The Parler Shutdown


Thursday, January 21, 2021

William Murphy

Professor William Murphy discusses the antitrust lawsuit against Amazon by the social media company Parler, which was shutdown in the wake of the riot at the US Capitol. Produced and Hosted by A. J. Kierstead

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Legal topics include antitrust, technology, internet, politics

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A. J. Kierstead:

Professor Bill Murphy discusses the possible antitrust implications to the takedown of the independent social media network Parler. This is The Legal Impact presented by the University of New Hampshire Franklin Pierce School of Law. Now accepting applications for JD graduate programs and online professional certificates. Learn more and apply at law.unh.edu. Opinions discussed are solely the opinion of the faculty or your hosts and do not constitute legal advice or necessarily represent the official views of the University of New Hampshire.

A. J. Kierstead:

So Bill, before we dive into the legality of what happened, just to give a super basic overview, Parler is an independent social media network with a large portion of their users being right-wing and a lot of them previously removed from more mainstream social media providers like Twitter or Facebook. In the wake of the Trump-supporting protests and breaking into the United States Capitol, Amazon, which is Parler's host, took down that service. Bill, what happened after that?

William Murphy:

Okay, well, first I wanted to just say that I want to point out that a free democracy depends on adherence to the rule of law. And I'm glad to see that this dispute is happening in the courts with the rules of evidence and with legal principles that are argued by both sides, rather than by violence in the streets. But this case also is more than this case. This has a lot in common with what we've seen in a number of places where there's increasing concerns about the power exercised in the marketplace by a small number of technology giants. We've had congressional hearings, we've had European hearings on this, we've had a number of cases as you know. The FTC and the Department of Justice, as well as a number of states, have sued various players in this marketplace. We have a private plaintiff complaining about the actions taken against them by one of these tech giants.

A. J. Kierstead:

Because essentially, I mean, these tech giants holds, I don't want to say a monopoly, but essentially it feels like a monopoly when it comes to the end user. Very few of these services have competitors that are at their level and when it comes to Amazon Web Services, there's Azure, there's a couple others, but there's very few alternatives that people can just jump off of.

William Murphy:

Yeah, I think this is the essence of why we see more antitrust cases. I mean, to be honest, for a number of years, this was kind of a sleepy area of the law. And it's almost like every week, you see another case that has an antitrust element to it. It should be pointed out that Parler's complaint had more than just antitrust, it had interference with trust relationship, breach of contract, and other causes of action. But I'd like to focus just on the antitrust parts. And first of all, it's important to kind of point out here that Parler and Amazon are not competitors. Parler is a customer and it buys a service from Amazon and that service is cloud hosting of its social media network on something that a lot of people don't remember that Amazon is a major player in, and that is web hosting services. AWS, Amazon Web Services is one of the big players in that area.

William Murphy:

So they wanted to have their network serviced by Amazon and Amazon said, "You can't be a customer." So it's not the usual thing where big companies crushing a competitor. They are saying to a customer, "No, you can't use our services." Now, in the complaint, Parler had to kind of make out this competitor argument, so they argued that Amazon was acting in concert with Twitter, who is a competitor and that because they had a contract with Twitter, Twitter is also hosted by Amazon, so Amazon sells its web hosting services to Twitter, and sold it to Parler before this. And Parler is arguing that denying Parler's use of the Amazon cloud was because they were acting in concert with Twitter. Now, because Parler is focusing on that particular claim, they only charged Amazon with violating Sherman 1 of the antitrust laws. And perhaps it's useful here to talk a little bit about the antitrust statutes again.

A. J. Kierstead:

Yes please, especially what specifically you mean by Sherman 1.

William Murphy:

Yeah. So yeah, I'm talking antitrust talk, shortcuts. The core antitrust statute is the Sherman Act and this was passed in 1890 to deal with the concentration of economic power that resulted from the Industrial Revolution that had transformed what had been an agricultural society in this country that existed when the country was formed in the 1790s to an industrial powerhouse 100 years later. And I might note that we are experiencing a similar transformation as we become increasingly a digital information economy with new titans of industry and high concentrations of power. The John Rockefellers, Andrew Carnegies, and JP Morgans have been replaced by Jeff Bezos, Mark Zuckerberg, and Elon Musk. So you see a similarity, there's concentration of power, vast accumulations of wealth, and then concern that that power is being used in ways that some people might not be happy with.

William Murphy:

Now, Amazon quickly filed its response and they correctly point out in its response to the complaint that in order to violate Sherman 1, you need an agreement and that agreement needs to harm competition. Rather than taking a whole antitrust course here in our few minutes, harm to competition is not what people usually think, it's harm to the overall operation of competition in the marketplace, not harm to an individual competitor. And I'd like to just focus on this for a second. There's a classic case that we teach in antitrust classes from the 1400s. And it's a schoolmaster who is operating in a small town and has the only school in town and a new schoolmaster arrives and sets up a new school in competition with the original schoolmaster. And so the original schoolmaster files a lawsuit, he complains that his business has been harmed, which is demonstrably true. He lost students and he had to lower his prices due to the actions of the new schoolmaster. And the court in this early case is beginning to understand that this is harm caused by competition, not harm to competition.

William Murphy:

So I need an agreement and harm to competition. Amazon argues that there's not an agreement, all they have is a contract to buy things. The agreement would have to be that Twitter and Amazon agreed to exclude Parler. Now, maybe there's something there, but it wasn't in the evidence that was shown right away. And then that they would have to show harm to competition. And that would be a much more difficult task because, what is the market? When you talk about harm to competition, we have to draw a border around where we're going to measure that. It's what we call the relevant market. And is it cloud hosting? There's a lot of options in cloud hosting. It's just none of them probably have the scale and are as cheap as Amazon. That becomes a problem.

A. J. Kierstead:

It's also extremely time-consuming to move your ecosystem from one host like that to another one that may not work exactly the same. It can cause considerable downtime.

William Murphy:

Yeah, another cost of buy-in.

A. J. Kierstead:

Yeah.

William Murphy:

There are switching costs, there all kinds of things. Once you are on something and you're used to doing it, it's like do you want to switch from Windows to the Macintosh operating system? It's there, but there's a cost for you to do that. So you're willing to put up with something in order to keep that. And also, I mean, they have the size to handle a huge scale and scale effects are really, really important in these industries. I mean, if you look at it, there are alternatives to Google, but you don't go to them because they don't have the scale. And then the larger companies get more scale. So that's a worry, that they're getting more powerful. They're becoming more critical.

William Murphy:

Now, here's where I find something interesting. The Sherman Act has another important provision and it's called Sherman 2, Section 2 of the Sherman Act. And that deals with single firm actions, what we call monopolization. And to prove a case there, one needs to show that you have monopoly power and have engaged in monopolizing actions in acquiring or maintaining that monopoly power. And here, I think Parler could have made an argument. At least it would have been something that would've been interesting to have the courts talk about. And to prove a case here, you have to show that these monopolizing acts are such that it's not due to a better business model, or management, or it's a superior product, or just plain luck, what we call historic accident, but it's because you did something that was seen as not correct, not fair, not right.

William Murphy:

There is also an argument and has been an argument that there is something called essential facilities. Now, the Supreme Court has never endorsed that doctrine in the United States, but some of the circuit courts have, and an essential facility is one where I need it to compete. And for whatever reason, you have it. Now, it came out of earlier cases way back when when, let's say there's only one good railroad bridge to get into a town, so one of the railroads buys up that bridge and then says, "Nobody else can use it. I am distorting the competition in the railroad business by denying you access to that essential facility." And the question is, does this logic have any application now to this digital world? Do people have a right of access to some of these essential facilities? Do I have a right of access to the software hooks in Google's Android operating system? Even though it's built on an open source, there are some proprietary pieces, do they have to share those with me? Does Amazon have to let Parler in because it's an essential facility? Can they make that argument?

William Murphy:

Now, it's not well developed and the Supreme Court hasn't even endorsed it. The Europeans have looked at that a little bit more, but that would have been a more interesting case. And I think that I don't see an agreement here to make a Sherman 1, but at least they might not get non-suited in antitrust if they try to push this out. The courts might have said, "Okay, well, we'll listen to this, we'll talk about whether or not this is something that should be there." I always like what the Europeans are starting to call these types of tech giant cases, that these are digital gatekeepers. Does the gatekeeper have some obligation to let people use the gate? That's an interesting question that we haven't answered yet.

A. J. Kierstead:

And this is going to be an ongoing debate for probably the upcoming decades because it's going to take so long because something like this, something severe and obvious difference from previous things that have happened, to really cause the case history to build up, I'm assuming.

William Murphy:

Yeah. I mean, there would be other examples, let's say, in just regular life. If I want to do well in the transatlantic air market, I would like to have access to Heathrow Airport.

A. J. Kierstead:

Right.

William Murphy:

Does that mean Heathrow can't say, "Well, I'm going to kick you out and have you, somebody else"? Now that's clear because they only have so many slots, so we know that we're going to have winners and losers. How much power does Amazon have? Can they decide, "I can kick you off because I don't like what you're saying. I can kick you off just because, well, you're wearing blue shirts"? Or anything. I mean, it's a private business. Do they have any obligations to do it as long as they say, "Well, here's our rules, this is what we do"?

A. J. Kierstead:

And it seems to me that there's an escalation happening when it comes to... Because these tech giants have become so large now, the cases are slowly getting larger and larger in importance where this is going to be more and more of an issue. I mean, something that was in the news just four years ago, I want to say, was Stormfront getting kicked off of GoDaddy. So they're a white supremacist organization, but they were kicked off of, once again, similar to Amazon, GoDaddy's the largest web hosting company in the United States. Parler getting kicked off Amazon Web Service, which is a considerably larger platform, was obviously more than just white supremacists and their whole thing was supposed to be freedom of speech. So it seems like it's a monopoly, but we're also going to be hitting a lot of the other freedom of speech aspects of it too.

William Murphy:

Right. And that's outside of my area. I mean, should antitrust come in to talk about issues that are normally somewhere else? We permit businesses to make decisions of who they want to deal with. I mean, we all remember not too long ago, there was the question of the cake maker. And they said, "Do I have to make cakes for a couple that was in a same-sex marriage if I don't believe in that?" And the Supreme Court says, "Well, no, you don't." Now that person wasn't a certain size.

A. J. Kierstead:

Right.

William Murphy:

The couple could go somewhere else. Do you get to a certain size where you lose that right? And then what do we do? Who's deciding what rules you can have as a private business? Because I want to have a private business that you don't tarnish my name, so I want you to only have no PG stuff. Let's say I'm running Amazon Prime or some other business, I don't want to have any music on Amazon Music that is not family-friendly. Well, am I allowed to do that if I've suddenly gotten that large? Can Netflix say that? "No, I'm sorry, none of that other edgy stuff, only stuff that you can show before 9:00 on cable, that's the only stuff we're going to take." And then who gets to decide that? Right now, we let the market decide that. If you start interfering with the market, well you better have some idea of what those rules are going to be. I don't think we have those rules yet.

A. J. Kierstead:

Right.

William Murphy:

One other thing is that we're not quite even sure of the... The old rules don't work. And let's take just the relevant market, you have to measure the effect of competition, that harm on competition, in some sort of marketplace. And we define that by calling it the relevant market. Well, what's the relevant market, let's say, for Google? I mean, are they in the search business or are they in the advertising business? They make their money from advertising and they just happen to get the eyeballs through the search business or data about the eyeballs. So those old concepts don't work as easily and as well. And I think we're just working through what the economics of data and information are going to be.

A. J. Kierstead:

And it feels like, to a lot of people, that the tech giants are acting as kind of a cartel with regards to they all came together all at once and basically shut out Parler within a week. Similar thing happened a couple of years ago with Alex Jones all at once. And then a week later, YouTube came along, YouTube was the one that didn't kick off Alex Jones at first, but then they did. And it's a very similar thing happened with Parler over the span of 48 hours.

William Murphy:

Yeah, but the thing is, this goes right back to the agreement. In antitrust, in oligopolistic competition, we know that you have so few competitors or other players out there that you're not unconscious of what they're doing. And it might be you go, "Whoa, I see that I'm going to lose my majority customers, and I will see what you're doing and I'll do the same thing." It's what we call consciously parallel. "I'm doing exactly what you're doing, I may be pricing exactly how you're pricing, but we're not agreeing to it." And that's okay under our antitrust laws.

William Murphy:

So that's probably, I think, what we're seeing is that they all are looking at this saying, "Oh gee, maybe I should think about this too." And I don't think that they're all talking to each other. Sometimes, they don't seem to be the best of friends. I think that they're independently making their decisions, but consciously aware of the other person's decision-making. It's not that perfect competition where you didn't know what your competitors were doing, there are so many of them that you really weren't coordinating unless you really got down and sat down and talked to them. This you know. I mean, Amazon knows what everybody else is doing, so they make their own decision too. It probably came up, they say, "Hey, look what everybody's doing and what should we do?" Without having to call Google or Facebook or anybody else.

A. J. Kierstead:

What's the next steps here for Parler and Amazon?

William Murphy:

I think that Amazon will move for a quick judgment on failure to state a claim and we'll have a decision on that. There may be amendments of those complaints. Parler doesn't want to have an antitrust suit. People forget that, businesses don't want to have antitrust suits. The antitrust suit is a stick to try to get what they want. What they want is for Amazon to let them be on their cloud service. They don't want to spend two years trying to litigate this thing, they'll be out of business. So I think what they're hoping is that this will trigger a negotiation, so they need to have a strong enough case and put enough risk in front of Amazon to go, "Okay, we'll let them back on in some ways." I kind of suspect that's where we'll end up at some point, but it won't be immediately. I think Amazon is getting beaten up enough in antitrust cases that they've got to take a stand, they can't roll on every one of them.

A. J. Kierstead:

Thanks for listening to The Legal Impact presented by UNH Franklin Pierce School of Law. Spread word about the show. Please be sure to subscribe and comment on your favorite podcast platform, including Apple Podcasts, Google Play, and Spotify.