By Bill Baer
Recently, Amazon launched a broadside against legislation (the American Innovation and Online Choice Act, S. 2992, and similar proposal, H.R. 3816) that would empower the government to challenge a variety of anticompetitive self-preferencing behaviors by the dominant tech platforms. Distilled to its essence, Amazon claims the proposal unfairly targets the company, would force it to eliminate or degrade its popular Prime delivery service, and threaten penalties that would put at risk its core business model, its workers, and the small businesses who sell on its platform.
Is Amazon fairly describing what these bills would outlaw? Is the sky really falling?
The legislation authorizes the Federal Trade Commission, the Department of Justice, and state attorneys general to challenge self-preferencing by online platforms of certain size, as defined in terms of annual sales, market cap, or active users. Amazon would be covered.
Amazon’s opposition claims it has been singled out solely because of its success. The bill’s drafters counter persuasively that it is Amazon’s persistent dominance as a tech platform and its abuse of its economic power that warrants special scrutiny.
Amazon describes the proposed self-preferencing restrictions as outright prohibitions. But the proposal is more nuanced (and thus more complex) than that. Contrary to Amazon’s claim, it or any other covered platform can defend itself on multiple grounds.
Here is how the proposal would work. The bills identify 10 different types of problematic self-preferencing conduct. The first three (of Sec. 3(a)) authorize federal and state authorities to sue if the platform is shown to:
- prefer its products, e.g., Amazon batteries, over competing products sold on its site;
- limit in other ways the ability of sellers on the site to compete with the platform’s product offerings; or
- discriminate with regards to the terms of service Amazon’s competition is allowed to offer.
Notably, in these three situations, the government has the burden of showing not only the fact of these restrictions, but also that they “would materially harm competition” (S. 2992 Sec. 3(a)(1-3)). In short, these are not outright bans on the conduct. The antitrust enforcers must first convince a federal district court that they are likely to have a meaningful anti-competitive effect. Moreover, Amazon and others covered by the legislation would still have the right to defend any challenged conduct as narrowly tailored and necessary to prevent a violation of law, to protect user safety and privacy, or to maintain or enhance the core viability of the platform.
The legislation flags as problematic seven other behaviors by covered platforms, including efforts to:
- unreasonably restrict businesses selling on the platform from having the same interoperability and access as products being sold by the platform (unless cybersecurity is at risk);
- condition the ability to sell on the platform on the purchase of other products or services;
- use non-public data obtained from consumers buying from third party sellers to support sales of the platform’s own brand of products;
- restrict third party sellers on the platform from using information obtained from its customers to compete off of the platform;
- prevent users from uninstalling software or changing default settings that steer customers to the platform’s products and services (exceptions are made to maintain cyber security and prevent transfers of data to foreign adversaries);
- manipulate search or functionality to preference the platform’s products over those of third party sellers—in short, requiring neutral, fair, and non-discriminatory treatment; or
- retaliate against anyone who in good faith complains to federal or state authorities about potential violations of law.
Once again, the burden would be on the antitrust authorities to prove in federal court that Amazon, or any other covered platform, engaged in the conduct. But, even if proven, a covered platform would still have the opportunity to mount an affirmative defense, i.e., to show by a preponderance of the evidence that — as with the first three prohibited behaviors —one or several behaviors are needed to comply with other laws, protect user safety and privacy, and/or protect the core vial ability of the platform. A company shown to have violated one of these seven provisions also avoids liability if it can show that its behaviors have “not and would not result in material harm to competition.”
U.S. antitrust laws are grounded in the notion that the government should intervene to protect the competitive process where there is a risk of harm to competition. Contrary to Amazon’s arguments, this legislation not only incorporates—it embraces—that principle. Moreover, the proposal also allows covered platforms to show that protection of privacy and cyber and national security justify these restrictions, even if they risk harm to competition. This legislation provides Amazon and other covered platforms ample opportunity to justify in court any restriction it imposes on access to the platform.
Amazon also complains that the civil penalties authorized under the act are “outlandish,” and would jeopardize its ability “to offer a marketplace where selling partners can participate.” The company is right that in addition to granting an injunction, “a court may impose a civil penalty in an amount that is sufficient to deter violations of this Act” (emphasis added). The maximum civil penalty is no greater than 10% of U.S. revenue earned by the platform while in violation of the Act. Obviously, the maximum civil penalty is severe. But so are most civil fines and criminal penalty maximums in our federal judicial system. That maximum penalties are rarely imposed in those other situations, and that the proposed statute limits fines to what is “sufficient to deter” future violations suggests that there may be some hyperbole to this argument.
It is also noteworthy that the Department of Justice, which is responsible for protecting privacy, cybersecurity, and national security in addition to ensuring competitive markets, has endorsed these bills and persuasively articulated why they are needed and needed now in this March 28, 2022 statement from Peter Hyun, Acting Assistant Attorney General:
“The Department views the rise of dominant platforms as presenting a threat to open markets and competition, with risks for consumers, businesses, innovation, resiliency, global competitiveness, and our democracy. By controlling key arteries of the nation’s commerce and communications, such platforms can exercise outsized market power in our modern economy. Vesting the power to pick winners and losers across markets in a small number of corporations contravenes the foundations of our capitalist system, and given the increasing importance of these markets, the power of such platforms is likely to continue to grow unless checked. This puts at risk the nation’s economic progress and prosperity, ultimately threatening the economic liberty that undergirds our democracy.”
The bottom line is that there exists a need to address a very real competition problem in our economy. Dominant online platforms possess enormous economic power, with the ability and demonstrated willingness to impede competition in ways that damage both competing sellers and consumers. We need tools to challenge abuses of that power. The American Innovation and Online Choice Act does that, but in a fashion that gives Amazon and other covered platforms the right to show that their actions are not harmful to competition or are otherwise needed to protect consumer privacy and our national and cyber- security.
Amazon is a general, unrestricted donor to the Brookings Institution. The findings, interpretations, and conclusions posted in this piece are solely those of the author and not influenced by any donation.