Shadow Governance And Antitrust In The Age Of Big Tech

As Big Tech investments proliferate across emerging startups—advancing everything from AI to crypto to biotech—markets brim with promise of human progress through innovation. But when titans extend tentacles into rising potential competitors, what whispers echo from conference rooms with two-way mirrors? Emerging trends around influence through minority board positions should spur regulators to reassess antitrust frameworks developed long before today’s complex web of strategic investments between dominant platforms and startups.

Who’s really in the boardroom?

Unfair advantages from meddling minority investors enable subtle forms of anticompetitive harm. While digital platforms jockey for market share, insiders can creatively hobble the competing companies they simultaneously fund. Corporate venture groups can pull support if their startup investments face business challenges, similar to how some investors may cut losses in difficult situations. Researchers Colleen Cunningham, Florian Ederer, and Song Ma branded this tactic “killer acquisitions” upon discovering that pharmaceutical giants have acquired rivals in order to sideline threatening innovators.

In a new, forthcoming article on Board Observers, we examine some of these unfair advantages that are associated with antitrust risks, corporate venture capital and board observers. Indeed, recent studies done by Stanford’s Ilya Strebulaev indicate that in the context of corporate venture capital, over 60% of corporate venture capital deals have no serious intention for startup absorption by the larger public company. This seems to be demonstrated in the eco-system of Big Tech, in which large digital platforms companies’ costly collaborations with AI upstarts—albeit not really resulting in killer acquisition—adhere to analogous motives to gain unfair advantages that have likely driven the majority of Big Tech joint ventures with startups.

Likewise, these Big Tech cloud computing companies’ costly collaborations with AI upstarts have thus far escaped significant scrutiny under antitrust laws. Instead, in many cases, the dominant platforms have infiltrated boardrooms of potential challengers under guise of “strategic partnerships.” Once inside, they can exploit an arsenal of unfair techniques without triggering liability. Tactics range from predatory pricing to datamining insights to poaching talent; the playbook spans subtlety to conspiracy. Beyond overtly “killing off” targets, the tech giants burden rivals with stealth handicaps.

Take, for example, Microsoft’s
intricate dance with leading AI lab OpenAI. After investing billions alongside other backers, Microsoft secured a board observer seat at OpenAI, potentially benefitting from the advantages gleaned in strategically vital AI development. Microsoft further enmeshed OpenAI’s tech into its global cloud and search services, flaunting an independence OpenAI granted no other mega-platform. Speculation sparked whether Microsoft puppeteers OpenAI’s trajectory despite lacking voting control. Such theories gained more and more attention after Microsoft influenced OpenAI’s board to reinstate CEO Sam Altman.

In this saga, no smoking guns prove foul play; only trails of smoke hover in traces. Regulators lack tools to waft away the haze.

Unlike clear violations like monopoly concentration, shadows of undue sway spread slowly, escaping the sunlit purview of watchdogs bred for past eras. Companies skirt breaching standards, innovating at the margins of fairness; and enforcers cling to rearview precedents rather than responding prospectively. For instance, OpenAI likely eludes interlocking directorate prohibitions since Microsoft appointees merely “observe” board dealings as non-voting guests. But some evidence might suggest that observers could exert material pressure on decisions their sponsors disfavor while gleaning invaluable intelligence. As Big Tech platforms like Microsoft invest across both actual and prospective competitors – for instance, other AI companies such as – possibilities ripple for stealthy coordination or sabotage activity.

These practices, which have been adopted in order to gain unfair competitive advantages, however, might soon come to an end. The FTC and DOJ have launched investigations, as recently as January 2024, into major technology platforms such as Microsoft, Amazon
, Alphabet, and others to examine the competitive implications of how these companies exercise influence through funding, partnerships or personnel appointments across current or potential competitor firms. This investigation is an important one which, according to Professor Greg Day of the University of Georgia, potentially seeks to operationalize the agencies’ mounting concern for acquisitions of technology and innovation found in the 2023 Merger Guidelines. Antitrust law progenitors like Justice Louis Brandeis feared these subtle threats to competition. Indeed, in the early 20th century, proponents of limiting concentrated economic power suggested two primary approaches, both requiring substantial government oversight. One view of how to do so, championed by Justice Louis Brandeis, pursued restoring competition by systematically breaking up large firms and restricting their ability to improperly dominate markets.

Reforms may be slow but are necessary

Guarding fairness demands an evolved body of competition law fit for the Digital Age shadow games at play. But reform journeys slog slowly while Big Tech rapidly cycles through startup “partners.” When investigating acquisitions like Microsoft’s attempted deal for gaming titan Activision
, agencies should account for target patronage networks spanning interwoven past equity investments and supply chain ties that concentration metrics miss. Review processes necessitate tracing connections of influence across companies sharing funds, services or staff at any stage of growth.

Regulators should carefully consider whether notifier requirements should also expand to cover outside director, observer or informal advisory appointments that access competitively sensitive strategies. And regulators must re-examine standards governing potential conflicts of interest raised by Professor Jonathan Barnett and others that increasingly characterize tech sector partnerships. Lastly, enforcers urgently require authority over anticompetitive conduct beyond just mergers and monopoly power under Section 5 prohibitions on general unfair competition – the “catch all” clause drafted for unpredictably unfathomable offenses we face today.

Innovative startups driving progress should thrive or fail based on the merits of imagination and execution, not the maneuverings of entrenched incumbents. Protecting the integrity of entrepreneurship to unlock new levels of technological achievement and consumer welfare compels mitigating coercive influences from platform privilege. The aspirations of visionaries worldwide depend upon leveling playing fields clouded by anticompetitive specters. Vigilance must match the era.