Summary

“Promoting broadband deployment should be the overarching goal of everything the FCC does. To that extent, we applaud the Commission for finding time to include an eleven (11) – paragraph Notice of Inquiry about how promote broadband deployment in its new Broadband Progress Report. Yet this seems to be, quite literally, an afterthought — a small gesture towards removing actual barriers to broadband deployment after a significant expenditure of staff resources on crafting new regulations that either have nothing to do with broadband deployment or would probably discourage broadband deployment…”

The Wall Street Journal reported yesterday that the FTC Bureau of Competition staff report to the commissioners in the Google antitrust investigation recommended that the Commission approve an antitrust suit against the company.

While this is excellent fodder for a few hours of Twitter hysteria, it takes more than 140 characters to delve into the nuances of a 20-month federal investigation. And the bottom line is, frankly, pretty ho-hum.

As I said recently,

One of life’s unfortunate certainties, as predictable as death and taxes, is this: regulators regulate.

The Bureau of Competition staff is made up of professional lawyers — many of them litigators, whose existence is predicated on there being actual, you know, litigation. If you believe in human fallibility at all, you have to expect that, when they err, FTC staff errs on the side of too much, rather than too little, enforcement.

So is it shocking that the FTC staff might recommend that the Commission undertake what would undoubtedly have been one of the agency’s most significant antitrust cases? Hardly.

Nor is it surprising that the commissioners might not always agree with staff. In fact, staff recommendations are ignored all the time, for better or worse. Here are just a few examples: R.J Reynolds/Brown & Williamson merger, POM Wonderful , Home Shopping Network/QVC merger, cigarette advertising. No doubt there are many, many more.

Regardless, it also bears pointing out that the staff did not recommend the FTC bring suit on the central issue of search bias “because of the strong procompetitive justifications Google has set forth”:

Complainants allege that Google’s conduct is anticompetitive because if forecloses alternative search platforms that might operate to constrain Google’s dominance in search and search advertising. Although it is a close call, we do not recommend that the Commission issue a complaint against Google for this conduct.

But this caveat is enormous. To report this as the FTC staff recommending a case is seriously misleading. Here they are forbearing from bringing 99% of the case against Google, and recommending suit on the marginal 1% issues. It would be more accurate to say, “FTC staff recommends no case against Google, except on a couple of minor issues which will be immediately settled.”

And in fact it was on just these minor issues that Google agreed to voluntary commitments to curtail some conduct when the FTC announced it was not bringing suit against the company.

The Wall Street Journal quotes some other language from the staff report bolstering the conclusion that this is a complex market, the conduct at issue was ambiguous (at worst), and supporting the central recommendation not to sue:

We are faced with a set of facts that can most plausibly be accounted for by a narrative of mixed motives: one in which Google’s course of conduct was premised on its desire to innovate and to produce a high quality search product in the face of competition, blended with the desire to direct users to its own vertical offerings (instead of those of rivals) so as to increase its own revenues. Indeed, the evidence paints a complex portrait of a company working toward an overall goal of maintaining its market share by providing the best user experience, while simultaneously engaging in tactics that resulted in harm to many vertical competitors, and likely helped to entrench Google’s monopoly power over search and search advertising.

On a global level, the record will permit Google to show substantial innovation, intense competition from Microsoft and others, and speculative long-run harm.

This is exactly when you want antitrust enforcers to forbear. Predicting anticompetitive effects is difficult, and conduct that could be problematic is simultaneously potentially vigorous competition.

That the staff concluded that some of what Google was doing “harmed competitors” isn’t surprising — there were lots of competitors parading through the FTC on a daily basis claiming Google harmed them. But antitrust is about protecting consumers, not competitors. Far more important is the staff finding of “substantial innovation, intense competition from Microsoft and others, and speculative long-run harm.”

Indeed, the combination of “substantial innovation,” “intense competition from Microsoft and others,” and “Google’s strong procompetitive justifications” suggests a well-functioning market. It similarly suggests an antitrust case that the FTC would likely have lost. The FTC’s litigators should probably be grateful that the commissioners had the good sense to vote to close the investigation.

Meanwhile, the Wall Street Journal also reports that the FTC’s Bureau of Economics simultaneously recommended that the Commission not bring suit at all against Google. It is not uncommon for the lawyers and the economists at the Commission to disagree. And as a general (though not inviolable) rule, we should be happy when the Commissioners side with the economists.

While the press, professional Google critics, and the company’s competitors may want to make this sound like a big deal, the actual facts of the case and a pretty simple error-cost analysis suggests that not bringing a case was the correct course.

Filed under: antitrust, error costs, exclusionary conduct, exclusive dealing, federal trade commission, google, Internet search, law and economics, monopolization, settlements, technology Tagged: error costs, Federal Trade Commission, ftc, google

Excerpt

California’s leaders have worked long and hard to dispel the state’s image as an over-regulated maze for business. In 2012, those efforts culminated in a landmark law, signed by Democratic Gov. Jerry Brown, declaring that the state would not regulate the Internet, preserving the freewheeling innovation and vitality of one the state’s most critical economic drivers.

But now an unelected state official reviewing the Comcast-Time Warner Cable deal has called for sweeping new Internet regulations — under the guise of its review of the transaction — that would render that bipartisan law a dead letter.

If Internet access, speeds and prices can suddenly be mandated by the California Public Utilities Commission (CPUC) under this kind of flimsy pretense, the legislative policy of Internet freedom and deregulation online would no longer exist. Hopefully cooler heads will prevail as the full commission moves forward.

Overall, the CPUC’s proposed decision correctly recognized that the transaction should be approved. That was no great surprise, because Comcast and Time Warner Cable operate in separate markets, it was always clear that the competitive issues raised by this deal were limited and could be readily addressed.

But most of the conditions suggested in the proposed decision have nothing to do with addressing the sort of competitive concerns that the deal might raise. Instead they address broader policy issues that are the province of the Legislature, not an unelected state official supposedly reviewing a single business transaction.

Continue reading at Los Angeles Daily News

Excerpt

The line between a “principled change of views” and a “craven flip-flop” is a fine one. But if there were a land-speed record for changing one’s mind, Netflix would have just won it.

A mere four days into the new net neutrality world order it helped to usher in, Netflix was already expressing doubts about the regnant Title II canon. Twitter was agog much of Wednesday with reporters politely noting the absurdity. “Can’t believe that @netflix, the poster child for #Title II, is now saying it really didn’t mean it. WTF,” remarked one journalist.

It’s not an exaggeration to say that Netflix was one of the chief evangelists for an exhaustive net neutrality decree. One of the watershed moments in the debate leading up to the FCC’s vote last Thursday was Netflix’s fervent claim that the strongest possible rules were needed to prevent Internet providers from imposing “online tolls” or discriminating against the video giant’s traffic. With Google sitting out this round, net neutrality activists needed a corporate crusader. They found one in Netflix.
Of course, that inflammatory charge was never actually borne out by the facts. It turns out that Netflix (and its partner, Cogent) was slowing down its own traffic with spurious routing decisions, seemingly tailor-made to create the spectacle it needed to galvanize the faithful. The gambit worked. Disingenuous or not, there’s no disputing that it greatly influenced the outcome, ultimately leading to the passage of the most onerous form of net neutrality rules.

And this isn’t the only case where Netflix is sitting comfortably on both sides of the issue. The company recently announced a new initiative in Australia where one ISP will exempt Netflix traffic from its data limits. That practice — called “zero rating” — isn’t unusual, especially in the developing world, but it raises plenty of hackles among net neutrality disciples.

Continue reading on TheHill.com

Please join the LEC in person or online for a morning of lively discussion on this topic. FTC Commissioner Maureen K. Ohlhausen will set the stage by discussing her Antitrust Law Journal article, “Competition, Consumer Protection and The Right [Approach] To Privacy“. A panel discussion on big data and antitrust, which includes some of the leading thinkers on the subject, will follow.

Other featured speakers include:

Allen P. Grunes
Founder, The Konkurrenz Group and Data Competition Institute

Andres Lerner
Executive Vice President, Compass Lexecon

Darren S. Tucker
Partner, Morgan Lewis

Nathan Newman
Director, Economic and Technology Strategies LLC

Moderator: James C. Cooper
Director, Research and Policy, Law & Economics Center

A full agenda is available click here.

Filed under: announcements, antitrust, consumer protection, privacy, truth on the market Tagged: antitrust, big data, consumer protection, Federal Trade Commission, ftc, George Mason University School of Law, Law and Economics Center

Summary

In this proceeding, the Commission proposes to expand the definition of a multichannel video programming distributor (MVPD) to encompass “subscription linear” online video distributors (OVDs), defined as services that make “multiple streams of prescheduled video programming available for purchase” over the Internet. We believe this proposal is unwise as a policy matter and incorrect as a matter of statutory interpretation. Instead, we urge the Commission to affirm the Media Bureau’s Transmission Path Interpretation, which holds that an MVPD
must “own or operate the facilities for delivering content to consumers.” We contend that this is the only permissible construction of the term MVPD as used in the Communications Act.

Excerpt

The day after the FCC’s net neutrality vote, Washington was downright frigid. I’d spoken at three events about the ruling, mentioning at each that the order could be overturned in court. I was tired and ready to go home.

I could see my Uber at the corner when I felt a hand on my arm. The woman’s face was anxious. “I heard your talk,” she said.“If net neutrality is overturned, will I still be able to Skype with my son in Turkey?”

The question reveals the problem with the supposed four million comments submitted in support of net neutrality. *Almost no one really gets it. *Fewer still understand Title II, the regulatory tool the FCC just invoked to impose its conception of net neutrality on the Internet.

Some internet engineers and innovators do get it. Mark Cuban rightly calls the uncertainty created by Title II a “Whac-a-Mole environment,” driven by political whims. And telecom lawyers? They love it: whatever happens, the inevitable litigation will mean a decade’s worth of job security.

As I’ve said in technically detailed comments, academic coalition letters, papers, and even here at Wired, while “”net neutrality”” sounds like a good idea, it isn’t. And reclassifying the internet under Title II, an antiquated set of laws repurposed in the 1930s for Ma Bell, is the worst way to regulate dynamic digital services.

Continue reading on WIRED.com

Anybody who has spent much time with children knows how squishy a concept “unfairness” can be.  One can hear the exchange, “He’s not being fair!” “No, she’s not!,” only so many times before coming to understand that unfairness is largely in the eye of the beholder.

Perhaps it’s unfortunate, then, that Congress chose a century ago to cast the Federal Trade Commission’s authority in terms of preventing “unfair methods of competition.”  But that’s what it did, and the question now is whether there is some way to mitigate this “eye of the beholder” problem.

There is.

We know that any business practice that violates the substantive antitrust laws (the Sherman and Clayton Acts) is an unfair method of competition, so we can look to Sherman and Clayton Act precedents to assess the “unfairness” of business practices that those laws reach.  But what about the Commission’s so-called “standalone” UMC authority—its power to prevent business practices that seem to impact competition unfairly but are not technically violations of the substantive antitrust laws?

Almost two years ago, Commissioner Josh Wright recognized that if the FTC’s standalone UMC authority is to play a meaningful role in assuring market competition, the Commission should issue guidelines on what constitutes an unfair method of competition. He was right.  The Commission, you see, really has only four options with respect to standalone Section 5 claims:

1. It could bring standalone actions based on current commissioners’ considered judgments about what constitutes unfairness. Such an approach, though, is really inconsistent with the rule of law. Past commissioners, for example, have gone so far as to suggest that practices causing “resource depletion, energy waste, environmental contamination, worker alienation, [and] the psychological and social consequences of producer-stimulated demands” could be unfair methods of competition. Maybe our current commissioners wouldn’t cast so wide a net, but they’re not always going to be in power. A government of laws and not of men simply can’t mete out state power on the basis of whim.
2. It could bring standalone actions based on unfairness principles appearing in Section 5’s “common law.” The problem here is that there is no such common law. As Commissioner Wright has observed and I have previously explained, a common law doesn’t just happen. Development of a common law requires vigorously litigated disputes and reasoned, published opinions that resolve those disputes and serve as precedent. Section 5 “litigation,” such as it is, doesn’t involve any of that.
   • First, standalone Section 5 disputes tend not to be vigorously litigated. Because the FTC acts as both prosecutor and judge in such actions, their outcome is nearly a foregone conclusion. When FTC staff win before the administrative law judge, the ALJ’s decision is always affirmed by the full commission; when staff loses with the ALJ, the full Commission always reverses. Couple this stacked deck with the fact that unfairness exists in the eye of the beholder and will therefore change with the composition of the Commission, and we end up with a situation in which accused parties routinely settle. As Commissioner Wright observes, “parties will typically prefer to settle a Section 5 claim rather than go through lengthy and costly litigation in which they are both shooting at a moving target and have the chips stacked against them.”
   • The consent decrees that memorialize settlements, then, offer little prospective guidance. They usually don’t include any detailed explanation of why the practice at issue was an unfair method of competition. Even if they did, it wouldn’t matter much; the Commission doesn’t treat its own enforcement decisions as precedent. In light of the realities of Section 5 litigation, there really is no Section 5 common law.
3. It could refrain from bringing standalone Section 5 actions and pursue only business practices that violate the substantive antitrust laws. Substantive antitrust violations constitute unfair methods of competition, and the federal courts have established fairly workable principles for determining when business practices violate the Sherman and Clayton Acts. The FTC could therefore avoid the “eye of the beholder” problem by limiting its UMC authority to business conduct that violates the antitrust laws. Such an approach, though, would prevent the FTC from policing conduct that, while not technically an antitrust violation, is anticompetitive and injurious to consumers.
4. It could bring standalone Section 5 actions based on articulated guidelines establishing what constitutes an unfair method of competition. This is really the only way to use Section 5 to pursue business practices that are not otherwise antitrust violations, without offending the rule of law.

Now, if the FTC is to take this fourth approach—the only one that both allows for standalone Section 5 actions and honors rule of law commitments—it obviously has to settle on a set of guidelines.  Fortunately, it has almost done so!

Since Commissioner Wright called for Section 5 guidelines almost two years ago, much ink has been spilled outlining and critiquing proposed guidelines.  Commissioner Wright got the ball rolling by issuing his own proposal along with his call for the adoption of guidelines.  Commissioner Ohlhausen soon followed suit, proposing a slightly broader set of principles.  Numerous commentators then joined the conversation (a number doing so in a TOTM symposium), and each of the other commissioners has now stated her own views.

A good deal of consensus has emerged.  Each commissioner agrees that Section 5 should be used to prosecute only conduct that is actually anticompetitive (as defined by the federal courts).  There is also apparent consensus on the view that standalone Section 5 authority should not be used to challenge conduct governed by well-forged liability principles under the Sherman and Clayton Acts.  (For example, a practice routinely evaluated under Section 2 of the Sherman Act should not be pursued using standalone Section 5 authority.)  The commissioners, and the vast majority of commentators, also agree that there should be some efficiencies screen in prosecution decisions.  The remaining disagreement centers on the scope of the efficiencies screen—i.e., how much of an efficiency benefit must a business practice confer in order to be insulated from standalone Section 5 liability?

On that narrow issue—the only legitimate point of dispute remaining among the commissioners—three views have emerged:  Commissioner Wright would refrain from prosecuting if the conduct at issue creates any cognizable efficiencies; Commissioner Ohlhausen would do so as long as the efficiencies are not disproportionately outweighed by anticompetitive harms; Chairwoman Ramirez would engage in straightforward balancing (not a “disproportionality” inquiry) and would refrain from prosecution only where efficiencies outweigh anticompetitive harms.

That leaves three potential sets of guidelines.  In each, it would be necessary that a behavior subject to any standalone Section 5 action (1) create actual or likely anticompetitive harm, and (2) not be subject to well-forged case law under the traditional antitrust laws (so that pursuing the action might cause the distinction between lawful and unlawful commercial behavior to become blurred).  Each of the three sets of guidelines would also include an efficiencies screen—either (3a) the conduct lacks cognizable efficiencies, (3b) the harms created by the conduct are disproportionate to the conduct’s cognizable efficiencies, or (3c) the harms created by the conduct are not outweighed by cognizable efficiencies.

As Commissioner Wright has observed any one of these sets of guidelines would be superior to the status quo.  Accordingly, if the commissioners could agree on the acceptability of any of them, they could improve the state of U.S. competition law.

Recognizing as much, Commissioner Wright is wisely calling on the commissioners to vote on the acceptability of each set of guidelines.  If any set is deemed acceptable by a majority of commissioners, it should be promulgated as official FTC Guidance.  (Presumably, if more than one set commands majority support, the set that most restrains FTC enforcement authority would be the one promulgated as FTC Guidance.)

Of course, individual commissioners might just choose not to vote.  That would represent a sad abdication of authority.  Given that there isn’t (and under current practice, there can’t be) a common law of Section 5, failure to vote on a set of guidelines would effectively cast a vote for either option 1 stated above (ignore rule of law values) or option 3 (limit Section 5’s potential to enhance consumer welfare).  Let’s hope our commissioners don’t relegate us to those options.

The debate has occurred.  It’s time to vote.

Filed under: antitrust, consumer protection, federal trade commission, regulation, section 5, UMC symposium

Republican FCC Commissioners Ajit Pai and Mike O’Rielly spoke about their opposition to the Federal Communications Commission (FCC) rules on net neutrality. The FCC voted 3-2 the previous day to regulate the Internet as a public utility.