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FILE PHOTO: iPhone 15 and iPhone 15 Plus are displayed during the 'Wonderlust' event at the company's headquarters in Cupertino, California, U.S. September 12, 2023.
US sues Apple over alleged smartphone monopoly
In an antitrust lawsuit filed Thursday, the Department of Justice alleged Apple’s dominance of the smartphone market amounts to a monopoly. The DOJ says Apple resorts to “delaying, degrading, or outright blocking technologies that would increase competition in the smartphone markets” to keep users reliant on its iPhone.
The iPhone’s success is the stuff of business school legend, capturing some 70% of the US smartphone market despite steep prices. In short, the DoJ’s contention is that unfair practices helped Apple get there.
Apple is denying the claims and says it will fight the lawsuit in court, but this isn’t the first time the company has faced similar legal challenges. This is its third antitrust suit in the US since 2009, and It was fined nearly $2 billion by the European Union last month for breaking fair competition laws.
Expect a tough legal fight, but if the government proves its case, there could be major changes coming to the iPhone. The complaint says Apple could shape up by ensuring full compatibility with phones, smartwatches, and digital wallets from other manufacturers, relinquishing some control over the apps that can run on iPhones, and imposing less onerous terms on users and developers.Antitrust regulators zero in on AI
The watchful eyes of US antitrust enforcers are squarely on the artificial intelligence industry.
Last week, the US Federal Trade Commission announced it was opening an inquiry into multibillion-dollar investments by tech giants into smaller AI startups. Amazon, Google, and Microsoft made investments in Anthropic and OpenAI, and while they didn’t buy them outright, that has not stopped federal antitrust regulators from flexing some muscle.
Microsoft poured $13 billion into OpenAI, the company that ushered in the start of the AI boom with the release of its chatbot ChatGPT in November 2022, and the FTC is also probing two separate investments into Anthropic, which makes the AI-powered chatbot Claude, by Amazon ($4 billion) and Google ($2 billion).
It’s possible that in a more hands-off regulatory environment, these Silicon Valley stalwarts would have simply bought the pure-play startups outright. But doing so these days would enlarge the targets already on their chests.
The US government’s commitment to busting corporate dealmaking in the internet sector has been spotty over the past two decades. The historical rate at which the government challenges mergers is “far, far lower in the digital sector,” says Diana Moss, vice president and director of competition policy at the Progressive Policy Institute. This is research she oversaw and testified about to Congress in her previous role as the president of the American Antitrust Institute.
Federal antitrust enforcement is now led by FTC chair Lina Khan, a longtime critic of Big Tech dating back to her days as a student at Yale Law School, and the Department of Justice’s antitrust chief Jonathan Kanter, who spent his final years in private practice in part representing smaller tech firms in lawsuits against Apple and Google. In the first few years of their tag-team tenure, Khan and Kanter have sued Google for abusing its monopoly in advertising, sued Amazon for anticompetitive behavior in the online retail market, and unsuccessfully sued Meta to block its acquisition of the VR firm Within. Khan scored a big win in December when a federal court upheld the agency’s decision to block a $7.1 billion biotech merger, and several tech companies including Adobe and Figma have terminated merger plans after meeting with antitrust regulators. Still, it could take years for Khan and Kanter to notch their first major victory over Big Tech.
In a recent speech at Stanford University, Khan said the government wouldn’t turn a blind eye to anti-competitive dealmaking in the AI space, noting that the FTC “will be clear-eyed in ensuring that claims of innovation are not used as cover for lawbreaking.”
Brian Albrecht, chief economist for the International Center for Law & Economics, said there’s no question that Khan “believes there was too little scrutiny on previous tech acquisitions and wants to get ahead.” He says she’s been overeager with a “desire to bring any tech case, instead of good cases” (such as the Meta-Within case). Still, while the FTC hasn’t yet brought a case against these AI investments, Albrecht says it “has a flavor of ‘we need to do something, and this is something.’”
The FTC inquiry is just that — merely an inquiry. The agency hasn’t yet launched a formal investigation into any of these deals, which would be a necessary step before it decides whether to bring lawsuits. In fact, recent reports indicate that the FTC and DOJ both want to investigate Microsoft’s stake in OpenAI but can’t agree over who’ll get to do it.
But it’s a warning shot, a declaration of intent, a resolution that the investment-not-acquisition strategy — if that’s the strategy after all — will not go unnoticed.
Investments, not acquisitions
Antitrust regulators have broad authority over partial-ownership investments, not just full-on corporate takeovers. That’s important, Moss says, because her research shows that the percentage of investments in AI over the past three decades is about three times higher than that of acquisitions involving AI. “That tells you a lot about how companies are approaching AI,” she says.
Microsoft’s arrangement with OpenAI is somewhat stranger than the others because while it’s invested an astronomical sum in the ChatGPT maker, OpenAI is technically run by a nonprofit. Until recently, Microsoft didn’t even occupy a seat on that nonprofit’s board! But when the board dismissed OpenAI CEO Sam Altman in November, Microsoft’s power was hard to ignore. Microsoft promised to hire all of the 700 employees threatening to leave OpenAI over the ouster, successfully lobbied for Altman’s reinstallation, and won a (nonvoting) board seat in the aftermath.
“The arrangement does not get some sort of special immunity because it isn't a standard investment,” Albrecht says. “That being said, investments, joint ventures, strategic partnerships have often (and should) received more leniency from the agencies.”
And even though OpenAI is run by a nonprofit, that doesn’t obviate the need for antitrust enforcement. “The exercise of market power affects prices, quality, and innovation similarly in the case of for-profit and nonprofit organizations,” Moss says, noting that many universities and hospitals have nonprofit status and have received antitrust scrutiny.
The UK’s Competition and Markets Authority is already investigating Microsoft’s investment in OpenAI, and Microsoft has defended itself by pointing to the odd nature of its investment. Instead of buying equity in OpenAI, Microsoft receives half of the startup’s revenues until the $13 billion investment is repaid, according to the Los Angeles Times.
A new era for antitrust
In the past few decades, Silicon Valley technology companies have become the most valuable firms in the world. Seven of the top nine most valuable firms in the world are tech companies with AI investments (Amazon, Apple, Google, Meta, Microsoft) or chip manufacturers (NVIDIA and TSMC), all of which have massive direct or indirect interests in the success of AI.
Many critics of these Big Tech firms say they have grown bloated and unruly without proper antitrust enforcement to keep them from gobbling up competitors. That seems to be the view of Khan and Kanter, too — plus, many overseas antitrust regulators who could make life uncomfortable for any of these global companies.
And these companies know that.
It’s hard to know whether in another time, facing different scrutiny, Microsoft might have tried to buy OpenAI. Or if Amazon or Google would’ve made an offer to buy Anthropic.
“The current state is that any Big Tech company has to worry about the FTC for any major investment or business decision they make,” Albrecht says. “That makes investments relatively more attractive than acquisitions.”
But this inquiry might reveal that the gap, he says, isn’t as big as the companies in question — some of the biggest AI firms in the world — might wish.
The world of AI in 2024
2. Labor tensions: The acceleration of AI will continue to reshape industries, automating jobs and displacing workers. That will lead to widespread tension in various sectors of the economy. Union leaders could make AI the centerpiece of their strikes, and you might hear a lot of talk about “reskilling” workers on the lips of lawmakers heading into the 2024 election. This time it’s sure to work …
3. Copyright clarity: We don’t really know how AI models are trained, but we know they’re at least partially trained on unlicensed copyrighted material. Clarity is coming in Europe: The forthcoming AI Act mandates some transparency about training data. But in the US, where regulation is sparse, the courts are considering a big legal question about whether using copyrighted material as training data violates the law. At issue is whether the output is “transformative enough.” The answer to this legal question has extremely high stakes. Look for authors and artists to keep suing. But also look for companies, under pressure from lawmakers, to start opening up about how their systems are trained, whether copyrighted material is used, and why they think the stuff their models spit out does not constitute copyright infringement. We at GZERO aren’t holding our breath for writers' royalties (but we’d sure take ’em).
4. A big new law in Europe: The European Union’s AI Act is set to become law in the spring of 2024. Of course, lawmakers could falter before hitting the finish line, but an agreement this month made that unlikely. What’s ahead: The EU just held the first of 11 sessions to hammer out the details of the law, which will lead to a “four-column document” by February, reconciling proposals from the three EU legislative bodies. Only after that will country representatives vote to finalize the act. But this landmark law won’t have teeth in 2024 even if everything goes to plan because there’s a 12-month grace period for companies to comply. It’s all hurry up and wait.
5. The hype cycle continues: Major investment in AI won’t be a flash in the pan for 2023. With hints of lower interest rates, and still-palpable interest in AI from tech investors hungry for massive returns, expect the billion-dollar valuations, IPOs, mergers and acquisitions, and the big-moneyed investment from top tech firms in startups all to accelerate.
6. Congress does something: The US Congress does more bickering than lawmaking today. But there’s real political will to not get left behind on AI regulation. Lawmakers have been regularly discussing AI, grilling its corporate leaders, and brainstorming ideas for governance. They’ve proposed removing red tape for chipmakers, mandating disclosures for AI-generated political ads, and even considered a “light-touch” law-making AI developers self-certify for safety. It’s not necessarily likely that the US will pass something sprawling like the EU’s AI Act, but Congress will likely pass something about AI in the coming year. More than 50 different AI-related bills have been introduced since the 118th Congress began last year, but none have passed through either house of Congress.
7. Antitrust comes for AI: Regulators are circling. The US government sued Google for allegedly abusing its monopolies in search and advertising technology, Amazon for hurting competition on its e-commerce platform, and Meta for buying dominant market power through its Instagram and WhatsApp acquisitions. That’s the hallmark of current FTC Chair Lina Khan and Justice Department antitrust chief Jonathan Kanter, who have been set on enforcing antitrust law against Big Tech. And that fervor is likely to hit AI in 2024. There’s lots of political will to use antitrust law in the UK and Europe, which means scrutiny will soon come to AI. In fact, it’s already here. The FTC and the UK’s Competition and Markets Authority are reportedly probing Microsoft’s investment into OpenAI – it’s not a full-fledged investigation yet, but in 2024 antitrust regulators will be watching AI very closely.
8. Election problems: In 2024, an unprecedented number of countries – some 40-plus – will head to the polls, and many will have their eyes on places like the United States and India for the use of AI in disinformation campaigns ahead of Election Day. There is concern about deepfake technology fueling confusion or contributing to an already-challenging misinformation problem. We’ve already seen deepfake songs impersonating Indian Prime Minister Narendra Modi and videos portraying US President Joe Biden. But what we haven’t seen yet is AI disrupting an election. Will 2024 be the year that AI-generated words, videos, images, and music play a surprising role in elections?
9. New companies you’ve never heard of. By the end of 2024, the top companies in AI may be the same as today: Anthropic, Google, Meta, Microsoft, and OpenAI. But chances are there will be a startup that you've never heard of on the list. Why? Not only is innovation an everyday reality in AI, but investors are excited to fund these projects to reap potential rewards. In the first half of 2023, AI's share of total startup funding in the US more than doubled from 11% to 26% compared to the same period in 2022. That includes household names and challengers you might have already heard of, such as OpenAI ($29 billion) and Anthropic ($5 billion), which had big funding rounds this year. But there are 15 new AI "unicorns" (billion-dollar companies) that could break into the mainstream, including the enterprise AI firm Cohere ($2.2 billion) and the research lab Imbue ($1 billion). Even in a high-interest rate environment, AI startups have fetched big valuations despite still-paltry revenue estimates — at a time when “easy money” has vanished from the broader tech sector. Expecting stasis would be foolish.
10. The real reason Sam Altman was fired: Expect to learn why OpenAI really fired Sam Altman in 2024. It’s perhaps the great mystery in AI, but it can’t remain a secret forever. If anyone knows the answer, please let us know.
A Microsoft sign at the tech giant's offices in Issy-les-Moulineaux, near Paris.
Governments sniff around Microsoft’s OpenAI deal
The PC giant says that $13 billion hasn’t bought it functional control over the ChatGPT parent company because OpenAI is technically run as a nonprofit. Instead of receiving equity in the company, Microsoft gets about half of OpenAI’s revenue until its investment is repaid.
But the power of the board has been in the spotlight in recent weeks. OpenAI’s nonprofit board fired Sam Altman, CEO of the for-profit arm of the business, but that decision was reversed after a pressure campaign from Altman, employees, and Microsoft. After days of public turmoil, Altman was reinstated, board members resigned, and Microsoft — which never had a seat on the board — gained a non-voting, observer seat. If anything, Microsoft gained more power out of the ordeal.
Some experts say the FTC has authority here, even though Microsoft is simply invested in OpenAI and didn’t buy it outright. “The Clayton Antitrust Act and the FTC Act – the laws that the FTC can enforce – aren’t limited to scrutinizing outright mergers,” says Mitch Stoltz, the antitrust and competition lead for the Electronic Frontier Foundation. “They also cover acquisitions of any amount of capital in a competitor if the effect is ‘substantially to lessen competition, or tend to create a monopoly.’”
Microsoft’s partial ownership could “soften” competition between the two firms, according to Diana Moss, vice president and director of competition policy at the Progressive Policy Institute. “That includes influencing decision-making through voting rights on either board or by sharing sensitive information between the two firms,” she says. “I think the bigger picture here is that AI is viewed as an important technology and, therefore, competitive markets for AI are vital.”
Britain’s antitrust regulator has power here too. “If US companies do business in another country, then the antitrust and competition laws of that country apply,” says Moss, formerly the president of the American Antitrust Institute.
Antitrust is having a moment as a tool for wrangling Big Tech. In recent years, regulators have strived to block and undo anti-competitive mergers – they succeeded in the case of Meta’s purchase of Giphy and failed in the case of Microsoft’s purchase of Activision. But they’ve also sued tech firms over alleged abuses of monopoly power: Federal prosecutors are litigating ongoing antitrust cases against Amazon, Google, and Meta after years of treating these companies with kid gloves.
These antitrust probes are still preliminary, but they represent the first real AI-related legal challenges at a time when there’s a global appetite to stop big tech companies from getting unfair advantages in emerging markets. Next steps, should regulators decide to move forward, would be formal investigations.
How can the Biden administration rein in Big Tech?
Renowned tech journalist Kara Swisher has no qualms about saying that many of the country's social media companies need to be held accountable for their negative role in our current national discourse. Swisher calls for "a less friendly relationship with tech" by the Biden administration, an "internet bill of rights" around privacy, and an investigation into antitrust issues.
Swisher, who hosts the New York Times podcast Sway, joins Ian Bremmer for the latest episode of GZERO World, airing on public television nationwide beginning this Friday, January 22th. Check local listings.
DOJ antitrust case against Google; why Quibi failed
Nicholas Thompson, editor-in-chief of WIRED, helps us make sense of today's stories in technology:
Why is the Department of Justice suing Google?
Well, they are suing Google because Google is a giant, massive company that has a dominant position in search. In fact, on your phone, you almost can't use any other search engine or at least your phone is preloaded with Google as a search engine and you probably don't know how to change it. The Department of Justice alleges that Google has used its power and its muscle to maintain its position, and that violates the antitrust laws.
Goodbye Quibi. Why did the video streaming platform fail?
Well, Quibi failed in part because of timing, it launched right at the start of the pandemic, which was very, very hard. Secondly, they just didn't have the right content, nothing seemed magical. And third, they made a bunch of tactical errors. They didn't allow people to screenshot and share stuff from the videos they saw. They weren't available on every platform. They made some mistakes. And now, unfortunately, they're gone.
Barr pressures DOJ to bring antitrust suit against Google
Nicholas Thompson, editor-in-chief of WIRED, discusses technology industry news today:
What's the deal with Google and antitrust?
Well, we've long known that the Department of Justice is likely bringing an antitrust suit against Google. What we've just learned this week is that William Barr, the attorney general, is pressuring them to bring it really quickly, and the career lawyers don't like that idea. Why is he doing that? Maybe because he thinks they're going slowly, maybe because he wants a political victory for Trump before the election.
Should we be worried about the decline in stock for Apple, Amazon and Tesla?
No, we should not. Those stocks, well, tech stocks swing wildly. All three companies are totally fine. Their stocks were quite inflated.
What is the controversy over Disney Plus's new movie, Mulan?
Amazing thing is that about five minutes ago, I got an e-mail saying my kids had purchased it and are watching it. The controversy is, what I saw, which is, "I've already paid for Disney Plus and I have to pay $30 more?" If they like it, it's worth it, but it's still a lot.
What the tech antitrust hearing did and did not prove
What happened at the antitrust hearings this week?
Well, CEOs of Apple, Amazon, Google, Facebook testified in front of the Subcommittee in Antitrust of the House Judiciary Committee for five hours. There's a fair amount of nonsense and conspiracy talk, but mostly it was a pretty good hearing where the House members dug into questions about whether four companies abused their market positions to their advantage? Whether they used predatory pricing to drive competitors out of the market? Whether they used inside information from their services to identify and then copy and kill competitors? And the evidence that was presented, if I were to sum it up quickly, is, yes, they did do that. They did abuse their market power. But what wasn't presented was clear evidence of consumer harm. We know they acted in ways that distorted capitalism, but were people really hurt? That's a big question. I look forward to their report.