What the DOJ’s recent antitrust suits mean for Big Tech and the future of innovation

By Albert Manfredi
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Albert “Albi” Manfredi is a sophomore in the School of Engineering and Applied Science at the University of Pennsylvania. He intends to major in chemical and biomolecular engineering and hopes to complete the joint legal studies and history minor between The Wharton School and the College of Arts and Sciences. 

In the midst of a tumultuous year, the Department of Justice (DOJ) has recently filed historic antitrust lawsuits against large technology companies like Google and Visa. For some, this course of action is long overdue as the lax enforcement of antitrust allowed big information technology companies like Google, Facebook, Amazon, and Apple, to control the internet, extract huge fees from manufacturers, and dominate markets to limit competition and consolidate economic power [1]. For corporate America, these new suits have the potential to create a precedent for future cases, bringing a more regulated approach to the industry. 

Antitrust law was developed in the late 19th and early 20th centuries to combat the giant monopolies that ran the economy and most parts of the government. The Sherman Act of 1890 and the Clayton Act of 1914 defined the parameters the DOJ could use to bring these companies to court and seek remedies [2].  Specifically, the acts are broad so that courts could apply them in a variety of unforeseeable circumstances. Now, these same acts are being called upon to prevent similar monopoly control of technology sectors, where companies like Google control 80% of all internet searches and Visa facilitates 70% of all debit transactions [2, 3].
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Despite its obvious application in cases where companies have large swaths of market share, opponents argue that antitrust should focus on the consumer and not on the control of the market. Essentially, as long as prices are low, market share should not be considered. As a result, much of the debate around antitrust regulation with tech companies in specific centers around the prospect of advancing technological innovation and whether or not regulation would help or hinder that goal. 

Proponents of antitrust enforcement argue that tech monopolies ruin the chances for disruptive, breakthrough innovation all while increasing prices over time for consumers. Big firms tend to innovate less because they are focused on quarterly earnings as opposed to long-term investments. Instead of new breakthrough designs, they focus on slight product improvements and cutting operational costs [4]. The prime example of this is Apple’s iPhone. Rather than create new technological feats, most research and development revolves around marginal improvements to the next generation of iPhones. Unfortunately for consumers, removing the home button does not meaningfully improve their quality of life in the way that technology industries should be vying for. 

Critics are quick to claim as a defense that big tech’s big projects serve as contributions to society. For instance, Express Wi-Fi by Facebook has given web access to 100 million people that otherwise wouldn’t have had it [5]. Google has also developed a hotspot program which gave 1.5 million people access to the internet in India [6].They argue that this is only possible given their large economies of scale that insulate them from volatility and uncertainty. Companies threaten that antitrust pressure forces them to drop risky growth strategies like these [7]. However, it’s what these companies don’t publicize that warrants punitive judicial action. 

Big tech companies kill off newly innovative competition to save their own economies of scale. They  have an incentive to slow the pace of technological change in order to increase their profits from existing products. As a result, they engage in a plethora of activities to prevent any competitors who could jeopardize that change [8]. The DOJ has been investigating this very phenomenon with Google and Visa. Google uses its power to pay off mobile phone manufacturers, carriers and browsers, like Apple’s Safari, to maintain Google as their default search engine, creating a self-reinforcing cycle of dominance [2]. Visa’s attempted acquisition of Plaid, a promising financial-tech startup, could potentially kill a revolutionary product that threatens Visa’s stranglehold over debit transactions [3]. 

In the aggregate, the big five tech companies made more than 600 acquisitions worth $200 billion over the past decade [9]. This along with predatory pricing practices have crippled smaller firms so much so that most have stopped entering the market and investors are more hesitant to invest in them. As such, it is no surprise that even before the COVID-19 pandemic, the Economist found that first round funding for venture capitalists is down 22% [10].

When faced with these arguments in antitrust lawsuits, the last line of defense for these grand corporations is to argue that consumer prices would rise if their odious monopoly is to fall. That was Google’s first response to litigation pursuits, where chief executives stated “the lawsuit would result in higher prices for consumers because Google would have to raise the cost of its mobile software and hardware” [2].

Fortunately for consumers, these along with the threats to stop technological innovation have historically been empty. In the European Union, Google was fined $9 billion and there was little to no change in business operations [2]. In the United States, antitrust action against AT&T in the 1980s lowered prices overnight and skyrocketed innovation in the long term, paving the way for the creation of the internet [11]. More recently than that, the 1990s lawsuit of Microsoft reached a settlement agreement that made tech executives so anxious they undermined their own power to make markets more competitive [11]. Overall, enforcing antitrust law restructured the market so companies could only maintain their profits by truly innovating.
While many consumers cannot imagine a world without large brands like Facebook, Apple, and Google, the world of economies of scale comes at a great cost. This is especially salient with the emergence of artificial intelligence and its potential to revolutionize society economically, medically, and in terms of improved quality of life. But if the current trend of monopolies killing innovation continues, experts estimate that 95% of the impact AI could have on society would be undercut [12].

Overall, the outcome of these upcoming lawsuits may determine the fate ofAmerican technological innovation for decades to come. Deputy Attorney General Frank Rosen put the debate into perspective: “If the government does not enforce its antitrust laws to enable competition, we could lose the next wave of innovation. If that happens, Americans may never get to see the next Google” [2]. 

[1] Baker, Jonathan B. The Antitrust Paradigm: Restoring a Competitive Economy. Cambridge, MA: Harvard University Press, 2019. 

[2] Kendall, Brent, and Rob Copeland. “Justice Department Hits Google With Antitrust Lawsuit.” The Wall Street Journal. Dow Jones & Company, October 21, 2020. https://www.wsj.com/articles/justice-department-to-file-long-awaited-antitrust-suit-against-google-11603195203   

[3] Kendall, Brent, and AnnaMaria Andriotis. “Justice Department Files Antitrust Lawsuit Challenging Visa's Planned Acquisition of Plaid.” The Wall Street Journal. Dow Jones & Company, November 5, 2020. https://www.wsj.com/articles/justice-department-files-antitrust-lawsuit-challenging-visa-s-planned-acquisition-of-plaid-11604591434 

[4] Atkinson, Robert D., and Michael Lind. Big Is Beautiful: Debunking the Myth of Small Business. Cambridge, MA: The MIT Press, 2019. 

[5] Constine, Josh. “Facebook's Internet.org Has Connected Almost 100M to the 'Internet'.” TechCrunch. TechCrunch, April 25, 2018. https://techcrunch.com/2018/04/25/internet-org-100-million/ 
[6] Joshi, Sonam. “1.5 Million People Access the Internet via Google's Free Wi-Fi at 19 Indian Railway Stations.” Mashable. Mashable, June 21, 2016. https://mashable.com/2016/06/21/google-india-railways-wifi-internet/ 

[7] Sen, Conor. “Tech Regulation Could Be Oddly Great for Investors.” Bloomberg.com. Bloomberg, 2019. https://www.bloomberg.com/opinion/articles/2019-06-05/regulation-will-reshape-google-facebook-and-other-tech-giants  

[8] Simon, Munongo. “Effects of Firm Size and Market Structures in Technological Innovation: A Review of Literature.” Journal of Sustainable Development Studies 2, no. 2 (2013): 170–81. https://core.ac.uk/download/pdf/229605921.pdf 

[9] Bloomberg, David McLaughlin |. “Analysis | Did Big Tech Get Too Big? U.S. Crackdown Seeks Answer.” The Washington Post. WP Company, October 19, 2020. https://www.washingtonpost.com/business/did-big-tech-get-too-big-us-crackdown-seeks-answer/2020/10/16/db8153f6-0fe8-11eb-b404-8d1e675ec701_story.html 

[10] “American Tech Giants Are Making Life Tough for Startups.” The Economist. The Economist Newspaper, June 2, 2018. https://www.economist.com/business/2018/06/02/american-tech-giants-are-making-life-tough-for-startups  

[11] Wu, Tim. The Curse of Bigness: Antitrust in the New Gilded Age. New York: Columbia Global Reports, 2018. 

[12] Kottenstette, Ryan. “Silicon Valley Companies Are Undermining the Impact of Artificial Intelligence.” TechCrunch. TechCrunch, March 15, 2018. https://techcrunch.com/2018/03/15/silicon-valley-companies-are-undermining-the-impact-of-artificial-intelligence/ 
The opinions and views expressed in this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.