The American Innovation and Choice Online Act: What it Does and What it Means

*Note: Sens. Amy Klobuchar (D-MN) and Charles Grassley (R-IA) released an updated version of The American Innovation and Choice Online Act (S.2992) in May 2022. These updates are reflected at the end. 

Overview 

The American Innovation and Choice Online Act (S.2992) is the latest bipartisan effort targeting big tech companies for potential antitrust and consumer choice violations. The legislation is sponsored by Senate Judiciary Committee Antitrust Subcommittee Chair Sen. Amy Klobuchar (D-MN) and full committee Ranking Member Sen. Chuck Grassley (R-IA) and co-sponsored by Sens. Dick Durbin (D-IL), Richard Blumenthal (D-CT), Cory Booker (D-NJ), Mazie Hirono (D-HI), Mark Warner (D-VA), Josh Hawley (R-MO), John Kennedy (R-LA), Lindsey Graham (R-SC), Cynthia Lummis (R-WY), and Steve Daines (R-MT). This ideologically diverse group of Senate co-sponsors indicates the continuing growing momentum on Capitol Hill for this issue but has yet to see legislation enacted into law. The Judiciary Committee passed the bill on January 20th with a vote of 16-6. All the Democrats voted for the bill while the Republicans were split. However, several members from both parties expressed concerns about the bill.

Who This Bill it Applies To 

The bill applies to the largest “online platforms,” which the bill defines as a “website, online or mobile application, operating system, digital assistant, or online service” that (A) enables a user to generate or interact with content on the platform, (B) facilitates e-commerce among consumers or third-party businesses, or (C) enables user searches that display a large volume of information.

The current draft is limited to the largest online platforms (“covered platforms”), which are those with (1) at least 50 million monthly active users (or 100,000 business users); (2) annual market capitalization or U.S. net sales exceeding $550 billion, AND (3) that serve as a “critical trading partner” for its business users. The bill should cover Apple, Alphabet (parent company of Google), Amazon, and Meta (formerly Facebook). It is unclear if Microsoft would qualify.

In addition to those covered platforms established in the definition, subsection (e) allows the FTC and DOJ to designate a covered platform jointly, and such designations would be effective for seven years. However, agencies must base designations upon size criteria, so importing this “designation” provision in the current draft is unclear.

How it Works 

If enacted, the bill would give federal antitrust agencies the authority to issue civil penalties and injunctions against so-called “covered platforms,”

The bill would create the following violations:

• “Unfairly” preferencing a platform operator’s products, services, or lines of business See updates below 
• “Unfairly” limiting another’s products to compete against the platform’s operator and discrimination in the enforcement of these regulations See updates below 
• Discrimination in the application of enforcement of the covered platform’s terms of service among similarly situated business users in a matter that may harm competition on the platform
• Restricting the capacity of business owners to operate with different platforms’ operating systems, hardware, or software features that are available to the platform operator’s products
• Condition access to the covered platform or preferred status or placement on the platform on the purchase or use of other products offered by the covered platform operator that is not unique to the covered platform itself
• Use of non-public data that are obtained from or generated on the covered platform by the activities of a business user or by the interaction of a covered platform user with the products of a business user to offer or support the offering of the covered platform’s own products
• Restriction or impediment of covered platform users from uninstalling software applications that have been preinstalled on the platform or changing default settings on the platform that steered users towards products offered by the covered platform
• Retaliation against users who report concerns

As affirmative defenses, companies are permitted to take “narrowly tailored” and “nonpretextual” actions if necessary for legal reasons, to protect safety, user privacy, or data security, or to maintain or enhance the “core functionality” of the covered platform See updates below. Some potential violations listed above may also be defended with evidence that the conduct in question has not actually harmed business users. The term “core functionality” is not defined and could eventually give rise to disputes as large platforms develop (or already offer) products and services that they may argue are “core” to their services. The FTC would provide primary enforcement under its usual enforcement procedures or by either DOJ or a state attorney general under the federal antitrust laws. While state attorneys general may act on behalf of their citizens, the bill does not contain a private right of action.

The Debate around the Bill 

Senators, industry groups, and other supporters of the legislation argue that it would address and mitigate many long-held concerns about big tech firms engaging in allegedly anticompetitive practices online. Sen. Klobuchar says policies will “ensure small businesses and entrepreneurs still have the opportunity to succeed in the digital marketplace.” Sen. Grassley states, “Big Tech needs to be held accountable if they behave in a discriminatory manner.” Other advocates argue it will help level the playing fields for small businesses and entrepreneurs; for example, Sen. Lummis argues, “In the absence of any meaningful regulations, Big Tech platforms are using the data they collect from companies on their platforms to create unfair advantages for themselves.” Supporters believe the bill would lead to a better customer experience with lower prices, more options, and better product offerings.

However, industry groups and critics opposed to this legislation argue the bill is vague, overly broad, and will hurt consumers. An expert from ITIF further contends that “self-preferencing often benefits consumers” and that a “rule of reason” for addressing anti-competitive forms of self-preferencing is a more appropriate approach. A representative from Amazon wrote that placing these restrictions on a handful of online platforms gives “preferential treatment to other large retailers that engage in the same practices.” An Apple representative expressed concern that the bill could hurt the company’s ability to maintain platform security, and as a result, “millions of Americans will likely suffer malware attacks on their phones that would otherwise have been stopped.” Critics argue that the bill would ultimately harm big tech companies and consumers and overall competition online.

The bill’s supporters and opponents had a spirited debate during the committee markup. In promoting the bill, Sen. Klobuchar emphasized the need to update antitrust laws given technological change and stated, “We haven’t meaningfully updated our antitrust laws since the birth of the internet.” Sen. Mike Lee (R-UT) expressed concerns with the bill, stating, “I worry a lot about the broad scope and the vague language that it contains that I believe would lead to an untold number of unintended and unforeseen consequences, like harming many of the very same consumers that we are trying to protect.” Sen. Dianne Feinstein (D-CA), who ultimately voted for the bill, expressed serious concerns and said, “The bill causes some very significant security concerns… We’re requiring companies to take down protections that are in place today, and instead, allow hackers and those looking to steal personal data to access the devices.” In contrast, Sen. Grassley had earlier argued that a manager amendment addressed many of the concerns brought up around privacy, security, and global competition. Still, it wasn’t clear how much it satisfied those critical of the bill.

Amendments Offered During Committee Markdown

• Manager’s Amendment- The manager’s amendment makes further updates to the bill that will provide additional privacy and security, and further clarifies certain provisions. For example, enhancing privacy for consumers, ensuring that powerful platforms won’t escape the bill’s coverage merely because they are not publicly traded, and making clear that subscription services are not impacted by the bill.
• Cornyn Amendment 22205- Sen. Cornyn’s amendment provided additional protection to keep American’s data out of the hands of the people’s Republic of China and guards against their access to the internal workings of American companies or consumers. The amendment was adopted.
• Lee Amendment 22032- This amendment would have retained the definition of covered platform and stated that in any suit against such a platform, a court shall presume that the covered platform has monopoly power for purposes of establishing liability. The amendment failed.
• Lee Amendment 22153- This amendment would have eliminated the narrowly tailored and least discriminatory mean elements from the affirmative defense. Sen. Ossoff offered a second-degree amendment, that would have removed “non-pretextual” from Lee’s amendment. The amendment failed.
• Lee offered a motion to strike section 3(d) from the bill, which failed. The motion would have required regulators to declare which companies are covered by the law.
• Cornyn Amendment 22123- This amendment dealt with ensuring that the bill’s requirements wouldn’t lead to the exploitation of cybersecurity vulnerabilities by foreign actors. Sen. Klobuchar argued that the effort was duplicative, and the amendment failed.
• Blackburn Amendment 22045- This amendment would have inserted the term substantial before the word “evidence” for agency deference in the manager’s amendment. The amendment failed.

Next Steps 

Industry groups have complained that the American Innovation and Choice Online Act has not received the traditional hearing process that other bills—especially big tech- and antitrust-related legislation—have in the past. Still, Committee leadership for both the majority and minority took advantage of the bipartisan support for the bill to pass it during the committee markup.

Assuming the bipartisan nature of the bill’s sponsors indicates support from members outside of the Judiciary Committee, the bill may have a good chance of passing the Senate. However, it is unclear as to whether the House would take up the Senate’s language. A similar bipartisan piece of antitrust legislation, the American Choice and Innovation Online Act (HR3816), co-sponsored by Reps. David Cicilline (D-NJ) and Ken Buck (R-CO) passed the House Judiciary Committee in June 2021, but it has received no further action.

Updates to the American Innovation and Choice Online Act (S.2992) *

Who it Applies To

• The updated bill includes language that makes an exception for wire or radio services from the “online platforms” definition.
• The draft bill removes the term “payments” from the “online platforms” definition.

How it Works

• The updated bill excludes the term “unfairly” to describe conduct that is unlawful or violates this law.
• The revised text also seeks to include cybersecurity safeguards by creating an exception under unlawful conduct Section 3(a)(4) that applies to scenarios in which covered platforms restrict capacity of business owners to operate or interoperate with different platforms’ operating systems, hardware, or software features available to the platform operator’s own products, adding: “except where such access would lead to a significant cybersecurity risk.”
• The updated bill alters the language about what conduct constitutes an affirmative defense by replacing “narrowly tailored” and “non-pretextual” with “reasonably tailored”. Companies must also now demonstrate “the conduct could not be achieved through materially less discriminatory means”.
• A “Burden of Proof” section was added, which explicitly puts burden of proof on the defendant for an affirmative defense
• The updated bill establishes new civil penalties up to 10% of the total US revenue, instead of the previously stated 15%.

We will continue to monitor and report on the American Innovation and Choice Online Act if it continues through the legislative process.