Trusting In Antitrust

 

On May 9th, 2019, Chris Hughes wrote an article for the New York Times arguing that Facebook, the company that he co-founded with Mark Zuckerberg, should be broken up. He refers to Facebook as a company with more power than the government and that it has gained the title of the monopoly of the social media industry, “Mark’s influence is staggering, far beyond that of anyone else in the private sector or in government. He controls three core communications platforms — Facebook, Instagram, and WhatsApp — that billions of people use every day,” (“It’s Time to Break Up Facebook.”). This accusation requires a formidable understanding of antitrust laws and what purpose they intend to satisfy. Furthermore, the historical context of what brought about the laws in the first place is necessary as well.

First, it’s important to understand trusts and what they are. Investopedia defines a trust as “a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary,” (Kagan). In the case of corporate trusts, big companies can have owners of other companies becoming trustees. This kind of relationship is defined as collusion and it can lead to cartels and monopolies. When two or more businesses collude to determine prices, they have formed a cartel. When a large company has gained dominion over the competition, becomes a price maker rather than a price taker, and seeks to do away with any opposition it is labeled as a monopoly.

The first antitrust law was the Sherman Act of 1890. It was passed unanimously among the House of Representatives and almost unanimously in the Senate with a vote of 51-1 (“Sherman Anti-Trust Act (1890).”). This was the first act to truly combat the presence of monopolies in the United States, focusing primarily on the handlings of trusts and how a company could achieve domination over all other companies in an industry using them. According to the Act, “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize,” became illegal (“The Antitrust Laws.”). As Ohio Republican John Sherman said to Congress, “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessities of life. If we would not submit to an emperor, we should not submit to an autocrat of trade with power to prevent competition and to fix the price of any commodity,” (Hughes).

However important the Sherman Act proved to be as a checkpoint in the history in the laws of Antitrust, it failed to be of much support in United States v. E. C. Knight Company in 1895 repealing its impact; so much so that from then onward to 1911, the government regulations of trusts seemed to have vanished. The errors with the Sherman Act were that it failed to establish a firm legal precedent. Some of the vernacular used to describe trusts or other important pieces of what it was meant to combat were written too vaguely (“Sherman Anti-Trust Act (1890).”).  Though the E. C. Knight sugar company owned as much as 98 percent of the United States’ oil refineries (definitely a clear sign of a monopoly), it still survived the trial.

Then, in 1911, the first example of the Sherman Act being put into use successfully came along. Ida Tarbell, one of the first investigative journalists, wrote a book explaining how the Standard Oil Company came into existence and how its power only grew as owners of other oil companies became trustees (Tarbell). Oil, which had once been a misunderstood nuisance, became a crucial commodity and John D. Rockefeller’s interest peaked. He went on to form the Standard Oil Company and take advantage of the lack of trust laws and even continued with the abuse of trusts after the Sherman Act was passed.

The findings within Tarbell’s book would be used in the case. The Standard Oil Company faced off against the Supreme Court and was decided guilty of betraying the Sherman Act of 1890 and thus was broken up into 34 separate smaller companies (“Sherman Anti-Trust Act (1890)”).

Not long after, the Clayton Act of 1914 was put into place, supplementing the Sherman Act by creating a rigid precedent and clarifying the aforementioned uncertainties. Before, it had been easier to argue against any laws regarding antitrust because they had been loosely constructed and didn’t have cases prior to point to. Now, there was little left to infer: the rules were set.

These laws, along with various others similarly dedicated to opposing and preventing monopolies were kept in place throughout the 20th century to present. Some exceptions came about during the 1970s and 80s when overall cynicism toward antitrust laws began to rise. Influential books like Robert Bork’s The Antitrust Paradox encapsulated the government’s leaning toward antitrust at the time. Still, though there were some examples of antitrust not being used to the extent that some argue it should have, it was able to break apart big companies like AT&T and Microsoft (Hughes).

Today, however, technology advances at extraordinary rates and the law is too slow to keep up. Companies in the United States become more and more concentrated and as a result, it becomes less likely to promote competition (Grullon). A side effect of this is that there is less innovation as there would be without the monopolies. Though there was another case brought against Microsoft pertaining to emails in 2018, this is still not the kind of government action that people like Chris Hughes argue for in retaliation to Facebook’s grip on the social media industry or Google’s monopoly over internet search engines, “As markets become more concentrated, the number of new start-up businesses declines. This holds true in other high-tech areas dominated by single companies, like search (controlled by Google) and e-commerce (taken over by Amazon),” (Hughes).

Having reviewed the antitrust laws in question and what it is that they are meant to prevent, does Facebook fall under any categories that would solicit a response from the Supreme Court? As Hughes points out, yes. The Sherman Act and Clayton Act both address the legality of preventing competitive behavior in the market and Facebook has attempted to guarantee in its own way that those on Facebook needn’t leave the website for internet videos (Koetsier). Also, around the time that Vine was being introduced to the world, Facebook was certainly not welcoming, “In 2012, Twitter introduced a video network called Vine that featured six-second videos. That same day, Facebook blocked Vine from hosting a tool that let its users search for their Facebook friends while on the new network. The decision hobbled Vine, which shut down four years later,” (Hughes).

Arguably, these actions are in violation of the antitrust laws and may be used in a major court case against Facebook, should one ever be presented. In the meantime, senators like Elizabeth Warren are advocating that big tech corporations should be broken apart (Herndon), meaning that people involved in the government are taking notice of the rising powers of the large industries. As the 2020 election approaches, presidential candidates besides just Warren are likely to comment on what will be done to these massive businesses. As Hughes says, “[A]n aggressive case against Facebook would persuade other behemoths like Google and Amazon to think twice about stifling competition in their own sectors, out of fear that they could be next,” (“It’s Time to Break Up Facebook.”).

It is uncertain whether or not these multi-billion dollar companies will be broken up or fined in the near future, but it is difficult to suggest that Google, Amazon, and Facebook are not monopolies. With this newfound understanding of antitrust, a critical eye may be taken to the state and size of businesses in our economy today. If Facebook is really doomed to be broken up, its prospects don’t sound as bad, nor does a boost in innovation (Hughes).

 

Works Cited:

 

Hughes, Chris. “It’s Time to Break Up Facebook.” The New York Times, The New York Times, 9

May 2019, www.nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebook-zuckerberg.html.

 

“Sherman Anti-Trust Act (1890).” Our Documents – Sherman Anti-Trust Act (1890),

www.ourdocuments.gov/doc.php?flash=false&doc=51.

 

This is a link to the government’s account of the Sherman Act of 1890.

 

“The Antitrust Laws.” Federal Trade Commission, 15 Dec. 2017,

www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.

This is a guide to antitrust laws made by the federal trade commission.

 

“The Sherman Anti-Trust Act and Standard Oil” (PDF). University of Houston. January 9, 2014.

http://www.digitalhistory.uh.edu/teachers/lesson_plans/pdfs/unit7_8.pdf

 

“The Clayton Antitrust Act.” US House of Representatives: History, Art & Archives,

history.house.gov/HistoricalHighlight/Detail/15032424979.

 

Tarbell, Ida M. The History of the Standard Oil Company. Belt Publishing,

2018.

The Crafton Hills Library has a copy of this book and I would certainly recommend it to anyone interested in the origins of antitrust.

 

León, Concepción De. “The Redemption of Chris Hughes.” The New York Times, The New York

Times, 21 Feb. 2018, www.nytimes.com/2018/02/21/books/review/chris-hughes-facebook-fair-shot.html.

 

There wasn’t a specific name or any credit given to the original image of Chris Hughes here on the New York Times website so I just cited the article itself. His story may not be a necessary piece in understanding the importance of antitrust, but he still plays a major role in the subject today and has a very interesting backstory that you can read about through this link.

 

The image of Ida Tarbell is under public domain and was taken in 1904.

 

Grullon, et al. “Are U.S. Industries Becoming More Concentrated?” SSRN, 31 May 2015,

papers.ssrn.com/sol3/papers.cfm?abstract_id=2612047.

 

“United States of America, Appellee v. Microsoft Corporation, Appellant, 253 F.3d 34 (D.C. Cir.

2001).” Justia Law, law.justia.com/cases/federal/appellate-courts/F3/253/34/576095/.

 

Koetsier, John. “Facebook: Native Video Gets 10X More Shares Than YouTube.” Forbes, Forbes

Magazine, 13 Mar. 2017, www.forbes.com/sites/johnkoetsier/2017/03/13/facebook-native-video-gets-10x-more-shares-than-youtube/#8fbc3bc1c66a.

 

Herndon, Astead W. “Elizabeth Warren Proposes Breaking Up Tech Giants Like Amazon and

Facebook.” The New York Times, The New York Times, 8 Mar. 2019, www.nytimes.com/2019/03/08/us/politics/elizabeth-warren-amazon.html.

 

Kagan, Julia. “Trust Definition.” Investopedia, Investopedia, 5 May 2019,

www.investopedia.com/terms/t/trust.asp.

 

Bork, Robert H. The Antitrust Paradox: a Policy at War with Itself. Free Press, 1993 (1978).

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