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Amicus Brief In this brief for the 9th U.S. Circuit Court of Appeals, ICLE and 26 distinguished scholars of law & economics argue that the district court in a suit brought by Epic Games rightly found that Apple’s procompetitive justifications outweigh any purported anticompetitive effects in the market for mobile-gaming transactions.
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 & economics methodologies to inform public policy debates and has longstanding expertise in the evaluation of antitrust law and policy.
Amici also include 26 scholars of antitrust, law, and economics at leading universities and research institutions around the world. Their names, titles, and academic affiliations are listed in Addendum A. All have longstanding expertise in, and copious research on, antitrust law and economics.
Amici have an interest in ensuring that antitrust promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis. Amici believe that Epic’s arguments deviate from that standard and promote the private interests of slighted competitors at the expense of the public welfare.
Epic challenges Apple’s prohibition of third-party app stores and in-app payments (“IAP”) systems from operating on its proprietary, iOS platform as a violation of the antitrust laws. But, as the district court concluded, Epic’s real concern is its own business interests in the face of Apple’s business model—in particular, the commission charged for the use of Apple’s IAP system. See Order at 1-ER22, Epic Games, Inc. v. Apple Inc., No. 4:20-CV-05640 (N.D. Cal. Sept. 10, 2021), ECF No. 812 (1-ER3–183). In essence, Epic is trying to recast its objection to Apple’s 30% commission for use of Apple’s optional IAP system as a harm to consumers and competition more broadly.
Epic takes issue with the district court’s proper consideration of Apple’s procompetitive justifications and its finding that those justifications outweigh any anticompetitive effects of Apple’s business model. But Epic’s case fails at step one of the rule of reason analysis. Indeed, Epic did not demonstrate that Apple’s app distribution and IAP practices caused the significant market-wide effects that the Supreme Court in Ohio v. Am. Express Co. (“Amex”) deemed necessary to show anticompetitive harm in cases involving two-sided transaction markets. 138 S. Ct. 2274, 2285–86 (2018). While the district court found that Epic demonstrated some anticompetitive effects, Epic’s arguments below focused only on the effects that Apple’s conduct had on certain app developers and failed to appropriately examine whether consumers were harmed overall. This is fatal. Without further evidence of the effect of Apple’s app distribution and IAP practices on consumers, no conclusions can be reached about the competitive effects of Apple’s conduct.
Nor can an appropriate examination of anticompetitive effects ignore output. It is critical to consider whether the challenged app distribution and IAP practices reduce output of market-wide app transactions. Yet Epic did not seriously challenge that output increased by every measure, and Epic’s Amici ignore output altogether.
Moreover, the district court examined the one-sided anticompetitive harms presented by Epic, but rightly found that Apple’s procompetitive justifications outweigh any purported anticompetitive effects in the market for mobile gaming transactions. The court recognized that the development and maintenance of a closed iOS system and Apple’s control over IAP confers enormous benefits on users and app developers.
Finally, Epic’s reliance on the theoretical existence of less restrictive alternatives (“LRA”) to Apple’s business model is misplaced. Forcing Apple to adopt the “open” platform that Epic champions would reduce interbrand competition, and improperly permit antitrust plaintiffs to commandeer the judiciary to modify routine business conduct any time a plaintiff’s attorney or district court can imagine a less restrictive version of a challenged practice, irrespective of whether the practice promotes consumer welfare. See NCAA v. Alston, 141 S. Ct. 2141, 2161 (2021) (“[C]ourts should not second-guess ‘degrees of reasonable necessity’ so that ‘the lawfulness of conduct turn[s] upon judgments of degrees of e?ciency.’”). Particularly in the context of two-sided platform businesses, such an approach would sacrifice interbrand, systems-level competition for the sake of a superficial increase in competition among a small subset of platform users.
Read the full brief here.
TOTM Every voluntary transaction between a buyer and seller involves the creation of surplus—the difference between the subjective value a buyer attaches to the thing and . . .
Every voluntary transaction between a buyer and seller involves the creation of surplus—the difference between the subjective value a buyer attaches to the thing and the seller’s cost of producing and selling the item. Price and other contract terms determine how that surplus is split between the buyer and seller.
Read the full piece here.
TOTM The International Center for Law & Economics (ICLE) filed an amicus brief on behalf of itself and 26 distinguished law & economics scholars with the 9th U.S. Circuit . . .
The International Center for Law & Economics (ICLE) filed an amicus brief on behalf of itself and 26 distinguished law & economics scholars with the 9th U.S. Circuit Court of Appeals in the hotly anticipated and intensely important Epic Games v Apple case.
Scholarship Abstract Legal rights impose concomitant legal burdens. This paper considers the valuation and disposition of legal rights, and legal burdens, when courts cannot be relied . . .
Legal rights impose concomitant legal burdens. This paper considers the valuation and disposition of legal rights, and legal burdens, when courts cannot be relied upon to perfectly enforce rights. Because courts do not perfectly enforce rights, victims suffer some loss in the value of their rights depending on the degree of underenforcement. The welfare implications of trading away and abandoning rights are examined. Victims do not necessarily trade away rights when and only when such trade is socially desirable. Relatively pessimistic victims (who believe their rights are weaker than injurers do) trade away rights too cheaply. Extremely pessimistic victims abandon their rights. Implications for the enforceability of waivers, discrimination in courts, and legal ethics are discussed.
Presentations & Interviews ICLE Director of Law & Economics Programs Gus Hurwitz joined the Cardinal Institute’s podcast Forgotten America to discuss the logistical, political, and philosophical questions surrounding . . .
ICLE Director of Law & Economics Programs Gus Hurwitz joined the Cardinal Institute’s podcast Forgotten America to discuss the logistical, political, and philosophical questions surrounding broadband in rural America. The full episode can be found here.
TOTM The Biden administration finally has taken a public position on parallel House (H.R. 3816) and Senate (S. 2992) bills that would impose new welfare-reducing regulatory . . .
The Biden administration finally has taken a public position on parallel House (H.R. 3816) and Senate (S. 2992) bills that would impose new welfare-reducing regulatory constraints on the ability of large digital platforms to engage in innovative business practices that benefit consumers and the economy.
Scholarship Abstract Medical devices are increasingly connected, both to cyber networks and to sensors collecting data from physical stimuli. These cyber-physical systems pose a new host . . .
Medical devices are increasingly connected, both to cyber networks and to sensors collecting data from physical stimuli. These cyber-physical systems pose a new host of deadly security risks that traditional notions of cybersecurity struggle to take into account. Previously, we could predict how algorithms would function as they drew on defined inputs. But cyber-physical systems draw on unbounded inputs from the real world. Moreover, with wide networks of cyber-physical medical devices, a single cybersecurity breach could pose lethal dangers to masses of patients.
The U.S. Food and Drug Administration (FDA) is tasked with regulating medical devices to ensure safety and effectiveness, but its regulatory approach—designed decades ago to regulate traditional medical hardware—is ill-suited to the unique problems of cybersecurity. Because perfect cybersecurity is impossible and every cybersecurity improvement entails costs to affordability and health, designers need standards that balance costs and benefits to inform the optimal level of risk. FDA, however, conducts limited cost-benefit analyses, believing that its authorizing statute forbids consideration of economic costs.
We draw on statutory text and case law to show that this belief is mistaken and that FDA can and should conduct cost-benefit analyses to ensure safety and effectiveness, especially in the context of cybersecurity. We describe three approaches FDA could take to implement this analysis as a practical matter. Of these three, we recommend an approach modeled after the Federal Trade Commission’s cost-benefit test. Regardless of the specific approach FDA chooses, however, the critical point is that the agency must weigh costs and benefits to ensure the right level of cybersecurity. Until then, medical device designers will face continued uncertainty as cybersecurity threats become increasingly dangerous.
Written Testimonies & Filings DOT should be focusing its efforts on bringing the automotive industry’s new cellular vehicle-to-everything (“C-V2X”) technology to vehicles. Instead, we are concerned that DOT will attempt to use a study that is both procedurally and technically flawed to pressure the FCC to roll back its bipartisan decision on the 5.9 GHz band.
Dear Members of Congress,
Following years of careful study, in 2020 the FCC took bipartisan action to allow both unlicensed broadband and automotive use of the 5.9 GHz band, clearing the way for billions of dollars in economic value and innovation.
The Department of Transportation’s (“DOT”) recently announced study appears to be designed to undermine the FCC’s decision, spurred by interests’ intent on re-asserting a claim that the automotive industry should control the entire band. DOT is conducting this action without seeking public comment and appears to be relying on improper technical assumptions and methodologies.
Accordingly, the undersigned organizations urge you to stop this misguided effort. DOT should be focusing its efforts on bringing the automotive industry’s new cellular vehicle-to-everything (“C-V2X”) technology to vehicles. Instead, we are concerned that DOT will attempt to use a study that is both procedurally and technically flawed to pressure the FCC to roll back its bipartisan decision on the 5.9 GHz band. This would be another instance of government agency dysfunction run amok.
Congress designated the FCC as the nation’s arbiter of commercial spectrum. The FCC’s 5.9 GHz decision is based on sound science and engineering and will best serve both the broadband and automotive safety needs of the country. The FCC’s approach:
The FCC undertook a lengthy, full, and fair public rulemaking that expressly considered the views of all stakeholders, from consumer advocates and technology companies to the DOT, state transportation agencies and vehicle manufacturers. The result was a bipartisan and unanimous decision that adopted careful technical rules to protect neighboring automotive services.
The FCC’s decision is also critical for American jobs, as unlicensed technologies add hundreds of billions of dollars to the U.S. economy every year and economists calculate that enabling access to part of the 5.9 GHz band will add more than $28 billion by 2025. In fact, this spectrum has been used for the past two years to provide consumers with additional bandwidth to meet increased demand during the pandemic.
C-V2X advocates repeatedly told the FCC that 30 megahertz of spectrum would be sufficient for C-V2X to deliver time-critical safety messages and applications. Rather than relitigate the FCC’s bipartisan decision on a spectrum matter that is squarely in its jurisdiction, DOT should focus on helping the automotive industry deliver on those vehicle-safety promises.
Spectrum is a finite asset, and after a twenty-year grant of exclusive use of the band, the FCC was right to not allow these critical mid-band frequencies to lay fallow any longer. Given the importance of the 5.9 GHz band to the country, the federal government must speak with a unified voice on spectrum. Congress should direct the DOT to drop this post-Order testing immediately.
Respectfully submitted,
American Library Association Benton Institute for Broadband & Society Center for Rural Strategies Council for Citizens Against Government Waste Digital Progress Institute International Center for Law & Economics Next Century Cities Open Technology Institute at New America Public Knowledge R Street Institute Wireless Internet Service Providers Association (WISPA)
Presentations & Interviews ICLE Executive Director Ian Adams joined the Regulatory Transparency Project’s Fourth Branch Podcast to discuss proposed rules that would require mandatory switching on U.S. railroads. . . .
ICLE Executive Director Ian Adams joined the Regulatory Transparency Project’s Fourth Branch Podcast to discuss proposed rules that would require mandatory switching on U.S. railroads. The full episode is embedded below.
