Earlier this week the European Commission cleared the merger of Dow and DuPont, subject to conditions including divestiture of DuPont’s “global R&D organisation.” As the Commission noted:

The Commission had concerns that the merger as notified would have reduced competition on price and choice in a number of markets for existing pesticides. Furthermore, the merger would have reduced innovation. Innovation, both to improve existing products and to develop new active ingredients, is a key element of competition between companies in the pest control industry, where only five players are globally active throughout the entire research & development (R&D) process.

In addition to the traditional focus on price effects, the merger’s presumed effect on innovation loomed large in the EC’s consideration of the Dow/DuPont merger — as it is sure to in its consideration of the other two pending mergers in the agricultural biotech and chemicals industries between Bayer and Monsanto and ChemChina and Syngenta. Innovation effects are sure to take center stage in the US reviews of the mergers, as well.

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What does it mean to “own” something? A simple question (with a complicated answer, of course) that, astonishingly, goes unasked in a recent article in the Pennsylvania Law Review entitled, What We Buy When We “Buy Now,” by Aaron Perzanowski and Chris Hoofnagle (hereafter “P&H”). But how can we reasonably answer the question they pose without first trying to understand the nature of property interests?

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In Brussels, the talk of the town is that the European Commission (“Commission”) is casting a new eye on the old antitrust conjecture that prophesizes a negative relationship between industry concentration and innovation. This issue arises in the context of the review of several mega-mergers in the pharmaceutical and AgTech (i.e., seed genomics, biochemicals, “precision farming,” etc.) industries.

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Summary

A novel theory of harm is crystalising in European Union (“EU”) merger control. Under this theory, the EU Commission (“Commission”) can intervene in mergers that it considers generally reduce innovation incentives in an industry as a whole. This theory of harm can be referred to as the Significant Impediment to Industry Innovation (“SIII”) theory. This policy paper first attempts to describe the content and extent of the SIII theory (I). Second, it shows that the SIII theory marks a departure from established EU merger control practice (II). Third, it discusses the economic foundations of the SIII theory (III). Finally, it puts forward best practices for the assessment of mergers in R&D intensive industries (IV). With this, the present paper hopes to assist in the development of sound merger control policy in innovative markets, and undermine crude conjectures on the relationship between market structure, patent statistics and industry innovation theory.

Continue reading the full paper.

Summary

“A cornerstone of the Initial Determination is that “[u]nder TianRui, the Commission’s discretion cannot be exercised in a way that conflicts with applicable federal law,”1 and, therefore, that “the dispute between U.S. Steel and Respondents in this case must be resolved using the same substantive law that governs federal antitrust cases.” But this conclusion misreads TianRui’s holding, and is misapplied here.

Moreover, because adjudicative process at the ITC, available remedies, and the statutory objectives of Section 337 are substantially different than Article III processes, remedies, and the aims of the antitrust laws when adjudicated in Article III courts, the unmodified importation of standing rules from Article III courts to the ITC is improper.

Finally, the end to which trade laws are directed is not necessarily, or not solely, consumer welfare in an antitrust sense, and a protection of domestic injury — effectively the opposite of what’s required for antitrust standing under the antitrust laws in Article III courts — may be perfectly actionable under Section 337. As Section 337 is a standalone statute, the importation of antitrust rules can be effected only to the extent that such importation furthers the objectives of Section 337 — and certainly not in a way that would contravene them…”

Summary

Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 [“Section 5”], is a consumer protection statute, not a data security rule. See Commission Statement of Policy on the Scope of Consumer Unfairness Jurisdiction, Letter from the FTC to Hon. Wendell Ford and Hon. John Danforth, United States Senate (Dec. 17, 1980) [“Unfairness Statement”], reprinted in International Harvester Co., 104 FTC 949, 1073 (1984) [“International Harvester”] (quoting 83 Cong. Rec. 3255 (1938) (remarks of Senator Wheeler)) (“Unjustified consumer injury is the primary focus of the FTC Act….’”).

This fundamental point has been lost in the Commission’s approach to data security. The touchstone for Section 5 actions is not “reasonableness,” but consumer welfare: Does this enforcement action deter a preventable “unfair” act or practice that, on net, harms consumer welfare, and do the benefits to consumers from this action outweigh its costs? Section 5’s purpose is neither fundamentally remedial nor prescriptive. Concern for consumer welfare means deterring bad conduct, avoiding over-deterrence of pro-consumer conduct, minimizing compliance costs, and minimizing administrative costs (by focusing only on substantial harms) — not preventing every possible harm. Instead of weighing such factors carefully, or even performing a proper analysis of negligence, as it purports to do, the Commission has effectively created a strict liability standard unmoored from Section 5.

Across the Commission’s purported guidance on data security, it has likewise failed to articulate a standard by which companies themselves should weigh costs and benefits to determine which risks are sufficiently foreseeable that they can be mitigated cost-effectively. Thus, in addition to violating the intent of Congress, the FTC has also violated the Constitution by failing to provide companies like LabMD with “fair notice” of the agency’s interpretation of what Section 5 requires.

Summary

This white paper counsels extreme caution in the use of past statistical studies of the purported effects of health insurance company mergers to infer that today’s proposed mergers — between Aetna/Humana and Anthem/Cigna — will likely have similar effects. Focusing on one influential study — Paying a Premium on Your Premium (“Paying a Premium”) by Dafny, Duggan & Ramanarayanan (“Dafny, et al.”) — as a jumping off point, we highlight some of the many reasons that past is not prologue.

In short: extrapolated, long-term, cumulative, average effects drawn from 17-year old data may grab headlines, but they really don’t tell us much of anything about the likely effects of a particular merger today, or about the effects of increased concentration in any particular product or geographic market.

Earlier this month, Google filed its response to the European Commission’s Android antitrust complaint, which alleges that Google thwarts its competitors in search, mobile apps, and mobile devices by limiting their access to Android users through self-serving licensing terms.

But the EC’s objections, rooted in an outdated understanding of marketplace dynamics, are a contrivance. They go like this: ‘Google Search is dominant’… if you exclude Amazon and Facebook from its market. ‘Android enjoys a monopoly’… if you forget about iPhones. ‘Google excludes competing apps on Android’ … if you ignore the ease with which users install alternatives.

Read the full piece here.

Next week the FCC is slated to vote on the second iteration of Chairman Wheeler’s proposed broadband privacy rules. Of course, as has become all too common, none of us outside the Commission has actually seen the proposal. But earlier this month Chairman Wheeler released a Fact Sheet that suggests some of the ways it would update the rules he initially proposed.

According to the Fact Sheet, the new proposed rules are…

Read the full piece here.