While the House Judiciary report is chock-full of impressive “gotcha” moments concerning anticompetitive conduct by tech platforms, the real bombshell is the 30-page long section that recommends strengthening antitrust laws, tightening enforcement, and legislating break-ups. Upon careful reading, it becomes abundantly clear just how much this strong, unapologetic call for Congressional action owes to the sagacious intellectual fingerprints of Lina Khan, who served as staff counsel during the investigation.
Congress has a strong tradition of performing vigorous oversight of the enforcement and adequacy of the antitrust laws. Yet there is no question that this week’s Big Tech report by the House Antitrust Subcommittee is a historical milestone in the annals of American antitrust.
And like previous blockbuster Congressional investigations, the report’s 449 pages are chock-full of damning revelations and incriminating evidence regarding the conduct of the entities scrutinized—in this case, Amazon, Apple, Facebook, and Google.
For example, among the report’s “best hits” is an internal email correspondence between Amazon executives plotting to tweak the buy-box algorithm in favor of Prime fulfilled orders and notes from a presentation given by Facebook COO Sheryl Sandberg in which she admits that Facebook faces no meaningful competition and that “the industry consolidates as it matures.”
But the report’s extensive collection of “gotcha” moments, while impressive in its own right, might distract from the real bombshell: the report’s 30-page long recommendations section. Upon careful reading, it becomes abundantly clear that the sagacious intellectual fingerprints of Lina Khan, who served as staff counsel during the investigation, can be traced throughout this pathbreaking portion of the report.
Prior to joining the team that conducted this year-long investigation, Khan has published three landmark articles concerning antitrust reform. The first, written with Supreme Court advocate Deepak Gupta, concerned the effects of forced arbitration and limiting class-action lawsuits involving private antitrust enforcement. The second, and most famous work, Amazon’s Antitrust Paradox, criticized the project led by Robert Bork and the Chicago School to limit the analysis of what constitutes competitive harm and refocus it almost exclusively on price and output rather than the competitive process, which she correctly viewed as “contravening the legislative history and legislative intent of antitrust laws.” The final paper, which garnered less attention but should be considered Khan’s most important contribution to the contemporary antitrust debate, focused on structural separations and other preemptive legal remedies that mainstream legal thinkers consider to be beyond the scope of antitrust laws.
Remarkably, Khan’s observations, made in an academic setting, have percolated into the halls of power in Washington, adopted and endorsed by the House Judiciary Committee, and translated into a strong, unapologetic call for Congressional action.
The Committee’s staff made sure that there was a direct and unmistakable link between the factual findings of their investigative efforts and the remedies the report offered to Congress. The recommendations section of the report can be seen as an extensive and comprehensive list of suggestions concerning concrete steps that Congress could take in order to remedy and prevent Big Tech platforms from exercising their respective monopoly powers in a myriad of anticompetitive ways that harm our economy and democracy.
The report’s recommendations are divided into three major subsections: restoring competition in the digital economy, strengthening the antitrust laws, and strengthening antitrust enforcement. These three subsections are designed to complement each other and must be considered as parts of a unified plan of action. They constitute an all-embracing and carefully crafted roadmap, not a patchwork of stopgap measures to be thrown at a pressing problem.
In order to appreciate the comprehensive solution offered to Congress in the report, it is essential to understand the isolated goal of each individual subsection.
“The report condemns our federal courts for engaging in a decades-long project to significantly weaken the antitrust laws.”
Strengthening the Antitrust Laws
Following in the footsteps of Khan’s 2017 Amazon’s Antitrust Paradox, the report condemns our federal courts for engaging in a decades-long project to significantly weaken the antitrust laws. The report points out that courts have effectively made it increasingly difficult for federal antitrust enforcers and private plaintiffs to successfully challenge anticompetitive conduct and mergers by adopting a narrow interpretation of what constitutes anticompetitive harm.
With respect to tying, the investigation identified several instances in which a dominant platform conditioned access to a good or service that the dominant platform controlled on the purchase or use of a separate product or service. This is a type of harm that, at least theoretically, is still considered legally actionable despite the current general hostility of the courts towards antitrust plaintiffs. The report similarly pointed out that this business practice undermines competition on the merits by enabling a firm with market power in one market to privilege products or services in another market.
In the case of Amazon, the report found a strong link between Amazon Marketplace and Fulfillment by Amazon (FBA), Amazon’s paid logistics service. During the investigation, it became evident that Amazon uses its dominance in the e-commerce Marketplace to strengthen and reinforce its position in fulfillment. The report pointed out that Amazon CEO Jeff Bezos all but admitted that the “the Buy Box does favor products that can be shipped with Prime,” and concluded that Amazon does favor sellers who use FBA over those who do not for both its search rankings and the Buy Box.
But the report concluded that despite the theoretical variability of prosecuting such conduct by bringing a tying claim, in recent decades, courts have failed to forcefully condemn this type of conduct. A recent example of this hostility towards tying claims was on full display in the preliminary injunction hearing in the Epic. v Apple case, where the district court judge expressed her skepticism with respect to a tying claim made by Epic. This laxity has seemingly emboldened Amazon to act in this anticompetitive manner.
This particular example also vindicates Khan’s argument in Amazon’s Antitrust Paradox that the shift in judicial attitude towards antitrust plaintiffs was ideological, motivated by hostility to strong antitrust enforcement, and not “substantive” as some argue.
In light of this example, and many others involving different types of anticompetitive conduct such as predatory pricing, the report concludes that Congress must step in and overturn via legislation decades of bad judicial precedent crafted by ideology and in defiance of commercial realities.
Strengthening Antitrust Enforcement
A significant portion of the report focused on government enforcement—specifically, on the FTC’s and DOJ’s general deference and inaction in the face of the wave of consolidation in the tech sector in the past two decades. It urged for increased funding to those agencies to pursue and prosecute more cases and urged their respective leadership to become more assertive. But the report also focused on the way in which judicial precedent has made it much harder for any plaintiff, whether it be a government agency or a private actor, to bring forth antitrust cases. In fact, the report observes that the inability of private actors to bring such cases forward has only exacerbated the crisis generated by government inaction.
The report echoed Khan’s arbitration article, asserting that one major obstacle for meaningful redress for the victims of anticompetitive conduct is the rise of forced arbitration clauses, which undermine private enforcement of antitrust laws by allowing companies to avoid legal accountability for their actions.
These clauses, the report indicated, allow firms to “evade the public justice system—where plaintiffs have far greater legal protections—and hide behind a one-sided process that is tilted in their favor.”
As an example, the report once again pointed to Amazon. It showed that although the e-commerce goliath has over two million sellers in the United States, internal records indicate that only 163 sellers initiated arbitration proceedings between 2014 and 2019.
This data corroborated Khan’s earlier hypothesis that forced arbitration clauses fail to provide a meaningful forum for redress and instead serve as a vehicle to suppress valid claims and shield Amazon’s wrongdoing.
The investigation revealed many instances in which Amazon abused its monopoly power to withhold payments from sellers, suspended their accounts without cause, and engaged in other abusive behavior without facing any legal consequences for its actions.
For example, the founder of an infant product company sold on Amazon told the investigators that after her products were mistakenly delisted, “[i]t would take weeks of repeated calls—at least 10 or 15 contacts with Seller Support—before somebody inside would determine that it was a mistake and error,” and take action to fix the problem. She stated that this happened at least six times, and that in each instance her listings would be down for two to three weeks at a time. Describing how Amazon’s mistakes can threaten a new business’s survival, this small-business owner said:
“When you’re a new company and Amazon suddenly delists you, it creates fear in the customer. ‘Where did it go? Is there something wrong with the product? What happened?’ If a customer searched and it’s no longer there, they’re unlikely to ever come back and buy it . . . You’ve probably lost that customer for good.”
The report demonstrated that in reality, arbitration functions “as a way for Amazon to keep disputes within its control, with the scales tipped heavily in its favor.”
The report adopted Khan’s recommendations by asking for the elimination of court-created standards for “antitrust injury” and “antitrust standing,” which undermine Congress’ granting of enforcement authority to “any person . . . injured . . . by reason of anything forbidden in the antitrust laws.” In addition, the report recommended that Congress reduce the procedural obstacles to litigation, including eliminating forced arbitration clauses, undue limits on class action formation, and lowering the heightened pleading requirement introduced in Bell Atlantic Corp. v. Twombly.
Restoring Competition in the Digital Economy
Most notably, the report endorsed Khan’s 2019 recommendations with respect to structural separations. The report highlighted the benefit of these proposals and the ease in which they can be administered.
The report concluded that tech giants can exploit their integration by using their dominance in one market as leverage in negotiations in an unrelated line of business. In the case of Amazon, the investigation has uncovered that the firm used supra-competitive profits generated in the cloud market to subsidize their activity in the logistics and fulfillment market. The report pointed out that Amazon and the other three major tech platforms used and continue to use this strategy to capture ecosystems and control interlocking products that funnel data back to the platforms, further reinforcing their dominance.
In line with Khan’s views, the report recommended both ownership separations, which require divestiture and separate ownership of each business, and functional separations, which permit a single corporate entity to engage in multiple lines of business but prescribe the particular organizational form it must take.
Historically, structural limitations and line of business restrictions predate the Sherman Act. Traditionally, laws imposing restrictions on the size, scope of operation, and ownership of corporations were regarded as a form of proactive antimonopoly regulation designed to prevent the undue accumulation of corporate power and hold the ever-present threat of corporate monopoly at bay.
This line of thinking was articulated explicitly in the wildly-celebrated Treatise on the Law of Private Corporations Aggregate of Joseph K. Angell and Samuel Ames, which was published in 1837 and cited by the Supreme Court numerous times during the 1800s:
“To prevent monopolies, and to confine the action of these powerful bodies [private corporations] strictly within their proper sphere, the acts incorporating companies passed in this country, almost invariably limit the amount of property they shall hold—or their capital stock—and frequently prescribe in what it shall consist, the purposes for which its shall alone be purchased and held, and the mode in which it shall be applied to effect those purposes.”
As the many instances of monopoly abuse documented by the House Judiciary report demonstrate, the Sherman Act and other reactive antitrust laws need to be revised. Congress should also establish nondiscrimination rules to ensure fair competition and to promote innovation online. But those measures should complement and supplement the line of business restriction and Congress shod focus first on creating new structural laws for the digital market, a proposition that was dubbed Glass-Steagall for the digital age.
Both structural separations and line of business restrictions will eliminate the conflict of interest that currently plague the tech platforms who operate in markets in which they compete with businesses that depend on them. They will also prevent the tech giants from acting in a predatory fashion by cross-subsidizing their activities in competitive markets.
In the e-commerce market, Amazon is an amalgamation of eBay, Walmart, and UPS. Structural separation will force it to choose one line of business and stick to it. This separation will solve the issue of promoting its own fulfillment service or branded products. It will also prevent Amazon from engaging in cross-subsidization activities such as funding its retailing operation with profits derived from fulfillment.
As the report noted, the primary benefit of these structural proposals is their administrability:
“By setting rules for the underlying structure of the market—rather than policing anticompetitive conduct on an ad hoc basis—structural rules are easier to administer than conduct remedies, which can require close and continuous monitoring.”
Khan initially gained notoriety by criticizing the antitrust status quo, and in particular the way in which Bork and the Chicago School captured the judiciary and effectively rendered our antitrust laws a dead letter. But her more meaningful contribution has been re-expanding the scope of the antitrust toolkit beyond the Sherman and Clayton Acts to once again include measures such as structural separation via legislation or regulation.
Her proposals might seem radical to those who have grown accustomed to considering our antitrust laws as strictly reactive and focused on remedying past anticompetitive conduct. But in fact, they are now becoming, once again, a natural and essential part of the anti-monopoly arsenal.
