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How Congress Is Trying to Regulate Big Tech

How Congress Is Trying to Regulate Big Tech

Apple, Amazon, Google, Facebook and Microsoft are under assault. If Congress succeeds in its all-out war against these tech giants, you will have to rethink how you invest in tech startups.

If you’re surprised by this news, I don’t blame you. The mainstream press has done a terrible job of covering the substance of the legislation Congress is trying to pass.

Here are the headlines I saw on Politico the other day:

Go ahead and read these. And then tell me what’s in the House legislation Congress passed. And how exactly those bills are going to affect the big tech companies.

You can’t. Because the stories only talk about the legislation in the vaguest terms. When it comes to actual actionable, usable information, these stories are useless.

Even news outlets that should know better, like CNBC, devoted little space to the substance of the bills.

Back when I was working for mainstream media (many moons ago), this type of substance-free coverage was unacceptable. What mattered most was what legislation did — and how it impacted the people.

Unfortunately, mainstream media coverage has slipped in recent years. The five W’s (who, what, when, where and why) are mere afterthoughts these days. Newspapers are struggling to hold on to readers. Meanwhile, newsletters are growing quickly. More people are turning to places like Early Investing to get the information they need. And who can blame them? We actually share the news and information people need to know. 

So here’s everything you need to know about how Congress is trying to regulate the tech industry — FAQ style.

Has Congress actually passed anything yet?

No. The House Judiciary Committee approved six bills last week on a largely bipartisan basis. Here are the six bills they passed, complete with links to the actual legislation:

  1. Merger Filing Fee Modernization Act of 2021
  2. State Antitrust Enforcement Venue Act of 2021
  3. Augmenting Compatibility and Competition by Enabling Service Switching Act of 2021
  4. Platform Competition and Opportunity Act of 2021
  5. American Choice and Innovation Online Act
  6. Ending Platform Monopolies Act

Wow. That’s a lot of bills. Do they do anything useful?

The first two bills are process-oriented. They raise the fees for merger paperwork, which in turn raises the amount of money the FTC has to investigate and review the deal. And they limit venue shopping once a state files an antitrust case. From a practical standpoint, the new fee structure does little to stop companies like Google or Apple from pursuing mergers. The extra money will do little to change the outcomes of any investigation. And states will have a slightly easier time prosecuting antitrust cases. So the change to the system is minimal. But hey, it looks good on paper!

The four remaining bills are much more substantive. The compatibility bill forces tech companies to make it easier for customers to port their data over to a competitor. So if a startup chooses to compete with Facebook, Facebook would have to make it easy for its users to transfer data from Facebook to the new social network.

Currently, the government has to prove new acquisitions are harmful to the market (or consumers). The platform competition bill would force big tech companies to prove future acquisitions won’t hurt the marketplace (or consumers). By forcing big tech companies to be responsible for the regulatory burden, the rate of big tech acquisitions should slow down.

The choice and innovation bill is all about bundling and ecosystems. With this bill, Google would likely run into problems pre-bundling Google products like Google Maps or Gmail on Android devices or — more importantly — integrating Google products into the Android or Chrome experience. 

The ending platform monopolies bill is, in theory, designed to stop big tech companies from extending their sphere of influence across multiple business lines. In reality, it’s aimed squarely at Amazon and Apple to start with. It wants to stop Amazon from using the e-commerce data it collects to launch private label products and Apple to stop launching apps to compete with competitors in the Apple store. 

So does this make anything cheaper?

No. The push to regulate tech has never been about higher prices. Even whether consumers are “harmed” by the current situation is debatable. 

This war on big tech is mostly about data privacy and business practices — not costs.

You keep saying big tech. Why?

Because the way this legislation is written, it targets massive tech companies like Amazon, Google, Facebook, Microsoft and Apple. Most other tech companies don’t fit the description of what this legislation covers.

So is this legislation going to pass?

It’s definitely going to pass in the House of Representatives where it has some bipartisan support. The real question is whether it will pass in the Senate. Regulating big tech isn’t something that falls neatly along ideological lines. Different wings of both parties have different regulatory agendas. And whether any legislation can cobble together 60 votes in the Senate this year is an open question.

But at some point in the next couple of years, anti-big tech legislation will pass. The political appetite is there — even if the path forward isn’t clear yet. 

So it’s time for investors to get used to the idea that it won’t be business as usual much longer in Silicon Valley.

Speaking of investors, how should they approach investing in tech startups if/when legislation passes?

These bills dramatically change how investors should think about tech investments. In the past, people started companies for the express purpose of being acquired by Google or Microsoft. When the government takes these acquisitions out of play, the risk surrounding tech startup investing will actually increase. 

Remember, when you invest in startups, your shares are fundamentally illiquid. You can’t sell them. Startup investors only get paid when there’s a liquidity event. The two main liquidity events are acquisitions and initial public offerings (IPOs). And if a startup can’t get acquired by a big tech company, then it has to go public. And that means investors need to focus on startups that can reach the finish line. Startups that are likely to attract just enough attention to get bought out won’t be worth the risk.

I hope that answers all of your questions about the tech bills winding their way through Congress. We’ll keep you posted on any new developments.

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