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Big Tech Antitrust Scrutiny: Courts Weigh Breakup Remedies for Tech Giants
For the first time in twenty-five years, United States courts are again seriously considering the possibility of dismantling a major technology company. This renewed examination of antitrust measures comes as regulators and lawmakers grapple with the immense power of big tech and potential monopolies in various sectors. The last instance of such judicial deliberation occurred when Microsoft faced allegations of illegally suppressing competition in the personal computer software market.
Echoes of Microsoft: A Quarter-Century Later
In the Microsoft case, a Federal District Court initially ruled in favor of a corporate split, aiming to separate its dominant Windows operating system from its Office suite and other software offerings. However, a higher court overturned this decision, cautioning against breakups as remedies, particularly due to uncertainties surrounding their long-term effectiveness.
Landmark Antitrust Proceedings Target Meta and Google
This month, the debate over potentially breaking up a big tech firm resurfaces in Washington courtrooms with two significant legal proceedings. The Federal Trade Commission (FTC) has initiated an antitrust trial against Meta, alleging that the social media conglomerate unlawfully maintained a monopoly in social networking through its acquisitions of Instagram and WhatsApp. The FTC is seeking to compel Meta to divest itself of these acquisitions. Concurrently, in a separate case, a federal judge will hear arguments from the Justice Department advocating for the breakup of Google to address the search engine giant’s alleged monopoly in internet search.
Divestiture as a Remedy: Risky Surgery or Necessary Action?
William Kovacic, a George Washington University law professor and former FTC chairman, noted the potential of divestiture as a suitable remedy, contingent on the severity of the anti-competitive harm. He characterized it as potentially “risky surgery,” highlighting the delicate nature of such interventions.
Historical Context: Antitrust Quandaries and Market Competition
Courts have long grappled with determining appropriate actions in major antitrust cases after establishing that a leading company engaged in anti-competitive practices. In a 1947 Supreme Court decision, Justice Robert H. Jackson emphasized that a successful legal antitrust outcome must ultimately foster market competition, otherwise, the government risks “winning a lawsuit and losing a cause.” The essence of antitrust remedies is to promote future market freedom, stimulating innovation and benefiting consumers through increased choices and competitive pricing.
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Regulatory Pushback Against Tech Giants
The challenge of regulating big tech‘s influence has gained significant importance as regulators intensify their efforts to restrain the dominance of technology giants. This increased regulatory scrutiny involves a series of antitrust cases challenging the extensive power these companies wield over communication, commerce, and information dissemination.
Expanding Antitrust Landscape: Apple and Amazon Face Scrutiny
Beyond the proceedings against Google and Meta, the Justice Department is awaiting a judicial decision in another lawsuit concerning Google‘s dominance in advertising technology. Furthermore, the department has also filed suit against Apple, challenging its strategies to protect its profitable iPhone business. The FTC has also initiated legal action against Amazon, asserting that the e-commerce behemoth illegally protected its monopoly in online retail from competitive pressures.
Years of Litigation and Potential Breakups Loom
This surge of antitrust litigation, including anticipated appeals, is expected to extend for several years. Should the government prevail in these cases, judges could potentially mandate corporate breakups, representing the most drastic outcome for the companies involved.
Historical Breakups: Mixed Results in Fostering Competition
Historical precedents indicate that court-ordered breakups can be effective, according to antitrust experts. However, the actual impact on enhancing competition has varied.
Standard Oil: A Progressive Era Antitrust Landmark
The 1911 Supreme Court-mandated breakup of Standard Oil, John D. Rockefeller’s energy empire, remains a defining case from the progressive era of trust-busting. Standard Oil, which controlled vast segments of the oil industry, was divided into 34 independent entities. While initially boosting competition, many descendant companies, including Exxon Mobil, Chevron, and ConocoPhillips, evolved into major oil corporations themselves over time.
AT&T: Telecommunications Restructuring
The 1982 settlement leading to the breakup of AT&T followed a lengthy Justice Department antitrust lawsuit accusing the company of monopolizing the U.S. telecommunications market. The local phone service was separated into seven regional “Baby Bell” companies. This structural remedy fostered competition in long-distance and telephone equipment markets, leading to reduced prices.
Beyond Breakups: Structural Remedies and Market Shaping
Antitrust specialists emphasize that beyond complete breakups, various “structural” solutions can significantly influence markets and encourage competition. These alternative remedies offer options short of forced divestiture.
IBM: Unbundling and the Rise of Software
In 1969, facing government antitrust pressure concerning its dominance in the computer market, IBM unbundled its hardware and software businesses. By treating them as separate entities with independent pricing, IBM’s action spurred the growth of the commercial software industry. This shift ultimately benefited companies like Microsoft.
Microsoft Settlement: Opening Doors for Browser and Search Competition
While Microsoft avoided a breakup, the 2001 settlement included restrictions against leveraging its Windows monopoly to hinder rival software distribution by PC manufacturers. This restraint facilitated new competition in web browsers and search engines, notably benefiting Google.
Fiona Scott Morton, a Yale University School of Management economics professor, affirmed that these remedies in the Microsoft case, implemented without a breakup, effectively stimulated greater competition.
Meta and Google: Facing Courtroom Scrutiny
Meta and Google are currently at the forefront of big tech companies undergoing intense courtroom examination.
Meta Antitrust Trial: Instagram and WhatsApp Acquisitions Under Fire
The FTC and Meta initiated opening arguments this week in the U.S. District Court for the District of Columbia. Meta CEO Mark Zuckerberg testified as the government contends that Facebook strategically overpaid for Instagram and WhatsApp to neutralize them as competitive threats and protect its social networking monopoly.
Meta countered that Instagram and WhatsApp have thrived under its ownership. The company asserts that robust competition exists within the social networking sector, pointing to the rapid ascent of TikTok.
Potential Remedies: Divestiture for Meta and Google
Antitrust experts suggest that if the government prevails in the Meta case, a likely remedy would be a court order compelling the sale of Instagram and WhatsApp.
Google’s Search Monopoly: Chrome and Android in the Crosshairs
Google is currently facing the remedies phase of the Justice Department lawsuit regarding its internet search monopoly in the same Washington court. Following Judge Amit P. Mehta’s prior ruling that Google illegally maintained a search monopoly, the government is urging the court to mandate the sale of Chrome, Google‘s widely used web browser, and to require the separation of Android, its mobile operating system, or prevent Google from mandating its services on Android devices. Chrome and Android are critical distribution channels for Google‘s search engine.
Google characterized the government’s proposals as “wildly overboard,” asserting they exceed the court’s decision scope and would negatively impact consumers by offering inferior products. The company also indicated its intent to appeal.
Divergent Views on Breakups: Clean Solutions vs. Judicial Restraint
Tim Wu, a Columbia University law professor and former White House technology and competition policy advisor, advocates for breakups in both the Google and Meta cases.
Wu argues that “structural solutions” offer “clean and essentially self-executing” resolutions, simplifying oversight after implementation through corporate division.
Judicial Skepticism: Appeals and the Supreme Court
However, any breakup order is anticipated to face appeals, and current higher court sentiments appear to reflect the skepticism observed during the Microsoft era.
Supreme Court’s NCAA Ruling: Emphasizing Judicial Limits
In a unanimous 2021 decision regarding the National Collegiate Athletic Association (NCAA), the Supreme Court sided with student-athletes against NCAA restrictions on compensation, deeming it a wage price-fixing case. While ruling for the plaintiffs, Justice Neil M. Gorsuch, writing for the court, emphasized judicial restraint in antitrust matters.
Justice Gorsuch cautioned against judges acting as “central planners,” advocating for a limited judicial role in complex economic matters, a perspective that may influence future antitrust rulings on big tech.