While Amazon.com Inc. and other U.S. technology companies face potential enforcement action from regulators in 2020, antitrust experts say history suggests that rule changes are more likely than a big tech breakup.
U.S. Federal Trade Commission Chairman Joseph Simons recently hinted that regulators could come to a decision on one or more antitrust probes of large tech companies in 2020. If regulators find evidence that Amazon engaged in anti-competitive practices and file a federal complaint, the company could face enforcement actions ranging from new regulations to an order to split up assets. Any legal action is likely to take months if not years to resolve due to additional litigation and appeals.
Amazon could adapt to new regulations, but an order to separate business segments would be particularly problematic, said Franklin Turner, an attorney with McCarter & English LLP, who represents companies ranging from multinational corporations to small businesses.
"It could cause deleterious impacts to revenue streams and profit forecasts," Turner said in an interview. "It could affect the company from top to bottom, everything from the attractiveness of the company to investors to all sorts of business endeavors."
Amazon did not respond to inquiries for this story. But antitrust experts say breakups are among the most severe — and rare — actions that regulators can take.
"The investigation is only part one, the agencies then have to go to court to prove a case to a judge — if they bring one," Avery Gardiner, senior fellow for Competition, Data, and Power at the Center for Democracy & Technology, a nonpartisan, nonprofit organization focused on digital rights policy, said in an interview.
U.S. Attorney General William Barr has prioritized probes of multinational digital companies such as Amazon, Apple, Facebook and Google.
The FTC is under "tremendous pressure" to complete its probe in 2020, given that enforcers are looking at company behavior that occurred over the past 12 to 24 months, said Gardiner, a former U.S. Department of Justice lawyer. The U.S. election cycle will likely compound that pressure, she added.
"I think as a general matter they might prefer to try to wrap things up with the administration they know," she said.
The FTC declined to comment for this story. The agency in 2019 began investigating Amazon's relationship with the company's third-party sellers, which account for more than half of Amazon's total unit sales online.
Separately, the DOJ announced in July 2019 that it was reviewing whether Amazon or leading digital platforms such as Facebook Inc., Apple Inc. or Alphabet Inc.'s Google LLC engaged in anti-competitive practices.
Antitrust experts said regulators could bring a case against Amazon if they find proof that the company is favoring its private-label goods over those of third-party sellers.
Amazon officials told lawmakers in November 2019 that it uses "aggregated data" collected from sales on its platform to improve the shopping experience, adding that its private-label strategy is informed by a variety of factors, including "the cost of the product and the price of similar, popular products offered in Amazon's store and by competitors." As of 2019, Amazon offered about 158,000 private brand products across 45 brands in its Amazon store.
Tom Forte, an analyst with D.A. Davidson who has been following tech companies since the 1990s, said in an interview that a key question was whether Amazon used that data to make decisions about which private label products to offer.
"Does Amazon see that there's a lot of this product selling on our platform, [and decide] now I'm going to create the Amazon private label version of it?" he asked.
Forte said regulators may also be looking at whether Amazon is using data from its cloud computing unit Amazon Web Services Inc. to suppress competitors and promote private-label products.
If regulators find evidence to support that, they could ask the court to order a spinoff of AWS, which recorded $25.6 billion in revenue in 2018. However, such an action would be rare.
Big Tech acquisitions
Amazon and the other firms have grown through a mix of acquisitions and organic growth, but enforcers have been reluctant to make competitive concerns about deals the basis of a lawsuit, the experts said.
According to the independent nonprofit group American Antitrust Institute, regulators have only challenged one deal out of more than 700 acquisitions by big tech firms between 1987 and 2019.
Google accounted for 32% of the big tech total with 234 deals, followed by Microsoft Corp., with 221 acquisitions, or 31%. Amazon had an 11% share with 83 deals. Some of Amazon's biggest deals occurred in the last few years, including the purchase of Whole Foods Market Inc. in 2017 and online pharmacy PillPack in 2018.
U.S. enforcement agencies have an "incredibly weak record of enforcement in digital technology," said Diana Moss, president of AAI, in an interview. Many regulators are concerned about stifling competition, she added.
"The question is whether the agencies are going to break out of the historical mode, which is not to bring cases," Moss said.
Forte said regulators may be looking at Amazon's deal with Whole Foods, which enabled the company to jump into the grocery business and expand its physical footprint with stores across the U.S.
Sen. Elizabeth Warren, D-Mass., who is running for president, said in early 2019 that under her administration, regulators would work to undo mergers deemed anti-competitive, pointing to Amazon's Whole Foods purchase, among other big tech acquisitions ripe for review.
If a federal case is filed this year, the more likely legal remedy would be behavioral, antitrust experts said.
The court could, for example, require Amazon to give third-party retailers some period of notice before changing a policy or order the company to put up firewalls that prevent business units from communicating, Gardiner said. That may include requiring Amazon to restrict some employees' access to data on which products are trending online.
While the agencies could ask a court to order a breakup of assets, and a district court could agree to do so, Andrew Gavil, a law professor at Howard University School of Law, said in an interview that "absent evidence of extensive and egregious wrong-doing," a complete breakup of a tech company's assets seems "very far-fetched."
The popularity of services such as Amazon's e-commerce platform also could undermine the case that big tech's growth can be explained primarily by anti-competitive conduct, he added.
"They have grown because people like their products and services and use them," he said. "You can’t break up a company for success."