Fear and Loathing in the Silicon Valley C-Suite

Apple CEO Tim Cook and Google CEO Sundar Pichai are demanding their minions in the Senate protect them. Will they? We'll see this week.

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UPDATE: This bill passed out of the Senate Judiciary Committee 16-6, which is an overwhelming thrashing for big tech.

Lots of Senators indicated they had technical concerns with the bill, and want to see changes before it hits the floor. Several Senators (Padilla, Feinstein) voted for the bill purely as a favor to Klobuchar, and are likely No’s when it comes up. Regardless, the core message here is political, an overwhelming majority of Senators in the Judiciary Committee voted to send the message that they think America has a monopoly problem with big tech.

Ayes:
Dick Durbin (D)
Patrick Leahy (D)
Dianne Feinstein (D)
Sheldon Whitehouse (D)
Amy Klobuchar (D)
Chris Coons (D)
Richard Blumenthal (D)
Mazie Hirono (D)
Cory Booker (D)
Alex Padilla (D)
Jon Ossoff (D)
Chuck Grassley (R)
Lindsey Graham (R)
Ted Cruz (R)
Josh Hawley (R)
John Kennedy (R)

Nays:
Mike Lee (R)
John Cornyn (R)
Ben Sasse (R)
Tom Cotton (R)
Thom Tillis (R)
Marsha Blackburn (R)

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Since the summer 2019, Congress has started to take the problem of big tech seriously. That was the moment Democratic Congressman David Cicilline and Republican Congressman Ken Buck decided to take a serious look into the business models of Apple, Google, Facebook, and Amazon. Taking their cue from the legendary Congressional investigator Ferdinand Pecora, staff at the Antitrust Subcommittee went through millions of documents and actually learned how the firms worked, producing a widely respected report on the relationship of tech firms to democratic systems of governance. The final report has reverberated globally, and led to multiple antitrust suits and significant legislative efforts in state legislatures.

Then, in June of last year, after a hard-fought committee battle that split both parties, the House Antitrust Subcommittee finally passed legislation that would implement some of the report’s recommendation. The bills weren’t perfectly crafted, but their passage was a political setback for big tech. This week, the fight moves to the Senate. On Thursday, the Senate Judiciary Committee will hold a hearing in which the Senators will vote on legislation - finally - about big tech. Specifically, the committee will take up the House bill that would prohibit Amazon, Google, Facebook, and Apple from preferencing their own products, like Amazon being able to place its own Basics ahead of other product lines. The committee may also take up a bill to regulate app stores.

As one would expect, the lobbying by big tech is fast and furious. Every one of their trade associations and various nonprofits will be chiming in, from Netchoice to the U.S. Chamber of Commerce to vaguely named pop-up organizations like American Edge. (Below I’ve posted a letter going around the California Congressional delegation in opposition to the legislative package.) They are also counting on their allies, such as California Senators Dianne Feinstein and Alex Padilla, and Utah Senator Mike Lee, who for different reasons oppose the bill.

Apple CEO Tim Cook and Google CEO Sundar Pichai are apparently personally calling Senators on the committee and having hour-long discussions, telling them any legislative efforts would undermine security, privacy, and would help China. Apple, and to a lesser extent Google, are still considered the good guys, at least compared to Facebook. Cook is emphasizing how Apple protects its users’ security and privacy, despite ample evidence to the contrary. (Indeed, the head of Apple’s Fraud Engineering Algorithms And Risk Team, Eric Friedman, once said that Apple’s app review team was like “bringing a plastic butter knife to a gun fight.” And Apple didn’t even have someone in charge of rooting out fraud in the app store until 2018. Moreover, Apple is still actively and aggressively moving key technology to China. But I digress)

In addition to CEO calls, Amazon and Google are also encouraging their customers to contact the committee in opposition to the legislation. Amazon third party sellers are doing so, though if you look into the seller forums, there’s a lot more skepticism about Amazon than one might assume. There’s also an attempt to gin up controversy over whether the bill would cover firms like Walmart.

So why all the hubbub? Normally, CEOs who control trillions do not have to get personally involved with legislative wrangling, but in this case, the groundwork laid by the investigations and the political organizing has created a difficult political environment for these firms. The nondiscrimination bill, written by Amy Klobuchar and Chuck Grassley, is supported by members of both parties. It has nine cosponsors on the committee itself, out of a total of 22. That’s a lot of support built-in already, though not, importantly, a majority. (I put a whip list at the bottom of the post if you’re interested in the specific Senators on the committee.) If this bill moves, it shows that there’s support for other pieces of legislation.

My guess is that the main strategy will be to try to attach a ‘poison pill’ amendment to the bill that would destroy it. We saw that in the House mark-up of the same bill, when allies of Silicon Valley proposed an innocuous-sounding amendment. They sought to codify the same legal approach that led to our current mess - the consumer welfare standard - into law. Consumer welfare sounds nice. Who doesn’t like consumers? And isn’t welfare for consumers good?

But in fact, consumer welfare has nothing to do with consumers or welfare, it just means using price theory as calculated by economists as the lodestar for antitrust, rather than market power. Economists at the FTC’s Bureau of Economics dropped the antitrust case against Google in 2012 because they were using the consumer welfare standard, and it’s incredibly difficult to bring a case today because of the consumer welfare standard. In fact, the reason we even need new legislation is because of the consumer welfare standard. So codifying the consumer welfare standard is a way of destroying the legislation, while sounding like you are just standing up for consumers. I imagine that lobbyists are telling Senators and staffer, ‘Well if you can’t be with us on the bill overall, at least support us on the consumer welfare standard amendment.’ It’s a poison pill, and it may or may not work.

Cook and Pichai are certainly working the phones to makes sure it does.

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*The cosponsors on the committee are: Dick Durbin, Amy Klobuchar, Richard Blumenthal, Mazie Hirono, Cory Booker, Chuck Grassley, Lindsey Graham, Josh Hawley, John Kennedy.

The rest of the committee is: Patrick Leahy, Dianne Feinstein, Sheldon Whitehouse, Chris Coons, Alex Padilla, Jon Ossoff, John Cornyn, Mike Lee, Ted Cruz, Ben Sasse, Tom Cotton, Thom Tillis, Marsha Blackburn

Below is the letter going around the California House delegation.

Dear Representative [Name],

The undersigned organizations urge you to oppose the State Antitrust Enforcement Venue Act , the American Choice and Innovation Online Act , the Ending Platform Monopolies Act , the Platform Competition and Opportunity Act and the ACCESS Act .

California’s tech industry supports over 1.8 million jobs, and accounts for more than a quarter of America’s nearly $2 trillion Innovation Economy. Our innovation ecosystem, which includes technology companies large and small, higher education, and our venture capital community, have delivered for our state and the rest of the nation.

We understand the need to ensure a competitive playing field within our markets, but these antitrust bills will have wide-reaching consequences for our innovation ecosystem in the Golden State and across the country, potentially handicapping our economic recovery efforts, harming consumers, and undermining our competitiveness in global markets. We join other business organizations in rejecting these harmful bills that would strip U.S. companies of their ability to deliver integrated consumer tools, ban mutually-beneficial startup acquisitions, and take steps toward breaking up our leading innovators.

As we emerge from the pandemic, our country needs a swift and equitable economic recovery. The proposed bills would hamper this effort. Antitrust law has legally and historically been appropriately-focused on consumer protection. However, this bill package intends to shift that focus to business competition. Consumer protection, including access to and costs for services, should remain the goal of antitrust law.

Additionally, the proposed bills improperly suggest that large companies inherently harm competition. In actuality, small startups often rely on larger companies for the platforms and services that allow entrepreneurs to build products and markets. Moreover, many small companies look to mergers with large companies as a viable, often only, exit strategy path. These relationships are critical to the future success and dynamism of our innovation ecosystem, and its continued global leadership.

We ask that you oppose these antitrust bills.

Please consider us a resource as you continue to think through the legislation, and its negative impacts to California’s consumers, businesses and innovation.
 
Respectfully,

American Edge Project
Asian Industry Business to Business
Bay Area Council
California Business Properties Association
California Hispanic Chambers of Commerce
Cupertino Chamber of Commerce
Chamber San Mateo County
Greater Coachella Valley Chamber of Commerce
Hollywood Chamber of Commerce
Latino Consumer Federation
Los Angeles Area Chamber of Commerce
Los Angeles County Business Federation
San Mateo County Economic Development Association
Santa Clarita Valley Chamber of Commerce
Silicon Valley Leadership Group
Small Business California
Sunnyvale Chamber of Commerce
Torrance Area Chamber of Commerce
Valley Industry Commerce Association