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DOJ's Rosen Signals Possible Action if Big Tech Proves 'Innovation' Threat

Deputy Attorney General Jeffrey Rosen signaled Tuesday that shaking up or breaking up a major online platform is on the table if the department concludes they have anticompetitively harmed innovation. 

Rosen was speaking at a Free State Foundation policy conference in Washington Tuesday (March 10), where he cited the DOJ suits against Microsoft and AT&T as examples of moves that some say paved the way for innovation.  

Justice is currently reviewing market-leading platforms--like Facebook and Google--which Rosen called a department priority. 

Rosen said that one reason DOJ was focused on market-leading platforms was that innovation was, and has long been, a focus of antitrust law when assessing anticompetitive conduct. 

That means when a merger or acquisition is likely to diminish innovation competition below what would have evolved absent the merger, there is an issue. 

"In thinking more broadly about innovation and antitrust, it can be helpful to look back at some of the technology companies that dominated past eras," he said. "For example, IBM dominated the computer hardware era and Microsoft dominated the software era. As with the evolution of the Bell System and the telecommunications sector, antitrust played a role in all of these transitions as well. The Department of Justice brought antitrust enforcement actions against IBM in 1969 and Microsoft in 1998. One lawsuit was eventually dismissed (IBM), and one ultimately prevailed. Both those enforcement actions coincided with one technology era ending and the next beginning. I just want to say that the Antitrust Division and all of us at DOJ who are responsible for antitrust enforcement are very much aware of this history, and pay close attention to the role of antitrust with regard to technological innovation." 

Related: Groups Praise Big Tech Impact on Small Business

He said that protecting innovation was hardly a new goal of antitrust, but that the rise of Big Tech had put it newly in the spotlight. "Despite the wonders produced by the World Wide Web, some say that innovation in the United States has actually been on a decline in the last two decades, and that the tech giants that produced some of those wonders are in part to blame. Across the spectrum, there are calls for government to act quickly and boldly to help ensure there is room for another wave of innovation that can improve people’s lives." 

While he talked in terms of what "some say" and "suggest: and what others were "calling for," he left the clear impression that what those folks were saying and calling for carried some weight, particularly when it came to Justice stepping in to preserve disruptive innovation, which he suggested had been the case in the suit to break up the Bells and Microsoft's bundling of hardware and software.  

"Obviously, one of the most disruptive innovations...was the development of the telephone in the United States around the turn of the 20th century....As a dominant firm with vast resources and the technological expertise of Bell Labs, the old AT&T Bell System made a number of important innovations in the telecommunications realm and beyond," he said. "But with its dominance cemented, the old Bell System sometimes showed itself resistant to change, in part due to monopolistic incentives and protective regulation, and there were claims that innovation was less than it might have been. The government’s antitrust case against AT&T was filed in 1974, and it has been suggested that the competition and ensuing innovation that followed would not have flourished in that way without the resulting divestiture of AT&T’s local exchanges from its long-distance network and manufacturing businesses around 1984." 

Rosen brought that forward to the present day and Justice's current review of Big Tech.  

"One of the questions that is inevitably present in our antitrust review is whether innovation has declined, as some say, because of monopoly positions held by some of today’s tech platform giants," he said. "As the Seventh Circuit wrote in a monopolization case only two weeks ago, 'the harms that typically flow from a competitive market shifting to total control by a monopolist include…reduced innovation.'  

He said an incumbent monopolist, any incumbent monopolist, has "every incentive" to thwart innovative outsiders." 

One of the things Justice is looking at is whether Big Tech got that way by buying up competitors before the size of those purchases triggered automatic antitrust reviews and whether current antitrust law is lacking in its ability to identify and respond to efforts to "buy up" to monopoly.  It is tough to gauge what competition companies would have provided had they not been bought up.

"Numerous articles have been written about the tech giants’ so-called 'kill zones,' that is, the strategy of buying upstart challengers to remove them as a competitive threat," he said. "Others claim there is no incentive to innovate when a dominant company can simply replicate any new idea itself and, with existing network effects, reap the commercial reward. Still others claim that sharp business practices by entrenched firms have prevented innovators from gaining traction." 

Rosen said he had no answers to the questions he was posing--DOJ is still investigating the market, he pointed out, so he could not speak about it even if it were already drawing some conclusions.  

He said he did not have a timetable for when DOJ would be through with its deep dive into Big Tech. 

To read Rosen's entire speech, go here