Showing 9 of 30 Publications by Richard Epstein

Comments of Scholars of Law, Economics, and Business on Draft SEP Policy Statement

Regulatory Comments Comments of Scholars of Law, Economics, and Business Draft USPTO, NIST, & DOJ Policy Statement on Licensing Negotiations and Remedies for Standard-Essential Patents Subject to . . .

Comments of Scholars of Law, Economics, and Business

Draft USPTO, NIST, & DOJ Policy Statement on Licensing Negotiations and Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments

Docket ATR-2021-0001

Submitted Feb. 4, 2022

We are scholars of law, economics, and business who work in areas related to intellectual property, antitrust, strategy, and innovation. We write to express our concerns with the December 6, 2021, U.S. Patent & Trademark Office (USPTO), National Institute of Standards and Technology (NIST), and U.S. Department of Justice, Antitrust Division (DOJ) draft statement on remedies for the infringement of standard-essential patents (SEPs) (“Draft Policy Statement”).[1] This statement would effectively repudiate guidance published by these same agencies in 2019.[2]

While the Draft Policy Statement may seem even-handed at first sight, its implementation would have far-reaching consequences that would significantly tilt the balance of power in SEP-reliant industries, in favor of implementers and to the detriment of inventors. In turn, this imbalance is liable to harm consumers through reduced innovation, resulting from higher contract-enforcement costs and lower returns to groundbreaking innovations. And by making it harder for U.S. tech firms to enforce their intellectual property (IP) rights against foreign companies, the Draft Policy Statement threatens to erode America’s tech-sector leadership.

Read the full comments here.

[1] U.S. Patent & Trademark Office, the National Institute of Standards and Technology, and the U.S. Department of Justice, Antitrust Division, Draft Policy Statement on Licensing Negotiations and Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments (Dec. 6, 2021), available at https://www.justice.gov/atr/page/file/1453471/download [hereinafter “Draft Policy Statement”].

[2] U.S. Patent & Trademark Office, the National Institute of Standards and Technology, and the U.S. Department of Justice, Antitrust Division, Policy Statement on Licensing Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments (Dec. 19, 2019), available at https://www.uspto.gov/sites/default/files/documents/SEP%20policy%20statement%20signed.pdf.

Continue reading
Antitrust & Consumer Protection

Comment of Legal Academics, Economists, and Former Government Officials on Draft Policy Statement on the Licensing and Remedies for Standard Essential Patents

Regulatory Comments Abstract This comment by 27 law professors, economists and former government officials was submitted to the Department of Justice in response to a call for . . .

Abstract

This comment by 27 law professors, economists and former government officials was submitted to the Department of Justice in response to a call for comments on a draft policy statement on standard essential patents (SEPs). Although the draft policy statement is right to seek a “balanced, fact-based analysis [that] will facilitate and help to preserve competition and incentives for innovation and continued participation in voluntary, consensus-based standard-setting activity,” the comment identifies how its proposals fail to accomplish this goal. First, the draft policy statement fails to account for the extensive scholarly research and rigorous empirical studies identifying numerous substantive and methodological flaws in the “patent holdup” theory, including its failed predictions of high prices, less innovation, and less market competition; instead, a growing mobile communications marketplace has existed for several decades. Second, the draft policy statement micro-manages the negotiation and litigation process for SEPs, which would make injunctions and exclusion orders at the International Trade Commission a de facto nullity for SEPs. This special rule effectively prohibiting injunctions contradicts repeated court decisions in both the U.S. and Europe concerning the general availability of all patent remedies for SEPs. Ultimately, the draft policy statement incentivizes strategic holdout by implementers and de facto prohibits injunctive relief for ongoing infringement of an SEP by an unwilling licensee. This would harm U.S. innovators facing increasing economic and strategic competition from China. It also threatens U.S. economic leadership and its national security, which contradicts the expressly stated goal of President Joseph Biden’s Executive Order, the progenitor of this draft policy statement, of “preserving America’s role as the world’s leading economy.” Thus, the 27 legal academics, economists, and former government officials urge the agencies to reconsider its draft policy statement on SEPs. The comment includes an Appendix of the literature on the licensing and enforcement of SEPs.

Continue reading
Antitrust & Consumer Protection

ICLE Amicus Brief in Sanofi-Aventis U.S. v. Mylan Inc.

Amicus Brief A brief of amici curiae from the International Center for Law & Economics and other notable law & economics scholars in the 10th Circuit case of Sanofi v Mylan.

INTRODUCTION

Sanofi is seeking to overturn the district court’s grant of summary judgment in favor of Mylan, which held that Mylan’s EpiPen rebate agreements (loyalty discounts) did not foreclose Sanofi from competing in the market for epinephrine auto-injectors. As this brief argues, finding in favor of Sanofi would mark a misguided departure from the error-cost framework that has been the linchpin of modern antitrust enforcement. Loyalty discounts – and the lower prices they bring – routinely benefit consumers. The Court accordingly should not endorse a dubious theory of harm that does not adequately distinguish between procompetitive and anticompetitive behavior, as doing so would chill firms’ incentives to compete on price.

Anticompetitive (that is, consumer-harming) strategies capable of foreclosing even efficient competitors are difficult – often impossible – to distinguish from vigorous competition (which benefits consumers). Courts are compelled to rely on a limited set of observable parameters to infer whether a firm’s behavior falls under one or the other category. This process entails significant pitfalls. See Geoffrey A. Manne & Joshua D. Wright, If Search Neutrality Is the Answer, What’s the Question?, 2012 Colum. Bus. L. Rev. 151, 184-85 (“The key challenge facing any proposed analytical framework for evaluating monopolization claims is distinguishing pro-competitive from anticompetitive conduct. Antitrust errors are inevitable because much of what is potentially actionable conduct under the antitrust laws frequently actually benefits consumers, and generalist judges are called upon to identify anticompetitive conduct with imperfect information.”).

When it comes to allegedly anticompetitive lowering of prices – predation, discounts, and rebates – low prices themselves are the posited mechanism for anticompetitive foreclosure and thus a key component of the liability regimes pertaining to pricing practices. Yet low prices are also precisely the consumer benefit that antitrust law ordinarily seeks to preserve, especially when these low prices are sustained in the long run. In almost every circumstance, rebates and discounts represent welfare-enhancing price competition; nevertheless, economic theory teaches that strategic pricing can be anticompetitive. As Judge Easterbrook described, “[l]ow prices and large plants may be competitive and beneficial, or they may be exclusionary and harmful. We need a way to distinguish competition from exclusion without penalizing competition.” Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1, 26 (1984). In short, false positives in these settings may be especially costly because they penalize consumer-benefiting low prices.

The challenge for courts is distinguishing between robust competition and anticompetitive conduct when a primary indicator of both – low prices – is the same. Although the dividing line will always be imperfect such that it is not always clear when anticompetitive conduct is occurring, the academic literature and the courts have established guiding rules and standards designed to minimize error, maximize ease of administration, and protect consumer welfare. Sanofi’s approach, by contrast, would increase the risks of wrongly imposing antitrust liability and, in turn, harming consumers, while being more difficult to administer.

Read the full amicus brief here.

Continue reading
Antitrust & Consumer Protection

Joint Submission of Antitrust Economists, Legal Scholars, and Practitioners to the House Judiciary Committee on the State of Antitrust Law and Implications for Protecting Competition in Digital Markets

Written Testimonies & Filings Pursuant to the House Judiciary Committee’s request for information to aid its inquiry concerning the state of existing antitrust laws, Antitrust Economists, Legal Scholars, and Practitioners offer the following joint submission.

Pursuant to the Committee’s request for information to aid its inquiry concerning the state of existing antitrust laws, we offer the following joint submission: 

We are economists, legal scholars, and practitioners—focused on antitrust law, economics, and policy—who believe in maintaining healthy markets and well-functioning antitrust institutions. We value the important role of antitrust as the “Magna Carta of free enterprise,” which sets the rules that govern how firms compete against one another in our modern economy. Many of us have served in antitrust enforcement agencies. Each of us believes it is vital that the antitrust laws promote competitive markets, innovation, and productivity by deterring anticompetitive conduct throughout our economy, including in digital markets. 

We write because the modern antitrust debate has become characterized by sustained attacks on the integrity of antitrust institutions and by unsubstantiated dismissals of debate. This atmosphere has led to a variety of proposals for radical changes to the antitrust laws and their enforcement that we believe are unsupported by the evidence, counterproductive to promoting competition and consumer welfare, and offered with an unwarranted degree of certainty. 

Vigorous debate and disagreement have long been a hallmark of antitrust scholarship and policy. Competition policy has been formed through an iterative process echoed in the courts’evolving doctrine over more than a century. Today, however, efforts to sidestep the discussion, or to declare it over, and to force hasty and far-reaching changes have come to the fore. These proposals are numerous and include: (1) abandoning the consumer welfare standard; (2) overturning unanimous and supermajority judicial precedents, which are foundational to modern antitrust law; (3) imposing obsolete and arbitrary market share tests to determine the legality of mergers; (4) shifting the burden of proof from plaintiffs to defendants to render large swaths of business behavior presumptively unlawful; (5) creating another federal regulator to oversee competition in digital markets; (6) breaking up major tech companies or their products without evidence of antitrust harm or that the remedy would make consumers better off; and (7) imposing a general prohibition on all mergers either involving specific firms or during the current health crisis.

Such proposals would abandon the legal and political traditions that helped transform antitrust from an unprincipled and incoherent body of law, marred by internal contradictions, into a workable system that contributes positively to American competitiveness and consumer welfare. It should be noted that we use the term “consumer welfare” throughout this letter, consistent with modern parlance about competition policy, to include the benefits of competition to the welfare of workers and other input suppliers, as well as consumers. Thus, the consumer welfare standard is not a narrowly circumscribed objective, but rather a prescription for the general social wellbeing generated by the competitive process. By contrast, many of the current proposals would (1) undermine the rule of law; (2) undo the healthy evolution of antitrust law in the courts over time; (3) require antitrust agencies to micromanage the economy by picking winners and losers; (4) abandon a focus on consumer welfare in favor of vague and politically-oriented goals; and (5) undermine successful American businesses and their competitiveness in the global economy at the worst-imaginable time. 

The assertions about the state of antitrust law and policy that purportedly justify these radical changes are not supported by the evidence. A more accurate reading of the evidence supports the following view of the American economy and the role of antitrust law:

  1. The American economy—including the digital sector—is competitive, innovative, and serves consumers well. Debate about whether the antitrust laws should be fundamentally re-written originated from a concern that markets have recently become more concentrated and that competition had decreased as a result. The popular narrative, that increases in concentration have caused harm to competition throughout the economy, does not withstand close scrutiny. In reality, most markets in the American economy—including digital markets—are competitive, and thriving, and create huge benefits for consumers.
  2. Structural changes in the economy have resulted from increased competition. The economic data show that intense competition, winner-take-all rivalry, and the adoption of new successful technologies in relevant antitrust markets were major economic forces that led to structural changes (i.e., increased national-level concentration) in the economy. The existence of these structural changes does not itself support changes in the law.
  3. Lax antitrust enforcement has not allowed systematic increases in market power. There is little evidence to support the view that anemic antitrust enforcement has led to a systematic rise in market power in the American economy. The evidence is especially weak as it relates to digital markets.
  4. Existing antitrust law is adequate for protecting competition in the modern economy. Antitrust law has developed incrementally through the common law approach. A strength of antitrust law is that it can incorporate learning about new business practices and economics to protect competition in an evolving economy. The existing antitrust laws and enforcement framework, when correctly applied, are more than adequate to deter anticompetitive conduct today, including in new and growing digital markets.
  5. History teaches that discarding the modern approach to antitrust would harm consumers. Many of the radical reforms being proposed today seek to return antitrust to what it was in the 1960s. But antitrust during that time was based primarily on per se rules that prohibited economic analysis and fact-based defenses. This created a body of law, fundamentally marred by internal contradiction, that frequently protected individual competitors over consumers and did not focus on the central goal of protecting competition. Congress has considered and rejected radical proposals to overhaul antitrust in the past and should do so again.
  6. Common sense reforms should be pursued to improve antitrust enforcement. A positive agenda for antitrust reform would pursue common-sense initiatives that build upon prior learning while incorporating advances in industrial organization economics, empirical research, and analytical techniques. These proposals should focus antitrust enforcement on areas that will have the biggest return for consumers and input suppliers, support balanced retrospectives of agency decisions to identify gaps in enforcement, and address any institutional impediments to effective enforcement.

We believe open discussion of existing evidence is necessary to advance contemporary debates about the performance of antitrust institutions in the digital economy. We welcome that discussion. We discuss below various dimensions of antitrust law, economics, and institutions that have been the targets of radical reform proposals. The signatories to this letter hold a steadfast belief that antitrust institutions, including the courts, are up to the task of protecting competition, and that the federal antitrust laws as written are effective in accomplishing that goal. While many signatories have offered diverse proposals to improve the functioning of those institutions—a few of which we share in this letter—we hold the common view that the proposed radical reforms would make consumers worse off in the short run and over the long haul by chilling efficient behavior and stymieing innovation.

Read the full submission here. 

Continue reading
Antitrust & Consumer Protection

BRIEF OF RICHARD A. EPSTEIN, KEITH N. HYLTON, THOMAS A. LAMBERT, GEOFFREY A. MANNE, HAL SINGER, AND WASHINGTON LEGAL FOUNDATION, IN SUPPORT OF Petitioner in 1-800 CONTACTS, Inc. v. Federal Trade Commission

Amicus Brief Introduction and Summary of Argument Building and maintaining a successful brand is no small task. First you must spot a widespread need or desire that . . .

Introduction and Summary of Argument

Building and maintaining a successful brand is no small task. First you must spot a widespread need or desire that no one else can see—or can even feel yet. “People don’t know what they want until you show it to them,” Steve Jobs said. An entrepreneur must aim, therefore, “to read things that are not yet on the page.” Walter Isaacson, Steve Jobs 567 (2011). This, believe it or not, is sometimes the easy part.

Next, you must get people to notice you and your great idea. You must raise your voice above the modern din. This usually requires advertisements. Lots of advertisements. “Half the money I spend on advertising is wasted,” nineteenth-century retailer John Wanamaker is supposed to have said; “the trouble is I don’t know which half.”

Finally, you must maintain your momentum. During a train ride, a friend asked William Wrigley why he spent so much advertising his chewing gum when he already dominated the market. “How fast do you think this train is going?” Wrigley replied. “About ninety miles an hour,” answered the friend. “Well,” said Wrigley, “do you suggest we unhitch the engine?” David Ogilvy, Ogilvy on Advertising 171-72 (1985).

All this assumes, of course, that after you have innovated, invested, and risked all to climb to the top, the antitrust laws will not thwart your efforts to recoup a reward commensurate to your sacrifices. To read the Sherman Act as “making everyone fight but forbidding anyone to be victorious” would, observed Justice Holmes, turn it into an “imbecile statute.” Ron Collins, Ask the Author: “The Great Oracle of American Legal Thought”—Revisiting the Life and Times of Justice Holmes, SCOTUSblog, http://bit.ly/2Phv3qh (Mar. 28, 2019).

With pluck, daring, and dedication, 1-800 Contacts built the online contact lens market. People had assumed that contact lenses were available only at an optometrist’s office or a brick-and-mortar store. Spending many millions of dollars on advertising, 1-800 raised awareness that contact lenses could be bought—and bought cheaply—on the web. And 1-800 did not stop there. Thanks in no small part to its continuing to advertise widely to this day, the online lens market remains a thriving one.

Many copycat firms wisely followed 1-800 into the online contact lens market. Unfortunately, however, some of these firms sought not just to share in the successful market 1-800 created, but also to directly piggyback on 1-800’s advertising. Instead of following 1-800’s lead by doing the hard and expensive work of advertising broadly—on television, in print, on the radio, and so on—these firms just bought the advertising space at the top of internet search results for terms like “1-800 Contacts.” Rather than attract new customers of their own, in other words, the firms just tried to divert 1-800’s.

1-800 sued (or threatened to sue) each of the free-riding firms for trademark infringement, and each lawsuit settled. As part of the settlements, the parties agreed not to buy advertisements keyed to navigational searches of brand names like “1-800 Contacts.” Generic search terms like “cheap contact lenses” remained fair game for all, as did advertising in all other forms of media.

The Federal Trade Commission examined whether the settlements are an antitrust violation under the Sherman Act (as applied through the FTC Act). Assuming the settlements are even a proper subject of antitrust scrutiny 1-800 argues they are not—the FTC needed at the outset to decide the standard under which to perform its review. It could choose to conduct either (a) a “quick look” analysis of the settlements’ effect on competition, or (b) a more complete “rule of reason” analysis of it. The FTC erred, we contend in this brief, in electing to take only a “quick look” before condemning the settlements:

A. The quick-look standard governs only when the conduct at issue is obviously anticompetitive. The Supreme Court has accordingly applied the quick-look standard only to agreements that explicitly suppress competition. The settlements here, which leave almost the entire universe of contact-lens advertising intact, do nothing like that. What is more, the Supreme Court has declined to apply the quick-look standard to conduct accompanied by suspicious elements, such as a de facto advertising ban or a payment to delay entry into a market, that do not exist here.

B. Even without the Supreme Court’s guidance, the need for a rule-of-reason analysis would still be clear. The FTC cited no case or research that finds behavior analogous to the settlements an unreasonable restraint of trade. This is hardly surprising given that, as the FTC itself acknowledged, search-engine keyword advertising is “relatively new.” The lack of consensus about the settlements’ effect on competition should have driven the FTC toward the rule-of-reason standard.

Not only do the settlements serve no anticompetitive ends; they serve procompetitive ones. As 1-800 and Commissioner Phillips, writing in dissent below, explain, the settlements save litigation costs and protect trademark rights.

We home in on one vital benefit of trademark protection: the suppression of advertisement free riding. 1-800’s advertising attracted customers both to purchase contact lenses online and to purchase them from 1-800 specifically. The settlements did nothing to stop the general shoppers from finding the cheapest online contact lenses, but they did stop firms from diverting customers searching for 1-800. The settlements thus helped ensure that when 1-800’s broad (and expensive) advertising attracted new customers specifically to 1-800, competitors could not poach those customers on the cheap. By foreclosing a form of advertisement free riding, the settlements preserved the incentives that lead firms to invest in advertising in the first place. And because they therefore may have promoted, rather than suppressed, advertising, the settlements should not have been declared “obviously” anticompetitive and then subjected to a mere quick look.

C. The FTC claimed that, although it need not have done so, it ultimately conducted a rule-of-reason analysis. But the FTC never defined a market. And although it looked at prices, output, and quality, its analysis was abbreviated and defective. It plainly both adopted and applied the quick-look standard. This was error.

Read the full brief here.

Continue reading
Antitrust & Consumer Protection

BRIEF OF RICHARD A. EPSTEIN & GEOFFREY A. MANNE, IN SUPPORT OF Defendant in Pulse Network, LLC v. Visa Incorporated

Amicus Brief To establish antitrust standing, Pulse must show not only “injury causally linked to an illegal presence in the market” but also antitrust injury “attributable to an anti-competitive aspect of the practice under scrutiny.”

Summary

To establish antitrust standing, Pulse must show not only “injury causally linked to an illegal presence in the market” but also antitrust injury “attributable to an anti-competitive aspect of the practice under scrutiny.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488-89 (1977)). Put differently, Pulse must prove the existence of an injury “of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Id. (quoting Brunswick Corp., 429 U.S. at 489). As the district court rightly decided, Pulse has failed to meet its burden.

Antitrust law does not punish firms for succeeding even if they become dominant. Congress enacted the Sherman Act for “the protection of competition, not competitors.” Id. at 338 (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). Yet Pulse’s injury flows from increased competition due to Visa’s innovation in the debit- network industry. Pulse freely admits that it lacks the “scale and market relevance” needed to compete with Visa’s challenged business strategies. (Appellant’s Br. 34) That Pulse’s PIN product has (so far, anyway) failed to gain traction in the marketplace, however, is not proof of antitrust injury. On the contrary, mere injury to a competitor, rather than to competition, is not an injury “of the type the antitrust laws were intended to prevent.” Phototron Corp. v. Eastman Kodak Co., 842 F.2d 95, 99 (5th Cir. 1988) (quoting Brunswick Corp., 429 U.S. at 489).

What’s more, Pulse has sued Visa for conduct that Pulse admits lowered merchants’ per-transaction fees, contending that those lower fees caused Pulse to obtain fewer transactions and generate less revenue. Pulse complains that it cannot “undercut” Visa’s new pricing structure. (Appellant’s Br. 40) But non-predatory price competition is no basis for antitrust injury. “When a firm … lowers prices but maintains them above predatory levels, the business lost by rivals cannot be viewed as an ‘anticompetitive’ consequence of the claimed violation.” Atl. Richfield, 495 U.S. at 337. So even if it harms Pulse, Visa’s charging low, but not below-cost, per-transaction fees to win market share is not harm to competition. Instead, both Visa’s conduct and its effects are “fully consistent with competition on the merits.” Taylor Publ’g Co. v. Jostens, Inc., 216 F.3d 465, 477 (5th Cir. 2000).

True, when assessing standing, this Court will assume that an antitrust violation exists. Doctor’s Hosp. of Jefferson, Inc. v. Se. Med. All., Inc., 123 F.3d 301, 306 (5th Cir. 1997). But that is not enough. “[P]roof of a[n antitrust] violation and of antitrust injury are distinct matters that must be shown independently.” Atl. Richfield, 495 U.S. at 344 (quoting Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 334.2c, at 330 (1989 Supp.)). Unable to show how Visa’s conduct harmed competition in any way, Pulse seeks to wag the dog of antitrust injury with the tail of an assumed violation. But a competitor has standing only if it proves that its “loss stems from a competition- reducing aspect or effect of the defendant’s behavior.” Atl. Richfield, 495 U.S. at 344. Pulse has proven nothing of the sort.

Antitrust is about unleashing the forces of competition, not throttling them. Accepting Pulse’s watered-down approach to antitrust injury, however, would have just the opposite effect. It would invite struggling firms to use antitrust law as a sword rather than a shield. It would deter innovation in highly competitive markets. And it would permit competitors to seek treble damages for pro-competitive harms that antitrust law does not reach. Rather than ensure vigorous competition, reversing the judgment below would harm competition and consumers alike.

Click here to read the full brief.

Continue reading
Antitrust & Consumer Protection

ICLE Letter to Senate Judiciary re T-Mobile-Sprint Merger

Written Testimonies & Filings We are a group of eight scholars of antitrust law and economics affiliated with the International Center for Law & Economics, a nonprofit, nonpartisan policy research center based in Portland, OR. Without taking a position on the merits of the proposed T-Mobile/Sprint merger, this letter provides a brief explication of our views on some of the important economic issues involved in the transaction’s antitrust review.

Summary

Dear Senators Grassley, Feinstein, Lee, and Klobuchar,

We are a group of eight scholars of antitrust law and economics affiliated with the International Center for Law & Economics, a nonprofit, nonpartisan policy research center based in Portland, OR. Without taking a position on the merits of the proposed T-Mobile/Sprint merger, this letter provides a brief explication of our views on some of the important economic issues involved in the transaction’s antitrust review.

At the highest level, and as discussed in more detail below, we believe that an appropriate concern for consumer welfare in the regulatory review of the transaction demands that the Federal Communications Commission (“FCC”) and the Department of Justice (“DOJ”) account for the dynamic, fast-moving nature of competition in the markets affected by the merger. Above all, this means that the agencies should shun the mechanical application of obsolete market-share and concentration presumptions that could wrongly condemn the merger.

Modern antitrust principles, sound economics, and the public interest dictate that an analysis of the proposed merger incorporate these foundational precepts:

  1. The resolute avoidance of a presumption of illegality based upon purely static market shares and measures of industry concentration;
  2. The rigorous consideration of the effect of the merger on the dynamic competition that has long characterized the telecommunications industry; and
  3. The careful assessment of the long-term benefits of the deal to consumers and the economy as a whole.

These principles are particularly appropriate here given the clear importance to the parties’ decision to merge of their interest in launching a competitive, national 5G network. If successful, the deal could create a combined T-Mobile and Sprint that is a stronger competitor to AT&T and Verizon, which, in turn, could spur increased investment competition in the market. Realizing those objectives — which could result in enormous benefit to consumers and enhance competition in the wireless communications and broadband markets — will take time, and the process will entail business model disruption, corporate reorganization, experimentation, and significant investment.

It is crucial to ensuring that the claimed consumer benefits of this process can be realized that the proposed merger not be thwarted by regulators inappropriately focused on short-term, static effects.

Continue reading
Antitrust & Consumer Protection

Amicus Brief, Ohio v. American Express

Amicus Brief Summary While the three-step burden-shifting framework for evaluating antitrust cases under the rule of reason is conceptually well-accepted and understood, case law remains unclear regarding . . .

Summary

While the three-step burden-shifting framework for evaluating antitrust cases under the rule of reason is conceptually well-accepted and understood, case law remains unclear regarding what suffices to satisfy each party’s burden at each of the three stages. This case offers the Court an opportunity both to clarify what constitutes harm to competition and to explain the nature of the shifting burdens in rule of reason analysis.

In their merits briefing, rather than offer tools for providing structure to the rule of reason, Petitioners urge the Court to adopt an amorphous standard that would permit plaintiffs to satisfy their burden without evidence of durable market power— and even without direct proof of anticompetitive effects as the term is traditionally and properly understood in Section 1 jurisprudence. Acquiescing to Petitioners’ vague conception of a plaintiff’s prima facie burden would untether antitrust law from rigorous economic analysis and harm consumers by increasing significantly the risk of error in lower courts. This would leave litigants with little to no certainty regarding what evidence they should introduce, let alone what evidence a court would find persuasive in any given case, and no clarity as to what businesses can and cannot do.

Without an approach to establishing plaintiff’s burden disciplined by economic analysis and proof, the balance of false positive (Type I) and false negative (Type II) errors—which is critical to proper adjudication of the antitrust laws—would be thrown off keel. The fundamental goal of antitrust law is to foster consumer welfare by enhancing or increasing output in a relevant market. Output is the touchstone of antitrust analysis because a dominant firm’s ability to constrain market-wide output is what allows it to anticompetitively raise prices and harm consumers. Petitioners’ approach, however, would flip this analysis on its head and allow price effects to dictate results, thereby permitting courts to ignore output effects—the sine qua non of antitrust analysis—in ascertaining whether a plaintiff satisfied its prima facie burden.

Such a result is contrary to this Court’s precedent and particularly problematic here. This Court has recognized that vertical restraints might “[increase prices] in the course of promoting procompetitive effects.” Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 895-96 (2007) (citing Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 728 (1988)). And modern economics provides no basis for assuming that a demonstration of price effects on only one side of a two-sided market accurately represents the market-wide effects of a course of conduct. Rather, economics predicts that market-wide welfare might increase, decrease, or remain neutral given price effects on a single side. Only an analysis of the market as a whole can illuminate the true competitive implications.

This brief explains amici’s understanding of the relevant economic analysis. It explains why basic economic principles underlying the analysis of multi-sided markets lead to the conclusion that a plaintiff should be required to demonstrate, at a minimum, that: (1) the allegedly unlawful restraint caused anticompetitive effects in the form of actual or probable restricted output market-wide—a showing that logically requires analyzing both sides of a two-sided market; and (2) the defendant had sufficient market power to restrict output in a properly defined market. These two requirements align with sound economics and would also provide clear guidance for courts in applying the rule of reason.

Continue reading
Antitrust & Consumer Protection

Amicus Brief, ICLE & Scholars, Expressions Hair Design v. Schneiderman, SCOTUS

Amicus Brief Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels.

Summary

Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels. Under this view, because the only difference between discounts and surcharges is how they are framed, it must be this framing that leads to the difference in consumers’ responses. To explain why Petitioners believe this is true—and, thus, to maintain their claim that New York’s surcharge prohibition is an impermissible restriction on speech—Petitioners and their amici rely on the behavioral economic concepts of “framing” and “loss aversion.” They claim that the State impermissibly wishes to prohibit surcharging because these cognitive biases render surcharge labels more effective than discount labels in altering consumers’ preferred form of payment.

Petitioners’ premises are wrong. There is no sound evidence that the asserted behavioral theories are at work here, or that credit-card surcharging— much less the mere label used to describe the practice—more greatly affects consumers’ chosen method of payment than cash discounting. In fact, some of the studies on which Petitioners and their amici rely suggest the opposite. The Court should not rely, in the absence of sound supporting evidence, on a malleable theory that can be used to support contradictory positions.

Moreover, surcharges and discounts differ in material ways beyond the words used to describe them. Surcharging—but not discounting—enables merchants to engage in certain pricing and sales practices that explain both consumers’ different responses to them, as well as the State’s interest in regulating them differently. And while petitioners lack empirical support for the behavioral claims at the heart of their First Amendment argument, the evidence from countries that permit surcharging reveals that merchants often use surcharges to engage in these types of pricing practices. This Court should thus reject Petitioners’ invitation to base constitutional doctrine on a behavioral hypothesis unsupported by any sound empirical evidence—especially where, as here, that result could potentially expose consumers to the type of conduct that the State’s law seeks to prevent.

Continue reading
Financial Regulation & Corporate Governance