Competitors in the Digital Economy
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ONLINE PLATFORMS AND MARKET POWER, PART 5: COMPETITORS IN THE DIGITAL ECONOMY HEARING BEFORE THE SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND ADMINISTRATIVE LAW OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION JANUARY 17, 2020 Serial No. 116–70 Printed for the use of the Committee on the Judiciary ( Available http://judiciary.house.gov or www.govinfo.gov U.S. GOVERNMENT PUBLISHING OFFICE 40–788 WASHINGTON : 2020 VerDate Sep 11 2014 04:50 Sep 06, 2020 Jkt 040788 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 E:\HR\OC\E788A.XXX E788A SSpencer on DSKBBXCHB2PROD with HEARINGS COMMITTEE ON THE JUDICIARY JERROLD NADLER, New York, Chairman ZOE LOFGREN, California DOUG COLLINS, Georgia, SHEILA JACKSON LEE, Texas Ranking Member STEVE COHEN, Tennessee F. JAMES SENSENBRENNER, JR., HENRY C. ‘‘HANK’’ JOHNSON, JR., Wisconsin Georgia STEVE CHABOT, Ohio THEODORE E. DEUTCH, Florida LOUIE GOHMERT, Texas KAREN BASS, California JIM JORDAN, Ohio CEDRIC L. RICHMOND, Louisiana KEN BUCK, Colorado HAKEEM S. JEFFRIES, New York JOHN RATCLIFFE, Texas DAVID N. CICILLINE, Rhode Island MARTHA ROBY, Alabama ERIC SWALWELL, California MATT GAETZ, Florida TED LIEU, California MIKE JOHNSON, Louisiana JAMIE RASKIN, Maryland ANDY BIGGS, Arizona PRAMILA JAYAPAL, Washington TOM MCCLINTOCK, California VAL BUTLER DEMINGS, Florida DEBBIE LESKO, Arizona J. LUIS CORREA, California GUY RESCHENTHALER, Pennsylvania MARY GAY SCANLON, Pennsylvania, BEN CLINE, Virginia Vice-Chair KELLY ARMSTRONG, North Dakota SYLVIA R. GARCIA, Texas W. GREGORY STEUBE, Florida JOE NEGUSE, Colorado LUCY MCBATH, Georgia GREG STANTON, Arizona MADELEINE DEAN, Pennsylvania DEBBIE MUCARSEL-POWELL, Florida VERONICA ESCOBAR, Texas PERRY APELBAUM, Majority Staff Director & Chief Counsel BRENDAN BELAIR, Minority Staff Director ---- SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND ADMINISTRATIVE LAW DAVID N. CICILLINE, Rhode Island, Chair JOE NEGUSE, Colorado, Vice-Chair HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia F. JAMES SENSENBRENNER, JR., JAMIE RASKIN, Maryland Wisconsin, Ranking Member PRAMILA JAYAPAL, Washington KEN BUCK, Colorado VAL BUTLER DEMINGS, Florida MATT GAETZ, Florida MARY GAY SCANLON, Pennsylvania KELLY ARMSTRONG, North Dakota LUCY MCBATH, Georgia W. GREGORY STEUBE, Florida SLADE BOND, Chief Counsel DANIEL FLORES, Minority Counsel (II) VerDate Sep 11 2014 03:54 Sep 06, 2020 Jkt 040788 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 E:\HR\OC\E788A.XXX E788A SSpencer on DSKBBXCHB2PROD with HEARINGS C O N T E N T S JANUARY 17, 2020 OPENING STATEMENTS Page Honorable David Cicilline, Chairman, Subcommittee on Antitrust, Commer- cial and Administrative Law ............................................................................... 00 The Honorable Ken Buck, Member, Subcommittee on Antitrust, Commercial and Administrative Law ...................................................................................... 00 WITNESSES Patrick Spence, Chief Executive Officer, Sonos, Inc. Oral Testimony ................................................................................................. 00 Prepared Testimony ......................................................................................... 00 David Barnett, Chief Executive Officer, PopSockets LLC Oral Testimony ................................................................................................. 00 Prepared Testimony ......................................................................................... 00 David Heinemeier Hansson, Chief Technology Officer, Basecamp, LLC. Oral Testimony ................................................................................................. 00 Prepared Testimony ......................................................................................... 00 Kirsten Daru, General Counsel, Tile, Inc. Oral Testimony ................................................................................................. 00 Prepared Testimony ......................................................................................... 00 APPENDIX Responses to Questions for the Record from Patrick Spence, Chief Executive Officer, Sonos ........................................................................................................ 00 Statement for the Record from Patrick Spence, Chief Executive Officer, Sonos 00 Responses to Questions for the Record from David Barnett, Chief Executive Officer, PopSockets .............................................................................................. 00 Responses to Questions for the Record from Kirsten Daru, General Counsel, Tile ........................................................................................................................ 00 Letter from Kyle Andeer, Vice President, Corporate Law and Chief Compli- ance Officer, Apple Inc. ........................................................................................ 00 Statement for the Record from Jeff Haley, former President, OralHealth Corporation ........................................................................................................... 00 (III) VerDate Sep 11 2014 03:54 Sep 06, 2020 Jkt 040788 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 E:\HR\OC\E788A.XXX E788A SSpencer on DSKBBXCHB2PROD with HEARINGS VerDate Sep 11 2014 03:54 Sep 06, 2020 Jkt 040788 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 E:\HR\OC\E788A.XXX E788A SSpencer on DSKBBXCHB2PROD with HEARINGS ONLINE PLATFORMS AND MARKET POWER, PART 5: COMPETITORS IN THE DIGITAL ECONOMY FRIDAY, JANUARY 17, 2020 HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON ANTITRUST, COMMERCIAL, AND ADMINISTRATIVE LAW COMMITTEE ON THE JUDICIARY Washington, DC. The subcommittee met, pursuant to call, at 10:05 a.m., in Uni- versity of Colorado Law School, 2450 Kittredge Loop Road, Boul- der, Colorado, Hon. David Cicilline [chairman of the subcommittee] presiding. Present: Representatives Cicilline, Neguse, and Buck. Also Present: Representative Perlmutter. Staff present: Amanda Lewis, Counsel; Joseph Van Wye, Profes- sional Staff Member; Lina Khan, Counsel; and Slade Bond, Chief Counsel. Mr. CICILLINE. The subcommittee will come to order. Without objection, the chair is authorized to declare recesses at any time. We welcome everyone to today’s hearing, ‘‘Online Plat- forms and Market Power, Part 5: Competitors in a Digital Econ- omy.’’ I now recognize myself for an opening statement. It is a pleasure to be here at the University of Colorado Law School for today’s hearing, the fifth in the subcommittee’s series on online platforms and market power and the subcommittee’s first field hearing in more than a decade. In July, the subcommittee received testimony from executives representing the four dominant online platforms—Google, Amazon, Facebook, and Apple—along with a panel of leading experts about the effective market power in the digital economy on innovation and entrepreneurship. Through both that hearing and other parts of the subcommittee’s investigation it has become clear these firms have tremendous power as gatekeepers to shape and control commerce online. Stacy Mitchell, the director of the Institute for Local Self-Reli- ance, testified, and I quote, ‘‘A growing share of our commerce now flows through a handful of digital platforms. These powerful gate- keepers not only control market access but also directly compete with the businesses that depend on them,’’ end quote. (1) VerDate Sep 11 2014 03:54 Sep 06, 2020 Jkt 040788 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\E788A.XXX E788A SSpencer on DSKBBXCHB2PROD with HEARINGS 2 It is apparent that the dominant platforms are increasingly using their gatekeeper power in abusive and coercive ways. Because these platforms function as bottlenecks for online com- merce, they are able to set the terms and conditions of competition, giving them immense power to pick winners and losers in the on- line economy. It is far too common to hear horror stories from startups and other small businesses about how a dominant platform’s abrupt changes have destroyed their business. A single sudden change of algorithms, a software update, or new product design can be disastrous for the millions of companies that depend on these platforms to get to market. And because these platforms actively compete with the very busi- ness they rely on—that rely on them, what may be portrayed as an innocent change could very well be a deliberate strategy to crush any existing potential competition. Companies across the online ecosystem both large and small have found themselves dependent on the arbitrary whim of these platform giants, one algorithm tweak away from ruin. In many cases, there is little notice or any real recourse for the companies that are disadvantaged by the platforms’ conduct. Because their decisions are largely unaccountable, opaque, and result in sweeping consequences, the dominant platforms effec- tively serve as private regulators. The dominant platforms can also use their gatekeeper power to dictate anti-competitive take it or leave it contract terms. Startups and small businesses have had to sign away certain basic rights or even hand over valuable data to a competitor as the price of accessing their customers through the platform. Such coercive terms of doing business would undoubtedly be ab- sent in a competitive marketplace. For locally-owned businesses that are the economic lifeblood of their communities as both job creators and engines of prosperity, this gatekeeper power and how the platforms are exercising it is of tremendous concern. Many small businesses are