Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.
With the federal government ramping up scrutiny of the power, influence and market dominance of the world’s largest technology companies, one interesting question will be whether any of the inquiries develops into a criminal investigation.
Unlike a civil inquiry, which can result in a monetary penalty, a criminal investigation would ratchet up the pressure on Google, Facebook, Amazon and Apple and could result in significant fines along with efforts to break them up.
The Justice Department and Federal Trade Commission have divvied up antitrust oversight of the Silicon Valley giants, and Congressional committees are investigating whether they have stifled competition and hurt consumers. Only the Justice Department can pursue a criminal investigation, but the F.T.C. and Congress can refer a case to prosecutors if they uncover evidence of illegal conduct.
The Justice Department’s “Antitrust Division Manual” allows a case to be developed through a grand jury if there is evidence showing anticompetitive behavior by a company. Information gathered through a civil inquiry that they sought to destroy competition to gain a monopoly could become the basis for opening a criminal investigation.
The primary law used to police monopolies is Section 1 of the Sherman Act, which prohibits “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.” The statute does not define what a monopoly is, but the F.T.C. has noted that courts view a firm with less than 50 percent of the sales of a particular product or service as one without sufficient market power to constitute a monopoly.
For Google and Apple, which are likely to be investigated by the Justice Department’s antitrust division, the key issue will be determining what market, if any, they have enough control over to be considered a monopoly. In cloud computing, for example, Google is far behind Microsoft and Amazon. But in internet searches, Google could well be considered to have something close to monopoly power, especially when its very name has become a verb for searching for information.
A second avenue the Justice Department could pursue is under Section 2 of the Sherman Act, which prohibits an “attempt to monopolize” trade or commerce. This could be a more amenable path to establishing an antitrust violation because it does not require proving that there is an actual monopoly, only that steps were taken to acquire monopoly power. A document issued by the Justice Department called “An Antitrust Primer for Federal Law Enforcement Personnel” notes that Section 2 violations “are generally not prosecuted criminally,” but if there is enough evidence to show attempted monopolization then there is nothing to prevent prosecutors from pursuing a criminal case.
But to do so, the Supreme Court explained, in the 1993 case Spectrum Sports v. McQuillan, that the government must prove three things: “(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.” The specific intent to monopolize does not mean that one seeks monopoly power by competing vigorously, but that it is an “intent to destroy competition or build monopoly.” That means a company’s efforts to drive others out of business could be proof that it has the intent to become a monopoly.
The “dangerous proximity” element of a violation requires that a court look at the relevant market and determine whether a company has acquired the ability to destroy competition. But just being a ruthless competitor does not necessarily mean the firm is violating Section 2. In a 1984 decision in Copperweld Corp. v. Independence Tube Corp., the Supreme Court pointed out that “it is not enough that a single firm appears to ‘restrain trade’ unreasonably, for even a vigorous competitor may leave that impression.”
Technology companies will argue that they are not overreaching. They are instead just the best competitors, and that is not a violation. And they will have plenty of judicial statements to support that argument. In a 1986 decision in Ball Memorial Hospital v. Mutual Hospital Insurance, for instance, the federal court of appeals in Chicago pointed out that “competition is a ruthless process. A firm that reduces cost and expands sales injures rivals — sometimes fatally. The firm that slashes costs the most captures the greatest sales and inflicts the greatest injury.”
The penalty for a criminal violation of Sections 1 or 2 of the Sherman Act is a fine of up to $100 million for a corporation; individuals involved could be sentenced to as much as 10 years in prison and fined up to $1 million.
This is not Google’s first foray in dealing with antitrust concerns. In 2011, the F.T.C. investigated whether the company’s search algorithms improperly favored its services. Google agreed to make some minor changes to its search practice at the conclusion of the inquiry in 2013, but there was no monetary penalty.
The European Union fined Google $5.1 billion in 2018 for abusing its power in the mobile phone market by favoring its own services in internet searches. But that penalty does not appear to have had any appreciable effect on Google’s business, which earned about $30 billion last year.
Still, the prospect of impending inquiries will be an unwelcome diversion for the technology companies. Antitrust investigations often take years to develop the type of evidence necessary to move forward with either a civil or criminal case, and the technology companies have amassed “an army of lobbyists” to fight claims that they wield too much economic power.
The question of whether the government has the stomach to pursue a major fight with companies that have very deep pockets remains to be seen. In the last two years, the Justice Department has obtained only about $240 million in criminal antitrust fines, down from $3.6 billion in 2015.
So it’s too early to determine whether the tech companies will ever face any consequences for wielding their market power.
Kenya: Principals Oppose Law on Teenage Pregnancy
Secondary school heads have opposed a bill seeking to have them jailed if they refuse to readmit teenage girls who drop out of school due to pregnancy. The principals view the proposed penalty as ill-advised.
Kenya Secondary Schools’ Heads Association chair Kahi Indimuli said principals have always supported such students and cannot be subjected to punishment over mistakes made by learners.
He said such students should not be readmitted to the same school as that will create the impression that the institution condones teenage pregnancies.
The bill, now before Parliament, proposes that school heads, administrators, principals and boards should not deny the teenage mothers an opportunity to rejoin their former schools after delivery.
Under the Care and Protection Bill 2019, headteachers will be jailed for six months or fined up to Sh500,000 if they refuse to readmit the girls.
School management board members who refuse to readmit the girls will also be liable to a similar punishment.
The law has also not left parents of the teenage mothers out. Those who refuse to send their daughters back to school after delivery will also be punished.
The bill also bans discrimination against the girls and proposes that they be given an opportunity to make up for any missed classes or examinations.
Mr Indimuli said principals should not be condemned for the failure of parents to follow up with their children.
“Principals have been helping such girls to get admitted in different schools so that they study without victimisation,” Mr Indimuli said.
The Ministry of Education identifies the major causes of teenage pregnancies as lack of parental guidance and sex education in schools and moral decay in the society.
“Moral uprightness of a child is not the responsibility of teachers and school heads, parents should play the major role in modelling their children,” Mr Indimuli said.
During last year’s national exams, more than 11,000 teenage girls in primary and secondary schools were pregnant, according to statistics from the ministry.
CTO expertise without the expense
Nick Truran is CEO of AgileIT.
Using IT to drive business growth is not as simple as it sounds. Technology is evolving at such a fast rate that only the most lean and agile of organisations have managed to keep up.
Pressure on CIOs to justify extensive investments in IT (estimates are that as much as 10% of all business spend is on technology) is intense. This is aggravated by the fact that most IT executives have only a short contractual timeline to deliver and prove value.
Turning an IT ship to innovate and deliver on the business strategy takes time.
Chances are that by the time the executive has managed to get to grips with the organisation and forged a plan to address the original requirement, its needs have changed and a new plan is required. It’s little wonder that IT executives are becoming overwhelmingly fatigued by the constant turbulence.
Behold the fractional CTO
Enter the fractional or part-time chief technology officer (CTO), of which I would count myself as one. Equipped with the technical knowhow to evaluate the inner workings of the technology landscape, the fractional CTO is able to lend stability to current operations, and derive optimum performance and savings.
This frees the current CIO/CTO to focus on servicing the business and planning the innovation necessary to deliver on its strategy.
Likewise, a midsize business that does not require a full-time CIO/CTO, which is costly, can reap the benefits of their skills by using one part-time. This person should have a deep understanding of the needs of the organisation, as well as the technology required to underpin it, ensuring everything runs as it should.
For me, the latter is all about the maturity of the IT team as well as some of the service-centric best practices, such as the ITIL framework. The essence of ITIL is that it provides a critical prescriptive framework to assist IT teams to manage and measure service delivery to the business.
ITIL is a valuable process guideline, which allows IT teams to continually self-assess their maturity between levels one and five. A level five standard denotes a high level of predictability, resilience and stability within the organisation’s IT service delivery infrastructure.
A fractional CTO will operate without bias or prejudice for the company, as the objective is, always, value creation to the customer.
The more mature the ITSM processes, the easier it is to manage change and transitions in the IT infrastructure. Yet despite the huge upside of ITSM, in my experience most South African IT shops barely attain a level two, and that is typically only after several years of its introduction into the business. This severely impacts the business’s ability to innovate and embrace new technologies on the path to becoming a truly digital business.
A fractional CTO brings best practice adoption, a business-centric service delivery model and operational efficiency through maximising the value of IT spend, rationalising partnerships, reducing complexity and driving up overall stability and performance.
This is achieved one step at a time, diligently chasing continual service improvement, investing in fit-for-purpose technology, and cultivating an environment that is monitored, metered and measured.
Many companies are willing to throw millions into the investment of various technologies with little or no value realisation, but with no one to steer this vessel to effective, monetised success, it is essentially a sinking ship and huge waste of capital.
Fractional CTO services offer the expertise needed, for a fraction of the cost, with five key areas of value:
- Guidance: Mature environments require the right level of governance and compliance to facilitate optimal performance. He or she will manage the risk appetite of the business, through embedding controls that will ensure risks are highlighted early, mitigated where necessary and managed appropriately with the highest level of visibility and transparency.
- Symbiosis: For any business to perform to its optimal potential, symbiosis between the company’s needs and technology delivery is a necessity. However, they are often worlds apart. A fractional CTO not only understands at all times the business strategy, market segments and its “go-to-markets”, he or she also provides technical input into the above with an “art of the possible” lens.
- Objectivity: A fractional CTO will operate without bias or prejudice for the company, as the objective is, always, value creation to the customer. The fractional CTO’s role is to provide an objective evaluation of all hardware, software and IT-related services, as well as the vendor contracts associated with these.
- Trend-spotter and recycle-focused strategies: While keeping a close eye on foreseeable future technological developments, the fractional CTO will help sweat all existing technology assets within the business, ensuring maximum value extraction at acceptable risk. This will ensure said technologies have been used to their fullest potential, with less waste in the environment.
- Cost-effective: The last point is possibly the most compelling of the five; a fractional CTO is a cost-effective hire. The company will be able to reap the full benefits of an IT expert, while keeping within its means.
‘Total political crap’: Apple takes on EU’s Vestager
Apple fights the world’s biggest tax case in a quiet courtroom this week, trying to rein in the European Union’s powerful antitrust chief ahead of a potential new crackdown on Internet giants.
The iPhone maker will tell the EU general court in Luxembourg that it’s the world’s biggest taxpayer. But that’s not enough for EU competition commissioner Margrethe Vestager who said in a 2016 ruling that Apple’s tax deals with Ireland allowed the company to pay far less than other businesses. The court must now weigh whether regulators were right to levy a record €13-billion tax bill.
Apple’s haggling over tax comes after its market valuation hit US$1.02-trillion last week on the back of a new aggressive pricing strategy that may stoke demand for some smartphones and watches. The company’s huge revenue — and those of other technology firms — has attracted close scrutiny in Europe, focusing on complicated company structures for transferring profits generated from intellectual property.
A court ruling, likely to take months, could empower or halt Vestager’s tax probes, which are now focused on fiscal deals done by Amazon.com and Alphabet. She’s also been tasked with coming up with a “fair European tax” by the end of 2020 if global efforts to reform digital taxation don’t make progress.
“Politically, this will have very big consequences,” said Sven Giegold, a Green member of the European parliament. “If Apple wins this case, the calls for tax harmonisation in Europe will take on a different dynamic, you can count on that.”
Apple’s fury at the EU’s 2016 order saw CEO Tim Cook blasting the EU move as “total political crap”. The company’s legal challenge claims the EU wrongly targeted profits that should be taxed in the US and “retroactively changed the rules” on how global authorities calculate what’s owed to them.
‘Hates the US’
The US treasury weighed in too, saying the EU was making itself a “supra-national tax authority” that could threaten global tax reform efforts. US President Donald Trump hasn’t been silent either, saying Vestager “hates the United States” because “she’s suing all our companies”.
“There is a lot at stake given the high-profile nature of the case, as well as the concerns that have been raised from the US treasury that the investigations risk undermining the international tax system,” said Nicole Robins, a partner at economics consultancy Oxera in Brussels.
Vestager has also fined Google some $9-billion. She’s ordered Amazon to pay back taxes — a mere €250-million — and is probing Nike’s tax affairs and looking into Google’s taxation in Ireland.
Apple declined to comment ahead of the hearing, referring to previous statements. The European Commission also declined to comment. Ireland said it “profoundly” disagreed with the EU’s findings.
The first hints of how the Apple case may turn out will come from a pair of rulings scheduled for 24 September.
The general court will rule on whether the EU was right to demand unpaid taxes from Starbucks and a Fiat Chrysler Automobiles unit. Those judgments could set an important precedent on how far the EU can question tax decisions national governments make on how companies should be treated.
“It’s very clear that the largest companies in the world — the frightful five I call them — are hardly paying taxes,” said Paul Tang, a socialist lawmaker at the European parliament. “Cases like these, Amazon in Luxembourg or Apple in Ireland, started to build public and political pressure” for tax reform in Europe.
The legal battles may go on for a few years more. The general court rulings can be appealed once more to the EU’s highest tribunal, the EU court of justice. Meanwhile, Apple’s back taxes — €14.3-billion including interest — sit in an escrow account and can’t be paid to Ireland until the final legal challenges are exhausted. — Reported by Stephanie Bodoni and Aoife White, (c) 2019 Bloomberg LP
African News7 months ago
ICT Tenders: Government at work
American Entertainment6 months ago
Chicago Mayor Says City Will Send Smollett Bill for Investigation
News6 months ago
Perimeter fencing to improve safety at Red Bank Primary
Music5 months ago
Christopher Martin – I'm A Big Deal | Official Music Video
News6 months ago
Suspend intended CAL lease of Boeing aircraft, T&T Opposition urges
African News5 months ago
Clashes in Peru coca eradication operation leave at least two dead
Music5 months ago
Cristy Barber from VP RECORDS flys in for Chino Album Launch
Music5 months ago
Sweet Jamaica – the album has landed! Mr Vegas at VP Records Florida