Why Is Clarence Thomas Attacking Google?

Republicans are increasingly caught between big business and social conservatives. Supreme Court Justice Clarence Thomas in turn has started making anti-monopoly arguments.

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Last week, conservative Supreme Court Justice Clarence Thomas issued two statements attacking Google’s concentrated market power. Thomas is an unusual justice, almost never speaking during oral arguments, but also quite influential on the right. So today’s topic is how, and whether, the right’s views about big tech are evolving.

Also short pieces on:

• Why Amazon beat organized labor in Alabama

• Why Logitech just killed the universal remote control industry

• Google’s Eric Schmidt goes full Communism against telecoms

• Why the big dumb ship in the Suez was Bill Clinton’s fault

• How razor blade companies negotiate with Amazon and Walmart

• How Google's fancy lawyers screwed up and jeopardized Sheryl Sandberg, at $1500/Hour

And now…

Realignment Strain

Last month, in a little noticed House Antitrust Subcommittee hearing on big tech, conservative stalwart Congressman Jim Jordan and Republican FTC regulator Noah Phillips went back and forth over how to address the internet giants. Jordan and Phillips had, until recently, been quite aligned, as fellow Republicans.

But this time, something was different.

Jordan was disturbed about the power of big tech to remove important political voices, like Donald Trump, from the public square. He asked Phillips, as a regulator, what can you do about this? Phillips responded, "I'm afraid I don't have a good answer."

FTC Commissioner Noah Phillips took heat for hours from his own side.

It was a shocking moment. Normally, parties defend their own, but in this case, much of the hearing was Republican members of Congress training their fire on their own commissioner. Phillips had voted against bringing the Facebook antitrust suit, and was the only witness who didn’t want to do anything about big tech. His own side wasn’t having it.

There’s an argument on the right, known as “the realignment,” which is that the GOP will break with big business and become a party of the working class. There are reasons to be quite skeptical of this possibility, because the conservative movement has been intertwined with large corporations since the 1970s. I’ve watched some Republican members shouting publicly about big tech, but when it comes to legislating, these same members will oppose any actual changes.

But being totally dismissive isn’t reasonable either. Trump, after all, did launch antitrust suits against tech giants, as did Ken Paxton, the right-wing Texas Attorney General. Wyoming, led by Republican state Senator Tara Nethercott, just strengthened its state antitrust law, and Arizona Republicans nearly pulled off an anti-monopoly coup against Apple’s app store monopoly. And Senator Josh Hawley just introduced an antitrust bill that would not only address big tech’s market power, but would block mergers for firms worth $100 billion or more.

Moreover, there’s also a push factor at work, as big businesses fight against Republican priorities, most recently an election bill in Georgia passed to restrict voting. To protest the law, Major League Baseball moved the All-Star game from Atlanta to Colorado, and Delta and Coca-Cola, among others, publicly criticized the state GOP. Senate Republican leader Mitch McConnell pushed back, warning that “corporations will invite serious consequences if they become a vehicle for far-left mobs to hijack our country from outside the constitutional order.” McConnell’s warning had little effect. On Saturday, 100 corporate leaders in media, airlines, tech, retailing, etc held a phone call to discuss how to coordinate in opposing conservative voting rights legislation.

This ferment has now reached the pinnacle of the Republican Party, the conservative legal movement, which sets the legal philosophy of the party. Clarence Thomas, who is deeply embedded in these conservative legal networks, is beginning to mark out a different path.

Thomas: Google Is a Monopoly

Last week, Thomas issued two remarkable statements criticizing the concentrated power of Google and tech platforms. In one decision, Thomas mused on a long-running battle between Oracle and Google, where Google copied certain parts of Oracle’s software under the guise of fair use. The specifics of the decision are heated and interesting in and of themselves, but what I’m interested in here is that Thomas called out Google as a monopoly.

“If the majority is worried about monopolization,” he wrote, “it ought to consider whether Google is the greater threat.”

Thomas noted that Google copied Oracle’s work without licensing it, and then develop a monopoly in mobile phone operating software. Whatever the other merits of the case, it was a stark, and accurate, observation.

In his second claim, Thomas went even further. In a case involving Trump’s right to block people on Twitter, Thomas issued a statement on the threat to free speech by dominant tech platforms. “We will soon have no choice but to address how our legal doctrines apply to highly concentrated, privately owned information infrastructure such as digital platforms,” he wrote.

Noting Google’s control over search, Amazon’s control over books, and Facebook and Twitter’s control over social media, Thomas observed these firms aren’t merely private, but are clothed with a public interest. He called for treating tech firms like public utilities, forced to serve all comers, citing precedents involving railroad, telegraph, and telephone regulation. He dismissed the idea of network effects as leading to inherently large firms, noting that network systems don’t need to be contained within the corporate form. While Facebook, Google, Amazon, and so forth are run by a few people, that’s not inherent to technology. “No small group of people,” Thomas wryly observed, “control email.”

The deeper you go into the opinion, the more extraordinary it becomes. Thomas tied big tech dominance to monopoly power, citing “astronomical profits” and a lack of new entrants as evidence of a lack of competition. These observations might seem obvious to you and me, but in the antitrust world, that’s a significant intellectual concession, because the law and economics movement has traditionally held that high profits are a sign of efficiency and not barriers to entry.

One can read these opinions as in some ways an endorsement of the 2020 Democrat-led House Antitrust Subcommittee Report, which called for treating big tech firms as common carriers, a sort of net neutrality for Google, Amazon, and Facebook. Thomas’ opinion marks a big shift for Republicans, who have generally been unfavorable to the idea of such public utility rules.

More fundamentally, Thomas’ recent work is a rebuke of the economics-heavy thinking that both conservative and liberal judges have prioritized. None other than Clarence Thomas, in fact, two years ago penned the notorious Ohio vs American Express decision, which essentially gave special antitrust immunity to big tech firms solely because economists said that network businesses are special. For Thomas, what was in 2018 network economies of scale, has now become tyranny.

Are These Shifts Mere Rhetoric?

For decades, the conservative movement has had a ‘fusion strategy,’ with white social conservatives and big business libertarians as close allies. The deal was that the social conservatives would supply the votes and the corporations would provide the money.

The question is how long this coalition remains solid. There are a lot of reasons to be skeptical of any real change. For example, while Thomas supports rules like common carriage and recommendations in last session’s House Antitrust Report, the GOP rank-and-file isn’t quite there. This week, for instance, there’s a largely symbolic vote on the report itself, and many Republican House members are likely to vote against it.

Someone called this current dynamic ‘realignment strain.’ The Republican Party is realigning, but it is still institutionally captured by big money, so there’s frustration at the status quo by its leaders but reluctance to do anything about it. The strain is evident across the GOP, which is trying to figure out how to address the problem of dominant big tech monopolies, but coming from a tradition of deep deference to their power.

At some point, however, "I'm afraid I don't have a good answer,” isn’t going to cut it.

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Why Amazon Beat Organized Labor in Alabama: Last week, Amazon beat a union drive in a Bessemer, Alabama warehouse, where workers voted against forming a union by roughly two to one. If the working conditions are so bad, then why did workers choose to trust the company? Basically, it’s very hard to organize a union in the U.S. But there were also mistakes in the organizing. Mike Elk had some of the best reporting on what happened. The workers didn’t know much about what a union would mean, and the union didn’t put enough resources into teaching them. Here’s Elk:

Organizers did what is known in union organizing as “hot shopping,” where union organizers hope to take advantage of an outburst of anger in a facility over things such as poor COVID working conditions to force and win a quick union election. However, their initial union enthusiasm support collapsed under the weight of a sophisticated anti-union campaign by Amazon that combined threats of job loss with promises of improvement if workers rejected the union.

Another good perspective is in the Nation.

Why Logitech just killed the universal remote control industry: I had always wondered why no one has been able to solve the ‘too many remote controls’ problem, a living room of remotes with no ability to figure out which one controls which device. As it turns out, the answer is… a monopoly! A few months ago, I got an email from a professional installer and BIG reader who told me about the company Logitech, a consumer electronics producer that dominated the universal remote control space. “These remotes,” he told me, “can control a massive array of A/V devices including TVs, cable boxes, disc players, streaming boxes, amplifiers, and more recently IoT devices like lights, blinds, and plugs.”

Logitech’s products are pretty, but the actual quality of the software is terrible, which is the classic sign of a marketing-driven organization run by lazy executives. Logitech is a monopolist in the universal remote control space, which it acquired in 2004 when it purchased a firm called Harmony. “Their market dominance has been ironclad because of their database: they have infrared codes for hundreds of thousands of devices, from brand-name TVs to random HDMI doodads on page fourteen of Amazon. For obvious reasons, they haven’t open-sourced this database.”

Logitech is actually killing the entire product line now. Their CEO says it is because of competition from Google, Amazon, and Apple, but they’ve wanted to get rid of the product line since 2013. And now they have.

“Essentially, Logitech was allowed to buy up a competing company, use their brand to dominate the market for over a decade, until finally they faced other monopolists (Amazon, Apple, Google) and decided to give up and shut down, leaving customers, to borrow a recently-overworked phrase, holding the bag. Pretty well every step of it has been infuriating to watch.”

Google’s Eric Schmidt goes full Communism against telecoms: Google is going to war against big telecom. The tech giant’s former CEO, Eric Schmidt, is running a campaign to lobby cities to have them own and control their own broadband system, instead of the way it works now, where they allow AT&T or a private operator to do so.

Schmidt, along with a host of philanthropists and tech money, is saying that cities should work with a ‘neutral host partner,’ aka a public utility, when rolling out 5G services, not a ‘retail provider,’ which would be your standard telecom. In other words, cities should run the infrastructure.

Schmidt wants cities to open up the wireless market for competition so big tech firms can enter the game by underpricing telecom service. In doing so, he is engaging a direct strike at the business model of retail telecom players. It’s a return shot at telecom firms, who have been going after Google for the last few years in various ways. 

Why the big dumb ship in the Suez is Bill Clinton’s fault: I’ve written a few pieces now on the stupidity of making giant ships that can’t fit into the Suez Canal. The reason we have this problem is because the industry is highly consolidated. As usual, there’s a law behind the changes, in this case it’s the Ocean Shipping Reform Act of 1998, which legalized secret rebates by shippers and spurred massive consolidation of the industry.

Before 1998, ocean carriers had to post their prices and terms publicly, so small shippers could ask for the same prices as the big guys. Once carriers and shippers could negotiate for secret prices, big shippers could demand secret rebates unavailable to their smaller counterparts. Corporate size and power, not the ability to ship effectively or reliably, became the dominant competitive advantage. Carriers merged in a wave of deals, and then further combined into three global alliances.

Razor Blade Wars Part II: Amazon and Walmart's Role in Shaving: On the BIG website, I’ve been doing a series on the wet shaving market. Last year, the FTC stopped the company that makes Schick razors from buying Harry’s, a new company in the razor blade market. The FTC merger challenge forced Harry’s to invest in its line of products and grow its business. I put up an email from a source showing the various resulting machinations in the industry, both from Walmart and P&G, as well as how Amazon effectively knocked another competitor - Dorco - out of the market.

How Google's fancy lawyers screwed up and jeopardized Sheryl Sandberg, at $1500/Hour: Confidentiality is a big deal in the Google antitrust suit, because Google likes to keep its business activities secret. But its super prestigious lawyers made a very significant mistake on this front.

In a response to the complaint of a group of state attorneys general, Google’s Paul Yetter at Yetter Coleman - filed a response, but accidentally forgot to redact critical information. So now we know a few important new details about the Texas adtech case. This case includes an allegation that Google’s large online advertising marketplace - think stock market but instead of stocks they trade ad slots - is riddled with secret rigged auctions.

The redacted details show something called “Project Bernanke,” a scheme engineered by Google in which it had one arm of its ad business front-running trades for ad inventory, awarding itself hundreds of millions of dollars a year by giving itself a better position in the auctions.

In addition, we now know more details about a deal between Google and Facebook to give Facebook some preferred position in those ad auctions, supposedly in return for Facebook not competing with Google in the online advertising auction space. As the Wall Street Journal notes, “The agreement was signed by, among other individuals, Philipp Schindler, Google’s Senior Vice President and Chief Business Officer, and Sheryl Sandberg, Facebook’s Chief Operating Officer.”

I’ve asked around, and Yetter is likely to be getting $1500/hour, or more, for his legal advice.   And one of Google’s lawyers - Eric Mahr from Freshfields - was outraged. "It's difficult for us not to believe that had plaintiffs not been for whatever reason rushing to file in December,” he said, “that additional confidentiality measures couldn't have been taken that would have avoided the leak."

Yes, don’t be too hasty, biglaw, you might reveal something truthful.

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Thanks for reading. Send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller

P.S. I’ve been posting shorter web-only pieces at the BIG home page, which I think works quite well. I also include them in these once a week emails, in case you don’t like checking the web.