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As Democrats insist that income taxes on the 1% must go up in the name of fairness, one Democratic Senator wants to make sure that the 1% of heaviest Internet users pay the same price as the rest of us. It’s ironic how confused social justice gets when the Internet’s involved.

Read the full piece here.

“Real lawyers read the footnotes!”—thus did Harold Feld chastise Geoff and Berin in a recent blog post about our CNET piece on the Verizon/SpectrumCo transaction. We argued, as did Commissioner Pai in his concurrence, that the FCC provided no legal basis for its claims of authority to review the Commercial Agreements that accompanied Verizon’s purchase of spectrum licenses—and that these agreements for joint marketing, etc. were properly subject only to DOJ review (under antitrust).

Read the full piece here.

Yesterday was seemingly a good day for users of smartphones, tablets and other mobile devices. The Federal Communications Commission approved, with conditions, Verizon’s purchase of wireless spectrum from SpectrumCo, a consortium of cable companies. The more spectrum that’s put to use, the more we’ll ease the coming “spectrum crunch” as exploding data demands outstrip supply. This particular spectrum has sat unused for years, and the FCC’s approval of the deal (following on the Department of Justice’s approval last week) clears the way for some welcome relief.

The FCC’s decision seems measured, citing both benefits and risks of the deal to consumers and rejecting most of the claims of the deal’s staunchest critics. But this apparent reasonableness masks the true, arbitrary nature of FCC review: a costly, unsupervised game of “Mother, May I?”, requiring applicants to rearrange their businesses in ways the agency could neither require by regulation nor extract as concessions without exceeding the proper scope of its transaction review. Most troublingly, the FCC need not even make its extra-legal demands explicit. Because all future applicants know that the actual approval of this deal is far less significant to them than the process behind it, even yesterday’s good news comes with an asterisk.

It’s no secret that some at the agency — to say nothing of the self-proclaimed consumer advocates who aggrandize it –seek to manage the tech sector based largely on their unsubstantiated belief that “Big is Bad.” Yesterday’s order and the conditions imposed on the parties are animated by this assertion. But it’s by no means clear that consumers are well served by this approach; rather, this maligned concentration of spectrum has been accompanied by lower prices — along with enormous investment, expanded access and rapid innovation.

[From Gerald R. Faulhaber, et al., Assessing Competition in U.S. Wireless Markets: Review of the FCC’s Competition Reports (July 11, 2011), available at http://ssrn.com/abstract=1880964.]

Of course, sometimes big really is bad. The central challenge for policymakers is ensuring they don’t erroneously thwart beneficial deals and instead heed Nobel laureate Ronald Coase’s caution: “if [a regulator] finds something — a business practice of one sort or other — that he does not understand, he looks for a monopoly explanation.” That’s why, in theory, we limit agencies’ authority to review deals. But in practice, the FCC exceeds limits on its authority, applies a vague “public interest” standard with little analytical rigor, and avoids even that minimal rigor by pressuring companies into making “voluntary” concessions.

In this case, the FCC’s review of the commercial agreements accompanying the spectrum deal exceeded the limits of Section 310(d) of the Communications Act. As Commissioner Pai noted in his concurring statement, “Congress limited the scope of our review to the proposed transfer of spectrum licenses, not to other business agreements that may involve the same parties.” We (and others) raised this concern in public comments filed with the Commission. Here’s the agency’s own legal analysis — in full: “The Commission has authority to review the Commercial Agreements and to impose conditions to protect the public interest.” There’s not even an accompanying footnote.

Accepting the limits Congress has imposed on the FCC doesn’t require approving the Verizon/SpectrumCo deal — or any other. The DOJ is perfectly willing to use antitrust to block such deals, such as rejecting the AT&T/T-Mobile merger last year. Just last week, DOJ demanded concessions of the parties to this deal (although its analysis, too, was flawed). The key difference is that DOJ can block or condition approval of a deal only if it shows the deal would substantially harm consumer welfare. And DOJ bears the burden of showing this harm, measured against extensive case law and economic analysis. But parties before the FCC bear the burden of demonstrating that their transactions enhance competition and serve the “public interest.” That phrase “lacks any definite meaning,” as Ronald Coase noted more than 50 years ago. Little has changed.

The FCC falls prey all too easily to the problem Coase identified: overestimating the dangers of concentration and underestimating how much spectrum sales and other transactions can benefit consumers. Even the Obama DOJ has cautioned the FCC against “striving for broadband markets that look like textbook markets of perfect competition….” As industry evolves and competitors vie for scarce resources (especially in wireless broadband), they meet new competitive challenges with novel business arrangements and increased investment. Economies of scale may become more important, and concentration may increase, benefiting, rather than harming, consumers. But the FCC cries “Monopoly!” — without actually having to prove it.

Perhaps worse, having firms over a barrel, the FCC uses its leverage to regulate future conduct by extracting “voluntary” conditions in the name of the public interest –often conditions it couldn’t impose by regulation. That’s almost certainly what happened here with Verizon’s concession on data roaming. Verizon (but not its competitors) will be subject, for five years, to obligations the D.C. Circuit may soon rule the FCC has no authority to impose — much as Comcast “voluntarily” agreed to net neutrality conditions in its merger with NBC Universal even stricter than the regulations the D.C. Circuit seems likely to strike down for everyone else. This creates a patchwork of rules and obligations, coerced without sound economic justification, in a fashion largely unreviewable by courts, and in contravention of limits placed on the FCC’s authority by Congress and the courts.

This effectively grants the FCC unchecked power to stop transactions it doesn’t even have the authority to review, and to regulate companies in extra-legal ways it has no authority to.

Congress should rein in the FCC. The FCC Process Reform Act passed by the House in March (but now stalled in the Senate) is a good start, requiring that conditions be narrowly tailored to real harms the FCC actually has authority to regulate. But until Congress makes clear that the public interest standard is not a carte blanche and that the limits it explicitly imposed on the scope of the Commission’s reviewing authority are binding — or, even better, that the DOJ alone has the authority to analyze a transaction’s competitive effects — the FCC will continue playing games with our high-tech economy, even when it appears to be exercising restraint.

Cross-posted from CNET

https://www.youtube.com/watch?v=07RWvFoJJqI

Today at 11AM PT I will be participating on the live webcast “This Week in Law” along with TechFreedom Senior Adjunct Fellow Larry Downes. Denise Howell will be hosting and we will also be joined by fellow participant Evan Brown. This week we will be discussing various topics in tech policy including Senator Al Franken’s lambast of Facebook and Google, the newly opened antitrust investigation of Motorola Mobility by the European Commission, and the continued problem of spectrum crunch.

This Week in Law is recorded live every Friday at 11:00am PT/2:00pm ET and covers topics primarily in law, technology, and public policy. You do not have to register, just follow this link at 11:00am PT/2:00pm ET to watch.

Filed under: antitrust, general, net neutrality, politics, privacy

In yesterday’s Washington Post, Health and Human Services Secretary Kathleen Sebelius makes an impassioned plea for skeptics to reconsider the Affordable Care Act. Secretary Sebelius argues that the Act will bring down health care costs by, among other things, assisting those who cannot afford health insurance coverage. Although expanding health insurance coverage is a worthy goal, bringing more folks into the health care system could result in higher prices for health care services. The housing market provides a nice example: although subsidized mortgage rates allowed more people to own homes, more buyers eventually meant higher home prices.

Read the full piece here.

Herb Hovenkamp has posted his new casebook on Innovation and Competition Policy to SSRN, where one can download the chapters individually.  This is a very nice development for students; and the book seems perfectly fit for a course on Innovation and Competition Policy — for which it was designed — but also appropriate for a variety of similarly-themed seminar courses.

Professor Hovenkamp describes the aims of the book here:

This is not an “IP/antitrust” casebook.  There are already excellent books in that field.  Only about half of the principal cases printed in this book are antitrust decisions.  I use this book to present issues of innovation and competition policy to students in a broader context, examining not only antitrust but also the intellectual property laws and including shorter examination of several other topics, such as telecommunications, net neutrality, and competition issues raised by the DMCA.  Brief attention is also given to the industrial organization literature on innovation.

This casebook begins with a chapter on patent scope and its implications for innovation, with brief coverage of the Schumpeter-Arrow literature and the problem of sequential innovation.  Then it looks in some detail at the problem of complementary relationships, addressed in antitrust mainly through the law of tying arrangements.  After that is a chapter on remedies issues, followed by chapters on the patent system, copyright, practices that restrain innovation, and intellectual property misuse.  Another chapter covers exclusionary practices and another a wide variety of collaborative arrangements, including pooling, standard setting, blanket licenses, and the like.  The final chapter focuses on vertical restraints and the post-sale (exhaustion) doctrine.

I hope to keep this book up to date on a regular basis and welcome any suggestions for revision or inclusion.  My overall goal, however, is to hold the book somewhere in the range of its current length.

 

Filed under: antitrust

Economists have long warned against price regulation in the context of network industries, but until now our tools have been limited to complex theoretical models. Last week, the heavens sent down a natural experiment so powerful that the theoretical models are blushing: In response to a new regulation preventing banks from charging debit-card swipe fees to merchants, Bank of America announced that it would charge its customers $5 a month for debit card purchases. And Chase and Wells Fargo are testing $3 monthly debit-card fees in certain markets. In case you haven’t been following the action, the basic details are here. What in the world does this development have to do with an “open” Internet? A lot, actually.

Read the full piece here.

Milton Mueller responded to my post Wednesday on the DOJ’s decision to halt the AT&T/T-Mobile merger by asserting that there was no evidence the merger would lead to “anything innovative and progressive” and claiming “[t]he spectrum argument fell apart months ago, as factual inquiries revealed that AT&T had more spectrum than Verizon and the mistakenly posted lawyer’s letter revealed that it would be much less expensive to expand its capacity than to acquire T-Mobile.”  With respect to Milton, I think he’s been suckered by the “big is bad” crowd at Public Knowledge and Free Press.  But he’s hardly alone and these claims — claims that may well have under-girded the DOJ’s decision to step in to some extent — merit thorough refutation.

Read the full piece here.