The Corner Newsletter: August 6, 2020
Welcome to The Corner. In this issue, we discuss America’s dangerous dependence on offshore manufacturers for generic drugs, in light of the Trump administration’s recent move to boost domestic production. And we shine a light on a rarely mentioned but crucial aspect of the July 29 House hearing with four Big Tech CEOs.
To read previous editions of The Corner, click here.
The Key Lesson From Congress’ Historic Antitrust Hearings
The House Subcommittee on Antitrust, Commercial, and Administrative Law’s hearing on July 29 made clear that lawmakers from both parties have concluded that Google, Amazon, and Facebook are violating U.S. antitrust law and that enforcement must be radically strengthened. The hearings were widely covered, including in lead stories in The New York Times, The Washington Post, and The Wall Street Journal. The Open Markets Institute strongly congratulates Reps. Jerrold Nadler (D-NY) and David Cicilline (D-RI) and their staffs for their groundbreaking work, which will surely provide enforcers with both an incentive to act and with new material on which to base their actions.
We at Open Markets do feel it is important to highlight one aspect of the hearings that was not widely covered by the news media. This was the subcommittee’s close focus on the ways that these providers of various essential services engage in dangerous discrimination in their treatment of not only the end customer, but also the citizen as speaker and seller. As Rep. Cicilline put it, each of the corporations acts as a “bottleneck for a key channel of distribution, whether they control access to information or a marketplace.” Each has used its control over vital services to, in Rep. Cicilline’s words, “pick winners and losers, shake down small businesses, and enrich themselves while choking the competitors.”
The Open Markets Institute has long made clear that these corporations are gatekeepers and must be treated as such, which means applying various forms of anti-discrimination law to them. Open Markets detailed this in our letter in April to the House subcommittee.
You can also read here Open Markets’ demand that the SEC investigate these corporations for failing to fully report to investors the regulatory risks that the corporations face.
Trump Plan to Boost U.S. Drug Production Does Little to ReduceDependence on China
President Donald Trump announced on July 28 that the government would loan Eastman Kodak $765 million under the Defense Production Act (DPA). Kodak is to use the loan to begin the domestic manufacturing of pharmaceutical ingredients, with the goal of reducing America’s dependence on imports from other countries, particularly India and China, and to reduce persistent drug shortages.
The effort to stimulate domestic production of critical pharmaceutical products is a hugely important goal for U.S. industrial and national security policy. Unfortunately, this one project alone won’t solve the underlying problem, as the new plant will have the capacity to supply only up to 25% of the active pharmaceutical ingredients (API) used annually in the United States.
Although the plan moves us in the right direction, it underscores the fact that, six months into the COVID-19 crisis, the United States still does not have coherent policies designed to ensure sufficient, domestically produced supplies of prescription drugs and to ensure U.S. independence from other countries and whatever calamities might befall them. Not only are we just as vulnerable today as in March, but we will be almost as vulnerable five years from now.
The problem today is stark. China and India produce 80% of the API in generic drugs sold in the United States. Even though India produces some 40% to 50% of all generics imported into the United States, India depends on China for about 70% of the API in the generic drugs manufactured in India. This dependence on overseas suppliers is partly to blame for shortages of more than 200 drugs and medical supplies, according to a report by the Department of Homeland Security.
This concentration of production in China and India creates two problems for the United States. First, it means that the U.S. drug supply can be cut off because of physical or political shocks. Second, it exposes the U.S. to potential coercion by China.
The problem dates to policies adopted in the early and mid-1990s, when the Clinton administration and Congress enacted policies that all but encouraged U.S. corporations to shift production to China. In the years since, large drugmakers such as Pfizer, GlaxoSmithKline, Novartis, and others shuttered most of their domestic manufacturing capabilities. No major API production facility has been built in the United States in the last 30 years.
The extreme nature of the threat created by this offshoring of chemical production was made clear early this year, when China closed many drug manufacturing facilities as part of its efforts to contain the spread of the coronavirus. Soon thereafter, India imposed strict restrictions on the export of 26 drugs and drug ingredients. Fortunately, China was able reopen its facilities and resume exports. But the threat of closures remains, as India and China are both experiencing a resurgence in COVID-19 cases. Furthermore, if recent tensions in the Himalayas between China and India lead to more conflict, the export of raw chemicals from China to India would almost surely be disrupted, which in turn cut off vital exports to the United States.
Thus far, the Trump administration has limited its efforts to combat these supply chain vulnerabilities to loans and other incentives. But other policymakers have introduced plans that offer more extensive, long-term measures to address these vulnerabilities. Sens. Elizabeth Warren (D-MA) and Marco Rubio (R-FL) introduced legislation in June that would direct the Federal Trade Commission (FTC) and the Committee on Foreign Investment in the United States to use the tools at their disposal to confront and solve America’s dependence on foreign drug production. Presidential candidate Joe Biden is calling for massive federal investment in U.S. production capabilities.
🔊 ANTI-MONOPOLY RISING:
New York State Sens. Michael Gianaris and Rachel May proposed on Wednesday a new antitrust law for the state of New York. The bill significantly increases criminal penalties for antitrust violators engaging in monopolization or other exclusionary behavior, including up to 15 years in prison — five more than the federal maximum — and a fine of up to $100 million. (Engadget)
The Australian Competition and Consumer Commission launched court proceedings last week against Google, alleging the company misled Australian consumers when it acquired their personal information and used it for targeted advertising. (Mumbrella)
The European Commission on Tuesday launched an antitrust investigation of Google, in light of the company’s proposed $2.1 billion acquisition of fitness tracker manufacturer Fitbit, a deal that has raised serious questions about the use of data in health care. (The New York Times)
📝 WHAT WE'VE BEEN UP TO:
The Open Markets Institute submitted an amicus brief on Monday to the Fifth Circuit Court of Appeals, analyzing the dangers of tying arrangements. In tying arrangements, a powerful firm conditions the purchase of one product on the purchase of a separate product or service. For example, a software firm can compel purchasers who want its dominant operating system to obtain a web browser, even though purchasers may prefer to obtain the web browser from another firm. The brief details how powerful firms can utilize tying arrangements to engage in unfair competition.
The Open Markets Institute released a statement on the U.S. government potentially mediating the acquisition of TikTok by Microsoft. Open Markets does not endorse the sale of TikTok to Microsoft, as we believe that the U.S. government could easily find many willing investors for this lucrative opportunity. Importantly, Open Markets urges the government to consider consumer data and privacy as appropriate objects of antitrust scrutiny, because a commodity as immensely valuable — and as crucial to national security — as the data of U.S. citizens should not be concentrated solely in rich and powerful corporations such as Microsoft, Facebook, Google, Amazon, and Apple.
Sandeep Vanheesan published an article in Harvard Law and Policy Review analyzing Attorney General William Barr’s practice of having the Department of Justice (DOJ) regularly subject mergers in the cannabis industry to thorough review. The article highlights the discretion held by executive officials such as Barr, exposes the profoundly inconsistent application of standards for merger review, and calls for bright-line standards for antitrust review.
Daniel Hanley published an article in the Washington Monthly discussing the consequences of the Trump administration’s repeal of net neutrality in 2017. Hanley discusses how internet service providers such as AT&T and Comcast now routinely engage in price discrimination to favor content they own and to steer customers away from content owned by other corporations, as a means of entrenching the providers’ dominance.
Claire Kelloway published an article in The American Prospect evaluating the findings of a report recently released by the Center for Digital Democracy. The report found that online grocery stores such as Amazon and Walmart were pushing advertisements for unhealthy foods to consumers using the Supplemental Nutrition Assistance Program.
Daniel Hanley published an article in Broadband Breakfast calling for antitrust enforcers such as the DOJ and FTC to designate Google and Facebook as essential facilities. Such a designation would invigorate competition in the sectors dominated by Google and Facebook, and it would restrain the corporations from abusing their dominant market power to stifle competition and harm rivals.
Beth Baltzan published a report arguing that production shortages caused by the COVID-19 pandemic can only be effectively solved by enacting policies such as enforceable labor standards and rules prohibiting anti-competitive behavior, in order to create a marketplace that fosters fair competition.
Sally Hubbard was a panelist on a web conference hosted by the Committee to Support the Antitrust Laws to discuss the major topics of the House Antitrust Subcommittee’s historic questioning of four Big Tech CEOs.
Barry Lynn was mentioned in the Irish Times, The Wall Street Journal, theFinancial Times, Siècle Digital, The Hill, and Le Monde discussing the importance of House Antitrust Subcommittee’s historic hearing with four Big Tech CEOs. “This was a watershed moment. We’re not going back,” Lynn said.
Sally Hubbard was mentioned in Venture Beat discussing the importance of the House Antitrust Subcommittee’s historic hearing with four Big Tech CEOs. “To me, it was the most impressive hearing that I can remember seeing in my lifetime of the members of Congress being so highly prepared, so in-the-know about complex issues, and willing to take on the most powerful companies in America and the world,” Hubbard said.
Sally Hubbard was quoted in Market Watch and Common Dreamcomparing the Big Tech corporations to the robber barons of the late 19th century. Independent business owners’ testimonies from the July 29 House hearing “made clear that Google, Facebook, Apple, and Amazon are the modern equivalents of the railroads that used network monopolies to determine who gets to market and who doesn’t,” Hubbard said.
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📈 VITAL STAT: 1.3 Million
The number of documents that the House Subcommittee on Antitrust, Commercial, and Administrative Law has collected from Big Tech corporations as part of its ongoing investigation into their anti-competitive conduct.
📚 WHAT WE'RE READING:
“Google’s Top Search Result? Surprise! It’s Google” (The MarkUp, Adrianne Jeffries and Leon Yin): The authors conducted an investigation into Google Search. They found that Google consistently shows users results that lead to Google-owned properties or keep users on Google’s results page. Google has increasingly engaged in this kind of self-dealing during the last 20 years.
“26 Actions Local Leaders Can Take to Help Small Businesses Weather the Pandemic” (Institute for Local Self-Reliance, Kennedy Smith): Smith describes 26 actions that municipal leaders can take, including caps on commission fees from delivery companies and options to strengthen community banking, to alleviate the financial fragility of small businesses caused by the COVID-19 pandemic.
BARRY LYNN’S NEW BOOK:
Liberty From All Masters
The New American Autocracy vs. The Will of the People
St. Martins Press will publish Open Markets Executive Director Barry Lynn’s new book, Liberty From All Masters, on September 29. The book is Barry’s first since Cornered, in 2010. In it, he details how Google, Amazon, and Facebook developed the ability to manipulate the flow of news, information, and business in America, and are transforming this power into autocratic systems of control. Barry then details how Americans over the course of two centuries built a “System of Liberty,” and shows how we Americans can put this system to work again today. Pre-order your copy here.
Open Markets Employment Opportunities
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