How a Yale law student helped spark the anti-trust push against big tech
SAN FRANCISCO — The worm appears to have turned. In the week that Margrethe Vestager, the EU’s top competition cop, launched a market abuse investigation into Apple, David Cicilline, the congressman leading a Big Tech probe in America, accused his country’s biggest company of “highway robbery” over the 30 per cent cut it takes from the cash generated by its App Store.
Even Microsoft president Brad Smith, who spent a quarter of a century in an anti-trust fight with Washington, said the “time has come” for the authorities to look into just how Apple does business.
The sudden turn against the iPhone maker, which has avoided the slings and arrows aimed at Facebook, Google and Amazon, was remarkable. For Big Tech’s critics, it is the surest sign yet that the years of hand-wringing are over. The West Coast giants, they claim, are about to be walloped by a regulatory crackdown not seen in decades.
The number of ways that Apple can retaliate are so varied and hard to verify that no one is willing to publicly breathe a word against the company
Tech commentator Ben Thompson
The showdown will even come with a photo op. Some time in the next few weeks, Facebook’s Mark Zuckerberg, Jeff Bezos at Amazon and Sundar Pichai of Google parent Alphabet will, for the first time, testify together in Congress. Apple’s Tim Cook is the only one who has not confirmed his appearance, although Cicilline expects him to show up for a line-up that will be redolent of the appearances of Big Tobacco executives in the 1990s, or Wall Street chief executives after the financial crisis. “I expect we’ll have all four CEOs there,” Cicilline told The Vergecast podcast. “This is the Congress of the United States conducting its first major anti-trust investigation in 50 years and their testimony is essential to completing this properly.”
Will it be different this time? Will the long-promised regulatory overhaul finally get over the line? And, if so, how far will it go? Will the titans be broken up, or forced to change their ways under threat of huge financial penalties?
For clues, look no further than Lina Khan, a 31-year-old lawyer who helped set in motion the reckoning three years ago. While a law student, Khan wrote an article for The Yale Law Journal titled Amazon’s Anti-trust Paradox. She argued that the legal conventions that had held since the 1970s had been lapped by the Big Tech platforms.
The article stoked a debate that still rages. For decades the guiding anti-trust principle in America has been narrow and simple: consumer welfare. If you were not using your power to overcharge customers, you were fine.
Khan argued that Amazon was different: its empire is so vast, the data on its customers so granular, that it can wield its power in an array of ways to suffocate competitors, reduce choice and hurt consumers. She wrote: “The current framework in anti-trust — specifically its pegging competition to ‘consumer welfare’, defined as short-term price effects — is unequipped to capture the architecture of market power in the modern economy.”
To wit, a recent Wall Street Journal investigation found that the US$1.3 trillion giant mined data from third-party sellers to create rival products, contradicting its own stated policies.
Republican senator Orrin Hatch dismissed Khan’s ideas as “hipster anti-trust.” The hipster, however, has made it inside the building. Since last year, Khan has been a staff lawyer for Cicilline’s House anti-trust subcommittee, helping shape the questions his bipartisan group will ask and the recommendations it will publish to rein in the top platforms.
Her rise is something of a victory for Barry Lynn, who hired Khan in 2011 as a junior researcher at the New America think-tank, where he ran the anti-trust policy unit. Back then, “I was kind of alone”, Lynn said.
We have been through a 40-year lobotomy where our anti-trust laws were gutted
He had been arguing for a decade that anti-trust policy needed to go back to its roots, when the government broke up the railroads and telecoms monopolies. The problem, he said, was a “revolution in thinking” that took hold in 1978. That was when Robert Bork, a libertarian legal scholar, wrote The Anti-trust Paradox. The book elevated consumer welfare as the guiding principle, and sidelined protection of competition.
The revolution was subtle, done not through the creation of a new body or dissolution of another, but by a shift in interpretation. It was embraced by politicians and the courts, setting the stage for the mega-mergers of the 1980s and a gradual consolidation of power across industries, including the internet.
Lynn, who now runs the Open Markets Institute, argued that another shift was in order. “We don’t need new laws, we don’t need new institutions,” he said. What was required was a new lens through which to view — and regulate — the digital giants. Khan did not respond to a request for comment, but it appears that her ideas have helped guide the House subcommittee’s thinking. A source said Cicilline’s group was looking at how best to transform predatory pricing and other potential abuses back into grounds for action against companies, including potentially breaking them up.
The source added: “We have been through a 40-year lobotomy where our anti-trust laws were gutted and the core philosophy often promotes monopoly rather than targeting it. The committee wants to recover the traditional tool box that we’ve had for addressing problems of dominance and private concentrations of economic power.”
Last Monday, David Heinemeier Hansson launched a $99-a-year email service, called Hey. When his company, Basecamp, attempted to put an update through the App Store to fix a small bug, Apple said no. Unless Hey required users to sign up for the paid service though the App Store — rather than Hey’s website — it could not update the app. For Apple, it was no small matter. The company requires all apps to hand over 30 per cent of any revenue: the cost of admission into one of the world’s biggest storefronts. Heinemeier Hansson branded Apple a “mafioso”. Cicilline called the 30 per cent cut “unconscionable”.
Tech commentator Ben Thompson said he had heard dozens of similar stories: Apple using the app approval process to ensure it gets its money. “This is not an accident, but a co-ordinated campaign to drive more App Store revenue,” he wrote in his Stratechery newsletter.
“The number of ways that Apple can retaliate are so varied and hard to verify that no one is willing to publicly breathe a word against the company.”
Apple is not alone in this. Amazon also levies hefty fees on third parties that sell via its site. This is the core around which the crackdown appears to be crystallizing. Amazon, Apple, Google and Facebook are very different businesses, but they all act as “gatekeepers”, controlling the exchange of goods and adverts and ideas online.
Lynn said: “They are the master middlemen of our time.” He is betting, however, that their time is almost up.