Current Antitrust Actions Endanger America's AI Edge

“It does not do to leave a live dragon out of your calculations, if you live near one” writes J.R.R. Tolkien in The Hobbit. But that's precisely what the Trump administration is doing in pursuing its antitrust cases against America’s biggest investors in the global race with China for dominance in artificial intelligence.

The U.S. still holds a slim lead in AI development, but China is breathing down America’s neck, even closing the gap in some research areas and with AI applications. America must stay ahead on AI for economic development, cybersecurity, military superiority, and shaping global norms with democratic values, as opposed to those of the authoritarian Chinese government.

Tech guru Marc Andreessen recently said, “the world, twenty years from now, is going to be running on Chinese AI or American AI…those are your choices.” The White House recently called for a review of all Federal Trade Commission investigations that may “unduly burden AI innovation,” and of “all FTC final orders, consent decrees, and injunctions, and, where appropriate, seek to modify or set-aside any that unduly burden AI innovation.” In February, Vice President J.D. Vance told a European audience that, “this administration will ensure that American AI technology continues to be the gold standard worldwide and we are the partner of choice for others – foreign countries and certainly businesses – as they expand their own use of AI.”

Quite right, but that sensible proclamation makes the ongoing government antitrust actions against U.S. tech firms even more nonsensical.

“Big Tech” is expected to spend $320 billion on helping the U.S. win the global AI race this year. A great deal of that money comes from the tech firms’ already established products and services. Those business models, including online ad revenue from social media and search functions, are the same ones under attack by antitrust authorities at the Federal Trade Commission and the Department of Justice. If those suits are successful, the government will hobble the revenue stream that’s currently bankrolling U.S. dominance in AI.

But one might reasonably ask, even with AI being very important in the larger sense, what if these antitrust cases represent good regulatory policy and sound antitrust enforcement? Fear not, dear reader: they do not. The suit against Meta and the two against Google all lack demonstrable consumer harm and push the current scope of U.S. competition law. 

Meta CEO Mark Zuckerberg said in January that the company plans to spend $65 billion this year to expand the company’s AI work. Meta is on an AI talent shopping spree, luring the most talented minds in the field away from competitors by reportedly offering signing bonuses of up to $100 million dollars. The company also invested $14.3 billion in Scale AI, whose CEO is now leading Meta’s new AI research lab.

That’s the sort of money that wins global AI races, so why is the FTC trying to force Meta to sell off revenue-generating companies that fuel the company’s investments in AI?

The Federal Trade Commission’s case charges anticompetitive behavior in Meta’s (then Facebook’s) 2012 purchase of Instagram and its 2014 purchase of WhatsApp. The agency contends that the acquisitions were part of a strategy to thwart competitors and maintain monopoly power. But consumer welfare, not competitor welfare, is the lodestar of U.S. antitrust law. The standard emphasizes the price and quality of the product to customers. Doubtless, a weaker Instagram and WhatsApp might have been preferable to Meta’s competitors, but the FTC has a heavy lift in trying to argue consumer harm from a service that’s free to its users and has improved significantly since its glitchy pre-acquisition days. As for the charge of monopoly maintenance, Meta’s platforms feel competitive pressure from YouTube, X, TikTok (mind boggling, but true), Snapchat, and others. The FTC presented a much narrower relevant market in the case, but users do not experience Meta platforms as monopolists, rather as one of many options.

Nevertheless, the FTC will likely call for the forced sale of Instagram and WhatsApp if it is successful in its case.

Court documents reveal that Instagram accounted for $32.4 billion, or 27 percent of Meta’s total revenue in 2021. Ever more profitable, the photo-sharing site is predicted to generate $32.03 billion in US ad revenue for Meta this year, just over half of Meta’s total US revenue.  If those streams of income are litigated out of existence, who, pray tell, will fund the tip of the spear in AI development? The answer may come in Mandarin or Cantonese.

The two ongoing cases against Google’s parent company, Alphabet, are similar: questionable on their merits and likely to cause damage to AI funding if successful. Google says it’ll spend more than $100 billion over time to develop AI technologies. Meanwhile, their parent company faces antitrust charges around its search and advertising practices.

Last year, Judge Amit Mehta found Google guilty of having, and illegally maintaining, a monopoly in online search stemming from its contracts with device manufacturers, like Apple, and browsers, like Mozilla’s Firefox. Google pays approximately $20 billion a year to be the default search engine on Apple devices. Despite plentiful evidence that Apple and others chose Google search because of the superior quality of their product and that the default arrangements benefit consumers, the judge found Google to be a violation of antitrust law.

Unfortunately, the remedies the government is seeking go well beyond banning those default contracts. While it’s encouraging that the Trump DOJ has removed Biden-era requests for Google to divest its AI investments and forgo future investments in AI companies, the new administration is still calling for Google to divest Chrome.

The browser itself doesn’t directly generate any revenue for Google, but it’s a critical component for the company’s data-driven services and advertising. Chrome propels traffic that ultimately generates ad revenue. Without those revenue streams, Google’s ability to invest in AI could be severely compromised.

The same applies to the other antitrust suit against Google, this one brought by the Department of Justice. In April, Judge Leonie Brinkema of the U.S. District Court for the Eastern District of Virginia ruled that Google had acted illegally in maintaining monopolies in certain areas of what’s known as the “ad tech stack,” the digital-advertising ecosystem.

Online advertising is complex and involves a two-sided market that involves multiple steps and actors to bring publishers with ad space to sell together with advertisers, who wish to promote their products. Beyond the complexity challenges, the DOJ’s case also suffers from market definition problems that likely make Google’s market share look much higher than it actually is. Google presented evidence at trial indicating it collects a lower ad tech fee than the industry average. And for a convicted monopolist, Google faces significant competition from Amazon, Meta, and Microsoft's offerings in ad tools.

Remedies sought by the DOJ include forcing Google to sell off portions of its advertising stack and mandating data sharing with competitors. Google’s advertising tools generate billions of dollars of revenue. Once broken or impaired, those revenue streams will be unavailable for AI investment.     

A decision in the Meta case is expected this fall. Google says it will appeal the original decisions in both the search and the online advertising cases after the courts rule on remedies. Perhaps court remedies will be mild, or, due to the fundamental problems with the cases noted above, appeals may be successful. But if not, the Trump administration’s wins in court will be losses for American AI around the globe - and a particular dragon will be much advantaged.

Jessica Melugin is director of the Center for Technology and Innovation at the Competitive Enterprise Institute and an Innovators Network Foundation Antitrust and Competition Policy Fellow.