133 Years Young: Sherman Act Section Two Keeps Up With Big Tech
| Publication year | 2023 |
| Author | By Madhu Pocha and Patrick Jones |
By Madhu Pocha and Patrick Jones1
If the ethos of Silicon Valley could be captured in a single phrase, it would be Mark Zuckerberg's directive to "move fast and break things." That approach emphasizes the importance of rapid innovation and experimentation, encouraging startups to push boundaries and challenge conventional thinking. It has led to the creation of some of the largest, most valuable companies in the world—ubiquitous "Big Tech" platforms that have helped solidify California as the engine of the American economy. But the rapid growth and increasing dominance of these companies have led to concerns about Big Tech's potential to stifle competition. Indeed, the major players—Amazon, Apple, Facebook (Meta), Google (Alphabet), and Microsoft—have all been around for a decade or more.2
Is now also the time for regulators to "move fast and break things" in the name of competition? In recent years, the Federal Trade Commission, the U.S. Department of Justice and numerous state attorneys general have advanced an aggressive enforcement agenda against Big Tech—relying primarily on the federal Sherman Act—that seems equally inspired by Zuckerberg's popular motto. Still, some critics argue states should take enforcement into their own hands through new legislation. In California, one question worth considering is whether the state should revise its antitrust laws to ban single-firm monopolization, perhaps using Section 2 of the Sherman Act or other similar prohibitions recently proposed in various other state legislatures as a model.
We think the answer is no. In our view, Section 2—which can be enforced by the California Attorney General and private individuals and businesses in California—will likely be enough to address any reasonable monopolization concerns regarding Big Tech platforms.
Section 2 strikes the appropriate balance in its treatment of monopoly power—i.e., the power to control prices, restrict output, or exclude competition in a relevant antitrust market. Possessing monopoly power is not itself illegal, nor should it be. Monopolization under Section 2 requires both "(1) the possession of monopoly power
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in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) (emphasis added). The italicized language is crucial, as it distinguishes between exclusionary and pro-competitive conduct. In certain cases, a firm may attain monopoly power from the latter, such as when it offers a superior product or service, or when economies of scale make it more efficient than its nascent competitors. And, as the Supreme Court recognizes, the potential for monopoly profits is often what "attracts 'business acumen' in the first place; it induces risk taking that produces innovation and economic growth." Verizon Commc'ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004). Cognizant of these realities, Section 2 aims not to eliminate monopolies, but rather to prevent firms from using tactics that impede the competitive process in order to gain or maintain a monopoly. In this way, Section 2 protects the competitive process that allows firms to succeed financially by innovating and competing on the merits.
The problem with Section 2, critics may contend, is that modern doctrinal principles seem outdated when confronted with the business models employed by dominant technology platforms. Under the current regime, to demonstrate harm to competition, a plaintiff typically must show harm to "consumer welfare," which "courts and antitrust authorities have largely measured . . . through effects on consumer prices."3 Proponents of the consumer welfare standard argue that it provides a clear and objective measure for determining when legal intervention is necessary, and that it allows for a flexible and case-by-case approach to antitrust enforcement. But requiring proof of consumer price effects assumes that firms charge consumers a price to use their products and services. By contrast, Big Tech platforms are often free for users. As a result, the argument goes, prevailing doctrine will hamstring regulators' efforts to bring Sherman Act monopolization suits against these platforms when the anticompetitive effects of their dominant market positions cannot be measured directly through consumer price effects.
We think that perspective fails to properly credit the ability of Sherman Act jurisprudence to evolve with changing circumstances. Courts have long acknowledged that the Sherman Act has "a generality and adaptability comparable to that found to be desirable in constitutional provisions." Appalachian Coals, Inc. v. United States, 288 U.S. 344, 360 (1933); see Nat'l Soc'y of Pro. Eng'rs v. United States, 435 U.S. 679, 688 (1978) ("Congress, however, did not intend the text of the Sherman Act to delineate the full meaning of the statute or its application in concrete situations. The legislative history makes it perfectly clear that it...
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