FTC Commissioner Rohit Chopra on Big Tech’s antitrust reckoning, and implications for investors

FTC Commissioner Rohit Chopra speaking at the 2019 GeekWire Summit. (GeekWire Photo / Dan DeLong)

The Federal Trade Commission is ramping up its investigations into Big Tech, and one of the agency’s toughest enforcers visited Amazon’s backyard to discuss the state of competition in the industry with me this week.

FTC Commissioner Rohit Chopra spoke at the GeekWire Summit in Seattle on Tuesday in a wide-ranging interview that covered antitrust law, the investment landscape in tech, and lessons learned from his background regulating the financial sector. The interview — available as a podcast, video and edited QA below — provides a glimpse into how one of the enforcers charged with reining in the tech industry is thinking about competition and related economic dynamics.

Chopra is one of two Democrats on the FTC. He has a history of pushing his colleagues to enforce privacy and competition laws more aggressively. Chopra was particularly critical of the FTC’s $170 million settlement with YouTube and $5 billion settlement with Facebook over privacy violations, claiming those penalties were too small to meaningfully change the companies’ behavior.

The FTC and Department of Justice have reportedly divvied up investigative responsibility for America’s biggest tech companies. In July, Facebook confirmed it is being investigated by the FTC. Bloomberg reports the agency is also interviewing third-party sellers on Amazon to determine whether the company is abusing its dominance.

Though Chopra wouldn’t comment on the FTC’s investigations directly, he did detail the types of violations he and his colleagues are looking for:

If, in fact, there are dominant firms that are actively acquiring potential competitors to maintain their monopoly, that is something that we have to look at. If they are engaging in unlawful contract terms with small businesses or with users, that is something that we need to look at. If they are discriminating in terms of who they might be sharing data with to deter entry or to deter potential challengers, we have to tailor the remedy to where the anti-competitive conduct might be. Of course, mergers is a very, very significant interest for me. I have raised the question, what would the world look like today if Google had not bought YouTube, or if Facebook had not bought WhatsApp or Instagram, or even if Amazon had not bought Zappos? What would the world look like?”

Chopra also said he’s concerned about the investment landscape with such powerful incumbents in the technology industry.

“I think a lot of investors should be concerned, especially venture investors,” he said. “I hear from many of them that they feel they can’t invest in certain firms unless there’s a potential exit opportunity to one of the dominant incumbents. That is worrisome.”

Chopra’s oversight of the tech industry is influenced by his background regulating the financial sector. He helped Sen. Elizabeth Warren establish the Consumer Financial Protection Bureau following the 2008 financial crisis and specialized in student lending within the new agency. The commissioner said he sees similar “smoke signals” in the technology industry that were evident in banking before the crash.

Read our interview with Chopra below and check out all of our GeekWire Summit coverage here.

Monica Nickelsburg: You helped co-found the Consumer Financial Protection Bureau, which was Elizabeth Warren’s brainchild, and you have this long history of oversight in the financial sector. How does that impact the moment we’re in now and how you think about the technology industry in the data economy?

Rohit Chopra: If we rewind a decade ago and we think about the roots of the financial crisis, a key part of that problem was the failure of our regulators. A lot of the smoke signals were there, and there was a lot of excuses and a lot of inaction. Also, it was the result of a degradation of oversight and enforcement of the long-held structural separation between banking and commerce toward responsible, vigilant lending. I think hard about that. I see a federal government that preempted state laws for states that wanted to do something, and I see the smoke signals now of really some troubles with Big Tech, where we are worried about do we live in a country where you can start a business to challenge them, or do you just have to start one to eventually sell and surrender to them?

I hope that some of the lessons from the financial crisis do inform how we think about some of these problems of industry structure and make sure that we are holding everyone accountable, big or small. One of the things that I am very worried about at the FTC is when a small firm breaks the law, we’re almost very quick to put them out of business and hold the founder of that firm individually liable. But when it comes to massive lawbreaking repeat offenders for some of the largest firms, they pay a fine and the top executives avoid all scrutiny, and I just think that’s wrong.

MN: Wall Street has the SEC. Should there be a separate agency to govern internet companies? Because the FTC has a lot to do. You’re looking at Facebook, and you’re looking at furniture companies. You’re looking at every type of company, basically, in the U.S., so how can you apply the resources necessary to deal with an industry that many think has just gotten out of control?

Rohit Chopra: If we look around the globe, a lot of agencies that enforce antitrust, that are protecting privacy, protecting consumers, we shouldn’t really divide that up. We should think about it holistically. Abuse of data and violations of privacy are sometimes connected to dominance. So we actually have a lot of tools we can use, and I don’t spend my time trying to think about how Congress can change the system. I want us to use the tools we have very vigorously and effectively because the costs of inaction I think are growing. When I look at the data and I see drops in investment, especially venture funding to sectors of the digital economy that are very concentrated, that gets me worried. When I see massive violations of privacy by some large firms, that gets me worried. I want to focus on enforcing the law fairly, equitably, and making sure that new entrants, that they have a fair shot, that they don’t feel they just have to surrender or abide by the regulations that are imposed by the tech titans.

MN: It doesn’t seem like you feel like your colleagues on the FTC are really using their tools to their full effect right now. I’ve been reading your dissenting opinions, and it does speak to the increasing partisan nature of the FTC, which once was sort of a sleepy agency that really focused on consensus. But it seems like now you and your colleague are the two Democrats on the FTC and there are three Republicans, and we’re seeing more votes along party lines. I’m particularly thinking about the $170 million settlement with YouTube and the $5 billion settlement with Facebook. Why did you think those were not effective? I mean, they’re record-setting.

Rohit Chopra: Well they absolutely made for great headlines. YouTube’s $170 million, it sounds great, but how much did they profit from the illegal collection of data from children? I believe that their profit was way in excess of $170 million. The question becomes, for some of the largest corporations on the planet, yes, those numbers may sound big, but is that a penalty or is that simply an incentive to take the risks and break the law? The problem I have with that is if a small firm makes one little mistake, they can be decimated, but if you are a larger firm, I don’t think you should be able to avoid that scrutiny. I don’t agree with what you said about the partisan, I think that’s a complete myth. There’s actually very few votes that are partisan nature. You actually see more scrutiny of this industry across the ideological spectrum.

GeekWire civic editor Monica Nickelsburg interviews FTC Commissioner Rohit Chopra at the GeekWire Summit. (GeekWire Photo / Dan DeLong)

What I think you see is a protection of the status quo versus a fresh look, and I think there is a sense that we do need to take a fresh look about how we look at some of these firms. I look back at the Microsoft antitrust action and without that action, there would be no Google, Facebook, and Amazon in my view. That set the stage for unbundling, for more entry, and for a more open digital economy. I look at how we should be thinking about what is the public’s role in encouraging more entry, more investment, more innovation, because we see that sectors can quickly become dominated and that can really impede a lot of innovation, and I fear we’re missing out if we don’t fix those problems.

MN: But Microsoft ended up settling that. It wasn’t broken up, and they did make some concessions, but I think you could make the argument that what it really did was just kind of distract Microsoft long enough for Google and Facebook to emerge. Is that what you see happening with the antitrust crackdown that we’re seeing now, or do you expect some real big systemic changes to come out of this?

Rohit Chopra: Well, it depends on the facts. To be clear, Microsoft was ordered to make some substantial changes by multiple jurisdictions around the world. They were not able to exploit their dominance in their operating system or wherever they may have been dominant to preference themselves. That is a concept that has been used throughout history to remedy abuse of dominance, as they call it in Europe, or antitrust problems wherever they might be. We’ve seen this with how big Hollywood studios abused their position when they controlled movie theaters, railroads and coal mines. This is not necessarily a new problem, in some ways, so I would not agree that it was about distraction, though of course, we learned a lot from the deposition of Bill Gates. We learned a lot from the documents that were collected in that investigation, and we learned a lot from that public trial. If there are allegations of anti-competitive conduct, and we as the enforcers do an investigation and believe there are problems and need to seek a remedy, then we should do that, because the costs of inaction, again, I think are pretty high.

MN: Is breaking up these companies the solution to all our problems?

Rohit Chopra: Well, I’m an enforcer and a regulator, so for me, I can’t make that judgment until we actually investigate if there’s unlawful conduct. I do think people use the term “break up” a little bit colloquially. Break up does not mean put out of business. Break up can mean spinoffs. It can mean divestitures. It can mean separations between certain lines of business. That’s certainly been done in many parts of our economy if there’s anti-competitive conduct. I mentioned earlier the separation of banking and commerce. We do not permit financial institutions to also control commercial and industrial companies for good reasons. So yes, there may be legislatures that want to look at creating those separations. Antitrust enforcers first look to see if there’s violations, and then we seek a remedy that addresses to solve that problem.

If, in fact, there are dominant firms that are actively acquiring potential competitors to maintain their monopoly, that is something that we have to look at. If they are engaging in unlawful contract terms with small businesses or with users, that is something that we need to look at. If they are discriminating in terms of who they might be sharing data with to deter entry or to deter potential challengers, we have to tailor the remedy to where the anti-competitive conduct might be. Of course, mergers is a very, very significant interest for me. I have raised the question, what would the world look like today if Google had not bought YouTube, or if Facebook had not bought WhatsApp or Instagram, or even if Amazon had not bought Zappos? What would the world look like? Would we have more dynamism? Would we have more features and offerings for consumers? We don’t know. We don’t have a crystal ball. But we always worry about, if firms are engaging in mergers to cut off a potential competitor, we’ve got to think hard about that.

MN: You are conducting some of those investigations alongside the DOJ. Should our investors in the audience who’ve invested in some of these companies be worried?

Rohit Chopra: Investors need to think very broadly about what does the tech sector look like? I think it depends where you are. If you’re equity side, debt side, if you’re a venture capital, private equity. I think a lot of investors should be concerned, especially venture investors. I hear from many of them that they feel they can’t invest in certain firms unless there’s a potential exit opportunity to one of the dominant incumbents. That is worrisome, if venture investors feel that way, because it’s really distortionary of the type of innovation we might see in the economy. We want to have capital markets and a marketplace that everyone with great ideas will be able to challenge incumbents without fear of being copied or without fear of being retaliated against. That’s what makes very healthy markets, and I really reject the argument that we need to let the biggest firms just stay dominant and get bigger in order to compete with China. That is a very, very slippery slope, and really the best of America has been when people are able to come up with disruptive ideas and really fundamentally change how consumers and businesses interact. And you know what? I think if there is unlawful conduct and it gets remedied, those companies may emerge even stronger. Some of the conduct that was alleged in the Microsoft case was very, very troubling. But look at Microsoft today. It still remains one of the most valuable enterprises on the planet.

MN: And it may have escaped some of the current controversy surrounding its peers because it went through that early in its history.

Rohit Chopra: That’s possible. We know throughout history, even if we go back to some of the origins of ATT, the anti-competitive conduct and unlocking some of that intellectual property, that incubated massive innovation that even fueled some of the fundamentals of the internet and the digital economy. For me, the potential upside of more business starts, more rivalry, more wealth creation, I think the upside can be pretty big.

MN: Let’s talk about privacy because part of your job is making sure that there’s a competitive landscape, but the other part is protecting consumers. We just had today Twitter disclose that email addresses and phone numbers that Twitter collected from its users for security purposes were actually used in targeted advertising. Does this sound familiar to you at all? We may have heard this story before. Is FTC looking into this, and what does it mean for Twitter users and for the company itself?

Rohit Chopra: I don’t want to come in on any individual situation, but we need to think about why are some of these data abuses occurring. There’s data security, there’s privacy violations. My hypothesis — and one thing that I hear a lot from market participants — is the reason for some of this aggressive acquisition of data is because many firms feel desperate to get it all, because if they don’t assemble rich data on every single user, every single firm operating on their platform, they feel they’ll be at a competitive disadvantage. We need to look at the intersection, too, of privacy and competition. One of the things I raised in the Facebook decision and the YouTube decision was, was Facebook’s early and repeated violations of the 2012 FTC order motivated by not just financial incentives but its desire to become dominant among third-party developers. Some of the similar issues existed when it comes to YouTube.

We need to diagnose the fundamental drivers of some of these abuses and address them. And I see, I don’t want us to follow what Europe sometimes does. They have obviously a different set of laws, a different set of systems. But you see, Europe often sanctions firms with a few billion euros, a few hundred million euros. I worry that doesn’t change much at all. We see how markets react here. The stock goes up, everyone breathes a sigh of relief, because, let’s take for Facebook, in the Facebook FTC decision, there was no meaningful restrictions on data collection use and sharing. There was not only no individual liability, Mr. Zuckerberg and Ms. Sandberg were not even interviewed or thoroughly investigated, and the company got a broad release of all potential liability before a certain date, including for Mr. Zuckerberg and Ms. Sandberg. That sends the wrong message. These big dollar numbers don’t fundamentally address the problems at those firms, and they send a message to smaller companies that there’s two types of justice. A small firm gets the hammer and a large firm gets to write a check.

MN: What kind of enforcement do you think would have meaningfully changed Facebook’s behavior, if you had written the decision?

Rohit Chopra: I argued that the investigation was not fully complete. I don’t think you could have really gotten to the core of who made those decisions to violate the law repeatedly and why it happened until you actually assess some of the individuals who may have made those decisions and called the shots. One of my colleagues has also — and I’ve argued this myself — talked about that if they were unwilling to cooperate, then perhaps we should have gone to trial. Just like I referred to what we learned and woke up to in the Microsoft trial with Bill Gates and others, that gave a lot of understanding to the marketplace, and I would have continued it. I also would have certainly looked to fundamentally address the incentives with behavioral advertising. I am very worried about the impact of behavioral advertising, writ large on our society, on fair competition. I think it raises some serious ethical and economic issues we have to address, and there’s no question in my mind that Facebook’s privacy violations were related to its financial incentives and behavioral advertising.

MN: Facebook has argued that the FTC couldn’t prove that Cambridge Analytica caused harm to consumers. I’d venture to guess you disagree with that. But it speaks to the fact that the way antitrust law has been enforced, and the way that the FTC has enforced its charter broadly, has to do with prices. We’re living in a free, quote unquote, free services era so how do you prove harm to consumers now?

Rohit Chopra: I’m glad you said free quote-unquote, because to me free is the wrong descriptor for the exchange that occurs online. If we look at really what’s happening, it’s much more like a barter. You are handing over data in exchange for something and if a firm is dominant they can constantly change the terms of service or the user agreement to collect more and more data from you. That data is extremely valuable. To me, that is like a price hike.

The other thing we have to think about it is not just price but it is also quality, how the product changes occur. If there is intense rivalry, you will see dimensions of quality improve. I was one of the first users of Facebook, 15, 16 years ago, whenever it was. One of the value propositions of Facebook was that it was a much more private and controlled environment compared to Myspace. It was competing on privacy. If we did have a more open architecture, or a more competitive environment, we would actually see a race on some of those quality indicators. I’m not saying it’s easy to measure, but I think the intense focus on the word free is a complete red herring.

MN: How could we see antitrust enforcement change if a Democrat is elected in 2020?

Rohit Chopra: I don’t think about that because I don’t think a lot of the approach to enforcement is actually that partisan. I talk to state attorneys general constantly. I meet with them regularly. They have publicly announced, on a bipartisan basis, a multi-state investigation into Facebook. They have publicly announced a multi-state investigation into Google. I’m not really sure that there is all this partisan difference on this. I think there is a growing consensus that we need to do more to enforce the law effectively at every level and that the costs of not doing so are greater. But whoever is in office, I hope that they will be committed to making sure that America maintains its position as one of the most innovative places in the world and the way we will do that is to have a hyper-competitive consumer tech economy. And the way to do that is also to make sure that the market is free of distortions that can arise from anticompetitive behavior.

MN: Obviously you don’t think that this is a partisan issue, but I do think that each party is approaching it in very different ways. You and your colleague Kelly Slater on the FTC are calling for a reimagining of antitrust law. You’ve made the case that the law is already there, just the way that we’re enforcing it is…

Rohit Chopra: I’m not saying to reimagine, I’m saying let’s enforce it and use it. Again, if you look at the state attorneys general, you see people on both sides of the aisle wanting to energetically enforce this law. I will say, I hear from the kind of lobbyist class who want to make this a partisan issue, because I know that they get some political advantage of it. But I think where we have to focus on is facts and data. So even just your question, should America’s biggest tech companies be broken up, just the frame of that sometimes is used by lobbyists to create fear.

MN: But it’s also the platform of one of the leading presidential candidates.

Rohit Chopra: What does it mean though? How would it work? Everyone has different proposals for that. And how it’s been done in the past to remedy anticompetitive conduct again is not to shut down a company, but to sometimes create separations, create more access to intellectual property, more openness to access markets. It really just depends.

MN: If you could give the leaders of America’s biggest tech companies one piece of advice, what would it be?

Rohit Chopra: I would have more than one. I think it’s very important for them to remember that they also are part of firms that were challenging the status quo, that were challenging the way things were done and were challenging sometimes dominance. We should want to live in a country where you can do that. We should not live in a country where you have to fear retaliation by the gatekeepers. We should not live in a place where even with the best idea possible, that you can’t get funding to go up against them. We don’t want to live in a place where you feel you have to sell before you’ve really nurtured the business to where you want to get to it. I hope that they will think about that. But also, they should know that no individual is above the law. There is no billionaire exemption in our antitrust laws or our privacy laws and if they are part of violating the law, they’ll need to be held accountable.

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