Antitrust Law and Technology Market

Antitrust laws are regulations designed to promote competition among sellers in an open market and protect consumers by prohibiting anticompetitive mergers and other potentially unfair business practices. The scope of such laws has been the subject of considerable debate, especially concerning the growth of the technology industry since the 1970s. The rapid pace of innovation in the high-tech revolution has led some to claim that federal regulation only impedes progress and detracts from the quality of available products. Others argue that the potential for one company to quickly dominate a market calls for heavy regulation and government supervision.

The development of advanced technologies such as computers, smartphones, and the internet has created many situations unanticipated by established antitrust law. A growing number of critics have called for systematic reform, claiming that the legal framework is outdated. Technological antitrust lawsuits often take so long that by the time they are resolved, the course of the market has drastically shifted. At the same time, consumer advocates note that the increased level of public reliance on increasingly complex technologies demands careful steps to ensure consumer protection. The investigation of possible antitrust violations by major players in the technology market, including Microsoft, Google, and Apple, has highlighted the unresolved tensions at the core of the issue. The arguments and lawsuits concerning antitrust law have become an important topic in the ongoing evolution of the technology industry in the United States and throughout the world.

Background

The first antitrust law passed by the US Congress was the Sherman Antitrust Act of 1890, intended to preserve free and unhindered competition and to maintain economic liberty for US citizens. In 1914 Congress passed the Federal Trade Commission (FTC) Act, which established the regulatory body of the same name, and the Clayton Antitrust Act, which specified further antitrust measures not covered by the Sherman Act. The assistant to the US attorney general was in charge of antitrust matters from 1903 until 1933, when the Antitrust Division of the Department of Justice (DOJ) was formed. Since then, the Antitrust Division and the FTC have worked in complement to regulate antitrust law, each focusing on specific markets and issues. The Networks and Technology Enforcement Section (NTES) of the Antitrust Division is in charge of regulating the technology market. Though they have undergone revisions, the Sherman, FTC, and Clayton Acts remained the principal federal antitrust laws.

The three core acts of US antitrust law generally strive to promote economic competition in order to benefit consumers. Specific goals include ensuring fair prices and high quality of goods, preventing monopolies, and prohibiting other unreasonable restraints on trade. Most experts support these aims while recognizing that they pose the same risks as other forms of federal regulation, such as difficulties in defining what breaks the law and how to enforce it. In the case of the technology industry, some analysts note other problems with regulatory efforts; one common assertion is that antitrust enforcers may often lack the detailed market knowledge necessary to make a ruling. As digital technologies came into widespread use in the 1980s and 1990s, antitrust law came under increasing scrutiny through efforts to deal with the unique situations presented by the high-tech industry.

Microsoft Antitrust Claims

Some of the earliest high-profile antitrust cases in the modern technology market involved the software developer Microsoft. Microsoft first came under scrutiny of the FTC in 1990, when the company was alleged to be abusing its monopoly on the personal computer market with its Windows operating system. This inquiry was closed two years later, but it was followed by a DOJ investigation in August 1993, after which Microsoft agreed not to tie their products to the sale of Windows and thereby force rivals to use them. On May 18, 1998, the United States sued Microsoft under the Sherman Act, claiming that the company had become a monopoly thanks to the merger of the Windows system and the Internet Explorer browser and was engaging in abusive practices toward competition and consumers. The case was featured prominently in mainstream media and brought the technology antitrust question to the public eye.

On November 12, 1998, William J. Baer, former director of the FTC’s Bureau of Competition, addressed the American Bar Association in San Francisco, California, regarding numerous concerns and issues surrounding antitrust enforcement in technology markets, including the then-in-progress Microsoft case. He outlined the arguments in favor of regulation, directly challenging the idea that rapid innovation nullifies antitrust enforcement by detailing opposing forces that could lead to a market with limited competitive opportunities for start-up companies. Baer also highlighted the concerns over potential conflict between antitrust laws and intellectual property rights.

The Microsoft case was settled in 2001 when the company agreed to share its application programming interfaces with other developers. But this conclusion satisfied few on either side of the issue; some believed it did little to defeat Microsoft’s monopoly, while others viewed it as a risky precedent for further government regulation that could inhibit industry growth. The arguments of both the pro-regulation and anti-regulation camps helped generate a nationwide debate about antitrust enforcement and how competition works in the market.

Topics that played a role in the general debate include networking effects and the business-to-business (B2B) marketplace. "Networking effects" refers to the influence of the number of users of a product or service on the value of that product or service. For example, a software product can provide more value to a buyer if others also use it, increasing efficiency and facilitating information exchange. However, the effect can also harm consumers and other companies in some cases, such as if the product becomes so ubiquitous that it becomes inconvenient to use anything else, even when a rival company offers a better, more innovative product. The B2B marketplace for technology, meanwhile, drew criticism concerning price fixing between competitors. Others worried that B2B exchanges could be used to preserve market dominance by keeping out start-up companies and rivals.

Antitrust Law and the Technology Market Today

In the twenty-first century, the debate over antitrust law and the technology market has continued and even intensified. Observers have analyzed the effects of the groundbreaking cases of the 1990s, providing arguments for both supporters and opponents of regulation. In general, there has been increased criticism of the system, with some economic indicators suggesting that antitrust measures may in fact harm consumers. This attitude has been driven by the complexity of federal efforts to establish rules for high-tech products such as ebooks, digital music, and internet search engine results that do not easily follow established guidelines.

Several lawsuits have been filed against various companies that have joined or even replaced Microsoft as dominant players in the technology market. Two of the most prominent technology companies that have dealt with important antitrust litigation are Google and Apple. As with the earlier Microsoft trial, these cases have been widely covered in the mainstream media, fueling public awareness of the legal issues involved.

Google Antitrust Claims

Google has been the subject of several antitrust controversies over the years. In 2009, the FTC investigated whether the relationship between the corporate boards of Google and Apple violated antitrust laws. At the time, Google’s chief executive officer, Eric Schmidt, and businessperson Arthur Levinson were on the board of directors for both companies, who are competitors in the smartphone market. The Clayton Act prohibits competitors from sharing officers, though both companies argued that the overlap was minor and neither company was monopolizing the smartphone industry. The FTC dropped the inquiry when Schmidt resigned from the board of Apple and Levinson left Google’s board within the year.

Google faced antitrust investigations in Europe beginning in November 2010 for allegedly abusing its dominance in the search engine market, as the company accounted for about 90 percent of internet searches in the European Union (EU) at the time. Potential privacy violations also factored into the investigation as fears over data collection became a widespread topic of debate. The case was presumed settled in February 2014, pending approval by the European Commission (EC). In September 2014, however, the EC reopened the case after more and more European technology companies voiced their concerns over Google’s business practices, with some even calling for a breakup of the company. Google was eventually fined for its actions. A similar case arose in 2023 when the EC informed Google that it had breached antitrust rules by distorting the competition by using its own advertising technology at the detriment of other advertising technology services.

Similar investigations have been conducted in the United States. The FTC began its own inquiry into Google’s search engine in June 2012 to determine if the company was favoring its own services on its search results page while pushing the links of competing websites farther back. These allegations were supported by Google’s competitors, including Microsoft. FTC antitrust regulators found no evidence that Google unfairly favored its own services in search results, a decision that was seen as a major victory for opponents of regulation. However, Google did agree to license some of its patents to smartphone rivals as part of a settlement.

In 2020, the Justice Department under President Donald Trump filed an antitrust suit against Google for allegedly acting as a "monopoly gatekeeper to the internet" by stifling competition and maintaining its position as the internet's top search engine. In January 2023, Google was sued by the Department of Justice for a second time, this time under President Joe Biden, for allegedly monopolizing technology used in digital advertising. Meanwhile, the 2020 suit went to trial in September 2023, with Google being found guilty of maintaining a monopoly. By 2024, the US Department of Justice was considering breaking up Google into smaller companies.

Apple Antitrust Claims

Apple has been involved in several antitrust claims, often touching on issues similar to those faced by Google. The longest-running case began in 2005, when Apple was charged with allegedly attempting to create a music-downloading monopoly. The class-action suit eventually focused on the contention that Apple changed the software on certain models of its iPod digital music player to exclude music bought from online sources other than Apple, which would illegally tie consumers exclusively to the company. The lawsuit was frequently presented in the media as an example of how the slow pace of antitrust litigation fails to keep pace with technology, as the actual products under dispute became virtually obsolete during the course of the decade-long case. In December 2014, after nearly ten years of legal proceedings, a jury found in favor of Apple and rejected the lawsuit.

Other related antitrust investigations against Apple have been dismissed or settled. Another class-action lawsuit, filed in October 2007, challenged the fact that the company’s iPhone smartphone would not allow third-party applications, or apps, to be downloaded and prohibited the use of unapproved SIM cards. The lawsuit claimed that this reduced competition and attempted to create a monopoly, but in December 2011 the case was dropped in district court. A case presented to the EC in 2007 complained that music prices in Apple’s iTunes online music store were higher in the United Kingdom than in the rest of the European Union. Apple argued that UK music-distribution labels charged them more, forcing them to raise prices; nevertheless, in 2008 the company agreed to standardize music prices throughout the European Union, and the EC dropped the case.

Apple was a defendant along with Google, Intel, and other technology companies in the 2011 DOJ antitrust action known as the High-Tech Employee Antitrust Litigation. This case centered on allegations of industry-wide collusion between major high-tech companies, with executives suppressing wages and agreeing not to hire away competitors’ employees. The companies agreed to a $324.5 million settlement in May 2014, avoiding potentially far higher penalties through trial, but in October 2014 a judge rejected the deal.

In April 2012, yet another antitrust case was filed by the DOJ against Apple, alleging that the company conspired with five major publishing companies to raise the price of ebooks in violation of the Sherman Act. According to the complaint, the companies were attempting to force online retailer Amazon, the leader in e-book sales, to raise its prices by taking control of the market. Apple challenged the case, but a judge ruled in July 2013 that the company was liable for violating antitrust laws. In June 2014, Apple agreed to a $450 million settlement, again to avoid greater damages in trial.

In 2022, European Union lawmakers announced antitrust charges against Apple for allegedly stifling competition with other payment services in favor of the company's own payment service, Apple Pay. However, by 2024, Apple had agreed to make changes that would allow developers of competing mobile wallets to use the same technology and develop the same features.

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