(STL.News) – Good morning. Thank you, Svetlana, for that kind introduction. I want to congratulate you, your co-chair Maureen Ohlhausen, and Section Chair Brian Henry for assembling an excellent program for today’s Tech Summit. I appreciate the opportunity to be with you today, and to share how the Department of Justice is thinking about the intersection of antitrust, data, and digital markets as we conduct our ongoing review of market leading online platforms.
As someone who previously chaired another Section, and who also was a member of the Antitrust Section during my time in private practice, I appreciate the role that some bar associations can play in the professional lives of lawyers and in helping to develop the substantive law we practice.
In that spirit, I applaud the Antitrust Section for hosting today’s discussion about digital markets, machine learning, intellectual property, data, and digital platforms.
The human impact of these technologies cannot be overstated. Ordinary Americans rely on them in their day-to-day lives. They also are at the forefront of the Department of Justice’s work. The Department’s lawyers working on national security policy, criminal enforcement, consumer protection, and, of course, competition policy are daily grappling with new questions presented by these technologies.
As law enforcers, we at the Department of Justice know that our actions with respect to digital markets will have far-reaching repercussions for current generations and future ones. That is why the tough legal questions you are tackling here today are important to all of us who are charged with upholding the law, including Attorney General Barr, me, and Assistant Attorney General Delrahim.
Antitrust is often a forward-looking exercise. That proposition is best-illustrated in our merger law and Section 7’s incipiency standard. But antitrust can also be a retrospective exercise. So we should try to be students of history. I often find intriguing, and sometimes instructive, how markets have behaved over time – and how competition and antitrust enforcement have affected them.
Looking back, it has been suggested that industries involving technology and information exchange have displayed a common pattern: they often start out as open and fragmented, with a wide range of participants, but over time they become dominated by just a few.
Radio broadcasting in the early 20th Century is one example. When radio was a nascent medium at the start of the 20th Century, amateur radio stations popped up all over the country. None were aimed at meaningful mass communication.
Starting in the 1920s, however, the transformative potential of mass communication became clearer, leading a handful of businesses to acquire and expand radio networks by the end of that decade. The most famous of these are still familiar today: the National Broadcasting Company, or NBC, the Columbia Broadcasting System, or CBS, and the American Broadcasting Corporation, or ABC. Throughout the 1930s and 40s, these major broadcast radio networks expanded their programming and commanded steadily greater audiences.
Also in the early and middle 20th Century, economic power similarly consolidated in the film industry. This was at the expense of many smaller production companies that had, in earlier years, produced a diverse array of films. This consolidation had some rational business explanations. Larger film companies were able to produce increasingly expensive movies more efficiently, to survive flops, and to distribute hits to a broader audience.
But some suggested more problematic explanations for this consolidation. These were the subject of several antitrust actions. In those cases, the Department and private plaintiffs alleged, and the courts often agreed, that major film production and distribution companies engaged in a pattern of anticompetitive acts aimed at excluding competition and expanding their market power, including in adjacent markets.
Today, in the 21st Century, we marvel at the World Wide Web and mobile technology, but we once again face questions about the consolidation of power by some companies that provide platforms for information exchange and related technologies. Some of today’s leading online platforms were in their infancy, or did not even exist, just two decades ago. In a relatively short amount of time, they have disrupted industries, amassed substantial economic power, and developed business models that monetize potentially sensitive consumer information that they control.
So, as with past technologies like radio and film, things today look quite different than they did in the early days of the internet revolution. Accordingly, in the face of those changes and the issues that have been raised, we are once again bound to ask whether any dominance is the result of competition on the merits and, if not, how antitrust law can cure any competitive deficiencies.
Some argue that the current dominance of certain platforms is transitory, and that innovation will take care of any competitive concern. It is true that innovation – and the “creative destruction” that goes with it – has a long history of displacing old ways of doing business. The economist Joseph Schumpeter, who originated the phrase “creative destruction,” put it this way in his famous book Capitalism, Socialism, and Democracy:
the same process of industrial mutation . . . incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.
Others, however, rightly observe that it is possible for dominant firms to ward off – or at least delay – industrial change through practices cementing their dominance at the expense of innovative competitors. Moreover, many see the structural features of today’s major technology industries – which are characterized by network effects and “tipping” – as facilitating perpetual dominance.
These issues are at the heart of antitrust law and our review of digital markets. There are serious and substantive issues that have been raised about some of the leading online platforms.
We have not reached any ultimate conclusions yet. I want to underscore that. We will follow the evidence and, if it is warranted, we will enforce the law and seek appropriate remedies, just as the Department’s Antitrust Division has done with respect to titans of industry during more than 120 years of Sherman Act enforcement.
With regard to technological markets in particular, we are now almost twenty years past the famous Microsoft case, where the Antitrust Division prevailed on a number of monopolization theories, and private companies pursued antitrust damages for the violations. I remember the Microsoft cases well, as I was a participant. Those cases focused on Microsoft’s integration of its web browser into the Windows operating system.
Back then, some suggested that the Government’s case was misguided or unnecessary because the forces of creative destruction would prevent Microsoft from exercising monopoly power to harm competition. Moreover, Microsoft argued that antitrust rules related to measuring monopoly power should apply differently to dynamic markets that experience near-constant innovation.
The D.C. Circuit acknowledged the broader debate over whether and how antitrust rules should apply to fast-moving technological markets. It even expressed concern that “[b]y the time a court can assess liability, firms, products, and the marketplace are likely to have changed dramatically.” Nevertheless, the D.C. Circuit determined that Microsoft’s characterization of an evolving technological marketplace did “not appreciably alter [the court’s] mission in assessing the alleged antitrust violations.” Even dynamic industries characterized by rapid technological progress can be monopolized to the detriment of consumers.
The court ultimately held that Microsoft’s operating system was a monopoly protected by indirect network effects stemming from an “applications barrier to entry.” As the court described: “most consumers prefer operating systems for which a large number of applications have already been written” and “most developers prefer to write for operating systems that already have a substantial consumer base.” This meant that more users attracted more developers, which in turn attracted more users. The cycle made consumers less willing to switch to alternatives.
In the court’s view, Microsoft had recognized that a web browser could become an alternative platform for developers, which could threaten its monopoly in operating systems. It therefore took a variety of steps to thwart that innovation, which the D.C. Circuit found to be anticompetitive.
Today, almost two decades after the D.C. Circuit’s opinion in Microsoft, another technological cycle has undoubtedly occurred. Innovations in browsers, search, social media, and mobile technology have introduced new platforms – and new allegations that the platform operators are preventing disruption and preserving dominance. It is therefore unsurprising that concerns about the leading online platforms have been widely expressed, including by industry participants who have direct insight into the competitive dynamics of technology platforms.
As the Department of Justice has said before, “the goal of the Department’s review is to assess the competitive conditions in the online marketplace in an objective and fair-minded manner and to ensure Americans have access to free markets in which companies compete on the merits to provide services that users want.”
Others, particularly in Congress, have raised concerns whether laws apart from the antitrust statutes may have produced unwanted results or otherwise need changing, and we are open to engaging on legislative proposals as well.
But, for more than a century, antitrust law has proven itself powerful and flexible enough to address this country’s most daunting monopolies, including in technological markets.
As the biographer Ron Chernow explained in his account of John D. Rockefeller, “[t]he paradoxical lesson learned” from the famous antitrust suit against Standard Oil “was that government intervention was sometimes necessary to ensure unfettered competition.” But we don’t consider that lesson “paradoxical.” Good antitrust analysis and well-grounded and appropriate enforcement can play a vital role in protecting free-market competition, including the type that results in technological innovations.
Sixty years ago, as most in this room probably know, Justice Black explained in Northern Pacific Railway v. United States that:
The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the greatest material progress, while at the same time providing an environment conductive to the preservation of our democratic political and social institutions. But even were that premise open to question, the policy unequivocally laid down by the Act is competition.
The Sherman Act remains such a charter today. But to be clear, we do not view antitrust law as a panacea for every problem in the digital world. Indeed, we will not ignore any harms caused by online platforms that partially or completely fall outside the antitrust laws. We are keeping in mind other tools in areas such as privacy, consumer protection, and public safety as part of a broader review of online platforms, to whatever extent warranted. As we announced on October 23 of this year, playing a key role in our antitrust and broader technology review is Ryan Shores, who has joined my office as Senior Advisor for Technology Industries.
So, to conclude, I have appreciated the opportunity to share some observations about competition in digital markets, and the Department’s toolbox for challenging potential unlawful conduct in those markets.
I hope my comments today have conveyed the importance that the Department of Justice puts on these issues. Inscribed above the exit from the Great Hall of the Robert F. Kennedy Main Justice Building is an inscription that reads: “Privilegium Obligatio.” It means that when you accept a privilege, you incur an obligation. The people who have earned the privilege of serving in the Department of Justice accept the obligation to find truth, maintain the rule of law, and faithfully follow our policies and procedures. Thank you for having me here today.