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The 450 Page Democratic Congressional Staff Report Found that Apple Wields Monopoly Power Regarding their App Store

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In late August Patently Apple posted a report titled "The Antitrust Hearings against big tech will drop the Hammer next Month with a finding that all Players investigated abused their Market Power. We did a follow-up report on October 02 titled "House Antitrust Chairman David Cicilline continues to publicly state that the Four Tech Giants abuse their Market Power."


Representative David Cicilline, the Democrat leading the high-profile investigation into technology giants, had given the press the heads-up that the coming report was going to be brutal and that the tech companies that we all cheer on to some degree were likely to get punished in several ways. None of the four companies would walk away unscathed. Cicilline had been telegraphing that message consistently for months, so it shouldn't come as some big surprise that today's release of the official report is recommending some draconian measures.


What's fascinating is that the Silicon Valley is 99% Democrat leaning for the election, and yet it's the Democrats that are driven to go as far as breaking one or more of the companies up and/or force the companies to spin off parts of their operations. It's very clear that Apple's App Store is one of the issues that will likely come under fire. This is something that the Republicans balk at. 


A Democratic congressional staff report recommends changes to antitrust laws and enforcement that could result in major changes for Big Tech companies like spinning off or separating parts of their businesses or making it harder to buy smaller companies.


In a nearly 450-page report, the Democratic majority staff laid out their takeaways from hearings, interviews and the 1.3 million documents they scoured throughout the investigation. They conclude that the four Big Tech companies enjoy monopoly power and suggest Congress take up changes to antitrust laws that could result in parts of their businesses being separated.


More specifically, the Democratic report found that the four tech companies enjoy monopoly power in the following areas:


Apple: distribution of software apps on iOS devices.

Amazon: most third-party sellers and many suppliers.

Facebook: online advertising and social networking.

Google: online search.


A Few Key points of the Report


  • Preventing dominant platforms from preferencing their own services, instead making them offer "equal terms for equal products and services."
  • Imposing structural separations and prohibiting dominant platforms from entering adjacent lines of business. This means that the Democratic staff recommends solutions including forcing tech companies to be broken up or imposing business structures that make different lines of business functionally separate from the parent company. For example, this could include a scenario like forcing Google to divest and separate from YouTube, or for Facebook to do the same with Instagram and WhatsApp. Subcommittee Chairman David Cicilline, D-R.I. has previously referred to this method as a type of "Glass-Steagall" law for the internet, referring to the 1930s era law that separated commercial from investment banking.
  • Instructing antitrust agencies to presume mergers by dominant platforms to be anticompetitive, shifting the burden onto the merging parties to prove their deal would not harm competition, rather than making enforcers prove it would.
  • Requiring dominant firms to make their services compatible with competitors and allow users to transfer their data.
  • Requiring the Federal Trade Commission to regularly collect data on concentration.


For more on this, read the full CNBC report.


CNN's report added a different points. Their report noted that under Chairman David Cicilline, the antitrust subcommittee collected more than 1 million documents from the companies and interviewed academics, business leaders and even many of Big Tech's rivals — including some Fortune 500 companies concerned about the tech giants' power, said an attorney for the subcommittee.


"These firms have too much power, and that power must be reined in and subject to appropriate oversight and enforcement," the report said. "Our economy and democracy are at stake."


The CNN report further noted that "Rep. Ken Buck, a top Republican on the subcommittee, released his own report on Tuesday largely agreeing with Cicilline's report, though he differed on some of the proposals.


"These firms have too much power, and that power must be reined in and subject to appropriate oversight and enforcement," the report said. "Our economy and democracy are at stake."


"Many of the factual findings detailed in the report are undeniable," Buck wrote. "The majority staff accurately portrays how Apple, Amazon, Google and Facebook have used their monopoly power to act as gatekeepers to the marketplace, undermine potential competition, and pick winners and losers."


Buck said that some of the Democratic-led report's recommendations were "non-starters," such as the proposal to force platform companies to separate their lines of business. But Republicans are on board with other ideas, such as giving more resources to antitrust enforcers and amending the nation's antitrust laws to make it easier for them to block mergers and bring and win cases against misbehaving firms."


The findings in the report pointing to Apple's App Store being a monopoly will only assist the EU Commission's own investigation in pushing for massive changes to the App Store along with untold billions in fines." 


Apple's First Reaction


"We have always said that scrutiny is reasonable and appropriate but we vehemently disagree with the conclusions reached in this staff report with respect to Apple. Our company does not have a dominant market share in any category where we do business.


From its beginnings 12 years ago with just 500 apps, we’ve built the App Store to be a safe and trusted place for users to discover and download apps and a supportive way for developers to create and sell apps globally.


Hosting close to two million apps today, the App Store has delivered on that promise and met the highest standards for privacy, security and quality. The App Store has enabled new markets, new services and new products that were unimaginable a dozen years ago, and developers have been primary beneficiaries of this ecosystem.


Last year in the United States alone, the App Store facilitated $138 billion in commerce with over 85% of that amount accruing solely to third-party developers. Apple’s commission rates are firmly in the mainstream of those charged by other app stores and gaming marketplaces.


Competition drives innovation, and innovation has always defined us at Apple. We work tirelessly to deliver the best products to our customers, with safety and privacy at their core, and we will continue to do so."


Apple is likely to present a more detailed response once the report has been digested, so stay tuned. 


While we shouldn't rule out Apple fighting hard with guns blazing to keep their App store in tact, it's difficult at this juncture to see Apple escaping some form of damaging blow to a cornerstone of their business. However, if the Republicans regain the House and retain the Senate, Apple just might not be in danger of losing the App Store as the Republicans have made it crystal clear that they aren't for measures demanding massive structural changes to the top four tech giants. We're definitely living in strange political times.  


Remember that Apple's CEO will now be preparing to attend yet another Senate hearing over the tech industry’s key legal shield, Section 230 of the Communications Decency Act on October 28th.


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