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Department of Justice kicks off antitrust review of tech giants

The investigation will target Apple, Google, Amazon and Facebook.

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The Justice Department is seeking feedback on the investigation from the public.

Alastair Pike / AFP/Getty Images

The US Department of Justice has announced an antitrust review of how online platforms achieved market power, and whether they are reducing competition, stifling innovation and harming consumers. While the Justice Department hasn't named specific companies, it's targeting tech giants including Apple, Alphabet, Amazon and Facebook, according to The Wall Street Journal.

Assistant Attorney General Makan Delrahim of the antitrust division said the companies' power could lead them to "act in ways that are not responsive to consumer demands."

"The Department's review will consider the widespread concerns that consumers, businesses, and entrepreneurs have expressed about search, social media, and some retail services online," the DOJ added. It's seeking feedback on the investigation from the public.

The move is the latest effort by the US government to step up enforcement of tech's biggest companies. For decades, the government largely avoided regulating or scrutinizing the tech world. That approach allowed companies like Apple, Microsoft, Amazon, Google and Facebook to grow to become some of the most highly valued in the world. But, critics argue, that growth came at the expense of user privacy and competitive choices in the marketplace.

Following revelations Russian propagandists used Facebook, Google's YouTube and Twitter to interfere in the 2016 US election, lawmakers have expressed interest in taking tech to task. Since then, the Justice Department and Federal Trade Commission have agreed to split up antitrust enforcement of tech companies between the two agencies, according to various media reports. The DOJ would focus on Apple and Google, which is owned by parent company Alphabet, while the FTC would take on Facebook and Amazon, according to a report in the Journal.

The Justice Department's new probe, announced Tuesday, goes a step beyond those plans, the Journal said. The FTC in February said it formed a task force to monitor competition in the tech sector.

"This is the antitrust question of the day," Fiona Scott Morton, an economics professor at the Yale School of Management, said in an interview.

Morton, who testified as an antitrust expert before congress during a hearing with tech companies last week, emphasized the scope of the investigation is still unclear, but she'd be interested in learning more about the general competition behavior of the big tech platforms.

Twitter declined to comment. AmazonApple and Facebook didn't immediately respond to requests for comment. Google meanwhile referred back to its testimony before Congress last week, during which its director of economic policy, Adam Cohen, said the company has "created new competition in many sectors." He added, "New competitive pressures often lead to concerns from rivals. We have consistently shown how our business is designed and operated to benefit our customers."

The companies are likely to respond soon, since Facebook, Google parent Alphabet and Amazon are due to report their quarterly earnings to investors this week. Apple is set to report its results next week. 

Techlash

The backlash against the tech industry has been more bark than bite so far. Lawmakers on Capitol Hill have hauled Facebook CEO Mark Zuckerberg, Twitter CEO Jack Dorsey and Google CEO Sundar Pichai before various committees to discuss concerns over user privacy, election integrity and censorship.

Though the hearings were designed to be big public showdowns between lawmakers and the tech industry, they instead exposed ignorance among government officials about how technology works in the first place. 

Last year, Sen. Orrin Hatch, the 85-year-old Republican from Utah, asked Zuckerberg, "If [a version of Facebook will always be free], how do you sustain a business model in which users don't pay for your service?" Zuckerberg paused a moment before saying, "Senator, we run ads." He, and his staff sitting behind him, then grinned before Hatch moved on to his next question. 

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The high-profile blunder made clear lawmakers were unlikely to act soon (and, in the past year, haven't passed any meaningful laws to rein in tech). But that hasn't stopped the DOJ or FTC from pursuing their own investigations, the first fruits of which may be announced this week. 

The FTC is expected to announce a $5 billion fine against Facebook for failing to adequately protect user data after learning Cambridge Analytica, a political consultancy tied to Trump's 2016 presidential campaign, had improperly purchased tens of millions of people's profile information. Though the FTC considered including language that could potentially hold Zuckerberg personally responsible for future privacy screw-ups, that plan was ultimately abandoned, according to a report by The Washington Post.

More coming

Tech companies know that while they've largely avoided scrutiny until now, something is coming. So far, they've opted to generally support regulation. Apple CEO Tim Cook and Microsoft CEO Satya Nadella have expressed support for stronger privacy rules. Zuckerberg and Dorsey have meanwhile supported the Honest Ads Act, which would require tech companies to disclose who pays for political ads on the internet, much the same way that television and radio stations do now. 

The tech companies have also stepped up lobbying in Washington, in an effort to help shape whatever may be coming. Facebook topped $4 million in spending in the three months ended June 30, discussing election integrity, privacy, security, advertising and competition, according to a recent government filing. Facebook's spending was higher than Amazon ($4 million), Google ($2.9 million) and Apple ($1.8 million).

The companies have also stepped up their public efforts to push back on any overambitious regulation. That includes a website Apple published in May, after the Supreme Court ruled iPhone owners can sue Apple, accusing its App Store of running a monopoly. Zuckerberg meanwhile has been publishing videos and podcasts of conversations he's held with academics and other CEOs, discussing censorship and ethics.

Whether any of that will help tech with increasing scrutiny it's now facing is unclear. 

"We ultimately believe this is more noise vs. the start of broader structural changes across the tech food chain," Wedbush analyst Daniel Ives wrote in a note to investors shortly after the DOJ's announcement. "While the further analysis of business models from these tech stalwarts will cause some near-term uncertainty, ultimately we view it as a positive as this potentially could be a catalyst for more technology innovation and diversification down the road for these titans."

CNET's Shara Tibken and Corinne Reichert contributed to this report.

Originally published July 23, 2:08 p.m. PT.
Update, 4:12 p.m. PT: Adds details throughout.