How Big Tech wriggled its way out of a jam

At the half-way point of Biden’s four-year term, it looks like Big Tech might just be able to pull off a Houdini-like escape and be spared of meaningful reforms, at least in the foreseeable future. Though privacy, data protection and anti-trust are often regarded as bipartisan issues, the two major anti-trust bills remain stalled in the final weeks of the lame-duck Congress despite a last-minute push from the White House. Reining in Big Tech is lower down on the list of priorities for Republicans in Congress.

Blame the shifting sands in Washington DC for Big Tech’s reprieve. On Dec 6, Democratic Senator Raphael Warnock won a full term as a senator from Georgia in a run-off election. His victory gives Democrats, who control the White House, 51-49 majority in the Senate. That’s a big plus from 50-50 division that until recently could only be broken by a vote from Vice President Kamala Harris. Control of the Senate means Democrats for the first time in years would have a majority in every committee in the chamber and appoint chairmen. However, Democrats who had a slim majority in the House of Representatives, lost control to Republicans who now have 222-213 majority, precisely the majority that the Democrats had when they controlled the House before the November elections.

Divided government

With a divided government — Republicans controlling the House and Democrats barely controlling Senate — any bipartisan agreement on new tech legislation has clearly been kicked down the road. The bills — American Innovation and Choice Online Act, or AICOA, which would prohibit large tech companies like Amazon.com from giving preferential treatment to their own products and offerings over third-party competitors; and the Open App Markets Act or OAMA, which would prevent app stores run by Google and Apple from requiring developers to directly use their in-app payment systems as well as creating rules regarding in-app pricing and fees for developers — now have just days before they can be brought to the floor. Apple and Google app stores last year generated US$133 billion ($180.5 billion) in revenues between them and the global app market is still growing around 10% annually.

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AICOA is sponsored by Minnesota’s Democratic Senator Amy Klobuchar and Iowa’s Republican Senator Chuck Grassley, a ranking member on the Senate Judiciary Committee. OAMA is being shepherded through the Senate’s floor by Democratic Senator Richard Blumenthal from Connecticut. Though several other bills trying to rein in Big Tech are also being marshalled through the floors of the House and Senate, AICOA and OAMA bills in the Senate had been deemed most likely to get any traction.

While Democrats can still use their new Senate majority to move the two bills next year, they are unlikely to become law anytime soon. Here’s how the process of law-making works in America. In Congress, separate bills that appear similar move through the House and Senate. After both have passed, a reconciliation committee made up of members of both legislatures then tries to reconcile the two bills to make their wordings similar. The “reconciled” bills then go back to the two houses and if they are passed by both houses, they are sent to the White House for the President’s signature.

The trouble with the two Senate Big Tech bills is that they are unlikely to be reconciled with anything the new Republican-led House might be willing to pass. Jim Jordan, a key Republican House member and the co-founder of the rightwing Freedom Caucus, is vehemently pro-free market and against reining in Big Tech firms like Apple, Google or Amazon. He has vowed to stop bills against Big Tech from passing in the House. If Jordan’s influential Freedom Caucus does not back the bills against Big Tech, they will fail on the floor of the House.

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The five Big Tech firms make up half of the top 10 most valuable companies on global exchanges and collectively have influence on just about everything else that happens in the tech world as well as the rest of the global economy. From hardware to software to internet services to payments, cloud services and e-commerce, the Big Tech companies have a hammerlock on the global tech ecosystem. Over the past three decades, the tech sector developed free from any significant regulation in the US or elsewhere around the globe.

There are no omnibus US federal laws governing Big Tech. Instead, the internet has largely operated under a system of self-governance. Section 230 of the Communications Decency Act of 1996, or the CDA, shielded online service providers like Google, Facebook and others from lawsuits that might otherwise limit their conduct. CDA immunises online platforms that serve as hosts for user-generated content from some lawsuits that could impose liability on platforms for publishing content. Section 230, however, does not shield platforms from the liability for their own content.

With the divided Congress unlikely to move, the baton of regulating Big Tech now passes from Congress to state governments, courts, enforcement agencies like FTC and DoJ and regulators in Europe who have been more aggressive in reining in global tech giants than those in Washington DC.

State governments’ suits

Texas state is leading a case against Google’s monopoly power over search engines and search advertising markets through anticompetitive contracts. Attorney-Generals of 49 other US states have joined the bipartisan suit. Fifty states are also suing Google over its advertising and adtech monopoly. Forty-eight states are suing Facebook to force the unwinding of its acquisitions of messaging app WhatsApp and social media platform Instagram that they allege were an attempt to squash emerging rival apps. And California is leading the fight against Amazon for stifling competition which has resulted in higher prices for consumers because of its anti-competitive contracts with third-party sellers.

While the divided US Congress is busy tackling other issues over the next two years, US Federal courts are likely to play a role in the tech-related antitrust cases. Two FTC cases against Meta, including the Meta-Within case, as well as several ongoing cases against Google, are currently pending in federal courts. On Dec 7, a judge in the Northern District of California began hearing FTC’s case against Meta’s US$400 million acquisition of Within, a small virtual reality industry player. The California court is expected to rule on FTC’s anti-trust case against Meta before Christmas.

If Meta wins, FTC is likely to abandon its anti-trust challenge. But if FTC prevails, Meta will be forced to walk away from the merger. Indeed, tech firms will think harder about whether to proceed with other similar deals. Moreover, FTC’s win is likely to impact several other pending deals, including the Microsoft’s pending deal to acquire video gaming software firm Activision Blizzard, the maker of the hit games Call of Duty and Candy Crush, for US$68.7 billion in cash and Amazon’s deal to acquire One Medical for US$3.9 billion. The US Supreme Court is scheduled to hear cases on content moderation and platform liability early next year.

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Courts apart, enforcement agencies like FTC and DoJ are likely to play an important role to rein in the power of the world’s largest tech companies. Microsoft’s deal to snatch Activision is by far the largest video-game acquisition in history and unites the giant console maker of XBox with a leading game developer. FTC is expected to file a lawsuit against Microsoft within days. It would also be a big black mark for the software giant, which has positioned itself as a white knight of sorts on antitrust issues in the tech sector, after going through its own gruelling regulatory antitrust battles around the world more than two decades ago.

FTC believes buying Activision would give Microsoft an unfair boost in the video-game market. XBox maker Microsoft has lagged behind leader Sony, the maker of PlayStation console. Sony has opposed the deal, arguing that if Microsoft made hit games like Call of Duty exclusive to its platforms, it would significantly disadvantage competitors like itself. The deal will not only harm its ability to compete with Microsoft, Sony argues, but will also leave consumers with less choice for gaming, and developers with less choice for where to publish games. Microsoft is a “tech titan buying up irreplaceable content at incontestable prices to tip competition to itself”, Sony has told regulators.

For its part, Microsoft has promised to keep Call of Duty available on Sony’s PlayStation. It also argues that Sony is misleading regulators by saying Activision’s games like Call of Duty are a must-have for other competitors. Microsoft has told regulators that the game is not currently available on any subscription service and its inclusion as part of Xbox service would not harm competitors. Yet, Sony is not only company crying foul over the Activision deal. Google has argued that Microsoft deliberately degraded the quality of its Game Pass subscription service when used with Google’s Chrome operating system. Owning Activision would give Microsoft further incentive to steer hardware sales towards itself and away from Google. Microsoft has cited Fortnite maker Epic Games’ suit against Google, which alleges that the search engine giant illegally blocks Fortnite from its mobile app store, Google Play. Epic has accused Google of paying Activision US$360 million to not offer a competing app store on Android phones. Epic is also separately suing Apple for its app-store policies.

Aside from the big five local tech giants, US regulators are also moving against Chinese social media giant Bytedance, which owns popular shortform video app, TikTok. On China and TikTok, there is rare bipartisan agreement between progressive regulators like Khan as well as Senator Klobuchar and right-wing Republican Congressmen like Jordan. An announcement on TikTok had been expected before year-end; but last week, regulators revealed that the final word on TikTok would have to wait until next year. For months now, the Committee on Foreign Investment in the US, or CFIUS, a government panel that reviews business deals for security concerns, has been talking to Bytedance officials about its concerns around TikTok. US regulators want to reduce Beijing’s influence on TikTok’s US operation. It is unlikely that TikTok will be barred from operating in the US or Bytedance forced to divest its entire stake in TikTok; but CFIUS is likely to impose mitigation measures, such as requiring TikTok to use a US-based cloud services firm like Oracle as its data management partner.

When the Biden Administration began unleashing regulators to rein in Big Tech, I wrote in this column that taming trillion-dollar giants like Apple, Microsoft and others won’t be easy. Since then, Big Tech has used its vast resources to deftly dodge the regulators and divide the politicians who had found a common ground to take them on. Over time, a new set of regulators will try and put shackles on the world’s largest companies. Don’t bet on them to succeed.

Assif Shameen is a technology and business writer based in North America