Antitrust & Competition Technology Quarterly Update Q3 2023

Key Takeaways

• The FTC and 17 states filed a landmark antitrust complaint against Amazon alleging monopoly power in the online superstore and marketplace services markets. The case faces challenges, including legal hurdles and the potential difficulties of demonstrating anticompetitive effects.
• Antitrust cases involving Google are progressing, with the trial concluding in the DOJ’s search engine case, settlements in its consumer app store case, and trial under way in Epic Games’ lawsuit against it. 
• Antitrust scrutiny is impacting technology deals, with the European Commission objecting to Adobe’s acquisition of Figma and the FTC challenging IQVIA’s acquisition of Propel Media. Thoma Bravo’s acquisition of ForgeRock avoided a challenge, and antitrust concerns likely drove semiconductor design firm Arm to IPO after the collapse of its acquisition by Nvidia.

The FTC’s Antitrust Case Against Amazon

On September 26, 2023, the FTC and 17 state attorneys general filed a long-anticipated antitrust complaint against Amazon.¹ The complaint alleges that Amazon wields monopoly power in what the plaintiffs define as the online superstore market and the market for online marketplace services. Amazon purportedly does so with two practices: 1) measures that discourage sellers from offering prices lower than those on Amazon through other retailers; and 2) linking Prime eligibility to the use of Amazon’s fulfillment services.

The FTC’s case is an unquestionably important one, representing Lina Khan’s implementation of criticisms she first raised in her 2017 law review article “Amazon’s Antitrust Paradox.” That article was the start of Khan’s rapid ascent from law student to chair of the FTC. The case challenges not only the second-largest company in the United States but also a company that has arguably revolutionized online retail sales, reshaping consumers’ expectations regarding product selection, shipping speed, and pricing. The FTC and plaintiff states contend that Amazon’s business practices have, on the whole, been harmful by artificially inflating prices not only on Amazon but across the entire retail landscape, to the detriment of unwitting consumers. However, if the government plaintiffs’ case succeeds, consumers may lose a service that many have come to prefer and rely upon.

One major challenge for the government plaintiffs lies in the fact that the business practices in question would appear to have plausible, pro-consumer justifications. It is easy to comprehend how a requirement that sellers offer their lowest online price on Amazon would lead to lower prices on Amazon. The mechanism by which it might lead to higher prices is more complex. That complexity will necessitate compelling evidence, including economic evidence, on the part of the government plaintiffs to demonstrate that the conduct has the opposite effect of its most apparent purpose.

Furthermore, Amazon presumably will make the case that these agreements with sellers, known as price parity clauses, ultimately benefit consumers by reducing their search costs. When Amazon’s prices are as low as or lower than those offered by other online retailers, consumers will readily recognize this and have confidence that they need not extensively search various platforms for the best deal.

The plaintiffs’ challenge to Amazon’s requirement that sellers use Amazon’s fulfillment service for Prime eligibility is also challenging due to a presumably straightforward pro-competitive explanation. Offerings on Amazon’s website with a Prime badge are primarily distinguished by their guaranteed two-day delivery at no extra cost to Prime membership subscribers. Amazon has continuously improved delivery times for Prime offerings, even introducing ultrafast delivery options whereby products are delivered within hours of ordering.

The Prime delivery program is wildly popular with consumers, with an estimated 100 million Prime subscribers in the US.² For context, there are about 130 million households in the US.³ And as the government plaintiffs’ complaint points out, Prime members nearly exclusively purchase Prime-eligible products.⁴ It would therefore appear that the reliability and speed of delivery of Prime products are the primary reasons that Amazon is the preferred online retail choice for so many consumers.⁵

Amazon’s ability to offer such fast and reliable deliveries is undoubtedly built on the extensive logistics network in which it invested billions over the past several years. Amazon’s shipping has surged from next to nothing a decade ago to a level that makes the company the third-largest shipper in the United States, having delivered nearly 5 billion packages in 2022.⁶

Amazon Prime has also prompted a transformation across the entire online retail landscape, altering consumers’ expectations for the speed at which products ordered online should be delivered, commonly referred to as the “Prime Effect.”⁷ Amazon’s fast and free delivery has prompted other retailers to offer free two-day shipping, benefiting consumers across the online retail sector.

In summary, Amazon invested billions of dollars to build out a fulfillment infrastructure that enables it to provide a novel user experience. That experience, which Amazon has associated with the Prime brand, attracted a massive and loyal customer base and at the same time drove other retailers to improve their customer experiences. Investing to enhance service, achieving customer success, and spurring competitors to improve their offerings is a textbook example of how healthy competition is meant to unfold.

The FTC and states’ complaint, however, contends that third-party sellers should be able to benefit from the Prime brand to access the Prime customer base without being required to use the fulfillment service underlying the Prime experience. Amazon will have a compelling argument to make that the contested Fulfillment by Amazon (FBA) requirement is essential in addressing a “free riding” problem, i.e., that sellers would benefit from the Prime brand while opting for other, less expensive fulfillment services that do not meet the same high standards of reliability and speed that FBA provides, thereby diluting the brand value of Prime.

The FTC and states will face other challenges, including fundamental legal hurdles. There is no legal precedent for successful challenges to most-favored-nation agreements, which are the closest analogues to Amazon’s price parity clauses.⁸ Additionally, Amazon’s marketplace encompasses millions of diverse products, each with its own market dynamics, including differing importance of Amazon as a retail channel. The complaint lumps all of these products together without explaining how Amazon’s tactics are equally successful across different individual product markets.

The recently concluded Google trial may indicate what’s to come in the Amazon case. That trial revolved around differing narratives regarding what has propelled and maintained Google’s success—the quality of its search or allegedly anticompetitive default agreements with companies like Apple. If the Amazon case makes it to trial, the government plaintiffs will need to ask a judge to unravel a vast, diverse, and complex marketplace ecosystem and determine why so many sellers choose to sell, and consumers choose to buy, on the Amazon platform. The government plaintiffs will need to essentially convince a judge that the anticompetitive effects of Amazon’s price parity clauses and FBA requirements outweigh the procompetitive impacts of Amazon’s market-altering shipping speeds, consistently low online prices, and overall customer satisfaction. This strikes us as a tall task.

Google Antitrust Cases

As the federal government’s case against Amazon is getting under way, the DOJ’s search engine suit against Google has taken a major step toward a conclusion, with the evidentiary phase of trial concluding on November 16 after a little over two months. Closing arguments are scheduled for May 2024.⁹

The DOJ’s case is based on claims that Google’s contracts with browsers and mobile phone makers blocked rivals from gathering enough data to compete for users and market share. The DOJ also alleges that Google’s 21-year partnership with Apple, which makes Google the default search engine on iPhones and iPads, gave Google monopoly power over search and prevented one of its biggest rivals from entering the market.¹⁰

At trial, the DOJ’s witnesses included economists and senior executives from Google, Apple, Microsoft, Samsung, and other tech companies. Much of the testimony was closed to protect trade secrets. Its final witness, MIT economics professor Michael Whinston, disputed Google’s arguments that it competed with Microsoft for exclusive installation on smartphones and that its payments to Apple were simply payments to a distributor. Google CEO Sundar Pichai also testified, focusing on the quality of Google’s Search product as a key driver in bringing internet access to much of the global population.¹¹ In cross-examination, the DOJ scrutinized conversations between Apple and Google over revenue sharing relating to search on Apple’s Safari product and the importance to Google’s business model of being the default search engine.¹²

In addition to government enforcement actions, Google is also defending itself in a class-action lawsuit related to its Android app store. In September it tentatively reached a settlement of claims by consumers and 37 states alleging that Google inflated prices for apps and in-app purchases by forcing developers and users to use its payment service and imposing technical barriers to alternative app stores.¹³ The settlement terms were not disclosed.

A separate but similar suit brought by Epic Games, the developer behind Fortnite, is based on Epic’s claims that Google abuses its dominance of distributing software to personal devices as well as the payment methods provided within such software.¹⁴ The trial in that case began on November 6 and has included testimony from Epic CEO Tim Sweeney and Sundar Pichai.¹⁵ Notably, testimony from Google executives established that internal chat messages were automatically deleted across the company.¹⁶ On December 1, Judge James Donato provided the jury with instructions that it may infer that internal chat messages deleted by Google could have contained important evidence, and he also vowed to pursue a separate investigation into Google’s deletion of potential evidence.¹⁷ In July 2022, Google agreed to pay $90 million to settle a class-action lawsuit with US app developers over similar allegations of anticompetitive behavior related to the Google Play Store.¹⁸ 

Technology M&A

Antitrust enforcers took steps toward blocking two technology deals. The EC issued a statement of objection (SO) regarding Adobe’s acquisition of Figma.¹⁹ The SO laid out the EC’s preliminary conclusion that the transaction would significantly reduce competition in the market for interactive product design tools, where Figma is the clear market leader and Adobe is one of its largest competitors. According to the EC, the deal is likely to create a dominant market player and is a reverse killer acquisition because it would likely result in the discontinuation of Adobe’s design tool. The SO also identified a potential competition theory of harm in two additional markets, finding that the deal would eliminate Figma as a potential competitor for vector editing tools and raster editing tools.

In the US, the FTC filed a complaint challenging IQVIA’s acquisition of Propel Media. IQVIA is a global healthcare data provider, and Propel Media operates a healthcare advertising platform called DeepIntent. DeepIntent is a programmatic advertising platform through which healthcare product providers advertise to doctors and other healthcare professionals. The FTC’s challenge is based in part on a horizontal theory of harm, alleging that Propel’s DeepIntent and IQVIA’s Lasso Marketing products are two of the top three healthcare advertising platforms.²⁰ According to the FTC’s complaint, IQVIA’s increased market share would lead to higher prices, fewer choices, and less innovation and non-price competition.²¹ The FTC also raised the vertical concern that IQVIA’s healthcare data is a vital input to other healthcare advertising platforms. The complaint alleges that the transaction would give IQVIA the incentive to disadvantage rival healthcare advertising platforms by restricting access to such data, hampering rivals and dissuading new competitors from entering the market.²² The FTC’s approach in this case marries traditional horizontal theories of harm for mergers in highly concentrated markets with its aggressive stance on vertical mergers involving data, reflecting the FTC’s ongoing skepticism of transactions involving tech buyers that control critical data.

In another technology deal, private equity firm Thoma Bravo’s acquisition of ForgeRock, the parties avoided a challenge from the DOJ. The DOJ issued a second request due to the overlap between ForgeRock and Ping Identity, a digital identity management company recently acquired by Thoma Bravo.²³ In July, press reports indicated that the DOJ was considering challenging the deal,²⁴ but the parties appear to have successfully convinced AAG Jonathan Kantar to drop the DOJ’s objections at the 11th hour.²⁵ 

Lastly, antitrust concerns likely drove semiconductor design firm Arm to IPO.²⁶ Its IPO comes a little over 18 months after semiconductor manufacturer Nvidia abandoned its $40 billion acquisition of Arm, which had faced a number of antitrust hurdles, including a suit from the FTC²⁷ and extended investigations in the UK²⁸ and EU.²⁹ Softbank, who had taken Arm private in 2016³⁰, was likely faced with a limited landscape of potential buyers in the wake of the intense regulatory scrutiny of the Nvidia transaction. While the abandoned transaction was challenging due to its size and the market presence of the parties, the end result for Arm demonstrates the impact of antitrust scrutiny on tech deals in the current antitrust climate.

^[1] FTC, “FTC Sues Amazon for Illegally Maintaining Monopoly Power” (Sept. 26, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power.
^[2] Statista, “Number of Amazon Prime Members in the United States” (Sept. 25, 2023), https://www.statista.com/statistics/1223385/amazon-prime-subscribers-in-the-united-states/.
^[3] IBISWorld, “Number of Households” (Oct. 12, 2023), https://www.ibisworld.com/us/bed/number-of-households/31/.
^[4] Complaint, FTC, et al. v. Amazon.com, Inc., Case No. 2:23-cv-01495, 108 (September 26, 2023).
^[5] Id. at 115.
^[6] Supply Chain Dive, “How Amazon Shipping could shake up the parcel delivery industry” (Aug. 30, 2023), https://www.supplychaindive.com/news/amazon-shipping-shake-up-parcel-delivery-fedex-ups-competitor/692231/.
^[7] Wall Street Journal, “The Prime Effect: How Amazon’s Two-Day Shipping Is Disrupting Retail” (Sept. 20, 2018), https://www.wsj.com/articles/the-prime-effect-how-amazons-2-day-shipping-is-disrupting-retail-1537448425.
^[8] Order Granting In Part and Denying In Part Defendant’s Motion to Dismiss, De Coster v. Amazon.com, Inc., Case No. 2:21-cv-693 (Jan. 10, 2023).
^[9] Associated Press, “Google’s search engine dominance is at the center of the biggest US antitrust trial in decades” (Sept. 11, 2023), https://apnews.com/article/google-antitrust-trial-search-engine-justice-department-2cfb06271455c7e12c4927959061e832.
^[10] Id.
^[11] The Verge, “Sundar Pichai argues in court that Google isn’t evil, it’s just a business” (Oct. 30, 2023) https://www.theverge.com/2023/10/30/23939043/us-v-google-sundar-pichai-testimony.
^[12] Id.
^[13] Ars Technica, “After class action revoked, Google tentatively settles with 21M Play Store users (Sept. 6, 2023), https://arstechnica.com/tech-policy/2023/09/google-tentatively-settles-play-store-monopoly-case-with-30-states-21m-users/.
^[14] The Verge, “Epic is suing Google over Fortnite’s removal from the Google Play Store (Aug. 13, 2020), https://www.theverge.com/2020/8/13/21368363/epic-google-fortnite-lawsuit-antitrust-app-play-store-apple-removal.
^[15] The Verge, “The Epic v. Google witness list: Andy Rubin, Sundar Pichai, and more to testify” (Oct. 7, 2023), https://www.theverge.com/2023/10/7/23907649/epic-v-google-antitrust-lawsuit-andy-rubin-sundar-pichai.
^[16] The Verge, “Federal judge vows to investigate Google for intentionally destroying chats “ (Dec. 1, 2023), https://www.theverge.com/2023/12/1/23984902/judge-james-donato-investigate-google.
^[17] Id.
^[18] TechCrunch, “Google will reimburse developers $90 million to settle a lawsuit over Play Store earnings” (July 1, 2022), https://techcrunch.com/2022/07/01/google-will-reimburse-developers-90-million-to-settle-a-lawsuit-over-play-store-earnings/.
^[19] European Commission, “Commission sends Adobe Statement of Objections over proposed acquisition of Figma” (November 17, 2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_5778.
^[20] See Complaint for a Temporary Restraining Order and Preliminary Injunction, FTC v. IQVIA Holdings, Inc. and Propel Media, Inc., Case No. 1:23-cv-06188-ER (S.D.N.Y. July 18, 2022), at 3.
^[21] Id. at 6.
^[22] Id. at 3, 41.
^[23] Reuters, “ForgeRock gets DoJ notice seeking information on $2.3 bln go-private deal” (Dec. 22, 2022), https://www.reuters.com/legal/forgerock-gets-doj-notice-seeking-information-23-bln-go-private-deal-2022-12-22/.
^[24] Politico, “In private equity crackdown, DOJ may challenge cybersecurity merger” (July 10, 2023), https://www.politico.com/news/2023/07/10/doj-private-equity-cybersecurity-00105471.
^[25] Bloomberg, “Thoma Bravo, ForgeRock Met DOJ Antitrust Officials” (July 14, 2023), https://www.bloomberg.com/news/articles/2023-07-14/thoma-bravo-forgerock-met-with-doj-to-stave-off-antitrust-suit.
^[26] Reuters, “SoftBank’s Arm soars nearly 25% in market debut to $65 billion valuation” (Sept. 14, 2023), https://www.reuters.com/markets/deals/softbanks-arm-set-debut-nasdaq-after-blockbuster-ipo-2023-09-14/.
^[27] FTC, “FTC Sues to Block $40 Billion Semiconductor Chip Merger” (Dec. 2, 2023), https://www.ftc.gov/news-events/news/press-releases/2021/12/ftc-sues-block-40-billion-semiconductor-chip-merger.
^[28 Gov.UK, “NVIDIA abandons takeover of Arm During CMA investigation” (Feb. 8, 2022), https://www.gov.uk/government/news/nvidia-abandons-takeover-of-arm-during-cma-investigation.
^[29] Reuters, “EU antitrust decision on Nvidia’s Arm deal set for May 25” (Jan. 25, 2022), https://www.reuters.com/technology/eu-antitrust-decision-nvidias-arm-deal-set-may-25-2022-01-25/.
^[30] Id.

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