voice assistants not only collect information on the primary

user, but also people in their environment, including children.

Finally, leaders in the voice assistant ecosystem set the rules for

third parties. To make a voice assistant enabled device, market

participants must comply with voice assistant platform vendor

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105

671

Competitors Hearing at 12 (statement of Patrick Spence, CEO, Sonos, Inc.).

672

Submission from Source 301, to H. Comm. on the Judiciary, Source 301–00000080, at 23

(Oct. 15, 2019) (on file with Comm.).

673

Submission from Source 385, to H. Comm. on the Judiciary, 3 (Oct. 11, 2019) (on file with

Comm.).

674

Id. at 4.

675

Standards, W3C, https://www.w3.org/standards/ (last visited Sept. 26, 2020).

676

Submission from Source 993, to H. Comm. on the Judiciary (Oct. 11, 2019) (on file with

Comm.).

677

Process for 2020, W3C, https://www.w3.org/wiki/Process2020 (last visited Sept. 26,

2020).

specifications. As Mr. Spence of Sonos noted in his testimony before

the Subcommittee:

To gain access to their platforms and integrate with their services, these compa-

nies issue all manner of take-it-or-leave-it demands, from early and technically

detailed access to our product roadmaps, to proprietary business data, including

sales forecasts, to waivers of essential contractual rights.

671

The Subcommittee also heard from multiple voice assistant de-

velopers that have struggled to gain access to key functionality

needed to build their applications, such as the unprocessed user

commands.

672

While still developing, the voice assistant market

shows early signs of market concentration.

I. Web Browsers

A web browser is software that retrieves and displays pages from

the internet. People often use browsers to navigate to and spend

time on websites and to search the web. Most other activities on-

line, whether it is on a mobile phone or a television screen, are

made possible through a browser.

673

Behind every browser is a ‘‘browser engine,’’ also known as a lay-

out engine or rendering engine. A browser engine is the central

software component of a web browser, transforming content hosted

on web servers into a graphic depiction that people can interact

with. Browsers interpret control codes within web pages, which in-

dicate the structure of the data, such as the beginning and end of

an item, and the way to present it to the user, such as headings,

paragraphs, lists, or embedded images. The browser engine takes

this code to ‘‘draw the web page’’ on the user’s screen and notes

which parts of it are interactive. The non-engine components of the

browser typically include the menus, toolbars, and other user-fac-

ing features, which are layered on top of the engine.

674

Browsers abide by standards to ensure that anyone can properly

use features within a website on any browser. For example, stand-

ards such as CSS and XML help ensure that a website functions

the same in every browser.

675

Web browser standards organiza-

tions include the World Wide Web Consortium (W3C), Web Hyper-

text Application Technology Working Group (WHATWG), and

Internet Engineering Task Force (IETF). Through these organiza-

tions, stakeholders work in partnership to ensure that browser en-

gines and web pages are interoperable.

676

W3C has become one of

the most important organizations for browser standards. W3C

standards undergo a rigorous review process prior to implementa-

tion.

677

Browser vendors monetize their access to users, usually through

search royalties. For example, whenever someone types a search

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106

678

Innovation and Entrepreneurship Hearing at 437 (response to Questions for the Record

of Adam Cohen, Dir. of Econ. Pol’y, Google LLC).

679

Expand Your Business with Brave Ads, B

RAVE

, https://brave.com/brave-ads-waitlist/

(last visited Sept. 26, 2020).

680

U.S. Browser Market Share, S

TAT

OUNTER

, https://gs.statcounter.com/browser-market-

share/all/united-states-of-america (last visited Sept. 26, 2020).

681

U.S. Desktop Market Share, S

TAT

OUNTER

, https://gs.statcounter.com/browser-market-

share/desktop/united-states-of-america (last visited Sept. 26, 2020).

682

U.S. Mobile Market Share, S

TAT

OUNTER

, https://gs.statcounter.com/browser-market-

share/mobile/united-states-of-america (last visited Sept. 26, 2020).

683

Submission from Source 993, to H. Comm. on the Judiciary, 5 (Oct. 11, 2019) (on file with

Comm.).

684

HROMIUM

ROJECTS

, https://www.chromium.org/ (last visited Sept. 26, 2020).

685

Submission from Source 993, to H. Comm. on the Judiciary, 3 (Oct. 11, 2019) (on file with

Comm.).

686

Innovation and Entrepreneurship Hearing at 584–85 (response to Questions for the

Record of Kyle Andeer, Vice President, Corp. Law, Apple, Inc.).

687

Interview with Source 27 (June 29, 2020).

688

Tyler Lacoma, The Best Google Chrome Extensions, D

. T

RENDS

(Apr. 4, 2020), https://

www.digitaltrends.com/computing/best-google-chrome-extensions/.

689

Submission from Source 993, to H. Comm. on the Judiciary, 5 (Oct. 11, 2019) (on file with

Comm.).

query into the search bar on Firefox, Google records that action,

and the Mozilla corporation receives a royalty.

678

Browsers also

bring in ad revenues. For example, Brave sells advertisers the op-

tion to run desktop notification ads to users who choose to see

ads.

679

The browser market is highly concentrated. Google’s Chrome and

Apple’s Safari control roughly 80 percent of the browser market.

680

As of August 2020, Chrome is the leader in the U.S. desktop brows-

er market (58.6 percent), followed by Safari (15.8 percent), Edge

(8.76 percent), Firefox (7.6 percent), and Internet Explorer (5.36

percent).

681

On mobile devices, Safari (55.5 percent) and Chrome

(37.4 percent) have significant leads on their rivals, such as

Samsung Internet (5.01 percent), Firefox (0.77 percent), and Opera

(0.44 percent).

682

Additionally, the browser market has con-

centrated around three browser engines: Gecko, WebKit, and Blink,

used in Firefox, Apple’s Safari, and Google’s Chrome, respec-

tively.

683

Google’s hold on the browser market extends beyond Chrome.

Google releases the code base used to make the Chrome browser

as the free, open-source project Chromium.

684

Chromium is used in

Microsoft’s Edge browser, Amazon’s Silk browser, Opera, and other

browsers that are often referred to as ‘‘Chromium-based.’’

685

Simi-

larly, Apple extends its power by mandating that all browser appli-

cations on the iPhone use Apple’s browser engine, WebKit.

686

Browser competition has also led to the creation of a browser ex-

tension submarket. A browser extension adds additional features to

a web browser, including user interface modifications and ad-block-

ing. They can also provide for niche browser customization and ex-

perimentation of new functionality before it is implemented into

the main browser functionality.

687

Popular add-ons include ad

blockers, LastPass, and Grammarly.

688

Competition in this market is important to promoting innovation

online. In a submission to the Subcommittee, a market participant

explained:

Competing browser engines push each other for innovations in raw performance

in several respects, including faster rendering, greater reliability, and a number

of other technical improvements; this competition is qualitatively different from,

and greater than, competition over just the browser product.

689

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107

690

Id.

691

Rust Language, M

OZILLA

SCH

., https://research.mozilla.org/rust/ (last visited Sept. 26,

2020).

692

Id.

693

Interview with Source 481 (July 2, 2020).

694

Submission from Source 993, to H. Comm. on the Judiciary, 10–11 (Oct. 11, 2019) (on file

with Comm.); Submission from Source 269, to H. Comm. on the Judiciary, 2–3 (July 23, 2019)

(on file with Comm.).

695

Submission from Source 993, to H. Comm. on the Judiciary, 10 (Oct. 11, 2019) (on file

with Comm.).

696

Id. at 5; Submission from Source 269, to H. Comm. on the Judiciary, 2 (July 23, 2019)

(on file with Comm.).

697

Submission from Source 465, to H. Comm. on the Judiciary, 6 (June 3, 2019) (on file with

Comm.).

698

Id.

Browser diversity is also important for ensuring an open internet

and reduces the risk that web developers will build sites optimized

for the leading engine as opposed to web standards.

690

Moreover,

as developers work on advancing browser engine technology, they

create technologies that can improve the overall internet eco-

system. For example, Rust is a programming language that Mozilla

engineers developed while writing the Servo layout technology for

browser engines.

691

Developers use Rust for other applications

today, including gaming, operating systems, and other new soft-

ware applications.

692

There is a general concern that, without vi-

brant competition, this form of innovation will suffer, discouraging

the development of new browser engine technology.

693

Browsers protect their dominance through default settings,

which create a barrier to entry.

694

Defaults exist in both desktop

and mobile markets. Although users can set different browsers

more easily for desktop computers than on mobile devices, ‘‘settings

can impact the stickiness over time,’’ such as when a software up-

date overrides a user’s preference, requiring them to take ‘‘complex

steps to restore their browser choice.’’

695

In some cases, consumers

are unable to delete the preloaded browser. For example, on Apple

iOS devices and Facebook’s Oculus, users are unable to delete the

preloaded browser. Some popular mobile applications can preset

webpage links to a predetermined browser, such as the Apple Mail

App (Safari) and the Search widget on an Android device

(Chrome).

696

J. Digital Advertising

There are two principal forms of digital advertising: search ad-

vertising and display advertising. Search advertising refers to dig-

ital ads on desktop or mobile search engines, such as the

Google.com homepage, displayed via ‘‘search ad tech’’ alongside

search engine results. Search advertising is often bought and sold

via real-time bidding (RTB) auctions among advertisers, where ad-

vertisers set the prices they are willing to pay for a specific key-

word in a query.

697

Display advertising refers to the delivery of dig-

ital ad content to ad space on websites and mobile apps, which is

referred to as ‘‘inventory.’’ Like search advertising, buying and sell-

ing display ads often involves real-time bidding.

698

Within display advertising, there are two separate ‘‘ad tech’’ mar-

kets that the Subcommittee reviewed during the investigation:

first-party and third-party. ‘‘First-party’’ platforms refer to compa-

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108

699

Id. at 5.

700

Competition & Mkts. Auth. Report at 266.

701

Dina Srinivasan, Why Google Dominates Advertising Markets, 24 S

TAN

. T

ECH

. L. R

. 55,

63–64 (2020).

702

Id. at 64.

703

Interview with Source 004 (Apr. 23, 2020).

704

Prepared by the Subcommittee based on Dina Srinivasan, Why Google Dominates Adver-

tising Markets, 24 S

TAN

. T

ECH

. L. R

. 55, 77 (2020).

705

Submission from Source 465, to H. Comm. on the Judiciary, 9 (June 3, 2019) (on file with

Comm.).

706

Id.

nies such as Facebook, Twitter, and Snap, which sell ad space on

their own platforms directly to advertisers. Google also uses first-

party ad tech to sell display ads on its own properties, most notably

YouTube. Third-party display ad tech platforms are run by inter-

mediary vendors and facilitate the transaction between third-party

advertisers, such as the local dry cleaner or a Fortune 500 com-

pany, and third-party publishers, such as The Washington Post or

a blog.

699

Third-party ad tech providers include Google, Flash-

talking, Sizmek (owned by Amazon), and the Trade Desk, among

others.

700

Software in display ads is programmatic, meaning that special-

ized software automates the buying and selling of digital ads. Mar-

ket participants explain that this automated approach provides

greater liquidity, better return-on-investment metrics, more precise

ad targeting, and lower transaction costs. One major drawback,

however, is that this process lacks transparency.

701

Google, specifi-

cally, ‘‘does not disclose to the publishers on the other ends of these

trades what their space ultimately sold for and how much Google

keeps as its share.’’

702

As another market participant told the Sub-

committee, Google could make the process ‘‘more transparent,’’ but

given Google’s financial stake in maintaining secrecy, ‘‘there is no

incentive to.’’

703

The Ad-Tech Suite

704

Ad exchanges refer to the ‘‘ad trafficking system that connects

advertisers looking to buy inventory with publishers selling inven-

tory.’’

705

Sales on ad exchanges occur primarily through: (1) open

real-time bidding auctions; (2) closed real-time bidding auctions; or

(3) programmatic direct deals.

706

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109

707

Competition & Mkts. Auth. Report at 263.

708

Submission from Source 465, to H. Comm. on the Judiciary, 8 (June 3, 2019) (on file with

Comm.).

709

Id. at 9.

710

Competition & Mkts. Auth. Report at 263.

711

Submission from Source 888, to H. Comm. on the Judiciary, 8 (June 3, 2019) (on file with

Comm.).

712

Id. at 10.

713

Alex Heath, Facebook and Google Completely Dominate the Digital Ad Industry, B

. I

SIDER

(Apr. 26, 2017), https://www.businessinsider.com/facebook-and-google-dominate-ad-

industry-with-a-combined-99-of-growth-2017-4.

714

Dina Srinivasan, Why Google Dominates Advertising Markets, 24 S

TAN

. T

ECH

. L. R

. 55,

59 (2020).

Sell-side software includes publisher ad servers.

707

The primary

function of a publisher ad server is to fill ad space on a publisher’s

website that is personalized to the interests of a specific website

viewer.

708

Sell-side software also includes ad networks, which ag-

gregate ad inventory from many different publishers and divide

that inventory based on user characteristics—such as age or loca-

tion. Ad networks sell the pool of inventory through ad exchanges

or demand-side platforms (DSPs).

709

Buy-side software includes advertiser ad servers—software that

stores, maintains, and delivers digital ads to the available inven-

tory. Ad servers facilitate the programmatic process that makes in-

stantaneous decisions about which ads to display on which

websites to which users and helps display the ad on that site. Ad

servers collect and report data, such as ad impressions and clicks,

for advertisers to monitor ad performance and track conversion

metrics.

710

Buy-side software also includes demand-side plat-

forms—software that allows advertisers to buy advertising inven-

tory from a range of publishers. Demand-side platforms use data

to create targeted ad audiences and engage in purchasing and bid-

ding.

711

The ad tech suite also includes analytics tools that allow adver-

tisers and publishers to measure ad campaign efficiency, including

consumers’ interactions with an ad. Similarly, data management

platforms (DMPs) aggregate and store consumer data from various

sources and process the data for analysis. Advertisers and pub-

lishers use data management platforms to track, partition, and tar-

get consumer audiences across websites.

712

Over the last decade, the digital advertising market has experi-

enced double-digit year-over-year growth. The market, however,

has become increasingly concentrated since the advent of pro-

grammatic trading. In 2017, Business Insider reported that Google

and Facebook accounted for 99 percent of year-over-year growth in

U.S. digital advertising revenue.

713

Today, advertisers and pub-

lishers alike have few options when deciding how to buy and sell

online ad space.

714

Market participants suggest this concentration likely exists in

part due to high barriers to entry. Google and Facebook both have

a significant lead in the market due to their significant collection

of behavioral data online, which can be used in targeted adver-

tising. Additionally, Google and Facebook do not provide access to

this unique data in open data exchanges. Advertisers’ only access

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110

715

Id. at 93.

716

Kiri Masters, What’s Driving Amazon’s $10 Billion Advertising Business, F

ORBES

(July 26,

2019), https://www.forbes.com/sites/kirimasters/2019/07/26/whats-driving-amazons-10bn-

advertising-business/#4cc9c84aa043.

717

Id.

718

Competition & Mkts. Auth. Report at 282.

719

TEVEN

EVY

, F

ACEBOOK

: T

NSIDE

TORY

65–69 (2020).

720

Facebook, Inc., Quarterly Report (Form 10–Q) 29 (July 31, 2020), https://investor

.fb.com/financials/sec-filings-details/default.aspx?FilingId=14302237.

721

Id. at 30.

722

Id. at 32.

723

Id. at 35. See generally Howard A. Shelanski & J. Gregory Sidak, Antitrust Divestiture

in Network Industries, 68 U. C

. L. R

. 1, 6 (2001) (‘‘High profit margins might appear to

be the benign and necessary recovery of legitimate investment returns in a Schumpeterian

framework, but they might represent exploitation of customer lock-in and monopoly power when

viewed through the lens of network economics.’’).

724

Facebook, Inc., Quarterly Report (Form 10–Q) 25 (July 31, 2020), https://investor

.fb.com/financials/sec-filings-details/default.aspx?FilingId=14302237.

725

Id. at 35.

to this information is indirect—through engagement with Google

and Facebook’s ad tech.

715

Amazon’s advertising business is starting to obtain a portion of

the U.S. year-over-year digital advertising revenue growth.

716

Amazon has been able to enter the market because it has its own

trove of user data—namely, competitively significant first-party

data related to retail searches and purchases. Moreover, Amazon’s

50 percent penetration across U.S. households and its reach with

high-income customers are likely to help drive its ad revenue

growth.

717

While Amazon can leverage its ecosystem to overcome

some of the barriers to entry in ad tech, the recent U.K. Competi-

tion and Markets Authority report found that, as of today, Ama-

zon’s ad tech likely only has advantages in the retail sector.

718

V. DOMINANT ONLINE PLATFORMS

A. Facebook

1. Overview

Founded in 2004 by Mark Zuckerberg, Eduardo Saverin, Chris

Hughes, and Dustin Moskowitz,

719

Facebook is the largest social

networking platform in the world. Its business operates around five

primary product offerings, including: (1) Facebook, a social network

platform; (2) Instagram, a social network app for photos and vid-

eos; (3) Messenger, a cross-platform messaging app for Facebook

users; (4) WhatsApp, a cross-platform messaging app; and (5)

Oculus, a virtual reality gaming system.

Facebook reported in July 2020 that its platform includes 1.79

billion daily active users (DAUs),

720

2.7 billion monthly active

users (MAUs),

721

and an average revenue per user (ARPU) of

$7.05.

722

Last year, Facebook’s businesses collected about $70 bil-

lion in revenue—a 27 percent increase from the prior year—earn-

ing about $24 billion in income from its operations.

723

Facebook re-

ported that its family of products—including Facebook, Instagram,

Messenger, and WhatsApp—includes 2.47 billion daily active peo-

ple (DAP),

724

3.14 billion monthly active people (MAP), and a fam-

ily average revenue per person (ARPP) of $6.10.

725

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111

726

Facebook, Inc., Quarterly Report (Form 10–Q) 42 (July 24, 2019), https://investor

.fb.com/financials/sec-filings-details/default.aspx?FilingId=13550646.

727

Id. at 53.

728

Press Release, N.Y. Att’y Gen., AG James Investigating Facebook for Possible Antitrust

Violations (Sept. 6, 2009), https://ag.ny.gov/press-release/2019/ag-james-investigating-facebook-

possible-antitrust-violations.

729

Press Release, N.Y. Att’y Gen., Attorney General James Gives Update On Facebook Anti-

trust Investigation (Oct. 22, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-

gives-update-facebook-antitrust-investigation.

730

Facebook has argued to other antitrust enforcement bodies that limiting the product mar-

ket to social networks at the exclusion of other markets, such as user attention, ‘‘would be artifi-

cial and would not reflect the competitive realities,’’ and that ‘‘competitive pressures to which

Facebook reacts are global in nature.’’ See, e.g., Submission from Facebook, to H. Comm. on the

Judiciary, FB–HJC–ACAL–00012074 (2016) (on file with Comm.) (White Paper on Relevant

Markets and Lack of Dominance for Federal Cartel Office).

731

Omidyar Network Report.

732

Cunningham Memo at 16 (‘‘Facebook has high reach and time-spent in most countries.

User growth is tracking internet growth: global reach is roughly stable.’’).

733

Instead of competing directly with Facebook, such as Google attempted but failed to do

with Google+, other social platforms provide niche products with social graphs that are orthog-

onal to Facebook’s graph. See id. at 4 (‘‘LinkedIn[ ] and Nextdoor coexist in the US with similar

userbases but orthogonal graphs: Facebook connects friends and family, LinkedIn connects co-

workers, Nextdoor connects neighbors.’’).

In addition to the Subcommittee’s investigation of Facebook’s mo-

nopoly power, state and federal antitrust authorities are inves-

tigating Facebook for potential violations of the U.S. antitrust laws.

In July 2019, Facebook disclosed that the Federal Trade Commis-

sion (FTC) had opened an antitrust investigation of Facebook in

June 2019.

726

Facebook also disclosed that in July 2019 the De-

partment of Justice announced that it would begin an antitrust re-

view of market-leading online platforms.

727

In September 2019,

New York Attorney General Letitia James announced that she

joined with eight other attorneys general to lead a multistate inves-

tigation of Facebook.

728

In October 2019, Attorney General James

reported that the investigation into Facebook had grown to include

47 attorneys general.

729

2. Social Networking

(a) Market Power. Facebook has monopoly power in the market

for social networking.

730

According to internal documents produced

by Facebook to the Committee, it has high reach, time-spent, and

significantly more users than its rivals in this market. Despite sig-

nificant changes in the market—such as the advent of mobile de-

vices, applications, and operating systems—Facebook has held an

unassailable position in the social network market for nearly a dec-

ade, demonstrating its monopoly power.

731

Facebook’s monopoly power is firmly entrenched and unlikely to

be eroded by competitive pressure from new entrants or existing

firms. Documents produced during the investigation by Facebook,

including communications among its senior executives on market

strategy, as well as a memorandum by a senior data scientist and

economist at Facebook,

732

support the conclusion that Facebook’s

monopoly is insulated from competitive threats. The social network

market has high entry barriers—including strong network effects,

high switching costs, and Facebook’s significant data advantage—

that discourage direct competition by other firms to offer new prod-

ucts and services.

733

Facebook has also maintained and expanded

its dominance through a series of acquisitions of companies it

viewed as competitive threats, and selectively excluded competitors

from using its platform to insulate itself from competitive pressure.

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112

734

See B

UNDESKARTELLAMT

, C

ASE

UMMARY

: F

ACEBOOK

, E

XPLOITATIVE

USINESS

ERMS

SUANT TO

ECTION

19(1) GWB

FOR

NADEQUATE

ATA

ROCESSING

6 (2019) (‘‘The facts that com-

petitors can be seen to exit the market and that there is a downward trend in the user-based

market shares of the remaining competitors strongly indicate a market tipping process which

will result in Facebook.com becoming a monopolist.’’), https://www.bundeskartellamt.de/

SharedDocs/Entscheidung/EN/Fallberichte/Missbrauchsaufsicht/2019/B6-22-16.pdf?lblob=

publicationFile&v=4.

735

Competition & Mkts. Auth. Report at 26.

736

In addition to Facebook’s high market share, the Bundeskartellamt also found that

Facebook has market power based on other measures, including its ‘‘access to competitively rel-

evant data, economies of scale based on network effects, the behaviour of users who can use

several different services or only one service and the power of innovation-driven competitive

pressure.’’ Press Release, Bundeskartellamt, Bundeskartellamt Prohibits Facebook from Com-

bining User Data from Different Sources 4 (Feb. 7, 2019), https://www.bundeskartellamt.de/

SharedDocs/Publikation/EN/Pressemitteilungen/2019/07l02l2019lFacebooklFAQs.pdf?

llblob=publicationFile&v=6. The Bundeskartellamt also noted that, in terms of assessing

market share by time spent on the network, ‘‘the Facebook group would have a combined mar-

ket share far beyond the market dominance threshold pursuant to Section 18(4) GWB, even if

YouTube, Snapchat, Twitter, WhatsApp, and Instagram were included in the relevant market.’’

Id. at 6.

737

Austl. Competition & Consumer Comm’n Report at 9; see also id. at 78 (adopting a broader

view on Facebook’s product market to include Twitter and Snapchat).

738

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–APP0004 (Oct.

14, 2019); Innovation and Entrepreneurship Hearing at 17 (statement of Matt Perault, Dir. of

Pub. Pol’y, Facebook, Inc.).

739

Innovation and Entrepreneurship Hearing at 567 (response to Questions for the Record

of Matt Perault, Dir. of Pub. Pol’y, Facebook, Inc.).

740

Id.

741

See, e.g., Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–

00012074 (2016) (on file with Comm.).

Together, these factors have tipped the social networking market

toward a monopoly.

734

Several antitrust enforcement agencies have examined

Facebook’s monopoly in recent years and reached similar conclu-

sions. In July 2020, the United Kingdom’s Competition and Mar-

kets Authority (CMA) found that Facebook is dominant in the mar-

kets for social networks and digital display ads, and that its mar-

ket power ‘‘derives in large part from strong network effects stem-

ming from its large network of connected users and the limited

interoperability it allows to other social media platforms.’’

735

July 2019, Germany’s Federal Cartel Office (Bundeskartellamt)

found that ‘‘Facebook is the dominant company in the market for

social networks,’’ and that in Germany’s social network market,

‘‘Facebook achieves a user-based market share of more than

90%.’’

736

And in June 2019, the Australian Competition & Con-

sumer Commission (ACCC) found that ‘‘Facebook has substantial

market power in a number of markets and that this market power

is unlikely to erode in the short to medium terms.’’

737

Facebook’s responses to the Committee’s requests for information

claimed that it competes in a ‘‘rapidly evolving and dynamic mar-

ketplace in which competition is vigorous,’’ citing Twitter,

Snapchat, Pinterest, and TikTok as examples of competition

Facebook faces for ‘‘every product and service’’ that it offers.

738

Ac-

cording to Facebook, its users ‘‘have many choices and can leave

Facebook if they’re not happy,’’

739

allowing people to quickly aban-

don it. The ability of users to ‘‘explore the myriad other options

available . . . creates strong competition for every product and serv-

ice Facebook offers, as well as pressure to develop new products to

attract and retain users.’’

740

In response to other antitrust inquiries, Facebook said that it

competes for users’ attention broadly.

741

In a 2016 white paper

prepared in response to an investigation by Germany’s Federal

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113

742

Id.

743

ACEBOOK

, F

ACEBOOK

’

ESPONSE TO THE

IGITAL

LATFORMS

NQUIRY FOR

USTRALIAN

OMPETITION AND

ONSUMER

OMMISSION

25 (Sept. 12, 2019), https://fbnewsroomus.files

.wordpress.com/2019/09/facebook-submission-to-treasury-on-digital-platforms-inquiry.pdf.

744

Interview with Former Instagram Employee (Oct. 2, 2020).

745

Id.

746

Id.

747

Competition & Mkts. Auth. Report at 121 n.152.

748

The Subcommittee made a supplemental request after identifying Facebook’s industry up-

dates during the review of documents produced in response to the Committee’s September 2019

request for information.

749

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–000025 (Mar.

5, 2020) (on file with Comm.).

750

Id. at FB–HJC–ACAL–00012074, FB–HJC–ACAL–00012090 (2016) (on file with Comm.).

751

Id. at FB–HJC–ACAL–00054944 (Apr. 27, 2012) (on file with Comm.).

Cartel Office, Facebook stated that it ‘‘faces intense competition for

user attention and engagement at every level,’’ listing companies as

diverse as Candy Crush and Clash of the Clans—popular mobile

gaming apps—along with YouTube, Twitter, Pinterest, Snapchat

and others as competitors for users’ attention.

742

Facebook simi-

larly submitted to the ACCC that, if the company does not compete

vigorously, users will go to other ‘‘platforms, websites, apps, and

other services—not just social media services—that compete for

their attention.’’

743

In an interview conducted by the Sub-

committee, a former employee explained that, as a product man-

ager at Facebook, ‘‘your only job is to get an extra minute. It’s im-

moral. They don’t ask where it’s coming from. They can monetize

a minute of activity at a certain rate. So the only metric is getting

another minute.’’

744

Facebook describes a diverse list of other firms as competitive

substitutes for Facebook, including Microsoft’s Bing, a search en-

gine; Yelp, a publisher of crowd-sourced business reviews; and

BuzzFeed, a digital news publisher.

745

According to Facebook,

these firms exert competitive pressure on Facebook in the market

for users’ attention.

746

Most recently, in response to an inquiry by

the United Kingdom’s Competition and Markets Authority,

Facebook calculated its market share as ‘‘time captured by

Facebook as a percentage of total user time spent on the internet,

including social media, dating, news and search platforms.’’

747

Based on these measures, Facebook concluded that it lacks monop-

oly power.

Facebook’s position that it lacks monopoly power and competes

in a dynamic market is not supported by the documents it pro-

duced to the Committee during the investigation. Instead,

Facebook’s internal business metrics show that Facebook wields

monopoly power. In response to a supplemental information re-

quest by the Subcommittee,

748

Facebook produced industry updates

prepared in the ordinary course of business by Facebook’s Market

Strategy team.

749

It has described these reports as both ‘‘internal

competitive metrics’’ and as a ‘‘competitive survey regularly pre-

pared for Facebook’s management team [that] tracks a variable set

of competitors not by specific products or features, but by the de-

gree of user attention and engagement that they command in

terms of monthly active users (‘MAU’) and daily active users

(‘DAU’).’’

750

Facebook’s industry updates were shared internally with senior

executives, including Mark Zuckerberg, Facebook’s CEO.

751

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752

Although it does not include data from users of Apple’s iMessage, which is relevant for

purposes of usage on WhatsApp and Messenger, Facebook’s documents note that iMessage’s

growth is limited by the adoption of iPhones, whereas Facebook’s products can be used across

different devices. See generally Cunningham Memo at 15.

753

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–00012090

(2016) (on file with Comm.).

754

Cunningham Memo at 9 (citing data from MINT, another name used for Onavo within

Facebook, Inc.).

755

Id. at 2; see also id. at 16 (‘‘Facebook has high reach and time-spent in most countries.

User growth is tracking internet growth: global reach is roughly stable.’’).

756

Submission from Facebook, to Comm. on the Judiciary, 38 (Jan. 2020) (on file with

Comm.) (Monthly Update for December 2019, based on Facebook’s internal calibrations of App

Annie data). According to Facebook, the monthly active persons (MAP) metric is ‘‘based on the

activity of users who visited at least one of Facebook, Instagram, Messenger, and WhatsApp

(collectively, our ‘Family’ of products) during the applicable period of measurement.’’ Facebook,

Inc., Quarterly Report (Form 10–Q) 4 (Apr. 30, 2020), http://d18rn0p25nwr6d.cloudfront.net/

CIK-0001326801/5fc46b22-5cb5-4014-bcb7-7edc64f2d963.pdf.

757

Interview with Former Instagram Employee (Oct. 2, 2020) (‘‘Reach is closer to market pen-

etration [than usage and engagement]. It applies to the number of internet users we think are

in that country, how many use a Facebook Family app and have taken one meaningful action.

What people forget is that Facebook believes its total addressable market being anyone that has

access to the internet.’’).

758

Submission from Facebook, to H. Comm. on the Judiciary, 38 (Jan. 2020) (on file with

Comm.) (Monthly Update for December 2019); Submission from Facebook, to H. Comm. on the

Judiciary, 32 (Oct. 2019) (on file with Comm.) (Monthly Update for September 2019, based on

Facebook’s internal calibrations of App Annie data).

759

Id.

760

Id.

761

Id.

762

See generally Omidyar Network Report at 11.

763

Cunningham Memo at 2.

Facebook used data collected through Onavo, a virtual private net-

work (VPN) app, to provide detailed competitive insights into the

usage and engagement of other firms.

752

Facebook also relied on

this data in response to inquiries by the European Commission and

the Bundeskartellamt,

753

as well as to prepare detailed internal re-

ports on market strategy.

754

(i) Usage and Reach. Facebook has monopoly power in the social

networking market. Based on its internal documents, Facebook and

its family of products—Facebook, Instagram, Messenger, and

WhatsApp—control a significant share of users and have high

reach in the social networking market.

755

Facebook’s family of

products includes three of the seven most popular mobile apps in

the United States by monthly active persons, reach, and percentage

of daily and monthly active persons.

756

As a standalone product, the Facebook app had the third highest

reach of all mobile apps,

757

with 200.3 million users in the United

States, reaching 74 percent of smartphone users as of December

2019.

758

Facebook Messenger had the fourth highest reach, with

183.6 million monthly active persons, reaching 54.1 percent of U.S.

smartphone users.

759

Finally, Instagram had the sixth highest

reach, with 119.2 million users, reaching 35.3 percent of

smartphone users.

760

In contrast, Snapchat, the mobile app with

the seventh highest reach, had 106.5 million users in the United

States, reaching 31.4 percent of smartphone users.

761

Facebook’s maintenance of these high market shares over a long

time period demonstrates its monopoly power.

762

From September

2017 to September 2018, Facebook reached more than 75 percent

of users internationally with at or near 100 percent market pene-

tration in nine of the twenty most populous countries in the

world.

763

In the United States, Facebook alone reached more than

75 percent of internet users during this period, while Messenger

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764

Id.

765

Id. at 12.

766

Id. at 16 (emphasis added).

767

Id. (‘‘Facebook has high reach and time-spent in most countries. User growth is tracking

internet growth: global reach is roughly stable.’’).

768

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–00086798

(Aug. 22, 2020) (on file with Comm.) (Monthly Update for August 2018).

769

Id. at FB–HJC–ACAL–00057113, https://judiciary.house.gov/uploadedfiles/00057113l

picture.pdf; id. at FB–HJC–ACAL–00049006 (Jan. 28, 2012) (on file with Comm.).

770

Id. at FB–HJC–ACAL–00057113, https://judiciary.house.gov/uploadedfiles/00057113l

picture.pdf.

771

Prepared by Subcommittee staff based on id.

and Instagram both achieved significant reach as well.

764

Accord-

ing to a white paper prepared by a senior data scientist and econo-

mist at Facebook, the Facebook app has high reach in most coun-

tries, and its growth is in line with that of the internet, whereas

Instagram and WhatsApp are still growing ‘‘very rapidly.’’

765

For

Instagram, ‘‘there appear to be no countries in which growth has

hit a ceiling.’’

766

Facebook’s family of products are more immersive of users’ atten-

tion.

767

According to Facebook’s internal market data, its users

spend significantly more time on its family of products than on

competing services. For example, social media users spent more

time on Facebook (48.6 minutes) than on Snapchat (21 minutes) or

Twitter (21.6 minutes) in 2018.

768

Since at least 2012, Facebook’s documents show that Facebook

believed it controlled a high share of the social networking mar-

ket.

769

In a presentation prepared for Sheryl Sandberg, Facebook’s

Chief Operating Officer, to deliver at a large telecommunications

firm, Facebook said that it controlled ‘‘95% of all social media’’ in

the United States in terms of monthly minutes of use—as com-

pared to Twitter, Tumblr, Myspace, and all other social media—

and noted that the ‘‘industry consolidates as it matures.’’

770

Facebook Investor Presentation

771

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116

772

Id. at FB–HJC–ACAL–00049006 (Apr. 30, 2012) (on file with Comm.).

773

Id. at FB–HJC–ACAL–00064320 (Apr. 18, 2012).

774

Id. at FB–HJC–ACAL–00049006 (Apr. 30, 2012) (on file with Comm.).

775

Id.

776

Id.

777

Id. (‘‘Imagine 10 years from now . . . [a] [l]ocal TV show asking an entrepreneur how he

can hope to compete with Facebook.’’).

778

CEO Hearing at 85 (question of Rep. Joe Neguse (D–CO), Vice Chair, Subcomm. on Anti-

trust, Commercial and Admin. Law of the H. Comm on the Judiciary).

779

Id. at 86.

780

Id.

781

Id. (statement of Mark Zuckerberg, CEO, Facebook, Inc.).

782

ACEBOOK

, F

ACEBOOK

’

ESPONSE TO THE

CMA’

NTERIM

EPORT

13–14 (Feb. 14, 2020),

https://assets.publishing.service.gov.uk/media/5e8c827ae90e070774c61fdb/Facebooklresponse

ltolinterimlreportlwithlcoverlletter.pdf.

783

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–00012074

(2016) (on file with Comm.).

784

See United States v. Microsoft Corp., 253 F.3d 34, 51–52 (D.C. Cir. 2001); see also Com-

petition & Mkts. Auth. Report at 117–18 (‘‘[T]he closeness of competition between different plat-

forms depends on the degree to which consumers consider them substitutes, rather than the ex-

tent to which they share common functionalities.’’).

A 2012 investor presentation prepared for Facebook described it

as having an ‘‘enduring competitive advantage’’ similar to other

historically dominant firms.

772

According to this document, which

was reviewed and edited by Facebook’s Chief Financial Officer to

present to investors,

773

Facebook had nearly 100 percent market

penetration among 25–34 year-olds in the United States.

774

It also

had more than 85 percent penetration in certain countries.

775

noted in the presentation, ‘‘In every country we’ve tipped, we have

maintained that penetration.’’

776

This point was underscored by a

suggestion in the presentation that within a decade, it would be

doubtful that entrepreneurs could compete with Facebook.

777

At the Subcommittee’s sixth hearing, Subcommittee Vice Chair

Joe Neguse (D–CO) asked Mr. Zuckerberg about Facebook’s monop-

oly power.

778

As Mr. Neguse noted, based on this evidence, ‘‘most

folks would concede Facebook was a monopoly as early as

2012.’’

779

Since then, he added that Facebook’s strategy has been

to ‘‘protect what I describe as a monopoly’’ by acquiring, copying,

or eliminating its competitors.

780

Mr. Zuckerberg responded by

characterizing the social networking market as ‘‘a very large

space.’’

781

However, Facebook did not corroborate this claim

through the evidence it produced during the investigation.

Lastly, after reviewing relevant market data and documents pro-

vided during the investigation, the Subcommittee found that there

are distinct, relevant markets for social networking and social

media. Facebook proposes that online services with social functions,

such as YouTube, are social networks that compete in the same

product market as Facebook and its other products for user atten-

tion.

782

For example, in a white paper submission, Facebook com-

pares its News Feed, which includes a stream of posts and videos

uploaded by users, as similar to the content feed that users encoun-

ter on YouTube.

783

However, longstanding antitrust doctrine de-

scribes relevant product markets as those that are ‘‘reasonably

interchangeable by consumers for the same purposes.’’

784

Although

YouTube is a dominant social app, it is primarily used to consume

video content online. It does not provide the core functionality of

Facebook or its family of products, such as Pages, Marketplace, or

limited sharing within a person’s network.

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117

785

Competition & Mkts. Auth. Report at 120 (‘‘[T]here are particularly important differences

between YouTube, which most consumers use for video streaming, and platforms such as those

of Facebook, which focus more on consumer needs related to social networking.’’).

786

Id. at 126, 128.

787

Id. at 127.

788

See United States v. Microsoft Corp., 84 F. Supp. 2d 9, 20 (D.D.C. 1999) (‘‘A positive net-

work effect is a phenomenon by which the attractiveness of a product increases with the number

of people using it.’’). The corollary is that, when fewer people use the product, it becomes less

attractive, which can tip the market in favor of another firm if there are low entry barriers.

Dig. Competition Expert Panel Report at 35.

789

See generally Omidyar Network Report at 18.

790

See, e.g., Cunningham Memo at 7 (‘‘Messenger and WhatsApp clearly compete for time-

spent.’’). While Facebook’s overall penetration and network effects are high in the United States

and across many other large countries, Facebook appears to have intermediate reach in some

countries due to differing levels of adoption among users of certain ages. Id. at 12 (‘‘In Japan

and South Korea Facebook has significantly higher penetration among youth than among elder-

ly. The role of an intergenerational social network is partly filled by other apps (LINE and

Kakao).’’).

791

The Subcommittee requested the 2018 memorandum prepared by Tom Cunningham on

July 1, 2020 in response to earlier reporting about the memorandum. See Alex Heath, Facebook

Secret Research Warned of ‘‘Tipping Point’’ Threat to Core App, I

NFORMATION

(July 23, 2020),

https://www.theinformation.com/articles/facebook-secret-research-warned-of-tipping-point-

threat-to-core-app. The Subcommittee appreciates that Facebook cooperated with this supple-

mental request.

792

Submission from Facebook, to H. Comm. on the Judiciary, FB–HJC–ACAL–00063222

(Feb. 27, 2012), https://judiciary.house.gov/uploadedfiles/0006322000063223.pdf.

793

Cunningham Memo at 1, 3.

794

During this period, Facebook referred to data derived from Onavo as MINT data.

The United Kingdom’s Competition and Markets Authority

reached a similar conclusion, finding that YouTube is primarily a

market for consuming video content rather than a market for com-

munication.

785

As it noted, ‘‘consumers use YouTube for particu-

larly distinctive reasons .... YouTube does not currently appear to

provide a strong competitive constraint on Facebook, despite its

comparable reach and levels of consumer engagement.’’

786

Internal

documents produced to the United Kingdom bolstered this finding,

indicating ‘‘that the most common reasons consumers in the UK ac-

cess YouTube are for entertainment and to view ‘how-to’ videos on

the platform.’’

787

(ii) Barriers to Entry. Facebook’s persistently high market share

is not contestable due to high barriers to entry that discourage

competition. These barriers to entry include its strong network ef-

fects, high switching costs for consumers, and data advantages.

(1) Network Effects. Facebook’s significant reach among users,

and high levels of engagement, create very strong network ef-

fects.

788

As a result, Facebook has tipped the market in its favor,

789

pri-

marily facing competitive pressure from within its own family of

products—such as through Instagram competing with Facebook or

WhatsApp competing with Messenger—rather than actual competi-

tion from other firms in the market.

790

This finding is supported

by Facebook’s documents and internal analysis. These include a

memorandum on Facebook’s family of products prepared in October

2018 by Thomas Cunningham, a senior data scientist and econo-

mist,

791

as well as communications among senior executives.

792

Mr. Cunningham’s 2018 memorandum on ‘‘Possible End States

for the Family of Apps’’ is an analysis of user trends among

Facebook’s products and other competitors.

793

It is based on the

company’s Onavo data from September 2017 to September

2018.

794

It was prepared for review by Facebook’s senior execu-

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118

795

Interview with Former Instagram Employee (Oct. 2, 2020).

796

Id.

797

Id.

798

Cunningham Memo at 11.

799

Id. at 9.

800

To underscore this point, the Cunningham Memo does not characterize YouTube as a di-

rect competitor, noting that YouTube would only be a danger if it ‘‘becomes more social.’’ Id.

at 16.

801

Id. at 9.

802

Id. at 10; see also id. at 14 (‘‘Most countries have a single messaging app with 70%+ daily

reach. The most common app is WhatsApp. Others include Messenger, LINE, and Kakotalk.’’).

803

Id. at 3.

804

Id.

805

Id. at 12 (‘‘WhatsApp does very well when it is the market-leader (in many Latin Amer-

ican countries WhatsApp has nearly 90% daily reach and users spend 60 minutes/day), this sug-

gests that it would be worth a substantial investment to try to push WhatsApp over its tipping

point in other countries.’’). An exception to this trend appears to be where a messaging app ex-

ists as part of a social network—such as messaging services on Snapchat—but these apps oper-

ate with reduced reach. Another exception is in markets with high penetration by Apple’s

iPhone, but this growth is limited by adoption of iPhones since iMessage is its native app. Id.

at 15.

806

Id. at 16 (‘‘Facebook has high reach and time-spent in most countries. User growth is

tracking internet growth: global reach is roughly stable. DAP is showing weakness in developed

countries and especially teens.’’).

tives, including Mr. Zuckerberg and Mr. Olivan, Facebook’s Direc-

tor of Growth.

795

The Subcommittee’s staff interviewed a former

senior employee at the company who attended meetings preparing

the document for presentation to Mr. Zuckerberg and Mr. Olivan.

The former employee noted that ‘‘this specific working group—and

Tom Cunningham’s work in particular—was guiding Mark’s views’’

on the company’s growth strategy.

796

The former employee ex-

plained the purpose of the Cunningham Memo: