Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every
Speaker 1: day we bring you insight and analysis into the most
Speaker 1: important legal news of the day. You can find more
Speaker 1: episodes of the Bloomberg Law Podcast on Apple podcast, SoundCloud
Speaker 1: and on Bloomberg dot com slash podcasts us antitrust enforcers
Speaker 1: have broadened their scrutiny of Amazon, going beyond its vast
Speaker 1: retail operations to include its massive cloud computing business. According
Speaker 1: to Bloomberg sources, investigators at the Federal Trade Commission have
Speaker 1: recently been asking software companies about practices around Amazon's cloud unit.
Speaker 1: Joining me is Jennifer Ray, Bloomberg Intelligence Senior litigation analyst. So, Jen,
Speaker 1: Amazon's cloud business dominates the market by far, and it's
Speaker 1: very profitable for the company. Tell us a little bit
Speaker 1: about its dominance. Well, first, I think, June, on Amazon's
Speaker 1: cloud dominance. You know, cloud computing is a great, big, fast,
Speaker 1: kind of complex industry out there, and so part of
Speaker 1: Amazon's dominance would depend on how the market is defined.
Speaker 1: You know, the competitive sphere, which is an economic analysis
Speaker 1: that the agencies do. The interdress agencies due to determine
Speaker 1: what the market shares are in concentration, they have to
Speaker 1: put the boundaries on. So if you look at it
Speaker 1: as infrastructure, sort of the the baseline infrastructure needed for
Speaker 1: cloud computing. If that's the way a market is defined,
Speaker 1: which is reasonable. Yes, it looks like Amazon could, by
Speaker 1: some measures, have around a fifty share, with Microsoft being
Speaker 1: the next competitor, but other big ones in there too,
Speaker 1: like Ali, Baba and IBM. So it seems to me
Speaker 1: that it makes sense that the FTC may be moving
Speaker 1: over to look at the cloud business, particularly if there's
Speaker 1: been any competitor or customer complaints about the terms that
Speaker 1: Amazon may impose. I'm not saying that you know they'll
Speaker 1: find wrongdoing or there is wrongdoing, but when they're looking
Speaker 1: for monopolistic conduct, they're looking in areas where a company
Speaker 1: is dominant. You cannot really engage in monopolistic conduct where
Speaker 1: you aren't dominant. So if in fact they're looking at
Speaker 1: this infrastructure as the market and Amazon does have this
Speaker 1: fairly significant share there, it makes sense for them to
Speaker 1: be looking at its conduct in that area. What are
Speaker 1: the antitrust issues the FTC might specifically be looking at here,
Speaker 1: and what might the investigators be asking software companies? Well,
Speaker 1: the software companies are a bigger group of smaller com
Speaker 1: players that create the software and applications that run on
Speaker 1: top of this infrastructure. So they are in this position
Speaker 1: much like some of the sellers on Amazon's retail site,
Speaker 1: that they are a customer of Amazon's but they're also
Speaker 1: a competitor of Amazon, because Amazon also competes for some
Speaker 1: of those applications and software that run on top of
Speaker 1: the infrastructure. And so the question becomes, is Amazon doing
Speaker 1: anything that's harming them, Let's say by tying entities that
Speaker 1: use its infrastructure by its infrastructure services, I guess is
Speaker 1: the way to say it, and also forcing some of
Speaker 1: them to buy it so to where where it has
Speaker 1: more competition. You know, if somebody needs Amazon's infrastructure because
Speaker 1: they don't have many other options or don't like the
Speaker 1: other options, so they're dependent on Amazon, and then Amazon
Speaker 1: requires them also to buy the software the applications, it
Speaker 1: could push out some of these smaller software applications makers
Speaker 1: that don't also have that infrastructure piece. So they could
Speaker 1: be asking the software vendors about that kind of conduct
Speaker 1: by Amazon and whether they're affected by it. Does that
Speaker 1: echo in any respect the issues that the FTC is
Speaker 1: looking into in Amazon's retail business. You know, it's very similar.
Speaker 1: It's kind of like issues that can arise when a
Speaker 1: company is vertically integrated. When they're vertically integrated, they are
Speaker 1: competing with companies that are also their customers. And it's
Speaker 1: the same way on the retail website where Amazon hosts
Speaker 1: these customers, these entities that sell on Amazon's website, but
Speaker 1: it also competes against them by selling its own products.
Speaker 1: And whenever our company is in that position and in
Speaker 1: one of those pieces, whether it be you know, where
Speaker 1: they're competing or where they are actually servicing, they have
Speaker 1: some market dominance and they're needed by these entities. They
Speaker 1: could leverage that. And that's the concern sometimes in antitrust
Speaker 1: when they're looking at a vertically integrated company that is
Speaker 1: doing business with other companies that aren't vertically integrated in
Speaker 1: that same manner. The Amazon inquiry is part of the
Speaker 1: antitrust investigations that are sort of sweeping across the tech industry.
Speaker 1: Just briefly describe the broad scope of the investigations. Sure well,
Speaker 1: we understand many of them, we understand the details, and
Speaker 1: others we don't. Because these investigations are confidential and the
Speaker 1: enforcement agencies can't talk about them until the companies that
Speaker 1: are being investigated up said something. So we do hear
Speaker 1: the agencies talking about Google and an investigation of Google
Speaker 1: that's ongoing by the d J because Google has mentioned it.
Speaker 1: We do know the FTC is investigating Amazon. We also
Speaker 1: understand it may be investigating Facebook, and that the d
Speaker 1: J may also be investigating Apple. But on top of
Speaker 1: those two federal enforcers, we also understand that's a group
Speaker 1: of state attorneys general from most of the states in
Speaker 1: the US have gotten together and are also engaging in
Speaker 1: a sweeping investigation of the conduct of these big tech platforms.
Speaker 1: As well as Congress, there are House committees that are
Speaker 1: also conducting hearings and asking for information. So across the board,
Speaker 1: we have a deep look into the conduct of these
Speaker 1: companies that I think a lot of people out there,
Speaker 1: particularly some anti trust economists, have felt as a long
Speaker 1: time coming. As you mentioned, there may be no consequences
Speaker 1: at all for Amazon, But if there were consequences, what
Speaker 1: could they be short of breakup of a company? Sure,
Speaker 1: and you know what, there's an awful lot short of
Speaker 1: a breakup of the company. So if the FTC finishes
Speaker 1: this investigation and they've determined that they think Amazon has
Speaker 1: engaged in conduct behavior that violates the antitrust laws. Amazon
Speaker 1: has the option of settling. You know, we just saw
Speaker 1: that with Facebook settling when they violated some terms of
Speaker 1: a previous consent order with the FTC. And that could
Speaker 1: be you know, any number of conduct requirements. It could
Speaker 1: be requirements to treat these entities they're doing business within
Speaker 1: a nondiscriminatory manner and fairly, it could be about certain
Speaker 1: terms and contracts with companies they do business with and
Speaker 1: you must add a term or you must eliminate a
Speaker 1: term that violates the antitrust laws. So it could really
Speaker 1: be a big range. That would be one option. So
Speaker 1: that would be a settlement, which is called a consent order. Now,
Speaker 1: if no settlement can be reached and the FTC is
Speaker 1: determined a violation has occurred, then their next option is
Speaker 1: to file a lawsuit. In a lawsuit would go to
Speaker 1: trial and it would actually be a judge that would
Speaker 1: determine whether the laws were violated and whether the remedy
Speaker 1: is needed and what that remedy would be. Now, a
Speaker 1: breakup is one remedy that the agencies could seek. I'm
Speaker 1: fairly certain you wouldn't see a breakup as a remedy
Speaker 1: that would be in a settlement, because I don't think
Speaker 1: any of these companies would settle for something like that.
Speaker 1: I think they would fight that in court, and it
Speaker 1: would ultimately have to be a judge that would decide
Speaker 1: that wrongdoing has occurred and that the only remedy that
Speaker 1: works is a breakup. Well, when we talk about breaking
Speaker 1: up big tech, the name that comes to mind is
Speaker 1: Senator Elizabeth Warren, who has been campaigning on that for
Speaker 1: some time. Warren is circulating a bill proposing sweeping anti
Speaker 1: monopoly legislation, including a retroactive review of about two decades
Speaker 1: of mega mergers, and Bloomberg News has gotten holds of
Speaker 1: that bill that's been circulating. What else would it do?
Speaker 1: You know, it's a pretty drastic bill. It would be
Speaker 1: a very drastic change to the way mergers are evaluated
Speaker 1: under the antitrust law today, and I honestly don't think
Speaker 1: it has much of a chance of getting passed. I
Speaker 1: think there would even be a substantial number of Democrats
Speaker 1: that might not be willing to go this far because
Speaker 1: it would put what we call a per se ban
Speaker 1: on certain mergers of a certain size. You know, across
Speaker 1: the board, you can't merge if you're over a certain size.
Speaker 1: You know, those numbers I actually don't have in front
Speaker 1: of me, But it would affect to pite pan most
Speaker 1: murger and acquisition activity by any of the big tech firms.
Speaker 1: And you know, economists disagree on a lot of things
Speaker 1: in anti trust, but they might agree on the fact
Speaker 1: that just because two big companies are emerging doesn't necessarily
Speaker 1: mean it's going to be anti competitive or potentially harm consumers.
Speaker 1: There are some industries where scale cannot efficiencies that can
Speaker 1: be good for consumers. So having a per se ban
Speaker 1: on mergers of a certain size doesn't really make a
Speaker 1: lot of sense to me, and I think it would
Speaker 1: be considered fairly drastic. You know, it also looks at
Speaker 1: the concept of going back and breaking up these companies. First.
Speaker 1: For the FTC or d o J to do studies
Speaker 1: like that, I think they'd need a lot more resources
Speaker 1: than they have now because any attempt to go back
Speaker 1: and look at a merger would be difficult in terms
Speaker 1: of the evidence that they'd have to accumulate to win
Speaker 1: in court, and then of course they'd have to go
Speaker 1: to court, and this would be a real uphill climb
Speaker 1: in court to actually convince the judge that some of
Speaker 1: these companies that you know, have now been merged for
Speaker 1: many years and are integrated, that they should be broken
Speaker 1: up and so just at the outs at in order
Speaker 1: to do something like that, both agencies would need a
Speaker 1: lot more resources than they have now. Last time, I
Speaker 1: believe the FEDS tried to break up a company, it
Speaker 1: was Microsoft, and there was the Microsoft trial. When was
Speaker 1: the last time they actually did break up a company. Well,
Speaker 1: you know, there are some very small deals where where
Speaker 1: the ft C and d o J have actually broken
Speaker 1: up companies. It's something that they use for deals that
Speaker 1: don't have to file notification under the Heart Scot Redino Act.
Speaker 1: You know that Hart Scot Redino Act only catches mergers
Speaker 1: of a certain size, So smaller mergers that fall under
Speaker 1: it don't need to be notified to the government, and
Speaker 1: there's no waiting period, so the companies can go ahead
Speaker 1: and close, you know, very soon after they've signed their agreement.
Speaker 1: But some of these deals, even though they're small our
Speaker 1: anti competitive, they can't even be murgers to monopoly and
Speaker 1: One of the things that the ft C and d
Speaker 1: o J does that I think flies under the radar
Speaker 1: quite a bit, but they do is go after some
Speaker 1: of these deals, particularly when they've been customer complaints. So
Speaker 1: one I think notable example is Bizarre Voice Power Reviews.
Speaker 1: Now this is several years ago. This was in two
Speaker 1: thousand thirteen, but the acquisition had closed in two thousand twelve,
Speaker 1: and the DJ file lawsuit in two thousand thirteen, and
Speaker 1: they did manage to win at trial and the court
Speaker 1: ordered Bizarre Voice to sell the Power Reviews assets. You know,
Speaker 1: that's just one example. You also have an FTC lawsuit
Speaker 1: over acquisition of a drug by Ovation. That's another one
Speaker 1: where they forced to break up. And recently there's been
Speaker 1: a private lawsuit companies called jaeled Wind and craft Master
Speaker 1: which make door skins, which I had never heard of
Speaker 1: until I read that. I have no idea that. Yeah,
Speaker 1: but that was actually a private lawsuit in which a
Speaker 1: judge ordered a breakup of the company, So it's not
Speaker 1: unheard of. Going back to Elizabeth Warren's bill, would that
Speaker 1: make the FTC a sort of super agency, perhaps more
Speaker 1: powerful than the Justice Department in the area of antitrust mergers. No,
Speaker 1: I don't know that it would do that, but I
Speaker 1: think that it would give the FDC a lot more
Speaker 1: power and a lot more clout. But they also need
Speaker 1: a lot more resources than they have, I think, to
Speaker 1: do what's contemplated in that bill. Thanks Jen. That's Jennifer Ree,
Speaker 1: Bloomberg Intelligence Senior Litigation Analyst. For more of Jen's analysis,
Speaker 1: go to be I go on the Bloomberg Terminal. Thanks
Speaker 1: for listening to the Bloomberg Law Podcast. You can subscribe
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Speaker 1: on Bloomberg dot com slash podcast. I'm June Brosso. This
Speaker 1: is Bloomberg