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PORTLAND, Ore. (Jan. 12, 2023) – A new amicus brief filed with the 7th U.S. Circuit Court of Appeals by the International Center for Law & Economics (ICLE) and 20 distinguished scholars of law & economics highlights the importance of market definition in labor markets, as well as the proper antitrust approach to franchise-agreement terms.

The case in question, Deslandes & Turner v. McDonald’s USA LLC, involved certain “no-poach” agreements between McDonald’s and its individual franchisees that were in effect prior to 2017. The plaintiffs argued that these agreements amounted to horizontal restraints that harmed competition and workers across the nation in what was, in essence, a McDonald’s-specific labor market.

The amici disputed that the plaintiffs’ had defined a relevant market. They note that McDonald’s franchises in one state do not typically compete with franchises in other states for the same workers, but they do compete for labor in local markets with other fast-food restaurants, as well as with hundreds of other employers who seek low-wage labor. There is therefore no evidence that McDonald’s wields market power in the relevant labor markets.

“Plaintiffs’ proposed market is both implausible and economically unsound,” the signatories write. “Antitrust markets typically have two dimensions: (1) a geographic market and (2) a product or services market. Plaintiffs’ single-brand, nationwide market fails along both dimensions.”

To argue that the no-poach clause constituted a horizontal restraint, the plaintiffs note that McDonald’s has a few corporate-owned restaurants that are horizontal competitors with independently owned franchisees. But as the brief points out, in 20 states and in many local markets, there are no corporate-owned restaurants at all, undermining the argument that there could be a horizontal restraint at the national level.

They argue instead that the agreements are vertical restraints that should be subject to case-by-case, rule-of-reason analysis. While some no-poach agreements may indeed be suspect, the kinds of intrabrand restraints McDonald’s employed do not obviously harm competition.

“McDonald’s vigorously competes with numerous firms in both labor markets and the output market,” the amici write. “Its competitive efforts have included various intrabrand restraints among its franchisees that foster a strong, consistent brand identity, along with shared marketing and product development. That successful brand identity is what attracts individual franchisees to open and operate McDonald’s restaurants.”

Signatories to the brief included ICLE President Geoffrey A. Manne, Director of Competition Policy Dirk Auer, Director of Law & Economics Programs Gus Hurwitz, Senior Scholar Daniel Gilman, Academic Advisor Richard A. Epstein, and Academic Affiliates Jonathan M. Barnett, Luke Froeb, Stan Liebowitz, Scott Masten, Alan Meese, Paul Rubin and Michael Sykuta.

Other signatories included James C. Cooper, Tad Lipsky, and John Yun of George Mason University’s Scalia School of Law; former Federal Communications Commission member Harold Furchtgott-Roth; Janice Hauge of the University of North Texas; Daniel A. Lyons of Boston College Law School; Gregory J. Werden, formerly of the U.S. Justice Department’s Antitrust Division; and Nobel laureate Vernon L. Smith of Chapman University.

The full brief can be downloaded here. To schedule an interview about the brief with ICLE scholars, contact Elizabeth Lincicome at [email protected].

Law360 – ICLE President Geoffrey A. Manne was quoted by Law360 in a story about a 7th U.S. Circuit Court of Appeals case focusing on a challenge to no-poach agreements in place between McDonald’s and McDonald’s franchisees. You can read full piece here.

The International Center for Law & Economics and a group of scholars filed a brief on Tuesday criticizing the workers’ market definition and also the legal standard that the suit contends applies to the no poach provisions.

While the workers say the no poach terms should be considered automatically illegal under antitrust laws, the amicus brief argues a full rule-of-reason analysis is needed to balance potential harms against potential benefits. This is because the restrictions were vertical, or between companies at different points in the supply chain rather than between direct competitors, the brief says, and because they’re ancillary to the broader franchise agreements.

Geoffrey A. Manne, president and founder of the ICLE, told Law360 in an email Wednesday that with competition concerns in labor markets growing in significance, the case is particularly important for its application of antitrust law to franchise agreements. He said that vertical restraints like those at issue here are generally evaluated through a rule-of-reason analysis because they often foster competition between brands.

“While plaintiffs seek a departure from the rule of reason here, economic research confirms that vertical restraints — including franchisor/franchisee restraints — tend to be procompetitive,” Manne said.

CTFN – ICLE Director of Competition Policy Dirk Auer was quoted by CTFN in a story about the European Union’s Digital Markets Act. Read the full piece here.

“The DMA is framed in a structured way where you get gatekeepers and core platform services, and then people who want to plug into that core platform service,” said Dirk Auer, director of competition at the International Center for Law & Economics.

“The difficulty here is that it’s not that people are asking to interoperate with Microsoft as a third party. It’s that a newly acquired Activision Blizzard may no longer be on another platform, and I’m not sure the DMA has much to say about that.

“The DMA is trying to open up access to more core platform services, not make sure that gatekeepers are offering their ecosystem services on another platform,” Auer said.

Auer also said it was unclear whether Xbox would be considered a core platform service, the term used for the eight sectors the DMA will cover. Core platform services include online intermediation services, operating systems and cloud services.

PORTLAND, Ore. (Jan. 5, 2023) – New rules proposed by the Federal Trade Commission (FTC) to ban workplace noncompete agreements both exceed the commission’s rulemaking authority and threaten to erase the benefits that such agreements may provide to workers and firms alike, according to scholars with the International Center for Law & Economics (ICLE).

In many cases, noncompete agreements can help employers to capture the benefits of investments they make in employee training and trade secrets, upon which rivals could otherwise free ride by bidding away fully trained employees, according to ICLE Senior Scholar and former FTC Attorney Advisor Daniel Gilman, who added that even the FTC’s own Bureau of Economics staff have observed the benefits that such agreements can provide.

“Ultimately, these agreements offer both costs and benefits that each party must carefully weigh,” said ICLE Chief Economist Brian Albrecht. “This doesn’t mean that there’s never a reason for antitrust authorities to examine potentially abusive or anticompetitive noncompete clauses, but such examples should be assessed on a case-by-case basis, rather than through brightline rules.”

ICLE Director of Law & Economics Programs Gus Hurwitz also pointed to the dissenting statement from FTC Commissioner Christine S. Wilson, which raised questions about the commission’s authority to engage in “unfair methods of competition” rulemaking, as well as whether the rule violates the “major questions doctrine” addressed by the U.S. Supreme Court in their 2022 West Virginia v. EPA decision.

“Without any explicit guidance from Congress, the FTC in this rule proposes to rewrite millions of employment contracts and preempt what has traditionally been a matter for state contract law,” noted ICLE President Geoffrey A. Manne. 

“Between this rule and its recent guidance on the gig economy, the FTC is taking on a role as master labor regulator that no one in the world thinks it’s been granted,” Manne said. “This is particularly curious, given that we already have a U.S. Department of Labor.”

For other ICLE resources on noncompete agreements, see these comments filed with the FTC in September 2021 by Manne and Director of Competition Policy Dirk Auer; this 2022 paper by Academic Affiliate Alan Meese; and this 2020 paper co-authored by Academic Affiliate Jonathan M. Barnett. 

To schedule an interview with ICLE scholars about the FTC’s proposed noncompete rule, contact Communications Manager Elizabeth Lincicome at [email protected].

Observador – ICLE Director of Competition Policy Dirk Auer was quoted by the Portuguese online newspaper Observador in a story about the Federal Trade Commission’s challenge to Microsoft’s proposed acquisition of Activision. You can read full piece (in Portuguese) here.

Em conversa com o Observador, Dirk Auer, especialista na área de Concorrência do International Center for Law & Economics (ICLE) e professor adjunto na Universidade de Liège, na Bélgica, defende que esta movimentação da FTC não se prende apenas com a questão dos títulos exclusivos, dividindo a questão em preocupações de curto e longo prazo. “A curto prazo”, destaca a preocupação de que “uma avalanche” de títulos exclusivos possa dar vantagem à Microsoft. “Essas preocupações parecem um pouco problemáticas, porque sugerem que a Microsoft ainda não é líder”, reconhece. “Mas, de qualquer forma, essa preocupação pode provavelmente ser resolvida com remédios”, nomeadamente com a garantia de que alguns títulos continuem disponíveis nas várias plataformas.

Já a “longo prazo, há a preocupação do cloud gaming”. Ou seja, um serviço em que seja possível jogar sem depender de um equipamento como uma consola mas sim da ligação à internet. A questão, defende Dirk Auer, é que este “é um mercado muito emergente” para haver preocupação com o facto de a Microsoft sequer “poder vir a liderar”. “Essa preocupação tem duas fraquezas: a primeira é que é algo extremamente a longo prazo. Isto não é um mercado que está maduro, ninguém usa cloud gaming hoje em dia, porque a infraestrutura de internet não está à altura”, contextualiza Auer. “Há muitas empresas neste campo a tentar percebê-lo, mas o mercado ainda não parece estar maduro”, recordando o exemplo de empresas como a Google. A tecnológica lançou há alguns anos o Stadia, um serviço de streaming de jogos na cloud, em que apenas era preciso uma ligação à internet e um comando para jogar. A fraca adesão ditou o anúncio do fim do serviço, no final de setembro.

Breitbart – ICLE Academic Affiliate Adam Mossoff was quoted by Breitbart in a story about U.S. patent policy and the stance Republicans should take toward Chinese patent infringement. You can read full piece here.

Adam Mossoff, a law professor at George Mason University’s Scalia School of Law and a visiting intellectual property fellow at the Heritage Foundation agreed, telling Breitbart News that Big Tech companies have spend “hundreds of millions of dollars” in lobbying money supporting PTAB.

“The PTAB has canceled tens of thousands of patent claims through willy-nilly decisions many Americans have come to expect from many of the alphabet-soup regulatory agencies,” said Mossoff, author of a recent paper for the Heritage Foundation explaining how the administrative state has choked off innovation.

“Given the weakened U.S. patent system in which it’s become almost impossible to license or enforce a patent, Big Tech engages in a well-known practice of predatory infringement—stealing inventions because it’s now cheaper than rightfully paying to use other people’s property,” said Mossoff.

Mossoff said that the weakened state of U.S. intellectual property makes China’s job easier.

“Through its explicit domestic industrial policies, China is stealing technologies from U.S. innovators and providing stable and reliable patent protections to its own innovators,” said Mossoff.

“China seeks to dominate next-generation technologies in AI, the Internet of Things, and mobile telecommunications, such 6G. Weakened patent rights in the U.S make it easier to steal U.S. technologies, such as patents on 5G.”

Mossoff urged the House GOP to “reestablish the reliable and effective patent rights that have been a key driver of the U.S. innovation economy from the Founding Era to today,” and to “call the FTC to account for its continued attacks on American innovators in both the biomedical and high-tech sectors, holding hearings and subpoenaing records of its decision-making processes.”

 

National Review – ICLE Senior Scholar Eric Fruits was quoted by National Review in a story about the Biden administration’s “housing first” plan to address homelessness. Read the full piece here.

Eric Fruits, vice president of research for the Cascade Policy Institute in Portland, said in an email that there is no substantial published research to demonstrate that housing-first strategies lead to improved health outcomes, reduced healthcare costs, or a reduction in overall homelessness. “It is clear,” Fruits said, “that none of the jurisdictions that have used a Housing First approach have ended or even significantly reduced their homeless population.”

Wall Street Journal – ICLE President Geoffrey A. Manne was quoted by The Wall Street Journal in a story previewing the U.S. antitrust landscape in the year ahead. You can read full piece here.

There is no sign of the FTC and Justice Department relenting in their aggressive approach, said Geoffrey A. Manne, president of the International Center for Law and Economics, a research center based in Portland, Ore.

“They are gearing up for something bigger,” Mr. Manne said, predicting more enforcement actions against agreements that allegedly restrain competition in labor markets.

…“They are clearly looking to bring actions that are related to labor markets,” Mr. Manne said. “I think that is going to be pushing the envelope…because labor markets just have not been the subject of much litigation.”

National Review – ICLE Senior Scholar Eric Fruits was quoted by National Review in a story about the Biden administration’s new framework proposal to address homelessness. You can read full piece here.

Eric Fruits, vice president of research for the Cascade Policy Institute in Portland, said in an email that there is no substantial published research to demonstrate that housing-first strategies lead to improved health outcomes, reduced healthcare costs, or a reduction in overall homelessness. “It is clear,” Fruits said, “that none of the jurisdictions that have used a Housing First approach have ended or even significantly reduced their homeless population.”