Amazon and iRobot: A Case Study in How Not to Enforce Antitrust Laws
As the FTC’s crusade against large technology companies continues, the results for American consumers and the economy writ large are becoming increasingly apparent. This is particularly true in merger enforcement. Having previously lost challenges to both Microsoft’s acquisition of Activision and Meta’s purchase of Within, the FTC set its sights on Amazon (who else?) and its planned acquisition of iRobot, a leading global home service robotics company with offerings that include a robotic vacuum cleaner that utilizes innovative optical and acoustic navigation technology, which is protected by a strong patent portfolio and iRobot’s technical knowhow.
iRobot is a paradigmatic example of the Schumpeterian model of creative destruction at work. Robotics is a technological wave poised to revolutionize production across the economy and bring numerous benefits to consumers. And, to drive this innovation competition, the industry needs the ability to scale and make large investments in the face of uncertainty—including through public-private partnerships—if it is going to take off. Indeed, iRobot itself started as a team designing the rovers that NASA eventually used to explore Mars, for which it won the NASA Group Achievement Award. The team also engaged in cutting-edge military research through DARPA grants.
Innovation was clearly a core rationale for the acquisition by Amazon, which spent a dazzling $73 billion in R&D for 2022, more than the total R&D spending of Canada, France, or Italy—all leading G7 economies. To keep the robotics industry growing, iRobot saw Amazon as the best avenue to get the scale, investments, and overall know-how it needed to take its business to the next level. Indeed, finding a partner like Amazon was particularly important for iRobot, which was facing financial problems so dire that it was forced to take out a $200 million bridge loan last July while the deal remained pending.
While some regulators like the UK’s Competition and Markets Authority took a common-sense approach and approved the deal, the FTC continued its investigation, with a number of groups (including Chair Khan’s former think tank) and members of Congress writing letters to the FTC calling on it to block the transaction. Not to be outdone, this past November the EU issued a statement of objections alleging that the deal was anticompetitive, primarily on the grounds that Amazon could restrict iRobot’s rivals’ access to its online marketplace. Faced with a looming EU challenge, the parties abandoned the transaction in late January, with the FTC issuing a gleeful press release suggesting it too was willing to block the deal.
The iRobot story should serve as a stark warning of the dangers posed by the ongoing antitrust war against American technology companies, both at home and abroad. First, there were no serious competition concerns with the merger: Not only is iRobot in a dynamic and competitive market, but Amazon’s incentives were not just to sell as a general matter as many products as possible on its retail platform, but to sell more of iRobot’s products by reducing its internal markups. Moreover, in addition to increased innovation, the merger was likely to result in considerable economies of scope by combining iRobot with Amazon’s suite of other smart home products, as well as utilizing Amazon and iRobot’s respective technological strengths.
Second, the Amazon/iRobot saga provides a clear demonstration of the kneejerk reaction that regulators take to any acquisitions by large technology companies due to a fear of “killer acquisitions”—theories that the FTC could not even get past a motion to dismiss in the Meta/Within case. In reality, as ITIF has explained, these concerns are not only wildly overstated in technology markets, but also clearly not an issue here. To be sure, while Amazon also was innovating in robotics and smart home solutions, it was not a meaningful potential competitor to iRobot. Indeed, reports suggested that its own household robot Astro—which was not a vacuum—had failed to gain traction with consumers. And, here again, the innovation benefits of the combination would likely have far outweighed any speculative anticompetitive harms.
Third, the transaction shows just how farcical the FTC’s attempts to broaden the scope of antitrust enforcement really are. For example, at the very same time it was investigating Amazon/iRobot, the FTC proclaimed its mission included protecting workers, but as a result of the deal’s termination iRobot was forced to lay off nearly one-third of its workforce. Moreover, notwithstanding the lip service paid by FTC leadership toward using antitrust as a tool to promote democracy, the termination of the deal will only work against the efforts of Western liberal democracies to compete against rivals like China, which has not only spent billions of dollars to develop its robotics industries but also has provided millions of dollars in subsidies to companies that serve as rivals to iRobot, like Ecovacs Robotics and Roborock. (In a forthcoming report, ITIF will examine China’s robotics industry in detail.)
Unfortunately, the lessons of the abandoned Amazon/iRobot deal are unlikely to be learned by the current leaders of U.S. antitrust enforcement agencies, who, in their new Merger Guidelines, have given every indication that they are ready to double down on their broadside against large technology companies in the name of protecting democracy. Indeed, as the Amazon/iRobot merger shows, they are doing so even when it transparently comes at the expense of the very innovation and Schumpeterian competition that generates transformational benefits for consumers and helps keep Western democracies technologically on top in the 21st century. The next administration, Republican or Democratic, must replace such thinking with an antitrust policy focused on driving creative destruction and not kneecapping America’s most innovative companies amidst the new geopolitical great game.
