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Facebook Denies App Changes to Avoid Breakup: Antitrust Update

David McLaughlin and Ben Brody

(Bloomberg) -- U.S. technology giants are headed for their biggest antitrust showdown with Congress in 20 years as lawmakers and regulators demand to know whether companies like Alphabet Inc.’s Google and Facebook Inc. use their dominance to squelch innovation. The House Judiciary antitrust subcommittee is holding a hearing Tuesday on the market power of the largest tech companies. Executives from Apple Inc., Amazon.com Inc., Google and Facebook are testifying. Here’s the latest from the committee room:

Facebook Denies Its Integration Plan Designed to Thwart Breakup (5:37 p.m.)

Facebook’s Matt Perault denied that the company’s planned integration of its Messenger app, its WhatsApp chat service and its Instagram photo app was designed to thwart calls to break up the properties.

“There are many services in the market that offer more privacy-protective services,” he told Democratic Representative Jamie Raskin of Maryland. “Our pivot toward privacy with respect to inter-operating our services was because of the competition that we faced in the market.”

Raskin had suggested the announcement was a “ploy” and said it coincided with growing calls to break up Facebook by splitting off WhatsApp and Instagram.

Democrat David Cicilline, who chairs the panel, also asked Amazon lawyer Nate Sutton about reports that the fees merchants must pay have been increasing in recent years.

“Aren’t these steady fee hikes by Amazon a pure exercise of its outsize buyer power?” Cicilline asked.

Sutton said that the estimates weren’t accurate.

“The fees that are necessary to be paid in our store to sell items have actually been steady for a number of years and slightly declining,” Sutton told Cicilline.

Heated Exchange Over Amazon’s Third-Party Sellers (4:32 p.m.)

Democrat David Cicilline of Rhode Island, who is chairing the hearing, pressed Amazon on whether its business model suffers from a conflict of interest because it sells its own products that compete directly against those from third-party sellers. That is a complaint also raised by Democratic presidential candidate Elizabeth Warren.

“You are selling your own products on a platform you control and they’re competing with products from other sellers,” Cicilline said.

Amazon lawyer Nate Sutton said it’s common in retail for stores to sell their own brands that compete against others.

Cicilline fired back: “The difference is Amazon is a trillion-dollar company that runs an online platform with real-time data on millions of purchases and billions of commerce and can manipulate algorithms on its platform and favor its own product -- that is not the same as a local retailer,” he said.

Cicilline repeatedly pressed Sutton about whether the company uses data on the third-party sellers to advantage its own products. Sutton said Amazon ranks results by the same criteria and doesn’t use data to compete against sellers.

“You do collect enormous data,” Cicilline said. “You’re saying you don’t use that in any way to promote Amazon products, and I remind you sir, you’re under oath.”

Cicilline says companies have de facto ‘immunity’ (3:38 p.m.)

Cicilline slammed the dominance of the tech companies, saying they are shielded from competitive threats because of barriers to rivals that could potentially take them on. They also use their resources to prevent startups from challenging them and pose a risk to small businesses, he said.

Cicilline said the dominance of tech companies stems from policy choices. Antitrust enforcers haven’t challenged a single one of their acquisitions or sued them for anticompetitive conduct like they did with Microsoft Corp. 20 years ago, he said.

“Congress and antitrust enforcers allowed these firms to regulate themselves with little oversight,” Cicilline said in his opening remarks. “As a result, the internet has become increasingly concentrated, less open, and growingly hostile to innovation and entrepreneurship.”

“Together, these enforcement decisions have created a de facto immunity for online platforms,” Cicilline added.

Companies argue they face widespread competition (2:56 p.m.)

The four tech giants tried to head off criticism that they dominate their respective markets, as executives in prepared testimony all cited intense competition they say they face from rivals.

Nate Sutton, a lawyer for Amazon, which controls about half of U.S. e-commerce sales, told the House antitrust panel that the company makes up just 4% of U.S. retail sales, with competition from Walmart Inc. and Kroger Co.

Facebook’s Director of Public Policy Matt Perault pointed to competition from Apple, Amazon and Google, among others, in his remarks.

The companies also touted their development of innovative products that have won over consumers and their investment in research and development. Google’s director of economic policy, Adam Cohen, said the company spent $21.4 billion on R&D, three times more than in 2013.

The hearing, led by Cicilline, started at about 3 p.m. Dozens of people were waiting in line to get into the hearing room.

Here’s What Tech Faces in Washington:

The hearing is one of a several that big tech companies face this week in Congress as Washington calls the giants to task for a range of concerns. President Donald Trump is pressuring the companies in Twitter barrages for issues including anti-conservative bias, while the Justice Department and the Federal Trade Commission have taken the first steps toward investigating their conduct. The Justice Department is taking responsibility for scrutiny of Google and Apple, as the FTC oversees Facebook and Amazon.

Also on Tuesday, David Marcus, who leads Facebook’s Libra and block chain efforts, heard from disdainful Democrats at a Senate Banking Committee hearing on the company’s proposed cryptocurrency.Trump said Tuesday morning that his administration will look into allegations by billionaire Peter Thiel that Google’s work with China is “seemingly treasonous.”Trump has also said he wants gather tech executives at the White House.Google’s global public policy chief is scheduled to testify Tuesday before a Senate hearing focused on allegations the company engages in censorship.More on tech and antitrust: Did Big Tech Get Too Big? U.S. Joins Europe in Asking: QuickTake

To contact the reporters on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net;Ben Brody in Washington at btenerellabr@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Molly Schuetz

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