Showing 9 Publications by Henry N. Butler

Amicus of Legal and Economic Scholars to the 5th Circuit in Tesla v Louisiana Auto Dealers Association

Amicus Brief STATEMENT OF AMICI INTEREST Amici are law professors, economists, or other academics with expertise in competition law and economic regulation. Amici do not work for . . .

STATEMENT OF AMICI INTEREST

Amici are law professors, economists, or other academics with expertise in competition law and economic regulation. Amici do not work for Tesla, nor have they been compensated in any way for their participation in this brief.[1]

SUMMARY OF ARGUMENT

Amici appear in support of Tesla on two issues with a common thread.[2] The district court’s opinion erred in insulating the actions of the Louisiana legislature and the Louisiana Motor Vehicle Commission (“LMVC”) from antitrust and constitutional review under a flawed framework for scrutinizing state regulations that suppress competition and favor economic special interests.

First, Amici submit that the district court erred in holding that commissioners of the LMVC were protected by Noerr-Pennington immunity when they “agreed with [the Louisiana Automobile Dealers Association (“LADA”)] to use the regulatory power of the Commission to investigate Tesla.” Op. at 27. Although public officials may enjoy Noerr-Pennington immunity when they act in a purely private capacity, a public official who is also a market participant and agrees with others to utilize public power in a manner designed to suppress competition in order to further his own economic interests should not be immunized from antitrust scrutiny. The Noerr-Pennington doctrine protects the rights of citizens to petition the government for redress of grievance. It does not protect governmental officials who conspire to use governmental power to favor their own economic interests. The district court’s approach would create a loophole in the antitrust laws permitting actors wielding state power to avoid responsibility for abuses of official power.

Second, Amici dispute the district court’s finding that Louisiana’s direct sales ban had a rational basis in consumer protection. As Amici explain below, direct sales bans in automotive retailing were historically focused on the exclusive goal of protecting dealers in franchise relationships with manufacturers. Thus, in the cases in which this Court upheld such statutes against constitutional challenge—Ford Motor Co. v. Texas Dep’t of Transp., 264 F.3d 493 (5th Cir. 2001); Int’l Truck & Engine Corp. v. Bray, 372 F.3d 717 (5th Cir. 2004)—the ostensible rational basis of the legislation was the protection of dealers against the superior bargaining power of their franchising manufacturers. But that logic can have no bearing on the application of Louisiana’s 2017, anti-Tesla direct sales prohibition, for the simple reason that Tesla (and other new electric vehicle manufacturers) do not use franchised dealers at all, but sell directly to the consuming public. In such circumstances, dealers are not being protected as franchisees, they are protected from economic competition by companies using a different business model—exactly what this Court held does not count as a rational basis in St. Joseph Abbey v. Castille, 712 F.3d 215 (5th Cir. 2013). Further, efforts to justify direct sales bans as consumer protection rather than dealer protection have no support in economic theory or evidence. Such arguments are mere pretexts for the economic protectionism that this Court has held does not survive equal protection scrutiny

[1] Amici join this brief solely in their individual capacities and express only their individual views. Institutional affiliations are listed for identification purposes only.

[2] Amici take no position on other arguments raised by Tesla’s appeal.

 

Continue reading
Antitrust & Consumer Protection

ICLE Brief for D.C. Circuit in State of New York v Facebook

Amicus Brief In this amicus brief for the U.S. Court of Appeals for the D.C. Circuit, ICLE and a dozen scholars of law & economics address the broad consensus disfavoring how New York and other states seek to apply the “unilateral refusal to deal” doctrine in an antitrust case against Facebook.

United States Court of Appeals
for the District of Columbia Circuit

STATE OF NEW YORK, et al.,
Plaintiffs-Appellants,
v.
FACEBOOK, INC.,
Defendant-Appellee.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
No. 1:20-cv-03589-JEB (Hon. James E. Boasberg)

BRIEF OF INTERNATIONAL CENTER FOR
LAW AND ECONOMICS AND SCHOLARS OF LAW
AND ECONOMICS AS AMICUS CURIAE SUPPORTING
DEFENDANT-APPELLEE FACEBOOK, INC. AND AFFIRMANCE

 

STATEMENT OF THE AMICUS CURIAE

Amici are leading scholars of economics, telecommunications, and/or antitrust. Their scholarship reflects years of experience and publications in these fields.

Amici’s expertise and academic perspectives will aid the Court in deciding whether to affirm in three respects. First, amici provide an explanation of key economic concepts underpinning how economists understand the welfare effects of a monopolist’s refusal to deal voluntarily with a competitor and why that supports affirmance here. Second, amici offer their perspective on the limited circumstances that might justify penalizing a monopolist’s unilateral refusal to deal—and why this case is not one of them. Third, amici explain why the District Court’s legal framework was correct and why a clear standard is necessary when analyzing alleged refusals to deal.

SUMMARY OF ARGUMENT

This brief addresses the broad consensus in the academic literature disfavoring a theory underlying plaintiff’s case—“unilateral refusal to deal” doctrine. The States allege that Facebook restricted access to an input (Facebook’s Platform) in order to prevent third parties from using that access to export Facebook data to competitors or compete directly with Facebook. But a unilateral refusal to deal involves more than an allegation that a monopolist refuses to enter into a business relationship with a rival.

Mainstream economists and competition law scholars are skeptical of imposing liability, even on a monopolist, based solely on its choice of business partners. The freedom of firms to choose their business partners is a fundamental tenet of the free market economy, and the mechanism by which markets produce the greatest welfare gains. Thus, cases compelling business dealings should be confined to particularly delineated circumstances.

In Part I below, amici describe why it is generally inefficient for courts to compel economic actors to deal with one another. Such “solutions” are generally unsound in theory and unworkable in practice, in that they ask judges to operate as regulators over the defendant’s business.

In Part II, amici explain why Aspen Skiing—the Supreme Court’s most prominent precedent permitting liability for a monopolist’s unilateral refusal to deal—went too far and should not be expanded as the States’ and some of their amici propose.

In Part III, amici explain that the District Court correctly held that the conduct at issue here does not constitute a refusal to deal under Aspen Skiing. A unilateral refusal to deal should trigger antitrust liability only where a monopolist turns down more profitable dealings with a competitor in an effort to drive that competitor’s exit or to disable its ability to compete, thereby allowing the monopolist to recoup its losses by increasing prices in the future. But the States’ allegations do not describe that scenario.

In Part IV, amici address that the District Court properly considered and dismissed the States’ “conditional dealing” argument. The States’ allegations are correctly addressed under the rubric of a refusal to deal—not exclusive dealing or otherwise. The States’ desire to mold their allegations into different legal theories highlights why courts should use a strict, clear standard to analyze refusals to deal.

Read the full brief here.

Continue reading
Antitrust & Consumer Protection

Amicus Brief, ICLE & Scholars, Expressions Hair Design v. Schneiderman, SCOTUS

Amicus Brief Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels.

Summary

Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels. Under this view, because the only difference between discounts and surcharges is how they are framed, it must be this framing that leads to the difference in consumers’ responses. To explain why Petitioners believe this is true—and, thus, to maintain their claim that New York’s surcharge prohibition is an impermissible restriction on speech—Petitioners and their amici rely on the behavioral economic concepts of “framing” and “loss aversion.” They claim that the State impermissibly wishes to prohibit surcharging because these cognitive biases render surcharge labels more effective than discount labels in altering consumers’ preferred form of payment.

Petitioners’ premises are wrong. There is no sound evidence that the asserted behavioral theories are at work here, or that credit-card surcharging— much less the mere label used to describe the practice—more greatly affects consumers’ chosen method of payment than cash discounting. In fact, some of the studies on which Petitioners and their amici rely suggest the opposite. The Court should not rely, in the absence of sound supporting evidence, on a malleable theory that can be used to support contradictory positions.

Moreover, surcharges and discounts differ in material ways beyond the words used to describe them. Surcharging—but not discounting—enables merchants to engage in certain pricing and sales practices that explain both consumers’ different responses to them, as well as the State’s interest in regulating them differently. And while petitioners lack empirical support for the behavioral claims at the heart of their First Amendment argument, the evidence from countries that permit surcharging reveals that merchants often use surcharges to engage in these types of pricing practices. This Court should thus reject Petitioners’ invitation to base constitutional doctrine on a behavioral hypothesis unsupported by any sound empirical evidence—especially where, as here, that result could potentially expose consumers to the type of conduct that the State’s law seeks to prevent.

Continue reading
Financial Regulation & Corporate Governance

Amicus Brief, Apple Inc. v. United States, SCOTUS

Amicus Brief "The court of appeals’ decision poses a grave risk to the innovation economy. The court condemned as per se violations of the antitrust laws practices that made competition possible in a nascent market through introduction of a new business model..."

Summary

“The court of appeals’ decision poses a grave risk to the innovation economy. The court condemned as per se violations of the antitrust laws practices that made competition possible in a nascent market through introduction of a new business model. And it did so in the absence of any precedent holding that the novel combination of practices at issue could be deemed per se illegal. The court of appeals’ decision thus sends a chill wind through industry sectors where entrepreneurs are contemplating the launch of innovative business models to fuel the modern economy.

This Court’s precedent on application of the per se rule is clear: “[I]t is only after considerable experience with certain business relationships that courts classify them as per se violations” of the antitrust laws. Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 9 (1979) (“BMI”). Per se condemnation is appropriate only when a practice lacks any plausible procompetitive rationale. Cal. Dental Ass’n v. FTC, 526 U.S. 756, 771 (1999). If there is no long track record of judicial experience establishing that a practice always or almost always lessens competition, then the practice should be subject to analysis under the rule of reason. BMI, 441 U.S. at 23-24. In that way, a finding that a novel practice (or an old practice in a new context) is anticompetitive may be made only after a rigorous analysis of all the facts and circumstances. Such a rule sensibly avoids unintentional condemnation of economically valuable activity where the full effects of that activity are simply unknown to the courts.

In disregard of these principles, the court of appeals applied the per se rule to a novel combination of competition-enabling practices in an emerging market. The negative consequences of the court’s ruling will be particularly acute for modern high technology sectors of the economy, where entrepreneurs planning to create entirely new markets or inject competition into existing ones through adoption of new business models will now face exactly the sort of artificial deterrents that this Court has strived to prevent. “Mistaken inferences and the resulting false condemnations ‘are especially costly, because they chill the very conduct the antitrust laws are designed to protect…’”

Continue reading
Antitrust & Consumer Protection

Amicus Brief, Howard Stirk Holdings, LLC. et al. v. FCC, D.C. Circuit

Amicus Brief "'Capricious' is defined as 'given to sudden and unaccountable changes of mood or behavior.' That is just the word to describe the FCC’s decision in its 2014 Order to reverse a quarter century of agency practice by a vote of 3-to-2..."

Summary

“‘Capricious’ is defined as ‘given to sudden and unaccountable changes of mood or behavior.’ That is just the word to describe the FCC’s decision in its 2014 Order to reverse a quarter century of agency practice by a vote of 3-to-2 and suddenly declare unlawful scores of JSAs between local television broadcast stations, many of which were originally approved by the FCC and have been in place for a decade or longer. The FCC’s action was not only capricious, but also contrary to law for two fundamental reasons.

First, the 2014 Order extends the FCC’s outdated ‘duopoly’ rule to JSAs that have never before been subject to it, many of which were blessed by the agency, without first determining whether that rule is still in the public interest. The ‘duopoly’ rule — first adopted in 1964 during the age of black-and-white TV — prohibits one entity from owning FCC licenses to two or more TV stations in the same local market unless there are at least eight independently owned stations in that market…The FCC’s 2014 Order makes a mockery of this congressional directive. In it, the Commission announced that, instead of completing its statutorily-mandated 2010 Quadrennial Review of its local ownership rules, it would roll that review into a new 2014 Quadrennial Review, while retaining its duopoly rule pending completion of that review because it had ‘tentatively’ concluded that it was still necessary. This Court should not accept this regulatory legerdemain. The 1996 Act does not allow the FCC to retain its duopoly rule in its current form without making the statutorily-required determination that it is still necessary. A ‘tentative’ conclusion that does not take into account the significant changes both in competition policy and in the market for video programming that have occurred since the current rule was first adopted in 1999 is not an acceptable substitute.

Second, having illegally retained the outdated duopoly rule, the 2014 Order then dramatically expands its scope by amending the FCC’s local ownership attribution rules to make the rule applicable to JSAs, which had never before been subject to it. The Commission thereby suddenly declares unlawful JSAs in scores of local markets, many of which have been operating for a decade or longer without any harm to competition. Even more remarkably, it does so despite the fact that both the DOJ and the FCC itself had previously reviewed many of these JSAs and concluded that they were not likely to lessen competition. In doing so, the FCC also fails to examine the empirical evidence accumulated over the nearly two decades some of these JSAs have been operating. That evidence shows that many of these JSAs have substantially reduced the costs of operating TV stations and improved the quality of their programming without causing any harm to competition, thereby serving the public interest…”

Continue reading
Telecommunications & Regulated Utilities

Amicus Brief, En Banc, St. Alphonsus Med. Center v. St. Luke’s Health System, 9th Cir.

Amicus Brief "...One of the core guiding principles of modern antitrust law is the focus on maximizing the welfare of consumers. This guiding principle should lead to the conclusion that the antitrust laws may be violated when a transaction reduces consumer welfare but not when consumer welfare is increased..."

Summary

“…One of the core guiding principles of modern antitrust law is the focus on maximizing the welfare of consumers. This guiding principle should lead to the conclusion that the antitrust laws may be violated when a transaction reduces consumer welfare but not when consumer welfare is increased. The consumer welfare focus of the antitrust laws is a product of the same fundamental wisdom that underlies the Hippocratic Oath: primum non nocere, first, do no harm.

The decision of the Panel violates this principle and thus will harm consumers in the Ninth Circuit, and, insofar as it is followed in other Circuits, across the country. More specifically, the Panel takes several positions on proof of efficiencies that are contrary to the Horizontal Merger Guidelines and decisions in other Circuits. Chief among these positions are that “[i]t is not enough to show that the merger would allow St. Luke’s to better serve patients” and that “[a]t most, the district court concluded that St. Luke’s might provide better service to patients after the merger.” These positions are inconsistent with modern antitrust jurisprudence and economics, which treat improvements to consumer welfare as the very aim of competition and the antitrust laws.

If permitted to stand, the Panel’s decision will signal to market participants that the efficiencies defense is essentially unavailable in the Ninth Circuit, especially if those efficiencies go towards improving quality. Companies contemplating a merger designed to make each party more efficient will be unable to rely on an efficiencies defense and will therefore abandon transactions that promote consumer welfare lest they fall victim to the sort of reasoning employed by the panel in this case. Consequently, it is foreseeable that it will be a long time, if ever, that another panel of this Court will be able to revisit this issue that is critical to correct antitrust enforcement.

Compounding this problem is the fact that the Panel’s opinion fills something of a vacuum in efficiencies jurisprudence. Although efficiencies are recognized as an essential part of merger analysis, very little is written about them in most judicial decisions. The Panel’s decision will thus not only preempt potentially beneficial mergers but also the development of sound efficiencies analysis under Section 7.

The amici respectfully submit that the decision of the Panel is contrary to modern thinking on efficiencies in antitrust analysis and therefore urge the Ninth Circuit to rehear the case en banc in order to correct the defects in the Panel’s decision and to provide clearer guidance and analysis on the efficiencies defense.”

Continue reading
Antitrust & Consumer Protection

Amicus Brief, McWane Inc. v. FTC, 11th Circuit

Amicus Brief Unlike in a pre-merger investigation, the Federal Trade Commission (“FTC”) did not need to rely on indirect evidence related to market structure to predict the competitive effect of the conduct challenged in this case.

Summary

Unlike in a pre-merger investigation, the Federal Trade Commission (“FTC”) did not need to rely on indirect evidence related to market structure to predict the competitive effect of the conduct challenged in this case. McWane’s Full Support Program, which gave rise to the Commission’s exclusive dealing claim, was fully operational—and had terminated—prior to the proceedings below. Complaint Counsel thus had access to data on actual market effects.

But Complaint Counsel did not base its case on such effects, some of which suggested an absence of anticompetitive harm. Instead, Complaint Counsel theorized that McWane’s exclusive dealing could have anticompetitively “raised rivals’ costs” by holding them below minimum efficient scale, and it relied entirely on a self-serving statement by McWane’s chief rival to establish what constitutes such scale in the industry at issue. In addition, Complaint Counsel failed to establish the extent of market foreclosure actually occasioned by McWane’s Full Support Program, did not assess the degree to which the program’s significant exceptions mitigated its anticompetitive potential, and virtually ignored a compelling procompetitive rationale for McWane’s exclusive dealing. In short, Complaint Counsel presented only weak and incomplete indirect evidence in an attempt to prove anticompetitive harm from an exclusive dealing arrangement that had produced actual effects tending to disprove such harm. Sustaining a liability judgment based on so thin a reed would substantially ease the government’s burden of proof in exclusive dealing cases.

Exclusive dealing liability should not be so easy to establish. Economics has taught that although exclusive dealing may sometimes occasion anticompetitive
harm, several prerequisites must be in place before such harm can occur. Moreover, exclusive dealing can achieve a number of procompetitive benefits and
is quite common in highly competitive markets. The published empirical evidence suggests that most instances of exclusive dealing are procompetitive rather than
anticompetitive. Antitrust tribunals should therefore take care not to impose liability too easily.

Supreme Court precedents, reflecting economic learning on exclusive dealing, have evolved to make liability more difficult to establish. Whereas exclusive
dealing was originally condemned almost per se, Standard Oil of California v. United States, 337 U.S. 293 (1949) (hereinafter “Standard Stations”), the Supreme
Court eventually instructed that a reviewing court should make a fuller inquiry into the competitive effect of the challenged exclusive dealing activity. See Tampa
Electric Co. v. Nashville Coal Co., 365 U.S. 320, 329 (1961). In In re Beltone Electronics, 100 F.T.C. 68 (1982), the FTC followed Tampa Electric’s instruction
and embraced an economically informed method of analyzing exclusive dealing.

The decision on appeal departs from Beltone—which the FTC never even cited—by imposing liability for exclusive dealing without an adequate showing of likely competitive harm. If allowed to stand, the judgment below could condemn or chill a wide range of beneficial exclusive dealing arrangements. We therefore urge reversal to avoid creating new and unwelcome antitrust enforcement risks.”

Continue reading
Antitrust & Consumer Protection

Amicus Brief, Rehearing En Banc, TiVo Inc. v. EchoStar Corp., et al., Fed. Cir.

Amicus Brief "EchoStar’s appeal presents a stark choice on the proper method for dealing with a repeat patent infringer against whom the District Court has issued an initial injunction followed by a contempt decree, which between them have yet to provide TiVo with an ounce of effective relief against EchoStar’s unlawful behavior..."

Summary

“EchoStar’s appeal presents a stark choice on the proper method for dealing with a repeat patent infringer against whom the District Court has issued an initial injunction followed by a contempt decree, which between them have yet to provide TiVo with an ounce of effective relief against EchoStar’s unlawful behavior. EchoStar takes the position that the entire convoluted six-year history of this dispute should be ignored in passing on the validity of its purported present work- around of TiVo’s ‘389 patent. In so doing, its apparent objective is to win a war of attrition against TiVo. The first part of that strategy is to use its current modified DVR for as long as it can tie up TiVo through tactics of litigation delay that allow it to reap all the collateral gains from patent infringement. Once stopped with the first work-around, it may well repeat the same cycle of delay a second time.

For EchoStar, this approach it is a no-lose strategy. EchoStar wins big if it can persuade a court that its work-around comes close to, but does not cross, the infringement line. EchoStar also wins if it loses a new infringement suit so long as it needs only pay damages that amount to a small fraction of the economic gains it derives from following its unlawful strategy. Then it can start the cycle anew with a second work-around, and, if need be, a third. Unless prompt and decisive measures are taken, EchoStar will profit handsomely from its own wrongdoing…”

Continue reading
Intellectual Property & Licensing

Are State Consumer Protection Acts Really Little-FTC Acts?

Scholarship Abstract State Consumer Protection Acts (CPAs) were designed to supplement the Federal Trade Commission’s mission of protecting consumers and are often referred to as “little-FTC . . .

Abstract

State Consumer Protection Acts (CPAs) were designed to supplement the Federal Trade Commission’s mission of protecting consumers and are often referred to as “little-FTC Acts.” There is growing concern that enforcement under these acts is not only qualitatively different than FTC enforcement, but may be counterproductive for consumers. This article examines a sample of CPA claims and compares them to the FTC standard. It identifies qualitative differences between CPA and FTC claims by commissioning a “Shadow Federal Trade Commission” of experts in consumer protection. The study finds that many CPA claims include conduct that would not be illegal under the FTC standards and that most of the cases with illegal conduct would not warrant FTC enforcement. Even among CPA cases where the plaintiff prevailed, nearly half do not include illegal conduct under the FTC standard and most of the cases with illegal conduct would not invoke FTC enforcement. The results clearly suggest private litigation under little-FTC Acts tends to pursue a different consumer protection mission than the Bureau of Consumer Protection at the Federal Trade Commission.

Continue reading
Antitrust & Consumer Protection