Antitrust in 2016, and looking ahead to Trump

Antitrust enforcement has been a hot topic in Washington in 2016, with much of the discussion focused on tech companies. With the new Republican administration, one might conclude a period of relaxed enforcement is on the way. But there are signs (oh, are there signs) that the new administration will defy convention. And candidate Trump has made plenty of statements foretelling aggressive antitrust enforcement - including statements directly relevant to Silicon Valley.

It is worth reviewing the sources of this new tech sector focus and considering the implications on enforcement in the coming year.

Executive Order Triggers Talk of Tech Sector Enforcement

In April 2016, President Barack Obama ordered agencies to "identify specific actions" to "address undue burdens on competition." That executive order was accompanied by a Council of Economic Advisors (CEA) study stating that "more work is needed to understand how policies that promote competition should be applied in the digital economy and other technologically dynamic sectors." All of this followed 2015 congressional testimony from FTC Chairwoman Edith Ramirez in which she stated that promoting competition in the tech sector was one of the "high priorities for the FTC."

Reactions to the order were swift. In a Loyola Antitrust Colloquium keynote, FTC Commissioner Terrell McSweeney said the order "underscores the important role that competition plays in innovation" and urged that the FTC must "continue to be aggressive." Politicians also weighed in. In widely publicized statements, Sen. Elizabeth Warren said the order was "exactly the right place to start," calling for increased antitrust enforcement of companies like Google, Apple and Amazon. Secretary Hillary Clinton praised the order on the campaign trail and vowed to "appoint strong leadership at our antitrust agencies," "crack down on big business that repeatedly exploit and stiff small businesses," and show a "new commitment to promote competition."

The media followed suit. Pointing to "suspiciously persistent" high profits and the lack of entrants, The Economist asserted that "the game may be indeed rigged" and called for a close watch over "[b]ig tech platforms such as Google and Facebook." Using Facebook as an example, the Wall Street Journal called for efforts to "rejuvenate competition" and blamed excessive concentration for impeding startups and dampening innovation. A New York Times op-ed accused antitrust enforcement of "having an outdated view of the world," which enabled internet giants to operate in an "antitrust blind spot" and preserve "the hegemony of a select few" by gobbling up start-up companies.

2016 Saw More Than Just Talk of Enforcement

Substantive developments in 2016 directed at tech will likely mean greater enforcement. On October 20, the FTC and DOJ announced that they would criminally prosecute "naked" wage-fixing and no-poaching agreements as per se illegal. The agencies pointed to tech companies to illustrate the illegality of such agreements, noting past successful civil enforcement actions against eBay, Inuit, Lucasfilm, Pixar, Adobe, Apple, Google and Intel. The new agency guidance states that naked wage-fixing and no-poaching agreements "whether entered directly or through a third-party intermediary" are per se illegal. This raises the specter of increased scrutiny of competitor collaborations, which are common in tech.

The focus on labor markets may also lead to increased merger scrutiny. On October 25, the Obama administration announced "new steps to spur competition in the labor market" that were said to complement the FTC/DOJ guidance. In an issue brief accompanying the release, the CEA wrote that the hiring of "software engineers among technology firms in Silicon Valley" provided an example of collusion among employers. The CEA suggested that a merger could be anticompetitive based solely on its effect on the labor market: "The antitrust laws apply to reductions in competition for employees as a result of mergers as readily as they do to reductions in product market competition." Labor Market Monopsony, October 2016.

Tech companies can also expect continued merger scrutiny based on alleged harms to innovation. Professors Richard Gilbert and Hillary Greene estimate that, over the last decade, potential harm to innovation has been alleged as a likely anticompetitive effect in roughly a third of merger challenges at the FTC. The DOJ has also expressed similar concerns in recent enforcement actions. In September, Chairwoman Ramirez affirmed the FTC's commitment to challenge mergers that, because of innovation considerations, may lead to anticompetitive effects - even when the market does not yet exist, or the companies are not currently competitors, or the merger seems likely to impact only future innovation.

Robust Enforcement, But with a New Focus, Under Trump?

There should be no doubt that Trump will be willing to use the antitrust laws aggressively. He promised during his campaign to block AT&T's acquisition of Time Warner and to pursue companies like Comcast/NBC Universal for alleged monopolistic practices. In the past, he has even suggested amending the antitrust laws to make it possible to prosecute OPEC. But whether Trump will be driven by traditional notions of consumer welfare is an open question, and so too is his view of competition in the tech sector - and whether animus directed at Silicon Valley could drive policy in the same way it likely will with respect to big media.

Perhaps Trump's comments on Amazon illustrate a potential change in priorities, and a means for tech companies to evaluate the risk of finding themselves in the new administration's cross-hairs. Whereas Sen. Warren's criticism of Amazon was focused on increasing competition to benefit consumers, Trump's focus was on preserving and creating jobs. When he criticized the power of Amazon's business, he asked his audience to consider "what that's doing to department store's all over the country," undoubtedly a reference to lost jobs due to tech's displacement of traditional retail establishments. In other words, Silicon Valley innovators and traditional market disrupters: beware, and be ready.