This spring, antitrust enforcement agencies have been busy in the courtroom with cases that will impact far beyond the large tech company defendants. The cases, U.S. v Google (2020) and FTC v Meta, could impact investment and exit opportunities for startups in AI and beyond. While thoughtful antitrust enforcement is critical to maintaining a level playing field for startups, these cases — and potential for unintended negative consequences for startups — illustrate the importance of grounding competition policy in market realities and practically achievable outcomes.
For instance, the Google case could end up harming the ways AI startups seek investment and resources. In August 2024, a federal court found that Google monopolized the market for search, setting the stage for a related trial that concluded last week to determine what remedies should be imposed. The Department of Justice (DOJ) proposed a wide-ranging set of possible remedies, including restrictions on collaborations with, investment in, and acquisitions of AI companies, regardless of size. Google’s investment in AI companies has nothing to do with the court’s finding related to search. While it is narrowed from the DOJ’s original, even more aggressive proposal of forced divestiture from existing investments — intrusive notice requirements will chill investments in AI startups and undermine competition.
Innovation in AI can be extremely resource intensive, meaning startups rely upon outside investment to build new products and grow their companies. The proposed remedies will undermine these essential avenues for startups. As we told the court in an amicus brief, startups “ability to secure funding often depends on closing deals within weeks, not months. Injecting prolonged and uncertain regulatory delay into that process means that many potential deals will be abandoned — not because they are unlawful or anticompetitive, but because the procedural burden is too high and the timeline too uncertain.”
Startups also rely on “partnerships” and “collaborations” with larger companies and the broad language of the proposed remedy would imperil those, too. For example, startups can’t afford their own infrastructure needed to train AI models and use tools from cloud providers — which generally offer discounted pricing to startups — including Google. Google also runs programs, like accelerators, specifically for startups, which provide non-equity grants and guidance to help founders grow. Causing Google to avoid investing and partnering with AI startups will undermine startups’ competitiveness, especially those at the earliest stages.
Another antitrust trial that wrapped last month could likewise undermine acquisitions of startups. That case, brought by the Federal Trade Commission (FTC) against Meta, seeks to unwind the more than decade-old acquisitions of Instagram and WhatsApp, alleging those transactions furthered monopolization of the market for “personal social network services.” (Many observers have pointed out that market definition is problematically narrow, and excludes many Meta competitors.) But for startups, if the FTC is able to force a divestiture of acquisitions that the agency originally cleared more than ten years prior, potential acquirers will be disincentivized from acquiring startups and investing in the continued development and distribution of their products.
Acquisitions are the primary exit path for startups, comprising over 90% of successful startup exits. Research shows they promote recycling of capital, circulation of talent, and exchange of knowledge in the ecosystem. It also shows that larger transactions — like the two at issue in the case — produce these effects in greater magnitude because they make more winners. Undermining these sorts of transactions — based on a gerrymandered market definition — would be a net negative outcome for the startup ecosystem.
Policymakers and sound antitrust enforcement have an important role to play in ensuring a level and competitive playing field for startups. These cases underscore where positive intent can run into negative consequences. To achieve that fair environment and avoid these unintended consequences, impacts on startups must be front of mind for policymakers.
Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.
