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How an Antitrust Bill May Harm Consumers: The AICOA Bill Illustrated

How an Antitrust Bill May Harm Consumers: The AICOA Bill Illustrated

May 26, 2022

The American Innovation and Choice Online Act (“AICOA”) bill is one of the two antitrust bills that recently passed the Senate Judiciary Committee. This bill contains numerous obligations and prohibitions imposed only on so-called “covered platforms”—namely, Google, Amazon, Apple, Meta, and Microsoft. As pointed out by numerous commentators, this bill may generate considerable unintended consequences.

One provision, in particular, illustrates the range of unintended consequences. Section 3(a)(4) of AICOA forbids targeted companies to:

Materially restrict, impede, or unreasonably delay the capacity of a business user to access or interoperate with the same platform, operating system, or hardware or software features that are available to the products, services, or lines of business of the covered platform operator that compete or would compete with products or services offered by business users on the covered platform.

This prohibition would deter innovation through opportunistic behaviors by rent-seeking rivals. For instance, any device manufacturer who would find its devices in a slightly less interoperable situation than the companies’ own devices with its operating system will be able to claim that the “covered platform” violates the AICOA’s prohibition. To illustrate, Apple’s earphones (AirPods) are interoperable with iPhones through an H1 chip that supports “Hey Siri” commands and have an immediate connection with iPhones. Any smartphone manufacturer enjoys interoperability with Apple’s AirPods since the H1 chip has a Bluetooth connection built into it. Therefore, Samsung, Huawei, Sony, and other smartphone manufacturers are fully interoperable with Apple’s AirPods.

However, this interoperability is not as nimble as in the iPhone-to-AirPods communication, and “Hey Siri” commands cannot be used on devices other than iPhones. Proprietary considerations easily explain such limited differences in interoperability nimbleness: Access to patented technology and trade secrets enables fuller interoperability of AirPods for first-party devices (i.e., iPhones) as opposed to third-party devices (i.e., alternative smartphones). Can this slightly less immediate interoperability be considered to “materially impede” interoperability under Section 3(a)(4) of the AICOA bill?

The answer is unequivocally positive: The bill is precisely designed to make such frivolous claims from large companies like Samsung and Huawei successful. Consequently, it would be unsurprising that any technical difference in interoperability between third-party devices with the operating system and the operating system’s own devices becomes a source of litigation. This applies well beyond the mere example of the interoperability between earphones and smartphones. Thus, creating multiple avenues for rent-seeking through adjudication, the AICOA bill offers opportunistic tech companies multiple avenues to deter the covered platforms from introducing new devices since such first-party devices will always be more interoperable than third-party devices with operating systems. This thereby generates grounds for the “covered platform” to be sued.

After its iWatch, should Apple introduce Apple Glasses since rivals offering competing glasses will de facto be less interoperable with iPhones than Apple’s own products? Similarly, should Facebook refrain from introducing new VR/AR headsets since these headsets may work better with a Facebook account than accounts from rivals? Should Google refrain from launching Google Cars just because Android will be embedded in the automotive system?

Among many other examples, Section 3(a)(4) of the AICOA bill may also lead any advertiser to access all the phone numbers and contact details of all WhatsApp contact lists. Indeed, as Meta’s messaging service, WhatsApp is one of the services covered by Section 3(a)(4), and any advertiser operating on Meta will be considered to be a “business user.” Consequently, any advertiser operating on Meta will be eligible to request the contact details of WhatsApp users since Meta has access to WhatsApp contact details whenever users interoperate WhatsApp messaging services with Facebook’s social media platform. In other words, Meta’s refusal to provide such contact details could be considered under Section 3(a)(4) to “materially restrict” the capacity of the advertiser to “access or interoperate” the different services provided by Meta.

Disregarding legitimate privacy concerns of platform users, Section 3(a)(4) will lead any company operating on AICOA’s covered platform or rival to services provided by these platforms to be entitled to the same amount of data and the same level of interoperability than the covered platform itself concerning its services. Such legal entitlement would deprive the platform of possible comparative advantages of data accumulation by introducing new products and services since rivals may immediately annihilate such comparative advantage. Consequently, such legal entitlement would deter covered platforms from innovating at the expense of consumer welfare.

Beyond stifling innovation and harming consumers, this provision exacerbates the rent-seeking nature of antitrust litigation: Rivals will free-ride on the operating system through antitrust litigation made possible by the AICOA bill, as well as other possible antitrust bills.

As an illustration, Section 3(a)(4) of the AICOA bill alone demonstrates that these bills will deter innovation by instilling a chilling effect on the creation of new products, new services, and new devices since such creations will enable opportunistic rivals to delay the introduction of these creative solutions or seek rents through the judicial process. In other words, these opportunistic behaviors will undermine the competitive process rather than preserve it against the drafters of the AICOA bill’s metrics. The AICOA bill contains numerous prohibitions and obligations applicable to thousands of instances. Each instance is susceptible to weakening consumer welfare and harming innovation.

Because AOICA will reduce the appropriability of the innovation benefits by the covered platforms, the consequence of such expected free-riding and opportunistic litigations will reduce creativity for these platforms at the expense of consumer benefits and innovation. It is time for members of Congress to reflect on the numerous unintended consequences of the AICOA bill, or else the passing of this bill will weaponize antitrust laws at the expense of innovation and consumer welfare.

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