Tech Regulatory Overhaul Series: The Glass-Steagall Act for the Internet
Following our introductory blog post on the bills introduced in the House to target the most successful tech companies in the U.S., this next blog post in this series will offer an analysis of the bill introduced by Representative Jayapal with the aim to engage in industrial organization and mandate the structural separation of these designated companies.
Representative Jayapal introduced the ‘Ending Platform Monopolies Act’ with the aim of eliminating what some policy makers have classified as ‘conflicts of interest’ in the digital space. In reality, this bill is inspired by the Glass-Steagall Act and represents an attack on multi-sided business models that have succeeded by providing consumers a variety of integrated services. In other words, this bill wants to break up the most successful digital service providers in the U.S., and harm consumers. This is the main reason why some commentators have referred to it as the Glass-Steagall Act for the Internet.
Back in 1933, Congress passed the Glass-Steagall legislation, which consisted of a series of laws imposing a separation of banks’ business lines, specifically commercial and investment banking services. Inspired by this legislation, Representative Jayapal’s bill considers that online platforms may have ‘conflicts of interest’ among the services they provide to consumers, and has crafted an approach that will impose a structural separation on a selected group of tech companies to eliminate such conflicts.
What is the problem with this bill? The main problem is that policy makers have not really analyzed how this legislation would impact consumers in the real world, in addition to being discriminatory and contrary to market economy principles.
It is well known that digital service providers often operate under business models that, by design, offer multiple and diverse services to consumers. For example, MacBook users typically take advantage of the Apple App Store services, or Amazon Prime subscribers enjoy Prime delivery for both products acquired from Amazon directly as well as from third party sellers that operate in their marketplace. LinkedIn users can link their accounts to Skype services, and consumers enjoy seeing a map of the locations they searched for as part of their queries’ results. The user centric business models that have improved users’ experience are what the bill considers to be a ‘conflict of interest’ worth tackling.
Ironically, this bill only considers that these so-called ‘conflicts of interest’ are only worrisome in the digital space, but not in the offline world. So whereas a brick and mortar supermarket that sells third party products and private label products in its store does not raise any concerns, it would in the online space according to this bill. But the cynicism goes even further, because the reality is that this bill won’t be applicable to all online services, and thus, online supermarkets that sell private labels and third party products online won’t be considered troublesome. The reality is that this bill doesn’t tackle what has been considered as ‘conflicts of interest’ but actually would break up a selected group of companies, irrespective of whether this designation is discriminatory, or whether it makes sense or not from a market economy and consumer perspective.
In short, the ‘conflict of interest’ dilemma expressed in the bill is nothing but a shield to justify the imposition of structural remedies to a handful of companies without having to prove harm to consumers that typically characterizes antitrust enforcement.
The legislative classification of the violations included in this bill is no less controversial. The bill establishes that a violation of the act will constitute an unfair method of competition under section 5 of the Federal Trade Commission Act (FTC Act). Section 5 of the FTC Act has been a longstanding unclear provision that has not been exempt from controversy.
Back in 2015, the FTC issued a statement in an effort to clarify what constitutes an ‘unfair method of competition’. In such a statement, the FTC recognized that Congress “[…] left the development of Section 5 to the Federal Trade Commission as an expert administrative body, which would apply the statute on a flexible case-by-case basis, subject to judicial review […].”
The statement also clarified that “the Commission is less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice.” So this bill introduces an exemption to the current way of enforcing section 5 of the FTC Act, and it remains to be seen whether, if approved, it will have a further negative impact on the agency’s ability to litigate section 5 cases. It is foreseeable that the explicit definition of an ‘unfair method of competition’ as determined in Rep. Jayapal’s bill will weaken the agency’s ability to obtain deference from courts when litigating other section 5 cases that have not been explicitly defined. Not to mention, it renders the FTC’s statement outdated, since Congress is now defining what section 5 of the FTC Act means.
In conclusion, this bill is a discriminatory effort to avoid competition enforcement and break up designated companies regardless of whether as a result consumers and the economy would be better off or not. As a spillover effect, this bill is likely to weaken the FTC’s authority to identify and pursue section 5 cases beyond what is defined by Rep. Jayapal’s bill, decreasing the agency’s competence to win cases against businesses’ conduct that may have a real negative impact on consumers. In essence, this bill will punish consumers and antitrust institutional design, which are the opposite effects of what members of the House are seeking to achieve by introducing the legislation being analyzed in this series of blog posts.