WEBVTT - Regulators Expanding Antitrust Scrutiny of Amazon

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<v Speaker 1>Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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<v Speaker 1>day we bring you insight and analysis into the most

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<v Speaker 1>important legal news of the day. You can find more

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<v Speaker 1>episodes of the Bloomberg Law Podcast on Apple podcast, SoundCloud

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<v Speaker 1>and on Bloomberg dot com slash podcasts us antitrust enforcers

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<v Speaker 1>have broadened their scrutiny of Amazon, going beyond its vast

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<v Speaker 1>retail operations to include its massive cloud computing business. According

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<v Speaker 1>to Bloomberg sources, investigators at the Federal Trade Commission have

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<v Speaker 1>recently been asking software companies about practices around Amazon's cloud unit.

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<v Speaker 1>Joining me is Jennifer Ray, Bloomberg Intelligence Senior litigation analyst. So, Jen,

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<v Speaker 1>Amazon's cloud business dominates the market by far, and it's

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<v Speaker 1>very profitable for the company. Tell us a little bit

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<v Speaker 1>about its dominance. Well, first, I think, June, on Amazon's

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<v Speaker 1>cloud dominance. You know, cloud computing is a great, big, fast,

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<v Speaker 1>kind of complex industry out there, and so part of

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<v Speaker 1>Amazon's dominance would depend on how the market is defined.

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<v Speaker 1>You know, the competitive sphere, which is an economic analysis

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<v Speaker 1>that the agencies do. The interdress agencies due to determine

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<v Speaker 1>what the market shares are in concentration, they have to

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<v Speaker 1>put the boundaries on. So if you look at it

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<v Speaker 1>as infrastructure, sort of the the baseline infrastructure needed for

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<v Speaker 1>cloud computing. If that's the way a market is defined,

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<v Speaker 1>which is reasonable. Yes, it looks like Amazon could, by

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<v Speaker 1>some measures, have around a fifty share, with Microsoft being

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<v Speaker 1>the next competitor, but other big ones in there too,

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<v Speaker 1>like Ali, Baba and IBM. So it seems to me

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<v Speaker 1>that it makes sense that the FTC may be moving

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<v Speaker 1>over to look at the cloud business, particularly if there's

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<v Speaker 1>been any competitor or customer complaints about the terms that

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<v Speaker 1>Amazon may impose. I'm not saying that you know they'll

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<v Speaker 1>find wrongdoing or there is wrongdoing, but when they're looking

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<v Speaker 1>for monopolistic conduct, they're looking in areas where a company

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<v Speaker 1>is dominant. You cannot really engage in monopolistic conduct where

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<v Speaker 1>you aren't dominant. So if in fact they're looking at

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<v Speaker 1>this infrastructure as the market and Amazon does have this

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<v Speaker 1>fairly significant share there, it makes sense for them to

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<v Speaker 1>be looking at its conduct in that area. What are

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<v Speaker 1>the antitrust issues the FTC might specifically be looking at here,

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<v Speaker 1>and what might the investigators be asking software companies? Well,

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<v Speaker 1>the software companies are a bigger group of smaller com

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<v Speaker 1>players that create the software and applications that run on

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<v Speaker 1>top of this infrastructure. So they are in this position

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<v Speaker 1>much like some of the sellers on Amazon's retail site,

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<v Speaker 1>that they are a customer of Amazon's but they're also

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<v Speaker 1>a competitor of Amazon, because Amazon also competes for some

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<v Speaker 1>of those applications and software that run on top of

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<v Speaker 1>the infrastructure. And so the question becomes, is Amazon doing

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<v Speaker 1>anything that's harming them, Let's say by tying entities that

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<v Speaker 1>use its infrastructure by its infrastructure services, I guess is

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<v Speaker 1>the way to say it, and also forcing some of

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<v Speaker 1>them to buy it so to where where it has

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<v Speaker 1>more competition. You know, if somebody needs Amazon's infrastructure because

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<v Speaker 1>they don't have many other options or don't like the

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<v Speaker 1>other options, so they're dependent on Amazon, and then Amazon

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<v Speaker 1>requires them also to buy the software the applications, it

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<v Speaker 1>could push out some of these smaller software applications makers

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<v Speaker 1>that don't also have that infrastructure piece. So they could

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<v Speaker 1>be asking the software vendors about that kind of conduct

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<v Speaker 1>by Amazon and whether they're affected by it. Does that

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<v Speaker 1>echo in any respect the issues that the FTC is

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<v Speaker 1>looking into in Amazon's retail business. You know, it's very similar.

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<v Speaker 1>It's kind of like issues that can arise when a

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<v Speaker 1>company is vertically integrated. When they're vertically integrated, they are

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<v Speaker 1>competing with companies that are also their customers. And it's

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<v Speaker 1>the same way on the retail website where Amazon hosts

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<v Speaker 1>these customers, these entities that sell on Amazon's website, but

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<v Speaker 1>it also competes against them by selling its own products.

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<v Speaker 1>And whenever our company is in that position and in

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<v Speaker 1>one of those pieces, whether it be you know, where

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<v Speaker 1>they're competing or where they are actually servicing, they have

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<v Speaker 1>some market dominance and they're needed by these entities. They

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<v Speaker 1>could leverage that. And that's the concern sometimes in antitrust

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<v Speaker 1>when they're looking at a vertically integrated company that is

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<v Speaker 1>doing business with other companies that aren't vertically integrated in

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<v Speaker 1>that same manner. The Amazon inquiry is part of the

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<v Speaker 1>antitrust investigations that are sort of sweeping across the tech industry.

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<v Speaker 1>Just briefly describe the broad scope of the investigations. Sure well,

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<v Speaker 1>we understand many of them, we understand the details, and

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<v Speaker 1>others we don't. Because these investigations are confidential and the

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<v Speaker 1>enforcement agencies can't talk about them until the companies that

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<v Speaker 1>are being investigated up said something. So we do hear

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<v Speaker 1>the agencies talking about Google and an investigation of Google

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<v Speaker 1>that's ongoing by the d J because Google has mentioned it.

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<v Speaker 1>We do know the FTC is investigating Amazon. We also

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<v Speaker 1>understand it may be investigating Facebook, and that the d

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<v Speaker 1>J may also be investigating Apple. But on top of

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<v Speaker 1>those two federal enforcers, we also understand that's a group

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<v Speaker 1>of state attorneys general from most of the states in

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<v Speaker 1>the US have gotten together and are also engaging in

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<v Speaker 1>a sweeping investigation of the conduct of these big tech platforms.

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<v Speaker 1>As well as Congress, there are House committees that are

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<v Speaker 1>also conducting hearings and asking for information. So across the board,

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<v Speaker 1>we have a deep look into the conduct of these

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<v Speaker 1>companies that I think a lot of people out there,

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<v Speaker 1>particularly some anti trust economists, have felt as a long

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<v Speaker 1>time coming. As you mentioned, there may be no consequences

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<v Speaker 1>at all for Amazon, But if there were consequences, what

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<v Speaker 1>could they be short of breakup of a company? Sure,

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<v Speaker 1>and you know what, there's an awful lot short of

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<v Speaker 1>a breakup of the company. So if the FTC finishes

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<v Speaker 1>this investigation and they've determined that they think Amazon has

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<v Speaker 1>engaged in conduct behavior that violates the antitrust laws. Amazon

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<v Speaker 1>has the option of settling. You know, we just saw

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<v Speaker 1>that with Facebook settling when they violated some terms of

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<v Speaker 1>a previous consent order with the FTC. And that could

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<v Speaker 1>be you know, any number of conduct requirements. It could

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<v Speaker 1>be requirements to treat these entities they're doing business within

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<v Speaker 1>a nondiscriminatory manner and fairly, it could be about certain

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<v Speaker 1>terms and contracts with companies they do business with and

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<v Speaker 1>you must add a term or you must eliminate a

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<v Speaker 1>term that violates the antitrust laws. So it could really

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<v Speaker 1>be a big range. That would be one option. So

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<v Speaker 1>that would be a settlement, which is called a consent order. Now,

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<v Speaker 1>if no settlement can be reached and the FTC is

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<v Speaker 1>determined a violation has occurred, then their next option is

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<v Speaker 1>to file a lawsuit. In a lawsuit would go to

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<v Speaker 1>trial and it would actually be a judge that would

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<v Speaker 1>determine whether the laws were violated and whether the remedy

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<v Speaker 1>is needed and what that remedy would be. Now, a

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<v Speaker 1>breakup is one remedy that the agencies could seek. I'm

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<v Speaker 1>fairly certain you wouldn't see a breakup as a remedy

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<v Speaker 1>that would be in a settlement, because I don't think

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<v Speaker 1>any of these companies would settle for something like that.

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<v Speaker 1>I think they would fight that in court, and it

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<v Speaker 1>would ultimately have to be a judge that would decide

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<v Speaker 1>that wrongdoing has occurred and that the only remedy that

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<v Speaker 1>works is a breakup. Well, when we talk about breaking

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<v Speaker 1>up big tech, the name that comes to mind is

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<v Speaker 1>Senator Elizabeth Warren, who has been campaigning on that for

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<v Speaker 1>some time. Warren is circulating a bill proposing sweeping anti

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<v Speaker 1>monopoly legislation, including a retroactive review of about two decades

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<v Speaker 1>of mega mergers, and Bloomberg News has gotten holds of

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<v Speaker 1>that bill that's been circulating. What else would it do?

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<v Speaker 1>You know, it's a pretty drastic bill. It would be

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<v Speaker 1>a very drastic change to the way mergers are evaluated

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<v Speaker 1>under the antitrust law today, and I honestly don't think

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<v Speaker 1>it has much of a chance of getting passed. I

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<v Speaker 1>think there would even be a substantial number of Democrats

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<v Speaker 1>that might not be willing to go this far because

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<v Speaker 1>it would put what we call a per se ban

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<v Speaker 1>on certain mergers of a certain size. You know, across

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<v Speaker 1>the board, you can't merge if you're over a certain size.

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<v Speaker 1>You know, those numbers I actually don't have in front

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<v Speaker 1>of me, But it would affect to pite pan most

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<v Speaker 1>murger and acquisition activity by any of the big tech firms.

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<v Speaker 1>And you know, economists disagree on a lot of things

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<v Speaker 1>in anti trust, but they might agree on the fact

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<v Speaker 1>that just because two big companies are emerging doesn't necessarily

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<v Speaker 1>mean it's going to be anti competitive or potentially harm consumers.

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<v Speaker 1>There are some industries where scale cannot efficiencies that can

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<v Speaker 1>be good for consumers. So having a per se ban

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<v Speaker 1>on mergers of a certain size doesn't really make a

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<v Speaker 1>lot of sense to me, and I think it would

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<v Speaker 1>be considered fairly drastic. You know, it also looks at

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<v Speaker 1>the concept of going back and breaking up these companies. First.

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<v Speaker 1>For the FTC or d o J to do studies

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<v Speaker 1>like that, I think they'd need a lot more resources

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<v Speaker 1>than they have now because any attempt to go back

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<v Speaker 1>and look at a merger would be difficult in terms

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<v Speaker 1>of the evidence that they'd have to accumulate to win

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<v Speaker 1>in court, and then of course they'd have to go

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<v Speaker 1>to court, and this would be a real uphill climb

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<v Speaker 1>in court to actually convince the judge that some of

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<v Speaker 1>these companies that you know, have now been merged for

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<v Speaker 1>many years and are integrated, that they should be broken

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<v Speaker 1>up and so just at the outs at in order

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<v Speaker 1>to do something like that, both agencies would need a

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<v Speaker 1>lot more resources than they have now. Last time, I

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<v Speaker 1>believe the FEDS tried to break up a company, it

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<v Speaker 1>was Microsoft, and there was the Microsoft trial. When was

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<v Speaker 1>the last time they actually did break up a company. Well,

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<v Speaker 1>you know, there are some very small deals where where

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<v Speaker 1>the ft C and d o J have actually broken

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<v Speaker 1>up companies. It's something that they use for deals that

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<v Speaker 1>don't have to file notification under the Heart Scot Redino Act.

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<v Speaker 1>You know that Hart Scot Redino Act only catches mergers

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<v Speaker 1>of a certain size, So smaller mergers that fall under

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<v Speaker 1>it don't need to be notified to the government, and

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<v Speaker 1>there's no waiting period, so the companies can go ahead

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<v Speaker 1>and close, you know, very soon after they've signed their agreement.

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<v Speaker 1>But some of these deals, even though they're small our

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<v Speaker 1>anti competitive, they can't even be murgers to monopoly and

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<v Speaker 1>One of the things that the ft C and d

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<v Speaker 1>o J does that I think flies under the radar

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<v Speaker 1>quite a bit, but they do is go after some

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<v Speaker 1>of these deals, particularly when they've been customer complaints. So

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<v Speaker 1>one I think notable example is Bizarre Voice Power Reviews.

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<v Speaker 1>Now this is several years ago. This was in two

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<v Speaker 1>thousand thirteen, but the acquisition had closed in two thousand twelve,

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<v Speaker 1>and the DJ file lawsuit in two thousand thirteen, and

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<v Speaker 1>they did manage to win at trial and the court

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<v Speaker 1>ordered Bizarre Voice to sell the Power Reviews assets. You know,

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<v Speaker 1>that's just one example. You also have an FTC lawsuit

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<v Speaker 1>over acquisition of a drug by Ovation. That's another one

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<v Speaker 1>where they forced to break up. And recently there's been

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<v Speaker 1>a private lawsuit companies called jaeled Wind and craft Master

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<v Speaker 1>which make door skins, which I had never heard of

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<v Speaker 1>until I read that. I have no idea that. Yeah,

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<v Speaker 1>but that was actually a private lawsuit in which a

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<v Speaker 1>judge ordered a breakup of the company, So it's not

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<v Speaker 1>unheard of. Going back to Elizabeth Warren's bill, would that

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<v Speaker 1>make the FTC a sort of super agency, perhaps more

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<v Speaker 1>powerful than the Justice Department in the area of antitrust mergers. No,

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<v Speaker 1>I don't know that it would do that, but I

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<v Speaker 1>think that it would give the FDC a lot more

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<v Speaker 1>power and a lot more clout. But they also need

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<v Speaker 1>a lot more resources than they have, I think, to

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<v Speaker 1>do what's contemplated in that bill. Thanks Jen. That's Jennifer Ree,

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<v Speaker 1>Bloomberg Intelligence Senior Litigation Analyst. For more of Jen's analysis,

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<v Speaker 1>go to be I go on the Bloomberg Terminal. Thanks

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<v Speaker 1>for listening to the Bloomberg Law Podcast. You can subscribe

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<v Speaker 1>and listen to the show on Apple Podcasts, SoundCloud, and

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<v Speaker 1>on Bloomberg dot com slash podcast. I'm June Brosso. This

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<v Speaker 1>is Bloomberg