Impact of increased antitrust investigations on the tech industry

The Future Lawyer Weekly Briefing – W/C 9th September 2024

September 8, 2024

R (on the application of Finch on behalf of the Weald Action Group) (Appellant) v Surrey County Council and others (Respondents) [2024] UKSC 20

September 11, 2024

Published by Bethany Seed at September 9, 2024

Introduction

Since the end of 2023, so-called “Big Tech” companies have been forced to “bow to the global onslaught of rules”, according to the New York Times. Despite operating in the ‘wild west’ of the free market for a long time, they have come under a series of antitrust investigations by regulators around the world. This appears to be a global trend, as governments look to tackle the seemingly uncontrollable might of tech companies at a time when issues like data and privacy, misinformation, and artificial intelligence (AI) are becoming politically relevant. These efforts appear to have bipartisan support in many countries, including the United States, where right-wingers like JD Vance and leftists such as Bernie Sanders both support increased regulatory scrutiny of Big Tech. Although these trends are also being seen in countries like Russia and China, this article will focus on regulatory trends around technology companies in the EU, UK, and the US. This article will explain what is happening, why it is happening, its impact, and propose how companies may respond to these trends.

What is happening?

The EU has recently enacted the Digital Markets Act (DMA). The DMA is the most consequential bill aimed at curbing the power of tech companies since the 2018 General Data Protection Regulation (GDPR). The DMA aims to change how tech products (apps, operating systems, etc.) work so that smaller competitors have a fair chance at competing with established products, ultimately providing consumers with cheaper and better alternatives. In addition, the DMA identifies six ‘gatekeeper’ tech firms – Alphabet (Google), Amazon, Apple, ByteDance (Tiktok), Meta, and Microsoft – as firms which have significant control over ‘core’ functions such as search engines and app stores. The DMA forces these ‘gatekeeper’ companies to adopt practices that do not hinder fair competition and refrain from monopolising the market – especially when it comes to personal data. In practice, this would mean that Google would face more stringent regulation when it comes to collecting personal data and Apple would be forced to allow alternative app stores on their devices. Violators face a fine of up to 10% of their global revenue, and repeat offenders may see 20% of their revenue being taken by the EU regulators.

An uptick in antitrust investigations and lawsuits against tech firms is also seen in the US. The US Department of Justice and the Federal Trade Commission (FTC) continue their push to prevent monopolies and anticompetitive practices from being entrenched in the tech sector. The US has seen antitrust cases against high-profile companies in recent months, with the most notable cases being those against Amazon and Google who, it is alleged, are abusing their market power and stifling fair competition. In addition to bipartisan support, the current head of the FTC, Lina Khan, is particularly keen to crack down on the allegedly monopolistic practices of Big Tech.

Parliament has recently passed the Digital Markets, Competition & Consumers Bill (DMCC Bill), which has been labelled the most significant legislation dealing with competition and consumer protection in the last two decades. Under the DMCC, large tech firms could be given “strategic market status” (SMS) if they are deemed to have “substantial and entrenched market power” and “a position of strategic significance” in the UK’s digital ecosystem. However, the Magic Circle law firm Linklaters notes that this would mostly likely only apply to a handful of large tech firms. The DMCC Bill gives the Competition and Market Authority (CMA)’s Digital Markets Unit (DMU) the power to designate firms as SMS. If a company is designated as SMS, the DMU can create codes and regulations specifically tailored to those firms which aim to ensure a company’s commitment to transparency and fair competition. Failure to comply could result in the company being fined 10% of its global turnover.

Finally, these regulators are increasingly choosing to cooperate with other regulators. Regulators from the US, EU, and the UK are launching simultaneous investigations in each of their jurisdictions and collaborating with each other to detect and rectify anti-competitive behaviour. One notable example is the investigation into the relationship between Microsoft and OpenAI, which is currently being investigated by US, EU, and UK regulators.

Why is it happening?

This increase in regulatory scrutiny is driven by the widespread belief that Big Tech has been too dominant and unregulated for too long. The New York Times argues that politicians and regulators across the UK, EU and US feel the need to limit Big Tech’s unchecked power and regulate the sector in the same way that the banking and healthcare sectors are regulated. Furthermore, there is increasing concern over Big Tech’s attitude towards misinformation, privacy, and fair competition.

How has it affected the sector?

In the EU, the DMA has already affected Meta and Apple. In July 2024, EU regulators charged Meta over Facebook and Instagram’s premium feature which allows users to opt out of data collection by paying a certain price (‘pay or consent’). Regulators argue that this is a breach of the DMA because it enforces financial barriers to users who do not consent to having their data shared with third-party advertisers, and that the right to privacy should not depend on the ability to pay.

Additionally, Apple may be forced to open up its devices to alternative app stores which take a cheaper fee from app developers from Apple, thus giving consumers more options and allowing nascent, alternative app stores to flourish.

In the US, an acquisition of Wiz (an Israeli cyber security company) by Alphabet fizzled out, killing what would have been Alphabet’s largest-ever acquisition. The Financial Times, citing inside sources, reported that “Lina Khan killed the deal”, showing how FTC’s increased regulatory activities are affecting tech M&A.

Google suffered further setbacks after losing its lawsuit against the DOJ, with the court ruling that it had abused its monopoly on search engines and text ads by making agreements with other companies to make Google the exclusive search engine. There have been rumours that the government is considering breaking up Google, or forcing them to divest from Chrome, AdWords, or Android.

What do firms need to do?

In the UK, Linklaters recommends that firms need to prepare for potential audits and investigations given the changes brought by the DMCC Bill.

The consulting firm BCG recommends that companies build solid relationships with regulators, arguing that this relationship is as important as their relationship with their customers. They also recommend effective lobbying towards the regulators to make sure the company’s views are communicated effectively and that the company and the regulator share the same interpretation of laws and regulations. Finally, product development teams need to be flexible so that they can quickly implement changes to their products as mandated by new regulations.

Conclusion

In conclusion, increased regulatory scrutiny of the tech sector appears to be an unavoidable trend across the UK, EU and US. Companies, especially the Big Tech companies, need to prepare for an ‘onslaught’ of regulatory activity.