As former antitrust enforcers and alumni of the Federal Trade Commission (“FTC”), we are pleased to submit these comments to the FTC and Department of Justice’s Antitrust Division (“DOJ”) (collectively, “Agencies”) in response to your Request for Information on Corporate Consolidation Through Serial Acquisitions and Roll-Up Strategies (“RFI”).  We have devoted significant portions of our careers to protecting consumers and competition and we continue to care deeply about the Agencies and their mission.  Moreover, we agree that mergers and acquisitions merit further study and applaud the Agencies for tackling these issues.

We write to suggest several ways in which the Agencies might adjust and supplement the RFI to build confidence in its objectivity and comprehensiveness.  As written, the RFI creates an appearance that the Agencies are mainly seeking negative information about acquisitions, rather than seeking to learn about their benefits to competition as well as their potential harms, and that the Agencies are seeking information about ideological topics untethered from their mission.  Such an approach could distort the Agencies’ perspective, degrade public confidence, and ultimately lead the Agencies to challenge pro-competitive or competitively neutral acquisitions.

I. The Agencies Should Issue a Supplemental RFI to Inquire into the Pro-Competitive Aspects of Serial Acquisitions

As they have in the past, the Agencies should examine mergers and acquisitions in an objective fashion.  In recent years, for example, the Agencies themselves have recognized that mergers “are one means by which firms can improve their ability to compete.”[1]  In one paper, from 2020, the FTC’s staff examined a large potash merger and concluded that the “evidence does not indicate that the firms were able to impose an anticompetitive price increase in the wake of the merger.”[2]  Another retrospective from 2009, into hospital mergers, found mixed results; one merger resulted in higher prices, the other did not.[3]  Finally, a retrospective into grocery mergers found that “mergers in highly concentrated markets are most frequently associated with price increases, while mergers in less concentrated markets are most often associated with price decreases.”[4]  In each instance, the Agencies examined the markets and acquisitions objectively.

The current RFI, however, suggests that the Agencies have already concluded that “serial acquisitions” harm competition.  Although several questions take a neutral approach, many of them solicit negative information about acquisitions, and not one asks about any benefits. For example, Question 2(c) asks whether serial acquisitions encourage “actual or attempted coordination or collusion between competitors” and Question 3 posits nine subparts about ways in which an acquirer might harm competition, including tying and refusals to deal.  By contrast, the RFI includes no questions that solicit information about possible pro-competitive benefits from acquisitions; at most, Question 4 asks the public to identify “claimed” business objectives and whether they came to pass.

Accordingly, we suggest that the Agencies supplement the RFI with additional questions that solicit information about the benefits of serial acquisitions.  Below is proposed Question 6, mirroring existing Question 3:

Proposed Question 6

Serial Acquisition Business Practices (Part 2): If you identified serial acquisitions in the preceding questions, please share whether the acquisitions affected the relevant market in in any of the following ways:

1. A reduction in price for consumers, either by the acquirer, its competitors, or both;

2. An increase in output, either by the acquirer, its competitors, or both;

3. An increase in product offerings, including new varieties of products or products offered at different price points, either from the acquirer, its competitors, or both;

4. An increase in product quality, either from the acquirer, its competitors, or both;

5. An increase in investment, financing, or innovation, as measured by patent filings or any other metric, either by the acquirer, its competitors, or both;

6. An increase in efficiency (e.g., lower unit costs), either by the acquirer, its competitors, or both;

7. Any other market effects that show the benefits of the acquisitions; and

8. Any other market effects that show that the acquisitions were competitively neutral in terms of their effect on price, quality, variety, investment, or any other metric.

At a minimum, the addition of these questions, or something similar, would build public confidence that the Agencies are approaching the topic in an objective manner.

Moreover, the answers also could yield valuable, current information about the benefits of acquisitions — and thereby improve the Agencies’ ability to develop better enforcement actions.  In the past, of course, the Agencies have stated that “the vast majority of mergers are either procompetitive and enhance consumer welfare or are competitively benign”[5] and that “[m]ergers are one means by which firms can improve their ability to compete.”[6]  In a policy statement from just a few years ago, the FTC agreed that mergers can promote innovation:

[I]n dynamic sectors characterized by high R&D costs, firms with broad scale and scope may have unique incentives and capabilities to invest in innovation.  For example, where a firm can exploit synergies across product lines or earn returns on research and development projects across multiple geographies, it may have greater incentives to make investments in such projects than firms with more limited operations.[7]

Many other studies agree that mergers can promote competition and innovation.  The Antitrust Modernization Commission,[8] antitrust treatises,[9] and a recent, comprehensive literature survey[10] all have found that mergers can and do advance procompetitive business objectives.  Another recent study found that mergers resulted in more patent applications and investment in research and development. [11]  In the biopharmaceutical industry, for instance, the Congressional Budget Office agreed that “The acquisition of a small company by a larger one can create efficiencies that might increase the combined value of the firms by allowing drug companies of different sizes … to specialize in activities in which they have a comparative advantage.”[12]  Numerous recent court decisions also find that mergers can create integration efficiencies that ultimately promote competition and benefit consumers.[13]

II. The Agencies Should Explain or Withdraw Certain Questions that Create an Appearance of Focusing on Ideological Issues Unrelated to Their Statutory Mission

Within the RFI, certain questions may create an appearance that the Agencies are interested in ideological issues unrelated to their statutory mission.  For example, Question 2(d) and its subparts inquire into labor topics unrelated to the rare phenomenon of a labor monopsony, such as “Have workers been reclassified (i.e., from employees to independent contractors) or outsourced to/from third-party providers?” and questions about “work conditions” and “employment stability.”  It is not obvious how any of these questions relate to the Agencies’ statutory mission or historical practice. The RFI cites no statutory provisions or cases, and we are unaware of any, in which a court has found that issues of worker classification, work conditions, or employment stability had any relevance to a merger analysis.

Similarly, Question 5 asks a series of questions about private equity and the role that investors play in managing an acquired company.  Again, the RFI cites no statutory provisions or cases, and we are unaware of any, in which a court has found that the identity of a purchaser as a private equity firm has any relevance to a merger analysis, except to the extent that the firm may own other companies in the same market.

For these reasons, we recommend that the Agencies withdraw these questions or explain their relevance to the antitrust laws and this inquiry.  By narrowing the RFI to topics that relate directly to the antitrust laws and merger analysis, and that have grounding in the statutory language and historical precedent, the Agencies would gather more useful information and would increase public confidence in the necessity and utility of this inquiry.

***

As former enforcers, we strongly support the Agencies’ mission and the importance of vigorous enforcement.  We hope that our suggestions will help the Agencies to improve the quality and utility of the information that they receive in response to this RFI.

Thank you for your attention to these comments.

[1] OECD, Conglomerate Effects of Mergers – Note by the United States to the Organisation for Economic Co-operation and Development (June 4, 2020) at 5, https://www.ftc.gov/system/files/attachments/us-submissions-oecd-2010-present-other-international-competition-fora/oecd-conglomerate_mergers_us_submission.pdf.

[2] See Kreisle, Bureau of Economics, Price Effects from the Merger of Agricultural Fertilizer Manufacturers Agrium and PotashCorp (July 2020), https://www.ftc.gov/system/files/documents/reports/price-effects-merger-agricultural-fertilizer-manufacturers-agrium-potashcorp/working_paper_345.pdf.

[3] See Haas-Wilson and Garmon, Bureau of Economics, Two Hospital Mergers on Chicago’s North Shore: A Retrospective Study (Jan. 2009), at https://www.ftc.gov/sites/default/files/documents/reports/two-hospital-mergers-chicago%E2%80%99s-north-shore-retrospective-study/wp294_0.pdf.

[4] See Hosken et al, Bureau of Economics, Do Retail Mergers Affect Competition? Evidence from Grocery Retailing (Dec. 2012), https://www.ftc.gov/sites/default/files/documents/reports/do-retail-mergers-affect-competition%C2%A0-evidence-grocery-retailing/wp313.pdf.

[5] Statement of Ass’t Att’y Gen. Christine Varney, Merger Guidelines Workshops, Third Annual Georgetown Law Global Antitrust Enforcement Symposium (Sept. 22, 2009).

[6] OECD, Conglomerate Effects of Mergers – Note by the United States to the Organisation for Economic Co-operation and Development (June 4, 2020) at 5, https://www.ftc.gov/system/files/attachments/us-submissions-oecd-2010-present-other-international-competition-fora/oecd-conglomerate_mergers_us_submission.pdf.

[7] Id. at 8.

[8] E.g., Antitrust Modernization Commission Report 57-60, at https://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf.

[9] 4A Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 10A-1 (5th ed. 2021).

[10] U.S. Chamber, Evidence of Efficiencies in Consummated Mergers (June 1, 2023), at https://www.uschamber.com/assets/documents/20230601-Merger-Efficiencies-White-Paper.pdf.

[11] U.S. Chamber, Mergers, Industries, and Innovation: Evidence from R&D Expenditures and Patent Applications (Feb. 2023), at https://www.uschamber.com/finance/antitrust/mergers-industries-and-innovation-evidence-from-r-d-expenditure-and-patent-applications.

[12]CBO, Research and Development in the Pharmaceutical Industry (Apr. 2021), at https://www.cbo.gov/publication/57126 . .

[13] Microsoft, 2023 WL 4443412, at *11 (citations omitted).  See also U.S. v. Booz Allen Hamilton, Case 1:22-cv-01603-CCB, at 8 n.13 (D. Md. Oct. 17, 2022); Nat’l Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 840 (D.C. Cir. 2006) (“[V]ertical integration creates efficiencies for consumers”).

The Federal Trade Commission (FTC) and Congress are showing renewed interest in a Great Depression-era law, the Robinson-Patman Act, that discourages sales discounts. This is bad news for hard-strapped American consumers, who have had to cope with prices that have risen more than 20% since February 2020. As such, reinvigorated enforcement of the RPA, a statute that was designed to protect less-efficient small businesses from vigorous competition, appears hard to justify. The FTC may wish to consider the major downsides of RPA prosecutions before it takes action.

Read the full piece here.

Artificial intelligence is in the public-policy spotlight. In October 2023, the Biden administration issued its Presidential Executive Order on AI, which directed federal agencies to cooperate in protecting the public from potential AI-related harms. President Joe Biden said in his March 2024 State of the Union Address that government enforcers will crack down on the use of AI to facilitate illegal price fixing. Congress is in the preliminary stages of considering legislation that could pave the way for future regulation of AI.

Read the full piece here.

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.

In an April 17 address to United Steelworkers in Pittsburgh, President Joe Biden vowed that his administration would “thwart the acquisition of U.S. Steel by a Japanese company,” Nippon Steel, telling the assembled union members that U.S. Steel “has been an iconic American company for more than a century and it should remain totally American.”

Aside from the impropriety of apparently prejudging a proposed combination currently under investigation by the U.S. Justice Department (DOJ), would blocking this merger make any sense on national security or economic grounds? The answer is no.

Read the full piece here.

The lawsuit filed yesterday by the U.S. Justice Department (DOJ) against Apple for monopolization of the U.S. smartphone market (joined by 15 states and the District of Columbia) has big implications for American competition and innovation.

At the heart of the complaint is the DOJ’s assertion that…

Read the full piece here.

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).

The press is abuzz with news about the Federal Trade Commission’s (FTC) Feb. 26 announcement that it would challenge the proposed Kroger/Albertsons mega-supermarket merger, which had been in the works since the fall of 2022. If the FTC succeeds in obtaining a temporary restraining order and preliminary injunction in Oregon federal district court (a big if), it plans to review the transaction in an administrative hearing beginning in late July.

Read the full piece here.

Back in February 2022, the Federal Trade Commission (FTC) announced an advance notice of proposed rulemaking (ANPRM) on “deceptive or unfair earnings claims.” According to the FTC…

Read the full piece here.