US Congress panel urges tech giant breakup plan

The findings target four of the biggest U.S. tech companies - Amazon, Google, Facebook Inc., and Apple Inc. - describing them as gatekeepers of the digital economy that can use their control over markets to pick winners and losers. The companies have abused their power to snuff out competitive threats, leading to less innovation, fewer choices for consumers and a hobbled democracy, the report said.

“Companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons,” the panel’s Democratic leaders said. “These firms have too much power, and that power must be reined in and subject to appropriate oversight and enforcement. Our economy and democracy are at stake.”

Shares fall

Facebook fell more than 1% in late trading after the report’s release. Amazon and Apple slipped less than 1% and Google was unchanged.

The staff report’s most consequential recommendation is for Congress to consider legislation that would prevent tech companies from owning different lines of businesses, which could lead to a mandate to break them up.

“Their ability both to use their dominance in one market as negotiating leverage in another, and to subsidize entry to capture unrelated markets, have the effect of spreading concentration from one market into others, threatening greater and greater portions of the digital economy,” the report said.

To address this, the report recommends structural separation - prohibiting a dominant platform from operating in competition with the firms dependent on it - much like the Bank Holding Company Act of 1956 barred large banks from acquiring insurers, real estate firms, and other nonbanking companies.

It also calls for line-of-business restrictions, or limiting the markets in which a dominant firm can engage, similar to bans on television networks’ entering production and syndication markets.

Under congressional power, the breakups would target types of business, rather than particular companies, committee counsel told reporters on Tuesday.

“These ill-conceived ideas demonstrate a misunderstanding of the size and shape of the retail industry,” Amazon said in a blog post. “Amazon accounts for less than 1% of the $25 trillion global retail market and less than 4% of retail in the U.S. Unlike industries that are winner-take-all, retail has ample space for many winners.”

Companies defend

Facebook defended its acquisitions of WhatsApp and Instagram, which were criticized in the report as moves to eliminate nascent competitors and are under investigation by federal antitrust authorities.

“Instagram and WhatsApp have reached new heights of success because Facebook has invested billions in those businesses,” said a Facebook spokesperson. “Regulators thoroughly reviewed each deal and rightly did not see any reason to stop them at the time.”

Google said it has “invested billions of dollars in research and development to build and improve” free products like search, maps and Gmail. “We compete fairly in a fast-moving and highly competitive industry,” the company said.

Apple said it “vehemently” disagrees with the report and noted that it doesn’t have a dominant share in any market. The App Store developers “have been primary beneficiaries of this ecosystem,” said Apple, which defended its 30% commission rate as being “firmly in the mainstream” with rival stores.

The report is the culmination of an investigation announced by Cicilline last summer as federal antitrust enforcers were beginning probes of the dominant tech companies. The panel issued information requests that yielded millions of pages of documents and held seven hearings, including one in July that featured testimony by the chief executives of the four tech companies.

Republicans shun

Republicans on the committee appear poised to shun the recommendations from the Democrats, although Representative Ken Buck, a Republican member of the panel, told Bloomberg News on Tuesday some of his colleagues are interested in signing onto his response. A draft of Buck’s critique obtained Monday by Bloomberg News laid out areas of agreement and joint concerns about company behavior as well as proposals that are “non-starters” for conservatives.

Representative Jim Jordan of Ohio, who is the ranking Republican on the House Judiciary Committee, which includes the antitrust panel, criticized the report for what he called “radical” proposals to overhaul antitrust law.

“Big tech is out to get conservatives,” he said. “Unfortunately, the Democrats’ partisan report ignores this fundamental problem and potential solutions and instead advances radical proposals that would refashion antitrust law in the vision of the far left.”

Jordan authored a 28-page report focused on claims of anti-conservative bias by the companies. Five GOP members of the Judiciary Committee, including Buck, signed on. The top Republican on the subcommittee, Representative Jim Sensenbrenner, did not.

Business groups argued that Cicilline’s recommendations would harm consumers, punish success and overturn government’s traditional burden to prove its case. Groups advocating for more antitrust enforcement, meanwhile, argued it would reinvigorate consolidated markets and foster innovation.

The American Economic Liberties Project, which has called for the breakup of tech companies, praised it.