Big Tech builds bit by bit. The FTC is challenging that.

The FTC on Wednesday unveiled the findings of a study on the small deals that helped Big Tech grow without regulatory scrutiny, and took steps to treat such acquisitions more skeptically.

The entrance to the Federal Trade Commission building

The FTC is putting more scrutiny on the small deals that built Big Tech.

Photo: Ian Hutchinson/Unsplash

The Federal Trade Commission on Wednesday took a dive into the kinds of deals that make Big Tech, well, big.

The commission unveiled findings from an investigation into hundreds of small acquisitions that companies such as Facebook, Amazon and Google undertook with little government oversight, which helped those titanic businesses reach their current size and power. Some of those transactions evaded regulator scrutiny thanks to loopholes in the law, the report found.

The three Democratic commissioners also voted Wednesday to rescind policies that critics say turned a blind eye to the way certain mergers and acquisitions by tech firms and other companies could harm the economy, even when those firms don't compete directly.

Mega-deals valued at billions of dollars famously made Big Tech what it is today. For example, Facebook's acquisitions of Instagram and WhatsApp, Amazon's tie-ups with Whole Foods and MGM, and Google's purchases of DoubleClick and YouTube all drastically altered the tech sector.

But Big Tech has often grown in stealthier ways through hundreds of much smaller transactions. Companies use acquisitions to shell out for talent in so-called acqui-hires, vacuum up intellectual property from startups, stick a foot in the doors of lucrative new industries and build up features for new marquee offerings. Small deals helped Amazon to boost its connected devices, Google to build its massive online ads business and Apple to revamp its Maps app.

The suspicion that these small mergers and acquisitions could be undermining competition had prompted the commission to vote unanimously in February 2020 to study deals from Alphabet, Amazon, Apple, Facebook and Microsoft. These deals mostly flew under the radar as, generally, deals valued at less than a certain threshold ($92 million as of 2021), don't need to be disclosed to or approved by antitrust regulators.

The FTC found more than 100 deals that actually exceeded the notification threshold but weren't reported because of other exemptions. In a handful of cases, companies didn't include the value of deferred compensation agreements designed to keep founders on board after an acqui-hire in their calculations of deal size. The FTC, which did not disclose details of individual acquisitions, also found that non-reported deals became bigger and more common during the 2010s.

FTC Chair Lina Khan, an outspoken critic of Big Tech's market power, said the report "captures the extent to which these firms have devoted tremendous resources to acquiring startups, patent portfolios and entire teams of technologists, and how they were able to do so largely outside of the purview of the antitrust agencies." She recommended reexamining how the FTC administers the thresholds for disclosure.

The FTC has an antitrust investigation of Amazon in progress, and is suing to break up Facebook. The agency can also launch industrywide studies such as the probe into small acquisitions without a specific law enforcement purpose, but the information can still make its way into a formal probe.

"I think of serial acquisitions as a Pac-Man strategy," Rebecca Kelly Slaughter, one of the commission's three Democrats, said Wednesday. "Each individual merger, viewed independently, may not seem to have significant impact, but the collective impact of hundreds of smaller acquisitions can lead to a monopolistic behemoth."

The Justice Department also appears to be keeping its eye on deals that undermine would-be competitors before they become serious threats to incumbents. Vanita Gupta, U.S. associate attorney general, told an antitrust conference on Tuesday that the department will "closely scrutinize acquisitions involving dominant firms and would-be rivals," and elsewhere cited "concerns that 'digital gatekeepers' maintain their position through a combination of anticompetitive mergers and outright anticompetitive conduct."

Looking down on vertical deals

During Wednesday's meeting, the FTC's Democrats also voted to take on more of these acquisitions going forward by reversing Trump-era guidance critics say leaned too heavily into the potential benefits of so-called vertical deals. Vertical transactions occur when a company acquires another firm in its supply chain — for example, if a juice producer purchases an orange distributor, or a broadband provider such as AT&T purchases a content company like Time Warner. (Oops.)

Since the late 1970s, competition enforcers have largely followed the school of thought espoused by conservative jurist Robert Bork and taken a laissez-faire attitude toward many business activities. In the last 40 years, antitrust practitioners have viewed vertical integration as less likely to be problematic than horizontal deals, in which firms that are competing head-to-head try to combine. Competition lawyers and enforcers alike reasoned that vertically integrated firms don't eliminate competitors and can produce efficiencies that get passed on to consumers, usually by getting rid of the need to realize profits in certain steps of the supply chain.

As potential reformers, including Khan, push back against the Bork consensus, even some conservative practitioners have admitted that parent companies can profitably use their might, or that of their subsidiaries, in anticompetitive ways by blocking rivals or making use of sensitive information. The reformers in particular have often identified enforcers' frequent green lights to vertical deals as a source of decreased competition in need of urgent scrutiny.

The FTC and Justice Department issued new vertical merger guidelines in 2020, in some cases revising policies that went back to 1984. In theory, the enforcers' guidelines don't guarantee that any particular deal will escape scrutiny — but in practice, they sometimes give corporate lawyers a sense of what the government isn't going to expend its limited resources to examine.

The 2020 guidelines elaborated on new potential areas of harm with vertical arrangements, but Democratic Commissioners Slaughter and Rohit Chopra, who were then in the minority, complained that the new guidelines and commentary still treated vertical deals as too likely to be beneficial.

Chopra in particular worried the guidance missed the mark on digital markets, where investors often reward gatekeepers. He wrote last year tech platforms "can impose arbitrary technical specifications that stifle disruptive innovation, require market participants to use the platform's proprietary systems and pay for the privilege, levy taxes on disruptors that the platform's own competitive offerings do not incur, or otherwise condition access to the market on any number of one-sided, onerous contract terms."

The Republican view

Republican Commissioners Christine Wilson and Noah Phillips dissented on the vertical merger guidance, saying the move overemphasized the harm of such deals and noting that the FTC was not yet issuing any updated guidelines to help firms comply with the law.

"I regret that once again a majority of FTC commissioners is pulling the rug out from under honest businesses and the lawyers who wish to advise them," Phillips said.

Although Khan's new open meetings include public comments, both Phillips and Wilson lamented that the votes on big changes come before the public speaks.

Phillips and Wilson also dissented during a party-line vote that took the FTC's current rule on breaches involving health data and deemed that it applies to apps and connected devices. The Republicans dismissed the move as an end-run around rule-making, which is cumbersome at the FTC, and said the commission should formally amend the rule to make the change.

The move on health apps came just two days after President Joe Biden named privacy expert Alvaro Bedoya to the FTC. If confirmed, Bedoya would replace Chopra, who Biden nominated to head up the Consumer Financial Protection Bureau.

In another vote on Wednesday, Phillips joined with the Democrats to issue procedures for public comments on rule-making as the FTC eyes potential industrywide regulations to tackle tech. Wilson dissented, saying she wanted more transparency around funding of commenters.



Facebook supports updated regulations, including four areas where lawmakers can make quick progress:

  • Reforming Section 230
  • Preventing foreign interference of our elections
  • Passing federal privacy law
  • Setting rules that allow people to safely transfer data between services


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