Rep. Johnson Holds Tech Titans Accountable to Consumers
Congressman Questions Leaders of Facebook, Apple, Amazon & Google On Anti-Competitive Behavior, Market Dominance – CEOs Agree to be More Transparent,
WASHINGTON, D.C. – As part of the Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law (ACAL) hearing on “Online Platforms and Market Power, Part 6: Examining the Dominance of Amazon, Apple, Facebook, and Google,” Rep. Hank Johnson (GA-04) questioned Apple CEO Tim Cook about its unequal treatment of companies on its App Store, Facebook CEO Mark Zuckerberg about its practice of using digital surveillance tools to harm competition and Amazon CEO Jeff Bezos about the problem of counterfeits on Amazon’s platform.
Congressman Questions Apple CEO Tim Cook About Its App Store
Rep. Johnson: Thank you, Mr. Chairman. Mr. Cook, with over 100 million iPhone users in the United States alone and with Apple’s ownership of the app store, giving Apple the ability to control which apps are allowed to be marketed to apple users, you weld immense power over small businesses to grow and prosper. Apple is the sole decision-maker as to whether an app is made available to app users through Apple’s App Store, isn’t that correct?
Mr. Cook: Sir, the AppStore -- thank you for the question. the AppStore is a feature of the iPhone, much like the camera is and the chip is and so. …
Rep. Johnson: My point is, and I’m sorry to interrupt, but I want to get to the point, point is that Apple is the sole decision-maker as to whether an app is made available to app users through the App Store, isn’t that correct?
Mr. Cook: If it’s a native app, yes, sir. If it’s a web. ….
Rep. Johnson: Okay, thank you. Throughout our investigation we’ve heard concerns that rules governing the App Store review process are not available to the app developers. The rules are made up as you go. They are arbitrarily interpreted and enforced and are subject to change whenever Apple sees fit to change and developers have no choice but to go along with the changes or they must leave the App Store. That’s an enormous amount of power. Also, the rules get changed to benefit Apple at the expense of app developers and the AppStore is said to also discriminate between app developers with similar app on the Apple platform and also as to small app developers versus large app developers. So, Mr. Cook, does Apple not treat all app developers equally?
Mr. Cook: We treat every developer the same. We have open and transparent rules. It’s a rigorous process. Because we care so deeply about privacy and security and quality, we do look at every app before it goes on. But those apps -- those rules apply evenly to everyone. And as you can tell by going from. …
Rep. Johnson: Some developers are favored over others, though, isn’t that correct?
Mr. Cook: That is not correct. And as you can tell from going from. …
Rep. Johnson: Sir – I’ll give you an example. Baidu has two app stores -- two app store employees assigned to help it navigate the app store bureaucracy, is that true?
Mr. Cook: I don't know about that, sir.
Rep. Johnson: Well, you don’t have other app developers who have that same access to Apple personnel, do you?
Mr. Cook: We do a lot of things with developers including looking at their beta test apps regardless of whether they're small or large.
Rep. Johnson: Let me ask you this question. Apple has negotiated exceptions to its typical 30% commission for some apps like Amazon Prime. Is that -- is a reduced commission such as the one that Amazon Prime gets available to other app developers?
Mr. Cook: It’s available to anyone meeting the conditions, yes.
Rep. Johnson: Okay, let me you this, Apple requires all app developers to use Apple’s payment processing system if those developers want to sell their goods or services to Apple users through Apple’s App Store, isn’t that correct?
Mr. Cook: That is correct because it’s …
Rep. Johnson: By processing payments for apps that you allow into the AppStore, you collect their customer data and you use that data to info Apple to launch a competing app. Is that correct?
Mr. Cook: Sir, 84% of the apps are charged nothing, the remaining 16% pay either 15% or 30% depending on the specifics. If it’s in the second year of a subscription it’s only 15%.
Rep. Johnson: What’s to stop Apple to increasing its commission to 50%.
Mr. Cook: Sir, we have never increased commissions in the store since the first day it operated in 2008.
Rep. Johnson: Nothing to stop you from doing so, is there?
Mr. Cook: No, sir. I disagree strongly with that. There’s a competition for developers just like there’s a competition for developers. The competition for developers they can write their apps for Android or Windows or XBox or Playstation. We have fierce competition at the developer side and the customer side, which is so competitive, I would describe it as a street fight for market share in the cell phone business.
Rep. Johnson: Has Apple ever retaliated against or disadvantaged a developer who went public about their frustrations with the app store?
Mr. Cook: Sir, we don't -- we do not retaliate or bully people. It’s strongly against our culture.
Congressman Questions Amazon CEO Jeff Bezos About Counterfeit Products on its Site
Rep. Johnson: Mr. Bezos, Amazon has a significant problem with counterfeit products on its marketplace site. These products are not just misleading, they can also be dangerous. For example, a CNN investigation last year found counterfeit car seats for sale on Amazon that failed to meet basic safety standards. The IP subcommittee — where I’m the Chairman — held a hearing last year highlighting the dangers of counterfeit products available on marketplaces sites, including Amazon. Amazon has said it’s fixing its counterfeit problem, but it seems to be getting worse, not better. Amazon is a trillion-dollar company but Amazon customers are not guaranteed that the products purchased on your platform are authentic. Amazon acts like it’s not responsible for counterfeits being sold by third-party sellers on its platform and we heard that Amazon puts the burden and cost on brand owners to police Amazon’s site, even though Amazon makes money when a counterfeit good is sold on its site. More than half of Amazon’s sales come from third-party seller accounts. Why isn't amazon more aggressive in ensuring that counterfeit goods are not sold on its platform and why isn't Amazon responsible for keeping all counterfeit products off of its platform?
Mr. Bezos: Thank you. This is an incredibly important issue and one that we work very hard on. Counterfeits are a scourge. They are a problem that is not -- does not help us earn trust with customers. It's bad for customers. It's bad for honest third-party sellers. We do a lot to prevent counterfeiting. We have a team of more than 1,000 people that does this. We invest hundreds of millions of dollars. We have project zero, which helps brands serialize individual products which really helps with counterfeiting.
Rep. Johnson: I’m glad that you have those – I’m glad that you have those features in place. But why isn't Amazon responsible for keeping all counterfeit products off of its platform?
Mr. Bezos: We certainly work to do so Congressman, and we do not just for our own retail products, but for third-party products as well.
Rep. Johnson: Okay. Thank you. We’ve heard from numerous third-party sellers and brand owners that Amazon has used knockoffs as leverage to pressure sellers to do what Amazon wants. For example, the founder of Pop Socket testified in January that Amazon itself was selling knockoffs of its product. After reporting the problem, it was only after his company committed to spending $2 million on advertisements that Amazon appears to have stopped diverting sales to these knockoffs. What is your explanation for that business practice?
Mr. Bezos: That's unacceptable. If that is -- if those are the facts and if someone somewhere inside Amazon said, you know, by “x” dollars in ads and we’ll help you with your counterfeit problem. That is unacceptable. I’ll look into that. We have a counterfeit crimes unit. We attempt to prosecute counterfeiters. I would encourage this body to pass stricter penalties for counterfeiters and increase law enforcement.
Rep. Johnson: But your company does make money of counterfeit products being sold on your platform, isn’t that correct?
Mr. Bezos: If it does, it would only be in the short term. I would much rather lose a sale than a customer.
Rep. Johnson: Fair enough, sir. Making companies pay extra to avoid having their products disappear in rankings seems to be so unfair, especially the small businesses, the American dream is threatened when that happens, don’t you think so?
Mr. Bezos: Sir, I’m not exactly sure what you’re referring to. If you’re talking about what we were just talking about a second ago, I agree completely.
Rep. Johnson: No, I’m talking about totally different situation now, where a company that is selling on your platform but is not paying anything extra gets buried in the rankings and -- but companies that pay extra are able to get their products pushed up and avoid getting pushed down. Is that an acceptable practice?
Mr. Bezos: Sir, we offer an advertising service for third-party sellers to drive additional promotion to their products It’s a voluntary program. Some sellers use it, some don’t. But it’s been very effective at helping people promote their products.
Rep. Johnson: With that I yield back.
Congressman Johnson Questions Facebook CEO Zuckerberg on Anti-Competitive Behavior
Rep. Johnson: Facebook is dominant not just in the social media market but also in its digital surveillance capabilities. In 2012, Facebook had several tools that allowed it to conduct digital surveillance including trackers, Facebook’s “like” button, Facebook log in, and a series of application programming interfaces or APIs. Mr. Zuckerberg, these tools provide Facebook with insights into its competitors websites and apps, isn’t that correct? Yes or no?
Mr. Zuckerberg: Congressman, I think broadly the answer to what you’re saying is yes. We -- every other company here do market research to understand what people are finding valuable.
Rep. Johnson: All right. Okay so, you’re going beyond the scope of my question. I appreciate that answer though. Mr. Zuckerberg, a few days before Facebook acquired Instagram, a Facebook vice president emailed you suggesting ways to improve Facebook’s, quote, competitive research, end quote. By building a custom model, Facebook could improve its understanding of its competitors and, quote, make more bold decisions on whether they are friends or foes, end quote. Mr. Zuckerberg, how does Facebook improve research to distinguish friends from foe?
Mr. Zuckerberg: Congressman, I’m not sure exactly what he was referring to in that email there, but he is one of the people involved in running our analytics organization. And I think it’s natural that he would as part of his responsibility be focused on market research and understanding more there.
Rep. Johnson: Certainly, isn’t it true that Facebook after that conversation purchased the web analytics company Onavo in 2013 to give Facebook more capability to monitor its competitors?
Mr. Zuckerberg: Congressman, I think you have the timing correct. We purchased Onavo as part of broader market research capacity.
Rep. Johnson: And that would give you the capability to monitor your competitors, correct?
Mr. Zuckerberg: Congressman, it gave aggregate analytics as to what people were using and what people were finding valuable. Sort of like the type of product you would get from Nielsen or ComSource, these other third parties that provide data.
Rep. Johnson: Mr. Zuckerberg, that acquisition gave you non-public real time data about engagement, usage and how much time people spend on apps. and when it became public that Facebook was using Onavo to conduct digital surveillance, your company got kicked out of the App Store. Isn’t that true?
Mr. Zuckerberg: Congressman, I’m not sure I would characterize it in that way. I think --
Rep. Johnson: Onavo did get kicked out of the app store, isn’t that true?
Mr. Zuckerberg: We took it out after they changed policies.
Rep. Johnson: And it was because of the use of the surveillance tools?
Mr. Zuckerberg: I'm not sure that the policy was worded that way or that that’s exactly the right characterization of it.
Rep. Johnson: Okay, let me ask you this question. After Onavo was booted out of the App Store, you turned to other surveillance tools such as Facebook research app, correct?
Mr. Zuckerberg: Congressman, in general, yes, we do a broad variety of –
Rep. Johnson: So, also isn’t it true Mr. Zuckerberg that Facebook paid teenagers to sell their privacy by installing Facebook research app?
Mr. Zuckerberg: Congressman, I’m not familiar with that but I think it’s a general practice to be able to -- that the companies use to have different surveys and understand data and what preferences are.
Rep. Johnson: Facebook’s research app got thrown out of the App Store too, isn’t that true?
Mr. Zuckerberg: Congressman, I’m not familiar with that.
Rep. Johnson: Okay. well, over nearly a decade, Mr. Zuckerberg, you led a sustained effort to surveil smaller competitors to benefit Facebook. These were steps taken to abuse data, to harm competitors, and to shield Facebook from competition. You tried one thing and then you got caught, made some apologies, then you did it all over again. Isn’t that true?
Mr. Zuckerberg: Congressman, I respectfully disagree with that characterization. I think every company engages in research to understand what their customers are enjoying so that they can learn and make their products better. That’s what we were trying to do. That’s what our analytics team was doing. I think it allows us to make our services better for people to be able to connect in a lot of different ways, which is our goal.
Rep. Johnson: Did you use that capability to purchase WhatsApp?
Mr. Zuckerberg: Congressman, it was one of the signals that we had about WhatsApp's trajectory, but we didn't need it. without that, it was pretty ...
Rep. Johnson: And it was a competitor, right?