Big tech in hot seat at CU congressional hearing

BOULDER — “Help us Congress, you’re our only hope,” David Heinemeier Hansson said, channeling his inner Princess Leia.

Hansson, co-founder of Chicago-based project management software developer Basecamp LLC, made his Star Wars-paraphrasing plea Friday in Boulder at a U.S. House Antitrust Subcommittee hearing investigating how big tech companies are killing innovation and stifling competition.

“The internet has been colonized by a handful of big tech companies” —  Apple, Google Amazon and Facebook, for example — that have unfairly wielded their economic and political power to build a “devastatingly effective machine” that hurts both smaller businesses and the American consumer, Hansson said.

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The hearing, held at the University of Colorado Boulder, brought together a bipartisan group of lawmakers and technology and manufacturing innovators, including Boulder’s own PopSockets LLC. 

Testimony from Hansson, PopSockets founder David Barnett, Tile Inc. vice president Kirsten Daru and Sonos Inc. (Nasdaq: SONO) CEO Patrick Spence centered around tactics big tech uses to violate consumer privacy, leverage dominance in one marketplace to muscle in on adjacent markets, artificially drive down prices and suppress competition. 

“There’s no question that there are folks [dominating the tech industry] in our current system who have a real advantage, who are engaging in discriminatory behavior, who are bullying and excluding competitors,” said U.S. Rep. David Cicilline, D-Rhode Island. “They’re working hard to preserve that [dominant marketplace position] because they’re making a huge amount of money.”

The House Antitrust Subcommittee’s aim in its investigation “is to develop a number of statutory recommendations that we can make to Congress to change the antitrust laws and strengthen the laws,” said U.S. Rep. Joe Neguse, D-Colorado, who represents a congressional district that includes both Boulder and Fort Collins and serves as the committee’s Democratic vice chairman. “We also [want to develop] some regulatory recommendations, ways in which the agencies that are in charge of addressing these issues can act in a more muscular way.”

Innovation hub

It’s not mere happenstance that the hearing was held in Boulder.

“The presence of research institutions like CU and Colorado State University, access to a healthy venture capitalist community, the home of startup incubators has turned Colorado into an entrepreneurial and tech powerhouse like no other.” Neguse said.

“This is the first field hearing this committee has held in 10 years. So to have it here in Boulder — in a place where we’re known as a hub for innovation and entrepreneurship — is a great honor. It’s great for our community and to showcase Colorado to the nation,” he said.

Rotten Apple?

Apple, like several other tech behemoths, has fingers in nearly every pie, Daru said.

The company “owns the entire commercial ecosystem,” she said. “They own the hardware, they make the software, they own the app store and retail stores.”

This level of diversification across the supply and sales chain sets up a tilted playing field for smaller competitors, she said. 

“It’s like playing a soccer game,” Daru said. “You might be the best team in the league. But you’re playing against a team that owns the field, the ball, the stadium and can change the rules of the game in their own favor at anytime.”

A sea of knockoffs

The nature of PopSockets’ product, with its simple design and easily sourced plastic pieces, makes the company particularly susceptible to harm from counterfeiters.

While Amazon at one point represented a huge opportunity for PopSocket to generate sales volume, the relationship between the Boulder firm and the online marketplace giant has long been fraught, Barnett said.

“Amazon itself had sourced counterfeit products and was selling it alongside our authentic products,” he said. At times, PopSockets was fending off more than 1,000 fake product listings every day.

Amazon is so large there is no viable alternative for e-commerce sellers, Barnett said. Walmart’s online sales platform generates about 1/38th the volume of sales for Popsockets as Amazon.

Barnett said his firm spends around $7 million a year on legal fees to fight “really tiny companies” because Amazon doesn’t do enough to police its marketplace. 

Cookie monsters

Companies such as Amazon and Google have an advantage getting their products in front of the consumers because those firms collect, store and analyze billions of pieces of data about spending and search habits, witnesses said. 

“I’m deeply concerned about some of the corrosive effects” related to the lack of personal privacy online, Neguse said, calling the collection of personal data for the purposes of targeting advertising “crushingly effective and terrifying.”

Hansson called personal data collection the “original sin” of social media and search engine giants.

He called on lawmakers to take aggressive action to bolster privacy online. “They have so much data … and they shouldn’t have been allowed to gather that data in the first place,” Hansson said.

Easier to ask for forgiveness than permission

For big tech firms, it can be beneficial to infringe on smaller firms’ patents and copyrights, even if the big players are eventually punished for doing so, panelists said.

The concept of “efficient infringement” establishes a logical framework that suggests its worth it for companies to pay hefty fines and legal fees if the ultimate result is squeezing out competitors, Spence said. Smaller companies are often vanquished by the time regulators or courts crack down on copyright violations — and at that point, big tech is victorious even if they’re caught red-handed and found guilty. 

Problems but no solutions?

U.S. Rep Ken Buck, R-Colorado, appeared more hesitant than his Democratic committee colleagues to embrace new regulations as a way to address the issues raised by Friday’s witnesses. 

“Burdensome regulations often miss the mark,” he said, and can often result in the “entrenching of incumbents rather than encouraging competition.”

Buck acknowledged the existence of bipartisan agreement on issues of “competitiveness and privacy” and posited that “as we see less and less innovation in the country we will see less and less dominance around the world.”

While “abuse in the marketplace is in need of action,” he told the witnesses, “I hear the problems, but I’m not hearing many solutions.”

What’s next?

Cicilline said, “Today was a really important day for this investigation because we saw real examples of the impact this market dominance has had on innovation.”

The committee hopes to complete its investigation by the end of the first quarter of 2020 and “submit a final report with a set of recommendations shortly thereafter,” he said. 

That report, committee members said, will serve two important functions: shedding light on possible legislative fixes to certain anti-competitive business practices and putting pressure on regulators to use existing tools to better enforce laws and guidelines already on the books. 

Comments and recommendations made by the business leaders at Friday’s hearing will be taken into consideration when drafting the committee’s report, Neguse said. 

“Those who testified today provided us with something of a roadmap,” he said. “I think there were a couple of legitimate, serious suggestions made on the legislative front that we ought to be exploring.”