The U.S. Has Its Eye on Big Tech. Will Criminal Inquiries Result?

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With the federal government ramping up scrutiny of the power, influence and market dominance of the world’s largest technology companies, one interesting question will be whether any of the inquiries develops into a criminal investigation.

Unlike a civil inquiry, which can result in a monetary penalty, a criminal investigation would ratchet up the pressure on Google, Facebook, Amazon and Apple and could result in significant fines along with efforts to break them up.

The Justice Department and Federal Trade Commission have divvied up antitrust oversight of the Silicon Valley giants, and Congressional committees are investigating whether they have stifled competition and hurt consumers. Only the Justice Department can pursue a criminal investigation, but the F.T.C. and Congress can refer a case to prosecutors if they uncover evidence of illegal conduct.

The Justice Department’s “Antitrust Division Manual” allows a case to be developed through a grand jury if there is evidence showing anticompetitive behavior by a company. Information gathered through a civil inquiry that they sought to destroy competition to gain a monopoly could become the basis for opening a criminal investigation.

The primary law used to police monopolies is Section 1 of the Sherman Act, which prohibits “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.” The statute does not define what a monopoly is, but the F.T.C. has noted that courts view a firm with less than 50 percent of the sales of a particular product or service as one without sufficient market power to constitute a monopoly.

For Google and Apple, which are likely to be investigated by the Justice Department’s antitrust division, the key issue will be determining what market, if any, they have enough control over to be considered a monopoly. In cloud computing, for example, Google is far behind Microsoft and Amazon. But in internet searches, Google could well be considered to have something close to monopoly power, especially when its very name has become a verb for searching for information.

A second avenue the Justice Department could pursue is under Section 2 of the Sherman Act, which prohibits an “attempt to monopolize” trade or commerce. This could be a more amenable path to establishing an antitrust violation because it does not require proving that there is an actual monopoly, only that steps were taken to acquire monopoly power. A document issued by the Justice Department called “An Antitrust Primer for Federal Law Enforcement Personnel” notes that Section 2 violations “are generally not prosecuted criminally,” but if there is enough evidence to show attempted monopolization then there is nothing to prevent prosecutors from pursuing a criminal case.

But to do so, the Supreme Court explained, in the 1993 case Spectrum Sports v. McQuillan, that the government must prove three things: “(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.” The specific intent to monopolize does not mean that one seeks monopoly power by competing vigorously, but that it is an “intent to destroy competition or build monopoly.” That means a company’s efforts to drive others out of business could be proof that it has the intent to become a monopoly.

The “dangerous proximity” element of a violation requires that a court look at the relevant market and determine whether a company has acquired the ability to destroy competition. But just being a ruthless competitor does not necessarily mean the firm is violating Section 2. In a 1984 decision in Copperweld Corp. v. Independence Tube Corp., the Supreme Court pointed out that “it is not enough that a single firm appears to ‘restrain trade’ unreasonably, for even a vigorous competitor may leave that impression.”

Technology companies will argue that they are not overreaching. They are instead just the best competitors, and that is not a violation. And they will have plenty of judicial statements to support that argument. In a 1986 decision in Ball Memorial Hospital v. Mutual Hospital Insurance, for instance, the federal court of appeals in Chicago pointed out that “competition is a ruthless process. A firm that reduces cost and expands sales injures rivals — sometimes fatally. The firm that slashes costs the most captures the greatest sales and inflicts the greatest injury.”

The penalty for a criminal violation of Sections 1 or 2 of the Sherman Act is a fine of up to $100 million for a corporation; individuals involved could be sentenced to as much as 10 years in prison and fined up to $1 million.

This is not Google’s first foray in dealing with antitrust concerns. In 2011, the F.T.C. investigated whether the company’s search algorithms improperly favored its services. Google agreed to make some minor changes to its search practice at the conclusion of the inquiry in 2013, but there was no monetary penalty.

The European Union fined Google $5.1 billion in 2018 for abusing its power in the mobile phone market by favoring its own services in internet searches. But that penalty does not appear to have had any appreciable effect on Google’s business, which earned about $30 billion last year.

Still, the prospect of impending inquiries will be an unwelcome diversion for the technology companies. Antitrust investigations often take years to develop the type of evidence necessary to move forward with either a civil or criminal case, and the technology companies have amassed “an army of lobbyists” to fight claims that they wield too much economic power.

The question of whether the government has the stomach to pursue a major fight with companies that have very deep pockets remains to be seen. In the last two years, the Justice Department has obtained only about $240 million in criminal antitrust fines, down from $3.6 billion in 2015.

So it’s too early to determine whether the tech companies will ever face any consequences for wielding their market power.

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