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INTEREST OF AMICUS CURIAE[1]

The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center that builds intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies and economic learning to inform policy debates and has longstanding expertise evaluating law and policy.

ICLE has an interest in ensuring that First Amendment law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. ICLE scholars have written extensively on issues related to Internet regulation and free speech, including the interaction of privacy rules and the First Amendment.

SUMMARY OF ARGUMENT

While the District Court issued a preliminary injunction against California’s Age-Appropriate Design Code (AADC), it did so under the commercial speech standard of intermediate scrutiny. Below we argue that the Ninth Circuit should affirm the District Court’s finding that plaintiffs are likely to succeed on the merits in their First Amendment claim, but also make clear that the AADC’s rules that have the effect of restricting the access of minors to lawful speech should be subject to strict scrutiny.

The First Amendment protects an open marketplace of ideas. 303 Creative LLC v. Elenis, 600 U.S. 570, 143 S. Ct. 2298, 2311 (2023) (“‘[I]f there is any fixed star in our constitutional constellation,’ it is the principle that the government may not interfere with ‘an uninhibited marketplace of ideas.’”) (quoting West Virginia Bd. of Ed. v. Barnette, 319 U.S. 624, 642 (1943) and McCullen v. Coakley, 573 U.S. 464, 476 (2014)). In fact, the First Amendment protects speech in this marketplace whether the “government considers… speech sensible and well intentioned or deeply ‘misguided,’ and likely to cause ‘anguish’ or ‘incalculable grief.’”  303 Creative, 143 S. Ct. at 2312 (quoting Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, Inc., 515 U.S. 557, 574 (1995) and Snyder v. Phelps, 562 U.S. 443, 456 (2011)).

The protection of the marketplace of ideas necessarily includes the creation, distribution, purchasing, and receiving of speech. See Brown v. Ent. Merchs. Ass’n, 564 U.S. 786, 792 n.1 (2011) (“Whether government regulation applies to creating distributing or consuming speech makes no difference” for First Amendment purposes). In other words, it protects both the suppliers in the marketplace of ideas (creators and distributors), and the consumers (purchasers and receivers).

No less than other speakers, profit-driven firms involved in the creation or distribution of speech are protected by the First Amendment. See 303 Creative LLC v. Elenis, 600 U.S. 570, 600 (2023) (“[T]he First Amendment extends to all persons engaged in expressive conduct, including those who seek profit.”). This includes Internet firms that provide speech platforms. See Reno v. ACLU, 521 U.S. 844, 870 (1997); NetChoice, LLC v. Moody, 34 F.4th 1196, 1213 (11th Cir. 2022).

Even minors have a right to participate in the marketplace of ideas, including as purchasers and receivers. See Brown, 564 U.S. at 794-95 (government has no “free-floating power to restrict ideas to which children may be exposed”). This includes the use of online speech platforms. See NetChoice, LLC v. Griffin, 2023 WL 5660155, at *17 (W.D. Ark. Aug. 31, 2023) (finding Arkansas’s Act 689 “obviously burdens minors’ First amendment rights” by “bar[ring] minors from opening accounts on a variety of social media platforms”).

This is important because online firms, especially those primarily involved in curating and creating content, are central to the modern marketplace of ideas. See Packingham v. North Carolina, 582 U.S. 98, 107 (2017) (describing the Internet as “the modern public square” where citizens can “explor[e] the vast realms of human thought and knowledge”).

Online firms primarily operate as what economists call “matchmakers” or “multisided platforms.” See David Evans & Richard Schmalensee, Matchmakers: The New Economics of Multisided Platforms 10 (2016). “[M]atchmakers’ raw materials are the different groups of customers that they help bring together. And part of the stuff they sell to members of each group is access to members of the other groups. All of them operate physical or virtual places where members of these different groups get together.  For this reason, they are often called multisided platforms.” Id. In this sense, they are very similar to newspapers and cable operators in attempting to attract attention through interesting content so that advertisers can reach them.

Online platforms bring together advertisers and users—including both speakers and listeners—by curating third-party speech as well as by producing their own content. The goal is to keep users engaged so advertisers can reach them. For many online platforms, advertisers cross-subsidize access to content for users, to the point that it is often free. Online platforms are in this sense “attention platforms” which supply content to its users while collecting data for targeted advertisements for businesses who then pay for access to those users. To be successful, online platforms must keep enough—and the right type of—users engaged so as to maintain demand for advertising. But if platforms fail to curate and produce interesting content, it will lead to users using them less or even leaving altogether, making it less likely that advertisers will invest in these platforms.

The First Amendment protects this business model because it allows entities that have legally obtained data to use it for both for the curation of speech for its users and targeted advertising. See Sorrell v. IMS Health, Inc., 564 U.S. 552, 570-71 (2011) (finding that there is a “strong argument” that “information is speech for First Amendment purposes” and striking down a law limiting the ability of marketers to use prescriber-identifying information for pharmaceutical sales). The First Amendment also protects the gathering of information when it is “inherently expressive.” Cf. Project Veritas v. Schmidt, 72 F.4th 1043, 1055 (9th Cir. 2023) (citing cases that have found the act of filming or recording are inherently expressive activity). Gathering of online data for targeted advertising makes it as inherently expressive as the act of filming or recording is for creating media.

Moreover, due to the nature of online speech platforms, the collection and use of data is “inextricably intertwined” with the curation of protected, non-commercial speech. Cf. Riley v. Nat’l Fed’n of the Blind of N.C., 487 U.S. 781, 796 (1988); Dex Media West, Inc. v. City of Seattle, 696 F.3d 952, 958 (9th Cir. 2012).

By restricting use of data, the AADC will prevent online platforms from being able to tailor their products to their users, resulting in less relevant—and in the case of minors, less appropriate—content. Online platforms may also be less likely to effectively monetize through targeted advertisements. Both situations will place platforms in a situation that may require a change in business model, either by switching to subscriptions or by excluding anyone who could possibly be a minor. Thus, restrictions on the collection and use of data for the curation of content and targeted advertising should be subject to strict scrutiny, as the result of such restrictions will be to restrict minors’ access to lawful online speech.

Under strict scrutiny, California bears the burden of showing it has a compelling governmental interest and that the restriction on speech is narrowly tailored to that interest. It can do neither.

First, California fails to establish a compelling government interest because it has failed to “identify an ‘actual problem’ in need of solving.” Brown, 564 U.S. at 799 (quoting United States v. Playboy Entertainment Group, Inc., 529 U.S. 803, 822-23 (2000)). There is no more evidence of a direct causal link between the use of online platforms subject to the AADC and harm to minors than there was from the video games at issue in Brown. Cf. id. at 799-801. In fact, the best available data does “not support the conclusion that social media causes changes in adolescent health at the population level.” See Nat’l Acad. Sci. Engineering & Med., Social Media and Adolescent Health at 92 (2023).

Second, California’s law is not narrowly tailored because the requirements that restrict minors’ access to lawful content are not the least restrictive means for protecting minors from potentially harmful content. Cf. Playboy, 529 U.S. at 823-25 (finding the voluntary use of blocking devices to restrict access to adult channels is less restricting than mandating the times such content may be made available); Aschroft v. ACLU, 542 U.S. 656, 667-70 (2004) (finding filtering software a less restrictive alternative than age verification). Parents and minors have technological and practical means available to them that could allow them to avoid the putative harms of Internet use without restricting the access of others to lawful speech. Government efforts to promote the creation and use of such tools is a less restrictive way to promote the safety of minors online.

In sum, the AADC is unconstitutional because it would restrict the ability of minors to participate in the marketplace of ideas. The likely effects of the AADC on covered businesses will be to bar or severely restrict minors’ access to lawful content.

ARGUMENT

California has argued that the AADC regulates only “conduct” or “economic activity” or “data” and thus should not be subject to First Amendment scrutiny. See Ca. Brief at 28. But NetChoice is correct to emphasize that the AADC is content-based, as it is designed to prevent minors from being subject to certain kinds of “harmful” First Amendment-protected speech. See NetChoice Brief at 39-41. As such, the AADC’s rules should be subject to strict scrutiny. In this brief we emphasize a separate reason that the AADC should be subject to strict scrutiny: the restrictions on data gathering for curation of speech and targeted advertising will inevitably lead to less access to lawful online speech platforms for minors.

In Part I we argue that gathering data for the curation of speech and targeted advertising is protected by the First Amendment. In Part II we argue that the collection of data for those purposes is inextricably linked, and thus the AADC’s restrictions on the collection of data for those purposes should be subject to strict scrutiny. In Part III we argue that the AADC fails strict scrutiny, both for a lack of a compelling government interest and because its restrictions are not narrowly tailored.

I. GATHERING DATA FOR THE CURATION OF SPEECH AND TARGETED ADVERTISING IS PROTECTED BY THE FIRST AMENDMENT

Online platforms attract users by curating content and presenting it in an engaging way. To do this effectively requires data. Moreover, that same data is useful for targeted advertising, which is the primary revenue source for most online platforms, which are multisided platforms. This is a protected business model under First Amendment principles.

First, display decisions by communications platforms on how best to present information to its users is protected by the First Amendment. Cf. Miami Herald Pub. Co. v. Tornillo, 418 U.S. 241, 258 (1974) (“The choice of material to go into a newspaper, and the decisions made as to limitations on the size and content of the paper, and treatment of public issues and public officials—whether fair or unfair—constitute the exercise of editorial control and judgment.”). Limitations on the right of a communications platform to curate its own content come only from the marketplace of ideas itself: “The power of a privately owned newspaper to advance its own political, social, and economic views is bounded by… the acceptance of a sufficient number of readers—and hence advertisers—to assure financial success.” Id. at 255 (quoting Columbia Broad. Sys., Inc. v. Democratic Nat’l Comm., 412 U.S. 94, 117 (1973) (plurality)).

Second, the use of data for commercial purposes is protected by the First Amendment. See Sorrell, 564 U.S. at 567 (“While the burdened speech results from an economic motive, so too does a great deal of vital expression.”). No matter how much California wishes it were so, the AADC’s restrictions on the “sales, transfer, and use of” information is not simply regulation of economic activity.  Cf. id. at 750. On the contrary, the Supreme Court “has held the creation and dissemination of information are speech within the meaning of the First Amendment.” Id. Among the protected uses of data is creating tailored content, including marketing. See id. at 557-58 (describing the use of “detailing” where drug salespersons use prescribing history of doctors to present a particular sales message.).

Third, even the collection of information can be protected First Amendment activity. For instance, in Project Veritas, this court found that an audio or video recording “qualifies as speech entitled to the protection of the First Amendment.” See 72 F.4th at 1054. This is because the act of recording itself is “inherently expressive.” Id. at 1055. Recording is necessary to create the speech at issue.

Applying these principles here leads to the conclusion that the targeted advertising-supported business model of online platforms is protected by the First Amendment. Online platforms have a right to determine what to curate and how to display that content on its platform, as they seek to discover whether it serves its users and advertisers in the marketplace of ideas, much like the newspaper in Tornillo. Using data to better curate content to users and to offer them more relevant advertisements is protected, as in Sorrell. And the collection of data to curate speech and offer them targeted advertisements is as “inherently expressive” as the act of recording is for making a video in Project Veritas.

II. STRICT SCRUTINY SHOULD APPLY TO THE AADC’S RESTRICTIONS ON DATA COLLECTION FOR THE CURATION OF SPEECH AND TARGETED ADVERTISING

The question remains what level of scrutiny the AADC’s restrictions on data collection for curation and targeted advertising should face. The District Court applied only intermediate scrutiny, assuming that this was commercial speech. See Op. at 10-11 (in part because the AADC’s provisions fail intermediate scrutiny anyway). But the court noted that if expression involved commercial and non-commercial speech that is “inextricably intertwined,” then strict scrutiny would apply. See id. at 10. This is precisely the case, as online multisided platforms must have data both to effectively curate content and to offer targeted advertisements which subsidize users’ access. Targeted advertising is inextricably intertwined with the free or reduced-price access of users to these online platforms.

Over time, courts have gained more knowledge of how multisided platforms work, specifically in the antitrust context. See Ohio v. American Express, 138 S. Ct. 2274, 2280-81 (2018) (describing how credit card networks work). But this also has important relevance in the First Amendment context where advertisements often fund the curation of content.

For instance, in Dex Media West, this court considered yellow page directories and found that the protected speech of the phonebooks (i.e. telephone numbers) was inextricably intertwined with the advertisements that help fund it. See 696 F.3d at 956-65. The court found the “[e]conomic reality” that “yellow pages directories depend financially upon advertising does not make them any less entitled to protection under the First Amendment.” Id. at 963-64. The court rejected the district court’s conclusion that “economic dependence was not sufficient to intertwine commercial and noncommercial elements of the publication,” id. at 964, as the same could be said of television stations or newspapers as well, but they clearly receive full First Amendment protection for their speech. The court concluded that:

Ultimately, we do not see a principled reason to treat telephone directories differently from newspapers, magazines, television programs, radio shows, and similar media that does not turn on an evaluation of their contents. A profit motive and the inclusion or creation of noncommercial content in order to reach a broader audience and attract more advertising is present across all of them. We conclude, therefore, that the yellow pages directories are entitled to full First Amendment protection. Id. at 965.

Here, this means the court should consider the interconnected nature of the free or reduced-price access to online content and targeted advertising that is empowered by data collection. Online platforms are, in this sense, indistinguishable “from newspapers, magazines, television programs, radio shows, and similar media…” that curate “noncommercial content in order to reach a broader audience and attract more advertising.” Id. The only constitutional limits on platforms’ editorial discretion arise from the marketplace of ideas itself. Cf. Tornillo, 418 U.S. at 255.

To find otherwise will lead to detrimental effects on this business model. Without data collection, not only will online platforms serve less relevant content to users but also less relevant advertising. This will make the platforms less lucrative for advertisers and lead to upward pricing pressure on the user-side of online platforms. Online platforms will be forced to change their business models by either charging fees (or raising them) for access or excluding those users subject to the regulation. Excluding minors from accessing lawful speech clearly implicates the First Amendment and is subject to strict scrutiny. Cf. Brown, 564 U.S. at 794-95, 799 (the Act “is invalid unless California can demonstrate that it passes strict scrutiny”).

III. THE AADC FAILS STRICT SCRUTINY

The District Court determined that the AADC’s provisions would fail under either intermediate or strict scrutiny. This court should affirm the district court, but also make clear that strict scrutiny applies.

A. There Is No Compelling Government Interest

Under strict scrutiny, the government must “specifically identify an ‘actual problem’ in need of solving.” Brown, 564 U.S. at 799 (quoting Playboy, 529 U.S. at 822-23).

In Brown, the Supreme Court found that California’s evidence linking exposure to violent video games and harmful effects on children was “not compelling” because it did “not prove that violent video games cause minors to act aggressively.” Id. at 800 (emphasis in original). At best, there was a limited correlation that was “indistinguishable from effects produced by other media” not subject to the rules. Id. at 800-01.

The same is true here. The literature on the relationship between Internet use and harm to minors simply does not establish causation.

For instance, the National Academies of Science, Engineering, and Medicine has noted that there are both benefits and harms from social media use for adolescents. Nat’l Acad. Sci. Engineering & Med., Social Media and Adolescent Health at 4 (2023) (“[T]he use of social media, like many things in life, may be a constantly shifting calculus of the risky, the beneficial, and the mundane.”). There are some studies that show a very slight correlation between “problematic social media use” and mental health harms for adolescents. See Holly Shannon, et al., Problematic Social Media Use in Adolescents and Young Adults: Systematic Review and Meta-analysis, 9 JMIR Mental Health 1, 2 (2022) (noting “problematic use characterizes individuals who experience addiction-like symptoms as a result of their social media use”). But the “links between social media and health are complex.” Social Media and Adolescent Health at 89.

The reasons for this complexity include the direction of the relationship (i.e., is it because of social media usage that a person is depressed or does someone use social media because they are depressed?), and whether both social media usage and mental health issues are possibly influenced by another variable(s). Moreover, it is nearly impossible to find a control group that has not been exposed to social media. As a result, the National Academies’ extensive review of the literature “did not support the conclusion that social media causes changes in adolescent health at the population level.” Id. at 92.

The AADC applies to far more than just social media, however, extending to any “online service, product, or feature” that is “likely to be accessed by children.” See Cal. Civ. Code § 1798.99.30 (b)(4). There is little evidence that general Internet usage is correlated with harm to minors. According to one survey of the international literature, the prevalence of “Problematic Internet Use” among adolescents ranges anywhere from 4% to 20%. See Juan M. Machimbarrena et al., Profiles of Problematic Internet Use and Its Impact on Adolescents’ Health-Related Quality of Life, 16 Int’l J. Eviron. Res. Public Health 1, 2 (2019). This level of harmful use suggests the AADC’s reach is overinclusive. Cf. Brown, 564 U.S. at 805 (Even when government ends are legitimate, if “they affect First Amendment rights they must be pursued by means that are neither seriously underinclusive nor seriously overinclusive.”).

Moreover, the rules at issue are also underinclusive, even assuming there was a causal link. The AADC does not extend to the same content offline and also likely to be accessed by children, even if also supported by advertising, it would not be subject to those regulations. California has offered no reason to think that accessing the same content while receiving advertising offline would be less harmful to minors. Cf. Brown, 564 U.S. at 801-02 (“California has (wisely) declined to restrict Saturday morning cartoons, the sale of games rated for young children, or the distribution of guns. The consequence is that its regulation is wildly underinclusive when judged against its asserted justification, which in our view is alone enough to defeat it.”).

In sum, California has not established a compelling state interest in protecting minors from harm allegedly associated with Internet usage.

B. The AADC Is Not Narrowly Tailored

Even assuming there is a compelling state interest in protecting minors from harms online, the AADC’s provisions restricting the collection and use of data for curating speech and targeted advertising are not narrowly tailored to that end. They are much more likely to lead to the complete exclusion of minors from online platforms, foregoing the many benefits of Internet usage. See Social Media and Adolescent Health at 4-5 (listing benefits of social media usage for adolescents). A less restrictive alternative would be promoting the use of practical and technological means by parents and minors to avoid the harms associated with Internet usage, or to avoid specifically harmful forms of Internet use.

For instance, the AADC requires covered online platforms to “[e]stimate the age of child users with a reasonable level of certainty appropriate to the risks” or “apply the privacy and data protections afforded to children” under the Act to “all consumers.” Cal. Civ. Code § 1798.99.31(a)(5). These privacy and data protections would severely limit by default the curation of speech and targeted advertising. See Cal. Civ. Code § 1798.99.31(a)(6); (b)(2)-(4). This would reduce the value of the online platforms to all users, who would receive less relevant content and advertisements.

Rather than leading to more privacy protection for minors, such a provision could result in more privacy-invasive practices or the exclusion of minors from the benefits of online platforms altogether. There is simply no foolproof method for estimating a user’s age.

Platforms typically use one of four methods: self-declaration, user-submitted hard identifiers, third-party attestation, and inferential age assurance. See Scott Babwah Brennen & Matt Perault, Keeping Kids Safe Online: How Should Policymakers Approach Age Verification?, at 4 (The Ctr. for Growth and Opportunity at Utah State University and University of North Carolina Ctr. on Tech. Pol’y Paper, Jun. 2023), https://www.thecgo.org/wp-content/uploads/2023/06/Age-Assurance_03.pdf. Each method comes with tradeoffs. While self-declaration allows users to simply lie about their age, other methods can be quite privacy-invasive. For instance, requiring users to submit hard identifiers, like a driver’s license or passport, may enable platforms to more accurately assess age in some circumstances and may make it more difficult for minors to fabricate their age, but it also poses privacy and security risks. It requires platforms to collect and process sensitive data, requires platforms to develop expertise in ID verification, and may create barriers to access for non-minor users who lack an acceptable form of identification. Courts have consistently found age verification requirements to be an unconstitutional barrier to access to online content. See Aschroft v. ACLU; NetChoice, LLC v. Griffin; NetChoice v. Yost, 2024 WL 555904 (S.D. Ohio, Feb. 12, 2024); Free Speech Coal., Inc. v. Colmenero, 2023 WL 5655712, at *15-16 (W.D. Tex. Aug. 31, 2023) (available age verification services “amplif[y]” privacy concerns and “exacerbate[]” “First Amendment injury,” including chilling effect).

But even age assurance or age estimation comes with downsides. For instance, an online platform could use AI systems to estimate age based on an assessment of the content and behavior associated with a user. But to develop this estimate, platforms must implement technical systems to collect, review, and process user data, including minors’ data. These methods may also result in false positives, where a platform reaches an inaccurate determination that a user is underage, which would result in a different set of privacy defaults under the AADC. See Cal. Civ. Code § 1798.99.31(a)(6); (b)(2)-(4). Errors are sufficiently common that some platforms have instituted appeals mechanisms so that users can contest an age-related barrier. See, e.g., Minimum age appeals on TikTok, TikTok, https://support.tiktok.com/en/safety-hc/account-and-user-safety/minimum-age-appeals-on-tiktok (last accessed Feb. 12, 2024). Not only is the development of such mechanisms costly to online platforms, but is potentially very costly to those mislabeled as well.

Another possibility is that online platforms may restrict access by users who they have any reason to believe to be minors to avoid significantly changing their business models predicated on curation and targeted advertising. Cf. Op. at 8 (noting evidence that “age-based regulations would ‘almost certain[ly] [cause] news organizations and others [to] take steps to prevent those under 18 from accessing online news content, features, or services.’”) (quoting Amicus Curiae Br. of New York Times Co. & Student Press Law Ctr. at 6).

The reason why this is likely flows from an understanding of the economics of multisided markets mentioned above. Restricting the already limited expected revenue from minors through limits on the ability to do targeted advertising, combined with strong civil penalties for failure to live up to the provisions of the AADC with respect to minors, will encourage online platforms to simply exclude them altogether. See Cal. Civ. Code § 1798.99.35(a) (authorizing penalties of up to $7,500 per “affected child”).

Much less restrictive alternatives are possible. California could promote online education for both minors and parents which would allow them to take advantage of widely available technological and practical means to avoid online harms. Cf. Ashcroft, 542 U.S. at 666-68 (finding filtering software is a less restrictive alternative than age verification to protect minors from inappropriate content). Investing in educating the youth in media literacy could be beneficial for avoiding harms associated with problematic Internet use. See Social Media and Adolescent Health at 8-10 (arguing for training and education so young people can be empowered to protect themselves).

If anything, there are more technological ways for parents and minors to work together to avoid online harms today. For instance, there are already tools to monitor and limit how minors use the Internet available from cell carriers and broadband providers, on routers and devices, from third-party applications, and even from online platforms themselves. See Ben Sperry, A Coasean Analysis of Online Age-Verification and Parental-Consent Regimes, at 20-21 (ICLE Issue Brief 2023-11-09), https://laweconcenter.org/wp-content/uploads/2023/11/Issue-Brief-Transaction-Costs-of-Protecting-Children-Under-the-First-Amendment-.pdf. Even when it comes to privacy, educating parents and minors on how to protect their information when online would be a less restrictive alternative than restricting the use of data collection for targeted advertising.

CONCLUSION

The free marketplace of ideas is too important to be restricted, even in the name of protecting children. Minors must be able to benefit from the modern public square that is the Internet. The AADC would throw “the baby out with the bathwater.” Op. at 16. The court should affirm the judgment of the district court.

[1] All parties have consented to the filing of this brief.  See Fed. R. App. P. 29(a)(2).  No counsel for any party authored this brief in whole or in part, no party or party’s counsel has contributed money intended to fund the preparation or submission of the brief, and no individual or organization contributed funding for the preparation and submission of the brief.  See id. 29(a)(4)(E).

Summary

Over the past few months, we at the International Center for Law & Economics (ICLE) have endeavored to bring the law & economics methodology to the forefront of several major public controversies surrounding online speech. To date, ICLE has engaged these issues by filing two amicus briefs before the U.S. Supreme Court, and another in Ohio state court.

The basic premise we have outlined is that online platforms ought to retain the right to engage in the marketplace of ideas by exercising editorial discretion, free from government interference. A free marketplace of ideas best serves both the users of these platforms, and society at-large.

Read the full piece here.

Ohio has made the news, but not for the success of Ohio State football or the induction of a new musical act into the Rock and Roll Hall of Fame. This time, it’s because of Ohio Attorney General Dave Yost’s quixotic effort to have Google’s search engine declared a common carrier.

Traditionally, a common carrier is a business that opens itself indiscriminately to public use. It is on this basis that Ohio, other states, and the federal government all have imposed nondiscrimination requirements on entities like railroads and telephone companies.

Read the full piece here.

INTEREST OF AMICUS CURIAE[1]

The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan global research and policy center aimed at building the intellectual foundations for sensible, economically sound policy.  ICLE promotes the use of law-and-economics methods and economic learning to inform policy debates.

ICLE has an interest in ensuring that First Amendment law promotes the public interest, the rule of law, and a rich marketplace of ideas.  To this end, ICLE’s scholars write extensively on social media regulation and free speech.  E.g., Int’l Ctr. for Law & Econ. Am. Br., Moody v. NetChoice, LLC, NetChoice, LLC v. Paxton, Nos. 22-277, 22-555 (Dec. 7, 2023); Ben Sperry, Knowledge and Decisions in the Information Age: The Law & Economics of Regulating Misinformation on Social-Media Platforms, 59 Gonzaga L. Rev. ___ (2024) (forthcoming); Geoffrey Manne, Ben Sperry & Kristian Stout, Who Moderates the Moderators?: A Law & Economics Approach to Holding Online Platforms Accountable Without Destroying the Internet, 49 Rutgers Computer & Tech. L. J. 26 (2022); Internet Law Scholars Am. Br., Gonzalez v. Google LLC, 21-1333 (Jan. 19, 2023); Ben Sperry, An L&E Defense of the First Amendment’s Protection of Private Ordering, Truth on the Market (Apr. 23, 2021), https://bit.ly/49tZ7XD.

ICLE is concerned about government meddling in—and the resulting impoverishment of—the marketplace of ideas.  That meddling is on display in this case—and another case before the Court this Term.  See No. 22-842, Nat’l Rifle Ass’n of Am. v. Vullo (state official coerced insurance companies not to partner with gun-rights organization to cover losses from gun use).  But this case and Vullo merely illustrate a larger problem.  See Backpage.com, LLC v. Dart, 807 F.3d 229 (7th Cir. 2015) (sheriff campaigned to shut down Backpage.com by pressuring Visa and Mastercard to stop processing Backpage transactions); Heartbeat Int’l, Inc. Am. Br. at 4–10, Vullo, supra (collecting examples); Will Duffield, Jawboning Against Speech: How Government Bullying Shapes the Rules of Social Media, Cato Inst. (Sept. 12, 2022) (collecting examples), bit.ly/41NEhjb; Victor Nava, Amazon “censored” COVID-19 vaccine books after “feeling pressure” from Biden White House: docs, New York Post (Feb. 5, 2024), https://bit.ly/3Sq5152.  With this brief, ICLE urges the Court to enforce the Constitution to protect the marketplace of ideas from all such government intrusions.

SUMMARY OF ARGUMENT

The First Amendment protects a public marketplace of ideas free from government interference.

“The First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.” Sorrell v. IMS Health Inc., 564 U.S. 552, 577 (2011) (citation omitted).

“Our representative democracy only works if we protect the ‘marketplace of ideas.’  This free exchange facilitates an informed public opinion, which, when transmitted to lawmakers, helps produce laws that reflect the People’s will.  That protection must include the protection of unpopular ideas, for popular ideas have less need for protection.”  Mahanoy Area Sch. Dist. v. B.L., 594 U.S. ___, 141 S. Ct. 2038, 2046 (2021).

Without a free marketplace of ideas, bad ideas persist and fester.  With a free marketplace of ideas, they get challenged and exposed.  When we think of the marketplace, we think of Justice Holmes dissenting in Abrams v. United States, 250 U.S. 616, 630 (1919).  But the insight behind the concept dates back thousands of years, at least to the Hebrew Bible, and has been recognized by, among others, John Milton, the Founders, and John Stuart Mill.  The insight is that the solution for false speech is true speech.  The government may participate in the marketplace of ideas by speaking for itself.  But it ruins the marketplace by coercing speech.

This Court has long stressed the danger of restricting speech on public health, where information can save lives. Several respondents here are elite professors of medicine who dissented from the scientific judgments of government officials. The professors were just the kind of professionals whose views the public needed to make informed decisions.  Instead, the government pressured social media websites to suppress the professors’ views, which the government –at least at the time—saw as outside the mainstream.

Government intervention like this undermines the scientific enterprise.  The goal of science is not to follow the current consensus, but to challenge it with hard data.  For that challenge to happen, the government must not interfere with the open marketplace of ideas, where the current consensus can always yield to a new and better one.

As the “purchasers” in the marketplace of ideas, the people—including respondents here—were stripped of their First Amendment right to make informed decisions on crucial matters of public health. The right to speak includes a corresponding right to receive speech.  Based on the record here, respondent states can likely show that petitioners trampled on their right to receive information and ideas published by websites.  Similarly, respondent individuals will likely be able to show that they have been robbed of their right to hear other suppressed speakers. Today, the marketplace of ideas is stocked, in part, by social media companies exercising editorial discretion. What distinguishes one site from another is what it will, and will not, publish.  As commentators have noted, in the online world, content moderation is the product.  Social media companies are what economists call multi-sided platforms, which connect advertisers with users by curating third-party speech.  The better platforms become at curating speech, the more users engage, and the more valuable advertising becomes to advertisers and users alike.

At times, keeping users engaged requires removing harmful speech or even disruptive users.  But platforms must strike a balance in their content-moderation policies—allowing enough speech to attract users, but not so much speech that users are driven away.  Operating in the marketplace, social media companies are best placed to strike this balance.

Even if the online marketplace did not operate very efficiently (it does), it could not permissibly be controlled by the government.  The First Amendment forbids any abridgement of speech, including speech on the internet.  The way a website adjusts to the market shows what it thinks deserves “expression, consideration, and adherence,” or is “worthy of presentation” (phrases this Court has used to describe protected editorial discretion).  Pressuring social media companies to take down content changes the content of the platforms’ speech, intrudes on their editorial discretion, and violates the Constitution.

Given the record respondents have compiled, it is likely that they can show coercion by federal officials. The Fifth Circuit agreed, but its test for coercion fell short of the test applied in Bantam Books.  The focus of Bantam Books is not on the subjective understanding of the private actor, but on what the state actors objectively did—namely, was it reasonably understood as attempting to coerce private action?

Here it was.  Indeed, the allegations here include (a) many threats to have social media companies investigated, prosecuted, and regulated if they fail to remove disfavored speech, coupled with (b) extensive use of private meetings, emails, and digital portals to pressure social media companies to remove speech.  That was attempted coercion, and it was unlawful.

The remedy for unlawful coercion is an injunction against, or in some cases, damages from, government actors.  The court below focused the injunction on federal officials.  That was correct.  The marketplace of ideas—now freed from impermissible government intervention by the injunction—leaves its participants free to exercise their editorial discretion as they see fit.  The judgment should be affirmed.

ARGUMENT

I.       The First Amendment protects the marketplace of ideas from government meddling.

A.     A marketplace offering only government-approved ideas is no marketplace, logically and as historically understood.

The First Amendment protects an open marketplace of ideas.  “By allowing all views to flourish, the framers understood, we may test and improve our own thinking both as individuals and as a Nation.”  303 Creative LLC v. Elenis, 600 U.S. 570, 143 S. Ct. 2298, 2311 (2023).  “‘[I]f there is any fixed star in our constitutional constellation,’ it is the principle that the government may not interfere with ‘an uninhibited marketplace of ideas.’”  Id. (quoting West Virginia Bd. of Ed. v. Barnette, 319 U.S. 624, 642 (1943) and McCullen v. Coakley, 573 U.S. 464, 476 (2014)).

“[U]ninhibited” means uninhibited. “[T]he First Amendment protects an individual’s right to speak his mind regardless of whether the government considers his speech sensible and well intentioned or deeply ‘misguided,’ and likely to cause ‘anguish’ or ‘incalculable grief.’” 303 Creative, 143 S. Ct. at 2312 (quoting Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, Inc., 515 U.S. 557, 574 (1995) and Snyder v. Phelps, 562 U.S. 443, 456 (2011)).  “The First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.”  Sorrell, 564 U.S. at 577 (citation omitted).  Without zealous protection, unpopular speech may be “chill[ed],” “would-be speakers [may] remain silent,” and “society will lose their contributions to the ‘marketplace of ideas.’”  United States v. Hansen, 599 U.S. 762, 143 S. Ct. 1932, 1939–40 (2023) (quoting Virginia v. Hicks, 539 U.S. 113, 119 (2003)).  Nor do speakers “shed their First Amendment protections by employing the corporate form to disseminate their speech.”  303 Creative, 143 S. Ct. at 2316.

When the marketplace of ideas is impoverished, it is not only “society” that loses (Hansen, 143 S. Ct. at 1939–40); it is democracy itself.  “Our representative democracy only works if we protect the ‘marketplace of ideas.’  This free exchange facilitates an informed public opinion, which, when transmitted to lawmakers, helps produce laws that reflect the People’s will.  That protection must include the protection of unpopular ideas, for popular ideas have less need for protection.”  Mahanoy Area Sch. Dist., 141 S. Ct. at 2046.  “A democratic people must be able to freely generate, debate, and discuss * * * ideas, hopes, and experiences.  They must then be able to transmit their resulting views and conclusions to their elected representatives[.]  Those representatives can respond by turning the people’s ideas into policies.  The First Amendment, by protecting the marketplace and the transmission of ideas, thereby helps to protect the basic workings of democracy itself.  City of Austin v. Reagan Nat’l Advert. of Austin, LLC, 596 U.S. 61, 142 S. Ct. 1464, 1476–77 (2022) (Breyer, concurring) (internal citations and quotation marks omitted).  In short, “[t]he First Amendment was fashioned to assure unfettered interchange of ideas for the bringing about of political and social changes desired by the people.”  Meyer v. Grant, 486 U.S. 414, 421 (1988) (internal citation and quotation marks omitted).

Without a free marketplace of ideas, bad ideas flourish, unchallenged by competition. “[T]ime has upset many fighting faiths”; and “the ultimate good desired is better reached by free trade in ideas—that the best test of truth is the power of the thought to get itself accepted in the competition of the market[.]  That at any rate is the theory of our Constitution.”  Abrams, 250 U.S. at 630 (Holmes, J., dissenting).  With a free marketplace, however, people enjoy the liberty to be wrong—even as their mistaken ideas tend to get exposed.  For this reason, after the divisive presidential election of 1800, winner Thomas Jefferson urged toleration of dissenters.  Even those in favor of changing our form of government, he urged, should be left “undisturbed as monuments of the safety with which error of opinion may be tolerated where reason is left free to combat it.”  First Inaugural Address (Mar. 4, 1801), https://bit.ly/42tAxUt.

Of course, neither Holmes nor Jefferson was the first to recognize that the best ideas emerge from the crucible of competition.  Thousands of years before the American republic, the Hebrew Bible observed that  “[t]he one who states his case first seems right, until the other comes and examines him.”  Prov. 18:17.   Much later, John Milton and John Stuart Mill would sound similar themes.  “Even a false statement may be deemed to make a valuable contribution to public debate, since it brings about ‘the clearer perception and livelier impression of truth, produced by its collision with error.’”  N.Y. Times Co. v. Sullivan, 376 U.S. 254, 279 n.19 (1964) (quoting Mill, On Liberty 15 (1947) and citing Milton, Areopagitica, Prose Works, Vol. II 561 (1959)).

In sum, “[t]he remedy for speech that is false is speech that is true.  This is the ordinary course in a free society.  The response to the unreasoned is the rational; to the uninformed, the enlightened; to the straight-out lie, the simple truth.”  United States v. Alvarez, 567 U.S. 709, 727–28 (2012) (plurality).  “And suppression of speech by the government can make exposure of falsity more difficult, not less so.  Society has the right * * * to engage in open, dynamic, rational discourse.  These ends are not well served when the government seeks to orchestrate public discussion through content-based mandates.”  Id. at 728.  “If there be time to expose through discussion the falsehood and fallacies, to avert the evil by the processes of education, the remedy to be applied is more speech, not enforced silence.”  Whitney v. California, 274 U.S. 357, 377 (1927) (Brandeis, J., concurring).

Of course, the government itself may participate in the marketplace of ideas. Government agencies concerned about health or election misinformation may use social media platforms to broadcast their message.  Those agencies may even amplify and target their counter-speech through advertising campaigns tailored to those most likely to share or receive misinformation—including by creating their own apps or social media websites.

All these steps would combat alleged online misinformation in a way that promotes the marketplace of ideas rather than restricting it.  What is more, presidents may always directly use the bully pulpit to advocate their views.  Pet. Br. 24–25 (listing examples of presidential statements criticizing protected speech).  What the government may not do, as petitioners necessarily concede, is “use its authority to suppress contrary views.”  Id. at 23.  As the record shows, that is exactly what happened in this case.

Finally, protecting the marketplace of ideas from government interference of course does not guarantee that the best ideas win. To the contrary, the marketplace will still see a “good deal of market failure”—if success is measured by the truth winning out. Ronald Coase, The Market for Goods and the Market for Ideas, 64 Am. Econ. Rev. 384, 385 (1974).  But “that different costs and benefits must be balanced does not in itself imply who must balance them,” much less how the balance should be struck.  Thomas Sowell, Knowledge and Decisions 240 (1996).

In the First Amendment, the Founders struck the balance in favor of liberty.  However flawed an open marketplace of ideas may be, they decided, it is better than censorship.  “The liberal defense of free speech is not based on any claim that the market for ideas somehow eliminates error or erases human folly.  It is based on a comparative institutional analysis in which most state interventions make a bad situation worse.”  Roger Koppl, Expert Failure 217 (2018).

B.     As this Court instructs, it is especially crucial that the marketplace of ideas be uninhibited on matters of public health.

It is precisely this judgment of the Founders—that state interventions in the marketplace of ideas “make a bad situation worse” (Koppl, supra, at 217) —that petitioners here ignored.  White House officials pressured websites to take down “[c]laims that have been ‘debunked’ by public health authorities.”  J.A. 98.  So-called misinformation was itself dubbed an “urgent public health crisis.”  J.A. 113.  Indeed, said the Surgeon General, “misinformation poses an imminent threat to the nation’s health and takes away the freedom to make informed decisions.”  J.A. 125 (emphasis added).  These assertions are dead wrong—backwards even.  Public health is the last area in which the government should be deciding “which ideas should prevail.”  Nat’l Inst. of Family & Life Advocates v. Becerra, 138 S. Ct. 2361, 2375 (2018) (“NIFLA”).  “[T]his Court has stressed the danger of content-based regulations ‘in the fields of medicine and public health, where information can save lives.’”  Ibid. (quoting Sorrell, 564 U.S. at 566 (striking down statute restricting publication of pharmacy records)).

Several respondents here are professors of medicine at elite institutions who disagreed with the scientific judgments of government officials.  In other words, they were just the kind of professionals whose views the public needed “to make informed decisions.” J.A. 125.  Instead, the government pressured social media websites to suppress these professionals’ views, which the government at the time viewed as outside the mainstream.

“As with other kinds of speech, regulating the content of professionals’ speech ‘pose[s] the inherent risk that the Government seeks not to advance a legitimate regulatory goal, but to suppress unpopular ideas[.]’”  NIFLA, 138 S. Ct. at 2374 (quoting Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 641 (1994)).  “Take medicine, for example.  Doctors help patients make deeply personal decisions, and their candor is crucial.”  NIFLA, 138 S. Ct. at 2374.  Yet “[t]hroughout history, governments have ‘manipulat[ed] the content of doctor-patient discourse’ to increase state power and suppress minorities”:

For example, during the Cultural Revolution, Chinese physicians were dispatched to the countryside to convince peasants to use contraception. In the 1930s, the Soviet government expedited completion of a construction project on the Siberian railroad by ordering doctors to both reject requests for medical leave from work and conceal this government order from their patients.  In Nazi Germany, the Third Reich systematically violated the separation between state ideology and medical discourse. German physicians were taught that they owed a higher duty to the ‘health of the Volk’ than to the health of individual patients. Recently, Nicolae Ceausescu’s strategy to increase the Romanian birth rate included prohibitions against giving advice to patients about the use of birth control devices and disseminating information about the use of condoms as a means of preventing the transmission of AIDS. – Ibid. (quoting Thomas Berg, Toward a First Amendment Theory of Doctor-Patient Discourse and the Right To Receive Unbiased Medical Advice, 74 B. U. L. Rev. 201, 201–202 (1994) (footnotes omitted)).

None of this government interference makes sense if the goal is to discover the truth.  And that is the goal of the scientific enterprise:  to discover the truth by testing hypotheses.  The goal is not to follow the current consensus.  “The notion that scientists should agree with a consensus is contrary to how science advances—scientists challenge each other, ask difficult questions and explore paths untaken.  Expectations of conformance to a consensus undercuts scientific inquiry.  It also lends itself to the weaponization of consensus to delegitimize or deplatform inconvenient views, particularly in highly politicized settings.”  Roger Pielke, Jr., The Weaponization of “Scientific Consensus,” American Enterprise Institute (Feb. 5, 2024), https://bit.ly/3OBH3Tj.

We saw just this politicization during the recent pandemic.  “Reputable scientists and physicians have questioned—and in many cases debunked—the ‘official’ narratives on lockdowns, school closures, border testing, vaccine mandates, endless boosters, bivalent COVID shots, epidemic forecasting, natural immunity, vaccine-induced myocarditis, and more.  * * *  But it’s become untenable for those in charge to defend many of their initial positions.”  Matt Strauss, Marta Shaw, J. Edward Les & Pooya Kazemi, COVID dissent wasn’t always misinformation, but it was censored anyway, National Post (Mar. 1, 2023), https://bit.ly/3SQZ6Yb.  Yet that did not stop many of those in charge, in the meantime, from using government power effectively to censor dissenters.  That is what happened in this case.  As one liberal member of Congress said of the “lab leak” theory of COVID’s origin—itself a key exhibit in the shifting of accepted thinking about COVID—“If you take partisan politics and you mix that with science * * *, it’s a toxic combination.”  Sheryl Gay Stolberg & Benjamin Mueller, Lab Leak or Not? How Politics Shaped the Battle Over Covid’s Origin, New York Times (Mar. 19, 2023) (quoting U.S. Rep. Anna Eshoo).

In sum, “[p]rofessionals might have a host of good-faith disagreements, both with each other and with the government, on many topics in their respective fields.  Doctors and nurses might disagree about the ethics of assisted suicide or the benefits of medical marijuana; lawyers and marriage counselors might disagree about the prudence of prenuptial agreements or the wisdom of divorce; bankers and accountants might disagree about the amount of money that should be devoted to savings or the benefits of tax reform.  ‘[T]he best test of truth is the power of the thought to get itself accepted in the competition of the market,’ and the people lose when the government is the one deciding which ideas should prevail.”  NIFLA, 138 S. Ct. at 2374–75 (quoting Abrams, 250 U.S. at 630 (Holmes, J., dissenting)).  The people lost here.

C.     A marketplace offering only government-approved ideas violates the rights of speakers and listeners, the overlooked “purchasers” in the marketplace.

The people’s loss is constitutionally cognizable.  As the “purchasers” in the marketplace of ideas, the people—including respondents here—were robbed of their First Amendment right to make informed decisions.  After all, the right to speak includes a “reciprocal” right to receive speech.  Va. State Bd. of Pharm. v. Va. Citizens Consumer Council, 425 U.S. 748, 757 (1976); see First Amend. and Internet Law Scholars Am. Br., Moody v. NetChoice LLC, NetChoice LLC v. Paxton, Nos. 22-277, 22-555, at 4–5 (Dec. 6, 2023) (collecting authorities).  “To suppress free speech is a double wrong.  It violates the rights of the hearer as well as those of the speaker.  It is just as criminal to rob a man of his right to speak and hear as it would be to rob him of his money.”  Frederick Douglass, Address: A Plea for Free Speech in Boston (1860), in Great Speeches by Frederick Douglass 48, 50 (2013) (quoted in First Amend. and Internet Law Scholars Am. Br, supra, at 4–5).

Stated differently, “[t]he First Amendment protects ‘speech’ and not just speakers.”  Eugene Volokh, Mark Lemley & Peter Henderson, Freedom of Speech and AI Output, 3 J. Free Speech L. 653, 656 (2023).  As a result, “th[is] Court has long recognized First Amendment rights ‘to hear’ and ‘to receive information and ideas.’”  Id. at 657 & n.11 (citing, among other cases, Kleindienst v. Mandel, 408 U.S. 753, 762–763 (1972) (“In a variety of contexts this Court has referred to a First Amendment right to receive information and ideas”) (internal quotation marks omitted); Stanley v. Georgia, 394 U.S. 557, 564 (1969) (“It is now well established that the Constitution protects the right to receive information and ideas.”); Thomas v. Collins, 323 U.S. 516, 534 (1945) (“That there was restriction upon Thomas’ right to speak and the rights of the workers to hear what he had to say, there can be no doubt.”)).

Based on the record respondents have built, Missouri and Louisiana can likely show that petitioners have trampled on their right to “hear” and to “receive information and ideas” published by websites.  Volokh, supra, at 656–657; Resp. Br. 25–27.  And by the same token, respondent individuals will likely be able to show that they have been robbed of their right to hear other suppressed speakers, “whom [respondents] follow, engage with, and re-post on social media.”  Resp. Br. 22.  The judgment should be affirmed.

II.    Websites stock the online marketplace of ideas by exercising editorial discretion.

By effectively forcing websites to take down certain content, the government here “alte[red] the content of [the websites’] speech.”  NIFLA, 138 S. Ct. at 2371 (internal citation omitted).  Such laws “are presumptively unconstitutional and may be justified only if the government proves that they are narrowly tailored to serve compelling state interests.”  Reed v. Town of Gilbert, 576 U.S. 155, 163 (2015).  “This stringent standard reflects the fundamental principle that governments have no power to restrict expression because of its message, its ideas, its subject matter, or its content.”  NIFLA, 138 S. Ct. at 2371 (internal citation and quotation marks omitted).  Nor is government control necessary in the competitive marketplace of ideas stocked by social media companies.

What distinguishes one site from another is what it publishes and refuses to publish. “[C]ontent moderation is the product.” Thomas Germain, Actually, Everyone Loves Censorship. Even You., GIZMODO (Feb. 22, 2023) (emphasis added), http://bit.ly/3Rge8pI.  As private participants in the marketplace of ideas, social media firms set their own editorial policies and choose which ideas to publish.  “The Free Speech Clause does not prohibit private abridgment of speech.”  Manhattan Cmty. Access Corp. v. Halleck, 139 S. Ct. 1921, 1928 (2019) (emphasis in original).  Even as they openly publish the speech of others, social media platforms do not “lose the ability to exercise what they deem to be appropriate editorial discretion,” because then they would “face the unappetizing choice of allowing all comers or closing the platform altogether.”  Id. at 1931.  In turn, users participate in the marketplace of ideas by choosing which social media website best meets their needs, including through its respective moderation policies.

Social media firms are what economists call “matchmakers” or “multi-sided” platforms.  David Evans & Richard Schmalensee, Matchmakers: The New Economics of Multisided Platforms 10 (2016).  “[M]atchmakers’ raw materials are the different groups of customers that they help bring together.  And part of the stuff they sell to members of each group is access to members of the other groups.  All of them operate physical or virtual places where members of these different groups get together.  For this reason, they are often called multisided platforms.”  Ibid.  Social media firms bring together advertisers and users—including both speakers and listeners—by curating third-party speech.  Curating speech well keeps users engaged so advertisers can reach them.

At times, keeping users engaged requires removing harmful speech, or even removing users who break the rules.  See David Evans, Governing Bad Behavior by Users of Multi-Sided Platforms, 27 Berkeley Tech. L.J. 1201, 1215 (2012).  But a social media company cannot go too far in restricting speech that users value.  Otherwise, users will visit the platform less or even abandon it for other companies in the “attention market”—which includes not only other platforms, but newspapers, magazines, television, games, and apps.  Facing the prospect of fewer engaged users, advertisers will expect lower returns and invest less in the platform.  Eventually, if too many customers flee, the social media company will fail.

Social media companies must also consider brand-conscious advertisers who may not want to be associated with perceived misinformation or other harmful speech.  To take just one example, advertisers reportedly left X after that company loosened its moderation practices.  Ryan Mac, Brooks Barnes & Tiffany Hsu, Advertisers Flee X as Outcry Over Musk’s Endorsement of Antisemitic Post Grows, N.Y. Times (Nov. 17, 2023).  In other words, platforms must strike a balance in their content-moderation policies.  This balance includes creating rules discouraging misinformation if such speech drives away users or advertisers.  As active participants in the marketplace, social media firms are best positioned to discover the best way to serve their users.  See Int’l Ctr. for Law & Economics Am. Br. at 6–11, Moody v. NetChoice LLC, NetChoice LLC v. Paxton, Nos. 22-277, 22-555 (Dec. 7, 2023).  As competition plays out, though, consumers can deliver surprises—and platforms must adjust.  This is the marketplace of ideas in action.

All these product changes happen without government intervention, which, again, would be forbidden in any event. After all, the First Amendment forbids any “abridg[ement]” of speech, no matter where that speech is “publish[ed]” or “disseminat[ed]”—including the online marketplace of ideas. Reno v. ACLU, 521 U.S. 844, 853 (1997); 303 Creative, 600 U.S. at 594.  The way a social media company adjusts to the market shows what it deems “deserving of expression, consideration, and adherence,” or “worthy of presentation.”  Turner, 512 U.S. at 641; Hurley, 515 U.S. at 575.  By forcing platforms to take down content, government coercion “alte[red] the content of [the platforms’] speech.”  NIFLA, 138 S. Ct. at 2371 (internal citation omitted).

When a company “exercises editorial discretion in the selection and presentation of its programming, it engages in speech activity.”  Arkansas Ed. Television Comm’n v. Forbes, 523 U.S. 666, 674 (1997).  “[E]ditorial control” encompasses the “choice of material,” “decisions made as to limitations on the size and content,” and “treatment of public issues[.]”  Miami Herald Pub. Co. v. Tornillo, 418 U.S. 241, 258 (1974).  Any governmental “compulsion to publish that which reason tells them should not be published”—or vice versa—“is unconstitutional.”  Id. at 256 (internal citation and quotation marks omitted).

III. The online marketplace of ideas was impoverished by federal coercion here, and the Court should affirm the injunction insofar as it binds federal officials.

Although social media companies are private actors with a right to editorial discretion, the facts adduced so far in this case, if ultimately established, show coercion by federal officials, and not the exercise of discretion by websites. Relying on an extensive record, “the district court concluded that the officials, via both private and public channels, asked the platforms to remove content, pressed them to change their moderation policies, and threatened them—directly and indirectly—with legal consequences if they did not comply. And it worked—that ‘unrelenting pressure’ forced the platforms to act and take down users’ content.”  J.A. 16–17.

The Fifth Circuit agreed, holding that federal officials likely “ran afoul of the First Amendment by coercing and significantly encouraging social-media platforms to censor disfavored [speech], including by threats of adverse government action like antitrust enforcement and legal reforms.”  J.A. 32 (internal citations and quotation marks omitted).  In reaching this conclusion, the Fifth Circuit adopted a four-part test, ostensibly derived from Bantam Books, Inc. v. Sullivan, 372 U.S. 58 (1963), to tell when government actions aimed at private parties become coercive: “(1) the speaker’s word choice and tone; (2) “?whether the speech was perceived as a threat?”; (3) “?the existence of regulatory authority?”; and, “perhaps most importantly, (4) whether the speech refers to adverse consequences.”  J.A. 42 (internal citations and quotation marks omitted)

But the Fifth Circuit’s test falls short of the test applied in Bantam Books.  The focus of Bantam Books is not on the subjective understanding of the private actor, but on what the state actors objectively did—namely, was it reasonably understood as attempting to coerce private action.  The Bantam Books test is about the efforts of the state actor to suppress speech, not whether the private actor is in some hyper-literal sense “free” to ignore the state actor.  Surreptitious pressure in the form alleged by respondents is just as much an intervention into the marketplace of ideas as overt censorship.

Consider what happened in Bantam Books.  A legislatively created commission notified book publishers that certain books and magazines were objectionable for sale or distribution.  The commission had no power to sanction publishers or distributors, and there were no bans or seizures of books.  372 U.S. at 66–67.  In fact, the book distributors were technically “free” to ignore the commission’s notices.  Id. at 68 (“It is true * * * that [the distributor] was ‘free’ to ignore the Commission’s notices, in the sense that his refusal to ‘cooperate’ would have violated no law.”).  Nonetheless, this Court held, “the Commission deliberately set about to achieve the suppression of publications deemed ‘objectionable’ and succeeded in its aim.”  Id. at 67.  Particularly important was that the notices could be seen as a threat of prosecution.  See id. at 68–69 (“People do not lightly disregard public officers’ thinly veiled threats to institute criminal proceedings against them if they do not come around[.]  The Commission’s notices, phrased virtually as orders, reasonably understood to be such by the distributor, invariably followed up by police visitations, in fact stopped the circulation of the listed publications[.]  It would be naive to credit the State’s assertion that these blacklists are in the nature of mere legal advice, when they plainly serve as instruments of regulation.”).

Ignoring this lesson of Bantam Books, petitioners focus on the subjective response of social media companies rather than the objective actions of the government.  Petitioners emphasize that media companies did not always censor speech to the degree that federal officials asked.  Br. 39.  But under Bantam Books, that is not the question.  The question is whether the government’s communications could reasonably be seen as a threat.  372 U.S. at 68–69.

They could.  Indeed, the allegations here include (a) many threats to have social media firms investigated, prosecuted, and regulated if they failed to remove disfavored speech, coupled with (b) extensive use of private meetings, emails, and digital portals to pressure firms to remove speech.  Resp. Br. 2–16.  As a result of this pressure, social media firms removed speech against their policies and changed their policies.  Ibid.  Much as in Bantam Books, government pressure suppressed lawful speech.

All this government coercion is a first-order infringement of speech and an impermissible intervention into the marketplace of ideas.  It also destroys the business model of social media websites.  As multisided platforms, these companies must carefully balance users, advertisers, and speech.  Government intervention disrupts this careful balance.  Again, the value proposition of social media websites is that they—as actors in the market—are best situated to curate forums attractive to their users.  Destroying these privately curated forums will chill speech for all Americans.  The Court should find that respondents are likely to succeed on the merits of their First Amendment claim.

As noted, the government is free to use the bully pulpit to persuade—and even to argue publicly that certain content on social media platforms is misinformation that should be demoted or removed. Pet. Brief 23–25 (listing examples of presidential statements criticizing protected speech).  But this does not mean the First Amendment allows coercing private actors into shutting down speech, which is what is shown by the facts adduced here.

The remedy for unlawful government coercion is an injunction against, or in specific cases, damages from, government actors. Here, the District Court and Fifth Circuit rightly focused the injunction against federal officials.  That was correct.  The marketplace of ideas, now freed from impermissible government intervention, leaves its participants free to exercise their editorial discretion as they see fit.  There is no need to enjoin private actors; and, indeed, doing so would undermine the same freedom of expression that enjoining coercive government actors protects.  On remand, the injunction should continue to make clear that social media companies may continue to engage in the marketplace of ideas by exercising editorial discretion.  But the government may not press its thumb on the scale by compelling them to censor.

CONCLUSION

The judgment should be affirmed.

[1] No party or counsel for a party authored this brief in whole or in part.  No one other than amicus or its counsel made a monetary contribution to fund preparation or submission of this brief.

Interest of Amicus[1]

The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies and economic learning to inform policy debates and has longstanding expertise evaluating law and policy.

ICLE has an interest in ensuring that First Amendment law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. ICLE scholars have written extensively in the areas of free speech, telecommunications, antitrust, and competition policy. This includes white papers, law journal articles, and amicus briefs touching on issues related to the First Amendment and common carriage regulation, and competition policy issues related to alleged self-preferencing by Google in its search results.

Introduction

Google’s mission is to “organize the world’s information and make it universally accessible and useful.” See Our Approach to Search, Google (last accessed Jan. 18, 2024), https://www.google.com/search/howsearchworks/our-approach/. Google does this at zero price, otherwise known as free, to its users. This generates billions of dollars of consumer surplus per year for U.S. consumers. See Avinash Collis, Consumer Welfare in the Digital Economy, in The Global Antitrust Instit. Report on the Digital Economy (2020), available at https://gaidigitalreport.com/2020/08/25/digital-platforms-and-consumer-surplus/.

This incredible deal for users is possible because Google is what economists call a multisided platform. See David S. Evans & Richard Schmalensee, Matchmakers: The New Economics of Multisided Platforms 10 (2016) (“Many of the biggest companies in the world, including… Google… are matchmakers… [M]atchmakers’ raw materials are the different groups of customers that they help bring together. And part of the stuff they sell to members of each group is access to members of the other groups. All of them operate physical or virtual places where members of these different groups get together. For this reason, they are often called multisided platforms.”). On one side of the platform, Google provides answers to queries of users. On the other side of the platform, advertisers, pay for access to Google’s users, and, by extension, subsidize the user-side consumption of Google’s free services.

In order to maximize the value of its platform, Google must curate the answers it provides in its search results to the benefit of its users, or it risks losing those users to other search engines. This includes both other general search engines and specialized search engines that focus on one segment of online content (like Yelp or Etsy or Amazon). Losing users would mean the platform becomes less valuable to advertisers.

If users don’t find Google’s answers useful, including answers that may preference other Google products, then they can easily leave and use alternative methods of search. Thus, there are real limitations on how much Google can self-preference before the incentives that allowed it to build a successful platform unravel as users and therefore advertisers leave. In fact, it is highly likely that users of Google search want the integration of direct answers and Google products, and Google provides these results to the benefit of its users. See Geoffrey A. Manne, The Real Reason Foundem Foundered, at 16 (ICLE White Paper 2018), https://laweconcenter.org/wp-content/uploads/2018/05/manne-the_real_reaon_foundem_foundered_2018-05-02-1.pdf (“[N]o one is better positioned than Google itself to ensure that its products are designed to benefit its users”).

Here, as has been alleged without much success in antitrust cases, see United States v. Google, LLC, 2023 WL 4999901, at *20-24 (D. D.C. Aug. 4, 2023) (granting summary judgment in favor of Google on antitrust claims of self-preferencing in search results), the alleged concern is that Google preferences itself at the expense of competitors, and to the detriment of its users. See Complaint (“Google intentionally structures its Results Pages to prioritize Google products over organic search results.”). Ohio asks the court to declare Google a common carrier and subject it to a nondiscrimination requirement that would prevent Google from prioritizing its own products in search results.

The problem, of course, is the First Amendment. Federal district courts have consistently found that the First Amendment protects how providers structure search results. See, e.g., e-ventures Worldwide, LLC v. Google, Inc., 2017 WL 2210029 (M.D. Fla., Feb. 8, 2017); Jian Zhang v. Baidu.com Inc., 10 F. Supp. 3d 433 (S.D. N.Y., Mar. 28, 2014); Langdon v. Google, Inc., 474 F. Supp. 2d 622 (D. Del. 2007); Search King, Inc. v. Google Tech., Inc., 2003 WL 21464568 (W.D. Okla., May 27, 2003).

While Ohio and their amici argue that Google should be considered a common carrier, and thus be subject to a lower standard of review for First Amendment purposes, there is no legal basis for such a conclusion.

First, common carriage is a poor fit for Google’s search product. Courts have rejected monopoly power or being “affected with a public interest” as the proper prerequisites for common carrier status. Ohio, like other jurisdictions, has found that the “fundamental test of common carriage is whether there is a public profession or holding out to serve the public.” Girard v. Youngstown Belt Ry. Co., 134 Ohio St. 3d 79, 89 (2012) (emphasis added). See also Loveless v. Ry. Switching Serv., Inc., 106 Ohio App. 3d 46, 51 (1995) (“The distinctive characteristic of a common carrier is that he undertakes to carry for all people indifferently and hence is regarded in some respects as a public servant.”) (internal quotations omitted). Google simply does not carry information in an undifferentiated way comparable to a railroad carrying passengers or freight. It is rather a service that explicitly differentiates and prioritizes answers to queries by providing individualized responses based upon location, search history, and other factors.

Second, as mentioned above, Google’s search results are protected by the First Amendment, and simply “[l]abeling” Google “a common carrier… has no real First Amendment consequences.” Denver Area Educ. Telecomm. Consortium, Inc. v. FCC, 518 U.S. 727, 825 (1996) (Thomas, J., concurring in the judgment in part and dissenting in part). As this court stated, it is the nondiscrimination requirement sought by Ohio that is subject to First Amendment scrutiny, not the common carriage label itself. See Motion to Dismiss Opinion at 16. And any purported nondiscrimination requirement should be subject to strict scrutiny, as such a requirement would constrain Google’s own speech in the form of its carefully tailored search results, and not simply the speech of others.

Argument

1. Common Carriage Is a Poor Fit as Applied to Google’s Search Product

There is a long history of common carriage regulation in this country. But there has not always been universal agreement on what constitutes the defining feature of a common carrier, with proposed justifications ranging from monopoly power (or natural monopoly) to being affected by the public interest. Over time, though, courts and commentators, including Ohio courts, have agreed that common carriage is primarily about holding oneself out to serve the public indiscriminately.

Simply put, Google Search does not hold itself out to, nor does it actually serve, the public indiscriminately by carrying information, either from users or from other digital service providers. It provides individualized and tailored answers to users’ queries, which may include Google products, direct answers, or general information its search crawlers have learned about other service providers on the Internet.

A. Common Carriage Is Not About Monopoly Power or the Public Interest, It’s About Holding Oneself Out to Serve the Public Indiscriminately

In its complaint, Ohio makes much of Google’s market share in search. See Complaint para. 19-32. Amici also argue that the “immense market dominance” of Google makes it a common carrier analogous to telegraphs or telephones. See Claremont Amicus at 6. Similarly, both Ohio and amici argue that Google’s search results are affected by a public interest. See Complaint at 40; Claremont Amicus at 3-4.

Whatever the market share of Google search, common law courts, including those of Ohio, do not find monopoly power to be a part of the definition of common carriage. For instance, the presence of competition for innkeepers did not mean they were not subject to requirements to serve. See Joseph William Singer, No Right to Exclude: Public Accommodations and Private Property, 90 Nw. U. L. Rev. 1283, 1319-20 (1996) (“On the monopoly rationale, it is important to note that none of the antebellum cases bases the duty to serve on the fact of monopoly. Indeed, the presence of competition was never a reason for denying the duty to serve in the antebellum era. In many towns, there were several innkeepers and cities like Boston had dozens of innkeepers. Yet, no lawyer, judge, or treatise writer ever suggested that innkeepers in cities like Boston should be exempt from the duty to serve the public.”). Nor does the presence of monopoly necessarily lead to common carriage treatment under the law. See Blake Reid, Uncommon Carriage, at 25, 76 Stan. L. Rev., forthcoming (2024) (“[F]irms holding effective monopolies or oligopolies in a wide range of sectors, including pharmacies and drug stores, managed healthcare providers, office supply stores, eyeglass sellers, airlines, alcohol distribution, and even candy are not widely regarded or legally treated as common carriers.”). Accordingly, Ohio does not define common carriage in relation to monopoly power. Cf. Kinder Morgan Cochin LLC v. Simonson, 66 N.E. 1176, 1182 (Ohio Ct. App. 5th Dist. Ashland County 2016) (failing to mention monopoly as part of the definition of common carrier).

Moreover, while older cases and commentators cite the “affected with a public interest” standard, courts have moved away from it because of its indeterminacy. See Biden v. Knight First Amendment Inst., 141 S. Ct. 1220, 1223 (2021) (Thomas, J., concurring) (this definition is “hardly helpful, for most things can be described as ‘of public interest.’”). See also Christopher S. Yoo, The First Amendment, Common Carriers, and Public Accommodations: Net Neutrality, Digital Platforms, and Privacy, 1 J. of Free Speech L. 463, 468-69 (2021).

Instead, the definition of common carriage under Ohio law is defined as holding itself “out to the public as ready and willing to serve the public indifferently.” See Kinder Morgan Cochin, 66 N.E. at 1182; Girard v. Youngstown Belt Ry. Co., 134 Ohio St. 3d 79, 89 (2012); Loveless v. Ry. Switching Serv., Inc., 106 Ohio App. 3d 46, 51 (1995).

B. Google Does Not Offer an Undifferentiated Search Product to Its Users

With this definition in mind, Google is not a common carrier. Google does not offer an undifferentiated service to its users like a pipeline (like in Kinder Morgan Cochin) or railroad (like in Girard or Loveless), or even like a mall offering an escalator to customers (like in May Department Stores Co. v. McBride, 124 Ohio St. 264 (1931)). Nor does it offer to “communicate or transmit” information of “their own design and choosing” to users. See FCC v. Midwest Video Corp., 440 U.S. 689, 701 (1979) (defining common carrier services in the communications context). Instead, it offers a tailored search result to its users. See Complaint at paras. 17-18 (noting that search results depend on location); How Search work with your activity, Google (last accessed Jan. 18, 2024), https://support.google.com/websearch/answer/10909618 (“When you search on Google, your past searches and other info are sometimes incorporated to help us give you a more useful experience.”). This is not a common carrier in the communications context. See Midwest Video, 440 U.S. at 701 (“A common carrier does not make ‘individualized decisions, in particular cases, whether on what terms to deal.’”) (quoting Nat’l Ass’n of Reg. Util. Comm’rs v. FCC, 525 F.2d 630, 641 (D.C. Cir. 1976)).

For instance, if a user searches for restaurants, Google’s algorithm may not only take into consideration the location of the user, but also whether the user previously clicked on particular options when running a similar query, or even if the user visited a particular restaurant’s website. While the results are developed algorithmically, this is much more like answering a question than it is transporting a private communication between two individuals like a telephone or telegraph.

Importantly, users often receive a different result even for the same search. See Why your Google Search results might differ from other people, Google (last accessed Jan. 18, 2024), https://support.google.com/websearch/answer/12412910 (“You may get the same or similar results to someone else who searches on Google Search. But sometimes, Google may give you different results based on things like time, context, or personalized results.”). Google is clearly making “‘individualized’ content- and viewpoint-based decisions” when it comes to search results. Cf. Moody v. NetChoice, 34 F.4th 1196, 1220 (11th Cir. 2022) (quoting Midwest Video, 440 U.S. at 701).

While the court emphasized at the motion to dismiss stage that a reasonable factfinder could find Google offers to hold itself out to the public in its mission “to organize the world’s information and make it universally accessible and universal,” see MTD Opinion at 7, this does not “change [its] status to common carrier[]… unless [it] undertake[s] to carry for all people indifferently.” Loveless, 106 Ohio App. 3d at 52. As the above facts demonstrate, there is no basis for finding that Google search offers an undifferentiated product to its users. The court should find Google is not a common carrier under Ohio law.

II. Google’s Search Results Are Protected by the First Amendment from Common Carriage Nondiscrimination Requirements

Ohio ultimately seeks to restrict the ability of Google to favor its own products in its search results. But this runs into a real constitutional problem: search results are protected by the First Amendment.

Moreover, as this court has previously found, the First Amendment scrutinizes not the label of common carriage, but the burdens which come with it. Here, the nondiscrimination requirement Ohio asks for is what is at issue.

This nondiscrimination requirement is inconsistent with the First Amendment. While this court thought it should be subject to intermediate scrutiny, the First Amendment requires strict scrutiny when speech is compelled. The cases cited by the court are inapposite when a speaker is delivering its own message, i.e. search results, rather than simply hosting speech of others.

A. Federal District Court Cases Establish Google Search Results Are Protected by the First Amendment

While no appellate court has considered the issue, several federal district courts have recognized search engines have a First Amendment interest in their search results. Some decisions have framed the results themselves as speech. Others have considered the issue as one of editorial judgment. But under either approach, Google Search results are protected by the First Amendment.

For instance, in Jian Zhang v. Baidu.com, 10 F. Supp. 3d 433 (S.D. N.Y. Mar. 28, 2014), the court found that the application of a New York public accommodations law to a Chinese search engine that “censored” pro-democracy speech is inconsistent with the right to editorial discretion. The court found that “there is a strong argument to be made that the First Amendment fully immunizes search-engine results from most, if not all, kinds of civil liability and government regulation.” Id. at 438.  The court noted that “the central purpose of a search engine is to retrieve relevant information from the vast universe of data on the Internet and to organize it in a way that would be most helpful to the searcher. In doing so, search engines inevitably make editorial judgments about what information (or kinds of information) to include in the results and how and where to display that information (for example, on the first page of the search results or later).” Id.  Other courts have similarly found search engines have a right to editorial discretion over their results. See also e-ventures Worldwide, LLC v. Google, Inc., 2017 WL 2210029, at *4 (M.D. Fla. Feb. 8, 2017); Langdon v. Google, Inc., 474 F. Supp. 2d 622, 629-30 (D. Del. 2007).

In this sense, Google’s search results are analogous to the decisions of what to print made by the newspaper in Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241 (1974), or the parade organizer in Hurley v. Irish-American Gay, Lesbian, & Bisexual Group of Boston, 515 U.S. 557 (1995).

At least one court has found that search results themselves are protected opinions. In Search King Inc. v. Google Technology, Inc., 2003 WL 21464568, at *4 (WD. Okla. May 27, 2003), the court found that search results “are opinions—opinions of the significance of particular web sites as they correspond to a search query. Other search engines express different opinions, as each search engine’s method of determining relative significance is unique.”

Under this line of reasoning, Google’s responses to queries are opinions directing users to what it thinks is the best answer given all the information it has on the user, her behavior, and her preferences. This is in itself protected speech. Cf. Eugene Volokh & Donald M. Falk, Google: First Amendment Protection for Search Results, 8 J. L. Econ. & Pol’y 883, 884 (2012) (“[S]earch engines are speakers… they convey information that the search engine has itself prepared or compiled [and] they direct users to material created by others… Such reporting about others’ speech is itself constitutionally protected speech.”).

In sum, the First Amendment protects Google’s search results.

B. A Common Carriage Label Does Not Change First Amendment Analysis

Amici argued that because Google is a common carrier, the nondiscrimination requirement is merely an economic regulation that is not subject to heightened First Amendment scrutiny. See Claremont Amicus at 17. But the issue here is not simply the label of common carriage, it is the regulatory scheme sought by Ohio. Cf. Denver Area Educ. Telecomm. Consortium, Inc. v. FCC, 518 U.S. 727, 825 (1996) (Thomas, J., concurring in the judgment in part and dissenting in part) (“Labeling leased access a common carrier scheme has no real First Amendment consequences.”); MTD Opinion at 16 (“As for the State’s request for declaratory relief, merely declaring or designating Google Search to be a common carrier does not, of itself, violate the First Amendment or infringe on Google’s constitutional speech rights…. It is the burdens and obligations accompanying that designation that implicate the First Amendment.”).

In other words, when reviewing the nondiscrimination requirement sought by Ohio, the labeling of this as a common carriage obligation does not matter under the First Amendment.

C. The Nondiscrimination Requirement Should be Subject to Strict Scrutiny

Ohio and amici have characterized the nondiscrimination requirement that comes with common carriage as a content-neutral requirement to host the speech of others. See MTD Opinion at 16; Claremont Amicus at 15, 17. This court agreed that this was possible at the motion to dismiss stage. But the remedy sought is not content-neutral, nor is it dealing purely with the speech of others. As a result, it should be subject to strict scrutiny.

This court found that a “restriction of this type must satisfy intermediate scrutiny” as a “content-neutral restriction on speech.” MTD Opinion at 16. The court compared the situation to Turner Broadcasting System Inc. v. FCC, 512 U.S. 622 (1994). But the nondiscrimination requirement is clearly content-based.

Ohio is asking this court to enjoin Google from prioritizing its own products in its search results. See Complaint at para. 77. The only way to know whether Google is doing that is to consider the content of its search results. See, e.g., Reed v. Town of Gilbert, Ariz., 576 U.S. 155, 163 (2015) (“Government regulation of speech is content based if a law applies to particular speech because of the topic discussed or the idea or message expressed.”). The idea or message expressed here is that Google’s products would be a better answer to an inquiry than another. By definition, the nondiscrimination requirement is a content-based regulation of speech, and must therefore be subject to strict scrutiny.

Nor is this just an issue of the speech of others. This court stated that “infringing on a private actor’s speech by requiring that actor to host another person’s speech does not always violate the First Amendment.” MTD Opinion at 17. The court cited PruneYard Shopping Ctr. v. Robins, 447 U.S. 74 (1980), Rumsfeld v. Forum for Academic and Institutional Rights, Inc., 547 U.S. 47 (2007), and Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969). But none of these cases deals with a situation analogous to applying nondiscrimination requirements to Google’s search results.

Here, as explained above, Google’s search results are themselves protected speech. Collectively, each search result is Google’s opinion of the best set of answers, in the optimal order, to questions provided by users to Google. Requiring Google to present different results, or results in a different order, or with different degrees of prioritization would impermissibly compel Google to speak, similar to requiring car owners to display license plates saying “Live Free or Die,” see Wooley v. Maynard, 430 U.S. 705 (1977), or forcing a student to stand for the Pledge of Allegiance, see West Virginia State Bd. of Educ. V. Barnette, 319 U.S. 624 (1943). It is, in short, impossible to require “Google [to] carr[y] all responsive search results on an equal basis,” Complaint at 5, without compelling it to speak in ways it does not choose to speak.

Even if Google’s interest in its search results is characterized as editorial discretion over others’ speech rather its own speech (a dubious distinction), this would still be distinguishable from the above cases. Google is clearly identified with its results by users, unlike the shopping center with its customers in PruneYard or the law schools with military recruiters in FAIR. See Complaint at paras. 48-50 (alleging that Google was built on expectations from users that the search algorithm was in some way neutral). This is especially the case when Google is, as alleged, prioritizing its own products in search results. See id. at paras. 64-70. Google clearly believes, and its users appear to agree, that these products are what its users want to see. See Complaint at 2 (“Google Search is perceived to deliver the best search results…”). Otherwise, those users could just use another service. Cf. Zhang, 10 F. Supp. 3d at 441 (a user dissatisfied with search results can just use another search engine).

Notably, this stands in contrast to the court’s characterization of the speech at issue. See MTD Opinion at 19-20 (“When a user searches a speech by former President Donald Trump on Google Search and that speech is retrieved by Google with a link to the speech on YouTube, no rational person would conclude that Google is associating with President Trump or endorsing what is seen in the video.”). It is not the content of the links that users associate with Google, but the search results themselves, which includes the order in which each link is presented, the presentation of certain prioritized results in a different format, and the exclusion or deprioritization of certain results Google thinks the user will not find relevant. A search engine is more than a “passive receptacle or conduit” for the speech of others; the “choice of material” and how it is presented in its search results “constitute the exercise of editorial control and judgment.” Tornillo, 418 U.S. at 258.

In sum, the reasons for subjecting must-carry provisions in Turner to intermediate scrutiny do not apply here. First, the nondiscrimination requirement sought by Ohio is not content-neutral; indeed, it is precisely Ohio’s dissatisfaction with the specific content Google provides that impels its proposed law. Cf. Turner, 512 U.S. at 653-55 (emphasizing the content-neutrality of the must-carry requirements). Second, Google must alter its message in its search results due to the regulation, as it is expressing a clear opinion that its own products are the best answer—an answer with which Google is identified and which distinguishes it from its search engine competitors. Cf. id. at 655-56 (finding the must-carry requirements would not force cable operators to alter their own messages or identify them with the speech they carry). Third, Google does not have the ability to prevent its users from accessing information, whether from other general search engines, specialized search engines, or just typing a website into the browser. Cf. Turner, 512 U.S. at 656 (“When an individual subscribes to cable, the physical connection between the television set and the cable network gives the cable operator bottleneck, or gatekeeper control over most (if not all) of the television programming that is channeled into the subscriber’s home… A cable operator, unlike other speakers in other media, can thus silence the voice of competing speakers with a mere flick of the switch.”). Absent these countervailing justifications for intermediate scrutiny in Turner, Ohio’s nondiscrimination requirement must be subject to strict scrutiny.

Finally, while it is true that economic regulation like antitrust law can be consistent with the First Amendment, see Claremont Amicus at 17 (citing Associated Press v. United States, 326 U.S. 1, 20), that does not mean every legal restriction on speech so characterized is constitutional. For instance, in Associated Press, the Supreme Court found the organization in violation of antitrust law, but in footnote 18 disclaimed the power to “compel AP or its members to permit publication of anything which their ‘reason’ tells them should not be published.” Associated Press, 316 U.S. at 20, n. 18. The Court echoed this in Tornillo to argue that the remedy sought by Florida’s right-to-reply law was unconstitutional government compulsion of speech that would violate the newspaper’s right to editorial discretion. See Tornillo, 418 U.S. at 254-58. Restricting Google’s right to editorial discretion over its search results is similarly unconstitutional.

Conclusion

Ohio’s attempted end-run of competition law and the First Amendment by declaring Google a common carrier must be rejected by this court. Google is not a common carrier. And the nondiscrimination requirement requested by Ohio is inconsistent with the First Amendment.

[1] Amicus state that no counsel for any party authored this brief in whole or in part, and that no entity or person other than amicus and its counsel made any monetary contribution toward the preparation and submission of this brief.

Introduction

Market definition is a critical component of any antitrust case. Not only does it narrow consideration to a limited range of relevant products or services but, perhaps more importantly, it specifies a domain of competition at issue in an antitrust case—that is, the nature of the competition between certain firms that might (or might not) be harmed by the conduct of the defendant. As Greg Werden has characterized it:

Alleging the relevant market in an antitrust case does not merely identify the portion of the economy most directly affected by the challenged conduct; it identifies the competitive process alleged to be harmed.[1]

Unsurprisingly, plaintiffs—not least, antitrust agencies—are often tempted to define artificially narrow markets in order to reinforce their cases (sometimes, downright ridiculously so[2]). The consequence is not merely to artificially inflate the market significance of the firm under scrutiny, although it does do that; it is also to misapprehend and misdescribe the true nature of competition relevant to the challenged conduct.

This unfortunate trend—allegations of harm to artificially constrained and gerrymandered markets—is exemplified in the Federal Trade Commission’s (FTC) recent proceedings against Amazon.

The FTC’s complaint against Amazon describes two relevant markets in which anticompetitive harm has allegedly occurred: (1) the “online superstore market” and (2) the “online marketplace services market.”[3]

Unfortunately, both markets are excessively narrow, thereby grossly inflating Amazon’s apparent market share and minimizing the true extent of competition. Moreover, the FTC’s approach to market definition here—lumping together wildly different products and wildly different sellers into single “cluster markets”—grossly misapprehends the nature of competition relating to the challenged conduct.

First, the FTC’s complaint limits the online-superstore market to online stores only, and further limits it to stores that have an “extensive breadth and depth”[4] of products. The latter means online stores that carry virtually all categories of products (“such as sporting goods, kitchen goods, apparel, and consumer electronics”[5]) and that also have an extensive variety of brands within each category (such as Nike, Under Armor, Adidas, etc.).[6] In practice, this definition excludes leading brands’ private channels (such as Nike’s online store),[7] as well as online stores that focus on a particular category of goods (such as Wayfair’s focus on furniture).[8] It also excludes the brick-and-mortar stores that still account for the vast majority of retail transactions.[9] Firms with significant online and brick-and-mortar sales might count, but only their online sales would be considered part of the market.

Second, the online-marketplace-services market is limited to online platforms that provide access to a “significant base of shoppers”;[10] a search function to identify products; a means for the seller to set prices and present product information; and a method to display customer reviews. This implies that current Amazon sellers can’t reach consumers through mechanisms that don’t incorporate all these specific functions, even though consumers regularly use multiple services and third-party sites that accomplish the same thing (e.g., Google Shopping, Shopify, Instagram, etc.)[11] Moreover, it implies that these myriad alternative channels do not constrain Amazon’s pricing of its services.

Documents identified in the complaint do appear to demonstrate that Amazon pays substantial attention to competition from online superstores and online marketplaces. But cherry-picked business documents do not define economically relevant markets.[12] At trial, Amazon will doubtless produce a host of ordinary-course documents that show significant competition from a wide array of competitors on both sides of its retail platform. The scope of competition that the FTC sketches—based on a few documents from among tens of thousands—is a public-relations and litigation tactic, but not remotely the full story.

Third, the FTC’s casual use of “cluster markets,” which lump together distinct types of products and different types of sellers into single markets, may severely undermine the commission’s case. It’s one thing to group, say, all recorded music into a single market (despite the lack of substitutability between, say, death metal and choral Christmas music), but it’s another thing entirely to group batteries and bedroom furniture into a single “market,” just because Amazon happens to facilitate sales of both.

Fourth and finally, it is notable that the relevant markets alleged in the FTC’s complaint draw a distinct line between the seller and buyer sides of Amazon’s platform. Implicit in this characterization is the rejection of cross-market effects as a justification for Amazon’s business conduct. Some of the FTC’s specific concerns—e.g., the alleged obligation imposed on sellers to use Amazon’s fulfillment services to market their products under Amazon’s Prime label—have virtually opposite implications for the seller and buyer sides of the market. Arbitrarily cordoning off such conduct to one market or the other based on where it purportedly causes harm (and thus ignoring where it creates benefit) mangles the two-sided, platform nature of Amazon’s business and would almost certainly lead to its erroneous over-condemnation.[13]

Ultimately, what will determine the scope of the relevant markets will be economic analysis based on empirical data. But based on the FTC’s complaint, public data, and common sense (the best we have to go on, for now), it seems implausible that the FTC’s conception of distinct, and distinctly narrow, relevant markets will comport with reality.

An artificially narrow and gerrymandered market definition is a double-edged sword. If the court accepts it, it’s much easier to show market power. But the odder the construction, the more likely it is to strain the court’s credulity. The FTC has the burden of proving its market definition, as well as competitive harm. By defining these markets so narrowly, the FTC has ensured it will face an uphill battle before the courts.

I.           The Alleged ‘Online Superstore’ Market

A first weakness of the FTC’s suit pertains to the alleged “online superstore market.” This market definition excludes the following: (1) brick-and-mortar retailers, (2) brick-and-mortar sales by firms that do considerable business online and in-person, and (3) online retailers that don’t meet the definition of a “superstore.”[14] The FTC’s market definition also excludes sales of perishable grocery items.[15] The agency argues that consumers don’t consider these other types of retailers to be substitutes for online superstores.[16] This seems dubious, and the FTC’s complaint does little to dispel the doubt.

To see how the market definition tilts the balance, consider the FTC’s allegation that Amazon dominates the online-superstore market with approximately 82% market share.[17] That is, Amazon is reported to have approximately 82% market share (in gross merchandise value, or “GMV”), provided we exclude perishables, and consider the market to comprise solely U.S. online sales by Amazon, Walmart, Target, and eBay, but no other vendors. Note, for example, that Walmart, Target, and Costco all have both online and in-person sales at brick-and-mortar stores, but Costco’s online sales are excluded from the online-superstore category, presumably due to their relatively limited scale and scope. But counting both online and in-person sales, it turns out that twelve-month trailing revenue at Costco is reported to be more than double that of Target, which is included in the FTC’s online-superstore category.[18] Amazon’s share of overall online retail is substantial, but it’s much smaller (37.6%) than its share of a purported market that comprises Amazon, Walmart online, Target online, eBay, and nobody else.[19] Indeed, if one includes total retail sales, then Walmart leads Amazon, not vice versa.[20] And while e-commerce may be substantial and growing, it still represents only about 15% of U.S. retail.[21]

There are countless examples where consumers cross-shop online and offline—televisions and other electronics, clothing, and sporting goods (among many others) spring to mind. Indeed, most consumers would surely be hard-pressed to identify any product they’ve purchased from Amazon that they have not, at some point, also purchased from an offline or non-superstore retailer.

Defining a market with reference to a single retailer’s particular product offering—that is, by a single channel of distribution—is unlikely to “identif[y] the competitive process alleged to be harmed.”[22] In fact, for consumers, it doesn’t identify a product at all, and ends up excluding a host of competing sellers that offer economic substitutes for the products consumers actually buy.[23] By failing to do so, the FTC’s purported market definition is woefully deficient in describing the scope of competition: “Including economic substitutes ensures that the relevant product market encompasses ‘the group or groups of sellers or producers who have actual or potential ability to deprive each other of significant levels of business.’”[24]

A.        Brick-and-Mortar Competes with Amazon Because Shopping Is Not the Same Thing as Consuming

While it may be that some consumers do not consider offline vendors or non-superstores to be substitutes, it does not follow that such rivals don’t impose competitive constraints on online superstores.

If a hypothetical monopolist raises prices, some consumers—perhaps many, perhaps even most—may switch to a brick-and-mortar retailer. That may be enough to constrain the monopolist’s pricing. How many might switch, and the extent to which that constrains pricing, are empirical questions, but there is no question that some consumers might switch: retail multi-homing is common.

And the constraints on switching are far weaker than the FTC claims. The complaint observes that 1) brick-and-mortar retailers are less convenient because it takes time to go to a physical store, 2) stores are not open for shopping at all hours, and 3) consumers may have to visit multiple stores to buy the necessary items.[25]

Online shopping is almost certainly quicker than offline—at least, once one is sitting in front of a computer with Internet access. But the complaint seems to conflate shopping with consuming.

Even with Amazon’s impressive fulfillment and delivery network, if a consumer needs a product that very moment or even that day, a brick-and-mortar retailer may be preferable. The same may be true in circumstances in which a consumer wants to see a product in person, try on clothing, consult an experienced salesperson, etc. And while some consumers may enjoy shopping, they may or may not prefer the experience of online shopping.

More generally and more to the point, consumers purchase goods to use and consume them. Online stores may be “always open,” but shipping and delivery are not instantaneous. That one can shop online at all hours may be convenient, but it may do nothing to hasten the ability to consume the items purchased.

Meanwhile, brick-and-mortar retailers typically have websites that show their inventory and pricing online. Consumers can, accordingly, comparison shop across e-commerce and brick-and-mortar vendors, even when the brick-and-mortar retailers have closed for the evening.

B.         ‘Depth and Breadth’ Isn’t Solely Available from Superstores, and Consumers Buy Products, Not Store Types

Consumers within the “online superstore market” may be able to prevent a hypothetical monopolist from raising prices by switching to other online channels that don’t qualify as a “superstore,” as defined by the FTC.

For example, if a consumer is looking for sporting goods, she can shop at an online superstore, or she can shop at Dick’s online, REI online, or Bass Pro online, all of which have an exceptional “depth and breadth” of items.[26] Alternatively, if the consumer is shopping for a Columbia Sportswear jacket, in addition to the sporting-goods retailers listed, she can also shop on Columbia’s website[27] or at any other online-clothing retailer that carries Columbia jackets (e.g., Macy’s or Nordstrom[28]).

The complaint anticipates and responds to this concern by saying that non-superstore online retailers (as well as brick-and-mortar retailers) lack the depth and breadth of products sold by superstores.[29] But so what? For many consumers, Amazon purchases are made one (or a few) item(s) at a time. When consumers need a bolt cutter, they log in and order it, and when they need a pair of sneakers the next day, they log in and order that. They don’t wait to buy the bolt cutter until they are ready to buy sneakers (i.e., people don’t typically log in to Amazon with a shopping list and purchase multiple items at the same time, except perhaps for perishable groceries, which are excluded from the proposed market). Whether the consumer is buying one item or three or five, a purchase that bundles products across the broad scope of the online-superstore market is not at all the norm.

Indeed, part of the purported advantage of online shopping—when it’s an advantage—is that consumers don’t have to bundle purchases together to minimize the transaction costs of physically visiting a brick-and-mortar retailer. Meanwhile, another part of the advantage of online shopping is the ease of comparison shopping: consumers don’t even have to close an Amazon window on their computers to check alternatives, prices, and availability elsewhere. All of this undermines the claim that one-stop shopping is a defining characteristic of the alleged market.

Data are hard to come by (and the data will ultimately demonstrate whether and to what extent the complaint portrays reality), but public sources indicate that the average number of units per transaction is less than three (admittedly, this is worldwide, and for all online e-commerce, not just Amazon).[30] This does not suggest that shoppers demand extensive “depth and breadth” each time they shop online.

Meanwhile, important lacunae in Amazon’s offerings belie the notion that it offers a true “depth and breadth” that transcends competitive constraints from other retailers. The fact that Nike, on the seller side, doesn’t view Amazon as an essential marketplace[31]—in other words, it believes it has plenty of alternative, competing channels of distribution—has important consequences for the FTC’s market definition on the consumer side. It’s difficult to conceive of a retailer offering anything approaching a comprehensive “depth and breadth” of footwear without offering any Nike shoes. For consumers who buy shoes, Amazon is hardly a unique outlet, and finding even a minimally suitable range of options requires shopping elsewhere, either in combination with Amazon or in its stead.

But the implications are even greater. Because the FTC has grouped sales of all products together—not just footwear or even apparel—and defined the relevant market around that broad clustering of disparate products, can it really be said that Amazon is a “one-stop-shop” at all if it doesn’t offer Nike shoes?

The example may seem trivial, but it aptly illustrates the inherent error in defining the product market essentially by the offerings of a single entity. Necessarily, those offerings will be unique and affected by a host of seller/buyer interactions specific to that company. And in many cases, those specific inclusions and exclusions may be significantly more important than the simple number of SKUs on offer (which is essentially the basis for including Walmart and Target online, but excluding, say, Costco online from the FTC’s “superstores” market).

Further, despite its repeated reliance on “depth and breadth,” the complaint ignores e-commerce aggregators, which allow consumers to search products and pricing across an incredible variety of retailers. Google Shopping is, of course, the most notable example—and, for such a prominent example, curiously absent from the complaint. Through Google Shopping—among other sites—consumers can see extensive results in one place for almost any product, including across all categories and across many brands (the breadth-and-depth factors relied upon by the complaint). Indeed, while many product searches today begin at Amazon, a huge amount of online shopping takes place via Google.[32]

Moreover, online shoppers regularly use third-party sites to research (shop) for products, and these, too, aggregate information from across a huge range of sources. As Search Engine Land reports:

Reviews and ratings can make or break a sale more than any other factor, including product price, free shipping, free returns and exchanges, and more.

Overall, 77% of respondents said they specifically seek out websites with reviews—and this number was even higher for Gen Z (87%) and millennials (81%).[33]

While Amazon is where consumers most often read reviews (94%), other retail websites (91%), search engines (70%), brand websites (68%), and independent review sites (40%) are all significant.[34] And yet, despite their manifest importance in the competitive process of online retail, the FTC’s complaint entirely dismisses the significance of shopping aggregators and non-Amazon, product-review sources.

II.         The Alleged ‘Online Marketplace Services’ Market

The complaint is similarly flawed when it assesses the scope of competition from the point of view of sellers.

The complaint endeavors to distinguish and exclude from the market for online marketplace services all other methods by which a seller can market and sell its products to end consumers. For instance, the complaint distinguishes online marketplaces from online retailers where the seller functions as a vendor (i.e., it transfers title to the retailer) and those where sellers provide their own storefronts or sell directly through social media and other aggregators using “software-as-a-service” (“SaaS”) to market products (e.g., Shopify and BigCommerce).[35]

The complaint alleges that neither operating as a vendor nor utilizing SaaS is “reasonably interchangeable”[36] with online marketplace services—the key language from the Brown Shoe case.[37] But merely saying so does not make it true. Service markets can display differentiated competition, just as product markets do. Superficial—and even significant—differences among services do not, in themselves, establish that they are not competitors.

First, where sellers operate as vendors by transferring title to another party to sell the product (either online or at a brick-and-mortar retailer), they could very well constrain the costs that a hypothetical monopolist imposes on sellers. For example, if a hypothetical monopolist increased prices or decreased quality for selling a product, why would Nike not transfer its products away from the monopolist and toward Foot Locker, Macy’s, or any other number of retailers where Nike operates as a vendor? Or why not rely on Nike’s own website, selling directly to the consumer? In fact, Nike has already done this. In 2019, Nike stopped selling products to Amazon because it was dissatisfied with Amazon’s efforts to limit counterfeit products.[38] Instead, Nike opted to sell directly to its consumers or through its other retailers (both online and offline, of course).

The same can be said for sellers without well-known brands or those who opt to use SaaS to sell their products. Certainly, there are differences between SaaS and online-marketplace services, but that doesn’t mean that a seller can’t or won’t use SaaS in the face of increased prices or decreased quality from an online marketplace. Notably, Shopify claims to be the third-largest online retailer in the United States, with 820,000 merchants selling through the platform.[39] It’s remarkable that it is completely absent from the FTC’s market definition.

Also remarkable is that he FTC’s complaint alleges that SaaS providers are not in the relevant market because:

SaaS providers, unlike online marketplace service providers, do not provide access to an established U.S. customer base. Rather, merchants that use SaaS providers to establish direct-to-consumer online stores must invest in marketing and promotion to attract U.S. shoppers to their online stores.[40]

This is remarkable because a significant claim in the FTC’s complaint is that Amazon has “degraded” its service by introducing sponsored search results, “litter[ing] its storefront with pay-to-play advertisements,” and allegedly requiring (some would say enabling…) sellers to pay for marketing and promotion.[41] It’s unclear why the need to invest in marketing and promotion to attract shoppers to one’s online storefront is qualitatively different than the need to invest in marketing and promotion to attract shoppers to one’s products on Amazon’s platform.

Indeed, the notion that large platforms like Amazon simply “provide access” to consumers glosses over the immense work that such access entails. Amazon and similar platforms (including, of course, SaaS providers) make significant investment in designing and operating user interfaces, matching algorithms, marketing channels, and innumerable other functionalities to convert undifferentiated masses of consumers and sellers into a functional retail experience. Amazon’s value for sellers in providing access to customers must be balanced by the reality that, in doing so, large “superstores” like Amazon also necessarily put a large quantity of disparate sellers in the same unified space.

For obvious reasons, sellers don’t necessarily value selling their products in the same location as other sellers. They do, of course, want access to consumers, but the “marketplace” or “superstore” aspects of Amazon simultaneously impedes that access by congesting it with other sellers and products (and consumers seeking other products). A specialized outlet may, in fact, offer the optimal sales environment: all consumers seeking the seller’s category of goods (but somewhat fewer consumers), and fewer sellers impeding discovery and access (though more selling the same category of goods). A furniture seller may have dozens of online outlets (and, of course, many offline outlets, catalog sales, decorator sales, etc.), and there is little or no reason to think that, by virtue of also offering batteries, clothes, and bolt cutters, Amazon offers anything truly unique to a furniture seller that it can’t get by selling through another distribution channel with a different business model.

The complaint relies heavily on this notion that online-marketplace services deliver a large customer base that cannot be matched by selling as a vendor or using SaaS. (It is entirely unclear if the FTC considers single-category online marketplaces like Wayfair to be in the “online marketplace services” market, a topic to which I return below in the “cluster markets” discussion; it is clear the FTC doesn’t consider Wayfair part of the “online superstores market.”).[42] Again, in this context, the complaint ignores e-commerce aggregators and how they affect sellers’ ability to access customers. Through Google Shopping, consumers can see extensive results for almost any product, including across all categories and across many brands. And Google aggregates product listings without charging the seller.[43] Thus, through Google Shopping, a seller can access a large consumer base that may constrain a hypothetical monopolist in the online-marketplace-services market.

And Google Shopping is not alone. Selling through social media has boomed. According to one source, Instagram is an online-shopping juggernaut.[44] Among other things:

• 130 million people engage with shoppable Instagram posts monthly;
• 72% of users say they made a purchase based on something they saw on Instagram;
• 70% of Instagram users open the app in order to shop; and
• 81% of Instagram users research new products and services on the platform.[45]

Sellers on Instagram can use Meta’s “Checkout on Instagram”[46] service to process orders directly on Instagram, as well as logistics services like Shopify or ShipBob to manage their supply chains and fulfill sales,[47] replicating the core functionality of a vertically integrated storefront like Amazon.

The bottom line is that Amazon is not remotely the only (or, in many cases, even the best) place for sellers to find, market, and sell to consumers. Its superficial differences from other distribution channels are just that: superficial.

III.       Cluster Markets

One of the most important problems with the FTC’s alleged relevant markets is that they treat all products and all sellers the same. They effectively assume that consumers shop for bolt cutters the same way they shop for furniture, and that Adidas sells shoes the same way that drop-shippers sell toilet paper.

Courts have recognized that such an approach—using “cluster markets” to assess a group of disparate products or services in a single market—can be appropriate for the sake of “administrative[ ]convenience.” As the 6th U.S. Circuit Court of Appeals noted in Promedica Health v. FTC, “[t]his theory holds, in essence, that there is no need to perform separate antitrust analyses for separate product markets when competitive conditions are similar for each.”[48]

A second basis for clustering is the “transactional-complements” theory, relabeled by the 6^th Circuit as the “‘package-deal’ theory.”[49] This approach clusters products together for relevant market analysis when “‘most customers would be willing to pay monopoly prices for the convenience’ of receiving certain products as a package.”[50]

For example, it may be appropriate to refer to a “market for recorded music” even though consumers of music by Taylor Swift probably exert little or no competitive pressure on the price or demand for recordings of, say, Cannibal Corpse. Thus, in the EU’s 2012 clearance (with conditions) of the Universal Music Group/EMI Music merger, the Commission determined that, although classical music may present somewhat different competitive dynamics, there was no basis for defining separate markets by artist or even by genre.[51]

Hospital mergers provide another classic example.[52] Labor and delivery services are not a substitute for open-heart surgery, but the FTC nonetheless frequently defines a market as “inpatient general acute care services” or something similar because of the similar relationship of each to a hospital’s organization and administration, as well as the fact that payers typical demand such services (and hospitals typically provide such services) in combination (even though patients, of course, do not consume them together).

The Supreme Court put its imprimatur on the notion of a cluster market in Philadelphia National Bank, accepting the lower court’s determination that “commercial banking” constituted a relevant market because of the distinctiveness, cost advantages, or consumer preferences of the constituent products.[53]

A.        Assessing Cluster Markets

Widespread use (and the occasional fairly serious analysis) of cluster markets notwithstanding, it is worth noting that the economic logic of such markets is, at best, poorly established.

In the UMG/EMI case, for example, the Commission rested on the following factors in concluding that markets should not be separated out by genre (let alone by artist):

The market investigation showed that, by and large, a segmentation of the recorded music market based on genre is not appropriate. First, the borders between genres are often blurred and artists and songs can fit within several genres at the same time. Second, several customers also underline that placing of a song or an album into a specific genre is entirely subjective. Third, a vast majority of customers indicated that they purchase and sell all genres of music.[54]

These facts may all be true, but they do little to permit the inference drawn. Indeed, the first two factors arguably refer only to administrability, not economic reality, and the third is woefully incomplete (e.g., it says little about a potential monopolist’s ability to raise prices if price increases can be passed on to end-consumers in some genres but not others). While the frailties of the market determination may not ultimately have mattered in that case (after all, the parties got their merger, and the Commission presumably brought the strongest case it could), such casual conclusions may well prove problematic elsewhere and do little to advance the logic of the cluster-markets concept.

Similar defects plague the Supreme Court’s endorsement of the theory in PNB. The Court suggests some reasons why, even in its own telling, “some commercial banking products or services”[55] may be insulated from competition, but that still leaves open the possibility that others aren’t, and that the relevant insulating characteristics could be eroded by simple product repositioning, different pricing strategies, or changes in reputation and brand allegiance.

In fact, the defendants in PNB argued before the district court that:

commercial banking in its entirety is not a product line. Rather, they submit it is a business which has two major subdivisions—the acceptance of deposits in which the bank is the debtor, and the making of loans in which the bank is the creditor. Both of these major divisions are further divided by distinct types of deposits and loans. As to many of these functions, there are different types of customers, different market areas, and, most importantly, different types of competitors and competition. With the possible exception of demand deposits, there is an identical or effective substitute for each one of the services which a commercial bank offers.[56]

The court, however, rejected these arguments with little more than a wave of the hand (a conclusion that was then simply accepted by the Supreme Court):

It seems quite apparent that both plaintiff’s and defendants’ positions have some merit. However, it is not the intention of this Court to subdivide a commercial bank into certain selected services and functions. An approach such as this, carried to the logical extreme, would result in many additional so-called lines of commerce. It is the conglomeration of all the various services and functions that sets the commercial bank off from other financial institutions. Each item is an integral part of the whole, almost every one of which is dependent upon and would not exist but for the other. The Court can perceive no useful purpose here in going any further than designating commercial banking a separate and distinct line of commerce within the meaning of the statute. It is undoubtedly true that some services of a commercial bank overlap, to some degree, with those of certain other institutions. Nevertheless, the Court feels quite confident in holding that commercial banking, viewed collectively, has sufficient peculiar characteristics which negate reasonable interchangeability.[57]

None of this response goes to the question of how users of commercial-banking services consume them. Instead, it essentially takes the superficial marketing distinction as economically dispositive, despite the acknowledgment that economic substitutes for the constituent products exist. It is, of course, possible that, in PNB, the error was not outcome determinative; perhaps none of the overlap between commercial banks and other providers of commercial lending is significant enough to change the analysis. But this is not a rigorous defense of the notion.

In a few cases, a more rigorous econometric analysis has been used to establish the viability of cluster markets. Consider, for example, the FTC’s successful challenge of the proposed Penn State Hershey Medical Center/Pinnacle Health System merger.[58] At issue there were the likely effects of a merger for certain services provided by general acute care (GAC) hospitals—that is, a range or “cluster” of services sold to commercial health plans in a defined geographic area covering roughly four counties in central Pennsylvania. Two small community hospitals offered some of the same acute care services, and various clinics and group practices provided some of the primary and secondary care services in the cluster.

At the same time, there was evidence that commercial health plans needed to negotiate for coverage over a range of GAC services that other providers could not offer, and that the merging parties competed on price in such negotiations with commercial health plans. Copious econometric evidence—analysis of price data and patient-draw data—substantiated the FTC’s market definition, bolstered by an amicus brief filed by more than three dozen experts in antitrust, competition, and health-care economics.[59]

All of this supported the FTC’s argument that the provision of GAC services constituted a single “cluster market”—and the 3rd U.S. Circuit Court of Appeals agreed, overturning a flawed geographic-market definition initially adopted by the district court.[60] That is, the agency didn’t merely waive its hands at an impression of ways that certain hospital services were similar to each other; rather, it provided detailed economic analysis of the price competition at issue for a specific range of GAC hospital services.

Notably, in that case, there were specific, identifiable consumers—commercial health plans—that were negotiating prices for a diverse “cluster” of GAC services. An individual patient will not, we hope, need to shop for oncology, cardio-thoracic surgery, a hip replacement, and ob-gyn services at the same time. But a health plan typically considers all of those and more. The same dynamic is not, of course, applicable in the Amazon case.

Perhaps the best example of the rigorous defense of cluster markets came in the first Staples/Office Depot merger matter, where ordinary-course documents played a role in the FTC’s review, but were by no means core to the staff’s analysis.[61] The FTC Bureau of Economics applied considerable econometric analysis of price data to establish that office superstore chains constrained each other’s pricing in a way that other vendors of office supplies did not.[62] That analysis of price effects (as evidence of likely merger effects and as evidence on behalf of the FTC’s market definition) is not apparent in the district court’s opinion enjoining the transaction.[63] But it figured heavily in the FTC’s presentation of the case and, presumably, in the commission’s internal decision to bring the case.

Two things are particularly notable about the cluster markets employed in Staples/Office Depot. First is that the exercise was undertaken at all. That is, it was assumed to be a crucial question whether other types of retailers (those with fewer products or catalog-only sales) constrained the pricing power of office-supply “superstores.” Second, the groupings of products analyzed were based on detailed analyses of pricing and price sensitivity over identified products, not superficial, subjective impressions of the market. The same was likewise the case in the Penn State Hershey hospital case mentioned above, and in other hospital-merger cases.

These types of evidence and analyses are simply not in evidence in the FTC’s case against Amazon—certainly not as they’ve presented it thus far.

B.         The Problem of Cluster Markets in the FTC’s Amazon Complaint

The FTC’s approach to market definition in Amazon appears in sharp contrast with prior cases involving what were, arguably, valid cluster markets and somewhat narrow market definitions.

Although the Amazon case is only at the complaint stage, of course, no factors or analysis similar to those adduced in the hospital and office-superstore cases discussed above are present in the FTC’s complaint against Amazon. Indeed, the complaint offers no evidence that the FTC considered the possibility that different products and different sellers would need to be considered separately (the FTC certainly saw no need to preemptively defend its clustering in the complaint). Instead—and consistent with the apparent assumption that Amazon and its particular characteristics are virtually unique—the complaint appears to assume that if Amazon offers a grouping of products, or if Amazon offers services to different types of sellers, this constitutes an economically rigorous “relevant market.” (Spoiler alert: It does not.)

Such an assumption would seem to need some defense. Certainly, a customer buying a bolt cutter will not consider buying a sneaker to be a reasonable alternative; it is clearly not on the basis of demand substitution that the FTC lumps these products together.[64] Instead, similar competitive conditions across products are implicit in the FTC’s alleged markets. But are competitive conditions sufficiently similar across products sold on Amazon to justify clustering them?

1.           Buyer-side clustering

Conditions vary considerably across the broad swath of products sold on Amazon. For some products sold at online superstores, brick-and-mortar retailers are a much closer substitute. Conceivably, consumers may prefer buying shoes at a brick-and-mortar retailer so that they can try them on, making physical retail a closer substitute for sneakers than for, say, a toilet brush, where very few consumers will demand to try the brush for balance before buying it. And surely consumers may be more willing to buy well-established brands (Nike, Gucci, etc.) directly from the brand’s website than a lesser-known brand sold at an online superstore.

Furniture, for example, is bought and sold in vastly different ways than, say, batteries (by consumers with different preferences for service and timing, by retailers with different relationships with manufacturers, through different channels of distribution, etc.). Whatever the merits to consumers of bundling purchases together from an “online superstore,” it is likely the case that they far less often bundle furniture purchases with other purchases than they do batteries. And surely consumers far more often seek to buy furniture offline or after testing it out in person than they do batteries. Vertically integrated furniture stores like IKEA have certainly done much to “commoditize” the production and sale of furniture in recent decades, but the market remains populated mostly by independent furniture showrooms, traditional manufacturers, and catalog and decorator sales. The same cannot be said for batteries, of course.

It also seems unlikely that consumers purchase Amazon’s proffered products in bundles meaningfully distinct from those they purchase elsewhere. People shopping for kitchen pantry items may well bundle their purchases of these items together. But in the vast majority of cases, they can get that same bundle from a grocery store, even though the grocery store carries many fewer SKUs overall. There is no analog to commercial health plans negotiating prices for a particular “cluster” of hospital services in Amazon’s case—and even if there were, it is certain that any number of other stores can match the actual clusters in which people regularly buy products from Amazon.

2.           Seller-side clustering

The problem of false clustering is even more acute on the seller side in the alleged “online marketplace services” market. Sellers on Amazon comprise at least two distinct types. On the one hand are brands and manufacturers that have a limited range of their own products to offer. These sellers are not resellers of others’ goods, but product creators or brands that use Amazon to sell “direct to consumer” the same sort of products they might otherwise have to sell through a retail intermediary. Within this group there is a further distinction between large, known brands and entrepreneurs selling a unique product (or maybe a few unique products) of their own creation out of their proverbial garage.[65]

On the other hand are retailers—resellers—that offer a wide range of products, none of which they manufacture themselves, but which they may purchase in bulk from manufacturers or offer through drop-shipping. The seller is an intermediary between the actual maker or seller of the product and the customer (in this case, marketing and reaching customers through another intermediary: Amazon). Here, again, there is a further distinction between intermediaries that are virtually invisible or interchangeable pass-throughs of others’ goods and those that attempt to add some value by establishing their own private-label brands or by acting as a trusted intermediary that offers a curated set of products.

Each of these types of sellers has a different demand for the various services bundled by Amazon, and a different set of available alternatives to Amazon. They often compete in different markets, have different relationships with manufacturers, and have differing sets of internal capacities necessitating the purchase of different services (or the purchase of different services in different relative quantities), and entailing a different ability to evaluate their need for different services and differing degrees of reliance on Amazon to complement their capacities. Moreover, the competitive ramifications of constraining each’s ability to sell on Amazon (or increasing the price to do so) is considerably different.

This last point is most obvious when considering the effect on drop-shippers of a possible increase in price on Amazon. What would be the competitive effects if a particular drop-shipper of, say, toilet paper were somehow precluded from Amazon, or harmed by using it? In that case, the seller is largely irrelevant (or worse—simply an additional source of markup). The relevant question is not whether a particular seller can profitably sell the product: “The antitrust laws… were enacted for ‘the protection of competition not competitors.’”[66] Rather, the relevant question is whether the manufacturer of the product can access consumers, and whether consumers can access competing sellers. In the case of toilet paper (or virtually anything else drop-shipped), the answer is manifestly yes. Drop shippers of Charmin could probably disappear completely from Amazon, and consumers would still be able to buy it at competitive prices from Amazon, among a host of competing options, and Proctor & Gamble would have no trouble reaching consumers.

3.           Implications

The implication of all this is that it seems highly dubious that furniture and batteries (to take just one example) face similar enough competitive conditions across online superstores for them to be grouped together in a single “cluster market.” While there may be superficial similarities in the website or technology connecting buyers and sellers, the underlying economics of production, distribution, and consumption seem to vary enormously.

The complaint offers no evidence to support the assertion of similar competitive conditions; no analysis of cross-elasticities of demand or supply across product categories; and no empirical evidence that a price increase for, say, furniture, could be offset by increased sales of batteries. Nor does the complaint consider more granular markets—like furniture, or sporting goods, or books—that would better capture these critical differences.

Indeed, it’s quite possible that narrower markets would demonstrate that Amazon faces real competition in some areas but not others. Grouping disparate products together risks obscuring situations where market power—and thus potentially anticompetitive effects from Amazon’s conduct—might exist in some product spaces but not others. The failure to properly define the relevant market for antitrust analysis doesn’t inherently imply a particular outcome; it just means no outcome can properly be determined.

The FTC offers no defense for clustering beyond the mere fact that Amazon offers these varied products on its platform. Yet selling through a common intermediary hardly establishes that the underlying competition is sufficiently similar to warrant single-market treatment, let alone that common conduct toward sellers affects all products and sellers equally. If the FTC cannot empirically defend treating distinct products as competitively interchangeable, as transactional complements, or as having the same competitive conditions, its case may collapse under the weight of its own market gerrymandering.

IV.      Out-of-Market Effects

This leaves a final question about the two markets defined in the complaint: can and should they really be considered separately, when conduct in each market has significant effects in the other? My colleagues and I intend to address this question more broadly and in more detail in the future (and, indeed, have already begun to do so[67]). For now, I will share a few tantalizing thoughts about this issue.

If Amazon’s practices vis-à-vis sellers cause the sellers to lower their prices, improve the quality of the products available through the marketplace, or otherwise lower costs and whittle down the seller’s profits, then consumers would benefit. Similarly, if Amazon’s practices with sellers improve the quality of consumers’ experience on its marketplace, then consumers would also benefit. The question is whether gain on one side should offset any harms on the other.

The FTC contends that the markets should be considered separately, despite acknowledging (and even trying to bolster its case with) the reality that the two sides of Amazon’s platform have important effects on each other:

Feedback loops between the two relevant markets further demonstrate the critical importance of scale and network effects in these markets. While the markets for online superstores and online marketplace services are distinct, an online superstore may operate an online marketplace and offer associated online marketplace services to sellers. As a result, the relationship and feedback loops between the two relevant markets can create powerful barriers to entry in both markets.[68]

Despite this, the FTC will likely contend that out-of-market efficiencies are not cognizable. That is, benefits to consumers in the online-superstore market that flow from harm in the online-marketplace-services market do not apply (i.e., harm is harm, and it doesn’t matter if it benefits someone else). This approach, however, presents some obvious problems.

If platforms undertake conduct to maximize the overall value of the platform (and not merely the benefits accruing to any one side in particular), it is inevitable that some decisions will impose constraints on some users in order to maximize the value for everyone. Indeed, the FTC attempts to disparage “Amazon’s flywheel” as a mechanism for exploiting its dominance.[69] For Amazon, meanwhile, that “flywheel” encompasses the importance of ensuring value on one side of the platform in order to increase its value to the other side:

A critical mass of customers is key to powering what Amazon calls its “flywheel.” By providing sellers access to significant shopper traffic, Amazon is able to attract more sellers onto its platform. Those sellers’ selection and variety of products, in turn, attract additional shoppers.[70]

But at times, maximizing the value of the platform may entail imposing constraints on sellers or buyers. Unfortunately, some of these practices are the precise ones the FTC complains of here. Limiting access to the “Buy Box” by sellers of products that are available for less elsewhere, for example, ensures that consumers pay less and builds Amazon’s reputation for reliability;[71] bundling Prime services may mean some consumers pay for services they don’t use in order to get fast shipping, but it also attracts more Prime customers, enabling Amazon to raise revenue sufficient to guarantee same-, one-, or two-day shipping and providing a larger customer base for the benefit of its sellers.[72]

The bifurcated market approach also conflicts with the Supreme Court’s holding in Ohio v. American Express.[73] In Amex, the Court held that there must be net harm to both sides of a two-sided market (like Amazon) before a violation of the Sherman Act may be found. And even the decision’s critics recognize the need to look at effects on both sides of the market (whether they are treated as a single market, as in Amex, or not).[74]

The complaint itself seems to provide enough fodder to suggest that Amazon’s marketplace should be treated as a two-sided market, which the Supreme Court defined as a “platform [that] offers different products or services to two different groups who both depend on the platform to intermediate them.”[75] The complaint is replete with allegations of a “feedback loop” between the two markets, and it does appear that the consumers depend on the sellers and vice versa.

The economic literature shows that two-sided markets exhibit interconnectedness between their sides. It would thus be improper to consider effects on only one side in isolation. Yet that is what artificially narrow market definitions facilitate—letting plaintiffs make out a prima facie case of harm in one discrete area. This selective focus then gets upended once defendants demonstrate countervailing efficiencies outside that narrow market.

But why define markets so narrowly if weighing interrelated effects is ultimately essential? Doing so seems certain to heighten false-positive risks. Moreover, cabining market definitions and then trying to “take account” of interdependencies is analytically incoherent. It makes little sense to start with an approach prone to missing the forest for the trees, only to try correcting the distorted lens part way into the analysis. If interconnectedness means single-market treatment is appropriate, the market definition should match from the outset.

But I think the FTC is aiming not for the most accurate approach, but for the one that (it believes) simply permits it to ignore procompetitive effects in other markets, despite its repeated acknowledgment of the “feedback loops” between them.[76] Certainly, FTC Chair Lina Khan is well aware of the possible role that Amex could play, and has even stated previously that she believes Amex does apply to Amazon.[77] Instead, the agency is hoping (incorrectly, I believe) that the Court’s decision in Amex won’t apply, and that its decisions in PNB and Topco will ensure that each market be considered separately and without allowance for “out-of-market” effects occurring between them.[78] Such an approach would make it much easier for the FTC to win its case, but would do nothing to ensure an accurate result.

The district court in Amex, in fact, took a similar approach (finding in favor of the plaintiffs), holding that the case involved “two separate yet complementary product markets.”[79] Citing Topco and PNB, the district court asserted that, “[a]s a general matter . . ., a restraint that causes anticompetitive harm in one market may not be justified by greater competition in a different market.”[80] Similarly, Justice Stephen Breyer, also citing Topco, concluded in his Amex dissent that a burden-shifting analysis wouldn’t incorporate consideration of both sides of the market: “A Sherman Act §1 defendant can rarely, if ever, show that a procompetitive benefit in the market for one product offsets an anticompetitive harm in the market for another.”[81]

Some scholars assert that PNB and Topco apply to preclude offsetting, “out-of-market” efficiencies in monopolization cases, but it is by no means clear that the PNB limitation applies in Sherman Act cases. As a matter of precedent, PNB applies only to mergers evaluated under the Clayton Act. And the claim that the Court in Topco has extended the holding in PNB to the Sherman Act rests (at best) on dicta.[82]

It is true that the Court limited Amex to what it called “transaction” markets.[83] But courts are almost certainly going to have to deal with interrelated effects that occur in less-simultaneous markets, and they will almost certainly have to do so either by extending Amex’s single-market approach, or by accepting out-of-market efficiencies in one market as relevant to the antitrust analysis of an ostensibly distinct market on the other side of the platform. The FTC’s Amazon complaint presents precisely this dynamic.

Legal doctrine aside, ignoring benefits in one interconnected market while focusing on harms in another will lead to costly overdeterrence of procompetitive conduct.

Indeed, the FTC’s complaint identifies not just ambiguous conduct (conduct that may constrain one side but benefit the other side and the platform overall), but it points to the very act of providing benefits to consumers as a means of harming competition.[84]

What if Amazon makes it harder for new entrants on the “marketplace” side to enter profitably, because it offers benefits on the consumer side that most competitors can’t match? The FTC would have you believe that is a harm, full stop, because of the seller-side effect. But that would also effectively mean that simply increasing efficiency and lowering prices would amount to harm, because it would also make it harder for new entrants to match Amazon. How can conduct that provides a clear benefit to consumers constitute an antitrust harm?[85]

In essence, the FTC maintains this illogical position by cordoning off the two sides of Amazon’s platforms into separate markets and then asserting that benefits in one cannot justify “harms” in the other, despite recognizing the close interrelatedness between the two markets:

Sellers who buy marketplace services from Amazon provide much of the product selection that helps Amazon attract and keep its shoppers. As more shoppers turn to Amazon for its product selection, more sellers use its platform to gain access to its ever-expanding consumer base, which attracts more shoppers, and so on. . . . The interplay between Amazon’s shoppers and sellers increases barriers to new entry and expansion in both relevant markets and limits existing rivals’ ability to compete. In this way, scale builds on itself, and is cumulative and self-reinforcing.[86]

This is artificial and nonsensical. What Amazon does is maximize the value of the platform to the benefit of all users, on net. That some of those benefits accrue at certain times to only one set of users cannot be taken to undermine the value of Amazon’s overall, long-term platform-improving conduct.

Finally, it is worth noting that, even where nominal market distinctions across platform users have been argued by plaintiffs and upheld by courts, analysis of anticompetitive effects has generally turned to out-of-market effects.

Consider the famous case of Aspen Skiing Co. v. Aspen Highlands Skiing Corp. In that case, analyzing the competitive effect of the defendant’s conduct regarding access by a competitor to an “all Aspen” ski pass required looking at effects in the output market for downhill skiing, as well as the input market for mountain access needed to provide those tickets.[87] Indeed, as the Court noted, “[t]he question whether Ski Co.’s conduct may properly be characterized as exclusionary cannot be answered by simply considering its effect on Highlands. In addition, it is relevant to consider its impact on consumers and whether it has impaired competition in an unnecessarily restrictive way.”[88] If Aspen Skiing were evaluated as the FTC seeks in this case, there would be two distinct markets at issue, and harm could be proven by assessing the effect on the input market alone, regardless of the effect on consumers.

Indeed, especially where vertically related markets are involved (which is, of course, how the two sides of Amazon’s platform are related), courts have recognized that weighing effects on competition requires a cross-market perspective across both upstream and downstream segments.

Conclusion

The FTC’s proposed market definitions in its case against Amazon exhibit several critical flaws that undermine the complaint. The alleged “online superstore” and “online marketplace services” markets are excessively narrow, excluding manifest competitors and alternatives. The FTC improperly groups together distinctly different products and sellers into questionable “cluster markets” without empirical evidence to support treating them as economically integrated. And the complaint arbitrarily cordons the two markets off from each other, despite acknowledging their interconnectedness, likely in a deliberate effort to avoid weighing out-of-market efficiencies and procompetitive effects flowing between them.

Ultimately, the burden lies with the FTC to defend these narrow market definitions as economically sound. But based on the limited information available thus far, the proposed markets appear to be gerrymandered to suit the FTC’s case, rather than reflective of actual competitive realities.

Whether deliberately tactical or not, the problems with the FTC’s market definition invite skepticism regarding the overall merits of the agency’s case. If the relevant markets prove indefensible upon fuller examination of the facts, the theory of harm in the case may well collapse. At a minimum, the FTC faces an uphill battle if its case indeed rests more on artful pleading than rigorous economics.

[1] Gregory J. Werden, Why (Ever) Define Markets? An Answer to Professor Kaplow, 78 Antitrust L.J. 729, 741 (2013) (emphasis added).

[2] See, e.g., Josh Sisco, The FTC Puts Your Lunch on Its Plate, Politico (Nov. 21, 2023), https://www.politico.com/news/2023/11/21/feds-probe-10b-deal-for-subway-sandwich-chain-00128268.

[3] Complaint, F.T.C., et al. v. Amazon.com, Inc., Case No. 2:23-cv-01495-JHC (W.D. Wa., Nov. 2, 2023) at ¶¶ 119-208, available at https://www.ftc.gov/legal-library/browse/cases-proceedings/1910129-1910130-amazoncom-inc-amazon-ecommerce (“Amazon Complaint”).

[4] Id. at ¶ 124.

[5] Id.

[6] Id.

[7] Nike Store (last visited Dec. 6, 2023), https://www.nike.com.

[8] Wayfair (last visited Dec. 6, 2023), https://www.wayfair.com.

[9] E-Commerce Retail Sales as a Percent of Total Sales (ECOMPCTSA), FRED Economic Data (last updated Nov. 17, 2023), https://fred.stlouisfed.org/series/ECOMPCTSA.

[10] Amazon Complaint, supra note 3, at ¶ 185.

[11] See, e.g., How Google Shopping Works, Google (last visited Dec. 6, 2023), https://support.google.com/faqs/answer/2987537; Shopify Official Website, Shopify (last visited Dec. 6, 2023), https://www.shopify.com/; Instagram Shopping, Instagram (last visited Dec. 6, 2023), https://business.instagram.com/shopping.

[12] See Geoffrey A. Manne & E. Marcellus Williamson, Hot Docs vs. Cold Economics: The Use and Misuse of Business Documents in Antitrust Enforcement and Adjudication, 47 Ariz. L. Rev. 609 (2005).

[13] For a discussion of this problem in the context of mergers (but with relevance to market definition in Section 2 cases), see Daniel J. Gilman, Brian Albrecht and Geoffrey A. Manne, The Conundrum of Out-of-Market Effects in Merger Enforcement, Truth on the Market (Jan. 16, 2024), https://truthonthemarket.com/2024/01/16/the-conundrum-of-out-of-market-effects-in-merger-enforcement.

[14] See Amazon Complaint, supra note 3, at ¶ 117.

[15] See id. at ¶ 163.

[16] See id. at ¶ 123 (“Online superstores offer shoppers a unique set of features”).

[17] See id. at ¶ 171. (“Other commercially available data, including recently reported statistics from eMarketer Insider Intelligence, a widely cited industry market research firm, confirms Amazon’s sustained dominance across this same set of companies, with an estimated market share of more than 82% of GMV in 2022.”).

[18] See Matthew Johnston, 10 Biggest Retail Companies, Investopedia (last updated May 8, 2023), https://www.investopedia.com/articles/markets/122415/worlds-top-10-retailers-wmt-cost.asp.

[19] Stephanie Chevalier, Market Share of Leading Retail E-Commerce Companies in the United States in 2023, Statista (Nov. 6, 2023), https://www.statista.com/statistics/274255/market-share-of-the-leading-retailers-in-us-e-commerce.

[20] See Matthew Johnston, supra note 18.

[21] See E-Commerce Retail Sales as a Percent of Total Sales, supra note 9.

[22] Werden, supra note 1, at 741.

[23] See Geoffrey A. Manne, Premium Natural and Organic Bulls**t, Truth on the Market (Jun. 6, 2007), https://truthonthemarket.com/2007/06/06/premium-natural-and-organic-bullst (“[E]conomically relevant market definition turns on demand elasticity among consumers who are often free to purchase products from multiple distribution channels, [and] a myopic focus on a single channel of distribution to the exclusion of others is dangerous.”).

[24] Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1120-21 (9th Cir. 2018) (citing Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1045 (9th Cir. 2008)).

[25] See Amazon Complaint, supra note 3, at ¶¶ 128-33.

[26] Dick’s Sporting Goods (last visited Dec. 6, 2023), https://www.dickssportinggoods.com; REI Co-op Shop (last visited Dec. 6, 2023), https://www.rei.com; Bass Pro Shops (last visited Dec. 6, 2023), https://www.basspro.com/shop.

[27] Jackets, Columbia (last visited Dec. 10, 2023), https://www.columbia.com/c/outdoor-jackets-coats.

[28] See Columbia Coats & Jackets, Macy’s (last visited Dec. 10, 2023), https://www.macys.com/shop/womens-clothing/womens-coats/Brand/Columbia?id=269; Women’s Columbia Coats, Nordstrom (last visited Dec. 10, 2023), https://www.nordstrom.com/browse/women/clothing/coats-jackets?filterByBrand=columbia.

[29] See Amazon Complaint, supra note 3, at ¶¶ 148-59.

[30] See Daniela Coppola, Average Number of Products Bought Per Order Worldwide from January 2022 to December 2022, Statista (Feb. 1, 2023), https://www.statista.com/statistics/1363180/monthly-average-units-per-e-commerce-transaction.

[31] See Khadeeja Safdar, supra note 38.

[32] Google Product Discovery Statistics, Think with Google (last visited Dec. 6, 2023), https://www.thinkwithgoogle.com/marketing-strategies/search/google-product-discovery-statistics (“49% of shoppers surveyed say they use Google to discover or find a new item or product”). Also notable, “51% of shoppers surveyed say they use Google to research a purchase they plan to make online.” Product Research Statistics, Think with Google (last visited Dec. 6, 2023), https://www.thinkwithgoogle.com/marketing-strategies/search/product-research-search-statistics.

[33] See Danny Goodwin, 50% Of Product Searches Start on Amazon, Search Engine Land (May 16, 2023), https://searchengineland.com/50-of-product-searches-start-on-amazon-424451.

[34] Id.

[35] See Shopify (last visited Dec. 6, 2023), https://www.shopify.com; BigCommerce (last visited Dec. 6, 2023), https://www.bigcommerce.com.

[36] Amazon Complaint, supra note 3, at ¶ 198 (“SaaS providers’ services are not reasonably interchangeable with online marketplace services.”).

[37] See Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 325 (1962) (“The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.”).

[38] See, e.g., Khadeeja Safdar, Nike to Stop Selling Directly to Amazon, Wall Street J. (Nov. 13, 2019), https://www.wsj.com/articles/nike-to-stop-selling-directly-to-amazon-11573615633.

[39] See Tomas Kacevicius (@intred), Twitter (Jun. 19, 2019, 7:05 PM), https://x.com/intred/status/1141527349193842688?s=20 (“[M]ore than 820K merchants are currently using #Shopify, making it the 3rd largest online retailer in the US.”).

[40] Amazon Complaint, supra note 3, at ¶ 199 (emphasis added).

[41] Id. at ¶ 5.

[42] See infra Section III.

[43] Juozas Kaziukenas, Google Shopping Is Again an E-Commerce Aggregator, Marketplace Pulse (Apr. 28, 2020), https://www.marketplacepulse.com/articles/google-shopping-is-again-an-e-commerce-aggregator.

[44] See Mohammad. Y, Instagram Commerce Statistics and Shopping Trends in 2023, OnlineDasher (last updated Sep. 19, 2023), https://www.onlinedasher.com/instagram-shopping-statistics.

[45] Id.

[46] Checkout on Instagram, Instagram for Business (last visited Dec. 7, 2023), https://business.instagram.com/shopping/checkout.

[47] See Shopify Fulfillment Network, Shopify (last visited Dec. 6, 2023), https://www.shopify.com/fulfillment; Outsourced Fulfillment, ShipBob (last visited Dec. 7, 2023), https://www.shipbob.com/product/outsourced-fulfillment.

[48] Promedica Health Sys., Inc. v. Fed. Trade Comm’n, 749 F.3d 559, 565 (6th Cir. 2014).

[49] Id. at 567.

[50] Id. (quoting 2B Areeda, Antitrust Law, ¶ 565c at 408).

[51] See EU Commission, Universal Music Group / EMI Music, Case No. COMP/M.6458, Decision, 21 September 2012, ¶¶ 141-58.

[52] See, e.g., In the Matter of HCA Healthcare/Steward Health Care System, FTC Docket No. 9410 (Jun. 2, 2022), available at https://www.ftc.gov/legal-library/browse/cases-proceedings/2210003-hca-healthcaresteward-health-care-system-matter.

[53] U.S. v. Philadelphia Nat. Bank, 374 U.S. 321, 356 (1963) (“PNB”) (“We agree with the District Court that the cluster of products (various kinds of credit) and services (such as checking accounts and trust administration) denoted by the term ‘commercial banking,’ composes a distinct line of commerce.”).

[54] Universal Music Group / EMI Music, supra note 51, at ¶ 141.

[55] PNB, 374 U.S. at 356 (emphasis added).

[56] United States v. Philadelphia National Bank, 201 F. Supp. 348, 361 (E.D. Pa. 1962).

[57] Id. at 363.

[58] In the Matter of Penn State Hershey Medical Center and Pinnacle Health System, FTC Docket No. 9368 (Dec. 7, 2015), available at https://www.ftc.gov/system/files/documents/cases/151214hersheypinnaclecmpt.pdf.

[59] Consent Brief of Amici Curiae Economics Professors in Support of Plaintiffs/Appellants Urging Reversal, FTC v. Penn State Hershey Medical Center, et al., Case No. 16-2365 (3^rd Cir., Jun. 8, 2016), available at https://www.hbs.edu/ris/Profile%20Files/Amicus%20Brief%20in%20re%20Hershey-Pinnacle%20Proposed%20Merger%206.2016_e38a4380-c58b-4bb4-aecd-26fc7431ecba.

[60] Fed. Trade Comm’n v. Penn State Hershey Med. Ctr., 838 F.3d 327 (3d Cir. 2016).

[61] Complaint, FTC v. Staples Inc. and Office Depot, Inc., Case No. 1:97CV00701 (D.D.C., Apr. 10, 1997), available at https://www.ftc.gov/legal-library/browse/cases-proceedings/9710008-staples-inc-office-depot-inc.

[62] See Orley Ashenfelter, David Ashmore, Jonathan B. Baker, Suzanne Gleason, & Daniel S. Hosken, Empirical Methods in Merger Analysis: Econometric Analysis of Pricing in FTC v. Staples, 13 Int’l J. Econ. of Bus. 265 (2006).

[63] F.T.C. v. Staples, Inc., 970 F. Supp. 1066 (D.D.C. 1997).

[64] And, for at least one court, this is the only basis on which a cluster market is appropriate. See Green Country Food v. Bottling Group, 371 F.3d 1275, 1284 (10th Cir. 2004) (“A cluster market exists only when the ‘cluster’ is itself an object of consumer demand.”) (citing Westman Comm’n Co. v. Hobart Int’l, Inc., 796 F.2d 1216, 1221 (10th Cir. 1986) (rejecting cluster market approach where cluster was not itself the object of consumer demand)).

[65] For example, successful Chinese food product startup Fly By Jing was started by one woman in 2018. She sells only her own products and does so not only on Amazon, but also on her own website and, among countless other places, Costco. See Fly By Jing Amazon Storefront, Amazon.com (last visited Dec. 8, 2023), https://www.amazon.com/stores/page/F2C02352-02C6-4804-81C4-DEA595C644DE; Fly By Jing (last visited Dec. 8, 2023), https://flybyjing.com/shop; Fly By Jing (@flybyjing), Instagram (Feb. 22, 2022), https://www.instagram.com/reel/CaSnvVzlkUW/ (“Sichuan Chili Crisp Now in Costco”).

[66] Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe, 370 U.S. at 320).

[67] See Gilman, Albrecht & Manne, supra note 13.

[68] Amazon Complaint, supra note 3, at ¶ 119.

[69] Id. at ¶ 9.

[70] Id. at ¶ 215.

[71] Id. at ¶ 269.

[72] Id. at ¶ 218.

[73] 138 S. Ct. 2274 (2018) (“Amex”).

[74] See, e.g., Michael Katz and Jonathan Sallet, Multisided Platforms and Antitrust Enforcement,127 Yale L.J. 2142 (2018). Katz and Sallet criticize the concept of treating both sides of a two-sided market in one relevant market: “Because users on different sides of a platform have different economic interests, it is inappropriate to view platform competition as being for a single product offered at a single (i.e., net, two-sided) price.” Id. at 2170. But they also contend that effects on both sides must be considered: “[In order] to reach sound conclusions about market power, competition, and consumer welfare, any significant linkages and feedback mechanisms among the different sides must be taken into account.” Id.

[75] Amex, 138 S. Ct. at 2280.

[76] See Amazon Complaint, supra note 3, at ¶¶ 119, 176, 179, 209, 215, & 217.

[77] Lina Khan, The Supreme Court Just Quietly Gutted Antitrust Law, Vox (Jul. 3, 2018), https://www.vox.com/the-big-idea/2018/7/3/17530320/antitrust-american-express-amazon-uber-tech-monopoly-monopsony (“On the surface, the Court’s language [in Amex] suggests that the special rule would apply to Amazon’s marketplace for third-party merchants.”).

[78] PNB, 374 U.S. 321; United States v. Topco Associates, Inc., 405 U.S. 596 (1972) (“Topco”).

[79] United States, et al. v. Am. Express Co., et al., 88 F. Supp. 3d 153, 171 (E.D.N.Y. 2015).

[80] Id., 88 F. Supp. 3d at 247 (citing Topco, 405 U.S. at 610; PNB, 374 U.S. at 370).

[81] Amex, 138 S. Ct. at 2303 (quoting Topco, 405 U.S. at 611).

[82] See Geoffrey A. Manne, In Defence of the Supreme Court’s ‘Single Market’ Definition in Ohio v American Express, 7 J. Antitrust Enf. 104, 115-17 (2019) (“The Court in Topco cited PNB in dictum, not for a doctrinal proposition relating to the operation of the rule of reason, but for a general, conceptual point about the asserted difficulty of courts adjudicating between conflicting economic rights. . . . Nowhere does the Court in Topco suggest that it is inappropriate within a rule-of-reason analysis to weigh out-of-market efficiencies against in-market effects.”).

[83] Ohio v. Am. Express Co., 138 S. Ct. at 2280 (“Thus, credit-card networks are a special type of two-sided platform known as a ‘transaction’ platform. The key feature of transaction platforms is that they cannot make a sale to one side of the platform without simultaneously making a sale to the other.”) (citations omitted).

[84] See, e.g., Amazon Complaint, supra note 3, at ¶ 222 (“Amazon’s restrictive all-or-nothing Prime strategy artificially heightens entry barriers because rivals and potential rivals cannot compete for shoppers . . . solely on the merits of their online superstores or marketplace services. Instead, they must enter multiple unrelated industries to attract Prime subscribers away from Amazon or incur substantially increased costs to convince Prime subscribers to sign up for a second shipping subscription or otherwise pay for shipping a second time. This substantial expense significantly constrains the number of firms who have any meaningful chance to compete against Amazon and raises the costs of any that even try. . . . Amazon’s restrictive strategy artificially heightens barriers to entry, such that an equally or even a more efficient or innovative rival would be unable to fully compete by offering a better online superstore or better online marketplace services.”).

[85] See Brian Albrecht, Is Amazon’s Scale a Harm?, Truth on the Market (Oct. 13, 2023), https://truthonthemarket.com/2023/10/13/is-amazons-scale-a-harm/.

[86] Amazon Complaint, supra note 3, at ¶¶ 214 & 216.

[87] In Aspen Skiing, the “jury found that the relevant product market was ‘[d]ownhill skiing at destination ski resorts,’” Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 596 n.20 (1985). The conduct at issue, however, occurred on the input side of the market.

[88] Id. at 605 (emphasis added).

Having analyzed both bodies of research, it is apparent that the research on social media and teen well-being shares many of the same flaws as the violent video game research. They are both largely based on correlational studies which rely on self-reported data and use poor proxies for the effect that they are trying to measure. As we saw in  Brown v. Entertainment Merchants Association, this alone is enough to create roadblocks for laws banning or regulating the use of social media by children.

Read the full piece here.

In our last post, we examined the numerous reasons for which the Supreme Court found the State’s evidence to be lacking in the case of Brown v. Entertainment Merchants Association. This week we will examine the evidence in the social media debate keeping in mind the qualities that the Supreme Court found to be problematic in establishing a connection between video games and violence.

Read the full piece here.