AICOA Is A Major Departure From Existing Law, And Could Harm Products Consumers Love, CRS Report Concludes
The Congressional Research Service, Congress’s nonpartisan research agency, issued an in-depth report on the American Innovation and Choice Online Act (AICOA). The report notes that the bill is a major departure from existing antitrust law and could harm the products and services that consumers love. Overall, Congress’s own research agency shows just how far from ready this bill is to become actual law.
Here’s what you need to know:
AICOA is a major departure from existing American antitrust law and would present confusing legal challenges.
The CRS report notes that AICOA’s concept of “critical trading partner” is not an existing antitrust concept and diverges from established antitrust liability tests. AICOA’s “critical trading partner” provision “would need to be interpreted by the DOJ, the FTC, and the courts. As noted, S. 2992 defines the term ‘critical trading partner’ to mean an entity with the ability to ‘restrict or materially impede’ a business user’s access to its customers or necessary inputs. The bill does not contain further clarification of this language, which is not drawn from antitrust case law. Existing antitrust doctrine instead emphasizes market power, which is a requirement for most forms of antitrust liability.”
— The report continues: “The core concern of market-power analysis—the availability of reasonable substitutes—seems relevant to whether a platform has the ability to ‘restrict or materially impede’ a business user’s access to customers or inputs. It is notable, however, that the AICOA does not employ the familiar language of market power.”
— “This all suggests that the AICOA’s ‘critical trading partner’ requirement is not intended to incorporate current market-power doctrine wholesale. Nevertheless, the extent to which preexisting antitrust principles would influence the interpretation of the ‘critical trading partner’ language remains an open question. One observer has characterized the bill as repudiating any analysis of market power and criticized it on that basis.”
AICOA may ban or seriously impact the products that consumers know and enjoy.
The report cautions that the bill’s self-preferencing prohibition raises complex questions about vertically integrated firms’ “basic operations,” such as Google’s display of Maps in search or Amazon’s selling of AmazonBasics. “The bill’s prohibition of self-preferencing may raise particularly complex questions. Many forms of conduct by a vertically integrated firm arguably ‘preference’ the firm’s own offerings over those of its rivals. Interpreted literally, that language could encompass any actions that treat a platform’s own products more favorably than those of competitors.”
The report also notes: “Much of the commentary surrounding the bill has focused on the types of conduct that may trigger liability under these provisions. Some of the practices that commentators have flagged as potentially prohibited include:
— Google Search’s display of Google Maps content with search results, in addition to its favorable placement of other Google verticals;
— Amazon advantaging its own products in search results on its Marketplace or favoring itself over third-party merchants in managing its “Buy Box'”
Another provision of AIOCA could impact Amazon’s ability to promptly deliver Prime packages. “Section 3(a)(5) has attracted special attention because of its possible impact on Amazon Prime—a subscription service that offers Amazon customers fast shipping of eligible products, among other benefits.”
Under AICOA, companies could be found guilty and fined billions without “proof of actual harm,” says CCIA’s Matt Schruers. “Compounding matters, AICOA does not require proof of actual harm. Under current law, complaints of anticompetitive conduct need to be supported by some evidence of an injury. Here, legislators propose to require only a ‘de minimis’ showing by a preponderance standard that the conduct would materially harm competition. With such a speculative standard, even a trivial violation could result in billions in penalties. This standard promises legal uncertainty and increased litigation.”
The affirmative defense provisions of AICOA would lead to years of legal complications, with Amazon Prime all the while facing an uncertain future, writes Chamber of Progress’ Adam Kovacevich. “Were Klobuchar’s bill to become law, non-FBA [Fulfillment By Amazon] merchants would immediately complain to the FTC or state Attorneys General that Prime and FBA were ‘materially harmful’ to their ability to compete, based on the arguments above. You’d then see multiple legal cases play out for years, where Amazon would argue that Prime and FBA were a ‘core functionality of the covered platform’ and merchants would argue the programs ‘harmed the competitive process.’ Under the bill’s new murky legal standards, it could be a legal jump ball. And the bill would levy a penalty of 15% of Amazon’s US revenue for each infraction. During that time, Amazon Prime — which again, nearly half of Americans have chosen to use — would face an uncertain future.”
AICOA might affect content moderation.
The effects of AICOA on content moderation are “unclear,” the report concludes. “Whether Section 3(a)(1)(3) would in fact prohibit certain forms of content moderation is unclear. As discussed, the ‘materially harm competition’ standard is novel, making it difficult to confidently predict whether it would reach discriminatory content moderation.” Because of this ambiguity, the federal government will be left to decide what this language means. The report concludes that AICOA “implicates difficult questions involving innovation, privacy, data security, and online speech.”
The bill may “create privacy concerns and data-security risks” and dampen innovation.
The report found that interoperability requirements could “dampen investment incentives” and “create privacy concerns and data-security risks.” “Depending upon their details, such [interoperability] requirements may prove costly to implement. They may also dampen investment incentives by forcing firms to share the fruits of their innovation with rivals. Additionally, specific types of interoperability may create privacy concerns and data-security risks. While the AICOA’s affirmative defenses attempt to address these latter concerns, defendants would bear the burden of establishing their applicability.”
Overall, the bill isn’t ready for primetime—as is, it leaves too many questions unanswered and would create ambiguous legal mandates.
The report notes “interpretive issues recur throughout the bill and could present regulators and courts with difficult questions if the legislation becomes law.” “Nevertheless, the extent to which preexisting antitrust principles would influence the interpretation of the ‘critical trading partner’ language remains an open question. One observer has characterized the bill as repudiating any analysis of market power and criticized it on that basis. However, the legislation might instead prompt courts to dispense with some of the more demanding elements of current doctrine without completely abandoning certain general principles that inform it. These types of interpretive issues recur throughout the bill and could present regulators and courts with difficult questions if the legislation becomes law.”
You can view the full Congressional Research Service report here.