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Merits of Big Tech can’t be answered by theory

Last August, America passed a momentous milestone in the history of business law with no more than a passing mention in the mainstream media. (In fairness, a couple of other things were also going on.) A federal judge in New York signed an order phasing out the Paramount decree.

Way back in 1938, the federal Department of Justice took on all of Hollywood, suing eight studios for antitrust violations. In 1943 the Supreme Court delivered a smashing victory to the regulators.

 Logos of Google, Twitter, YouTube TV and Facebook. (Associated Press) 

Subsequently, the DOJ and the studios entered into a consent decree, with the studios agreeing to sell their theaters. They also agreed to end anti-competitive practices used to strong-arm independent theater owners.

The studios were no longer permitted to leverage their power in one market, the making of movies, to stifle competition in a different market, their exhibition.

By 2020, the decree was almost laughably archaic. If the original eight studios (not all of which even exist any more – RIP, RKO) tried to resume their old market-manipulating tricks, it just wouldn’t matter anymore.

And in part it wouldn’t matter because HBO, Amazon and Netflix have so successfully updated those old tricks. Like the studios of yore, they make films and also exhibit them, but now they do so with proprietary streaming services.

The Sherman Act of 1890, the granddaddy of all American antitrust statutes, was named after its Senate sponsor, the brother of Civil War Gen. William Tecumseh Sherman.

Federal courts were initially hesitant to apply the Sherman Act in its full force. And so in 1914 Congress passed the Clayton Act, which said a lot of the same things again with the implied addendum: “We’re not kidding, judges.”

Those two acts remain the workhorses of antitrust law today, providing the basis for most or all of the recent antitrust actions filed against various Big Tech companies.

The regulators face many challenges going against such well-financed foes, including swarming hordes of high-priced lawyers, expert witnesses prepared to say anything for a fat-enough fee, and millions upon millions of documents.

But their biggest challenge will be the same one faced by trustbusters of the 1890-1914 era: Persuading judges to enforce the law vigorously.

The antitrust laws are written at a high degree of abstraction, because they were intended to prohibit all anti-competitive business practices, including those that hadn’t yet been invented. If they were too specific, they would be easy to evade.

But that high level of generality means judges have a lot of leeway to decide which specific business practices cross the line.

In 1978, Robert Bork (whose failed nomination to the Supreme Court ushered in our modern era of ultra-contentious yet contentless confirmation hearings) published “The Antitrust Paradox,” a book that revealed to an astonished world that Progressive Era antitrust laws embodied the precepts of the Chicago School of Economics of Bork’s own day.

Bork’s gift was to take economic theories and turn them into a set of rigid rules, of the type familiar to lawyers.

His codification of the received wisdom of one faction of the economics profession, circa 1975, had the added benefit of making judges feel economically sophisticated while sparing them the tedious necessity of first becoming economically literate. They could just dismiss all antitrust cases except those charging price-fixing.

That’s why already-huge corporations like Facebook and Amazon were permitted to absorb their smaller competitors Instagram and Zappos. Sure, competition was eliminated and innovation stymied, but regulators didn’t believe they could win a court challenge.

Bork’s influence has been immense and lasting. Whether that’s a good or a bad thing depends on whether you believe America is well-served by economic power concentrated in relatively few huge corporations.

But questions of “good” and “bad” cannot be answered by economic theory. The professors can use their charts and models to predict future efficiencies, but those don’t tell us what kind of society Americans want to live in.

We’ve recently witnessed the power of Twitter and Facebook to silence even the president of the United States. Amazon turned off Parler with the flick of a switch.

In Australia recently, as parliament was considering a bill requiring online platforms to pay royalties to newspapers whose stories they reproduce, Google conducted what it described as an “experiment” to exclude multiple Australian newspapers from its search results. It’s hard to interpret the move as anything but a thuggish attempt at intimidation.

These companies are so big and powerful they take on whole governments.

Whether private companies should have that kind of power over a society and its institutions is the true subject of the antitrust laws. Economics is a scorekeeping system. It’s not the game.

Joel Jacobsen is an author who in 2015 retired from a 29-year legal career. If there are topics you would like to see covered in future columns, please write him at legal.column.tips@gmail.com.

 

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