Let's not go overboard regulating Big Tech acquisitions

Reminding us that Big Tech has enemies on both sides of the aisle, Sens. Amy KlobucharAmy KlobucharBiden should seek some ideological diversity House passes bipartisan bills to strengthen network security, cyber literacy Klobuchar confident spending bill will be finished before Christmas MORE (D-Minn.) and Tom CottonTom Bryant CottonConservatives target Biden pick for New York district court GOP anger with Fauci rises Cotton swipes at Fauci: 'These bureaucrats think that they are the science' MORE (R-Ark.) have introduced legislation intended to stop companies like Amazon, Google and Facebook from buying up nascent competitors. The Platform Competition and Opportunity Act of 2021, which has already been approved by the House Judiciary Committee, would prohibit digital platforms from acquiring other companies unless they can prove that the acquisition wouldn’t be anti-competitive. 

While upping scrutiny on Big Tech acquisitions makes sense, this bill overreaches.

Start with who’s covered. There are two ways for a company to become a “covered platform.” The first is by designation of the Federal Trade Commission or Department of Justice. Such a designation is subject to very limited judicial review and lasts for 10 years unless both the FTC and the Justice Department agree to an early release. 

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This striking asymmetry — either agency can put a company into purgatory, but both agencies have to agree on letting it out again — is apparently designed to prevent politically motivated decisions by one agency to undo the work of the other agency or a prior administration. But if politics can play a role in release, then politics can play a role in initial classification as well. This bill makes it easy to impose abusive classifications and difficult to correct them.

The other way of becoming a “covered platform” is simply by meeting the statutory definition, as determined by a court when the company is facing a case demanding divestiture or a treble damages lawsuit. A company can meet the statutory definition by being a website, online or mobile app, digital assistant, or online service that has at least 50 million active users or 100,000 business users and is controlled by a company with at least $600 billion in annual revenue. “Control” doesn’t have to mean share ownership or formal voting rights; any “exercise of substantial control” counts. In other words, a mid-size website or mobile app that is deemed to be “controlled” by a Big Tech company could face significant liability.

What’s the consequence of being a “covered platform?” The platform is prohibited from acquiring the stock or assets of any other person unless it can prove by “clear and convincing evidence” that the acquisition isn’t anti-competitive. Literally, this means that Google would be prohibited from buying anything — pencils, erasers, toilet paper — unless it could demonstrate that an exception to the general rule applies. Thankfully, one of the exceptions is for assets valued at less than $50 million, but companies routinely buy lots of assets — real estate, business hardware, transportation fleets, etc. — with big price tags. All large purchases of anything would become presumptively illegal under the statute.

The company could only get out from under the presumption of illegality with “clear and convincing” proof that the acquisition wouldn’t harm competition. This would not only reverse the usual burden of proof but set a high hurdle for the company to clear. “Clear and convincing” is the standard used for proving things like intentional fraud and for removing people from life support —  it’s designed to make the showing hard.

Not only does the bill establish a daunting burden of proof, but it introduces new substantive standards for what it means to be anti-competitive. The platform would have to prove that the acquired company or assets do not “constitute nascent or potential competition,” defined to include “competition for a user’s attention.” 

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So two websites offering entirely different content or services — say sports and movies — would be deemed competitive if users with limited time for browsing (i.e., everyone) divided their time between the two sites or might do so in the future. Further, in an astonishingly broad sweep, the statute would hold that “an acquisition that results in access to additional data may, without more,” be deemed anti-competitive. In other words, even acquisitions of wholly non-competitive companies or assets that increase the amount of data owned by a company — and every single acquisition in the world does that — are presumptively illegal.

All of this adds up to an extraordinarily one-sided statute. While Big Tech companies have been allowed to acquire some companies they shouldn’t have, this bill would force them to get the government’s permission to buy almost anything. Unless we’re looking to kill Big Tech — which, alas, some people may be looking to do — that’s a very bad idea. Congress should go back to the drawing board.

Daniel A. Crane is the Frederick Paul Furth, Sr. professor of Law at the University of Michigan.