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tv   House Judiciary Subcommittee Hearing on Entrepreneurship and Online...  CSPAN  September 16, 2019 12:44pm-2:39pm EDT

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c-span.org or listen free on the c-span radio app. tonight on the communicators -- california representative jeremy on the future of artificial intelligence, election security and whether big tech companies need more regulation. >> google is a california-based company. and i think if we want to look at how it's doing its business practices, it's important to do it in a very thoughtful way. i know that the department of justice and the federal trade commission are also talking about doing investigations into anti-competitive practices of these companies. and it's good to look at this and investigate it and make sure the companies are behaving -- i'm not sure breaking companies up is a good idea. these are big companies with a lot of tentacles, a lot of
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employees and if you break a company like that up, if you can manage it do it, there's going to be unattended consequences. >> tonight at 8:30 p.m. eastern on c-span2. next on c-span3, a house judiciary subcommittee on whether big tech companies like google, apple, facebook and amazon engage in anti-competitive practices that hurt smaller online companies. rhode island congressman david cicilline chaired the hearing. good afternoon. the subcommittee will come to order. without objection the chair is authorized to declare recesses of the committee at any time. we welcome everyone to the second of our series of hearings investigating competition in the digital markets. this one on innovation and entrepreneurship. i now recognize myself for an opening statement. 30 years ago the first software for the worldwide web was released into the public domain
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to create a global communications network. within a few years, search and browsing services were built onto the software to give people tools to communicate, share and explore information through decentralized platform that was designed to be open and nondiscriminatory. an internet pioneer and co-designer of the internet testified in 2006 on behalf of google that the overarching principle of the internet is no central gatekeeper should exert control over of the internet. it meant entrepreneurs with new ideas for applications need not worry about getting permission to reach end users. over the following decades, our open and competitive internet revolutionized our lives, our work, our businesses and entire world. millions of new good paying jobs were created and greater access to information promised renewal of our democracy and social progress. this environment also fostered the growth and dine nichl of four companies that will testify
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at today's hearing -- google, amazon, facebook and apple. each of these american companies have contributed immense technological breakthroughs. they were started on shoe string bu budgets. but in an effort to promote and continue this new economy, congress and anti-trust enforcers allow these firms to regulate themselves with little oversight. as a result, the internet has become increasingly concentrated, less open and growing hostile to innovation and entrepreneurship. i quote, there are only one or two significant players in important digital spaces including internet search, social networks, mobile and desktop operating systems and electronic book sales, end quote. google controls nearly all the search market in the united states, and over 90% of all internet searches are conducted via google platforms. amazon controls nearly half of all online commerce in the
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united states. despite statements from the company that it only captures a small amount of retail, half of american families have an amazon prime account, up 35% from three years ago and amazon's closest competitor, ebay, controls less than 6% of the market for online commerce. facebook controls over 58% of the u.s. social media market and has approximately 2.7 billion monthly active users across its platforms. notwithstanding the growing popularity of tik tok, facebook captures it over 80. of global social media revenue. and as facebook co-founder chris hughes has recently observed, no major social networking company has been founded in the united states since the fall of 2011. apple is under increasing scrutiny as abusing its role as player and referee in app store at prices than the competitive market may allow. as the supreme court recently noted in apple versus pepper,
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regardless of price, and i quote, apple pockets a 30% commission on every app sale, end quote, in addition to developer membership fees and a 30% commission on its -- on in-app purchases. a former apple executive who oversaw app store approvals for seven years has also described apple as having, and i quote, complete and unprecedented power over their customers' devices and using this power as a weapon against competitors, end quote. although apple has made a series of laudable commitments to protect consumers' privacy online, as "the new york times" editorial board recently noted, its management of the app store is, quote, dangerously reminiscent of the anti-competitive behavior that triggered united states versus microsoft, a landmark anti-trust lawsuit that changed the tech industry. several leading experts suggest the dominance of these firms is unchallenged by rivals due to search features. as they reports have found, the
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combination of high network effects, high switching costs and the self-reinforcing advantages of data can result in a winner take all market that shield dominant firms competitive threats. the same time, there's growing consensus among venture capitalists and startups that there's a kill zone around google, amazon, facebook and apple that prevents new startups from entering the market with innovative products and services to challenge these incumbents. dropped significantly from above 10,000 startup financings in 2015 to just above 6,000 in 2018, while the number of venture capital deals from investment beneath $1 million have also declined significantly. even when tech startups escaped the investment kill zone, they remain extremely reliant on these platforms in other ways. according to a recent report in "bloomberg," 17 out of 22 initial public offerings by significant tech knoll companies such as lyft and pinterest cited online platforms as risks to their business. i quote, "the tech giants have the pow tore change their services at any time generating havoc downstream." on smaller firms. while the explosion of the early internet connected local businesses to broader markets, there's growing concern that anti-competitive practices and the gatekeeper role of online platforms is now imperiling small businesses in our communities.
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i quote, "powerful online gatekeepers not only control market access but also directly compete with the businesses that depend on them." undermining entrepreneurship and economic opportunity. as i said before, this trend is not compatible with the open internet or its defining features that allowed innovation and entrepreneurship to flourish. as tim wu will testify today, the united states is at risk of losing the best of our innovation culture and instead being a country of giant lumbering concerns. innovative dream of being
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bought, not of buying something of their own." for purposes of today's hearing, this trend is not the inevitable consequence of technological process. it's the result of policy choices we're making as a country. over the past decade, the largest technology firms acquired over 436 companies, many of which were actual or potential competitors. according to a "new york times" report, the 270 companies google acquired, 171 involve actual or potential competitors and facebook's 92 total acquisitions, 46 involved actual or potential competitors. not a single one of these acquisitions was challenged by antitrust enforcers, in fact, only a handful of these were closely scrutinized. in the two decades since the justice department filed its landmark monopolization case -- together, these enforcements have created a de facto immunity for online platforms. i hope today's hearings provides
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a sober and serious discussion about these trends and possible paths forward to addressing them. as -- we can expect the next 20 years to be far less innovative from the last." in other words, this hearing isn't just about the companies before us today. it's about ensuring that we have the conditions for the next google, the next amazon, the facebook, and the next apple to grow and prosper. with that in mind, i thank both of our panels of expert witnesses for appearing before us today. i now recognize the gentleman from wisconsin for his opening statement. mr. sensenbrenner. >> thank you. entrepreneurship are the hallmarks of the american economy. this has been true in the past and remains true now in the digital age.
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today's hearing will focus primarily on the impacts, large or outlined platforms, have on innovation and entrepreneurship. this is a critical topic. i want to stress that we must take a fair and balanced approach to it. there are some who advocate that the biggest platform should just be broken up because they supposedly dominate too much of the market. that seems misguided for several reasons. first, just because a business is big doesn't mean that it is bad. antitrust laws focus on the conduct of companies and whether that conduct is anti-competitive. they do not exist to punish businesses just because they're big. likewise, the antitrust laws do not exist to punish success. on the contrary, they exist to foster it. most innovative, successful, and competitive companies often become very big. not through anti-competitive conduct or violations of antitrust laws but simply by
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providing a better service or product than the other companies in the marketplace. second is the written statements offered by some of our witnesses attest big online platforms can present small companies in many sections with a better way to reach the most customers. breaking up big businesses simply because they're large end up hurting lots of small businesses throughout the country. third, breaking up big platforms won't necessarily solve a problem associated with those platforms. for example, the privacy issues are prominent in today's discussions of what's going on wrong online. but breaking up the big platforms into smaller ones might actually compound the problems of protecting privacy.
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i raise these points not to dismiss the idea that there might be genuine issues of anti-competitive conduct in the online ecosystem, however, i want to offer a counterpoint to some of the more radical positions that are being articulated. we should take a serious look at allegations of wrongdoing. perhaps, we'll hear some of those today. but we should not rush to amend the antitrust laws or break up companies by congressional fiat based upon false notions that being big is inherently bad or that everything a big company does should be presumed to be anti-competitive. i yield back the balance of my time. >> thank you, mr. sensenbrenner. i want to acknowledge that mr. nadler and ranking member of the full committee, mr. collins, are on the floor right now and when they come to committee, they'll be recognized if it's okay for mr. sensenbrenner for their opening statements. at this time now i would like to introduce our panel. we have two panels of witnesses today. it's now my pleasure to introduce today's first panel. our first witness is adam cohen.
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before joining google, mr. cohen was an economic correspondent for dow jones and "the wall street journal." mr. cohen received his a.b. from harvard university and m.s. from the london school of economics. our second witness, matt perault, head of global policy development at facebook, leading the company's global public policy planning efforts on law enforcement and human rights officers and also overseen public policy for whatsapp, oculus, and facebook, artificial intelligence research. before joining facebook he was counsel at the congressional oversight panel as well as a consultant at the world bank. he received his bachelor's degree from brown university. mpp from duke university stanford school of public policy and jd from harvard law school. our third witness is nate sutton. oversees all competition-related litigation and regulatory matters for the company.
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before joining amazon, mr. sutton was a trial attorney with the department of justice antitrust division. he also worked at the law firms of william & conley llp from 2001 to 2007. he received his b.s. in nuclear engineering from north carolina state university and jd from the university of chicago law school. the last witness or our panel is kyle andeer, vice president of corporate law at apple. prior to joining apple, mr. andeer spent four years as deputy chief trial counsel with the federal trade commission's bureau of -- he also served as the principal competition attorney adviser to commissioner jay thomas roche as well as the doj's antitrust division. mr. andeer received his b.a. from the university of pennsylvania and jd from the university of california berkeley school of law. we welcome all our distinguished guests on the first panel. now if you please rise, i'll begin by swearing you in. please raise your right hand. do you swear or affirm under penalty of perjury that the
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testimony you're about to give is true and correct to the best of your knowledge, information and belief, so help you god? let the record show the witnesses answered in the affirmative. thanks. you may be seated. i ask that you summarize your testimony in five minutes. to help you stay within that time, there's a timing light on your table. when the light switches from green to yellow, you have one minute to conclude your testimony. when the light turns red, it signals your five minutes have expired. mr. chairman, we'll begin with you. >> chairman cicilline, ranking member sensenbrenner, distinguished members of the committee, thank you for the opportunity to appear before you today. my name is adam cohen and i'm director of economic policy at google. in my role, i lead our public policy work on antitrust issues. google was founded in 1998 by 2 students who had a big idea.
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organize the world's information and make it universally accessible and useful. in their earliest form, google search results were simply ten blue links on a web page. 20 years later, we provide our users with much richer results including direct answers to questions, pinpoints on a map when they search for an address and direct links to flights, products and other information. as a responsible and successful company -- we're proud offer record of continued innovation. we face constant pressure to improve our products and services, both sure signs of a competitive marketplace. i'll focus on the power of google and wider technology sector with creating for the u.s. economy. our investments in new technologies and entry's competitive dynamics. for the u.s. economy, google's products and services create significant value, generating an estimated $335 billion in economic activity in 2018.
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this has benefited a wide range of consumers and businesses across the country. firms that once operated in a local or regional market now reach national and international customers using our tools. we've also made substantial direct investments in the u.s. economy. last year, we hired more than 10,000 people and invested over $9 billion in datacenters and offices across the country. in february, we announced plans to invest an additional $13 billion this year with major expansions in 14 states. these new investments will give us the capacity to hire tens of thousands of additional employees and create more than 10,000 new construction jobs. overall, the technology sector supports roughly 12 million american jobs. equivalent of 7.6% of the u.s. workforce. for consumers, technology companies continue to provide innovation and better prices. prices in the tech sector fell
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in 2018 compared to an increase in the rest of the private sector. when it comes to investing in innovation, technology companies are america's largest spenders on research and development. as an example, google last year spent $21.4 billion on research, development, and related areas. three times more than in 2013. our continuing investments spur innovation that improves our own products and services and also supports and accelerates innovation among other firms. we share many of the result of our research in new technologies. typically, through open-source software. this helps broad communities of developers to use our advances in their own applications and services. in term of competition, our industry is highly dynamic and drives innovation that gives consumers better choices at lower prices. for example, when consumers search for information, they can
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choose among amazon, yelp, microsoft, travelosity and many other companies like these that consistently report strong user growth. if you don't want to use google, there are many other information providers available. we also face formidable competition around the world. our success enables us to make the research and development investments necessary to compete in a global environment with other global players. new firms are competing, too. we continue to see record-setting venture capital activity. with over 8,000 venture-backed companies raising more than $130 billion in financing last year, the highest amount in over a decade. the technology sector has one of the highest rates of business formation and job creation in the country over the past three decades. in fact, in the first quarter of 2019, a record 147 american companies reached so-called unicorn status, with valuations exceeding $1 billion. these companies had a combined value of $582 billion in the first quarter of the year.
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the highest aggregate value ever recorded. that's a rate of new business success unrivaled elsewhere in the u.s. economy, creating new companies that compete with established companies across many areas. to conclude, even as progress and innovation expand, sound regulatory frameworks help ensure our societies and economies continue to benefit from new technologies. we look forward to continued work with the committee as it examines these issues. thank you for your time and i look forward to your questions. >> thank you, mr. cohen. mr. perault is now recognized for five minutes. >> thank you, chairman. chairman cicilline, ranking member sensenbrenner, distinguished members of the subcommittee, thank you for the opportunity to appear before you today. my name is matt perault.
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i'm a director of public policy at facebook. i've been at the company for eight years and focus on competition and economic policy it's an honor to be here to discuss these important issues. facebook is an american success story. we were founded in a college dorm room 15 years ago and since that time, we've helped transform the way people around the world communicate, connect, and share. we believe deeply in the values of competition and innovation, values that are fundamental to the success of the american economy, and it's precisely because of these shared values that facebook has grown from a dorm room idea to a vibrant american company. new apps enabling people to connect, discover, communicate, and share, are emerging all the time because barriers to entry for digital platforms are low. launching a new mobile app or
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online service often requires minimal staff, capital, and infrastructure, and the rise of cloud computing and app stores enables these platforms to reach a global audience. consumers move easily between different apps and services. if they don't enjoy a product or experience, they'll leave it and explore other options. we face intense competition for all of the products and services that we provide. to name a few examples, twitter, snapchat, imessage, skype, telegram, google, youtube, and amazon, offer photo and video sharing, messaging, advertising, and other services that compete with facebook. in fact, more than 92% of advertising happens off of facebook. and less than a quarter of u.s.
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online ad spend goes to facebook. and our competition isn't just here in america. we compete with companies from all around the world. tiktok, for example, a chinese app, launched less than three years ago, has been downloaded more than a billion times and was the most downloaded ios app in the world in 2018. facebook was transformative and groundbreaking when it launched and we worked hard to remain so today. that's why we push ourselves to evolve and experiment to develop the next big technologies that will change how people connect and communicate in the future. i'd like to touch briefly on four of the ways that facebook is investing in innovation. first, through developing new products and features, when facebook was created the site consisted mostly of text details about each user. now users can message, read news, broadcast live video, connect with businesses, send and receive payments, and raise money for important causes, just to name a few options. in the facebook family goes
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beyond software to hardware products like portal and oculus. we're proud of how much we've invented and innovated and how much our products and services have improved. second, our investments in research and development have played an important role in fueling our innovation. we devoted nearly 20% of our revenue last year to investments and innovation and we've made significant advancements in areas like artificial intelligence, virtual reality, and energy-efficient datacenters. third, our acquisitions have been a powerful force for innovation. companies like instagram and what'sapp have had increased opportunities to innovate as part of the facebook company. we are better together and that's good for users. fourth, facebook has democratized advertising. helping millions of small and medium-sized businesses. our advertising platform can accommodate almost every budget
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and we help advertisers reach their target audience and maximize their impact. our services have enabled small and medium-sized businesses to grow, create jobs, and more effectively compete with larger companies leading to more choice and better product for consumers. we heard countless examples of small entrepreneurs in rhode island, wisconsin, and across america, who couldn't afford print or tv ads but who have been able to succeed by using their services to reach a local, national, or even global audience. facebook is constantly working to find new ways to help people connect, communicate, and share. like many successful american companies before us, we've grown by taking risks, learning from our mistakes, and constantly striving to improve. we recognize that we're a work in progress, and we're committed to addressing the challenges we face as a company. we're incredibly proud of what we've accomplished so far. i appreciate the opportunity to be here today, and i look forward to your questions. >> thank you, mr. perault. i now recognize mr. sutton for five minutes. >> thank you, chairman cicilline, ranking member sensenbrenner, and members of the subcommittee.
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in my brief remarks today, i will provide some background on amazon's approach to business and on the industries in which we operate. i will discuss our relationship with third-party sellers that sell in our stores. and i'll explain the positive effects we have on competition and the economy. amazon's mission is to be earth's most customer-centric company. our corporate philosophy is firmly rooted in working backwards from what customers want. and we seek continually to innovate to provide customers the best experience. this principle is essential to understanding amazon as we apply it to all areas of our business. amazon operates a diverse range of businesses from retail and entertainment, to consumer electronics and technology services. in each of these areas, we face intense competition from well-established competitors. for example, retail, which remains by far our largest business, is as old as human commercial experience. it has long been and continues to be characterized by intense competition at every level. new technologies such as the internet have only made retail more competitive, reducing barriers to entry, and expanding output.
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studies show that retailers sell and customers shop in multiple stores both offline and online. in fact, as target and best buy recently announced, one of the fastest-growing consumer practices is a mix of offline and online, whereby customers order products online that they later pick up in a physical store. and there are now dozens of online marketplaces in the u.s. and around the world. the result in retail is an ever-broadening array of competitors including many large and well-known companies like walmart, ebay, target, safeway, wayfair, and kroger, not to mention large and growing global competitors such as alibaba and rucktime. amazon's success in retail depends on our partnership with third-party sellers that sell their products right alongside our own products. we have invested heavily in these sellers, and they're growing twice as fast as amazon's own retail and make up almost 60% of total unit sales in our stores. these businesses are primarily small and medium-sized firms and
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last year almost 200,000 of them sold more than $100,000 in our stores. amazon supports these sellers because we have a strong incentive to do so. the broad selection and price competition these sellers bring to our stores are attractive to our customers. for example, our selling partners provide the vast majority of new products in our stores. we know sellers have other ways to reach customers so we invest in them, support them and make continuous efforts to improve mare experience. we have dedicated teams assigned to supporting sellers, launch new tools to help them increase sales, and spend significant resources to root out bad actors and prevent fraud and abuse that
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harms both sellers and customers. if we did not make these efforts, they'd sell fewer products through our stores and more through our competitors. amazon's investments in retail have also benefited the economy more generally. we have invested tens of billions of dollars in infrastructure and technical services. we employ more than 275,000 people in the united states. we offer a $15 minimum wage and valuable benefits. we continue to invest in our employees through workforce training programs. for example, just days ago, we announced an initiative to invest $700 million to provide 100,000 of our employees new skills and training to help them move into more advanced jobs or find new careers. from our vantage point as a retailer in a highly competitive field, we offer two views for the committee's consideration. first, the technology used to provide a service is not the primary factor in a competitive analysis. consumers benefit from all retail competition regardless of
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the precise business model involved. in today's retail market, the notion that two products that are exactly the same do not compete with each other simply because one was ordered online and was was bought in a brick and mortar store, makes little sense. second, to avoid unintentionally tilting the competitive playing field, new rules should encompass all retailers regardless of the supply models that they use. thank you, and i look forward to answering any questions the committee may have. >> thank you, mr. sutton. the chair now recognizes mr. andeer for five minutes. >> thank you, mr. chairman, members of the committee, thank you for inviting me to speak with you today. my name is kyle andeer and i am apple's chief compliance officer. i spend a lot of time focusing on business ethics and competition legal issues. apple is a proud american company. 40-year history in innovation in very competitive market. our mission is to make the best products and services in the
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world in each of the markets where we compete. for us, it's never been about making the most. it's always about making the best. we design our technology to be easy to use and safe and secure for all customers. we see our customers' privacy as a fundamental human right, and we embed that value in everything we create. we go above and beyond to incorporate leading accessibility features to make sure everyone can get the most from their devices. and our products are made with our responsibility to the environment in mind. we're deeply proud of the role we play in democratizing coding and other high-tech skills all around the world. in discussing apple's online platforms, we consider five distinct categories. ios, mac os, watch os, tv os and our soon to be released ipad os. our products run and compete on these platforms. we are very proud of each of these and feel that they are the best in each of their categories. we only create great products, not commodity products, and as a result, we do not have a majority share in any one of these categories. for apple, the competition is
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fierce. our customers have an ever-growing number of choices when it comes to products and services. we compete against some of the largest companies in the world, both foreign and domestic. we work hard every day to retain and grow customer trust and to compete for their business. each of our platforms depends on a thriving ecosystem. from the app store to peripherals, to products such as service providers and car makers. our expertise allows experience like moving seamlessly between apple devices, finding your same messages and safari book marks no matter which device you use. and taking advantage of features like car play that integrates your iphone into your daily communicate. the benefits of this ecosystem and the innovation it makes possible are clear to our customers. it means, for example, world-class security and unparalleled's of use. we're also proud to offer services where millions of artists and entrepreneurs can share their work and ideas. like apple music hosting more than 50 million songs from artists around the world.
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podcasts where hundreds of thousands of topics are discussed and shared. and the app store, new opportunities for everyone from the individual entrepreneur to the biggest companies in the world. since its launch in 2008, the app store has been vibrant, competitive, and ever growing. it's transformed the experience and reduced the cost of software distribution. so anyone with a great idea can invent a new app and distribute it worldwide from home. we're proud that app store entrepreneurs across this country have generated over 1.5 million u.s. jobs across all 50 states. we designed the app store to be both a safe and trusted place for customers to discover and download apps that interest them and a great opportunity for developers to start businesses. in entering the app store, every developer abides by the very
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same guidelines. from the student in her living room to some the largest companies. we want to have -- we want every creator to have an equal opportunity to succeed. we work hard every day to compete for developers who want to join and stay in our ecosystem. we're proud that a good number of apps, apps like pinterest, spotify, lyft, and uber have built successful businesses through the app store with support from our team and the developer tools we offer. the app store provides an enormous opportunity for developers to reach millions of users overnight and the vast majority of apps, over 84%, share none of the revenue they make from our store with apple. only a very small number of the nearly 2 billion apps in the app store are made by apple. and in every category where our software competes, we face multiple strong competitors. apple believes users expect that their devices should provide a great experience out of the box. so our products include certain functionality, like email, phone, and a music player, as a baseline. but users have various needs and they are free to discover and use any alternatives they might prefer. for instance, if a customer wants to use icloud, doesn't
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want to use icloud, they can use box, dropbox, or any number of other options. at the end of the day, our only objective is to provide our customers the very best products and ecosystem in the world. it means a phone they love, the choice of accessories that enhance their experience and millions of applications and services at their fingertips. and when it all comes together, it means a tremendous market opportunity for everyone. entrepreneurs, artists, carriers, carmakers, accessory makers, and developers. we are committed to carrying this legacy forward. believing at our core that a singled great idea can unlock opportunities once unimaginable. that's what defines apple and it always will. apple welcomes this subcommittee's efforts to promote american innovation and entrepreneurship and we look forward to working with you. >> thank you. we'll now proceed under the five-minute rule with questions. begin by recognizing the gentlelady from pennsylvania,
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miss scanlon. due to the time change, committee members have other commitments. i want to begin with miss scanlon, recognized for five minutes. >> thank you, mr. chairman. thank you for hosting this event, this hearing. certainly heard about the various ways your platforms have a developed a whole new sector of our economy, but we wanted to dig into a little bit of the anti-competitive aspects. i wanted to focus on the issue of digital piracy and what that does in the creative community. so creative futures is a coalition representing organizations ranging from mgm to one of our local philadelphia theater groups. and it represents a quarter million people in the creative community. they raised concerns about the impact on the competitive process. of copyright theft on the facebook and google platforms. specifically, they noted in a
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submission unfair methods of competition can be facilitated or sometimes practiced on these massive internet platforms, and it results in less creative content than otherwise would exist. fewer new voices and harm to legitimate non-pirated sources of distribution. so, mr. cohen, can you address these concerns, people in the creative rights community, particularly about how youtube doesn't really have an economic incentive to combat widespread copyright theft and this may have distorted the market for online streaming of movies and television. >> congressman, thank you for the question. youtube has a very strong set of
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tools to prevent copyright infringing material from appearing. we developed a technology called content i.d. that can remove copyrighted material before it's ever seen by anybody using the platform. we take this matter very seriously and we provide via youtube and other products means for consumers to find and access quality, licensed, legitimate content. >> so is that the process that you use when, in fact, pirated content is uploaded but then there's a takedown notice? are you talking about something else? >> congresswoman, we use a
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combination of automated tools. we can recognize copyrighted material that creators upload and instantaneously discover it and keep it from being seen in our platforms. >> i guess an additional concern that has been raised around this issue is that if you google, if i were to google an original show produced by the youtube premium, maybe something like "weird city," if i try to find pirated versions of the youtube shows, nothing comes up. but if i go search for pirated version of a show like "game of thrones" or netflix's "russian doll" or hbo's "barry," a whole -- well, a lot of different pirated versions pop up. so there's a discussion that there's a discrepancy in how these tools are working because the youtube/google shows those pirated versions are taken down, but some of the other companies' versions aren't taken down. can you address how that discrepancy might be occurring? >> congresswoman, i have not seen any evidence of a discrepancy. we take great steps to protect copyrighted material and to show and to provide our customers legitimate means or reaching legitimate licensed content.
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>> well, if you do come up with any data regarding discrepancies between the various platforms, can you provide that to the committee, please? >> i would be happy to. >> thank you. i'll yield back. >> now recognize the ranking member of the subcommittee, mr. sensenbrenner, for five minutes. >> thank you very much. there was a time when facebook was a fledgling application and others thought others like myspace were the future of social media. what competitive features of the marketplace made it possible for facebook to overtake and vanquish myspace and others like it? >> thank you very much, congressman, for the question. we have rolled out many innovations over the course of the history of our product. we had a real-name policy at the time that we were founded. that was important in ensuring that there were authentic interactions on our platform and provided users with a better experience. we've since rolled out many additional features such as news feed and the like button and we continue to innovate today. >> so myspace didn't have any of those features, is that why
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people went to facebook and abandoned myspace? >> congressman, i believe they did not have all of those features. we competed aggressively with myspace. we believe that aggressive competition is in part responsible for our success today. >> well, i think what we're looking at is anti-competitive action. did myspace complain about what you were doing being anti-competitive or they just watch their ship slowly sink under the waves? >> congressman, i am not aware of anti-competitive complaints from myspace. >> thank you. to mr. cohen, your written
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statement says that google helped reduce prices and expand choice for consumers and merchants in the u.s. and around the world. that sounds nice, but what facts, figures, and sources can you point to us to prove that it's true? >> congressman, i saw a recent study from the progressive policy institute that showed that for every $3 of advertising spent online, a business would have to spend an equivalent of $5 offline to get equal prominence. that cost savings is -- that efficiency in those businesses goes to reinvestment, it goes to lower prices for consumers. that is a tremendous savings for the u.s. economy. >> okay. you know, the print news media has come on hard times. there are a whole lot of reasons
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for that. google might be one of them. i don't think it's the exclusive reason for the print media falling on hard times. if i buy a copy of the "washington post" and there's an ad in there and the "washington post" only circulates, at least extensively, in the washington metropolitan area. the same company puts an ad on google. what do you think the exposure is between the print ad and the online ad? in terms of numbers. >> yeah. it can vary, congressman. there's a lot of variety and control given to the advertiser in how they interact with online platforms. how they advertise with online platforms. one of the key things is that in newspaper advertising, you would spend a certain amount of money. when i was last a journalist, it was quite expensive to place advertisements in print media. you didn't know what your return on that investment was. it was hard to measure. in digital formats, it's easy to know when an ad is clicked on. in fact, for our services often you only pay when an ad is clicked on and you can then measure the effectiveness of
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that advertising campaign. you can have these ads reach as broad an audience as you like or you can use them narrowly, focusing on local markets, if you prefer. >> what do you think about the persuasive ability -- i look toward my own campaigns. i don't think we've put ads in newspapers either daily or weekly for over 25 years because the surveys that we did showed that the people who read political ads in newspapers were either seeing what their favorite candidate was doing and mentally cheering or seeing what the opposition was doing and, you know, saying boo. but with an online ad, we've used those for the last couple of cycles, do you think there's at least the purpose of advertising is to educate someone toward a vote for buying a product or something like
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that? any marketing surveys show that that's effective? >> congressman, i'm not an expert in political advertising but what i would say is that i think you've identified an issue that affects the newspaper industry. there are different ways of reaching customers in different settings, and the newspaper business model has come under pressure, even before the internet, from competing services like cable news and with the advent of the internet from, you know, newspapers used to make a lot of money from classified advertising and a lot of that has shifted to services like craigslist, autotrader for automotive ads. there are a range of competitive pressures and i think that's probably true for political advertising as well. >> thank you very much. my time has expired.
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>> the chair now recognizes the gentlelady jayapal from washington, for five minutes. >> my district has the great honor of long being a place for innovation, a place where many small companies became large giants including amazon, and it is also a place where in the past, innovation has had to be protected by the federal government. and specifically, i call your attention to in 2001, the department of justice sued microsoft accusing the company of violating the sherman antitrust act by using a monopoly to adversely affect the web browser market and the case later settled after microsoft agreed to make it easier for microsoft's competitors to integrate their software with the windows operating system. and there are many scholars out there who believe that this case is actually the one that opened up tremendous space for real innovation that wouldn't have otherwise existed and allowed a
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whole new wave of tech companies to spring up. some of those actually flourished after the court hearing. mr. perault, let me start with you. does facebook devote any resources to identifying promising tech startups or innovative non-facebook platforms and apps? >> not to my knowledge, no, congresswoman. >> none at all? >> we certainly devote resources to understanding the competitive landscape in which we operate but, no, i believe the answer to your question is no, not to my knowledge. >> so you don't acquire promising tech startups or innovative non-facebook-owned platforms or apps? >> congresswoman, we look to innovate with products and business of acquisition is focused on allowing us to offer a better service to the people to use our products. so we do look to acquire services that will enable us to innovate more effectively. >> they might actually be competing with you and that might be something that you think would integrate well into your existing platform. >> thank you, congresswoman. the focus of our acquisition strategy is on companies that will enable us to innovate more
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effectively and bring value to the people who use our services. for instance, at the time that we acquired oculus, a virtual reality company, it didn't yet have a product in the market. as a result of our investment in oculus, it now has a virtual reality product in the market. >> what about when you acquired the positivity-focused polling startup, tbh, two years ago then the company shut down the app after only eight months? it also bought the app, moves, and then later shut it down. how would you consider those acquisitions and terminations, if you will, of those smaller companies? >> congresswoman, it's certainly the case that some acquisitions don't work. when they don't work, we may discontinue a product because of legitimate business judgment. >> i would just draw your attention to sort of a -- i would look at the pharmaceutical industry. according to a 2018 yale study, some pharmaceutical companies engaged in killer acquisitions,
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they'd buy smaller firms and shut down potentially competing products and researchers actually found that when that happened, it was more likely that the acquired company's competing drug would be discontinued. i'm not saying it's directly parallel but it's one of the concerns i have. mr. sutton, you're associate general counsel at amazon. does amazon devote any resources to identifying the most popular brands and products sold using the amazon interface? so, for example, do you track the most popular non-amazon brands that are sold in houseware divisions or brand of size 14 pants that sold most or any other product like that? >> thank you for your question. amazon's proud to be a company of builders and have built our company from within, not through acquisitions. with respect to data such as you
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identified, we do not use any seller data for, to compete with them. we've -- last year was our smallest year of acquisitions, and we've only had one multibillion dollar acquisition, and that was whole foods. >> sorry, that was slightly different than the question i asked. when people sell products on your site, do you track which products are most successful and sometimes create a product to compete with that product? essentially, you have this massive trove of data, right? people buying products on your platform. you're able to see which are the ones that are doing really, really well? like that size 14 pant or that houseware that's being sold, do you track that and then do you create products that directly compete with those most popular brands that are out there? >> thank you, let me answer that question. that data op popularity of products like much retail data is actually public date data for each of products. you can see where it ranked and how popular it is. we do not use that specific seller data in creating our private brands brods products
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and private prants is where we lack behind many of our competitors we are omar only in the low single digits. do offer private brands on occasion because we think it offers high value and low cost items for customers and because customers demand that and we want to provide that opportunity for customers. >> thank you. i know my time is expired, mr. chairman. i wanted to quickly say that my office recently met with a mall business located in my district and pay a living wage and sell a high quality product online upon and oh stoercht. i know my office reached out directly. we are in the same place and looking forward for the conversation with you to see how a amazon makes sure it meps small businesses. thank you. >> thank you. i now recognize the gentleman from north dakota, mr. armstrong for five minutes. >> thank you, mr. chair. i'm glad privacy has come up. pyresy comes up. censership comes up we talked about newspaper advertises and that's where we get into this. and everybody at -- sitting at the table up there has a role in some of those issues. we all have different interests in that.
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but i think that's when we -- and i know everybody at the table is anti- -- is witnesses are anti-trust experts. but i think one of the problems i think we have to recognize this is that anti-trust is very company specific and fact specific while we may want to talk to one about piracy we may want to talk to another about privacy. piracy and privacy i should pick two different words. as we do that i think a consistent things think is everybody sit tlg and the companies you work for are capable of dealing with regulation. we have witnessed this before as we move forward. whether it's daud franke, health care legislation. whenever we work as a body to
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attempt to capture big bad actors i would argue that often times what we do is we make it more difficult for start-ups, whether our intent or not. >> would the gentleman pull his mic closer. >> sure. thanks. so i mean, and it's just a caution and it's not that we shouldn't have the conversations because i'm glad we're having the conversations. but i just want to say that at the beginning, that whatever concerns anybody may have with a particular company aren't necessarily the same for the other one. but as you all as for profit companies with a fiduciary duty to shareholders, i understand the fierceness, particularly in this field to stay on the cutting edge of innovation. i mean, and 20 years ago ge was the most valuable company in the world and sorry to pick on apple but you guys were almost bankrupt and even through that space and even now even a handful of unicorn companies even with the vast resources of other companies are -- can show we miss valuable innovations, particularly in the tech field. all this just simply demonstrate how hard it is to predict what consumers want in the future.
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so i guess we'll go down and i don't think this applies to apple so much. but to what extent do your companies use venture capital funding to invest in start-ups? i'll start with mr. sutton? >> thank you. amazon is a company of builders. and we primarily build from within. i'm not sure of the exact details to the extent we use venture capital funding to start. i'd be happy to follow up with more details. >> sure. mr. perault. >> thank you very much, congressman. my understanding is we do not engage in that practice but i'd be happy to follow one specifics. >> and mr. cohen. >> thank you, congressman. we do have a venture capital arm. i'm not familiar with the size or the scope of their investments.
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what i can tell you is that we acquire some small businesses in order to accelerate innovation. we actually are a great incubator for technology talents as well. and somebody mentioned the number of acquisitions gogel made. we have probably spawned ten times as many companies from former google employees who left the company and started companies like twitter and pinterest and instagram. >> and i'd go back to mr. perault for a second. your written testimony highlights the new products and features facebook mass introduced. but how many of those has facebook developed in-house as opposed to buying? that's a really broad and long question. i understand that. >>. >> thank you, congressman. we have developed many in-house. for instance we developed news feed use the broadly by many competitors. we developed the like button, photo tagging. we developed portal. we have also invested in companies we have acquired like instagram, oculus and what's app. >> and what features in the current social media accurate market if any could make it possible for a new fleck willing kpeter to take on facebook? >> congressman.
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i think there are many different answers to that question. my understanding, for instance and see tick-tock focused on public sharing for instance. that may be one feature that companies like ours might be interested in in the future. >> and my last question for mr. cohen is more of a personal question not a congressional question. but can you explain to me why a 9-year-old would rather watch it fortnite on youtube because i don't understand. >> i'm completely mystified i have no idea. >> with that i yield back. >> i now recognize myself for five minutes. he said i want to focus on the state of competition online is affecting real people in the communities we represent. we see a tremendous concentration of economic power fundamentally shaping markets in the ways that that are unfair, unbalanced and not competitive. resulting in less choice and worse quality of products and
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services for working people. we want to make sure as part of in investigation that we're doing everything we can to make sure our competition system is working for the entire economy including small and local businesses in the for horn half of our are revelling on amazon ohs a plafrm as ms. jayapal's question revealed amazon offers its open products on the platform. mr. sutton doesn't that create a conflict of interest? >> i thank you for the question. respectfully, we disagree weapon. we partner closely with our third party sellers. we rely on them to -- for broad selection and provides to our customers. and we've been very proud of our investments to help them grow to be a majority of the store and growing twice as fast. >> that's a different question. what i'm saying is you are selling your own products upon a platform you control and they compete with products in the
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marketplace from other sellers. right? >> thank you. i thank you for the question. that practice i think has been common in the retail industry for decades. most retailers offer their own products in store as well as third party products. >> but the difference is amazon is a trillion dollar company that runs an online platform with realtime data on millions of purchases and billions in commerce and can manipulate algorithms on the platform and that's not the same as the local retail we are a cvs brand and national brand. it's quite different. i want to drill down on the question that miss jayapal asked you. you said we do not use seller data to kpet with other sellers online. you do collect enormous data about what products are popular, what's selling with where they are selling. you're saying you don't use that in any way to promote amazon products? >> let me answer. >> i remind you you are under oath. >> thank you for your question. we -- we use data to serve our customers and to clarify my question we don't use individual seller data to directly compete with them. and again similarly. >> do you use consumer data --
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let me just -- do you use consumer data to favor amazon products? because before you answer that analysts estimates between 80 and 9 oh% of sales go to amazon buy box. you collect all the data about the parallel products and where they are selling and you don't use that in any way to change the algorithms to support the sale of amazon branded products. >> our algorithms as the buy products is aimed to predict what customers want to buy and we apply the same criteria whether third party seller to appearancen to that because we want commerce to make the right purchase regardless whether its amazon or another. >> the best purchase is amazen. >> that's not true. >> azmodan does not use any data collected with with respect to what's selling, where it's selling products. to inform the decisions you make or change algorithms to direct people to amazon products and priorityize amazon and deprioritize competitors. >> the algorithms are opt myselfed to predict what customers want to buy regardless of the seller?
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we provide the same criteria and with respect to popularity that's public data on each product page. we provide the ranking of each product. >> okay. i'm going -- i want to give you an example of an entrepreneur who creates a better set of head phones sells it on the marketplace. sales soar. great for her and amazon more people become amazon prime products commerce but instead of seeing fruits of mere success next thing that happens is the hard work entrepreneur discovered that azmodan rolled out a direct recommend ka of her prd. amazon gives itself top bilk and demotes the entrepreneur to pamg three results which most people never see. how would anyone in light of that kind of sequence of events? how would any entrepreneur invest in in kind of environment where that can happen? no assurance it won't?
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>> our incentive is to help the seller succeed because we rely on them if we did that they go elsewhere. they have many options we apply the same criteria to both and knot use the individual data making decisions to launch private brands. >> thank you. i turn to google search for a moment mr. cohen similar to results in asmus li amazon everyday people thinking they are getting the best most accurate severance for for the products they are looking for but people are seeing results for google's own services. in 2004 google cofounder larry page said the purpose of google is to have google quickly find what up and get to the right place as fast as possible. would you agree still claims that that's your principle guiding principle? congressman our goal is to provide user information as quickly and fishily as possible. >> i want to direct your attention to two studies. the first is a study recently produced by rand fish kin a
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leading represent expert on search engine. opt mission i found that google traffic no longer goes for the goingle web but stays on google products. the second a research by cafra consulting finding that google is increasing keeping both majority and growing share of traffic within google's cosystem, walled garden. do you agree that these sites show that google is no longer thoeg showing people the best products or best results but instead is giving results to keep them on google products not on google's platform. >> thank you for the question, congressman. i'm not familiar with either of the studies. what i can say we send a lot of clicks and traffic to competitors in our own services we have aimed to connect merchants, airlines, a range of other services directly with consumers. making the consumer experience better and making the experience for advertisers and merchants better. >> i regret my time is expired. but i would just ask you to review these studies because if
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innovators and entrepreneurs don't have traffic to their websites because google -- the google search is rigged in favor of google's services by keeping them inside google's walled garden then the engine as we know it ceases to be of an engine of economic opportunity. i would ask you and welcome your comments after you have an opportunity to study those. and my time is long expired. i now recognize mr. steube, the gentleman from florida. >> thank you, mr. chair. i've got a very important question for apple that i believe is on the minds of all americans. way do you keep getting that alert for the icloud for the 99 cents on the icloud all the time and constantly constantly until you pay the 99 cents for icloud and then you pay the 99 cents for icloud but not using it. >> thank you, congressman. i'm afraid i'm not aware of the details around what you are talking about. i'd be happy to get back to you with any information on that but i'm honestly not familiar with that. >> yeah if you can get me information on that. i've seen it a lot of people
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asked me about the fact that they constantly get alerts for use icloud and you don't want to use it. but the alerts won't go away until you pay the 99 cents to use icloud but you're not using it. if you have information on that i'd love to get it. >> absolutely. >> i'd like to go to amazon for a second and piggy back on the chair's questions. what's the current market share of amazon in total u.s. domestic retail sales? >> amazon is 1% of the global retail market and 4% of the u.s. retail market approximately. >> only 1% of the domestic retail sales. who is above amazon in total u.s. retail market share. >> in the u.s., wal-mart is two to three times larger than we are. >> are there others or just wal-mart zwloo i don't know everyone who is potentially larger.
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there are thousands of competitors cross-the retail landscape. >> so who is the current market share of amazon total u.s. dplekt online retail sales? >> online it's not a separate market it's just? the channel. with he no he customers shop online and off line. evidence shows that prices converged between online and off line. with respect to online amazon is one of the leading retailers. there are many others including wal-mart and every other large retailer who has an online presents and well as online players such as ebay. >> you are like 1%. >> one% of the global retail market and 4% of the u.s. >> let's focus on u.s. 4% of the u.s. market. what's the largest market share of any retailer in the total u.s. retail market. >> amazon focuses on customers. i'm not sure of exact market shares of all competitors because that's not what we focus on as a company. i know that wal-mart is many times our size in the united states. >> and amazon sales online, u.s. retail share is growing at a faster rate of all companies or along the same level as other companies? so i know wal-mart put a lot of investment in the online platform. how do you compare compared to wal-mart or other retail stores online? >> thank you for your question. the third party ports i've seen seen wal-mart growing at a
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faster rate than we are online. >> your written statement suggests that amazon competes directly with other sellers. explain to me how that does or doesn't translate into whether amazon is leveraging allegedly dominant retail market power into anti-competitive behavior against those other sellers. >> i think the clearest answer to the question is from the evidence showing how much we have invested to help the third party sellers since we invited them into our store grow. they are now the majority of our sales and they're growing twice as fast. we think that's great for the small and medium size businesses and great for our customers. >> are you aware of any facts or figures showing that consumer choices among outlets in the u.s. retail market is declining or that competition in the u.s. retail market is failing to keep consumer retail prices down?
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>> i'm only aware of data showing increasing choices for consumers today. >> oh, man we're getting back to icloud. what is amazon's share of the storage market or the online cloud for your cloud? >> we offer aws for enterprises, which is a different than a personal online storage. >> okay. any other comment on that? >> with respect to enterprising, the vast majority of the space is operating on premises services and cloud is a new and developing space. we are one of the innovators. we are a leader. but the competition primarily exists with longstanding on premises i.t. competitors. >> when did amazon get into the cloud services market? >> a number of years ago. i don't remember the exact year. >> and how fast has the market share grown on the cloud? >> amazon innovated and in creating cloud options for
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storage and compute more enterprises. so as one of the early innovators we had a lead, but competitors major competitors have entered and closing the gap such as microsoft, ibm, google and many others. although, again, cloud is still in the very early days and primarily i.t. is still serviced through on premise servers. >> thank you, my time is expired. >> thank you. the chair now recognizes the gentleman from georgia, mr. johnson, for five minutes. >> thank you, mr. chairman. and thank you for holding this very important and timely committee hearing. and also i want to thank the witnesses for your appearance today. is it perault or perault, mr. perault or mr. perault? >> thank you, congressman. it's perault. >> perault. well, thank you, sir. mr. perault, when was the last time that facebook changed its terms and conditions? >> thank you, congressman.
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we -- >> you don't need to thank me. >> we evaluate our terms and conditions on a regular basis. >> when is the last time you changed them? >> we are constantly changing our terms and conditions to ensure that people have the best experience on our products. >> certainly. so how many times over the last year have you changed the terms and conditions? >> congressman, i don't have the specific data on that. i'd be happy to get back to you. >> ten times? >> congressman, i don't have the data. >> 20. >> i don't have the data but i do know that we -- we certainly face significant concerns about various different aspects of our product including privacy. that's one of the reasons we have actually called for regulation in that area. >> okay. well i just wanted to know approximately how many times terms and conditions have changed. a recent report from the sumit stigler center observed one way in which digital platforms
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exploit their market share or their market power is by requiring consumers to agree to terms and conditions that are unclear, difficult to understand, and constantly changing. do you agree with that assessment? >> congressman, we take privacy very seriously. it's important to us that we provide users with significant transparency and control. >> i understand. i understand. i guess the point i'm trying to make is the users don't really have much -- much buy in to the situation. they either have to check the box agreeing to the terms and conditions, oftentimes having not read it in order to get the service or maintain the service, or they just go without the service. so a user may sign up with one set of terms and conditions, invest valuable time in building a social network on facebook and then a month later be faced with a different set of terms and
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conditions. and because there is no real alternative to facebook the user has no choice but to accept those changes. isn't that correct? >> no, congressman that is not correct. >> there is competition to facebook? >> yes, congressman, there is. we face fierce competition for all products and services we offer. >> who would be the competition, if i might. >> so many of our competitors are -- >> or is that secret? >> many of our competitors sit at the table with me. >> i -- i think you're in -- you're in a unique chair, a you unique position among those sited at the table. each one of you occupy a unique and dominant position. but facebook is stands alone in terms of social media. any other social media platform that could compete with facebook?
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>> congressman, we certainly hope that -- we certainly hope that in many ways we are unique. there may not be an identical competitor to facebook. we try to differentiate our services in innovative tech industry in which we compete. but yes there is significant competition in advertising. >> well i would like -- off line i'd like to get a list from you, sir, that i could do some shopping around myself. and that's not to disparage facebook's offering i just would like to know who your competition is. it's not readily apparent. facebook's terms of service maintain that users, quote, own, end quote, their data yes facebook has prevented users from transferring data to certain rival platforms, including twitter, find, foxer and message me. how do you reconcile facebook's
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stated policy that users own their data with facebook's repeated refusal to allow users to transfer their data to their data to rival platforms. >> congressman, we do offer a data portability product and offered that product for a long period of time. it's called download your information. we have improved the product in the wake of the gdpr in europe. we're actually a member of the -- >> you can actually transfer the facebook data to another platform? >> congressman, you are able to take your data out of facebook to another platform, yes. we are also members of the data transfer project, along with several other companies to try to look for ways to facilitate better data portability. and our ceo mark zuckerberg has called for regulation in this area because of many of the difficult technical and privacy issues at stake. it's one we hope to look -- to work with congress on to improve the offerings for our use
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>> thank you, sir. i yield back. >> thank the gentleman. i now recognize the gentlelady from florida, miss demings for five minutes. >> thank you so much mr. chairman. and thank you to all of our witnesses for being with us today. mr. sutton, bear with us. and in recent years amazon started selling digital advertisement placements analyst estimate that digital ads brought in around $11 billion in business last year. because businesses are increasingly dependent on amazon, some of them are concerned that amazon is using its ad business to squeeze more money. as bloomberg reporter recently wrote, amazon's advertising is better understood as an additional tax the company imposes on the millions of businesses that sell through its vast digital mall. it's one more toll extracted
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from sellers, according to the reporter. given how dependent businesses are on amazon's platform for online sales, what if anything, mr. sutton prevents amazon from using ads as another way to charging a toll for using its platforms? >> thank you for the question. we do offer advertising as a service to our sellers as an optional service that is not necessary, but they can use to help get their products discovered. the large majority of products in our store are not sold through advertisements. again, there are many ways in which sellers have many options. we provide that as an additional one. we know they have many other options online where customers shop as well as off line. >> what would your response be to the reporter's statement that amazon's advertising is better understood as an additional tax the company imposes on the millions of businesses that sells through its vast digital mall.
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>> respectfully i disagree. the statement is not correct. it's not a tax. it's like many services we offer that's optional. there are many ways sellers can advertise. they can advertise through general purpose search which still remains the most popular way for customers to find products online. >> i'm happy to follow up. >> okay. >> mr. sutton, who do you view as amazon's competitors with regard to third party sellers? and if you already covered this, i do apologize, but who do you view as amazon's competitors as it pertains to third party sellers? >> thank you for the question. they can sell directly through brick and mortar retail stores, through their own website, and
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dozens of online marketplaces available for them as well from walmart to ebay. >> if i'm a third party seller what other platforms can i list my products on that would allow them to be seen by a competing number of buyers? >> thank you. again, they could list on walmart. they could list on ebay. target now has launched a marketplace. there are new other places including also the ones from chinese companies like alibaba, rakuten. there are so many marketplaces that there is a billion dollar industry that has grown up to provide services to sellers that they can use to list to all marketpla places at same time. >> and you believe that those other platforms are competitive, allow for competitive services? >> yes, absolutely. >> okay, mr. chairman, i yield back. thank you. >> i thank the gentlelady.
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i now recognize the gentleman from colorado, mr. neguse, for five minutes. >> thank you to the chair and thank you to the witnesses for today's testimony. i want to talk today about facebook. so, mr. perault, following up on a question from the gentleman from georgia, i think what he was getting at is this, is facebook your in your view a monopoly? >> no, congressman, it is not. >> okay. so i assume the reason is because in your view facebook has a number of competitors as you said and a number of products that the company offers. would that be a fair characterization of your view? >> yes, congressman, that's correct. >> what is the largest social media network platform company by active users in the world? do you know? >> congressman, i don't. i do know that we have
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2.7 billion users. >> i can tell you it's facebook is number one. do you know the third largest company is whatsapp. who owns whatsapp or what company owns whatsapp? >> congressman, we do. >> facebook, correct? >> yes, congressman. >> and the fourth largest social media networking platform in the world by active users is facebook messenger. i won't make you answer the question. suffice it to say that company is also -- that service also owned by facebook. the sixth largest is instagram. what company owns instagram? >> congressman, facebook does. >> okay. so you can understand the skepticism, because when a company owns four of the largest six entities measured by active users in the world in that
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industry, we have a word for that. and that's monopoly or at least monopoly power. now, you know with respect to my colleague the distinguished gentleman from wisconsin, he is right under the sherman anti-trust act, a measure of whether or not a company is engaged in monopolistic activities is whether or not there is anti-competitive conduct at play. but, you know, i suspect you and i may have disagreements on that front. to give you a sense of kind of the way in which a number of of us are evaluating the facts before us, if you could turn exhibit 1.5 if the committee staff would just put that up on the screen. this is a document -- my understanding is there are a number of documents published about eight months ago as a result of a parliamentary inquiry conduct eed by the uk parliament with respect to facebook and various activities of the company. this is platform policy,
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platform policy number four. and you'll see under there highlighted subparagraph 1, the language add something unique to the community don't replicate core functionality that facebook already provides. this was a policy maintained by facebook. is that correct? >> that is correct, although unfortunately i'm having trouble seeing the exhibit as i've gotten older my eyes have gotten worse. >> mine as well. we'll be sure to provide you a copy. this is no longer a policy maintained by facebook. is that correct? >> congressman, that's correct. >> okay. and i presume that is because this policy facially would be construed as an anti-competitive one, correct? >> congressman, we have -- thank you very much. the facebook platform was designed to enable third parties to engage in complementary innovation that would benefit the people who use our services.
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when we launched the facebook platform we did have rules of the road. we continue to have rules of the road that balance a variety of considerations. including protecting the user experience, protecting privacy and protecting our investment in our products. we have reevaluated those policies over time and have changed them to fit the evolving nature of the industry in which we exist. >> well, i appreciate that and i understand industries change, industries evolve and that your business is to evolve to comport with that. i would say, you know from my vantage point, my my understanding is facebook did have a policy early in the tenure, exhibit one, in which the company welcomed developers with competing applications, including developers whose applications might compete with facebook built applications. that was a policy that was then repealed in favor of policy 4.1, the prior document that i just showed.
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so the notion that facebook has been open to competition as you described in your opening testimony, the notion that it's a core value of the company is not borne out by the documentary evidence that we have seen. and i think that's in part why we are having the important hearing today. i see my time is expired. yield back. >> thank the gentleman. i recognize the gentlelady from georgia miss mcbath. >> thank you for your testimony today. i am deeply concerned about the success of businesses in my district. i represent georgia's sixth congressional district and small locally owned businesses are the economic life blood of our communities. and they should have access to markets and consumers without facing anti-competitive constraints. i also believe that congress and agencies have a serious responsibility to make sure that there is real competition in the market so that start-ups, small businesses, and local retailers are able to compete on the merits and give people the best
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options they can find. mr. sutton, this morning i met with sellers who have had a very positive experience growing their business through amazon. but some sellers have had a completely different kind of experience. some sellers report that amazon uses a variety of tactics to funnel merchants into using fulfifillment by amazon international anti-trust authorities are investigating whether amazon privileges third party surrenders that use fulfillment by amazon. now, does amazon privilege vendors who use amazon's fulfill services over those who choose not to? >> thank you for the question. amazon's very proud of all we've done to invest and help sellers succeed. and one of those ways is we built a very successful operation and delivery system and we opened that up and made that available for sellers it use. fulfillment by amazon.
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it's an optional service that sellers can use if they want to. we continue to invest and provide tools for them to ship directly as well. we do not favor products that use fba over others. obviously fba is one way to provide quick delivery amongst many. we know our customers appreciate quick delivery. that's which we gave that option to sellers to use amongst the various shipping options they have. >> on the second panel we have today, ms. mitchell in her written testimony highlights how amazon abruptly and arbitrarily suspends merchant accounts, freezing their funds and shutting down their amazon pages. according to her statement, amazon frequently makes the decisions without explanation, leaving merchants to navigate a black box while their livelihoods hang in the balance. according to another report in the verge, quote, sellers are more worried about a case being opened on amazon than an actual court end quote.
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how many employees does amazon have dedicated to addressing these kinds of concerns? >> thank you. amazon partnered with sellers and we are very proud of our success in helping them grow and now be growing twice as fast as amazon. we reluctantly take action. >> how many do you have, sir, that are. >> we have thousands of employees dedicated to helping and address concerns from third party sellers. we do -- we absolutely do not take arbitrary action. but we have to take action on occasion when necessary there are dedicated group of bad actor that attempt to sell fraudulent products or counterfeit products or dangerous products. we have to take swift and immediate action to protect customers and to protect the legitimate sellers we try to do that through a transparent processing. we always provide opportunity for sell tors appeal or provide additional information if they think we got it wrong. in the fast vast number of situations they do not take advantage of those opportunities. >> how do you respond to the concern from merchants who have
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been abruptly suspended by amazon who they say have no way of ever reaching an amazon employee to make their case? so what recourse do they actually have? >> we provide a variety of ways for them to reach out. >> such as? >> i don't know the full way. i know we have a dedicated customer team. we provide a dash board to see the status of their account. we have a dedicated team affirmatively following up in serious cases. we may communicate via email and allow them to respond and provide details via email. there are a variety of ways we try to communicate and receive communications from our sellers. i'd be happy to follow up and provide the full examples and details of that for you as well. >> if you could i'd appreciate it. it's important to me that we keep good paying jobs in our communities. too often we hear that retailers, manufacturers and suppliers have an uphill battle due to anti-competitive prices online. and mr. sutton, again numerous reports identified instances when online platforms, prices
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goods significantly below cost over the long-term threatening mainstream businesses and other retailers who can't compete on those terms. in a letter i'm asked be placed in the record for today, mr. chairman. >> without objection. >> the retail industry leaders association notes that although intense competition is a hallmark of america's retail industry, the absence of competition elsewhere in the retail ecosystem stifles the benefits that have historically resulted from the intense competition -- through the intense competition. mr. sutton once again how do you respond to concerns that amazon has the ability to absorb losses in any market that it chooses? >> thank you. amazon faces fierce retail competition across many and including from many members of rela amongst of our biggest competitors such as walmart. amazon has run a profitable retail business for many years. the retail business
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because of the competent is thin margins but the retail business in the united states has been profitable. >> mr. cohen -- >> the gentle lady's time has expired. >> thank you. >> thank you. >> okay. thank you. the chair recognizes the gentleman from mr. maryland, mr. raskin. >> thank you very much, mr. chairman. i have a question for mr. cohen. according to data produced by rand official, google controls over 90% of the search engine market in the united states. so congratulations. on that. although this seems to fit the classical definition of monopoly google argued that the company's monopoly in the search market is nothing to worry about because competition is a click away. is this -- i just want to make sure i have google's position right. is that essentially the argument against viewing it as a monopoly? >> thank you for the question, mr. congressman.
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i would say that that definition of the market is quite narrow. and that when consumers are searching for information online the range of different services they use, for example, when people are searching for products, the majority of americans start product searches on amazon, which they search for places to travel, hotels and airlines, they start with dedicated specialist competitors. i think the market is much broader than that. >> well, let me follow up then. i understand that google paid apple $9 billion in 2018 and $12 billion in 2019 for the right to be the default search engine and safari. is that right. >> congressman, i'm not familiar with those numbers. >> okay, billion is a big number. so it is big numbers. would google pay these sums if there were really an effective competitive market in place? >> congressman, i'm not familiar with the numbers. we reach syndication agreements with a range of different partners. >> are you familiar with the
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deal that was -- >> i'm not close to the terms of the deal. i think that if anything the price is probably reflect the control or the decisions made by platforms rather than somebody seeking to syndicate their services on those platforms. >> okay. >> i mean, my sense and see if these numbers are correct that spending over $20 billion in two years to essentially secure its place as the default search engine suggests that google recognizes that defaults matter and that switching costs for users are high. but i appreciate your thoughts on that. let me come to -- to mr. andeer. you are -- thank you. apple ceo mr. cook argued that unlike your peers who run ad based businesses, apple is a
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company that fundamentally is privacy oriented. do you believe that apple is a privacy oriented business? >> yes, absolutely. we believe privacy is a fundamental human right. >> well, then why has apple allowed google to be the default engine on safari? >> apple has with all products focused on the best consumer experience. when it comes to search we conducted an open competition to see what did we think would be the best for our consumers. and consumers have always gone to google. and so we ultimately selected google but we make a number of options available to them. it's easy to change the default on the iphone to any number of choices including duck duck go and other search engines that perhaps have more privacy protections. >> apple charges app developers a 30% tax on in app purchases in the first year and 15% every
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year there after. in a statement submitted for the record, spotify argues by charging the 30% tax they make them to the make an impossible choice. either pass it on to consumer or face a litany of hurdles imposed by apple. these complaints are echoed by other app developers as you may know. mr. andeer, how did apple arrive at the 30% fee? and could apple charge a 35, 45 or 50% fee or inapp purchases. >> thank you for the question 84% of the apps, over 2 million apps available in the app store pay nothing to apple. it's only a small percentage paying a commission. when it comes to spotify, they're one of our most successful developers. yet they pay a commission on less than 1% of subscribers to apple. they've been able to build a successful business. thanks to the app store. we are proud of their success.
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we continue to invest in tools and other resources to make it very easy tor developers to create great applications. you asked about how we came to the 30%. ten years ago, it is easy to forget, most software is distributed through physical distribution, like compusa or best buy. typically they would share 60% to 70% of the retail price with the distribution channel. we set an aggressive price of 30% only applying to digital content in an effort to compete for those developers mine share and it's been very successful. >> okay. do i have time, mr. chairman for another question? okay. just a quick question for mr. perault. facebook announced in january it would be integrating whatsapp, instagram and messenger, an announcement that coincided with growing calls in different places to break up facebook. specifically by undoing the
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buyup of whatsapp and instagram. facebook says will allow them to provide end to end protection. is the substitution employ an attempt to thwart or preempt efforts to break up facebook? >> thank you, congressman. no, it is not. we face fierce competition for the products and services that we offer. it's our understanding that there are many services in the market that offer more and more privacy protective services. and so our pivot toward privacy with respect to interoperating our services was because of the competition that we face in the market. >> okay, mr. chairman i yield back thank you. >> i thank the gentleman and the ranking member agreed to do a second round of questions. and i appreciate that indulgence. mr. sutton i want to just turn to you for a moment. in your testimony you repeatedly emphasized that amazon is a great partner to third party
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merchants. but reports suggest that amazon has been steadily increasing the fees it charges merchants. according to a recent article in "the washington monthly" in 2014, amazon fulfillment fees accounted for 17% of the seller's total costs. today amazon raised fees so they now amount to around 27% of seller costs. amazon also increased storage fees by over 40% since 2015. seller fees are extremely lucrative for amazon, earning the company over $42 billion in 2018. according to the same article. and so mr. sutton my question is given how dependent merchants are on amazon's platform aren't the steady fee hikes by amazon a pure exercise of its outsized buyer power? >> thank you for the question. it's because sellers have so many options that we have to provide competitive options. and those fee estimates are not accurate.
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the fees that are necessary to be paid in our store to sell items have actually been steady for a number of years and slightly declining. there are optional fees such as fulfillment, which are competitively priced to other fulfillment options and reflect the cost of fulfilling products, sending items, storing them of that nature. but that -- those are reflective and competitive with other options sellers would have through the many other third parties that offer similar services or doing it themselves. >> i'd be anxious to receive from you the data that disputes the numbers. but let me understand the argument. you said because the seller has so many options we should therefore -- that's the explanation for increased costs by amazon on the seller? it's the exact opposite. i mean the fact that the sellers have other options would not cause amazon to charge more money. i don't understand your argument. >> i'm sorry. let me clarify. >> please. >> because they have so many options that we partner with them and we charge fair fees. it's the reason the fees have
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been steady, the point i was trying to make. the fees for listing on our store stayed steady or slightly declined. some of these optional fees are based on market costs and they have adjusted and they're competitive with other options in the space. >> thank you. over the years various reporting documented the aggressive and predatory business tactics that amazon employs. in 2013 brad stone reported amazon named a business campaign the gazelle project, a strategy where amazon would approach small publishers and i quote, the way a cheetah would a sickly gazelle, end quote. is that still in place, mr. sutton? >> i'm not familiar with that project. >> if you could get back to me and i'd like to snow whether amazon pursues similarly predatory campaigns in other parts of the business. if you could get me answers to the questions i'd appreciate it. the committee's investigation is extremely important for the economy, for consumers, those we represent.
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i hope each of the witnesses today pledge on behalf of companies they represent to cooperate to the fullest extent possible and to act in good faith to respond to the question in a timely and complete manner. i'll ask you mr. andeer if you can answer that question on behalf of your company. >> yes. we will. >> and you, mr. sutton? >> yes. >> mr. perault. >> thank you, chairman. yes, we will. >> and mr. cohen. >> yes, gladly. >> and finally there has been some reporting of i think very disturbing efforts by a particular company to aggressively impede congressional oversight to go so far as to hire opposition research firms to do opposition research on members of congress and staff of the committee. i would similarly ask you in a the spirit of cooperation do you commit to not engaging in those tactics in response to this investigation, mr. andeer? >> yes would we would never engage in that conduct.
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>> mr. sutton. >> yes. >> yes. >> mr. perault, thank you mr. cohen. >> yes. >> thank you. with that i'll recognize the gentleman from north dakota, mr. armstrong. >> thank you, mr. chair. mr. andeer, the 30% markup on apps, that's been the same since the company started, since the app store started, right? >> yes, it's correct, but for some apps we actually reduced that to 15% and, of course, that 30% only applies to less than 16% of the apps on the app store. >> you said 84% don't pay anything, right. >> that's correct. but what percentage of the total u.s. global revenue from apps come from the remaining 16% that do share revenue? >> i don't know the answer to that question. i do know that developers monetize in a number of ways. we have developers on the app store that monetize through advertising selling of physical goods, selling of services, the value that developers collect through the app store is
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probably hundreds of billions, perhaps over a trillion dollars. >> so how does the apple app store fit in the company offerings? >> so i think to provide some context, when we launched the first iphone it didn't include the app store. we thought developers and content creators would access consumers through the safari web browser. we long supported open and free internet. we created the the app store as an complement, alternative to the open and-free internet. now we have done a lot to encourage developers to create as many great apps as possible. and we really look at it as a way to continue to sell devices. we're a device company at the end of the day and looking to convince consumers we offer the best possible product. >> how about apple music? >> apple music is part of that strategy. so we offer apple music but make it easy for competitors to access each and every ios users through the app store. so spotify, google play music
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and dozens of others offer apps that compete with apple music. >> is apple more of a hardware business, software business or platform business? >> we think of ourselves as a products company first and foremost. we are selling an experience to consumers. we are selling an entire product. everything from hardware, software to services. it's a total package. >> to what degree does apple share and not share markets with the other companies providing testimony today? >> in various -- we compete with all of the companies on the panel in various ways in addition to dozens of others. >> and i felt like you haven't didn't have enough questions entering the first round i wanted to make sure. >> thank you. >> and this goes back to what my friend, mr. neguse was talking about and then back to mr. perault. you can't use facebook messenger without facebook, right? >> or can you. >> i believe you can, congressman. >> okay. so they are two separate and distinct -- do you know what
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percentage of people use messenger that don't use facebook? >> i do not have that data. i'd be happy to follow up. >> and the reason i bring it up is when we talk about competition versus complement, i mean competition versus complementing how we use this -- i'd just ask you all of those things because i i wouldn't know where to get anything other than the apple app store. i'm sure other things exist but i don't know about them. i think there is a lot of us in that situation. in closing this out, i hope as we move forward, the hearings become more focused, more single topic focused and i would encourage everybody and the companies who are testifying to be forth right with answers. the questions that are -- i can tell you about half the questions that are going to be asked today, which i'm assuming you all with your vast resources and company resources could do as well and it sure makes it a lot easier if as we go forward and we focus on specific topics or specific things that it would be easier for everybody if we
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are more forth -- forth right and honest and transparent with our answers. with that, i yield. >> thank you. i thank the gentleman. i recognize the gentlelady from georgia, ms. mcbath for five months. >> thank you, mr. chairman. the "wall street journal" recently reported that google maps is overrun with millions of false business addresses and fake names, as many as 11 million. the article also noted that google's ad business profits from the scams while consumers and legitimate locally owned businesses suffer. mr. cohen given the extraordinary power that google enjoys over the small and local businesses, what measures is google taking to identify and remove fraudulent listings? and is it a lack of competition and online search that allows google to be so complacent about addressing this problem head on? >> congresswoman, thank you for the question.
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i'm not familiar with the "wall street journal" report. i'm also not familiar with any claims of fraudulent listing in google maps of that scale. we take a number of measures to address fraudulent listings. it is in our interest to present the most accurate, up to date information as possible to our consumers because we operate in a competitive marketplace. >> can you make available for the committee the processes that you use to make sure that people aren't fraudulently -- >> i would be glad to follow up once i discuss with the experts in our company. >> okay. thank you. and i relinquish my time. >> i recognize the gentleman from maryland mr. raskin for five minutes. >> thank you. i'm concerned about business conduct discriminating against competitors online. and because your platforms are so dominant a decision by any one of them, whether deliberate or accidental, malignant or
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benign, can be fatal for a business that relies on your platform in order to reach their customers. first of all, do you all agree that in theory each of your businesses can pick winners and losers in the marketplace? maybe we can go down the line? do you, mr. andeer? >> no, i don't. i look at the facts of the marketplace. and in each and every single market in which we compete, whether music or books, video there are companies far more successful on our platform than we are. >> okay. mr. sutton, what's your response. >> respectfully, i disagree. amazon offers one store amongst thousands of retail options for customers who shop across them every day. customers pick the winners and losers. >> okay, mr. perault. >> congressman, i disagree as well. we face fierce competition for the products and services we offer.
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>> yeah. mr. cohen. >> yes, congressman online people can traffic anywhere they like. click on whatever services they like and we often see in search results new companies and new ideas surface all the time that we never heard of. >> okay let's work our way back down the other way then. do you have processes in place for businesses to seek redress if they believe they've been discriminated against by your platform? >> yes, congressman, we do. >> you do. can you describe briefly what that is? >> there is a process for firms to appeal the way that they are ranked. i'm not familiar with how it works in-depth. but i'd be happy to follow up with you. >> okay, mr. perault. >> congressman, we do have processes as well. we have an appeals process for instance and looking to expand and improve that process. >> okay. and that appeals process, how does that work?
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they go to -- who do they go to. >> congressman, pages, for instance that are disabled on facebook, they're able to appeal the fact that they are disabled. we would then review that and make -- then make a determination on the appeal. >> okay, mr. sutton. >> most of our large competitors operate own independent stores not through amazon. with respect to small and medium size seller that sell through our store we have many processes in place. we have a seller central that provides a lot of tools and services for them and lots of opportunities to communicate with amazon if they have any concerns. >> okay. and mr. andeer. >> first and foremost it's the consumers who make it very clear if they're unhappy with the experience on our products. and we have been very straightforward with wanting to offer not just our own services but third party services as well. i would also say we also employ hundreds of apple employees who are focused on reviewing apps and in constant communication with developers.
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and there is an escalation path within apple to make sure any concerns or issues are quickly escalated and we address those each and every week. >> great, thank you very much for those answers. companies across the digital markets, nonetheless live in fear of retaliation i think by any of the firms you represent. and this fear mass kept some of them from speaking out publicly about the anti-competitive practices that they experience. and the committee has received a lot of communications from people in advance of this hearing. one business wrote, unfortunately we are not able to be more public at this time out of concern for retribution to our business. another wrote given how powerful google is in past actions, we are worried about retaliation. so my question to you is would you commit that on behalf of your company that you will not retaliate in any way against any
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of the businesses that cooperate with this committee or share requested information with us as part of the investigation. will you all agree to a non-retaliation policy towards businesses that participate? mr. andeer. >> yes as apple's chief compliance officer i would take such an allegation of retaliation extremely seriously. >> great to hear. mr. sutton? >> we would absolutely not retaliate against anyone cooperating with the committee. >> mr. perault. >> thank you, congressman. yes. >> and mr. cohen. >> yes, from me, too. >> i appreciate that. because you guys have done a good job representing your businesses. but if there were a monopoly and you asked them if they were a monopoly they would say they were not a monopoly. obviously we have to do work that goes beyond just asking you for your opinion on it. we have to talk to other people. and so for that to be meaningful they can't be living in fear of retaliation from you.
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so thank you very much, mr. chairman. i yield back. >> we have been notified that the ranking member has called for a roll call vote. we'll take a quick ten-minute recess so we can all vote and we'll resume with the second panel. i want to thank the witnesses for our first panel for being here and you are excused. you are welcome to stay for the second panel, but very much appreciate you being here today and sharing the perspective on the current state of competition in the digital marketplace. we're in recess until call of the chair. >> our c-span campaign 2020 bus team is traveling across the country, visiting key battleground states in the 2020 presidential race. asking voters what issues they want presidential candidates to address during the campaign. >> i think a really pressing
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issue i would like to see candidates talk about is healthcare, because there is a lack of healthcare in the country right now. i think affordable healthcare at the very least and some people aren't going as far as i would like to go into the details of how they plan to handle that. a lot of general ideas, like policy, so i like to see where that goes. >> i would really like for the candidates to discuss how we're going to renormalize ourselves as a leader if not the leader in what we used to call the free world in the rest of the world as a leader in democracy. and a leader in democratic values around the world. also, a cooperating force with the rest of the world. >> i would like to know from each candidate their ideas on nuclear energy and the reinvestment of the technology in every state in the country and i would like to know if they believe it is sustainable, reliable use and worthy
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investment to our nation. >> i'm really concerned about the climate crisis and about gun safety legislation and those are two essential things that have to be addressed by the election next year. i wish they would be addressed by congress before that. but it doesn't appear the senate will move on that. also, we need to try to get back to enforcing the -- constitution that our whoever becomes president should obey the emoluments clause, should conduct business with integrity, should not ridicule minorities or handicap people or aged or anyone else. we need to restore integrity and we need to restore a sense of service to all the people. >> voices from the campaign trail, part of c-span's battleground states tour. president trump's former
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campaign manager corey lewandowski will be on capitol hill tomorrow. he's expected to appear before the house judiciary committee for a hearing looking at possible obstruction of robert mueller's investigation by the president. watch live coverage tuesday at 1:00 p.m. eastern on c-span3, online at c-span.org or listen live with the free c-span radio app. energy secretary rick perry testifying now before the house science committee about research and development programs in the energy department. also questioned is the undersecretary of energy for science. >> the hearing will come to order. and without objection, the chair is authorized to declare recess at anytime. let me say good morning and welcome to today's

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