United States: Big Tech Facing State Attorneys General Antitrust Freight Train

Last Updated: September 26 2019
Article by Douglas Gansler, Joel Mitnick and Monica Martin

State attorneys general are banding together and gathering steam to take on Big Tech antitrust issues. Cadwalader attorneys say it remains to be seen whether the investigations will ripen into complaints and, if so, whether they will be rooted in antitrust or involve consumer protections with respect to data privacy.

A law enforcement freight train is barreling headlong into Big Tech, which has become shorthand in antitrust circles for Facebook, Google, Apple, and Amazon. This is hardly unprecedented: in the 1990s, the Justice Department's sights were set on dismantling Microsoft, its tech boogeyman of the day. In a sign of how "last century" that case was, Microsoft is not even part of the current Big Tech conversation.

This time, on Sept. 10, Texas Attorney General Ken Paxton (R) announced the formation of a bipartisan coalition of 50 attorneys general investigating Google's alleged market power in search and digital advertising as well as potential abuses of consumer privacy. On Sept. 6, New York Attorney General Letitia James (D) announced a somewhat smaller but also bipartisan coalition that would be investigating whether Facebook "may have endangered consumer data, reduced the quality of consumers' choices or increased the price of advertising."

The investigations follow a trend of increased state activity into what the states may perceive as a void of antitrust enforcement at the federal level.

Historically, state attorneys general have followed the lead of the federal antitrust enforcement agencies, the DOJ and the Federal Trade Commission. But past state antitrust investigations were sometimes criticized for focusing on voter-sensitive issues, such as the effect of a merger on local employment, rather than on consumer welfare economics. Not so anymore. State antitrust enforcement today is generally focused on core antitrust violations even if pushing the boundaries of conventional theory.

No where is the new activism more evident than in the complaint by 10 Democratic state attorneys general (now expanded to a more bipartisan group) to block the merger of Sprint and T-Mobile, a deal that later won the support of the DOJ and the Federal Communications Commission.

Even prior to this month's blockbuster investigation announcements, the states have been inching toward greater engagement with Big Tech. For example, in June a coalition of 43 state attorneys general advised the FTC on consumer protection and digital platforms and proposed ideas for increased merger enforcement for companies in the technology sector.

History Repeats Itself

The establishment of a bipartisan coalition of states attorneys is likely to add pressure on the DOJ and FTC to take a deeper dive into antitrust violations in Big Tech. Enforcement actions of state attorneys general arguably helped spur past federal action. For example, in the 1990s, 20 state attorneys general helped build a case against Microsoft. The states joined the DOJ in suing the software company after rivals complained that Microsoft leveraged its monopoly to erect barriers to competitors. While the DOJ assumed the lead against Microsoft, the states were lurking in the shadows.

More recently, pressure from state focus on Big Tech may have contributed to the FTC's recent eye popping $5 billion settlement with Facebook, its recent $175 million settlement with Google's YouTube, and the DOJ's recent announcement that it was investigating the platforms of all four of the Big Tech firms.

Building the Antitrust Case

While the states undoubtedly have the authority to investigate Big Tech, it is far from certain that they will be able to build a record that will warrant relief under the antitrust laws. The states face several hurdles in their antitrust investigations. First, with respect to seeking possible divestitures of prior Facebook acquisitions, the states will have to develop evidence that Facebook has a significant share of a market in which competition was lessened by reason of an acquisition.

That may be a daunting task with respect to Facebook's acquisition of WhatsApp given that Facebook itself is not an international calling/texting site. Similarly, Facebook's Instagram likely competes most closely with Snapchat and other photo sharing sites but probably less so with Facebook's social media platform. Indeed, proving an overall social media market in which Facebook arguably possesses market power would appear to be a big lift.

Second, possible claims that Facebook and/or Google possess market power in a market for digital advertising face their own challenges, among them serious market definition issues and the question of which one of Facebook or Google can be characterized as a monopolist. (Could there be two monopolists?)

Third, inquiries into Facebook and Google raise thorny questions about consumer harm. Both companies' signature services—Facebook's social media platform and Google's search engine—are free and readily available for anyone to use. We expect the investigations will most likely focus on the cost of digital advertising to advertisers rather than direct consumer harm and both companies will face inquiry into practices that may have foreclosed rivals from entering or remaining in their respective markets.

Privacy Is Not Antitrust

While both Texas' and New York's press releases speak in terms of antitrust, it is clear that the investigations will embrace theories of both antitrust and privacy. The distinction is important because while there is a long history of U.S. legal precedent about antitrust theories of, for example, monopolization (Sherman Act Section 2) and mergers leading to a loss of competition (Clayton Act Section 7), the United States lacks an overriding federal policy statute similar to the General Data Protection Regulation enacted in Europe in 2018.

For the moment, the default U.S. privacy statute may be the far-reaching California Consumer Privacy Act signed into law last year. That groundbreaking law mandates certain disclosure obligations, opt-out rights for California residents, statutory damages for victims of data theft and data security breaches.

Neither the Texas nor New York press releases identify any specific misuse of consumer data or data breach by either Facebook or Google. Moreover, in the absence of a national privacy standard, it would appear that the states may be left to develop a standard of privacy by consent decree.

However, the FTC's recent settlement with Facebook has come under widespread criticism because the conduct portion of its consent decree leaves the content of Facebook's remedial actions largely up to Facebook to determine at some future time by some future board-level privacy committee that currently does not exist. Indeed both the FTC's Facebook and YouTube settlements were the product of 3-2 votes with the two Democratic appointees dissenting in protest of what they believed were insufficient remedies.

Conclusion

It remains to be seen whether the state attorneys general investigations into Big Tech will ripen into complaints and, if so, whether the complaints will be rooted in antitrust or whether the states will try to implement consumer protections with respect to data privacy.

It remains unclear what markets and what market problems the attorneys general would be investigating under an antitrust theory. The issues of damages and what consumer harms have taken place will also be major hurdles in any forthcoming enforcement actions taken by the states.

In the absence of statutory guidance from Congress with respect to consumer data privacy, attempts by state actors to address privacy practices in Big Tech on a case-by-case basis may become more common. So while it may be unclear where the states are headed, it is clear that the train has left the station.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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