This essay began as a response to claims that the argument that Chevron encourages congressional inaction has been refuted by the best available evidence. That Chevron causes such inaction is one of the arguments made by petitioners in Loper Bright. Leading scholars reject the argument. For instance, Chris Walker has called it one of the “least persuasive points” made at oral argument and Jim Speta has called it “empirically untrue.” Last year, Nicholas Bednar had a very good essay at Notice & Comment arguing that whether Chevron in fact has this effect is an empirical question. He went on to review literature related to (his framing of) this question and concluded by finding that the claim is unsupported and suggesting that its proponents lack candor.

Read the full piece here.

In a recent article for ProMarket, Jonathan Masur and Eric Posner defend the legality of the Federal Trade Commission’s rule banning noncompetes. However, little of their argument addresses the widespread contrary arguments against the ban.

On the Yale Journal of Regulation Notice and Comment Blog, Dan Crane recently shared the results of an informal survey of antitrust and administrative law professors. Of his 17 respondents, “Only one person predicted that the rule will be upheld.” Both the Wall Street Journal and Washington Post editorial boards have argued that the FTC lacks congressional authority to issue the rule. While it is risky to draw inference from silence, it seems notable that the New York Times editorial board, a long-time advocate for FTC Chair Lina Khan and early supporter of the noncompete rule, has not opined. A recent Congressional Research Service report characterizes the FTC’s legal authority to issue such rules as “unsettled.”

Read the full piece here.

The Federal Communications Commission’s (“FCC”) recent order to reclassify broadband internet access as a Title II “telecommunications service” under the Communications Act, will subject the industry to extensive public utility style regulation. While “net neutrality” principles drove were the initial justifications for Title II, the FCC’s current rationale has shifted to national security, public safety, and privacy concerns and broader regulatory control. Title II’s comprehensive regulatory framework threatens to commoditize broadband by banning practices like paid prioritization, zero-rating, and usage-based pricing, thereby reducing consumer choice and stifling innovation. Such heavy-handed regulation is unnecessary given the increasing competition in broadband markets from new technologies like 5G and satellite internet. Title II common carrier regulation is an outdated regulatory model ill-suited for modern broadband services and may do more harm than good for consumers.

I. Introduction

Net neutrality is the idea that internet service providers (“ISPs”) should treat all data transmitted over the internet the same, and should not discriminate among consumers, entities that provide content, or applications that use the internet. Whether net neutrality should be mandated by rules and regulations — such as the Federal Communications Commission’s (“FCC”) latest net-neutrality regulations — has been a highly controversial topic since the early 2000s. The FCC has imposed net-neutrality rules twice before, in 2010 and 2015, only to see them struck down by courts or repealed, as the commission’s partisan makeup changed. Last month, in a party line vote, the Commission voted to regulate broadband internet under Title II of the Communications Act and impose net-neutrality rules.[1]

For much of the internet’s history, broadband telecommunications have been regulated as an “information service” under Title I of the Communications Act, which is widely considered to be a relatively light-touch regulatory framework. Since the FCC’s 2015 Open Internet Order, the agency has attempted to reclassify broadband as a “telecommunications service” under Title II, subject to the more heavy-handed regulation imposed on public utilities and “common carriers.” Under Title II, broadband companies are required to provide service to all customers equally and may be subject to public-utility-style regulation, including price controls, certificates of convenience and necessity, and quality-of-service requirements.

Because regulation under Title II entails much more than just net neutrality, critics complain that reclassifying broadband providers as common carriers amounts essentially to a federal takeover of a large part of the U.S. economy, used by nearly every American every day. On the other hand, proponents claim that precisely because broadband is so important to the economy, and even to the functioning of society, it must be managed by a government agency that will ensure equal access, maintain privacy and free speech, and protect national security and public safety.

While net neutrality is just a small piece of Title II, Title II is just one cog in massive gearwork of new federal regulations affecting nearly every aspect of access and use of the internet. Under rules adopted by the FCC, broadband deployment, upgrades, pricing, promotions, quality of service, and even marketing and advertising are now subject to FCC monitoring, scrutiny, and enforcement.

In this article, we provide a brief historical overview of net neutrality, including the debates over whether internet service is best classified as a Title I information service or at Title II telecommunications service, and how understanding of the underlying concerns has changed over the past 25 years. We then take a deeper look at what Title II regulation involves, to understand whether it is suitable to address contemporary concerns. We conclude by examining Title II within a broad regulatory framework that is — intentionally or unintentionally — banning or hindering many of the dimensions across which broadband providers compete. Some may argue that the commodification of broadband will nudge broadband toward a more competitive market with standardized (or near-standardized) products. In the process, however, consumers will see dwindling options among service offerings much like Henry Ford’s quip that consumers could get a Model T in any color they like, so long as it’s black.

II. Is Net Neutrality Still a Thing?

Columbia Law School Professor Tim Wu is credited with articulating the concept of “net neutrality” as an anti-discrimination framework, “to give users the right to use non-harmful network attachments or applications, and give innovators the corresponding freedom to supply them.”[2] In a letter to the FCC, Wu & Lawrence Lessing drew a comparison to electric utilities which, as common carriers, provide electricity to all paying customers “without preference for certain brands or products.”[3] Indeed, Wu argued that his net neutrality proposal was “similar” to historic common carriage requirements.[4]

In the years since Wu introduced the term, net-neutrality policies have focused on the prohibition of three practices:

1. Blocking of legal content, such as when a phone company providing service was accused of blocking Voice over Internet Protocol (“VoIP”) telephone service that competed with the phone company’s landline business.[5]
2. Throttling, or the intentional slowing of an internet service, such as when an ISP was alleged to have slowed or interfered with file sharing using BitTorrent protocols;[6] and
3. Paid prioritization, in which a content provider pays an ISP a fee for faster service — commonly referred to as “fast lanes.”[7]

In 2004, FCC Chair Michael Powell articulated four “Internet Freedoms,” derived from Wu & Lessig’s work.[8] These were subsequently incorporated into the FCC’s 2005 “Internet Policy Statement.”[9]

By this point, the question of Title I versus Title II classification had become a central fracture point in discussions of net neutrality. On its face, Title I offers the FCC little, if any, substantive regulatory authority — indeed, it was created to differentiate unregulated services ancillary to the core telephone network services that the FCC regulated throughout the 20th century. Conversely, Title II provides the FCC with pervasive regulatory authority over the traditional telephone network, from pricing decisions to decisions over what services to offer and even what furniture to buy for meeting rooms.[10] Starting in the late 1990s, the FCC argued that internet service was best treated under Title I. The 9th Circuit Court of Appeals subsequently determined that internet service was better understood as a Title II service. The FCC disagreed and, in Brand X the Supreme Court held that the FCC’s determination takes precedence over that of the federal courts.

Thus, understanding of how internet services would be classified went from Title I, to Title II, and back to Title I over a period of seven years: The battle for classification had begun. That continued in the 2010 and 2015 Orders (in which the FCC relied on Title I and then Title II, respectively).

In 2010, the agency issued its Preserving the Open Internet Order, prohibiting blocking and unreasonable discrimination as well as mandating providers disclose the network management practices, performance characteristics, and terms and conditions of their broadband services.[11] In separate 2010 and 2014 cases, The DC Circuit Court of Appeals struck down the 2010 Order’s net neutrality requirements.[12] The courts noted that, because broadband providers were regulated under Title I as information services, they were not common carriers and could not be subject to net neutrality’s common carriage rules. A little more than a year after the court’s 2014 decision, in 2015, the FCC adopted the Open Internet Order, that reclassified broadband internet as a Title II common carrier telecommunication service and adopted new net neutrality rules prohibiting blocking, throttling, and paid prioritization.[13] The order also imposed a “general conduct” rule that prohibited broadband providers from “unreasonably interfer[ing] or unreasonably disadvantag[ing]” users from accessing the content or services of their choice.

In 2017, the FCC reversed course and repealed the 2015 Order with its Restoring Internet Freedom Order.[14] The order (again) reclassified broadband as a Title I information service, thereby eliminating net neutrality and general conduct rules. The order also preempted any state or local laws “that would effectively impose rules or requirements that [the FCC] repealed or decided to refrain from imposing,” or that would impose “more stringent requirements for any aspect of broadband service” addressed by the 2017 Order. In 2019, an appeals court upheld much of the order, but vacated the order’s preemption of state and local laws.[15]

Until recently, much of the debate was over whether net neutrality was necessary and how it would affect continued investment by ISPs’ in their networks. Advocates for federal intervention claimed it was necessary for the FCC to preserve or foster the “open internet” by mandating net neutrality. Opponents countered that such intervention was (1) unnecessary because providers were not engaging in widespread practices contrary to net neutrality, and (2) harmful because the prohibitions were so tight that they would stifle investment and innovation in new business models.

Something happened along the way from then to now: No one seems to care much about net neutrality anymore.[16] One reason is because most people are happy with their internet service. Since 2021, more households are connected to the internet, broadband speeds have increased while prices have declined, more households are served by more than a single provider, and new technologies — such as satellite and 5G — have expanded internet access and intermodal competition among providers.[17] Another reason is a shift in perception of who is blocking or throttling content. Much of that ire has turned towards websites, apps, and device providers.[18] Much of the public no longer sees broadband providers as the bogeymen.

The FCC itself seems to have downgraded “net neutrality” as a justification for heavy handed Title II regulation in favor of other reasons. For example, “national security” was mentioned only three times in the 2015 Order, but 181 times in the 2024 Order. The 2015 Order makes no mention of China, Russia, Iran, North Korea, or “data security;” in the 2024 Order China is mentioned 140 times and “data security” 15 times. Cybersecurity got a single mention in the 2015 Order, but 73 in the 2024 Order. This is a pretty clear indication that the FCC intends to do much more with its expansive Title II powers than merely prevent blocking, throttling, and paid prioritization.

III. Title II Is Much More than Net Neutrality

Net neutrality is often used as the hook for regulating broadband providers as common carriers. But Title II is an expansive provision in the Communications Act. Among its many provisions, Title II allows federal rate regulation of broadband, as well as Section 214 “certificate of convenience and necessity” regulations requiring providers to obtain the FCC’s approval before constructing new networks, offering new services, discontinuing outdated offerings, or transferring control of licenses. The Commission’s order forbears rate regulation and grants “blanket” Section 214 authority to all current broadband providers, with the exception of five Chinese providers.

The 2024 Order’s “general conduct standard” provides the FCC with unlimited discretion to intervene in innovative business models. The order states the general conduct standard “prohibits unreasonable interference or unreasonable disadvantage to consumers or edge providers” that serves as a “catch-all backstop” to allow the FCC to intervene when it finds that an ISP’s conduct could harm consumers or content providers.

The FCC has a history of invoking the general conduct standard to scrutinize two common practices:

1. Zero-rating; and
2. So-called “data caps” and usage-based pricing.

Zero-rating is the practice of excluding certain online content or applications from a subscriber’s allowed data usage. For example, when AT&T owned HBO, it exempted HBO Max content from AT&T users’ data allowance.

Zero-rating can make some popular services more accessible and affordable for lower-income users, who may have limited data plans. Zero-rating also allows ISPs to offer value-added services and to differentiate their offerings, spurring competition and innovation in the broadband market.

In December 2016, the FCC sent letters to both AT&T and Verizon Communications, warning their zero-rating programs could harm competition and consumers.[19] In the last days of the Obama administration, the FCC released a staff review of sponsored data and zero-rating practices in the mobile-broadband market concluding such practices “may harm consumers and competition… by unreasonably discriminating in favor of select downstream providers.”[20] Less than a month later, in the early days of the Trump administration, the FCC retracted the report.[21]

We can expect that under the 2024 Order — identical in most ways to the 2015 Order under which these practices were investigated — the Commission will once again use its powers to scrutinize zero-rating practices with an eye toward prohibiting them. Indeed, the 2024 Order characterizes, “sponsored-data programs as the type of practices that may raise concerns under the general conduct standard” that will be subject to a “case-by-case review.”

Usage-based pricing can be thought of as a “pay-as-you-go” plan in which consumers pay in advance for a certain amount of data per month. If they exceed that amount (what some would call a “cap”), then the consumer has the option to purchase more data. Some consumer groups claim that data caps and usage-based pricing are little more than a “money grab” by providers who derive additional revenue from overage charges or by upgrading users to a tier with a larger data allowance.[22] On the other hand, providers say that usage-based pricing is no different from nearly every other consumer product in which consumers pay for what they use. They argue that, without usage-based pricing, modest users of data would subsidize those who use copious amounts of data.[23]

In June 2023, FCC Chair Jessica Rosenworcel announced that she would ask her fellow commissioners to support a formal notice of inquiry to learn more about how broadband providers use data caps on consumer plans.[24] That same day, the FCC launched a “Data Caps Stories Portal” for “consumers to share how data caps affect them.” The 2024 Order indicates “providers can implement data caps in ways that harm consumers or the open Internet” and the FCC will “evaluate individual data cap practices under the general conduct standard.”

If, however, sponsored-data, zero-rating, data caps, and usage-based pricing practices harm competition or consumers, these concerns can be addressed with a straightforward application of existing antitrust and consumer-protection laws. Antitrust enforcers and courts assess such practices under the rule of reason — an approach that avoids a presumptive condemnation because they only rarely result in actual anticompetitive harm. Under a rule-of-reason approach, the effects of potentially harmful conduct are typically evaluated and weighed against the various aims that competition law seeks to promote. Only following that review is it determined whether particular conduct is harmful and, if so, whether there are procompetitive benefits that outweigh the harm.

Consumer protection is the purview of the Federal Trade Commission. Section 5 of the FTC Act prohibits “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” The FTC has a long history of using its authority, such as recent actions to protect the privacy of consumers’ health records.[25] But, the FTC has no Section 5 authority over “common carriers subject to the Acts to regulate commerce,” which includes, according to the FTC Act, the “Communications Act of 1934 and all Acts amendatory thereof and supplementary thereto.” Thus, by classifying broadband providers as Title II common carriers, the FCC has stripped the FTC of its authority to protect consumers using Section 5.

IV. Commoditizing Broadband and the Elusive Search for Perfect Competition

In its Notice of Proposed Rulemaking, the Commission argued that broadband internet access services are “[n]ot unlike other essential utilities, such as electricity and water” and that high-speed internet “was essential or important to 90 percent of U.S. adults during the COVID-19 pandemic.”[26] The Commission argues that broadband internet is therefore an essential public utility and should be regulated as such.

But many essentials to human survival — shelter, food, clothing — are not subject to common-carrier regulations, because they are provided by multiple suppliers in competitive markets. Utilities are considered distinct because they tend to have such significant economies of scale that (1) a single monopoly provider can provide the goods or services at a lower cost than multiple competing firms, and/or (2) market demand is insufficient to support more than a single supplier.[27] Water, sewer, electricity distribution, and natural gas are typically considered “natural” monopolies under this definition.[28] In many cases, not only are these industries treated as monopolies, but their monopoly status is codified by laws forbidding competition. At one time, local and long-distance telephone services were considered — and treated as — natural monopolies, as was cable television.[29]

Over time, innovations have eroded the “natural” monopolies in telephone and cable.[30] In 2000, 94 percent of U.S. households had a landline telephone, and only 42 percent had a mobile phone.[31] By 2018, those numbers flipped.[32] In 2015, 73 percent of households subscribed to cable or satellite-television services.[33] Today, fewer than half of U.S. households subscribe.[34] Much of that transition is due to the enormous improvements in broadband speed, reliability, and affordability. Similarly, entry and intermodal competition from 5G, fixed wireless, and satellite has meant that more than 94 percent of the country can now access highspeed broadband from three or more providers, thereby eroding the already tenuous claims that broadband-internet service is akin to a utility.

Much of the FCC’s motivation in its recent regulatory push — Title II, digital discrimination, and broadband “nutrition labels” — seems to be driven by a misplaced notion of perfect competition, as described in introductory economics textbooks. Under perfect competition, prices paid by consumers equal the marginal cost of production, that cost is the minimum average cost, and firms earn zero economic profits. Perfect competition is too perfect. While perfection can be sought, it can never be achieved in the real world because the real world is a messy place.

Perhaps the messiest assumption of perfect competition is that each firm produces undifferentiated commodity products.[35] Broadband internet service is not a commodity. Providers use different technologies (e.g. fiber, 5G, copper wire) with different performance characteristics (e.g. speed and latency). Providers offer different service agreements. Some have early termination fees, while others don’t; some have “all-you-can-eat” data usage, while other have usage-based billing; some may have zero-rating while other don’t. With so much variation in services both across and within providers, some have argued that most consumers are not well-informed — if not confused — about their broadband options.

As a first step to commoditizing broadband, at the direction of the 2021 bipartisan infrastructure bill, the FCC adopted its broadband “nutrition label” rules.[36] Providers must display a nutrition label for each plan it offers. Consumers can then use the labels as an “apples to apples” comparison across plans and providers. Despite the cost to produce the labels, the uncertainty whether consumers will find the labels useful, and whether the full force of the federal government is necessary to display the labels, it’s difficult to argue that consumers are worse off by having easy-to-use information readily available.

With the FCC’s recent digital discrimination rules, the agency took another step toward commoditizing broadband. The infrastructure act required the Commission to adopt final rules “preventing digital discrimination of access based on income level, race, ethnicity, color, religion, or national origin.”[37] The FCC could have issued a narrow rule to outlaw intentional discrimination by broadband providers in deployment decisions, in a way that would treat a person or group of persons less favorably than others because of a listed protected trait. This rule would be workable, leaving the FCC to focus its attention on cases where broadband providers fail to invest in deploying networks due to animus against those groups.

Instead, the FCC’s final order creates an expansive regulatory scheme that gives it essentially unlimited discretion over anything that would affect the adoption of broadband. It did this by adopting a differential impact standard that applies not only to broadband providers, but to anyone that could “otherwise affect consumer access to broadband internet access service.”[38] The order spans nearly every aspect of broadband deployment, including, but not limited to network infrastructure deployment, network reliability, network upgrades, and network maintenance. In addition, the order covers a wide range of policies and practices that while not directly related to deployment, affect the profitability of deployment investments, such as pricing, discounts, credit checks, marketing or advertising, service suspension, and account termination. Most troubling, the order considers price among the “comparable terms and conditions” subject to its digital discrimination rules.[39] Taken together, with these rules, the FCC gave itself nearly unlimited authority over broadband providers, and even a great deal of authority over other entities that can affect broadband access, including other federal agencies, state and local governments, nonprofit organizations, and apartment owners.

Because the infrastructure act included income level as a protected trait, the FCC opened a Pandora’s Box in which nearly any organization’s policies and practices can be scrutinized as discriminatory.[40] For example many providers offer plans explicitly targeted at low-income consumers, such as Xfinity’s Internet Essentials program.[41] These programs are at risk of scrutiny under the digital discrimination rules. Moreover, the rules will likely stifle new deployment or upgrades out of fear of alleged disparate effects. If they don’t upgrade everyone, they could be accused of discrimination. At the extreme, providers will be faced with the choice to upgrade everyone or upgrade no one. Because they cannot afford to upgrade everyone, then they will upgrade no one.

While unintentional, the digital discrimination rules are another step toward commoditization. Providers must offer comparable speeds, capacities, latency, and other quality of service metrics in a given area, for comparable terms and conditions, including price, thereby erasing many of the dimensions across which providers compete.

Lastly under Title II and its net neutrality provisions, the FCC is erasing more competitive dimensions. Banning paid prioritization forces all data to be treated equally, even if customers or services would benefit from differentiated offerings. Without flexibility in how services are delivered and priced, companies lose incentives to develop better networks and new innovations for specific use cases like high-bandwidth video streaming or remote medical services. A ban on data throttling removes essential network-management tools that could prevent congestion and improve overall customer experience. If — as expected — the FCC moves to ban zero-rating and usage-based billing, consumers will have even fewer choices among broadband internet services. In the extreme, providers will simply be providing “dumb pipes” with standardized service. While such efforts may mimic perfect competition’s commodity condition, it’s not clear that consumers will benefit from one-size-fits-all broadband.

V. Conclusion

As we have recounted above, discussion about net neutrality concerns grew out of the era in which telecommunications services were provided by regulated, natural, monopoly carriers. In that era, there was legitimate need for pervasive regulation of these carriers. But these discussions also started concurrent with changing competitive dynamics in these markets. This historical context centered net neutrality in debates over the ongoing basis for the FCC’s own authority: Whether the regulatory structure of Title II, long central to the FCC’s mission, is still fit to task in contemporary markets. Looking at the comprehensive regulatory framework contemplated by Title II, the answer is clear: Regulation is driving internet services toward increasingly commodity services, reducing consumer choice in the process. Much like the Model T, Title II may have been necessary in the past, but it is now an artifact of a bygone era and should be allowed to slip into history.

[1] Declaratory Ruling, Order, Report and Order, and Order on Reconsideration, In the Matter of Safeguarding and Securing the Open Internet; Restoring Internet Freedom, WC Docket No. 23-320, WC Docket No. 17-108 (Apr. 25, 2024) [hereinafter “2024 Order”].

[2] Tim Wu, Network Neutrality, Broadband Discrimination, 2 J. Telecomm. & High Tech. L. 141, 142 (2003) [emphasis in original].

[3] Tim Wu & Lawrence Lessig, Ex Parte Submission, Appropriate Regulatory Treatment for Broadband Access to the Internet Over Cable Facilities, CS Docket No. 02-52 (Aug. 22, 2003), available at https://web.archive.org/web/20041204012743/http://faculty.virginia.edu/timwu/wu_lessig_fcc.pdf (“When consumers buy a new toaster made by General Electric they need not worry that it won’t work because the utility company makes a competing product.”).

[4] Wu, supra note 2 at 150.

[5] Lawrence Lessig, Voice-Over-IP’s Unlikely Hero, Wired (May 1, 2005), https://www.wired.com/2005/05/voice-over-ips-unlikely-hero.

[6] Declan McCullagh, FCC Formally Rules Comcast’s Throttling of Bittorrent Was Illegal, CNet (Aug. 20, 2008), https://www.cnet.com/tech/tech-industry/fcc-formally-rules-comcasts-throttling-of-bittorrent-was-illegal.

[7] Chao Liu & Cooper Quintin, Internet Service Providers Plan to Subvert Net Neutrality. Don’t Let Them, Elec. Frontier Found. (Apr. 19, 2024), https://www.eff.org/deeplinks/2024/04/internet-service-providers-plan-subvert-net-neutrality-dont-let-them.

[8] Michael Powell, Preserving Internet Freedom: Guiding Principles for the Industry, 3 J. Telecomm. & High Tech. L. 5 (2004).

[9] Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 FCC Rcd. 14,986, 14,987-88 (2005).

[10] 47 CFR § 32.2000.

[11] Report and Order, In the Matter of Preserving the Open Internet; Broadband Industry Practices, GN Docket No. 09-191, WC Docket No. 07-52 (Dec. 21, 2010) [hereinafter “2010 Order”].

[12] For a more thorough summary, see Chris D. Linebaugh, Cong. Research Serv. LSB10693, ACA Connects v. Bonta: Ninth Circuit Upholds California’s Net Neutrality Law in Preemption Challenge (Feb. 2, 2022), available at https://crsreports.congress.gov/product/pdf/LSB/LSB10693.

[13] Report and Order on Remand, Declaratory Ruling, and Order, In the Matter of Protecting and Promoting the Open Internet, GN Docket No. 14-28 (Mar. 15, 2015) [hereinafter “2015 Order”].

[14] Declaratory Ruling, Report and Order, and Order, In the Matter of Restoring Internet Freedom, WC Docket No. 17-108 (Dec. 14, 2017) [hereinafter “2017 Order”].

[15] Mozilla Corp. v. FCC, 940 F.3d 1 (D.C. Cir., 2019)

[16] See, e.g. FCC reinstates net neutrality policies after 6 years, NPR Weekend Edition Saturday (May 4, 2024), available at https://www.npr.org/2024/05/04/1249166941/fcc-reinstates-net-neutrality-policies-after-6-years (noting that “Net neutrality was once the biggest controversy about the internet . . . .” and concluding “I think that net neutrality may be one of the most overhyped regulations on both sides.”).

[17] Eric Fruits, Ben Sperry, & Kristian Stout, ICLE Comments to FCC on Title II NPRM, Int’l Ctr. for L & Econ. (Dec. 14, 2023), https://laweconcenter.org/wp-content/uploads/2023/12/ICLE-Comments-on-2023-FCC-Title-II-NPRM.pdf\.

[18] See, for example, Oral Dissent of Brendan Carr, In the Matter of Safeguarding and Securing the Open Internet; Restoring Internet Freedom, WC Docket No. 23-320, WC Docket No. 17-108 (Apr. 25, 2024), https://youtu.be/W0CFV9DNSLU?si=dmS4MAnSvnEu-P-J (“After 2017 it wasn’t the ISPs that abuse their positions in the internet ecosystem. It was not the ISPs that blocked links to the New York Post’s Hunter Biden laptop story. Twitter did that. It wasn’t the ISPs that just one day after lobbying this FCC on this order, blocked all posts from a newspaper and removed the links to the outlet after it published a critical article. Facebook did that. It wasn’t the ISPs that earlier this month blocked links to a California-based news organization from showing up in search results to protest a state law. Google did that. It wasn’t the ISPs that blocked Beeper Mini, an app that allowed interoperability between iOS and messaging. Apple did that. Since 2017, we have learned that the real abusers of gatekeeper power were not ISPs operating at the physical layer, but big tech companies at the applications layer.”).

[19] Thomas Gryta, FCC Raises Fresh Concerns Over “Zero-Rating” by AT&T, Verizon, Wall St. J. (Dec. 2, 2016), https://www.wsj.com/articles/fcc-raises-fresh-concerns-over-zero-rating-by-at-t-verizon-1480695463.

[20] Policy Review of Mobile Broadband Operators’ Sponsored Data Offerings for Zero-Rated Content and Services (Jan. 11, 2017), https://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0111/DOC-342987A1.pdf.

[21] Order, In the Matter of Wireless Telecommunications Bureau Report: Policy Review of Mobile Broadband Operators’ Sponsored Data Offerings for Zero Rated Content and Services (Feb. 3, 2017), https://docs.fcc.gov/public/attachments/DA-17-127A1.pdf.

[22] Jon Brodkin, Comcast Disabled Throttling System, Proving Data Cap Is Just a Money Grab, Ars Technica (Jun. 13, 2018), https://arstechnica.com/tech-policy/2018/06/comcast-says-it-doesnt-throttle-heaviest-internet-users-anymore.

[23] Brian C. Albrecht & Jonathan W. Williams, Net Neutrality Is an Idea That Should Have Stayed Dead, Boston Globe (May 6, 2024), https://www.bostonglobe.com/2024/05/06/opinion/net-neutrality-data-caps. See also, Eric Fruits, The Curious Case of the Missing Data Caps Investigation, Truth on the Market (Feb. 5, 2024), https://truthonthemarket.com/2024/02/05/the-curious-case-of-the-missing-data-caps-investigation.

[24] Chairwoman Rosenworcel Proposes to Investigate How Data Caps Affect Consumers and Competition (Jun. 15, 2023), https://docs.fcc.gov/public/attachments/DOC-394416A1.pdf.

[25] Elisa Jillson, Protecting the Privacy of Health Information: A Baker’s Dozen Takeaways from FTC Cases (Jul. 25, 2023), https://www.ftc.gov/business-guidance/blog/2023/07/protecting-privacy-health-information-bakers-dozen-takeaways-ftc-cases.

[26] Notice of Proposed Rulemaking, In the Matter of Safeguarding and Securing the Open Internet, WC Docket No. 23-320 (Sep. 28, 2023), available at https://docs.fcc.gov/public/attachments/DOC-397309A1.pdf.

[27] See Paul Krugman & Robin Wells, Economics 389 (4th ed. 2015) (“So the natural monopolist has increasing returns to scale over the entire range of output for which any firm would want to remain in the industry—the range of output at which the firm would at least break even in the long run. The source of this condition is large fixed costs: when large fixed costs are required to operate, a given quantity of output is produced at lower average total cost by one large firm than by two or more smaller firms.”).

[28] Id. (“The most visible natural monopolies in the modern economy are local utilities—water, gas, and sometimes electricity. As we’ll see, natural monopolies pose a special challenge to public policy.”).

[29] See Richard H. K. Vietor, Contrived Competition 167 (1994) (“[I]n the early part of the twentieth century, American Telephone and Telegraph (AT&T) set itself the goal of providing universal telephone services through an end-to-end national monopoly. … By [the 1960s], however, the distortions of regulatory cross-subsidy had diverged too far from the economics of technological change.”); see also Thomas W. Hazlett, Cable TV Franchises as Barriers to Video Competition, 2 Va. J.L. & Tech. 1, 1 (2007) (“Traditionally, municipal cable TV franchises were advanced as consumer protection to counter “natural monopoly” video providers. … Now, marketplace changes render even this weak traditional case moot. … [V]ideo rivalry has proven viable, with inter-modal competition from satellite TV and local exchange carriers (LECs) offering “triple play” services.”).

[30] See id. at 59-73.

[31] Share of United States Households Using Specific Technologies, Our World in Data (n.d.), https://ourworldindata.org/grapher/technology-adoption-by-households-in-the-united-states.

[32] Id. (showing household usage of landlines and mobile phones in 2018 at 42.7 and 95 percent, respectively).

[33] Edward Carlson, Cutting the Cord: NTIA Data Show Shift to Streaming Video as Consumers Drop Pay-TV, NTIA (2019), https://www.ntia.gov/blog/2019/cutting-cord-ntia-data-show-shift-streaming-video-consumers-drop-pay-tv.

[34] Karl Bode, A New Low: Just 46% of U.S. Households Subscribe to Traditional Cable TV, TechDirt (Sep. 18, 2023), https://www.techdirt.com/2023/09/18/a-new-low-just-46-of-u-s-households-subscribe-to-traditional-cable-tv. See also, Shira Ovide, Cable TV Is the New Landline, N.Y. Times (Jan. 6, 2022), https://www.nytimes.com/2022/01/06/technology/cable-tv.html.

[35] Krugman & Wells, supra note 28 at 360 (“A perfectly competitive industry must produce a standardized product.”), 359 (“a standardized product, which is a product that consumers regard as the same good even when it comes from different producers, sometimes known as a commodity”) [emphasis in original].

[36] Order, In the Matter of Empowering Broadband Consumers Through Transparency, CG Docket No. 22-2 (Jul. 18, 2023), available at https://docs.fcc.gov/public/attachments/DA-23-617A1.pdf.

[37] Pub. L. No. 117-58, § 60506(b)(1), 135 Stat. 429, 1246.

[38] See 47 CFR §16.2 (definition of “Covered entity” and “Covered elements of service”).

[39] Report and Order and Further Notice of Proposed Rulemaking, In the Matter of Implementing the Infrastructure Investment and Jobs Act: Prevention and Elimination of Digital Discrimination, GN Docket No. 22-69 (Oct. 25, 2023), available at https://docs.fcc.gov/public/attachments/DOC-397997A1.pdf (“Indeed, pricing is often the most important term that consumers consider when purchasing goods and services… this is no less true with respect to broadband internet access ser-vices.”).

[40] Eric Fruits, Everyone Discriminates Under the FCC’s Proposed New Rules, Truth on the Market (Oct. 30, 2023), https://truthonthemarket.com/2023/10/30/everyone-discriminates-under-the-fccs-proposed-new-rules.

[41] Internet Essentials, (2024), https://www.xfinity.com/learn/internet-service/internet-essentials.

Introduction and Summary of Argument

The Sherman Act is the “Magna Carta of free enterprise.” Verizon Commcn’s Inc. v. Law Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 415 (2004) (citation omitted). It directs itself “not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993). And it does so not to protect corporate or private interests, but from concern for consumer welfare and the public interest. Id. The goal of antitrust law thus “is not to redress losers of legitimate competition; [i]t is to proscribe actions with anticompetitive effect.” Apartments Nationwide, Inc. v. Harmon Publ’g Co., 78 F.3d 584 (6th Cir. 1996) (table); Omega Env’t, Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1163 (9th Cir. 1997) (“[T]he antitrust laws were not designed to equip [a] competitor with [its rival’s] legitimate competitive advantage.”).

For almost four decades, CoStar Group, Inc. and CoStar Realty Information, Inc. (“CoStar”) have provided commercial real estate
(“CRE”) services, including CRE listings and auction services. Commercial Real Estate Exchange Inc. (“CREXi”), launched almost a decade ago, is attempting to build its own CRE platform. CoStar filed suit against CREXi in September 2020, alleging that CREXi “harvests content, including broker directories, from CoStar’s subscription database without authorization by using passwords issued to other companies.” See Dist. Ct. Dkt. 1. In response, CREXi filed eight antitrust counterclaims for violations of the Sherman Act (seven claims) and the Cartwright Act (one claim). Dist. Ct. Dkt. 146. The district court dismissed them all.

In asking this Court to reverse the district court’s decision, CREXi and its amicus make three critical errors. First, CREXi and the FTC try to recast the court’s analysis as incorrectly applying a “refusal-to-deal framework.” Doc. 24 (“FTC Br.”) 10; Doc. 21 (“CREXi Br.”) 32. But the district court did not apply any such framework. Nor did it borrow any of the elements this Court has found must be pleaded in refusal to deal cases. See FTC v. Qualcomm Inc., 969 F.3d 974, 994–95 (9th Cir. 2020). Instead, the court did what courts do when considering antitrust claims—analyze contractual language and market realities in light of the bedrock antitrust principle that “a business generally has the right to refuse to deal with its competitors.” Dist. Ct. Dkt. 340 (“Op.”) 3. There is nothing improper about analyzing antitrust claims against the backdrop of this (and other) “traditional antitrust principles.” Trinko, 540 U.S. at 411.

Second, CREXi and the FTC argue that CoStar’s contractual provisions with brokers are “de facto” exclusivity provisions that violate the Sherman Act. CREXi Br. 62–64; FTC Br. 17–19. Yet both fail to acknowledge that this Court has never “explicitly recognized a ‘de facto’ exclusive dealing theory.” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 836 F.3d 1171, 1182 (9th Cir. 2016). A careful examination of this theory reveals that it lacks a doctrinal foundation, and that this Court’s cases, historical context, and administrability concerns all counsel strongly against recognizing this theory. In any event, even if this were a viable theory, it is unavailable to CREXi here because CoStar’s express contractual terms plainly do not “substantially foreclose[]” brokers from dealing with CREXi. Id.

Third, CREXi and the FTC both urge this Court to hold that allegations of supracompetitive prices alone are enough to adequately allege direct evidence of market power, and thus that the test applied in Rebel Oil Co., Inc. v. Atl. Richfield Co., 51 F.3d 1421, 1433 (9th Cir. 1995), is “wrong as a matter of law.” CREXi Br. 38. Not so. Direct evidence of market power is “only rarely available.” United States v. Microsoft Corp., 253 F.3d 34, 51 (D.C. Cir. 2001) (en banc) (per curiam). And as the Supreme Court has made clear, market power is “the ability to raise prices profitably by restricting output. Ohio v. Am. Express Co., 138 S. Ct. 2274, 2288 (2018) (quoting Areeda & Hovenkamp § 5.01) (emphasis in original). “[H]igh price alone” thus is not enough to infer market power. Coal. for ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 503 (9th Cir. 2010); see Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995) (Posner, J.). A plaintiff seeking to present direct evidence of market power needs to show more than prices above a competitive level. It must show “evidence of restricted output and supracompetitive prices.” Rebel Oil, 51 F.3d at 1434 (emphasis added); Forsyth v. Humana, Inc., 114 F.3d 1467, 1476 (9th Cir. 1997) (“With no accompanying showing of restricted output,” “hig[h] prices” and “high profits … fail[ ] to present direct evidence of market power.”), overruled on other grounds by Lacey v. Maricopa Cnty, 693 F.3d 896 (9th Cir. 2012).

The arguments pushed by CREXi and the FTC, if accepted, would open the floodgates to baseless antitrust suits. Recognizing claims based on the de facto exclusive dealing theory would allow a competitor to transform its rival’s plainly nonexclusive contractual language into exclusive dealing provisions and drag its rival into expensive, protracted discovery based on speculative allegations about third-party conduct. Indeed, there is no end to what a struggling competitor could do with such an amorphous doctrine. So too, permitting a party to establish direct evidence of market power through allegations of supracompetitive prices alone would contravene binding authority and bedrock antitrust principles.

In rejecting these arguments below, the district court properly concluded that CREXi failed to meet its pleading burden for its antitrust
counterclaims. This Court should affirm.

Read the full brief here.

Abstract

The United States generally takes a light-touch approach to regulation, and notably so in the technology sector. This approach applies equally to facial recognition technology (FRT). But while the US regulatory touch may be light, this does not mean that it is either simple or non-existent. This chapter chronicles regulation of FRT in the United States at federal, state, and local levels, and considers potential regulatory issues on the horizon

ICLE Director of Law & Economics Programs Gus Hurwitz was a guest on The Cyberlaw Podcast, where he discussed the U.S. Supreme Court’s Murthy v. Missouri free speech case and a unanimous decision by the court on when a public official may use a platform’s tools to suppress critics posting on his or her social-media page. Other topics included AI deepfakes, the congressional bill to force the divestment of TikTok, and the Federal Trade Commission’s lawsuit against Meta. Audio of the full episode is embedded below.

INTEREST OF AMICI CURIAE

Amici Curiae are 24 former government officials, former judges, and intellectual property scholars who have developed copyright law and policy, researched and written about copyright law, or both. They are concerned about ensuring that copyright law continues to secure both the rights of authors and publishers in creating and disseminating their works and the rights of the public in accessing these works. It is vital for this Court to maintain this balance between creators and the public set forth in the constitutional authorization to Congress to create the copyright laws. Amici have no stake in the parties or in the outcome of the case. The names and affiliations of the members of the Amici are set forth in Addendum A below.[1]

SUMMARY OF ARGUMENT

Copyright fulfills its constitutional purpose to incentivize the creation and dissemination of new works by securing to creators the exclusive rights of reproduction and distribution. 17 U.S.C. § 106. Congress narrowly tailored the exceptions to these rights to avoid undermining the balanced system envisioned by the Framers. See 17 U.S.C. §§ 107–22. As James Madison recognized, the “public good fully coincides . . . with the claims of individuals” in the protection of copyright. The Federalist NO. 43, at 271–72 (James Madison) (Clinton Rossiter ed., 1961). Internet Archive (“IA”) and its amici wrongly frame copyright’s balance of interests as between the incentive to create, on the one hand, and the public good, on the other hand. That is not the balance that copyright envisions.

IA’s position also ignores the key role that publishers serve in the incentives copyright offers to authors and other creators. Few authors, no matter how intellectually driven, will continue to perfect their craft if the economic rewards are insufficient to meet their basic needs. As the Supreme Court observed, “copyright law celebrates the profit motive, recognizing that the incentive to profit from the exploitation of copyrights will redound to the public benefit by resulting in the proliferation of knowledge.” Eldred v. Ashcroft, 537 U.S. 186, 212 n.18 (2003) (quoting Am. Geophysical Union v. Texaco Inc., 802 F. Supp. 1, 27 (S.D.N.Y. 1992)). Accordingly, the Supreme Court and Congress have long recognized that copyright secures the fruits of intermediaries’ labors in their innovative development of distribution mechanisms of authors’ works. Copyright does not judge the value of a book by its cover price. Rather, core copyright policy recognizes that the profit motive drives the willingness ex ante to invest time and resources in creating both copyrighted works and the means to distribute them. In sum, commercialization is fundamental to a functioning copyright system that achieves its constitutional purpose.

IA’s unauthorized reproduction and duplication of complete works runs roughshod over this framework. Its concept of controlled digital lending (CDL) does not fall into any exception—certainly not any conception of fair use recognized by the courts or considered by Congress—and thus violates copyright owners’ exclusive rights. Expanding the fair use doctrine to immunize IA’s wholesale copying would upend Congress’s carefully-considered, repeated rejections of similar proposals.

Hoping to excuse its disregard for copyright law, IA and its amici attempt to turn the fair use analysis on its head. They acknowledge that the first sale exception does not permit CDL, as this Court made clear in Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. 2018).[2] They also are aware that courts consistently have rejected variations on the argument that wholesale copying, despite a format shift, is permissible under fair use.[3] Nevertheless, IA and its amici ask this Court, for the first time in history, to create a first sale-style exemption within the fair use analysis. CDL is not the natural evolution of libraries in the digital age; rather, like Frankenstein’s monster, it is an abomination composed of disparate parts of copyright doctrine. If endorsed by this Court, it would undermine the constitutional foundation of copyright jurisprudence and the separation of powers.

The parties and other amici address the specific legal doctrines, as well as the technical and commercial context in which these doctrinal requirements apply in this case, and thus Amici provide additional information on the nature and function of copyright that should inform this Court’s analysis and decision.

First, although IA and its amici argue that there are public benefits to the copying in which IA has engaged that support a finding that CDL is fair use, their arguments ignore that copyright itself promotes the public good and the inevitable harms that would result if copyright owners were unable to enforce their rights against the wholesale, digital distribution of their works by IA.

Second, IA’s assertion of the existence of a so-called “digital first sale” doctrine—a principle that, unlike the actual first sale statute, would permit the reproduction, as well as the distribution, of copyrighted works—is in direct conflict with Congress and the Copyright Office’s repeated study (and rejection) of similar proposals. Physical and digital copies simply are different, and it is not an accident that first sale applies only to the distribution of physical copies. Ignoring decades of research and debate, IA pretends instead that Congress has somehow overlooked digital first sale, yet left it open to the courts to engage in policymaking by shoehorning it into the fair use doctrine. By doing so, IA seeks to thwart the democratic process to gain in the courts what CDL’s proponents have not been able to get from Congress.

Third, given that there is no statutory support for CDL, most libraries offer their patrons access to digital works by entering into licensing agreements with authors and their publishers. Although a minority of libraries have participated in IA’s CDL practice, and a few have filed amicus briefs in support of IA in this Court, the vast majority of libraries steer clear because they recognize that wholesale copying and distribution deters the creation of new works. As author Sandra Cisneros understands: “Real libraries do not do what Internet Archive does.” A-250 (Cisneros Decl.) ¶12. There are innumerable ways of accessing books, none of which require authors and publishers to live in a world where their books are illegally distributed for free.

No court has ever found that reproducing and giving away entire works—en masse, without permission, and without additional comment, criticism, or justification—constitutes fair use. IA’s CDL theory is a fantasy divorced from the Constitution, the laws enacted by Congress, and the longstanding policies that have informed copyright jurisprudence. This Court should reject IA’s effort to erase authors and publishers from the copyright system.

[1] The parties have consented to the filing of this brief. Amici Curiae and their counsel authored this brief. Neither a party, its counsel, nor any person other than Amici and their counsel contributed money that was intended to fund preparing or submitting this brief.

[2] See SPA-38 (“IA accepts that ReDigi forecloses any argument it might have under Section 109(a).”); Dkt. 60, Brief for Defendant-Appellant Internet Archive (hereinafter “IA Br.”) (appealing only the district court’s decision on fair use).

[3] See, e.g., ReDigi, 910 F.3d at 662; UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Supp. 2d 349, 352 (S.D.N.Y. 2000); see also Disney Enters., Inc. v. VidAngel, Inc., 869 F.3d 848, 861–62 (9th Cir. 2017).

Dear Chair Khan, Commissioners Slaughter and Bedoya, and General Counsel Dasgupta,

The International Center for Law & Economics (ICLE) respectfully submits this letter in response to your June 29, 2023, NPRM regarding amendments to the premerger notification rules that implement the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) and to the Premerger Notification and Report Form and Instructions.

ICLE is a nonprofit, nonpartisan research center working to promote the use of law & economics methodologies to inform public policy debate. We have a long history of participation in regulatory proceedings relating to competition and antitrust law, including recent revisions to the merger guidelines[1] and the proposed revisions to the HSR premerger notification process.[2] We are consistently grateful for the opportunity to participate in proceedings such as these.

We write to express our concern about an important omission in the FTC’s proposed changes to the premerger notification form: its failure to address the requirements of the Regulatory Flexibility Act (RFA).[3] We appreciate your interest in this matter and the opportunity to share our concern with your offices.

This concern involves two legislative frameworks: the HSR premerger notification process and the requirements of the RFA. Under the HSR Act’s amendments to the Clayton Act, firms engaging in mergers above a statutorily defined minimum value[4]—including many that would involve smaller businesses to which the RFA applies—are required to provide information about a proposed merger to the FTC and the Department of Justice (DOJ) before the transaction can close. To bolster information gathering in merger enforcement, the FTC (with concurrence from the DOJ) proposed an extensive set of amendments to the filing process outlined by the HSR Act.[5] The proposed changes to the HSR process would dramatically expand the disclosure obligations for merging companies that meet the minimum valuation threshold.[6]

Under the RFA, federal agencies “shall prepare and make available for public comment an initial regulatory flexibility analysis. . . describ[ing] the impact of the proposed rule on small entities,”[7] except where “the head of the agency certifies that the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.”[8] If the agency believes the amendment will not have a substantial impact on small businesses, then it must provide “the factual basis” for its conclusion.[9]

The statement certifying that the proposed HSR changes in the NPRM won’t affect small businesses reads, in full:

Because of the size of the transactions necessary to invoke an HSR Filing, the premerger notification rules rarely, if ever, affect small entities. The 2000 amendments to the Act exempted all transactions valued at $50 million or less, with subsequent automatic adjustments to take account of changes in Gross National Product resulting in a current threshold of $111 million. Further, none of the proposed amendments expands the coverage of the premerger notification rules in a way that would affect small entities. Accordingly, the Commission certifies that these proposed amendments will not have a significant economic impact on a substantial number of small entities.[10]

Unfortunately, this is insufficient to satisfy the requirements of the RFA. Although the FTC stresses the $111 million HSR threshold to assert that small entities will not be affected, the Small Business Administration (SBA) “generally defines a small business as an independent business having fewer than 500 employees.”[11] The SBA also offers more detailed, industry-specific identification of small businesses.[12] Indeed, the NPRM cites to the SBA’s own standards, but these, too, do not align with the FTC’s “factual statement,” and it is not evident that the Commission sufficiently delved into those standards to understand their relevance for the size thresholds under the HSR Act.

Even a quick review of the SBA’s “Small Business Size Standards by NAICS Industry” table reveals that the SBA classifies the size of a firm based on either annual receipts or number of employees,[13] depending upon the characteristics of their industry.[14] Neither of these, it should go without saying, is the same as a “size-of-transaction” threshold under the HSR Act. Nor does the NPRM’s “factual basis” statement contain information sufficient to determine that there is any correlation between the SBA’s size thresholds and the size of a transaction (which typically represents something between the discounted present value of a firm’s expected returns under new ownership and current ownership over an indefinite time period).

Despite the FTC’s claim that the $111 million deal threshold will ensure that small businesses are not substantially affected, the agency’s own data from 2022 shows that nearly a quarter of all HSR filings covered transactions involving firms with sales of $50 million or less.[15] The same data shows that, out of the 3029 reported transactions in 2022, 513 involved firms with between $50 and $100 million in sales and 305 with between $100 and $150 million in sales. Here, again, the SBA’s metrics for identifying small businesses bear emphasis: where the SBA relies on dollar values instead of employee headcounts to define small businesses at all, it does so based on annual average receipts, not on the overall value of the firm.

This distinction underscores a point made in a letter filed by the App Association, a trade group representing small technology firms, that it is important not to conflate valuation with size.[16] A company, such as an innovative tech startup, can have a small number of employees but a high value based on projected sales, intellectual property, and forthcoming products. Indeed, the App Association notes that a number of its members are already subject to HSR disclosures and that that number can only increase under the proposed amendments.[17]

To provide further context regarding whether many of these deals involve small businesses, a 2013 CrunchBase dataset showed that the average successful American startup sold for $242.9 million.[18] Furthermore, the FTC’s 2022 HSR report highlights at least one challenged transaction involving a small business: Meta/Within.[19] Within, a virtual-reality startup with 58 employees, was acquired by Meta for $400 million.[20] Not only was there an HSR filing, but the FTC attempted to challenge the transaction—and lost in district court.[21]

Small businesses are clearly burdened by the HSR premerger notification requirements—and this burden would only increase under the proposed changes. By the FTC’s own estimate the new requirements would quadruple the hours required to prepare an HSR filing and raise costs by $350 million. By other, more realistic estimates, that increase in work hours would entail a cost of more than $1.6 billion[22]—or, indeed, considerably more.[23] There is no question that drastically increasing the cost of merger filings will make it much harder for small businesses to merge or be acquired, which is a primary form of success for small businesses.

Indeed, the NPRM’s proposed changes are, in part, specifically designed to affect small businesses. “Acquisitions of small companies can cause harm, including in sectors where competition occurs on a local level. . . . Thus, the Commission proposes several changes to expand the requirements for information related to prior acquisitions beyond what is currently required by Item 8.”[24] Furthermore, “given the difficulties in determining the value of small or nascent companies, the Commission believes it would be less burdensome for filers to report all acquisitions. . . .”[25]  Indeed, the FTC is aware of the potential burden on small businesses that such an approach would entail, but nevertheless aims to ensure that its proposed rules “still captur[e] acquisitions of entities worth less than $10 million.”[26]

And there is yet a further problem: These concerns take into account only the direct costs the NPRM would impose on small businesses. But, as the National Federation of Independent Business highlighted in 2023, several agencies have arguably failed to comply with the RFA by failing to consider indirect effects on small businesses.[27] Obviously, there is no such analysis provided here—and, indeed, as noted above, a clear intent of the NPRM is to affect the likelihood of small-business acquisition by reducing the incentive for firms to serially acquire small businesses. Doing so, of course, reduces funders’ incentives to invest in startups and small businesses and raises these companies’ cost of capital. Arguably that increase is itself a direct cost, but certainly its indirect effect is incredibly significant to the health of small businesses in the U.S.

The dramatic changes to the HSR premerger notification requirements proposed by the FTC have already created substantial uncertainty within the antitrust bar. Procedural defects such as failing to comply with the requirements of the RFA increase the likelihood that any rules adopted by the FTC will be challenged in court. This would increase the uncertainty (and thus the cost) surrounding the HSR process. This would be an unfortunate outcome. Fortunately, it is one that can be avoided if the FTC addresses these issues prior to finalizing its proposed rules.

[1] Geoffrey A. Manne, Dirk Auer, Brian Albrecht, Eric Fruits, Daniel J. Gilman, & Lazar Radic, Comments of the International Center for Law and Economics on the FTC & DOJ Draft Merger Guidelines, International Center for Law and Economics (Sept 18, 2023), https://laweconcenter.org/resources/comments-of-the-international-center-for-law-and-economics-on-the-ftc-doj-draft-merger-guidelines/.

[2] Brian Albrecht, Dirk Auer, Daniel J. Gilman, Gus Hurwitz, & Geoffrey A. Manne, Comments of the International Center for Law & Economics on Proposed Changes to the Premerger Notification Rules, International Center for Law and Economics (Sept 27,2023), https://laweconcenter.org/resources/comments-of-the-international-center-for-law-economics-on-proposed-changes-to-the-premerger-notification-rules/.

[3] 5 U.S.C. §§ 601-612 (2018).

[4] 15 U.S.C. § 18a(a)(2) (2018).

[5] NPRM, 88 FR 42178 (Jun. 29, 2023).

[6] See id. at 42208 (estimating the hours and expenses required to comply with the new rules). According to antitrust practitioners, however, the NPRM’s estimate likely substantially underestimates the true burden and cost of the proposed rules. See, e.g., Sean Heather, Antitrust Experts Reject FTC/DOJ Changes to Merger Process, Chamber of Commerce (Sept 19, 2023), https://www.uschamber.com/finance/antitrust/antitrust-experts-reject-ftc-doj-changes-to-merger-process.

[7] 5 U.S.C. § 603(a) (2018).

[8] 5 U.S.C. § 605(b) (2018).

[9] Id.

[10] NPRM, 88 FR 42178, 42208 (Jun. 29, 2023).

[11] Frequently Asked Questions, U.S. Small Bus. Admin. Off. of Advoc. (2023), https://advocacy.sba.gov/wp-content/uploads/2023/03/Frequently-Asked-Questions-About-Small-Business-March-2023-508c.pdf.

[12] See 13 CFR § 121.101, et seq. (1996)

[13] 13 CFR § 121.201 (2024).

[14] Indeed, the SBA’s standards entail a review of a wide range of such characteristics. See 13 CFR § 121.102 (1996) (“SBA considers economic characteristics comprising the structure of an industry, including degree of competition, average firm size, start-up costs and entry barriers, and distribution of firms by size. It also considers technological changes, competition from other industries, growth trends, historical activity within an industry, unique factors occurring in the industry which may distinguish small firms from other firms, and the objectives of its programs and the impact on those programs of different size standard levels.”).

[15] See Fed. Trade Comm’n and Dept of Just., Hart-Scott-Rodino Annual Report (2022), at Table IX, available at https://www.ftc.gov/system/files/ftc_gov/pdf/FY2022HSRReport.pdf.

[16] See Letter from Morgan Reed, President of App Association, to Lina Khan, Chair of Fed. Trade. Comm’n and Members of Congress (Feb 1, 2024), available at https://actonline.org/wp-content/uploads/App-Association-HSR-RFA-Ltr-1-Feb-2024-1.pdf.

[17] See id.

[18] See Mark Lennon, CrunchBase Reveals: The Average Successful Startup Raises $41M, Exits at $242.9M, TechCrunch (Dec 14, 2013), https://techcrunch.com/2013/12/14/crunchbase-reveals-the-average-successful-startup-raises-41m-exits-at-242-9m.

[19] See Fed. Trade Comm’n and Dept of Just., Hart-Scott-Rodino Annual Report (2022), available at https://www.ftc.gov/system/files/ftc_gov/pdf/FY2022HSRReport.pdf.

[20] See, e.g., Within (Virtual Reality) Overview, Pitchbook (last visited Feb. 29, 2024), https://pitchbook.com/profiles/company/117068-59#overview.

[21] In the Matter of Meta/Zuckerberg/Within, Fed. Trade Comm’n Docket No. 9411 (Aug. 11, 2022), https://www.ftc.gov/legal-library/browse/cases-proceedings/221-0040-metazuckerbergwithin-matter.

[22] See Albrecht, et al., supra note 2, at 7 (“The U.S. Chamber of Commerce conducted ‘a survey of 70 antitrust practitioners asking them questions about the proposed revisions to the HSR merger form and the new draft merger guides.’ Based on average answers from the survey respondents, the new rules would increase compliance costs by $1.66 billion, almost five times the FTC’s $350 million estimate.”).

[23] See id. (“For the current rules, the average survey response puts the cost of compliance at $79,569. Assuming there are 7,096 filings (as the FTC projects for FY 23), the total cost under the current rules would be $565 million. Under the new rules, the average survey response estimates the expected cost of compliance to be $313,828 per transaction, for a total cost of $2.23 billion.”) (emphasis added).

[24] NPRM, 88 FR 42178, 42203 (Jun. 29, 2023).

[25] Id. at 42204 (emphasis added).

[26] Id. (emphasis added).

[27] See Rob Smith, The Regulatory Flexibility Act: Turning a Paper Tiger Into a Legitimate Constraint on One-Size-Fits-All Agency Rulemaking, NFIB Small Business Legal Center (May 2, 2023), https://strgnfibcom.blob.core.windows.net/nfibcom/NFIB-RFA-White-paper.pdf (collecting examples).

ICLE Director of Law & Economics Programs Gus Hurwitz was a guest on The Cyberlaw Podcast, where he discussed big news for cord-cutting sports fans, Amazon’s ad-data deal with Reach, a novel Federal Trade Commission case brought against Blackbaud, the Federal Communications Commission’s ban on AI-generated voice cloning in robocalls, and South Korea’s pause on implementation of its anti-monopoly platform act. Audio of the full episode is embedded below.