Remarks as Prepared for Delivery
Good afternoon. Thank you General Landry for that kind introduction, and thank you to the National Association of Attorneys General (NAAG) for inviting me to join you today. It is an honor and privilege to be here with my fellow attorneys general.
Through the Executive Working Group and in various operations, we are working together on several important law enforcement priorities. Elder Justice is a personal priority for me, and I know the State AGs have been leading the charge for many years. Derrick Schmidt’s Presidential initiative highlighted the impact of this important issue. Each year, over three billion dollars are stolen or defrauded from millions of America’s elderly through a variety of malicious scams. The State AGs are on the front line in this fight to protect the elderly from being exploited, and I pledge the Department’s full support in that effort.
Similarly, human trafficking is an extremely important law enforcement issue for both the DOJ and the States AGs. Attorneys General Paxton, Healey, Bacerra, Reyes and many others have been leaders in this vital effort. We worked together to take down backpage.com, and we continue to engage our state partners though our Human Trafficking Prosecutorial Unit. We look forward to continuing that work with you to make more progress in the year ahead.
In addition to these important priorities, another topic that involves almost every AG in this room and one that also benefits from close federal-state cooperation is the review into market-leading online platforms.
I. Benefits of Broad State AG Support on Review of Market-Leading Online Platforms
In DC, it’s hard to find many things that everyone agrees on. One thing that has found wide and bi-partisan support, however, is the government taking a closer look at the leading online platforms and the competitiveness of digital markets.
Online platforms play an important role in our economy and in Americans’ daily lives, often serving as gateways for how we access goods, services, information and even each other.
A few digital platforms in particular have enjoyed significant growth over the past decade. Consumers now depend on these platforms every day. Their size and pervasiveness have led to public concerns about the competitive health of these digital markets.
We’ve heard widespread concerns from consumers, businesses and entrepreneurs, including about stagnated innovation, high prices, lack of choice, privacy, transparency, and public safety. In response, DOJ initiated a review into market-leading online platforms, which we announced publicly last July.
Concerns about online platforms have come from a wide variety of stakeholders, across the political spectrum. Indeed, almost every State AG is now participating in publicly announced antitrust investigations of Google and Facebook. I’ve had the benefit of meeting with representatives of these groups at the Department, and believe we have a good cooperative relationship in these efforts.
This is not the first time that the Department of Justice has cooperated with a bi-partisan coalition of State AGs on an antitrust matter involving a digital platform.
When the Department of Justice litigated a case against Microsoft roughly 20 years ago for antitrust violations, it was joined by a coalition of 20 state attorneys general and the District of Columbia. There are still those in the Department and State AG community, including my friend Tom Miller, who were closely involved and remember it well.
Today, the State AG coalitions investigating Google and Facebook are even bigger than in Microsoft, including almost every state and federal territory. I think this demonstrates the importance of these issues to Americans across the country, regardless of location or political persuasion.
II. Benefits of a Broad, Holistic Perspective
The benefits of a broad approach to online platforms go beyond building a federal-state partnership. A broader, holistic perspective is also important as we consider substantive issues raised by the digital economy, both within and outside of the arena of antitrust.
Let me start with antitrust. Antitrust is a core focus of the Department’s review into market-leading platforms because, ultimately, fair competition can cure many of the ills we see. In a functioning free market, consumers can demand alternatives that better address their preferences, including for greater privacy, more transparency, or increased safety. For consumer choice and the free market to work, however, firms have to be playing by the established rules of competition. That’s where antitrust enforcement steps in.
Many online platforms are not only big, but also offer a wide breadth of products and services. Antitrust enforcers therefore must take an equally broad view of these platforms’ offerings, and the relationships between different markets, products, and business practices.
Let me touch on a few examples of where a broader perspective is useful in an antitrust analysis.
First, a broader perspective requires understanding the characteristics of the market. This includes looking at whether there are high barriers to entry that prevent or deter new competitors. For example, digital platform markets are often characterized by economies of scale and scope, including direct and indirect network effects.
Take, for example, direct network effects in social media. The more users on the same social media platform, the more valuable that platform is overall. There are benefits to consumers from being on the same network as their friends and family. At the same time, the existence of such network effects can make it harder for a new platform to attract users.
This positive feedback loop is also inherent in platforms that rely on data and machine-learning. For example, generally speaking, the more data a search engine has, the better its algorithms for search results can be. The better the algorithm, the more users it can attract, and with them comes even more data. And the cycle starts anew.
Digital platforms can also have indirect network effects, meaning the more users on one side of the platform increases the value to users on the other side of the platform.
In Microsoft, for example, there were indirect network effects that created what the court described as an “applications barrier to entry.” The more consumers that used the Microsoft operating system, the more attractive the platform was to application developers. Conversely, the more applications that were on the Microsoft operating system, the more attractive the platform was for users. These indirect network effects created a barrier to entry that helped protect Microsoft’s monopoly.
Network effects are not inherently problematic. However, where strong network effects create a significant barrier to entry, it can lead to increased market power, which in turn can be used in anticompetitive ways.
Given these dynamics, antitrust enforcers must be particularly vigilant to police for agreements and conduct that harm the competitive process.
Similarly, market power is not itself wrongful. As I’ve said before, big is not necessarily bad. Healthy competition creates winners and losers, and the prospect of winning (and the profits that come with it) can drive innovation in the first place. Success that comes from creating a better, more innovative product should be applauded. The danger, however, is that a monopolist (even one who earned that status lawfully) can be tempted to use their power to engage in anticompetitive conduct to preserve their dominant position.
Moreover, the existence of market power can change the competitive effects of a business practice. Conduct that may be procompetitive for a new entrant can become anticompetitive if undertaken by the incumbent 800 pound gorilla.
For example, exclusivity agreements by a new entrant can increase competition by enabling a competitor to attract users with unique offerings, even in markets with strong network effects. At the same time, exclusive dealing by a monopolist could have the opposite effect by depriving rivals of the inputs or scale necessary to compete.
Bundling, tying, predatory pricing, and certain refusals to deal are other examples of conduct that can become problematic when undertaken by a firm with market or monopoly power.
As digital firms transition from being the disruptive new entrant into an established market leader, they should pay attention to the impact of their business practices. So too should the antitrust enforcers.
Second, in addition to understanding the dynamics within a market, like barriers to entry and market power, we also need to look at relationships between markets. This is especially important because today’s digital platforms frequently operate across multiple areas.
A dominant firm may seek to leverage its monopoly power in one market to gain an unfair advantage in another. In the Microsoft case, for example, a key concern was that Microsoft was abusing its dominant position in operating systems to foreclose competition in browsers.
The relationships between markets can be even more complex in the digital age, with the emergence of new business models and an increasingly important role of data. Law enforcers need to better understand how consumer data is collected, used, and shared within a firm and with third parties. Such antitrust inquiries generally require a broader perspective and deeper understanding of how each of these markets function.
Third, taking a broader perspective is particularly important in the context of “free” online services. Digital platforms are not charities. When they offer services to consumers for “free,” that just means they are making money somewhere else, either through a different product, from different consumers, or at a different point in time.
The increasing prevalence and complexity of “free” digital services may require a broader perspective.
For example, antitrust enforcers may need to look beyond the free service to better understand a firm’s monetization strategy and incentives. Enforcers also may need to look more closely at non-price effects. Fortunately, the long-standing consumer welfare standard enables us to analyze non-price effects on competition, including on quality, innovation, and consumer choice.
A broader perspective also requires looking beyond antitrust. As we listen to complaints from the public, industry, and experts, it has become clear that not every problem related to online platforms comes within the reach of antitrust law.
Some have therefore proposed expanding the antitrust laws to reach other non-economic harms. Drastically re-inventing the antitrust laws, however, is neither easy nor advisable. The Sherman Act has been around for over a century and has proved flexible enough to adapt to a wide variety of industries, including digital platforms. We are open to considering new tools and targeted modifications, but a wholesale departure from the antitrust laws’ focus on competition is unwarranted.
While we should not distort the antitrust laws, the Department of Justice also cannot ignore real harms to the American people. Where there are non-competition harms, the Department will consider whether there are other tools – including other legal or policy frameworks – that can help. We are thinking critically about how the Department, and our state and federal partners, can address other topics related to online platforms, such as privacy, transparency, consumer fraud, child exploitation, or public safety.
One example of a non-antitrust issue related to online platforms is Section 230 of the Communications Decency Act. Generally speaking, Section 230 provides immunity to interactive computer services for third-party content on their platforms.
As this group well knows, there is currently a robust public debate over Section 230. The NAAG sent a letter to Congress last May, proposing an amendment that would carve out U.S. state and territorial criminal law from the current scope of Section 230 immunity. We, too, are studying Section 230 and its scope.
The CDA was passed in 1996 in response to concerns about protecting children from sexually explicit content on the internet. Section 230 was enacted primarily for two purposes.
The primary purpose of the amendment was to encourage platforms to self-regulate by granting immunity for blocking or filtering offensive material. In particular, the amendment aimed to overrule a 1995 state court decision that treated an online message board as a publisher of third-party content, and thus liable for defamation, because the service restricted access to some, but not other, objectionable material.
Another purpose was to encourage the growth of online forums by immunizing platforms against liability for third party speech. Section 230 was passed at a time where the internet was relatively new, and Congress wanted to protect the growth of online services and the ability for the internet to offer “a forum for true diversity of political discourse.”
Section 230 has been interpreted quite broadly by the courts. Today, many are concerned that Section 230 immunity has been extended far beyond what Congress originally intended. Ironically, Section 230 has enabled platforms to absolve themselves completely of responsibility for policing their platforms, while blocking or removing third-party speech – including political speech – selectively, and with impunity.
Some also question whether such a broad immunity is still necessary to protect online companies. Indeed, ten years ago, a Ninth Circuit opinion denying Section 230 immunity in part remarked: “The Internet is no longer a fragile new means of communication that could easily be smothered in the cradle by overzealous enforcement of laws and regulations applicable to brick-and-mortar businesses.” Fair Housing Council of San Fernando Valley v. Roommates.com LLC, 521 F.3d 1157, 1164 n. 15 (9th Cir. 2008). In other words, the opinion stated: “the Internet has outgrown its swaddling clothes and no longer needs to be so gently coddled.” Id. at 1175, n. 39.
The staggering breadth of Section 230 immunity, as construed by the courts, is evident in a recent Second Circuit opinion involving the Anti-Terrorism Act. See Force v. Facebook, Inc., 934 F.3d 53 (2nd Cir. 2019). There, the court held that Facebook was immune under Section 230 for allegedly matching and facilitating communications between members of the terrorist group Hamas. The court denied plaintiff’s argument that Facebook’s algorithms and friend-matching service rendered it a “non-publisher” outside the scope of Section 230. Id. at 66.
Chief Judge Katzmann dissented in part, criticizing the virtually limitless scope of Section 230 immunity imposed by some courts. He argued that providing immunity for the steps Facebook took to connect alleged terrorists through algorithm and friend suggestions was far removed from the original purpose of the CDA to protect children against obscene material online. He called for Congress to revisit the CDA to “better calibrate the circumstances where such immunization is appropriate and inappropriate in light of congressional purposes.” Id. at 77.
Chief Judge Katzmann is not alone in his calls for reform. Section 230 has garnered significant attention from experts, consumer groups, and legislators. Within DOJ, we also have started thinking critically this issue.
The purpose of Section 230 was to protect the “good Samaritan” interactive computer service that takes affirmative steps to police its own platform for unlawful or harmful content. Granting broad immunity to platforms that take no efforts to mitigate unlawful behavior or, worse, that purposefully blind themselves — and law enforcers — to illegal conduct occurring on, or facilitated by, the online spaces they create, is not consistent with that purpose.
We want to engage further with experts, industry, and other government actors, including the NAAG, through informal discussions as well as a public workshop.
III. Coordination is Key
As we look at Section 230, antitrust, and other issues raised by the online platforms, it is important to take a coordinated approach.
The issues raised by online platforms are interrelated, and we sometimes must weigh competing interests in forming positions related to the digital economy.
Privacy is a good example. Overbroad and overly burdensome privacy legislation could inhibit competition by entrenching monopolists with the resources to comply, while thwarting newer entrants who do not have those resources.
A single-minded focus on privacy, above all other values, also can impose significant costs, including costs to public safety. I have, for example, spoken before about the dangers of warrant-proof encryption. I won’t repeat myself here, but would simply reiterate that technological innovations that purport to protect privacy at all costs – while impeding sworn law enforcers’ ability to go after violent criminals, child predators, human traffickers, and terrorists, even once the enforcers satisfied the rigorous privacy protections built into the Fourth Amendment — may not be worth the trade-off.
High level coordination in our review of market-leading online platforms also helps avoid imposing conflicting obligations or inconsistent policy positions. This requires coordination both within and outside DOJ.
While we have some of the best and brightest at the DOJ’s Antitrust Division and across the Department working on these issues, we benefit from the perspective and support of our State AG, federal, and international partners. We are also welcoming consumers, businesses, experts, and others to talk and work with us to address the challenges of the digital age.
The technology industry in America has brought great innovations to consumers in the US and around the world. We must continue to encourage and incentivize innovation and economic growth. This means not unfairly punishing innovators that have earned their success on the merits. But it also means making sure markets are competitive and open to the next wave of technological change.
As law enforcers, we also must keep up with technological advancements to best protect our citizens. This is why we have made the review of market-leading online platforms a top priority of the Department.
The State AG community plays a very important role in this endeavor. On behalf of DOJ, I thank you all for your valuable partnership and look forward to our continued work together on this and many other initiatives.
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Author: December 10, 2019