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Forget Antitrust Laws. To Limit Tech, Some Say a New Regulator Is Needed.

For decades, America’s antitrust laws — originally designed to curb the power of 19th-century corporate giants in railroads, oil and steel — have been hailed as “the Magna Carta of free enterprise” and have proved remarkably durable and adaptable.

But even as the Justice Department filed an antitrust suit against Google on Tuesday for unlawfully maintaining a monopoly in search and search advertising, a growing number of legal experts and economists have started questioning whether traditional antitrust is up to the task of addressing the competitive concerns raised by today’s digital behemoths. Further help, they said, is needed.

Antitrust cases typically proceed at the stately pace of the courts, with trials and appeals that can drag on for years. Those delays, the legal experts and economists said, would give Google, Facebook, Amazon and Apple a free hand to become even more entrenched in the markets they dominate.

A more rapid-response approach is required, they said. One solution: a specialist regulator that would focus on the major tech companies. It would establish and enforce a set of basic rules of conduct, which would include not allowing the companies to favor their own services, exclude competitors or acquire emerging rivals and require them to permit competitors access to their platforms and data on reasonable terms.

The British government has already said it would create a digital markets unit, with calls for a Big Tech regulator to also be introduced in the European Union and in Australia. In the United States, recommendations for a digital markets regulator have also been made in expert reports and in congressional testimony. It could be a separate agency or perhaps a digital division inside the Federal Trade Commission.

Significantly, the leading proponents of this path in the United States are mainstream antitrust experts and economists rather than break-’em-up firebrands. Jason Furman, a professor at Harvard University and chair of the Council of Economic Advisers in the Obama administration, led an advisory group to the British government that recommended the creation of a digital markets unit in 2019.

Credit…Zach Gibson/Getty Images

Breaking up the big tech companies, Mr. Furman said, is a bad idea because that would risk losing some of the consumer benefits these digital utilities undeniably deliver. A regulator is necessary to police digital markets and the behavior of the tech giants, he said.

“I’m a small ‘c’ conservative, and I’m not a fan of regulation generally,” Mr. Furman said. “But it’s needed in this space.”

Regulators that focus on specific sectors of the economy are common in the United States. For financial markets, there is the Securities and Exchange Commission; for airlines, the Federal Aviation Administration; for pharmaceuticals, the Food and Drug Administration; for telecommunications, the Federal Communications Commission; and so on.

There is also precedent for picking out a handful of big companies for special treatment. In banking, the biggest banks with the most customers and loans are classified as “systemically important financial institutions” and subject to more stringent scrutiny.

Several supporters of a new tech regulator were officials in the Obama administration, which was known for being friendly to Silicon Valley. But the advocates said that experience — as well as the conservative, pro-big business drift of court rulings in recent years — left them frustrated with antitrust law as the only way to restrain the growing market power and conduct of the big tech companies.

“The mechanism of antitrust is not working to protect competition,” said Fiona Scott Morton, an official in the Justice Department’s antitrust division in the Obama administration, who is an economist at the Yale University School of Management. “So let’s do something else — use a different tool.”

Ms. Scott Morton led an expert panel on antitrust in a report last year on digital platforms by the Stigler Center at the University of Chicago’s Booth School of Business. The report recommended the creation of a regulatory authority. (Ms. Scott Morton has been a forceful critic of Google, but also a consultant to Apple and Amazon.)

Such a regulatory approach carries the risk of government’s meddling in a fast-moving industry that could hobble innovation, some antitrust experts warned. While antitrust law reacts to alleged anticompetitive behavior and can thus be slow, that shortcoming is preferable to prescriptive government rules and regulations, they said.

“I’m very uncomfortable with the regulatory path, especially if it means things like getting government approval for product changes,” said Herbert Hovenkamp, a professor at the University of Pennsylvania Law School. “The history of regulation shows that it is an innovation killer.”

A. Douglas Melamed, a former general counsel of Intel and a former antitrust official in the Justice Department, shared that concern. But Mr. Melamed, a member of the expert panel for the Stigler Center report, said the tech giants did pose a competition problem.

“I think regulation might make sense if it is narrowly focused, not running the industry,” said Mr. Melamed, who is a professor at Stanford Law School.

The last major antitrust action against a big technology company was the landmark Microsoft case in the 1990s. The case began with a suit filed in 1994 by the Federal Trade Commission and a simultaneous consent decree.

The Justice Department and several states later picked up the pursuit, investigated anew, filed suit and conducted an exhaustive trial. Microsoft was found to have repeatedly violated the nation’s antitrust laws, and the company then reached a settlement with the government, which a federal court approved in 2002.

In the Microsoft case, the antitrust legal process worked, in its way. Yet its impact is still debated. Without the suit and years of scrutiny, some observers said, Microsoft could have throttled the rise of Google.


Credit…Stephen Crowley/The New York Times

But others said the technological shift toward the internet and away from the personal computer meant that Microsoft had lost the gatekeeper power it once held. Technology, not antitrust, they insisted, opened the door to competition.

Triumph or not, the Microsoft case was two decades ago. Proponents of a new regulator said antitrust law was ill suited by itself to restraining today’s faster-moving digital giants. In the internet economy, they said, the forces that reinforce and expand the power of a market leader — called network effects — are stronger and more rapid than in the personal computer era.

“Antitrust is not a fully adequate tool to deal with the companies that dominate these markets,” said Gene Kimmelman, who was on the Stigler Center panel and a co-author of a recent report by the Shorenstein Center at Harvard that called for the creation of a “digital platform agency” in America.

Another argument for the regulatory option is that competition concerns now span four companies, not just one. Apple, Amazon, Facebook and Google are in different markets, including search, online advertising, e-commerce and social networks. Bringing separate antitrust cases against them would most likely be beyond the resources of the government.

“When the competition issues are larger than a single firm, regulation might be the better tool to use,” said Andrew I. Gavil, a law professor at Howard University.

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Black LinkedIn Is Thriving. Does LinkedIn Have a Problem With That?

One day in September, Elizabeth Leiba opened the LinkedIn app and saw a post by Aaisha Joseph, a diversity consultant with nearly 16,000 followers on the platform.

“Ima need #companies to stop sending their dedicated House Negros to ‘deal with the Blacks’ they deem out of control,” read the item. “It’s really not a good look — it’s actually a very #whitesupremacist and #racist one.”

The post was exactly the sort of thing Ms. Leiba, an instructional design manager at City College in Fort Lauderdale, Fla., was looking for. These days, when she pulls out her phone in search of boisterous conversation, hot takes and the latest tea, she finds herself tapping LinkedIn, which since the killing of George Floyd has become a thriving forum for Black expression.

“I go onto Twitter and I get bored,” Ms. Leiba, 46, said. “Then I go right back to LinkedIn because it’s on fire. I don’t even have to go on any other social media now.”

It’s an unexpected development for what has long been the most polite and perhaps the dullest of the major social networks. LinkedIn was founded in 2003 as a place to network and post résumés — essentially, a directory of white-collar professionals. A few years ago, LinkedIn added a Facebook-like news feed that encouraged users to post links and updates, but it has never been a rollicking space. A team of editors helped enforce a mood best described as corporate.

“You talk on LinkedIn the same way you talk in the office,” Dan Roth, LinkedIn’s editor in chief, told The New York Times in August 2019. “There are certain boundaries around what is acceptable.”

Two staggering events have changed that. In early 2020, the pandemic hit, forcing millions to work from home and miss out on break-room chitchat — boosting LinkedIn as a place to vent. Then, the killing of Mr. Floyd in police custody in May put workers over the edge. Black grief went on display, uninhibited, at corporate America’s virtual water cooler.

“I was just 43 years tired,” said Future Cain, a social and emotional learning director at a middle and high school in Wisconsin. “I was using LinkedIn to post positive things and uplift people during the pandemic, and I decided I can’t sit here quietly anymore.”

As protesters took to the streets to demand police reform, Ms. Leiba and Ms. Cain were among those who discovered that LinkedIn was a place to speak to the executive class on something like their home turf. Black users have taken to the site to call out racial discrimination in the workplace and share their stories of alienation on the job.

Not that it’s all serious: Much of the posting is exuberant — full of memes, Black cultural references and linguistic panache. This summer, Ms. Leiba shared a video about code-switching, in which a Black employee transforms while greeting colleagues of color (“Oh, hey, Black queen!”) and a white one (empty-headed hiking talk). “I’ve watched it at least fifty eleven times,” Ms. Leiba wrote.

These are the kinds of conversations, and ways of speaking, that cubicle-dwelling Black workers have typically held out of earshot of their white colleagues. As unusually charismatic posts appeared in my own feed this summer, it seemed clear that Black LinkedIn was emerging as a professional cousin to Black Twitter — the unapologetically Black digital space where people expose long-ignored injustices and pump their experience into the mainstream.

What’s less clear is how comfortable LinkedIn is with the development, having placed its content moderators in the incendiary position of determining what manner of race-related speech is appropriate for its virtual workplace of 706 million users.

Credit…Benjamin Norman for The New York Times

Black users who post in forceful tones, and some of their allies, say they feel LinkedIn has silenced them — erasing their posts and even freezing their accounts for violating vague rules of decorum.

For example, the “House Negros” post that Ms. Joseph wrote in September vanished from the platform. Ms. Joseph, who lives in Brooklyn, was able to see it when she viewed her own page, but no other users could — a practice known as shadow banning. (Later, LinkedIn added an unsigned note in red, saying the post had been removed for violating the site’s Professional Community Policies, which instruct users to “be civil and respectful in every single interaction.”) Ms. Joseph began a new item: “Let me say it louder since LinkedIn wanted to delete my post the first time.” The company removed that post, too, saying it included “harassment, defamation or disparagement of others.”

Another user, Theresa M. Robinson, a corporate training consultant in Houston, said LinkedIn had deleted a post she wrote about racism, then reinstated it after she complained. She said she had never received an explanation. Two others, Ms. Cain and Madison Butler, who works in Austin, Texas, also said LinkedIn had restricted their commentary on race.

In the absence of clear communication from the company, these users are left guessing as to what the rules are — and feeling that the company is not just policing their tone but stifling their opportunity to force change in corporate America.

Nicole Leverich, a LinkedIn spokeswoman, wrote in an email: “We are not censoring content and have not made any changes to our algorithm to reduce the distribution of content about these important topics.” She added in an interview that LinkedIn was introducing a new process for notifying users when their posts were flagged for violating platform rules, and that some people hadn’t been phased in by the end of September.

The company acknowledged that it had erred in taking action against some users and restored content that was found, on appeal, not to violate its policies.

“If we make a mistake, we will own it,” said Paul Rockwell, the head of LinkedIn’s trust and safety division. “We will be very clear — this is a learning opportunity for us. We’re going to continue to use that in our journey to get better and better. And we do want to nail this thing.”

Few people think LinkedIn should look anything like the wilds of Reddit or Twitter, which have a certain amount of anonymity and even anarchy built into their DNA. Much of LinkedIn’s value — Microsoft acquired it in 2016 for $26 billion — is tied to its sense of professionalism and respectful conduct. Users must share their real names and credentials, and it’s understood that their current or prospective employers might well scan anything they post.

For Black people in the corporate realm, however, words like “professional” and “respectful” are red flags. Like the natural Black hairstyles that were once widely considered unprofessional, certain behaviors — being too Black, speaking too Black or talking too much about Black topics — have long limited advancement in companies with white cultures.

That’s what has changed on LinkedIn in the last few months. Black people are being, to use a technical term, Blackity-Black Black on LinkedIn. Much of the behavior is not so different from Black Twitter; users pepper their posts with clap emojis to emphasize every syllable, and GIFs celebrate cultural touchstones like Issa Rae’s “Insecure” and Jordan Peele’s “Get Out.” The difference is that it is all happening on a social network that mirrors the business world — a place that is predominantly white.

“It is liberating. It feels like it’s about time,” Ms. Joseph said. “We are taking back what was stolen from us — and that’s our voice. I’m talking specifically to my people in the way that we talk to each other in other spaces, and without regard for any outside audience. No longer having to stifle that has been freeing.”

Part of what Black LinkedIn has done is brought together Black professionals to be their authentic selves in front of their white colleagues. For many, it has been an existential relief, and may provide a blueprint for how Black employees choose to conduct themselves once the physical workplace reopens.

“The days of hiding and masking who you are and dealing with the BS — I just can’t even go back to that,” said Jessica Pharm, 33, who works in human resources at a manufacturing firm near Milwaukee. “Any company that gets me next is getting the full-on Jessica.”

Ms. Leiba posted on Sept. 17: “It means code-switching is OUT. It means the AFRO is coming at you on a daily basis. It means you’re getting these bangle earrings and the poppin’ lip gloss.”

Inevitably, not everyone accepts this kind of exuberance. Posts about Black Lives Matter and racial justice often attract the same kind of dismissive, and sometimes bigoted, responses found on other platforms: rejoinders that “all lives matter,” for instance, or claims about Black-on-Black crime. But because the activity takes place on LinkedIn, these comments typically come with the user’s headshot, place of employment and entire work history attached.

“You start to see these people who are absolutely not OK with this focus on Blackness popping up in commentary, with their name and their company fully on display, giving zero deference to the moment,” said John Graham Jr., 39, a digital marketer and strategist at a California biotechnology company. “I find it telling that people would put their careers in jeopardy and their unconscious biases on full display.”

LinkedIn has also struggled internally with how to respond to the Black Lives Matter movement. In June, the chief executive, Ryan Roslansky, publicly apologized for “appalling” racial comments some employees had made at a companywide staff meeting.

Rosanna Durruthy, LinkedIn’s head of diversity, inclusion and belonging, said in an interview that the company was engaging in hard conversations about race, both inside the company and out.

“We’re really beginning to focus very consistently on how we begin to address this externally” on the platform, she said.


Credit…Eli Durst for The New York Times

One of the most vociferous presences on Black LinkedIn is Ms. Butler, a human resources consultant and vice president at a start-up. She has posted on LinkedIn since 2018 and with increasing frequency and fervor this year. The potential to speak truth to capital, she said, makes the resulting rounds of death threats worth it.

“There is something to be said about the access LinkedIn gives you to powerful C.E.O.s and V.C.s to help change their outlook and how they support Black employees and founders,” said Ms. Butler, 29, referring to venture capitalists. “The conversation that has to happen in order to break down the status quo in corporate America isn’t happening on Instagram.”

Ms. Butler, who has about 40,000 followers, posts on LinkedIn daily. Her style is to be prescriptive, assail corporate norms and call out whitesplainers and trolls; she tends to close each missive with the hashtags #isaidwhatisaid, #thatsthetea and #blackgirlmagic. One recent post scolded companies that make a show of cheering on the Black Lives Matter movement but haven’t done right by their employees.

“Do the Black people in your organization feel like they matter, or do they feel like the Black stock photos you used to enhance your ‘wokeness’ footprint in the marketplace. If you can’t make the Black lives under your own roof matter, do not use Black Lives Matter as a brand strategy,” Ms. Butler wrote recently. “Don’t talk about it, be about it. Period.”

Other stars of Black LinkedIn target specific companies. Ms. Joseph, for example, has recently called out Wells Fargo, DoorDash, Microsoft and Google.

There has also been no shortage of criticism of LinkedIn itself. Users are holding the company to a standard it set for itself in June, when Melissa Selcher, the chief marketing and communications officer, wrote an open letter on the platform.

“We have a responsibility to use our platform and resources to intentionally address the systemic barriers to economic opportunity,” she wrote. “We also believe we play a critical role in amplifying Black voices.”

Also in June, with Black Lives Matter protests spreading across the country, LinkedIn highlighted “Black Voices to Follow and Amplify,” a curated list of chief executives, media personalities and other influencers, including the Rev. Bernice King and Karamo Brown from the Netflix show “Queer Eye.” For the most part, members of the list post content that is general, motivational and safe.

Ms. Joseph and others took to LinkedIn to say the group contained too many establishment names and not enough activists. “Where are the Tamika Mallorys of LinkedIn on that list?” Ms. Joseph wrote, referring to a co-founder of the 2017 Women’s March.

“Black voices aren’t just corporate C-Suite ones,” wrote Patricia S. Gatlin, a talent sourcing specialist in Las Vegas. “All Black voices need to be heard in this moment,” added Scott Taylor, a recruiter in Los Angeles. “Not just the ones your team of analysts think we should hear from.”

Ms. Leverich, the LinkedIn spokeswoman, said by email: “We use a number of factors in our selection, including members who have self-identified as Black, people from a variety of industries and with an interesting perspective to share. We’re constantly adding new voices and sorting through requests to join this program.”

In September, LinkedIn used its own company page to pose a question to its 13 million followers: “What are the best ways to normalize having conversations about race and anti-racism in the workplace? #ConversationsForChange”

The responses quickly turned sour. “LinkedIn, you can facilitate that objective by normalizing those conversations on your platform,” wrote Lenzy Ruffin, a communications strategist in Washington, D.C.

“The irony that you should post this!” wrote Abi Adamson, a diversity and inclusion consultant in London. “Kindly stop censoring Black content around racism. People like me have had our engagement go down astronomically when highlighting racism or how to be anti racist. Help amplify our voices and stop silencing us.”

Sabrina McClimans, a graduate student in Seattle, asked the platform to “stop ‘accidentally’ disappearing the posts of Black women on your platform when they talk about race and anti-racism.”

“I have seen cases in which individuals who harass Black women on this platform have maintained their accounts while those who speak out against racism and prejudice have had accounts suspended,” added Phil Molé, who works at a software company in Chicago. “It’s time for a thorough review of the way the issues are handled.”

LinkedIn did not respond to those comments. Philip Mix, a consultant in London, added to the thread after a day and a half, when there were 344 comments, saying he had gone through them “three times to make sure I wasn’t mistaken.” By his count, LinkedIn had replied to five users — four times to say “Thank you for sharing” and once with “Nicely put.”

Mr. Mix concluded: “Not sure if I’m more shocked or depressed by this miserably inadequate show from LinkedIn.”

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House Lawmakers Condemn Big Tech’s ‘Monopoly Power’ and Urge Their Breakups

WASHINGTON — House lawmakers who spent the last 16 months investigating the practices of the world’s largest technology companies said on Tuesday that Amazon, Apple, Facebook and Google had exercised and abused their monopoly power and called for the most sweeping changes to antitrust laws in half a century.

In a 449-page report that was presented by the House Judiciary Committee’s Democratic leadership, lawmakers said the four companies had turned from “scrappy” start-ups into “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.” The lawmakers said the companies had abused their dominant positions, setting and often dictating prices and rules for commerce, search, advertising, social networking and publishing.

To amend the inequities, the lawmakers recommended restoring competition by effectively breaking up the companies, emboldening the agencies that police market concentration and throwing up hurdles for the companies to acquire start-ups. They also proposed reforming antitrust laws, in the biggest potential shift since the Hart-Scott-Rodino Act of 1976 created stronger reviews of big mergers.

“Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation and safeguards our democracy,” Jerrold Nadler, Democrat of New York and chairman of the judiciary committee, and David Cicilline, Democrat of Rhode Island and chairman of the antitrust subcommittee, said in a joint statement.

The House report is the most significant government effort to check the world’s largest tech companies since the government sued Microsoft for antitrust violations in the 1990s. It offers lawmakers a deeply researched road map for turning criticism of Silicon Valley’s influence into concrete actions.

The report is also expected to kick off other actions against the tech giants. The Justice Department has been working to file an antitrust complaint against Google, followed by separate suits against the search giant from state attorneys general. Antitrust investigations of Amazon, Apple and Facebook are also underway at the Justice Department, the Federal Trade Commission and four dozen state attorneys general.

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But the House antitrust subcommittee split along party lines on how to remedy and corral the power of the tech companies, pointing to an uphill battle for Congress to curtail them.

Democrats proposed legal changes that could substantially restructure Facebook, Google, Amazon and Apple. They said Congress should consider making it illegal for the tech giants to provide preferential treatment to their own products, as Google does in search results. They suggested breaking up the companies in “structural separations” and forbidding them from operating in similar businesses to those they were already dominant in. They also recommended adding to antitrust laws, including clearer rules that could block the tech giants’ attempts to buy other companies.

Some Republicans agreed with proposals to bolster funding for antitrust enforcement agencies, but balked at calls for Congress to intervene in restructuring the companies and their business models. Others have refused to endorse any of the Democrats’ findings.

Rep. Jim Jordan of Ohio, the top Republican on the committee, said that the report was “partisan” and that the committee had not tackled conservatives’ anecdotal allegations that the online platforms were biased against their views. In a letter to Mr. Nadler, Mr. Jordan said that ignoring the topic “ultimately discredits the draft report’s findings.”

Rep. Ken Buck, a Republican of Colorado, joined three other Republican lawmakers in releasing a separate report in recent days — titled “The Third Way” — outlining their mixed reception of the Democrats’ proposals.

“I agree with about 330 pages of the majority’s report,” Mr. Buck said. But he said he could not agree with recommendations to embolden consumer lawsuits and the breakup of companies, calling them “the nuclear option.”

The House Judiciary Committee began its investigation into the four tech giants in June 2019, interviewing hundreds of rivals and business clients of the platforms. In July, the tech chief executives — Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Google — testified in a hearing to defend their companies.

The four companies, which have a combined market value of more than $5 trillion, largely operate in different digital businesses. But the report revealed monopoly abuses across them.

Amazon, Apple, Facebook and Google had roles as “gatekeepers” in common and controlled prices and the distribution of goods and services, the report said. That made third-party businesses — like app developers on Apple’s App Store and sellers on Amazon’s marketplace — beholden to the companies’ demands, the report said. The word monopoly appeared in the report nearly 120 times.

“With no restrictions of tech companies to own and compete on their own platforms, which are the only options for so many small businesses, it takes away any real sense of competition,” said Rep. Pramila Jayapal, a Democrat of Washington, who has been a vocal critic of Amazon.

Even without full bipartisan support, the report sets important groundwork, said Gene Kimmelman, a former senior antitrust official at the Justice Department. He said the breakup of AT&T in the 1980s was supported by policies set forth by Congress. Tuesday’s report, he said, was “the foundation for legislation and regulation that enables antitrust cases against Google, Facebook and others to actually break markets open to more competition.”

Google disputed the findings and said its free service had been a boon to consumers. “Google’s free products like Search, Maps and Gmail help millions of Americans,” the company said in a statement, “and we’ve invested billions of dollars in research and development to build and improve them. We compete fairly in a fast-moving and highly competitive industry.”

Amazon said the committee’s recommendations could end up harming small businesses and consumers.

“The flawed thinking would have the primary effect of forcing millions of independent retailers out of online stores, thereby depriving these small businesses of one of the fastest and most profitable ways available to reach customers,” Amazon said in a blog post. “Far from enhancing competition, these uninformed notions would instead reduce it.”

Apple “vehemently disagrees with the conclusions in this staff report,” the company said in a statement. “The App Store has enabled new markets, new services and new products that were unimaginable a dozen years ago, and developers have been primary beneficiaries of this ecosystem,” the company said.

Facebook disagreed that its mergers with Instagram and WhatsApp were anticompetitive. “We compete with a wide variety of services with millions, even billions, of people using them,” the company said in a statement. “Acquisitions are part of every industry, and just one way we innovate new technologies to deliver more value to people.”

The report devoted most attention to Google and Amazon, then Apple and Facebook, based on the number of pages devoted to them.

Google holds a monopoly in search and search advertising, the report said. The company used anti-competitive tactics, such as adding information without permission from third-party providers like Yelp, to improve the quality of features within its search results, lawmakers added.

Amazon’s market power was spread across several industries, the report found. The committee focused on the company’s conduct in online commerce, where it sells products that compete with independent merchants who use its platform. The report said Amazon promoted its own smart-home products ahead of those of other makers, and also dealt unfairly with open source software developers in its cloud computing business.

In total, about 2.3 million third-party sellers do business on the Amazon marketplace worldwide, the report said, and 37 percent of them relied on the site as their sole source of income — essentially making them hostage to Amazon’s shifting tactics.

The lawmakers also concluded that Apple had a monopoly on the apps marketplace for iPhones and iPads, forcing all developers to go through it to reach users of those devices. That setup has enabled Apple to take a 30 percent cut of many apps’ sales. That fee, the subcommittee found, has led to higher prices for consumers.

Facebook’s monopoly power over social networking was also “firmly entrenched,” the report said. The company had taken steps, like acquiring new competitors or copying their features, to maintain that power, the lawmakers found. In particular, they said, after Facebook acquired the photo-sharing site Instagram in 2012, the social network’s executives had gone to great lengths to stop the service from overtaking its main product.

“It was collusion, but within an internal monopoly,” a former high-level Instagram employee told the committee during its investigation. “If you own two social media utilities, they should not be allowed to shore each other up. It’s unclear to me why this should not be illegal.”

Reporting was contributed by Daisuke Wakabayashi, Mike Isaac, Jack Nicas and Steve Lohr.

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TikTok Deal Exposes a Security Gap, and a Missing China Strategy

WASHINGTON — President Trump has declared victory in his latest confrontation with China, saying that he headed off a looming national security threat by forcing the sale of the social media app sensation TikTok to a consortium of American, European and — though he does not say so — Chinese owners.

But it is far from clear from the details released so far that Mr. Trump’s deal resolves the deeper TikTok security problem — which has less to do with who owns the company and more with who writes the code and the algorithms. The code and algorithms are the magic sauce that Beijing now says, citing its own national security concerns, may not be exported to to a foreign adversary.

And the deal certainly doesn’t resolve the broader problem in the expanding technology wars between Washington and Beijing: how the United States government should deal with the foreign apps that are now, for the first time, becoming deeply embedded on the screens of Americans’ smartphones, and thus in the daily fabric of American digital life.

TikTok illuminated the scope of the new competition. The United States wants to have it all. It seeks to reap the benefits of a global internet yet limit its citizens to made-in America products, ensuring that the data that flows through American networks is “clean.” In fact, the State Department has begun what it calls “the clean network initiative,” making sure that data is not tainted by adversaries, starting with China.

“This is a really hard problem and bashing TikTok is not a China strategy,” Amy Zegart, a senior fellow at the Hoover Institution and Stanford’s Freeman-Spogli Institute. “China has a multi-prong strategy to win the tech race,” she said. “It invests in American technology, steals intellectual property and now develops its own technology that is coming into the U.S.,’’ as TikTok did with remarkable success in just two years.

“We don’t have to guess what their intentions,” she said. “They have written what their intentions are, and it’s called ‘Made in China 2025,’” the country’s strategy of becoming a peer competitor of the United States in all major technological arenas in the next five years. “And yet we think we can counter this by banning an app. The forest is on fire, and we are spraying a garden hose on a bush.”

If American politicians seem to be behind on this one, perhaps it is because technological progress has once again outpaced the political debate. On Capitol Hill, the China problem many politicians still fume about is cheap Chinese goods, ignoring the fact that China’s labor is no longer inexpensive. Others call for crackdowns on intellectual property theft, a problem that George W. Bush tried to tackle with his Chinese counterpart in the Great Hall of the People 15 years ago, and that Barack Obama and President Xi Jinping, then new as China’s president, declared they had solved five years ago.

Of course, they didn’t. China shifted its hacking operations from units of the People’s Liberation Army — some indicted by the Justice Department — to the Ministry of State Security. In recent days, the F.B.I. has warned of broader surveillance and theft operations on American campuses, much of it aimed at coronavirus vaccines.

TikTok presented an entirely new problem, one that most policymakers in the United States had not contemplated before.

For the first time, a genuine Chinese app — not a knockoff of something invented in the United States or Europe — captured the hearts of American teenagers and millennials. On one level, it was harmless: TikTok is mostly jammed with one-minute dance videos. By many measures, it was a bigger parenting problem than a national security problem. Whatever it was, it clearly wasn’t on Washington’s radar the way that the expansion of China’s nuclear arsenal, or its actions in the South China Sea, dominate the China debate.

Yet as Brad Smith, the president of Microsoft, which competed with Oracle to buy TikTok’s operations in the United States, noted, “there is a potential threat.” To make TikTok tick, the company collects vast amounts of data on Americans’ viewing habits. And the same algorithm that picks your next dance video could, in the future, pick a political video. (There is already more than a whiff of political content on the app.)

Like Oracle, Microsoft would have taken over the storage of all data on Americans, keeping it in the United States. (TikTok currently has a major data server in Virginia, but backs up data in Singapore.) But Microsoft’s bid went further: It would have owned the source code and algorithms from the first day of the acquisition, and over the course of a year moved their development entirely to the United States, with engineers vetted for “insider threats.”

So far, at least, Oracle has not declared how it would handle that issue. Nor did President Trump in his announcement of the deal. Until they do, it will be impossible to know if Mr. Trump has achieved his objective: preventing Chinese engineers, perhaps under the influence of the state, from manipulating the code in ways that could censor, or manipulate, what American users see.

“If Oracle is providing hosting with the majority of engineering and operations staying with ByteDance, then the only effect of this deal was to swing billions of dollars of cloud revenue,” said Alex Stamos, who runs the Stanford Internet Observatory. “The details of the deal will really matter, and so far the public has not been provided with enough information to have an educated opinion.”

Without that issue resolved, it is unclear how Mr. Trump could declare that the security issues are solved, much less how he could say that the new entity “will have nothing to do with China.”

The longer-run issue, however, is that there will be more TikToks, companies around the world that develop apps that Americans love — or see as a hedge against their own government. Already, many Americans use encryption apps, like Telegram, that are based outside the United States, so that the United States would have a more difficult time issuing subpoenas for the content. Attorney General William P. Barr has already called for greater scrutiny — and perhaps abolition — of any such app that does not allow the United States a legal “back door.”

It seems unlikely that any administration — Democrat or Republican — could actually succeed at banning foreign apps whose code they found suspicious or difficult to access. It would be as problematic to enforce as Prohibition, which lasted 14 years in the United States before it was repealed, by constitutional amendment.

But the bigger issue is that the movement to ban Chinese apps — the next target is WeChat, which was going to be cut off by executive order on Sunday until a federal judge intervened, at least temporarily — defeats the original intent of the internet. And that was to create a global communications network, unrestrained by national borders.

“The vision for a single, interconnected network around the globe is long gone,” Jason Healey, a senior research scholar at Columbia University’s School for International and Public Affairs and an expert on cyber conflict. “All we can do now is try to steer toward optimal fragmentation.”

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Trump Approves Deal Between Oracle and TikTok

WASHINGTON — President Trump said on Saturday that he had approved a deal between the Chinese-owned social media app TikTok and major American companies, an agreement that will delay the U.S. government’s threat to block the popular app in the United States over national security concerns.

The deal, which must still gain formal U.S. approval, would create a new U.S.-based company, TikTok Global, in which Oracle, an American software maker, and Walmart would own 20 percent, placing more equity in the service into the hands of American companies and investors.

While the structure falls short of an all-out sale of TikTok, it is still a concession by ByteDance, TikTok’s Chinese owner — one that has apparently satisfied the administration’s concerns about China’s ability to harness data from users of the app. The Commerce Department, which planned to bar TikTok from U.S. app stores as of midnight Sunday, said that it would delay that plan for one week.

The deal capped weeks of drama over the fate of TikTok that underscored how much relations between the United States and China have deteriorated, with their race for technological superiority and their mutual suspicions extending to a social media platform known for silly video clips and a trendsetting, mostly young user base of 100 million people in the United States.

Mr. Trump has increasingly taken aim at Chinese technology, including TikTok and WeChat, saying companies and apps with ties to China pose a threat to American national security and threatening to ban them from the United States. The situation intensified in early August, when Mr. Trump issued an executive order essentially mandating that ByteDance strike a deal to sell TikTok’s U.S. operations by Sept. 20, or cease some commercial operations. A second executive order set a later deadline for ByteDance to fully divest from the product.

That decree prompted top officials, including Treasury Secretary Steven Mnuchin, to inject the U.S. government into private-sector discussions about a deal to transfer some control of TikTok to an American company.

The orders pushed ByteDance to hasten discussions that had already been underway with potential bidders about TikTok’s ownership structure. Microsoft, Walmart and Oracle were among those that entered talks about acquiring TikTok’s U.S. business.

“Threatening TikTok has been the most prominent step so far in a U.S. trajectory toward technology decoupling” with China, said Paul Gallant, an analyst at Cowen and Company. “I think it puts everybody in the U.S. tech sector on notice that they need to scrutinize even their seemingly innocuous connections to China.”

Mr. Trump had previously said he would not be satisfied with a deal where ByteDance retained a majority stake in the company.

Under the agreement, ByteDance and its investors, which include the U.S.-based General Atlantic, Coatue Management and Sequoia Capital, would transfer some of their equity control into TikTok Global.

Still, exactly who would control the new entity remained unclear. Two people familiar with the matter said ByteDance would hold an 80 percent stake in TikTok Global. But because ByteDance is partly owned by non-Chinese investors, those investors would become indirect owners of TikTok Global, bumping up the U.S.-ownership stake and allowing the Trump administration to claim that the majority of the company is owned by Americans.

TikTok Global’s ownership would be made up of 53 percent American investors, a person familiar with the matter said, including the 20 percent stake held by Oracle and Walmart and existing American investments in ByteDance. A group of additional ByteDance investors — most of them based in Europe — would control 11 percent of the service, one of the people familiar with the discussions said. Chinese investors, primarily the ByteDance founder Zhang Yiming and its employees, would hold the rest, or about 36 percent.

“I have given the deal my blessing,” Mr. Trump told reporters outside the White House on Saturday. “If they get it done that’s great, if they don’t that’s fine too.”

In a statement, Monica Crowley, a spokeswoman for the Treasury Department, said that the president had reviewed the deal, but that the administration’s formal approval was still pending.

“Approval of the transaction is subject to a closing with Oracle and Walmart and necessary documentation and conditions to be approved by Cfius” she said, referring to the Committee on Foreign Investment in the United States, the national security panel overseen by Mr. Mnuchin that is reviewing the transaction.

Prominent senators of both parties have argued that a full sale of TikTok was necessary to ensure American security. But in his remarks outside the White House Saturday, the president suggested that the deal would fully address his administration’s national security concerns, saying that the “security will be 100 percent” and that the new companies would use a separate cloud from its Chinese parent.

He also incorrectly claimed that the new company would “have nothing to do with China.” Chinese investors will retain a substantial portion of the new company’s stake.

“It’ll be a brand-new company,” Mr. Trump said. “It will have nothing to do with any outside land, any outside country.”

The deal appears to come with strings attached. Mr. Trump had previously argued that the United States Treasury should receive a “very big proportion” of the sale price of any deal, but later acknowledged that there was no mechanism for the government to do that.

On Saturday, Mr. Trump said that deal would involve “about a $5 billion contribution toward education,” without specifying who precisely would be making the investment, or what the investment would be used for.

“We’re going to be setting up a very large fund for the education of American youths, and that will be great, that’s their contribution that I’ve been asking for,” he said.

The details of the arrangement would depend on whether TikTok followed through with its plan to go public on American markets in about a year, a person with knowledge of the deal said.

ByteDance, in a statement in Chinese on its Toutiao news aggregator app, said Sunday that it had been unaware of the $5 billion contribution it would supposedly be making.

“We are also hearing for the first time about the $5 billion education fund from the news,” the statement said. “The company has always been committed to investing in the educational sector.”

The deal constitutes a victory for Oracle, which is a close corporate ally of the president and his administration. Its top executives worked on Mr. Trump’s transition team, have supported his policy initiatives and have donated more than $150,000 to his re-election campaign.

Its founder, Larry Ellison, and Walmart’s chief executive, Doug McMillon, twice spoke with Mr. Trump about the deal on Friday, said a person familiar with the matter.

In a statement, Safra Catz, Oracle’s chief executive, said the company was “100 percent confident in our ability to deliver a highly secure environment to TikTok and ensure data privacy to TikTok’s American users and users throughout the world.”

Walmart said in a statement that it was “excited about our potential investment in and commercial agreements” with TikTok Global. It said Mr. McMillon would serve on the company’s board.

Lawmakers critical of China’s influence over technology have expressed skepticism about any deal. A group of Republican senators, led by Marco Rubio of Florida, said in a letter on Wednesday that a “trusted partnership deal” was “insufficient in achieving the goals of protecting Americans and U.S. interests.”

Senator Mark Warner, Democrat of Virginia, said in a speech this past week that scrutiny of technology companies must be done “honestly.” And he said that the “haphazard actions on TikTok fail that test and will only invite retaliation against American companies.”

It remains to be seen if China will try to block a transaction involving one of its most successful tech exports.

The race toward a deal was complicated last month after Beijing introduced new restrictions that appeared to essentially ban the sale of TikTok’s valuable video recommendation algorithm without a license, making an outright acquisition of TikTok by an American company harder to pull off.

In addition to targeting TikTok, the administration said on Friday that it would force companies like Apple and Google to remove WeChat, a popular messaging platform owned by Tencent Holdings, from their app stores starting Sunday night. It will also prohibit companies from providing hosting or content delivery services to the app, potentially slowing it down substantially or disabling it outright.

While Beijing has long banned American social media services, this is the first time that Washington has threatened to respond in kind. The United States has for decades embraced an open, largely unregulated vision of the internet. But in recent years, concerns about national security and geopolitics have led officials to bar Chinese technology from the networks, and now smartphones, used by Americans.

On Saturday, a federal judge heard arguments from lawyers representing WeChat users in the United States who have sued to block the ban. She indicated she would decide whether to issue an injunction before the ban goes into effect.

Ana Swanson and David McCabe reported from Washington, and Erin Griffith from San Francisco. Lauren Hirsch contributed reporting from New York, and Raymond Zhong from Taipei, Taiwan.

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Coming This Fall: Return of the Video Game Console Wars

BERKELEY, Calif. — Even before the coronavirus forced the world indoors and glued millions of people to their screens, 2020 was shaping up to be a huge year for gaming.

Microsoft is set to release a new Xbox in November, and Sony is expected to introduce the next iteration of its PlayStation this holiday season. Both are big draws for video gamers eager to fire up the newest version of Halo or Spider-Man as they wait out the pandemic.

And as the ninth generation of consoles approaches, the cancellation of in-person events has created a surge of interest in gaming and is likely to juice their sales — even as their availability is expected to be limited by supply chain problems caused by the pandemic.

Roughly every seven years, companies release a fresh series of consoles with technological improvements — in this case, the PlayStation 5 and the Xbox Series X. Although they aren’t expected to be drastic departures from previous versions, there’s still plenty of hype for the holiday releases.

Gaming has become one of the biggest global entertainment industries, with 2.7 billion people projected to play a game this year, according to the gaming market researcher Newzoo. Growth has accelerated during the pandemic, and gamers worldwide are expected to spend nearly $160 billion this year.

“This launch is a massive moment,” said David Gibson, the chief investment officer at Astris Advisory, a financial advisory firm in Tokyo. “It is the largest and most important next-generation console launch ever.”

But Mr. Gibson said temporary factory shutdowns caused by the virus in several Asian countries, coupled with an increased worldwide demand for similar hardware components because of the rise in remote work, would most likely lead to a scarcity of Xboxes and PlayStations come November.

“It’s going to be really hard to find them,” he said.

Credit…Sony Interactive Entertainment I, via Reuters

The rectangular, black Xbox Series X will be released on Nov. 10 for $499, Microsoft announced last week after months of speculation. The company also said it would release a miniature budget version, the Series S, for $299. Sony has yet to announce a date or price for the PlayStation 5, a more curved, futuristic-looking white device, but said it, too, would release an alternative version.

Both consoles will have faster loading times for games and better graphics than their predecessors, though the Series X is anticipated to have slightly more powerful hardware.

Even with the supply limitations, Mr. Gibson expects Sony to sell about five million PlayStations and Microsoft three million Xboxes in the first five months. Game developers do not have the same hardware limitations, though, and are likely to benefit from the high console demand, he said.

Jacob Throop, a streamer for the professional e-sports organization Team SoloMid, said he played on consoles from both companies, as well as on Nintendo’s three-year-old Switch, and would buy both new devices. He said most of his fans seemed to favor the new Xbox.

“I think the Xbox will be better,” said Mr. Throop, better known to his one million Twitch followers as ChocoTaco. “On paper the specs are better, so it looks like it will be a more powerful machine.”

Many analysts, though, expect Sony to continue its historical sales advantage in large part because of the perception that the PlayStation offers superior games. And in August, the producers of Halo Infinite, the newest version of Xbox’s flagship game series, announced that the pandemic had delayed its release until 2021, rather than a release with the Series X.



“Having Halo at our launch would have been tremendous,” said Cindy Walker, an Xbox spokeswoman. But “we are not reliant on massive exclusive titles to drive console adoption. Our players will have thousands of games from four generations of Xbox available to play on launch day.”

Sony, which declined to comment on its coming release, has produced the three best-selling individual home consoles — the PlayStation 2, PlayStation 4 and original 1994 PlayStation — and is focusing on the strength of its exclusive games and brand recognition while promoting the PlayStation 5.

But Microsoft is signaling for the first time that it wants an end to the decades-long console war, or at least a truce.

Microsoft is putting a priority on flexibility and betting that the future of gaming will be mobile, with gamers spread across consoles, computers and even phones while on the go. The release of the Series X is still a big moment for the company, but Microsoft is also highlighting the success of Xbox Game Pass — think a Netflix library for games — and a new feature, xCloud, which will allow users to play Xbox games on Android phones for $15 per month, starting Tuesday.

“Sony is focused on convincing gamers they need to get a PlayStation 5,” said Matthew Ball, the managing partner at Epyllion Industries, which operates a venture capital fund. “Microsoft is telling customers they can get a Series X, or a lower-cost Series S, or keep your old Xbox, or use your PC, mobile phone or tablet — and we’re still there for you.”

Rival companies are also sensing an opportunity to break into the growing market, and are experimenting with cloud gaming, a new technology that theoretically allows players to download and run games on any device using the strength of the internet — or cloud. The nascent feature could devalue expensive consoles, especially at 5G internet speeds.

Google Stadia, a $10-a-month cloud service that lets subscribers play games across devices, arrived in November but has struggled with bugs and graphics problems. Amazon has been said to be working on its own cloud gaming service, Project Tempo.

Microsoft’s response to these incursions is xCloud. “We’re committed to bringing more games to more gamers around the world, and cloud gaming is a long-term investment for Microsoft and critical to making this commitment real,” Ms. Walker said.

Sony’s cloud service, PlayStation Now, was introduced in 2014 and lets subscribers play some PlayStation games on computers, but users haven’t been enamored with the feature, especially before Sony slashed the monthly charge in half to $10 last year.

Analysts said Sony’s more traditional thinking as the PlayStation 5’s arrival approached could pay off in the short term.

“Sony has tremendous strength following the eighth generation of consoles and will thrive in the ninth, but it is still applying the old playbook,” Mr. Ball said.

Despite technological developments that make it easier for gamers to play on the go, or to watch others stream their play on sites like Amazon-owned Twitch, Sony and Microsoft have spent months building suspense.

Kris Lamberson, known by fans of the FaZe Clan e-sports team as FaZe Swagg, plays Call of Duty on the PlayStation 4 and said he was looking forward to both devices’ improved graphics.

“With the way technology is advancing, these consoles are going to take gaming to the next level,” he said.

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Oracle Chosen as TikTok’s Tech Partner, as Microsoft’s Bid Is Rejected

WASHINGTON — The Chinese owner of TikTok has chosen Oracle to be the app’s technology partner for its U.S. operations and has rejected an acquisition offer from Microsoft, according to Microsoft officials and other people involved in the negotiations, as time runs out on an executive order from President Trump threatening to ban the popular app unless its American operations are sold.

It was unclear whether TikTok’s choice of Oracle as a technology partner would mean that Oracle would also take a majority ownership stake of the social media app, the people involved in the negotiations said. Microsoft had been seen as the American technology company with the deepest pockets to buy TikTok’s U.S. operations from its parent company, ByteDance, and with the greatest ability to address national security concerns that led to Mr. Trump’s order.

“ByteDance let us know today they would not be selling TikTok’s U.S. operations to Microsoft,” Microsoft said in a statement. “We are confident our proposal would have been good for TikTok’s users, while protecting national security interests.”

ByteDance declined to comment. A spokeswoman for Oracle did not immediately respond to a request for comment.

The fast-moving series of events on Sunday came as the clock ticks down on the executive order from Mr. Trump, which said that TikTok essentially needed to strike a deal to sell its U.S. operations by Sept. 20 or risk being blocked in the United States. But sale talks had been in a holding pattern because China issued new regulations last month that would bar TikTok from transferring its technology to a foreign buyer without explicit permission from the Chinese government. And any resulting deal could still be a geopolitical piñata between the United States and China.

The Chinese regulations helped scuttle the bid by Microsoft. The software giant had said in August that it would insist on a series of protections that would essentially give it control of the computer code that TikTok uses for the American and many other English-speaking versions of the app.

Microsoft said the only way it could both protect the privacy of TikTok users in the United States and prevent Beijing from using the app as a venue for disinformation was to take over that computer code, and the algorithms that determine what videos are seen by the 100 million Americans who use it each month.

“We would have made significant changes to ensure the service met the highest standards for security, privacy, online safety and combating disinformation,” Microsoft said in its statement.

Credit…Tom Brenner/Reuters

Oracle has said nothing publicly about what it would do with TikTok’s underlying technology, which is written by a Chinese engineering team in Beijing — and which Secretary of State Mike Pompeo has charged is answerable to Chinese intelligence agencies. That is a major concern of American intelligence agencies, led by the National Security Agency and United States Cyber Command, which warned internally that whoever controls the computer code could channel — or censor — a range of politically sensitive information to specific users.

ByteDance and TikTok have denied that they help the Chinese government.

TikTok has become the latest flash point between Washington and Beijing over the control of technology that affects American lives. The Trump administration had already banned the Chinese telecom giant Huawei from selling next-generation, or 5G, networks and equipment in the United States, citing the risk of a foreign power controlling the infrastructure on which all internet communications flow.

But TikTok took the battle in new directions. For the first time, the United States was trying to stop a Chinese cultural phenomenon, with an intense following among American teenagers and millennials, which carries with it the possibility of future influence.

Even if Oracle may try to close a deal, it is unclear whether Beijing would create new obstacles to the process. And election-year politics have hung over the negotiations from the start. Unlike many other technology companies, Oracle has cultivated close ties with the Trump administration. Its founder, Larry Ellison, hosted a fund-raiser for Mr. Trump this year, and its chief executive, Safra Catz, served on the president’s transition team and has frequently visited the White House.

Last month, Mr. Trump said he would support Oracle buying TikTok. He called Oracle a “great company” and said the firm, which specializes in enterprise software, could successfully run TikTok.

“I think that Oracle would be certainly somebody that could handle it,” he said.


Credit…Rozette Rago for The New York Times

Along with Amazon, Oracle tried to win a $10 billion contract to run the Pentagon’s cloud services, one of the most hotly contested technology contracts issued by the Trump administration. Microsoft ultimately won that.

Oracle was also poised to provide the administration with a system earlier this year to help with a planned study that would have enabled the wide release of the malaria drug hydroxychloroquine to treat Covid-19. While doctors had warned the drug could have dangerous side effects, Mr. Trump had promoted its possible use to treat patients infected by the coronavirus.

Oracle’s relationship with the administration has drawn scrutiny. In August, a Department of Labor whistle-blower said that Mr. Trump’s labor secretary, Eugene Scalia, had intervened in a pay discrimination case involving the company.

On a call to discuss Oracle’s earnings last week, Ms. Catz preemptively told analysts that she and Mr. Ellison would not discuss reports about their bid for TikTok.

The rise of TikTok in the United States has been remarkably rapid; it has taken off in just the past two years. ByteDance, founded in 2012, has raised billions of dollars in funding, valuing it at $100 billion, according to PitchBook, which tracks private companies. Its investors include Tiger Global Management, KKR, NEA, SoftBank’s Vision Fund and GGV Capital.

In July, as pressure from the U.S. government escalated, ByteDance began discussions with investors to carve out TikTok.

But the deal quickly become a free-for-all with bids from various corporations and investment entities around the world and new demands from the U.S. and Chinese governments.

As the deal progressed, two of ByteDance’s largest backers, Sequoia Capital and General Atlantic, have sought to retain their holdings in its valuable subsidiary while saving TikTok from a ban in the United States. Both firms are represented on ByteDance’s board of directors.

In late August the firms teamed up with Oracle to bid against Microsoft. Microsoft, meanwhile, teamed up with Walmart to make its bid.

In an interview, Brad Smith, Microsoft’s president and chief legal officer, said that as he studied TikTok, it became evident that there were two distinct potential security threats.

The first was that Chinese authorities, using existing and new national security laws, could order TikTok to turn over user data. TikTok tracks everything that its hundreds of millions of users watch to funnel them more videos and other material. Given that users cannot opt out of that tracking, the only solution would be to move the data on Americans to servers that are solely in the United States, Mr. Smith said.

(TikTok currently uses a major server in Virginia, but backs up some of its data in Singapore, and there are questions about whether Chinese authorities could reach into any of those huge pools of user data.)

Microsoft would have located that data in the United States — and, in all likelihood, so would Oracle.

“Then Microsoft engineers began to see a second potential vulnerability: disinformation,” Mr. Smith said, one that has also been identified by Australian researchers. The only way to assure that TikTok’s Chinese engineers were not designing code and algorithms to affect what users saw, or did not see, would be for Microsoft to take over the code and the algorithms.

“We proposed to control the data sets and the algorithms from the day of the acquisition, including by moving source code for the algorithms to the United States,” Mr. Smith said.

Microsoft then would have worked over the course of a year with TikTok’s Chinese engineers so that it would vet any subsequent changes and make them reviewable by the U.S. government for security purposes before it was released into production, he said.

That is the approach favored by the National Security Agency and the Pentagon, according to intelligence officials. But it is exactly what the Chinese object to, which Beijing made clear in its new regulations last month.

David E. Sanger and David McCabe reported from Washington; Erin Griffith reported from San Francisco.

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Wall Street Has Its Worst Day in Months

The S&P 500 had its worst day on Thursday since June 11, falling 3.5 percent, and the same big tech companies that have driven the recent rally were the culprits.

A day after stocks marched to another record high, Apple tumbled 8 percent, its worst drop since March. Amazon fell almost 5 percent, Microsoft more than 6 percent and Google’s parent, Alphabet, 5 percent.

William Delwiche, an investment strategist at Baird, a financial firm in Milwaukee, said investor optimism had driven share prices up — perhaps higher than investors were comfortable with, considering the serious economic challenges still posed by the coronavirus pandemic.

Despite continued high unemployment and a weak outlook for corporate profits, stocks on Wednesday had posted their ninth gain in 10 trading sessions, and the tech-heavy Nasdaq composite index joined the S&P 500 in reaching an all-time high.

“The market had gotten ahead of itself and had gotten ahead of the economy, and I think this is a little bit of a reflection of that,” Mr. Delwiche said.

Stocks fell from the opening bell on Thursday, dragged down by the tech companies that hold significant sway over the index by virtue of their size. What started as a slight slump soon accelerated — partly because of some of the speculation and options trading that had helped send shares upward.

By the time the market closed, more than a week’s worth of gains had been erased.

Investors have been optimistic about the tech companies, whose market dominance and online business models appear poised to benefit from the prospect of a work-from-home world. Before Thursday’s tumble, Amazon was up more than 90 percent this year, Apple more than 80 percent, Microsoft and Facebook nearly 50 percent, and Alphabet nearly 30 percent.

The eagerness of new investors to get in on those gains ended up contributing to Thursday’s fall.

The race to pick up tech shares has pulled in millions of new small investors. Many of them have opted not to buy actual shares but instead to make options trades, which are essentially leveraged bets on where share prices will go.

Such traders make these bets — mostly they have been “calls,” or bets that the tech share prices would rise — with options dealers, who then have to hedge their risks. Dealers who sell calls are essentially then short, or betting that the stock price will fall. To neutralize that risk, they often try to buy the underlying shares as well, amplifying the upward momentum on the stocks.

Credit…Justin Lane/EPA, via Shutterstock

But the system also amplifies downturns: Analysts said dealers rushed on Thursday to increase their bets on falling shares, which may have added momentum to the sell-off.

“I think today for tech stocks, you’re seeing that dynamic play out — you have a sell-off that is being chased by dealers,” said Yousef Abbasi, director of U.S. institutional equities at StoneX, a brokerage firm.

Tech shares have been a cornerstone in the recovery of financial markets since late March, when bond-buying programs by the Federal Reserve and lawmakers’ enactment of the largest economic rescue plan in U.S. history put a floor under collapsing financial markets.

Since then, the S&P 500 is up more than 50 percent, erasing all of the losses seen during the chaotic days of February and March, when the index fell nearly 34 percent, putting a stake in the heart of what had been an 11-year bull run.

In recent months, the rally has gathered steam and broadened as investors have focused on flickers of life in the economy, including slightly better-than-expected corporate profits and continuing support from the Fed. There were also expectations that Congress and the White House would cobble together another stimulus package that sent more dollars to small businesses and households that remained imperiled by the economic downturn.

At the same time, many analysts have been warning that the stock market’s gains were becoming increasingly detached from reality. The outlooks for corporate profits and economic growth are far from rosy, and lawmakers in Washington have been unable to come to an agreement on another relief package.

While reports on corporate profits for the second quarter of 2020 were solid, corporate profits for S&P 500 companies are expected to be down nearly 20 percent this year. And recent economic updates have shown signs that the pandemic-related shutdowns this year have created persistent problems for the labor market, a key issue for the consumer-centric American economy. A fresh report on the job market due Friday morning should provide additional clarity on that point.

Widespread expectations for another round of fiscal stimulus from the federal government pushed such concerns into the background. But consensus about another round of government support has been hard to find: Negotiations between the White House and congressional Democrats have been stalled for weeks.

The S&P 500 is up nearly 7 percent for the year, but lingering uncertainty has those gains looking more vulnerable than they did just a couple weeks ago.

“There is a long list of things for investors to worry about this fall, from a fraught election, to the ability to restart schools without prompting another surge in Covid-19 cases and further economic impairment,” said Scott Clemons, chief investment strategist for private banking at Brown Brothers Harriman, an investment bank.

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In Bid for TikTok, Microsoft Flexes Its Power in Washington

SEATTLE — Microsoft’s quiet pursuit to buy TikTok suddenly appeared dead a month ago, when President Trump said he wanted to ban the popular social media app for national security reasons. So Brad Smith, the tech giant’s president, went to work.

He called two dozen lawmakers, telling them that TikTok would be safe in Microsoft’s hands. Within 48 hours, he had what he needed.

Mr. Trump saw a tweet by Senator Lindsey Graham, a close ally of the president and one of the people Mr. Smith talked to, calling a Microsoft deal “win-win.” Soon, Satya Nadella, Microsoft’s chief executive, was on the phone with Mr. Trump, and got his blessing to proceed with acquisition talks.

It was another win for Microsoft’s quietly effective Washington influence operation.

The software giant was once a cautionary tale of an arrogant tech company caught off-guard by government scrutiny. But under the leadership of Mr. Nadella and Mr. Smith, it has built one of the most potent forces in the nation’s capital, one that could give it an advantage over the several potential bidders for TikTok if the company continues to pursue a deal.

It secured a coveted Pentagon contract widely expected to be awarded to Amazon. It has largely avoided antitrust scrutiny by Congress and federal regulators even though it is valued at more than $1.7 trillion, more than Google and Facebook, which are under investigation. And while it has disagreed publicly with the Trump administration on several issues, like immigration, it is one of the few big tech companies Mr. Trump and other politicians do not regularly denigrate.

The company does so despite spending less on lobbying than many of its peers. Last year, Microsoft spent $10.3 million on federal lobbying, several million less than Amazon, Facebook or Google, according to the Center for Responsive Politics. It currently has 100 in-house and outside federal lobbyists registered to work on its behalf.

Credit…Kevin Lamarque/Reuters

People who have worked with Microsoft and those on the receiving end of its lobbying say it is particularly adept at employing a focused, long-game approach, building relationships with lawmakers and other Washington insiders over noncontroversial issues, like when Melania Trump visited Microsoft’s headquarters to discuss her Be Best campaign against online bullying. Its relationship with Mr. Graham extends back many years, with Microsoft supporting his push to ban forced arbitration in sexual harassment claims, and Mr. Graham backing a law granting law enforcement access to data that Microsoft had championed.

It also relies on a staff of policy experts rather than well-known public figures, contrasting with the approach taken by some of its peers. Amazon’s top policy executive is Jay Carney, a former White House press secretary, and Susan Molinari, a Republican former congresswoman from New York, ran Google’s federal lobbying for years.

“They learned their lesson,” said Jeff Hauser, the director of the Revolving Door Project, a progressive group that tracks tech’s influence. “I think they now see themselves as best served by having a permanent, discreet presence in the halls of power.”

Bill Gates, Microsoft’s co-founder, proudly eschewed Washington even as his company grew into a giant and he became the world’s richest man. The company didn’t hire an in-house lobbyist until 1995, 20 years after its founding, when it faced an antitrust inquiry from the Justice Department. The lobbyist, Jack Krumholtz, was a one-man shop, often making calls on his car phone between meetings, giving him the name “Jack in the Jeep.”

The lobbying effort grew quickly, but it did not hold the pressures at bay. Microsoft was sued by the government and pummeled in public. In 2002, a federal judge approved a five-year consent decree with the Justice Department that was extended twice.

By 2009, with its antitrust fights behind it and President Barack Obama taking office, Microsoft revamped its approach. It enlisted Fred Humphries, who had worked for Richard Gephardt, the former House majority leader, to run its Washington operations.

He pushed to open a big policy office on K Street, more than doubling the space for the same number of employees. One night it might host a fund-raiser for Senator Ted Cruz; on another, a panel for a tech industry association.


Credit…Stephen Crowley/The New York Times

But Microsoft’s polite veneer was at times overshadowed by fights it picked with competitors, as with its aggressive campaign against Google led by the Democratic pollster Mark Penn. It dumped opposition research with journalists and lawmakers and ran alarmist ads on TV saying consumers were “Scroogled” by the search company.

Publicly, Microsoft looked petty. It also got few results. In 2013, regulators decided not to bring antitrust charges against Google after a high-profile investigation.

In 2014, Mr. Nadella took over the reins as Microsoft’s chief executive. The son of an idealist civil servant in India’s first generation after colonial rule, Mr. Nadella did not see government as something to be gamed and insisted on a more “principled” approach, Mr. Smith said.

Soon, the company’s Washington office got word that it was time to make nice. Scroogled was done. Mr. Penn left the company a year later.

Instead, the company methodically identified policies to pursue and then slowly ground through the interconnected power of lobbyists, regulators and lawmakers to make them happen. In 2015, Mr. Smith, then the general counsel, was also named Microsoft’s president, bolstering his role as the company’s chief statesman.

In 2017, Microsoft chose to push expanding broadband access in rural areas as a signature issue. The feel-good policy has business implications, since better connectivity means more cloud computing. It came with another key benefit: It had bipartisan appeal.

“One of the great things about the broadband issue is we do get to work with everybody,” Mr. Smith said.

Microsoft proposed using wireless frequencies that exist in the “white space” on unused broadcast channels. Television stations balked, saying the change would force broadcasters off the air.

Microsoft was undaunted. While initially adversarial, in early 2018 its lobbyists met with TV stations’ representatives at the National Association of Broadcasters’ Dupont Circle headquarters, hoping to find some common ground. Mr. Smith took the company’s argument to regulators. In December 2018, he visited multiple members of the Federal Communications Commission.

Many executives arrive for their meetings at the agency at the last possible minute, hoping to avoid attention. Mr. Smith instead showed up early and spent time in a waiting area schmoozing agency staff, according to two people who remembered the visit. They spoke on the condition of anonymity because they were not authorized to speak publicly about the visit.

Microsoft and the broadcasters reached an accord on several key points in 2019, and the F.C.C. has sought comment on some of Microsoft’s proposals, making it possible they could turn them into reality in the coming months.

“Over all, in the end, I think we got to a productive process,” said Patrick McFadden, deputy general counsel at the National Association of Broadcasters.

Despite its more subdued approach, the company still sometimes attacks competitors. Early in the race for a $10 billion Pentagon cloud computing contract, Microsoft joined a coalition including Oracle to oppose a technological approach widely seen as favoring Amazon. Microsoft later dropped out of the Oracle alliance, but the influence campaign helped slow the contracting process, a delay that gave Microsoft more time to improve its technology. Microsoft eventually won the contract, though the work is paused as part of Amazon’s lawsuit challenging the award.

“I’m not here to say that we’re candidates for some kind of sainthood,” Mr. Smith said. “We will stand up and take on battles.”

In July, Mr. Smith met with members of the House antitrust committee ahead of testimony from the chief executives of Amazon, Google, Facebook and Apple. Mr. Smith said he had spent most of his time telling them about Microsoft’s own experience facing antitrust scrutiny two decades earlier. But he concedes he spent “probably 10 percent of my time” with the committee saying the problems Microsoft had in the ’90s most closely resemble the way app stores today control how developers can reach customers, putting Apple in particular in its cross hairs.

In mid-August, Mr. Smith got tested for Covid-19 before flying by private jet to Washington for meetings at the White House and on Capitol Hill, trying to explain how Microsoft could address the security concerns related to TikTok’s data collection.

If the company’s bid is successful, Microsoft will face issues, like misinformation, that it has long avoided thanks to its focus on enterprise rather than consumer products.

“I think it will require the right kind of ambition,” Mr. Smith said. “But also an appreciation that if these problems were easy to solve, others already would have done so.”

Karen Weise reported from Seattle, and David McCabe from Washington.

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Walmart Joining Microsoft in TikTok Bid

SAN FRANCISCO — The race to buy TikTok took another turn on Thursday when Walmart said it was teaming up with Microsoft on a potential bid for the popular Chinese-owned video app.

The discussions are ongoing and other suitors for TikTok are involved, said two people close to the deal talks, who were not authorized to speak publicly. It is unclear which companies will ultimately secure a deal, though TikTok will likely make a decision in the coming days, they said.

In a statement, Walmart said, “We are confident that a Walmart and Microsoft partnership would meet both the expectations of U.S. TikTok users while satisfying the concerns of U.S. government regulators.”

TikTok declined to comment and Microsoft did not immediately respond to a request for comment. CNBC earlier reported Walmart’s participation.

TikTok, which is owned by the Chinese internet company ByteDance, has been under pressure from the Trump administration, which has become increasingly tough on China. White House officials have said that TikTok poses a national security threat because it could provide data about U.S. users to Beijing. This month, President Trump signed an executive order mandating that TikTok sell its U.S. operations by mid-September or cease transactions within the country.

That has pushed ByteDance and TikTok to seek a buyer, in what could amount to a blockbuster deal. Microsoft has been talking with TikTok and ByteDance for weeks about a potential acquisition, people with knowledge of the talks have said. They initially discussed Microsoft taking just a minority stake in TikTok, before the scope of a deal ballooned.

Since then, the enterprise software maker Oracle, along with other bidders, have also joined the talks.

Prices for a potential deal have ranged from $20 billion to $50 billion, the people with knowledge of the talks have said. But discussions are fluid and the situation has been shifting quickly.

Microsoft, with $137 billion in cash and a market value of more than $1.7 trillion, is far larger than other potential acquirers and has the deepest resources.

Dan Ives, an analyst at Wedbush Securities, said in a note to investors that the participation of Walmart was likely “the final piece of the puzzle that ultimately cements Microsoft successfully acquiring TikTok’s U.S. operations for likely $35 billion to $40 billion.”

Late on Wednesday, Kevin Mayer, TikTok’s chief executive, said he was resigning from the company because he had signed on for a global role. He alluded to how the app’s global structure would likely change given all the political criticism. In a note to employees, he also indicated that a deal for TikTok might be close.

“We expect to reach a resolution very soon,” Mr. Mayer wrote.

Zhang Yiming, ByteDance’s chief executive, said in his own note that ByteDance and TikTok were moving swiftly to resolve its issues in the United States and India, where the app was banned in June.

“I cannot get into details at this point, but I can assure you that we are developing solutions that will be in the interest of users, creators, partners and employees,” Mr. Zhang said.

While Walmart has its roots in brick-and-mortar stores, the world’s largest retailer has been pushing into digital businesses, partly as a way to outpace its rival Amazon. And that means expanding into areas like entertainment.

In 2018, the retailer reached a deal to have Metro-Goldwyn-Mayer create short-form original series for Walmart’s ad-supported streaming service, Vudu. At the time, Walmart said it expected to partner with more studios to create content for the service.

It also entered a joint venture with Eko, a New York start-up that focuses on “interactive storytelling,” in which viewers control the plot of commercials and television episodes.

Vudu features so-called shoppable ads, in which viewers watching on internet-connected TVs can click on the words “add to cart” on an ad and have the product being advertised dropped into their shopping queue.

The pandemic has shown the importance of e-commerce to Walmart and other big-box retailers. In an earnings report earlier this month, Walmart said its online sales doubled during the quarter.

Connor Ennis and Michael Corkery contributed reporting.

This is a developing story. Check back for updates.