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Earlier this month New Jersey became the most recent (but likely not the last) state to ban direct sales of automobiles. Although the rule nominally applies more broadly, it is directly aimed at keeping Tesla Motors (or at least its business model) out of New Jersey. Automobile dealers have offered several arguments why the rule is in the public interest, but a little basic economics reveals that these arguments are meritless.

Today ICLE sent an open letter to New Jersey Governor Chris Christie, urging reconsideration of the regulation and explaining why the rule is unjustified — except as rent-seeking protectionism by independent auto dealers.

The letter, which was principally written by University of Michigan law professor, Dan Crane, and based in large part on his blog posts at Truth on the Market (see here and here), was signed by more than 70 economists and law professors.

As the letter notes:

The Motor Vehicle Commission’s regulation was aimed specifically at stopping one company, Tesla Motors, from directly distributing its electric cars. But the regulation would apply equally to any other innovative manufacturer trying to bring a new automobile to market, as well. There is no justification on any rational economic or public policy grounds for such a restraint of commerce. Rather, the upshot of the regulation is to reduce competition in New Jersey’s automobile market for the benefit of its auto dealers and to the detriment of its consumers. It is protectionism for auto dealers, pure and simple.

The letter explains at length the economics of retail distribution and the misguided, anti-consumer logic of the regulation.

The letter concludes:

In sum, we have not heard a single argument for a direct distribution ban that makes any sense. To the contrary, these arguments simply bolster our belief that the regulations in question are motivated by economic protectionism that favors dealers at the expense of consumers and innovative technologies. It is discouraging to see this ban being used to block a company that is bringing dynamic and environmentally friendly products to market. We strongly encourage you to repeal it, by new legislation if necessary.

Among the letter’s signatories are some of the country’s most prominent legal scholars and economists from across the political spectrum.

Read the letter here:

Open Letter to New Jersey Governor Chris Christie on the Direct Automobile Distribution Ban

Today the International Center for Law & Economics and the Competitive Enterprise Institute filed an amicus brief in support of Petitioners in the Supreme Court’s Aereo case.

The brief, which was authored by ICLE’s Geoffrey Manne and Ben Sperry and CEI’s Ryan Radia, argues that Aereo’s unlicensed transmission of copyrighted broadcast programming violates the Copyright Act:

”

Monday is a big day for advocates of Network Neutrality, as the DC District Court will finally hear oral arguments in Verizon v. FCC. Later that afternoon, Professor Manne, the Executive Director of the International Center for Law & Economics, will lead a conference call hosted by the Federalist Society on the case. Much like the joint ICLE and TechFreedom event earlier in the day, Prof. Manne will recap that morning’s D.C. Circuit arguments, assess how the court might decide the case, and discuss what options might be available to the FCC as well as antitrust agencies to address net neutrality concerns.

To sign up for the call or learn more visit the Federalist Society.

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Monday is a big day for advocates of Network Neutrality, as the DC District Court will finally hear oral arguments in Verizon v. FCC. Later that afternoon, Professor Manne, the Executive Director of the International Center for Law & Economics, will lead a conference call hosted by the Federalist Society on the case. Much like the joint ICLE and TechFreedom event earlier in the day, Prof. Manne will recap that morning’s D.C. Circuit arguments, assess how the court might decide the case, and discuss what options might be available to the FCC as well as antitrust agencies to address net neutrality concerns.

To sign up for the call or learn more visit the Federalist Society.

Today, Federal Trade Commissioner Josh Wright released a draft

 

Policy Statement on Unfair Methods of Competition

 

in

 

a speech

 

to the New York State Bar Association’s Antitrust Section. Wright had

 

announced

 

plans for such a statement in March.

“This statement is long overdue,” said TechFreedom President Berin Szoka. “After nearly a century, the FTC has never clearly

defined what its authority over unfair methods of competition covers that the antitrust laws don’t. The last time the Supreme

Court addressed the FTC’s core

 

Section 5 authority

 

was 1972.”

“Ultimately, Commissioner Wright’s proposal boils down to minimizing error costs,” said Geoffrey Manne, Executive Director

of the International Center for Law & Economics, Lecturer in Law at Lewis & Clark Law School and TechFreedom Senior

Fellow. “Regulators always have to weigh the costs of over- and under-enforcing. The last forty years of antitrust scholarship

have concluded that, as Judge Easterbrook put it in his seminal 1984 article on the ‘Limits of Antitrust,’ our ‘economic

system corrects monopoly more readily than it corrects judicial errors.’ So antitrust regulators should err on the side of

allowing competition to play out in all its messiness”and intervene only where they can show that real harm will occur.”

Commissioner Wright’s draft statement provides that “an unfair method of competition is an act or practice that (1) harms

or is likely to harm competition significantly and (2) lacks cognizable efficiencies””a term of art used in the FTC and DOJ’s

 

Horizontal Merger Guidelines

 

since 1997, and defined as “those that have been verified and do not arise from anticompetitive reductions in output or

service.” Wright’s draft statement notes that “Where conduct plausibly produces both costs and benefits for consumers it

is fundamentally difficult to identify the net competitive consequences associated with the conduct. This is particularly

true if business conduct is novel or takes place within an emerging or rapidly changing industry, and thus where there is

little empirical evidence about the conduct’s potential competitive effects.”

“Wright’s Statement recognizes that the costs of getting it wrong increase as technology accelerates,” Szoka noted “That

doesn’t mean there’s no role for antitrust law, but it does demand regulatory humility about deeming innovative modes of

competition that are legal under antitrust to be unfair under Section 5. Commissioner Wright is fond of quoting the Nobel

Prize winning economist Ronald Coase: ‘If an economist finds something”a business practice of one sort or another”that he

does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of understandable

practices tends to be very large, and the reliance on a monopoly explanation, frequent.’ Coase would have been the first

to applaud Wright today.”

Manne concluded: “Ironically, this is former Chairman Leibowitz’s true legacy. His efforts to expand Section 5 to challenge

novel conduct without proof of anticompetitive harm brought into stark relief the costs of unfettered Section 5 enforcement.

Commissioner Wright’s statement can be seen as the unintended culmination of”and backlash against”Leibowitz’s Section 5 campaign.

The FTC should adopt Wright’s proposed statement, it would also do well to flesh out its existing policy statements on Unfair

and Deceptive Acts and Practices through guidelines”as happens in antitrust law. But in the end, policy statements alone

don’t bind agencies”courts do. If agencies consistently settle out of court, they can avoid building real law for years,

even decades.”

Szoka and Manne are available for comment at [email protected]. They have previously explained the problems with the FTC’s use of Section 5 in numerous writings, including this

 

short primer. ICLE and TechFreedom recently filed an

 

amicus brief

 

in

 

FTC v. Wyndham

 

arguing that the FTC needs to do more to explain how its existing authority applies in data security and other consumer

protection cases.

On Wednesday, Executive Director of the International Center for Law & Economics, Geoffrey

Manne, will present testimony at the US House Energy and Commerce Committee’s Communications and Technology Subcommittee’s

hearing on the reauthorization of the Satellite Television Extension and Localism Act (STELA) and the state of video competition,

entitled

 

The Satellite Television Law: Repeal, Reauthorize, or Revise?

 

The hearing takes place in Rayburn 2123 at 10:30 am EDT tomorrow, Wednesday, June 12 and will be livestreamed

 

here

 

. The following statement can be attributed to Prof. Manne:

Today’s video marketplace is shaped by a byzantine set of rules from a bygone era. In 1992, cable had unique gatekeeper

power over video programming. But today, cable is simply one of several competing conduits for video programming distribution.

Today’s legacy regulations were intended to prevent cable from thwarting the rise of satellite DBS service. They have succeeded:

Nearly all Americans have access to the two primary DBS providers in addition to a cable provider. One third also have access

to a telco provider, and consumers are increasingly switching to online video distributors. Netflix alone already has more

subscribers than Comcast. In other words, competition is thriving “ and not just in the dimensions Congress conceived of

a generation ago.

This should cause legislators to revisit the fundamental, if implicit, assumption on which most video regulation currently

rests: that antitrust law is insufficient to protect consumers, and must be supplemented with industry-specific regulations.

Concerns over monopoly power and vertical integration are vastly exaggerated. In 1992 over half of all networks were affiliated

with a distribution network; today the number is closer to 12%. Antitrust law can police the market for carrying content

far more effectively than can special copyright limitations and telecom rules enforced by the FCC with little economic rigor.

Today’s legacy regulations do far more to hinder investment and innovation in content creation and distribution than they

do to help. There are smarter ways to promote localism and access to content than by propping up the technologically outdated

model of over-the-air broadcasting with needlessly complex regulations. The broadcasting system may well be reborn in new,

more efficient distribution models over the Internet or using spectrum currently underutilized by broadcasters. But the future

of video programming should be decided by what consumers demand, not the regulatory paradigm of the 1990s.

Read Manne’s full written remarks

 

here

 

and watch his oral testimony

 

here

 

at 10:30 am EDT on Wednesday, June 11. Follow the conversation on the #StateOfVideo hashtag.

Manne is available for comment at [email protected].

Today, the International Center for Law & Economics (ICLE) and TechFreedom filed an amici curiae brief in the federal District Court of New Jersey arguing that the FTC’s unfairness claim against Wyndham Hotels is unconstitutionally vague and inadequately pleaded, and, as such, should be dismissed by the Court. TechFreedom and ICLE were joined by a distinguished group of consumer protection scholars including Todd Zywicki, who previously served as Director of the Office of Policy & Planning at the FTC and Paul Rubin, who previously served as Assistant Director for Consumer Protection of the FTC’s Bureau of Economics.

The FTC alleges that Wyndham’s failure to have reasonable data security was an unfair trade practice under Section 5 of the FTC Act, and that consumers were harmed when their credit card numbers were obtained by hackers who breached the reservation systems of Wyndham Hotels. The following comment can be attributed to ICLE Executive Director Geoffrey Manne and TechFreedom President Berin Szoka:

Over the last nine years, the FTC has charged seventeen companies with engaging in unfair trade practices for failing to have reasonable data security. But the Commission has never established what that means nor exactly how its broad power to prohibit unfair practices applies in these cases. Until now, each case has been settled out of court, with almost no public analysis. The FTC has chosen not to use its existing rulemaking powers and has issued no further guidance. Instead, the FTC has built what amounts to “non-law law”: vague, unpredictable standards built on an infinite regress of unadjudicated assertions.

The FTC claims its past complaints provide ample guidance on data security, but it hasn’t developed the limiting principles for unfairness required by Congress. The Commission’s complaints don’t even meet minimum pleading standards. Precisely because unfairness is such an amorphous concept, the Commission bears a heavy burden of establishing the elements required by Section 5: substantial injury that consumers cannot reasonably avoid and without countervailing benefits. It hasn’t done so. Dismissing the FTC’s complaint against Wyndham would be a catalyst for long-overdue changes in the FTC’s approach, and courts can help protect consumers by clearly stating that it’s up to Congress to decide how to protect consumers against harms that the agency’s unfairness authority can’t properly reach.

Whatever the court decides, the Wyndham case could finally force Congress to decide how data security should be regulated. But we hope lawmakers will consider the more fundamental question of how the FTC operates. If neither the courts nor Congress disciplines the FTC’s use of unfairness authority, the FTC will continue to use unfairness as a blank check to regulate data security and other aspects of the Internet and new technologies more generally.

Manne and Szoka are available for comment at [email protected].

The International Center for Law & Economics and TechFreedom filed comments yesterday urging ICANN to approve applications for closed generic Top Level Domains (gTLD) like .BOOK and .BLOG. Closed gTLD registry operators would not be required to allow all applicants to register domain names within the TLD, as .COM is, but could instead manage the entire TLD as their own platforms. We urged ICANN to refer competition concerns to national antitrust authorities, consistent with ICANN’s proper role as a global coordinator rather than a regulator. The following statement can be attributed to Geoffrey Manne, Executive Director of the International Center for Law & Economics and Berin Szoka, President of TechFreedom:

Critics are decrying ICANN’s authorization of closed gTLDs, claiming they could be anticompetitive. But closed gTLDs would provide the most innovative alternatives ” and strongest competition ” to .COM and today’s most popular domain names. Today’s market leaders won’t be beat by simply copying them, no matter how much money is spent on ads. New entrants must offer consumers something new and different. Closing the TLD may sound nefarious, but it gives the registry operator the incentive to invest not only in marketing the TLD, but also in innovative new business models that may change the paradigm of how TLDs function. The operator of .HOTELS would no more “monopolize” the hotel booking market than the owner of hotels.com does today. But it could turn the domain name system into a more useful and accessible form of navigation, while offering new features like added security or thematic consistency consistent across the TLD. That’s just Marketing 101.

The future of the domain space will inevitably be messy and unpredictable in the best sense. But it is precisely that messiness ” that unpredictability, that constant shifting of basic paradigms ” that will most benefit consumers. Forcing new gTLDs to replicate the paradigm of .COM will not.

There may end up being legitimate concerns about a registry’s abuse of market power, but such concerns should be handled by those best positioned to evaluate them: national competition authorities. ICANN should be a coordinator of the domain name space, not the global regulator of the Internet.

Manne and Szoka are available for comment at [email protected].

The suit against Google was to be this century’s first major antitrust case and a model for high technology industries in the future. Now that we have passed the investigative hangover, the mood has turned reflective, and antitrust experts are now looking to place this case into its proper context. If it were brought, would the case have been on sure legal footing? Was this a prudent move for consumers? Was the FTC’s disposition of the case appropriate?

http://truthonthemarket.com/2013/01/09/powerhouse-aba-webinar-on-the-ftcs-investigation-of-google-this-friday/