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TOTM Over the river, into the woods, and down into the weeds we go. There’s a whole lot of drama going on at the Federal Trade . . .
Over the river, into the woods, and down into the weeds we go.
There’s a whole lot of drama going on at the Federal Trade Commission (FTC), not least because of recent correspondence between the U.S. House Oversight Committee and FTC Chair Lina Khan that might politely—euphemistically, really—be termed “heated.” But I’m not gonna go there today. I had a bit to say about the new draft merger guidelines in my last roundup, but I barely scratched the surface. And I’m not going there either.
Read the full piece here.
TOTM The FTC and DOJ have done it: on July 19 they released the long awaited (or dreaded) draft merger guidelines, which . . . well, could . . .
The FTC and DOJ have done it: on July 19 they released the long awaited (or dreaded) draft merger guidelines, which . . . well, could have been worse, given current agency leadership, but could have been better (as demonstrated by the certainly imperfect, but still better, 2010 guidelines they replaced). Jumping on the agencies’ myopia bandwagon, I protest: it’s late July and I’m on vacation, damnit! Having been deep in the central American jungle, I’m late to this party, even as the party I’d long planned has been interrupted.
TOTM Readers might recall my recent discussion of the Federal Trade Commission’s (FTC) new Bureau of Let’s Sue Meta, in which I covered, among other things, the . . .
Readers might recall my recent discussion of the Federal Trade Commission’s (FTC) new Bureau of Let’s Sue Meta, in which I covered, among other things, the commission’s proposal to modify its 2020 Decision and Order In the Matter of Facebook Inc. (now Meta). The 2020 order included complex behavioral requirements, in addition to a record-setting $5 billion penalty. One supposes that the consumer harm had been inestimable, given that the commission never did estimate it.
Regulatory Comments We write to express our concerns about two aspects of the proposed rule that would, as drafted, disrupt the careful balance Congress struck in crafting . . .
We write to express our concerns about two aspects of the proposed rule that would, as drafted, disrupt the careful balance Congress struck in crafting the Federal Trade Commission Act. If the FTC is to have the authority to impose civil penalties for ordinary misrepresentations, even for certain classes of transactions, only Congress can confer that power—and only by amending the Act.
Automatic renewals are nothing new, even if some consumers may find them surprising. How companies implement such “negative option” offerings may sometimes be unfair or deceptive. That’s why Congress enacted the Restore Online Shoppers’ Confidence Act.[1] A new rulemaking to consolidate existing rules on negative option marketing may well be appropriate. Unfortunately, “[t]he scope of the proposed Rule is not confined to negative option marketing,” as former Commissioner Christine Wilson warned in her dissent from the issuance of the proposed amendment: “It also covers any misrepresentation made about the underlying good or service sold with a negative option feature.”[2]
The proposed rule thus presents a great many companies with a difficult choice: abandon negative option marketing altogether, or risk incurring civil penalties not only for the negative option marketing itself, but also for “any material fact related to the underlying good or service.”[3] As former Commissioner Wilson noted, “even if the negative option terms are clearly described, informed consent is obtained, and cancellation is simple,”[4] the FTC could—for the first time—obtain civil penalties for claims involving product efficacy, national origin, how information about the consumer or the transaction is shared, used or secured, and much more.
Negative option marketing is not inherently fraudulent; it is “used lawfully and non- deceptively in a broad array of common transactions—newspaper subscriptions, video streaming services, delivery services, etc.”[5] Automatic renewal provides convenience to the consumer and some degree of predictability to businesses: they can assume that subscriptions will not lapse inadvertently, that consumers will not complain about disrupted service, etc. In a world without negative option marketing, businesses would have to bombard consumers with reminders to renew their subscriptions, much as European websites must bombard consumers with notices about cookies. Given these transaction costs, negative option marketing will likely remain widespread among legitimate businesses.
The proposed rule would fundamentally transform the Commission’s remedial powers; in effect, it would rewrite the FTC Act with respect to any product subject to negative option marketing. Congress has never empowered the FTC to impose civil penalties for ordinary misrepresentations—and for good reason. The original FTC Act gave the FTC exceptionally broad power over “unfair or deceptive acts and practices” (UDAP)[6] but authorized only injunctive relief. Only later did Congress authorize restitution and civil penalties, and only in narrow circumstances. Congress carefully “counterbalance[d]” the exceptionally “amorphous” standard of Section 5 with a “detailed framework” that ensures a defendant always has “fair notice” of what specific conduct counts as “unfair or deceptive”—before being ordered to pay money, whether in the form of restitution[7] or civil penalties.[8] Section 5(m)(1)(b) authorizes the FTC to ask federal courts to impose civil penalties for violations of FTC rules committed “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule.”[9]
The FTC would invoke this provision in seeking civil penalties for misrepresentations not only about negative option marketing, but about “any material fact related to the underlying good or service.”[10] Under the proposed rule, it would be as if the FTC had taken a red pen to the Act and inserted an arrow pointing up from Section 5(m)(1)(b) (authorizing penalties for rules) to Section 5(b)’s “amorphous” standard of deception. If the FTC can do this with respect to products subject to negative option marketing, it can do so more broadly. Increasingly, it will seek civil penalties in first-time deception cases by codifying more and more kinds of misrepresentations in trade regulation rules.
True, the FTC would still have to show that the company had “actual knowledge or knowledge fairly implied” that its representation about a product was deceptive.[11] But this is not the only part of the statutory framework that matters. What “counterbalances the FTCA’s amorphous ‘unfair or deceptive practices’ standard” is, as the Seventh Circuit made explicit, the combination of Section 5(m)(1)(b)’s knowledge requirement with Section 18(a)’s “requir[ement that] the Commission . . . . give defendants fair notice . . . through . . . rules that ‘define with specificity’ prohibited acts.”[12] Section 5 is the anthesis of “specific,”[13] so its prohibition on deception cannot form the basis for a rule whose violation can lead to civil penalties. The knowledge requirement alone cannot ensure that defendants have fair notice before being subjected to civil penalties, as the Constitution requires.[14]
We urge two changes. First, the proposed rule must focus only on negative option marketing. Specifically, the proposed misrepresentation rule (§ 425.3) should be revised as follows:
In connection with promoting or offering for sale any good or service with a Negative Option Feature, it is a violation of this Rule and an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act (“FTC Act”) for any Negative Option Seller to misrepresent, expressly or by implication, any material fact related to the transaction, such as the Negative Option Feature, or any material fact related to the underlying good or service.
Yet a rule thus focused on negative option marketing would still be far too general to provide the specificity required by Section 18(a). The Commission has never issued a trade regulation rule as general and far-reaching as this one. Trade regulation rules promulgated under Magnuson-Moss illustrate the kind of specificity the FTC has previously provided. For example, the Business Opportunity Rule prohibits no fewer than 21 different kinds of misrepresentation regarding business opportunities. [15] This specificity is typical of trade regulation rules.[16] The Commission has usually been similarly specific even when it issues “guides” even though these, being only non-binding guidance and not triggering civil penalties, are not subject to Section 18(a)’s specificity requirement (violations of which cannot be the basis for obtaining civil penalties under Section 5(m)(1)(B)).[17]
Only in such guides has the Commission included language that is un-specific in a way that might resemble the proposed rule. Even here, we could find only two examples. Neither could have been issued as trade protection rules because both clearly lacked the specificity required by Section 18(a).[18]
We urge the Commission to follow the example of its past Magnuson-Moss rulemakings and focus on specific, concrete examples of acts or practices related to negative option marketing that may be deceptive. The proposed rule provides plausible examples of what these might be in its discussion of prevalence, including “lack of informed consumer consent, lack of clear and conspicuous disclosures, failure to honor cancellation requests and/or refusal to provide refunds to consumers who unknowingly enrolled in plans”; “failure to provide consumers with a simple cancellation method”; “deny[ing] consumers refunds and forc[ing] them to pay to return the unordered goods”; “require[ing] consumers to cancel using a different method than the one used to sign up for the program”; and “forc[ing] consumers to listen to multiple upsells before allowing cancellation.”[19] These examples are specific and concrete in much the same way as the practices prohibited by past trade regulation rules.
To craft a rule that will be both effective in protecting consumers and capable of withstanding judicial challenge, the Commission must hold a hearing to explore how the rule should, as Section 18(a) requires, “define with specificity acts or practices which are unfair or deceptive acts or practices.”[20] Congress provided for hearings precisely because the Magnuson-Moss Act requires specificity, and only a full discussion of concrete examples can lead to specific rules. As drafted, courts will invalidate the FTC’s negative option rule, which will benefit no one.
[1] 15 U.S.C. §§ 8401-8405.
[2] Dissenting Statement of Commissioner Christine S. Wilson on Notice of Proposed Rulemaking, Negative Option Rule at 2 (Mar. 23, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-wilson-dissent-negative-option-rule.pdf.
[3] Negative Option Rule Proposed Rule, 88 Fed. Reg. 24716, 24734 (proposed Apr. 24, 2023) (to be codified at 16 C.F.R. 425), https://www.govinfo.gov/content/pkg/FR-2023-04-24/pdf/2023-07035.pdf.
[4] Wilson, supra note 2.
[5] Wilson, supra note 2, at 3.
[6] As the FTC recognized in its 1980 Unfairness Policy Statement, Section 5 “was deliberately framed in general terms since Congress recognized the impossibility of drafting a complete list of unfair trade practices that would not quickly become outdated or leave loopholes for easy evasion.” In re International Harvester Co., 104 F.T.C. 949, 1073 (1984).
[7] FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764, 774 (7th Cir. 2019).
[8] 15 U.S.C. § 45(l) (violation of a final order); 15 U.S.C. § 45(m)(1)(B). “Where the Commission has determined in a litigated administrative adjudicatory proceeding that a practice is unfair or deceptive and has issued a final cease and desist order, the Commission may obtain civil penalties from non-respondents who thereafter violate the standards articulated by the Commission. To accomplish this, the Commission must show that the violator had ‘actual knowledge that such act or practice is unfair or deceptive and is unlawful’ under Section 5(a)(1) of the FTC Act.” A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority, FTC (May 2021), https://www.ftc.gov/about-ftc/mission/enforcement-authority.
[9] 15 U.S.C. § 45(m)(1)(A).
[10] Negative Option Rule Proposed Rule, 88 Fed. Reg. 24716, 24734 (proposed Apr. 24, 2023) (to be codified at 16 C.F.R. 425), https://www.govinfo.gov/content/pkg/FR-2023-04-24/pdf/2023-07035.pdf.
[11] 15 U.S.C. § 45(m)(1)(A).
[12] 937 F.3d at 774, quoting 15 U.S.C. § 57a(a)(1)(B) (“the Commission may prescribe. . . rules which define with specificity acts or practices which are unfair or deceptive acts or practices. . .”).
[13] The FTC commonly bars companies from engaging in further unfair or deceptive acts and practices in orders issued after a violation of the Act, then imposes civil penalties when companies engage in such acts or practices. But unlike Section 18(B), Section 5(b) does not require “specificity” in such issuing orders, nor does Section 5(l) require specificity or even knowledge before the FTC may obtain civil penalties in enforcing such orders.
[14] Although “elementary notions of fairness” always “dictate a person receive fair notice” of what conduct to avoid, the “strict[er] constitutional safeguards” around “judgments without notice” are “implicated by civil penalties.” BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 & n.22 (1996); see also FCC v. Fox Television Stations, Inc., 567 U.S. 239, 253 (2012) (“A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required… This requirement of clarity in regulation is essential to the protections provided by the Due Process Clause of the Fifth Amendment.”).
[15] 16 C.F.R. § 437.6.
[16] E.g., Unfair Credit Practices, 16 C.F.R. § 444.2 (1984); Misrepresentations, 16 C.F.R. § 453.3 (1994); General Duties of a Used Car Dealer, 16 C.F.R. § 455.1 (2016); Separation of Examination and Dispensing, 16 C.F.R. §456.2 (1992); Labeling and Advertising of Home Insulation, 16 C.F.R. § 460 (1979).
[17] The Guides for the Jewelry, Precious Metals, and Pewter Industries prohibit “misrepresent[ing] that an industry product contains silver, or to misrepresent an industry product as having a silver content, plating, electroplating, or coating,” and provides five specific examples, including “Use of the words ‘solid silver,’ ‘Sterling Silver,’ ‘Sterling,’ or the abbreviation ‘Ster.’ to mark, de-scribe, or otherwise represent all or part of an industry product unless it is at least 925/1,000ths pure silver.” 16 C.F.R. § 23.5. The FTC’s Guides for Private Vocational and Distance Education Schools declare it deceptive for an “Industry Member to misrepresent, directly or indirectly, expressly or by implication, in advertising, promotional materials, recruitment sessions, or in any other manner, the size, location, services, facilities, curriculum, books and materials, or equipment of its school or the number or educational qualifications of its faculty and other personnel,” and provides no fewer than eleven concrete examples, including misrepresenting “the qualifications, credentials, experience, or educational background of its instructors, sales representatives, or other employees.” 16 C.F.R. §§ 254.4(a), (a)(1).
[18] Under the Guides for Private Vocational and Distance Education Schools, “[i]t is deceptive for an Industry Member to misrepresent, directly or indirectly, expressly or by implication, the nature of the school, its Accreditation, programs of instruction, methods of teaching, or any other material fact through the use of any trade or business name, label, insignia, or designation, or in any other manner.” 16 C.F.R. § 254.2(a). Clearly, the highlighted language would not provide the specificity required by Section 18(a). At least that guide was narrow in its application, covering only members of a small industry, whereas the rule proposed here would cover countless companies across the economy. The Commission’s Endorsement Guide says “[a]dvertisers are subject to liability for false or unsubstantiated statements made through endorsements…”16 C.F.R. §255.1(d). As a guide rather than a trade regulation rule, this provision does not declare all such statements unlawful; rather, it says that they may be, depending on the specific circumstances of the case.
[19] Negative Option Rule Proposed Rule, 88 Fed. Reg. 24716, 24720-21 (proposed Apr. 24, 2023) (to be codified at 16 C.F.R. 425), https://www.govinfo.gov/content/pkg/FR-2023-04-24/pdf/2023-07035.pdf.
[20] 15 U.S.C. § 57a(a)(1)(B).
Amicus Brief INTEREST OF AMICUS CURIAE The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan, global research and policy center committed to developing the . . .
The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan, global research and policy center committed to developing the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies, and economic findings, to inform public policy, and has longstanding expertise in antitrust law.
ICLE has an interest in ensuring that antitrust law promotes the public interest and consumer welfare by remaining grounded in sensible rules informed by sound economic analysis. This includes ensuring that courts and agencies correctly apply the standards for class certification in antitrust cases involving two-sided transaction platforms.[1]
Amicus is authorized to file this brief by Fed. R. App. P. 29(a)(2) because all parties have consented to its filing.
Amicus hereby states that no party’s counsel authored this brief in whole or in part; that no party or party’s counsel contributed money that was intended to fund the preparation or submission of the brief; and that no person other than amicus or its counsel contributed money that was intended to fund the preparation or submission of the brief.
The aim of the federal antitrust laws is to protect competition and the innovation and value-creation that it fosters. To that end, a wide range of entities are authorized to prosecute antitrust claims provided they meet the standards that the legislature and courts have articulated to prevent over-enforcement, which itself can mute competitive incentives and dampen innovation. Those standards include the prerequisites of standing and, in the case of class actions, commonality and predominance.
In this case, plaintiffs have asked to pursue antitrust claims against Google, a 26-year-old company—younger than the average PhD student—that has transformed the way consumers interact with the internet, increased efficiency, and created immeasurable value. Plaintiffs assert that “Google illegally monopolized the Android app distribution market”—which the District Court characterized as a two-sided platform—“with anticompetitive practices in the Google Play Store.” 1-ER-3, 10. They have further asked to proceed as a class, representing 21 million consumers who entered into distinct transactions with various developers related to (in aggregate) 300,000 apps. Defs.-Appellants’ Br. (“Br.”) at 20.
The value of a two-sided platform to both consumers and sellers depends on the platform successfully balancing their relative interests, demands, and capacity. That distinctive aspect of two-sided platforms makes questions about standing (such as injury) and the predominance of common issues particularly complex.
On November 28, 2022, the District Court granted class certification, relying on Illinois Brick v. Illinois, 431 US. 720 (1977), and Apple v. Pepper, 139 S. Ct. 1514 (2019), for the proposition that all 21 million consumers were “direct purchasers” and therefore a purported overcharge to the developer must necessarily also injure them. 1-ER-18–19. It further found a “pass-through” formula was sufficient “class-wide proof of antitrust impact and injury.” 1-ER-19. In reaching this conclusion, the District Court failed to engage meaningfully and rigorously with the economic realities of two-sided platforms.
In its landmark Apple v. Pepper decision, the Supreme Court held that consumers could be considered “direct purchasers” of a two-sided platform even though developers set the retail prices for apps. 139 S. Ct. at 1520 (“It is undisputed that the iPhone owners bought the apps directly from Apple. Therefore, under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization.”). In other words, such consumers were not so remote from the platform as to be barred from bringing suit for lack of standing. But status as a “direct purchaser” does not categorically mean that plaintiffs have met the requirements of Article III standing. “Direct purchasers” from two-sided platforms must still show that, as compared to a but-for-world platform using a different price structure, they have been adversely affected.
The Supreme Court in Ohio v. American Express emphasized this point. Noting first that “[l]egal presumptions that rest on formalistic distinctions rather than actual market realities,” are “generally disfavored in antitrust law” (Ohio v. Am. Express Co., 138 S. Ct. 2274, 2285 (2018) (quoting Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 466–67 (1992)), it found that “[P]rice increases on one side of the platform . . . do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services.”
Id. at 2287. In other words, given the unique dynamics of two-sided platforms, the existence and quanta of injury to consumers cannot be assessed without considering whether a “price” change—including quality parameters such as convenience and security—feeds through the indirect network effects[2] running from one side of the platform to another to alter the relative value of the platform to users and then, assuming that it does, determining which (if any) users are adversely affected.
Plaintiffs skipped over this complexity, instead relying on inapplicable supply-and-demand assumptions and focusing on the pass-through of a single price term. A suit by consumers against a platform based on products priced by developers necessarily invokes a much more complicated interaction:
Apple’s overall pricing structure includes a component whereby Apple allows app developers to set app prices, but it also includes relevant prices and terms set by Apple, including: the price of iOS devices; the commission charged to app developers; the price of its own iOS apps; the (unavoidable) ability for app developers to charge for services outside of the iOS ecosystem (without paying the thirty percent commission); and the structure, price, and availability of app marketing in the App Store.[3]
It is not enough to show that developers are charged higher fees; or even that developers could charge higher prices to app consumers. Instead, Plaintiffs must assess both the price effects and non-price quality dimensions.
As things stand, however, plaintiffs focus solely on the costs of Google’s behavior—i.e., the purportedly higher Play Store fees—ignoring how it contributes to making the Android ecosystem safer and of higher quality (both of which boost participation on both sides of the market). Put differently, plaintiffs’ mistake is to narrowly focus on the effect that Google’s behavior has on Play Store fees, while ignoring how it benefits the broader Android ecosystem and how it may affect individual participants.
In short, plaintiffs have not met their burden of showing that common issues of injury will predominate over individualized inquiries; among other things, they have not offered an analysis rigorous enough to determine whether any members of the putative class were injured, let alone the majority of them. Accordingly, the District Court’s class certification order should be reversed.
A plaintiff must establish standing to bring a lawsuit in federal court. Spokeo, Inc. v. Robins, 578 U.S. 330 (2016). The minimum of Article III standing requires that the plaintiff has “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Id. The standing requirement applies just as equally to a “direct purchaser” plaintiff as it does to any other plaintiff. Where the “direct purchaser” is engaging with a two-sided platform—which is how the District Court treated plaintiffs and the purported Android App Distribution market in this matter[4]—questions about injury and the traceability of such can be particularly complex.
Here, however, the District Court failed to rigorously engage with that complexity, suggesting instead that because it had classified consumers as “direct purchasers”, they per force suffered an injury from the service fees that Google charged to developers:
Google’s monopolistic practices inflated the “headline rate” that was used as the basis for all developers’ negotiations with Google, which affected all of the prices set by the developers and paid by consumers to Google.
1-ER-23. Reasoning that “[t]he overcharge has not been passed on by anyone to anyone” and “consumer plaintiffs paid the alleged overcharge directly to Google,” the District Court concluded that “there is no barrier to certification on this score.” 1-ER-18–19.
But, as discussed further in Section II below, just because a consumer is a “direct purchaser” on one side of a two-sided platform does not mean that the consumer paid any share of a purported overcharge. Rather, the relevant question is whether the retail prices that plaintiffs paid for the apps and associated services—prices that are set by the developers—were higher than they would have been in the but-for world, accounting for quality parameters such as safety and convenience. The Supreme Court’s decision in Apple v. Pepper is instructive on this point. There, the Supreme Court found that the absence of an intermediary between Apple’s app store and its consumers was sufficient to find the latter to be “direct purchasers” in the “retail market for the sale of apps.” 139 S. Ct. at 1521. In other words, under the framework articulated by the Supreme Court in Illinois Brick Co. v. Illinois, 431 US. 720 (1977), such consumers were not so remote from the purported antitrust violation as to be barred from suit. In reaching this decision, the Court rejected the notion that the directness of the purchasing relationship should be defined by who sets the price, i.e., consumers can be the “direct purchasers” of a firm that does not set the retail price of a good or service. Id. at 1522.
However, the Court was also crystal clear that the directness of the payment relationship did not mean that the consumer had in fact paid an overcharge, explicitly distinguishing between app store commissions (or fees) and the app prices paid by consumers:
To be sure, if the monopolistic retailer’s conduct has not caused the consumer to pay a higher-than-competitive price, then the plaintiff’s damages will be zero. Here, for example, if the competitive commission rate were 10 percent rather than 30 percent but Apple could prove that app developers in a 10 percent commission system would always set a higher price such that consumers would pay the same retail price regardless of whether Apple’s commission was 10 percent or 30 percent, then the consumers’ damages would presumably be zero.
139 S. Ct. at 1523.[5] That is, the Court declined to assume that higher fees charged to app developers necessarily were passed on to consumers through the retail price set by the developer. The Court in Apple v. Pepper understood that the effects of a hypothetical anticompetitive fee increase may be shared between developers and consumers, with each group needing to show how it was affected to prove their claims. In the case of consumers, this means showing that the increased fees charged to developers resulted in a worse outcome for consumers.
Apple v. Pepper thus invites a “pass on” inquiry (though fee incidence may actually be the more appropriate terminology), including whether a fee increase has negatively affected a plaintiff, which in turn depends on whether developers have passed on the increased fees to users and whether consumer benefits derived from platform fees (e.g., increased security) outweigh those costs. Indeed, that is the direct and anticipated consequence of the Court’s decision in Apple v. Pepper. In its ruling, the Court intentionally opened the door to such allocation questions:
It is true that Apple’s alleged anticompetitive conduct may leave Apple subject to multiple suits by different plaintiffs. . . .The consumers seek damages based on the difference between the price they paid and the competitive price. The app developers would seek lost profits that they could have earned in a competitive retail market.
139 S. Ct. at 1525. See also id. at 1526 (Gorsuch, J. dissenting) (“Illinois Brick held that these convoluted ‘pass on’ theories of damages violate traditional principles of proximate causation and that the right plaintiff to bring suit is the one on whom the overcharge immediately and surely fell. Yet today the Court lets a pass-on case proceed.”).
In short, Apple v. Pepper does not create a presumption that potentially anticompetitive fee increases always injure direct purchasers in the platform context. Consequently, it was incumbent on the District Court to analyze rigorously whether plaintiffs could demonstrate that purported supracompetitive fees charged to developers caused changes to the value of the platform that injured consumers and that common questions regarding such injury predominate over individualized inquiries. See Bowerman v. Field Asset Services, Inc., 60 F.4th 459, 469 (9th Cir. 2023) (explaining that “class certification is inappropriate ‘when individualized questions . . . will overwhelm common ones,” and decertifying class based on predominance of individual questions over common ones.). As discussed below, the District Court erred by failing to grapple with the economic reality of two-sided platforms.
It is well recognized that “antitrust law should look at the ‘the economic reality of the relevant transactions’ rather than ‘formal conceptions of contract law.’” ((Apple, Inc. v. Pepper, 139 S. Ct. at 1529–30 (Gorsuch, J. dissenting) (cleaned up)). [6] Here, that means that plaintiffs cannot demonstrate injury without accounting for the dynamics of a two-sided platform, i.e., how altering the fees charged to developers may trigger feedback effects between the two sides of the platform to change the balance of features and ultimately affect consumers:
[T]here is no meaningful economic relationship between benefits and costs on each side of the market considered alone . . ., any analysis of social welfare must account for the pricing level, the pricing structure, and the feasible alternatives for getting all sides on board.[7]
Plaintiffs’ narrow focus on pass-through of a single price term (or as the District Court termed it, “share of the overcharge,” 1-ER-19) fell short of this analysis, particularly under the standard required by Rule 23.
A two-sided platform is a business model that creates value by reducing the transaction costs of direct interactions between two or more types of users in ways that mere resellers cannot replicate.[8] A critical feature of multi-sided platforms is that the demand of platform participants is interdependent—the extent of participation by one set of users on a platform depends on the participation of one or more other sets of users.[9] A multi-sided platform uses both pricing and design choices to achieve critical mass. Without critical mass on all sides, the positive feedback effect, which enables the platform’s unique matching abilities, cannot be achieved. Further, interdependent demand on platforms often leads to situations where efficient pricing may involve below marginal cost pricing on one side and above marginal cost pricing on another.[10] As a result, inferences drawn from the traditional indicia of competition—price and output effects—may be inapposite, particularly when they are assessed on only one side of a multi-sided market or without consideration of the effects on the design of the platform itself.
It is a well-accepted proposition in the literature that vertical restraints on multi-sided platforms can be procompetitive, anticompetitive, or competitively neutral depending on a host of complicated interactions among the various groups of platform users and between users and the platform itself. Procompetitive vertical restraints on multi-sided platforms may fall into one or more of at least three broad categories: (1) achieving economies of scale that provide benefits to consumers overall; (2) helping platforms deal with coordination and expectation problems to the benefit of platform users; and (3) providing benefits to one side of the platform that increase consumer welfare overall.[11] These procompetitive effects are a function of the particular structure of such two-sided markets and necessitate adjustments to antitrust doctrine to ensure that presumptions and evidentiary burdens properly reflect the more complicated economic relationships among the parties involved.
Plaintiffs and their experts failed to fully account for these dynamics in their analysis. For example, Dr. Singer mistakenly surmises that lower fees would result in more consumer demand because:
A foundational principle in economics is that “demand curves” are downward sloping—meaning that, all else equal, consumers will demand more of a product or service the lower its price. How much more will be demanded depends on the consumer elasticity of the demand response to lower prices for Apps and In-App Content.
Dkt. 252-3 at 125.[12] Similarly, he concludes that the supply of apps and in-app content would increase if Google’s service fees were reduced and the developers received more revenue: “Absent the Challenged Conduct, developers would realize larger proceeds, which would bring forward more App and In-App Content development, commensurate with a shifting out of the supply curve.” Id. And he makes these claims while explicitly excluding considerations of quality effects. Dkt. 252-3 at 74 n. 368 (“Although my primary impact focuses on price effects (over the take rate) it is possible that competition would occur on non-price quality dimensions as well.”). Moreover, when he does acknowledge that competition can occur on the quality dimension, he neglects entirely the possibility of quality (design) changes in the platform itself. Id. at 108.
This approach is wrong for two important reasons. The first is that lower service fees to the developer do not necessarily translate into lower retail prices to the consumer, as the real-world evidence demonstrated. Br. at 39–41. More fundamentally, the intuition that lower prices result in higher demand does not always hold in two-sided markets. For example, if the fee structure encourages participation from developers on the other side of the market, then that may lead to higher user demand. Likewise, if higher developer fees or a particular fee structure facilitate platform design choices that improve quality for users (and/or developers), that, too, may stimulate user demand. In short, the simple reallocation of costs and benefits across the sides of a two-sided market can be output increasing, output reducing, or output neutral. Looking solely at price effects simply cannot distinguish between these scenarios.
This is why the Supreme Court in Ohio v. American Express emphasized that the legal analysis of injury in a two-sided market requires consideration of both sides of the platform: “Price increases on one side of the platform likewise do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services.” 138 S. Ct. at 2286 (internal citation omitted). “Competition,” it declared, “cannot be accurately assessed by looking at only one side of the platform in isolation.” Id. at 2287.
The notion that prices charged on one side have an ambiguous effect on demand on the other is one of the central findings of the economic literature regarding two-sided markets, because the “quality” of the final product is intrinsically connected to the other side of the market. In their highly influential work, Jean-Charles Rochet and Nobel prize winner Jean Tirole observed that:
We define a two-sided market as one in which the volume of transactions between end-users depends on the structure and not only on the overall level of the fees charged by the platform.[13]
They also highlight that the basic, “canonical” model they develop is an important starting place to understand the relationships between sides of a two-sided market, but it is not a description of reality, and a proper analysis must go beyond narrow price considerations.[14] As a result, “policy interventions to alter the price structure (as opposed to the price level)” are not likely to be “solidly grounded.”[15] Indeed, as Andre Hagiu has shown:
[I]n all of these articles, the volume of transactions . . . is not directly affected by platforms’ prices: Rochet and Tirole and Armstrong essentially assume that each member of one side interacts with an exogenously given proportion of members on the other side. . . . In my model the variable fees charged by the platform (royalties) play a central role, because they affect the prices and volumes of trade between sellers and buyers and therefore social welfare. On the other hand, the allocation of the royalties among the two sides is largely inconsequential in my model.[16]
The “canonical” assumption of a fixed quantity and ratio of users is inapt where, as here, users decide whether to join the platform at different times and consume its services in varying amounts. Any assessment of the effects of a revised price structure would require a complete analysis across relevant metrics of the optimal balancing of demand on both sides of the market under the new structure.[17]
But here, Plaintiffs and the District Court discounted non-fee metrics: Google says that class members may be worse off in plaintiffs’ but-for world because Google may have to change its current practices to stay competitive by cutting back on services it currently offers for free. In Google’s view, ‘in a world without existing Android security standards, security-conscious consumers would be worse off because they would face costs to keep their data and devices secure.’ Concerns like these are far too speculative and conditional to be a serious barrier to certification.
But here, Plaintiffs and the District Court discounted non-fee metrics:
Google says that class members may be worse off in plaintiffs’ but-for world because Google may have to change its current practices to stay competitive by cutting back on services it currently offers for free. In Google’s view, ‘in a world without existing Android security standards, security-conscious consumers would be worse off because they would face costs to keep their data and devices secure.’ Concerns like these are far too speculative and conditional to be a serious barrier to certification.
1-ER-25 (internal citations omitted). This conclusion ignores the fact that, in two-sided platforms, what might superficially appear to be a fee increase on one side may in fact be a crucial component of the underlying ecosystem:
Where a single, two-sided product is at issue, the price may be spread across users on both sides of the market. Moreover, non-price product characteristics will necessarily differ between different sets of users. . . Given the differential incidence of price and quality across a platform, it is impossible to capture the competitive dynamics and to measure the competitive effects by viewing only the partial price on one side.[18]
It is thus impossible to assess whether a particular participant on the platform has been injured without considering how the change affects the platform as a whole and, to the extent that there is an anticompetitive effect, which side (or sides) and which participants within that side (or sides) are worse off.
In sum, the District Court was wrong to conclude plaintiffs could assert injury based on a purported overcharge in service fees to one side of the platform without fully analyzing the price and non-price feedback between the two sides of the platform.
Plaintiffs, and ultimately the District Court, further err by assuming that the complicated effects of a change to the platform is directionally the same for all consumers.
The first problem is (as discussed above) that antitrust injury cannot be inferred from consideration of only a partial price change, particularly in the context of a platform relationship. Because users are heterogenous across many dimensions, the assumption of anticompetitive effect (let alone commonality across users) from a price change for a subset of consumers is particularly hard to maintain.
This is not just a consequence of the two-sided nature of the market at issue. Consider, for example, the basic principle that harm to a particular competitor—even the loss of a particular competitor—is not the same thing as harm to competition. See Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962). One necessary implication of this principle is that it is not enough to show harm to “inframarginal” consumers or to a particularly sensitive subset of consumers, because, for some of these consumers—say, those with strong brand loyalty to a particular firm—the loss of their preferred competitor would also harm them, even if competition itself were not affected. Holding otherwise would undermine this fundamental limitation on the scope of antitrust injury. Because this distinction between harm to some consumers and anticompetitive harm is so crucial to ferreting out conduct that creates or maintains monopoly power, antitrust law requires a demonstration that the conduct at issue has an actual anticompetitive effect—not merely that it results in some harm—before a case may be brought.
This is a fundamental tenet of antitrust law and economics, but it is particularly magnified in the platform setting. There, because operators are optimizing the platform for the benefit of multiple groups of users on multiple sides of a multi-sided market, superficial harm to one group may well be part of an overall optimization strategy, and injury cannot be assumed on the basis of harm to a subset of users. Most obviously, apps and app prices are embedded in a broader ecosystem and are instrumental to its value—as Plaintiffs’ expert even understands (without acknowledging its significance):
The functionality and user enjoyment derived from a mobile device is highly dependent upon the range and quality of apps available on it. In addition to producing a mobile operating system, Google has created a distribution channel for delivery of Android-compatible apps developed by third parties, and developed its own universe of Apps, for Google Android. Google itself has developed some of the most popular Android- and iOS-compatible apps, including Google Search, Google Maps, Chrome, YouTube, and Gmail.
Dkt. 252-3, at 10.
Indeed, restrictions in one dimension may not even constitute “harm” to that subset of consumers where it is accompanied by corresponding benefits, for instance where the restrictions serve to protect consumers’ privacy and data or to assure adequate monetization and distribution. Platform users can benefit from features that contribute to the overall success of the ecosystem.[19] In other words, higher prices may reflect higher quality—stemming directly from the very conduct that Plaintiffs claim is the source of injury.
Second, even if one ignores the concept of virtuous feedback loops, Plaintiffs’ claim that all class members are negatively affected still falls flat. Consumers are not similarly situated, and it is inappropriate to assume a simple pro rata effect from a change in app store prices. Game apps account for an enormous percentage of app store purchases, and “spending on the consumer side is also primarily concentrated on a narrow subset of consumers: namely, exorbitantly high spending gamers. . . . 81.4% of all Apple accounts spent nothing and account for zero percent of the App Store billings for the quarter. . . , [and] 6% of App Store gaming customers in 2017 accounted for 88% of all App Store game billings. . . .” Epic Games, Inc. v. Apple Inc., 559 F. Supp. 3d 898, 953–54 (N.D. Cal. 2021).[20] Without analyzing whether and how the reduction in fees charged to developers affects other costs associated with the platform—either direct costs or indirect costs through reduced quality—it cannot be assumed that even those consumers who make purchases in the Play Store are worse off. Moreover, because user groups vary along other dimensions that are likely to correlate with price—most notably in terms of their sensitivity to privacy and security risks and their tolerance of user-interface impediments like ads or “choice screens”—the effects of price reductions or increases accompanied by other qualitative changes are not captured by price, vary considerably across users, and are not likely to correlate with pro rata app usage. Any inquiry into injury will turn on these individualized questions.
For the reasons stated above, the District Court’s class certification order should be reversed.
[1] In a two-sided market a firm sells two different products or services to two different groups of consumers. See Filistrucchi et al., Market Definition in Two-Sided Markets: Theory and Practice, 10 J. Competition L. & Econ. 293 (2014) (“In particular, competition authorities have failed to recognize the crucial difference between two-sided transaction and non-transaction markets….”).
[2] Bruno Jullien, Alessandro Pavan, & Mark Rysman, Two-sided Markets, Pricing, and Network Effects, 4 Handbook of Industrial Organization 488 (2021) (“[I]ndirect network effects . . . emerge when the adoption and use of a product leads to increased provision of complementary products and services, with the value of adopting the original product increasing with the provision of such complementary goods . . . Indirect network effects thus lead to a feedback loop as more participants on each side of the platform find it more valuable to adopt and use the platform when they expect the other side to attract more users.”)
[3] Geoffrey A. Manne and Kristian Stout, The Evolution of Antitrust Doctrine After Ohio v. Amex and the Apple v. Pepper Decision That Should Have Been, 98 Neb. L. Rev. 425, 458 (2019).
[4] We understand that there are summary judgment motions pending regarding whether plaintiffs have properly defined a market involving the sale of in-app purchases (IAPs) and subscriptions to consumers because: (1) “Plaintiffs’ experts have conceded that their alleged Android app distribution market does not involve IAPs or subscriptions at all”; and (2) “according to plaintiffs’ experts,” the other putative relevant market involves Google selling in-app billing services to developers. No. 3:21-md-02981-JD, Dkt. 480, at 18. We do not take any position on these issues.
[5] To draw an analogy with physical retail, the harm to consumers that buy from a retail cartel is the difference between the competitive and cartel price of the goods they purchase, not the increase to those retailers’ margins under monopoly. This distinction has important ramifications for two-sided markets and the case at hand.
[6] Manne & Stout, supra note 3, at 458 (referencing both Ohio v. Amex and Apple v. Pepper and emphasizing “the need for the plaintiffs . . . to allege injury and present their prima facie case consistently with the economic realities of the two-sided market at issue”).
[7] David S. Evans, The Antitrust Economics of Multi-Sided Platform Markets, 20 Yale J. Reg. 325, 355–56 (2003).
[8] For a more thorough discussion of the nature of two-sided platforms, see generally David S. Evans & Richard Schmalensee, The Antitrust Analysis of Multisided Platform Businesses, Oxford Handbook On International Antitrust Economics (Roger Blair & Daniel Sokol eds., 2013).
[9] See, e.g., David S. Evans, Economics of Vertical Restraints for Multi-Sided Platforms (Univ. of Chi. Inst. for Law & Econ. Olin Res. Paper No. 626, Jan. 2, 2013), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2195778 [https://perma.unl.edu/T5CP-QECW], at 4.
[10] See Evans & Schmalensee, supra note 8, at 6.
[11] See Evans, supra note 9, at 8–10.
[12] Unless otherwise noted, references to “Dkt” refer to No. 3:21-md-02981-JD.
[13] Jean-Charles Rochet & Jean Tirole, Two-sided Markets: A Progress Report, 37 The RAND J. of Econ. 646 (2010).
[14] Id. at 663.
[15] Jean-Charles Rochet & Jean Tirole, Platform Competition in Two-Sided Markets, 1 J. of the Eur. Econ. Ass’n 1009 (2003).
[16] Andre Hagiu, Pricing and Commitment by Two-Sided Platforms, 37 RAND J. of Econ. 720, 722 (2006)
[17] See, e.g., Benjamin Klein, et al., Competition in Two-Sided Markets: The Antitrust Economics of Payment Card Interchange Fees, 73 Antitrust L.J. 571, 598 (2006) (“The economic theory of two-sided markets indicates that relative prices on the two sides of the market are independent of the degree of competition faced by a supplier in such a market. While total prices will be influenced by competition, relative prices are determined by optimal balancing of demand on the two sides of the market.”).
[18] Geoffrey A. Manne, In Defence of the Supreme Court’s “Single Market” Definition in Ohio v. American Express, 7 J. Antitrust Enf. 104, 109 (2019).
[19] See Dirk Auer, Appropriability and the European Commission’s Android Investigation, 23 Colum. J. Eur. L. 647 (2017).
[20] As the court in Epic v. Apple notes, the Google Play Store appears to have similar characteristics. Epic Games, Inc. v. Apple Inc., 559 F. Supp. 3d at 954 n. 243.
Amicus Brief IDENTITY AND INTEREST OF AMICUS CURIAE AND SOURCE OF AUTHORITY TO FILE BRIEF The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan, . . .
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 grounded policy. ICLE promotes the use of law and economics methodologies, and economic findings, to inform public policy, and has longstanding expertise in antitrust law.
Amici also include 28 scholars of antitrust, law, and economics at leading universities and research institutions across the United States. Their names, titles, and academic affiliations are listed in Appendix A. All amici have extensive expertise in antitrust law and economics, and several served in senior positions at the Federal Trade Commission or the Antitrust Division of the Department of Justice.
Amici have an interest in ensuring that courts and agencies correctly apply the standards for evaluating horizontal and vertical mergers, and take into account the benefits commonly associated with vertical mergers.
Amici are authorized to file this brief by Fed. R. App. P. 29(a)(2) because all parties have consented to its filing.
Amici hereby state that no party’s counsel authored this brief in whole or in part; that no party or party’s counsel contributed money that was intended to fund the preparation or submission of the brief; and that no person other than amicus or its counsel contributed money that was intended to fund the preparation or submission of the brief.
The FTC’s decision to require Illumina to divest Grail rests on at least two misguided premises. The first is that the same scrutiny applies to both horizontal and vertical mergers. The second is that benefits typically associated with vertical mergers do not apply here.
A horizontal merger combines firms that compete in the same relevant market, which necessarily reduces the number of firms engaged in head-to-head competition and may eliminate substitutes. That reduction inherently tends to increase prices, but the price effect may be trivial. In addition, market responses (competitive repositioning or new entry) or other benefits of the merger (savings in transaction and other costs, enhanced investment incentives) may neutralize or offset the impetus to higher prices. But because those benefits are not automatic (and the reduction of direct competition is), they must be proven rather than assumed if the merger otherwise poses a significant risk of anticompetitive effects.
A vertical merger, in contrast, combines firms with an upstream-downstream (e.g., seller-buyer) relationship—that is, “firms or assets at different stages of the same supply chain.” Dep’t of Justice, Antitrust Division and FTC, Vertical Merger Guidelines 1 (2020). Examples include a manufacturer’s acquiring a distributor or a firm providing a manufacturing input.
The economic consequences of combining complements rather than substitutes are fundamentally different. Whereas the first-order effect of a horizontal merger is upward pricing pressure, the first-order effect of a vertical merger is downward pricing pressure. Vertical mergers typically entail the elimination of double marginalization (“EDM”), which is akin to downward pricing pressure (and often considered alongside efficiencies). David Reiffen & Michael Vita, Comment: Is There New Thinking on Vertical Mergers? 63 Antitrust L.J. 917, 920 (1995). Vertical integration also typically internalizes externalities in research and development, resulting in greater investment. Henry Ogden Armour & David J. Teece, Vertical Integration and Technological Innovation, 62 Rev. Econ. & Stat. 470 (1980). Like horizontal mergers, vertical mergers often confer other benefits such as operational and transactional efficiencies. Dennis W. Carlton, Transaction Costs and Competition Policy, 73 Int’l J. Indus. Org. 1 (2019); Oliver Williamson, The Economic Institutions of Capitalism 86 (1985).
Thus, while both types of mergers can create benefits from cost savings, their intrinsic effects move in opposite directions: higher prices and less investment with horizontal mergers, and lower prices and more investment with vertical mergers.
The Commission did not simply presume that this vertical merger would be anticompetitive, however. It also discounted both the likelihood of efficiencies in vertical mergers and specific evidence of efficiencies associated with the already-consummated merger. As a result, the Commission did not properly assess the likely competitive effects of the merger.
Courts have long recognized that horizontal and vertical mergers are categorically different. “As horizontal agreements are generally more suspect than vertical agreements,” courts are “cautious about importing relaxed standards of proof into vertical agreement cases.” Republic Tobacco v. North Atlantic Trading Co., 381 F. 3d 717, 737 (7th Cir. 2004). Thus, for vertical mergers, “unlike horizontal mergers, the government cannot use a shortcut to establish a presumption of anticompetitive effect.…” United States v. AT&T, Inc., 916 F.3d 1029, 1032 (D.C. Cir. 2019) (“AT&T II”). In a vertical merger case, “the government must make a fact-specific showing that the proposed merger is likely to be anticompetitive,” and the “ultimate burden of persuasion… remains with the government at all times.” Id. (emphasis added; cleaned up).
As the ALJ’s Initial Decision (ID) recognized (at 132), the burden-shifting approach is not bound by any specific, sequential form. Then-Judge Thomas stressed in United States v. Baker Hughes, 908 F.2d 981, 984 (D.C. Cir. 1990), that “[t]he Supreme Court has adopted a totality-of-the-circumstances approach…, weighing a variety of factors to determine the effects of particular transactions on competition.” As the ALJ aptly put it, the Baker Hughes “‘burden-shifting language’” provides “‘a flexible framework rather than an air-tight rule’”; “in practice, evidence is often considered all at once and the burdens are often analyzed together.” ID 132 (quoting Chicago Bridge & Iron Co. v. FTC, 534 F.3d 410, 424-24 (5th Cir. 2008)).
The differential treatment of vertical and horizontal mergers parallels the Supreme Court’s vertical restraints jurisprudence. The potential anticompetitive effects of vertical restraints are similar to those posed by vertical mergers, as both obtain between firms at different levels of the supply chain.
Over time, the Supreme Court has eliminated per se condemnation for vertical restraints. In 1977, the Court rejected per se illegality for vertical non-price restraints, Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 52 n.19, 58 (1977) (overruling United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967)), later confirming that “a vertical restraint is not illegal per se unless it includes some agreement on price or price levels.” Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 735-36 (1988). Eventually, the Court repudiated the last vertical per se prohibition—of vertical minimum price restraints. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (overruling Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911)). In these decisions, the Court emphasized that any departure from the evidence-specific rule of reason “must be based on demonstrable economic effect, rather than . . . upon formalistic line drawing.” Bus. Elecs., 485 U.S. at 724.
These decisions reflect a nearly categorical repudiation of presumptions of illegality in dealings involving entities at different levels of the supply chain. Here, however, the Commission took the opposite approach, presuming anticompetitive effect while rejecting the significance of rigorously established benefits in a way that approaches a per se standard. This Court should reject that departure from sound law and economics.
The FTC had to show that Illumina has a greater incentive to foreclose rivals following—and because of—the merger. Instead, the Commission adopted a standard of review that elides the requirement that, in a vertical merger case where there is “no presumption of harm in play,” “the government must make a fact-specific showing that the proposed merger is likely to be anticompetitive” both at the prima facie stage and in the final analysis. United States v. AT&T Inc., 310 F. Supp. 3d 161, 192 (D.D.C. 2018) (“AT&T I”), aff’d, 916 F.3d 1029 (D.C. Cir. 2019); see AT&T II, 916 F.3d at 1032.
To be sure, there is little recent case law regarding the standard of review for vertical mergers because the federal antitrust agencies have rarely challenged, let alone litigated, vertical acquisitions. The Department of Justice challenge to the AT&T/Time Warner merger marked “the first time in 40 years that a court has heard a fully-litigated challenge to a vertical merger.” Joshua D. Wright & Jan M. Rybnicek, US v. AT&T Time Warner: A Triumph of Economic Analysis, 6 J. Antitrust Enforcement 3 (2018).
Nevertheless, up to now, the agencies have considered likely structural benefits, transactional efficiencies, and potential remedies, along with potential harms, in toto and on net, in assessing a merger’s likely competitive impact. Hence, the Vertical Merger Guidelines—jointly adopted by the FTC and the Antitrust Division of the Department of Justice in June 2020 (although withdrawn by the FTC while this case was pending)—state that “[t]he Agencies do not challenge a merger if cognizable efficiencies are of a character and magnitude such that the merger is unlikely to be anticompetitive in any relevant market.” Vertical Merger Guidelines at 11. Even under the Horizontal Merger Guidelines, “[t]he Agency will not challenge a merger if cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive.” Dep’t of Justice, Antitrust Division & FTC, Horizontal Merger Guidelines § 10 (Aug. 19, 2010).
But here the Commission did not seriously account for likely efficiencies or other benefits that may be derived from practices inconsistent with foreclosure. Put simply, Illumina’s ability to profit from the merger without foreclosing rivals reduces its incentive to foreclose. Although the foreclosure incentive may remain on some margins, the question of the greater incentive cannot be resolved without assessing the incentives against foreclosure as well as those for it.
Illumina’s post-merger incentive to foreclose rivals may be constrained by:
But the FTC presumed away these and other factors that could mitigate the risk of harm.
The Commission maintains that the same scrutiny applies to efficiencies claims in vertical and horizontal transactions. To justify this conclusion, the Commission declined to “simply take managers’ word for efficiencies without independent verification, because then the efficiency defense ‘might well swallow the whole of Section 7,’ as managers could present large unsubstantiated efficiencies claims and courts would be hard pressed to find otherwise.” Opinion 75-76 (quoting United States v. H&R Block, Inc., 833 F. Supp. 2d 36, 91 (D.D.C. 2011). But this is a non sequitur, and wrong for three reasons.
First, the Commission need not (and the ID did not) “simply take managers’ word for efficiencies.” As the Initial Decision noted, courts and academic authorities both recognize procompetitive effects, including efficiencies, generally observed with vertical integration. ID 133-35, 196. See also ID 135 (noting case-specific evidence regarding research and development efficiencies, EDM, and the acceleration of access).
Second, to support its rejection of competitive benefits, the FTC continued to conflate the legal standards for horizontal and vertical mergers, relying only on serial string citations to horizontal merger cases. Opinion 75-76. Because a vertical merger puts direct, downward pressure on prices and upward pressure on complementary investments—the inverse of horizontal merger effects—the reliance on horizontal cases highlights the Commission’s failure to recognize the fundamental difference between horizontal and vertical integration. See AT&T II, 916 F.3d at 1032.
Third, ignoring that distinction, and the resulting need for a “fact-specific showing” of the likely anticompetitive effects of a vertical merger, id. at 1032, the Commission repeatedly relied upon H&R Block, which says nothing about standards of review for vertical mergers. H&R Block involved a horizontal merger that allegedly would have produced “an effective duopoly.” 833 F. Supp. 2d at 44.
The FTC’s Opinion also cites a horizontal merger decision, FTC v. H.J. Heinz Co., 246 F.3d 708, 713 (D.C. Cir. 2001), and AT&T II—a vertical merger case—for the proposition that the Baker Hughes framework applies to both horizontal and vertical mergers. That is misleading. Again, AT&T emphasizes that the distinction between horizontal and vertical mergers precludes similar presumptions of anticompetitive effects, and makes it easier to establish certain recognized efficiency and other benefits of vertical integration. See AT&T II, 916 F.3d at 1032; Vertical Merger Guidelines at 5. Not incidentally, the Government lost its merger challenge in AT&T, both at trial and on appeal.
The Commission also discounted—or ignored—various efficiencies and other benefits on the ground that “efficiencies are ‘inherently difficult to verify and quantify.’” Opinion 75 (citing H&R Block, 833 F. Supp. 2d at 89). To justify this approach, the Commission cites five horizontal merger matters: H&R Block; H.J. Heinz; Otto Bock HealthCare N. Am., Inc., 168 F.T.C. 324 (2019); FTC v. Wilh. Wilhelmsen Holding ASA, 341 F. Supp. 3d 27 (D.D.C. 2018); and FTC v Penn State Hershey Medical Center, 838 F.3d 327 (3d Cir. 2016).
Although some claimed efficiencies from horizontal mergers can be hard to verify, many efficiencies from vertical mergers are inherent. Specifically, if upstream and downstream margins are positive, basic economic theory predicts that the merger will mitigate double marginalization. Empirical research confirms this. See, e.g., Gregory S. Crawford, et al., The Welfare Effects of Vertical Integration in Multichannel Television Markets, 86 Econometrica 891 (2018). Similarly, when vertically related firms make complementary investments, theory predicts—and empirical research confirms—that vertical mergers will internalize investment spillovers in a way that tends to expand investment. See, e.g., Chenyu Yang, Vertical Structure and Innovation: A Study of the SoC and Smartphone Industries, 51 Rand J. Econ. 739 (2020). Meanwhile, operational and transactional efficiencies can be supported by both theoretical and empirical evidence, as well as case-specific evidence about the merging firms.
Here, the ALJ’s findings of fact detail ongoing innovation by Illumina, including improvements to its next generation sequencing (NGS) technologies ranging from the release of new reagents to software updates expected to result from the merger. ID 88-89. The Initial Decision also describes a complex process of integration between Illumina’s NGS technology and the requirements of different MCED testing programs. ID 89-91.
Given the Commission’s disregard of efficiencies, it is unclear when or how procompetitive benefits could ever offset the harm alleged to result if the consummated merger were left undisturbed—harm that the Commission did not quantify in either magnitude or likelihood.
The efficiencies and competitive benefits here seem substantially easier to verify and quantify than the magnitude or likelihood of the supposed harm that the Commission neither quantified nor estimated. The Commission did not seriously try to quantify the effects of the merger on the timing and competitive significance of entry of complex clinical products, such as MCED tests, in early stages of development. Rather, the Commission simply asserted that “likely substantial harms to current, ongoing innovation competition in nascent markets are sufficiently probable and imminent to violate Section 7” of the Clayton Act, Opinion 60-61 (cleaned up). But the Commission identified no evidence to support this assertion, or to refute the ALJ’s determinations that MCED tests in development were not poised to enter into competition with Grail’s Galleri test, ID 143-144, that most of the research on possible MCED tests was relatively preliminary, ID 144-145, and that most of the tests being investigated appeared to be far from close substitutes for Galleri. ID 145-153; see also ID 27-28, 44-61.
Instead, the Commission disputed the legal relevance of those findings, stating that its analysis “rests on harm to current, ongoing R&D efforts, rather than the precise timing or nature of any firm’s commercialization of an MCED test.” Opinion 56 n. 38. But that harm, too, is assumed rather than observed, and is neither verified nor quantified.
Thus, the Commission’s prima facie case rests both on a peremptory dismissal of competitive benefits and efficiencies and an uncritical acceptance of speculative theories of harm. Pre-merger, Illumina maintained a substantial ownership interest in Grail of no less than 12%, ID 7-11, yet the Commission did not identify any attempts by Illumina or Grail to interfere with research and development of any MCED test that might enter to compete with Galleri. The only head-to-head R&D competition noted was between Grail and one firm with a pipeline MCED test (Exact/Thrive), on two dimensions: first, various “prelaunch” activities, such as “competing for mindshare with physicians, with health systems, with payers,” ID 34; second, competition for research scientists capable of contributing to the development of MCED tests, id. But there was neither allegation nor evidence that Illumina or Grail engaged in anticompetitive conduct in these areas, and no obvious way in which Illumina could exploit whatever market power it enjoys in NGS markets to foreclose access to “mindshare” or research scientists.
Given no past, present, or ongoing harm to third-party R&D efforts, there is no basis to ignore the likelihood of entry into the MCED test product market, the likely timing of entry, or the likely competitive significance of entry by particular MCED tests that might be relatively close or poor substitutes for Galleri.
Each of those factors is directly relevant to the present risk of potential harm to future competition. They determine whatever risk ongoing R&D into MCED tests would pose to Grail, and hence affect the merged firm’s foreclosure incentives. Equally relevant is the risk to Illumina’s core income stream from NGS sales and services should it prove unreliable or capricious in fulfilling its contracts. That core business includes diverse clinical testing well beyond the potential rivals at issue, ID 92-93, with clients including “leading genomic research centers, academic institutions, government laboratories and hospitals, as well as pharmaceutical, biotechnology, commercial molecular diagnostic laboratories, and consumer genomics companies.” ID 6.
Finally, the Commission contends that “[c]ourts have never held that efficiencies alone immunized an otherwise unlawful transaction.” Opinion 75. That puts the cart before the horse, as benefits from aligning incentives between producers of complements (what the Commission terms “efficiencies”) often determine whether a transaction—especially a vertical transaction—is “unlawful” in the first place.
Most important, the courts have never held that these benefits are irrelevant generally (as the FTC would have it), or to the question whether a transaction is unlawful in the first instance. To the contrary, analysis of a vertical merger must account for the procompetitive benefits and efficiencies it is likely to achieve. See AT&T I, 310 F. Supp. at 198 (noting need “to ‘balance’ whether the Government’s asserted harms outweigh the merger’s conceded consumer benefits.”). Even in horizontal mergers, sufficiently large efficiency benefits may prevent a merger from being illegal. New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179, 207 (S.D.N.Y. 2020).
Because AT&T II made clear that no presumption of illegality applies to vertical mergers, the Commission properly faces a rigorous burden to prove on case-specific evidence that the proposed merger is likely to cause substantial, actual harm to competition and consumers—not a possibility of some degree of harm to competition that in theory could harm consumers. The Commission has not carried that burden.
The Commission’s legal error went beyond its application of a misplaced presumption of illegality that is impervious to evidence of the benefits from combining complements. The Commission also failed to recognize key structural differences between horizontal and vertical mergers.
The primary source of potential anticompetitive harm from vertical integration is foreclosure. While foreclosure is not consistently defined, one passable definition is:
[A] dominant firm’s denial of proper access to an essential good it produces, with the intent of extending monopoly power from that segment of the market (the bottleneck segment) to an adjacent segment (the potentially competitive segment).
Patrick Rey & Jean Tirole, A Primer on Foreclosure, in 3 Handbook of Industrial Organization 2145, 2148 (Mark Armstrong & Robert H. Porter, eds.) (2007). Because denial of access is a crucial aspect of foreclosure, agreements (or remedies) granting access to essential goods or services can mitigate the risk of foreclosure.
Illumina’s “Open Offer” appears to grant such access, yet the Commission failed to give proper weight to its effect on the risk of anticompetitive conduct. In contrast, the ALJ examined the Open Offer in detail, see, e.g., ID 98-125, 182-189, finding that it “provides a comprehensive set of protections for Illumina’s customers for all aspects of conduct and competition.” ID 120. The Commission rejected those findings, relying in part on a mischaracterization of the Open Offer as only a proposed remedy, and in part on an overbroad repudiation of behavioral remedies.
First, the record indicates that the Open Offer is binding under New York law, at least with respect to several firms engaged in MCED research, and that it will remain so through August 2033. ID 103-04. Firms that have accepted (or will accept) the Open Offer can enforce it whether or not the merger is blocked; and they would have every incentive to do so if Illumina interfered with their R&D efforts. That is not just a proposed remedy, but a fully operative constraint. If accepted, the Open Offer will become part of the institutional framework within which Illumina operates, further reducing or eliminating the firm’s incentives and ability to raise its rivals’ costs. ID 103-04, 179. Cf. United States v. General Dynamics Corp., 415 U.S. 486, 501-02 (1974) (noting importance of existing contracts in assessing competitive landscape).
That constraint seems especially significant given how few firms might someday enter to compete with Grail’s MCED test, and the difficulty inherent in trying to forecast R&D competition so far in advance.
Second, the Commission strains credulity in disregarding the Open Offer on the grounds that behavioral remedies can be hard to monitor and tend to be disfavored. If the Open Offer were incorporated into a consent order, the FTC would have to monitor only a very few agreements. The affected parties would assist in monitoring compliance, well-funded would-be entrants would have every incentive to report any difficulty gaining access to Illumina’s sequencing technology, and the FTC could modify the order as needed. Illumina, for its part, would face both the risk of damages imposed under state law and the risk of statutory penalties, among other remedies, for violations of FTC consent orders.
Under the flexible Baker Hughes approach, the Commission should have accorded substantial weight to the Open Offer in assessing whether the Illumina-Grail transaction is truly likely to cause harm. This behavioral remedy is neither cumbersome nor ineffective. Given the Open Offer, the Commission does not appear to have established that harm to R&D competition is likely or imminent.
Economic and empirical research confirm that the Commission was wrong to conclude that vertical and horizontal mergers should be analyzed identically. Horizontal mergers, by definition, remove a competitor from a relevant market; vertical mergers do not. As the economics literature makes clear, that structural distinction is central to antitrust analysis.
The Supreme Court’s modern vertical restraints decisions underscore the importance of developments in the economic literature for assessing how to evaluate any type of integration under the antitrust laws. The Court removed per se prohibitions on vertical restraints in part because “economics literature is replete with procompetitive justifications for” them. Leegin, 551 U.S. at 889.
The economics literature is equally “replete with procompetitive justifications” for vertical integration. Vertical integration typically confers benefits, such as eliminating double marginalization, Reiffen & Vita, supra, 63 Antitrust L.J. 917; increasing R&D investment, Armour & Teece, supra, 62 Rev. Econ. & Stat. 470; and creating operational and transactional efficiencies, Carlton, supra, 73 Int’l J. Indus. Org. 1.
The logic behind EDM is simple: Vertical mergers can increase welfare, even if the upstream or downstream firm has market power. When firms “markup” their products over their marginal cost of production, that reduces output and increases the (input or distribution) costs of their (downstream or upstream) rivals. In other words, independent upstream and downstream firms can exert negative externalities on each other that ultimately push prices upwards. When firms have no incentive to consider the effect of their price (and output) determinations on downstream firms’ profits, see, e.g., Michael A. Salinger, Vertical Mergers and Market Foreclosure, 103 Q.J. Econ. 345 (1988), there is an additional markup over the downstream firm’s marginal cost of production, or “double marginalization.” Vertical mergers enable firms to coordinate their pricing behavior, eliminating this externality without the negative effects that coordination would entail in horizontal merger cases. See Reiffen & Vita, supra, 63 Antitrust L. J. at 920.
In a vertical merger, EDM is likely automatic. Id. That is “precisely opposite of the outcome that arises under the frequently used Cournot oligopoly model of horizontal competition with substitute products. Under Cournot oligopoly, joint pricing raises price; under Cournot complements [as in a vertical merger], it lowers price.” Daniel O’Brien, The Antitrust Treatment of Vertical Restraint: Beyond the Possibility Theorems, in Konkurrensverket, Swedish Competition Authority, Report: The Pros and Cons of Vertical Restraints 22, 36 (2008).[1]
To be clear, vertical mergers are not necessarily procompetitive. An integrated firm may have an incentive to exclude rivals, see Steven C. Salop & David T. Scheffman, Cost-Raising Strategies, 36 J. Indus. Econ. 19 (1985), and a vertical merger can have an anticompetitive effect if the upstream firm has market power and the ability, post-acquisition, to foreclose its competitors’ access to a key input. See Janusz A. Ordover, Garth Saloner & Steven C. Salop, Equilibrium Vertical Foreclosure, 80 Am. Econ. Rev. 127 (1990). In that regard, raising rivals’ costs can “represent[] a credible theory of economic harm” if other conditions of exclusionary conduct are met. Malcom B. Coate & Andrew N. Kleit, Exclusion, Collusion, and Confusion: The Limits of Raising Rivals’ Costs, FTC Bureau of Economics Working Paper No. 179 (1990). But this is merely a possibility, not a likely conclusion without solid empirical evidence: “The circumstances… in which [raising rivals’ costs] can occur are usually so limited that [it] almost always represents a minimal threat to competition.” Id. at 3.
The implications of vertical mergers are thus theoretically ambiguous, not typically anticompetitive. But while the Commission now seeks to equate horizontal and vertical mergers,
[a] major difficulty in relying principally on theory to guide vertical enforcement policy is that the conditions necessary for vertical restraints to harm welfare generally are the same conditions under which the practices increase consumer welfare.
James C. Cooper, et al., Vertical Antitrust Policy as a Problem of Inference, 23 Int’l. J. Indus. Org. 639, 643 (2005).
This structural ambiguity weighs against any presumption against vertical mergers, and suggests the importance of empirical research in formulating standards to evaluate vertical transactions.
Empirical evidence supports the established legal distinctions between horizontal mergers and vertical mergers (as well as other forms of vertical integration), indicating that vertical integration tends to be procompetitive or benign.
A meta-analysis of more than seventy studies of vertical transactions analyzed groups of studies for their implications for various theories or models of vertical integration, and for the effects of vertical integration. From that analysis
a fairly clear empirical picture emerges. The data appear to be telling us that efficiency considerations overwhelm anticompetitive motives in most contexts. Furthermore, even when we limit attention to natural monopolies or tight oligopolies, the evidence of anticompetitive harm is not strong.
Francine Lafontaine & Margaret Slade, Vertical Integration and Firm Boundaries: The Evidence, 45 J. Econ. Lit. 629, 677 (2007).
On the contrary, “under most circumstances, profit-maximizing vertical integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view.” Id. And “[a]lthough there are isolated studies that contradict this claim, the vast majority support it….” Id. Lafontaine and Slade accordingly concluded that “faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked.” Id.
Another study of vertical restraints finds that, “[e]mpirically, vertical restraints appear to reduce price and/or increase output. Thus, absent a good natural experiment to evaluate a particular restraint’s effect, an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive.” Cooper, et al., supra, 23 J. Indus. Org. at 639.
Subsequent research has reinforced these findings. Reviewing the more recent literature from 2009-18, John Yun concluded “the weight of the empirical evidence continues to support the proposition that vertical mergers are less likely to generate competitive concerns than horizontal ones.” John M. Yun, Vertical Mergers and Integration in Digital Markets, in The GAI Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., 2020) at 245.
Leading contributors to the empirical literature, reviewing both new studies and critiques of the established view of vertical mergers, maintain a consistent view. For example, testifying at a 2018 FTC hearing, Francine Lafontaine, a former Director of the FTC’s Bureau of Economics, acknowledged that some of the early empirical evidence is less than ideal, in terms of data and methods, but reinforced the overall conclusions of her earlier research “that the empirical literature reveals consistent evidence of efficiencies associated with the use of vertical restraints (when chosen by market participants) and, similarly, with vertical integration decisions.” Francine Lafontaine, Vertical Mergers (Presentation Slides), in FTC, Competition and Consumer Protection in the 21st Century; FTC Hearing #5: Vertical Merger Analysis and the Role of the Consumer Welfare Standard in U.S. Antitrust Law, Presentation Slides 93 (Nov. 1, 2018) (“FTC Hearing #5”), available at https://www.ftc.gov/system/files/documents/public_events/1415284/ftc_hearings_5_georgetown_slides.pdf. See also Francine Lafontaine & Margaret E. Slade, Presumptions in Vertical Mergers: The Role of Evidence, 59 Rev. Indus. Org. 255 (2021).
In short, empirical research confirms that the law properly does not presume that vertical mergers have anticompetitive effects, but requires specific evidence of both harms and efficiencies.
Critics of prevailing legal standards and agency practice have pointed to a few studies that might cast doubt on the ubiquity of benefits associated with vertical mergers. We briefly review several of those studies, including those discussed at the FTC’s 2018 “Competition and Consumer Protection in the 21st Century” hearings that purported to suggest that the “econometric evidence does not support a stronger procompetitive presumption [for vertical mergers].” Steven C. Salop, Revising the Vertical Merger Guidelines (Presentation Slides), in FTC Hearing #5, supra, Presentation Slides 25. In fact, these studies do not undermine the longstanding economic literature. See Geoffrey A. Manne, Kristian Stout & Eric Fruits, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 69 Kansas L. Rev. 923 (2020). “[T]he newer literature is no different than the old in finding widely procompetitive results overall, intermixed with relatively few seemingly harmful results.” Id. at 951.
One oft-cited study examined Coca-Cola and PepsiCo’s acquisitions of some of their downstream bottlers. Fernando Luco & Guillermo Marshall, The Competitive Impact of Vertical Integration by Multiproduct Firms, 110 Am. Econ. Rev. 2041 (2020). The authors presented their results as finding that “vertical integration in the US carbonated-beverage industry caused anticompetitive price increases in products for which double margins were not eliminated.” Id. at 2062. But the authors actually found that, while such acquisitions were associated with price increases for independent Dr Pepper Snapple Group products, they were associated with price decreases for both Coca-Cola and PepsiCo products bottled by vertically integrated bottlers. Because the products associated with increased prices accounted for such a small market share, “vertical integration did not have a significant effect on the price index when considering the full set of products.” Id. at 2056. Overall, the consumer impact was either an efficiency gain or no significant change. As Francine Lafontaine characterized the study, “in total, consumers were better off given who was consuming how much of what.” FTC Hearing #5, supra, Transcript 88 (statement of Francine Lafontaine), available at https://www.ftc.gov/system/files/documents/public_events/1415284/ftc_hearings_session_5_transcript_11-1-18.pdf.
In another study often cited by skeptics of vertical integration, Justine Hastings and Richard Gilbert examined wholesale price changes charged by a vertically integrated refiner/retailer using data from 1996-98. Justine S. Hastings & Richard J. Gilbert, Market Power, Vertical Integration, and the Wholesale Price of Gasoline, 33 J. Indus. Econ. 469 (2005). They observed that the firm charged higher wholesale prices in cities where its retail outlets competed more with independent gas stations, and concluded that their observations were consistent with the theory of raising rivals’ costs. Id. at 471.
In subsequent research, however, three FTC economists publishing in the American Economic Review examined retail gasoline prices following the 1997 acquisition of an independent gasoline retailer by a vertically integrated refiner/retailer. Their estimates suggested that the merger was associated with minuscule—and economically insignificant—price increases. Christopher T. Taylor, et al., Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California: Comment, 100 Am. Econ. Rev. 1269 (2010).
Hastings explains the discrepancy with Taylor et al., by noting the challenges of evaluating vertical mergers with incomplete data or, simply, different data sets, as seemingly similar data can yield very different results. Justine Hastings, Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California: Reply, 100 Am. Econ. Rev. 1227 (2010). But that observation does not undercut Taylor et al.’s findings. Rather, it suggests caution in drawing general conclusions from this line of research, even with regard to gasoline/refiner integration, much less to vertical integration generally.
Other commonly cited studies are no more persuasive. For example, one study examined vertical mergers between cable-programming distributors and regional sports networks using counterfactual simulations that enforced program access rules. Crawford, et al., supra, 86 Econometrica 891. While some have characterized their findings as “mixed” (FTC Hearing #5, supra, Transcript 54 (statement of Margaret Slade))—suggesting that vertical integration could have some negative as well as positive effects—their overall results indicated “that vertical integration leads to significant gains in both consumer and aggregate welfare.” Crawford, et al., supra, 86 Econometrica at 893-894.
Harvard economist Robin Lee, a co-author of the study, concluded that the findings demonstrated that the consumer benefits of efficiency gains outweighed any harms from foreclosure. As he testified at the FTC’s 2018 hearings,
our key findings are that, on average, across channels and simulations, there is a net consumer welfare gain from integration. Don’t get me wrong, there are significant foreclosure effects, and rival distributors are harmed, but these negative effects are oftentimes offset by sizeable efficiency gains. Of course, this is an average. It masks considerable heterogeneity.
FTC, Competition and Consumer Protection in the 21st Century: FTC Hearing #3: Multi-Sided Platforms, Labor Markets, and Potential Competition, Transcript 101 (Oct. 17, 2018), available at https://www.ftc.gov/system/files/documents/public_events/1413712/ftc_hearings_session_3_transcript_day_3_10-17-18_0.pdf.
While these studies indicate that vertical mergers can sometimes lead to harm, that point was never disputed. What is important is that the studies do not support any general presumption against vertical mergers or, indeed, any revision to either the legal distinction between horizontal and vertical mergers or to what was, up to now, established agency practice in merger review. The weight of the empirical evidence plainly indicates that vertical integration tends to be procompetitive; hence, no presumption of anticompetitive effects or of illegality should apply, and none should have been applied here.
There is much at stake here. The potential for harm from the merger seems speculative, but the benefits seem conspicuous and substantial, not only reducing the risk of net competitive harm but promising significant enhancement to consumer welfare. As the Commission observed, “better screening methods to detect more cancers at an earlier stage … have the potential to extend and improve many human lives.” Opinion 3. Those benefits should not be forestalled by speculation about possible harms that ignores the differences between vertical and horizontal mergers.
The FTC’s decision should be reversed.
[1] Many discussions of the competitive effects of vertical mergers, including the Vertical Merger Guidelines, conflate EDM, investment benefits, and transactional efficiencies.
TOTM In my last roundup, I puzzled over the Federal Trade Commission’s (FTC) suit to block Amgen’s acquisition of Horizon Therapeutics. The deal involved no product overlaps . . .
In my last roundup, I puzzled over the Federal Trade Commission’s (FTC) suit to block Amgen’s acquisition of Horizon Therapeutics. The deal involved no product overlaps whatsoever (i.e., no horizontal competition), a target firm acknowledged to have no competitors for the orphan drugs at issue, and nobody poised to enter into competition either.
I won’t recapitulate the details of my confusion here, but I will point to a new piece by Bill MacLeod (a past chair of the American Bar Association’s Antitrust Section and a former FTC bureau director) and David Evans, in which they raise an issue I didn’t cover: “The Federal Trade Commission may have filed the first merger complaint in a generation that could be dismissed for failure to state a claim.” Which would not look good.
TOTM Some may refer to this as the Roundup Formerly Known as the FTC Roundup. If you recorded yourself while reading out loud, and your name . . .
Some may refer to this as the Roundup Formerly Known as the FTC Roundup. If you recorded yourself while reading out loud, and your name is Dove, that is what it sounds like when doves sigh.
TOTM The Federal Trade Commission (FTC) might soon be charging rent to Meta Inc. The commission earlier this week issued (bear with me) an “Order to . . .
The Federal Trade Commission (FTC) might soon be charging rent to Meta Inc. The commission earlier this week issued (bear with me) an “Order to Show Cause why the Commission should not modify its Decision and Order, In the Matter of Facebook, Inc., Docket No. C-4365 (July 27, 2012), as modified by Order Modifying Prior Decision and Order, In the Matter of Facebook, Inc., Docket No. C-4365 (Apr. 27, 2020).”
