MSFT Microsoft Corporation

By John D. McKinnon in Washington and Deepa Seetharaman in San Francisco 

Federal regulators opened a new front in their investigation of big tech firms, seeking to determine whether the industry's giants acquired smaller rivals in ways that harmed competition, hurt consumers and evaded regulatory scrutiny.

The Federal Trade Commission on Tuesday ordered Amazon.com Inc., Apple Inc., Facebook Inc., Microsoft Corp. and Google owner Alphabet Inc. to provide detailed information about their acquisitions of smaller firms over the last decade.

The new probe likely will involve hundreds of transactions that never came under federal scrutiny because they were under the dollar-value threshold for antitrust review, which will rise to $94 million for 2020, officials said.

"This initiative will enable the commission to take a closer look at acquisitions in this important sector, and also to evaluate whether the federal agencies are getting adequate notice of transactions that might harm competition," said FTC Chairman Joe Simons.

Mr. Simons said the investigation could lead regulators to seek to unwind improper acquisitions. It could also lead the commission to consider rule changes or other action to broaden the scope of acquisitions that come under review, he said.

"We look forward to working with the FTC to answer their questions," a Microsoft spokesperson said. Representatives for Apple, Facebook, Alphabet and Amazon representatives didn't reply to requests for comment.

The move marks a significant expansion of the government's already extensive examination of possible antitrust concerns in digital markets. Both the FTC and the Justice Department have been conducting antitrust investigations of tech giants including Google and Facebook.

Critics contend big tech firms' acquisitions show a pattern of establishing "kill zones" around themselves to prevent upstart rivals from posing a competitive threat, and say this can discourage innovation and investment.

Defenders of the tech giants say a small startup's prospect of being taken over by a major company -- and the big payoff that can result -- is a spur to investment and innovation. Many tech entrepreneurs start companies with the specific goal of being bought by one of the giants.

Mr. Simons said the study was prompted by the large number of acquisitions that have escaped federal review and "whether there's something we need to change going forward."

The top five tech firms have made more than 400 acquisitions over the last decade, a blue-ribbon antitrust panel in the U.K. said in March.

Doug Melamed, a Stanford law professor, said the study announced Tuesday "might be more about building a consensus or road map at the commission" on how to proceed in the complex area.

Small acquisitions put "a real burden on antitrust enforcers" to prove that they are anticompetitive, he said. Moreover, certain deals that meet the $94 million threshold can escape review under current rules, FTC officials said. That value threshold has varied over the 10-year period the agency will be examining.

The FTC also is looking at acquisitions that don't involve full-fledged takeovers. Those deals will include examining potential competitive impacts of minority investments, as well as data acquisitions and licensing arrangements.

The FTC action reflects growing concern in Washington and around the country that some U.S. tech companies have grown so large and powerful that they are squelching competition in various ways and harm consumers.

Sen. Richard Blumenthal (D., Conn.), a critic of big tech companies, said he welcomed the FTC action, but warned that "it's no substitute for action."

"It has been clear for a decade that Big Tech is stifling innovation through its catch-and-kill tactics and unfettered market dominance," he said in a statement. "Every time that Google, Amazon, Apple, and Facebook acquire the latest cutting-edge artificial intelligence startup, innovative wearable device or emerging social network, they irreversibly squash another generation of novel competitors that could benefit consumers and bolster our nation's technological advancement."

Sandy Kory, co-founder and managing director at boutique technology M&A firm Horizon Partners, said many deals clinched by the five technology companies were likely to have fallen below the FTC's threshold for review, and that in many cases the aim was to buy technology or engineering staff, rather than a stand-alone business that could flourish like YouTube or WhatsApp

Many recent deals by Facebook and other tech giants have been in artificial intelligence, an area where tech companies are increasingly investing.

Mr. Kory said it was hard to see the antitrust case in major tech companies snapping up small, unproven companies so they can hire engineers well-versed in cutting-edge technology. "It's uncharted territory to say, You have too many smart people at your company."

Scrutiny from Washington already has been forcing some changes in how Silicon Valley does business.

At Facebook, CEO Mark Zuckerberg has formed a sizable team within the company to develop dozens of new apps because he isn't confident the social-media giant will be able to get significant acquisitions approved in the near term, according to a person familiar with the matter.

The company has previously had great success in turbocharging its growth through timely acquisitions of competitors including Instagram and WhatsApp.

In last week's earnings report, Alphabet CEO Sundar Pichai nodded toward divestitures of some of the conglomerate's outer-lying arms, saying he expected them to take on outside investors.

In addition to the FTC and the Justice Department scrutinizing possible antitrust concerns involving certain major firms, the FTC announced in early 2019 that it was creating a task force to examine potential antitrust violations across the tech industry.

The FTC has been particularly focused on re-examining mergers that have been approved by the government. That re-examination could eventually lead the FTC to try to unwind deals that it finds to be having anticompetitive effects now, officials have said.

--Rob Copeland contributed to this article.

Write to John D. McKinnon at john.mckinnon@wsj.com and Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

February 11, 2020 17:33 ET (22:33 GMT)

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