Abstract

The Sherman Act establishes free competition as the rule governing interstate trade. Banning private restraints cannot ensure that competitive markets allocate the nation’s resources. State laws can pose identical threats to free markets, posing an obstacle to achieving Congress’s goal to protect free competition.

The Sherman Act would thus override anticompetitive state laws under ordinary preemption standards. Nonetheless, the Supreme Court rejected such preemption in Parker v. Brown, creating the “state action doctrine.” Parker and its progeny hold that state-imposed restraints are immune from Sherman Act preemption, even if they impose significant harm on out-of-state consumers. Parker’s progeny also immunizes “hybrid” restraints—private agreements that states encourage or supervise.

Both the Supreme Court and numerous scholars have invoked federalism and state sovereignty to justify Parker’s state action doctrine. Some suggest that preemption would violate the Constitution. Others contend that these values manifest themselves as canons of construction that illuminate the statute’s original meaning. According to these scholars, the Act should not intrude upon traditional state prerogatives unless Congress plainly intended this result.

This article demonstrates that federalism and state sovereignty do not rebut the strong case for Sherman Act preemption of state-created restraints. Such preemption would be a garden-variety exercise of Congress’s commerce power. Moreover, Sherman Act preemption would not interfere with any constitutionally recognized attribute of state sovereignty.

Turning to canons of construction, the article concludes that such preemption is so plainly constitutional that the avoidance canon is inapposite. The federal-state balance and anti-preemption canons do protect traditional state regulatory spheres from inadvertent national intrusion. Neither supports Parker itself, which sustained a regime that directly burdened interstate commerce and injured out-of-state consumers. Application of these canons instead reveals that the Court’s invocation of federalism is selective at best. Indeed, the Court’s rejection of the federal-state balance canon and resulting application of the Act to local private restraints that produce no interstate harm created the very conflict between the Sherman Act and local regulation that the state action doctrine purports to resolve.

Consistent application of federalism principles bolsters the case for preemption, albeit within a much smaller sphere than the Sherman Act currently operates. Such considerations counsel retraction of the scope of the Act and concomitant allocation to states of exclusive authority over restraints that produce only intrastate harm. The resulting allocation of authority over trade restraints would nearly eliminate conflicts between local regulation and the Sherman Act and restore the uniform rule of free competition that best replicates the regulatory framework the 1890 Congress anticipated. Proponents of Parker who see states as laboratories for economic experimentation should welcome such reform, which would ironically result in less preemption of state-created restraints and strengthen the institution of competitive federalism.

Abstract

The policy initiatives announced on both sides of the Atlantic to complement competition rules focus on two key dimensions: the contestability of markets on the one hand and fairness in their functioning on the other. The underlying idea is that the market positions of Big Tech would be inexpugnable – insofar as high barriers to entry protect them from self-regulating competition and insofar as they would have regulatory power over their respective ecosystems. Competition for the market would no longer be free, and competition in the market would be distorted. Our purpose in this working paper is to discuss these two dimensions. Are digital markets still contestable, and is the competition in them still competition on the merits? Finally, we discuss the remedies proposed to address these two alleged phenomena.

Abstract

Google v Oracle is a blockbuster copyright case. This decade-long lawsuit arose from Google’s unauthorized copying of 11,500 lines of code in the Java computer program in launching its Android smartphone to vast commercial success. When Oracle sued Google for copyright infringement, Google argued that the Java computer program was uncopyrightable or that its copying was fair use. On the first issue of copyrightability, the Supreme Court punted. Instead, Justice Stephen Breyer’s majority opinion sets forth a novel and sweeping fair use defense for Google’s unauthorized commercial copying of computer programs like Java (known as APIs).

This article first explains that the Computer Software Copyright Act of 1980 is clear that APIs are copyrightable, and that the Court should have explicitly addressed this issue. This copyrightability analysis is important, because it elucidates the peculiar nature of Justice Breyer’s fair use analysis in the substance of his opinion. At a minimum, it confirms the Court’s ultimate decision: a de facto denial of copyright protection in all APIs. In sum, the Google Court did not skip deciding that APIs are not copyrightable. Rather, Justice Breyer reached this same result through a novel and creative application of fair use doctrine.

Google’s significance cannot be understated: the Court held for the first time that an unauthorized copying of a copyrighted work for a commercial purpose to sell a competing product qualifies as a fair use. The Court ostensibly limited its analysis to only APIs, but academics and accused infringers are now arguing that Google applies to other creative works. Time will tell if Google has created a (fair use) exception that swallows the (copyright) rule.

ICLE Senior Scholar Miko?aj Barczentewicz joined the Warsaw Enterprise Institute to discuss  cyber-security threats arising from the Russia-Ukraine conflict. The full video (in Polish) is embedded below.

Abstract

Policy changes that encourage non-fossil fuel energy means increased reliance on batteries and other technologies that must develop rapidly. This article focuses on batteries, noting that key inputs come from corrupt countries, so little of the benefits of exports flow to citizens, and many key finished mineral products come from China. The United States thereby becomes more reliant on autocratic regimes. Using cobalt as an example, this article looks at the nature of its production, the inability of the United States to shoulder its share of the environmental burden of mineral extraction and refining, and looks to previous examples of countries “cursed” with valuable resources desired by wealthy countries. Hints as to how the “resource curse” problem may be addressed arise from the mineral extraction history of the United States many decades past.

ICLE Director of Law & Economics Programs Gus Hurwitz joined Steptoe & Johnson’s The Cyberlaw Podcast to discuss boycotts of Russia by the largest U.S. tech firms and the role Big Tech played in President Joe Biden’s State of the Union address. The full episode is embedded below.

Abstract

This paper investigates the case in which the benefits and the costs of prevention are subject to uncertainty. Prevention measures are taken after uncertainty has unraveled. The conventional policy prescribes that prevention measures are taken up to the point in which the realized marginal cost of prevention is equal to the realized marginal benefit (measured in terms of the Value of Statistical Lives saved). This policy imposes costly uncertainty on imperfectly insured parties. The optimal ex-ante policy mitigates this uncertainty. It deviates from the conventional policy by prescribing less prevention in those contingencies in which risk-preventers face high compliance costs and victims face a high probability of injury, and higher prevention in the opposite case. The optimal ex-ante policy supports the use of a VSL measure constant across contingencies. It dilutes the “dead-anyway” effect and it responds to the risk-preventers’ level of prudence.

Abstract

On October 25, 2021, in a 3-to-2 vote, strictly along party lines, the Federal Trade Commission (“FTC”) announced a major policy shift in how the agency will review and settle mergers. Going forward, all parties who agree to a merger remedy order, including a divestiture, must also agree with the agency’s demand that, for at least a decade, they obtain “prior approval” from the agency before closing a future acquisition within the same relevant market. Further, buyers of any divested assets must also agree to a prior approval condition for a minimum of ten years. Finally, the agency “may decide,” at its discretion, to apply the prior approval condition even to markets beyond those in which the transaction at issue raised competitive concerns.

This new prior approval policy nontrivially weakens parties’ due process protections and puts the FTC more into a regulatory position, implicating significant ongoing costs to businesses and to the economy as a whole. While the Commission may defend its new policy as targeted only at “facially anticompetitive deals,” the practical effect is to trap both anticompetitive and procompetitive acquisitions in the agency’s regulatory net. This increases the cost of merger activity and likely will lead to consequences — whether intended or not — that are detrimental to economic efficiency and overall economic growth.

U.S. antitrust policy seeks to promote vigorous marketplace competition in order to enhance consumer welfare. For more than four decades, mainstream antitrust enforcers have taken their cue from the U.S. Supreme Court’s statement in Reiter v. Sonotone (1979) that antitrust is “a consumer welfare prescription.” Recent suggestions (see here and here) by new Biden administration Federal Trade Commission (FTC) and U.S. Justice Department (DOJ) leadership that antitrust should promote goals apart from consumer welfare have yet to be embodied in actual agency actions, and they have not been tested by the courts. (Given Supreme Court case law, judicial abandonment of the consumer welfare standard appears unlikely, unless new legislation that displaces it is enacted.)

Read the full piece here.