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TOTM When it was passed into law, the European Union’s Digital Markets Act (DMA) was heralded by supporters as a key step toward fairness and contestability . . .
When it was passed into law, the European Union’s Digital Markets Act (DMA) was heralded by supporters as a key step toward fairness and contestability in online markets. It has unfortunately become increasingly clear that reality might not live up to those expectations. Indeed, there is mounting evidence that European consumers’ online experiences have been degraded following the DMA’s entry into force.
The perception that the DMA has been a failure is beginning to motivate a not insignificant amount of finger pointing in Brussels. So-called “gatekeeper” firms have blamed heavy-handed regulation for their degraded services, while smaller rivals finger “malicious compliance.”
Read the full piece here.
TOTM If you live in Europe, you may have noticed issues with some familiar online services. From consent forms to reduced functionality and new fees, there . . .
If you live in Europe, you may have noticed issues with some familiar online services. From consent forms to reduced functionality and new fees, there is a sense that platforms like Amazon, Google, Meta, and Apple are changing the way they do business.
Many of these changes are the result of a new European regulation called the Digital Markets Act (DMA), which seeks to increase competition in online markets. Under the DMA, so-called “gatekeepers” must allow rivals to access their platforms. Having taken effect March 7, firms now must comply with the regulation, which explains why we are seeing these changes unfold today.
TL;DR TL;DR Background: Policymakers on both sides of the Atlantic are contemplating new regulations on standard-essential patents (SEPs). While the European Union (EU) is attempting to . . .
Background: Policymakers on both sides of the Atlantic are contemplating new regulations on standard-essential patents (SEPs). While the European Union (EU) is attempting to pass legislation toward that end, U.S. authorities like the Department of Commerce and U.S. Patent and Trademark Office are examining the issues and potentially contemplating their own reforms to counteract changes made by the EU.
But… These efforts would ultimately hand an easy geopolitical win to rivals like China. Not only do the expected changes risk harming U.S. and EU innovators and the standardization procedures upon which they rely, but they lend legitimacy to concerning Chinese regulatory responses that clearly and intentionally place a thumb on the scale in favor of domestic firms. The SEP ecosystem is extremely complex, and knee-jerk regulations may create a global race to the bottom that ultimately harms the very firms and consumers they purport to protect.
In April 2023, the EU published its “Proposal for a Regulation on Standard Essential Patents.” The proposal seeks to improve transparency by creating a register of SEPs (and accompanying essentiality checks), and to accelerate the diffusion of these technologies by, among other things, implementing a system of nonbinding arbitration of aggregate royalties and “fair, reasonable, and non-discriminatory” (FRAND) terms.
But while the proposal nominally applies only to European patents, its effects would be far broader. Notably, the opinions on aggregate royalties and FRAND terms would apply worldwide. European policymakers would thus rule (albeit in nonbinding fashion) on the appropriate royalties to be charged around the globe. This would further embolden foreign jurisdictions to respond in kind, often without the guardrails and independence that have traditionally served to cabin policymakers in the West.
Chinese policymakers have long considered the SEPs to be of vital strategic importance, and have taken active steps to protect Chinese interests in this space. The latest move came from the Chongqing First Intermediate People’s Court in a dispute between Chinese firm Oppo and Finland’s Nokia. In a controversial December 2023 ruling, the court limited the maximum FRAND royalties that Nokia could charge Oppo for use of Nokia’s SEPs pertaining to the 5G standard.
Unfortunately, the ruling appears obviously biased toward Chinese interests. In calculating the royalties that Nokia could charge Oppo, the court applied a sizable discount in China. It’s been reported that, in reaching its conclusion, the court defined an aggregate royalty rate for all 5G patents, and divided the proceeds by the number of patents each firm held—a widely discredited metric.
The court’s ruling has widely been seen as a protectionist move, which has elicited concern from western policymakers. It appears to set a dangerous precedent in which geopolitical considerations will begin to play an increasingly large role in the otherwise highly complex and technical field of SEP policy.
Leaving aside how China may respond, the EU’s draft regulation will likely be detrimental to innovators. The regulation would create a system of government-run essentiality checks and nonbinding royalty arbitrations. The goal would be to improve transparency and verify that patents declared “standard essential” truly qualify for that designation.
This system would, however, be both costly and difficult to operate. It would require such a large number of qualified experts to serve as evaluators and conciliators that it may prove exceedingly difficult (or impossible) to find them. The sheer volume of work required for these experts would likely be insurmountable, with the costs borne by industry players. Inventors would also be precluded from seeking out injunctions while arbitration is ongoing. Ultimately, while nonbinding, the system may lead to a de facto royalty cap that lowers innovation.
Finally, it’s unclear whether this form of coordinated information sharing and collective royalty setting may give rise to collusion at various points in the value chain. This threatens both to harm consumers and to deter firms from commercializing standardized technologies.
In short, these kinds of top-down initiatives likely fail to capture the nuances of individualized patents and standards. They may also add confusion and undermine the incentives that drive affordable innovation.
The bottom line is that the kinds of changes under consideration by both U.S. and EU policymakers may undermine innovation in the West. SEP entrepreneurs have been successful because they have been able to monetize their innovations. If authorities take steps that needlessly imbalance the negotiation process between innovators and implementers—as Chinese courts have started to do and Europe’s draft regulation may unintendedly achieve—it will harm both U.S. and EU leadership in intellectual-property-intensive industries. In turn, this would accelerate China’s goal of becoming “a cyber great power.”
For more on this issue, see the ICLE issue brief “FRAND Determinations Under the EU SEP Proposal: Discarding the Huawei Framework,” as well as the “ICLE Comments to USPTO on Issues at the Intersection of Standards and Intellectual Property.”
Regulatory Comments I. About the International Center for Law & Economics The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy . . .
The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of antitrust law and policy.
ICLE’s interest is to ensure that antitrust law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis. Some of the proposals in the Competition Taskforce’s Reform Consultation (“Consultation”) threaten to erode such foundations by, among other things, shifting toward merger analysis that focuses on the number of competitors, rather than the impact on competition, as well as reversing the burden of proof; curtailing rights of defense; and adopting an unduly strict approach to mergers in particular sectors. Our overriding concern is that intellectually coherent antitrust policy must focus on safeguarding competition and the interests of consumers.
In its ongoing efforts to contribute to ensuring that antitrust law in general, and merger control in particular, remain tethered to sound principles of economics, law, and due process, ICLE has submitted responses to consultations and published papers, articles, and reports in a number of jurisdictions, including the European Union, the United States, Brazil, the Republic of Korea, the United Kingdom, and India. These and other publications are available on ICLE’s website.[1]
We appreciate the opportunity to comment on the Competition Taskforce’s Consultation. Our comments below mirror the structure of the main body of the Consultation. Section by section, we suggest improvements to the Consultation’s approach, as well as citing background law and economics that we believe the Treasury should keep in mind as it considers whether to move forward with merger reform in Australia.
Is Australia’s merger regime ‘skewed towards clearance’? Would it be more appropriate for the framework to skew towards blocking mergers where there is sufficient uncertainty about competition impacts?
In order for a merger to be blocked in Australia, it must be demonstrated that the merger is likely to substantially lessen competition. In the context of Section 50, “likely” means a “real commercial likelihood.”[2] Furthermore, a “substantial” lessening of competition need not be “large or weighty… but one that is ‘real or of substance… and thereby meaningful and relevant to the competitive process.’”[3] This does not set an inordinately high bar for authorities to clear.
In a sense, however, the ACCC is right when it says that Australian merger control is “skewed towards clearance.”[4] This is because all merger regimes are “skewed” toward clearance. Even in jurisdictions that require mandatory notifications, only a fraction of mergers—typically, those above a certain turnover threshold—are examined by competition authorities. Only a small percentage of these transactions are subject to conditional approval, and an even smaller percentage still are blocked or abandoned.[5] This means that the vast majority of mergers are allowed to proceed as intended by the parties, and for good reason. As the ACCC itself and the Consultation note, most mergers do not raise competition concerns.[6]
But while partially accurate, this statement is only half true. Most mergers are, in fact, either benign or procompetitive. Indeed, mergers are often an effective way to reduce transaction costs and generate economies of scale in production,[7] which can enable companies to bolster innovation post-merger. According to Robert Kulick and Andrew Card, mergers are responsible for increasing research and development expenditure by as much as $13.5 billion annually.[8] And as Francine Lafontaine and Margaret Slade point out in the context of vertical mergers:
In spite of the lack of unified theory, over all a fairly clear empirical picture emerges. The data appear to be telling us that efficiency considerations overwhelm anticompetitive motives in most contexts. Furthermore, even when we limit attention to natural monopolies or tight oligopolies, the evidence of anticompetitive harm is not strong. [9]
While vertical mergers are generally thought to be less likely to harm competition, this does not cast horizontal mergers in a negative light. It is true that the effects of horizontal mergers are empirically less well-documented. But while there is some evidence that horizontal mergers can reduce consumer welfare, at least in the short run, the long-run effects appear to be strongly positive. Dario Focarelli and Fabio Panetta find:
…strong evidence that, although consolidation does generate adverse price changes, these are temporary. In the long run, efficiency gains dominate over the market power effect, leading to more favorable prices for consumers.[10]
Furthermore, and in line with the above, some studies have found that horizontal merger enforcement has even harmed consumers.[11]
It is therefore only natural that merger regimes should be “skewed” toward clearance. But this is no more a flaw of the system than is the presumption that cartels are harmful. Instead, it reflects the well-documented and empirically grounded insight that most mergers do not raise competition concerns and that there are myriad legitimate, procompetitive reasons for firms to merge.[12]
It also reflects the principle that, since errors are inevitable, merger control should prefer Type II over Type I errors. Indeed, legal decision making and enforcement under uncertainty are always difficult and always potentially costly.[13] Given the limits of knowledge, there is always a looming risk of error.[14] Where enforcers or judges are trying to ascertain the likely effects of a business practice, such as a merger, their forward-looking analysis will seek to infer anticompetitive conduct from limited information.[15] To mitigate risks, antitrust law, generally, and merger control, specifically, must rely on certain heuristics to reduce the direct and indirect costs of the error-cost framework,[16] whose objective is to ensure that regulatory rules, enforcement decisions, and judicial outcomes minimize the expected cost of (1) erroneous condemnation and deterrence of beneficial conduct (“false positives,” or “Type I errors”); (2) erroneous allowance and under-deterrence of harmful conduct (“false negatives,” or “Type II errors”); and (3) the costs of administering the system.
Accordingly, “skewing” the merger-analysis framework toward blocking mergers could, in theory, be appropriate where the enforcer or the courts knew that mergers are always or almost always harmful (as in the case of, e.g., cartels). But we have already established that the opposite is, in fact, true: most mergers are either benign or procompetitive. The Consultation’s caveat that this would apply only in cases where “there is sufficient uncertainty about competition impacts” does not carve out a convincing exception to this principle. This is particularly true given that, in a forward-looking exercise, there is, by definition, always some degree of uncertainty about future outcomes. Given that most mergers are procompetitive or benign, any lingering uncertainty should, in any case, be resolved in favor of allowing a merger, not blocking it.
Concrete evidence of a likely substantial lessening of competition post-merger should therefore continue to be the decisive factor in decisions to block a merger, not uncertainty about its effects (see also the response to Question 17). Under uncertainty, the error-cost framework when applied to antitrust leads in most cases to a preference of Type II over Type I errors, and mergers are no exception.[17] The three main reasons can be summarized as follows. First, “mistaken inferences and the resulting false condemnations are especially costly, because they often chill the very conduct the antitrust laws are designed to protect.”[18] The aforementioned procompetitive benefits of mergers, coupled with the general principle that parties should have the latitude in a free-market economy to buy and sell to and from whomever they choose, are cases in point. Second, false positives may be more difficult to correct, especially in light of the weight of judicial precedent.[19] Third, the costs of a wrongly permitted monopoly are small compared to the costs of competition wrongly condemned.[20] As Lionel Robbins once said: monopoly tends to break, tariffs tend to stick.[21] The same is applicable to prohibited mergers.
In sum, Australia should not skew its merger regime toward blocking mergers under uncertainty.
Is there evidence of acquisitions by large firms (such as serial or creeping acquisitions, acquisitions of nascent competitors, ‘killer acquisitions’, and acquisitions by digital platforms) having anti-competitive effects in Australia?
We do not know whether there have been any such cases in Australia. We would, however, like to offer more general commentary on the relevance of nascent competition and killer acquisitions in the context of merger control, especially as concerns digital platforms.
One of the most important concerns about acquisitions by the major incumbent tech platforms is that they can be used to eliminate potential competitors that currently do not compete, but could leverage their existing network to compete in the future—a potential that incumbents can better identify than can competition enforcers.[22]
As the Furman Review states:
In mergers involving digital companies, the harms will often centre around the loss of potential competition, which the target company in an adjacent market may provide in the future, once their services develop.[23]
Similar concerns have been raised in the Stigler Report,[24] the expert report commissioned by Commissioner Margrethe Vestager for the European Commission,[25] and in the ACCC’s own Fifth Interim Report of the Digital Platform Services Inquiry.[26] Facebook’s acquisition of Instagram is frequently cited as a paradigmatic example of this phenomenon.
There are, however, a range of issues with using this concern as the basis for a more restrictive merger regime. First, while doubtless this kind of behavior is a risk, and competition enforcers should weigh potential competition as part of the range of considerations in any merger review, potential-competition theories often prove too much. If one firm with a similar but fundamentally different product poses a potential threat to a purchaser, there may be many other firms with similar, but fundamentally different, products that do, too.
If Instagram, with its photo feed and social features, posed a potential or nascent competitive threat to Facebook when Facebook acquired it, then so must other services with products that are clearly distinct from Facebook but have social features. In that case, Facebook faces potential competition from other services like TikTok, Twitch, YouTube, Twitter (X), and Snapchat, all of which have services that are at least as similar to Facebook’s as Instagram’s. In this case, the loss of a single, relatively small potential competitor out of many cannot be counted as a significant loss for competition, since so many other potential and actual competitors remain.
The most compelling version of the potential and nascent competition argument is that offered by Steven Salop, who argues that since a monopolist’s profits will tend to exceed duopolists’ combined profits, a monopolist will normally be willing and able to buy a would-be competitor for more than the competitor would be able to earn if it entered the market and competed directly, earning only duopoly profits.[27]
While theoretically elegant, this model has limited use in understanding real-world scenarios. First, it assumes that entry is only possible once—i.e., that after a monopolist purchases a would-be competitor, it can breathe easy. But if repeat entry is possible, such that another firm can enter the market at some point after an acquisition has taken place, the monopolist will be engaged in a potentially endless series of acquisitions, sharing its monopoly profits with a succession of would-be duopolists until there is no monopoly profit left.
Second, the model does not predict what share of monopoly profits would go to the entrant, as compared to the monopolist. The entrant could hold out for nearly all of the monopolist’s profit share, adjusted for the entrant’s expected success in becoming a duopolist.
Third, apart from being a poor strategy for preserving monopoly profits—since these may largely accrue to the entrants, under this model—this could lead to stronger incentives for entry than in a scenario where the duopolists were left to compete with one another, leading to more startup formation and entry overall.
Finally, acquisitions of potential competitors, far from harming competition, often benefit consumers. The acquisition of Instagram by Facebook, for example, brought the photo-editing technology that Instagram had developed to a much larger market of Facebook users, and provided those services with a powerful monetization mechanism that was otherwise unavailable to Instagram.[28] As Ben Sperry has written:
Facebook has helped to build Instagram into the product it is today, a position that was far from guaranteed, and that most of the commentators who mocked the merger did not even imagine was possible. Instagram’s integration into the Facebook platform in fact did benefit users, as evidenced by the rise of Instagram and other third-party photo apps on Facebook’s platform.[29]
In other words, many supposedly anticompetitive acquisitions appear that way only because of improvements made to the acquired business by the acquiring platform.[30]
As for “killer acquisitions,” this refers to scenarios in which incumbents acquire a firm just to shut down pipelines of products that compete closely with their own. By eliminating these products and research lines, it is feared that “killer acquisitions” could harm consumers by eliminating would-be competitors and their products from the market, and thereby eliminating an innovative rival. A recent study by Marc Ivaldi, Nicolas Petit, and Selçukhan Ünekbas, however, recommends caution surrounding the killer acquisition “hype.” First, despite the disproportionate attention they have been paid in policy circles, “killer acquisitions” are an exceedingly rare phenomenon. In pharmaceuticals, where the risk is arguably the highest, it is they account for between 5.3% and 7.4% of all acquisitions, while in digital markets, the rate is closer to 1 in 175.[31] The authors ultimately find that:
Examining acquisitions by large technology firms in ICT industries screened by the European Commission, [we find] that acquired products are often not killed but scaled, post-merger industry output demonstrably increases, and the relevant markets remain dynamic post-transaction. These findings cast doubt on contemporary calls for tightening of merger control policies.[32]
Thus, acquisitions of potential competitors and smaller rivals more often than not lead to valuable synergies, efficiencies, and the successful scaling of products and integration of technologies.
But there is an arguably even more important reason why the ACCC should not preventively restrict companies’ ability to acquire smaller rivals (or potential rivals). To safeguard incentives to invest and innovate, it is essential that buyouts remain a viable “way out” for startups and small players. As ICLE has argued previously:
Venture capitalists invest on the understanding that many of the businesses in their portfolio will likely fail, but that the returns from a single successful exit could be large enough to offset any failures. Unsurprisingly, this means that exit considerations are the most important factor for VCs when valuing a company. A US survey of VCs found 89% considered exits important and 48% considered it the most important factor. This is particularly important for later-stage VCs.”[33] (emphasis added)
Indeed, the “killer” label obfuscates the fact that acquisitions are frequently a desired exit strategy for founders, especially founders of startups and small companies. Investors and entrepreneurs hope to make money from the products into which they are putting their time and money. While that may come from the product becoming wildly successful and potentially displacing an incumbent, this outcome can be exceedingly difficult to achieve. The prospect of acquisition increases the possibility that these entrepreneurs can earn a return, and thus magnifies their incentives to build and innovate.[34]
In sum, while potential competition and so-called killer acquisitions are important theories for the ACCC to consider when engaging in merger review, neither theory suggests that the burden of proof needed to reject a merger should be changed, much less warranting an overhaul of the existing merger regime. Furthermore, given the paucity of “killer acquisitions” in the real world, it is highly unlikely that any economic woes that Australia currently faces are due to an epidemic of killer acquisitions or acquisitions of potential/nascent competitors. Indeed, a recent paper by Jonathan Barnett finds the concerns around startup acquisitions to have been vastly exaggerated, while their benefits have been underappreciated:
A review of the relevant body of evidence finds that these widely-held views concerning incumbent/startup acquisitions rest on meager support, confined to ambiguous evidence drawn from a small portion of the total universe of acquisitions in the pharmaceutical market and theoretical models of acquisition transactions in information technology markets. Moreover, the emergent regulatory and scholarly consensus fails to take into account the rich body of evidence showing the critical function played by incumbent/startup acquisitions in supplying a monetization mechanism that induces venture-capital investment and promotes startup entry in technology markets.
In addition:
Proposed changes to merger review standards would disrupt these efficient transactional mechanisms and are likely to have counterproductive effects on competitive conditions in innovation markets.[35]
Accordingly, if the Treasury is going to adopt any rules to address these theories of harm, it should do so in a way consistent with the error-cost framework (see reply to Question 6); that does not undercut the benefits and incentives that derive from the prospect of acquisition by a larger player; and that accurately reflects the real (modest) anticompetitive threat posed by killer acquisitions, rather than one animated by dystopic hyperbole.[36]
Should Australia’s merger regime focus more on acquisitions by firms with market power, and/or the effect of the acquisitions on the overall structure of the market?
Merger control should remain tethered to analysis of competitive effects within the framework of the SLC test, rather than on fostering any particular market structure. Market structure is, at best, an imperfect proxy for competitive effects and, at worst, a misleading one. As such, it should be considered just one tool among many for scrutinizing mergers, not an end in itself.
To start, the assumption that “too much” concentration is harmful presumes both that the structure of a market is what determines economic outcomes, and that anyone knows what the “right” amount of concentration is.[37] But as economists have understood since at least the 1970s, (despite an extremely vigorous, but ultimately futile, effort to show otherwise), market structure is not outcome determinative.[38] As Harold Demsetz has written:
Once perfect knowledge of technology and price is abandoned, [competitive intensity] may increase, decrease, or remain unchanged as the number of firms in the market is increased.… [I]t is presumptuous to conclude… that markets populated by fewer firms perform less well or offer competition that is less intense.[39]
This view is well-supported, and held by scholars across the political spectrum.[40] To take one prominent recent example, professors Fiona Scott Morton (deputy assistant attorney general for economics in the U.S. Justice Department Antitrust Division under President Barack Obama), Martin Gaynor (former director of the Federal Trade Commission Bureau of Economics under President Obama), and Steven Berry surveyed the industrial-organization literature and found that presumptions based on measures of concentration are unlikely to provide sound guidance for public policy:
In short, there is no well-defined “causal effect of concentration on price,” but rather a set of hypotheses that can explain observed correlations of the joint outcomes of price, measured markups, market share, and concentration.… Our own view, based on the well-established mainstream wisdom in the field of industrial organization for several decades, is that regressions of market outcomes on measures of industry structure like the Herfindahl Hirschman Index should be given little weight in policy debates.[41]
The absence of correlation between increased concentration and both anticompetitive causes and deleterious economic effects is also demonstrated by a recent, influential empirical paper by Shanat Ganapati. Ganapati finds that the increase in industry concentration in U.S. non-manufacturing sectors between 1972 and 2012 was “related to an offsetting and positive force—these oligopolies are likely due to technical innovation or scale economies. [The] data suggests that national oligopolies are strongly correlated with innovations in productivity.”[42] In the end, Ganapati found, increased concentration resulted from a beneficial growth in firm size in productive industries that “expand[s] real output and hold[s] down prices, raising consumer welfare, while maintaining or reducing [these firms’] workforces.”[43] Sam Peltzman’s research on increasing concentration in manufacturing finds that it has, on average, been associated with both increased productivity growth and widening margins of price over input costs. These two effects offset each other, leading to “trivial” net price effects.[44]
Further, the presence of harmful effects in industries with increased concentration cannot readily be extrapolated to other industries. Thus, while some studies have plausibly shown that an increase in concentration in a particular case led to higher prices (although this is true in only a minority of the relevant literature), assuming the same result from an increase in concentration in other industries or other contexts is simply not justified:
The most plausible competitive or efficiency theory of any particular industry’s structure and business practices is as likely to be idiosyncratic to that industry as the most plausible strategic theory with market power.[45]
As Chad Syverson recently summarized:
Perhaps the deepest conceptual problem with concentration as a measure of market power is that it is an outcome, not an immutable core determinant of how competitive an industry or market is… As a result, concentration is worse than just a noisy barometer of market power. Instead, we cannot even generally know which way the barometer is oriented.[46]
In other words, depending on the nature and dynamics of the market, competition may well be protected under conditions that preserve a certain number of competitors in the relevant market. But competition may also be protected under conditions in which a single winner takes all on the merits of their business.[47] It is reductive, and bad policy, to presume that a certain number of competitors is always and everywhere conducive to better economic outcomes, or indicative of anticompetitive harm.
This does not mean that concentration measures have no use in merger enforcement. Instead, it demonstrates that market concentration is often unrelated to antitrust enforcement because it is driven by factors that are endogenous to each industry. In revamping its merger-control rules, Australia should be careful not to rely too heavily on structural presumptions based on concentration measures, as these may be poor indicators of those cases where antitrust enforcement would be most beneficial to consumers.
In sum, market structure should remain only a proxy for determining whether a transaction significantly lessens competition. It should not be at the forefront of merger review. And it should certainly not be the determining factor in deciding whether to block a merger.
Should Australia introduce a mandatory notification regime, and what would be the key considerations for designing notification thresholds?
The ACCC has argued that Australia is an “international outlier” in not requiring mandatory notification of mergers.[48] While it is true that most countries with merger-control rules also require mandatory notification of mergers when these exceed a certain threshold, there are also notable examples where this is not the case. For example, the United Kingdom, one of the leading competition jurisdictions in the world, does not require mandatory notification of mergers.
In deciding whether to impose a mandatory-notification regime and accompanying notification thresholds, Australia should not—as a matter of principle—be guided by international trends. International trends may be a useful indicator, but they can also be misleading. Instead, Australia’s decision should be informed by close analysis of error costs. In particular, Australia should seek to understand how a notification regime would affect the balance between Type I and Type II errors in this context. A notification regime would presumably reduce false negatives without necessarily increasing false positives, which is a good outcome.
In its calculation, however, the Treasury cannot ignore the costs of filing mergers and of reviewing them. If designed poorly, mandatory notifications can be a burden for the merging firms, for third parties, and for the reviewing authorities, siphoning resources that could be better deployed elsewhere. It is here where a voluntary-notification regime could have an edge over the alternative. For instance, a study by Chongwoo Choe comparing systems of compulsory pre-merger notification with the Australian system of voluntary pre-merger notification found that:
Thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the merging parties as well as to the regulator.[49] (emphasis added).
If the Treasury nonetheless decides to mandate merger notification, the next step would be to establish a notification threshold, as it is evident that not all mergers can, or should, be notified to the Australian authorities. Indeed, many mergers may be patently uninteresting from a competition perspective (e.g., one small supermarket in Perth buying another), while others might not have a significant nexus with Australia (e.g., where an international company that does modest business in Australia buys a shop in Spain).[50] Too many merger notifications strain the public’s limited resources and disproportionately affect smaller companies, as these companies are less capable of covering administrative costs and filing fees. To mitigate such unnecessary costs, the Treasury should establish reasonable thresholds that help filter out transactions where the merging parties are unlikely to have significant market power post-merger.
But what constitutes a reasonable threshold? Our view is that there is no need to reinvent the wheel here. Turnover has typically been used as a proxy for a merger’s competitive impact because it offers a first indicator of the parties’ relative position on the market. Despite the Consultation’s claim that “mergers of all sizes are potentially capable of raising competition concerns,”[51] where the parties (and especially the target company) have either no or only negligible turnover in Australia, it is highly unlikely that the merger will significantly lessen competition. If the Treasury decides to impose mandatory notification for mergers, it should therefore consider using a turnover-based threshold.
Should Australia’s merger control regime require the decision-maker to be satisfied that a proposed merger:
would be likely to substantially lessen competition before blocking it; or
would not be likely to substantially lessen competition before clearing it?
The second option would essentially reverse the burden of proof in merger control. Instead of requiring the authority to prove that a merger would substantially lessen competition, it would fall on the merging parties to prove a negative—i.e., that the merger would not be likely to substantially lessen competition.
The ACCC has made this proposal because it:
Means that the risk of error is borne by the merger parties rather than the public. In the cases where this difference matters (for example where there is uncertainty or a number of possible future outcomes), the default position should be to leave the risk with the merger parties, not to put at risk the public interest in maintaining the state of competition into the future.[52]
The Consultation sympathizes. It recognizes that “there are trade-offs between the risks of false positives and false negatives in designing a merger test,” but contends that, while both lead to lower output, higher prices, lower quality, and less innovation, “allowing anti-competitive mergers means that merging parties benefit at the expense of consumers.”[53]
But this argument is based on a flawed premise. The risk of error—whether Type I or Type II error—is always borne by the public. The public is harmed by false positives in at least two ways. First, and most directly, it suffers harm through the foregone benefits that could have accrued from a procompetitive merger. As we have shown in our responses to Questions 6, 8, and 9, these benefits are common and can be economically substantial. Second, but no less important, false positives chill merger activity and discourage future mergers. This also negatively affects the public.
The extent to which chilling merger activity harms the public has, however, been obfuscated by a contrived dichotomy between “the public” and the merging parties, which taints the ACCC’s argumentation and skews the Conclusion. The merging parties are also part of society and, therefore, also part of “the public.” An unduly restrictive merger regime that prioritizes avoiding false negatives over false positives harms consumers. But it also harms the “public” more broadly, insofar as anyone could, potentially, have a direct interest in a merger, either as a stakeholder or a party to that merger.
In addition, a regime that requires companies to prove that a deal is not harmful (with the usual caveats about the difficulty of proving a negative) before being allowed to proceed unduly restricts economic freedom and the rights of defense—both of which are very “public” benefits, as everyone, in principle, benefits from them. These elements should also be taken into consideration when weighing the costs and benefits of Type I and Type II errors. That balancing test should, in our view, generally favor false negatives, as argued in our response to Question 6.
Finally, there is no objective, material justification for “[shifting] the default position from allowing mergers to proceed where there is uncertainty [which is, by definition, always in a merger review process that is forward-looking] to a position where, if there is sufficient uncertainty about the effects of a merger, it would not be cleared.” As discussed in our answer to Question 6, the vast majority of mergers are procompetitive, including mergers in the digital sector, or mergers that involve digital platforms. This presumption is reflected in the requirement, common across antitrust jurisdictions, that enforcers must make a prima facie case that a merger will be anticompetitive before the merging parties have a duty to respond. There has been no major empirical finding or theoretical revelation in recent years that would justify reversing this burden of proof. Indeed, any change along these lines would be guided by ephemeral political and industrial-policy exigencies, rather than by robust principles of law and economics. In our view, these are not sound reasons for flipping merger review on its head.
In sum, Australian merger control should require that a decisionmaker be satisfied that a merger would be likely to substantially lessen competition before blocking it.
Should Australia’s substantial lessening of competition test be amended to include acquisitions that ‘entrench, materially increase or materially extend a position of substantial market power’?
According to the ACCC:
Under the current substantial lessening of competition test, it may be difficult to stop acquisitions that lead to a dominant firm extending their market power into related or adjacent markets.[54]
The ACCC imagines this is a problem, particularly in digital markets. Preventing dominant firms from leveraging their market power in one market to restrict competition in an adjacent one is a legitimate concern. We should, however, be clear about what is meant by “materially increase or materially extend a position of substantial market power.”
Merger control should not, as a matter of principle, seek to prevent incumbents from entering adjacent markets. Large firms moving into the core business of competitors from adjacent markets often represents the biggest source of competition for incumbents, as it is often precisely these firms who have the capacity to contest competitors’ dominance in their core businesses effectively. This scenario is prevalent in digital markets, where incumbents must enter multiple adjacent markets, most often by supplying highly differentiated products, complements, or “new combinations” of existing offerings.[55]
Moreover, it is unclear why the SLC test in its current state is insufficient to curb the misuse of market power. The SLC test is a standard used by regulatory authorities to assess the legality of proposed mergers and acquisitions. Simply put, it examines whether a prospective merger is likely to substantially lessen competition in a given market, with the purpose of preventing mergers that increase prices, reduce output, limit consumer choice, or stifle innovation as a result of a decrease in competition.
The SLC test is one of the two major tests deployed by competition authorities to determine whether a merger is anticompetitive, the other being the dominance test. Most merger-control regimes today use the SLC test, and for two good reasons. The first is that, under the dominance test, it is difficult to assess coordinated effects and non-horizontal mergers.[56] The other, mentioned in the Consultation, is that the SLC test allows for more robust effects-based economic analysis.[57]
The SLC test examines likely coordinated and non-coordinated effects in all three types of mergers: horizontal, vertical, and conglomerate. Horizontal mergers may substantially lessen competition by eliminating a significant competitive constraint on one or more firms, or by changing the nature of competition such that firms that had not previously coordinating their behavior will be more likely to do so. Vertical and conglomerate mergers tend to pose less of a risk to competition.[58] Still, there are facts and circumstances under which they can substantially lessen competition by, for example, foreclosing rivals from necessary inputs, supplies, or markets. These outcomes will often be associated with an increase in market power. As the OECD has written:
The focus of the SLC test lies predominantly on the impact of the merger on existing competitive constraints and on measuring market power post-merger.[59]
In other words, the SLC test already accounts for increases in market power that are capable and likely of harming competition. As to whether the “entrenchment” of market power—in line with the 2022 amendments to Canadian competition law—should be added to the SLC test, there is no reason to believe that this is either necessary or appropriate in the Australian context. The 2022 amendments to the Canadian competition law mentioned in the Consultation[60] largely align Canada’s merger control with its abuse-of-dominance provision, which prohibits anti-competitive activities that damage or eliminate competitors and that “preserve, entrench or enhance their market power.”[61] But in Australia, Section 46 (the equivalent of the Canadian abuse-of-dominance provision) prohibits conduct “that has the purpose, or has or is likely to have the effect, of substantially lessening competition.” The proposed amendment would thus create a discrepancy between merger control and Section 46, where the latter would remain tethered to an SLC test, and the former would shift to a new standard. Additionally, since it remains unclear what the results of Canada’s 2022 merger-control amendments have been or will be, it would be wiser for Australia to adopt a “wait and see” approach before rushing to replicate them.
Lastly, there is the question of defining “materiality” in the context of an increase or entrenchment of market power. Currently, Section 50 prohibits mergers that “substantially lessen competition,” with no mention of materiality.[62] The Merger Guidelines do, however, state that:
The term “substantial” has been variously interpreted as meaning real or of substance, not merely discernible but material in a relative sense and meaningful.[63] (emphasis added)
The proposed amendment follows suit, referring to the concepts of “material increase” and “material extension” of market power. What does this mean? How does a “material increase” in market power differ from a non-material one? In its comments to the American Innovation and Choice Online Act (“AICOA”), the American Bar Association’s Antitrust Law Section criticized the bill for using amorphous terms such as “fairness,” “preferencing,” and “materiality,” or the “intrinsic” value of a product. Because these concepts were not defined either in the legislation or in existing case law, the ABA argued that they injected variability and indeterminacy into how the legislation would be administered.[64] The same argument applies here.
Accordingly, the SLC test should not be amended to include acquisitions that “entrench, materially increase or materially extend a position of substantial market power.”
Should the merger factors in section 50(3) be amended to increase the focus on changes to market structure as a result of a merger? Or should the merger factors be removed entirely?
On market structure, see our responses to Question 9 and Question 18.
The merger factors under Section 50(3) already overlap with the factors typically used under the SLC test. These include the structure of related markets; the merger’s underlying economic rationale; market accessibility for potential entrants; the market shares of involved undertakings; whether the market is capacity constrained; the presence of competitors (existing and potential); consumer behavior (the willingness and ability of consumers to switch to alternative products); the likely effect on consumers; the financial investment required for market entry; and the market share necessary for a buyer or seller to achieve profitability or economies of scale.
Similarly, Section 50(3) contains a list of the factors to be considered under the SLC test, including barriers to entry, the intensity of competition on the market, the likely effects on price and profit margins, and the extent of vertical integration, among others. Structural questions, such as the degree of concentration on the market, are also one of the listed factors under Section 50(3).
As a result, it is unclear how eliminating the merger factors would transform the SLC test, or why there should be more emphasis on market structure (on the proper role of market structure in merger-control analysis, see our answers to Question 9 and Question 18).
In sum, Section 50(3) should not be amended to increase the focus on changes to market structure as a result of a merger. It is also not clear what is gained from removing the factors in Section 50(3). More than a “modernization” (as the Consultation calls it),[65] the change appears redundant. To the extent that these factors place a “straitjacket” on courts (though, in principle, they are broad enough to be sufficiently flexible), however, they could be removed, so long as merger analysis remains tethered to the SLC test.
Should a public benefit test be retained if a new merger control regime was introduced?
Antitrust law, including merger control, is not a “Swiss Army knife.”[66] Public-interest considerations should generally have limited to no weight in merger analysis, except in extremely specific cases proscribed by the law (e.g., public security and defense considerations). Expanding merger analysis to encompass non-competition concerns risks undermining the rule of law, diminishing legal certainty, and harming consumers.
In Australia, the Competition Act currently does not expressly limit the range of public benefits (or detriments) that may be taken into account by the ACCC when deciding whether to block or allow a merger (this includes not limiting them to those that address market failure or improve economic efficiency).[67] Thus, “anything of value to the community generally, any contribution to the aims pursued by the society” could, in theory, be considered a public benefit for the purpose of the public-benefit test.[68] The authorization regime also does not require the ACCC to quantify the level of public benefits and detriments.
Competition authorities are, in principle, ill-suited to rank, weigh, and prioritize complex, incommensurable goals and values against one other. They lack the expertise to meaningfully evaluate political, social, environmental, and other goals. They are independent agencies with a strict, narrow mandate, not political decision makers tasked with redistributing wealth or guiding society forward. Requiring them to consider broad public considerations when deciding on mergers magnifies the risk of discretionary and arbitrary decision making and undercuts legal certainty. This is as true for blocking mergers on the basis of public detriments as it is for allowing them on the basis of public benefits. By contrast, the consumer-welfare standard, which forms the basis of the SLC, is properly understood as:
Offer[ing] a tractable test that is broad enough to contemplate a variety of evidence related to consumer welfare but also sufficiently objective and clear to cabin discretion and honor the principle of the rule of law. Perhaps most significantly, it is inherently an economic approach to antitrust that benefits from new economic learning and is capable of evaluating an evolving set of commercial practices and business models.[69]
Consequently, we recommend that the public-interest test be jettisoned from merger analysis, or at least very narrowly circumscribed, if a new merger-control regime is introduced in Australia.
What is the preferred option or combination of elements outlined above? What implementation considerations would need to be taken into account?
In our opinion, and based on the arguments espoused in this submission, the best options would be as follows:
[1] International Center for Law & Economics, https://laweconcenter.org.
[2] Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77, [246].
[3] Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77, [104].
[4] Outline to Treasury: ACCC’s Proposals for Merger Reform, Australian Competition and Consumer Commission (2023), 5, 8, available at https://www.accc.gov.au/system/files/accc-submission-on-preliminary-views-on-options-for-merger-control-process.pdf.
[5] For example, in the EU, 94% of mergers are cleared without commitments, whereas only about 6% are allowed with remedies, and less than 0.5% of mergers are blocked or withdrawn by the parties. See Joanna Piechucka, Tomaso Duso, Klaus Gugler, & Pauline Affeldt, Using Compensating Efficiencies to Assess EU Merger Policy, VoxEU (10 Jan. 2022), https://cepr.org/voxeu/columns/using-compensating-efficiencies-assess-eu-merger-policy.
[6] Consultation, 4; ACCC 2023: 2, point 8e.
[7] Ronald Coase, The Nature of the Firm, 4(16) Economica 386-405 (Nov. 1937).
[8] Robert Kulick & Andre Card, Mergers, Industries, and Innovation: Evidence from R&D Expenditure and Patent Applications, NERA Economic Consulting (Feb. 2023), available at https://www.uschamber.com/assets/documents/NERA-Mergers-and-Innovation-Feb-2023.pdf.
[9] Francine Lafontaine & Margaret Slade, Vertical Integration and Firm Boundaries: The Evidence, 45(3) Journal of Economic Literature 677 (Sep. 2007).
[10] Dario Focarelli & Fabio Panetta, Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits, 93(4) American Economic Review 1152 (Sep. 2003).
[11] B. Espen Eckbo & Peggy Wier, Antimerger Policy Under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis, 28(1) Journal of Law & Economics 121 (Apr. 1985).
[12] See, e.g., in the context of tech mergers: Sam Bowman & Sam Dumitriu, Better Together: The Procompetitive Effects of Mergers in Tech, The Entrepreneurs Network & International Center for Law & Economics (Oct. 2021), available at https://laweconcenter.org/wp-content/uploads/2021/10/BetterTogether.pdf.
[13] Geoffrey A. Manne, Error Costs in Digital Markets, in Joshua D. Wright & Douglas H. Ginsburg (eds.), The Global Antitrust Institute Report on the Digital Economy, 33-108 (2020).
[14] Robert H. Mnookin & Lewis Kornhauser, Bargaining in the Shadow of the Law: The Case of Divorce, 88(5) Yale Law Journal 950-97, 968 (Apr. 1979).
[15] See, e.g., in the context of predatory pricing, Paul L. Joskow & Alvin K. Klevorick, A Framework for Analyzing Predatory Pricing Policy, 89(2) Yale Law Journal 213-70 (Dec. 1979).
[16] Manne, supra note 13, at 34, 41.
[17] Id.
[18] Verizon Comm’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)).
[19] Frank H. Easterbrook, The Limits of Antitrust, 63(1) Texas Law Review 1-40, 2-3, 15-16 (Aug. 1984).
[20] Id., (“Other things equal, we should prefer the error of tolerating questionable conduct, which imposes losses over a part of the range of output, to the error of condemning beneficial conduct, which imposes losses over the whole range of output.”)
[21] Lionel Robbins, Economic Planning and International Order, 116, (1937).
[22] This section is adapted, in part, from Bowman & Dumitriu, supra note 12.
[23] Jason Furman, et al., Unlocking Digital Competition: Report of the Digital Competition Expert Panel (Mar. 2019), 98, available at https://assets.publishing.service.gov.uk/media/5c88150ee5274a230219c35f/unlocking_digital_competition_furman_review_web.pdf (“Furman Review”).
[24] Committee for the Study of Digital Platforms Market Structure and Antitrust Subcommittee Report, Stigler Center for the Study of the Economy and the State (2019), 75, 88, available at https://research.chicagobooth.edu/-/media/research/stigler/pdfs/market-structure—report-as-of-15-may-2019.pdf (“Stigler Report”).
[25] Yves-Alexandre de Motjoye, Heike Schweitzer, & Jacques Crémer, Competition Policy for the Digital Era, European Commission Directorate-General for Competition (2019), 110-112, https://op.europa.eu/en/publication-detail/-/publication/21dc175c-7b76-11e9-9f05-01aa75ed71a1/language-en.
[26] See Sections 3.2., 6.2.2. of the Digital Services Platform Inquiry of September 2022, which finds a “high risk of anticompetitive acquisitions by digital platforms,” available at https://www.accc.gov.au/system/files/Digital%20platform%20services%20inquiry.pdf.
[27] Steven Salop, Potential Competition and Antitrust Analysis: Monopoly Profits Exceed Duopoly Profits, Georgetown Law Faculty Publications and Other Works 2380 (Apr. 2021), available at https://scholarship.law.georgetown.edu/facpub/2380.
[28] Geoffrey A. Manne, et al., Comments of the International Center for Law & Economics on the FTC & DOJ Draft Merger Guidelines, International Center for Law & Economics (18 Sep. 2023), 38, available at https://laweconcenter.org/wp-content/uploads/2023/09/ICLE-Draft-Merger-Guidelines-Comments-1.pdf.
[29] Ben Sperry, Killer Acquisition of Successful Integration: The Case of the Facebook/Instagram Merger, The Hill (8 Oct. 2020), https://thehill.com/blogs/congress-blog/politics/520211-killer-acquisition-or-successful-integration-the-case-of-the.
[30] Sam Bowman & Geoffrey A. Manne, Killer Acquisitions: An Exit Strategy for Founders, International Center for Law & Economics (Jul. 2020), available at https://laweconcenter.org/wp-content/uploads/2020/07/ICLE-tldr-Killer-acquisitions_-an-exit-strategy-for-founders-FINAL.pdf.
[31] See Colleen Cunningham, Florida Ederer, & Song Ma, Killer Acquisitions, 129(3) Journal of Political Economy 649-702 (Mar. 2021); see also Axel Gautier & Joe Lamesch, Mergers in the Digital Economy 54 Information Economics and Policy 100890 (2 Sep. 2020).
[32] Marc Ivaldi, Nicolas Petit, & Selçukhan Ünekbas, Killer Acquisitions in Digital Markets May be More Hype than Reality, VoxEU (15 Sep. 2023), https://cepr.org/voxeu/columns/killer-acquisitions-digital-markets-may-be-more-hype-reality (“The majority of transactions triggered increasing levels of competition in their respective markets.”)
[33] Bowman & Dumitriu, supra note 12.
[34] Bowman & Manne, supra note 30.
[35] Jonathan Barnett, “Killer Acquisitions” Reexamined: Economic Hyperbole in the Age of Populist Antitrust, USC Class Research Paper 23-1 (28 Aug. 2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4408546.
[36] On the current wave of dystopian thinking in antitrust law, especially surrounding anything “digital,” see Dirk Auer & Geoffrey A. Manne, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and their Origins, 28(4) George Mason Law Review 1281 (9 Sep. 2021).
[37] The response to this question is adapted from Manne, et al., supra note 28.
[38] See, e.g., Harold Demsetz, Industry Structure, Market Rivalry, and Public Policy, 16(1) Journal of Law & Economics 1-9 (Apr. 1973).
[39] See Harold Demsetz, The Intensity and Dimensionality of Competition, in Harold Demsetz, The Economics of the Business Firm: Seven Critical Commentaries 137, 140-41 (1995).
[40] Nathan Miller, et al., On the Misuse of Regressions of Price on the HHI in Merger Review, 10(2) Journal of Antitrust Enforcement 248-259 (28 May 2022).
[41] Steven Berry, Martin Gaynor, & Fiona Scott Morton, Do Increasing Markups Matter? Lessons from Empirical Industrial Organization, 33(3) Journal of Economic Perspectives 44-68, 48 (2019).
[42] Shanat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13(3) American Economic Journal: Microeconomics 309-327, 324 (Aug. 2021).
[43] Id., 309.
[44] Sam Peltzman, Productivity, Prices and Productivity in Manufacturing: a Demsetzian Perspective, Coase-Sandor Working Paper Series in Law and Economics 917, (19 Jul. 2021).
[45] Timothy F. Bresnahan, Empirical Studies of Industries with Market Power, in Richard Schmalensee & Robert Willig (eds.), Handbook of Industrial Organization, 1011, 1053-54 (1989).
[46] Chad Syverson, Macroeconomics and Market Power: Context, Implications, and Open Questions, 33(3) Journal of Economic Perspectives 23-43, 26 (2019).
[47] Nicolas Petit & Lazar Radic, The Necessity of the Consumer Welfare Standard in Antitrust Analysis, ProMarket (18 Dec. 2023), https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.
[48] ACCC, 2023: 5.
[49] Chongwoo Choe, Compulsory or Voluntary Pre-Merger Notification? Theory and Some Evidence, 28(1) International Journal of Industrial Organization 10-20 (Jan. 2010).
[50] For an overview of the impact of unnecessary transaction costs in merger notification in the context of Ireland, see Paul K. Gorecki, Merger Control in Ireland: Too Many Unnecessary Notifications?, ESRI Working Paper No. 383 (2011), https://www.econstor.eu/handle/10419/50090.
[51] Consultation, 24.
[52] ACCC, 2023, 9.
[53] Consultation, 29.
[54] Consultation, 19; ACCC, 2023: 6-7.
[55] Nicolas Petit, Big Tech and the Digital Economy: The Moligopoly Scenario (2020); see also Walid Chaiehoudj, On “Big Tech and the Digital Economy”: Interview with Professor Nicolas Petit, Competition Forum (11 Jan. 2021), https://competition-forum.com/on-big-tech-and-the-digital-economy-interview-with-professor-nicolas-petit.
[56] Standard for Merger Review, Organisation for Economic Co-operation and Development (11 May 2010), 6, available at https://www.oecd.org/daf/competition/45247537.pdf.
[57] Id.; see also Consultation, 31, indicating that “[SLC test] would enable mergers to be assessed on competition criteria but not prescriptively identify which competition criteria should be taken into account. It may permit more flexible application of the law and a greater degree of economic analysis in merger decision-making” (emphasis added).
[58] See, e.g., European Commission, Guidelines on the Assessment of Non-Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings (2008/C 265/07), paras. 11-13.
[59] OECD, supra note 56, at 16; see also European Commission, Guidelines on the Assessment of Horizontal Mergers Under the Council Regulation on the Control of Concentrations between Undertakings (2004/C 31/03).
[60] Consultation, 30-31.
[61] Canadian Competition Act, Sections 78 and 79.
[62] Section 44G, however, does mention a “material increase in competition.” (emphasis added).
[63] ACCC, Merger Guidelines (2008), available at https://www.accc.gov.au/system/files/Merger%20guidelines%20-%20Final.PDF ; see also Australia, Senate 1992, Debates, vol. S157, p. 4776, as cited in the Merger Guidelines (2008).
[64] Geoffrey A. Manne & Lazar Radic, The ABA’s Antitrust Law Section Sounds the Alarm on Klobuchar-Grassley, Truth on the Market (12 May 2022), https://truthonthemarket.com/2022/05/12/the-abas-antitrust-law-section-sounds-the-alarm-on-klobuchar-grassley.
[65] Consultation, 39.
[66] Geoffrey A. Manne, Hearing on “Reviving Competition, Part 5: Addressing the Effects of Economic Concentration on America’s Food Supply,” U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law (19 Jan. 2021), available at https://laweconcenter.org/wp-content/uploads/2022/01/Manne-Supply-Chain-Testimony-2021-01-19.pdf.
[67] Out-of-Market Efficiencies in Competition Enforcement – Note by Australia, Organisation for Economic Co-operation and Development (6 Dec. 2023), available at https://one.oecd.org/document/DAF/COMP/WD(2023)102/en/pdf.
[68] Re Queensland Co-Op Milling Association Limited and Defiance Holdings Limited (QCMA) (1976) ATPR 40-012.
[69] Elyse Dorsey, et al., Consumer Welfare & The Rule of Law: The Case Against the New Populist Antitrust Movement, 47 Pepperdine Law Review 861 (1 Jun. 2020).
Regulatory Comments Introduction On 11 October 2022, João Maia (Federal Deputy, Partido Liberal) proposed Bill 2768/22 (“Bill 2768” or “Bill”) on digital market regulation.[1] Bill 2768 is . . .
On 11 October 2022, João Maia (Federal Deputy, Partido Liberal) proposed Bill 2768/22 (“Bill 2768” or “Bill”) on digital market regulation.[1] Bill 2768 is Brazil’s response to global trends toward the ex-ante regulation of digital platforms, and was at least partially inspired by the EU’s Digital Markets Act (“DMA”).[2] In our contribution to the public consultation on Bill 2768 (“Consultation”),[3] however, we argue that Brazil should be wary of importing untested regulation into its own, unique context. Rather than impulsively replicating the EU’s latest regulatory whim, Brazil should adopt a more methodical, evidence-based approach. Sound regulation requires that new rules be underpinned by a clear vision of the specific market failures they aim to address, as well as an understanding of the costs and potential unintended consequences. Unfortunately, Bill 2768 fails to meet these prerequisites. As we show in our response to the Consultation, it is far from clear that competition law in Brazil has failed to address issues in digital markets to the extent that would make sui generis digital regulation necessary. Indeed, it is unlikely that there are any truly “essential facilities” in the Brazilian digital market that would make access regulation necessary, or that “data” represents an unsurmountable barrier to entry. Other aspects of the Bill—such as the designation of Anatel as the relevant enforcer, the extremely low turnover thresholds used to ascertain gatekeeper status, and the lack of consideration given to consumer welfare as a relevant parameter in establishing harm or claiming an exemption—are also misguided. As it stands, therefore, Bill 2768 not only risks straining Brazil’s limited public resources, but also harming innovation, consumer prices, and the country’s thriving startup ecosystem.
Identification of “essential facilities” in the universe of digital markets. Give examples of platform assets in the digital market operating in Brazil where at the same time: a) there are no digital platforms with substitute assets close to these assets b) these assets are difficult to duplicate efficiently at least close to the owning company c) without access to this asset, it would not be possible to operate in one or more markets, as it constitutes a fundamental input. Justify each of the examples given.
For the reasons we discuss below, it is unlikely that there are any examples of true “essential facilities” in digital markets in Brazil.
It important to define the meaning of “essential facility” precisely. The concept of essential facility is a state-of-the-art term used in competition law, which has been defined differently across jurisdictions. Still, the overarching idea of the essential facilities doctrines is that there are instances in which denial of access to a facility by an incumbent can distort competition. To demarcate between cases where denial of access constitutes a legitimate expression of competition on the merits from instances in which it indicates anticompetitive conduct, however, courts and competition authorities have devised a series of tests.
Thus, in the EU, the seminal Bronner case established that the essential facilities doctrine applies in Art. 102 TFEU cases when:
In addition, the facility must be genuinely “essential” to compete, not merely convenient.
Similarly, CADE has incorporated the essential facilities doctrine into Brazilian competition policy by imposing a duty to deal with competitors.[5]
The definition of “essential facilities” and, consequently, the breadth and limits of the essential facilities doctrine under Bill 2768/2022 (“Bill 2768”) should reflect tried and tested principles from competition law. There is no reason why essential facilities should be treated differently in “digital” markets, i.e., markets involving digital platforms, than in other markets. In this sense, we are concerned that the framing of Question 1 reveals an inconsistency that should be addressed before moving forward; namely, when a company’s assets are “difficult” to replicate efficiently, it is justified to force a competitor to grant access to those assets. This is misguided and could even produce the opposite of what Bill 2768 presumably aims to achieve.
As indicated above, the fundamental concept underpinning the essential facilities doctrine is that it applies to a product or service that is uneconomic or impossible to duplicate. Typically, this has applied to infrastructure, such as telecommunications or railways. For instance, expecting competitors to duplicate transport routes, such as railways, would be unrealistic — and economically wasteful. Instead, governments have often chosen to regulate these sectors as natural monopoly public utilities. Predominantly, this includes mandating access to all comers to such essential facilities under regulated prices and non-discriminatory conditions that make the activity of other companies viable and competitive—thus facilitating competition on a secondary market in situations in which competition might otherwise be impossible.
The government should ask itself to what extent this logic applies to so-called digital platforms, however.
Online search engines, for example, are not impossible or excessively difficult to replicate—nor is access to any one of them indispensable. Today, many search engines are on the market: Bing, Yandex, Ecosia, DuckDuckGo, Yahoo!, Google, Baidu, Ask.com, and Swisscows, among others.
More to the point, mere access to search engines isn’t really a problem. Rather, in most cases, those complaining about a search engine’s activity typically complain about access to the very first results, or they complain about the search engine prioritizing its own secondary-market services over those of the competitor. But this space is vanishingly scarce; there is no way for it to be allocated to all comers. Nor can it be allocated on neutral terms; by definition, a search engine must prioritize results.
Treating a search engine as an essential facility would generate problematic outcomes. For example, mandating non-discriminatory access to a search engine’s top results would be like requiring that a railroad offer service to all shippers at whatever time the shipper liked, regardless of railroad congestion, other shippers’ timetables, and the railroad’s optimization of its schedule. Not only would this be impossible, but it isn’t even required of traditional essential facilities.
Notably, while ranking high on a search engine results page is undoubtedly a boon for business, there are other ways of reaching customers. Indeed, as CADE ruled in a case concerning Google Shopping, even if the first page of Google’s result is relevant and important to ranked websites, it is not irreplaceable to the extent that there are other ways for consumers to find websites online. Google is not a mandatory intermediary for website access.[6] Moreover, as noted, search results pages must, by definition, discriminate in order to function correctly. Deeming them essential facilities would entail endless wrangling (and technically complicated determinations) to decide if the search engine’s prioritization decisions were “proper” or not.
Similarly, online retail platforms like Amazon and Mercado Livre are very successful and convenient, but sellers can use other methods to reach customers. For example, they can sell from brick-and-mortar stores or easily set up their own retail websites using myriad software-as-a-service (“SaaS”) providers to facilitate processing and fulfilling orders. Furthermore, the concurrent presence and success of Mercado Livre, B2W (Submarino.com, Americanas.com, Shoptime, Soubarato), Cnova (Extra.com.br, Casasbahia.com.br, Pontofrio.com), Magazine Louiza, and Amazon on the Brazilian market belies the claim that any one of these platforms is indispensable or irreplicable.[7]
Similar arguments can be made about the other digital platforms covered by Art. 6, paragraph II of Bill 2768. For example, WhatsApp may be by far the most popular interpersonal communication service in the country. Still, there are plenty of alternatives within easy (and mostly free) reach for Brazilian consumers, such as Messenger (62 million users), Telegram (30 million), Instagram (64 million), Viber (3 million), Hangouts (2 million), WeChat (1 million), Kik (500,000 users), and Line (1 million users). The sheer number of users of every app suggests that multi-homing is widespread.
In sum, while access to a particular digital platform may be convenient, especially if it is currently the most popular among users, it is highly questionable whether such access is essential. And, as Advocate General Jacobs noted in his opinion in Bronner, mere convenience does not create a right of access under the essential facilities doctrine.[8]
Recommendation: Bill 2768 should make it clear that the principles and requirements of “essential facilities” within the meaning of competition law apply in full to the duties and obligations contemplated in Art. 10 — and that the finding of an “essential facility” is a prerequisite to the imposition of any such duties or obligations.
Is regulation necessary to guarantee access to the asset(s) of the example(s) from Question 1? What should such regulation guarantee so that access to the asset enables third parties to enter those digital markets?
Before considering whether regulation is necessary to guarantee access to assets of certain companies, the government should first consider whether guaranteeing any such access is necessary and legitimate. In our response to Question 1, we have argued that it is unlikely to be. If the government nevertheless decides to the contrary, the next logical question should be whether competition law, including the essential facilities doctrine itself, are sufficient to address any such alleged problems as are identified in Question 2.
Arguably, the best way to answer this question would be through the natural experiment of letting CADE bring cases against digital platforms — assuming it can construct a prima facie case in each instance — and seeing whether or not traditional competition law tools provide a viable solution and, if not, whether these tools can be sharpened by reforming Brazil’s competition law or whether new, comprehensive ex-ante regulation is needed.
By comparison, the EU experimented with EU competition law before passing the DMA. In fact, most if not all the prohibitions and obligations of the DMA stem from competition law cases.[9] The EU eventually decided that it preferred to pass blanket ex-ante rules against certain practices rather than having to litigate through competition law. Whether or not this was the right decision is up for debate, but one thing is certain: The EU tried its competition toolkit extensively against digital platforms before learning from the outcomes and deciding it needed to be complemented with a new set of broader, enforcer-friendly, bright-line rules.
By contrast, Brazil has initiated only a handful of antitrust cases against digital platforms. According to numbers published by CADE,[10] CADE has reviewed 233 merger cases related to digital platform markets between 1995 and 2023 and, regarding unilateral conduct (monopolization cases)—those most relevant for the discussion on Bill 2768—opened 23 conduct cases. Regarding those 23 cases, 9 are still being investigated, 11 were dismissed, and only 3 were settled by the signature of a Cease-and-Desist Agreement (TCC). In this sense, only 3 cases (TCCs) out of 23 could be said to have been, to some extent, “condemned”. It is questionable whether these cases provide the sort of evidence of the existence of intrinsic competition problems in the eight service markets identified in Art. 6, paragraph II of Bill 2768 that would justify new, “sector-specific” access rules.[11]
In fact, the recent entry of companies into many of those markets suggests that the opposite is closer to the truth. There are numerous examples of entry in a variety of digital services, including the likes of TikTok, Shein, Shopee, and Daki, to name just a few.
Serious problems can arise when products that are not essential facilities are treated as such, of which we name two.
First, over-extending the essential facilities doctrine can encourage free riding.[12] This is not what the essential facilities doctrine, properly understood, aims to achieve, nor what it should be used for:
Consequently, the [European Court of Justice] implies that the [essential facilities doctrine] is not designed for the convenience of undertakings to free ride dominant undertakings, but only for the necessity of survival on the secondary market in situations where there are no effective substitutes.[13]
Why develop a competing online retail platform when access to Mercado Livre or Amazon is guaranteed by law? Free riding can discourage investments from third companies and targeted “gatekeepers,” especially in the development and improvement of competing business platforms (or alternative business models that are not exact replicas of existing platforms). Contrary to the stated goals of Bill 2768, this could further entrench incumbents, as the ability to free ride on others’ investments incentivizes companies to pivot away from contesting incumbents’ core markets to acting as complementors in those markets.
Indeed, a serious—and underappreciated—concern is the cost of excessive risk-taking by companies that can rely on regulatory protections to ensure continued viability even when it is not warranted.
Businesses must develop their business models and operate their businesses in recognition of the risk involved. A complementor that makes itself dependent upon a platform for distribution of its content does take a risk. Although it may benefit from greater access to users, it places itself at the mercy of the other — or at least faces great difficulty (and great cost) adapting to unanticipated platform changes over which it has no control. This is a species of the “asset specificity” problem that animates much of the Transaction Cost Economics literature.[14]
But the risk may be a calculated one. Firms occupy specialized positions in supply chains throughout the economy, and they make risky, asset-specific investments all the time. In most circumstances, firms use contracts to allocate both risk and responsibility in a way that makes the relationship viable. When it is too difficult to manage risk by contract, firms may vertically integrate (thus aligning their incentives) or simply go their separate ways.
The fact that a platform creates an opportunity for complementors to rely upon it does not mean that a firm’s decision to do so — and to do so without a viable contingency plan — makes good business sense. In the case of the comparison-shopping sites at issue in the EU’s Google Shopping decision,[15] for example, it was entirely predictable that Google’s algorithm would evolve. It was also entirely predictable that it would evolve in ways that could diminish or even eviscerate their traffic. As one online marketing expert put it, “counting on search engine traffic as your primary traffic source is a bit foolish, to say the least.”[16]
Providing guarantees (which is what a “gatekeeper” access rule accomplishes) in this situation creates a significant problem: Protecting complementors from the inherent risk in a business model in which they are entirely dependent upon another company with which they have no contractual relationship is at least as likely to encourage excessive risk taking and inefficient over-investment as it is to ensure that investment and innovation are not too low.[17]
Second, granting companies and competitors access to goods or services except in the very few and narrow cases[18] in which access to such goods and services is truly essential to sustain competition on the market sends platforms the wrong message. The message is that, after being encouraged to compete, successful companies will be punished for thriving. This is contrary to the spirit of competition law and the principle of free competition, which Bill 2768 should be careful not to eviscerate. As the great U.S. jurist Learned Hand observed in U.S. v. Aluminum Co. of America: “The successful competitor, having been urged to compete, must not be turned upon when he wins.”[19]
Furthermore, forcing companies to do business with third parties is at odds with the principle that, unless a violation of antitrust law can be ascertained, companies should be free to do business with whomever they choose.[20] Indeed, it is a cornerstone of the free market economy that “the antitrust laws [do] not impose a duty on [firms] . . . to assist [competitors] . . . to ‘survive or expand.’”[21]
Describe cases in digital markets where there is at least one other company with substitute assets close to these assets of the main company, but none of the digital platforms that hold the asset provide access to it. In other words, even if there is more than one asset in the market, there is still a problem of accessing the asset. How could Bill 2768/2022, especially its article 10, be improved to improve access to essential supplies?
We are aware of no such cases.
Describe cases in which the ownership of data in digital markets creates a barrier to entry that makes it very difficult or even impossible for incumbent digital platforms to enter the market. How could Bill 2768/2022 mitigate this problem, reducing the barrier to entry represented by access to data?
The extent to which data represents a barrier to entry is, in our opinion, vastly overstated. Bill 2768 should not assume that data is a barrier to entry and should assess claims to the contrary critically — especially if it intends to build a new, comprehensive regulatory regime on that assumption.[22]
In a nutshell, theories of “data as a barrier to entry” make the assertion that online data can amount to a barrier to entry, insulating incumbent services from competition and ensuring that only the largest providers thrive. This data barrier to entry, it is alleged, can then allow firms with monopoly power to harm consumers, either directly through “bad acts” like price discrimination, or indirectly by raising the costs of advertising, which then get passed on to consumers.[23]
However, the notion of data as an antitrust-relevant barrier to entry is more supposition than reality.
First, despite the rush to embrace “digital platform exceptionalism,” data is useful to all industries. “Data” is not some new phenomenon particular to online companies. It bears repeating that offline retailers also receive substantial benefit from, and greatly benefit consumers by, knowing more about what consumers want and when they want it. Through devices like coupons, membership discounts and loyalty cards (to say nothing of targeted mailing lists and the age-old practice of data mining check-out receipts), brick-and-mortar retailers can track purchase data and better serve consumers. Not only do consumers receive better deals for using them, but retailers know what products to stock and advertise and when and on what products to run sales.[24]
Of course, there are a host of other uses for data, as well, including security, fraud prevention, product optimization, risk reduction to the insured, knowing what content is most interesting to readers, etc. The importance of data stretches far beyond the online world, and far beyond mere retail uses more generally. To describe any one company as having a monopoly on data is therefore mistaken.
Second, it is not the amount of data that leads to success, but how that data is used to craft attractive products or services for users. In other words: information is important to companies because of the value that can be drawn from it, not for the inherent value of the data itself. Thus, many companies that accumulated vast amounts of data were subsequently unable to turn that data into a competitive advantage to succeed on the market. For instance, Orkut, AOL, Friendster, Myspace, Yahoo! and Flicker — to name a few — all gained immense popularity and access to significant amounts of data, but failed to retain their users because their products were ultimately lackluster.
Data is not only less important than what can be drawn from it, but data is also less important than the underlying product it informs. For instance, Snapchat created a challenger to Facebook so successfully (and in such a short time) that Facebook attempted to buy it for $3 billion (Google offered $4 billion). But Facebook’s interest in Snapchat was not about its data. Instead, Snapchat was valuable — and a competitive challenge to Facebook — because it cleverly incorporated the (apparently novel) insight that many people wanted to share information in a more private way.
Relatedly, Twitter, Instagram, LinkedIn, Yelp, TikTok (and Facebook itself) all started with little (or no) data but nevertheless found success. Meanwhile, despite its supposed data advantages, Google’s attempt at social networking, Google+, never caught up to Facebook in terms of popularity to users (and thus not to advertisers either) and shut down in 2019.
At the same, it is not the case that the alleged data giants — the ones supposedly insulating themselves behind data barriers to entry — actually have the type of data most relevant to startups anyway. As Andres Lerner has argued, if you wanted to start a travel business, the data from Kayak or Priceline (or local Decolar.com) would be far more relevant.[25] Or if you wanted to start a ride-sharing business, data from cab companies would be more useful than the broad, market-cross-cutting profiles Google and Facebook have. Consider companies like Uber and 99 that had no customer data when they began to challenge established cab companies that did possess such data. If data were really so significant, they could never have competed successfully. But Uber and 99 have been able to effectively compete because they built products that users wanted to use — they came up with an idea for a better mousetrap. The data they have accrued came after they innovated, entered the market, and mounted their successful challenges — not before.
Complaints about data facilitating unassailable competitive advantages thus have it exactly backwards. Companies need to innovate to attract consumer data, otherwise consumers will switch to competitors (including both new entrants and established incumbents). As a result, the desire to make use of more and better data drives competitive innovation, with manifestly impressive results: The continued explosion of new products, services and other apps is evidence that data is not a bottleneck to competition but a spur to drive it.
Third, competition online is (metaphorically—but not by much) one click or thumb swipe away. That is, barriers to entry and switching costs are low. Indeed, despite the alleged prevalence of data barriers to entry, competition online continues to soar, with newcomers constantly emerging and triumphing. The entry of online retailers and other digital platforms in Brazil is a case in point (See Questions 1 and 2). This suggests that the barriers to entry are not so high as to prevent robust competition.
Again, despite the supposed data-based monopolies of Facebook, Google, Amazon, Apple, and others, there exist powerful competitors in the markets they compete in:
Even assuming for the sake of argument that data creates a barrier to entry, there is little evidence that consumers cannot easily switch to a competitor. While there are sometimes network effects online, like with social networking, history still shows that people will switch. Myspace was considered a dominant network until it made a series of bad business decisions, and users ended up on Facebook instead; Orkut had a similar fate. Similarly, Internet users can and do use Bing, DuckDuckGo, Yahoo!, and a plethora of more specialized search engines on top of and instead of Google, and increasingly also turn to other ways to find information online (such as searching for a brand or restaurant directly on Instagram or TikTok, or asking ChatGPT a question). In fact, Google itself was once an upstart new entrant that replaced once-household names like Yahoo! and AltaVista.
Fourth, access to data is not exclusive. Data is not like oil. If, for example, Petrobras drills and extracts oil from the ground, that oil is no longer available to other companies. Data is not finite in the same way. Google knowing someone’s birthday doesn’t limit the ability of Facebook to know the same person’s birthday, as well. While databases may be proprietary, the underlying data is not. And what matters more than the data itself is how well it is analyzed (see first point). Because data is not exclusive like oil, any attempt to force the sharing of data in an attempt to help competitors creates a free-riding problem. Why go through the work of collecting valuable data on customers to learn what they want so you can better serve them when regulation mandates that Apple effectively give you the data?
In conclusion, the problem with granting competitors access to data is that data is a consequence of competition, not a prerequisite for it. Thus, rather than enhancing their ability to compete, “gifting” competitors the fruits of others’ successful attempts at competition risks destroying both groups’ incentives to design attractive products to accrue such data in the first place. By reversing the competition-data causality, Bill 2768 ultimately risks inadvertently stifling the same competition that it purportedly seeks to bolster.
Cite cases in which a company in the digital market in Brazil used third-party data because of its characteristic as an essential input provider, harming the third party competitively?
We are not aware of any such cases.
However, the framing of this question should be clear about what is meant by “harming a third party competitively.” The use of third-party data is a key driver of competition. Even if competitors are “harmed” as a result, they are harmed only insofar as they do not match the price or quality offered by the platform.
Competition is, to a large extent, driven by the use of knowledge of rivals’ products — including their price, quality, quantity, and how they are sold and presented to consumers. In fact, the model of perfect competition largely assumes that all the products on the market are homogeneous (even if this is rarely borne out in practice). The use of third-party data to match and beat competitor’s offerings can be seen as a modern expression of this dynamic. Indeed, as we have written before:
We cannot assume that something is bad for competition just because it is bad for certain competitors. A lot of unambiguously procompetitive behavior, like cutting prices, also tends to make life difficult for competitors. The same is true when a digital platform provides a service that is better than alternatives provided by the site’s third-party sellers. […]. There’s no doubt this is unpleasant for merchants that have to compete with these offerings. But it is also no different from having to compete with more efficient rivals who have lower costs or better insight into consumer demand. Copying products and seeking ways to offer them with better features or at a lower price, which critics of self-preferencing highlight as a particular concern, has always been a fundamental part of market competition—indeed, it is the primary way competition occurs in most markets.[26]
We cannot assume that something is bad for competition just because it is bad for certain competitors. A lot of unambiguously procompetitive behavior, like cutting prices, also tends to make life difficult for competitors. The same is true when a digital platform provides a service that is better than alternatives provided by the site’s third-party sellers. […].
There’s no doubt this is unpleasant for merchants that have to compete with these offerings. But it is also no different from having to compete with more efficient rivals who have lower costs or better insight into consumer demand. Copying products and seeking ways to offer them with better features or at a lower price, which critics of self-preferencing highlight as a particular concern, has always been a fundamental part of market competition—indeed, it is the primary way competition occurs in most markets.[26]
Any per se prohibition of the use of third-party data would preclude digital platforms from using data to improve their product offering in ways that could benefit consumers.
Recommendation: Assuming that competition law and IP law are not up to the task of curbing abuses of third-party data, Bill 2768 should ensure that such prohibitions are tailor-made to cover conduct that has no other rational explanation other than seeking to exclude a competitor. It should not capture uses of third-party data that drives competition and benefit consumers, even if this results in the exit of a competitor from the market.
Describe cases in which a difficulty in interoperability with a company’s systems makes it very difficult or impossible to enter one or more digital markets. How could Bill 2768/2022 mitigate this problem, reducing the barrier to entry represented by lack of interoperability?
However, when considering potential interoperability mandates, the government should be aware of the risks and trade-offs that come with such measures, especially in terms of safety, security, and privacy (see Question 8 for a more detailed discussion).
The European Digital Market Act (DMA) chose to implement absolute prohibitions (per se) on some conduct in digital markets, such as self-preferencing, among others. Bill 2768/2022, on the other hand, chose not to do any prohibited conduct ex ante. Should there be one or more conducts with absolute prohibitions (per se) in Bill 2768/2022? Why? Please propose wording, explaining where in the bill it would be located?
No, there should not be absolute prohibitions on these sorts of conduct, especially without substantive experience suggesting that such conduct is always or almost always harmful and largely irredeemable (in this item, we answer the question in general terms; please see Question 8 for a discussion of why particular conduct (e.g., self-preferencing) should not be prohibited).
Regardless of the harm to the business of the targeted companies, overly broad prohibitions (or mandates) can harm consumers by chilling procompetitive conduct and discouraging innovation and investment, especially when no showing of harm is required and the law is not amenable to efficiencies arguments (like in the case of the DMA). The fact that such prohibitions apply to vastly different markets (for example, cloud services have little to do with search engines) regardless of context is also a sure sign that they are overly broad and poorly designed.
In fact, there are indications that where the DMA has been introduced, it has delayed the advance of technology. For example, Google’s “Bard” AI was rolled out later in Europe due to the EU’s uncertain and strict AI And privacy regulations.[27] Similarly, Meta’s “Threads” is not available in the EU precisely due to the constraints imposed by the DMA and the EU’s data privacy regulation (GDPR).[28] Elon Musk, X’s (formerly Twitter) CEO, has indicated that the cost of complying with EU digital regulations, such as the DSA, could prompt it to exit the European market.[29] Recently, Microsoft delayed the European rollout of its new AI, “Copilot,” because of the DMA.[30]
Apart from capturing pro-competitive conduct that benefits consumers and freezing technology in time (which would ultimately exacerbate the technological chasm between more and less advanced countries), rigid per se rules could also capture many budding companies that cannot be considered “gatekeepers” by any stretch of the imagination. This risk is especially real in the case of Brazil given the extremely low threshold for what constitutes a “gatekeeper” enshrined in Article 9 (R$70 million, or approximately USD$14 million). Thus, many Brazilian unicorns could, either immediately or in the near future, be captured by the new, restrictive rules, which could stunt their growth and chill innovative products. Ultimately, this could imperil Brazil’s current status as “[Latin America’s] most established startup hub” and cast a shadow on what The Economist has referred to as the bright future of Latin American startups.[31]
The list of harmed companies could include some of Brazil’s most promising unicorns, such as:
Would there be behaviors in digital markets that would have a high potential to entail competitive problems, but which can be justified as generating greater efficiency for companies, transactions, and markets? Give examples of these behaviors? How should these behaviors be treated in Bill 2768/2022? In particular, a “reversal of the burden of proof” would be appropriate, in which such conduct would presumably be anti-competitive, but would it be appropriate to authorize a defense of digital platforms based on these efficiencies? Should these behaviors be considered not prohibited per se, but as a “reversal of the burden of proof” in Bill 2768/2022?
There are certain types of behavior in digital markets that have been targeted by ex-ante regulations but which are nevertheless capable of, or even central to, delivering significant procompetitive benefits. It would be unjustified and harmful to subject such conduct to per se prohibitions or to reverse the burden of proof. Instead, this type of conduct should be approached neutrally, and examined on a case-by-case basis.[33]
Self-preferencing occurs when a company gives preferential treatment to one of its own products (presumably, this type of behavior could be caught by Art. 10, paragraph II of Bill 2768). An example would be Google displaying its shopping service at the top of search results ahead of alternative shopping services. Critics of this practice argue that it puts dominant firms in competition with other firms that depend on their services, and this allows companies to leverage their power in one market to gain a foothold in an adjacent market, thus expanding and consolidating their dominance. However, this behavior can also be procompetitive and beneficial to users.
Over the past several years, a growing number of critics have argued that big tech platforms harm competition by favoring their own content over that of their complementors. Over time, this argument against self-preferencing has become one of the most prominent among those seeking to impose novel regulatory restrictions on these platforms.
According to this line of argument, complementors would be “at the mercy” of tech platforms. By discriminating in favor of their own content and against independent “edge providers,” tech platforms cause “the rewards for edge innovation [to be] dampened by runaway appropriation,” leading to “dismal” prospects “for independents in the internet economy—and edge innovation generally.”[34]
The problem, however, is that the claims of presumptive harm from self-preferencing (also known as “vertical discrimination”) are based neither on sound economics nor evidence.
The notion that platform entry into competition with edge providers is harmful to innovation is entirely speculative. Moreover, it is flatly contrary to a range of studies showing that the opposite is likely true. In reality, platform competition is more complicated than simple theories of vertical discrimination would have it,[35] and the literature establishes that there is certainly no basis for a presumption of harm.[36]
The notion that platforms should be forced to allow complementors to compete on their own terms, free of constraints or competition from platforms is a species of the idea that platforms are most socially valuable when they are most “open.” But mandating openness is not without costs, most importantly in terms of the effective operation of the platform and its own incentives for innovation.
“Open” and “closed” platforms are different ways of supplying similar services, and there is scope for competition between these alternative approaches. By prohibiting self-preferencing, a regulator might therefore close down competition to the detriment of consumers. As we have noted elsewhere:
For Apple (and its users), the touchstone of a good platform is not ‘openness,’ but carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from ‘social engineering’ and the like. By contrast, Android’s bet is on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy.[37]
Moreover, it is important to note that the appropriation of edge innovation and its incorporation into the platform (a commonly decried form of platform self-preferencing) greatly enhances the innovation’s value by sharing it more broadly, ensuring its coherence with the platform, incentivizing optimal marketing and promotion, and the like. Smartphones are now a collection of many features that used to be offered separately, such as phones, calculators, cameras and gaming consoles, and it is clear that the incorporation of these features in a single device has brought immense benefits to consumers and society as a whole. In other words, even if there is a cost in terms of reduced edge innovation, the immediate consumer welfare gains from platform appropriation may well outweigh those (speculative) losses.
Crucially, platforms have an incentive to optimize openness (and to assure complementors of sufficient returns on their platform-specific investments). This does not mean that maximum openness is optimal, however; in fact, typically a well-managed platform will exert top-down control where doing so is most important, and openness where control is least meaningful.[38]
But this means that it is impossible to know whether any particular platform constraint (including self-prioritization) on edge provider conduct is deleterious, and similarly whether any move from more to less openness (or the reverse) is harmful.
This is the situation that leads to the indeterminate and complex structure of platform enterprises. Consider the big online platforms like Google and Facebook, for example. These entities elicit participation from users and complementors by making access to their platforms freely available for a wide range of uses, exerting control over access only in limited ways to ensure high quality and performance. At the same time, however, these platform operators also offer proprietary services in competition with complementors or offer portions of the platform for sale or use only under more restrictive terms that facilitate a financial return to the platform.
The key is understanding that, while constraints on complementors’ access and use may look restrictive compared to an imaginary world without any restrictions, in such a world the platform would not be built in the first place. Moreover, compared to the other extreme — full appropriation (under which circumstances the platform also would not be built…) — such constraints are relatively minor and represent far less than full appropriation of value or restriction on access. As Jonathan Barnett aptly sums it up:
The [platform] therefore faces a basic trade-off. On the one hand, it must forfeit control over a portion of the platform in order to elicit user adoption. On the other hand, it must exert control over some other portion of the platform, or some set of complementary goods or services, in order to accrue revenues to cover development and maintenance costs (and, in the case of a for-profit entity, in order to capture any remaining profits).[39]
For instance, companies may choose to favor their own products or services because they are better able to guarantee their quality or quick delivery.[40] Mercado Livre, for instance, may be better placed to ensure that products provided by the ‘Mercado Envios logistics service are delivered in a timely manner compared to other services. Consumers may benefit from self-preferencing in other ways, too. If, for instance, Google were prevented from prioritizing Google Maps or YouTube videos in its search queries, it could be harder for users to find optimal and relevant results. If Amazon is prohibited from preferencing its own line of products on the marketplace, it may instead opt not to sell competitors’ products at all.
The power to prohibit the requiring or incentivizing of customers of one product to use another would enable the limiting or prevention of self-preferencing and other similar behavior. Granted, traditional competition law has sought to restrict the ‘bundling’ of products by requiring them to be purchased together, but to prohibit incentivization as well goes much further.
Another mot du jour is interoperability, which might fall under Art. 10, paragraph IV of Bill 2768. In the context of digital ex ante regulation, ‘interoperability’ means that covered companies could be forced to ensure that their products integrate with those of other firms. For example, requiring a social network to be open to integration with other services and apps, a mobile operating system to be open to third-party app stores, or a messaging service to be compatible with other messaging services. Without regulation, firms may or may not choose to make their software interoperable. However, Europe’s DMA and the UK’s prospective Digital Markets, Competition and Consumer Bill (“DMCC”),[41] will allow authorities to require it. Another example is data ‘portability,’ which allows customers to move their data from one supplier to another, in the same way that a telephone number can be kept when one changes network.
The usual argument is that the power to require interoperability might be necessary to ‘overcome network effects and barriers to entry/expansion.’ However, the Brazilian government should not overlook that this solution comes with costs to consumer choice, in particular by raising difficulties with security and privacy, as well as having questionable benefits for competition. In fact, it is not as though competition disappears when customers cannot switch as easily as they turn on a light. Companies compete upfront to attract such consumers through tactics like penetration pricing, introductory offers, and price wars.[42]
A closed system, that is, one with comparatively limited interoperability, can help limit security and privacy risks. This can encourage use of the platform and enhance the user experience. For example, by remaining relatively closed and curated, Apple’s App Store gives users the assurance that apps will meet a certain standard of security and trustworthiness. Thus, ‘open’ and ‘closed’ ecosystems are not synonymous with ‘good’ and ‘bad,’ and instead represent two different product design philosophies, either of which might be preferred by consumers. By forcing companies to operate ‘open’ platforms, interoperability obligations could thus undermine this kind of inter-brand competition and override consumer choices.
Apart from potentially damaging user experience, it is also doubtful whether some of the interoperability mandates, such as those between social media or messaging services, can achieve their stated objective of lowering barriers to entry and promoting greater competition. Consumers are not necessarily more likely to switch platforms simply because they are interoperable. In fact, there is an argument to be made that making messaging apps interoperable in fact reduces the incentive to download competing apps, as users can already interact with competitors’ apps from the incumbent messaging app.
Some ex-ante rules seek to address firms’ ability to influence user choice of apps through pre-installation, defaults, and the design of app stores (this could fall under Art. 10, paragraph II of Bill 2768). This has sometimes resulted in the imposition of requirements to provide users with ‘choice screens,’ for instance requiring users to choose which search engine or mapping service is installed on their phone. In this sense, it is important to understand the trade-offs at play here: choice screens may facilitate competition, but they may do so at the expense of the user experience, in terms of the time taken to make such choices. There is a risk, without evidence of consumer demand for ‘choice screens,’ that such rules impose the legislator’s preference for greater optionality over what is most convenient for users. Unless there is explicit public demand in Brazil for such measures, it would be ill-advised to implement a choice screen obligation.
In general, many of the prohibitions and obligations contemplated in ex-ante rules target incumbents’ size, scalability, and “strategic significance.”
It is widely claimed that because of network effects, digital markets are prone to ‘tipping’ whereby when one producer gains a sufficient share of the market, it quickly becomes a complete or near-complete monopolist. Although they may begin as very competitive, these markets therefore exhibit a marked ‘winner takes all’ characteristic. Ex ante rules often try to avert or revert this outcome by targeting a company’s size, or by targeting companies with market power.
However, there are many investments and innovations that will – if permitted – benefit consumers, either immediately or in the longer term, but which may have some effect on enhancing market power, a companies’ size, or its strategic significance. Indeed, improving a firm’s products and thereby increasing its sales will often lead to increased market power.
Accordingly, targeting “size” or conduct which bolsters market power, without any accompanying evidence of harm, creates a serious danger of a very broad inhibition of research, innovation, and investment – all to the detriment of consumers. Insofar as such rules prevent the growth and development of incumbent firms, they may also harm competition, since it may well be these firms that – if permitted – are most likely to challenge the market power of other firms in other, adjacent markets. The cases of Disney, Apple, Amazon and Globo’s launch of video-on-demand services to compete with Netflix, and Meta’s introduction of ‘Threads’ as a challenge to Twitter (or ‘X’), appear to be an example. Here, per se rules that have the aim of prohibiting the bolstering of size or market power in one area may in fact prevent entry by one firm into a market dominated by another. In that case, policymaker action protects monopoly power. Therefore, a much subtler approach to regulation is required.
Bill 2768’s reference to Tim Wu’s The Curse of Bigness, which notoriously adopts a reductive “big is bad” ethos, suggests that it could be making a similarly flawed assumption.[43]
We do not think it is appropriate to reverse the burden of proof in any instances in the context of digital platforms. Without substantive evidence that such conduct causes widespread harm to a well-defined public interest (e.g., similar to cartels in the context of antitrust law), there is no justification for a reversal of the burden of proof, and any such reversal of the burden of proof risks undermining consumer benefits, innovation, and discouraging investment in the Brazilian economy for a justified fear that procompetitive conduct will result in fines and remedies. By the same token, we do think that where the appointed enforcer makes a prima facie case of harm, whether in the context of antitrust law or ex-ante digital regulation, it should also be prepared to address arguments related to efficiencies.
Is there a need for a regulator? If so, which regulator would be better able to implement the regulation provided for in Bill 2768/2022? Anatel, CADE, ANPD, another existing or new regulator? Justify.
Despite the lack of clarity concerning the law’s goals and objectives, the rules proposed by Bill 2768 appear to be competition based, at least insofar as they seek to bolster free competition, consumer protection, and tackle “abuse of economic power” (Art. 4). Therefore, the agency best positioned to enforce it would, in principle, be CADE (the goals of Act 12.529/11, the Brazilian Competition Law, overlap significantly with those under Bill 2768). Conversely, there is a palpable risk that, in discharging its duties under Bill 2768, Anatel would transpose the logic and principles of telecommunications regulation to “digital” markets, which is misguided as these are two very different things.
Not only are “digital” markets substantively different from telecommunications markets, but there is really no such thing as a clearly demarcated concept of “digital market.” For example, the digital platforms described in Art. 6, paragraph II of Bill 2768 are not homogenous, and cover a range of different business models. In addition, virtually every market today incorporates “digital” elements, such as data. Indeed, companies operating in sectors as divergent as retail, insurance, healthcare, pharma, production, and distribution have all been “digitalized.” Thus, an enforcer with a nuanced understanding of the dynamics of digitalization and, especially, the idiosyncrasies of digital platforms as two-sided markets, appears necessary. While CADE arguably lacks substantive experience with digital platforms, it is better placed to enforce Bill 2768 than Anatel because of its deep experience with the enforcement of competition policy.
Do you think that there could be any risk of bis in idem between the regulator and the competition authority with the same conduct being analyzed by both?
Based on the EU experience, there is a risk of double jeopardy at the intersection of traditional competition law and ex-ante digital regulation.
By way of comparison, and as Giuseppe Colangelo has written, the DMA is grounded explicitly on the notion that competition law alone is insufficient to effectively address the challenges and systemic problems posed by the digital platform economy.[44] Indeed, the scope of antitrust is limited to certain instances of market power (e.g., dominance on specific markets) and of anti-competitive behavior. Further, its enforcement occurs ex post and requires extensive investigation on a case-by-case basis of what are often very complex sets of facts and may not effectively address the challenges to well-functioning markets posed by the conduct of gatekeepers, who are not necessarily dominant in competition-law terms — or so its proponents argue. As a result, regimes like the DMA invoke regulatory intervention to complement traditional antitrust rules by introducing a set of ex ante obligations for online platforms designated as gatekeepers. This also allows enforcers to dispense with the laborious process of defining relevant markets, proving dominance, and measuring market effects.
However, despite claims that the DMA is not an instrument of competition law, and thus would not affect how antitrust rules apply in digital markets, the regime does appear to blur the line between regulation and antitrust by mixing their respective features and goals. Indeed, the DMA shares the same aims and protects the same legal interests as competition law.
Further, its list of prohibitions is effectively a synopsis of past and ongoing antitrust cases, such as Google Shopping (Case T-612/17), Apple (AT.40437) and Amazon (Cases AT.40462 and AT.40703).[45] Acknowledging the continuum between competition law and the DMA, the European Competition Network (ECN) and some EU member states (self-anointed “friends of an effective DMA”) initially proposed empowering national competition authorities (NCAs) to enforce DMA obligations.[46]
Similarly, the prohibitions and obligations contemplated in Art. 10 of Bill 2768 could, in theory, all be imposed by CADE. In fact, CADE has investigated, and is still investigating, several large companies which would (likely) fall within the purview of Bill 2768, such as Google, Apple, Meta, (still under investigation) Booking.com, Decolar.com, Expedia and iFood (settled through case-and-desist agreements), and Uber (all investigations closed without penalties; following an economic study, CADE found that Uber’s entry benefitted consumers[47]). CADE’s past and current investigations against these companies already covered conducts that are targeted by the DMA and Bill 2768, such as refusal to deal, self-preferencing, and discrimination.[48] Existing competition law under Act 12.529/11, the Brazilian Competition Law, thus clearly already captures the sort of conduct which is included under Bill 2768. In addition, the requirement to use data “adequately” is likely covered by data protection regulation in Brazil (Lei Geral de Proteção de Dados, LGPD, Lei Federal Nº 13.709/2018).
The difference between the two regimes is that, while general antitrust law requires a showing of harm (even if potential) and exempts conduct with net benefits to consumers, Bill 2768 in principle does not. The only limiting principle to the prohibitions and obligations contained in Art. 10 Art. 11 (III) is the principle of proportionality — which is a general principle of constitutional law and should, in any case, apply regardless of Bill 2768. Thus, the only limiting principle of Art. 10, framed broadly, is redundant.
There is one additional complication. Bill 2768 pursues many (though not all) of the same objectives as Act 12.529/11. Insofar as these objectives are shared, it could lead to double jeopardy i.e., the same conduct being punished twice under slightly different regimes. But it could also produce contradictory results because, as pointed out above, the objectives pursued by the two bills are not identical. Act 12.529/11 is guided by the goals of “free competition, freedom of initiative, social role of property, consumer protection and prevention of the abuse of economic power” (Art. 1). To these objectives, Bill 2768 adds “reduction of regional and social inequalities,” and “increase of social participation in matters of public interest.” While it is true that these principles derive from Art. 170 of the Brazilian Constitution (“economic order”), the mismatch between the goals of Act 12.529/11 and Bill 2768 and their enforcing authorities is sufficient as to lead to situations in which conduct that is allowed or even encouraged under Act 12.529/11 is prohibited under Bill 2768. For instance, procompetitive conduct by a covered platform could nevertheless exacerbate “regional or social inequalities” because it invests heavily in one region, but not others. In a similar vein, safety, privacy, and security measures implemented by, say, an operator of an App Store, which would typically be considered beneficial for consumers under antitrust law,[49] could feasibly lead to less participation in discussions of public interest (assuming one could easily define the meaning of such a term).
Accordingly, Bill 2768 could fragment Brazil´s legal framework due to overlaps with competition law, stifle procompetitive conduct, and lead to contradictory results. This, in turn, is likely to impact legal certainty and the rule of law in Brazil, which could adversely affect Foreign Direct Investment.[50] Furthermore, coordination between CADE and Anatel is likely to be costly, if the latter ends up being the designated enforcer of Bill 2768. Brazil would essentially have two Acts pursuing the same or similar goals being implemented by two different agencies, with all the extra compliance and coordination costs that come with such duplicity.
What is your assessment of the criteria of art. 9 of Bill 2768/2022? Should it be changed? By what criteria? Is it necessary to designate the essential service-to-service access control power holder?
This criterion seems arbitrary and, in any case, extremely low. There is no objective reason that would link “power to control access” with turnover. Furthermore, even if one admits, for the sake of argument, that turnover is a relevant indication of gatekeeper power, a R$70 million threshold would capture dozens, if not hundreds of companies active in a range of industries. This can lead to a situation in which a law that was initially — and purportedly — aimed at very specific “digital” firms, like Google, Amazon, Apple, Microsoft, etc., ends up, by and large, covering a host of other, comparatively small firms, including some of Brazil’s most valuable unicorns (see Question 7). On the other hand, it is also questionable from a rule of law perspective whether a law should seek to identify the specific companies it will apply to in advance.
Lessons can be drawn from the UK’s DMCC, which has made a similar mistake. Pursuant to the current proposal for a DMCC, the UK’s CMA will be able to designate a company as having “significant market status” (“SMS”) where it takes part in a ‘digital activity linked to the United Kingdom’, and, in relation to this digital activity, has ‘substantial and entrenched market power’ and is in ‘a position of strategic significance’ (s. 2), and has a turnover of at least £1 billion in the UK or £25 billion globally (s. 7).[51] The British government has previously stated that the ‘regime will be targeted at a small number of firms’.
However, except for the monetary threshold, the SMS criteria are all broadly defined, and could in theory capture as many as 530 companies (as of March 2022, there were 530 companies with more than £1 billion in revenue in the United Kingdom, according to the Office for National Statistics).[52] Thus, although the government claims that the new regime is aimed at a handful of companies, in practice the CMA will have the power to interfere in a variety of new ways across wide swaths of the economy.
Article 9 of Bill 2768 runs into a similar problem. Granted, it identifies the types of services to which the Bill would apply in a way that the DMCC does not. However, some of the categories envisaged are still very broad: for example, online intermediation services could cover any website that connects buyers and sellers or facilitates transactions between two parties. “Operating systems” are prevalent electronic devices well beyond Apple’s iOS and Google’s Android. Indeed, an operating system is just a program or set of programs of a computer system, which manages the physical resources (hardware), the execution protocols of the rest of the content (software), as well as the user interface. They can be found in many everyday devices, either through graphical user interfaces, desktop environments, window managers or command lines, depending on the nature of the device.
Companies delivering these services, no matter their competitive position, market share, the industry they are a part of, or any other economic or factual considerations, would all be caught by Bill 2768, as long as they fulfilled the (low) R$70 million threshold. The upshot is that the enforcer will be able to apply Bill 2768 against a host of wildly different companies, some of which might not really be in a position to harm competition or misuse their market power. As a consequence, the Bill risks discouraging growth, innovation and, indeed, success, as companies become wary of growing past a certain threshold for fear of being caught in the regulator’s crosshairs. Coupled with a reversal of the burden of proof and the possibility of ignoring efficiencies arguments, the Bill would give the enforcer massive, unchecked powers, which could raise rule of law issues.
This problem can be remedied, at least to some extent, by adding a series of qualitative criteria that may or may not work cumulatively with the quantitative thresholds laid down in the Bill. These criteria should require a showing that the companies in question control access to essential facilities, that such facilities cannot be reasonably replicated, and that access is being denied with the threat that competition on the market may be eliminated (refer to Question 1 for discussion on integrating the essential facilities doctrine into Bill 2768). In addition, Bill 2768 should leverage existing measurements of market power from competition law, such as the ability to control output and increase prices. Quantitative criteria, if used, should be significantly higher and also refer to the number of active users on each platform service covered. “Active user” should in this sense be defined as a user who uses a specific service at least once daily and, at a minimum, once weekly.
What did you think of the rules on the Digital Platforms Supervisory Fund in art. 15 of Bill 2768/2022? Is there another way to finance this type of government regulatory activity?
There are many ways of financing governmental regulatory activity that do not require the targeted companies to pay an annual tax. Government agencies are typically financed from the general government budget — and it should be the same for the agency enforcing Bill 2768.
There are at least two issues with the current approach under Art. 15. The first is capture. If an agency’s activity is funded by the regulated companies, this can lead to the capture of the agency by the regulated company and facilitate rent-seeking — i.e., the situation in which a company uses the regulator to gain an unfair advantage over rivals. Second, it also creates an incentive on the part of the agency, and the government, to widen the scope of the targeted companies, as a way to secure more funding and resources. This creates a perverse incentive that does not align with the public interest. It also discourages investment and, in a sense, is tantamount to a racket by the government.
Moreover, to the extent that the Bill operates as a direct and targeted constraint on certain companies’ exercise of their economic liberty and private property rights for the presumed benefit of the public welfare, it seems appropriate that it should be funded by general-revenue funds, apportioned according to current tax policy over the entire tax-paying population.
To what extent do you believe that all the problems addressed in Bill 2768/2022 are already adequately addressed by competition law, more specifically by CADE, with the instruments of Law No. 12,529 of 2011?
Please see the response to Question 10.
The fact that the government is asking this question at this stage in the process suggests that perhaps the scope and the particulars of Bill 2768 have not been thoroughly thought out. Bill 2768 should be passed only if it is clear that Brazilian competition law is not up to the task. By comparison, and as indicated in the answer to Question 10 above, virtually all of the conduct in the EU’s DMA has also been addressed through EU competition law — often in the Commission’s favor. However, the EU wanted to codify a set of rules that would ensure that the Commission did not have to litigate cases before the courts and would win every case — or at least the vast majority of cases — against digital platforms. But this decision, which one may or may not agree with, came after at least some experience applying competition law to digital platforms and a determination that the gains of such an approach would outweigh the manifest costs.
Conversely, Brazil’s CADE enjoys much more limited experience in this sense, and Brazil itself presents very different economic realities and consumer interests that may not yield the same cost/benefit analysis. As mentioned above, the only “penalties” CADE has imposed against “digital platforms” resulted from voluntary settlements, meaning there has been limited need to litigate “digital” cases in Brazil. There is a lingering sense that Bill 2768 has been proposed not in response to deficiencies in the existing competition law framework, or in response to identified needs particular to Brazil, but as a response to “global trends” initiated by the EU.
Art. 13 of Bill 2768, for example, provides that mergers by covered companies will be scrutinized pursuant to the general competition law rules applicable to other companies and in other sectors. It is unclear why the same logic could not apply across the board — i.e., to all potentially anticompetitive conduct by targeted companies. Why does some conduct which can be addressed through antitrust law necessitate special regulation, but not others?
What problems could be generated for the innovation activity of digital platforms if there is the regulation of digital platforms proposed by Bill 2768/2022? Could this be dealt with in any way within Bill 2768/2022?
Indeed, it is by no means clear that Brazil’s particular circumstances are amenable to an “ex ante” approach similar to that of the EU.
Broad prohibitions and obligations such as the ones imposed by Art. 10 of Bill 2768 risk chilling innovative conduct and freezing technology in place. As the tenth ranked country in the global information technology market and with hundreds of startups in the AI sector, Brazil is a burgeoning market with tremendous potential.[53] Its 214 million population means that growth trends are poised to continue — and, sure enough, the number of app jobs grew by 54% in 2023 compared to 2019.[54]
However, static, strict rules such as those envisioned by Bill 2768 can nip the growth of Brazilian startups in the bud by imposing unsurmountable regulatory costs (which would, in any case, benefit incumbents compared to smaller competitors) and banning conduct capable of fostering growth, benefiting consumers, and igniting competition, such as self-preferencing and refusal to deal.
Indeed, both practices can — and often are — socially beneficial. As discussed in Question 8, despite its recent malignment by some policymakers, “self-preferencing” is normal business conduct and a key reason for efficient vertical integration, which avoids double marginalization and allows companies to better coordinate production, distribution, and sale more efficiently — all to the ultimate benefits of consumers. For example, retail services such as Amazon self-preferencing their own delivery services, as in the case of “Fulfilled by Amazon,” gives consumers something they value tremendously: a guarantee of quick delivery. As we have written elsewhere:
Amazon’s granting marketplace privileges to [Fulfilled by Amazon] products may help users to select the products that Amazon can guarantee will best satisfy their needs. This is perfectly plausible, as customers have repeatedly shown that they often prefer less open, less neutral options.[55]
In a recent report, the Australian Competition Commission recognized as much, stating that self-preferencing is often benign and can lead to procompetitive benefits.[56] Indeed, there are many legitimate reasons why companies may choose to self-preference, including better customer experience, customer service, more relevant choice (curation), and lower prices.[57] Thus, banning self-preferencing, or otherwise significantly discouraging companies from engaging in self-preferencing, could hamstring company growth — including by Brazilian companies that are currently in an early stage of development — and impede market entry by companies who could have been innovators.
Similarly, forcing companies to deal with third parties could stifle innovation by incentivizing free-riding and discouraging companies from making investments. Indeed, why would a company innovate or invest if it knows it will then have to share such investments and innovations with passive rivals who have undertaken none of these risks? The consequence is a stalemate where, rather than fighting to be the first to innovate and enjoy the fruits borne of such innovation, companies are rather encouraged to game the system by waiting for others to make the first step and then free riding on their achievements. This essentially upends the process of dynamic competition by artificially rearranging the incentive to innovate and invest vs. the incentive to free ride, reducing the benefits of the former and increasing the benefits of the latter.
It would be catastrophic to drive a wedge in Brazil’s ability to grow its technology sector and innovate — especially considering the country’s vast potential. Indeed, rather than a triumph of regulation over innovation, Brazil should strive to be precisely the opposite.[58]
What would be the practical difficulties of applying this type of legislation contemplated by Bill 2768/2022?
Funds to finance what could be a considerable amount of enforcement are necessary, but not sufficient, to ensure effectiveness. In the EU, the Commission’s DG Competition, one of the world’s foremost and best-endowed competition authorities, has famously struggled to hire the staff necessary to implement the Digital Markets Act. In short, “DMA experts” currently do not exist — and the Commission will either have to train such experts itself or hire them when expertise develops through enforcement. But this creates a chicken-and-egg scenario, where enforcement — or at least good enforcement — cannot happen without good experts, and good experts cannot materialize without enforcement. There is no reason to believe that these considerations do not map onto the Brazilian context.
Brazil faces an additional challenge, however: attracting talent. Unlike in the EU, where posts at the Commission are highly coveted due to the high salaries, perks, and job security they confer, CADE’s resources are more modest and likely cannot compete fully with the private sector. Thus, before passing Bill 2768, the government should be clear on how the law would be enforced, and by whom.
Other issues include the heavy compliance burden of the Bill, which will affect not only the so-called “tech giants” but any company above the modest R$70 million turnover threshold, the difficulties in interpreting the ambiguous prohibitions and obligations contemplated in Art. 10 (and the litigation which may ensue, on which see Question 16), the cost of crafting of adequate remedies within the meaning of Art. 10, and the looming possibility that the Bill will capture procompetitive conduct and stifle innovation. As we have written with respect to ASEAN countries and the possibility of implementing EU-style competition regulation there:
The ASEAN nations exhibit extremely diverse policies regarding the role of government in the economy. Put simply, some of the ASEAN nations seem ill-suited to the far-reaching technocracy that almost inevitably flows from adopting the European model of competition enforcement. Others might simply not have sufficient resources to staff agencies that could, satisfactorily, undertake the type of far-reaching investigations that the European Commission is famous for.[59]
Do you see a lot of room for the judicialization of this type of regulation provided for in Bill 2768/2022? On what devices?
The enforcement of Bill 2768 is likely to lead to substantial litigation, not least because many of the core concepts of the Bill are ambiguous and open to interpretation.
For instance, what does “discriminatory” conduct within the meaning of Art. 10, para. II entail? Can a covered platform treat business users differently based on objective criteria, such as quality, history, and trustworthiness, or must all business users be treated equally? In this sense, it is uncertain whether the specific meaning ascribed to “discriminatory conduct” under competition law applies in this context. Similarly, what does “adequate” use of data collected in the exercise of a firm’s activities mean (paragraph III)? Does paragraph IV of Art. 10 imply that a covered platform can never deny access to business users? Presumably, covered platforms will want to know how and why this general obligation deviates from the narrower essential facilities doctrine under Brazilian competition law.
Art. 11 adds certain caveats to this, such as that intervention should be tailored, proportionate and consider the impact, costs, and benefits. Again, what sort of impact, costs and benefits are relevant — on consumers, business users, the covered platform, society as a whole?
If this is anything to go by, Bill 2768 is likely to be a legally contentious one.
Are the definitions in article 6 of Bill 2768/2022 adequate for the purpose of this proposal?
Art. 6 and, indeed, the entire impetus behind Bill 2768, rests on two questionable assumptions:
The former would be more convincing if the remedies contemplated by the Bill, such as non-discrimination, adequate use of data, and access, had not been previously used in other markets and for other products. Granting access on “Fair, Reasonable, and Nondiscriminatory” (“FRAND”) terms is often used in the context of competition law and IP law, both of which apply across industries. The duty to use data “adequately” is generally contemplated by data protection laws, which also apply broadly. The same can be said for access obligations, which are frequent under competition law and in regulated industries (such as telecommunications or railways).
In addition, neither the products and services in Art. 6 of the Bill, the companies that operate them, nor the business models they employ are monolithic. Voice assistants and social media, for instance, are vastly different products. The same can be said about cloud computing, which is not really a “platform” in the sense that, say, online intermediation is. The products and services in Art. 6 themselves are also highly heterogeneous, with a single category encompassing a motley list of products, from e-commerce to online maps and app stores.
The same argument applies to the companies that sell these products and services, which — despite the ubiquitous “Big Tech” moniker — are ultimately very different firms.[60] As Apple CEO Tim Cook has said: “Tech is not monolithic. That would be like saying ‘All restaurants are the same’ or ‘All TV networks are the same.’”[61]
For instance, while Google (Alphabet) and Facebook (Meta) are information-technology firms that specialize in online advertising, Apple remains primarily an electronics company, with around 75% of its revenue coming from the sale of iMacs, iPhones, iPads, and accessories. As Amanda Lotz of the University of Michigan has observed:
The profits on those [hardware] sales let Apple use very different strategies than the non-hardware [“Big Tech”] companies with which it is often compared.[62]
It also means that most of its other businesses — such as iMessage, iTunes, Apple Pay, etc. — are complements that “Apple uses strategically to support its primary focus as a hardware company.” Amazon, on the other hand, is primarily a retailer, with its Amazon Web Services and advertising divisions accounting for just 15% and 7% of the company’s revenue, respectively.[63]
Even when two “gatekeepers” are active in the same products/service market, they often have markedly different business models and practices. Thus, despite both selling mobile-phone operating systems, Android (Google) and Apple employ very different product-design philosophies. As we argued in an amicus curiae brief submitted last month to the U.S. Supreme Court in Apple v. Epic Games:
For Apple and its users, the touchstone of a good platform is not “openness,” but carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from “social engineering,” and the like.… By contrast, Android’s bet is on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy.[64]
These various companies and markets have diverse incentives, strategies, and product designs, therefore belying the idea that there is any economically and technically coherent notion of what comprises “gatekeeping.” In other words, both the products and services that would be subject to Art. 6 of Bill 2768 and those companies themselves are highly heterogeneous, and it is unclear why they are placed under the same umbrella.
Instead of pure ex-ante regulation, would any other type of monitoring and/or regulation of digital markets make sense?
A special unit within CADE, operating within the limits of current antitrust laws, should be seriously assessed before rushing to adopt far-reaching, ex-ante regulation in digital markets. Most of the conduct covered by ex-ante regulation in the EU, for example, is spun off from competition law cases. This suggests that such conduct falls within the limits of traditional competition law and can be properly addressed through EU competition law.
Accordingly, a digital unit within CADE would leverage the expertise of staff with a background in applying antitrust law to “digital markets.” Chances are that, if such a unit cannot be formed within CADE, which boasts staff with the expertise that most closely resembles what would be required to enforce Bill 2768, it likely cannot be formed anywhere else — at least not without siphoning off talent from CADE. This would be a mistake, as CADE has a critical role in suppressing behavior that unambiguously harms the public interest, such as cartels (arguably, this is where Brazil should be focusing its resources).[65] Creating a new unit to prosecute novel conduct with uncertain effects on social welfare at the expense of suppressing conduct that is manifestly harmful does not pass a cost-benefit analysis and would ultimately damage Brazil’s economy.
Do you think that the set of solutions described in art. 10 of Bill 2768/2022 are adequate?
It is difficult to answer this question without a clear notion of what Bill 2768 aims to achieve. Adequate for what?
Are the set of sanctions provided for in art. 16 of Bill 2768/2022 adequate?
This is also difficult to answer. If the objective is to thwart all proscribed conduct, no matter the consequences for innovation, investment, and consumer satisfaction, then a high fine is called for — and many companies will stop doing business as a result (which will very effectively stop all undesirable behavior – but also all desirable behavior). If raising revenue is the objective, then the amount of enforcement times the level of sanction needs to be low enough to operate not as a bar to behavior but a fee for doing business. We do not know if the level of sanctions in Art. 16 is appropriate for this — nor, we hasten to add, should this ever be the intention of such a law!
On the other hand, if optimal deterrence is the objective, imposing sanctions considerably lower than those in the EU (as a sanction of 2% of the infringing companies’ Brazilian turnover would be) appears reasonable. Fines for antitrust infringements in the EU can be up to 10% of the company’s worldwide turnover; and fines for violations of the DMA can even reach 20%.[66] But Brazil should not seek to deter investment and innovation to the extent the EU has.
It is, of course, difficult to identify a causal link between competition fines and investment/innovation. But what we do know is this: The pace of economic growth in Europe has lagged that of the U.S. by a significant margin:
Fifteen years ago, the size of the European economy was 10% larger than that of the U.S., however, by 2022 it was 23% smaller. The GDP of the European Union (including UK before Brexit) has grown in this period by 21% (measured in dollars), compared to 72% for the US and 290% for China.[67]
Meanwhile, none of the world’s 10 largest technology companies, and only two of the 25 largest, are based in Europe.[68] And the large U.S. and Asian multinationals are spread across the entire technology industry, from electronic components (chips, mobile phones and computers) to app development companies, websites, and e-commerce. There may be many reasons for these discrepancies, but one of them is almost certainly the differences in the economic regulatory environments, including the extent of competition-law overdeterrence.[69]
Article 10 provides for several obligations in a non-exhaustive list on which the regulator could impose other measures. Should an exhaustive list of measures be envisaged?
Exhaustive lists have the advantage of fostering predictability and cabining the enforcer’s discretion, thus limiting rent-seeking, and ensuring that enforcement stays tethered to the public interest. Assuming, of course, that the sort of measures which are envisaged act in the public interest in the first place.
The problem with how Bill 2768 is framed in its current state is that it is too open-ended. It is understandable that Bill 2768 does not want to tie the enforcers’ hands and has opted for bespoke interventions rather than blanket prohibitions and obligations. This is to be welcomed. However, it should not come at the expense of legal certainty, and it must not fail to impose limits on the enforcer’s discretion. This currently does not seem to be the case.
Article 10 thus provides that platform operators will be subject to “amongst others, the following obligations…” It is not clear, from this numerus apertus list, what the enforcer can and cannot do. But the problem is deeper than just Article 10; nowhere in the Bill is it explained what the goals of the new rules are. The proposed redrafting of Article 19-A of Law 9.472 of 16 July 1997 states, in paragraphs III, IV, and V is vague – it does not impose sufficiently clear limiting principles on the Bill’s reach. Indeed, it suggests that the goals of Bill 2768 would be to prevent conflicts of interest, prevent infringements of user’s rights, and prevent economic infringements by digital platforms in areas which are competence of CADE. Article 4 of Bill 2768 includes other goals: freedom of initiative, free competition, consumer protection, a reduction in regional and social inequality, repressing economic power and bolstering social participation. Elsewhere, it is implied that the goal is to diminish “gatekeeper power” (under “Justifications”).
In other words, it is not clear what Bill 2768 doesn’t empower the enforcer to do.
Furthermore, the prohibitions and obligations in Paragraphs I-IV of Art. 10 are similarly opaque. For instance, what is “adequate” use of collected data? (III). Does paragraph IV imply that a targeted platform may never refuse access to their service? In fact, one thing that is missing from Bill 2768 is the ability to escape a prohibition or obligation by demonstrating efficiencies or through an objective justification (such as, e.g., safety and security or privacy).
Clearly, Bill 2768 cannot predict all of the instances in which Art. 10 will be used. But, in order to strike a balance between the enforcer’s nimbleness and the law’s administrability and predictability, it needs to give a more focused account of the Bill’s goals, and how the provisions in Art. 10 help to achieve them. In other words: Articles 3, 4, and 10 need to be much clearer. Otherwise, the Bill risks doing more harm than good to targeted companies, business users, competitors, and ultimately, consumers. The “Justifications” section of the Bill states that it does not wish to impose a “straitjacket” on targeted companies through the imposition of strict ex ante rules. This is reasonable, especially considering the lack of evidence of unambiguous harm. But granting an enforcer like Anatel, which lacks experience in “digital markets,” broadly defined powers to intervene on the basis of equally broad goals amounts to imposing a straitjacket by another name. In a regulatory “panopticon” in which companies are never sure of what is and is not allowed, some might reasonably choose not to take risks, innovate, and bring new products to the market —because they do not wish to risk being subject to fines (Art. 16) and potential structural remedies, like break-ups (Art. 10, paragrafo unico). In other words, they might assume that much more is prohibited than is actually prohibited.
[1] PL 2768/2022, Dispõe sobre a organização, o funcionamento e a operação das plataformas digitais que oferecem serviços ao público brasileiro e dá outras providências, available at https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2337417.
[2] REGULATION (EU) 2022/1925 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 September 2022, on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act).
[3] https://www.mercadosdigitais.org/.
[4] Case C-7/97 Bronner, EU:C:1998:569.
[5] See, e.g., Commissioner Ana Frazão’s majority decision in Procedure No. 08012.003918/2005-14 (Defendant: Telemar Norte Leste S.A.), paras. 60-62, https://tinyurl.com/4dc38vvk.
[6] See Commissioner Mauricio Maia’s reporting majority decision in Administrative Procedure No. 08012.010483/2011-94 (Defendants: Google Inc. and Google Brasil Internet Ltda.), paras. 180-94; 224-42, https://tinyurl.com/3c9emytw.
[7] A 2021 report by IBRAC identified the high entry rate into the market of online sales platforms. See IBRAC, Revista do Revista do IBRAC Número 2-2021, available at https://ibrac.org.br/UPLOADS/PDF/RevistadoIBRAC/Revista_do_IBRAC_2_2021.pdf.
[8] Bronner, Para. 67.
[9] See Colangelo, G., The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, ICLE White Paper (2022), available at https://laweconcenter.org/resources/the-digital-markets-act-and-eu-antitrust-enforcement-double-triple-jeopardy.
[10] CADE, Mercados de Plataformas Digitais, SEPN 515 Conjunto D, Lote 4, Ed. Carlos Taurisano CEP: 70.770-504 – Brasília/DF, available at https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.
[11] On the notion that DMA-style rules are “sector-specific competition law,” see Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Compet. Law & Pract. 529 (May 11, 2021).
[12] See Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2003). “Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.”
[13] Hou, L., The Essential Facilities Doctrine – What Was Wrong in Microsoft?, 43(4) International Review of Intellectual Property and Competition Law 251-71, 260 (2012).
[14] See Williamson, O.E., The Vertical Integration of Production: Market Failure Considerations, 61 Am. Econ. Rev. 112 (1971); Klein, B., Asset Specificity and Holdups, in The Elgar Companion to Transaction Cost Economics, P. G. Klein & M. Sykuta, eds. (Edward Elgar Publishing, 2010), 120–126.
[15] Commission Decision No. AT.39740 — Google Search (Shopping).
[16] A. Hoffman, Where Does Website Traffic Come From: Search Engine and Referral Traffic, Traffic Generation Café (Dec. 25, 2018), https://trafficgenerationcafe.com/website-traffic-source-search-engine-referral.
[17] See Manne, G., Against the Vertical Discrimination Presumption, Concurrences N° 2-2020, Art. N° 94267 (May 2020), https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword.
[18] On the need for caution when granting a right to access see, for example, Trinko: “We have been very cautious in recognizing such exceptions [to the right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal], because of the uncertain virtue of forced sharing and the difficulty of identifying and remedying anticompetitive conduct by a single firm.”
[19] United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945).
[20] “Thus, as a general matter, the Sherman Act ‘does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.’” United States v. Colgate & Co., 250 U. S. 300, 307 (1919).
[21] Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 545 (9th Cir. 1983) (citations omitted).
[22] See Manne, G. & B. Sperry, Debunking the Myth of a Data Barrier to Entry for Online Services, Truth on the Market (Mar. 26, 2015), https://truthonthemarket.com/2015/03/26/debunking-the-myth-of-a-data-barrier-to-entry-for-online-services; Manne, G. & B. Sperry (2014). The Law and Economics of Data and Privacy in Antitrust Analysis, 2014 TPRC Conference Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2418779.
[23] See generally, Grunes, A. & M. Stucke, Big Data and Competition Policy (Oxford University Press, Oxford, 2016); Newman, N, Antitrust and the Economics of the Control of User Data, 30 Yale Journal on Regulation 3 (2014).
[24] See the examples discussed in Manne, G. & B. Sperry, Debunking the Myth of a Data Barrier to Entry for Online Services, Truth on the Market (Mar. 26, 2015), https://truthonthemarket.com/2015/03/26/debunking-the-myth-of-a-data-barrier-to-entry-for-online-services.
[25] Lerner, A., The Role of ‘Big Data’ in Online Platform Competition (2014), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2482780.
[26] Bowman, S. & G. Manne, Platform Self-Preferencing Can Be Good for Consumers and Even Competitors, Truth on the Market (Mar. 4, 2021), https://truthonthemarket.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.
[27] C. Goujard, Google Forced to Postpone Bard Chatbot’s EU Launch Over Privacy Concerns, Politico (Jun. 13, 2023), https://www.politico.eu/article/google-postpone-bard-chatbot-eu-launch-privacy-concern.
[28] M. Kelly, Here’s Why Threads Is Delayed in Europe, The Verge (Jul. 10, 2023), https://www.theverge.com/23789754/threads-meta-twitter-eu-dma-digital-markets.
[29] Musk Considers Removing X Platform From Europe Over EU Law, Euractiv (Oct. 19, 2023), https://www.euractiv.com/section/platforms/news/musk-considers-removing-x-platform-from-europe-over-eu-law.
[30] Jud, M., Still No Copilot in Europe: Microsoft Rolls Out 23H2 Update, Digitec.ch (Nov. 1, 2023), https://www.digitec.ch/en/page/still-no-windows-copilot-in-europe-microsoft-rolls-out-23h2-update-30279.
[31] The Future is Bright for Latin American Startups, The Economist (Nov.13, 2023), available at https://www.economist.com/the-world-ahead/2023/11/13/the-future-is-bright-for-latin-american-startups.
[32] See Distrito, Panorama Tech América Latina (2023), available at https://static.poder360.com.br/2023/09/latam-report-1.pdf.
[33] The following is adapted from Manne, G., Against the Vertical Discrimination Presumption, Concurrences N° 2-2020, Art. N° 94267 (May 2020) https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword and our comments on the UK’s proposed Digital Markets, Competition and Consumers (“DMCC”) Bill: Auer, D., M. Lesh & L. Radic (2023). Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, 4 IEA Perspectives 16-21 (2023), available at https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.
[34] H. Singer, How Big Tech Threatens Economic Liberty, The Am. Conserv. (May 7, 2019), https://www.theamericanconservative.com/articles/how-big-tech-threatens-economic-liberty.
[35] Most of these theories, it must be noted, ignore the relevant and copious strategy literature on the complexity of platform dynamics. See, e.g., J. M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861 (2011); D. J. Teece, Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy, 15 Res. Pol’y 285 (1986); A. Hagiu & K. Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, in Platforms, Markets and Innovation, A. Gawer, ed. (Edward Elgar Publishing, 2009); K. Boudreau, Open Platform Strategies and Innovation: Granting Access vs. Devolving Control, 56 Mgmt. Sci. 1849 (2010).
[36] For examples of this literature and a brief discussion of its findings, see Manne, G., Against the Vertical Discrimination Presumption, Concurrences N° 2-2020, Art. N° 94267 (May 2020), https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword.
[37] International Center for Law & Economics, International Center for Law & Economics Amicus Curiae Brief Submitted to the U.S. Court of Appeals for the Ninth Circuit 20-21 (2022), https://tinyurl.com/ywu553vb.
[38] See generally, Hagiu & Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, supra note 31; Barnett, The Host’s Dilemma, supra note 31.
[39] Barnett, J., id.
[40] See Radic, L. and G. Manne, Amazon Italy’s Efficiency Offense, Truth on the Market (Jan. 11, 2022), https://tinyurl.com/2uht4fvw.
[41] Introduced as Bill 294 (2022-23), currently HL Bill 12 (2023-24), Digital Markets, Competition and Consumers Bill, available at https://bills.parliament.uk/bills/3453.
[42] Farrell, J., & P. Klemperer Coordination and Lock-In: Competition with Switching Costs and Network Effects, 3 Handbook of Industrial Organization1967-2072 (2007), available at https://www.sciencedirect.com/science/article/abs/pii/S1573448X06030317.
[43] Bill 2768, “Justifications.” See also Wu, T, The Curse of Bigness: Antitrust in the New Gilded Age, Columbia Global Reports (2018).
[44] Colangelo, G., The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, ICLE White Paper 2022-03-23 (2022), available at https://laweconcenter.org/wp-content/uploads/2022/03/Giuseppe-Double-triple-jeopardy-final-draft-20220225.pdf.
[45] See also Caffarra, C. and F. Scott Morton, The European Commission Digital Markets Act: A Translation, Vox EU (Jan. 5, 2021), https://voxeu.org/article/european-commission-digital-markets-act-translation.
[46] How National Competition Agencies Can Strengthen the DMA, European Competition Network (Jun. 22, 2021), available at https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf.
[47] For the full study, see https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/documentos-de-trabalho/2018/documento-de-trabalho-n01-2018-efeitos-concorrenciais-da-economia-do-compartilhamento-no-brasil-a-entrada-da-uber-afetou-o-mercado-de-aplicativos-de-taxi-entre-2014-e-2016.pdf.
[48] For a detailed overview of CADE’s decisions in digital platforms and payments services, see https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/mercado-de-instrumentos-de-pagamento-2019.pdf; https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.
[49] See, e.g., Epic Games, Inc. v. Apple Inc. 20-cv-05640-YGR.
[50] Staats, J. L., & G. Biglaiser, Foreign Direct Investment in Latin America: The Importance of Judicial Strength and Rule of Law, 56(1) International Studies Quarterly 193–202 (2012), https://doi.org/10.1111/j.1468-2478.2011.00690.x.
[51] HL Bill 12 (2023-24), Digital Markets, Competition and Consumers Bill, https://bills.parliament.uk/bills/3453.
[52] Auer, D., M. Lesh, & L. Radic (2023). Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, 4 IEA Perspectives 16-21, available at https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.
[53] See Dailey, M. Why the US Rejected European Style Digital Markets Regulation: Considerations for Brazil’s Tech Landscape, Progressive Policy Institute (Oct. 2, 2023), pp 5-6, available at https://www.progressivepolicy.org/wp-content/uploads/2023/10/PPI-Brazil-EU-Tech.pdf.
[54] Id.
[55] See Radic, L. and G. Manne, Amazon Italy’s Efficiency Offense. Truth on the Market (Jan. 11, 2022), available at https://tinyurl.com/2uht4fvw.
[56] ACCC, Digital Platform Services Inquiry, Discussion Paper for Interim Report No. 5: Updating Competition and Consumer Law for Digital Platform Services (Feb. 2022), available at https://www.accc.gov.au/system/files/Digital%20platform%20services%20inquiry.pdf.
[57] Bowman, S. & G. Manne, Platform Self-Preferencing Can Be Good for Consumers and Even Competitors, Truth on the Market (Mar. 4, 2021), https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.
[58] See Portuese, A. The Digital Markets Act: A Triumph of Regulation Over Innovation, ITIF Schumpeter Project (Aug. 24, 2022), available at https://itif.org/publications/2022/08/24/digital-markets-act-a-triumph-of-regulation-over-innovation.
[59] Auer, D., G. Manne & S. Bowman, Should ASEAN Antitrust Laws Emulate European Competition Policy?, 67(5) Singapore Economic Review 1637–1697, 1687 (2022).
[60]See Lotz, A. ‘Big Tech’ Isn’t a Monolith. It’s 5 Companies, All in Different Businesses, Houston Chronicle (Mar. 26, 2018), https://www.houstonchronicle.com/techburger/article/Big-Tech-isn-t-a-monolith-It-s-5-companies-12781761.php; see also Chaiehloudj, W. & Petit, N. On Big Tech and The Digital Economy, Competition Forum (Jan. 11, 2021), https://competition-forum.com/on-big-tech-and-the-digital-economy-interview-with-professor-nicolas-petit.
[61] Asher Hamilton, I. Tim Cook Says He’s Tired of Big Tech Being Painted as a ‘Monolithic’ Force That Needs Tearing Apart, Business Insider (May 7, 2019), https://www.businessinsider.com/apple-ceo-tim-cook-tired-of-big-tech-being-viewed-as-monolithic-2019-5.
[62] Lotz, 2018.
[63] G. Cuofano, Amazon Revenue Breakdown, Four Week MBA (Aug. 10, 2023), https://fourweekmba.com/amazon-revenue-breakdown.
[64] International Center for Law & Economics, International Center for Law & Economics Amicus Curiae Brief Submitted to the U.S. Supreme Court (2022), available at https://laweconcenter.org/wp-content/uploads/2023/11/ICLE-Amicus-Apple-v-Epic-SCt-10.27.23-FINAL.pdf.
[65] See Zúñiga, M. Latin America Should Follow Its Own Path on Digital-Markets Competition, Truth on the Market (Nov. 7, 2023), https://truthonthemarket.com/2023/11/07/latin-america-should-follow-its-own-path-on-digital-markets-competition.
[66] As pointed out in Question 10, however, there is a risk of double jeopardy considering that some of the conduct caught by Bill 2768 might also be covered by Brazilian competition law. In such cases, the 2% would be compounded by the penalties contemplated under Act 12.529/11, the Brazilian competition law, and the level could easily be too high.
[67] Weekly Foreign Policy Report No. 1329: A Europe Vassal to the US?, Política Exterior (Jun. 26, 2023) https://www.politicaexterior.com/articulo/una-europa-vasalla-de-eeuu.
[68] See, e.g., 100 Biggest Technology Companies in the World, Yahoo Finance (Aug. 23, 2023), available at https://finance.yahoo.com/news/100-biggest-technology-companies-world-175211230.html.
[69] See, e.g., Weekly Foreign Policy Report No. 1329: A Europe Vassal to the US?, Política Exterior (Jun. 26, 2023) https://www.politicaexterior.com/articulo/una-europa-vasalla-de-eeuu.
Regulatory Comments Introdução Em 11 de outubro de 2022, João Maia (Deputado Federal, Partido Liberal) propôs o Projeto de Lei 2768/22 (“Projeto de Lei 2768” ou “Projeto”), . . .
Em 11 de outubro de 2022, João Maia (Deputado Federal, Partido Liberal) propôs o Projeto de Lei 2768/22 (“Projeto de Lei 2768” ou “Projeto”), que traz uma proposta de regulação de mercados digitais. [1] O Projeto de Lei 2768 é a resposta brasileira a tendências globais em direção à regulamentação ex-ante das plataformas digitais, sendo pelo menos parcialmente inspirado no Regulamento dos Mercados Digitais da União Europeia (“DMA”).[2] Em nossa contribuição à consulta pública sobre o Projeto de Lei (“Consulta”), argumentamos que o Brasil deve ter cautela ao importar diretamente uma regulação ainda não testada, dado que o país possui uma situação factual própria e única. Em vez de replicar impulsivamente tendências regulatórias da UE, o Brasil deveria adotar uma abordagem mais metódica e baseada em evidências. Um regime regulatório sólido exige que novas regras sejam fundamentadas em uma visão clara das falhas de mercado específicas que pretende abordar, bem como uma compreensão de seus custos e potenciais consequências acidentais. Infelizmente, o Projeto de Lei 2768 não atende a esses requisitos. Como demonstramos em nossa resposta à Consulta, não está claro que a legislação de defesa da concorrência brasileira tenha deixado de abordar problemas concorrenciais em mercados digitais a ponto de tornar necessária uma regulação digital sui generis. Em realidade, é pouco provável que existam “instalações essenciais” efetivas nos mercados digitais brasileiros a ponto de tornar necessária uma regulação que crie obrigações de acesso; é também pouco provável que “dados” representem uma barreira intransponível à entrada. Outros aspectos do Projeto de Lei – como a designação da Anatel como autoridade responsável; os patamares extremamente baixos de faturamento fixados para identificação de um “controlador de acesso essencial”; e a ausência de qualquer consideração ao bem-estar do consumidor como um parâmetro relevante para a determinação de existência de danos ou para a identificação de exceções – também estão equivocados. Portanto, da forma como atualmente proposta, o Projeto de Lei 2768 levanta riscos de não apenas aumentar a pressão sobre os esparsos recursos públicos do país, como de reduzir a inovação, aumentar preços aos consumidores, e prejudicar o próspero ecossistema de startups do país.
Identificação de “facilidades essenciais” no universo dos mercados digitais. Dê exemplos de ativos de plataformas no mercado digital atuando no Brasil em que ao mesmo tempo: a) não haja plataformas digitais com ativos substitutos próximos a estes ativos b) estes ativos sejam difíceis de duplicação com eficiência ao menos próxima da empresa proprietária c) sem o acesso a este ativo, não seria possível atuar em um ou mais mercados, pois ele constitui um insumo fundamental.
Pelas razões que discutimos abaixo, é improvável que existam exemplos de verdadeiras “instalações essenciais” nos mercados digitais no Brasil.
É importante definir o significado de “instalação essencial” com precisão. O conceito de instalação essencial é um termo de última geração usado no direito da concorrência, que foi definido de forma diferente em todas as jurisdições. Ainda assim, a ideia geral das doutrinas de instalações essenciais é que há casos em que a negação de acesso a uma instalação por um operador existente pode distorcer a concorrência. No entanto, para separar os casos em que a negação de acesso constitui uma expressão legítima da concorrência no mérito das situações em que ela indica uma conduta anticompetitiva, os tribunais e as autoridades de defesa da concorrência elaboraram uma série de testes.
Assim, na UE, o caso de referência Bronner estabeleceu que a doutrina das instalações essenciais se aplica nos casos do art. 102 do TFUE quando:
Além disso, a instalação deve ser genuinamente “essencial” para competir, e não apenas conveniente.
Da mesma forma, o CADE incorporou a doutrina de instalações essenciais à política de concorrência brasileira, impondo o dever de lidar com os concorrentes.[4]
A definição de “instalações essenciais” e, consequentemente, a extensão e os limites da doutrina de instalações essenciais, nos termos do Projeto de Lei 2768/2022 (“Projeto de Lei 2768”), devem refletir princípios experimentados e testados do direito da concorrência. Não há razão para que as instalações essenciais sejam tratadas de forma diferente nos mercados “digitais”, ou seja, mercados que envolvem plataformas digitais, do que em outros mercados. Neste sentido, estamos preocupados que o enquadramento da Pergunta 1 revele uma inconsistência que deve ser abordada antes de seguir em frente; ou seja, quando os ativos de uma empresa são “difíceis” de replicar de forma eficiente, justifica-se forçar um concorrente a conceder acesso a esses ativos. A ideia é equivocada e pode até produzir o oposto do que o Projeto de Lei 2768 supostamente visa obter.
Como indicado acima, o conceito fundamental que sustenta a doutrina das instalações essenciais é que ela se aplica a um produto ou serviço que é pouco lucrativo ou impossível de duplicar. Normalmente, isso se aplica à infraestrutura, como telecomunicações ou ferrovias. Por exemplo, esperar que os concorrentes dupliquem rotas de transporte, como ferrovias, seria irreal — e economicamente um desperdício. Em vez disso, os governos frequentemente escolheram regular esses setores como serviços públicos de monopólio natural. Predominantemente, a prática inclui obrigatoriedade de acesso a todos os participantes de tais instalações essenciais mediante preços regulados e condições não discriminatórias que tornam a atividade de outras empresas viável e competitiva – facilitando assim a concorrência em um mercado secundário em situações em que a concorrência poderia ser impossível.
No entanto, o governo deve se perguntar em que medida essa lógica se aplica às chamadas plataformas digitais.
Os mecanismos de busca on-line, por exemplo, não são impossíveis ou excessivamente difíceis de replicar — nem o acesso a qualquer um deles é indispensável. Hoje, muitos mecanismos de busca estão disponíveis no mercado: Bing, Yandex, Ecosia, DuckDuckGo, Yahoo!, Google, Baidu, Ask.com e Swisscows — entre outros.
Mais precisamente, o mero acesso aos mecanismos de pesquisa não é realmente um problema. Em vez disso, na maioria dos casos, aqueles que reclamam da atividade de um mecanismo de busca geralmente desejam acesso aos primeiros resultados ou que o mecanismo de busca priorize seus próprios serviços de mercado secundário em detrimento do concorrente. Mas este espaço é irrisoriamente escasso; não há como ele ser alocado a todos os participantes. Ele também não pode ser alocado em termos imparciais; por definição, um mecanismo de busca deve priorizar os resultados.
Tratar um mecanismo de busca como uma instalação essencial geraria resultados problemáticos. Por exemplo, exigir acesso não discriminatório aos principais resultados de um mecanismo de busca seria como exigir que uma ferrovia oferecesse serviço a todos os transportadores a qualquer momento que o transportador quisesse, independentemente do congestionamento da ferrovia, dos horários de outros transportadores e da otimização pela ferrovia de seus horários. Não só seria impossível, mas nem sequer é exigido das instalações essenciais tradicionais.
Notadamente, embora as primeiras classificações na página de resultados de um mecanismo de busca seja, sem dúvida, um benefício para os negócios, existem outras maneiras de alcançar os clientes. De fato, como o CADE decidiu em um caso relativo ao Google Shopping, mesmo que a primeira página do resultado do Google seja relevante e importante para sites classificados, ela não é insubstituível, na medida em que existem outras maneiras de os consumidores encontrarem sites on-line. O Google não é um intermediário obrigatório para acesso ao site.[5] Além disso, como observado, as páginas de resultados de busca devem, por definição, discriminar para funcionar corretamente. Considerá-las instalações essenciais implicaria disputas intermináveis (e determinações tecnicamente complicadas) para decidir se as decisões de priorização do mecanismo de busca eram “adequadas” ou não.
Da mesma forma, plataformas de varejo on-line, como Amazon e Mercado Livre, são muito bem-sucedidas e convenientes, mas os vendedores podem usar outros métodos para alcançar os clientes. Por exemplo, eles podem vender em lojas físicas ou configurar facilmente seus próprios sites de varejo usando uma infinidade de provedores de software como serviço (“SaaS”) para facilitar o processamento e o atendimento de pedidos. Além disso, a presença e o sucesso simultâneos de Mercado Livre, B2W (Submarino.com, Americanas.com, Shoptime, Soubarato), Cnova (Extra.com.br, Casasbahia.com.br, Pontofrio.com), Magazine Luiza e Amazon no mercado brasileiro desqualifica a alegação de que qualquer uma dessas plataformas é indispensável ou irreplicável.[6]
Argumentos semelhantes podem ser feitos sobre as demais plataformas digitais abrangidas pelo art. 6, inciso II, do PL 2768. Por exemplo, o WhatsApp pode ser de longe o serviço de comunicação interpessoal mais popular do país. Ainda assim, há muitas alternativas de alcance fácil (e principalmente gratuito) para os consumidores brasileiros, como Messenger (62 milhões de usuários), Telegram (30 milhões), Instagram (64 milhões), Viber (3 milhões), Hangouts (2 milhões), WeChat (1 milhão), Kik (500.000 usuários) e Line (1 milhão de usuários). O grande número de usuários de cada aplicativo sugere que o multi-homing (multifornecimento) é generalizado.
Em suma, embora o acesso a uma determinada plataforma digital possa ser conveniente, especialmente se ela for atualmente a mais popular entre os usuários, é altamente questionável se esse acesso é essencial. E, como o Advogado Geral Jacobs observou em seu parecer em Bronner, a mera conveniência não cria um direito de acesso segundo a doutrina das instalações essenciais.[7]
Recomendação: O Projeto de Lei 2768 deve deixar claro que os princípios e requisitos de “instalações essenciais”, dentro do significado do direito da concorrência, se aplicam integralmente aos deveres e às obrigações contemplados no art. 10 — e que a definição de uma “instalação essencial” é um pré-requisito para a imposição desses deveres ou obrigações.
É necessária uma regulação que garanta o acesso ao(s) ativo(s) do(s) exemplo(s) da questão 1? O que tal regulação deveria garantir para que o acesso ao ativo viabilize a entrada de terceiros naqueles mercados digitais?
Antes de considerar se a regulamentação é necessária para garantir o acesso a ativos de determinadas empresas, o governo deve primeiramente considerar se garantir esse acesso é necessário e legítimo. Em nossa resposta à Pergunta 1, argumentamos que é improvável que seja. Se o governo, no entanto, decidir o contrário, a próxima pergunta lógica deve ser se o direito da concorrência, incluindo a própria doutrina das instalações essenciais, é suficiente para abordar quaisquer problemas alegados identificados na Pergunta 2.
Indiscutivelmente, a melhor maneira de responder a essa pergunta seria por meio do experimento natural de permitir que o CADE apresente processos contra plataformas digitais — supondo que possa construir um caso prima facie em cada instância — e verificar se ferramentas tradicionais do direito da concorrência fornecem ou não uma solução viável e, se não, se essas ferramentas podem ser aprimoradas pela reforma da lei de concorrência do Brasil, ou se é necessária uma nova regulamentação prévia abrangente.
Em comparação, a UE experimentou a lei de concorrência da UE antes de aprovar o Projeto de Lei dos Mercados Digitais (“DMA”). De fato, a maioria, se não todas, as proibições e obrigações da DMA decorrem de processos do direito da concorrência.[8] A UE acabou decidindo que preferia aprovar regras prévias gerais contra determinadas práticas, em vez de ter de litigar com base no direito da concorrência. Se essa foi ou não a decisão correta está em debate, mas uma coisa é certa: A UE testou seu kit de ferramentas de concorrência extensivamente contra plataformas digitais, antes de aprender com os resultados e decidir que precisava ser complementado com um novo conjunto de regras mais amplas, fáceis de aplicar e claras.
Em contraste, o Brasil instaurou apenas alguns processos de defesa da concorrência contra plataformas digitais. De acordo com números publicados pelo CADE, o[9] CADE analisou 233 processos de fusão relacionados a mercados de plataformas digitais entre 1995 e 2023 e, com relação a condutas unilaterais (casos de monopolização) — aquelas mais relevantes para a discussão do PL 2768 — abriu 23 processos de conduta. Com relação a esses 23 processos, 9 ainda estão sendo investigados, 11 foram julgados improcedentes e apenas 3 foram encerrados pela assinatura de um Termo de Compromisso de Cessação (TCC). Neste sentido, apenas 3 processos (TCCs) de 23 poderiam ter sido, em certa medida, “condenados”. É questionável se esses processos fornecem o tipo de evidência da existência de problemas intrínsecos de concorrência nos oito mercados de serviços identificados no art. 6, parágrafo II, do Projeto de Lei 2768 que justificariam novas regras de acesso “específicas do setor”.[10]
De fato, a recente entrada de empresas em muitos desses mercados sugere que o oposto está mais próximo da verdade. Existem inúmeros exemplos de entrada em uma variedade de serviços digitais, incluindo TikTok, Shein, Shopee e Daki, para citar apenas alguns.
Sérios problemas podem surgir quando produtos que não são instalações essenciais são tratados como tal, dos quais citamos dois.
Em primeiro lugar, estender demais a doutrina das instalações essenciais pode incentivar o oportunismo.[11] Não é para esse objetivo nem a intenção para a qual a doutrina das instalações essenciais, devidamente compreendida, deve ser usada:
Consequentemente, o [Tribunal de Justiça Europeu] implica que a [doutrina das instalações essenciais] não é concebida para a conveniência das empresas explorarem livremente as empresas dominantes, mas apenas para a necessidade de sobrevivência no mercado secundário em situações em que não existem substitutos efetivos.[12]
Por que desenvolver uma plataforma de varejo on-line concorrente, quando o acesso ao Mercado Livre ou à Amazon é garantido por lei? O oportunismo pode desencorajar investimentos de empresas terceiras e “guardiões” direcionados — especialmente no desenvolvimento e na melhoria de plataformas de negócios concorrentes (ou modelos de negócios alternativos que não são réplicas exatas das plataformas existentes). Ao contrário dos objetivos declarados do Projeto de Lei 2768, isso poderia entrincheirar ainda mais os operadores existentes, pois a capacidade de se aproveitar dos investimentos de terceiros incentiva as empresas a se afastarem dos principais mercados dos operadores existentes para atuar como complementadores nesses mercados.
De fato, uma preocupação séria — e subestimada — é o custo de assumir riscos excessivos por empresas que podem contar com proteções regulatórias para garantir a viabilidade contínua, mesmo quando ela não é garantida.
As empresas devem desenvolver seus modelos de negócios e operá-los em reconhecimento ao risco envolvido. Um complementador que se torna dependente de uma plataforma para distribuição de seu conteúdo assume um risco. Embora possa se beneficiar de um maior acesso aos usuários, ele se coloca à mercê do outro — ou pelo menos enfrenta grande dificuldade (e um custo significativo) para se adaptar a mudanças imprevistas na plataforma sobre as quais não tem controle. Essa é uma espécie de problema de “especificidade de ativo” que anima grande parte da literatura de Economia de Custos de Transação.[13]
Mas o risco pode ser calculado. As empresas ocupam posições especializadas em cadeias de suprimentos em toda a economia e fazem investimentos arriscados e específicos de ativos o tempo todo. Na maioria das circunstâncias, as empresas usam contratos para alocar risco e responsabilidade de forma a viabilizar o relacionamento. Quando é muito difícil gerenciar o risco por contrato, as empresas podem se integrar verticalmente (alinhando assim seus incentivos) ou simplesmente seguir caminhos separados.
O fato de uma plataforma criar uma oportunidade como apoio para os complementadores não significa que a decisão de uma empresa de fazê-lo — e fazê-lo sem um plano de contingência viável — faça sentido para os negócios. No caso dos sites de comparação de compras em questão, na decisão do Google Shopping da UE,[14] por exemplo, era totalmente previsível que o algoritmo do Google evoluiria. Também era totalmente previsível que ele evoluiria de maneiras que poderiam diminuir ou até mesmo evitar seu tráfego. Como disse um especialista em marketing digital, “contar com o tráfego dos mecanismos de busca como sua principal fonte de tráfego é um pouco insensato, para dizer o mínimo”.[15]
Fornecer garantias (que é o que uma regra de acesso “guardião” realiza) nessa situação cria um problema significativo: Proteger os complementadores do risco inerente a um modelo de negócios, no qual eles são totalmente dependentes de outra empresa com a qual não têm relação contratual, representa, no mínimo, tão provável como incentivar a tomada de riscos excessivos e o excesso de investimento ineficiente quanto garantir que o investimento e a inovação não sejam muito baixos.[16]
Em segundo lugar, conceder a empresas e concorrentes acesso a bens ou serviços, exceto nos poucos e restritos casos[17] em que o acesso a esses bens e serviços é verdadeiramente essencial para sustentar a concorrência no mercado, envia às plataformas a mensagem errada. A mensagem é que, depois de serem incentivadas a competir, as empresas de sucesso serão punidas por prosperarem. Isso contraria o espírito do direito concorrencial e o princípio da livre concorrência, que o PL 2768 deve ter o cuidado de não eliminar. Como o grande jurista norte-americano Learned Hand observou no processo U.S. v. Aluminum Co. of America: “O concorrente de sucesso, tendo sido instado a competir, não deve ser atacado quando vencer.”[18]
Além disso, forçar as empresas a fazer negócios com terceiros está em desacordo com o princípio de que, a menos que uma violação da lei de defesa da concorrência possa ser verificada, as empresas devem ser livres para fazer negócios com quem quiserem.[19] De fato, é uma pedra angular da economia de livre mercado que “as leis de defesa da concorrência [não] imponham um dever às [empresas]. . . para auxiliar [concorrentes]. . . ‘sobreviver ou expandir.’”[20]
Descreva casos nos mercados digitais em que há pelo menos uma outra empresa com ativos substitutos próximos a estes ativos da empresa principal, mas que ainda assim nenhuma das plataformas digitais que detêm o ativo provém acesso a ele. Ou seja, mesmo havendo mais de um ativo no mercado, continua havendo problema de acesso ao ativo. Como o PL 2768/2022, especialmente seu art. 10, poderia ser melhorado para aprimorar o acesso ao insumo essencial?
Não temos conhecimento desses processos.
Descreva casos em que a propriedade de dados em mercados digitais cria uma barreira à entrada que torna muito difícil ou mesmo impossível a entrada no mercado das plataformas digitais incumbentes. Como o PL 2768/2022 poderia mitigar este problema, reduzindo a barreira à entrada representada por acesso a dados?
A medida em que os dados representam uma barreira à entrada é, em nossa opinião, muito exagerada. O PL 2768 não deve supor que os dados são uma barreira à entrada e deve avaliar criticamente as alegações em contrário — especialmente se pretende construir um novo regime regulatório abrangente com base nessa suposição.[21]
Em poucas palavras, as teorias de “dados como barreira à entrada” afirmam que os dados on-line podem constituir uma barreira à entrada, isolando os serviços estabelecidos da concorrência e garantindo que apenas os maiores provedores prosperem. Essa barreira de dados à entrada, alega-se, pode permitir que empresas com poder de monopólio prejudiquem os consumidores, seja diretamente por meio de “atos negligentes”, como discriminação de preços, ou indiretamente, aumentando os custos de publicidade, que são repassados aos consumidores.[22]
No entanto, a noção de dados como uma barreira à entrada relevante de defesa da concorrência é mais uma suposição do que a realidade.
Primeiro, apesar da pressa em abraçar o “excepcionalismo da plataforma digital”, os dados são úteis para todos os setores. “Dados” não é um fenômeno novo específico para empresas on-line. Vale a pena repetir que os varejistas off-line também recebem vantagens substanciais e beneficiam muito os consumidores, ao saber mais sobre o que os consumidores querem e quando querem. Por meio de dispositivos como cupons, descontos de associação e cartões de fidelidade (para não mencionar listas de discussão direcionadas e a antiga prática de mineração de dados de comprovantes de check-out), os varejistas físicos podem rastrear dados de compra e atender melhor os consumidores. Não só os consumidores recebem melhores ofertas por usá-los, mas também os varejistas sabem quais produtos estocar e anunciar, e quando e com quais produtos realizar vendas.[23]
Obviamente, também há uma série de outros usos dos dados, incluindo segurança, prevenção de fraudes, otimização de produtos, redução de riscos para o segurado, saber qual conteúdo é mais interessante para os leitores etc. A importância dos dados vai muito além do mundo on-line e muito além do mero uso no varejo em geral. Descrever qualquer empresa como detentora de monopólio dos dados é, portanto, um erro.
Em segundo lugar, não é o volume de dados que leva ao sucesso, mas como esses dados são usados para criar produtos ou serviços atrativos para os usuários. Em outras palavras: a informação é importante para as empresas devido ao valor que dela pode ser extraído, e não pelo valor inerente dos dados em si. Assim, muitas empresas que acumularam grandes volumes de dados foram posteriormente incapazes de transformar esses dados em uma vantagem competitiva para ter sucesso no mercado. Por exemplo, Orkut, AOL, Friendster, Myspace, Yahoo! e Flicker — para citar alguns — todos ganharam imensa popularidade e acesso a volumes significativas de dados, mas não conseguiram reter seus usuários porque seus produtos não eram, em última análise, inexpressivos.
Não só os dados são menos importantes do que o que deles pode ser extraído, mas também são menos importantes do que o produto subjacente que eles informam. Por exemplo, o Snapchat criou um concorrente para o Facebook com tanto sucesso (e em tão pouco tempo) que o Facebook tentou comprá-lo por $3 bilhões (o Google ofereceu $4 bilhões). Mas o interesse do Facebook no Snapchat não era sobre seus dados. Em vez disso, o Snapchat era valioso — e um desafio competitivo para o Facebook — porque incorporou inteligentemente a percepção (aparentemente nova) de que muitas pessoas queriam compartilhar informações de uma maneira mais privada.
Da mesma forma, Twitter, Instagram, LinkedIn, Yelp, TikTok (e o próprio Facebook) começaram com poucos (ou nenhum) dados, mas, no entanto, obtiveram sucesso. Enquanto isso, apesar de suas supostas vantagens de dados, a tentativa do Google em redes sociais, o Google+, jamais alcançou o Facebook em termos de popularidade entre os usuários (e, portanto, também não entre os anunciantes) e foi desativado em 2019.
Ao mesmo tempo, não é o caso em que os supostos gigantes de dados — aqueles que supostamente se isolam por trás das barreiras à entrada de dados — realmente tenham, de qualquer maneira, o tipo de dados mais relevante para as startups. Como argumentou Andres Lerner, se você quisesse iniciar um negócio de viagens, os dados do Kayak ou Priceline (ou Decolar.com local) seriam muito mais relevantes.[24] Ou se você quisesse iniciar um negócio de compartilhamento de veículos, os dados das empresas de táxi seriam mais úteis do que os perfis amplos e transversais de mercado que o Google e o Facebook têm. Considere empresas como a Uber e a 99 que não tinham dados de clientes quando começaram a desafiar as empresas de táxi estabelecidas que detinham desses dados. Se os dados fossem realmente tão significativos, elas jamais poderiam ter competido com sucesso. Mas a Uber e a 99 conseguiram competir efetivamente porque construíram produtos que os usuários queriam usar — elas tiveram uma ideia para uma armadilha melhor. Os dados que elas acumularam foram obtidos depois que elas inovaram, entraram no mercado e superaram seus desafios com sucesso — não antes.
Portanto, reclamações sobre dados que facilitam vantagens competitivas incontestáveis têm demonstrado exatamente o contrário. As empresas precisam inovar para atrair dados do consumidor; caso contrário, os consumidores migrarão para os concorrentes (incluindo novos entrantes e operadores estabelecidos). Como resultado, o desejo de fazer uso de mais e melhores dados impulsiona a inovação competitiva, com resultados claramente impressionantes: A explosão contínua de novos produtos, serviços e de outros aplicativos é uma evidência de que os dados não são um gargalo para a concorrência, mas um estímulo para impulsioná-la.
Em terceiro lugar, a concorrência on-line está (metaforicamente – mas não muito) a um clique ou deslize do polegar. Ou seja, as barreiras à entrada e os custos de migração são baixos. De fato, apesar da suposta prevalência de barreiras de dados à entrada, a concorrência on-line continua a aumentar, com os recém-chegados constantemente emergindo e triunfando. A entrada de varejistas on-line e de outras plataformas digitais no Brasil é um caso em questão (Vide Perguntas 1 e 2). Isso sugere que as barreiras à entrada não são tão altas a ponto de impedir uma concorrência robusta.
Novamente, apesar dos supostos monopólios baseados em dados do Facebook, Google, Amazon, Apple e outros, existem concorrentes poderosos nos mercados em que competem:
Mesmo supondo, a título de argumento, que os dados criam uma barreira à entrada, há poucas evidências de que os consumidores não possam migrar facilmente para um concorrente. Embora, em alguns casos, haja efeitos na rede on-line, como nas redes sociais, a história ainda mostra que as pessoas migrarão. O Myspace era considerado uma rede dominante, até que tomou uma série de decisões de negócios ruins, e os usuários acabaram no Facebook; O Orkut teve um destino semelhante. Da mesma forma, os usuários da Internet podem e usam o Bing, o DuckDuckGo, o Yahoo! e uma infinidade de mecanismos de busca mais especializados, além e no lugar do Google, e cada vez mais também recorrem a outras maneiras de encontrar informações on-line (como pesquisar uma marca ou um restaurante diretamente no Instagram ou no TikTok, ou fazer uma pergunta ao ChatGPT). De fato, o próprio Google já foi um entrante iniciante, que substituiu nomes antes familiares como Yahoo! e AltaVista.
Em quarto lugar, o acesso a dados não é exclusivo. Os dados não são como o petróleo. Se, por exemplo, a Petrobras perfurar e extrair petróleo do solo, esse petróleo não mais estará disponível para outras empresas. Os dados não são igualmente finitos. O Google saber o aniversário de alguém também não limita a capacidade do Facebook de saber o aniversário da mesma pessoa. Embora os bancos de dados possam ser proprietários, os dados subjacentes não o são. E o que importa mais do que os dados em si é o nível de qualidade com que eles são analisados (veja o primeiro ponto). Como os dados não são exclusivos como o petróleo, qualquer tentativa de forçar o compartilhamento de dados e ajudar os concorrentes cria um problema de oportunismo. Por que passar pelo esforço de coletar dados valiosos sobre os clientes para saber o que eles querem e ser capaz de melhor atendê-los, quando a regulamentação exige que a Apple efetivamente forneça os dados?
Em conclusão, o problema de conceder aos concorrentes acesso aos dados é que os dados são uma consequência da concorrência, não um pré-requisito para ela. Assim, em vez de aumentar sua capacidade de competir, “presentear” os concorrentes com os frutos de tentativas bem-sucedidas de concorrência de outros corre o risco de destruir os incentivos de ambos os grupos para projetar produtos atrativos e acumular esses dados em primeiro lugar. Ao reverter a causalidade entre dados e concorrência, o Projeto de Lei 2768 corre o risco de sufocar inadvertidamente a mesma concorrência que supostamente busca reforçar.
Cite casos em que uma empresa no mercado digital no Brasil usou dados de terceiros em função de sua característica de provedor de insumo essencial, prejudicando o terceiro competitivamente?
No entanto, o enquadramento desta pergunta deve ser claro sobre o que se entende por “prejudicar um terceiro competitivamente”. O uso de dados de terceiros é um dos principais impulsionadores da concorrência. Mesmo que os concorrentes sejam “prejudicados” como resultado, eles são prejudicados apenas na medida em que não se equiparem ao preço ou à qualidade oferecidos pela plataforma.
A concorrência é, em grande parte, impulsionada pelo uso do conhecimento dos produtos dos rivais — incluindo seu preço, qualidade, quantidade e como eles são vendidos e apresentados aos consumidores. De fato, o modelo de concorrência perfeita pressupõe, em grande medida, que todos os produtos no mercado são homogêneos (mesmo que isso raramente seja confirmado na prática). O uso de dados de terceiros para igualar e superar as ofertas dos concorrentes pode ser visto como uma expressão moderna dessa dinâmica. De fato, como já escrevemos antes:
Não podemos presumir que algo é ruim para a concorrência apenas porque é ruim para determinados concorrentes. Muitos comportamentos inequivocamente pró-concorrência, como o corte de preços, também tendem a dificultar a vida dos concorrentes. O mesmo acontece quando uma plataforma digital fornece um serviço melhor do que as alternativas fornecidas por terceiros vendedores no site. […]. Não há dúvida de que isso é desagradável para os comerciantes que precisam competir com essas ofertas. Mas também não é diferente de ter de competir com rivais mais eficientes, com custos mais baixos ou melhor percepção de demanda do consumidor. Copiar produtos e buscar maneiras de oferecê-los com melhores recursos ou a um preço mais baixo, que os críticos da autopreferência destacam como uma preocupação particular, sempre foi uma parte fundamental da concorrência no mercado – de fato, é a principal maneira pela qual a concorrência ocorre na maioria dos mercados.[25]
Não podemos presumir que algo é ruim para a concorrência apenas porque é ruim para determinados concorrentes. Muitos comportamentos inequivocamente pró-concorrência, como o corte de preços, também tendem a dificultar a vida dos concorrentes. O mesmo acontece quando uma plataforma digital fornece um serviço melhor do que as alternativas fornecidas por terceiros vendedores no site. […].
Não há dúvida de que isso é desagradável para os comerciantes que precisam competir com essas ofertas. Mas também não é diferente de ter de competir com rivais mais eficientes, com custos mais baixos ou melhor percepção de demanda do consumidor. Copiar produtos e buscar maneiras de oferecê-los com melhores recursos ou a um preço mais baixo, que os críticos da autopreferência destacam como uma preocupação particular, sempre foi uma parte fundamental da concorrência no mercado – de fato, é a principal maneira pela qual a concorrência ocorre na maioria dos mercados.[25]
Qualquer proibição per se do uso de dados de terceiros impediria as plataformas digitais de usar dados para melhorar sua oferta de produtos de maneiras que poderiam beneficiar os consumidores.
Recomendação: Supondo que a lei de concorrência e a lei de PI (Propriedade Intelectual) não estejam à altura da tarefa de coibir abusos de dados de terceiros, o Projeto de Lei 2768 deve garantir que essas proibições sejam feitas sob medida para cobrir condutas que não tenham outra explicação racional além de procurar excluir um concorrente. Ele não deve capturar usos de dados de terceiros que impulsionem a concorrência e beneficiem os consumidores, mesmo que isso resulte na saída de um concorrente do mercado.
Descreva casos em que uma dificuldade de interoperabilidade com os sistemas de uma empresa torna muito difícil ou impossível a entrada em um ou mais mercados digitais. Como o PL 2768/2022 poderia mitigar este problema, reduzindo a barreira à entrada representada por falta de interoperabilidade?
No entanto, ao considerar potenciais mandatos de interoperabilidade, o governo deve estar ciente dos riscos e compensações que acompanham essas medidas, especialmente em termos de segurança, proteção e privacidade (vide Pergunta 8 para obter uma discussão mais detalhada).
O Digital Market Act (DMA) Europeu optou por realizar proibições absolutas (per se) de algumas condutas nos mercados digitais como o self-preferencing, dentre outras. Já o PL 2768/2022 optou por não fazer qualquer conduta proibida ex-ante. Caberia haver uma ou mais condutas com proibições absolutas (per se) no PL 2768/2022? Por que? Por favor, propor redação, explicitando em que parte do PL se localizaria?
Não. Não deve haver proibições absolutas sobre esses tipos de conduta, especialmente sem experiência substantiva que sugira que essa conduta é sempre ou quase sempre prejudicial e em grande parte irremediável (neste item, respondemos à pergunta em termos gerais; consulte a Pergunta 8 para obter uma discussão sobre por que determinada conduta (por exemplo, autopreferência) não deve ser proibida).
Independentemente do dano aos negócios das empresas-alvo, proibições (ou mandatos) excessivamente amplas podem prejudicar os consumidores, arrefecendo a conduta pró-concorrência e desestimulando a inovação e o investimento, especialmente quando não for necessária uma demonstração de dano e a lei não for passível de argumentos de eficiência (como no caso do DMA). O fato de que essas proibições se aplicam a mercados muito diferentes (por exemplo, serviços em nuvem têm pouca relação com mecanismos de busca), independentemente do contexto, também é um sinal claro de que elas são excessivamente amplas e mal definidas.
De fato, há indícios de que, onde o DMA foi introduzido, ele atrasou o avanço da tecnologia. Por exemplo, a “Bard AI” do Google foi lançada mais tarde na Europa devido aos regulamentos incertos e rígidos de IA e privacidade da UE.[26] Da mesma forma, o “Threads” da Meta não está disponível na UE precisamente devido às restrições impostas pelo DMA e pelo regulamento de privacidade de dados da UE (GDPR).[27] Elon Musk, CEO da X (anteriormente Twitter), indicou que o custo de cumprir os regulamentos digitais da UE, como o DSA, poderia levar a empresa a sair do mercado europeu.[28] Recentemente, a Microsoft atrasou o lançamento na Europa de sua nova IA, “Copilot”, por causa do DMA.[29]
Além de capturar a conduta pró-concorrência que beneficia os consumidores e congelar a tecnologia no tempo (o que acabaria por exacerbar o abismo tecnológico entre países mais e menos avançados), as regras rígidas per se também poderiam capturar muitas empresas emergentes que não podem ser consideradas “guardiãs” por qualquer nível de imaginação. Esse risco é especialmente real no caso do Brasil, dado o limite extremamente baixo para o que constitui um “guardião”, consagrado no Artigo 9 (R$70 milhões, ou aproximadamente US$14 milhões). Assim, muitos unicórnios brasileiros poderiam, imediatamente ou em um futuro próximo, ser capturados pelas novas regras restritivas, o que poderia prejudicar seu crescimento e arrefecer produtos inovadores. Em última análise, isso poderia colocar em risco o status atual do Brasil como “o centro de startups mais bem estabelecido [da América Latina”] e lançar uma sombra sobre o que a The Economist se referiu como o futuro brilhante das startups latino-americanas.[30]
A lista de empresas prejudicadas pode incluir alguns dos unicórnios mais promissores do Brasil, como:
Haveria condutas nos mercados digitais que teriam uma alta potencialidade de implicar problemas competitivos, mas que podem ser justificadas como gerar maior eficiência às empresas, às transações e aos mercados? Dê exemplos destas condutas? Como estas condutas deveriam ser tratadas no PL 2768/2022? Em particular, seria cabível uma “inversão de ônus da prova” em que tais condutas seriam presumivelmente anticompetitivas, mas que seria cabível autorizar uma defesa das plataformas digitais baseadas nessas eficiências? Caberia contemplar estas condutas não como proibidas per se, mas com “inversão de ônus da prova” no PL 2768/2022?
Existem certos tipos de comportamento nos mercados digitais que foram alvo de regulamentações prévias, mas que são, no entanto, capazes ou mesmo fundamentais para oferecer benefícios pró-concorrência significativos. Seria injustificado e prejudicial sujeitar essa conduta a proibições per se ou inverter o ônus da prova. Em vez disso, esse tipo de conduta deve ser abordado de forma imparcial e examinado caso a caso.[32]
A autopreferência ocorre quando uma empresa oferece tratamento preferencial a um de seus próprios produtos (presumidamente, esse tipo de comportamento poderia ser coberto pelo art. 10, inciso II, do PL 2768). Um exemplo seria o Google exibir seu serviço de compras no topo dos resultados de busca antes dos serviços de compras alternativos. Os críticos dessa prática argumentam que ela coloca as empresas dominantes em concorrência com outras empresas que dependem de seus serviços, e isso permite que as empresas alavanquem seu poder em um mercado para ganhar posição em um mercado adjacente, expandindo e consolidando seu domínio. No entanto, esse comportamento também pode ser pró-concorrência e benéfico para os usuários.
Nos últimos anos, um número crescente de críticos tem argumentado que as grandes plataformas de tecnologia prejudicam a concorrência ao favorecer seu próprio conteúdo em detrimento de seus complementadores. Ao longo do tempo, esse argumento contra a autopreferência tornou-se um dos mais proeminentes entre aqueles que buscam impor novas restrições regulatórias a essas plataformas.
De acordo com essa linha de argumentação, os complementadores estariam “à mercê” das plataformas tecnológicas. Ao discriminar em favor de seu próprio conteúdo e contra “provedores de ponta” independentes, as plataformas de tecnologia fazem com que “as recompensas pela inovação de ponta [sejam] atenuadas pela apropriação descontrolada”, levando a perspectivas “sombrias” para os atores independentes na economia da internet – e a inovação de ponta em geral. “[33]
O problema, no entanto, é que as alegações de dano presuntivo da autopreferência (também conhecida como “discriminação vertical”) não se baseiam em dados econômicos sólidos nem em evidências.
A noção de que a entrada da plataformas em concorrência com provedores de ponta é prejudicial à inovação é inteiramente especulativa. Além disso, é totalmente contrário a uma série de estudos que mostram que o oposto provavelmente é verdadeiro. Na realidade, a competição de plataformas é mais complicada do que as simples teorias de discriminação vertical,[34] e a literatura estabelece que certamente não há base para presunção de dano.[35]
A noção de que as plataformas devem ser forçadas a permitir que os complementadores concorram em seus próprios termos, livres de restrições ou concorrência de plataformas, é uma espécie de ideia de que as plataformas são mais socialmente valiosas quando são mais “abertas”. Mas a obrigatoriedade da abertura não é isenta de custos, o mais importante em termos do funcionamento eficaz da plataforma e de seus próprios incentivos à inovação.
Plataformas “abertas” e “fechadas” são formas diferentes de fornecer serviços semelhantes, e há espaço para concorrência entre essas abordagens alternativas. Ao proibir a autopreferência, um órgão regulador pode, portanto, encerrar a concorrência em detrimento dos consumidores. Como observamos em outra parte:
Para a Apple (e seus usuários), a pedra de toque de uma boa plataforma não é “abertura”, mas seleção e segurança cuidadosamente escolhidas, entendidas amplamente como abrangendo a remoção de conteúdo censurável, proteção da privacidade e proteção contra “engenharia social” e similares. Por outro lado, a aposta do Android é no modelo de plataforma aberta, que sacrifica algum grau de segurança pela maior variedade e personalização associadas a uma distribuição mais aberta. Essas são diferenças legítimas no design do produto e na filosofia de negócios.[36]
Além disso, é importante notar que a apropriação da inovação de ponta e sua incorporação à plataforma (uma forma comumente criticada de autopreferência da plataforma) aumenta muito o valor da inovação, compartilhando-a de forma mais ampla, garantindo sua coerência com a plataforma, incentivando o marketing e a promoção ideais e afins. Os smartphones hoje são uma coleção de muitos recursos que costumavam ser oferecidos separadamente, como telefones, calculadoras, câmeras e consoles de jogos, e fica claro que a incorporação desses recursos em um único dispositivo trouxe imensos benefícios aos consumidores e à sociedade como um todo. Em outras palavras, mesmo que haja um custo em termos de redução de inovação de ponta, os ganhos imediatos de bem-estar do consumidor com a apropriação da plataforma podem muito bem superar essas perdas (especulativas).
Fundamentalmente, as plataformas têm um incentivo para otimizar a abertura (e garantir aos complementadores retornos suficientes em seus investimentos específicos da plataforma). No entanto, isso não significa que a abertura máxima seja ideal; de fato, normalmente uma plataforma bem gerenciada exercerá controle de cima para baixo quando essa medida for mais importante e a abertura onde o controle ocorrer for menos significativa.[37]
Mas isso significa que é impossível saber se alguma restrição específica da plataforma (incluindo a autopriorização) na conduta do provedor de ponta é prejudicial e, da mesma forma, se qualquer mudança de mais para menos abertura (ou o contrário) é prejudicial.
Essa é a situação que leva à estrutura indeterminada e complexa dos empreendimentos de plataforma. Considere as grandes plataformas on-line, como Google e Facebook, por exemplo. Essas entidades obtêm a participação de usuários e complementadores ao disponibilizar gratuitamente o acesso às suas plataformas para uma ampla gama de usos, exercendo controle sobre o acesso apenas de maneira limitada para garantir alta qualidade e desempenho. Ao mesmo tempo, no entanto, esses operadores de plataforma também oferecem serviços proprietários em concorrência com complementadores, ou oferecem partes da plataforma para venda ou uso apenas mediante termos mais restritivos que facilitam um retorno financeiro à plataforma.
A chave é entender que, embora as restrições ao acesso e uso dos complementadores possam parecer restritivas, quando comparadas com um mundo imaginário sem restrições, nesse mundo a plataforma primeiramente nem sequer seria construída. Além disso, em comparação com o outro extremo — apropriação total (em que circunstâncias a plataforma também não seria construída…) — essas restrições são relativamente menores e representam muito menos do que a apropriação total de valor ou restrição de acesso. Como Jonathan Barnett resume adequadamente:
A [plataforma], portanto, enfrenta uma questão de compensação básica. Por um lado, deve perder o controle sobre uma parte da plataforma para obter a adoção do usuário. Por outro lado, deve exercer controle sobre alguma outra parte da plataforma, ou algum conjunto de bens ou serviços complementares, a fim de acumular receitas para cobrir os custos de desenvolvimento e manutenção (e, no caso de uma entidade com fins lucrativos, a fim de capturar quaisquer lucros remanescentes).[38]
Por exemplo, as empresas podem optar por favorecer seus próprios produtos ou serviços porque são elas mais capazes de garantir sua qualidade ou entrega rápida.[39] O Mercado Livre, por exemplo, pode estar em melhor posição para garantir que os produtos fornecidos pelo serviço de logística ‘Mercado Envios’ sejam entregues em tempo hábil em comparação com outros serviços. Os consumidores também podem se beneficiar da autopreferência de outras maneiras. Se, por exemplo, o Google fosse impedido de priorizar os vídeos do Google Maps ou do YouTube em seus resultados de busca, poderia ser mais difícil para os usuários encontrar resultados ideais e relevantes. Se a Amazon for proibida de preferir sua própria linha de produtos no mercado, ela poderá optar por não vender os produtos da concorrência.
O poder de proibir a exigência ou o incentivo de clientes de um produto para usar outro permitiria a limitação ou prevenção da autopreferência e de outros comportamentos semelhantes. Concedido, o direito da concorrência tradicional tem procurado restringir o “agrupamento” de produtos, exigindo que eles sejam comprados juntos, mas proibir o incentivo também vai muito além.
Outro mot du jour é a interoperabilidade, que pode se enquadrar no art. 10, inciso IV, do PL 2768. No contexto da regulamentação digital prévia, “interoperabilidade” significa que as empresas abrangidas podem ser forçadas a garantir que seus produtos se integrem a produtos de outras empresas. Por exemplo, exigir que uma rede social esteja aberta à integração com outros serviços e aplicativos, que um sistema operacional móvel esteja aberto a lojas de aplicativos de terceiros ou que um serviço de mensagens seja compatível com outros serviços de mensagens. Sem regulamentação, as empresas podem ou não optar por tornar seu software interoperável. No entanto, o DMA da Europa e a futura Lei de Mercados Digitais, Concorrência e Consumo (“DMCC”) do Reino Unido[40] permitirão que as autoridades assim o exijam. Outro exemplo é a “portabilidade” de dados, que permite aos clientes transferir seus dados de um fornecedor para outro, da mesma forma que um número de telefone pode ser mantido quando se muda de rede.
O argumento usual é que o poder de exigir interoperabilidade pode ser necessário para “superar os efeitos da rede e as barreiras à entrada/expansão”. No entanto, o governo brasileiro não deve ignorar que essa solução representa custos para a escolha do consumidor, em particular por levantar dificuldades com segurança e privacidade, além de ter benefícios questionáveis para a concorrência. De fato, não é como se a concorrência desaparecesse quando os clientes não conseguem migrar tão facilmente quanto ao acender uma luz. As empresas competem antecipadamente para atrair esses consumidores por meio de táticas como preços de penetração, ofertas introdutórias e guerras de preços.[41]
Um sistema fechado, ou seja, com interoperabilidade comparativamente limitada, pode ajudar a limitar os riscos de segurança e privacidade. Isso pode incentivar o uso da plataforma e melhorar a experiência do usuário. Por exemplo, ao permanecer relativamente fechada e com curadoria, a App Store da Apple oferece aos usuários a garantia de que os aplicativos atenderão a um determinado padrão de segurança e confiabilidade. Assim, ecossistemas “abertos” e “fechados” não são sinônimos de “bons” e “ruins” e, em vez disso, representam duas filosofias diferentes de design de produto, qualquer uma das quais pode ser preferida pelos consumidores. Ao forçar as empresas a operar plataformas “abertas”, as obrigações de interoperabilidade poderiam, assim, minar esse tipo de concorrência entre marcas e anular as escolhas do consumidor.
Além de potencialmente prejudicar a experiência do usuário, também é duvidoso que alguns dos mandatos de interoperabilidade, como aqueles entre mídias sociais ou serviços de mensagens, possam atingir seu objetivo declarado de reduzir as barreiras à entrada e promover uma maior concorrência. Os consumidores não são necessariamente mais propensos a migrar de plataforma simplesmente porque são interoperáveis. Na verdade, há um argumento a ser feito de que tornar os aplicativos de mensagens interoperáveis de fato reduz o incentivo para baixar aplicativos concorrentes, já que os usuários já podem interagir com os aplicativos dos concorrentes a partir do aplicativo de mensagens existente.
Algumas regras prévias procuram abordar a capacidade das empresas de influenciar a escolha dos aplicativos pelo usuário por meio da pré-instalação, padrões e design de lojas de aplicativos (isso pode se enquadrar no art. 10, parágrafo II, do Projeto de Lei 2768). Isso às vezes resultou na imposição de exigências para fornecer aos usuários “telas de seleção”, por exemplo, exigindo que os usuários escolham qual mecanismo de busca ou serviço de mapeamento está instalado em seu telefone. Nesse sentido, é importante entender as compensações em jogo aqui discutidas: as telas de seleção podem facilitar a competição, mas podem fazê-lo às custas da experiência do usuário, em termos do tempo necessário para fazer essas escolhas. Existe o risco, sem evidência de demanda do consumidor por ‘telas de seleção’, de que essas regras imponham a preferência do legislador por maior opcionalidade sobre o que é mais conveniente para os usuários. A menos que haja uma demanda pública explícita no Brasil por essas medidas, seria imprudente implementar uma obrigação de tela de seleção.
Em geral, muitas das proibições e obrigações contempladas nas regras prévias visam o tamanho, a escalabilidade e a “importância estratégica” dos operadores existentes.”
É amplamente alegado que, devido aos efeitos de rede, os mercados digitais são propensos a “tombamento”, pelo que, quando um produtor ganha uma participação suficiente no mercado, ele rapidamente se torna um monopolista completo ou quase completo. Embora possam começar sendo muito competitivos, esses mercados, portanto, exibem uma característica marcante de o “vencedor leva tudo”. As regras prévias geralmente tentam evitar ou reverter esse resultado, visando o porte de uma empresa ou empresas com poder de mercado.
No entanto, existem muitos investimentos e inovações que – se permitidos – beneficiarão os consumidores, seja imediatamente ou no longo prazo, mas que podem ter algum efeito no aumento do poder de mercado, no porte de uma empresa ou em sua importância estratégica. De fato, melhorar os produtos de uma empresa e, assim, aumentar suas vendas muitas vezes levará a um aumento do poder de mercado.
Consequentemente, a segmentação de “porte/tamanho” ou conduta que reforça o poder de mercado, sem qualquer evidência de dano, cria um sério perigo de inibição muito ampla de pesquisa, inovação e investimento – tudo em detrimento dos consumidores. Na medida em que tais regras impeçam o crescimento e o desenvolvimento de empresas estabelecidas, elas também podem prejudicar a concorrência, uma vez é bem possível que essas mesmas empresas – se permitido – sejam mais propensas a desafiar o poder de mercado de outras empresas em outros mercados adjacentes. Os casos de lançamento de serviços de vídeo sob demanda da Disney, Apple, Amazon e Globo para competir com a Netflix e a introdução pela Meta do ‘Threads’, como um adversário do Twitter (ou ‘X’), parecem ser um exemplo. Neste caso, regras per se que tenham o objetivo de proibir o aumento do porte ou do poder de mercado em uma área podem, de fato, impedir a entrada de uma empresa em um mercado dominado por outra. Neste caso, a ação dos legisladores protege o poder de monopólio. Portanto, é necessária uma abordagem muito mais sutil da regulamentação.
A referência do Projeto de Lei 2768 a The Curse of Bigness, de Tim Wu, que notoriamente adota um ethos redutivo de “grande é ruim”, sugere que poderia estar sendo feita uma suposição igualmente falha.[42]
Não consideramos apropriado reverter o ônus da prova em nenhum caso, no contexto das plataformas digitais. Sem evidências substanciais de que essa conduta cause danos generalizados a um interesse público bem definido (por exemplo, semelhante aos cartéis no contexto da lei de defesa da concorrência), não há justificativa para uma reversão do ônus da prova, e qualquer reversão nesse sentido corre o risco de minar os benefícios ao consumidor, a inovação e desencorajar o investimento na economia brasileira pelo medo justificado de que a conduta pró-concorrência resulte em multas e recursos. Da mesma forma, acreditamos que, quando o órgão executor nomeado estabelece um processo prima facie de dano, seja no contexto da lei de defesa da concorrência ou da regulamentação digital prévia, ele também deve estar preparado para abordar argumentos relacionados à eficiência.
É necessário que haja um regulador? Se sim, qual regulador estaria melhor capacitado para implementar a regulação prevista no PL 2768/2022? Anatel, o CADE, a ANPD, outro regulador existente ou novo? Justifique.
Apesar da falta de clareza com relação às metas e aos objetivos da lei, as regras propostas pelo Projeto de Lei 2768 parecem ser baseadas na concorrência, pelo menos na medida em que buscam reforçar a livre concorrência, a proteção do consumidor e combater o “abuso de poder econômico” (art. 4). Portanto, o órgão mais bem posicionado para aplicá-la seria, em princípio, o CADE (os objetivos da Lei 12.529/11, a Lei da Concorrência brasileira, se sobrepõem significativamente aos do Projeto de Lei 2768). Por outro lado, há um risco palpável de que, no cumprimento de suas atribuições nos termos do Projeto de Lei 2768, a Anatel poderia transpor a lógica e os princípios da regulamentação das telecomunicações para os mercados “digitais”, o que é um equívoco porque são duas coisas muito diferentes.
Não apenas os mercados “digitais” são substancialmente diferentes dos mercados de telecomunicações, mas realmente não existe um conceito claramente demarcado de “mercado digital”. Por exemplo, as plataformas digitais descritas no art. 6, parágrafo II, da Lei 2768 não são homogêneas e abrangem uma variedade de modelos de negócios diferentes. Além disso, praticamente todos os mercados hoje incorporam elementos “digitais”, como dados. De fato, as empresas que operam em setores tão divergentes como varejo, seguros, saúde, farmacêutica, produção e distribuição, foram todas “digitalizadas”. Assim, parece necessário um órgão executor com sutil entendimento da dinâmica da digitalização e, principalmente, das idiossincrasias das plataformas digitais como mercados bilaterais. Embora o CADE indiscutivelmente careça de experiência substantiva com plataformas digitais, ele está em melhor posição para fazer cumprir o Projeto de Lei 2768 do que a Anatel por causa de sua profunda experiência com a aplicação da política de concorrência.
Você avalia que poderia haver algum risco de bis in idem entre o regulador e a autoridade de concorrência com a mesma conduta sendo analisada por ambos?
Com base na experiência da UE, existe um risco de dupla penalização na interseção entre o direito da concorrência tradicional e a regulamentação digital prévia.
A título de comparação, e como escreveu Giuseppe Colangelo, o DMA baseia-se explicitamente na noção de que o direito da concorrência por si só é insuficiente para enfrentar efetivamente os desafios e problemas sistêmicos colocados pela economia da plataforma digital.[43] De fato, o escopo de defesa da concorrência é limitado a determinadas instâncias de poder de mercado (por exemplo, domínio em mercados específicos) e de comportamento anticompetitivo. Além disso, sua execução ocorre posteriormente e requer uma extensa investigação caso a caso do que muitas vezes são conjuntos de fatos muito complexos, e talvez não consigam abordar efetivamente os desafios ao bom funcionamento dos mercados colocados pela conduta dos guardiões, que não são necessariamente dominantes em termos do direito da concorrência — ou assim argumentam seus proponentes. Como resultado, regimes como o DMA invocam a intervenção regulatória para complementar as regras tradicionais do direito da concorrência, introduzindo um conjunto de obrigações prévias para plataformas on-line designadas como guardiães. Isso também permite que os órgãos executores se liberem do processo trabalhoso de definir mercados relevantes, provar dominância e mensurar os efeitos do mercado.
No entanto, apesar das alegações de que o DMA não é um instrumento do direito da concorrência e, portanto, não afetaria a forma como as regras de defesa da concorrência se aplicam nos mercados digitais, o regime parece obscurecer a linha entre regulamentação e defesa da concorrência, misturando suas respectivas características e objetivos. De fato, o DMA compartilha os mesmos objetivos e protege os mesmos interesses legais que o direito da concorrência.
Além disso, sua lista de proibições é efetivamente uma sinopse de processos de defesa da concorrência antigos e em andamento, como o Google Shopping (Processo T-612/17), a Apple (AT.40437) e a Amazon (Processos AT.40462 e AT.40703).[44] Reconhecendo a continuidade entre o direito da concorrência e o DMA, a European Competition Network (ECN) e alguns estados membros da UE (auto-intitulados “amigos de um DMA eficaz”) propuseram inicialmente capacitar as autoridades nacionais de defesa da concorrência (NCAs) para fazer cumprir as obrigações do DMA.[45]
Da mesma forma, as proibições e obrigações previstas no Art. 10 do PL 2768 poderiam, em tese, ser todas impostas pelo CADE. Na verdade, o CADE investigou, e ainda está investigando, várias grandes empresas que (provavelmente) se enquadram no âmbito do Projeto de Lei 2768, como o Google, Apple, Meta, (ainda sob investigação) Booking.com, Decolar.com, Expedia e iFood (investigações encerradas por acordo de cessação e desistência) e Uber (todas as investigações encerradas sem penalidades; após um estudo econômico, o CADE constatou que a entrada do Uber beneficiou os consumidores[46]). As investigações passadas e presentes do CADE contra essas empresas já abrangeram condutas que são alvo da DMA e do PL 2768, como recusa de negociação, auto preferência e discriminação.[47] As normas de concorrência existentes nos termos da Lei 12.529/11, a Lei de Concorrência Brasileira, portanto, claramente já captura o tipo de conduta que está incluída no Projeto de Lei 2768. Além disso, o requisito de usar dados “adequadamente” provavelmente é coberto pela regulamentação de proteção de dados no Brasil (Lei Geral de Proteção de Dados, LGPD, Lei Federal nº 13.709/2018).
A diferença entre os dois regimes é que, enquanto a lei geral antitruste exige uma demonstração de dano (mesmo que potencial) e isenta condutas com benefícios líquidos aos consumidores, o Projeto de Lei 2768, em princípio, não o faz. O único princípio limitante às proibições e obrigações contidas no Art. 10 Art. 11 (III) é o princípio da proporcionalidade — que é um princípio geral do direito constitucional e deve, em qualquer caso, ser aplicado independentemente do Projeto de Lei 2768. Assim, o único princípio limitante do Art. 10, enquadrado de forma ampla, é redundante.
Há uma outra complicação. O Projeto de Lei 2768 persegue muitos (embora não todos) dos mesmos objetivos que a Lei 12.529/11. Na medida em que esses objetivos são compartilhados, isso pode levar a um bis in idem, ou seja, a mesma conduta ser punida duas vezes sob regimes ligeiramente diferentes. Mas também poderia produzir resultados contraditórios porque, como apontado acima, os objetivos perseguidos pelos dois projetos de lei não são idênticos. A Lei 12.529/11 é orientada pelos objetivos de “livre concorrência, liberdade de iniciativa, papel social da propriedade, defesa do consumidor e prevenção do abuso do poder econômico” (Art. 1º). A esses objetivos, o Projeto de Lei 2768 acrescenta “redução das desigualdades regionais e sociais” e “aumento da participação social em questões de interesse público”. Embora seja verdade que esses princípios derivam do Art. 170 da Constituição Brasileira (“ordem econômica”), o descompasso entre os objetivos da Lei 12.529/11 e do Projeto de Lei 2768 e suas autoridades de supervisão é suficiente para levar a situações em que a conduta permitida ou mesmo incentivada pela Lei 12.529/11 é proibida pelo Projeto de Lei 2768. Por exemplo, a conduta pró concorrência por uma plataforma coberta pode, no entanto, exacerbar “desigualdades regionais ou sociais” porque investe fortemente em uma região, mas não em outras. Da mesma forma, medidas de segurança, privacidade e proteção implementadas por, digamos, um operador de uma App Store, que normalmente seriam consideradas benéficas para os consumidores nos termos da lei antitruste,[48] poderiam levar a uma menor participação em discussões de interesse público (assumindo que se poderia facilmente definir o significado de tal termo).
Consequentemente, o Projeto de Lei 2768 poderia fragmentar a estrutura legal do Brasil devido a sobreposições com o direito da concorrência, sufocar a conduta pró concorrência e levar a resultados contraditórios. Isso, por sua vez, provavelmente afetará a segurança jurídica e o estado democrático de direito no Brasil, o que poderia afetar adversamente o Investimento Estrangeiro Direto.[49] Além disso, é provável que a coordenação entre o CADE e a Anatel seja onerosa caso esta última acabe sendo a fiscalização designada do PL 2768. O Brasil teria essencialmente duas Leis que buscam objetivos iguais ou semelhantes sendo implementados por duas agências diferentes, com todos os custos extras de conformidade e coordenação que acompanham essa duplicidade.
Qual sua avaliação acerca do critério do art. 9 do PL 2768/2022? Deve ser alterado? Por qual critério? Cabe fazer a designação de detentor de poder de controle de acesso essencial serviço a serviço?
Esse critério parece arbitrário e, de qualquer modo, extremamente irrelevante. Não há nenhuma razão objetiva que vincule o “poder de controlar o acesso” ao volume de negócios. Além disso, mesmo que se admita, por uma questão de argumentação, que o volume de negócios é um indicador relevante de poder de gatekeeper, um limite de R$ 70 milhões capturaria dezenas, se não centenas, de empresas ativas em uma variedade de setores. Isso pode levar a uma situação em que uma lei que inicialmente — e supostamente — visava empresas “digitais” muito específicas, como o Google, Amazon, Apple, Microsoft, etc., acaba, em geral, cobrindo uma série de outras empresas comparativamente pequenas, incluindo alguns dos unicórnios mais valiosos do Brasil (ver Pergunta 7). Por outro lado, também é questionável, do ponto de vista do estado democrático de direito, se uma lei deve procurar identificar antecipadamente as empresas específicas às quais se aplicará.
As lições podem ser tiradas da DMCC do Reino Unido, que cometeu um erro semelhante. De acordo com o atual projeto da DMCC, a CMA do Reino Unido poderá designar uma empresa como se tivesse “status de mercado significativo” (“SMS”) se participar de uma “atividade digital ligada ao Reino Unido” e, em relação a essa atividade digital, se tiver “poder de mercado substancial e arraigado” e estiver em “uma posição de importância estratégica” (s. 2), assim como contar com um faturamento de pelo menos £ 1 bilhão no Reino Unido ou £ 25 bilhões globalmente (s. 7).[50] O governo britânico afirmou anteriormente que o “regime será direcionado a um pequeno número de empresas”.
No entanto, com exceção do limite monetário, os critérios de SMS são todos amplamente definidos e poderiam, em teoria, capturar até 530 empresas (em março de 2022, havia 530 empresas com mais de £ 1 bilhão em receita no Reino Unido, de acordo com o Departamento de Estatísticas Nacionais).[51] Assim, embora o governo afirme que o novo regime é destinado a um punhado de empresas, na prática, o CMA terá o poder de interferir de várias maneiras novas em amplas faixas da economia.
O Artigo 9º do Projeto de Lei 2768 se depara com um problema semelhante. Deferido, identifica os tipos de serviços aos quais o Projeto de Lei se aplicaria de uma forma que a DMCC não faz. No entanto, algumas das categorias previstas ainda são muito amplas: por exemplo, os serviços de intermediação online podem abranger qualquer site que conecte compradores e vendedores ou facilite transações entre duas partes. “Sistemas operacionais” são dispositivos eletrônicos predominantes muito além do iOS da Apple e do Android do Google. De fato, um sistema operacional é apenas um programa ou conjunto de programas de um sistema de computador, que gerencia os recursos físicos (hardware), os protocolos de execução do restante do conteúdo (software), bem como a interface do usuário. Eles podem ser encontrados em muitos dispositivos do dia a dia, seja por meio de interfaces gráficas de usuário, ambientes de desktop, gerenciadores de window ou linhas de comando, dependendo da natureza do dispositivo.
As empresas que prestam esses serviços, independentemente de sua posição na concorrência, participação de mercado, setor do qual fazem parte ou quaisquer outras considerações econômicas ou de fato, seriam todas abrangidas pelo PL 2768, desde que atendessem o (baixo) limite de R$ 70 milhões. O resultado é que o fiscalizador poderá aplicar a o Projeto de Lei 2768 contra uma série de empresas muito diferentes, algumas das quais podem realmente não estar em posição de prejudicar a concorrência ou usar indevidamente seu poder de mercado. Como consequência, o Projeto de Lei corre o risco de desencorajar o crescimento, a inovação e, de fato, o sucesso, à medida que as empresas se tornam cautelosas em ultrapassar um certo limite por medo de serem pegas na mira do regulador. Juntamente com uma reversão do ônus da prova e a possibilidade de ignorar argumentos de eficiência, o Projeto de Lei daria ao fiscalizador poderes robustos e não controlados, o que poderia levantar questões do estado democrático de direito.
Este problema pode ser remediado, pelo menos em certa medida, adicionando uma série de critérios qualitativos que podem ou não funcionar cumulativamente com os limites quantitativos previstos no Projeto de Lei. Esses critérios devem exigir uma demonstração de que as empresas em questão controlam o acesso a instalações essenciais, que tais instalações não podem ser razoavelmente replicadas e que o acesso está sendo negado com a ameaça de que a concorrência no mercado possa ser eliminada (consulte a Pergunta 1 para discussão sobre a integração da doutrina de instalações essenciais no Projeto de Lei 2768). Além disso, o Projeto de Lei 2768 deve alavancar as medições existentes do poder de mercado a partir da lei da concorrência, como a capacidade de controlar a produção e aumentar os preços. Os critérios quantitativos, se usados, devem ser significativamente maiores e também se referem ao número de usuários ativos em cada serviço de plataforma coberto. “Usuário ativo” deve, nesse sentido, ser definido como um usuário que usa um serviço específico pelo menos uma vez por dia e, no mínimo, uma vez por semana.
O que você achou das regras sobre o Fundo de Fiscalização das Plataformas Digitais do art. 15 do PL 2768/2022? Haveria uma outra forma de financiar este tipo de atividade regulatória do governo?
Existem muitas maneiras de financiar a atividade regulatória governamental que não exigem que as empresas-alvo paguem um imposto anual. As agências governamentais são normalmente financiadas pelo orçamento geral do governo — que deve ser o mesmo para a agência que executa o Projeto de Lei 2768.
Existem pelo menos duas questões sobre a abordagem atual nos termos do Art. 15. A primeira é a captura. Se a atividade de uma agência for financiada pelas empresas reguladas, isso pode levar à captura da agência pela empresa regulada e facilitar a busca de renda — ou seja, a situação em que uma empresa usa o regulador para obter uma vantagem injusta sobre os concorrentes. Em segundo lugar, também cria um incentivo por parte da agência e do governo para ampliar o escopo das empresas-alvo, como forma de garantir mais financiamento e recursos. Isso cria um incentivo perverso que não se alinha ao interesse público. Também desencoraja o investimento e, de certa forma, equivale a um clamor do governo.
Além disso, na medida em que o Projeto de Lei opera como uma restrição direta e direcionada ao exercício por certas empresas de sua liberdade econômica e direitos de propriedade privada para o benefício presumido do bem-estar público, parece apropriado que ele seja financiado por fundos de receita geral, distribuídos de acordo com a política tributária atual sobre toda a população contribuinte.
Em que medida você acredita que todos os problemas tratados no projeto de lei 2768/2022 já são adequadamente tratados pela legislação de concorrência, mais especificamente pelo CADE, com os instrumentos da Lei nº 12.529 de 2011?
Consulte a resposta à Pergunta 10.
O fato de o governo estar fazendo essa pergunta nesta fase do processo sugere que talvez o escopo e os detalhes do Projeto de Lei 2768 não tenham sido completamente pensados. O Projeto de Lei 2768 deve ser aprovado apenas se estiver claro que a lei de concorrência brasileira não está à altura da tarefa. Em comparação, e como indicado na resposta à pergunta 10 acima, praticamente toda a conduta na DMA da UE também foi abordada através da lei da concorrência da UE — muitas vezes a favor da Comissão. No entanto, a UE queria codificar um conjunto de regras que garantissem que a Comissão não tivesse que litigar em processos perante os tribunais e vencesse todos os processos — ou pelo menos a grande maioria deles — contra plataformas digitais. Mas essa decisão, com a qual se pode ou não concordar, veio depois de pelo menos alguma experiência na aplicação da lei da concorrência às plataformas digitais e da determinação de que os ganhos de tal abordagem superariam os custos manifestos.
Por outro lado, o CADE do Brasil goza de uma experiência muito mais limitada nesse sentido e o próprio Brasil apresenta realidades econômicas e interesses de consumo muito diferentes que podem não render a mesma análise de custo/benefício. Como mencionado acima, as únicas “penalidades” impostas pelo CADE contra “plataformas digitais” resultaram de acordos voluntários, o que significa que houve uma necessidade limitada de litigar em processos “digitais” no Brasil. Há uma sensação persistente de que o Projeto de Lei 2768 foi proposto não em resposta a deficiências na estrutura da lei da concorrência existente, ou em resposta às necessidades identificadas específicas do Brasil, mas como uma resposta às “tendências globais” iniciadas pela UE.
O Art. 13 do PL 2768, por exemplo, prevê que as incorporações por empresas abrangidas serão examinadas de acordo com as regras gerais da lei da concorrência aplicáveis a outras empresas e em outros setores. Não está claro por que a mesma lógica não poderia ser aplicada em todos os setores — ou seja, a todas as condutas potencialmente contra a concorrência por empresas visadas. Por que algumas condutas que podem ser abordadas por meio da lei antitruste exigem regulamentação especial, mas outras não?
Que problemas poderiam ser gerados para a atividade de inovação das plataformas digitais caso haja a regulação de plataformas digitais propostas pelo Projeto de Lei 2768/2022? Isso poderia ser tratado de alguma forma dentro do PL 2768/2022?
De fato, não está de forma alguma claro que as circunstâncias particulares do Brasil sejam passíveis de uma abordagem “ex ante” semelhante à da UE.
Proibições e obrigações amplas, como as impostas pelo Art. 10 do Projeto de Lei 2768, correm o risco de esfriar a conduta inovadora e congelar a tecnologia existente. Como o décimo país classificado no mercado global de tecnologia da informação e com centenas de startups no setor de IA, o Brasil é um mercado em expansão com um tremendo potencial.[52] Sua população de 214 milhões significa que as tendências de crescimento devem continuar — e, com certeza, o número de empregos em aplicativos cresceu 54% em 2023 em comparação com 2019.[53]
No entanto, regras estáticas e rígidas, como as previstas pelo Projeto de Lei 2768, podem cortar o crescimento das startups brasileiras pela raiz, impondo custos regulatórios insuperáveis (que, de qualquer forma, beneficiariam os operadores estabelecidos em comparação com concorrentes menores) e proibindo condutas capazes de promover o crescimento, beneficiar os consumidores e inflamar a concorrência, como a auto preferência e a recusa em negociar.
De fato, ambas as práticas podem — e muitas vezes são — socialmente benéficas. Conforme discutido na Pergunta 8, apesar de sua recente difamação por alguns formuladores de políticas, a “auto preferência” é uma conduta comercial normal e uma razão fundamental para a integração vertical eficiente, que evita a dupla marginalização e permite que as empresas coordenem melhor a produção, distribuição e venda de forma mais eficiente — tudo em benefício final dos consumidores. Por exemplo, serviços de varejo, como a Amazon, que preferem seus próprios serviços de entrega, como no caso de “Entrega pela Amazon”, oferecem aos consumidores algo que eles valorizam tremendamente: uma garantia de entrega rápida. Como escrevemos em outro lugar:
A concessão de privilégios de marketplace pela Amazon a produtos [Entrega pela Amazon] pode ajudar os usuários a escolher os produtos que a Amazon pode garantir que melhor atenderão às suas necessidades. Isso é perfeitamente plausível, pois os clientes mostraram repetidamente que muitas vezes preferem opções menos abertas e menos neutras.[54]
Em um relatório recente, a Comissão Australiana de Concorrência reconheceu esse fato, afirmando que a auto preferência é muitas vezes benigna e pode levar a benefícios pró concorrência.[55] De fato, existem muitas razões legítimas pelas quais as empresas podem optar pela auto preferência, incluindo melhor experiência do cliente, atendimento ao cliente, escolha mais relevante (curadoria) e preços mais baixos.[56] Assim, proibir a auto preferência, ou de outra forma desencorajar significativamente as empresas de se engajarem na auto preferência, poderia prejudicar o crescimento da empresa — inclusive por empresas brasileiras que estão atualmente em um estágio inicial de desenvolvimento — e impedir a entrada de empresas que poderiam ser inovadoras no mercado.
Da mesma forma, forçar as empresas a lidar com terceiros poderia sufocar a inovação, incentivando o efeito carona (free-riding) e desencorajando as empresas a fazer investimentos. De fato, por que uma empresa inovaria ou investiria se sabe que terá que compartilhar esses investimentos e inovações com concorrentes passivos que não assumiram nenhum desses riscos? A consequência é um impasse em que, em vez de lutar para ser o primeiro a inovar e desfrutar dos frutos gerados por essa inovação, as empresas são incentivadas a jogar com o sistema, esperando que os outros deem o primeiro passo para, em seguida, aproveitar as conquistas. Isso essencialmente inverte o processo de concorrência dinâmica, reorganizando artificialmente o incentivo à inovação e ao investimento versus o incentivo ao free-ride, reduzindo os benefícios do primeiro e aumentando os benefícios do segundo.
Seria catastrófico criar uma barreira na capacidade do Brasil de expandir seu setor de tecnologia e inovar — especialmente considerando o vasto potencial do país. De fato, em vez de um triunfo da regulamentação sobre a inovação, o Brasil deve se esforçar para ser exatamente o oposto.[57]
Quais seriam as dificuldades práticas de aplicação deste tipo de legislação contemplado pelo PL 2768/2022?
Os fundos para financiar o que poderia ser uma quantidade considerável de execução são necessários, mas não suficientes, para garantir a eficácia. Na UE, a DG Concorrência da Comissão, uma das principais e mais bem dotadas autoridades de concorrência do mundo, luta para contratar o pessoal necessário para implementar a Lei dos Mercados Digitais. Em suma, os “especialistas em DMA” atualmente não existem — e a Comissão terá que treinar esses especialistas ou contratá-los quando a experiência se desenvolver por meio da aplicação da lei. Mas isso cria um cenário de galinha e ovo, em que a fiscalização — ou pelo menos uma boa fiscalização — não pode acontecer sem bons especialistas, e bons especialistas não podem se materializar sem fiscalização. Não há razão para acreditar que essas considerações não se enquadram no contexto brasileiro.
O Brasil, no entanto, enfrenta um desafio adicional: atrair talentos. Ao contrário da UE, onde os cargos na Comissão são altamente cobiçados devido aos altos salários, benefícios e segurança no emprego que conferem, os recursos do CADE são mais modestos e provavelmente não podem competir plenamente com o setor privado. Assim, antes de aprovar o Projeto de Lei 2768, o governo deve ser claro sobre como a lei seria aplicada e por quem.
Outras questões incluem o pesado ônus de conformidade do Projeto de Lei, que afetará não apenas os chamados “gigantes da tecnologia”, mas qualquer empresa acima do modesto limite de faturamento de R$ 70 milhões, as dificuldades em interpretar as proibições e obrigações ambíguas previstas no Art. 10 (e o litígio que pode ocorrer, vide Pergunta 16), o custo de elaboração de recursos adequados na acepção do Art. 10 e a possibilidade iminente de que o Projeto de Lei capture a conduta pró concorrência e sufoque a inovação. Como escrevemos com relação aos países da ASEAN e à possibilidade de implementar a regulamentação da concorrência no estilo da UE:
As nações da ASEAN têm políticas extremamente diversas em relação ao papel do governo na economia. Simplificando, algumas das nações da ASEAN parecem inadequadas para a tecnocracia de longo alcance que quase inevitavelmente flui da adoção do modelo europeu de fiscalização da concorrência. Outros podem simplesmente não ter recursos suficientes para agências de pessoal que poderiam, satisfatoriamente, realizar o tipo de investigação de longo alcance pelas quais a Comissão Europeia é famosa.[58]
Você vê muito espaço para judicialização deste tipo de regulação previsto no PL 2768/2022? Em quais dispositivos?
A aplicação do Projeto de Lei 2768 provavelmente levará a litígios substanciais, até porque muitos dos conceitos centrais do Projeto de Lei são ambíguos e abertos à interpretação.
Por exemplo, o que implica uma conduta “discriminatória” na acepção do Art. 10, parágrafo II? Uma plataforma coberta pode tratar os usuários de negócios de forma diferente com base em critérios objetivos, como qualidade, histórico e confiabilidade, ou todos os usuários de negócios devem ser tratados igualmente? Nesse sentido, é incerto se o significado específico atribuído a “conduta discriminatória” no âmbito da lei da concorrência se aplica no contexto. Da mesma forma, o que significa o uso “adequado” dos dados coletados no exercício das atividades de uma empresa (parágrafo III)? O parágrafo IV do Art. 10 implica que uma plataforma coberta nunca pode negar acesso a usuários comerciais? Presumivelmente, as plataformas cobertas vão querer saber como e por que essa obrigação geral se desvia da doutrina de instalações essenciais mais restritas nos termos da lei de concorrência brasileira.
O Art. 11 acrescenta certas ressalvas a isso, como que a intervenção deve ser adaptada, proporcional e considerar o impacto, os custos e os benefícios. Novamente, que tipo de impacto, custos e benefícios são relevantes — para consumidores, usuários comerciais, a plataforma coberta, a sociedade como um todo?
Se isso for verdade, é provável que o Projeto de Lei 2768 seja legalmente controverso.
As definições do art. 6º do projeto de lei 2768/2022 estão adequadas para o propósito desta proposição?
O Art. 6º e, de fato, todo o ímpeto por trás do Projeto de Lei 2768 se baseiam em duas premissas questionáveis:
Que esses produtos e serviços são suficientemente semelhantes para serem considerados (e regulamentados) como um grupo.
O primeiro seria mais convincente se os recursos previstos no PL, como não discriminação, uso adequado de dados e acesso, não tivessem sido utilizados anteriormente em outros mercados e para outros produtos. A concessão de acesso em termos “justos, razoáveis e não discriminatórios” (“FRAND”) é frequentemente usada no contexto da lei de concorrência e da lei de PI, ambas aplicáveis em todos os setores. O dever de usar os dados “adequadamente” é geralmente previsto nas leis de proteção de dados, que também se aplicam amplamente. O mesmo pode ser dito para as obrigações de acesso, que são frequentes nos termos da lei da concorrência e em indústrias regulamentadas (como telecomunicações ou ferrovias).
Além disso, nem os produtos e serviços do Art. 6º do PL, as empresas que os operam, nem os modelos de negócios que empregam são monolíticos. Assistentes de voz e mídias sociais, por exemplo, são produtos muito diferentes. Isso também pode ser dito sobre a computação em nuvem, que não é realmente uma “plataforma” no sentido de que, digamos, a intermediação é online. Os produtos e serviços no Art. 6 também são altamente heterogêneos, com uma única categoria abrangendo uma lista heterogênea de produtos, de comércio eletrônico a mapas on-line e lojas de aplicativos.
O mesmo argumento se aplica às empresas que vendem esses produtos e serviços, que — apesar do onipresente apelido de “Gigantes da Tecnologia” — são, em última análise, empresas muito diferentes.[59] Como disse o CEO da Apple, Tim Cook: “A tecnologia não é monolítica. Isso seria como dizer que “Todos os restaurantes são iguais” ou “Todas as redes de TV são iguais”. ”[60]
Por exemplo, enquanto o Google (Alphabet) e o Facebook (Meta) são empresas de tecnologia da informação especializadas em publicidade online, a Apple continua sendo principalmente uma empresa de eletrônicos, com cerca de 75% de sua receita proveniente da venda de iMacs, iPhones, iPads e acessórios. Como Amanda Lotz, da Universidade de Michigan, observou:
Os lucros dessas vendas de [hardware] permitem que a Apple use estratégias muito diferentes das empresas não relacionadas a hardware [“Gigantes da Tecnologia”] com as quais é frequentemente comparada.[61]
Isso também significa que a maioria de seus outros negócios — como iMessage, iTunes, Apple Pay, etc. — são complementos que “a Apple usa estrategicamente para apoiar seu foco principal como empresa de hardware”. A Amazon, por outro lado, é principalmente uma varejista, com suas divisões Amazon Web Services e de publicidade respondendo por apenas 15% e 7% da receita da empresa, respectivamente.[62]
Mesmo quando dois “gatekeepers” estão ativos no mesmo mercado de produtos/serviços, eles geralmente têm modelos e práticas de negócios notavelmente diferentes. Assim, apesar de ambos venderem sistemas operacionais para celulares, o Android (Google) e a Apple empregam filosofias de design de produtos muito diferentes. Como argumentamos em um instrumento amicus curiae apresentado no mês passado à Suprema Corte dos EUA no processo Apple v. Epic Games:
Para a Apple e seus usuários, a referência de uma boa plataforma não é a “abertura”, mas a seleção e a segurança cuidadosamente aplicadas, entendidas em termos gerais como se abrangessem a remoção de conteúdo questionável, a proteção da privacidade e a proteção contra a “engenharia social”, e assim por diante…. Por outro lado, a aposta do Android é no modelo de plataforma aberta, que sacrifica algum grau de segurança pela maior variedade e personalização associadas a uma distribuição mais aberta. Essas são diferenças legítimas no design do produto e na filosofia de negócios.[63]
Essas várias empresas e mercados têm diversos incentivos, estratégias e designs de produtos, desmentindo, portanto, a ideia de que existe qualquer noção econômica e tecnicamente coerente do que compreende “gatekeeping”. Em outras palavras, tanto os produtos e serviços que estariam sujeitos ao Art. 6º do PL 2768 quanto essas próprias empresas são altamente heterogêneos e não está claro por que eles são colocados sob o mesmo aspecto.
Em lugar de uma regulação ex-ante pura, faria sentido algum outro tipo de acompanhamento e/ou regulação dos mercados digitais?
Uma unidade especial dentro do CADE, operando dentro dos limites das leis antitruste atuais, deve ser seriamente avaliada antes de se apressar para adotar uma regulamentação ex ante de longo alcance nos mercados digitais. A maior parte da conduta abrangida pela regulamentação ex ante na UE, por exemplo, é derivada de processos envolvendo o direito da concorrência. Isto sugere que tal conduta se enquadra nos limites do direito tradicional da concorrência e pode ser devidamente abordada através do direito da concorrência da UE.
Consequentemente, uma unidade digital dentro do CADE alavancaria o expertise de funcionários com experiência na aplicação da lei antitruste aos “mercados digitais”. As chances são de que, se tal unidade não puder ser formada dentro do CADE, que possui funcionários com a experiência que mais se assemelha ao que seria necessário para fazer cumprir o Projeto de Lei 2768, provavelmente não poderá ser formada em nenhum outro lugar — pelo menos não sem desviar talentos do CADE. Isso seria um erro, pois o CADE tem um papel essencial na supressão de comportamentos que prejudicam inequivocamente o interesse público, como os cartéis (indiscutivelmente, é aí que o Brasil deveria concentrar seus recursos).[64] A criação de uma nova unidade para processar novas condutas com efeitos incertos sobre o bem-estar social em detrimento da supressão de condutas manifestamente prejudiciais não passa por uma análise de custo-benefício e, em última análise, prejudicaria a economia do Brasil.
Você acha que o conjunto de soluções descritas no art. 10 do PL 2768/2022 são adequadas?
É difícil responder a essa pergunta sem uma noção clara do que o Projeto de Lei 2768 visa alcançar. Adequado para quê?
O conjunto de sanções previstas no art. 16 do PL 2768/2022 está adequado?
Também difícil de responder. Se o objetivo é frustrar todas as condutas proibidas, independentemente das consequências para a inovação, o investimento e a satisfação do consumidor, então é necessária uma multa alta — e muitas empresas deixarão de fazer negócios como resultado (o que efetivamente interromperá todo comportamento indesejável – mas também todo comportamento desejável). Se aumentar a receita é o objetivo, então a quantidade de fiscalização vezes o nível de sanção precisa ser baixa o suficiente para operar não como um obstáculo ao comportamento, mas como uma taxa para fazer negócios. Não sabemos se o nível de sanções no Art. 16 é apropriado para isso — nem, acrescentamos, se essa é a intenção de tal lei!
Por outro lado, se a dissuasão ideal é o objetivo, a imposição de sanções consideravelmente mais baixas do que as da UE (como seria uma sanção de 2% do faturamento brasileiro das empresas infratoras) parece razoável. Multas por infrações antitruste na UE podem ser de até 10% do faturamento mundial da empresa; e multas por violações do DMA podem chegar a 20%.[65] Mas o Brasil não deve procurar dissuadir o investimento e a inovação na medida em que a UE o fez.
É claro que é difícil identificar um nexo de causalidade entre multas de concorrência e investimento/inovação. Mas o que sabemos é o seguinte: O ritmo de crescimento econômico na Europa ficou atrás dos EUA por uma margem significativa:
Quinze anos atrás, o tamanho da economia europeia era 10% maior que o dos EUA, no entanto, em 2022, era 23% menor. O PIB da União Europeia (incluindo o Reino Unido antes do Brexit) cresceu neste período em 21% (medido em dólares), em comparação com 72% dos EUA e 290% da China.[66]
Enquanto isso, nenhuma das 10 maiores empresas de tecnologia do mundo, e apenas duas das 25 maiores, estão sediadas na Europa.[67] E as grandes multinacionais americanas e asiáticas estão espalhadas por toda a indústria de tecnologia, desde componentes eletrônicos (chips, telefones celulares e computadores) até empresas de desenvolvimento de aplicativos, sites e comércio eletrônico. Pode haver muitas razões para essas discrepâncias, mas uma delas é quase certamente as diferenças nos ambientes regulatórios econômicos, incluindo a extensão da dissuasão da lei da concorrência.[68]
O art. 10 prevê várias obrigações em uma lista não taxativa na qual o regulador poderia impor outras medidas. Caberia prever um rol taxativo de medidas?
Listas exaustivas têm a vantagem de promover a previsibilidade e a discrição do fiscalizador, limitando assim a busca de renda e garantindo que a execução permaneça vinculada ao interesse público. Supondo, é claro, que o tipo de medidas previstas atue no interesse público em primeiro lugar.
O problema de como o Projeto de Lei 2768 é enquadrado em seu estado atual é que ele é muito aberto. É compreensível que o Projeto de Lei 2768 não queira amarrar as mãos dos fiscalizadores e tenha optado por intervenções sob medida, em vez de proibições e obrigações gerais. Isso é bom. No entanto, não deve vir à custa da segurança jurídica e não deve deixar de impor limites ao poder discricionário do fiscalizador. Atualmente, isso não parece ser o caso.
O Art. 10 prevê, assim, que os operadores de plataforma estarão sujeitos “entre outras, às seguintes obrigações…” Não está claro, a partir desta lista numerus apertus, o que o fiscalizador pode e não pode fazer. Mas o problema é mais profundo do que apenas o Artigo 10; em nenhum lugar do Projeto de Lei é explicado quais são os objetivos das novas regras. A proposta de reformulação do Artigo 19-A da Lei 9.472, de 16 de julho de 1997, nos parágrafos III, IV e V, é vaga – não impõe princípios limitantes suficientemente claros que estejam ao alcance do Projeto de Lei. De fato, sugere que os objetivos do Projeto de Lei 2768 seriam prevenir conflitos de interesse, prevenir violações de direitos do usuário e prevenir infrações econômicas por plataformas digitais em áreas de competência do CADE. O Artigo 4º do PL 2768 inclui outros objetivos: liberdade de iniciativa, livre concorrência, defesa do consumidor, redução da desigualdade regional e social, repressão ao poder econômico e reforço à participação social. Em outros pontos, está implícito que o objetivo é diminuir o “poder de gatekeeper” (em “Justificativas”).
Em outras palavras, não está claro o que o Projeto de Lei 2768 não permite que o fiscalizador faça.
Além disso, as proibições e obrigações dos Parágrafos I-IV do Art. 10 são igualmente obscuras. Por exemplo, qual é o uso “adequado” dos dados coletados? (III). O parágrafo IV implica que uma plataforma direcionada nunca pode recusar o acesso ao seu serviço? Na verdade, uma coisa que está faltando no Projeto de Lei 2768 é a capacidade de escapar de uma proibição ou obrigação, demonstrando eficiências ou por meio de uma justificativa objetiva (como, por exemplo, segurança e proteção ou privacidade).
Claramente, o Projeto de Lei 2768 não pode prever todos os casos em que o Art. 10 será usado. Contudo, a fim de encontrar um equilíbrio entre a agilidade do fiscalizador e a administração e previsibilidade da lei, ele precisa dar uma explicação mais focada dos objetivos do Projeto de Lei e como as disposições do Art. 10 ajudam a alcançá-los. Em outras palavras: Os Artigos 3, 4 e 10 precisam ser muito mais claros. Caso contrário, o Projeto de Lei corre o risco de mais prejudicar do que ajudar empresas-alvo, usuários comerciais, concorrentes e, em última análise, os consumidores. A seção “Justificativas” do Projeto de Lei afirma que não deseja impor uma “camisa de força” às empresas visadas por meio da imposição de regras ex ante rígidas. Isso é razoável, especialmente considerando a falta de provas de danos inequívocos. Mas conceder a um fiscalizador como a Anatel, que não tem experiência em “mercados digitais”, poderes amplamente definidos para intervir com base em objetivos igualmente amplos equivale a impor uma camisa de força com outro nome. Em um “cenário” regulatório em que as empresas nunca têm certeza do que é e do que não é permitido, algumas podem razoavelmente optar por não assumir riscos, inovar e trazer novos produtos ao mercado – porque não desejam correr o risco de estarem sujeitas a multas (Art. 16) e possíveis soluções estruturais, como rupturas (Art. 10, parágrafo único). Em outras palavras, eles podem assumir que muito mais é proibido do que é realmente proibido.
[2] REGULAMENTO (EU) 2022/1925 DO PARLAMENTO EUROPEU E DO CONSELHO de14 de setembro de 2022 relativo à disputabilidade e equidade dos mercados no setor digital e que altera as Diretivas (UE) 2019/1937 e (UE) 2020/1828 (Regulamento dos Mercados Digitais).
[3] Processo C-7/97 Bronner, EU:C:1998:569.
[4] Vide, por exemplo, a decisão majoritária da Comissária Ana Frazão no Processo nº 08012.003918/2005-14 (Requerida: Telemar Norte Leste S.A.), parágrafos 60-62, https://tinyurl.com/4dc38vvk.
[5] Vide decisão majoritária relatada do Comissário Mauricio Maia no Processo Administrativo nº 08012.010483/2011-94 (Requeridas: Google Inc. e Google Brasil Internet Ltda.), parágrafos 180-94; 224-42, https://tinyurl.com/3c9emytw.
[6] Um relatório de 2021 do IBRAC identificou a alta taxa de entrada no mercado de plataformas de vendas on-line. Vide IBRAC, Revista do Revista do IBRAC Número 2-2021, disponível em https://ibrac.org.br/UPLOADS/PDF/RevistadoIBRAC/Revista_do_IBRAC_2_2021.pdf.
[7] Bronner, Par. 67.
[8] Vide Colangelo, G. (2022). The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, ICLE White Paper, disponível em: https://laweconcenter.org/resources/the-digital-markets-act-and-eu-antitrust-enforcement-double-triple-jeopardy.
[9] CADE, Mercados de Plataformas Digitais, SEPN 515 Conjunto D, Lote 4, Ed. Carlos Taurisano CEP: 70.770-504 – Brasília/DF, disponível em https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.
[10] Sobre a noção de que as regras do estilo DMA são “leis de concorrência específicas do setor”, vide Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Compet. Law & Pract. 529 (11 Maio 2021).
[11] Vide Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2003). “Obrigar essas empresas a compartilhar a fonte de sua vantagem tensiona, de alguma forma, o propósito subjacente da lei de defesa da concorrência, uma vez que pode diminuir o incentivo para o monopolista, o rival ou ambos investirem nessas instalações economicamente benéficas.”
[12] Hou, L. (2012). The Essential Facilities Doctrine – What Was Wrong in Microsoft? International Review of Intellectual Property and Competition Law, 43(4), 251-71, 260.
[13] Vide Williamson, O.E., The Vertical Integration of Production: Market Failure Considerations, 61 Am. Econ. Rev. 112/1971); Klein, B., Asset Specificity and Holdups, em The Elgar Companion to Transaction Cost Economics, PG Klein & M. Sykuta, eds. (Edward Elgar Publishing, 2010), 120–126.
[14] Decisão da Comissão nº AT.39740 — Google Search (Shopping).
[15] A. Hoffman, Where Does Website Traffic Come From: Search Engine and Referral Traffic, Traffic Generation Café (25 Dezembro 2018), https://trafficgenerationcafe.com/website-traffic-source-search-engine-referral.
[16] Vide Manne, G., Against the vertical discrimination presumption (Maio 2020), Concurrences N° 2-2020, Art. N° 94267, https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword.
[17] Sobre a necessidade de cautela ao conceder um direito de acesso, vide, por exemplo, Trinko: “Temos sido muito cautelosos ao reconhecer essas exceções [ao direito de [um] comerciante ou fabricante envolvido em um negócio inteiramente privado, de livremente exercer seu próprio critério independente quanto às partes com as quais ele negociará], devido à característica incerta de compartilhamento forçado e à dificuldade de identificar e remediar condutas contra a concorrência por uma única empresa.”
[18] United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945).
[19] “Assim, como uma questão geral, a Lei Sherman ‘não restringe o direito reconhecido há muito tempo de [um] comerciante ou fabricante envolvido em um negócio inteiramente privado, de livremente exercer seu próprio critério independente quanto às partes com as quais ele negociará.’” United States v. Colgate & Co., 250 U. S. 300, 307 (1919).
[20] Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 545 (9th Cir. 1983) (citações omitidas).
[21] Vide Manne, G. & B. Sperry, Debunking the Myth of a Data Barrier to Entry for Online Services. Truth on the Market (26/03/2015), disponível em: https://truthonthemarket.com/2015/03/26/debunking-the-myth-of-a-data-barrier-to-entry-for-online-services; Manne, G. & B. Sperry (2014). The Law and Economics of Data and Privacy in Antitrust Analysis, 2014 TPRC Conference Paper, disponível em: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2418779.
[22] Vide geralmente, Grunes, A. & M. Stucke (2016). Big Data and Competition Policy. Oxford University Press, Oxford; Newman, N. (2014). Antitrust and the Economics of the Control of User Data. Yale Journal on Regulation, 30:3.
[23] Vide os exemplos discutidos em Manne, G. & B. Sperry, Debunking the Myth of a Data Barrier to Entry for Online Services. Truth on the Market (26 Março 2015), disponível em: https://truthonthemarket.com/2015/03/26/debunking-the-myth-of-a-data-barrier-to-entry-for-online-services.
[24] Lerner, A. (2014). The Role of ‘Big Data’ in Online Platform Competition, disponível em: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2482780.
[25] Bowman, S. & G. Manne, Platform Self-Preferencing can be Good for Consumers and even Competitors, Truth on the Market (4 Março 2021), disponível em: https://truthonthemarket.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.
[26] C. Goujard, Google forced to postpone Bard chatbot’s EU launch over privacy concerns, Politico (13 Junho 2023), disponível em: https://www.politico.eu/article/google-postpone-bard-chatbot-eu-launch-privacy-concern.
[27] M. Kelly, Here ‘s why Threads is delayed in Europe, The Verge (10 Julho 2023), disponível em: https://www.theverge.com/23789754/threads-meta-twitter-eu-dma-digital-markets.
[28] Musk considers removing X platform from Europe over EU law, Euractiv (19 Outubro 2023), disponível em: https://www.euractiv.com/section/platforms/news/musk-considers-removing-x-platform-from-europe-over-eu-law.
[29] Jud, M. Still no Copilot in Europe: Microsoft Rolls out 23H2 Update, Digitec.ch (10 Novembro 2023), disponível em: https://www.digitec.ch/en/page/still-no-windows-copilot-in-europe-microsoft-rolls-out-23h2-update-30279.
[30] The Future is Bright for Latin American Startups, The Economist (13 Novembro 2023), disponível em: https://www.economist.com/the-world-ahead/2023/11/13/the-future-is-bright-for-latin-american-startups.
[31] Vide Distrito (2023), Panorama Tech América Latina, disponível em: https://static.poder360.com.br/2023/09/latam-report-1.pdf.
[32] O seguinte é adaptado do processo Manne, G., Against the vertical discrimination presumption (Maio 2020), Concurrences N° 2-2020, Art. N° 94267, https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword e nossos comentários sobre a proposta de Projeto de Lei de Mercados Digitais, Concorrência e Consumidores do Reino Unido (“DMCC”): Auer, D., M. Lesh & L. Radic (2023). Digital Overload: How the Digital Markets, Competition and Consumers Bill ‘s sweeping new powers threaten Britain’ s economy, IEA Perspectives 4, 16-21, disponível em: https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.
[33] H. Singer, How Big Tech Threatens Economic Liberty, The Am. Conserv. (7 Maio 2019), https://www.theamericanconservative.com/articles/how-big-tech-threatens-economic-liberty.
[34] A maioria dessas teorias, deve-se notar, ignora a literatura de estratégia relevante e abundante sobre a complexidade da dinâmica da plataforma. Vide, por exemplo, J. M. Barnett, The Host ‘s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861 (2011); D. J. Teece, Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy, 15 Res. Pol’y 285 (1986); A. Hagiu & K. Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, in Platforms, Markets and Innovation, A. Gawer, ed. (Edward Elgar Publishing, 2009); K. Boudreau, Open Platform Strategies and Innovation: Granting Access vs. Devolving Control, 56 Mgmt. Sci. 1849 (2010).
[35] Para exemplos desta literatura e uma breve discussão de suas descobertas, vide Manne, G., Against the vertical discrimination presumption, maio de 2020, Concurrences N° 2-2020, Art. N° 94267, https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword.
[36] International Center for Law & Economics (2022). International Center for Law & Economics Amicus Curiae Brief submetido ao Tribunal Federal de Recursos da Nona Circunscrição 20-21. https://tinyurl.com/ywu553vb.
[37] Vide, em geral, Hagiu & Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, supra note 31; Barnett, The Host’s Dilemma, supra note 31.
[38] Barnett, J., id.
[39] Vide Radic, L. and G. Manne (2022) Amazon Italy’s Efficiency Offense. Truth on the Market (11 Janeiro 2022), https://tinyurl.com/2uht4fvw.
[40] Apresentado como Projeto de Lei 294 (2022-23), atualmente Projeto de Lei HL 12 (2023-24), Digital Markets, Competition and Consumers Bill, disponível em https://bills.parliament.uk/bills/3453.
[41] Farrell, J., & P. Klemperer (2007). Coordination and Lock-In: Competition with Switching Costs and Network Effects, Handbook of Industrial Organization 3, 1967-2072, disponível em https://www.sciencedirect.com/science/article/abs/pii/S1573448X06030317.
[42] Projeto de Lei 2768, “Justificativas”. Vide também Wu, T. (2018). The Curse of Bigness: Antitrust in the New Gilded Age, Columbia Global Reports.
[43] Colangelo, G. (2022). The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, ICLE White Paper 2022-03-23, disponível em https://laweconcenter.org/wp-content/uploads/2022/03/Giuseppe-Double-triple-jeopardy-final-draft-20220225.pdf.
[44] Vide também Caffarra, C. e F. Scott Morton, The European Commission Digital Markets Act: A Translation, Vox EU (5 Janeiro 2021), disponível em: https://voxeu.org/article/european-commission-digital-markets-act-translation.
[45] How National Competition Agencies Can Strengthen the DMA, European Competition Network (22 Junho 2021), disponível em: https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf.
[46] Para ver estudo completo, consulte https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/documentos-de-trabalho/2018/documento-de-trabalho-n01-2018-efeitos-concorrenciais-da-economia-do-compartilhamento-no-brasil-a-entrada-da-uber-afetou-o-mercado-de-aplicativos-de-taxi-entre-2014-e-2016.pdf.
[47] Para uma visão detalhada das decisões do CADE sobre plataformas digitais e serviços de pagamentos, acesse: https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/mercado-de-instrumentos-de-pagamento-2019.pdf; https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.
[48] Vide, por exemplo, Epic Games, Inc. v. Apple Inc. 20-cv-05640-YGR.
[49] Staats, J. L., & G. Biglaiser (2012). Foreign Direct Investment in Latin America: The Importance of Judicial Strength and Rule of Law. International Studies Quarterly, 56(1), 193–202. https://doi.org/10.1111/j.1468-2478.2011.00690.x.
[50] HL Bill 12 (2023-24), Digital Markets, Competition and Consumers Bill, disponível em https://bills.parliament.uk/bills/3453.
[51] Auer, D., M. Lesh, & L. Radic (2023). Digital Overload: How the Digital Markets, Competition and Consumers Bill’s sweeping new powers threaten Britain’s economy, IEA Perspectives 4, 16-21, disponível em: https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.
[52] Vide Dailey, M. Why the US. Rejected European Style Digital Markets Regulation: Considerations for Brazil’s Tech Landscape, Progressive Policy Institute (2 Outubro 2023), pp 5-6, disponível em: https://www.progressivepolicy.org/wp-content/uploads/2023/10/PPI-Brazil-EU-Tech.pdf.
[53] Ibid.
[54] Vide Radic, L. and G. Manne (2022) Amazon Italy’s Efficiency Offense. Truth on the Market (11 Janeiro 2022), disponível em https://tinyurl.com/2uht4fvw.
[55] ACCC, Digital Platform Services Inquiry, Discussion Paper for Interim Report No. 5: Updating competition and consumer law for digital platform services (Fevereiro 2022), disponível em https://www.accc.gov.au/system/files/Digital%20platform%20services%20inquiry.pdf.
[56] Bowman, S. & G. Manne, Platform Self-Preferencing Can Be Good for Consumers and Even Competitors, Truth on the Market (4 Março 2021), disponível em: https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.
[57] Vide Portuese, A. The Digital Markets Act: A Triumph of Regulation Over Innovation, ITIF Schumpeter Project (2 Agosto 2022), disponível em: https://itif.org/publications/2022/08/24/digital-markets-act-a-triumph-of-regulation-over-innovation.
[58] Auer, D., G. Manne & S. Bowman (2022). Should ASEAN Antitrust Laws Emulate European Competition Policy?. Singapore Economic Review 67(5) 1637–1697, 1687.
[59]Vide Lotz, A. ‘Big Tech’ isn’t a monolith. It’s 5 companies, all in different businesses, Houston Chronicle (26 Março 2018), disponível em: https://www.houstonchronicle.com/techburger/article/Big-Tech-isn-t-a-monolith-It-s-5-companies-12781761.php; vide também Chaiehloudj, W. & Petit, N. On Big Tech and The Digital Economy, Competition Forum (11 Janeiro 2021), disponível em: https://competition-forum.com/on-big-tech-and-the-digital-economy-interview-with-professor-nicolas-petit.
[60] Asher Hamilton, I. Tim Cook says he’s tired of big tech being painted as a ‘monolithic’ force that needs tearing apart, Business Insider (7 Maio 2019), disponível em: https://www.businessinsider.com/apple-ceo-tim-cook-tired-of-big-tech-being-viewed-as-monolithic-2019-5.
[61] Lotz, A. ‘Big Tech’ isn’t a monolith. It’s 5 companies, all in different businesses, Houston Chronicle (26 Março 2018), disponível em: https://www.houstonchronicle.com/techburger/article/Big-Tech-isn-t-a-monolith-It-s-5-companies-12781761.php.
[62] G. Cuofano, Amazon Revenue Breakdown, Four Week MBA (10 Agosto 2023), disponível em: https://fourweekmba.com/amazon-revenue-breakdown.
[63] International Center for Law and Economics (2022). International Center for Law & Economics Amicus Curiae Brief submitted to the U.S. Supreme Court, https://laweconcenter.org/wp-content/uploads/2023/11/ICLE-Amicus-Apple-v-Epic-SCt-10.27.23-FINAL.pdf.
[64] See Zúñiga, M. Latin America Should Follow Its Own Path on Digital-Markets Competition, Truth on the Market (7 Novembro 2023) disponível em: https://truthonthemarket.com/2023/11/07/latin-america-should-follow-its-own-path-on-digital-markets-competition.
[65] No entanto, como apontado na Pergunta 10, há um risco de bis in idem, considerando que algumas das condutas capturadas pelo Projeto de Lei 2768 também podem estar cobertas pela lei de concorrência brasileira. Nesses casos, os 2% seriam agravados pelas penalidades previstas na Lei 12.529/11, a lei de concorrência brasileira, e o nível poderia facilmente ser muito alto.
[66] Weekly Foreign Policy Report No. 1329: A Europe vassal to the US?, Política Exterior (26 Junho 2023) https://www.politicaexterior.com/articulo/una-europa-vasalla-de-eeuu.
[67] Vide, por exemplo, 100 Biggest Technology Companies in the World, Yahoo Finance (23 Agosto 2023), disponível em: https://finance.yahoo.com/news/100-biggest-technology-companies-world-175211230.html.
[68] Vide, por exemplo, Weekly Foreign Policy Report No. 1329: A Europe vassal to the US?, Política Exterior (26 Junho 2023) https://www.politicaexterior.com/articulo/una-europa-vasalla-de-eeuu.
Presentations & Interviews ICLE Director of Competition Policy Dirk Auer joined as a panelist in a webinar organized by ECIPE on platform regulation and merger policy in the . . .
ICLE Director of Competition Policy Dirk Auer joined as a panelist in a webinar organized by ECIPE on platform regulation and merger policy in the EU, and the implications for member states’ attractiveness for digital investment. Video of the full panel is embedded below.
Regulatory Comments We thank the International Trade Administration (ITA), the National Institute of Standards and Technology (NIST) and the U.S. Patent and Trademark Office (USPTO) for this . . .
We thank the International Trade Administration (ITA), the National Institute of Standards and Technology (NIST) and the U.S. Patent and Trademark Office (USPTO) for this opportunity to comment on its call for evidence concerning a new framework for standard-essential patents.[1] The International Center for Law and Economics (ICLE) is a nonprofit, nonpartisan research center whose work promotes the use of law & economics methodologies to inform public-policy debates. We believe that intellectually rigorous, data-driven analysis will lead to efficient policy solutions that promote consumer welfare and global economic growth. ICLE’s scholars have written extensively on competition, intellectual property, and consumer-protection policy.
In this comment, we express concerns about global regulatory developments in the standard-essential patent (SEP) industry. The European Union is in the process of considering legislation that would fundamentally alter the landscape of global standards setting, making it more difficult for inventors to enforce their intellectual-property rights.[2] Not only will this legislation have profound ramifications for companies located all over the globe but—as the USPTO’s call for comments recognizes—the EU risks kicking off a global race to the bottom in regulating SEPs that will ultimately harm innovation and slow the diffusion of groundbreaking technologies.
We are concerned that a tit-for-tat response intended to counteract bad policies in the EU (and among other allied nations) is doomed to do more harm than good. Erecting what amount to protectionist barriers—even if in response to similar regulations abroad—would diminish U.S. interests, as well as those of our partners. Instead, the agencies should be seeking opportunities to influence the policy decisions made in foreign jurisdictions, in the hope that those entities will pursue better policies.
For obvious reasons, the way intellectual-property disputes are resolved has tremendous ramifications for firms that operate in standard-reliant industries. Not only do many of the firms in this space derive a large share of their revenue from patents but, perhaps more importantly, the prospect of litigation dictates how firms structure the transfer of intellectual-property assets. In simple terms, ineffectual judicial remedies for IP infringements and uncertainty concerning the resolution of IP disputes discourage firms from concluding license agreements in the first place.
The key role that IP plays in these industries should impel policymakers to proceed with caution. By virtually all available metrics, the current system works. The development of innovative technologies through standards development organizations (SDOs) has led to the emergence of some of the most groundbreaking technologies that consumers use today;[3] and recent empirical evidence suggests that many of the alleged ills that have been associated with the overenforcement of intellectual-property rights simply fail to materialize in industries that rely on standard-essential patents.[4]
At the same time, “there is no empirical evidence of structural and systematic problems of holdup and royalty stacking affecting standard-essential patent (“SEP”) licensing.”[5] Indeed, “[t]he notion that implementers in such innovation–driven industries are being suffocated by an insurmountable patent royalty stack has turned out to be nothing more than horror fiction.”[6] Yet, without a sound basis, the anti-injunctions approach increasingly espoused by policymakers unnecessarily “adds a layer of additional legal complexity and alters bargaining processes, unduly favoring implementers.”[7]
Licensing negotiations involving complex technologies are legally intricate. It is simply not helpful for a regulatory body to impose a particular vision of licensing negotiations if the goal is more innovation and greater ultimate returns to consumers. Instead, where possible, policy should prefer allowing parties to negotiate at arm’s length and to resolve disputes through courts. In addition to maintaining the sometimes-necessary remedy of injunctive relief against bad-faith implementers, this approach allows courts to explore when injunctive relief is appropriate on a case-by-case basis. Thus, over the course of examining actual cases, courts can refine the standards that determine when an injunctive remedy is inappropriate. Indeed, the very exercise of designing ex ante rules and guidelines to inform F/RAND licensing is antagonistic to optimal policymaking, as judges are far better situated and equipped to make the necessary marginal adjustments to the system.
Against this backdrop, our comments highlight several factors that should counsel preserving the rules that currently govern SEP-licensing agreements:
To start, the SEP space is far more complex than many recognize. Critics often assume that collaborative standards development creates significant scope for opportunistic behavior—notably, patent holdup. The tremendous growth of SEP-reliant industries and market participants’ strong preference for this form of technological development, however, suggest these problems are nowhere near as widespread as many believe.
Second, it is important not to overlook the important benefits conferred by existing IP protections. This includes the advantages inherent in pursuing injunctions rather than damages awards.
Third, weakening the protections afforded to SEP holders would also erode the West’s technological leadership over economies that are heavily reliant on manufacturing, and whose policymakers routinely undermine foreign firms’ intellectual-property rights. In short, while IP promotes innovation, weakened patent protection has second-order effects that are often overlooked, such as ceding advantages to China’s manufacturing sector and thereby exacerbating U.S.-China tensions.
Fourth, while mandated transparency in SEP negotiations may appear beneficial, the reality is more complex, as disclosure requirements can have mixed effects. Further, transparency mandates would likely require government interventions, such as essentiality checks, which can be very costly.
Finally, collective SEP rate-setting raises antitrust issues that stem from firms’ need to share sensitive data in order to determine a standard’s value. Vertically integrated SEP holders setting collective royalties on the inputs they manufacture could enable price-fixing and collusion. Safeguards like third-party mediation in patent pools may be needed so that joint SEP rate negotiation does not violate antitrust rules barring competitors from fixing prices.
In their call for comments, the agencies essentially ask whether regulatory developments in foreign jurisdictions threaten U.S. technological leadership in industries that rely on standard-essential patents and, if so, how the United States should respond:
Do the intellectual property rights policies of foreign jurisdictions threaten any of U.S. leadership in international standard setting, U.S. participation in international standard setting, and/or the growth of U.S. SMEs that rely on the ability to readily license standard essential patents? If responding affirmatively to question 1, what can the Department of Commerce do to mitigate the effects of any adverse foreign policies relating to intellectual property rights and standards? Please clearly identify any such adverse foreign policies with specificity.[8]
Do the intellectual property rights policies of foreign jurisdictions threaten any of U.S. leadership in international standard setting, U.S. participation in international standard setting, and/or the growth of U.S. SMEs that rely on the ability to readily license standard essential patents?
If responding affirmatively to question 1, what can the Department of Commerce do to mitigate the effects of any adverse foreign policies relating to intellectual property rights and standards? Please clearly identify any such adverse foreign policies with specificity.[8]
Recent regulatory developments in the European Union loom large over the agencies’ two questions. On April 27, the European Commission published its Proposal for a Regulation on Standard Essential Patents (“SEP Regulation”). The SEP Regulation’s proclaimed aims are to ensure that end users—including small businesses and EU consumers—benefit from products based on the latest standardized technologies; make the EU attractive for standards innovation; and encourage both SEP holders and implementers to innovate in the EU, make and sell products in the EU, and be competitive in non-EU markets.[9]
While we share the agencies’ concern, responding to this foreign legislation (and other international responses that are likely to arise) by enacting similar policies would only exacerbate the situation and further erode U.S. technological leadership. In fact, several of the EU legislation’s shortcomings that would be rendered more destructive if the United States responded in kind.
As ICLE-affiliated scholars have explained in comments on the draft European legislation,[10] the available evidence does not support a finding of market failure in SEP-licensing markets that would justify intrusive regulatory oversight. Instead, the Commission’s own evidence points to the low incidence of SEP litigation and no systemic negative effects on SEP owners and implementers. The mobile-telecommunication market, which is claimed to have the most SEP litigation and licensing inefficiencies, has over the years seen rapid growth, expansion, declining consumer prices, and new market entry.
Some market imperfections are necessary-but-not-sufficient conditions for regulatory intervention. Regulation might not be necessary or proportionate if its aims could be achieved with less costly instruments.
The EU’s proposed SEP Regulation appears to pursue the value-redistributive function of imposing costs on only one group (SEP owners), while accruing all benefits to non-EU (or US)-based standard implementers. It is difficult to find justification for such value redistribution from the evidence presented on the functioning of SEP licensing markets.
The proposed EU SEP Regulation applies to all standards licensed on FRAND terms. It is unclear how many standards would be caught and why all standards licensed on FRAND terms are presumed to be inefficient, requiring regulatory intervention. One early study identified 148 standards licensed on FRAND terms in a 2010 laptop. No evidence was presented that licensing inefficiencies of these standards caused harms in laptop markets.
The EU legislation would require evaluators and conciliators that need to be qualified and experienced experts in relevant fields. There are unlikely to be enough evaluators to conduct essentiality checks reliably on such a massive scale.
To make matters worse, the proposed SEP Regulation raises competition concerns, as it requires SEP owners to agree on global aggregate royalty rates. No safeguards are provided against the exchange of sensitive commercial information and possible cartelization.
There is also a risk that legislation seeking to make the standardization space more transparent, by mandating aggregate royalty-rate notifications and nonbinding expert opinions on global aggregate royalty rates, may lead to even more confusion for implementers.
Finally, the EU’s proposed SEP Regulation would have extraterritorial effects. Indeed, while the SEP Register and system of “essentiality checks” created by the regulation would apply only for patents in force in EU Member States, its system of nonbinding opinions on aggregate royalties and FRAND determination would apply worldwide, covering portfolios in other countries. Other countries—including the United States—may follow suit and introduce their own regulations on SEPs. Such regulations may be used as a strategic and protectionist tool to devaluate the royalties of innovative SEP owners. The proliferation of regulatory regimes would make SEP licensing even more costly, with unknown effects on the viability of the current system of collaborative and open standardization.
Considering the above, it would appear unwise for the United States to mimic the EU’s draft SEP regulation. In its current form, the regulation is likely to harm both U.S. and European innovators. In turn, this threatens the west’s technological leadership on a global stage and will serve the interests of jurisdictions whose economies rely heavily on implementing standard-essential technologies and that generally have weaker IP protection than either the United States or the EU.
Instead, the agencies should look for opportunities to work with their foreign counterparts to improve the proposed EU legislation (and other similar measures in other jurisdictions). Neither EU nor U.S. interests will be well-served by these sorts of regulatory endeavors, least of all if both areas enact ill-advised SEP policies. Sound policy should be focused on ensuring that the successful SEP ecosystem continues to perform as impressively as it has to date. Enacting defensive measures against the EU legislation will create a tit-for-tat dynamic that will double the obstacles faced by innovators in both the EU and the United States, allowing foreign rivals to take advantage of the situation.
In their call for comments, the agencies ask what private entities can do to boost America’s participation in international standard-setting efforts:
What more can other entities do, such as standards development organizations, industry or consumer associations, academia, or U.S. businesses to help improve American leadership, participation in international standard setting, and/or increased participation of small to medium-sized enterprises that rely on the ability to readily license standard essential patents?[11]
While this is a good way to look at the issue (today’s standardization practices were born of spontaneous market interactions, rather than government fiat, which leaves private entities with a clearly significant role to play in this space), one should not overestimate the extent to which governments can identify inefficiencies that may afflict standard-reliant industries and nudge private parties to resolve them—e.g., by asking SDOs to curb the use of injunctions or encourage collective royalty-setting agreements.
It’s tempting for lawmakers to look at the complex SEP licensing process as a Gordian Knot to be solved through regulatory fiat. But pursuing Alexander’s solution, though expedient, would similarly leave the SEP licensing ecosystem in tatters.
Consider smartphones: Tens of thousands of patents are essential to making smartphone technology work.[12] Some critics posit that this makes it extremely difficult to market smartphones effectively, but no evidence supports this claim, and the proliferation of smartphones suggests otherwise.[13] It is worth considering that cellphone technology marks the culmination of research efforts spanning the entire globe. The coordinated efforts of these numerous firms are not the result of government coercion, but the free play of competitive forces.
Coordination on such a vast scale is no simple task. And yet, of the vast array of options available to them, an increasing number of firms have settled on one particular paradigm to solve these coordination problems: the development of new technologies and open standards within SDOs. These organizations and their members are responsible not only for wireless cellular technologies (e.g., 3G, 4G, 5G) but also for such high-profile technologies as Wi-Fi, USB, and Blu-ray, among many others.[14]
Throughout history, economic actors have sought to reap the benefits of specialization and interoperability. This has led to the emergence of various standardization practices, ranging from de facto standards and competition for the market, to complex standard-setting procedures within SDOs.
Ultimately, because interoperability standards rely on firms being able to coordinate their behavior, standardization necessarily implies a degree of incentive compatibility. That is, parties will coordinate their behavior only if they expect that doing so will be mutually beneficial. “This mutuality of considerations has been at the heart of the voluntary FRAND bargain from the outset, given that any risks of holdup or misappropriation of information are bilateral—that is, such risks work in both directions.”[15] This implies that SDOs must design balanced internal rules that bring both patent holders and implementers to the table through mutually agreeable interoperability standards, and guarantee that they will continue to work together into the future as new technologies emerge.[16]
Establishment of SDO interoperability standards typically follows a process by which interested parties come together and identify technological problems that they might be able to solve cooperatively.[17] SDO members include a wide range of stakeholders, including (among others): companies that manufacture products implementing the technology, companies that market services that use the standards, companies that operate networks that practice the standards, technology firms that create technologies that are included in the standards, academic institutions, and government agencies.[18]
The SDO provides information to interested parties about the standard-setting project and a forum for collaboration.[19] Members attend standard-setting meetings, vote on standardization decisions, and make technological contributions. Participation in standard setting can be subject to a substantial fee and always entails considerable time. There are policies and procedures (“bylaws”) that govern the process of adoption and standard development. Participation in SDOs is voluntary and is subject to acceptance of the terms and conditions set out in the bylaws. These aim to allow the most appropriate technology to become standardized, based on several factors. This is a democratic and consensus-based process designed to ensure that no single participant can manipulate it. Many SDOs also allow for post-adoption appeals by dissenting members. This ultimately leads to a series of technical specifications upon which implementers can build products.
Throughout this process, a critical challenge for SDOs is to ensure that their internal regulations remain “incentive compatible.” To optimize their technological output and ensure the success of their standards, SDOs must attract the right mix of both implementers and innovators. “Most succinctly, the ‘right membership’ comprises a significant portion of each class of stakeholder whose active support is needed to achieve broad adoption.”[20] They thus need to design internal procedures that strike a balance between the sometimes-diverging interests of these stakeholders.
This is no simple task. Although there are numerous ways in which these rules may favor a particular group of participants, allocating the profits of standardization is perhaps the most salient. To a first approximation, SEP holders will tend to favor internal rules that allow them to charge prices that are close to the monopoly benchmark (though not the double-marginalization one). Conversely, implementers will generally prefer policies that limit SEP holders’ returns (so long as this does not dry up the supply of inventions). However, these first-order incentives may not always hold true in the real world. Practical considerations may, for instance, urge SEP holders to accept a pricing structure that is not “profit maximizing” in the short run, but which may incentivize further cooperation or the adoption of an underlying technology.[21]
The above has important consequences for patent and antitrust policy in SEP-reliant industries. As we have explained, collaborative standard development gives rise to complex incentives, as well as a web of heterogeneous and deliberately incomplete contracts (i.e., where the parties choose not to specify some aspects of their agreement).[22] Given this diversity, uniform and centralized policies that needlessly constrain the range of negotiation—such as a federal-enforcement presumption against injunctions—would likely lead to fewer agreements and inefficient outcomes in numerous cases, especially compared to case-by-case adjudication of F/RAND commitments under the common law of contract.[23]
In short, “standards organizations and market participants are better than regulators at balancing the interests of patent holders and implementers.”[24] Interfering with the emergent norms of the standard-development industry thus risks undermining innovators’ expectations of a reasonable return on their investments:
Each of the innovative companies that agrees to be an SSO participant does so with the understanding of the investments they have made in research, development, and participation, as well as the risks that their innovations may not be selected for incorporation in the standard. They bear these investments and risk with the further understanding that they will receive adequate and fair remuneration as part of the FRAND commitment they have made to the SSO. Unfortunately, the actions of the courts and the proposals by commentators are greatly undermining the value and benefits of SSO participation that are expected….[25]
Each of the innovative companies that agrees to be an SSO participant does so with the understanding of the investments they have made in research, development, and participation, as well as the risks that their innovations may not be selected for incorporation in the standard. They bear these investments and risk with the further understanding that they will receive adequate and fair remuneration as part of the FRAND commitment they have made to the SSO.
Unfortunately, the actions of the courts and the proposals by commentators are greatly undermining the value and benefits of SSO participation that are expected….[25]
The agencies’ call for comments appears concerned that current standardization practices may be hindering U.S. innovation and the creation of startups in the SEP space:
Are current fair, reasonable, and non-discriminatory (FRAND) licensing practices adequate to sustain U.S. innovation and global competitiveness? Are there other international models which would better serve U.S. innovation in the future? Are there specific U.S. intellectual property laws or policies that inhibit participation in standards development? Are there specific U.S. intellectual property laws or policies that inhibit growth of SMEs that rely on licensing and implementing standards? [26]
Are current fair, reasonable, and non-discriminatory (FRAND) licensing practices adequate to sustain U.S. innovation and global competitiveness? Are there other international models which would better serve U.S. innovation in the future?
Are there specific U.S. intellectual property laws or policies that inhibit participation in standards development?
Are there specific U.S. intellectual property laws or policies that inhibit growth of SMEs that rely on licensing and implementing standards? [26]
While they are not mentioned explicitly in the agencies’ call for comments, the role of injunctions sought against implementers by SEP holders looms large over the above questions. The use of injunctions is arguably one of the most contentious—and widely misunderstood—topics in SEP policy debates. While often portrayed as a means for inventors to extract unreasonable royalties from helpless implementors injunctions are, in fact, a critical legal tool that encourages all parties in the standardization space to come to the negotiation table. In fact, even the EU’s draft regulation on SEPs—which in many other respects reduces the protections afforded to inventors—implicitly recognizes the crucial role that injunctions play, by ensuring that the various proposed SEP transparency and arbitration procedures do not undermine parties’ ability to obtain an injunction:
The obligation to initiate FRAND determination should not be detrimental to the effective protection of the parties’ rights. In that respect, the party that commits to comply with the outcome of the FRAND determination while the other party fails to do so should be entitled to initiate proceedings before the competent national court pending the FRAND determination. In addition, either party should be able to request a provisional injunction of a financial nature before the competent court.[27]
Historically, one of the most important features of property rights in general, and patents in particular, is that they provide owners with the power to exclude unauthorized use by third parties and thus enable them to negotiate over the terms on which instances of use or sale will be authorized.[28] While the ability to exclude is important in creating the incentive to innovate, it is equally—and perhaps more—important in facilitating the licensing of inventions.[29]
There are many reasons that someone may invent a new product or process. But if they are to be optimally encouraged to distribute that product and thus generate the associated social welfare, it is crucial that they retain the ability to engage supply chains to commercialize the invention fully.[30] “[T]he patent system encourages and enables not just invention but also innovation by providing the basic, enforceable property rights that facilitate (theoretically) efficient organizations of economic resources and the negotiations necessary to coordinate production among them.”[31] If a patent holder believes that the path to commercialization and remuneration is hindered by infringers, she will have less incentive to invest fully in the commercialization process (or in the innovation in the first place).
Removing the injunction option… not only changes the bargaining range (and makes infringement a valid business option), but, by extension, it lowers the expected returns of investing in the creation and commercialization of patents, in the first place…. With a no-injunction presumption…, as long as the expected cost of litigation is less than the expected gain from infringing without paying any royalties, potential licensees will always have an incentive to pursue this strategy. The net result is a shift in bargaining power so that, even when license agreements are struck, royalty rates are lower than they would otherwise be, as well as an increased likelihood of infringement.[32]
Because infringement affects both the initial incentive to innovate as well as the complex process of commercialization, courts have historically granted injunctions against those who have used a patent without proper authorization.
Injunctions are almost certainly the most powerful means to enforce property rights and remedy breaches. Nonetheless, courts may sometimes award damages, either in addition to or as an alternative to awarding an injunction.[33] It is often difficult to establish the appropriate size of an award of damages, however, when intangible property—such as invention and innovation, in the case of patents—is the core property being protected.
In this respect, a key feature of patents is that they possess uncertain value ex ante. The value of a particular invention or discovery cannot be known until it is either integrated into the end-product that will be distributed to consumers, or actually used by consumers.[34] This massive upfront uncertainty creates the need for technology designers to carefully structure their investments such that the risk/reward ratio remains sufficiently low. This, in turn, means ensuring that their inventions’ commercialization can reasonably be expected to generate sufficient profits.
Commercializing highly complex innovations, such as pharmaceuticals and advanced technologies, requires a large degree of risk taking and capital investment, as well as massive foregone opportunities. As such, it will often be difficult, or even impossible, to adequately calculate appropriate monetary damages for the unauthorized use of a patent, even if the patent’s ex post value is knowable. Put differently, the inability to bargain effectively for royalties post-standardization may “deter investment… and ultimately harm consumers.”[35]
While it is necessary to establish damages for violations after the fact, it will nearly always be appropriate to award injunctions to deter ongoing violations. This would further allow the property owner to do their own value calculations, based on their investments, sunk costs, and—critically—lost opportunities that were foregone in order to realize the particular invention. “[A] property rule is superior to a liability rule when ‘the court lacks information about both damages and benefits.’ Without accurate information, the damages may be set below the actual level of harm, encouraging the ‘injurer’ (or infringer) to engage in an excessive level of activity—in our case, increased infringement.”[36]
In addition to the concerns outlined in the previous section, it is worth noting that curbs on injunctions pertaining to SEPs would make inventors bear the risk of opportunistic behavior, thus enabling firms to opt out of commercial negotiations and wait for potential litigation. In turn, this would tilt the bargaining scale in their favor in subsequent royalty negotiations undertaken in the shadow of prior court proceedings.[37]
The U.S. Supreme Court’s 2006 decision in eBay v. MercExchange offers a case in point. The court rejected the “general rule” that a prevailing patentee is entitled to an injunction.[38] In the aftermath of the decision, courts refused to grant injunctions in considerably more cases.[39]
Nearly two decades later, however, questions remain regarding eBay’s effect on patent licensing, negotiation, and litigation.[40] In particular, it is likely that eBay systematically distorted the relative bargaining positions in SEP licensing in favor of implementers, at the expense of patent holders. One post-eBay assessment argues that limiting injunctions to prevent holdup results in more “false positives”—where patent holders with no designs of patent holdup are nonetheless denied injunctive relief—than it does deterrence of actual holdups.[41] The result is a reduction in the cost of willful infringement and “under-compensation” for innovation.[42]
One of the important features of injunctions that critics miss is that they are not solely a tool for simple exclusion from property, but a tool that promotes efficient bargaining.[43] If a property holder ultimately has the right to exclude infringers, there is relatively more weight placed on the importance of initial bargaining for licenses. “It is the very threat of the injunction right—and its associated high transaction costs—that brings the parties to the negotiating table and motivates them to draw upon the full scope of their knowledge and creativity in forming contractual and institutional solutions to the perceived holdup problem.”[44]
Post-eBay, “efficient infringement” becomes a viable choice for firms seeking to maximize profits. Thus, implementing firms seeking to pay as little as possible for use of an invention have incentive to disregard the bargaining process with a patent holder altogether. The relative decline in the importance of injunctions narrows the bargaining range. The narrower range of prices that an implementing firm will offer means that, even where it does bargain, agreement will be less likely. Where rightsholders can be reasonably expected to enforce their patent rights, by contrast, the bargaining range is expanded and agreement is more likely, because the initial cost of negotiating for a license is relatively less than always (or usually) opting for “efficient infringement”; that is, infringement becomes less efficient.
The ultimate tension is not between seeking damages or an injunction, but between whether a firm opts to negotiate or to litigate, while facing the risk of some combination of damages and injunction on the back end.
This reality is particularly important in the context of SDOs, where implementers and innovators are in a constant dance both to maximize their own profits as well as to facilitate the product of an incomplete, joint agreement that binds each party. “The seminal example of intentional contractual incompleteness is the F/RAND commitment common in many [SDO’s] IPR policies.”[45] Permitting one party, through weakened legal doctrine, to circumvent or artificially constrain the bargaining process inappropriately imbalances the careful commercial relationships that should otherwise exist.
In the SEP context, furthermore, it is rarely mentioned that “an implementer’s decision to reject a certifiably F/RAND license and continue to infringe is contrary to the spirit of the F/RAND framework as well.”[46]
Moreover, it is not typically the case that a negotiation process would end with an injunction and a refusal to license, as critics sometimes allege. Rather, the threat of an injunction is important in hastening an infringing implementer to the table and ensuring that protracted litigation to determine the appropriate royalty (which is how such disputes do actually end) is costly not only to the patentee, but also to the infringer. As James Ratliff and Daniel Rubinfeld explain:
[T]he existence of that threat does not lead to holdup as feared by those who propose that a RAND pledge implies (or should embody) a waiver of seeking injunctive relief. If RAND terms are reached by negotiation, the negotiation is not conducted in the shadow of an injunctive threat but rather in the shadow of knowledge that the court will impose a set of terms if the parties do not reach agreement themselves. The crucial element of this model that substantially diminishes the likelihood that the injunctive threat will have real bite against an implementer willing to license on RAND terms is the assumption that an SEP owner maintains its obligation to offer a RAND license even if its initial offer is challenged by the implementer and, further, even if the court agrees with the SEP owner that its initial offer was indeed RAND. Thus any implementer that is willing to license on court-certified RAND terms can avoid an injunction by accepting those RAND terms without eschewing any of its challenges to the RAND-ness of the SEP owner’s earlier offers.[47]
Ultimately, this means that an implementer that accepts nominally F/RAND terms need not be an actual “willing licensee,” but instead can gain that designation as a matter of law without ever accepting a royalty rate within the true bargaining range that includes the licensor’s valid injunction threat. “[B]y stripping the SEP holder’s right to injunctive relief, [a no-injunction rule] may enable a potential licensee to delay good faith negotiation of a F/RAND license and the patent holder could be forced to accept less than fair market value for the use of the patent…. Undermining this bargaining outcome using antitrust rules runs a significant risk of doing more harm than good.”[48]
For the purposes of this proceeding, the lesson is clear: U.S. policy needs to return to a neutral position in which both parties in a F/RAND negotiation are encouraged to reach mutually agreeable terms in arm’s length licensing transactions. The effects of eBay and its progeny have distorted that bargaining process. Here, the agencies have an important role to play in pressing the need for this change.
The agencies’ call for comments asks whether increased transparency requirements in the SEP space could make SEP licensing more efficient:
What can the Department of Commerce do to mitigate emergence or facilitate the resolution of FRAND licensing disputes? Can requiring further transparency concerning patent ownership make standard essential patent (SEP) licensing more efficient? What are other impediments to reaching a FRAND license that the Department of Commerce could address through policy or regulation?[49]
But while fostering transparency may appear to be a win-win proposition for all parties in the standardization space, the reality is far more complex. In many instances, inventors are already required to disclose their standard essential patents—and these requirements have ambiguous effects.[50] Given this, demands for further transparency would almost certainly entail some form of government intervention, such as the creation of SEP registers and government-run essentiality checks, which seek to verify whether the patents that firms declare as standard-essential are truly so.
Unfortunately, these attempts to make SEP-reliant industries more transparent are anything but costless. The EU’s draft SEP regulation offers a case in point. The regulation would create a system of government-run essentiality checks and nonbinding royalty arbitrations that seek to make the process easier for implementers. But as ICLE scholars have written, this scheme will prove extremely difficult and costly to operate in practice.[51] Much the same would be true of attempts to introduce similar measures in the United States.
The proposed EU regulation would rely on qualified experts to work as evaluators and conciliators. Evaluators will need specialized knowledge of the particular technological area in which they will conduct essentiality checks. The European Commission estimates that there are about 1,500 experts (650 patent attorneys and 800 patent examiners) qualified to do essentiality checks in the EU.[52]
The sheer magnitude of the task, however, will require many more evaluators and it is very doubtful that the optimal number of potential qualified experts are even available to join this process. For certain, special arrangements would need to be made with patent offices to grant patent examiners leave to conduct essentiality checks. Each year, evaluators would need to test a random sample of up to 100 SEPs if requested by each SEP owner or an implementer per standard. Thus, the amount of work may exponentially increase depending on how many standards are caught by the regulation.
If 148 FRAND-licensed standards per laptop are to serve as a rough proxy, then we might expect more than 100-200 standards to be checked for essentiality every year. In addition, if SEP owners and implementers regularly use the possibility of testing up to 100 SEPs per standard and per SEP owner, the sheer magnitude of work may exceed the capacity of patent attorneys. Patent attorneys may find it challenging to regularly engage in such high volumes of essentiality checks while also serving other clients. And why should they do it at all unless the rate of pay is at least what they could earn in a patent law firm? To be blunt, the work would not be as much fun as acting for real clients, so the pay would probably have to be even higher to attract applicants.
Consequently, it is very unlikely that the capability even exists to annually perform a large number of essentiality checks of registered SEPs. If the requirements to become an evaluator were relaxed to address this workload, this would cast doubt on the reliability of the whole system. There is no point in building a battleship unless you are sure you can get a competent crew.
Additionally, the patent attorneys most likely to be familiar with these technologies may well also find themselves with conflicts of interest. They will probably have worked for some SEP owners or implementers. Elaborate rules to avoid such conflicts would need to be implemented to prevent patent attorneys who were, or still are, engaged with certain clients from becoming evaluators of those clients’ registered SEPs. The conflicts problem would, of course, apply not just to individual attorneys but to their entire firms.
Conciliators would also need to be experts in the field. They might come from the ranks of retired judges, seasoned former company officials, or experienced lawyers. Conflict-of-interest provisions would also be needed to ensure their independence and impartiality in mandatory FRAND determinations. But the job would, again, have to be sufficiently attractive, both in remuneration and in work content and culture. The Commission has made no investigation as to whether a sufficiently large pool of credible individuals could be found to make the system work.
Of course, there are well-established voluntary systems of conciliators and mediators, some of which are used now to help resolve FRAND disputes. But the proposal adds the idea of compulsory mediation or conciliation. There is scant evidence that either system works in other commercial disputes around the world, and it is unclear why it should be assumed to work here.
In short, it is doubtful that a government-operated scheme of essentiality checks and SEP-royalty arbitrations could reach satisfactory outcomes, as the expertise to do so is lacking and attracting potentially thousands of professionals from the private sector would be too costly. The result is that any government scheme along these lines is unlikely to have the necessary staffing to conduct its mission to the requisite standard. It would thus risk doing more harm than good.
In their call for comments, the agencies express a desire to protect the United States’ leading position in the field of standard development and implementation:
Are there steps that the Department of Commerce can take regarding intellectual property rights policy that will help advance U.S. leadership in standards development and implementation for critical and emerging technologies?[53]
The agencies essentially ask what active steps they could take to preserve the United States’ leading position. This, however, ignores the arguably more important question: What steps should the United States avoid taking? As we explain below, U.S. agencies should be particularly careful not to weaken intellectual-property protection in ways that may, ultimately, favor firms in other jurisdictions, such as China.
Observers often regard intellectual property as merely protecting original creations and inventions, thus boosting investments. But while IP certainly does this, it is important to look beyond this narrow framing. Indeed, by protecting these creations, intellectual-property protection—particularly that of patents—produces beneficial second-order effects in several important policy areas.
Consequently, weakening patent protection could have detrimental ramifications that are routinely overlooked by policymakers. This includes giving a leg up to jurisdictions that are heavily geared toward manufacturing, rather than R&D, and specifically to China (with knock-on effects for ongoing political tensions between these two superpowers).
As the USPTO has observed:
Innovation and creative endeavors are indispensable elements that drive economic growth and sustain the competitive edge of the U.S. economy. The last century recorded unprecedented improvements in the health, economic well-being, and overall quality of life for the entire U.S. population. As the world leader in innovation, U.S. companies have relied on intellectual property (IP) as one of the leading tools with which such advances were promoted and realized.[54]
The United States is a world leader in the production and commercialization of IP, and naturally seeks to retain that comparative advantage.[55] IP and its legal protections will become increasingly important if the United States is to maintain its prominence, especially when dealing with international jurisdictions, like China, that don’t offer similar levels of legal protection.[56] By making it harder for patent holders to obtain injunctions, licensees and implementers gain the advantage in the short term, because they are able to use patented technology without having to engage in negotiations to pay the full market price. In the case of many SEPs—particularly those in the telecommunications sector—a great many patent holders are U.S.-based, while the lion’s share of implementers are Chinese. Potential anti-injunction policies may thus amount to a subsidy to Chinese infringers of western technology.
At the same time, China routinely undermines western intellectual-property protections through its industrial policy. The government’s stated goal is to promote “fair and reasonable” international rules, but it is clear that China stretches its power over intellectual property around the world by granting “anti-suit injunctions” on behalf of Chinese smartphone makers, designed to curtail enforcement of foreign companies’ patent rights.[57]
In several recent cases, Chinese courts have claimed jurisdiction over F/RAND issues.[58] In Oppo v. Sharp, the Supreme People’s Court of China determined that Chinese courts can set the global terms of what is a fair and reasonable price for a license,[59] even if that award would be considerably lower than in other jurisdictions. This decision follows Huawei v. Conversant, in which a Chinese court for the first time claimed the ability to issue an anti-suit injunction against the Chinese company.[60]
All of this is part of the Chinese government’s larger approach to industrial policy, which seeks to expand Chinese power in international trade negotiations and in global standards bodies.[61] As one Chinese Communist Party official put it: “Standards are the commanding heights, the right to speak, and the right to control. Therefore, the one who obtains the standards gains the world.”[62] Chinese President Xi Jinping frequently (but only domestically) references China’s “cyber great power” ambitions: “We must accelerate the promotion of China’s international discourse power and rule-making power in cyberspace and make unremitting efforts towards the goal of building a cyber great power.”[63] Chinese leaders are intentionally pursuing a two-track strategy of taking over standards bodies and focusing on building platforms to create path dependencies that cause others to rely on Chinese technology.[64] As a Hinrich Foundation Report notes:
Trade and technical standards are inherently interrelated. They are mutually reinforcing. But Beijing treats standard setting, and standards organizations, as competitive domains. This approach risks distorting global trade. Beijing does not support a neutral architecture where iterative negotiating strives for technical interoperability. Instead, Beijing promotes an architecture that bolsters and cements Chinese competitiveness. Due to China’s size and centralization, the consequences of this approach will reverberate across the international system. Given the nature of emerging technology and standards, the consequences will endure.[65]
Insufficient protections for intellectual property will hasten China’s objective of dominating collaborative standard development in the medium- to long-term.[66] U.S. entrepreneurs are able to engage in the types of research and development that drive innovation because they can monetize those innovations. Reducing the returns for patents that eventually become standards will lead to less investment in those technologies. It will also harm the competitive position of American companies that refrain from collaborating because the benefits don’t outweigh the costs, including “missing the opportunity to steer a standard in the manner most compatible with a company’s product offerings, falling behind competitors, or failing to head off broad adoption of a second standard….”[67]
Simultaneously, this will engender a switch to greater reliance on proprietary, closed standards rather than collaborative, open standards. Proprietary standards (and competition among those standards) are sometimes the most efficient outcome: for instance, when the costs of interoperability outweigh the benefits. The same cannot be said, however, for government policies that effectively coerce firms into adopting proprietary standards by raising the relative costs of the collaborative standard-development process. In other words, there are social costs when firms are artificially prevented from taking part in collaborative standard setting and forced instead to opt for proprietary standards.
Yet this is precisely what will happen to U.S. firms if IP rights are not sufficiently enforceable. Indeed, as explained above, collaborative standardization is an important driver of growth.[68] It is crucial that governments do not needlessly undermine these benefits by preventing American firms from competing effectively in these international markets.
These harmful consequences are magnified in the context of the global technology landscape, and in light of China’s strategic effort to shape international technology standards.[69] With U.S. firms systematically deterred from participating in the development of open technology standards, Chinese companies, directed by their government authorities, will gain significant control of the technologies that will underpin tomorrow’s digital goods and services. The consequences are potentially catastrophic:
The effect of [China’s] approach goes far beyond competitive commercial advantage. The export of Chinese surveillance and censorship technology provides authoritarian governments with new tools of repression. Governments that seek to control their citizens’ access to the internet are supportive of Beijing’s “cyber sovereignty” paradigm, which can lead to a balkanized internet riddled with incompatibilities that impede international commerce and slow technological innovation. And when cyber sovereignty is paired with Beijing’s push to redefine human rights as the “collective” rights of society as defined by the state, authoritarian governments gain a shield of impunity for violations of universal norms.[70]
With Chinese authorities joining standardization bodies and increasingly claiming jurisdiction over F/RAND disputes, there should be careful reevaluation of the ways weakened IP protection would further hamper the U.S. position as a leader in intellectual property and innovation.
To return to the framing question, yes, there are steps the agencies could take to secure and promote U.S. leadership in intellectual-property-intensive industries. The first step, as noted throughout this comment, is to refrain from promoting policies that unnecessarily imbalance the negotiation process between innovators and implementers. The second step is twofold. First, work with trustworthy partners, like the EU, to make sure that U.S. Allies’ IP policies are in alignment with and are geared toward promoting neutral standards that allow tech industries to thrive. The second part is to advocate for trade policies that dissuade countries like China from using their domestic courts and regulatory agencies as protectionist entities designed simply to advance China’s national interests.
In the call for comments, the agencies ask:
Do policy solutions that would require SEP holders to agree collectively on rates or have parties rely on joint negotiation to reach FRAND license agreements with SEP holders create legal risks? Are there other concerns with these solutions?[71]
A host of competition concerns are implicated in this question, in that it requires SEP owners to negotiate and ultimately agree on aggregate royalty rates for standards. This may require SEP owners to exchange sensitive commercial information relevant to establishing the value that devices derive from using the standardized technology. Competition-sensitive data could include projected revenues on a per-unit basis following the incorporation of connectivity in the end products, the number of end products sold on the market, actual and forecast sales, and price projections.[72] The competitive dangers inherent in this process are more serious for those vertically integrated SEP owners, who simultaneously hold SEPs and manufacture standard-implementing products. They would effectively agree to set the costs (royalties) for their inputs and exchange data about their downstream sales.
Jointly negotiated rates could therefore potentially run afoul of antitrust laws that prohibit companies from engaging in price-fixing and collusion. Requirements to jointly negotiate aggregate royalty rates should thus be accompanied by safeguards and guidance that ensure such negotiations comply with antitrust law. An example would be royalty-rate negotiations in patent pools, where pool administrators take a mediatory role, collecting and protecting confidential information from pool members.[73]
It is also unclear whether these joint royalty negotiations would be of much use to either inventors or implementers. For example, the EU has proposed introducing an aggregate notification regulation along these lines. The regulation appears to allow multiple groups of SEP owners to jointly notify their views concerning the appropriate royalties for a given technology. This could add even more confusion for standard implementers. For example, some SEP owners could announce an aggregate rate of $10 per product, another 5% of the end-product price, while a third group would prefer a lower $1 per-product rate.
Moreover, it is unclear how joint aggregate royalty-rate notifications would change the existing practice of unilateral announcement of licensing terms. Many SEP owners already publicly announce their royalty programs in advance. To be on the safe side, SEP owners may simply notify their maximum preference, knowing that negotiations would lead to different prices depending on the unique details of various licensees. As a result, aggregate royalty rates may not produce meaningful data points.
Nonbinding expert opinions on global aggregate royalty rates could also add to the confusion. Implementers would likely initiate the process, which would then proceed in parallel with SEP owners’ joint notifications of aggregate rates. All these differing and possibly conflicting estimates might lead to even greater uncertainty. Moreover, if those providing nonbinding opinions are not universally regarded as “experts,” the parties are unlikely to respect such opinions.
Aggregate royalty notifications and nonbinding opinions might be used in the top-down method for FRAND-royalty determinations. A top-down method provides that the SEP owner should receive a proportional share of a standard’s total aggregate royalty. It requires establishing a cumulative royalty for a standard and then calculating the share of the total royalty for an individual SEP owner. This may be the reason for having aggregate royalty-rate notifications and opinions. At the same time, essentiality checks would still be needed to filter out which patents are truly essential, and to assess each individual SEP owner’s share.
We caution strongly against relying too heavily on the top-down approach for FRAND-royalty determinations. It is not used in commercial-licensing negotiations, and courts have frequently rejected its application. Industry practice is to use comparable licensing agreements. The top-down approach was applied in Unwired Planet v Huawei only as a cross-check for the rates derived from comparable agreements.[74] TCL v Ericsson relied on this method, but was vacated on appeal.[75] The most recent Interdigital v Lenovo judgment considered and rejected its use, finding “no value in Interdigital’s Top-Down cross-check in any of its guises.”[76] Moreover, the top-down approach, as currently applied, relies solely on patent counting. It fails to consider that not every patent is of equal value, nor that some patents may be invalid or not infringed by a specific device.
In short, there are important legal and practical obstacles to the joint negotiation of aggregate royalty rates. Legal mandates to conduct such negotiations would thus be of dubious added value to players in standard-reliant industries.
[1] U.S. Patent and Trademark Office, Joint ITA-NIST-USPTO Collaboration Initiative Regarding Standards, Federal Register (Sep. 27, 2023), https://www.federalregister.gov/documents/2023/09/27/2023-20919/joint-ita-nist-uspto-collaboration-initiative-regarding-standards; U.S. Patent and Trademark Office, Joint ITA–NIST–USPTO Collaboration Initiative Regarding Standards; Notice of Public Listening Session and Request for Comments, Federal Register (Sep. 11, 2023), available at https://www.govinfo.gov/content/pkg/FR-2023-09-11/pdf/2023-19667.pdf (“Call for Comments”).
[2] European Commission, Explanatory Memorandum for Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, COM (2023) 232 Final (“Explanatory Memorandum”).
[3] See, e.g., Dirk Auer & Julian Morris, Governing the Patent Commons, 38 Cardozo Arts & Ent. L.J. 294 (2020).
[4] See, e.g., Alexander Galetovic, Stephen Haber & Ross Levine, An Empirical Examination of Patent Holdup, 11 J. Competition L. & Econ. 549 (2015). This is in keeping with general observations about the dynamic nature of intellectual property protections. See, e.g., Ronald A. Cass & Keith N. Hylton, Laws of Creation: Property Rights in the World of Ideas 42-44 (2013).
[5] Oscar Borgogno & Giuseppe Colangelo, Disentangling the FRAND Conundrum, DEEP-IN Research Paper (Dec. 5, 2019) at 5, available at https://ssrn.com/abstract=3498995.
[6] Richard A. Epstein & Kayvan B. Noroozi, Why Incentives for “Patent Holdout” Threaten to Dismantle FRAND, and Why It Matters, 32 Berkeley Tech. L.J. 1381, 1411 (2017).
[7] Borgogno & Colangelo, supra note 5, at 5.
[8] Call for Comments, supra note 1, Questions 1 and 2.
[9] Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, COM (2023) 232 Final (“Draft SEP Regulation”).
[10] Robin Jacob & Igor Nikolic, ICLE Comments Regarding the Draft Regulation on Standard Essential Patents (Jul. 28, 2023), available at https://laweconcenter.org/wp-content/uploads/2023/07/ICLE-Comments-to-the-SEP-Regulation.pdf.
[11] Call for Comments, supra note 1, Question 3.
[12] See, e.g., Jorge Padilla, John Davies, & Aleksandra Boutin, Economic Impact of Technology Standards: The Past and the Road Ahead (2017), available at https://www.compasslexecon.com/wp-content/uploads/2018/04/CL_Economic_Impact_of_Technology_Standards_Report_FINAL.pdf (Section 3 has an in-depth discussion of the adoption of standards and the benefits to the growth of mobile technology); iRunway, Patent & Landscape Analysis of 4G-LTE Technology 9-12 (2012), https://www.i-runway.com/images/pdf/iRunway%20-%20Patent%20&%20Landscape%20Analysis%20of%204G-LTE.pdf.
[13] See, e.g., Galetovic, et al., supra note 4; Keith Mallinson, Don’t Fix What Isn’t Broken: The Extraordinary Record of Innovation and Success in the Cellular Industry under Existing Licensing Practices, 23 Geo. Mason L. Rev. 967 (2016); Damien Geradin, Anne Layne-Farrar, & Jorge Padilla, The Complements Problem within Standard Setting: Assessing the Evidence on Royalty Stacking, 14 B.U. J. Sci. & Tech. L.144 (2008).
[14] Auer & Morris, supra note 3, at 5.
[15] Epstein & Noroozi, supra note 6, at 1394.
[16] See, e.g., Daniel F. Spulber, Standard Setting Organisations and Standard Essential Patents: Voting and Markets, 129 Econ. J. 1477, 1502-03 (2018) (“The interaction between inventors and adopters helps explain the variation of decision rules among SSOs, ranging from majority rule to consensus requirements…. Technology standards will be efficient when SSO decision making reflects the countervailing effects of voting power and market power.”).
[17] See Kirti Gupta, How SSOs Work: Unpacking the Mobile Industry’s 3GPP Standards, in The Cambridge Handbook of Technical Standardization Law: Competition, Antitrust, and Patents (Jorge L. Contreras ed., 2017).
[18] See Kristen Jakobsen Osenga, Ignorance Over Innovation: Why Misunderstanding Standard Setting Organizations Will Hinder Technological Progress, 56 U. Louisville L. Rev. 159, 178 (2018); Andrew Updegrove, Value Propositions, Roles and Strategies: Participating in a SSO, in The Essential Guide to Standards, https://www.consortiuminfo.org/guide (last visited Jan. 23, 2022).
[19] Adapted from Auer & Morris, supra note 3, at 18-19.
[20] Andrew Updegrove, Business Considerations: Forming and Managing a SSO, in The Essential Guide to Standards, https://www.consortiuminfo.org/guide/forming-managing-a-sso/business-considerations (last visited Nov. 6, 2023).
[21] See, e.g., Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861, 1883 (2010) (showing that firms routinely forfeit their intellectual assets in order to boost the growth of the platform they operate).
[22] See Joanna Tsai & Joshua D. Wright, Standard Setting, Intellectual Property Rights, and the Role of Antitrust in Regulating Incomplete Contracts, 80 Antitrust L.J. 157, 159 (2015) (“SSOs [standard-setting organizations] and their IPR policies appear to be responsive to changes in perceived patent holdup risks and other factors. We find the SSOs’ responses to these changes are varied, and that contractual incompleteness and ambiguity persist across SSOs and over time, despite many revisions and improvements to IPR policies. We interpret the evidence as consistent with a competitive contracting process and with the view that contractual incompleteness is an intended and efficient feature of SSO contracts.”) (emphasis added).
[23] See, e.g., Daniel F. Spulber, Licensing Standard Essential Patents with FRAND Commitments: Preparing for 5G Mobile Telecommunications, 18 Co. Tech. L.J. 79, 147 (2020) (“Adjudication of SEP disputes guided by common law principles and comparable licenses complements SSO FRAND commitments and market negotiation of SEP licenses. Adjudication based on common law and comparable licenses provides general rules for the resolution of SEP disputes that does not restrict SSO IP policies and or interfere with consensus decision making by SSOs. Such adjudication also does not interfere with efficient market negotiation of SEP licenses.”).
[24] Id. at 148.
[25] Osenga, supra note 19, at 213-14.
[26] Call for Comments, supra note 1, Questions 4, 5, 6.
[27] Draft SEP Regulation, preamble at (35).
[28] Richard A. Epstein, The Clear View of The Cathedral: The Dominance of Property Rules, 106 Yale L.J. 2091, 2091 (1996) (“Property rights are, in this sense, made absolute because the ownership of some asset confers sole and exclusive power on a given individual to determine whether to retain or part with an asset on whatever terms he sees fit.”)
[29] See generally Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & Econ. 265 (1977); F. Scott Kieff, Property Rights and Property Rules for Commercializing Inventions, 85 Minn. L. Rev. 697 (2001).
[30] See, e.g., Barnett, supra note 22, at 856 (“Strong patents provide firms with opportunities to disaggregate supply chains through contract-based relationships, which in turn give rise to trading markets in intellectual resources, whereas weak patents foreclose those options.”).
[31] Dirk Auer, Geoffrey A. Manne, Julian Morris, & Kristian Stout, The Deterioration of Appropriate Remedies in Patent Disputes, 21 Federalist Soc’y Rev. 158, 160 (2020).
[32] Id. at 163.
[33] See, e.g., Doris Johnson Hines & J. Preston Long, The Continuing (R)evolution of Injunctive Relief in the District Courts and the International Trade Commission, IP Litigator (Jan./Feb. 2013) (citing Tracy Lee Sloan, The 1988 Trade Act and Intellectual Property Cases Before the International Trade Commission, 30 Santa Clara L. Rev. 293, 302 (1990) (“Out of 221 intellectual property cases between 1974 and 1987, the ITC found that only five failed to establish sufficient injury… for injunctive-type relief.”)), available at https://www.finnegan.com/en/insights/articles/the-continuing-r-evolution-of-injunctive-relief-in-the-district.html.
[34] And even then, the specific contribution of a particular patent to ultimate consumer value will remain uncertain. See Robert P. Merges, Of Property Rules, Coase, and Intellectual Property, 94 Colum. L. Rev. 2655, 2659 (1994) (“The problems with [clearly defining harms/benefits] in the IPR field result from the abstract quality of the benefits conferred by prior works and the cumulative, interdependent nature of works covered by IPRs. Valuation, then, is at least as great a problem as detection.”)
[35] See Richard Epstein, F. Scott Kieff, & Daniel Spulber, The FTC, IP, and SSOs: Government Hold-Up Replacing Private Coordination, 8 J. Competition L. & Econ. 1 (2012) at 21, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1907450 (“The simple reality is that before a standard is set, it just is not clear whether a patent might become more or less valuable. Some upward pressure on value may be created later to the extent that the patent is important to a standard that is important to the market. In addition, some downward pressure may be caused by a later RAND commitment or some other factor, such as repeat play. The FTC seems to want to give manufacturers all of the benefits of both of these dynamic effects by in effect giving the manufacturer the free option of picking different focal points for elements of the damages calculations. The patentee is forced to surrender all of the benefit of the upward pressure while the manufacturer is allowed to get all of the benefit of the downward pressure.”).
[36] Merges, supra note 38, at 2666-67 (quoting A. Mitchell Polinsky, Resolving Nuisance Disputes: The Simple Economics of Injunctive and Damage Remedies, 32 Stan. L. Rev. 1075, 1092 (1980)).
[37] See Auer, et al., supra note 35, at 163 (“It also establishes this lower royalty rate as the ‘customary’ rate, which ensures that subsequent royalty negotiations, particularly in the standard-setting context, are artificially constrained.”).
[38] eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006).
[39] See Benjamin Petersen, Injunctive Relief in the Post-eBay World, 23 Berkeley Tech. L.J. 193, 196 (2008), (“In the two years after the Supreme Court’s ruling in eBay, there were thirty-three district court decisions that interpreted eBay when determining whether to grant injunctive relief to a patent holder. Of these decisions, twenty-four have granted permanent injunctions and ten have denied injunctions.”). See also Bernard H. Chao, After eBay, Inc. v. MercExchange: The Changing Landscape for Patent Remedies, 9 Minn. J.L. Sci. & Tech. 543, 572 (2008) (“For the first time, courts are not granting permanent injunctions to many successful patent plaintiffs.”); Robin M. Davis, Failed Attempts to Dwarf the Patent Trolls: Permanent Injunctions in Patent Infringement Cases Under the Proposed Patent Reform Act of 2005 and eBay v. MercExchange, 17 Cornell J.L. & Pub. Pol’y 431, 444 (2008) (“However, the first few district courts deciding patent cases following that decision granted injunctions to patent owners in the majority of cases, at a rate of approximately two-to-one.”).
[40] See generally Epstein & Noroozi, supra note 6, at 1406-08.
[41] Vincenzo Denicolò, Damien Geradin, Anne Layne-Farrar & A. Jorge Padilla, Revisiting Injunctive Relief: Interpreting eBay in High-Tech Industries with Non-Practicing Patent Holders, 4 J. Comp. L. & Econ. 571 (2008).
[42] Id. at 608. See also Vincenzo Denicolò, Do Patents Over-Compensate Innovators?, 22 Econ. Pol’y 681 (2007) (noting that, with respect to patents in general, “a preponderance of what evidence is currently available points against the over-reward hypothesis”).
[43] See, e.g., Mark Schankerman & Suzanne Scotchmer, Damages and Injunctions in Protecting Intellectual Property, 32 RAND J. Econ. 201 (2001).
[44] Epstein & Noroozi, supra note 6, at 1408.
[45] Tsai & Wright, supra note 23, at 163.
[46] James Ratliff & Daniel L. Rubinfeld, The Use and Threat of Injunctions in the RAND Context, 9 J. Competition L. & Econ. 14 (2013).
[47] Ratliff & Rubinfeld, supra note 50, at 7 (emphasis added).
[48] Tsai & Wright, supra note 23, at 182.
[49] Call for Comments, supra note 1, Question 9.
[50] See, e.g., Rudi Bekkers, Christian Catalini, Arianna Martinelli, Cesare Righi, and Timothy Simcoe. Disclosure Rules and Declared Essential Patents, 52 Research Policy, 104618, 3 (2023) (“Thus, allowing blanket disclosure can be efficient if the main purpose of a disclosure policy is to reassure prospective implementers that a license will be available. On the other hand, blanket disclosure shifts search costs from the patent holder (who presumably has a comparative advantage at finding its own essential patents) onto other interested parties, such as prospective licensees who wish to evaluate the scope and value of a firm’s dSEPs; other SSO participants seeking to make explicit cost-benefit comparisons of alternative technologies before committing to a standard; and regulators or courts that might use information about relevant dSEPs to determine reasonable royalties.”).
[51] See Jacob & Nikolic, supra note 10.
[52] See European Commission, Impact Assessment Report Accompanying the Document Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, SWD(2023) 124 final (“Impact Assessment”), at 101.
[53] Call for Comments, supra note 1, Question 10.
[54] See, e.g., U.S. Patent Office, Intellectual Property and the U.S. Economy: 2016 Update (2016), available at https://www.uspto.gov/sites/default/files/documents/IPandtheUSEconomySept2016.pdf.
[55] Shayerah Ilias Akhtar, Liana Wong & Ian F. Fergusson, Intellectual Property Rights and International Trade, at 6 (Congressional Research Service, May 12, 2020), available at https://crsreports.congress.gov/product/pdf/RL/RL34292 (“Intellectual property generally is viewed as a long-standing strategic driver of U.S. productivity, economic growth, employment, higher wages, and exports. It also is considered a key source of U.S. comparative advantage, such as in innovation and high-technology products. Nearly every industry depends on it for its businesses. Industries that rely on patent protection include the aerospace, automotive, computer, consumer electronics, pharmaceutical, and semiconductor industries.”).
[56] See, e.g., Martina F. Ferracane & Hosuk Lee-Makiyama, China’s Technology Protectionism and Its Non-negotiable Rationales, ECIPE (Jun. 2017), available at https://ecipe.org/publications/chinas-technology-protectionism. Consider that, even for actual citizens of the People’s Republic of China, individual rights are legally subordinate to “the interests of the state.” Const. of the People’s Rep. of China, Art. 51, available athttp://www.npc.gov.cn/englishnpc/constitution2019/201911/1f65146fb6104dd3a2793875d19b5b29.shtml. One has to imagine that the level of legal protections afforded foreign firms is no better, and surely must be subordinate to the objectives of China’s industrial policy, including the goal of leapfrogging the United States in IP production. See, e.g., Karen M. Sutter, “Made in China 2025” Industrial Policies: Issues for Congress (Congressional Research Service, Aug. 11, 2020), available at https://sgp.fas.org/crs/row/IF10964.pdf.
[57] See China Is Becoming More Assertive in International Legal Disputes, The Economist (Sep. 18, 2021), https://www.economist.com/china/2021/09/18/china-is-becoming-more-assertive-in-international-legal-disputes (“In the past year Chinese courts have issued sweeping orders on behalf of Chinese smartphone-makers that seek to prevent lawsuits against them in other countries over the use of foreign companies’ intellectual property… so that they (rather than foreign courts) can decide how much Chinese firms should pay in royalties to the holders of patents that their products use.”).
[58] See Matthew Laight, Shifting landscape in SEP FRAND litigation – 2021 will see hard fought disputes in China and India, digital business (Dec. 9, 2020), https://digitalbusiness.law/2020/12/shifting-landscape-in-sep-frand-litigation-2021-will-see-hard-fought-disputes-in-china-and-india.
[59] See RPX Corporation, China: Chinese Courts Can Set Global SEP License Terms, Rules Supreme People’s Court, Mondaq (Oct. 21, 2021), https://www.mondaq.com/china/patent/1120114/chinese-courts-can-set-global-sep-license-terms-rules-supreme-people39s-court.
[60] Id.
[61] See Rush Doshi, Emily De La Bruye?re, Nathan Picarsic, & John Ferguson, China as a “Cyber Great Power”: Beijing’s Two Voices in Telecommunications, Brookings Institute Foreign Policy Paper (Apr. 2021) at 16, available at https://www.brookings.edu/wp-content/uploads/2021/04/FP_20210405_china_cyber_power.pdf. (“In March 2018, Beijing launched the China Standards 2035 project, led by the Chinese Academy of Engineering. After a two-year research phase, that project evolved into the National Standardization Development Strategy Research in January 2020. The ‘Main Points of Standardization Work in 2020’ issued by China’s National Standardization Committee in March 2020 outlined intentions to ‘strengthen the interaction between the standardization strategy and major national strategies.’”).
[62] Quoted in id.
[63] Id. “The phrase ‘cyber great power’ is a key concept guiding Chinese strategy in telecommunications as well as IT more broadly. It appears in the title of almost every major speech by President Xi Jinping on China’s telecommunications and network strategy aimed at a domestic audience since 2014. But the phrase is rarely found in messaging aimed at external foreign audiences, appearing only once in six years of remarks by Foreign Ministry spokespersons. This suggests that Beijing intentionally dilutes discussions of its ambitions in order not to alarm foreign audiences.” Id. at 3 (emphasis added).
[64] See Danny Russel & Blake Berger, Is China Stacking the Technology Deck by Setting International Standards?, The Diplomat (Dec. 2, 2021), https://thediplomat.com/2021/12/is-china-stacking-the-technology-deck-by-setting-international-standards.
[65] Emily de la Bruyere, China’s Quest to Shape the World Through Standards Setting, Hinrich Foundation (Jul. 2021), at 11 (emphasis added), available at https://www.hinrichfoundation.com/research/article/tech/china-quest-to-shape-the-world-through-standards-setting.
[66] Although China is currently under-represented in most SDOs, that is already rapidly changing. See Justus Baron & Olia Kanevskaia, Global Competition for Leadership Positions in Standards Development Organizations, Working Paper (Mar. 31, 2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3818143. As Baron and Kanevskaia note, “[t]he surge in the number of leadership positions held by Huawei… [have] raised concerns that… Huawei [may] gain an undue competitive advantage over Western commercial and strategic interests.” Id. at 2.
[67] Updegrove, supra note 19.
[68] See id. at 30-36 (surveying the economic benefits from standardization). See also Soon-Yong Choi & Andrew B. Whinston, Benefits and Requirements for Interoperability in the Electronic Marketplace, 2 Tech. in Soc’y 33, 33 (2000) (“Economic benefits of interoperability result in lowered production or transaction costs typically utilizing standardized parts or automated processes. In the networked economy, the need for interoperability extends into an entire commercial processes, market organizations and products.”).
[69] Anna Gross, Madhumita Murgia & Yuan Yang, Chinese Tech Groups Shaping UN Facial Recognition Standards, Financial Times (Dec. 1, 2019), https://www.ft.com/content/c3555a3c-0d3e-11ea-b2d6-9bf4d1957a67 (“‘The drive to shape international standards… reflects longstanding concerns that Chinese representatives were not at the table to help set the rules of the game for the global Internet,’ the authors of the New America report wrote. ‘The Chinese government wants to make sure that this does not happen in other ICT spheres, now that China has become a technology power with a sizeable market and leading technology companies, including in AI.’”).
[70] Russel & Berger, supra note 67.
[71] Request for Comments, supra note 1, Question 11.
[72] Igor Nikolic, Licensing Negotiations Groups for SEPs: Collusive Technology Buyers Arrangements? Their Pitfalls and Reasonable Alternatives, Les Nouvelles 350 (2021).
[73] Hector Axel Contreras & Julia Brito, Patent Pools: A Practical Perspective – Part II, Les Nouvelles 39 (2022).
[74] Unwired Planet v Huawei [2017] EWHC 711 (Pat).
[75] TCL v Ericsson, Case No. 8:14-cv-003410JVS-DFM (C.D. Cal. 2018); TCL v Ericsson, 943 F.3d 1360 (Fed. Cir. 2019)
[76] Interdigital v Lenovo [2023] EWHC 539 (Pat) 733.
Amicus Brief INTEREST OF AMICI CURIAE[1] The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the . . .
The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies to inform public policy debates and has longstanding expertise in antitrust law. ICLE has an interest in ensuring that antitrust promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis.
Amici also include fifteen scholars of antitrust, law, and economics at leading universities and research institutions across the United States. Their names, titles, and academic affiliations are listed in Appendix A. All have longstanding expertise in antitrust law and economics.
Amici respectfully submit that this brief will aid the Court in reviewing the order of dismissal by explaining that the district court properly held, on the pleadings, that the restraint at issue is ancillary and thus that per se treatment is inappropriate. The restraint furthers Saks’s procompetitive goal of creating a strong and stable luxury brand through collaboration with the Brand Defendants. Treating such a restraint as per se unlawful, as Plaintiffs ask this Court to do, would stifle the type of legitimate cooperation that facilitates output and would ultimately harm consumers. Amici also explain why Plaintiffs and several of their amici, including the United States, make foundational errors of law and economics in arguing that ancillarity is an affirmative defense that may not be resolved on the pleadings.
Saks and the Brand Defendants are well-known luxury retail brands. As luxury retailers, their business models depend on developing and maintaining a distinct, exclusive brand to differentiate their products from the lower-priced goods sold by mass-market retailers. A primary way in which they define and protect their brands is by cultivating a premium shopping experience for customers that promotes “an atmosphere of exclusivity and opulence surrounding . . . luxury products.” Compl. ¶ 33. To that end, Saks and the Brand Defendants have for years collaborated through “store-within-a-store” arrangements: Saks allows the Brand Defendants to set up boutiques and concessions within Saks’s stores, which in turn helps all involved grow their customer base, augment their luxury brand status, and sell more products. This “store-within-a-store” model not only expands customer product choice within a single retail establishment, resulting in a better shopping experience, but also creates additional jobs at Brand Defendants’ concessions in Saks’s stores.
Plaintiffs allege that the Brand Defendants agree, as part of their respective partnerships with Saks, not to hire Saks’s own luxury retail employees without the approval of a Saks manager or until six months after the employee leaves Saks. Plaintiffs argue that these alleged no-hire provisions violate Section 1 of the Sherman Act. The district court disagreed, concluding that the per se rule could not apply because the no-hire provisions were “ancillary” to a broader procompetitive collaboration between Saks and each of the Brand Defendants, and that Plaintiffs failed to plead a plausible claim under the rule of reason. That decision is correct and should be affirmed.
First, the alleged no-hire agreements are ancillary to the arrangements between Saks and the Brand Defendants. Saks invests heavily in its employees. But without the no-hire provision, Saks would stand to lose those investments as the Brand Defendants could take advantage of their co-location within Saks’s stores to hire away Saks’s best workers, thereby free-riding on Saks’s training. The alleged no-hire provisions eliminate that powerful economic disincentive and thereby facilitate brand-enhancing, procompetitive store-within-a-store arrangements. That is all that is required for the agreements to be “ancillary.” Plaintiffs’ (and their amici’s) insistence on a rigid two-prong test for ancillarity is not only at odds with economic logic but also out of step with this Circuit’s precedent—and, in any event, would not change the result here.
Second, the district court properly resolved ancillarity on the pleadings. Ancillarity is a threshold inquiry decided at the earliest possible stage of a Section 1 case to determine whether the alleged facts justify departing from the default rule of reason standard. That is precisely what the district court did here: based on Plaintiffs’ own allegations—including those regarding “a continual risk that the Brand Defendants would use their concessions in Saks stores to recruit employees” (Op. 32)—the district court ruled that the alleged restraints were ancillary and thus incompatible with per se condemnation. Contrary to Plaintiffs’ argument, the district court did not improperly resolve any factual inferences. The court considered the Complaint in its entirety and determined that Plaintiffs did not state a plausible per se claim, just as it was supposed to do before requiring the enormous expense that would result should this kind of “potentially massive factual controversy . . . proceed.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007).
The per se rule is reserved for the most pernicious and anticompetitive restraints. Before condemning a restraint as per se unlawful, therefore, courts must “have amassed considerable experience with the type of restraint at issue” and be able to “predict with confidence that it would be invalidated in all or almost all instances.” NCAA v. Alston, 141 S. Ct. 2141, 2156 (2021). Reserving per se condemnation for that small category of restraints ensures that the antitrust laws do not inadvertently chill procompetitive conduct. Ancillary restraints do not fit the per se mold because they have a “reasonable procompetitive justification, related to the efficiency-enhancing purposes of [a] joint venture.” MLB Props., Inc. v. Salvino, Inc., 542 F.3d 290, 339 (2d Cir. 2008) (Sotomayor, J., concurring in the judgment).
Here, any purported no-hire agreements form a key plank of the broader leasing, concession, and distribution arrangements between Saks and the Brand Defendants. Op. 30-32. It is beyond dispute that these agreements are procompetitive. They not only enhance Saks’s and the Brand Defendants’ ability to vigorously compete against other retailers and luxury brands (i.e., increasing output in markets for luxury products) but also create jobs (i.e., increase output in labor markets). That places the restraint far beyond the per se rule, MLB, 542 F.3d at 339 (Sotomayor, J., concurring in the judgment); only the rule of reason can be used to determine whether the restraint “stimulat[es] competition that [is] in the consumer’s best interest” or has “anticompetitive effect[s] that are harmful to the consumer.” Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007).[2]
A restraint is ancillary where it “could have a procompetitive impact related to the efficiency-enhancing purposes” of a cooperative venture. MLB, 542 F.3d at 340 (Sotomayor, J., concurring in the judgment); see Polk Bros., Inc. v. Forest City Enters., Inc., 776 F.2d 185, 188-89 (7th Cir. 1985) (restraint is ancillary if it “may contribute to the success of a cooperative venture that promises greater productivity and output”). Where a restraint is deemed “ancillary to the legitimate and competitive purposes” of a venture, the restraint is presumptively “valid” and must be assessed under the rule of reason. Texaco Inc. v. Dagher, 547 U.S. 1, 7 (2006). There is a clear procompetitive rationale for the collaboration arrangement between Saks and the Brand Defendants: the arrangement allows customers to expand their choice in one-stop shopping, and the retailers to offer a wider range of high-end luxury goods. And it creates a halo effect across the store-within-a-store through proximity and availability of multiple luxury brands. All of this in turn promotes and enhances the luxury status of Saks and the Brand Defendants alike. The alleged no-hire restraints enable and are ancillary to that larger endeavor.
As Plaintiffs allege, Defendants each derive much of their respective brand value from their ability to project a “luxury brand[] aura[],” which both entices customers and creates demand for Defendants’ goods “over other, lower-priced goods.” Compl. ¶¶ 23, 26, 28. For this reason, Defendants “go[] to great lengths to market” and otherwise “maintain[] their luxury brands’ auras.” Id. ¶¶ 23, 26. They “accomplish this feat,” in part, by ensuring that their brick-and-mortar stores provide a “luxury shopping experience[].” Id. ¶ 27. Defendants do that with sophisticated “décor and design” and premium “customer service” from skilled employees “who reflect their respective brand images and cultures.” Id. ¶¶ 27-29.
Store-within-a-store arrangements further enhance the luxury brand shopping experience for both consumers and retailers. In these arrangements, Saks allows the Brand Defendants to set up mini-stores or concessions within Saks’s large stores. These arrangements, similar to those used by “[a]lmost all department store chains,” Kinshuk Jerath & Z. John Zhang, Store Within a Store, 47 J. Mktg. Rsch. 748, 748 (2010), are mutually beneficial and procompetitive. The presence of the popular luxury brands helps draw brand-loyal customers into Saks, thus increasing foot traffic and broadening Saks’s customer reach—directly boosting sales output. Compl. ¶ 28; see Jerath & Zhang, supra, at 756-57 (“The introduction of new products through stores within a store can bring new consumers to the store who want to purchase the focal product and also purchase other products.”). The Brand Defendants benefit from access to Saks’s considerable customer base, Compl. ¶ 28, and their presence also makes possible cross-brand marketing opportunities. Consumers benefit as well: they have access to a wider array of products, and have it all at hand in a single store. And they have the benefit of workers highly trained with respect to the luxury goods they sell. Id. ¶¶ 27-29, 32-34.
But there is a significant practical impediment to allowing stores-within-stores: employee raiding. Saks invests heavily in its luxury retail employees, providing them with the “extensive training on service, selling, and product-knowledge” required to ensure that they are “knowledgeable about the particular products” for sale “as well as current trends.” Compl. ¶¶ 32, 34. Permitting the Brand Defendants to operate inside of Saks stores without restriction would put that investment in immediate danger. The Brand Defendants would have every incentive to free-ride off of Saks’s investment, observing and hiring Saks’s highly trained luxury retail employees, thereby “tak[ing] advantage of the efforts [Saks] has expended in soliciting, interviewing, and training skilled labor” and “simultaneously inflicting a cost on [Saks] by removing an employee on whom [Saks] may depend.” Id. ¶ 62. This risk—and the mistrust it can create—disincentivizes the formation and maintenance of store-within-a-store agreements.
No-hire restraints solve this problem. By imposing a narrow, time-limited, waivable restriction on the Brand Defendants’ ability to hire Saks employees, Compl. ¶ 92, the alleged no-hire agreements remove a roadblock from the “cooperation underlying the restraint,” which “has the potential to create the efficient production that consumers value,” Premier Elec. Constr. Co. v. Nat’l Elec. Contractors Ass’n, Inc., 814 F.2d 358, 370 (7th Cir. 1987). In particular, the alleged no-hire restrictions help prevent free-riding by Brand Defendants on Saks’s training. The agreement encourages Saks to invest in employee development, including by providing specific training on Brand Defendants’ products, and that investment enhances Saks’s ability to sell products from and compete against Brand Defendants’ stand-alone brick and mortar and online stores. See, e.g., Gregory J. Werden, The Ancillary Restraints Doctrine After Dagher, 8 Sedona Conf. J. 17, 21 (2007). “[W]ith the restraint,” Saks may “collaborate” with the Brand Defendants “for the benefit of its [customers] without ‘cutting [its] own throat.’” Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., 9 F.4th 1102, 1110-11 (9th Cir. 2021) (quoting Polk Bros., 776 F.2d at 189). As a result, the alleged no-hire restraints are “at least potentially reasonably ancillary to joint, efficiency-creating economic activities.” Phillips v. Vandygriff, 711 F.2d 1217, 1229 (5th Cir. 1983); cf. Eichorn v. AT&T Corp., 248 F.3d 131, 146-47 (3d Cir. 2001) (“As an ancillary covenant not to compete, the no-hire agreement was reasonable in its restrictions on the plaintiffs’ ability to seek employment elsewhere.”).
The contrary conclusion—that the alleged no-hire restraints are not ancillary—risks stifling competition across the retail economy. No-hire agreements are merely one of the many ancillary contractual restraints commonly used in store-within-a-store partnerships (exemplified by, for instance, the well-known collaborations between Target and Starbucks or Best Buy and Samsung) to preserve brand integrity, guard against misuse of store space, and safeguard investments in specialized training. By solving for risks such as employee raiding or damage to property, these restrictions instill confidence in both parties, facilitating the creation of these cooperative ventures in the first place. Categorizing the alleged no-hire provisions here as per se unlawful could chill a whole spectrum of reasonable ancillary restraints, undermining the careful balance that store-within-a-store arrangements aim to maintain and inhibiting market innovation. That would be bad for potential employees, who would lose the opportunity to work at stores-within-stores, as well as for consumers, who would lose the convenient access to goods in-store concessions provide.
Plaintiffs and their amici resist ancillarity by, in part, insisting upon application of a strict and formalistic test not found in the law of this Circuit or any other. In their view, an ancillary restraint must be both (1) “subordinate and collateral to a separate legitimate transaction” and (2) “reasonably necessary to achiev[e] that transaction’s procompetitive purpose.” AOB 34-35. This rigid two-step test is not the law in this Circuit. But even if it were, Plaintiffs and amici misconstrue the second prong, improperly transforming it into a strict necessity standard that no circuit has adopted. Consistent with their evident procompetitive potential, the alleged restraints here amply satisfy the actual test.
Although some courts have moved toward a delineated two-prong standard, this Court has not. This Court’s leading opinion on ancillarity is then-Judge Sotomayor’s influential concurrence in MLB, in which she observed that a restraint is ancillary where it is “reasonably necessary to achieve any of the efficiency-enhancing benefits of a joint venture.” 542 F.3d at 338 (Sotomayor, J., concurring in the judgment). She noted no other requirements, invoking Judge Easterbrook’s similar formulation in Polk Bros. that a restraint is ancillary where it “may contribute to the success of a cooperative venture that promises greater productivity and output.” Id.; Polk Bros., 776 F.2d at 189; see Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 229 (D.C. Cir. 1986) (restraint is ancillary when it “appears capable of enhancing the group’s efficiency”). That approach in turn traces all the way to then-Judge Taft’s seminal United States v. Addyston Pipe & Steel Co. decision, which assessed ancillarity using this same flexible formulation. See 85 F. 271, 281 (6th Cir. 1898).
Even if the two-prong test advanced by Plaintiffs and their amici did apply, however, they misconstrue the second prong by paying only lip service to a “reasonably necessary” standard and in reality asking this Court to impose a “strictly necessary” test. Instead of asking whether the restraint “promoted enterprise and productivity”—which is all that is required for a restraint to be “reasonably necessary,” Aya, 9 F.4th at 1110-11—Plaintiffs would require Defendants to show that the “restraint [is] necessary to achieve the business relationship,” AOB 36, such that in its absence, “Saks would terminate or . . . alter its purported collaborative relationships,” NY Br. 29.
No court of appeals has embraced this strict-necessity standard. In Medical Center at Elizabeth Place, LLC v. Atrium Health System, for instance, the Sixth Circuit considered and rejected it, holding that requiring a defendant to show that a restraint “is necessary” is “too high a standard to determine what qualifies as ‘reasonable.’” 922 F.3d 713, 725 (6th Cir. 2019); see also id. at 726 (observing Judge Sotomayor’s MLB concurrence “categorically rejected” a strict necessity test). Rather, an ancillary restraint “need not be essential, but rather only reasonably ancillary to the legitimate cooperative aspects of the venture” because “there exists a plausible procompetitive rationale for the restraint.” Id. (quotation marks omitted). The Ninth Circuit similarly rejected the United States’ attempt to advance this standard, and instead held in Aya that a no-hire restraint was “properly characterized as ancillary” where it “promoted enterprise and productivity at the time it was adopted.” 9 F.4th at 1111. And the United States and a different set of plaintiffs recently argued for a strict-necessity test in the Seventh Circuit. See Br. for the U.S. and the FTC as Amici Curiae Supporting Neither Party at 26, Deslandes v. McDonald’s USA, LLC, Nos. 22-2333 & 22-2334 (7th Cir. Nov. 9, 2022) (arguing no-hire agreement was not ancillary because it “was not necessary to encourage franchisees to sign” franchising agreements). The panel declined to adopt it, adhering instead to the Polk Bros. test. See Deslandes v. McDonald’s USA, LLC, 81 F.4th 699, 703 (7th Cir. 2023).
All of these decisions make sense. The per se rule applies only when a challenged restraint is obviously and clearly anticompetitive, and a restraint that is plausibly part of a procompetitive venture should be judged by “the facts peculiar to the business to which the restraint is applied.” Bd. of Trade of Chi. v. United States, 246 U.S. 231, 238 (1918). A contrary decision would discourage competition; strict necessity is not only an unrealistic requirement, as businesses make these decisions ex ante, but also would require them to constantly recalibrate their policies. The result would be that firms forego potentially procompetitive collaborations, chilling innovative policies and business models. See Werden, supra, at 23-24 (comprehensive analysis by DOJ economist rejecting strict-necessity test).
Nor is there any legal or logical basis for Plaintiffs’ made-up “tailor[ing]” prong—that a “restraint must be ‘tailored’ to a legitimate objective to qualify as ancillary.” AOB 35. Courts routinely reject any “reasonabl[e] tailor[ing]” requirement, because that phrase would not “carr[y] a materially different meaning than ‘reasonably necessary’” and because a restraint “need not satisfy a less-restrictive-means test.” Aya, 9 F.4th at 1111 & n.5. A tailoring analysis can be part of the rule-of-reason framework employed after a restraint is deemed ancillary, but it has no role in the ancillarity inquiry itself, which evaluates whether a restraint “should be reviewed under the rule of reason” in the first place. MLB, 542 F.3d at 341 (Sotomayor, J., concurring in the judgment). The flaw in Plaintiffs’ argument is underscored by the only case they cite to support their purported tailoring requirement, which did not even involve ancillarity, but instead analyzed whether there was a less restrictive alternative under the rule of reason. See NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 117 (1984); see also Aya, 9 F.4th at 1111 (“[T]he less restrictive alternative analysis falls within the rule-of-reason analysis, not the ancillary restraint consideration.”).
Properly interpreted to require only “reasonable necessity,” the two-prong test is satisfied here on the face of the Complaint. The alleged restraint is “subordinate and collateral” to a broader venture in which Saks permits the Brand Defendants to “sell their goods and apparel” with Saks’s stores. Compl. ¶ 21. Although the United States argues that the Complaint “contains no allegations of any connection . . . between the alleged conspiracy and those business relationships,” U.S. Br. 15-16, that is not correct: the Brand Defendants operate “concessions at Saks stores,” Compl. ¶ 21, and Saks employees receive brand-specific training, id. ¶ 160. As the district court held, Op. 34 n.22, the alleged restraint prevented the Brand Defendants from hiring Saks employees who sold the Brand Defendants’ merchandise, thereby protecting Saks’s training investments, see Compl. ¶¶ 156-61, 187-91, increasing the attractiveness of the broader collaboration, and promoting mutual trust between the parties, see Rothery Storage, 792 F.2d at 224 (restraint that “serves to make the main transaction more effective in accomplishing its purpose” is “subordinate and collateral”).
Plaintiff Susan Giordano’s allegations about her own experience demonstrate that this alleged restraint is ancillary. Giordano was a Saks employee at Saks’s Loro Piana boutique for “18 months,” during which time she became “familiar[] with Loro Piana’s . . . merchandise.” Compl. ¶¶ 157, 160. Giordano sought employment at a standalone Loro Piana boutique, explaining that she “would surely be an asset” because of her familiarity with Loro Piana’s product gained from Saks’s training. Id. ¶¶ 156-61. But the no-hire restraint allegedly prevented Loro Piana from hiring Giordano, id. ¶ 161, “ensur[ing] that [Saks] [did] not lose its personnel during the collaboration” with Brand Defendants, Aya, 9 F.4th at 1110. Courts have found just these sorts of no-hire agreements to facilitate “procompetitive collaboration” to be “reasonably necessary.” Id.; cf. Bogan v. Hodgkins, 166 F.3d 509, 515 (2d Cir. 1999) (rejecting per se treatment for no-hire agreements).
The United States’ arguments to the contrary are unavailing. It argues that the alleged no-hire agreements go beyond solicitation at the concessions themselves, barring the Brand Defendants from hiring even Saks employees who independently apply or approach the Brand Defendants for a job. U.S. Br. 19. But the no-hire agreements’ purpose, to protect against risks that employees would leave for a collaborating brand located inside their own store, applies equally regardless of whether an employee is solicited by or independently approaches a competitor. In both instances, Saks invested in brand-specific employee training, see Compl. ¶¶ 32, 34, 156, that the no-hire agreement protects from the unique exposure of a store-within-a-store.
The United States also suggests that the restraint is not reasonably necessary because it applies to “any brand [or designer company] carried by Saks” rather than just brands that maintain concession stands. U.S. Br. 16, 19. But a restraint “need not satisfy a less-restrictive-means test,” Aya, 9 F.4th at 1111; regardless, Saks employees receive detailed training on all luxury brands sold in the stores, even those that do not maintain concession stands, see Compl. ¶ 34. The alleged no-hire agreement notably does not extend to the many luxury brands whose goods are not “carried by Saks,” id. ¶ 175, leaving Saks employees free to take their talents to those competing employers or to other retailers of luxury goods. And the United States’ suggestion that the duration of the agreement is too long, U.S. Br. 19, ignores that employees receive continuous training to remain “knowledgeable about the particular products [sold] . . . as well as current trends,” Compl. ¶ 34 (emphasis added). If employees could leave their employment with Saks and immediately join the competitor, then the alleged restraint would have no effect at all, and Saks would lose the incentive to invest in ongoing specialized training regarding competitor brands.
Nothing in the antitrust laws prohibits a district court from resolving ancillarity on the pleadings, and the court’s decision to do so here was procedurally proper and analytically sound. Determining whether a challenged restraint is “naked” or “ancillary” is a threshold inquiry for a Section 1 claim because “[t]his all-important classification largely determines the course of subsequent legal evaluation of [the] restraint.” Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, ¶ 1904 (5th ed., 2023 Cum. Supp.). Put another way, resolving ancillarity at the outset of the case dictates the mode of analysis employed by the court: naked restraints are subject to per se treatment, while ancillary restraints are analyzed under the rule of reason.
This does not mean that ancillarity must be resolved at the pleadings—depending on the circumstances, it may be resolved after the pleadings but before summary judgment, at summary judgment, or even at trial. See In re HIV Antitrust Litig., 2023 WL 3088218, at *23 (N.D. Cal. Feb. 17, 2023) (summary judgment); N. Jackson Pharmacy, Inc. v. Caremark RX, Inc., 385 F. Supp. 2d 740, 743 (N.D. Ill. 2005) (pre-summary judgment Rule 16 motion). Rather, ancillarity is a threshold issue that sets the stage for the analysis that follows, and deciding it at the pleadings stage permits defendants to defeat meritless claims before undergoing costly discovery.
The district court properly resolved the question on a motion to dismiss here because Plaintiffs’ own allegations made clear that the alleged no-hire agreements were ancillary. Plaintiffs and their amici make two arguments: first, that ancillarity cannot be resolved on the pleadings, and second, that the district court improperly resolved facts in Defendants’ favor. Neither argument persuades.
Courts analyzing Section 1 claims must first determine the proper framework to apply: the per se rule or the rule of reason (or, in some cases, an abbreviated “quick look” analysis). See Leegin, 551 U.S. at 886-87. To make that determination, “[a] court must distinguish between ‘naked’ restraints, those in which the restriction on competition is unaccompanied by new production or products, and ‘ancillary’ restraints, those that are part of a larger endeavor whose success they promote.” MLB, 542 F.3d at 339 (Sotomayor, J., concurring in the judgment) (quoting Polk Bros., 776 F.2d at 188). “This all-important classification largely determines the course of subsequent legal evaluation of any restraint.” Areeda & Hovenkamp, supra, ¶ 1904; see Thomas B. Nachbar, Less Restrictive Alternatives and the Ancillary Restraints Doctrine, 45 Seattle U. L. Rev. 587, 634 (2022) (“In order to do any real work, the ancillary restraints doctrine has to precede the rule of reason.”); Herbert Hovenkamp, The Rule of Reason, 70 Fla. L. Rev. 81, 140 (2018) (“The ancillary restraints doctrine is not a comprehensive method for applying the rule of reason, but rather an early stage decision about which mode of analysis should be applied.”). Thus, ancillarity is a gating inquiry. By determining at the outset of the case whether a challenged restraint is naked or ancillary, the court ensures it applies the proper analytical framework.
Because this determination guides how the parties conduct discovery and try the case, it is important to decide ancillarity at the earliest possible stage. This avoids “expensive pretrial discovery” on the wrong questions and issues. And it avoids discovery altogether in cases that do not state a claim and should never proceed past the pleadings. Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 803 (7th Cir. 2008) (noting importance of carefully evaluating antitrust claims at pleading stage “lest a defendant be forced to conduct expensive pretrial discovery in order to demonstrate the groundlessness of the plaintiff’s claim” (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558-59 (2007))).
Treating ancillarity as a gating inquiry also is consistent with the Supreme Court’s admonition that per se treatment must be confined to a narrow class of cases. As the Court has explained, “the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue and only if courts can predict with confidence that it would be invalidated” under the rule of reason. Leegin, 551 U.S. at 886-87; Dagher, 547 U.S. at 5 (“Per se liability is reserved for only those agreements that are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality.” (quotation marks omitted)). That predictive confidence must be rooted in the “demonstrable economic effect” of the restraint at issue, not a plaintiff’s suspicion that the restraint is harmful. Leegin, 551 U.S. at 887. This is a high bar. Only when a restraint is “so obviously lacking in any redeeming pro-competitive values” may courts apply the per se rule. Cap. Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 542 (2d Cir. 1993).
Because per se analysis is warranted only when justified by “demonstrable economic effect,” resolving the issue of ancillarity on the pleadings ensures that plaintiffs cannot invoke per se treatment on mere say-so. The ancillarity inquiry, by definition, considers the relationship of the challenged restraint to the parties’ business collaboration—that is, the inquiry explores the likely “economic effect” of the restraint within the context of commercial realities. That is precisely what the Supreme Court requires before expanding the per se rule into new frontiers. Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 19 n.33 (1979) (“[T]he per se rule is not employed until after considerable experience with the type of challenged restraint.”); Bogan, 166 F.3d at 514 (“The Supreme Court is slow to . . . extend per se analysis to restraints imposed in the context of business relationships where the economic impact of certain practices is not immediately obvious.” (quotation marks omitted)).
If ancillarity could be resolved only after the pleadings stage, as Plaintiffs and their amici urge, then a Section 1 plaintiff could survive dismissal simply by invoking the per se rule without regard for the restraint’s “economic effect” or the courts’ ability to “predict with confidence that [the restraint] would be invalidated.” Leegin, 551 U.S. at 886-87. A simple example underscores the absurdity of that rule: ever since they were recognized in Addyston Pipe as axiomatic ancillary restraints, no-hire provisions are commonly included in agreements for the sale of a business. The approach proposed would require litigation through discovery to decide if such a provision were ancillary.
Moreover, neither the federal courts nor the academy have amassed sufficient experience with this subject to allow default per se treatment. Indeed, the only study that attempted to analyze the relevant economic considerations in a systematic way concluded that eliminating no-hire provisions “causes minimal reductions in job concentration and no increase in wages.” Daniel S. Levy et al., No-Poaching Clauses, Job Concentration and Wages: A Natural Experiment Generated by a State Attorney General, Advanced Analytical Consulting Group, Inc., at 1 (Jan. 23, 2020). That inconclusive literature falls far short of justifying a rule that would effectively extend per se treatment to all no-hire agreements.
If anything, the economic incentives weigh strongly in favor of deciding ancillarity at the earliest possible stage allowed by the record. This is because a rule prohibiting courts from deciding ancillarity at the pleadings stage would be a free pass to discovery (and the “potentially enormous expense” associated with it), which would “push cost-conscious defendants to settle even anemic [Section 1] cases.” Twombly, 550 U.S. at 559. That pressure, in turn, would distort normal business incentives—faced with the prospect of huge discovery costs from meritless claims, rational businesses would understandably refrain from entering into legitimate, procompetitive collaborations. Plaintiffs and their amici offer no good reason for adopting a rule that would undercut the very efficiency-enhancing purposes antitrust law is meant to advance. See Morrison v. Murray Biscuit Co., 797 F.2d 1430, 1437 (7th Cir. 1986) (“The purpose of antitrust law, at least as articulated in the modern cases, is to protect the competitive process as a means of promoting economic efficiency.”); see also MLB, 542 F.3d at 339 (Sotomayor, J., concurring in the judgment) (restraints do not receive per se treatment when they have a “reasonable procompetitive justification, related to the efficiency-enhancing purposes of [a] joint venture”).
The United States asserts that ancillarity is only a “defense” to per se illegality, rather than a threshold inquiry to determine whether a case calls for departing from the rule of reason. U.S. Br. 12-13. None of the United States’ cases, however, limit the ancillarity restraints doctrine in this way. The lone Second Circuit case the United States cites was a criminal matter where the standard applied to motions to dismiss is far more lenient and deferential to the United States than that mandated for civil cases in Twombly. In such cases, courts treat the government’s characterization of conduct as within the four corners of a recognized per se theory as sufficient for indictment purposes. See United States v. Aiyer, 33 F.4th 97, 116 (2d Cir. 2022) (indictments need only “contain[] the elements of the offense charged” and enable defendant to enter plea). Moreover, in that case, the defendant had not even challenged on appeal the district court’s conclusion that the indictment at issue adequately alleged a per se antitrust violation. See id. at 116-23. The panel never characterized ancillarity as a “defense.” See id.
The same goes for Blackburn and Board of Regents. Although the courts in those cases ultimately concluded the restraints at issue were not ancillary, neither case held that ancillarity was only a defense. Blackburn v. Sweeney, 53 F.3d 825, 828-29 (7th Cir. 1995); Bd. of Regents of Univ. of Okla. v. NCAA, 707 F.2d 1147, 1153-56 (10th Cir. 1983). Freeman is similarly off base. While the court there offhandedly referred to the defendant’s overall argument against the antitrust claim as a “defense,” it did so after the ancillarity discussion. Freeman v. San Diego Ass’n of Realtors, 322 F.3d 1133, 1151-52 (9th Cir. 2003). The court did not use the term with specific reference to ancillarity, and in any event its use of “defense” was not meant in the same way that Plaintiffs and their amici use it—that is, as an issue that cannot be resolved at the outset of the case. AOB 39; U.S. Br. 12-13, 15. In short, none of the government’s cases hold that ancillarity is strictly a defense or is otherwise immune from resolution on the pleadings.
The Seventh Circuit’s recent decision in Deslandes doesn’t advance the government’s cause either. Although the court in Deslandes summarily stated that “the classification of a restraint as ancillary is a defense,” 81 F.4th at 705, plaintiffs can plead themselves out of court, Hadid v. City of New York, 730 F. App’x 68, 71 (2d Cir. 2018), which is what Plaintiffs have done here. Nor should it be followed: the Seventh Circuit cited no case law and offered no analysis to support its bald assertion. Deslandes, 81 F.4th at 705. And, as explained, any suggestion that ancillarity can be treated only as a defense would undo the clear demarcation between the rule of reason and per se treatment. If courts can’t evaluate ancillarity at the outset, restraints that should be presumptively analyzed under the rule of reason would instead be presumptively treated as per se illegal. That result is plainly inconsistent with the Supreme Court’s antitrust precedents.
In a related argument, Plaintiffs contend that ancillarity cannot be decided on the pleadings, but instead “requires discovery.” AOB 39. But that also is wrong. “In considering a motion to dismiss, the court is not required to don blinders and to ignore commercial reality.” Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1110 (7th Cir. 1984), abrogated on other grounds by Schmees v. HC1.COM, Inc., 77 F.4th 483 (7th Cir. 2023). Consistent with this principle, courts routinely resolve ancillarity on the pleadings where it is clear from the complaint that the restraint may be procompetitive. For example, in Helmerich & Payne International Drilling Co. v. Schlumberger Technology Corp., the court dismissed a restraint of trade claim at the pleading stage where “the pleadings in [the] case [made] clear” that the challenged non-solicitation provision was “ancillary” to “a larger business transaction between two independent parties.” 2017 WL 6597512, at *4 (N.D. Okla. Dec. 26, 2017). Similarly, the court in Gerlinger v. Amazon.Com, Inc. determined that a purported price-fixing arrangement between Borders and Amazon was “ancillary” to the companies’ broader website hosting agreement, in part because the “context in which the agreement was entered into” confirmed its procompetitive potential. 311 F. Supp. 2d 838, 848-49 (N.D. Cal. 2004). The court reached this conclusion on a motion for judgment on the pleadings. Id. Other courts have similarly decided ancillarity on the pleadings alone. See Kelsey K. v. NFL Enters. LLC, 2017 WL 3115169, at *4 (N.D. Cal. July 21, 2017) (motion to amend), aff’d, 757 F. App’x 524, 526 (9th Cir. 2018); Hanger v. Berkley Grp., Inc., 2015 WL 3439255, at *5 (W.D. Va. May 28, 2015) (motion to dismiss); Caudill v. Lancaster Bingo Co., 2005 WL 2738930, at *3-6 (S.D. Ohio Oct. 4, 2005) (motion for judgment on the pleadings). Contrary to Plaintiffs’ argument, the district court’s pleading-stage ancillarity ruling was entirely proper.
Ancillarity can support dismissal when it is “apparent from the allegations in the complaint,” as even the United States acknowledges. U.S. Br. 15. Here, the district court’s ancillarity ruling was amply supported by Plaintiffs’ own allegations. Plaintiffs allege that Saks and the Brand Defendants collaborate in the sale of luxury goods by partnering to sell the Brand Defendants’ goods both directly at Saks stores and through concessions within them. Compl. ¶¶ 21, 28; see supra, at 4-10. By cooperating in this way, Saks and the Brand Defendants can leverage each other’s employees and brands to create a distinct “shopping experience for customers”—that is, the “atmosphere of exclusivity and opulence surrounding . . . luxury products,” Compl. ¶ 33, needed to promote “demand for[] luxury goods over other, lower-priced goods,” id. ¶ 23. The upshot is a procompetitive collaboration that, in the words of Polk Bros., “promises greater productivity and output.” 776 F.2d at 189.
The district court also properly relied on the Complaint to conclude that “absent the no-hire agreement, there would be a continual risk that the Brand Defendants would use their concessions in Saks stores to recruit [Saks] employees.” Op. 32 (citing Compl. ¶¶ 56-57, 83). Minimizing the risk of such “free rid[ing]” is a common, efficiency-enhancing feature of ancillary restraints. Rothery Storage, 792 F.2d at 229 (restraints were ancillary where they “preserve[d] the efficiencies of the [collaboration] by eliminating the problem of the free ride”); Polk Bros., 776 F.2d at 190 (agreement was ancillary to a joint sales venture where it limited the potential that one retailer would free ride on the sales efforts of another). That includes procompetitive restraints on employee movement. Aya, 9 F.4th at 1110 (restraint was ancillary to business collaboration where it guarded against risk of one party “proactively raiding . . . employees” of another party).
Notably, the risk of free riding wasn’t hypothetical: as the district court pointed out, the Complaint specifically alleges that Plaintiff Giordano sought to leverage the experience she acquired while working at the Loro Piana boutique as a Saks employee to seek employment with Loro Piana. Op. 34 n.22. The district court also highlighted Plaintiffs’ allegations that without the no-hire agreements, Brand Defendants such as Louis Vuitton could “take advantage” of Saks’s hiring efforts by recruiting Saks employees away from Saks after that company had already invested time and money to recruit and train its personnel. Op. 32; Compl. ¶¶ 62-63; see Compl. ¶ 53 (alleging that “a Defendant would save on training costs and receive the immediate benefit of a well-trained, motivated salesperson” by hiring “from one of its rivals”). This poaching, according to Plaintiffs, would “inflict[] a cost on [Saks] by removing an employee on whom [Saks] may depend.” Compl. ¶ 62. Thus, Plaintiffs’ own allegations demonstrate the alleged no-hire agreement is ancillary. By addressing the free-rider problem, the agreement eliminates an externality “that may otherwise distort the incentives of [the Brand Defendants] and limit the potential efficiency gains of [the collaboration].” MLB, 542 F.3d at 340 (Sotomayor, J., concurring in the judgment). Nothing more was required to resolve ancillarity on the pleadings.
Plaintiffs and their amici argue the district court erred by drawing factual inferences in favor of Saks, rather than Plaintiffs. AOB 37-40; N.Y. Br. 26-27. According to Plaintiffs, ancillarity was a “contested factual issue” that could be resolved in Saks’s favor only by improperly rejecting Plaintiffs’ allegations. AOB 37-38. Plaintiffs’ argument is misplaced.
“Determining whether a complaint states a plausible claim for relief [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Jessani v. Monini N. Am., Inc., 744 F. App’x 18, 19 (2d Cir. 2018) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). As part of that exercise, courts consider “a host of considerations: the full factual picture presented by the complaint, the particular cause of action and its elements, and the existence of alternative explanations so obvious that they render plaintiff’s inferences unreasonable.” Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir. 2013); see Boca Raton Firefighters & Police Pension Fund v. Bahash, 506 F. App’x 32, 35 (2d Cir. 2012).
That is precisely what the district court did here. It considered the “full factual picture presented by the complaint”—including the nature of the Defendants’ business relationship and the role of the no-hire agreement in the context of that relationship—to conclude that the alleged no-hire agreement was ancillary to a procompetitive collaboration. Fink, 714 F.3d at 741 (emphasis added); Op. 28-34. And in doing so, the court properly demonstrated that Plaintiffs’ own allegations precluded per se treatment. See Weisbuch v. Cnty. of Los Angeles, 119 F.3d 778, 783 n.1 (9th Cir. 1997) (“Whether [a] case can be dismissed on the pleadings depends on what the pleadings say.”). Plaintiffs can’t avoid the consequences of their allegations by truncating the court’s properly holistic review of the pleadings—indeed, “[i]f the pleadings establish facts compelling a decision one way, that is as good as if depositions and other expensively obtained evidence on summary judgment establishes the identical facts.” Id.
The district court’s ancillarity ruling was sound.
For the foregoing reasons, this Court should affirm.
[1] All parties have consented to the filing of this brief. Pursuant to Federal Rule of Appellate Procedure 29(a)(4)(E), counsel for ICLE represents that no counsel for any of the parties authored any portion of this brief and that no entity, other than amici curiae or their counsel, monetarily contributed to the preparation or submission of this brief.
[2] The alleged no-hire agreements also do not fit the per se mold because they are part of a dual-distribution relation in which the Brand Defendants sell their products to end consumers through “their own standalone boutiques” as well as through distributors, “including Saks.” Compl. ¶ 21; see Beyer Farms, Inc. v. Elmhurst Dairy, Inc., 35 F. App’x 29, 29-30 (2d Cir. 2002) (holding that a restraint was “subject to scrutiny under the ‘rule of reason’” because the complaint alleged a “dual-distributorship relationship”); Elecs. Commc’ns Corp. v. Toshiba Am. Consumer Prods., Inc., 129 F.3d 240, 243 (2d Cir. 1997) (similar).
