Microsoft-GitHub Deal Poses New ‘Data Eavesdropping’ Questions

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By Alexei Alexis

Microsoft Corp.'s $7.5 billion bid to acquire open source code hosting service GitHub Inc. is raising questions about potential merger abuses that haven’t been tested in antitrust law.

By acquiring GitHub, a leading platform for sharing and conferring on software code, critics say Microsoft could monitor trends in software development to launch rival products and preclude competition. Millions of software developers collaborate on GitHub, including those at companies such as Microsoft and Alphabet Inc.'s Google.

Microsoft said the acquisition will empower developers and accelerate GitHub’s growth, as well as advance Microsoft services. The deal must be reviewed by either the Federal Trade Commission or the Justice Department on competition grounds. Microsoft executives expect to clear it before the end of the year.

Regulators “should carefully review this merger to ensure that Microsoft does not leverage GitHub in ways that could hurt competition or the innovative process in software,” Adam Candeub, an information and communications law professor at Michigan State University, told Bloomberg Law.

After the Microsoft-GitHub deal was announced June 4, a number of software developers expressed unease about it on Twitter. Some posted threats to switch from GitHub to rival products. Microsoft has historically clashed with “open-source coders,” who freely post and share their work.

The transaction topped the list of the world’s largest technology-related merger agreements announced in June, according to an analysis of Bloomberg Law data. Other deals on the list include AT&T Inc.’s $1.6 billion bid for ad tech firm AppNexus Inc. and Amazon.com Inc.'s $1 billion agreement with online pharmacy PillPack Inc. A trait many of these recent tech deals have in common is big tech giants acquiring much smaller firms.

Microsoft’s purchase of GitHub also comes at a time when antitrust regulators are under heightened pressure to closely scrutinize tech giants. The FTC is expected to look at the competition and consumer protection issues in media technology networks as part of a broader series of policy hearings this year.

Not Traditional Analysis

Christopher Sagers, an antitrust law professor at Cleveland State University, said the Microsoft-GitHub deal poses an interesting “data eavesdropping problem.” Ownership of GitHub might give Microsoft access to information on software development that it wouldn’t otherwise have. Microsoft would have more eyes on the new ideas, some of them private, in the software industry.

There’s just one problem. That’s not the kind of concern that derails a merger under a typical antitrust analysis. Regulators tend to focus on such things as raised consumer prices through expanded market power. Any action to stop the Microsoft-GitHub deal would be a long shot, even in the current environment of heightened scrutiny around tech deals, Sagers told Bloomberg Law. “I think they won’t see a theory of competitive harm here that they believe they could defend to a court,” he said.

There are legitimate reasons to be suspicious of Microsoft, he added, describing the tech giant as a “massive software producer with a dark history of monopolistic exclusion.”

Swallowing Small Fish

The deal also highlights questions about big companies acquiring small startups, said Herbert Hovenkamp, an antitrust law professor at the University of Pennsylvania.

“Many people have expressed concerns about the big information technology companies’ acquisitions of small, highly innovative firms,” Hovenkamp told Bloomberg Law. Regulators lack effective tools to predict whether such deals will actually harm competition, he said.

Candeub said Microsoft might be looking for data about “software development at competitor companies — and virtually all of Microsoft’s competitors use GitHub — or perhaps a unique view into the development process.”

It’s more likely Microsoft will use the acquisition to attract open source developers to Microsoft platforms, said Ed Anderson, an analyst at tech industry research firm Gartner Inc.

“This is critical because in the era of cloud computing, open source technologies are preferred by developers for building next-generation applications,” Anderson said. To succeed, Microsoft must find ways to endear itself to, not alienate, the open source community.

When asked about coders’ concerns, Microsoft pointed Bloomberg Law to a June 4 blog post by Microsoft CEO Satya Nadella that assured developers that GitHub will keep its “developer-first ethos” and remain an open, independent platform.

“We have been on a journey with open source, and today we are active in the open source ecosystem, we contribute to open source projects, and some of our most vibrant developer tools and frameworks are open source,” the blog said. “When it comes to our commitment to open source, judge us by the actions we have taken in the recent past, our actions today, and in the future.”

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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