Tech Backlash Frays Cozy Ties to Washington

Date : 07/26/2019 @ 11:29AM
Source : Dow Jones News
Stock : Facebook Inc (FB)
Quote : 187.19  -0.28 (-0.15%) @ 4:59AM

Tech Backlash Frays Cozy Ties to Washington

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By Jacob M. Schlesinger in Washington and Jeff Horwitz in San Francisco 

Facebook Inc. CEO Mark Zuckerberg suggested in January when releasing 2018 earnings that the social-media giant was at a turning point, ending a year of answering critics and starting a new era of growth and innovation. "We now have a clear sense of the path ahead," he said.

Mr. Zuckerberg may have spoken too soon.

In the half year since, the political attacks on Facebook and the other tech giants have only intensified. That is complicating the expansion strategies of big online platforms whose dominance was made possible in part by a quarter-century, bipartisan Washington consensus backing rules and regulations designed mainly to foster their development.

The erosion of that supportive environment has been on full view over the past week. Facebook's $5 billion privacy settlement Wednesday with the Federal Trade Commission only inflamed critics -- including some within the agency -- who said the deal underscored the need for tighter government restraints on the company.

The penalty's announcement came the morning after the Justice Department disclosed a new, broad-based antitrust review of "search, social media, and some retail services online," an apparent reference to Facebook, Alphabet Inc.'s Google unit, and Amazon.com Inc.

Facebook on Wednesday disclosed a separate antitrust review by the FTC that began in June. A week earlier, three separate congressional committees held hearings scrutinizing the clout of big tech. Those followed a White House "social media summit" called to air grievances by conservatives saying the platforms were improperly using their power to suppress free speech.

The pressure may already be affecting the company's business strategy. Facebook has faced heightened criticism for acquiring potential competitors such as WhatsApp and Instagram before they can grow large enough to challenge it. Sensitivity to those complaints played a role in the company nixing earlier this year discussions about acquiring Houseparty, a group video-chat app popular with teenagers, according to a person familiar with the discussions.

The company's move to launch its Libra cryptocurrency has sparked a storm of complaints in Washington -- from members of Congress, the Trump administration, the Federal Reserve and the Securities and Exchange Commission -- casting doubts about Facebook's ability to enter what it had hoped to be a major new line of business.

A few years ago, Facebook "would probably have just shown up and tried to release a product on our own," Mr. Zuckerberg said of the Libra challenge on the Wednesday earnings call. In a blog post written earlier in the day about the newly-established privacy-review process that will emerge from its settlement with the FTC, he wrote: "We expect it will take longer to build new products following this process going forward."

All of which signals a remarkable upending of the long-running special relationship between Silicon Valley and the Beltway. The tech industry long relied on support, protection, and deference from Washington, a period in which any warning that a new regulation might "stifle the internet" was often enough to fend it off.

So far, the backlash against tech is worse than its bite. For all the harsh words aimed at Facebook, Google, Amazon and others, few signs have emerged of any immediate new policies, rules, or enforcement actions that would restrict their dominance and expansion. Any Justice Department investigation would likely take years to complete.

The federal courts -- the final arbiters on major antitrust actions -- remain dominated by judges who have set a very high bar for government actions that challenge big business.

The last major federal attempt to curb the tech companies was the 2012 "Stop Online Piracy Act," aimed at blocking websites selling counterfeit goods and infringing on copyrights. The measure was backed by the U.S. Chamber of Commerce, Hollywood, and the recording industry, and, with strong bipartisan support in the House and Senate, appeared on a fast track to passage.

Google, Wikipedia and others pushed back, asserting the law was tantamount to censoring the internet, and persuaded congressional leaders to drop the bill. That battle was seen as a sign of big tech's clout to fend off new regulations, outmaneuvering traditional Capitol power players.

Now the web giants face new challenges in Washington, which they may have a harder time beating back.

The biggest threat may come from the Justice Department's sweeping announcement of its tech antitrust inquiry. The Justice statement came after the U.S. government had faced mounting criticism from politicians, activists and antitrust scholars, for lax antitrust scrutiny of the tech giants, allowing some of them to achieve near-monopoly control of certain sectors. The FTC ended an antitrust probe of Google in 2013 with a wrist-slap, while competition authorities in Europe have in recent years started a series of probes into multiple Google and Amazon practices and have fined Google billions of dollars in three separate cases.

One difficulty for U.S. officials has been to challenge tech companies using antitrust law's current "consumer welfare standard," which requires proof that a certain company's practices restrict competition, often measured by lower quality or higher prices. That is a difficult benchmark to meet, since the tech platforms offer many of their services for free.

The new probe could indicate that enforcers are calibrating their gauges for the attributes of the digital age. Yale economist Fiona Scott Morton, an antitrust official in the Obama administration, says questions about Facebook's privacy practices could become fodder for a broader antitrust action. "Privacy is related to antitrust because it's an element of quality," she says. "Harm to consumers comes from insufficient competition," she adds, suggesting that in a more vibrant market, companies could compete over privacy protections.

Some conservatives are growing increasingly vocal about using antitrust to address their concerns. Sen. Ted Cruz (R., Texas) says Google and Twitter are abusing their power by censoring speech in the name of content moderation. Sen. Josh Hawley (R., Mo.) has introduced legislation that would remove the immunity for content posted by third parties, a shield that internet providers have enjoyed since 1996, and which is widely credited for allowing the rapid growth of the online giants.

Congressional action is unlikely in the near term. But the political risks for the tech companies could be rising, especially if a Democrat wins next year's presidential election with a platform including stricter antitrust enforcement. The potential ramifications of such a move were evident in this week's FTC-Facebook settlement, which was narrowly approved by the five-member commission, with the three Republicans in favor and the two Democrats issuing stinging dissents.

Under a Democratic administration, Democrats would get the FTC majority, and the settlement would likely have been much tougher, along the framework outlined by one of the dissents written by Democratic commissioner Rohit Chopra.

"The proposed settlement does little to change the business model or practices" that allegedly led to the privacy violations, he wrote.

--Betsy Morris contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com

 

(END) Dow Jones Newswires

July 26, 2019 06:14 ET (10:14 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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