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Showing 9 of 45 Publications in Duty to Deal & Essential Facilities
Amicus Brief In this amicus brief for the U.S. Court of Appeals for the D.C. Circuit, ICLE and a dozen scholars of law & economics address the broad consensus disfavoring how New York and other states seek to apply the “unilateral refusal to deal” doctrine in an antitrust case against Facebook.
Amici are leading scholars of economics, telecommunications, and/or antitrust. Their scholarship reflects years of experience and publications in these fields.
Amici’s expertise and academic perspectives will aid the Court in deciding whether to affirm in three respects. First, amici provide an explanation of key economic concepts underpinning how economists understand the welfare effects of a monopolist’s refusal to deal voluntarily with a competitor and why that supports affirmance here. Second, amici offer their perspective on the limited circumstances that might justify penalizing a monopolist’s unilateral refusal to deal—and why this case is not one of them. Third, amici explain why the District Court’s legal framework was correct and why a clear standard is necessary when analyzing alleged refusals to deal.
This brief addresses the broad consensus in the academic literature disfavoring a theory underlying plaintiff’s case—“unilateral refusal to deal” doctrine. The States allege that Facebook restricted access to an input (Facebook’s Platform) in order to prevent third parties from using that access to export Facebook data to competitors or compete directly with Facebook. But a unilateral refusal to deal involves more than an allegation that a monopolist refuses to enter into a business relationship with a rival.
Mainstream economists and competition law scholars are skeptical of imposing liability, even on a monopolist, based solely on its choice of business partners. The freedom of firms to choose their business partners is a fundamental tenet of the free market economy, and the mechanism by which markets produce the greatest welfare gains. Thus, cases compelling business dealings should be confined to particularly delineated circumstances.
In Part I below, amici describe why it is generally inefficient for courts to compel economic actors to deal with one another. Such “solutions” are generally unsound in theory and unworkable in practice, in that they ask judges to operate as regulators over the defendant’s business.
In Part II, amici explain why Aspen Skiing—the Supreme Court’s most prominent precedent permitting liability for a monopolist’s unilateral refusal to deal—went too far and should not be expanded as the States’ and some of their amici propose.
In Part III, amici explain that the District Court correctly held that the conduct at issue here does not constitute a refusal to deal under Aspen Skiing. A unilateral refusal to deal should trigger antitrust liability only where a monopolist turns down more profitable dealings with a competitor in an effort to drive that competitor’s exit or to disable its ability to compete, thereby allowing the monopolist to recoup its losses by increasing prices in the future. But the States’ allegations do not describe that scenario.
In Part IV, amici address that the District Court properly considered and dismissed the States’ “conditional dealing” argument. The States’ allegations are correctly addressed under the rubric of a refusal to deal—not exclusive dealing or otherwise. The States’ desire to mold their allegations into different legal theories highlights why courts should use a strict, clear standard to analyze refusals to deal.
Read the full brief here.
TOTM The leading contribution to sound competition policy made by former Assistant U.S. Attorney General Makan Delrahim was his enunciation of the “New Madison Approach” to . . .
The leading contribution to sound competition policy made by former Assistant U.S. Attorney General Makan Delrahim was his enunciation of the “New Madison Approach” to patent-antitrust enforcement—and, in particular, to the antitrust treatment of standard essential patent licensing (see, for example, here, here, and here). In short (citations omitted)…
Read the full piece here.
TOTM It is my endeavor to scrutinize the questionable assessment articulated against default settings in the U.S. Justice Department’s lawsuit against Google. Default, I will argue, . . .
It is my endeavor to scrutinize the questionable assessment articulated against default settings in the U.S. Justice Department’s lawsuit against Google. Default, I will argue, is no antitrust fault. Default in the Google case drastically differs from default referred to in the Microsoft case. In Part I, I argue the comparison is odious. Furthermore, in Part II, it will be argued that the implicit prohibition of default settings echoes, as per listings, the explicit prohibition of self-preferencing in search results. Both aspects – default’s implicit prohibition and self-preferencing’s explicit prohibition – are the two legs of a novel and integrated theory of sanctioning corporate favoritism. The coming to the fore of such theory goes against the very essence of the capitalist grain. In Part III, I note the attempt to instill some corporate selflessness is at odds with competition on the merits and the spirit of fundamental economic freedoms.
Scholarship In this chapter, we discuss the development of the duty to deal doctrine in antitrust law, its application to the digital economy, and proposals for specific duties to deal, such as data portability and interoperability.
In this chapter, we discuss the development of the duty to deal doctrine in antitrust law, its application to the digital economy, and proposals for specific duties to deal, such as data portability and interoperability.
Part I outlines the development of the duty to deal doctrine in antitrust law. The development of the doctrine in the United States will be compared to that in the European Union. Popular economic justifications for the doctrine and key cases will be explored. Part II then situates this doctrine within the digital economy, focusing on the importance of getting the contours of the doctrine right in that economy. As we shall see, the law and economics of the duty to deal caution against its application to dynamic, digital markets. This will be illustrated by looking at cases where it has been applied. Part III focuses on two specific categories of duties to deal: data portability and interoperability.
TL;DR U.S. Rep. Ken Buck (R-Colo.) has proposed what he calls a “Third Way” to improve competition in digital markets.
U.S. Rep. Ken Buck (R-Colo.) has proposed what he calls a “Third Way” to improve competition in digital markets. While Buck rejects many of the remedies proposed by the House Judiciary Committee’s Democrats, he generally accepts their premises about the state of the market. Ultimately, Buck’s “Third Way” is intended to highlight areas where he and the Democrats agree, while avoiding some of the specific regulations the Democrats have proposed.
Buck’s proposals would lead to a similar outcome to what the Democrats are proposing, even if he wants to avoid that. His most significant proposals—to apply the essential facilities doctrine to digital platforms, require them to be interoperable with other services, to ban self-preferencing by those platforms, and to ban below-cost selling—would constrain significantly the abilities of existing platforms to serve their customers and of would-be entrants to compete with incumbents. They also would most likely necessitate significant regulation, including price controls.
Read the full explainer here.
Written Testimonies & Filings On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law.
On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law. Mr. Manne contends that underlying much of the contemporary antitrust debate are two visions of how an economy should work.
One vision, which tends to favor more intervention and regulation than the status quo, sees the economy and society as being constructed from above by laws and courts. In this view, suspect business behavior must be justified to be permitted, and . . . the optimal composition of markets can be known and can be designed by well-intentioned judges and legislators. On the other hand, there is the view of individual and company behavior as emerging from each person’s actions within a framework of property rights and the rule of law. This view sees the economy as a messy discovery process, with business behavior often being experimental in nature. This second conception often sees government intervention as risky, because it assumes a level of knowledge about the dynamics of markets that is impossible to obtain.
One vision, which tends to favor more intervention and regulation than the status quo, sees the economy and society as being constructed from above by laws and courts. In this view, suspect business behavior must be justified to be permitted, and . . . the optimal composition of markets can be known and can be designed by well-intentioned judges and legislators.
On the other hand, there is the view of individual and company behavior as emerging from each person’s actions within a framework of property rights and the rule of law. This view sees the economy as a messy discovery process, with business behavior often being experimental in nature. This second conception often sees government intervention as risky, because it assumes a level of knowledge about the dynamics of markets that is impossible to obtain.
In Manne’s view,
Antitrust law and enforcement policy should, above all, continue to adhere to the error-cost framework, which informs antitrust decision-making by considering the relative costs of mistaken intervention compared with mistaken non-intervention. Specific cases should be addressed as they come, with an implicit understanding that, especially in digital markets, precious few generalizable presumptions can be inferred from the previous case. The overall stance should be one of restraint, reflecting the state of our knowledge. We may well be able to identify anticompetitive harm in certain cases, and when we do, we should enforce the current laws. But dramatic new statutes that undo decades of antitrust jurisprudence or reallocate burdens of proof with the stroke of a pen are unjustified.
Manne goes on to address several of the most important and common misperceptions that seem to be fueling the current drive for new and invigorated antitrust laws. These misperceptions are that:
See his full testimony, here.
Amicus Brief INTRODUCTION The district court’s decision is disconnected from the underlying economics of the case. It improperly applied antitrust doctrine to the facts, and the result . . .
The district court’s decision is disconnected from the underlying economics of the case. It improperly applied antitrust doctrine to the facts, and the result subverts the economic rationale guiding monopolization jurisprudence. The decision—if it stands—will undercut the competitive values antitrust law was designed to protect.
Antitrust law should seek to minimize error and decision costs to maximize consumer welfare and reduce the likelihood of self-defeating antitrust interventions. See Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1 (1984). The Supreme Court has thoroughly incorporated the economic logic of this “error cost” framework into its antitrust jurisprudence. See Ohio v. Am. Express Co., 138 S. Ct. 2274, 2287 (2018) (“Any other analysis would lead to ‘mistaken inferences’ of the kind that could ‘chill the very conduct the antitrust laws are designed to protect.’ ”) (quoting Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226 (1993)); see also Thomas A. Lambert & Alden F. Abbott, Recognizing the Limits of Antitrust: The Roberts Court Versus the Enforcement Agencies, 11 J. Competition L. & Econ. 791 (2015).
In contrast, this case is a prime—and potentially disastrous— example of how the unwarranted reliance on inadequate inferences of anticompetitive effect lead to judicial outcomes utterly at odds with Supreme Court precedent.
The district court’s decision confuses several interrelated theories of harm resting on the central premise that Qualcomm’s business model is purposefully structured to preserve its ability to license its standard essential patents (SEPs) to device makers (OEMs) at “unreasonably high royalty rates,” thus “impos[ing] an artificial surcharge on all sales of its rivals’ modem chips,” which “reduces rivals’ margins, and results in exclusivity.” FTC v. Qualcomm Inc., No. 17-CV-00220-LHK, 2019 WL 2206013, slip op. at 183 (N.D. Cal. May 21, 2019) (hereinafter slip op.).
But, without more, high royalty rates, artificial surcharges, the reduction of rivals’ margins, and even exclusivity do not violate the Sherman Act. Indeed, high prices are as likely the consequence of the lawful exercise of monopoly power or the procompetitive offering of higher quality products, and harm to competitors is a hallmark of vigorous competition. See, e.g., Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (“The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system.”). Avoiding the wrongful condemnation of such conduct is precisely the point of the Court’s error cost holdings.
The district court commits several key errors inconsistent with both Supreme Court precedent and its underlying economic framework.
First, the court failed to require proof of the anticompetitive harm allegedly caused by Qualcomm’s conduct. Instead, the court infers both its existence and its cause, see slip op. at 42–43, justifying its approach with reference to a single case: United States v. Microsoft, 253 F.3d 34, 79 (D.C. Cir. 2001) (“We may infer causation when exclusionary conduct is aimed at producers of nascent competitive technologies as well as when it is aimed at producers of established substitutes.”).
But the court misreads Microsoft and disregards contrary Supreme Court precedent. Indeed, both the Court and Microsoft made clear that a finding of illegal monopolization may not rest on an inference of anticompetitive harm.
In Brooke Group, the Court took the unusual step of reviewing an appellate decision for the sufficiency of evidence, prodded by the need to protect against the costs of erroneously condemning procompetitive conduct. See 509 U.S. at 230. It held that only evidence defendant’s conduct injured “competition, not competitors” supports a monopolization claim. Id. at 224 (citation omitted). And because harm to competitors doesn’t necessarily mean harm to competition, inferring anticompetitive harm from such evidence would not suffice: “mistaken inferences are especially costly, because they chill the very conduct the antitrust laws are designed to protect.” Id. at 226 (citation omitted).
In subsequent cases, the Court redoubled its commitment to minimizing error costs arising from erroneous inferences of anticompetitive effect. See Trinko, 540 U.S. at 414 (“The cost of false positives counsels against an undue expansion of § 2 liability.”) (citation omitted); Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438, 451 (2009).
As law and economics scholars, we are concerned that, because the district court’s decision rests on tenuous, unsupported inferences, “[i]f the district court’s holding is not repudiated on appeal, then the obvious consequence will be for companies to be deterred from much innocent and potentially procompetitive business conduct.” Douglas H. Ginsburg, Joshua D. Wright & Lindsey M. Edwards, Section 2 Mangled: FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing 2 (George Mason Univ. Law & Econ. Research Paper Series 19-21, Aug. 19, 2019), http://bit.ly/2z7aZzA.
This concern is not just academic. See FTC v. Qualcomm, No. 19- 16122, Order at 6 (9th Cir. Aug. 23, 2019) (recognizing the DOJ and Departments of Energy and Defense all classified this decision as a costly false positive).
Second, the court erred in finding Qualcomm had an antitrust duty to deal with rivals. The evidence adduced could sustain the district court’s ruling through only one theory: an illegal unilateral refusal to deal.2 See Aspen Skiing Co. v. Aspen Highland Skiing Corp., 472 U.S. 585 (1985)). But this narrow exception—“at or near the outer boundary of § 2 liability,” Trinko, 540 U.S. at 409—is subject to strict limitations.
Finding a duty to deal requires that the company gave up a profitable course of dealing with rivals and adopted a less profitable alternative. The evidence before the district court uniformly shows that Qualcomm’s challenged practices were more profitable, and thus insufficient to support an antitrust duty to deal.
Finally, because the court didn’t perform a competitive effects analysis, it failed to demonstrate the “substantial” foreclosure of competition required to sustain a claim of anticompetitive exclusion. To avoid the costs of mistaken condemnation, the Court placed tight guardrails around finding exclusionary conduct anticompetitive, requiring foreclosure of “a substantial share of the relevant market.” See Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 328 (1961). Without this finding, which also may not be inferred, a claim of anticompetitive foreclosure is unsupportable.
In sum, the district court’s approach extends antitrust law beyond the clear boundaries imposed by the Supreme Court and risks deterring significant pro-competitive conduct. If upheld, amici anticipate significant harm from the district court’s decision.
TOTM The following is adapted from a recent ICLE Issue Brief on the flawed essential facilities arguments undergirding the EU competition investigations into Amazon’s marketplace that Kristian Stout wrote with Geoffrey Manne.
Amazon has largely avoided the crosshairs of antitrust enforcers to date. The reasons seem obvious: in the US it handles a mere 5% of all retail sales (with lower shares worldwide), and it consistently provides access to a wide array of affordable goods. Yet, even with Amazon’s obvious lack of dominance in the general retail market, the EU and some of its member states are opening investigations.
ICLE Issue Brief Amazon has largely avoided the crosshairs of antitrust enforcers to date (leaving aside the embarrassing dangerous threats of arbitrary enforcement by some US presidential candidates). The reasons seem obvious: in the US it handles a mere 5% of all retail sales (with lower shares in the EU), and it consistently provides access to a wide array of affordable goods.
Amazon has largely avoided the crosshairs of antitrust enforcers to date (leaving aside the embarrassing dangerous threats of arbitrary enforcement by some US presidential candidates). The reasons seem obvious: in the US it handles a mere 5% of all retail sales (with lower shares in the EU), and it consistently provides access to a wide array of affordable goods. Yet even with Amazon’s obvious lack of dominance in the general retail market, the EU and some of its member states are opening investigations.
This isn’t new: the EU and its member states have pursued many competition claims against the big tech platforms. In the last two years alone, the EU imposed over $9B USD in fines on Google for “harms” that were highly speculative and hard to square with concern for consumers.
The theories of harm in the pending investigations of Amazon demonstrate some of the same confused antitrust theories that cropped up in the EU Google Shopping case. Platforms like Amazon and Google are criticized for allegedly discriminating against certain platform users who are also competitors or potential competitors of one or more of the platform’s services (or, in some cases, the platform itself).
Commissioner Margarethe Vestager’s probe into Amazon came to light in September, and centers on whether Amazon is illegally using its dominant position vis-á-vis third party merchants on its platforms in order to obtain data that it then uses either to promote its own direct sales, or else to develop competing products under its private label brands. More recently, Austria and Germany have launched separate investigations of Amazon rooted in much the same concerns as those of the European Commission.
The Austrian investigation will examine “whether Amazon abused its dominant position against retailers, that are active on the Amazon market place.” According to Andreas Mundt, president of the German competition authority, “Amazon functions as a kind of ‘gatekeeper’ [for sellers’ access] to customers. Its double role as the largest retailer and largest marketplace has the potential to hinder other sellers on its platform.” The German investigation also focuses on whether the terms of the contractual relationships that third-party sellers enter into with Amazon are unfair because these sellers are “dependent” on it.
Claims of competitive harm arising from this so-called vertical discrimination or bias are light on both theory and empirics. One of the fundamental, erroneous assumptions upon which they are built is the alleged “essentiality” of the underlying platform or input. But these cases are more often based on stories of firms that, unfortunately, chose to build their businesses to rely on a specific platform. In other words, their own decisions — from which they substantially benefited — made their investments highly “asset specific” and thus vulnerable to otherwise avoidable risks. When a platform on which these businesses rely makes a disruptive move, the third parties cry foul, even though the platform was not — nor should have been — under any obligation to preserve the status quo on behalf of third parties.
This issue brief explores the flaws in designating Amazon as something like an “essential facility,” as well as the attendant errors of treating the distribution mechanism of Internet-based commerce as though it were a market definition, and the problems with failing to learn the innovation-damaging effects of the Microsoft case.
Click here to read the full issue brief.
