The FCC is considering a new Open Internet Orderthat could harm consumers by invoking Title II and banning paid prioritization. While the vast majority of business arrangements between Internet and edge providers are pro-consumer, it is possible that a few harmful agreements may arise. But these cases should be judged on their merits. Instead, the FCC stands ready to adopt a proposal that would ban paid priority altogether, even though many such agreements would benefit consumers.
Today, 32 academics and scholars with expertise in law, business, economics, and public policy sent a letter to the Federal Trade Commission (FTC) — the nation’s chief agency for competition advocacy — urging it to caution the FCC against Title II and a blanket ban on paid prioritization.
“It’s sadly ironic that those advocating rigid net neutrality rules talk about permissionless innovation, yet want to ban paid prioritization — a type of commercial agreement that essentially doesn’t even exist yet,” said Geoffrey Manne, Executive Director of the International Center for Law & Economics, which organized the letter. “What has really kept the Internet ‘free’ and ‘open’ has been focusing government on demonstrated problems, while remaining humble enough to admit that regulators don’t know what the future might, or should, look like. Net neutrality concerns over paid prioritization arrangements should be addressed if and when such deals actually occur—and only if they result in actual harm. The FTC should urge the FCC to adopt a case-by-case approach (like antitrust’s rule of reason) guided by economics, not hysterics and political pressure.”
The letter calls on the FTC to endorse such an approach and to urge the FCC to adopt it in any Open Internet rules the Commission may issue. The FTC regularly files comments with other government bodies as part of its competition advocacy program, and we believe this contentious issue begs for its expert guidance.
ICLE is a global think tank aimed at building an international network of scholars and institutions devoted to methodologies and research agendas supportive of the regulatory underpinnings that enable businesses to flourish.We develop intellectual work in specific policy areas to build a strong, international foundation for rigorous policy work in the long run.
The overarching objective of our center is to create the academic underpinnings for a regulatory environment that ensures the protection of property rights from inefficient interference by government agencies and private parties in high priority markets. The protection of property rights provides the basis for a competitive and innovative market environment in which business and society more generally can thrive.Optimal protection of property rights entails far more than sound intellectual property protection (although it certainly entails that); it also forms the basis for restrained government intervention into business practices, including through antitrust enforcement, consumer protection regulation, trade restrictions, government procurement policies and communications regulations, among many others.
The central activity of the center is to facilitate and organize the creation of a new network, international in scope, of economically-oriented research and outreach centers that may be able to move the academic and policy debates forward significantly in the years ahead. The ICLE's work is centered around the following principles:
A commitment to the application of economic theory, particularly price theory, law and economics and new institutional economics, to regulatory problems
A commitment to empirical scholarship and applications of economic theory with real world relevance
The use of formal mathematical modeling exclusively as a means to furthering our knowledge about the world, rather than an ends in its own right
A dedication to understanding both the role of the law and institutions in facilitating competition as well as the consequences of legal rules
A commitment to promoting an international discourse on issues of regulatory policy in the increasingly global regulatory environment
The core mission of the ICLE is the creation, support and development of policy-relevant law and economics research around the world.The ICLE will:
Build an integrated international network of scholars and institutions working on a range of issues in law and economics in an effort to expand the academic influence of the existing, mainly-US-based, community
Establish and deepen the ties between these institutions and the policy community through public outreach effort
Engage in specific efforts to expand the number of law and economics scholars in the academy
Engage in specific efforts to expand the scope of the issues influenced by the center’s methodologies
Yesterday the International Center for Law & Economics and eleven independent professors and scholars of law and economics filed Reply Comments to address concerns raised in the Comments and Petitions to Deny in the Comcast Time Warner merger proceeding at the FCC. We make the following key points:
The merger does not reduce competition in the relevant markets.
The FCC has found that the relevant market for analysis in similar mergers is local. In these cases, the FCC found that the broadband market is competitive, and when there is little or no geographic overlap among ISPs that seek to merge, then there is no reduction in competition.The FCC should continue this reasoned analysis and reject “national broadband share” as a meaningful metric: the relevant market is a local one.
The FCC must properly attribute and consider merger-specific benefits.
The transaction will bring significant scale efficiencies in a marketplace that requires large, fixed-cost investments in network infrastructure and technology. Before anyone even considered using the Internet to distribute Netflix videos, Comcast invested in the technology and infrastructure that ultimately enabled the Netflix of today. It did so at enormous cost (tens of billions of dollars over the last 20 years) and risk. Absent Comcast’s broadband infrastructure investments, we would still be waiting for our Netflix DVDs to be delivered by snail mail, and Netflix would still be spending three-quarters of a billion dollars a year on shipping.
Vertical issues (like limiting access to independent programming content) will be unaffected by the merger.
Vertical integration in the cable industry does not harm consumers, and, often, has substantial benefits. And the merger changes little overall in terms of incentives for vertical foreclosure: Comcast currently has no ownership interest in the vast majority of programming it distributes — and it eagerly distributes it and it makes its own content widely available for distribution by competitors. Nothing about the proposed merger will change any of that.
Concerns about Comcast’s interconnection agreement with Netflix are completely misplaced.
The availability of multiple alternative avenues to deliver traffic to Comcast, and the ready availability of access to a transit market where prices have been falling precipitously, firmly constrain Comcast’s ability to set prices for direct connections. It is also important to appreciate that the bargaining power of Internet edge providers is not nearly as insignificant as some critics would claim.
Post-merger, the bargaining power of smaller edge providers will not be affected at all. Small edge providers (who happen also to be the vast majority of participants in the Internet edge ecosystem) will be able to choose from a multitude of interconnection paths in a highly competitive market to deliver their Internet content to Comcast.
Meanwhile, post-merger, the bargaining power of the few edge providers that generate vast amounts of traffic will not be affected either. In addition to the existence of the multitude of alternative highly competitive paths to deliver traffic to Comcast, these large edge providers will also be able to leverage the high demand for their Internet content among Comcast’s broadband subscribers.
An Appendix to the filing included the summary results of a recent MIT study, Measuring Internet Congestion. The clear implication of the study is that, despite Netflix’s claims that Comcast acts as an insurmountable bottleneck, Netflix has — and uses — considerable power in its transactions with Comcast. In particular, as our Reply Comments discuss:
Large Internet edge providers are able to route their enormous traffic in ways to exert commercial pressure on ISPs, and large edge content providers are able to both determine, as well as avoid (or exploit) congestion at a moment’s notice.
The scholars signing on to the Reply Comment were:
David Balto, Former Policy Director of the Bureau of Competition of the Federal Trade Commission
Babette E. Boliek, Associate Professor of Law, Pepperdine University
Donald J. Boudreaux, Professor of Economics, George Mason University
Henry N. Butler, Foundation Professor of Law, George Mason University
Richard A. Epstein, Laurence A. Tisch Professor of Law, New York University
Thomas A. Lambert, Wall Chair in Corporate Law and Governance, University of Missouri
Roslyn Layton, Fellow, Center for Communication, Media and Information Technologies, Aalborg University
Geoffrey A. Manne, Executive Director, International Center for Law & Economics
Scott E. Masten, Professor of Business Economics and Public Policy, University of Michigan
Paul H. Rubin, Dobbs Professor of Economics, Emory University
Michael E. Sykuta, Associate Professor of Economics, University of Missouri
Read the full comments here, and see our other work on the Comcast-Time Warner Cable merger, especially:
Today, the International Center for Law and Economics (ICLE) filed comments in response to the FCC’s public notice requesting public comments on the proposed merger of Comcast Corporation and Time Warner Cable, Inc. The comments focus on analyzing the merger under the consumer welfare standard of antitrust law.
"The most obvious outward effect of this merger will be to change the logo on the side of cable service vans,” said Geoffrey Manne, Executive Director of ICLE. “That’s a terrible reason for challenging this merger, but most of the criticism amounts to little more than an objection to Comcast taking over Time Warner Cable’s operations in cities where the two companies don’t compete.”
“Opposition to the merger rests largely on the unsubstantiated belief that ‘big is bad,’ and the highly politicized and emotional belief that the government should ‘do something about Comcast,’” adds Ben Sperry, Associate Director of ICLE. “Neither of these concerns has any grounding in fact or in rigorous competition analysis, and we urge the Commission to reject them as grounds for stopping or conditioning this merger.”
“Foreclosure simply isn’t a problem here,” adds Manne. “Comcast currently has no ownership interest in the vast majority of programming it distributes — and yet it eagerly distributes it. And it makes its own content widely available for distribution by competitors. Nothing about the proposed merger will change any of that.”
In its merger review, the FCC should consider that:
Increased concentration is not, in itself, evidence of anticompetitive effect, as President Obama's Department of Justice has noted.
Product markets should include all the reasonable substitutes to cable, like fiber, wireless, DSL, and satellite.
Generally, mergers, like this one, that combine to meet only a 30% threshold (or less, if the market is properly defined) cannot be presumed to enable enough foreclosure to result in consumer harm.
Mergers like this one, offer many efficiencies, from increasing shared knowhow among vertical steps in the production chain and increasing bargaining power against strong inputs, to improving governance, reducing transaction costs, and increasing economies of scale that can lead to benefits for consumers.
Read the full comments here. For some of our previous work on the Comcast-TWC merger, see:
The International Center for Law & Economics (ICLE) and TechFreedom filed two joint comments with the FCC today, explaining why the FCC has no sound legal basis for micromanaging the Internet and why “net neutrality” regulation would actually prove counter-productive for consumers.
The Policy Comments are available here, and the Legal Comments are here. See the Truth on the Market blog post, Net Neutrality Regulation Is Bad for Consumers and Probably Illegal, for a distillation of many of the key points made in the comments.
New regulation is unnecessary. “An open Internet and the idea that companies can make special deals for faster access are not mutually exclusive,” said Geoffrey Manne, Executive Director of ICLE. “If the Internet really is ‘open,’ shouldn’t all companies be free to experiment with new technologies, business models and partnerships?”
“The media frenzy around this issue assumes that no one, apart from broadband companies, could possibly question the need for more regulation,” said Berin Szoka, President of TechFreedom. “In fact, increased regulation of the Internet will incite endless litigation, which will slow both investment and innovation, thus harming consumers and edge providers.”
Title II would be a disaster. The FCC has proposed re-interpreting the Communications Act to classify broadband ISPs under Title II as common carriers. But reinterpretation might unintentionally ensnare edge providers, weighing them down with onerous regulations. “So-called reclassification risks catching other Internet services in the crossfire,” explained Szoka. “The FCC can’t easily forbear from Title II’s most onerous rules because the agency has set a high bar for justifying forbearance. Rationalizing a changed approach would be legally and politically difficult. The FCC would have to simultaneously find the broadband market competitive enough to forbear, yet fragile enough to require net neutrality rules. It would take years to sort out this mess — essentially hitting the pause button on better broadband.”
Section 706 is not a viable option. In 2010, the FCC claimed Section 706 as an independent grant of authority to regulate any form of "communications" not directly barred by the Act, provided only that the Commission assert that regulation would somehow promote broadband. “This is an absurd interpretation,” said Szoka. “This could allow the FCC to essentially invent a new Communications Act as it goes, regulating not just broadband, but edge companies like Google and Facebook, too, and not just neutrality but copyright, cybersecurity and more. The courts will eventually strike down this theory.”
A better approach. “The best policy would be to maintain the ‘Hands off the Net’ approach that has otherwise prevailed for 20 years,” said Manne. “That means a general presumption that innovative business models and other forms of ‘prioritization’ are legal. Innovation could thrive, and regulators could still keep a watchful eye, intervening only where there is clear evidence of actual harm, not just abstract fears.” “If the FCC thinks it can justify regulating the Internet, it should ask Congress to grant such authority through legislation,” added Szoka. “A new communications act is long overdue anyway. The FCC could also convene a multistakeholder process to produce a code enforceable by the Federal Trade Commission,” he continued, noting that the White House has endorsed such processes for setting Internet policy in general.
Manne concluded: “The FCC should focus on doing what Section 706 actually commands: clearing barriers to broadband deployment. Unleashing more investment and competition, not writing more regulation, is the best way to keep the Internet open, innovative and free.”
For some of our other work on net neutrality, see:
“Understanding Net(flix) Neutrality,” an op-ed by Geoffrey Manne in the Detroit News on Netflix’s strategy to confuse interconnection costs with neutrality issues.
ICLE and TechFreedom filed joint comments in response to questions from the House Committee on Energy and Commerce relating to its third white paper, "Competition Policy and the Role of the Federal Communications Commission," in its series of white papers addressing the need for a rewrite of the Communications Act to address modern communications markets.
Our comments focus on the disconnect between the formalism of the current Telecommunications Act and the sort of effects-based analysis that modern competition policy demands:
There is, however, a fairly simple (philosophically, at least) solution: Adopt effects- based competition principles from antitrust to adjudicate disputes arising within the purview of the FCC, and reject the formalistic presumptions and resulting regulatory apparatus of the Communications Act. Such a framework is the best way, perhaps the only way, for Congress to give the FCC both the flexibility needed to keep up with technological change and the analytical rigor needed to ensure that the FCC’s interventions actually do more to help consumers than to harm them.
Whereas the 1996 Act, particularly in Title II, adopts formalistic presumptions and imposes specific regulatory outcomes, even in the face of ever-increasing uncertainty and technological change, an effects-based approach would generally employ ex post analysis of conduct and a broad assessment of its economic consequences to determine the propriety of various actions. Instead of foreclosing or mandating specific conduct, it allows innovation, technological development and changes in consumer preferences to guide conduct, intervening only where actual competitive harms develop (or, in a few cases, are substantially likely to develop in the future).
Such an approach stands in stark contrast to the 1996 Act, which, as Bob Crandall has described it,
is not deregulation but a vast new regulatory program designed to mold and shape competition through mandatory wholesale leasing of pieces of an incredibly complicated network at prices that are based on regulators' imperfect understanding of costs.
We also address the problem that Net Neutrality presents for sensible competition policy reform at the FCC:
Net Neutrality is, in some ways, borne out of the same realization that animates our comments here: The rise of broadband and the delivery of “Everything over IP” have so disrupted the existing regulatory regime that competition concerns can no longer be adequately addressed by the existing regulations. But where Net Neutrality falters is in its embrace of both the vertical structural assumptions of the Act, as well as its affinity for the Act’s outdated, ex ante, prescriptive approach. Moreover, Net Neutrality is itself inherently non-neutral, in that it begins with the assumption (discussed above and enshrined in the Act) that innovation and competition in complementary markets should always trump network innovation and competition. As a result, instead of arguing for an ex post assessment of competitive effects arising out of the uncertain and always-evolving relationship between broadband networks and edge providers, Net Neutrality advocates essentially adopt the apparatus of Title II as their competition policy lodestar.
Payment cards are frequently safer, quicker, and more convenient than cash or checks. But, according to the new study, interchange fee caps under the Durbin Amendment to the Dodd-Frank financial regulatory reforms have made electronic payments more expensive for consumers. While debit interchange fees charged by regulated banks (those with assets of over $10 billion) in the US fell by about 50% following the regulation, consumers, as well as smaller retailers, have not benefited from the cost reductions -- and poorer consumers, especially, have been significantly harmed.
Interchange fee price control proponents claim that reducing these fees reduces costs paid by merchants, who pass the savings on to consumers. But the US experience detailed in the study suggests that, while most large retailers have experienced savings, to date there is no evidence that those savings have been passed-through to consumers.. Meanwhile, smaller merchants haven't seen any appreciable savings to begin with, and both small and large merchants alike that engage in small-ticket transactions have actually seen costs go up.
At the same time, the costs of operating the payment system have to be recovered somehow – which has meant an increase in other bank and card charges. In order to make up the estimated $8 billion per year lost as a result of the price controls, regulated banks:
Reduced the availability of fee-free checking accounts by 50% between 2009 and 2013.
More than doubled the minimum monthly holding required on fee-free checking accounts.
Doubled average monthly fees on (non-free) checking accounts.
These changes contributed to a 10% increase in the number of "unbanked" -- people without bank accounts.
Thus, while consumers have seen large and immediate increases in the cost of bank accounts, to date there is no evidence of reduced prices at the pump or checkout. The study estimates that as a result of the Durbin Amendment, there will be a net transfer of between $1 billion and $3 billion annually from consumers -- especially in low-income households -- to large retailers and their shareholders, who have thus far been the primary beneficiaries of the Durbin Amendment.
As the EU considers its own interchange regulation, the US experience should stand as a cautionary tale.
Earlier this month New Jersey became the most recent (but likely not the last) state to ban direct sales of automobiles. Although the rule nominally applies more broadly, it is directly aimed at keeping Tesla Motors (or at least its business model) out of New Jersey. Automobile dealers have offered several arguments why the rule is in the public interest, but a little basic economics reveals that these arguments are meritless.
The letter, which was principally written by University of Michigan law professor, Dan Crane, and based in large part on his blog posts at Truth on the Market (see here and here), was signed by more than 70 economists and law professors.
As the letter notes:
The Motor Vehicle Commission’s regulation was aimed specifically at stopping one company, Tesla Motors, from directly distributing its electric cars. But the regulation would apply equally to any other innovative manufacturer trying to bring a new automobile to market, as well. There is no justification on any rational economic or public policy grounds for such a restraint of commerce. Rather, the upshot of the regulation is to reduce competition in New Jersey’s automobile market for the benefit of its auto dealers and to the detriment of its consumers. It is protectionism for auto dealers, pure and simple.
The letter explains at length the economics of retail distribution and the misguided, anti-consumer logic of the regulation.
The letter concludes:
In sum, we have not heard a single argument for a direct distribution ban that makes any sense. To the contrary, these arguments simply bolster our belief that the regulations in question are motivated by economic protectionism that favors dealers at the expense of consumers and innovative technologies. It is discouraging to see this ban being used to block a company that is bringing dynamic and environmentally friendly products to market. We strongly encourage you to repeal it, by new legislation if necessary.
Among the letter’s signatories are some of the country’s most prominent legal scholars and economists from across the political spectrum.
Today the International Center for Law & Economics and the Competitive Enterprise Institute filed an amicus brief in support of Petitioners in the Supreme Court's Aereo case.
The brief, which was authored by ICLE's Geoffrey Manne and Ben Sperry and CEI's Ryan Radia, argues that Aereo's unlicensed transmission of copyrighted broadcast programming violates the Copyright Act:
In concluding that Aereo does not publicly perform broadcast television programs, the Second Circuit relied upon its 2008 Cablevision decision holding that a cable company’s remote RS-DVR was similarly non-infringing. Importantly, however, the individual cable subscribers to whom Cablevision transmitted copies of plaintiff Cartoon Network’s television programming were already paying for lawful access to it. . . . The dispute in Cablevision thus involved a copyright holder and a licensee with a preexisting contractual relationship; the parties simply disagreed on the terms by which Cablevision was permitted to transmit Cartoon Network’s content.
* * *
Unlike the cable company in Cablevision, Aereo and its ilk have neither sought nor received permission from any holders of copyrights in broadcast television programming before retransmitting their works to paying subscribers. The “safety valve” enjoyed by Cartoon Network and other cable channels—a cable company’s need to obtain copyright licenses to access each channel owner’s content—is unavailable to owners of broadcast television programming whose works are transmitted over the airwaves. To effectuate the purpose of the Copyright Act, therefore, it is essential that this Court interpret the law to preserve the rights of copyright holders whose content Aereo usurps by allowing them to enjoin Aereo’s unlicensed retransmissions of their creative works."
Monday is a big day for advocates of Network Neutrality, as the DC District Court will finally hear oral arguments in Verizon v. FCC. Later that afternoon, Professor Manne, the Executive Director of the International Center for Law & Economics, will lead a conference call hosted by the Federalist Society on the case. Much like the joint ICLE and TechFreedom event earlier in the day, Prof. Manne will recap that morning’s D.C. Circuit arguments, assess how the court might decide the case, and discuss what options might be available to the FCC as well as antitrust agencies to address net neutrality concerns.
"This statement is long overdue," said TechFreedom President Berin Szoka. "After nearly a century, the FTC has never clearly
defined what its authority over unfair methods of competition covers that the antitrust laws don't. The last time the Supreme
Court addressed the FTC's core
Section 5 authority
"Ultimately, Commissioner Wright's proposal boils down to minimizing error costs," said Geoffrey Manne, Executive Director
of the International Center for Law & Economics, Lecturer in Law at Lewis & Clark Law School and TechFreedom Senior
Fellow. "Regulators always have to weigh the costs of over- and under-enforcing. The last forty years of antitrust scholarship
have concluded that, as Judge Easterbrook put it in his seminal 1984 article on the 'Limits of Antitrust,' our 'economic
system corrects monopoly more readily than it corrects judicial errors.' So antitrust regulators should err on the side of
allowing competition to play out in all its messiness—and intervene only where they can show that real harm will occur."
Commissioner Wright's draft statement provides that "an unfair method of competition is an act or practice that (1) harms
or is likely to harm competition significantly and (2) lacks cognizable efficiencies"—a term of art used in the FTC and DOJ's
Horizontal Merger Guidelines
since 1997, and defined as "those that have been verified and do not arise from anticompetitive reductions in output or
service." Wright's draft statement notes that "Where conduct plausibly produces both costs and benefits for consumers it
is fundamentally difficult to identify the net competitive consequences associated with the conduct. This is particularly
true if business conduct is novel or takes place within an emerging or rapidly changing industry, and thus where there is
little empirical evidence about the conduct’s potential competitive effects."
"Wright's Statement recognizes that the costs of getting it wrong increase as technology accelerates," Szoka noted "That
doesn't mean there's no role for antitrust law, but it does demand regulatory humility about deeming innovative modes of
competition that are legal under antitrust to be unfair under Section 5. Commissioner Wright is fond of quoting the Nobel
Prize winning economist Ronald Coase: 'If an economist finds something—a business practice of one sort or another—that he
does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of understandable
practices tends to be very large, and the reliance on a monopoly explanation, frequent.' Coase would have been the first
to applaud Wright today."
Manne concluded: "Ironically, this is former Chairman Leibowitz’s true legacy. His efforts to expand Section 5 to challenge
novel conduct without proof of anticompetitive harm brought into stark relief the costs of unfettered Section 5 enforcement.
Commissioner Wright’s statement can be seen as the unintended culmination of—and backlash against—Leibowitz’s Section 5 campaign.
The FTC should adopt Wright’s proposed statement, it would also do well to flesh out its existing policy statements on Unfair
and Deceptive Acts and Practices through guidelines—as happens in antitrust law. But in the end, policy statements alone
don't bind agencies—courts do. If agencies consistently settle out of court, they can avoid building real law for years,
On Wednesday, Executive Director of the International Center for Law & Economics, Geoffrey
Manne, will present testimony at the US House Energy and Commerce Committee’s Communications and Technology Subcommittee’s
hearing on the reauthorization of the Satellite Television Extension and Localism Act (STELA) and the state of video competition,
The Satellite Television Law: Repeal, Reauthorize, or Revise?
” The hearing takes place in Rayburn 2123 at 10:30 am EDT tomorrow, Wednesday, June 12 and will be livestreamed
. The following statement can be attributed to Prof. Manne:
Today’s video marketplace is shaped by a byzantine set of rules from a bygone era. In 1992, cable had unique gatekeeper
power over video programming. But today, cable is simply one of several competing conduits for video programming distribution.
Today's legacy regulations were intended to prevent cable from thwarting the rise of satellite DBS service. They have succeeded:
Nearly all Americans have access to the two primary DBS providers in addition to a cable provider. One third also have access
to a telco provider, and consumers are increasingly switching to online video distributors. Netflix alone already has more
subscribers than Comcast. In other words, competition is thriving – and not just in the dimensions Congress conceived of
a generation ago.
This should cause legislators to revisit the fundamental, if implicit, assumption on which most video regulation currently
rests: that antitrust law is insufficient to protect consumers, and must be supplemented with industry-specific regulations.
Concerns over monopoly power and vertical integration are vastly exaggerated. In 1992 over half of all networks were affiliated
with a distribution network; today the number is closer to 12%. Antitrust law can police the market for carrying content
far more effectively than can special copyright limitations and telecom rules enforced by the FCC with little economic rigor.
Today's legacy regulations do far more to hinder investment and innovation in content creation and distribution than they
do to help. There are smarter ways to promote localism and access to content than by propping up the technologically outdated
model of over-the-air broadcasting with needlessly complex regulations. The broadcasting system may well be reborn in new,
more efficient distribution models over the Internet or using spectrum currently underutilized by broadcasters. But the future
of video programming should be decided by what consumers demand, not the regulatory paradigm of the 1990s.
Read Manne’s full written remarks
and watch his oral testimony
at 10:30 am EDT on Wednesday, June 11. Follow the conversation on the #StateOfVideo hashtag.
Today, the International Center for Law & Economics (ICLE) and TechFreedom filed an amici curiae brief in the federal District Court of New Jersey arguing that the FTC’s unfairness claim against Wyndham Hotels is unconstitutionally vague and inadequately pleaded, and, as such, should be dismissed by the Court. TechFreedom and ICLE were joined by a distinguished group of consumer protection scholars including Todd Zywicki, who previously served as Director of the Office of Policy & Planning at the FTC and Paul Rubin, who previously served as Assistant Director for Consumer Protection of the FTC’s Bureau of Economics.
The FTC alleges that Wyndham's failure to have “reasonable” data security was an unfair trade practice under Section 5 of the FTC Act, and that consumers were harmed when their credit card numbers were obtained by hackers who breached the reservation systems of Wyndham Hotels. The following comment can be attributed to ICLE Executive Director Geoffrey Manne and TechFreedom President Berin Szoka:
Over the last nine years, the FTC has charged seventeen companies with engaging in unfair trade practices for failing to have “reasonable” data security. But the Commission has never established what that means nor exactly how its broad power to prohibit “unfair” practices applies in these cases. Until now, each case has been settled out of court, with almost no public analysis. The FTC has chosen not to use its existing rulemaking powers and has issued no further guidance. Instead, the FTC has built what amounts to "non-law law": vague, unpredictable standards built on an infinite regress of unadjudicated assertions.
The FTC claims its past complaints provide ample guidance on data security, but it hasn’t developed the limiting principles for unfairness required by Congress. The Commission’s complaints don’t even meet minimum pleading standards. Precisely because unfairness is such an amorphous concept, the Commission bears a heavy burden of establishing the elements required by Section 5: substantial injury that consumers cannot reasonably avoid and without countervailing benefits. It hasn’t done so. Dismissing the FTC's complaint against Wyndham would be a catalyst for long-overdue changes in the FTC's approach, and courts can help protect consumers by clearly stating that it’s up to Congress to decide how to protect consumers against harms that the agency’s unfairness authority can’t properly reach.
Whatever the court decides, the Wyndham case could finally force Congress to decide how data security should be regulated. But we hope lawmakers will consider the more fundamental question of how the FTC operates. If neither the courts nor Congress disciplines the FTC's use of unfairness authority, the FTC will continue to use unfairness as a blank check to regulate data security and other aspects of the Internet and new technologies more generally.
Today, the International Center for Law & Economics joined a coalition of think tanks, academics and commentators on technology policy
in a letter
urging the President, Senate Republicans and Senate Democrats to "look foremost for humility as both a guiding principle
and a personal characteristic of the candidates" considered for the new Democratic Chairman of the Federal Communications
Commission, Republican FCC Commissioner and Democratic Commissioner at the Federal Trade Commission. The
of the letter follows below:
To: The President, Senate Republicans and Senate Democrats
Date: April 23, 2013
As you consider whom to appoint and confirm to lead the Federal Trade Commission and Federal Communications Commission —
two of the principal agencies that regulate the Internet, telecommunications and emerging digital technologies — we urge
you to look foremost for
as both a guiding principle and a personal characteristic of the candidates you consider.
Many of those who follow Internet policy assume simply that we need more tech-savvy regulators — in other words, better
. Tech-savvy is important, but not as important as appreciating that even the smartest among us don't know what the future
will look like or how to get there — as if "there" were a single place. Beware those who talk about "steering" technological
change, "comprehensive" approaches, or "pulling policy levers." These technocratic buzzwords reveal a fundamental misconception:
that a better future can be engineered from the top down.
Instead, the first rule for policymakers should be:
First, do no harm
. We need regulators who can resist the frequent urge to "do something" about problems that are rapidly mooted by technological
change anyway. Often, government’s best response is to do nothing. Competition, innovation and criticism from civil society
tend to resolve problems better, and faster, than government can and the best kind of law evolves from the bottom up — through
the messy "multi-stakeholder" interaction among civil society groups, media watchdogs, companies and consumers themselves.
Holding companies to the promises that emerge from that ongoing process should be government's primary role.
The International Center for Law & Economics and TechFreedom filed comments yesterday urging ICANN to approve applications for “closed” generic Top Level Domains (gTLD) like .BOOK and .BLOG. Closed gTLD registry operators would not be required to allow all applicants to register domain names within the TLD, as .COM is, but could instead manage the entire TLD as their own platforms. We urged ICANN to refer competition concerns to national antitrust authorities, consistent with ICANN's proper role as a global coordinator rather than a regulator. The following statement can be attributed to Geoffrey Manne, Executive Director of the International Center for Law & Economics and Berin Szoka, President of TechFreedom:
Critics are decrying ICANN’s authorization of closed gTLDs, claiming they could be anticompetitive. But closed gTLDs would provide the most innovative alternatives — and strongest competition — to .COM and today's most popular domain names. Today's market leaders won’t be beat by simply copying them, no matter how much money is spent on ads. New entrants must offer consumers something new and different. Closing the TLD may sound nefarious, but it gives the registry operator the incentive to invest not only in marketing the TLD, but also in innovative new business models that may change the paradigm of how TLDs function. The operator of .HOTELS would no more "monopolize" the hotel booking market than the owner of hotels.com does today. But it could turn the domain name system into a more useful and accessible form of navigation, while offering new features like added security or thematic consistency consistent across the TLD. That's just Marketing 101.
The future of the domain space will inevitably be messy and unpredictable in the best sense. But it is precisely that messiness — that unpredictability, that constant shifting of basic paradigms — that will most benefit consumers. Forcing new gTLDs to replicate the paradigm of .COM will not.
There may end up being legitimate concerns about a registry's abuse of market power, but such concerns should be handled by those best positioned to evaluate them: national competition authorities. ICANN should be a coordinator of the domain name space, not the global regulator of the Internet.
International Center for Law & Economics Executive Director Geoffrey Manne has penned an op-ed in CNET with Berin Szoka of TechFreedom in response to the European Commission's recent fine of Microsoft. The Commission fined the company $732 million for failing to show its "browser ballot" when users installed one of its Windows 7 updates, which is required by a 2009 deal. As they point out,
However far behind IE has fallen, focusing on the browser market makes less and less sense. The original concern about Microsoft's alleged monopolization of the browser market was that the browser would be "middleware" for other content and services -- which the browser-maker could control. That paradigm has, in some ways, indeed come true with the rise of cloud-based services run inside the browser. But it may also have peaked, as such services are increasingly run in apps. That's clearly true in the mobile environment, where the apps store and the OS are the real "middleware" -- not the browser. The same trend seems to be starting with desktops and laptops, too, especially as touch screens increase the usability advantage of apps over browser-based services. Indeed, the lines between mobile devices, laptops, and desktops are quickly blurring. Microsoft has bet the company on making Windows 8 and Windows Phone successful apps platforms -- but lags far behind Apple and Google, just as it does in the cloud computing market (think Skydrive versus Google Docs).
I filed comments today on the FTC’s proposed Settlement Order in the Google standards-essential patents (SEPs) antitrust case. The Order imposes limits on the allowable process for enforcing FRAND licensing of SEPs, an area of great complexity and vigorous debate among industry, patent experts and global standards bodies. The most notable aspect of the order is its treatment of the process by which Google and, if extended, patent holders generally may attempt to enforce their FRAND-obligated SEPs through injunctions.
Unfortunately, the FTC’s enforcement action in this matter had no proper grounding in antitrust law. Under Supreme Court doctrine there is no basis for liability under Section 2 of the Sherman Act because the exercise of lawfully acquired monopoly power is not actionable under the antitrust laws. Apparently recognizing this, the Commission instead brought this action under Section 5 of the FTC Act. But Section 5 provides no basis for liability either, where, as here, there is no evidence of consumer harm. The Commission’s Order continues its recent trend of expanding its Section 5 authority without judicial oversight, charting a dangerously unprincipled course.
The standard-setting organizations (SSOs) that govern the SEPs in this case have no policies prohibiting the use of injunctions. Even if an SSO agreement (or a specific license) did disallow them, seeking an injunction would be a simple breach of contract. Reading a limitation on injunctions into the SSO agreement is in severe tension with the normal rules of contract interpretation. To turn Motorola’s effort to receive a reasonable royalty for its patents by means of an injunction into an antitrust problem seems directly to undermine the standard-setting process. It also seems to have no basis in law.
The Federal Trade Commission yesterday closed its investigation of Google’s search business (see my comment here) without taking action. The FTC did, however, enter into a settlement with Google over the licensing of Motorola Mobility’s standards-essential patents (SEPs). The FTC intends that agreement to impose some limits on an area of great complexity and vigorous debate among industry, patent experts and global standards bodies: The allowable process for enforcing FRAND (fair, reasonable and non-discriminatory) licensing of SEPs, particularly the use of injunctions by patent holders to do so. According to Chairman Leibowitz, “[t]oday’s landmark enforcement action will set a template for resolution of SEP licensing disputes across many industries.” That effort may or may not be successful. It also may be misguided.
In general, a FRAND commitment incentivizes innovation by allowing a SEP owner to recoup its investments and the value of its technology through licensing, while, at the same, promoting competition and avoiding patent holdup by ensuring that licensing agreements are reasonable. When the process works, and patent holders negotiate licensing rights in good faith, patents are licensed, industries advance and consumers benefit.
FRAND terms are inherently indeterminate and flexible—indeed, they often apply precisely in situations where licensors and licensees need flexibility because each licensing circumstance is nuanced and a one-size-fits-all approach isn’t workable. Superimposing process restraints from above isn’t necessarily the best thing in dealing with what amounts to a contract dispute. But few can doubt the benefits of greater clarity in this process; the question is whether the FTC’s particular approach to the problem sacrifices too much in exchange for such clarity.
The FTC will benefit enormously from Josh’s expertise and his economic approach. ICLE Executive Director, Geoffrey Manne, had this to say about Josh’s confirmation:
I am delighted that the Senate has confirmed Josh to be the FTC’s next commissioner. Josh’s “error cost” approach to antitrust and consumer protection law will be a tremendous asset to the Commission — particularly as it delves further into the regulation of data and privacy . His work is rigorous, empirically grounded, and ever-mindful of the complexities of both business and regulation. I am honored to have co-authored several articles with Josh, and I have learned an incredible amount about antitrust law and economics from him. The Commissioners and staff at the FTC will surely similarly profit from his time there.
Geoffrey Manne, Executive Director of the International Center for Law and Economics, along with ICLE Board Member Richard Epstein and ICLE Affiliates M. Todd Henderson and Todd Zywicki have signed onto an brief for American Express Company v. Italian Colors Restaurant, et al.
The case arises from a putative class action antitrust challenge to American Express’s “Honor All Cards” policy, which requires merchants that wish to accept American Express cards to accept charge cards as well as credit cards. In district court, American Express won a motion to compel arbitration, which it brought to enforce an arbitration clause in its Card Acceptance Agreement. On appeal, the Second Circuit reversed, finding a class action waiver provision in the agreement was invalid. The Supreme Court granted certiorari, vacated the Second Circuit’s decision, and remanded for further consideration in light of Stolt-Nielsen. On remand, the Second Circuit still refused to enforce the arbitration agreement. Shortly thereafter, the Supreme Court decided Concepcion, and the Second Circuit sua sponte considered rehearing.
on the FCC's
Policies Regarding Mobile Spectrum Holdings Notice of Proposed Rulemaking
, the International Center for Law & Economics' Executive Director Geoffrey Manne urged the FCC to facilitate transfers of spectrum by eliminating the spectrum screen and replacing it
with an analysis that better suits the realities of today’s wireless market and consumers’ growing demand for wireless data.
The comments were co-authored by
Matthew Starr, TechFreedom Legal Fellow;
Geoffrey Manne, Executive Director of the International
Center for Law & Economics, Lecturer in Law at Lewis & Clark Law School & TechFreedom Senior Fellow; and TechFreedom President,
The following comment may be attributed to Geoffrey Manne:
There is no reliable evidence that a carrier’s control of more than a third of the usable spectrum in a market has the power
to harm consumers — and still less evidence that prohibiting spectrum transfers that exceed this threshold serves the forces
of dynamic efficiency. This arbitrary threshold doesn’t further what should be the FCC’s overriding objective: ensuring that
sufficient spectrum and the investment necessary to deploy it are available for consumer use. Instead of merely citing market
concentration as the basis for rejecting a transaction, we need an analysis of why a proposed transaction would actually
make consumers worse off — the lodestar of antitrust law.
As the Google antitrust discussion heats up on its way toward some culmination at the FTC, I thought it would be helpful to address some of the major issues raised in the case by taking a look at what’s going on in the market(s) in which Google operates. While not dispositive, these “realities on the ground” do strongly challenge the logic and thus the relevance of many of the claims put forth by Google’s critics.
The case against Google rests on certain assumptions about how the markets in which it operates function. But these are tech markets, constantly evolving and complex; most assumptions (and even “conclusions” based on data) are imperfect at best. In this case, the conventional wisdom with respect to Google’s alleged exclusionary conduct, the market in which it operates (and allegedly monopolizes), and the claimed market characteristics that operate to protect its position (among other things) should be questioned.
The public claims by Google’s critics and the best information we have on the thinking of the regulators investigating the company reflect an over-simplified and inaccurate conception of the competitive conditions facing Google and its competitors. The reality is far more complex, and, properly understood, paints a picture that undermines the basic, essential elements of an antitrust case against the company.
After more than a year of complaining about Google and being met with responses from me (see also here, here, here, here, and here, among others) and many others that these complaints have yet to offer up a rigorous theory of antitrust injury — let alone any evidence — FairSearch yesterday offered up its preferred remedies aimed at addressing, in its own words, “the fundamental conflict of interest driving Google’s incentive and ability to engage in anti-competitive conduct. . . . [by putting an] end [to] Google’s preferencing of its own products ahead of natural search results.” Nothing in the post addresses the weakness of the organization’s underlying claims, and its proposed remedies would be damaging to consumers.
FairSearch’s first and core “abuse” is “[d]iscriminatory treatment favoring Google’s own vertical products in a manner that may harm competing vertical products.” To address this it proposes prohibiting Google from preferencing its own content in search results and suggests as additional, “structural remedies” “[r]equiring Google to license data” and “[r]equiring Google to divest its vertical products that have benefited from Google’s abuses.”
Tom Barnett, former AAG for antitrust, counsel to FairSearch member Expedia, and FairSearch’s de facto spokesman should be ashamed to be associated with claims and proposals like these. He better than many others knows that harm to competitors is not the issue under US antitrust laws. Rather, US antitrust law requires a demonstration that consumers — not just rivals — will be harmed by a challenged practice. He also knows (as economists have known for a long time) that favoring one’s own content — i.e., “vertically integrating” to produce both inputs as well as finished products — is generally procompetitive.
International Center for Law and Economics Executive Director Geoffrey Manne just published an article with coauthor Larry Downes in the Competition Policy International's Antitrust Chronicle on the problems with the FCC's current approach to spectrum transactions. As they note in the abstract,
Some of the most significant transactions singled out recently for intensive federal review involve the communications industry. Unfortunately, communications providers face serious and potentially fatal problems of supply. Radio spectrum -- the chief input and most severe constraint on the ability of carriers to support more users and more data -- is essentially unavailable at any price. That's because the Federal Communications Commission has run out of usable, unassigned spectrum to license. As consumers pull orders of magnitude more data to their smartphones, tablets, and notebook computers, carriers are becoming desperate. Network operators, already experiencing what the FCC warned in 2010 as an imminent "spectrum crunch," have little choice but to acquire spectrum assets from other mobile operators, whose licenses can be put to immediate use once the agency approves the transfer. They have been doing so as quickly as possible, attempting or completing over a dozen major transactions since 2007. But as the urgency of spectrum-related transactions has increased, the FCC has come to play an increasingly problematic -- and largely unstructured -- role in the government's review of transactions in the communications industry. This brief essay discusses the key problems with the FCC's current approach to transactions involving spectrum license transfers.
Video of TechFreedom’s event “Should the FTC Sue Google Over Search” is now available below. The September 28 event was moderated by James Cooper, Director of Research and Policy for the Law and Economics Center at George Mason School of Law. In support of the proposition that "Should the FTC Sue Google Over Search?" was Eric Clemons, Professor of Operations and Information Management at the Wharton School of the University of Pennsylvania, and Allen Grunes, attorney at Brownstein Hyatt Farber Schreck. Arguing against the proposition were Glenn Manishin, Partner at Troutman Sanders, and Geoffrey Manne, Lecturer in Law at Lewis & Clark Law School and the Executive Director of the International Center for Law & Economics.
Please note that the audio cuts out from 53:21 to 58:21 because of technical issues.
The International Center for Law & Economics is pleased to announce that President Obama intends to nominate Joshua Wright, Research Director and Member of the Board of Directors of ICLE and Professor of Law at George Mason University School of Law, to be the next Commissioner at the Federal Trade Commission.
Josh holds economics and law degrees from UCLA, and he is one of only a small handful of young antitrust scholars in the legal academy to hold both a PhD in economics as well as a JD. If confirmed, he will also be only the fourth economist to serve as FTC Commissioner (following Jim Miller, George Douglas and Dennis Yao) and the first JD/PhD.
Josh’s scholarship and approach to antitrust are firmly grounded in the UCLA economics tradition, exemplified by the members of Josh’s dissertation committee — Armen Alchian, Harold Demsetz & Benjamin Klein. ICLE Executive Director, Geoffrey Manne, had this to say about Josh’s nomination:
I am delighted with Josh’s nomination. Josh’s “error cost” approach to antitrust and consumer protection law will be a tremendous asset to the Commission. His work is rigorous, empirically grounded, and ever-mindful of the complexities of the institutional settings in which businesses act and in which regulators enforce. I am honored to have co-authored several articles with Josh, and I have learned an incredible amount about antitrust law and economics from my interactions with him. The Commissioners and staff at the FTC will surely similarly profit from his time there.
“While the FCC didn't ask for any additional commitments in this case, beyond what the DOJ asked for, they've laid down the marker, and they can in the future,” said Geoffrey Manne, the executive director of the International Center for Law and Economics and lecturer at the Lewis and Clark Law School, to Bloomberg BNA Aug. 27. “Now they could potentially demand concessions or even stop the transaction on the basis of an ancillary commercial agreement. They are asserting that they have more control over the economic value of the deal.”
The FCC's decision seems measured, citing both benefits and risks of the deal to consumers and rejecting most of the claims of the deal's staunchest critics. But this apparent reasonableness masks the true, arbitrary nature of FCC review: a costly, unsupervised game of "Mother, May I?", requiring applicants to rearrange their businesses in ways the agency could neither require by regulation nor extract as concessions without exceeding the proper scope of its transaction review. Most troublingly, the FCC need not even make its extra-legal demands explicit. Because all future applicants know that the actual approval of this deal is far less significant to them than the process behind it, even yesterday's good news comes with an asterisk.
For the entire article go to CNET. ICLE and TechFreedom previously submitted joint comments to the FCC on the SpectrumCo deal.
Today, the Federal Communications Commission approved with conditions Verizon’s purchase of currently unused spectrum from cable companies, along with Verizon's sale of other spectrum to T-Mobile as a "voluntary" concession made to allay concerns about spectrum concentration. The order was approved on a 5-0 vote but with separate statements from Commissioners Robert McDowell and Ajit Pai. Last week, the Department of Justice approved a series of commercial agreements accompanying the license transfer, subject to conditions. The following statement may be attributed to Geoffrey Manne, Executive Director of the International Center for Law and Economics, and Berin Szoka, President of TechFreedom:
This deal is great news for consumers facing a dire spectrum crunch. Yet the decision sets a dangerous precedent. The FCC has authority to review license transfers but not other "related" transactions. Nevertheless, it devotes fourteen pages of its order to just such a review of the commercial agreements.
The fact that the FCC ultimately approved the agreements is no defense of its lengthy and misplaced critique of them. By not leaving review of such provisions to the DOJ under its more rigorous antitrust analysis, the FCC may ensure that future transfers and mergers aren’t even contemplated, even if they would benefit consumers. This effectively grants the FCC the unchecked power to stop transactions it doesn't even have the authority to review.
All of this leaves companies playing a drawn-out game of "Mother, May I?", rearranging their businesses in ways the agency could neither require by regulation nor extract as concessions without exceeding the proper scope of its transaction review. Most troublingly, the Commission need not even make its extra-legal demands explicit.
That's almost certainly what happened here with Verizon's nominally voluntary concession on data roaming. This leaves Verizon (but not its competitors) subject, for five years, to obligations the D.C. Circuit may soon rule the FCC has no authority to to impose—much as Comcast “voluntarily” agreed to net neutrality conditions in its merger with NBCUniversal even stricter than those the D.C. Circuit seems likely to strike down for everyone else.
And one has to wonder: Did Verizon eventually agree to sell spectrum to T-Mobile because the agency made it clear, if not explicit, that it preferred T-Mobile over Verizon to buy cable's spectrum? In its order, the FCC notes that, while mollified by Verizon’s buildout and roaming commitments, “other providers” might have used some of the acquired spectrum in ways the agency preferred. That's a comparison explicitly barred by Section 310(d), but also one explicitly demanded by T-Mobile, regulatory advocates, and leading Members of Congress. It's far from clear the agency would have been so mollified if Verizon hadn’t also entered into the deal with T-Mobile.
Congress needs to rein in the FCC. The FCC Process Reform Act passed by the House in March is a good start, requiring that conditions be narrowly tailored to real harms the FCC has authority to regulate. But until Congress makes clear that the DOJ alone has authority to analyze a transaction's competitive effects and re-asserts the limits it explicitly imposed on the scope of the Commission’s reviewing authority, the FCC will continue playing games with our high tech economy.
ICLE and TechFreedom previously submitted joint comments to the FCC on the SpectrumCo deal.
Today, the Department of Justice approved Verizon's purchase of radio spectrum from cable companies that had considered using it to build their own wireless network but ultimately decided not to do so. The deal went through only after the parties agreed to a number of conditions, including a restriction of several commercial agreements that accompanied the deal.
"This deal is great news for consumers," said Berin Szoka, President of TechFreedom. "The more spectrum is put to use, the more we'll ease the coming 'spectrum crunch.' The DOJ seems to have agreed that, because of the under-utilization of the spectrum in its current hands, and, with its imposed conditions, the lack of incentive or ability of the parties to raise prices, consumers will benefit from this transfer.
"It seems," noted Geoffrey Manne, Executive Director of the International Center for Law & Economics, "that the DOJ and FCC have appropriately divided their review of the deal, with the DOJ considering the competitive effects of the commercial agreements and the FCC assessing whether the spectrum license transfers are in the public interest. Congressional leaders and many self-appointed consumer advocates had demanded that the FCC evaluate the commercial agreements. But doing so would violate Section 310(d), which authorizes the agency to evaluate only license transfers."
Manne raised another concern: "I'm troubled by the DOJ's imposition of conditions on the merger based on speculative, future harms," referring to the DOJ's assertion that the "the Commercial Agreements also unreasonably restrain future competition for the sale of broadband, video, and wireless services to the extent that the availability of these services as part of a bundle, including a quad-play bundle, becomes more competitively significant. The DOJ has ample authority to address such concerns if they ever become non-conjectural. Merger review conditions should be narrowly targeted at real, identifiable problems. Otherwise, government risks hamstringing companies today in ways that can unintentionally hamper future innovation and thus harm consumers."
The Federal Trade Commission today announced Google will pay an unprecedented $22.5 million fine for allegedly violating its 2011 consent decree over how Google handled users' information in launching its now-defunct Buzz social network. Specifically, the FTC alleges Google misrepresented how users of Apple's Safari browser could control Google's collection of information about their browsing in a 2009 help page, as the Wall Street Journal first reported in February. The following statement can be attributed to Geoffrey Manne, Executive Director of the International Center for Law & Economics, and Berin Szoka, President of TechFreedom:
The size of today's fine will make headlines but it is a distraction from the real story: The FTC holds Google liable for a statement in a help page that was true when made and became untrue only because Apple quietly changed how its Safari browser handles cookies. Of course, companies do have a duty to ensure the accuracy of what they tell consumers about privacy as their own practices evolve. But holding them responsible for monitoring everything their rivals do that might affect their own past privacy statements will only discourage them from explaining their privacy practices in the first place. This is sadly ironic, as policymakers have spent years bemoaning the inadequacy of privacy policies and demanding companies do more to educate consumers. This is, at best, a pyrrhic victory for privacy.
The FTC now has Google, Facebook, Twitter and MySpace under under 20-year consent decrees and continues to add other companies to the list. Each of these companies now risks incurring unpredictable fines and enormous reputational costs for conduct the FTC likely couldn’t punish under its general Section 5 powers—without any admission of guilt and without the FTC having to prove liability or justify the amount of the fine. As the Commission boldly declares, a consent decree violation need not have "yielded significant revenue or endured for a significant period of time" to be punished with a huge fine. Such arbitrary regulation-by-settlement undermines the rule of law and harms consumers by deterring privacy disclosures.
In an article now online at Foreign Affairs, TechFreedom President Berin Szoka and International Center for Law and Economics Executive Director Geoffrey Manne explore the European Union's antitrust case against Google and place it in the global conflict of visions of Internet governance:
Regulators around the world have grown increasingly uncomfortable with the way business is being done on the Internet. From Brussels to Buenos Aires, they are most frustrated with Google, far and away the most popular search engine and advertising platform. As the company has evolved, expanding outward from its core search engine product, it has come to challenge a range of other firms and threaten their business models. This creative destruction has, in turn, caused antitrust regulators -- usually prodded by Google’s threatened competitors -- to investigate its conduct, essentially questioning whether Google’s very success obligates it to treat competitors neutrally...
The digital world may not be perfectly self-correcting; antitrust law may on occasion play a useful, if invisible, role in disciplining corporate behavior. But ultimately, the Internet is driven by disruption from technological change and shifting consumer demand. The wise regulator would exercise restraint.
Everyone loves to hate record labels. For years, copyright-bashers have ranted about the “Big Labels” trying to thwart new models for distributing music in terms that would make JFK assassination conspiracy theorists blush. Now they’ve turned their sites on the pending merger between Universal Music Group and EMI, insisting the deal would be bad for consumers. There’s even a Senate Antitrust Subcommittee hearing tomorrow, led by Senator Herb “Big is Bad” Kohl.
But this is a merger users of Spotify, Apple’s iTunes and the wide range of other digital services ought to love. UMG has done more than any other label to support the growth of such services, cutting licensing deals with hundreds of distribution outlets—often well before other labels. Piracy has been a significant concern for the industry, and UMG seems to recognize that only “easy” can compete with “free.” The company has embraced the reality that music distribution paradigms are changing rapidly to keep up with consumer demand. So why are groups like Public Knowledge opposing the merger?
Critics contend that the merger will elevate UMG’s already substantial market share and “give it the power to distort or even determine the fate of digital distribution models.” For these critics, the only record labels that matter are the four majors, and four is simply better than three. But this assessment hews to the outmoded, “big is bad” structural analysis that has been consistently demolished by economists since the 1970s. Instead, the relevant touchstone for all merger analysis is whether the merger would give the merged firm a new incentive and ability to engage in anticompetitive conduct. But there’s nothing UMG can do with EMI’s catalogue under its control that it can’t do now. If anything, UMG’s ownership of EMI should accelerate the availability of digitally distributed music.
To see why this is so, consider what digital distributors—whether of the pay-as-you-go, iTunes type, or the all-you-can-eat, Spotify type—most want: Access to as much music as possible on terms on par with those of other distribution channels. For the all-you-can-eat distributors this is a sine qua non: their business models depend on being able to distribute as close as possible to all the music every potential customer could want. But given UMG’s current catalogue, it already has the ability, if it wanted to exercise it, to extract monopoly profits from these distributors, as they simply can’t offer a viable product without UMG’s catalogue.
Today, Geoffrey Manne, Executive Director of the International Center for Law & Economics, TechFreedom Senior Adjunct Fellow, and Lecturer in Law at Lewis & Clark Law School, and Berin Szoka, President of TechFreedom, issued this statement on Senator Kohl’s letter urging the DOJ and FCC to “carefully scrutinize” the pending wireless spectrum deal between Verizon Wireless and a consortium of cable companies:
It's groundhog day in antitrust-land. Sen. Kohl's letter urges the DOJ and FCC to do what they are already doing: scrutinizing Verizon's purchase of spectrum the cable companies aren't using, along with related joint marketing agreements.
Sen. Kohl sent a similar letter to the FTC last fall seeking an immediate investigation into Google's business practices. It's hard to see what such letters add, as we discussed at the time. Antitrust law, at its best, rests on an economic analysis of consumer welfare. It's something the politicians should leave to the expert economists and lawyers at the DOJ and FTC—and, ultimately, the courts.
Of greatest concern, Sen. Kohl asks the FCC to exceed clear limits on its legal authority where he urges the agency to “seriously consider taking action” to prohibit the joint agreements. As we have detailed elsewhere, a competition review of the proposed transaction by the FCC is outside the scope of its mandate. Section 310(d) of the Communications Act allows the agency to review only the transfer of licenses, not the overall transaction. Even there, the FCC may not compare this transaction to some hypothetical alternative, as Sen. Kohl urges the agency to do.
Ranking Member Lee’s letter to the agencies, by contrast, is appropriately restrained—not urging a particular outcome on the agencies, but merely expressing his views and deferring to their expertise. As Sen. Lee notes, “it is improper for government to pick winners and losers in the marketplace.” Antitrust is a form of regulation, and like all regulation, it should be applied only with extreme caution under well-developed legal and economic doctrines, and never politicized.
Today, the European Union announced the "preliminary conclusions" of its antitrust investigation into Google, forbearing from filing an “official” complaint and giving the company an opportunity to offer remedies to address the Commission's “four concerns where Google business practices may be considered as abuses of dominance." The following statement can be attributed to Geoffrey Manne, Executive Director of the International Center for Law & Economics and Lecturer in Law at Lewis & Clark Law School; Josh Wright, Professor of Law and Economics at George Mason University School of Law, and ICLE Director of Research; and Berin Szoka, President of TechFreedom:
While the Commission is right that these “fast-moving markets would particularly benefit from a quick resolution of the competition issues," it's not clear what to do about them—which might explain why the EC asked Google to suggest remedies, rather than simply suing. A “concern” without a workable remedy that actually benefits consumers is properly no concern at all.
The best remedy for digital competition issues may be time itself—and the technological change and unanticipated sources of competition that come with it. Time and again innovation has mooted concerns like those raised by the EC, not perfectly, but better than any government-mediated remedy could have.
Each of the Commission’s four stated concerns is substantively problematic, as we have discussed at great length elsewhere. But most of all, the Commission clearly conceives of search as ten blue links onto which other, supposedly separate services, may be added. In fact, search is rapidly evolving to integrate rich results like images, maps, photos, reviews and prices, and their incorporation into search is a natural and beneficial product evolution. This may harm certain competitors that offer stand-alone services, but it's hard to see how it hurts consumers or competition generally, or what the remedy would be. Google already provides extensive links to competing sites next to its results, but how could it ever integrate them in the same way it integrates its own new features? It’s difficult to conceive of any remedy mandating such integration that wouldn’t do more harm than good.
International Center for Law and Economics Academic Affiliates Hal Singer and Robert Hahn have just released a white paper exploring broader implications of recent FCC Wireless Competition Reports for spectrum policy. The paper serves as a complement to a recent article the two authors penned along with a former chief economist of the FCC in the Federal Communications Law Journal that critiques the way the FCC conducts competition analysis in the wireless industry.
For over a decade, as wireless prices fell and
industry concentration inched upward, the FCC concluded that the wireless market was
competitive. Under new leadership but with the same fact pattern—prices continued to
fall, concentration continued to rise—the Commission changed its tune. For the last two
years, it retracted its stamp of competitiveness in favor of a “too-close-to-call” decision.
Ignoring politics, we can think of two plausible explanations for the agency’s change of
heart. Under the first explanation, the FCC previously weighted direct evidence of
competition such as falling prices more heavily than indirect evidence such as
concentration, but it elected to place more weight on indirect evidence in the last two
competition reports. Under the second explanation, the FCC did not change the weights,
but it instead felt that concentration reached some critical threshold such that the societal
loss associated with any more concentration was unacceptable. We don’t find either
As explained more thoroughly in the paper, the wireless market is dynamic, making typical static measures ill-suited to capture market power. Although there is much more in the actual report, for current policy discussions, the authors believe that the FCC should focus efforts on satisfying spectrum demand and worry less about structural competition,
Given how competitive the wireless marketplace looks today, regulators should keep in mind that the benefits of injecting even more competition at the margin (by changing the auction rules) could be small, whereas the costs of failing to satisfy the spectrum demands of incumbent carriers and of inducing uneconomic entry (think NextWave) may be significant.
On Wednesday April 18 at 7:30 pm ET, Brian Lehrer TV, a companion television program to the award winning radio show, will broadcast an episode that features International Center for Law and Economics Executive Director, Geoffrey Manne. Manne discussed the recent e-book antitrust suit brought against Apple and several publishing houses and was followed on the program by a discussion with author James Gleick on the implications of the suit for authors and the changing technology of information distribution.
For those in the CUNY TV viewing area, the episode will air Wednesday at 7:30pm ET (on Time Warner Cable channel 75 in New York City). Otherwise, you can watch the episode here after the initial airing.
Who would have thought that Henry VIII’s divorce from Catherine of Aragon would have anything to do with the muddle that is the modern U.S. university? Ironically, that divorce led to the most distinctive aspect of modern not-for-profit schools – they are not owned by anyone. As religion lost its hold on the minds of trustees, and as an ill-conceived bit of federal legislation in 1861 led to numerous state schools (with the usual unforeseen consequences), control of these institutions ultimately went to their faculties. It was mostly downhill from there.
On Monday, April 9 at 8pm EST, International Center for Law and Economics Advisor Henry G. Manne will trace these problems and provide an analysis of property rights theory applied to non-profit organizations in this Students for Liberty webinar.
Follow this link to register for this webinar, or find the Facebook event here.
International Center for Law and Economics Executive Director Geoffrey Manne will be a participant tomorrow, April 6, on the live webcast “This Week in Law” along with TechFreedom Senior Adjunct Fellow Larry Downes. Denise Howell will be hosting and they will also be joined by fellow participant Evan Brown. This week they will be discussing various topics in tech policy including Senator Al Franken’s lambast of Facebook and Google, the newly opened antitrust investigation of Motorola Mobility by the European Commission, and the continued problem of spectrum crunch.
This Week in Law is recorded live every Friday at 11:00am PT/2:00pm ET and covers topics primarily in law, technology, and public policy. You do not have to register, just follow this link at 11:00am PT/2:00pm ET to watch.
Yesterday, the International Center for Law and Economics and TechFreedom jointly filed comments [pdf] with the FCC on the Verizon SpectrumCo deal. In the comments, ICLE Executive Director Geoffrey Manne and TechFreedom President Berin Szoka counter the primary arguments against the deal:
Critics lament the concentration of spectrum in the hands of one of the industry’s biggest players, but the assumption that concentration will harm to consumers is unsupported and misplaced. Concentration of spectrum has not slowed the growth of the market; rather, the problem is that growth in demand has dramatically outpaced capacity. What's more: prices have plummeted even as the industry has become more concentrated.
While the FCC undeniably has authority to review the license transfers, the argument that the separate but related commercial agreements would reduce competition is properly the province of the Department of Justice. That argument is best measured under the antitrust laws, not by the FCC under its vague "public interest" standard. Indeed, if the FCC can assert jurisdiction over the commercial agreements as part of its public interest review, its authority over license transfers will become a license to regulate all aspects of business. This is a recipe for certain mischief.
The need for all competitors, including Verizon, to obtain sufficient spectrum to meet increasing demand demonstrates that the deal is in the public interest and should be approved.
Late last year the International Center for Law and Economics published a study finding that Philadelphia civil courts, and the Philadelphia Complex Litigation Center (PCLC) in particular, are marked by structural biases that likely attract plaintiffs with little or no connection to the city, leading to relatively disproportionate litigation and verdicts. Today we release a supplemental appendix to the study, also authored by Professor of Law and Economics at George Mason University School of Law, Joshua D. Wright, presenting further research demonstrating that, indeed, a substantial fraction of plaintiffs with cases pending at the Philadelphia Complex Litigation Center seem to have have no discernible or relevant connection to Philadelphia or to Pennsylvania.
Removing cases that were identified as lacking sufficient data, 1,370 cases were analyzed and coded. From this sample the plaintiff’s home address was identified in 1,355 cases. Of these, 638 cases had electronically filed complaints yielding the alleged location of injury in 369 cases.
In total, it was found that:
Of the 1,357 cases, 913 (67.2%) were brought by plaintiffs who live out-of-state without any apparent connection to Pennsylvania or Philadelphia.
Only 180 cases (13.3%) reveal plaintiffs who live in or allege injury in Philadelphia.
The most substantial case types where the plaintiffs were overwhelmingly out-of-state are hormone therapy, denture adhesive cream, and Paxil birth defect cases.
Although most or all of the companies involved in these cases do business in Philadelphia and a few have some sort of administrative offices there, the vast majority of defendants do not have their principal place of business in Philadelphia or even in Pennsylvania. It is unlikely that venue was moved to the PCLC in most or any of the cases.
This preliminary analysis supports the conclusion that Philadelphia courts demonstrate a meaningful preference for plaintiffs by coaxing “business” from other courts and providing a unique combination of advantages for plaintiffs.
Here is the full report with the new appendix attached; the Appendix by itself is available here. Please contact us if you are interested in speaking with Professor Wright about the report or would like a comment on the report or the pending legislation.
This morning our dear colleague, Larry Ribstein, passed away. The intellectual life of everyone who knew him and of the legal academy at large is deeply diminished for his passing.
For me, as for many others, Larry was an important influence, not only intellectually but personally, as well. Larry was the godfather of Truth on the Market, which got its start when a few of us, including Bill Sjostrom, Josh, Thom and me, pinch hit for Larry at Ideoblog in November 2005. It took eight of us, including my dad, to fill his shoes, and still his traffic went down. More than anyone else, Larry was instrumental in my decision to leave law teaching to work at Microsoft. Completely unsure what to do and worried about how it would affect my ability to return to law teaching, I called Larry, who had no doubt. He sealed the deal by pointing out that a move like that one would open some completely unanticipated, and potentially great, career paths and telling me not to worry so much about getting back to law teaching. He was right, of course, and, thus also an important influence on the creation of the International Center for Law and Economics. And Larry was a friend, one of those I always looked forward to seeing at ALEA and other conferences, more than once providing the necessary marginal incentive to attend.
We grieve for Ann, Sarah and Susannah and mourn his passing.
The outpouring in the blogosphere from Larry’s friends, admirers, colleagues, and the like is, not surprisingly, moving. As they are found, remembrances will be posted here at Truth on the Market.
The ICLE website is undergoing a significant renovation. Basic information remains available on the current site, but expect much more to come. Please be sure to add your contact information to the form under the "contact" tab to be notified when the full site is up and running.
International Center for Law and Economics' Executive Director Geoffrey Manne was recently interviewed on Verizon's acquisition of spectrum from cable operators by Marketplace's Tech Report. The report, which aired Tuesday, December 28, explores Version's various deals with cable companies to route around political blockages and acquire much needed spectrum. However, the Department of Justice recently decided to launch an antitrust invesitgation into the deals just days after AT&T dropped its bid for T-Mobile.
Manne injected some reality into the discussion:
In a sort of perfect world, you hear people say well, the spectrum that the cable companies own that they're not using, smaller competitors should be buying that so they can compete with AT&T and Verizon and others. Well, that's a nice idea, I guess, but the smaller companies aren't buying it and Verizon snapped up that spectrum so that they could continue to provide the level of service that they'd like to.
Listen to the embedded player below or head to the web site to hear the entire segment.
In an Op-Ed in the Hill, International Center for Law and Economics' Executive Director Geoffrey Manne explains the real problem with the National Defense Authorization Act:
National Defense Authorization Act (NDAA) is a bad piece of legislation, but not for the reason most people think. The NDAA has set the political world alight over fears that it allows the U.S. government to arrest American citizens inside the U.S. and then ship them off as terrorists into indefinite military detention without trial. Reasonable fears, to be sure – except they don’t arise from the NDAA; rather, the power to do just that likely already exists.
The real problem with the NDAA is that it does nothing to resolve the root, underlying threat to American civil liberties: Congress' abdication of its responsibility to define the standards that govern for whom and when military detention is appropriate.
The Wall Street Journal is reporting on a bill before the Pennsylvania house Judiciary Committee that would offset the current advantage for plaintiffs by changing the courts' jurisdiction rules. While plaintiffs can currently parachute into Philadelphia from anywhere in the state, the new plan would allow Pennsylvania's local courts to hear personal injury cases only when the plaintiff is a resident, a corporation is locally headquartered, or the incident occurred in the district.
The piece cites a paper issued by the International Center for Law & Economics and authored by Professor of Law and Economics at George Mason University School of Law, Joshua D. Wright. As the Wall Street Journal indicates,
Philadelphia plaintiffs are less likely to settle than plaintiffs elsewhere and show a marked preference for jury trials, according to a report for the International Center for Law and Economics by Joshua Wright based on data from Administrative Office of Pennsylvania Courts. Philadelphia juries find in favor of plaintiffs more often than non-Philly juries—"by as much as 23.7% in absolute terms in 2005."
Information privacy represents one of the most exciting, rapidly growing areas of legal scholarship, yet information privacy law scholars rarely express any faith in market principles. Government regulators seem a bit more conflicted, with recent pronouncements from the Commerce Department, FTC, and Congress premised largely on market-based, notice-and-choice principles, but emphasizing the limits of markets.
This Friday, Silicon Flatirons Center for Law, Technology, and Entrepreneurship at the University of Colorado will host representatives from these three institutions to debate the Economics of Privacy. Joining them will be an interdisciplinary group of leading thinkers from other disciplines, such as economists studying the behavioral economics of privacy and computer scientists who specialize in human-computer interaction studying the limits of notice-and-choice. Executive Director Geoffrey Manne has been invited as one of these guests and will explore the markets of privacy, explaining the advantages of relying on market forces, self-regulation, and FTC’s existing enforcement mechanisms to protect privacy in the 21st century.
Google has been the subject of persistent claims that its organic search results are improperly “biased” toward its own content. Among the most influential is an empirical study released earlier this year by Benjamin Edelman and Benjamin Lockwood, claiming that Google favors its own content “significantly more than others.” The authors conclude in their study that Google’s search results are problematic and deserving of antitrust scrutiny because of competitive harm.
A new report released by the International Center for Law & Economics and authored by Joshua Wright, Professor of Law and Economics at George Mason University, critiques, replicates, and extends the study, finding Edelman & Lockwood’s claim of Google’s unique bias inaccurate and misleading. Although frequently cited for it, the Edelman & Lockwod study fails to support any claim of consumer harm -- or call for antitrust action -- arising from Google’s practices.
Prof. Wright’s analysis finds own-content bias is actually an infrequent phenomenon, and Google references its own content more favorably than other search engines far less frequently than does Bing:
Philadelphia civil courts have come under fire for attracting and favoring plaintiffs from outside the city at the expense of its consumers and businesses. A new study, entitled "Are Plaintiffs Drawn to Philadelphia’s Civil Courts? An Empirical Examination," issued by the International Center for Law & Economics and authored by Professor of Law and Economics at George Mason University School of Law, Joshua D. Wright, finds evidence that Philadelphia civil courts are indeed marked by structural biases that attract plaintiffs with little or no connection to the city, leading to disproportionate litigation and verdicts relative to other courts.
Using data from the Administrative Office of Pennsylvania Courts, Professor Wright compares filing trends and case outcomes in Philadelphia to the rest of Pennsylvania and other representative state courts. As explained in greater depth in the paper, Philadelphia courts, when measured against non-Philadelphia Pennsylvania state courts and federal district courts, exhibit marked and significant dissimilarities supporting an inference that something intrinsically unusual is occurring in Philadelphia. Philadelphia courts host an especially large number of cases, Philadelphia courts have a larger docket than expected, Philadelphia plaintiffs are less likely to settle than other non-Philadelphia Pennsylvania plaintiffs, and Philadelphia plaintiffs are disproportionately likely to prefer jury trials. These findings are consistent with a conclusion that Philadelphia courts demonstrate a marked and meaningful preference for plaintiffs.
Here is the full report. Please
if you are interested in speaking with Professor Wright about the report or would like a comment on the report or the pending legislation.
Tomorrow, Todd Zywicki, Academic Affiliate at the International Center for Law and Economics and a Foundation Professor of Law at George Mason University School of Law, will speak on payment systems with particular concern to the Canadian context at a conference sponsored by the C.D. Howe Institute in Toronto. The conference is titled “The Canadian Payments System: Ensuring Competition, Innovation and Stability” and will feature Patricia Meredith, the Chair of the Task Force for the Payments System Review in Canada, and Steve Rauschenberger, President of Rauschenberger Partners LLC, among others.
As the organizers notes, “Getting [payment systems] right will be integral to building a competitive, functioning and efficient payment system, with important consequences for industry and the Canadian economy as a whole.”
As outlined in the Task Force for the Payment System Review report, Canada’s payments system is falling behind. The thirty-year-old Interac system has facilitated widespread adoption of debit cards in Canada, but it is proving increasingly antiquated to the needs of a modern global economy. This paper explores the current state of the payment system in Canada within a global context and discusses the strong economic principles that should guide the work of the Task Force. Building on a robust framework of innovation and competition, it aims to positively orient the Task Force’s future decisions, while continually reaffirming the negative impact that can result from misaligned institutional incentives.
We are pleased to announce the first paper in our 2011 Antitrust and Consumer Protection White Paper Series, "If Search Neutrality is the Answer, What's the Question?" by Geoffrey A. Manne of Lewis & Clark Law School and ICLE, and Joshua D. Wright of George Mason Law School & Department of Economics and ICLE.
In this paper we evaluate both the economic and non-economic costs and benefits of search bias.In Part I we define search bias and search neutrality, terms that have taken on any number of meanings in the literature, and survey recent regulatory concerns surrounding search bias. In Part II we discuss the economics and technology of search.In Part III we evaluate the economic costs and benefits of search bias.We demonstrate that search bias is the product of the competitive process and link the search bias debate to the economic and empirical literature on vertical integration and the generally-efficient and pro-competitive incentives for a vertically integrated firm to discriminate in favor of its own content.Building upon this literature and its application to the search engine market, we conclude that neither an ex ante regulatory restriction on search engine bias nor the imposition of an antitrust duty to deal upon Google would benefit consumers.In Part V we evaluate the frequent claim that search engine bias causes other serious, though less tangible, social and cultural harms.As with the economic case for search neutrality, we find these non-economic justifications for restricting search engine bias unconvincing, and particularly susceptible to the well-known Nirvana Fallacy of comparing imperfect real world institutions with romanticized and unrealistic alternatives.
We are pleased to announce the release of the first paper (and related conference--please see the post below) in the ICLE Financial Regulatory Program White Paper Series.
The paper, by Todd J. Zywicki (ICLE Senior Fellow and Foundation Professor of Law at George Mason University School of Law), is entitled, "The Economics of Payment Card Interchange Fees and the Limits of Regulation."
The timing of the paper's release couldn't be more fortuitous, as Congress reconvenes next week and begins to confer over the language of the Durbin Amendment to the "Restoring American Financial Stability Act of 2010." The Durbin Amendment would impose price controls on debit card interchange fees and would restrict the use by credit and debit card networks of certain network rules. As Todd described it recently in a Washington Times op-ed:
Coinciding with the release of the paper, ICLE, in conjunction with George Mason University's Mercatus Center, will be hosting a conference in Washington, DC, next week on the interchange fee debate. For more information on the conference and to register, please click here. The conference, to be held on June 9th from 8:30 am to 1:00 pm at the Willard InterContinental Hotel, will cover both the politics and regulation of interchange fees, as well as the underlying economics of card networks and the place of the interchange fee in those networks.
On December 8 and 9, 2009, ICLE sponsored a blog symposium at Truth on the Market on "The Law and Economics of Interchange Fees and Credit Card Markets." We had an all-star roster of contributors and a set of provocative posts and lively comments. While the "live" blog symposium can be found at the "credit card symposium" link at the blog (http://www.truthonthemarket.com/category/interchange-and-credit-cards-symposium/), we have produced a pdf e-book of the symposium including all of the posts and comments. It is our hope that the e-book will be a valuable off-line resource for policy makers, academics, students and other interested folks alike.
ICLE filed a comment with the Department of Justice Antitrust Division on December 31, 2009 in response to the Division's request for public comments on Agriculture and Antitrust Enforcement Issues in Our 21st Century Economy. The authors of the essay are F. Scott Kieff, Geoffrey A. Manne, Michael E. Sykuta, and Joshua D. Wright. The comment should be available for free download from the DOJ webpage when the public comments are posted and is available here (pdf).
ICLE is a global network of scholars and institutions devoted to methodologies and research agendas supportive of the regulatory underpinnings that enable businesses to flourish.ICLE develops intellectual work in specific policy areas, and builds an international foundation for rigorous policy work in the long run.
The overarching objective of our center is to create the academic underpinnings for a regulatory environment that ensures the protection of property rights from inefficient interference by government agencies and private parties in high priority markets. The protection of property rights provides the basis for a competitive and innovative market environment in which business and society more generally can thrive.Optimal protection of property rights entails far more than sound intellectual property protection (although it certainly entails that); it also forms the basis for restrained government intervention into business practices, including through antitrust enforcement, consumer protection regulation, trade restrictions, government procurement policies and communications regulations, among many others.