Every voluntary transaction between a buyer and seller involves the creation of surplus—the difference between the subjective value a buyer attaches to the thing and the seller’s cost of producing and selling the item. Price and other contract terms determine how that surplus is split between the buyer and seller.

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The International Center for Law & Economics (ICLE) filed an amicus brief on behalf of itself and 26 distinguished law & economics scholars with the 9th U.S. Circuit Court of Appeals in the hotly anticipated and intensely important Epic Games v Apple case.

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The Biden administration finally has taken a public position on parallel House (H.R. 3816) and Senate (S. 2992) bills that would impose new welfare-reducing regulatory constraints on the ability of large digital platforms to engage in innovative business practices that benefit consumers and the economy.

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United States Court of Appeals
for the District of Columbia Circuit

STATE OF NEW YORK, et al.,
Plaintiffs-Appellants,
v.
FACEBOOK, INC.,
Defendant-Appellee.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
No. 1:20-cv-03589-JEB (Hon. James E. Boasberg)

BRIEF OF INTERNATIONAL CENTER FOR
LAW AND ECONOMICS AND SCHOLARS OF LAW
AND ECONOMICS AS AMICUS CURIAE SUPPORTING
DEFENDANT-APPELLEE FACEBOOK, INC. AND AFFIRMANCE

 

STATEMENT OF THE AMICUS CURIAE

Amici are leading scholars of economics, telecommunications, and/or antitrust. Their scholarship reflects years of experience and publications in these fields.

Amici’s expertise and academic perspectives will aid the Court in deciding whether to affirm in three respects. First, amici provide an explanation of key economic concepts underpinning how economists understand the welfare effects of a monopolist’s refusal to deal voluntarily with a competitor and why that supports affirmance here. Second, amici offer their perspective on the limited circumstances that might justify penalizing a monopolist’s unilateral refusal to deal—and why this case is not one of them. Third, amici explain why the District Court’s legal framework was correct and why a clear standard is necessary when analyzing alleged refusals to deal.

SUMMARY OF ARGUMENT

This brief addresses the broad consensus in the academic literature disfavoring a theory underlying plaintiff’s case—“unilateral refusal to deal” doctrine. The States allege that Facebook restricted access to an input (Facebook’s Platform) in order to prevent third parties from using that access to export Facebook data to competitors or compete directly with Facebook. But a unilateral refusal to deal involves more than an allegation that a monopolist refuses to enter into a business relationship with a rival.

Mainstream economists and competition law scholars are skeptical of imposing liability, even on a monopolist, based solely on its choice of business partners. The freedom of firms to choose their business partners is a fundamental tenet of the free market economy, and the mechanism by which markets produce the greatest welfare gains. Thus, cases compelling business dealings should be confined to particularly delineated circumstances.

In Part I below, amici describe why it is generally inefficient for courts to compel economic actors to deal with one another. Such “solutions” are generally unsound in theory and unworkable in practice, in that they ask judges to operate as regulators over the defendant’s business.

In Part II, amici explain why Aspen Skiing—the Supreme Court’s most prominent precedent permitting liability for a monopolist’s unilateral refusal to deal—went too far and should not be expanded as the States’ and some of their amici propose.

In Part III, amici explain that the District Court correctly held that the conduct at issue here does not constitute a refusal to deal under Aspen Skiing. A unilateral refusal to deal should trigger antitrust liability only where a monopolist turns down more profitable dealings with a competitor in an effort to drive that competitor’s exit or to disable its ability to compete, thereby allowing the monopolist to recoup its losses by increasing prices in the future. But the States’ allegations do not describe that scenario.

In Part IV, amici address that the District Court properly considered and dismissed the States’ “conditional dealing” argument. The States’ allegations are correctly addressed under the rubric of a refusal to deal—not exclusive dealing or otherwise. The States’ desire to mold their allegations into different legal theories highlights why courts should use a strict, clear standard to analyze refusals to deal.

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Abstract

The Federal Trade Commission’s initiative to use rulemaking powers to target “unfair methods of competition” under the FTC Act is part of a broader package of dramatic recent changes in antitrust enforcement policy and practice by FTC leadership. These changes, which have rejected the consumer-welfare standard and rule-of-reason balancing tests, represent a strategic effort to bypass the rigorous standards of federal antitrust case law and qualify for the deference generally accorded agency rulemaking by federal courts. Principal-agent analysis suggests that these changes, by detaching antitrust enforcement from antitrust case law and substituting regulatory discretion for structured guidelines, raise a significant risk that the agency will undertake actions that depart from its statutory mandate by targeting practices that do not pose any credible threat of competitive harm.

After years of debate and negotiations, European Lawmakers have agreed upon what will most likely be the final iteration of the Digital Markets Act (“DMA”), following the March 24 final round of “trilogue” talks.

Read the full piece here.

For decades, consumer-welfare enhancement appeared to be a key enforcement goal of competition policy (antitrust, in the U.S. usage) in most jurisdictions…

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As the European Union’s Digital Markets Act (DMA) has entered the final stage of its approval process, one matter the inter-institutional negotiations appears likely to leave unresolved is how the DMA’s the relationship with competition law affects the very rationale and legal basis for the intervention.

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Executive Summary

In contrast to its stated aims to promote a Digital Single Market across the European Union, the proposed Digital Markets Act (DMA) could serve to fragment Europe’s legal framework even further, largely due to overlaps with competition law. This paper provides an analytical overview of areas where conflicts would inevitably arise from dual application of the DMA and European and national-level antitrust rules. It counsels full centralization of the DMA’s enforcement at the EU level to avoid further fragmentation, as well as constraining the law’s scope by limiting its application to a few large platform ecosystems.

Introduction

The Digital Markets Act (DMA) has entered the last and decisive stage of its approval process. With the Council of Europe having reached consensus on its general approach[1] and the European Parliament having adopted amendments,[2] the DMA proposal has moved into the inter-institutional negotiations known as the so-called “trilogue.”

The DMA has spurred a lively debate since it initially was proposed by the European Commission in December 2020.[3] This deliberative process has touched on all the proposal’s features, including its aims and scope, the regulations and rule-based approach it would adopt, and the measure’s institutional design. However, given the positions expressed by the Council and the Parliament, the rationale for DMA intervention and the proposal’s relationship with antitrust law remain relevant topics for exploration.

The DMA is grounded explicitly on the notion that competition law alone is insufficient to effectively address the challenges and systemic problems posed by the digital platform economy. Indeed, the scope of antitrust is limited to certain instances of market power (e.g., dominance on specific markets) and of anti-competitive behavior.[4] Further, its enforcement occurs ex post and requires extensive investigation on a case-by-case basis of what are often very complex sets of facts.[5] Moreover, it may not effectively address the challenges to well-functioning markets posed by the conduct of gatekeepers, who are not necessarily dominant in competition-law terms.[6] As a result, proposals such as the DMA invoke regulatory intervention to complement traditional antitrust rules by introducing a set of ex ante obligations for online platforms designated as gatekeepers. This also allows enforcers to dispense with the laborious process of defining relevant markets, proving dominance, and measuring market effects.

The DMA’s framers declare that the law aims to protect different legal interests than antitrust rules do. That is, rather than seeking to protect undistorted competition on any given market, the DMA look to ensure that markets where gatekeepers are present remain contestable and fair, independent from the actual, likely, or presumed effects of the conduct of a given gatekeeper.[7] Accordingly, the relevant legal basis for the DMA is found not in Article 103 of the Treaty on the Functioning of the European Union (TFEU), which is intended to implement antitrust rules pursuant to Articles 101 and 102 TFEU, but rather in Article 114 TFEU, covering “Common Rules on Competition, Taxation and Approximation of Laws.” Further, from an institutional-design perspective, the DMA opts for centralized implementation and enforcement at the EU level, rather than the traditional decentralized or parallel antitrust enforcement at the national level.

Because the intent of the DMA is to serve as a complementary regulatory scheme, traditional antitrust rules will remain applicable. However, those rules would not alleviate the obligations imposed on gatekeepers under the forthcoming DMA regulations and, particularly, efforts to make the DMA’s application uniform and effective.[8]

Despite claims that the DMA is not an instrument of competition law[9] and thus would not affect how antitrust rules apply in digital markets, the forthcoming regime appears to blur the line between regulation and antitrust by mixing their respective features and goals. Indeed, the DMA shares the same aims and protects the same legal interests as competition law.[10] Further, its list of prohibitions is effectively a synopsis of past and ongoing antitrust cases.[11] Therefore, the proposal can be described as a sector-specific competition law,[12] or a shift toward a more regulatory approach to competition law—one that is designed to allow assessments to be made more quickly and through a more simplified process.[13]

Acknowledging the continuum between competition law and the DMA, the European Competition Network (ECN) and some EU member states (self-anointed “friends of an effective DMA”) have proposed empowering national competition authorities (NCAs) to enforce DMA obligations.[14] Under this approach, while the European Commission would remain primarily responsible for enforcing the DMA and would have sole jurisdiction for designating gatekeepers or granting exemptions, NCAs would be permitted to enforce the DMA’s obligations and to use investigative and monitoring powers at their own initiative. According to supporters of this approach, the concurrent competence of the Commission and NCAs is needed to avoid the risks of conflicting decisions or remedies that would undermine the effectiveness and coherence of both the DMA and antitrust law (and, ultimately, the integrity of the internal market.)[15]

These risks have been heightened by the fact that Germany (one of the “friends of an effective DMA”) subsequently empowered its NCA, the Bundeskartellamt, to intervene at an early stage in cases where it finds that competition is threatened by large digital companies—in essence, granting the agency a regulatory tool that is functionally equivalent to the DMA.[16] Further, several member states are preparing to apply national rules on relative market power and economic dependence to large digital platforms, with the goal of correcting perceived imbalances of bargaining power between online platforms and business users.[17] As a result of these intersections among the DMA, national and European antitrust rules, and national laws on superior bargaining power, a digital platform may be subject to cumulative proceedings for the very same conduct, facing risks of double (or even triple and quadruple) jeopardy.[18]

The aim of this paper is to guide the reader through the jungle of potentially overlapping rules that will affect European digital markets in the post-DMA world. It attempts to demonstrate that, despite significant concerns about both the DMA’s content and its rationale, full centralization of its enforcement at EU level will likely be needed to reduce fragmentation and ensure harmonized implementation of the rules. Frictions with competition law would be further confined by narrowing the DMA’s scope to ecosystem-related issues, thereby limiting its application to the few large platforms that are able to orchestrate an ecosystem.

The paper is structured as follows. Section II analyzes the intersection between the DMA and competition law. Section III examines the DMA’s enforcement structure and the solutions advanced to safeguard cooperation and coordination with member states. Section IV illustrates the arguments supporting full centralization of DMA enforcement and the need to narrow its scope. Section V concludes.

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[1] Proposal for a Regulation of the European Parliament and of the Council on Contestable and Fair Markets on the Digital Sector (Digital Markets Act) – General Approach, Council of the European Union (Nov. 16, 2021), available at https://data.consilium.europa.eu/doc/document/ST-13801-2021-INIT/en/pdf.

[2] Amendments Adopted on the Proposal for a Regulation of the European Parliament and of the Council on Contestable and Fair Markets in the Digital Sector (Digital Markets Act), European Parliament (Dec. 15, 2021), https://www.europarl.europa.eu/doceo/document/TA-9-2021-12-15_EN.html.

[3] Proposal for a Regulation on Contestable and Fair Markets in the Digital Sector (Digital Markets Act), European Commission (Dec. 15, 2020), available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020PC0842&from=en.

[4] Ibid., Recital 5.

[5] Ibid.

[6] Ibid.

[7] Ibid., Recital 10.

[8] Ibid., Recital 9 and Article 1(5).

[9] Margrethe Vestager, Competition in a Digital Age, speech to the European Internet Forum (Mar. 17, 2021), https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/competition-digital-age_en.

[10] Heike Schweitzer, The Art to Make Gatekeeper Positions Contestable and the Challenge to Know What Is Fair: A Discussion of the Digital Markets Act Proposal, 3 ZEuP 503 (Jun. 11, 2021).

[11] Cristina Caffarra and Fiona Scott Morton, The European Commission Digital Markets Act: A Translation, Vox EU (Jan. 5, 2021), https://voxeu.org/article/european-commission-digital-markets-act-translation.

[12] Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Compet. Law Pract 529 (May 11, 2021).

[13] Marco Cappai and Giuseppe Colangelo, Taming Digital Gatekeepers: The More Regulatory Approach to Antitrust Law, 41 Comput. Law Secur. Rev. 1 (Apr. 9, 2021).

[14] How National Competition Agencies Can Strengthen the DMA, European Competition Network (Jun. 22, 2021), available at https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf; Strengthening the Digital Markets Act and Its Enforcement, German Federal Ministry for Economic Affairs and Energy, French Ministére de l’Économie, les Finance et de la Relance, Dutch Ministry of Economic Affairs and Climate Policy, (May 27, 2021), available at https://www.bmwi.de/Redaktion/DE/Downloads/XYZ/zweites-gemeinsames-positionspapier-der-friends-of-an-effective-digital-markets-act.pdf?__blob=publicationFile&v=4.

[15] European Competition Network, supra note 14, 6-7.

[16] See Section 19a of the GWB Digitalization Act (Jan. 18, 2021), https://www.bundesrat.de/SharedDocs/beratungsvorgaenge/2021/0001-0100/0038-21.html.

[17] See, e.g., German GWB Digitalization Act, supra note 16; See, also, Belgian Royal Decree of 31 July 2020 Amending Books I and IV of the Code of Economic Law as Concerns the Abuse of Economic Dependence, Belgian Official Gazette (Jul. 19, 2020), http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=2019040453&table_name=loi.

[18] Marco Cappai and Giuseppe Colangelo, A Unified Test for the European Ne Bis in Idem Principle: The Case Study of Digital Markets Regulation, SSRN working paper (Oct. 27, 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3951088.