Tech antitrust probe: Could FTC reverse past acquisitions?

The Federal Trade Commission's announcement Tuesday that it will step up its antitrust scrutiny of America's five biggest tech companies — ordering Amazon, Apple, Facebook, Google and Microsoft to hand over documents related to their acquisitions of smaller companies — raised the prospect that regulators might seek to unwind deals it concludes were meant to crush competition.

The announcement, an escalation in the FTC's effort to curb the dominance of a handful of tech companies, comes amid a swelling backlash against those companies. But what it will yield is an open question, and tech's advocates reacted strongly, slamming the FTC for a move they said risks chilling fresh innovation.

Alongside the growing FTC scrutiny of tech companies, the Department of Justice launched a broad probe last summer into potentially anticompetitive practices by big tech companies. The House's antitrust subcommittee is expected to wrap up its 10-month investigation into tech companies at the end of March with the publication of a report and the introduction of new legislation based on the findings.

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With its latest special order, the FTC is ordering the companies to turn over information on acquisitions going back 10 years, a step that FTC Chairman Joseph Simons said could lead to tougher antitrust rules or enforcement actions against the tech giants — including splitting apart tech companies by undoing past mergers. "All of our options are on the table," he said.

Robert D. Atkinson, the president of the Information Technology and Innovation Foundation, a think tank funded by tech companies, said an "objective analysis" of past acquisitions "is likely to find that the lion's share have benefited consumers by offering more-valuable products and services at lower cost through greater economies of scale.

"It is deeply concerning that the Commission has indicated this may be a fishing expedition that leads it to retroactively split up companies that have already merged," Atkinson said in a statement. "This risks chilling innovation in the entire technology sector by casting generalized suspicion on common entrepreneurial pathways and business practices that are critical for spurring it."

The orders came in response to 23 days of hearings the FTC held, spanning from late 2018 to June 2019, in which numerous witnesses complained that the big tech companies had for years gobbled up smaller companies, including potential competitors, in transactions that often slipped beneath the threshold for FTC antitrust scrutiny.

"We wanted to get a handle on why they were not reportable, what their transactions look like, whether they were potentially problematic or not and whether there was something we should do about it," Simons told reporters on a call Tuesday.

The antitrust regulator only examines potential mergers and acquisitions if the company to be acquired is above a certain value. That threshold value has shifted over the past decade and currently sits at $90 million.

The five tech giants have collectively acquired more than 500 companies since 2010, according to data provider Pitchbook. Many of those firms have been tiny by comparison. But the powerhouses similarly began small, in someone's garage or dorm room, and the collective effect over years, critics say, has been to stymie the emergence of competition.

"They all started out tiny and grew to where they are now, and the platforms know that, and they have this strategy of buying up these firms before they have a chance to grow into major competitors," said Herbert Hovenkamp, a professor of law at the University of Pennsylvania.

The FTC's order, broad in scope, was backed by a unanimous vote by an FTC commission that often splits along partisan lines, an indication that public discontent with the tech companies may be one of the rare issues these days that transcends red-blue divides — at least a little.

The orders require the five companies to provide a pile of information and documents on the terms, scope, structure and purpose of transactions that each company made between 2010 and 2019. The five targeted companies must identify acquisitions that were not reported to the FTC and the U.S. Department of Justice, and turn over information and documents on their corporate acquisition strategies, voting and board appointment agreements, agreements to hire key personnel from other companies, and noncompete agreements for ex-employees.

"This will be the first time that someone has systematically tried to demonstrate what these hundreds of small mergers actually meant," said William Kovacic, a law professor at George Washington University Law School and a former FTC chairman. "By documenting each of the deals and documenting the strategy that stood behind the transaction, this will offer a valuable perspective into how these companies have developed over the last decade."

The FTC has faced criticism in the past for not doing enough to rein in the tech giants. Last year, for example, critics howled when the FTC announced it was launching a new task force to deal with tech monopolies. Matt Stoller, director of research for a new antitrust-focused nonprofit, the American Economic Liberties Project, called that announcement little more than a change in "seating arrangements."

Stoller said this latest FTC move is a meaningful step toward holding companies accountable. "They're asking for data from companies. That's a real thing," Stoller said.

The time period the FTC plans to review includes the era during which Facebook made some of its most significant acquisitions. Not all of those acquisitions may stand up well to scrutiny, Stoller said. In 2013, Facebook acquired Onavo, a web analytics company whose VPN app collected data about what apps people used most. Leaked documents later showed that Facebook used those insights to identify potential competitors for acquisition. One of those competitors was WhatsApp, which Facebook acquired for $22 billion in 2014.

"It doesn't look good when you spy on your competition," Stoller said. "It's not illegal, but it just doesn't look good."