This article has been written by Riya Dubey, pursuing a Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.
The Platform Commission and Opportunity Act, 2021 is one of the antitrust bills that has been introduced by the US Congress to control the monopoly by the tech companies like Amazon, Apple, Google, and Facebook. This Act will restrict acquisition by the dominant platform that can be a threat to the competition. Under the Act, dominant tech companies will not be able to acquire their competitors, potential competitors and firms, and assets that can strengthen and expand their monopoly in the market. The two most famous examples are the acquisition of Instagram and Whatsapp by Facebook in 2012 and 2014 respectively. This article focuses on the “What is the platform competition and opportunity Act, 2021?” and “what is the impact of this Act on tech companies in the US?”
Everything about “the Platform Competition and Opportunity Act, 2021”
The Act aims to promote economic opportunity and competition in the field of the digital market. It has regulations for controlling certain acquisitions by dominant companies and provisions that consider them as “unlawful acquisition”. And if any provision of this Act or any amendment made by this Act or its applicability is held unconstitutional then the other provisions of this Act and amendments to any person or circumstance will remain valid and will not get affected. The Act focuses on improving merger and acquisition enforcement in the field of the digital economy by shifting the burden of proof on the dominant platform that can harm competition and restrain new competition from entering the market.
What will be covered under “unlawful acquisition”?
As per Section 2 of the bill, the platforms operators which are covered under this Act cannot acquire either directly or indirectly-
- The whole or part of the stock or other share capital of person who is involved in commerce or any activity affecting commerce; or
- The whole or part of the assets of a person who is involved in commerce or any activity affecting commerce.
The acquisition will not be unlawful if the platform operator shows shreds of evidence that:
- The acquisition is as per Section 7A(c) of the Clayton Act; or
- The assets that are acquired or the stocks that they acquired do not:
- Compete with the platform or platform operators for sale or any product and services which are covered in this bill;
- Have any nascent or potential competition to compete with the platform or platform operator for sale or provision of product and service which are covered in this bill;
- Have any impact either directly or indirectly in increasing the market position of the covered platform or platform operator concerning the sale or any provision of product or service;
- Have any impact either directly or indirectly in increasing the ability of covered platform operators in maintaining their position in the market concerning the sale or any provision of product or service.
- Antitrust Laws: It has the same meaning as given in Section 1(a) of the Clayton Act.
2. Commission: It means the Federal Trade Commission.
3. Control: Concerning a person “control” means-
- Holding 25% or more stock of the person;
- Having the right over 25% or more of the profit of the person;
- Having the right over 25% or more of the assets of the person in case of the person’s dissolution;
- If the person is a corporation who has the power to designate 25% or more of the directors of the person;
- If the person is a trust who has the power to designate 25% or more of the directors of the person;
- Having considerable control over the person.
4. Covered Platform: According to Section 3(d) it means an online platform that-
- Has according to Section 4(a) has been designated as “covered platform”-
The Federal Trade Commission or Department of Justice decides whether an entity is covered platform or not. The designation will-
- Be given by the criteria set by Section 3(d)(2)(A)-(C);
- Be issued in writing and should be published in the Federal Register;
- Will be applicable for 10 years from the date of its issuance and it does not matter whether there was any change in the control or ownership until the Commission or Department of Justice removes it from such designation.
ii. At the time when the Commission’s or the Department of Justice’s designation under Section 2(d) of the bill, or any of the 12 months before that time, or in any of the 12 months before the filing of a complaint about an alleged violation of this Act-
- Has at least 50 million active users (US-based) on the online platform; or
- Has at least 1 lakh active users (US-based) on the online platform;
iii. Is owned or controlled by a person having a net annual sales or market capitalization of more than $6 hundred billion, adjusted as per inflation following the Consumer Price Index, at the time of the commission’s or the Department of Justice’s designation as per Section 4(a) or in two years prior that time, or at any time two year prior the filing of a complaint about an alleged violation of this Act;
5. Covered Platform Operator: It means the person who either directly or indirectly owns or has control of the covered platform.
6. Online Platform: It means any website, mobile application operating system, online service, or digital assistant that-
- Allows a user to create content that can be viewed by other users of the platform;
- Have the facilities of offer, sale, purchase, payment, shipping of goods and services;
- Allows user searches or queries or displays a large amount of information.
7. Person: It has the same meaning as is given in Section 1(a) of the Clayton Act.
Removal of covered platform designation [Section 4(b)]
- The Commission and the Department of Justice should consider whether its designation of a covered platform by following Section 4(a) should be removed before the expiration of 10 years if request to the Commission or the Department of Justice is filed by the covered platform operator that shows the online platform is not a critical trading partner anymore;
- The Commission and the Department of Justice shall determine the report filed above within 120 days of its filing; and
- The Commission and the Department of Justice shall agree in concordance before granting a request submitted.
The manner of proceeding (Section 5)
- The Commission, Department of Justice, and Attorney General of the State if having requirements under Section 5(d) can identically enforce this Act, by the identical means, and the same jurisdiction, powers as well as duties as were applicable of the Federal Trade Commission Act or the Clayton Act. A violation of this Act will be considered as an unfair method of competition under Section 5 of the Federal Trade Commission Act.
- If there is a reason with the Commission to believe that the covered platform has violated this Act then the Commission can initiate a civil action against that platform for recovering penalty and seeking appropriate relief in the district court of the US, in its name by any of its attorneys who are designated for such purpose.
- Any attorney general of a State for the violation of this Act can initiate a civil action in the name of that State as parens patriae on behalf of the natural person residing in that state or any district of the US that have the jurisdiction of the defendant can secure relief under this section.
What are the guidelines for enforcement (Section 6)?
- In General- The Commission and the Assistant Attorney General of the Antitrust Division after 1 year from the date of enactment of this Act should issue guidelines outlining policies and its practices jointly for encouraging transparency and averting violations.
- Updates- The Commission and the Assistant Attorney General of the Antitrust Division should update the guidelines issued by them jointly at least once in four years from the date of enactment of this Act.
- Operation- The guidelines that are issued jointly as per Section 6 of this Act doesn’t give any right to any person, State, or, locality, neither it works to bind by the Commission, Department of Justice, or any person, State, or locality to the approach recommended by the guidelines issued.
What action can be taken by the persons injured [Section 8(a)]?
- Except in the case of Section 7(b), if any person suffers any injury in his business or property due to any reason which is prohibited by this Act then the person can sue the defendant in any district court of the US (where the defendant resides, lives temporarily, or has an agent). The amount involved in the controversy does not matter and an injured person can recover threefold the damages suffered by him additionally he gets the cost of the suit.
If the court finds it just, it can charge the simple interest on the actual damage from the date on which the claim was filled to the date of judgment or for the shorter duration therein. To determine whether the amount of interest awarded in this section for any duration is just or not as per the circumstance, the court should only consider-
- Whether either party made any asserted claims or took any defenses which lack in merit and show that the party or representative intentionally acted in a manner for delaying or in bad faith;
- Whether any party or representative of either party has violated any rule or statute applicable on this Act or court order providing for sanctions for delaying behaviour or otherwise providing for speedy proceedings; and
- Whether any party or representative of any party was involved primarily for delaying the litigation or increasing the cost thereof.
What amount of damages are payable to the foreign states and instrumentalities of foreign states [Section 7(b)]?
- Except in the case of point 2 stated below, any person who is a foreign state may not get more than the actual damage that he had suffered and the cost of the suit under Section 8(a).
- To a foreign state, the above point will not apply if-
- That foreign state would be declined under Section 1605(a)(2) of title 28 of the United States Code, immunity in the case in which action is based on commercial activity or any act which comes under the subject matter of Section 8 of the Act.
- That foreign state rejects all defenses that are based upon or are arising because of its status of the foreign state against any claims that is brought against it in the same action only;
- That foreign state involves essentially in commercial activities; and
- That foreign state does not function for commercial activities or actions which are the subject matter of as per Section 8 as a procurement entity for itself or other foreign states.’
Judicial review under this Act (Section 8)
- Generally- Any party who is subject to Section 4(a) (i.e. covered platform designation) of this Act and there is a request for the removal of a covered platform designation according to Section 4(b) then the final order issued by any district court or the final order issued by the commission in an administrative adjudicative proceeding may within 30 days for the date of issuance of the order be reviewed.
- Treatment of findings- In a case of judicial review of a covered platform designation [Section 4(a)] or final order issued by the Commission, the findings of the Commission or the Department of Justice as to the facts, if supported by the shreds of evidence, should be conclusive.
- Injunctive Relief- A person, firm, corporation, or association can sue and have injunctive relief in any court of the US which has jurisdiction over the parties against the loss or damages suffered by him due to violation of this Act.
Impact of this Act on the tech companies of the United States
The number of acquisitions by the big tech giants has increased in the past few years. The Chief Executive of Apple has revealed that in the last six years Apple has acquired about 100 companies. With the increase in the number of acquisitions by the big tech companies, start-ups are not having a fair competitive market and also these companies are getting more data to control under them. The most recent example of this is the acquisition of Fitbit by Google in 2020. Obtaining health and biometric data is going to help Google in its advertising business.
The trend of acquiring the competition by the largest tech firms has distorted the market. It now seems that merger and acquisition is the only deriving force for getting the initial investment to launch a start-up. This is because the venture capital firms who invest in the start-ups are ultimately interested in making money and if the source of profit is the technology sector and is obtained from the mergers with big tech companies, instead of competing with them, the investment dollars will flow that direction.
At present, these big tech companies are not strictly regulated and therefore have created monopolies in the market. They are now able to control the market by controlling the prices, destroying the small businesses, etc. For example, the acquisition of Instagram and Whatsapp by Facebook has not only contributed to Facebook increasing in size and controlling the social media space but has also shared the data of the customers using these platforms.
Instagram was acquired for $1 billion and Whatsapp was acquired for $22 billion in 2012 and 2014 respectively. The deal was reviewed by the FTC but it did not block the acquisitions at the time. These acquisitions gave Facebook direct control over the major portion of the social media space. These three platforms seem to be separate social media sites to its user but Facebook has developed closed data integration between the three platforms.
As per Section 3(d) of the Act, a platform of a certain size or owned by people or companies of a certain size and if that particular acquisition doesn’t hamper the market competition either directly or indirectly then only it can get acquired. The platforms that will get covered under this Act have to show that they are not trying to acquire their competition. We can say that this Act would not have allowed the acquisition of Instagram and Whatsapp by Facebook. At present, the market is being controlled by Apple, Amazon, Facebook, and Google has harmed the small companies and consumers. They have been using various anticompetitive strategies to stifle competition.
This Act will level the playing field and ensure that rules and regulations remain the same for both small start-ups and big tech companies. Of course, the Act is going to have an impact on the tech companies of the US but it is important to keep the regulation for mergers and acquisitions stricter to maintain healthy competition and to regulate the big players in the market. This Act will make mergers and acquisitions difficult for the dominant platforms by banning them to own any business that can create conflicts of interest.
Thus, we can conclude that this Act will promote economic opportunities and competition in the field of the digital market by making provisions that regulate the mergers and acquisitions done by the platforms that are covered under this Act and to declare the acquisition as “unlawful acquisition” if it violates any rule or statute which is applicable on it. The Platform Competition And Opportunity Act, 2021 will regulate mergers and acquisitions to provide a healthy and fair market to small companies or start-ups.
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