Makan Delrahim, U.S. assistant attorney general for the antitrust division (l) and Joe Simon, Chairman of the FTC.
New work from home set-ups and a goodwill tour by the Big Tech companies are unlikely to soften the nation’s top antitrust agencies on the industry, legal experts say.
Up until recently, Facebook, Google, Amazon and Apple had been met with unyielding scrutiny in Washington and most state attorneys general offices, barraged by questions of dominance and privacy violations. Facebook and Google have been most visibly pursued by federal authorities and state attorneys.
But as the coronavirus pandemic shut down business as usual, tech companies gained a chance to win back some goodwill. The companies have donated millions of dollars toward efforts to fight the virus, helped health officials spread their messages to encourage a flattening of the curve and donated their stockpiles of personal protective equipment. Amazon, in particular, has become even more important to Americans who want all their needs delivered to their doors.
On face value, it doesn’t seem like the best time to propose a break-up or some other antitrust remedy. But experts say the investigations that have already been set in motion are unlikely to change much during the ensuing crisis.
The Department of Justice and the Federal Trade Division have both signaled they are continuing to seriously investigate companies in their purview. The most prominent tech investigations on the federal level involve the FTC’s probe into Facebook and the DOJ’s probe into Google.
A spokesperson for the FTC said in a statement that as most of its employees work remotely, “Our two main priorities will continue to be: first, the health and well-being of our personnel, their families and parties and organizations who appear before us; and, second, the continuity of our mission to protect consumers and promote competition. While we cannot speculate on what the future holds, we remain on duty and committed to continuing to our important work.”
“The manner in which we conduct our investigations has adapted to the constraints of physical distancing, but make no mistake about it: the substance of our work remains the same,” FTC Bureau of Competition Director Ian Conner wrote in an April 6 blog post.
A DOJ spokesperson declined to comment. In a joint statement in late March, both agencies said they would expedite review of joint ventures aiming to provide relief during the current crisis, but said it would continue to crack down on those attempting to exploit the situation.
Recent actions by both agencies back up their claims. At the end of March, the DOJ Antitrust Division announced it would require military technology companies Raytheon and United Technologies Corporation to divest parts of their businesses to proceed with their proposed merger. On April 1, the FTC announced its lawsuit to unwind tobacco company Altria’s $12.8 billion investment in Juul, the e-cigarette company accused of luring adolescents to its products with its marketing.
As the virus took hold of cities across the U.S. by late March, Attorney General William Barr told The Wall Street Journal he still wants to make a decision on whether to bring a case against Google by this summer.
“I’m hoping that we bring it to fruition early summer,” Barr told the Journal. “And by fruition, I mean decision time.”
It may be difficult to imagine such a large-scale project in any organization proceeding as planned. But it’s possible the antitrust agencies will be able to lend more resources to their conduct cases as an indirect result of the crisis, according to David Wales, who served in the Antitrust Division and the FTC during 9/11 and the 2008 recession, respectively.
Merger reviews tend to keep both agencies on a tight time-frame since they’re required by law to be completed within 30 days barring officials’ request for more information. But mergers tend to dry up during recessions, leaving antitrust staff with a huge load off their plates. Without that clock ticking on as many cases, staff could be free to focus on ongoing conduct issues, Wales said.
Data from past economic downturns show a clear dip in the number of merger filings. Around the time of the dotcom bust in 2000, for example, the agencies said there were 4,926 transactions reported. That number was cut in half to 2,376 transactions in 2001, the year of the September 11 terrorist attacks and again fell by half in 2002.
Merger transaction reports climbed again beginning in 2004, but saw a big decline in 2008 following the stock market crash. In 2009, merger filings hit their lowest point since the government started tracking them in 1990, based on publicly available data, reaching just 716 reported transactions for the year. In a virtual event Tuesday hosted by Politico, Republican FTC Commissioner Noah Phillips confirmed the agency is again seeing a dip in merger filings.
Pricing an acquisition while the market is in flux will likely add speed bumps for businesses seeking to merge, but Wales said it’s still possible the current downturn won’t follow the same patterns as the last.
“There are still opportunities and a willingness to do deals, so I would be surprised if we saw a major reduction in dealflow because of this,” Wales said, adding that the types of deals could look different, potentially saving companies that are suddenly in distress.
Still, with tech companies ingraining themselves in the federal government’s recovery plans, government watchdogs fear White House pressure could taint the probes. Antitrust professionals have frequently pointed to a handful of cases undertaken by the Trump administration’s Antitrust Division, like its attempt to block AT&T’s acquisition of Time Warner, that they argue were influenced by the White House. The Antitrust Division has repeatedly denied outside influence.
It’s not unheard of for policymakers outside the antitrust agencies to lean on regulators to permit conduct that would further certain policy objectives, according to Doug Melamed, an antitrust professor at Stanford and former deputy assistant attorney general in the Antitrust Division during the Clinton Administration. In those cases, the result “depends on the willingness of the antitrust agencies to fight back against what could sometimes be substantial pressure.”
But the agencies’ own statements are the best predictor of their future behavior, Melamed said, and so far they’ve projected a tough stance on antitrust violations during the crisis. Goodwill-building could help companies polish their public images, but are unlikely to sway the answers to questions of dominance and anticompetitive behavior, experts agreed.
“I don’t know that the analysis of those questions at the end of the day are going to be greatly influenced by whether a Gallup Poll would show higher esteem for the tech companies than there was six months ago,” Melamed said.
When it comes to mergers, he added, “I think the agencies are aware that the facts have changed but companies should be aware that the law hasn’t changed.”
There are some practical considerations the agencies may need to take into account, like whether they will be able to obtain documents and secure depositions from executives in an efficient and fair way as they handle their own business changes. But legal experts interviewed for this article said those speed-bumps wouldn’t change the facts of the case.
“The investigations are dependent on contact with and deep discussions with Silicon Valley both across the country and across the world,” said Craig Waldman, co-chair of the antitrust practice at Jones Day. “It’s just going to be slower and harder to get the kind of information that you otherwise would.”
Even economic changes are unlikely to have a great impact on the theories of harm, according to Fiona Scott Morton, former chief economist of the Antitrust Division in the Obama Administration and a professor of economics at the management school of Yale University.
“The stock market is irrelevant to antitrust enforcement and market definition likewise,” Scott Morton said. “It’s the same analysis but you might be not wanting to use market shares from April 2020 as what you think will be the market shares in April 2021 if people are all subject in shelter in place orders.” Similarly, antitrust economists might not want to assume the market conditions will look most like April 2019, Scott Morton said.
But in Europe, there is already some indication that economic conditions have shifted the calculus of merger enforcement. On Friday, Britain’s Competition and Markets Authority provisionally cleared Amazon’s acquisition of food delivery service Deliveroo, citing market conditions resulting from the coronavirus.
The CMA originally worried the merger would harm competition by preventing Amazon from becoming an additional player in the restaurant delivery space. But as restaurant closures in the U.K. amid the pandemic limited business for Deliveroo, the company told the enforcers it would fail without additional investment. The CMA bought into that theory and said Amazon would likely be the only investor to be able to inject the cash Deliveroo needed right away.
“While securing additional funding from other sources may have been possible before the coronavirus outbreak, the pandemic has severely limited the availability of finance for early-stage businesses such as Deliveroo,” the agency said in a statement. “The CMA currently considers that the imminent exit of Deliveroo would be worse for competition than allowing the Amazon investment to proceed and has therefore provisionally found that the deal should be cleared.”
One thing the coronavirus crisis could change about the antitrust investigations is the remedies enforcers pursue should they choose to bring a case against a tech company. If a company saw a large change to its business as a result of the crisis, regulators might determine that a particular course of action, like an injunction, would no longer be needed to stem the harm.
This calls back to a common criticism of antitrust enforcement, which is that it’s often too slow for its remedies to make any difference. Critics of the European Union’s landmark fine of Google, for example, say the company had already changed enough that the remedies were no longer effective.
“Sometimes the relief may not be that meaningful because the conditions changed,” said Maurice Stucke, a University of Tennessee law professor and former DOJ prosecutor. “There may be some anticompetitive practices that were engaged in early on, but now as a result of their dominating the ecosystem, they don’t necessarily need to engage in those practices and you’re pretty much at a loss in terms of a remedy.”
So far during the pandemic, however, tech companies have seemed only to expand their power as people spend more time on the internet and rely on services like Amazon to deliver their goods.
“Their power has proved to be much more durable than what one would expect in that dynamic industry and I don’t see that as necessarily chilling an enforcement action,” Stucke said. “Facebook’s usage has gone up. Amazon has cemented its hold on online retail. Google, you look at YouTube and search and Android… there doesn’t seem to be anything on the horizon that’s threatening their grip.”
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