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Ten states have filed a new antitrust lawsuit against Facebook and Google alleging illegal collusion to manipulate the online advertising market and limit competition.
In the past two months, the federal government has filed more major anti-monopolization cases against large businesses (two of them) than in the previous 20 years (one of them). On top of that, two state coalitions have filed significant anti-monopolization cases against Google, while state attorneys general have separately joined the federal cases against Google and Facebook. One of the two state cases against Google alleges illegal monopoly coordination with Facebook, closing the circle.
These actions, focused on Big Tech, are critically important. They attack multiple aspects of the abuse of power that many companies in the sector exhibit. They include Google’s payments to Apple and other manufacturers and browser companies to entrench its search monopoly; its exploitation of customer data and manipulation of search results to benefit its own products; the duopoly rigging of the online advertising market; and Facebook’s illegal mergers to maintain its dominance.
Illegal tying, collusion through payoffs and market rigging, steering and self-preferencing allegedly “neutral” markets, and a growth-through-acquisition strategy practically run the gamut of monopoly behavior. And as one of the most powerful sectors in American life and politics, one that during the pandemic has only grown in strength and power, it’s natural to target Big Tech for antitrust enforcement.
And yet, these cases against Google and Facebook are not the most important antitrust actions taken in recent weeks. What is happening right now is not merely a crusade against a handful of tech firms that have gotten into the crosshairs of some policymakers and media types. It reflects an entirely new way to think about corporate power and corporate dominance, buoyed by the tech-lash but occurring across a variety of sectors and contexts.
That’s important, because it shows that the thinking that propped up the giants of the Second Gilded Age is being rethought.
The first big development came last week, when a federal judge granted class action status to a group of mixed martial arts fighters suing the Ultimate Fighting Championship (UFC) over using its monopoly power in presenting and promoting events to keep pay artificially low. The Prospect has highlighted this case a couple of times, as it is a perfect example of how monopoly affects wages and labor markets, a relatively undeveloped side of the law.
What happened was that the UFC, whose parent company is a Big Three Hollywood talent agency backed by private equity cash, cornered the market on MMA, buying up rival promoters, and as a result the fighters’ share of event revenues plummeted. The UFC countered that wage levels went up, so no foul if the share declined, but the judge certified the class of litigants anyway. The company could be on the hook for close to $5 billion in damages.
This just gets us to a trial stage, where the merits will be decided. But even getting this far almost never happens in “monopsony” cases, where there’s a dominant buyer that can suppress wages. Workers suing employers because of their monopoly just doesn’t happen very much at all. Therefore, this case could set a major precedent, protecting workers when their industries consolidate. And it creates a move away from the “consumer welfare” standard that has held that the only thing that matters in merger proposals or monopolized markets is whether the consumer gets lower prices as a result.
The second consequential ruling with implications for corporate consolidation concerns the bankruptcy of shoe retailer Nine West, a private equity–owned firm. This is not an unusual scenario for private equity–owned portfolio companies, which frequently end up in bankruptcy after the PE firm extracts all the value. It’s inherently tied to the private equity business model, which makes purchases with a mountain of debt and then dumps that debt onto the purchased company. This model has been completely toxic for workers and businesses, even as it has furthered the consolidation and financialization of the U.S. economy.
That may now change. The legendary Judge Jed Rakoff of the Southern District of New York ruled that creditors of Nine West could sue the previous board of directors for misconduct when it sold off the company to Sycamore Partners in a leveraged buyout. The board failed to assess the recklessness of Nine West’s taking on the debt and how it led to the eventual bankruptcy. Rakoff said they could be held accountable for the same.
That could bring the entire frenzy of private equity deals to a screeching halt. No board of directors would want to risk personal liability by selling their company to a PE vulture. For a couple of decades, boards have been far more concerned with value for shareholders. Rakoff’s ruling, even though it’s just preliminary, sets a legal precedent that could be enough to make boards think twice.
The policy center of America has now been convinced that the situation in corporate America has grown out of control.
Both of these cases spring from private litigation, an enumerated right under the Sherman Antitrust Act. It is not necessary to await the federal government to set an anti-monopoly agenda, one that even our conservative, dilapidated courts can sanction. However, the renewed movement among politicians and law enforcers against Big Tech—which has seen Congressional hearings and thorough reports and enforcement actions—has in my view created a feedback loop that has led states and individual plaintiffs to push harder on the fundamental issues of antitrust. Strength begets strength. Courage is contagious.
Just look at what’s happening across the spectrum. The Federal Trade Commission is seeking information about data collection from nine social media companies. California Attorney General Xavier Becerra, who’s about to join the Biden Cabinet, is suing to compel Amazon’s compliance with an investigation into the company’s workplace protocols and level of coronavirus cases. Amazon warehouse workers in Alabama are voting on unionization with the Trump Labor Board’s blessing. App seller Cydia is suing Apple for creating a monopoly with its App Store. Researcher Zack Maril single-handedly implanted the notion of Google’s web-crawler monopoly in the public consciousness with one report. Northeastern University professor John Kwoka and Imperial College London’s Tommaso Valenti revised the history on firm breakups, showing them to be far superior to behavioral or conduct remedies. And across the pond, the European Union’s new rules on digital services and markets reflect a stronger and more confident challenge to tech firms, which feels like a direct consequence of the flurry of lawsuits.
This rethinking of antitrust policy and the actions it has spawned couldn’t come at a more critical time. As the pandemic consolidates markets, new mergers—from regional banks to big pharmaceutical firms to the world’s largest cannabis company—are being announced every day. The level of mergers and acquisitions is “extraordinary,” says Goldman Sachs’s top M&A banker Stephan Feldgoise, and he expects those mergers to come with job loss, as is typical with concentration.
The lawsuits against Google and Facebook will last for years. Big Tech’s defenders and lobbyists will defame them and bargain for a settlement of the anti-monopoly strife. The cases might even fail. It doesn’t matter. The policy center of America has now been convinced that the situation in corporate America has grown out of control. Public opinion supports that perspective. The network of anti-monopoly thinkers and scholars and activists has grown. The arguments for enabling monopoly power have been revealed as weak. Nothing is going to stop this evolution away from the laissez-faire of the Chicago school and toward the preservation of liberty and democracy.
Barry Lynn, an intellectual godfather of the new anti-monopoly movement, wrote this week that Joe Biden must make a choice to wield the laws at his disposal to fight corporate power, and must break with the failed consensus of his Obama-era confidants, who didn’t break corporate power when they had every opportunity to do that. I agree that it’s important, but I don’t totally agree that it’s Biden’s choice to make. The genie is out of the bottle. The nation has already made its decision. Biden can lead, follow, or get out of the way.
