ICLE Affiliate Review: July 2025

Abstract

We examine financial market responses to news of a potential TikTok ban. Focusing on U.S. legislative actions from 2019 through 2024, our event study suggests that markets anticipate higher probabilities of a ban to increase returns for large technology platforms while small firms’ returns remain flat. We interpret the results to imply a reduction in competitive pressure following elimination of TikTok from the U.S. market. Further, results for competitors and complements as well as acquirers and non-acquirers do not strongly indicate that one group benefits disproportionately to the other when the likelihood of a ban changes. Double-sorting on size reveals that firm size dominates the industry position or acquirer status in predicting the company’s price reaction to a potential TikTok ban, presumably from expectations of heightened market concentration in the sector. These findings provide empirical evidence of the unintended economic consequences of regulatory interventions targeting foreign-owned digital platforms, raising broad concerns about competition, innovation, and the consequences of a TikTok ban in the U.S.

Read the full piece at SSRN.

Virginia is a tech-industry hotspot. Here in the Old Dominion, we have the largest concentration of data centers in the world, and we rank as the second-most desirable destination for tech professionals — right behind California.

But Virginia’s technological strength isn’t a given. It relies on a system of robust intellectual property (IP) protections, notably patent rights. These guarantee inventors a period of exclusivity to make and sell their work before copycats can home in. That gives startups the incentive they need to invest in their bright ideas, which can take years to come to fruition.

Read the full piece here.

Abstract

This paper provides a review of the current draft of the United Kingdom (UK) Government’s “Strategic Steer to the Competition and Markets Authority” (the Steer). The Steer notes that it seeks to set out “how the government expects the CMA to support and contribute to the overriding national priority of this government – economic growth”. I conclude that at the moment the current draft steer tends to focus largely on procedural issues including transparency and timeliness, and vague notions such as proportionality, rather than the more substantive, fundamental and important issues relating to the Competition and Markets Authority (CMA) that have the greatest effect on UK economic growth.

In particular I identify and discuss in detail sixteen issues that seem to be the source of problems for the CMA and that cause adverse consequences for economic growth and need to be addressed by the steer. These include the following: The CMA’s Objective and Statutory Duty; Future Customer’s and Economic Growth ; The Government’s Economic Growth Mission; The Nature, Role and Limits of Competition; The Role and Importance of Property Rights; The Role and Limits of Competition Law and Policy; The Counterfactual (or Benchmark); The Dangers of the Idealised Competitive Market Nirvana Fallacy; The “Intrinsic Features” Exception; The Evidence and the Burden and Standard of proof; The risks and costs of regulatory failure; Market Definition; Market Power; Abuse of Market Power; Evidence of Harm; and Remedies.

I discuss each of these sixteen points in turn and in detail and indicate the specific steer that is needed in each case if the Government wishes to increase economic growth. I note that I believe the conclusions I draw are likely to be applicable to Governments and Competition law and policy worldwide.

Read the full piece at SSRN.

The White House continues to set its sights on artificial intelligence in government. Earlier this month, the Trump administration instructed federal agencies to ramp up AI use to adopt a “pro-innovation approach … to help shape the future of government operations.”

It’s the latest spin on one of the most pressing questions in the economy today. Will AI displace workers — in this case, more of the federal workforce on the heels of the DOGE experiment — by automating their tasks, or will it enhance productivity and broaden opportunity?

Read the full piece at The Hill.

President Donald Trump fired Librarian of Congress Carla Hayden on May 9. Since then, he’s announced that Deputy Attorney General Todd Blanche will assume the role of acting librarian of Congress.

Trump’s ultimate decision of whom to appoint as the librarian of Congress is of more consequence than people might think.

The classic image of a librarian as someone whose only job is to assist young students in an old, quiet building does not apply to the librarian of Congress. The Copyright Office is housed in the Library of Congress, and thus the librarian of Congress has administrative power over the head of the copyright, known as the Registrar of Copyright. Thus, the librarian of Congress has considerable sway over copyright policy in the United States.

Read the full piece here.

Abstract

As enforcement authorities consider whether to treat concentration of data as a distinct antitrust concern, past efforts to address innovation markets offer valuable lessons. Both frameworks involve analyzing whether concentration in an input—data or R&D—can impair innovation independent of effects on defined product or service markets. This article draws insights from the conceptual and operational challenges that limited the concept of innovation markets’ ability to gain traction to assess the viability of similar treatment for data. It applies those insights to the definitional complexities surrounding data—their diverse structures, dimensions, and uses across business models—that undermine the feasibility of coherent market definition and explore difficulties in determining the impact of competition in downstream markets, the relevant concentration thresholds and competitive effects, and potential procompetitive efficiencies. While acknowledging data’s role in spurring innovation, the article cautions against premature efforts to isolate it as a standalone competitive harm, given unresolved theoretical and empirical uncertainties. Ultimately, it argues for case-specific analyses grounded in established antitrust principles rather than categorical presumptions about data’s competitive impact.

Read the full piece at SSRN.

Abstract

We examine how the GDPR affected transatlantic venture investment. Using investment data from 2014 to 2019, we find that the GDPR’s rollout in May 2018 led to a significant decline in US investor activity in the EU, evidenced by fewer deals and investment, especially for newer and data-related ventures. Investors shifted toward geographically closer ventures and relied more on syndication, particularly with EU-based lead investors. While the shift to local investing drove the overall decline, syndication partially offset it. The results highlight the role of digital policies in shaping investment strategies and influencing transatlantic capital flows.

Read the full piece here.

Abstract

AI has captured everybody’s imagination, especially policymakers. The extent to which imagination has translated into action, however, is a mixed bag. At the federal level, Congress has studied the issue, weighed grand proposals, and held countless hearings on AI but has enacted only modest legislation. While executive branch agencies and the FTC have talked a big game, their accomplishments have also been modest, mostly due to limits on legal authority. Not surprisingly, as with data privacy, states have stepped into the vacuum created by federal inaction with AI regulations of their own. Typically, states acting as laboratories is a good thing, allowing experimentation and competition to hone the efficiency and fit of regulatory regimes to different situations. But when the subject of regulation is interstate – and in this case global—by nature, a patchwork of state regimes is far from ideal. The solution to this dilemma is often seen as a binary: allow the state patchwork to evolve for better or worse, or stop it in its tracks with a federal preemptive response. We see this as a false choice and offer two potentially better paths. First, would be for Congress to enact a national “moratorium” on state laws regulating AI. We argue that this as a superior approach because it will arrest potentially harmful regulation and the patchwork problem and alleviate pressure on Congress to pass premature AI laws merely to prevent the states from acting. Second, would be to honor choice of law provisions in AI-related contracts, thereby fostering competition among firms and states to provide efficient AI regulation. Borrowing from the ideas of Larry Ribstein and various coauthors, we argue that firms would compete for consumers by choosing to be regulated by the regime that maximized their profits, and states would compete to enact efficient laws. In sum, we think the current rush to regulate AI, whether at the state or federal level, is premature. Regulators have existing tools to address consumer harms. The problem is that our federal system, just like nature, abhors a vacuum, and states are filling it with a patchwork of potentially onerous and inconsistent AI requirements. The pressure to prevent state action, in turn, may force Congress’ hands into an ill-considered and hasty response that is little better than the states’ alternative. We see our hybrid approaches as a way out of this dilemma.

Read the full piece at SSRN.

Daniel Lyons, ICLE academic affiliate, was quoted in a WDSU story about the Supreme Court’s review of a case that could eliminate the FCC’s Universal Service Fund, created at the instruction of Congress. Read the full article here.

“The existing non-delegation doctrine has allowed agencies to get stronger and stronger, and that’s allowed Congress to atrophy,” Boston College Law School’s Daniel Lyons said. “Congress is no longer making the big decisions.”

ICLE Affiliate George A. Mocsary visited the Sirius XM Patriot program, Stacy on the Right, to discuss Bondi v. VanDerStok, a case about “ghost guns.”

Listen to George’s full appearance here.

ICLE Affiliate Lars Powell was quoted in a WVUA piece about homeowners insurance and catastrophic weather.

Lars Powell, director of the Center for Risk and Insurance Research in the Culverhouse College of Business at the University of Alabama, said having the right type of insurance and the right amount of coverage is important. He said insurance helps pay for the cost of rebuilding after a catastrophic event occurs.

“Very few people could afford to lose their house and just pay for another one,” Powell said.

Read the full piece here.

Thibault Schrepel, Academic Affiliate at ICLE, is quoted in this Politico Pro article on what it could mean for the EU if U.S. antitrust enforcers decide to break up Google. Read the full story here.

Of course, the U.S. decision has no legal bearing on what comes out of Brussels — and others argue it may not pave the way for Brussels to act.

“The U.S. case could have an impact on the European Commission’s investigation, but that is not a given,” said Thibault Schrepel, a law professor at Vrije Universiteit Amsterdam. “Even if the DOJ pushes for a [Google] breakup, I doubt the U.S. administration would be pleased to see the EU ordering something similar.”

He also noted that “on a legal level, the U.S. decision would not directly affect the European Commission’s investigation.”

ICLE Academic Affiliate Adam Mossoff was a guest on Patently Strategic to discuss Secretary of Commerce Howard Lutnick’s remarks at the National Inventors Hall of Fame Induction Ceremony and what this positively signals for the near future of innovation policy.

ICLE Academic Affiliate Seth Weinberger was a guest on KATU to discuss a potential U.S. strike on Iran and the rhetoric surrounding the Israel-Iran conflict.

Executive Summary

The proposed $35 billion combination of Discover Financial Services Inc. and Capital One Financial Corp. has faced scrutiny regarding its impact on “subprime” credit-card customers. Though the deal has been approved by federal regulators, there remains the potential that states could object to the combination on grounds that it harms subprime consumers. This issue brief examines whether such consumers constitute a distinct market for antitrust purposes and concludes they do not.

A fundamental challenge is the absence of a standardized definition of “subprime.” Credit bureaus, lenders, and government agencies use different credit-score thresholds to classify consumers—e.g. VantageScore considers scores between 300-600 to be subprime, while FICO uses different terminology entirely. This inconsistency makes it impossible to clearly delineate a market segment. Additionally, credit scores are highly dynamic, with research showing that about 40% of subprime borrowers improved to higher credit tiers during the pandemic.

Consumers with lower credit scores have numerous alternatives to traditional credit cards, including secured cards, buy-now-pay-later services (used by 21% of consumers with credit records in 2022), and personal loans. These substitutes prevent the merged entity from exercising market power. Major banks like JPMorgan Chase, Citigroup, and Bank of America already serve subprime borrowers, and could expand these offerings if needed.

Rather than harming competition, a merged Capital One-Discover could benefit consumers with lower credit scores by expanding the reach of Capital One’s sophisticated analytics, which identify lower-risk individuals among those with subprime scores. While the combined company would control approximately 30% of subprime credit-card balances, this falls far short of monopoly power, given the competitive constraints from other issuers and alternative credit products.

I. Introduction

The proposed combination of Discover Financial Services Inc. and Capital One Financial Corp. has been cleared by the relevant federal regulators. Earlier this month, the U.S. Justice Department (DOJ) reportedly informed financial regulators that it does not intend to block the $35 billion deal.[1] More recently, the Federal Reserve Board of Governors and the U.S. Office of the Comptroller of the Currency both announced April 18 that they have approved the transaction.[2] Moreover, the Delaware Office of the State Bank Commissioner granted approval in December 2024,[3] and shareholders of both Capital One and Discover overwhelmingly approved the merger in February 2025.[4] Nonetheless, the potential that other state regulators or attorneys general might still challenge the transaction remains.

Under traditional antitrust analysis, Capital One-Discover barely raises an eyebrow. The combined company would become the third-largest credit-card issuer by purchaser volume, after JPMorgan Chase and American Express.[5] Given that there are thousands of credit-card-issuing banks in the United States, and even the largest issuers hold only a modest percentage of all transaction volume, any potential countervailing adverse effect on competition would likely be minor, if noticeable at all. As with its banking operations, the combined company’s scale and innovative approach toward credit cards could drive improvements—especially for those with lower credit scores—both directly for its customers and indirectly for customers of other banks, who would be driven to provide competitive offerings.

The proposed acquisition has the potential to transform competition and consumer welfare in the retail-banking market. Through synergies and cost savings, the new entity would compete more vigorously with other banks and payment networks. Not only will this better serve the public in general, by bringing together the firms’ traditional expertise in the development of innovative banking servings and credit-card markets aimed at middle-income consumers, it would also likely expand financial inclusion among underserved communities.

Nevertheless, New York State Attorney General Letitia James has raised concerns that the combined company would control roughly 30% of the subprime credit-card market.[6] While this figure might seem significant at first glance, it requires deeper analysis. The term “subprime” is commonly used in the credit-card industry to categorize borrowers who present a higher risk of default due to their credit history.[7] But a significant challenge to analyzing this market segment—especially to evaluate antitrust concerns related to mergers—lies in the absence of a uniform definition for “subprime.”

This lack of standardization is evident when examining the diverse criteria employed by credit-card issuers and government agencies to classify borrowers. Bank of America’s annual report notes that “a standard industry definition for subprime loans… does not exist.”[8] Experian reports that “subprime is a moving target. Each lender defines subprime and prime depending on their lending strategies and business goals.”[9]

Credit-card companies primarily use the credit-scoring models developed by FICO and VantageScore, both of which present different perspectives on creditworthiness.[10] VantageScore explicitly defines the “subprime” range as encompassing credit scores between 300 and 600.[11] In contrast, FICO does not use the term “subprime” directly, but instead identifies scores below 670 as “Fair” and below 580 as “Poor,” with both classifications generally considered to be subprime.[12] In addition, Experian identifies scores of 660 and lower as “nonprime,” 600 and lower as “subprime,” and below 500 as “deep subprime.”[13] The fundamental differences among service providers illustrates an inherent ambiguity in defining subprime at the foundational level of credit assessment.

Government agencies, such as the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve System, also play a crucial role in understanding the credit-card market, but their definitions of “subprime” further contribute to the lack of a unified standard. For example, in a 2025 report, the CFPB described FICO scores of 300-579 as “deep subprime,” 580-619 as “subprime,” and 620-659 as “near prime.”[14] Research published by the Federal Reserve defines “subprime” as those borrowers with Equifax Risk Scores of less than 620, and “near prime” as those with scores of 620-719.[15] This inconsistency across government agencies underscores the absence of a universally accepted definition.

“Subprime” credit-card markets also lack a coherent definition because of the unusually dynamic nature of the consumers that comprise it. Consumer credit scores can change dramatically within very short periods of time. As a result, there is a great deal of churn in the individual consumers who, over time, comprise the subprime credit-card market. Thus, while certain companies may maintain a larger market share in the subprime market at a given point in time, it is only by virtue of their relative ability to attract new customers with their offerings, as existing customers either graduate out of the subprime market or drop out of the market from default.

This issue brief examines the market for credit-card borrowing, and concludes that lending to consumers with “subprime” credit does not constitute any distinct relevant market for conducting an antitrust review of the merger. Section II describes the standards for delineating a relevant market under U.S. law and policy. Section III demonstrates that demand-side substitution fatally undermines claims that “subprime” constitutes a distinct antitrust market. Sections III and IV provide evidence that demand-side and supply-side substitution further negate the claim that “subprime” constitutes a relevant antitrust market. Section V identifies ways the proposed merger will likely be procompetitive for consumers with “subprime” credit.

II. Legal Standards for Market Definition

Much of the concern about the  proposed Capital One/Discover combination has focused on potential harms to specific groups of credit-card customers, especially what has been described as the “near-prime” or “subprime” segments of borrowers with FICO scores below 660.[16] A key question for antitrust analysis is whether these consumers constitute a distinct relevant market. One critic of the merger argues that these consumers’ higher risk, as well as Capital One and Discover’s direct-mail marketing strategies targeting them, suggest they constitute a distinct “submarket.”[17] In contrast, the Bank Policy Institute reports:

No evidence has been put forth by critics of the proposed merger to define the boundaries of the subprime segment and establish that consumers in this segment are sufficiently isolated for it to be considered a distinct submarket for antitrust purposes.[18]

Broadly speaking, U.S. antitrust law provides two approaches for evaluating which products and services comprise a relevant market. The first are known as the “principal indicia,” first described in Brown Shoe v. United States. The second and more recent approach is the “hypothetical monopolist test.”

A. Brown Shoe ‘Practical Indicia’

Brown Shoe Co. v. United States established the “practical indicia” test for market boundaries, requiring evidence of distinct product characteristics, specialized vendors, or unique consumer groups.[19] This approach has long been controversial.

For example, Geoffrey Manne and Marcellus Williamson criticize Brown Shoe’s reliance on “industry or public recognition of the market as a separate economic entity.”[20] They argue that this approach is fundamentally flawed, because business people and the public often use the term “market” for various reasons unrelated to economic substitutability, which is the core of a proper antitrust market definition. They emphasize that antitrust market definition should be based on economic analysis of substitutability, not on how businesses casually use terms like “market” or “industry.” Manne and Williamson warn that relying on such noneconomic evidence can lead to overly narrow market definitions that exaggerate market power and result in erroneous antitrust decisions. Their criticism is especially apt in the context of attempting to delineate markets, “submarkets,” or “segments” based on credit score, as it was rumored that the DOJ may have been concerned that the Capital One/Discover merger would be anticompetitive in “subprime,” “near prime,” “student,” or “no-credit-history” submarkets.[21]

While companies, analysts, and commentators may casually refer to “prime” or “subprime” consumers, such shorthand does not necessarily define relevant economic markets for evaluating the competitive effects of a proposed merger. Indeed, among the business press, there is a stunning paucity of articles that describe a “subprime market” for credit cards. The most recent is an op-ed by former Federal Deposit Insurance Corp. (FDIC) Chair Sheila Bair, who concluded that barriers to entry do not explain the concentration of firms serving subprime consumers:

I suspect Capital One’s subprime market share is relatively substantial because other banks simply have less (or no) interest in serving subprime customers. Subprime lending involves higher capital requirements, greater regulatory scrutiny and more resources to underwrite and manage those accounts. Any concentrations in the subprime market are the result of banks’ conscious investment decisions, not barriers to entry.[22]

Even if one accepts, for the sake of argument, that Brown Shoe is an appropriate framework to evaluate whether there is distinct subprime—or near prime, student, or no-credit-history—credit-card market, none of these categories satisfy Brown Shoe’s principle indicia. As we discuss below, such proposed markets do not have distinct product characteristics, do not constitute unique consumer groups, and are not served by specialized vendors.

B. Hypothetical Monopolist Test in a Two-Sided Market

Credit cards are a classic example of a two-sided platform, as they facilitate transactions between merchants and cardholders. In Ohio v. American Express, the U.S. Supreme Court established that credit-card networks are “two-sided transaction platforms” where merchants and cardholders simultaneously choose to use the network.[23] The Court held that these platforms cannot be analyzed by looking at just one side of the market in isolation, as the value of the platform to users on one side depends on the number of users on the other side.

The Hypothetical Monopolist Test (HMT) evaluates whether a group of products is sufficiently broad to constitute a relevant antitrust market by asking whether eliminating competition among these products by combining them under the control of a hypothetical monopolist would likely lead to worsening terms for customers. The test is typically assessed by using “small but significant and non-transitory increase in price” (SSNIP) analysis, which asks whether a hypothetical monopolist could profitably impose a 5-10% price increase on the candidate market.

In two-sided markets like credit cards, the traditional HMT must be modified to account for the interdependence between the two sides of the platform. As the 2^nd U.S. Circuit Court of Appeals noted in the Amex case, the proper HMT analysis must “consider the feedback effects inherent on the platform” by accounting for how changes in demand on one side would affect demand on the other side.[24]

For subprime credit cards, this means examining:

1. Both sides of the platform simultaneously: The analysis must consider both merchants who accept the cards and cardholders who use them. On the merchant side, this would include merchant discount rates and interchange fees. On the cardholder side, this would include interest rates, annual fees, late fees, and rewards programs.
2. Net price, rather than one-sided price: Following Ohio v. American Express, the analysis should focus on the “net price” of transactions across the platform, not just prices on one side.
3. Cross-platform substitution: The analysis must assess whether prime credit cards or other financial products—such as personal loans, buy-now-pay-later, or secured cards—constrain the pricing of subprime cards sufficiently to prevent a profitable SSNIP. It must also assess whether merchants could steer subprime customers to other payment methods without losing significant business.

We are not aware of any published research using the HMT to evaluate whether subprime credit cards are a relevant market. While published research discusses application of the HMT to the broader credit-card market, including its complexities as a two-sided market, there is no specific mention or analysis of the subprime segment within this market. The academic literature focuses instead on defining the relevant market for credit-card services in general, often debating whether to consider the “total price,” or specific fees like interchange fees.[25]

This is likely because conducting robust HMT analysis requires detailed data on price elasticities and substitution patterns. Obtaining granular data specifically for the subprime credit-card market, separate from the broader credit-card market, might be challenging. Moreover, the credit scores used to define “subprime” are arbitrary and the boundaries of the subprime market are fluid, with borrowers frequently moving between credit-score categories over time. Thus, applying the HMT to reliably evaluate a distinct subprime market may be so complex as to be nearly impossible.

III. Demand-Side Substitution

Demand-side substitution—that is, consumers’ ability to switch to alternative products in response to price increases or reduced quality—fatally undermines claims that “subprime” constitutes a distinct antitrust market.

Citing Brown Shoe, the latest version of the DOJ/FTC Merger Guidelines, notes: “The outer boundaries of a relevant product market are determined by the ‘reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.’”[26] Substitutability is the sine qua non of market definition: If two products are reasonably substitutable or—even better—actually substituted by consumers, then the two products are said to be in the same relevant market. Sweet onions and yellow onions are reasonable substitutes for each other, but fresh onions and frozen battered onion rings are not. For consumers with subprime credit scores, the question is what the reasonable substitutes for a credit card are.

In a 2024 earnings call, Capital One Chairman and CEO Richard Fairbank identified several substitute products that are “looking to take market share from traditional credit card players”:

Let’s also remember that consumers can choose to use another form of payment entirely, cash, debit or Buy Now Pay Later, which has exploded onto the marketplace. New fintechs are entering the payments in small dollar credit space every day, all looking to take market share from traditional credit card players like Capital One. We faced this competition for years and we’ll continue to face it in the future. It’s powerful evidence of a healthy and fiercely competitive marketplace.[27]

Evidence from the CFPB indicates that subprime borrowers routinely access credit-card alternatives, such as buy-now-pay-later (BNPL):

• Roughly 21% of consumers with a credit record borrowed using BNPL from at least one of the six firms at least once during 2022.[28]
• From 2021 to 2022, borrowers with deep subprime credit scores accounted for 45% of BNPL originations, while those with subprime credit scores were responsible for another 16% of originations.[29]

Consumers without a credit history access secured credit cards, which they can use to establish credit, increase their credit scores, and “graduate” to unsecured cards. Research published in 2024 by the Federal Reserve Bank of Philadelphia reports that about 57% of new secured card borrowers lack a credit score at origination.[30] Of those with a credit score, about half are “deep subprime” and another 25% are “subprime.”[31]

The clear, arbitrary distinction between “prime” and “subprime” products has eroded. In a letter to the CFPB, the American Bankers Association, Consumer Bankers Association, and National Association of Federally-Insured Credit Unions reported that, by mid-2022, rewards cards made up 85% of total U.S. credit-card accounts.[32] For new accounts (less than two years old), rewards cards comprised 78% of total accounts. Among subprime accounts, rewards cards made up 72% of total card volume, compared to only 42% of total volume in 2008. With rewards card available to—and adopted by—consumers with subprime credit, the presence or absence of rewards provides little information about whether a given card is a “prime” or “subprime” product.

One important consideration in evaluating this concern is that a consumer’s credit status is rarely static over time. Due to changes in income and other circumstances, a subprime borrower today may be a prime borrower next year, and vice versa. Using data from 2014 and 2015, Fair Isaac found that a “notable percentage” of FICO scores migrated up or down more than 20 points in a six-month period, with 14% of accounts decreasing by more than 20 points, and 19% increasing by more than 20 points.[33] The CFPB reports that 43% of consumers with subprime credit scores moved up at least one tier during the COVID-19 pandemic, whereas in the 10 years prior to the pandemic, only 37% moved up at least one tier.[34]

In a letter to the Federal Reserve Bank of Richmond and the Office of the Comptroller of the Currency, Capital One reported that: “Since our founding, we have enabled more than 42 million customers with subprime or no FICO scores when they opened a card with the bank to achieve prime or better FICO scores.”[35]

The 2024 Philadelphia Fed report examined the extent to which holders of secured credit cards “graduate” to unsecured cards.[36] The report found that most graduations occur between six and 12 month into an account’s life, with 33% of “unscored” borrowers (i.e., those with no credit history when the account was opened) graduating within a year, and about half graduating within 30 months.

Thus, even if a subprime or near-prime market segment could be defined, migration into and out of these segments makes it exceedingly difficult to establish a reliable market definition for antitrust analysis.

IV. Supply-Side Substitution

Supply-side substitution—the ability of firms to redeploy resources to produce substitute goods or enter new markets—further negates the claim that “subprime” constitutes a distinct antitrust market. This analysis demonstrates that credit-card issuers and financial-technology firms (“fintechs”) can rapidly adjust offerings to compete for subprime borrowers, constraining any potential anticompetitive behavior.

While the prevailing approach in U.S. antitrust analysis, as outlined in the 2023 Horizontal Merger Guidelines, prioritizes demand-side substitution in the initial market definition, supply-side considerations are not entirely excluded. Supply responses are taken into account when identifying the participants in the relevant market and when assessing the likelihood of new entry. Specifically, firms that are not currently producing the product in question, but that could rapidly enter the market without incurring significant sunk costs in response to a price increase, are considered “rapid entrants” and therefore factored into the competitive analysis. These rapid entrants are defined as firms that “very likely would rapidly enter with direct competitive impact in the event of a small but significant change in competitive conditions.”[37] Jorge Padilla explains:

Indeed, even if consumers were unable to react immediately to an increase in price, producers might be able to do so rather quickly. How? First, some of them may be endowed with assets (physical and human) that can be easily adjusted to produce substitute goods. If these producers were able to respond to a price increase by switching their production facilities to produce the goods or services subject to such price increase, then consumers would be able to avoid abuse.[38]

Capital One entered and gained its market share in “subprime” over time through its data-driven strategy. This has enabled the company to identify those lower-risk individuals in otherwise higher-risk groups, thereby serving otherwise underserved consumers while limiting default risk.[39] It’s been estimated that the combined company would account for approximately 30% of the subprime segment (Table 1). While this may be a sizable share, it is far short of a monopoly.

Table 1: Credit-Card Balances for Issuers with More Than $1B in Balances

SOURCE: Bank Policy Institute[40]

Moreover, the other three of the five largest issuers—JP Morgan Chase, Citigroup, and Bank of America—account for about one-third of subprime balances. These firms have the expertise and resources to respond to any post-merger increase in price, or diminution of quality. The fact that major prime credit-card issuers already operate in the subprime segment demonstrates that the necessary infrastructure, regulatory understanding, and risk-management frameworks are not unique to specialized subprime lenders. These firms could easily expand their subprime offerings if market conditions, such as a price increase, made doing so more attractive.

Capital One’s Fairbank noted in the previously mentioned 2024 earnings that that “any existing bank can choose where in the credit spectrum they play simply by changing their credit policy.”[41] In that same call, he claimed that BNPL “has exploded onto the marketplace.” Commenting on the pending deal between Capital One and Discover, Michael Imerman of the University of California, Irvine concluded:

As a result, the combined bank would be in a position to be more competitive against digital banks and fintech competitors that have made significant progress moving upmarket in the consumer banking space in the past few years.[42]

V. Procompetitive Effects for Subprime Consumers

Capital One and Discover have specialized in differing ways in providing services to customers with lower credit scores, and the combination will enable them to leverage their combined expertise to serve those customers better. For example, it will be able to use Capital One’s algorithms to identify Discover customers who, despite having low credit scores, are lower risk, and offer those customers loans at preferential rates.

This highlights the reality of “subprime” credit: it is not a separate credit-card “market” because, as discussed above, the individuals classified as “subprime” are dynamic; many subprime consumers improve their credit and gain access to prime cards, while those with higher credit scores may hit bumps in the road and move in the opposite direction.

Most major card issuers have focused on catering to wealthier, high-spend, and low-risk consumers who require less effort to underwrite and serve, and lower capital-reserve requirements. Capital One gained its market share in “subprime” over time through its data-driven strategy and ability to better identify diamonds in the subprime rough than its competitors. This also provides opportunities for these consumers to migrate toward a lower-risk category by gradually increasing the size of their credit lines as they demonstrate creditworthiness.[43]

The combination of Capital One and Discover will almost certainly increase access to credit for people with low credit scores, thereby enabling them to get onto the first rung of the credit ladder and to build or rebuild their credit record. It should thus be considered a good outcome for the new administration, with its increased attention to the effects of mergers on working-class Americans.

VI. Conclusion

The proposed combination of Discover and Capital One should not raise significant antitrust concerns based on “subprime” market concentration. As demonstrated throughout this analysis, the concept of a distinct “subprime” credit-card market fails to satisfy established legal standards for market definition. The fluid nature of credit scores undermines attempts to define static market boundaries. Moreover, the extensive demand-side substitution opportunities—including secured cards, BNPL services, and traditional banking products—provide meaningful competitive constraints on any potential market power in credit-card lending to consumers with lower credit scores.

From a supply-side perspective, major credit-card issuers like JPMorgan Chase, Citigroup, and Bank of America already serve subprime borrowers and could readily expand their offerings if the merged entity attempted to raise prices or reduce quality. Rather than harming competition, the Capital One/Discover merger promises to enhance financial access for consumers with lower credit scores by combining Capital One’s sophisticated risk-assessment algorithms with Discover’s infrastructure. This would enable the merged entity to better identify lower-risk individuals within traditionally higher-risk categories, potentially offering them more favorable terms than either company could provide independently.

[1] Capital One’s Discover Acquisition Gains Approval from Justice Department, GlobalData (Apr. 7, 2025), https://finance.yahoo.com/news/capital-one-discover-acquisition-gains-112243059.html.

[2] Ashley Capoot, Capital One and Discover Merger Approved by Federal Reserve, CNBC (Apr. 18, 2025), https://www.cnbc.com/2025/04/18/capital-one-and-discover-merger-approved-by-federal-reserve-board.html.

[3] Katie Tabeling, Delaware Bank Regulators Approve Capital One, Discover Deal, Del. Bus. Times (Dec. 19, 2024), https://delawarebusinesstimes.com/news/delaware-bank-regulators-capital-one.

[4] Press Release, Capital One and Discover Stockholders Approve Capital One’s Proposed Acquisition of Discover, Capital One Financial Corp. (Feb. 18, 2025), https://investor.capitalone.com/news-releases/news-release-details/capital-one-and-discover-stockholders-approve-capital-ones.

[5] Tiziana Barghini, Capital One’s Discover Acquisition Would Reshape US Credit Card Industry, Glob. Finance Mag. (Mar. 4, 2024), https://gfmag.com/banking/capital-one-acquires-discover.

[6] Caitlin Mullen, Capital One-Discover Deal Draws NY Scrutiny, Payments Dive (Oct. 25, 2024), https://www.paymentsdive.com/news/ny-ag-letitia-james-capital-one-discover-deal-antitrust-probe/731004.

[7] Tim Maxwell, The Pros and Cons of Subprime Mortgages, Experian (Jul. 11, 2022), https://www.experian.com/blogs/ask-experian/the-pros-and-cons-of-subprime-mortgages.

[8] Annual Report (Form 10-K), Bank of America Corp. (Mar. 25, 2025), available at https://investor.bankofamerica.com/regulatory-and-other-filings/all-sec-filings/content/0000070858-25-000139/0000070858-25-000139.pdf.

[9] Louis DeNicola, What Does Subprime Mean?, Experian (Jul. 9, 2022), https://www.experian.com/blogs/ask-experian/what-is-subprime.

[10] Louis DeNicola, The Difference Between VantageScore Credit Scores and FICO Scores, Experian (Mar. 31, 2023), https://www.experian.com/blogs/ask-experian/the-difference-between-vantage-scores-and-fico-scores.

[11] VantageScore 4.0 User Guide, Vantage Score (Sep. 2022), available at https://web.archive.org/web/20250108190418/https://www.vantagescore.com/wp-content/uploads/2022/09/VantageScore-4.0-UserGuide_abr_Sep22.pdf.

[12] Brianna McGurran, What Is a FICO Score, and Why Is It Important?, Experian (Jul. 24, 2024), https://www.experian.com/blogs/ask-experian/fico-score-what-it-is-and-why-its-important.

[13] Elizabeth Gravier, The 5 Credit Score Ranges You Need to Know, CNBC (Dec. 27, 2024), https://www.cnbc.com/select/borrower-risk-profiles-based-on-credit-score.

[14] Consumer Use of Buy Now, Pay Later and Other Unsecured Debt, Consum. Financ. Prot. Bur. (Jan. 2025), available at https://files.consumerfinance.gov/f/documents/cfpb_BNPL_Report_2025_01.pdf.

[15] John Driscoll, Jessica Flagg, Bradley Katcher, & Kamila Sommer, The Effects of Credit Score Migration on Subprime Auto Loan and Credit Card Delinquencies, FEDS Notes (Jan. 12, 2024), https://www.federalreserve.gov/econres/notes/feds-notes/the-effects-of-credit-score-migration-on-subprime-auto-loan-and-credit-card-delinquencies-20240112.html.

[16] CFPB provides the following definitions: superprime (800 or greater), prime plus (720 to 799), prime (660 to 719), near-prime (620 to 659), subprime (580 to 619), and deep subprime (579 or less). The Consumer Credit Card Market, Consum. Financ. Prot. Bur. (Oct. 2023), at 12, available at https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2023.pdf.

[17] Shahid Naeem, Capital One-Discover: A Competition Policy and Regulatory Deep Dive, Am. Econ. Lib. Proj. (Mar. 2024), available at https://www.economicliberties.us/wp-content/uploads/2024/03/2024-03-20-Capital-One-Discover-Brief-post-design-FINAL.pdf.

[18] Haelim Anderson, Paul Calem, & Benjamin Gross, Is the Subprime Segment of the Credit Card Market Concentrated? Bank Policy Inst. (May 31, 2024), https://bpi.com/is-the-subprime-segment-of-the-credit-card-market-concentrated.

[19] Brown Shoe Co. v. United States, 370 U.S. 294 (1962).

[20] Geoffrey A. Manne & E. Marcellus Williamson, Hot Docs vs. Cold Economics: The Use and Misuse of Business Documents in Antitrust Enforcement and Adjudication, 47 Ariz. L. R. 609 (2005), available at https://laweconcenter.org/wp-content/uploads/2005/01/47arizlrev609.pdf.

[21] See also Diana Moss, The Capital One Financial-Discover Financial Services Merger: A Test for the Biden Merger Agenda?, Progress. Policy Inst. (Jun. 20, 2024), at 5, available at https://www.progressivepolicy.org/wp-content/uploads/2024/06/PPI-Capitol-One-Discover-Commentary.pdf (“Both Capital One and Discover serve the non-prime credit card lending market, where some commentators note that the merger could raise interest rates and fees, thus widening gaps in wealth and income, particularly for at-risk communities.”).

[22] Sheila Bair, How the Capital One/Discover Deal Could Boost Competition, Financ. Times (May 31, 2024), https://on.ft.com/4640E6h.

[23] Ohio v. American Express Co., 138, S.Ct. 2274, 2276-77, 585 U.S. 529 (2018) (“Respondent… Amex… operate[s] what economists call a ‘two-sided platform,’ providing services to two different groups (cardholders and merchants) who depend on the platform to intermediate between them. Because the interaction between the two groups is a transaction, credit-card networks are a special type of two-sided platform known as a ‘transaction’ platform. The key feature of transaction platforms is that they cannot make a sale to one side of the platform without simultaneously making a sale to the other. Unlike traditional markets, two-sided platforms exhibit ‘indirect network effects,’ which exist where the value of the platform to one group depends on how many members of another group participate. Two-sided platforms must take these effects into account before making a change in price on either side, or they risk creating a feedback loop of declining demand. Thus, striking the optimal balance of the prices charged on each side of the platform is essential for two-sided platforms to maximize the value of their services and to compete with their rivals.”)

[24] United States v. American Express Co., No. 15-1672 (2d Cir. 2016).

[25] See, e.g., Eric Emch & T. Scott Thompson, Market Definition and Market Power in Payment Card Networks, 5 Rev. Network Econ. 45.

[26] Horizontal Merger Guidelines, U.S. Dep’t of Justice & Fed. Trade Comm’n (2023), at 4.3, available at https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf.

[27] Earnings Call, Capital One Financ. Corp. (Apr. 25, 2024), https://www.sec.gov/Archives/edgar/data/1393612/000092762824000164/a425-04252024cofearningstr.htm.

[28] CFPB, supra note 15.

[29] Id.

[30] Larry Santucci, Secured Card Market Update, Fed. Reserve Bank Phila. (May 2024), available at https://www.philadelphiafed.org/-/media/frbp/assets/consumer-finance/reports/secured-card-market-update.pdf.

[31] Id.

[32] Letter from American Bankers Association, Consumer Bankers Association & National Association of Federally-Insured Credit Unions to Bureau of Consumer Financial Protection (Apr. 24, 2023), available at https://www.nafcu.org/system/files/files/CFPB-2023-0009%20Joint%20Trades%20Letter%20to%20CFPB%20re%20Consumer%20Credit%20Card%20Market.pdf.

[33] See FICO Research: Consumer Credit Score Migration, FAIR Isaac Corp. (2018), https://www.fico.com/en/latest-thinking/white-paper/fico-research-consumer-credit-score-migration.

[34] Alyssa Brown & Siobhán McAlister, Office of Research Blog: Credit Score Transitions During the COVID-19 Pandemic, Consum. Financ. Prot. Bur. (Jan. 25, 2023), https://www.consumerfinance.gov/about-us/blog/office-of-research-blog-credit-score-transitions-during-the-covid-19-pandemic.

[35] Letter from Andres L. Navarrete, Executive Vice President, Head of External Affairs, Capital One to Brent Hassell, Assistant Vice President, Federal Reserve Bank of Richmond and Jason Almonte, Director for Bank Licensing, Office of the Comptroller of the Currency (Aug. 7, 2024), available at https://www.federalreserve.gov/foia/files/capital-one-supplemental-information-20240807.pdf.

[36] Santucci, supra note 32.

[37] Merger Guidelines, supra note 28 at 4.4.A.

[38] Atilano Jorge Padilla, The Role of Supply-Side Substitution in the Definition of the Relevant Market in Merger Control, Report for DG Enterprise A/4, Eur. Comm. (Jun. 2001), https://ec.europa.eu/docsroom/documents/2658/attachments/1/translations/en/renditions/native.

[39] See Andrew Becker, The Secret History of the Credit Card, Frontline (Nov. 23, 2004), https://www.pbs.org/wgbh/pages/frontline/shows/credit/more/battle.html (“‘By identifying lower-risk individuals in high-risk groups, Capital One was able to market to reliable consumers other companies wouldn’t touch,’ says [Chris] Meyer [CEO of Monitor Networks]. In just six years, Capital One became the sixth-largest credit card issuer in the country. ‘When others were attacking the market with blunt instruments, Capital One used a scalpel,’ says Meyer.”).

[40] Bank Policy Institute, supra note 20.

[41] Capital One, supra note 29.

[42] Spencer Tierney, What the Capital One-Discover Deal Could Mean for Bank Accounts, NerdWallet (Feb. 21, 2024), https://www.nerdwallet.com/article/banking/capital-one-discover-deal-impact-on-bank-accounts.

[43] Naomi Snyder, Capital One’s Secret to Success, Bank Dir. (Aug. 15, 2022), https://www.bankdirector.com/article/capital-ones-secret-to-success.

INTERESTS OF AMICI CURIAE

Amici are eighteen 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 the Appendix. All possess expertise in, and collectively have conducted extensive research on, antitrust law and economics, including the competitive dynamics of digital markets and the appropriate scope of antitrust remedies.

Amici have an interest in ensuring that antitrust law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. That includes ensuring that any remedy in this case promotes consumer welfare and competition without unduly punishing success or undermining innovation. We file this brief to assist the Court in evaluating the economic and legal implications of the remedies proposed in this case, and to caution against overbroad measures that exceed the proven harms.[1]

SUMMARY OF ARGUMENT

Plaintiffs chose to pursue liability based on inferences drawn from Google’s search-distribution agreements and their purported effect on user choice and rival scale. Having persuaded the Court to premise liability on that basis, Plaintiffs cannot now escape the consequences of their chosen path, including the need for a stronger showing of causation at the remedy phase.

As the D.C. Circuit has observed, “relief should be tailored to fit the wrong creating the occasion for the remedy.” United States v. Microsoft, 253 F.3d 34, 107 (D.C. Cir. 2001) (“Microsoft”). And, as that court also admonished, a court “must base its relief on some clear ‘indication of a significant causal connection between the conduct enjoined or mandated and the violation found directed toward the remedial goal intended.’” Id. at 105 (quoting 3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 653b, at 91-92 (1996)). That caution remains even where, as here, courts infer causation of competitive harm in finding liability. Mem. Op., U.S., et al. v. Google LLC, 20-cv-3010, ECF No. 1033 (“Mem. Op.”) at 216 (citing Microsoft, 253 F.3d at 79). In brief, the Circuit Court’s decision on remedies in Microsoft suggests that there is no “edentulous” standard for remedies in cases brought under Section 2 of the Sherman Act.

Courts should take special care to err on the side of restraint in cases where unlawful conduct may have both pro- and anticompetitive effects, and where the magnitude of competitive harm caused by unlawful conduct is difficult to ascertain. Antitrust remedies must address the specific exclusionary conduct proven, not serve as a vehicle to punish the defendant or to implement the speculative industrial organization designs preferred by regulators.

These general principles are ignored in Plaintiffs’ Revised Proposed Final Judgment (ECF No. 1184-1). Most of Plaintiffs’ wide-ranging proposals are untethered from findings of harm and would neither stop nor remediate the conduct found unlawful in the liability phase of this trial. Indeed, most of the proposed remedies appear designed as penalties, rather than remedies—and suboptimal penalties at that. They risk considerable harm to competition, to the quality of Google’s general search engine (GSE) and other products, and to the more than 200 million U.S. consumers who derive benefits from what is “widely recognized as the best GSE available in the United States.” Mem. Op. at 46 ¶ 126.

Instead, the Court should craft relief narrowly tailored to the specific conduct found to be anticompetitive—for example, by prohibiting truly exclusive deals or coercive tying—while avoiding complex, long-running, behavioral remedies or breakups that do not directly address harm cause by the violative conduct. This measured approach aligns with the approach taken by the D.C. Circuit in Microsoft and adopted by the Supreme Court in Verizon Communications, Inc. v. Law Offices of Curtis Trinko, 540 U.S. 398 (2004). The Microsoft and Trinko decisions both counsel caution in imposing burdensome affirmative obligations or structural changes absent a but-for causal nexus to the violation found and the harm caused by it. That approach is sound. Remedies should target specific anticompetitive acts without deterring the competitive process that benefits consumers.

ARGUMENT

I. Remedies Must Address Harm to Competition Caused by Unlawful Conduct

Antitrust remedies in Section 2 cases are not penalties, and neither precedent nor economics contemplates remedies untethered from the conduct found unlawful or the harm caused by that unlawful conduct.

Plaintiffs’ proposed remedies violate these core principles. For a start, they fail to meet the crucial requirement that antitrust remedies should address only the harm caused by anticompetitive conduct. This is particularly true for Plaintiffs’ call to force the divestiture of the Chrome browser—which was developed prior to the agreements at issue here, and became popular by offering a superior product in competition with other browsers. Chrome was not found to be a monopoly asset, and Google’s ownership and operation of Chrome do not depend on any search distribution agreements. Demanding the divestiture of Chrome would not remedy the exclusive search deals at issue. Instead, it would sacrifice both organizational and production efficiencies that benefit millions of consumers.

Moreover, the Court found that Google’s search distribution agreements were exclusionary to the extent they harmed competition by foreclosing rivals. But there was no proof that, “but for” those deals, a competitor would have achieved competitively meaningful scale. A remedy that aims to ensure the success of competing search engines (rather than their ability to compete) would ignore this distinction.

As the D.C. Circuit observed in Microsoft, “relief should be tailored to fit the wrong creating the occasion for the remedy.” Microsoft, 253 F.3d at 107; see also Herbert J. Hovenkamp, Structural Antitrust Relief Against Digital Platforms, 7 J. Law & Innovation 57, 64 (2024) (“the need to get it right—to avoid both under- and over-deterrence—is one of antitrust’s most vexing problems. It is nowhere more pronounced than in the antitrust law of remedies”). To ignore this principle risks doing more harm than good. “Fashioning appropriate equitable antitrust relief requires that courts balance the benefit to competition against the hardship or competitive disadvantage the remedy may cause.” Ginsburg v. InBev NV/SA, 623 F.3d 1229, 1235 (8th Cir. 2010). And this concern is not merely theoretical: The history of antitrust remedies shows that they fail precisely when they over-index on harms and ignore the benefits that may also arise from ambiguous conduct and complex market structures.  See generally Robert W. Crandall & Kenneth G. Elzinga, Injunctive Relief in Sherman Act Monopolization Cases, 21 Res. Law and Econ. 277, 335­37 (2004) (studying effects of behavioral remedies imposed in ten major monopolization cases). “Without a firm grasp of the economic forces that are driving changes in market structure, the DOJ cannot be expected to design ‘relief’ that will result in increased competition, lower prices, and consumer benefits.” Id. at 335.

In economic terms, remedies calibrated to the harm done are efficient because they force firms to internalize the harm that their conduct has caused, creating incentives for firms to avoid such harmful conduct going forward. Where the conduct at issue implicates both benefits and harms—as with the default installation and placement of Google Search (Google’s general search engine or “GSE”) and other desirable apps—the chilling of pro-competitive conduct and consumer benefits make both over- and under-inclusive remedies a concern: limitations (or additions) to the scope or magnitude of the remedy are liable to be inefficient. See generally, Steven Shavell, Strict Liability Versus Negligence, 9 J. Legal Stud. 1 (1980). Remedies for such conduct can, in that regard, be contrasted with penalties for conduct that is unequivocally harmful, where courts and enforcers have little or no concern with overdeterrence. Compare Louis Kaplow, The Optimal Probability and Magnitude of Fines for Acts that Definitely are Undesirable, 12 Int. Rev. Law & Econ. 3 (1992) with Robert Cooter, Prices and Sanctions, 84 Colum. L. Rev. 1523, 1529 (1984).

This is particularly relevant here, as the Court’s finding of liability was based in part on extrapolations regarding the “stickiness” of defaults, rooted in general observations about the behavioral psychology of consumers. While the Court found these sufficient to support liability, both the Court’s findings of fact and the underlying research recognize that most consumers prefer Google Search to available alternatives, regardless of the default option provided. See, e.g., Mem. Op. at 46 (“Google is widely recognized as the best GSE available in the United States.”); id. at 229 (“Google is the dominant GSE [on Windows devices], even though Windows devices come preinstalled with Microsoft’s Edge browser, which defaults to Bing.”). Saddling users with inferior default GSEs will impose costs on hundreds of millions of consumers, either by forcing them to incur the cost of switching back to Google or by steering them to bear the costs of using an inferior GSE.

To impose a remedy based on inferred competitive harm—and, further, one rooted in inferred and non-quantified conclusions about consumer behavior—implies a fundamental cautionary challenge: without more, it is difficult for a court to know whether the remedy will yield benefits that exceed its costs. Where findings rely on complex economic theories, involve conduct with potential efficiencies, or leave uncertainty about the scope and magnitude of competitive harm, broad or radical remedies are inappropriate. See Microsoft, 253 F.3d at 78-80 (“[D]ivestiture is a remedy that is imposed only with great caution, in part because its long-term efficacy is rarely certain. Absent some measure of confidence that there has been an actual loss to competition that needs to be restored, wisdom counsels against adopting radical structural relief.”).

It is for these reasons that “[a] court … must base its relief on some clear ‘indication of a significant causal connection between the conduct enjoined or mandated and the violation found directed toward the remedial goal intended.’” Id. at 105 (quoting Areeda & Hovenkamp at ¶ 653b, 91-92). The Microsoft court’s emphasis on the need to consider “whether plaintiffs have established a sufficient causal connection,” id. at 106, between the anticompetitive conduct and the defendant’s dominance is especially telling given the lower bar set for liability in that case—the “edentulous standard” applied given numerous findings of harm to a “nascent competitor.” Hence, on remand in Microsoft the Court of Appeals directed the District Court to “consider whether plaintiffs have established a sufficient causal connection between Microsoft’s anticompetitive conduct and its dominant position in the [operating system] market…Absent such causation, the antitrust defendant’s unlawful behavior should be remedied by ‘an injunction against continuation of that conduct.’” Id. (quoting Areeda & Hovenkamp at ¶ 650a, 67). To put it another way, there is no “edentulous standard” for remedies in a Section 2 case. Restricting Google’s conduct without convincing evidence that it is the true source of consumer harm is akin to prescribing strong medicine for an ailment that hasn’t been firmly diagnosed: you might kill the fever, or you might kill the patient.

By the same token, courts and enforcers alike should beware nirvana fallacies, as visions of ideal competition may be out of reach—or, in fact, relatively impoverished. See, e.g., A. Douglas Melamed, Afterword: The Purposes of Antitrust Remedies, 76 Antitrust L.J. 359, 368 (2009) (“[R]emedies are hard to get right and, when suboptimal, can undermine antitrust objectives by interfering with markets and prohibiting or deterring procompetitive conduct.”). A court’s task is not to engineer an ideal state of GSE competition, because, as the Supreme Court observed in Trinko, central planning is “a role for which [the courts] are ill-suited.” Trinko, 540 U.S. at 408.

For one thing, the conditions that lead to relatively concentrated markets may persist no matter what the intervention. Neither economics nor precedent suggest that an imagined state of atomistic competition should be preferred to an actual competitive market, even if dominated by a few, or even one, firm. More is not always better—not as measured by standard competition-relevant metrics associated with consumer welfare: price, output, innovation, and quality. Antitrust law recognizes that even monopoly can arise “as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 571 (1966). For that reason, antitrust law and, specifically, Section 2, do not condemn monopoly itself. Id. at 570-71.

Moreover, network effects, like scale advantages, are not inherently anticompetitive. In fact, direct network effects arise when the value of a product (or platform) increases as the number of its consumers increase. See generally David S. Evans & Richard Schmalensee, Network Effects: March to the Evidence, not to the Slogans, CPI Antitrust Chronicle (Aug. 2017) (reviewing economic research regarding network effects). Network effects, by definition, confer consumer benefits, and well-tailored remedies must account for those benefits.

The failure of the remedy in the General Motors bus case is instructive. Crandall & Elzinga, supra, at 317-35 (discussing U.S. v. General Motors Corp., Consent Decree, C.C.H Trade Cases ¶ 71,624 (1965)). There, “an attempt to force additional competition among multiple firms into such a small market with large economies of scale proved to be futile.” Id. at 323. Despite comprehensive behavioral remedies aimed not only at prohibiting GM’s allegedly exclusionary conduct, but also at facilitating entry by other firms, competition was stymied by the realities of the market’s scale requirements. Instead, “[t]he consent decree may have facilitated the unsustainable entry [of a new competitor].” Id. at 325 (emphasis added). Even the provisions aimed merely at prohibiting past, allegedly exclusionary conduct failed to account for the benefits of scale: “GM was barred by the decree from entering into long-term exclusive contracts with Greyhound, thereby depriving it of the assured benefits of scale necessary for efficient operation. GM therefore exited from intercity bus manufacturing in 1979.” Id. at 324.

Finally, neither network effects nor scale advantages render markets fundamentally uncontestable. In what are sometimes called “reverse network effects,” the same principles that can lead to growth and concentration can have the opposite effect, as “[e]ach lost customer induces other customers to leave, which induces more to leave.” Evans & Schmalensee, supra, at 3; see also Joseph Farrell & Paul Klemperer, Coordination and Lock-In: Competition with Switching Costs and Network Effects, in Vol. 3 Handbook of Industrial Organization (Mark Armstrong & David E.M. Sappington, eds., 2007) (reviewing literature on network effects and competition and noting that “competition for the market” or “life-cycle competition” can replace ordinary compatible competition). Examples abound. “Myspace demonstrates this perfectly: once users began leaving, network effects operated in reverse, hastening its collapse.” Brian C. Albrecht, Network Effects in FTC v. Meta, Truth on the Market (Apr. 16, 2025), available at  https://truthonthemarket.com/2025/04/16/network-effects-in-ftc-v-meta/.

II. Structural Remedies to Monopolization Claims Are Rightly Disfavored

The difficulties and risks associated with structural remedies in Section 2 cases have been well documented. See, e.g., Hovenkamp, supra, at 64 (“Unnecessary or badly designed breakups can do a great deal of harm, particularly in highly innovative markets. This is doubly true about the breakup of internally developed as opposed to acquired assets.”). History, meanwhile, shows that such breakups rarely yield consumer gains. See generally Robert W. Crandall, The Failure of Structural Remedies in Sherman Act Monopolization Cases, 80 Or. L. Rev. 109 (2001) (assessing the success or failure of the major Section 2 cases ending in divestiture). Indeed, there is “remarkably little evidence that these cases and the relief that emanated from them had a positive effect on competition and consumer welfare.” Id. at 197. The reasons are revealing: the failure to account for rapidly changing market forces; the faulty design of remedies that failed to generate an increase in price competition; erroneous assumptions about the competitive effects of increasing the number of competitors; and the imposition of vertical divestitures that actually increased prices or reduced competition by eliminating competitors from the market. Id. The consistent theme emerging from this history is the profound difficulty courts face in successfully re-engineering complex industries through antitrust remedies. “By and large, the antitrust record of monopoly breakup decrees has not been pretty. The courts certainly have the power to ruin a firm, but coming up with a structural remedy that will actually increase output or improve the welfare of consumers or labor is not easy.” Hovenkamp, supra, at 57.

Plaintiffs propose that “Google must promptly and fully divest Chrome, along with any assets or services necessary to successfully complete the divestiture, to a buyer approved by the Plaintiffs in their sole discretion, subject to terms that the Court and Plaintiffs approve.” ECF No. 1184-1 at 12. Divestiture is often described as the “most drastic” of antitrust remedies. See, e.g., United States v. E. I. du Pont de Nemours & Co., 366 U.S. 316, 326 (1961). Requiring Google to divest Chrome would be a drastic remedy indeed.

Chrome was not found to be a monopoly asset, either lawful or unlawful, and Google’s mere ownership and operation of Chrome does not depend on any search-distribution agreements: Demanding its divestiture would not directly address the exclusive search deals at issue. As this Court has previously recognized, Supreme Court precedent establishes that “related acts must also be ‘unlawful’ or of the ‘same type or class’ in order to warrant injunction,” and does not permit “clearly lawful practices [to] be enjoined simply because they will weaken the antitrust violator’s competitive position.” New York v. Microsoft Corp., 224 F. Supp. 2d 76, 109 (D.D.C. 2002) (citing Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 132-33 (1969)).

While divestiture might benefit a single acquiring competitor, it would do so to the detriment of Chrome’s ongoing development. As a result, the longer-term viability of Chrome might be imperiled. Even if some competitors would benefit from the divesture of Chrome, that remedy would provide no clear benefit to consumers, or to search competition more broadly.

Chrome is much more than a stand-alone piece of software: It is deeply intertwined with Google’s development infrastructure, security and anti-malware tools, and revenue model (search ads and related services). The divestiture of Chrome—and the attendant isolation of Chrome and Google Search—would thus impose technical limitations beyond mere implementation details. The integration of Chrome and Google likely generates real efficiencies in development, distribution, operation, and production. These synergies give Google the incentive and ability to invest heavily in Chrome—funding rapid iteration, security patches, speed improvements, and experimental features like privacy sandboxes. It also allows Chrome to remain free for users while leveraging revenue from Google Search deals. A forced separation would not only incur massive direct costs but could also destroy these efficiencies, potentially leading to a less capable or less secure browser for end-users.

Divestiture would also imperil the ongoing viability of competition in the browser market, especially in conjunction with restrictions on Google payments for default status. See Mem. Op. at 116 ¶ 335 (“Google’s 2021 revenue share payment to Mozilla was over $400 million, or about 80% of Mozilla’s operating budget” and “Mozilla has repeatedly made clear that without these payments, it would not be able to function as it does today”); Gregory J. Werden, Harm to the Competitive Process in the Google Search Case, Mercatus Center Antitrust & Competition Working Paper (Jul. 9, 2024), at 28, available at https://www.mercatus.org/research/working-papers/harm-competitive-process-google-case (“Without the revenue from Google, Mozilla could discontinue support for Firefox, especially if Bing does not greatly improve with its immediate boost in scale.”).

It is for precisely these sorts of reasons that structural remedies are disfavored in Section 2 cases like this one. While structural remedies can potentially be justified in merger cases because “clear demarcations between entities and units [may] still exist, facilitating a structural solution,” the cost and risk of imposing structural remedies in long-established firms is much higher. Thomas O. Barnett, Section 2 Remedies: What to Do After Catching the Tiger by the Tail, 76 Antitrust L.J. 31, 39 (2009). “This difference greatly heightens the risk that a Section 2 structural remedy will create market inefficiencies.” Id.

III. Imposing a Data-Sharing ‘Duty to Deal’ Would Exceed Legal Boundaries and Undermine Innovation

The Supreme Court’s decision in Trinko is the lodestar here. In that case, the Court made clear that antitrust law does not, as a general matter, require a monopolist to aid its competitors by sharing infrastructure or data, warning that such forced sharing “may lessen the incentive for the monopolist, the rival, or both to invest” in valuable innovations. Trinko, 540 U.S. at 408.

Yet Sections VI, VII, and VIII of Plaintiffs’ Revised Proposed Final Judgment describe an astonishing array of mandated information sharing involving large and diverse data sets, data structures, algorithms, models, applications, application programming interfaces (APIs), and other intellectual property. Forcing Google to share proprietary search data, tools, and other intellectual property as proposed would impose an extreme—indeed unprecedented—duty to deal that is at odds with modern antitrust jurisprudence since Trinko.

The resources to be shared with or licensed to competitors “at marginal cost” would include, inter alia, Google’s search index, “scale-dependent data inputs” for search and advertising, user-side data, ad data, training data, data structures, statistical models, apps, APIs, and much more. Proposed Final Judgement (ECF No. 1184-1) §§ VI – VIII. Moreover, mandated sharing would not be confined to extant information resources. Google would also be required to facilitate competitors’ access to, and use of, such resources; and Google would be required to share new information resources, including data and technology, not yet available.

Some of Google’s competitive advantage is related to the scale of its data, and  the Court found that some of that scale advantage has been achieved or maintained by the search default agreements found exclusionary at trial. Plaintiffs appear to conclude that, therefore, any and all present, would-be, and—for periods of five and ten years—future competitors should have ready access to any of Google’s intellectual property that is somehow related to the size, scope, and quality of Google’s information resources and the size of the firm’s installed base of users. That is not relief “tailored to fit the wrong creating the occasion for the remedy.” Microsoft, 253 F.3d at 107.

This kind of compelled-access remedy (a “data-sharing” or “interoperability” mandate) raises serious practical and legal concerns. Forcing a firm to hand over the “source of its advantage” to rivals risks chilling investment and turning courts into regulators of ongoing business relations. Post-Trinko, courts are extremely reluctant to impose any affirmative duty to deal on a monopolist absent limited circumstances not present here. See, e.g., Metronet Services Corp. v. Qwest Corp., 383 F.3d 1124, 1133 (9th Cir. 2004) (explaining that only where the harm at issue is redressable by a remedy that “simply order[s] the defendant to deal with its competitors on the same terms”—manifestly not the case here—can a court potentially escape the remedial ordeals discussed in Trinko).

Indeed, forcing Google to share its search index, real-time search data, or user signals would be even more invasive than the network-sharing obligations at issue in Trinko. Google’s search algorithms and user data are highly proprietary, and the product of billions of dollars of R&D investment over two decades. Notably, the D.C. Circuit’s decision in Massachusetts v. Microsoft Corp. rejected forced, royalty-free sharing of extensive technical information with rivals, and the open-sourcing of Internet Explorer (among other things), precisely because those proposed remedies would have deprived Microsoft of valuable intellectual property. See Massachusetts v. Microsoft Corp., 373 F.3d 1199, 1230-31 (D.C. Cir. 2004) (holding that a “‘royalty-free, non-exclusive perpetual right’ of others to use [Microsoft’s intellectual property] would confiscate much of the value of Microsoft’s investment” and was an “analogous form of structural relief” to divestiture).

At the same time, Plaintiffs’ proposal that copious resources be provided to rivals “at marginal cost” (ECF No. 1184-1 at 15) seems to suppose—erroneously—that all of Google’s fixed costs are sunk costs, ignoring, e.g., billions of dollars in annual investments in research and development, and, indeed, hardware and infrastructure, by both Google and its competitors. The problem of investment incentives is especially significant in industries with high (and ongoing) fixed costs that could not be recouped under the proposed interoperability and sharing requirements. As the Court itself noted, “[b]uilding and maintaining a competitive GSE require an extraordinary upfront capital investment, to the tune of billions of dollars.” Mem. Op. at 157 (emphasis added); see also Id. at 158 (“a world class search engine is at least a $2–4B/year R&D investment”) (quoting UPX266 at 986). And handing Google’s billion-dollar know-how to competitors would dramatically reduce their incentive to pursue their own approaches to search engine innovation. Confiscating the fruits of Google’s investments? would not just impair and disincentivize Google’s ongoing development of its GSE and other assets: It risks chilling innovation industry-wide. See, e.g., Hovenkamp, supra, at 68.

Although limited duties to deal may be imposed under special circumstances “at or near the outer boundary of Section 2 liability,” Trinko, 540 U.S. at 409, an order compelling Google to share—and in some cases reconfigure—such a broad range information resources, and to do so on a long-term basis, would entangle this Court and a hypothetical “technical committee” in perpetual regulation. The diverse and sweeping sharing obligations described in sections VI, VII, and VIII of the Plaintiffs’ Proposed Judgment are not simple, straightforward, or innocuous. Indeed, the technical complexity of ongoing real-time search index exchange dwarfs that of servicing the specific operations support systems that were at issue in Trinko, and would require the court to engage in de facto regulation of, among other things, “compute” costs, APIs, API bandwidth, refresh cycles, error correction, and much more. This is a far cry from a “limited” duty to deal.

Courts are ill-equipped to manage such arrangements. Individually and collectively, the proposed sharing mandates seem tailor-made to illustrate the Supreme Court’s general caution against enforced sharing as they would require “courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited.” Trinko, 540 U.S. at 408.

The Court has already acknowledged these concerns in dismissing the Plaintiff States’ SA360 “refusal to deal” claim against Google, finding: “Plaintiff States seek to bypass the ‘no duty to deal’ doctrine entirely. . . . Adjudicating Plaintiff States’ claim would require the court to act as a ‘central planner’. . . grappling with a host of questions that the court is ill-equipped to handle. . . . And those thorny questions foreshadow the challenges the court would face in administering a remedy.” Mem. Op at 268-69.

A. AI Innovation and Other Technological Changes Undermine the Claimed Competitive Benefits of Proposed Data-Sharing Remedies

These difficulties are magnified in markets characterized by rapid technological change. Most of the growth in the tech sector comes “from innovation, not from increased competition under constant technology.” Hovenkamp, supra, at 68. Hence, the rapid pace of innovation, both in and adjacent to the market, “invites extra caution about intervention. While opportunities for harm might be greater, efficiencies and other positive effects are greater as well.” Id.

This Court found that “the advent of artificial intelligence (AI) has not sufficiently eroded barriers to entry—at least not yet.” Mem. Op. at 163. That uncertainty led the Court to discount the competitive significance of AI-powered search in finding liability, as “[n]ew technologies may lower, or even demolish, barriers to entry, but such innovation is meaningful only if it can change the market dynamic in the ‘foreseeable future.’” Id. (quoting Microsoft, 253 F.3d at 55). But that conclusion was based on findings of fact and trial evidence from over a year ago: AI has progressed spectacularly since then. And foreseeability cuts the other way when courts are tasked with fashioning forward-looking remedies to ameliorate harmful conduct. Courts cannot tailor remedies that are to run five or ten years based on what they cannot foresee.

Indeed, courts should evince a special degree of interventional humility given the dynamic nature of the markets at issue, including the rapid pace (and diversity) of innovation in artificial intelligence. As the Court recognized, AI is increasingly important to established GSEs, see Mem. Op. at 40-42, and central to the design of generative-AI-based GSE entrants such as Perplexity, SearchGPT, and Claude (the last of which incorporated a search API just this week, see Introducing Web Search on the Anthropic API (May 7, 2025), available at https://www.anthropic.com/news/web-search-api). Calendar year 2024 saw tremendous gains in AI performance along various dimensions, including rapid gains from open-weight models and smaller models. See generally Stanford Univ. Inst. For Human-Centered Artificial Intelligence, Artificial Intelligence Index Report 2025, at ch. 2, available at https://hai-production.s3.amazonaws.com/files/hai_ai_index_report_2025.pdf. Fundamentally, we do not know what GSEs will look like, or whether GSE’s will comprise a distinct, competition-relevant market, five or ten years hence.

That progress directly implicates questions about the magnitude and likely durability of presumed scale, scope, and quality advantages in existing data sources, as well as the magnitude and likely durability of traditional GSE competitors’ compute advantages. These, in turn, confound the larger question of entry barriers and Plaintiffs’ assertion that access to current Google search data is essential to competition. It is by no means clear what sorts of data might be required for entrants or incumbents to achieve minimum efficient scale as AI continues to improve. And in rapidly changing technology markets, it is a mistake to assume that “the successful way something has been done, and is done today, is the only way to do it, or the only way new entrants can do it and be competitive. … [I]nnovation has never required implementation of the same business model as incumbents, and especially not access to the particular proprietary inputs incumbents have created.” Geoffrey A. Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 Geo. Mason L. Rev. 1279, 1395-96 (2021).

Note too, that the market definition that played a key role in analyzing market power for liability purposes may be confined to a more limited role at the remedies stage. As the Court observed, sources of data that are useful as GSE production inputs extend well beyond the GSE market itself already. Hence, “Microsoft has partnered with more than 100 providers to obtain structured data, and those partners include information sources like Fandango, Glassdoor, IMDb, Pinterest, Spotify, and more.” Mem. Op. at 20-21¶ 47. By the same token, even if specialized search providers may not be in the relevant market for purposes of assessing liability, they may nevertheless be quite relevant to determining appropriate remedies as their data may be used by GSE competitors. See, e.g. Perplexity: AI Search Disruptor Is Taking a Big Swing with New Shopping Feature, adepto.com (Nov. 19, 2024), available at https://addepto.com/blog/perplexity-ai-search-diruptor-is-taking-a-big-swing-with-new-shopping-feature/ (“Perplexity’s integration with Shopify allows it to tap into a vast network of merchants, enhancing its product offerings while maintaining a user-friendly interface.”).

B. The Proposed Data-Sharing Remedies Also Entail Significant Costs Arising from the Risks to Consumer Privacy and Data Security

The problems inherent in a forced data-sharing remedy are not confined to uncertainties regarding future competitive dynamics; they also implicate very real present-day risks to user privacy.

Plaintiffs’ Proposed Judgment would require Google to “use ordinary course techniques to remove any Personally Identifiable Information” from user-side data in diverse data sets, and disclose, among other things, “a description of what the dataset contains such that it can be reasonably understood by the Qualified Competitors, including but not limited to a description of what the dataset contains, any sampling methodology used to create the dataset, and any anonymization or privacy-enhancing technique that was applied” to each data set.  ECF No. 1184-1 at 17-18. All of that is to be done within six months. Yet Plaintiffs provide no analysis of the implementation that would be required of Google or the direct and indirect compliance costs.   Plaintiffs assure the Court that the mandated sharing provisions they seek have the advantage of “safeguarding personal privacy and security.” Id. at 16. But that assurance is hollow given the remaking of Google’s data usage that would be involved. Google’s internal use of diverse data sets comprising or derived from consumer data—some documented and some deeply embedded in trained models— does not, as a general matter, entail the same privacy and security risks as the sharing of such data with third parties—practices which are not generally part of Google’s business model. Plaintiffs do not address the complexity, cost, or even tractability of the overhaul that data sharing would impose upon Google’s data collection and use practices and, in turn, on Google’s products.

Moreover, no such reworking of Google’s internal data can eliminate the risks to privacy and data security implicated in data sharing with Qualified Competitors, as well as downstream collection, use, and sharing by other third parties. The limited assurances Plaintiffs would require of “Qualified Competitors” and the hypothetical data security standards to be developed by the Technical Committee provide only untested and conclusory assurances that downstream risks to consumers will be minimized. The last thing a remedy should do is inadvertently weaken data security or user privacy protections in the name of helping a competitor.

IV. Trinko Applies to Remedies, Not Just Liability

While modern antitrust litigation sometimes separates liability and remedy phases, the logic underpinning Trinko’s skepticism applies directly to remedies, as it is inherently focused on the practical consequences and administrability of judicial intervention. Indeed, “the difficulty of providing an appropriate antitrust remedy was central to the Trinko Court’s” holding. Barnett, supra, at 33. Furthermore, the procedural separation of liability and remedy in this case, combined with the specific nature of the liability findings, underscores the need for remedial caution.

The Department of Justice has asserted elsewhere that “Trinko addresses antitrust liability, not remedies.” Brief of the United States of America and the Federal Trade Commission as Amici Curiae in Support of Neither Party on Google’s Motion for Stay, Epic Games v. Google, Case No. 24-6274, at 6 (9th Cir., Oct. 26, 2024), available at https://www.justice.gov/atr/media/1375086/dl. Yet the Supreme Court disagrees and, as recently as 2021, relied extensively on Trinko in explaining why courts must be cautious in fashioning antitrust remedies. See Nat’l Collegiate Athletic Ass’n v. Alston, 594 U.S. 69, 102 (2021) (warning about remedies that “could wind up impairing rather than enhancing competition”, impose costs that “exceed efficiencies gained,” and “suppress procompetitive innovation”) (citing Trinko, 540 U.S. at 415).

The concerns animating the Trinko Court—especially the risk of chilling innovation incentives and the institutional limitations of courts acting as “central planners”—are not merely abstract principles relevant only to liability determinations; they are practical challenges implicated by the imposition of certain remedies. Thus, as this Court acknowledged in dismissing Plaintiff State’s SA360 claim, while adjudicating a duty-to-deal claim implicates “a host of questions that the court is ill-equipped to handle,” Mem. Op. at 268, so, too, do “those thorny questions foreshadow the challenges the court would face in administering a remedy.” Mem. Op. at 269 (citing Trinko, 540 U.S. at 415) (emphasis added).

Indeed, the disincentive for a firm to invest in potentially valuable assets or facilities arises most acutely not from a finding of liability per se, but from the subsequent remedial obligation to share those assets with competitors on terms dictated by a court. Similarly, the “central planner” problem identified in Trinko is fundamentally a remedial concern, highlighting the profound difficulties courts face when tasked with designing, implementing, and overseeing complex arrangements of forced cooperation or access.

Plaintiffs chose to pursue liability based significantly on inferences drawn from Google’s search distribution agreements and their purported effect on user choice and rival scale. Having asked the Court to premise liability on that basis, Plaintiffs cannot now escape the consequences of their chosen path. As a result, the scope of permissible remedies is necessarily constrained by the absence of but-for causation linking Google’s search distribution agreements to the foreclosure of competition. None of this changes with the bifurcation of the liability and remedies trials; rather, remedies must remain strictly proportional to, and causally linked with, the specific violations proven in the liability phase.

CONCLUSION

For the reasons set forth above, amici urge the Court to reject the far-reaching remedies of Plaintiffs’ Revised Proposed Final Judgment. Instead, remedies should be narrowly tailored to address the specific conduct found to violate Section 2, and they should be calibrated to remedy harm properly attributed to that conduct without harming competition and consumers.

[1] No counsel for a party to this case authored this brief in whole or in part. No party or counsel for a party contributed money that was intended to fund preparing or submitting the brief, and no person other than amici or amici counsel contributed money that was intended to fund preparing or submitting the brief.

Re: Opposition to Proposed Ordinance Amending the Affordable Housing Code to Prohibit Algorithmic Pricing Tools

Thank you for the opportunity to provide testimony on the proposed ordinance prohibiting the use of algorithmic pricing tools in Portland’s rental housing market. Geoffrey Manne is the President and Founder of the International Center for Law & Economics (ICLE), a nonpartisan nonprofit research organization based in Portland. Eric Fruits is a Senior Scholar and Economist at ICLE. He is also an adjunct professor at Portland State University, where he has taught courses in real estate finance and investments and edited the PSU Center for Real Estate’s Quarterly Report on Oregon’s real estate markets for a decade. Dr. Fruits was a peer reviewer and authored the back-of-chapter exercises and test bank for the 14th edition of the widely used textbook Real Estate Finance and Investments by W.B. Brueggeman and J. D. Fisher.

Our opposition is grounded in economic principles, antitrust law, and an understanding of how algorithmic tools function in competitive markets. We recently wrote on the competitive effects of algorithmic pricing tools and submitted amicus briefs in Gibson v. Cendyn and Adebiyi v. Caesars Entertainment (attached) regarding algorithmic pricing in hotels, where we note:

[S]ubscribing to the same software does not imply an agreement among competitors to do anything, much less fix prices. The revenue management functions that [the software] automates are lawful. And automating lawful commercial activity does not make that activity unlawful.

This Policy Will Increase Rents and Reduce Housing Access

The ordinance misunderstands how modern rental markets function. Algorithmic pricing tools are not collusion—they are data-driven efficiency tools that help property owners:

• Prevent vacancies (reducing turnover costs passed to tenants);
• Adjust rents to match demand in specific neighborhoods;
• Identify units that can be priced below market rate to meet affordability

Research published by the Wharton School finds that property owners using algorithmic pricing software adjust rents more effectively based on market conditions. During economic downturns (e.g., 2008–2010), property owners using the software lowered rents and increased occupancy compared to those who didn’t use the software. Conversely, during economic recoveries (e.g., 2014–2016), property owners using the software raised rents and tolerated lower occupancy relative to those who didn’t use the software. This indicates the software helps property owners respond to changing demand, improving efficiency.

By banning these tools:

• Small property owners (who lack pricing expertise) will default to overpricing units to hedge against risk;
• Corporate property owners with dedicated pricing teams gain a substantial advantage;
• Vacancies will rise as prices become less responsive to demand shifts, reducing tax revenue for affordable housing programs

Key Flaws in the Text

• 30.01.088.A’s exemption favors large corporate property owners over small or “mom-and-pop” property owners. The ordinance exempts “any tool that aggregates, analyzes, or compiles information exclusively from properties or entities with the same majority owner or beneficial owner.” Only large corporate property owners would have the scale to bring such tools in-house, thus providing them a distinct competitive advantage over smaller property owners.
• 30.01.088.B.6 allows corporate property managers to continue using pricing tools while blocking small property owners from accessing them. The ordinance distinguishes between entities that solely provide pricing tools (e.g., software developers like RealPage) and property management companies that offer a suite of services, including pricing decisions.

While this exemption may be intended to preserve the ability of traditional property managers to operate without disruption, it could inadvertently create a loophole for property owners or large corporations to bypass restrictions by contracting with property management firms that use similar algorithmic tools under the guise of broader services.

This provision disproportionately favors large property owners who can afford full-service property management firms. In contrast, smaller property owners—who often rely on third-party pricing tools—may lose access to efficient pricing mechanisms.

• 30.01.088.C.1.b’s statutory damages of $10,000 per lease will force small property owners to exit the market over liability fears. The statute defines violations broadly, including:
• Technical non-compliance with data-sharing prohibitions (e.g., accidentally using a spreadsheet that aggregates public rental data);
• Unintentional errors in pricing decisions (e.g., adjusting rent based on market trends without realizing it could be construed as algorithmic coordination); or
• Administrative oversights (e.g., failing to document compliance with pricing tool bans).

The statutory damages of $10,000 per lease are enormous and far more than any actual damages a tenant might incur from allegedly being “overcharged” for rent.

More importantly, the statutory damages will likely trigger numerous nuisance lawsuits because the cost of even a “bare bones” legal defense would be much more than the statutory damages. Property owners charged in such a suit would face an extraordinary incentive to settle—even if they are innocent of the allegations.

The award of attorney’s fees (§30.01.088.C.1.a) compounds the likelihood of nuisance suits, turning the ordinance into a shakedown scheme that will encourage smaller property owners to exit the market.

• 30.01.088.A’s vague definitions could criminalize using basic Excel spreadsheets, ChatGPT, or popular websites such as RentCafe. The proposed ordinance explicitly lists “spreadsheets” alongside advanced technologies like artificial intelligence programs and algorithmic devices. The definition does not distinguish between simple tools used for basic calculations (e.g., Excel formulas) and sophisticated software designed for dynamic pricing or market analysis.

Under the ordinance’s expansive definition, property owners who use basic spreadsheets to track historical rent data, consult RentCafe for comparable properties, and calculate or adjust rents based on the spreadsheet could be in violation of the ordinance.

For example:

• A property owner tracking occupancy rates and rent changes around their properties might be accused of compiling “competitively sensitive ”
• Sharing a spreadsheet with a property manager or accountant could be considered unlawful data sharing under §30.01.088.B.4.

As noted above, larger property owners with in-house teams may avoid scrutiny by using proprietary systems not explicitly covered by the ordinance. In contrast, smaller property owners face heightened enforcement risks due to reliance on simpler methods.

By failing to narrowly define “competitively sensitive information” and “price setting tool,” the ordinance risks criminalizing routine practices essential to small-scale property management. This ambiguity disproportionately harms small property owners who rely on simple tools like Excel spreadsheets for basic calculations and compliance with rental laws.

Recommendations

Proponents of this ordinance point to the numerous algorithmic pricing lawsuits pending in the courts. The courts are precisely the correct venue for dealing with allegations of collusive price-setting.

At the federal level, the U.S. Department of Justice and Federal Trade Commission (FTC) have the expertise and authority to investigate and prosecute price-fixing claims. In addition, the FTC has the authority to investigate allegations of consumer harm and unfair methods of competition. Under state law, the Oregon Department of Justice has similar authority. Not only is this proposed ordinance harmful—as discussed above—it’s also unnecessary and duplicative.

We urge City Council to reject this ordinance and instead pursue policies that tackle Portland’s housing challenges at their core—by increasing supply and fostering competition.

President Donald Trump’s “Liberation Day” tariffs–and his promised trade agenda—draw partly from a narrative popular among protectionists. In this telling, high tariffs fueled America’s nineteenth-century industrial rise. Tariff-supporters like Oren Cass have argued that the United States “transformed from colonial backwater to continent-spanning industrial colossus” behind protective barriers.

Economic research suggests otherwise. While the United States did maintain exceptionally high tariffs from the Civil War through World War I (often 40 percent to 50 percent on manufactured imports), these were at best incidental to industrial growth—and likely harmful to it.

The European Commission issued a significant noncompliance decision earlier today, finding the “consent or pay” model that Meta implemented from March 2024 to November 2024 for its Facebook and Instagram services breached key obligations imposed on designated gatekeepers under the Digital Markets Act (DMA). Accompanied by a €200 million fine, the decision concluded that Meta’s approach failed to comply with Article 5(2) of the DMA. Importantly, the Commission’s decision does not extend to Meta’s revised offer, which has been augmented with a free-of-charge “less personalized ads” option.

The Commission’s decision hinges on two determinations. First, Meta’s model, which offered users a binary choice between accepting personalized advertising through personal-data combination or paying a monthly fee for an ad-free experience, did not provide a “less personalized but equivalent alternative,” as required by the DMA—especially as interpreted through Recital 36. Second, this binary structure, along with the associated fee for the privacy-centric option, was deemed to be coercive and that it violated the General Data Protection Regulation’s (GDPR) “freely given consent” requirement, which is explicitly integrated into DMA Article 5(2).

In this post, I’ll try to reconstruct the Commission’s likely reasoning. It’s crucial, however, to state upfront that, without the full published decision text, we’re operating somewhat in the dark, relying on the Commission’s press release and inferring connections to broader regulatory discussions. Of particular interest, in regard to the latter, is the European Data Protection Board’s (EDPB) recent opinions on “pay or consent” under the EU GDPR. This inherent uncertainty must be kept in mind.

Read the full piece here.

I. Introduction

The U.S. pharmaceutical sector is a cornerstone of both the national public-health infrastructure and critical national-security interests. The sector ensures Americans’ access to medicines and underpins significant economic activity through innovation. These comments address the U.S. Commerce Department’s investigation into the national-security impact of the importation of pharmaceuticals and pharmaceutical ingredients pursuant to Section 232 of the Trade Expansion Act of 1962. We argue that, while it is necessary for the federal government to address both supply-chain vulnerabilities and foreign-trade distortions, any resulting policy actions must be phased, thoughtful, and precisely targeted. Crucially, such measures must be implemented in a manner that avoids abrupt disruptions that could inadvertently harm U.S. pharmaceutical innovation, competitiveness, and the very security interests they aim to protect.

A. Trade-Policy Uncertainty Depresses Investment

In order to address legitimate concerns arising from international trade in pharmaceuticals, it is crucial to establish a framework that recognizes the paramount importance of stability and predictability in trade policy. Such stability and predictability are essential to maintaining technological leadership and fostering long-term economic stability, particularly for an innovation-focused economy like the United States. Uncertainty surrounding trade policy can function as a drag on economic performance, independent of the specific policies ultimately enacted.[1]

Studies employing diverse methodologies have found that heightened trade-policy uncertainty (TPU) leads to measurable reductions in investment and overall economic activity.[2] This negative impact is observed at both the firm level, where companies facing greater uncertainty reduce capital accumulation, and at the macroeconomic level, where aggregate investment and GDP growth slow.[3] For example, analysis of the surge in TPU during 2018 indicated a strong negative correlation between industry-level uncertainty and investment, even after controlling for the actual tariffs imposed during that period, isolating the detrimental effect of uncertainty itself.[4] Aggregate economic models predict that shocks to TPU similar in magnitude to those experienced between 2017 and 2018 can depress the level of aggregate investment by 1-2% for roughly a year.[5]

The detrimental effects of TPU extend specifically to innovation, which is a critical driver of technological leadership and central to the pharmaceutical sector. Research indicates that eliminating uncertainty, particularly regarding tariffs, provides a significant boost to innovative activity, as measured by patent applications and R&D expenditures.[6] Uncertainty makes the long-term planning and significant capital outlays associated with pharmaceutical innovation riskier and more difficult, potentially stifling the development and adoption of new therapies and technologies.[7]

The underlying economic mechanism driving these effects relates to the concept of real options. When future trade rules that affect production costs, market access, and consumer demand are unclear, firms perceive an increased value in delaying irreversible investment decisions and waiting for clarity. This “wait-and-see” approach applies to decisions regarding capital investment, hiring, and entry into new export markets. While the choice to delay might appear rational from an individual firm’s perspective, when adopted broadly across the economy, such choices result in suppressed investment, reduced firm entry into international markets and, ultimately, lower overall economic activity and innovation. Therefore, a stable and predictable trade-policy framework is essential not only to avoid the direct costs of harmful protectionist measures but also to mitigate the chilling effect that uncertainty itself casts upon investment, innovation, and long-term economic prosperity, particularly within the vital pharmaceutical industry.

B. Avoid Disruptive Interventions that Threaten Pharmaceutical Innovation

In short, while the U.S. pharmaceutical sector is generally robust, innovative, and capable of meeting the nation’s health and security needs, targeted vulnerabilities related to generic drugs and upstream supply chains must be thoughtfully addressed. Policymakers should carefully avoid broad, disruptive interventions such as sweeping tariffs or aggressive reshoring mandates that would impose substantial economic costs and hinder innovation. Instead, they should adopt a measured, strategic approach that clearly identifies and corrects specific foreign trade distortions—such as intellectual property violations, forced technology transfers, and targeted subsidies—through calibrated responses. This approach will sustain the substantial economic vitality and innovation-driven leadership of the U.S. pharmaceutical industry, thereby genuinely enhancing national security.

II. The Economics of the Pharmaceutical Supply Chain

U.S. demand for pharmaceuticals and related ingredients has followed an upward trajectory, driven by fundamental demographic shifts, including an aging population and the growing prevalence of chronic health conditions. While quantifying the precise increase in demand is complex, the effects are evident in the strain placed upon the supply chain, particularly during periods of crisis.[8]

The supply chain for pharmaceutical components is likewise extraordinarily complex. Active pharmaceutical ingredients (APIs) are the core components of medicines responsible for producing the intended therapeutic effects—the biologically active substances within a drug product.[9]  Key starting materials (KSMs), on the other hand, are the chemical building blocks or intermediates required for the chemical-synthesis process that produces an API.[10] The complexity of the upstream supply chain—involving multiple steps from raw chemicals to KSMs to APIs, before the ultimate production of finished dosage forms (FDFs)—make comprehensive risk assessment and management exceedingly difficult.[11] Technical or economic disruptions that occur at the API or KSM manufacturing and distribution level may therefore have widespread and difficult-to-predict downstream consequences.

Evaluating the U.S. domestic pharmaceutical-production landscape clearly illustrates significant strengths (particularly in innovation and high-value medicines), as well as certain vulnerabilities (primarily in generic-drug production and important precursors). The United States remains a global leader in the research, development, and manufacture of innovative, high-value pharmaceuticals. Reflecting this, a substantial portion of medicines consumed in the United States—reportedly two-thirds, measured by value—are manufactured domestically within a network of more than 1,500 U.S.-based facilities.[12] This highlights the nation’s robust capacity to produce complex and innovative therapies.

This strength in innovative drug production appears, however, to contrast with the situation for many generic drugs and their important precursors. Analyses of U.S. Food and Drug Administration (FDA) data regarding manufacturing facilities suggest a potential reliance on foreign sources, particularly for upstream components. As of 2019, only 26% of facilities manufacturing APIs for U.S. consumption were located within the United States.[13] It is important to note, however, that a significant majority of APIs for innovative and high-value medicines are domestically produced or sourced from closely allied nations, reflecting substantial U.S. strength in these critical areas.

Similarly, only 40% of facilities producing FDFs—the final pills, capsules, or injectables—were domestic.[14] Furthermore, the domestic share of FDF-manufacturing sites fell from 44.05% in 2013 to 40.09% in 2019, suggesting a trend toward greater reliance on foreign production for the final stages of manufacturing for certain products (primarily, many generics).[15] Complementary analysis using drug master files (DMFs)—which often relate to generic-drug components—may point toward a similar reliance on foreign API sources for generics. A 2021 review indicated that only 10% of active API DMFs supplying the U.S. market originated from U.S.-based facilities.[16] The U.S. contribution to new API DMF filings was reportedly around 4% in both 2019 and 2021, possibly indicating limited growth in domestic API capacity relative to foreign competitors in these specific areas.[17]

This apparent bifurcation—strength in high-value innovative drug manufacturing, alongside possible significant foreign reliance for APIs and many generic FDFs—underscores the need for nuanced policy approaches that support domestic innovation, while carefully addressing potential vulnerabilities in important precursor and generic-drug supply chains.

It is crucial, however, to contextualize the nature of this reliance on imports. While facility counts and API-sourcing data point to foreign dependence, a significant majority of U.S. pharmaceutical imports by value originate from Europe. The European Union accounted for 73% of total U.S. pharmaceutical imports in 2023.[18] These imports predominantly consist of high-value finished medicines and complex biologics. Given the strong political, economic, and security alliances between the United States and European nations, reliance on these partners presents a different risk profile than reliance on imports from geostrategic competitors like China would. Therefore, assessments of supply-chain risk must consider not only the volume, but also the source of imports and the geopolitical relationships involved.

Further, the economic factors that have driven some degree of offshoring are particularly potent at the API and KSM stages for generics. Manufacturing these materials often involves large-scale, capital-intensive chemical processes where economies of scale are paramount. Combined with lower labor and regulatory costs—and potential government subsidies in major producing nations—there may be a substantial cost differential relative to domestic production.[19]  This creates powerful economic disincentives to establish or maintain API/KSM production in the United States. The “commoditization loop,”[20] in which price pressures lead to offshoring, underinvestment, and increased shortage risk, applies with even greater force to these upstream components. This explains why domestic API and KSM capacity is generally weaker than FDF capacity. It also suggests that reshoring initiatives would face formidable economic challenges without significant policy interventions or fundamental changes to market structures. Addressing this reality requires a thorough understanding of how U.S. domestic policy contributes to making it less viable to manufacture certain goods at home.

It is also important to recognize that the current global distribution of pharmaceutical production, including the sourcing of certain inputs from abroad, reflects complex economic realities and rational decisions made by firms based on factors like cost, efficiency, and specialization.[21] While addressing supply-chain vulnerabilities is a valid goal, policy interventions designed to encourage changes in these established patterns (such as reshoring initiatives) must be implemented carefully and thoughtfully to avoid unintended consequences and disruptions to the supply of medicines. Understanding the underlying economic drivers is critical to design effective and sustainable policy.

With this as backdrop, this proceeding asks about “the feasibility of increasing domestic capacity for pharmaceuticals and pharmaceutical ingredients to reduce import reliance.”[22]  Indeed, there are risks associated with foreign reliance on pharmaceutical inputs in some cases. But as we discuss below, there are many cases in which economic trade with friendly nations increases overall welfare in the United States. Moreover, attempting to accelerate reshoring of pharmaceutical production in excess of the speed at which private firms can stand up that capacity is likely to exacerbate supply-chain issues, not remedy them.

Trade policy, even when conducted with a focus on national security, needs to be carefully calibrated to allow firms to source and produce necessary pharmaceutical inputs in a wide variety of allied economies. Where there are market distortions present in the economies of trade partners, the correct response in many or most instances is to collaborate with those partners to reduce the distortion, not to severely attenuate or prevent trade altogether.

III. Open Trade, Innovation, and Economic Prosperity

This comment proceeds from two foundational premises regarding international trade. First, open trade conducted on equitable terms generally yields substantial economic benefits for participating nations. Second, when trade relationships become imbalanced due to unfair practices or distortions, effective remedies require careful diagnosis of the specific market distortions at play, allowing for tailored and targeted policy responses, rather than broad and potentially disruptive measures.

Open and competitive trade is a cornerstone of economic prosperity, particularly in innovation-driven sectors such as pharmaceuticals. While there are cases where market distortions can disrupt the gains from otherwise free trade, trade liberalization is generally acknowledged to enhance economic performance by fostering competition within domestic markets.[23] Increased competition compels domestic firms to improve efficiency. This can lead resources to be reallocated from less productive to more productive industries, thereby boosting overall economic output.[24] Furthermore, integrating national economies into the global marketplace through open-trade policies can stimulate foreign and domestic investment, facilitate the transfer and adoption of technological advancements, and expand export opportunities.[25]

A foundational economic principle that justifies the gains from open trade is comparative advantage. This principle posits that nations benefit by specializing in the production of goods and services where they have a relative efficiency advantage over other nations, and then trading for goods where they are relatively less efficient. This specialization allows for a more efficient global allocation of resources, leading to increased overall production and consumption possibilities.

Traditional interpretations often view comparative advantage as stemming from relatively static factors like differences in technology, resource endowments, or labor productivity. But contemporary research, particularly in the context of innovation-driven economies, increasingly emphasizes a more dynamic understanding of comparative advantage.[26] Indeed, trade itself can influence the direction of technological change. By expanding the potential market for certain types of innovation, international trade creates powerful incentives for firms and researchers to direct their efforts toward developing technologies and products suited for global markets.[27] Consequently, a nation might develop a comparative advantage not only in producing certain goods but also in the process of innovation within specific sectors.

This dynamic interplay means that comparative advantage is not merely a static condition that trade helps to exploit; rather, it is partially endogenous, shaped and reshaped over time by trade patterns and the innovations they induce.[28] Empirical estimates suggest that these endogenous adjustments in technology, driven by trade incentives, can account for a substantial portion—perhaps as much as half—of the observed variation in production-based comparative advantage across countries and industries.[29] This understanding reinforces the crucial links among trade openness, specialization, efficiency, innovation, and sustained economic growth. It highlights that openness fosters not just the efficient use of existing capacities but also the development of future economic strengths. While the rise of complex global value chains complicates the measurement of traditional comparative advantage based on gross export data, newer methodologies focusing on trade in value-added sectors confirm the continued relevance of the principle of comparative advantage in driving the diffusion of international production.[30]

The positive effects of trade extend beyond static efficiency gains, which involve optimizing the allocation of existing resources. A significant body of research highlights the dynamic benefits of trade—particularly its role in spurring innovation and technological progress.[31] When firms face increased import competition or gain access to larger export markets through liberalization, they often respond by seeking to boost their capacity for innovation, such as by investing more in research and development, adopting new technologies, and seeking patent protection for their inventions.[32] This process implies that a country’s technological trajectory and productivity growth are not fixed, but rather, can be positively influenced by its trade policies. This dynamic element is crucial to understand how open trade supports prosperity, especially in high-technology fields where continuous innovation is paramount.

But while the broad consensus among economists points to positive relationships among trade openness, reduced trade barriers, and economic welfare, there are nuances that policymakers must observe. The extent and universality of these benefits, particularly for developing nations or specific sectors, remain subjects of ongoing research and debate.[33]  Further, and particularly relevant for this inquiry, there are cases where trading-partner nations may engage in various behaviors that distort trade and provide the basis for adjustments to U.S. trade policy.

IV. When All Else Is Not Equal: The Threat of Foreign Economic Protectionism

While identifying and addressing inefficiencies in the global trading system is a valid policy objective, the current approach may rely too heavily on blunt measures like tariffs. Tariffs may prove ineffective if they fail to account for the less conspicuous nontariff barriers (NTBs) that foreign jurisdictions employ to enact protectionist policies. The strategic value of a U.S.-imposed tariff is largely determined by the specific policy changes sought from the trading partner in exchange for the tariff’s removal. Therefore, a critical element of effective trade policy involves identifying these distorting policies and leveraging potential responses to secure commitments from foreign jurisdictions for their reform.

Protectionist policies—broadly defined as government measures that seek to restrict imports through mechanisms like tariffs, import quotas, subsidies, and various NTBs, such as complex regulations or standards—pose significant risks to international economic stability.[34] By their nature, these policies impede the free flow of goods and services across borders, which can disrupt established international collaborations and intricate global supply chains.

Beyond supply-chain risks, protectionist policies have been long recognized as detrimental to overall economic efficiency and welfare.[35] By shielding domestic industries from international competition, protectionism allows less efficient firms to survive or maintain market share, leading to a misallocation of national resources away from more productive uses.[36] This lack of competitive pressure can dampen incentives for innovation within the protected sectors.

NTBs can impose compliance costs on importers and exporters, which are often passed on to consumers in the form of higher prices.[37] The effect of these trade barriers is twofold. On the one hand, they hurt U.S. firms that want to trade with our foreign partners. On the other, the cumulative effect of reduced competition, higher costs, resource misallocation, and potential trade conflicts is reduced overall economic efficiency, slower economic growth, and diminished national competitiveness for the foreign jurisdiction, as well.[38]

A key challenge in evaluating protectionism is that its costs are often dispersed widely across the economy (e.g., slightly higher prices for all consumers, reduced opportunities for various export firms), while its benefits tend to be concentrated within specific (often politically influential) industries or groups that lobby for protection.[39] This asymmetry can make the less visible aggregate costs harder to weigh against the more apparent concentrated benefits in the political arena.

A. Anticompetitive Market Distortions as Trade Barriers

While we strongly caution against the generalized application of tariffs, due to their inherent economic risks, if policymakers determine that tariffs are unavoidable, it is critical that such measures be narrowly targeted and precisely calibrated to deal with the quantifiable effects of protectionist policies. The concept of anticompetitive market distortions (ACMDs) provides a methodological framework to identify and quantify the specific harms arising from foreign government actions that disadvantage U.S. firms. A disciplined focus on identifying and targeting ACMDs would ensure that tariffs and other trade sanctions are used strictly as targeted corrective measures, rather than broad protectionist tools.

In essence, ACMDs are a way of understanding government actions that harm economic welfare by undermining competition. As defined by Shanker Singham, an ACMD is characterized as a government intervention in the economy that (1) substantially lessens competition, (2) cannot be justified by an overriding legitimate public-policy objective (such as correcting a clearly defined market failure or ensuring public health and safety), and (3) empowers certain private interests or entities to obtain or retain artificial competitive advantages over their rivals.[40]

This definition distinguishes ACMDs from several other types of government actions. Unlike legitimate regulations designed to achieve welfare-enhancing social goals, ACMDs lack such justification and primarily serve to skew the competitive landscape in favor of specific players.[41]  They also differ from private anticompetitive conduct, as ACMDs are fundamentally enabled, imposed, or maintained by government authorities.[42] This government backing can make ACMDs more persistent and damaging than private restrictions. Furthermore, while standard trade-policy tools like tariffs or broadly applied subsidies can distort trade, ACMDs encompass a broader range of interventions—including regulatory measures, discriminatory application of rules, or failures in governance—that specifically target the conditions of competition.[43]

In a well-functioning market, competition drives firms to innovate, improve efficiency, and lower prices, with resources flowing toward the most productive uses. ACMDs disrupt this process by insulating favored firms from competitive pressures, or by imposing artificial disadvantages on their rivals. This prevents the market mechanism from efficiently allocating resources based on merit and performance, leading to systemic inefficiencies and reduced overall economic welfare.

The scope of practices potentially constituting ACMDs is broad, extending beyond traditional trade barriers. ACMDs can encompass various government policies and practices. Examples include:

• Regulatory Barriers: Regulations designed or applied in a manner that disproportionately hinders market access for certain firms (often foreign competitors) or raises their operating costs relative to favored domestic entities. This could involve discriminatory standards, licensing requirements, or overly complex administrative procedures.[44]
• Artificial Cost Reduction: Government actions that artificially lower the production or operating costs for specific firms or industries, giving them an unfair advantage in domestic and international markets. This goes beyond general infrastructure support and targets specific beneficiaries.[45]
• Failures in Property-Rights Protection: Inadequate enforcement or discriminatory application of intellectual property rights (IPR) or other property rights can undermine the investments of innovators and legitimate producers, effectively distorting competition by allowing others to unfairly benefit from their efforts.[46] Weak IPR protection, for instance, can discourage high-technology exports into a market or hinder domestic innovation.
• Targeted Subsidies: While not all subsidies are ACMDs, those that are specifically targeted to provide a competitive advantage to select firms or industries, distort market dynamics significantly, and lack a clear, overriding public-policy justification fall under this category.[47] Distortive subsidies, particularly in manufacturing, have become a growing concern in international trade.[48]
• Other Distortions: ACMDs may also include interventions like discriminatory procurement policies, advantages extended to state-owned enterprises not based on efficiency, or regulations that exempt favored firms from general competition rules.[49]

The common thread across these examples is a government’s active role in manipulating market conditions to favor certain economic actors over others, thereby substantially lessening competition on the merits.

To be clear, our discussion of the ACMD framework should not be interpreted as advocating broadly for tariffs as a primary trade-policy instrument. Rather, if they are to be considered at all, tariffs must be narrowly tailored, rigorously justified by evidence of specific market distortions, and calibrated precisely to the level necessary to neutralize demonstrated competitive harms. The ultimate goal should always be to resolve trade distortions through international cooperation and negotiation, resorting to targeted tariff measures only when other approaches have been exhausted or clearly demonstrated as ineffective.

B. Focused Responses to ACMDs and Other Nontariff Barriers

The utility of using ACMDs as a framing device for trade distortions is that they provide tools for policymakers to 1) assess what is out of balance and 2) make specific demands of trading partners. Without some metric to judge the harms caused by trade distortions, broad tariffs are almost certainly doomed to being ineffective at deterring the harmful conduct of foreign governments.

Following diagnosis of particular ACMDs, Singham recommends  a specific corrective measure known as “ACMD tariffication.”[50] This approach involves applying a tariff to imports from the country imposing the ACMD, with the level of the tariff precisely calibrated to neutralize the estimated detrimental effect of the distortion.[51] The core objective of ACMD tariffication is to discover the quantifiable harms generated by a trading partner’s domestic policy and remedy those in a targeted fashion.

To justify such a targeted tariff, the framework requires demonstrating: 1) the existence of an ACMD (a government intervention substantially lessening competition without legitimate justification); 2) a demonstrable anti-competitive effect resulting from the ACMD (potentially using tests analogous to merger analysis, such as the substantial lessening of competition, or “SLC” test); and 3) evidence of harm caused to the domestic industry by the ACMD.[52]

This methodology represents a conceptual departure from traditional trade remedies. Anti-dumping duties, for example, typically focus on comparing export prices to domestic prices or costs, without necessarily addressing the underlying reasons for price differences.[53] Countervailing duties target specific, legally defined government subsidies (requiring a financial contribution, benefit, and specificity), potentially missing broader regulatory distortions or failures in governance that constitute ACMDs. ACMD tariffication, in contrast, seeks to directly address the economic impact of the distortion on firms’ cost base or competitive position, regardless of the specific form the government intervention takes. The calibration of the tariff is linked directly to the measured scale of distortion derived from the economic-scoring methodology.

V. Specific Foreign-Trade Distortions Affecting Pharmaceuticals

The U.S. pharmaceutical sector holds strategic importance, as it underpins not only the nation’s economic vitality through innovation and high-value employment, but also fundamental public-health and national-security interests. As a consequence, the industry is particularly sensitive to the impacts of foreign-trade distortions. Practices originating abroad can undermine the competitiveness of U.S. pharmaceutical firms, hinder innovation by devaluing intellectual property, and create vulnerabilities in the supply chains that deliver medicines to the American public.

There are two primary categories of trade distortion that are relevant to this comment: intellectual-property violations and forced technology transfer, and the effects of foreign subsidies and price manipulations.

A. IP Violations and Forced Technology Transfer

Intellectual-property rights, particularly patents and trade secrets, form the bedrock of innovation within the pharmaceutical industry.[54] The development of new medicines is an inherently costly and high-risk endeavor that requires substantial long-term investment in research and development.[55] Patents provide a critical incentive mechanism, granting inventors exclusive rights for a defined period, which allows firms the opportunity to recoup their significant investments and fund future research.[56] Further, there is a strong relationship between patent production and protection, and broader economic growth and innovation.[57] Trade secrets offer complementary protection for valuable manufacturing processes, formulas, and other proprietary knowledge that may not be patentable, or for which patent disclosure is strategically undesirable.

Despite established international agreements like the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the U.S. pharmaceutical sector faces significant challenges from IP violations abroad, particularly from China. These violations encompass a range of activities, including the counterfeiting of medicines, patent infringement, and the misappropriation of trade secrets.[58]

The scale of this problem is substantial. According to the Office of the U.S. Trade Representative, China and Hong Kong accounted for the vast majority (more than 83%) of counterfeit goods seized in the United States in 2022.[59]  Surveys have revealed that a significant percentage of U.S. companies report IP theft attributable to China, resulting in estimated annual losses to the U.S. economy that reach into the hundreds of billions of dollars.[60] While such tallies are not exclusively focused on pharmaceuticals, the sector is inherently vulnerable due to the high value of its IP.

Specific concerns within the pharmaceutical domain include inadequate protection in some jurisdictions against the unfair commercial use or unauthorized disclosure of the extensive and costly test data submitted to regulatory agencies to obtain marketing approval for new drugs.[61] Furthermore, issues persist regarding the effective implementation of patent-linkage systems (which prevent regulatory approval of generics while patents are valid) and patent-term compensation mechanisms (to account for regulatory delays), despite legislative efforts in countries like China to address these areas.[62] These IP-related frictions contribute to broader trade tensions, notably forming a core component of U.S.-China trade disputes.

Distinct from outright theft, forced technology transfer involves practices wherein foreign governments compel or pressure U.S. companies to transfer valuable technology or intellectual property as a condition to access their markets, obtaining investment or regulatory approvals, or receiving other governmental benefits or preferences.[63] Analyses have identified several mechanisms employed:

• Conditional Market Access/Approvals: Conditioning investment approvals, regulatory clearances (including for pharmaceuticals), government-procurement eligibility, or other benefits on the transfer of technology to domestic entities, or on conducting R&D locally.[64]
• Joint-Venture and Ownership Restrictions: Using foreign-ownership limitations and joint-venture requirements to pressure foreign firms into partnerships wherein technology transfer to the local partner is implicitly or explicitly expected.[65] Examples that have affected the pharmaceutical sector directly include China’s human genetic resources administrative regulation and its biosecurity law, which stakeholders report create pressure to transfer technology when research involves Chinese human genetic resources.[66]
• Administrative and Licensing Processes: Leveraging opaque or discretionary administrative review and licensing procedures to exert pressure for technology transfer.
• Cybersecurity and Data-Localization Rules: Employing cybersecurity regulations or data-localization requirements that may compel disclosure of sensitive IP or discriminate against foreign-owned IP under the guise of security reviews.[67]
• State-Sponsored Talent Recruitment: Utilizing programs designed to recruit foreign experts and researchers, which can facilitate the transfer of sensitive knowledge and trade secrets back to the sponsoring country.[68]

It is important to note that China’s official legal framework, including its foreign-investment law, explicitly prohibits administrative organs from using administrative means to force technology transfer.[69] But U.S. stakeholders and government bodies maintain that these practices persist through the application of more subtle pressures and by leveraging grants of market access.[70] This discrepancy highlights a potential divergence between formal legal commitments and actual implementation or the use of informal pressures. The practices described often fall into a grey area, where the line between voluntary business decisions made under duress and explicit coercion is blurred. Companies may face a difficult choice: transfer technology or forfeit access to a major market.

This description of the status quo that American firms face captures well the concept of ACMDs, where government actions—even if not direct mandates—create conditions that disadvantage foreign competitors or compel certain behaviors.

The U.S.-China Phase One Economic and Trade Agreement, signed in 2020, attempted to address these concerns. It included chapters on intellectual property and technology transfer, with specific commitments regarding pharmaceutical-related IP, trade secrets, and prohibitions against forcing technology transfer in exchange for market access or regulatory approvals.[71] But concerns about the implementation and scope of these commitments remain, and the agreement acknowledged the need for future negotiations on issues like data protection for pharmaceuticals.[72] The focus on pharmaceutical data protection specifically pointed to the unique value and vulnerability of the sector’s clinical-trial results and related datasets, suggesting that traditional patent and trade-secret frameworks may not fully capture the competitive significance of this information.[73]

B. Foreign Subsidies and Price Manipulation

In the context of international trade, subsidies refer to financial contributions or other forms of support provided by a government or public body that confer a benefit to specific enterprises, industries, or regions.[74] These can take various forms, including direct monetary grants; loans at preferential rates; loan guarantees; tax credits or rebates; the provision of goods or services (such as land or energy) at below-market rates; and income- or price-support mechanisms.[75] A critical distinction should be made between general government support available broadly and specific subsidies targeted at particular recipients, which are more likely to distort trade patterns.[76]

Evidence suggests that foreign governments create ACMDs when they provide significant subsidies to their domestic pharmaceutical industries.[77] China, for example, officially designated pharmaceutical production as a “high-value-added industry” and has supported the sector through various means, including direct subsidies and export-tax rebates aimed at boosting foreign sales.[78]

While comprehensive data on specific pharmaceutical subsidies can be opaque,[79] there are numerous mechanisms that indirectly subsidize inputs. For instance, China’s policy of centralized volume-based procurement (referred to as “centralized band purchasing”) for generic drugs—while primarily aimed at reducing domestic drug prices—may also function as a market-distorting mechanism.[80] Although it significantly lowers prices for consumers and the state, it channels funds (potentially including government subsidies) toward winning firms, while potentially compressing margins and hindering innovation for others disfavored (and largely foreign) firms.[81]

Indeed, this problem is not limited to China. Governments abroad routinely employ centralized negotiation and external-reference pricing systems that artificially suppress pharmaceutical prices significantly below their market-driven value.[82] Countries such as Canada, the United Kingdom, France, Germany, and Australia operate national health-care systems or single-payer models that leverage their massive buying power to negotiate or impose stringent price limits on medications. These practices ensure that foreign drug prices remain systematically low—well below what would naturally emerge under competitive market conditions.[83]

Foreign subsidies are frequently linked to exporting firms’ ability to engage in dumping or to sustain pricing below their unsubsidized costs in foreign markets. In the pharmaceutical sector, there have been allegations that Chinese companies—enabled by government subsidies and export incentives—have “dumped” low-priced APIs and generic drugs onto the global market, making it economically unviable for competitors in the United States and elsewhere to continue production.[84] If sustained by subsidies, this strategy can effectively drive out competition, even if it may not meet the strict legal definition of “predatory pricing” required for antitrust action.

This highlights a potential gap where subsidy-fueled pricing harms competitors but may evade traditional antitrust scrutiny, making trade remedies like countervailing duties (specifically targeting subsidies) or potential frameworks like ACMD analysis (focusing on the cost distortion itself) more pertinent policy tools.

Foreign subsidies, and associated practices like dumping, significantly distort international trade flows and undermine the competitiveness of unsubsidized U.S. pharmaceutical firms. Economic analysis suggests that subsidies tend to increase the exports of subsidized products from the granting country, while simultaneously depressing imports of those products into that country.[85] An International Monetary Fund (IMF) study of China’s subsidies found precisely these effects, noting that they were magnified through supply-chain linkages: subsidies provided to upstream industries (like chemical precursors or APIs) significantly boosted the exports of downstream industries (like finished pharmaceuticals).[86] This finding is particularly relevant, given the structure of the pharmaceutical value chain. In other words, subsidies to Chinese API manufacturers could indirectly enhance the export competitiveness of finished drugs produced elsewhere but reliant on those subsidized Chinese inputs.

These distortions make it difficult for U.S. firms, particularly in highly price-sensitive markets, to compete against foreign rivals whose costs are artificially lowered by government support. The pressure from subsidized imports can lead to reduced market share, lower profitability and, ultimately, the exit of U.S. manufacturers from certain market segments. This contributes to the erosion of domestic production capacity, especially for important generic medicines and their APIs, thereby magnifying U.S. reliance on imports.

This pattern mirrors the experience in other advanced technology sectors, where targeted foreign industrial policies—often involving substantial subsidies—have contributed to a decline in U.S. competitiveness over time.[87] Consequently, foreign subsidies pose a dual threat: they directly challenge the competitiveness of existing U.S. firms and indirectly weaken national resilience by fostering the offshoring that creates supply-chain vulnerabilities.

VI. Recommendations and Conclusion

Addressing the national-security implications of pharmaceutical imports necessitates a carefully calibrated strategy that acknowledges the significant economic benefits of open trade, while decisively countering foreign practices that distort markets and create vulnerabilities. The U.S. pharmaceutical sector faces notable threats from ACMDs, including inadequate intellectual-property enforcement, forced technology transfers, targeted subsidies, and discriminatory regulatory practices that disadvantage U.S. firms and threaten medicine supply chains.

But broad protectionist responses—such as expansive tariffs, sweeping reshoring mandates, or general “Buy American” requirements—carry substantial risks. Abruptly altering complex global pharmaceutical supply chains would likely increase health-care costs, disrupt patient access, and ultimately undermine the very capacities for innovation and domestic production that these measures aim to protect. Moreover, it would introduce detrimental economic uncertainty, negatively affecting long-term investment and innovation within the pharmaceutical sector.

Therefore, policymakers should pursue a strategic approach that emphasizes cooperation and targeted corrective actions:

• Targeted and Conditional Tariff Measures: To reiterate clearly, our discussion of ACMDs is not intended as a general endorsement of tariffs. Tariffs should only be considered as narrowly tailored temporary measures, rigorously justified by evidence of specific foreign-trade distortions, and carefully calibrated to neutralize competitive harms. Such tariffs, if deemed necessary, should be temporary tools to provide incentives for trade reform, not permanent trade barriers.
• Phased and Targeted Domestic Enhancement: Implement phased incentives and targeted support, potentially through public-private partnerships, to enhance domestic-production capabilities for the most critical pharmaceuticals and their important components. This would strengthen domestic capacity strategically without triggering destabilizing economic shocks.
• Allied Diversification: Actively coordinate with allied nations to diversify supply sources for critical inputs and finished products, reducing overdependence on any single nation, particularly potential adversaries.
• Measured Trade Actions: Reinforce the importance of trade actions that are carefully measured and specifically targeted at identified ACMDs, in order to maintain the U.S. pharmaceutical sector’s innovation ecosystem, avoiding broad measures that could stifle beneficial trade.

In sum, a prudent, precise, and cooperative strategy—supported by rigorous analytic frameworks—will ensure the United States can effectively address genuine national-security concerns, without sacrificing the substantial existing economic vitality, production capacity, and innovative strength that characterize the U.S. pharmaceutical sector.

[1] See, generally, Dario Caldara et al., The Economic Effects of Trade Policy Uncertainty, 109 J. Monetary Econ. 38 (2020), available at https://www.federalreserve.gov/econres/ifdp/files/ifdp1256.pdf.

[2] Id. at 1-3.

[3] Id. at 12-14.

[4] Id. at 12.

[5] Id. at 13.

[6] See, e.g., Duc Hong Vo et al., The Role of Economic Policy Uncertainty in Environmental, Social, and Governance Practices: Evidence from Quantile Regressions, 15 Sustainability 49 (2023), available at https://www.mdpi.com/2071-1050/15/1/49.

[7] See Kyle Handley & Nuno Limão, Trade Policy Uncertainty, 14 Ann. Rev. Econ. 363 (2022), available at https://www.nber.org/papers/w29672.

[8] National Academies of Sciences, Engineering, and Medicine, Globalization of U.S. Medical Product Supply Chains, in Building Resilience Into the Nation’s Medical Product Supply Chains (C. Shore, L. Brown & W.J. Hopp eds., 2022), Ch. 3, available at https://www.ncbi.nlm.nih.gov/books/NBK583730.

[9] Building a Resilient Domestic Drug Supply Chain, API Innov. Ctr. (2025), available at https://apicenter.org/wp-content/uploads/2025/03/APIIC-White-Paper-2025-Building-a-Resilient-Domestic-Drug-Supply-Chain.pdf.

[10] Id.

[11] U.S. Pharmacopeia, Supply Chain Resilience Policy Paper, available at https://www.usp.org/sites/default/files/usp/document/public-policy/supply-chain-resilience-policy-paper.pdf (last visited May 3, 2025)

[12] The Economic Impact of U.S. Biopharma Industry, Teconomy Partn. (2024), at 11, available at https://www.teconomypartners.com/wp-content/uploads/2024/05/The-Econ-Impact-of-U.S.-Biopharma-Industry-2024-Report.pdf.

[13] See Yashna Shivdasani et al., The Geography of Prescription Pharmaceuticals Supplied to the USA: Levels, Trends, and Implications, 8 J.L. & Biosci. lsaa085 (2021), available at https://pmc.ncbi.nlm.nih.gov/articles/PMC8109232.

[14] Id.

[15] Id.

[16] Geographic Concentration of Pharmaceutical Manufacturing, USP Quality Matters (May 18, 2022), https://qualitymatters.usp.org/geographic-concentration-pharmaceutical-manufacturing.

[17] Id.

[18] Maggie Fick, US Pharma Tariffs Would Raise US Drug Costs by $51 Billion Annually, Report Finds, Reuters (Apr. 25, 2025), https://www.reuters.com/business/healthcare-pharmaceuticals/us-pharma-tariffs-would-raise-us-drug-costs-by-51-bln-annually-report-finds-2025-04-25.

[19] See Andrew D. Mitchell, Geography of Health: Onshoring Pharmaceutical Manufacturing to Address Supply Chain Challenges, 22 World Trade Rev. 344 (2024), https://www.cambridge.org/core/journals/world-trade-review/article/geography-of-health-onshoring-pharmaceutical-manufacturing-to-address-supply-chain-challenges/120B2E49D4D0CA475F00944F9ACE6172.

[20] Anthony Sardella, US Generic Pharmaceutical Industry Economic Instability, Olin Sch. Bus. Cent. Anal. Bus. Insights (2023), available at https://apicenter.org/wp-content/uploads/2023/07/US-Generic-Pharmaceutical-Industry-Economic-Instability.pdf.

[21] See, e.g., Mitchell, supra note 19 (discussing economic factors that influence geographic distribution); see also id. (highlighting economic pressures—particularly in generics—that contribute to sourcing decisions).

[22] Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of Pharmaceuticals and Pharmaceutical Ingredients, 90 Fed. Reg. 15951 (Apr. 16, 2025), https://www.federalregister.gov/documents/2025/04/16/2025-06587/notice-of-request-for-public-comments-on-section-232-national-security-investigation-of-imports-of.

[23]  Amrit Pathak, Shawn Leu, Mari L. Robertson, & Mahinda Siriwardana, Technical Efficiency, Scale Effect, and Trade Liberalization: Evidence from the Nepalese Manufacturing Sector, 57(9) Applied Econ. 934 (2025), https://www.tandfonline.com/doi/full/10.1080/00036846.2024.2310524.

[24]  Id.

[25] Godswill Osuma & Ntokozo Patrick Nzimande, Exploring the Dynamic Link Between Trade Openness, External Debt, and Economic Growth in Sub-Saharan Africa: Challenges and Considerations, 12 Economies 283 (2024), https://www.mdpi.com/2227-7099/12/11/283.

[26] Mariano Somale, Comparative Advantage in Innovation and Production (Int’l Fin. Discussion Papers No. 1206, May 2017), available at https://www.federalreserve.gov/econres/ifdp/files/ifdp1206.pdf.

[27] Id.

[28] Id.

[29] Id

[30] Josephine Wuri, The Role of Comparative Advantage in Enhancing Trade in Value-Added Using a Dynamic GMM Model, 12 Economies 187 (2024), available at https://www.mdpi.com/2227-7099/12/7/187.

[31] Wolfgang Keller & Stephen R. Yeaple, The Gravity of Knowledge (Nat’l Bureau of Econ. Research Working Paper No. 22647, Sep. 2016), available at https://www.nber.org/system/files/working_papers/w22647/w22647.pdf.

[32] Id.

[33] See, e.g., Osuma & Nzimande, supra note 25.

[34] See generally Walter E. Block, Do We Need Protectionism? (2011), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1881052.

[35] Jagdish Bhagwati, Protectionism, Library Of Economics And Liberty, https://www.econlib.org/library/Enc/Protectionism.html (last visited May 3, 2025).

[36] Pathak et al., supra note 23.

[37] Eric Fruits, Non-Tariff Barriers, Int’l Ctr. L. Econ. (Feb. 27, 2025), https://laweconcenter.org/resources/non-tariff-barriers.

[38] Bhagwati, supra note 35.

[39] Fruits, supra note 37.

[40] Shanker A. Singham, Market Distortions and How Best to Deal with Them: Sugar Sector Case Study, Competere (2024), available at https://shankersingham.com/wp-content/uploads/2024/10/Market-Distortions-and-How-Best-to-Deal-with-Them_-Sugar-Sector-Case-Study.pdf.

[41] 2024–25 Growth Presidency Memo: A Research Report from the Growth Commission, Growth Comm. (Nov. 13, 2024), available at https://www.growth-commission.com/wp-content/uploads/2024/11/Growth-Commission-Presidency-Report-for-Capitol-event.pdf.

[42] Unfair Advantage: Distortive Subsidies and Their Effects on Global Trade, World Bank (2023), available athttps://thedocs.worldbank.org/en/doc/0534eca53121c137d3766a02320d0310-0430012022/related/Unfair-Advantage-Distortive-Subsidies-and-Their-Effects-on-Global-Trade-2023.pdf.

[43] Singham, supra note 40.

[44] Fruits, supra note 37.

[45] Singham, supra note 40.

[46] Growth Commission, supra note 41.

[47] Singham, supra note 40.

[48] Unfair Advantage: Distortive Subsidies and Their Effects on Global Trade, World Bank (2023), available athttps://thedocs.worldbank.org/en/doc/0534eca53121c137d3766a02320d0310-0430012022/related/Unfair-Advantage-Distortive-Subsidies-and-Their-Effects-on-Global-Trade-2023.pdf.

[49] Growth Commission, supra note 41.

[50] Singham, supra note 40.

[51] Id.

[52] Id.

[53] Id.

[54] Adam Mossoff, The False Promise of Breaking Patents to Lower Drug Prices, 98(2) St. John’s L. Rev. 287 (2025), available at https://scholarship.law.stjohns.edu/lawreview/vol98/iss2/5.

[55] Id.

[56] Id.

[57] Stephanie Nebehay, In a First, China Knocks U.S. from Top Spot in Global Patent Race, Reuters (Apr. 7, 2020), https://www.reuters.com/article/us-usa-china-patents-idUSKBN21P1P9.

[58] Gerald J. Krieger, From “Made in China” to “Created in China”: Intellectual Property Rights in the People’s Republic of China, Joint Force Quarterly (Feb. 16, 2024), https://ndupress.ndu.edu/Media/News/News-Article-View/Article/3679322/from-made-in-china-to-created-in-china-intellectual-property-rights-in-the-peop.

[59] 2022 Special 301 Report, Off. U. S. Trade Represent. (2022), available at https://ustr.gov/sites/default/files/IssueAreas/IP/2022%20Special%20301%20Report.pdf [hereinafter “USTR 2022 Report”].

[60] The IP Commission Report, Comm. Th. Am. Intellect. Prop. (2013), at 11, available at https://www.nbr.org/wp-content/uploads/pdfs/publications/IP_Commission_Report.pdf.

[61] Id.

[62] Aaron Wininger, China’s State Council Releases White Paper: China’s Position on Certain Issues in China-U.S. Economic and Trade Relations, China Ip Law Update (Apr. 9, 2025), https://www.chinaiplawupdate.com/2025/04/chinas-state-council-releases-white-paper-chinas-position-on-certain-issues-in-china-us-economic-and-trade-relations-china-continuously-improves-ip-protection-and-prohibits-forced-technology.

[63] 2025 Special 301 Report, Off. U. S. Trade Represent. (2025), at 29-32, available at https://ustr.gov/sites/default/files/files/Issue_Areas/Enforcement/2025%20Special%20301%20Report%20(final).pdf [hereinafter “USTR 2025 Report”].

[64] Id.

[65] 2018 Special 301 Report, Off. U. S. Trade Represent. (2018), at 44, available at  https://ustr.gov/sites/default/files/files/Press/Reports/2018%20Special%20301.pdf  [hereinafter “USTR 2018 Report”].

[66] USTR 2025 Report, at 25-27.

[67] USTR 2025 Report, at 50.

[68] The China Threat: Chinese Talent Plans Encourage Trade Secret Theft, Economic Espionage, Fed. Bur. Investig., available at https://www.fbi.gov/investigate/counterintelligence/the-china-threat/chinese-talent-plans (last visited May 1, 2025).

[69] George Tian, The Political Economy of Technology Transfer Rules of the US-China Phase One Trade Agreement: Competition of Global Technology Leadership, 32 Ind. Int’l & Comp. L. Rev. 531, 541 (2022), https://journals.indianapolis.iu.edu/index.php/iiclr/article/view/26852.

[70] USTR 2025 Report, at 26.

[71] Tian, supra note 69, at 535.

[72] Id., at 560-61.

[73] Id., at 535.

[74] Lorenzo Rotunno & Michele Ruta, Trade Implications of China’s Subsidies (IMF Working Paper No. 2024/180, 2024), available at https://www.elibrary.imf.org/view/journals/001/2024/180/article-A001-en.xml.

[75] Id.

[76] Id.

[77] Growing U.S. Reliance on China’s Biotech and Pharmaceutical Products, in 2019 Annual Report to Congress, U.S.-China Econ. Secur. Rev. Comm. (2019), ch. 3, sec. 3, available at https://www.uscc.gov/sites/default/files/2019-11/Chapter%203%20Section%203%20-%20Growing%20U.S.%20Reliance%20on%20China%E2%80%99s%20Biotech%20and%20Pharmaceutical%20Products.pdf.

[78] Id.

[79] Unfair Advantage: Distortive Subsidies and Their Effects on Global Trade, World Bank (2023), at 32, available athttps://thedocs.worldbank.org/en/doc/0534eca53121c137d3766a02320d0310-0430012022/related/Unfair-Advantage-Distortive-Subsidies-and-Their-Effects-on-Global-Trade-2023.pdf.

[80] Xinqing Chen et al., The Impact of Centralized Band Purchasing of Pharmaceuticals on Innovation of Chinese Pharmaceutical Firms: An Empirical Study Based on Double Difference Models, 12 Front. Public Health 1406254 (2024),  https://www.frontiersin.org/journals/public-health/articles/10.3389/fpubh.2024.1406254/full.

[81] Id.

[82] See, e.g., Funding the Global Benefits to Biopharmaceutical Innovation, Counc. Econ. Advis. (2020), available at https://trumpwhitehouse.archives.gov/wp-content/uploads/2020/02/Funding-the-Global-Benefits-to-Biopharmaceutical-Innovation.pdf.

[83] Id.

[84] U.S.-China Econ. Secur. Rev. Comm., supra note 77, at 253.

[85] Rotunno & Ruta, supra note 74.

[86] Id.

[87] Sandra Barbosu, Not Again: Why the United States Can’t Afford to Lose Its Biopharma Industry, Inf. Technol. Innov. Found. (Feb. 29, 2024), https://itif.org/publications/2024/02/29/not-again-why-united-states-cant-afford-to-lose-biopharma-industry.

Who do you think decides what you see and how you interact on your favorite online service? Most would point to Silicon Valley engineers and product managers tinkering behind the scenes. However, an underappreciated reality is emerging: judges and regulators are increasingly the ones who decide how online platforms operate. The blueprint for tomorrow’s internet is being drawn up in courtrooms and government offices. This should concern us all.

Read the full piece here.

Mr. Hennessey offers a salient observation: Markets aren’t tools to be exploited or managed by politicians any more than democracy is such a tool. Markets are arguably more democratic than Washington. While lawmakers debate growth policies, markets quietly coordinate trillions of dollars in daily transactions. Millions of Americans choose which products succeed, which companies thrive and which innovations gain traction. These decisions happen in real time, not after years of congressional gridlock.

Such politicians as Mr. Vance believe technocratic planning can improve spontaneous economic coordination. But while executive-branch priorities whipsaw with each election cycle, creating regulatory uncertainty that stifles investment, markets provide the continuous feedback mechanisms that allocate resources efficiently. This decentralized system has generated unprecedented prosperity because it operates beyond political control.

Rather than treat markets as obstacles to overcome, policymakers should recognize them as democracy in action, where consumer sovereignty, not political planning, determines winners and losers.

1. Introduction

Thank you for the opportunity to submit our comments on the “Guidelines (Draft) for the Promotion of Competition in Smartphone Software.” The International Center for Law & Economics (ICLE) is a nonprofit, nonpartisan global research and policy center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of competition law and policy. ICLE’s interest is to ensure that competition law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis.

Our comments make the following overarching points . First, the SSCPA violates liberal economic principles by enabling discretionary intervention by the JFTC in the face of active competition in the smartphone ecosystem. The draft Guidelines do not significantly cabin this discretion. More objective criteria are called for, with limited regulatory discretion and deference to technical decisions made by Apple and Google. Second, and relatedly, the discretion is not consistent with the provisions and interpretations of the Antimonopoly Act regarding unfair or unjust discrimination. Third, the SSCPA and the draft Guidelines unfairly target Apple’s integrated “end-to-end” ecosystem, and the provisions related to data use, alternative app stores and browsers, interoperability, payment systems, and pricing controls impose unobjective and overbroad standards on Apple. Fourth, these measures risk degrading device security, performance, and user experience, while discouraging investment and innovation. We provide specific examples of ways in which this may occur.

We want to express our gratitude to Professor Toshiaki Takigawa (Professor Emeritus, Faculty of Law, Kansai University) for his significant contributions to the preparation of these comments.

II. Violation of Liberal Economic Principles by Discretionary Intervention of the JFTC in the Face of Active Competition in the Smartphone Ecosystem—SSCPA General

The SSCPA broadly deems actions that are generally not recognized as illegal for private companies, or actions that should only be judged for illegality following the Antimonopoly Act, as inherently unlawful, which is contrary to the principles of a liberal economy. Excessive intervention in corporate actions undermines innovation and reduces consumer benefits. These Guidelines, regarding regulated actions related to, for instance, data usage, firstly list several specific actions like those that are recognized as illegal. However, many of these listed actions do not inherently possess unfairness. The Guidelines do not explain the reasons for deeming the listed actions as unfair.

Secondly, for example, as stated by the Guidelines, “The specific examples are merely illustrative, and the application of Article 5 of the SSCPA is not hindered concerning data not illustrated below,” the presented examples are not exhaustive, so the Guidelines do not serve to narrow the discretion of the Fair Trade Commission (hereafter, “the JFTC”) and relevant government agencies, which enforce the SSCPA.

The SSCPA legitimized its adoption of ex ante rules (namely, per-se illegal rules) for the lack of a competition mechanism in the smartphone ecosystems. This assertion is based on the Japanese governmental study report—the Final Report on the Competition Assessment of the Mobile Ecosystems (16 June 2023), which highlighted the network effect and scale merit of the digital platform markets. However, the network effect and scale merit have their limits, so the smartphone ecosystem is not a monopoly but an oligopoly, with vigorous competition between Apple and Google. Both companies have prepared applications that simplify the process of transferring data between their platforms, enabling users to switch seamlessly between iPhone and Android devices.

iOS and Android continuously innovate to differentiate themselves, with Apple prioritizing seamless integration and security, while Android offers openness and customization. This rivalry has led to significant advancements in user experience, security, and app-ecosystem development.

Moreover, as an important recent phenomenon, the rapid development of generative AI has ushered in a new competition in the smartphone ecosystem. For instance, see Richard Waters, “Apple faces the most disruptive threat it has seen in the iPhone era”, Financial Times (1 March 2024) (stating that OpenAI, the operator of ChatGPT, announced a plan for a “GPT store” — a place for developers to sell AI-powered services built on top of OpenAI’s models, which pose challenge to app stores).

III. Discretionary Interpretation Not Based on the Antimonopoly Act Regarding Unfair or Unjust Discrimination—SSCPA Articles 6, 9, and Other Sections

The Guidelines does not reduce the flaws that the SSCPA automatically deems illegal the types of conduct whose illegality should be determined comprehensively under the Antimonopoly Act, nor does the Guidelines reduce the flaws in the SSCPA that the JFTC have discretionary powers to determine whether conduct is fair or unjustly discriminatory without being subject to the provisions of the Antimonopoly Act. In particular, the Guidelines’ statement that “unfair discriminatory or other unfair treatment violates the provisions of Article 6 of the Act [SSCPA]” (Guidelines, hereinafter “GL”, p. 12) merely repeats the provisions of Article 6 of the SSCPA. For the JFTC to arbitrarily determine unfair or unjustly discriminatory conduct without being subject to the Antimonopoly Act and to intervene in corporate conduct would shake the foundations of a free economy.

In addition to Article 6, the SSCPA and its Guidelines also contain provisions prohibiting unfair or discriminatory practices. Notably, Article 9 of the SSCPA specifically outlines “prohibited acts of a designated business operator [Google] in relation to search engines.” The Guidelines state that “if the search algorithm standards themselves are unfair or discriminatory and are designed to favor the products or services of a designated business operator, etc., the settings themselves will be deemed to provide preferential treatment to the products or services of the designated business operator, etc. [and consequently violate Article 9]” (GL, p. 70).

However, it is crucial to recognize that Google’s search display should not be evaluated solely based on the ambiguous discretionary standards of “unfair or discriminatory” or “providing preferential treatment.” Instead, it should be assessed under the framework of the Antimonopoly Act.

Google’s search display has already been subject to regulation under the competition and antitrust laws of both the European Union and the United States. In the EU, the General Court upheld the European Commission’s decision in the “Google Search (Google Shopping)” case, Case T-612/17 Google and Alphabet v Commission (Google Shopping) (10 Nov. 2021), finding that Google violated the law. Conversely, in the US, the Federal Trade Commission essentially acquiesced in Google’s actions, asserting the importance of respecting the autonomy of the company implementing the act, which can be interpreted in various ways. See the FTC File Number 111-0163 (3 Jan. 2013).

Currently, Google’s dominant position in the online search market is being challenged by the emergence of generative AI. An Apple service executive has indicated that Apple is contemplating entrusting search functionality in Safari on iPhones and iPads to generative AI startups such as Perplexity rather than Google. See the Financial Times article titled “Alphabet shares slide as Apple seeks AI alternatives to Google search,” published on 8 May 2025. The implementation of stringent ex ante regulation by the SSCPA and the Guidelines on the online search industry, which is currently experiencing intense competition, poses a significant risk to innovation.

Moreover, Apple imposes various restrictions on app providers in order to ensure the integrity of the iPhone’s technology, operability, and user convenience. The Guidelines state that “the criteria for review from the perspective of ensuring uniformity are not deemed to be problem-free in the light of Article 6 of the SSCPA without limit, but rather their validity will be considered in light of the SSCPA’s purpose of promoting competition among basic operating software and app stores, including the improvement of quality” (GL, p. 12). “In light of the Law’s purpose of promoting competition” is a standard that is biased toward protecting app providers and does not consider consumer interests, resulting in excessive intervention. Ensuring the uniformity of the iPhone’s technology and operability is extremely important in order to ensure the quality of the iPhone and its convenience for users, and for the JFTC to intervene in the technical details of the iPhone from the outside falls into the pitfall of “micromanagement”, harming the convenience of iPhone users.

IV. Price Control of Fees—SSCPA Articles 7, 8, and Other Sections

The Guidelines clarify that SSCPA Article 7 (prohibited acts of designated businesses related to basic operating software), Item 1 (prohibition of hindering the provision of alternative app stores, etc.) includes restrictions on the level of fees that Apple can impose on app providers. Namely, “imposing an excessive financial burden on other businesses” (GL, p. 21), “considering whether the level is such that an efficient business can continue its business…considering the level of financial burden, such as fees, required by designated businesses when using alternative app stores” (GL, p. 22), “imposing an excessive financial burden” (GL, p. 22). The Guidelines also provide similar explanations for several articles other than SSCPA Article 7.

Governmental authorities’ intervention in the prices that private businesses set for their products and services, by forcing businesses to set specific prices, constitutes “price control”, which economists unanimously have condemned as having a major negative impact on the free economy. The reasons given in the Guidelines for price regulation – “excessive financial burden” or “level at which business can continue” – are criteria that lack objectivity and do not address the criticism of price controls. For the JFTC to conduct price regulation on such arbitrary standards amounts to transforming the JFTC into a rate-setting regulatory agency,

Indeed, a self-interested business user will always argue that the current level of fees is excessive. This exercise naturally stops wherever the most cost-conscious business users want it to stop, potentially even reaching zero. A zero-commission mandate, however, would enable free riding on the targeted companies’ substantial investments in building and maintaining their operating system, encourage free riding, and undermine competition in the long term by punishing innovation and investment while rewarding reactivity and rent-seeking. But even if the commission is set above zero, the JFTC has no way of knowing what the “right” commission is, simply because nobody knows what the “right” commission is. The risk of such price controls is twofold. First, they will need to be revised on a continuous basis to cater to the demands and complaints of both parties, which will require not only economic omniscience from the JFTC but also substantial resources. The decision is ultimately as likely to be guided by what is politically palatable as what is economically “optimal.” The JFTC is ill-equipped for such kingmaking and market micromanagement. To recoup their losses, incumbents are likely to introduce other fees, which will make someone in the ecosystem worse off. For example, Apple might start charging all app developers every time their app is downloaded from the App Store, etc.

V. Price Prohibition of Use of Data Acquired by Apple—Article 5 of the SSCPA

Article 5 of the SSCPA generally prohibits Apple from using data acquired from app providers in the course of operating the iPhone. Although the title of Article 5 states “prohibition of improper use of data,” the text of Article 5 generally prohibits the use of data acquired by Apple from app providers in connection with the provision of iOS, etc., thus not being limited to “improper use.” Although the Guidelines list several types of data such as those whose use is prohibited, this is not a limited list. Namely, “the specific examples of data are merely examples, and do not prevent the application of the provisions of Article 5 of the Law to data not listed below.” (GL, p. 5).

It is common for private companies to use data acquired from business partners in their business activities, as long as it does not violate intellectual property rights laws and other laws, so that data use is not an act that should generally be prohibited. Even if restrictions should be imposed on data use, the scope of the prohibitions should be limited and listed in the Guidelines. The open-endedness of the list contemplated in Article 5 gives little certainty to the covered companies of whether their data collecting practices comply with the SSCPA, thus potentially chilling pro-competitive conduct that could improve products and benefit consumers.

VI. Price Restrictions on Apple’s Review of Alternative App Stores—SSCPA Article 7, Paragraph 1

SSCPA Article 7, paragraph 1 prohibits Apple from prohibiting the establishment of alternative app stores to the iPhone’s App Store, and prohibits Apple from “hindering” app store operators or users from using the alternative app stores.

Since the permission to open alternative app stores is required by SSCPA Article 7, paragraph 1, Apple has no choice but to allow them. However, it is extremely important for Apple to review alternative app stores in order to protect user safety and maintain the performance of the iPhone.

However, the Guidelines explain that Apple’s review violates SSCPA Article 7, paragraph 1 by “imposing unreasonable technical restrictions or contractual conditions on other operators while allowing the provision or use of alternative app stores” as a “hindering” act (GL, p. 21).  “Unreasonable” is a discretionary standard that has no limitations. Similarly, the Guidelines state that “For the actions of a designated business operator [Apple and Google] to be deemed as actions that hinder the provision or use of alternative app stores, it is not necessary that the provision or use of alternative app stores is completely impossible. Rather, the applicability of the actions as actions that hinder the provision or use of alternative app stores shall be determined based on the degree of likelihood of such an outcome” (GL, p. 21). Like “unreasonable,” “likelihood of the outcome” is an unobjective standard, allowing the JFTC to restrict Apple’s screening criteria at their discretion.

In order to protect the safety and performance of the iPhone, it is necessary for Apple’s engineers and experts who are familiar with the details of the iPhone to screen alternative app stores. Allowing the JFTC, which is a novice when it comes to iPhones, or external engineers commissioned by the JFTC to intervene at their discretion would undermine the safety and performance of the iPhone and harm the interests of iPhone users. The Guidelines should specify more specific and limited reasons for the cases in which the JFTC can intervene in Apple’s screening, rather than vague criteria such as “unreasonable.” Short of regulating exactly how Apple should run its business and design its products, the GL should establish clear standards of reasonableness and likelihood for interventions by the JFTC.

VII. Infringement of Intellectual-Property Rights, Security Risks, and Reduced Consumer Benefits Caused by the Obligation to Open Up OS functions, Forcing Interoperability—SSCPA Article 7, Paragraph 2

SSCPA Article 7, Paragraph 2 stipulates that Apple must enable third-party companies to access iOS, the iPhone’s basic OS, under the same conditions as Apple, resulting in forcing interoperability on Apple. The Guidelines explain the purpose of this as “promoting competition in individual software by prohibiting acts that prevent other businesses from using OS functions to provide individual software with the same performance as that of the designated enterprises [Apple and Google]” (GL, p. 34).

However, iOS is equipped with Apple’s intellectual property rights. Intellectual property rights are rights recognized in intellectual property laws, such as the Patent Act, from the perspective of promoting innovation. Forcing Apple to offer third-party companies access to iOS, which is equipped with intellectual property rights, under the same conditions as Apple is contrary to the purpose of intellectual property laws, which are aimed at promoting innovation. The view of the Guidelines that opening up one’s intellectual property to third-party companies, including competitors, “promotes competition” amounts to denying the purpose of intellectual property rights, leading to innovation degradation in the long term, thereby harming economic development and consumer benefits.

Not only that, opening up iOS, with the result of forced interoperability, poses a high risk of causing unexpected harm to iPhone users. For example, third-party companies will be able to access the camera function of iPhone iOS on an equal footing with Apple, which could lead to third-party companies using the iPhone camera to spy on users.

Moreover, forced interoperability poses a serious detrimental impact on device reliability and performance. This is evidenced by the Microsoft/CrowdStrike outage that kept airlines, hospitals, banks, and other businesses down for hours in July 2024. See Josephine Wolff, professor at Tufts and author of ‘Cyberinsurance Policy’, “Software crash exposes tensions between security and competition” (warning against giving software companies that kind of access to an operating system), Financial Times, 29 July 2024.

Furthermore, as a countermeasure to Article 7, Paragraph 2 of the SSCPA and its Guidelines, which force Apple to offer to third-party companies access to iOS under the same conditions as Apple, Apple might postpone the adoption of new functions such as Apple Intelligence in Japan only, resulting in reducing the benefits for iPhone users in Japan. This is exactly what happened in the EU due to uncertainties surrounding the Digital Markets Act and the AI Act.

VIII. Micromanagement of Smartphone Design and Specifications Through External Intervention—SSCPA Articles 7, 8, and 12

The iPhone’s design and specifications are based on Apple’s “end-to-end” (consistent management of hardware and software) philosophy, and are optimized down to the smallest detail by Apple’s engineers. In this regard, the JFTC should avoid unnecessary intervention. Based on the SSCPA, external engineers, commissioned by the JFTC, will intervene and make changes to the specifications designed by Apple’s engineers, who are familiar with the iPhone. This will have an unexpected negative impact not only on security but also on the performance, operability, and user convenience of the iPhone, falling into the pitfall of “micromanagement.” (For information on Apple’s defense based on security, see Section 11 [Justified Defense] below.)

From this perspective, the SSCPA and the Guidelines have shortcomings in that they allow the JFTC to significantly intervene at its discretion. Intervention in smartphone design and specifications by the JFTC or external engineering groups commissioned by the JFTC should be extremely restrained.

Moreover, these Guidelines apparently have been made without consulting Apple and Google, who have specialized, detailed knowledge regarding smartphone engineering and design. For the JFTC (together with relevant agencies) to intervene in the details of smartphone design is a reckless act, putting smartphone users at a serious risk.

IX. Restrictions on Apple’s Screening of Alternative-Payment Features—SSCPA Article 8, Paragraph 1

SSCPA Article 8, paragraph 1 stipulates that Apple must not prevent third-party companies from establishing alternative payment methods outside of Apple’s App Store. Since the SSCPA requires that alternative payment methods be approved, Apple must screen each alternative payment method for user security.

In the case of payments inside the App Store, iPhone users do not provide personal information, such as credit card information, to individual app providers. However, in the case of alternative payment methods, users must provide credit card information and other information to individual app providers. For this reason, the alternative payment method itself weakens user security. Under this premise, Apple is forced to conduct as much screening as possible to maintain security.

However, the screening conducted by Apple is subject to regulation by the JFTC as an act that “hinders” the implementation of alternative payment methods (SSCPA Article 8, paragraph 1, subsection b). The Guidelines explain that “actions that are likely to make the use of alternative payment management services difficult” and “imposing contractual conditions on individual app providers” are acts that hinder the use of alternative payment services (GL, p. 47). For monetary payments from app providers in exchange for Apple’s screening, see Section 3 [Price Control of Fees] above.

The Guidelines’ criteria for “highly likely to make use difficult” and “unreasonable” are unobjective and allow the JFTC to broadly regulate Apple at its discretion. If user information, including credit card information, is leaked, it can be misused for online fraud. Sophisticated online fraud equipped with generative AI is astronomically on the rise. From this perspective, Apple’s screening of alternative payment methods is required to be quite strict. The Guidelines should therefore clearly state that Apple’s screening will be respected and that regulatory restrictions will be kept to a minimum.

X. Restrictions on Apple’s Review of Link-Outs—SSCPA Article 8, Paragraph 2

The act of placing a link that directs users from within an app or website to an external page (link-out) typically refers to the case where a browser is launched and an external webpage is displayed when a button or link within the app is tapped. Before the SSCPA came into force, general apps could not freely place external links in the iPhone App Store in Japan, and certain conditions had to be met.

Link-outs pose a high risk of directing iPhone users to problematic sites. Users are directed to cyber fraud sites, pornographic sites, and gambling sites. Cyber ??fraud is rapidly increasing, and Japanese people in particular are suffering huge losses. Given that the Japanese population is rapidly aging and the mental acuity of seniors deteriorates, preventing cyber fraud is extremely important, particularly in Japan. For this reason, it is essential that Apple imposes restrictions on link-outs after the SSCPA comes into force. For example, by limiting destinations to sites operated by the app provider in question.

However, SSCPA Article 8, paragraph 2 restricts Apple’s restrictions on link-outs. Namely, restrictions placed on link-outs by Apple are regulated as “hindering” acts under Article 8, paragraph 2, subsection (b) of the SSCPA. The Guidelines refer to link-outs as “external redirection information” and explain that Apple must not hinder “links that transition from the individual software to web pages outside the individual software” (GL, p. 53).

Acts by Apple, which are “highly likely to make link-outs difficult,” and “to impose unreasonable technical restrictions or contractual conditions on individual app providers, imposing excessive financial burdens on individual app providers, and guiding smartphone users not to receive products or services through related web pages, etc.” are considered to be “hindering” acts (GL, p. 55). The Guidelines give numerous examples as hypothetical cases (GL, pp. 56-57). “Highly likely to make difficult” and “unreasonable” are descriptions that allow broad discretion to the JFTC.

Apple has a direct interest in ensuring a high level of security and privacy, given that its reputation is tied to the overall perception users have of the iPhone, and even if harm occurs through a third party, it still occurs on an iPhone. The Guidelines must establish where the boundary lies between a legitimate warning and an undue obstacle to third-party payments. Surely competitors would prefer no friction at all, but that friction, which could be construed as an obstacle ‚ might be justified on account of the risks involved.

For instance, a screen warning users that they are about to leave Apple’s secure system, or that Apple is not responsible for any privacy or security issues that arise from the use of third-party payments and link-outs, should not be considered to make the use of alternative payment systems “difficult”. It also should be acceptable for Apple to limit the language third-party payment systems that can be used in advertising to users, such as through hyperbole or outright deception.

Because link-outs are inherently an act that is likely to expose users to risk, the JFTC should allow Apple to conduct strict screening. The Guidelines should avoid using discretionary language and provide a more limited explanation of the act of “hindering.” Furthermore, it is necessary to consult with Apple, which is familiar with smartphones, to review the examples listed in the Guidelines to see whether all of these examples are appropriate as prohibited actions.

XI. Restrictions on Apple’s Review of Alternative Browser Engines—SSCPA Article 8, Paragraph 3

Enabling iPhone users to download apps from the browser and access sites outside of the iPhone may seem convenient at first glance, but it exposes users to various risks. For this reason, Apple allows users to choose alternative browsers other than the default Safari, such as Chrome, but requires Google and other companies to use Apple’s designated browser engine (WebKit).

The SSCPA opposes this setting by Apple and prohibits (under Article 8, paragraph 3) Apple from “hindering alternative browsers from being components of the individual software,” including the designation of Apple’s designated browser engine. Since the designation of a browser engine itself is prohibited by the SSCPA, Apple will protect user security by restricting the specifications of alternative browsers. However, under the “hindering” provision under Article 8, paragraph 3, subsection (b) of the SSCPA, the JFTC will restrict the alternative browser restriction measures adopted by Apple to ensure user security.

The Guidelines explain that this “hindering” behavior includes “actions that are likely to make it difficult to adopt an alternative browser engine for the individual software” and “imposing unreasonable technical restrictions or contractual conditions” (GL, p. 62). Criteria such as “highly likely to make it difficult” and “unreasonable” lack objectivity, allowing the JFTC broad discretion. Apple’s restrictions on the specifications of alternative browsers are essential to protect the security of iPhone users. JFTC ‘s discretionary intervention in Apple’s measures puts user security at risk. The Guidelines should not be based on criteria that lack objectivity, but should give the JFTC more limited authority.

Furthermore, the Guidelines provide detailed explanations of seven cases of “hindering” behavior as “assumed examples,” and then list spanning over two pages “legitimate examples.” This forms an extremely minute intervention in Apple’s operation, where smartphone experts gather, falls into the pitfall of “micromanagement.” It is best to avoid endorsing such detailed intervention in the Guidelines.

XII. The JFTC Has too Much Discretion in Justification Defense, and Maintaining Smartphone Performance Is Not Included in Justification Reasons—SSCPA Articles 7 and 8

Articles 7 and 8 of the SSCPA provide that prohibited acts are exempt from prohibition when “acts necessary for ensuring cybersecurity, etc., are performed and it is difficult to achieve that purpose through other acts.” The Guidelines list justification spanning five pages (GL, pp. 25-29).

However, justification cases are not limited to these hypothetical cases. Apple, which manages and operates the iPhone, will likely bring up various measures necessary to ensure security, etc. The Guidelines state that “the following specific examples are merely illustrative, and whether or not justification is recognized requires individual and specific consideration” (GL, p. 25) and that “it is limited to the extent necessary in light of the purpose” (GL, p. 42), thus allowing the JFTC great discretion. However, the iPhone has made protecting the security of its users its most important principle from the beginning of its launch, and this principle has been supported by iPhone users. Regulators are required to respect measures taken by Apple to ensure security as justification.

Furthermore, it is necessary to interpret “security, etc.” as including the purpose of maintaining smartphones’ performance, operability, and user convenience. For reference, under the EU Digital Markets Act (DMA) provisions and its implementation by the European Commission, Apple is permitted to take measures to maintain the “technical integrity” of iOS, etc. – CASE DMA.100203 – Apple – Operating systems – iOS – Article 6(7) – SP -Features for Connected Physical Devices (19/09/2024), Para (9).

In this regard, the Guidelines state, “prevention of abnormal smartphone operation” and “measures to prevent smartphones from stopping functioning” (GL, p. 25) as justification examples. This statement indicates that the Guidelines regard maintaining smartphone performance, operability, and user convenience as not a justification, except in extreme situations such as a stoppage of functioning. It is required to accept measures taken by Apple to maintain the performance, operability, and user convenience of iPhones as justification measures in general, not just in extreme cases.

XIII. Restrictions on Apple’s Review of Default Changes—SSCPA Article 12

SSCPA Article 12 requires Apple to take “necessary measures to enable users to change the default settings with simple operations.” However, since default changes impact iPhone’s design, they may affect the security, operability, and functionality of the entire iPhone, not just the parts that are changed.

In the case of PCs, users who change the default settings are familiar with PCs and change the defaults, aware of their risks. In contrast, many iPhone users, including school-age children, cannot imagine the adverse effects that default changes will have on the security, function, operability, and user convenience of the iPhone. Users will be tempted by solicitations from vendors and others to make default changes that harm their interests.

Unlike Articles 7 and 8, SSCPA Article 12 is positioned as a “mandatory provision” and does not allow Apple to use a justification defense. However, the “necessary measures” in Article 12 are an expression that allows room for interpretation as to what extent Apple must take to be considered to have taken the “necessary measures.”

The Guidelines explain that “standard settings related to the basic operating software” in SSCPA Article 12, item 1, subparagraph (a) means “settings that launch a specific browser under the control of the basic operating software and display the linked web page” (GL, p. 87). On current iPhones, the browser that launches from the “basic operating software” (iOS), the default browser, is Safari. Apple is required by SSCPA, Article 12, item 1, subparagraph (a) to take “measures necessary to enable smartphone users to change the standard settings with simple operations.”

The Guidelines specifically state that “necessary measures” include “creating categories in the smartphone settings app that consolidate and display individual software that is the target of the standard settings, and making it possible to centrally change the standard settings from those categories” (GL, p. 88). This means, for example, that when an iPhone user boots up the iPhone for the first time, a browser “selection screen” should be displayed, allowing users to choose between Safari, Chrome, Firefox, etc.

However, on current iPhones, although users can select Chrome and other browsers and make them the defaults, Safari is set as the initial default because it is integrated with iOS and functions smoothly, so Safari is given priority. If users select a browser other than Safari without knowing this fact, they will experience unexpected inconvenience. Therefore, Apple should be allowed to take other measures rather than making it mandatory to display the “selection screen.” Even if it becomes mandatory to display the “selection screen,” Apple should be allowed to display Safari first.

Moreover, the Guidelines stipulate that Apple should provide a selection screen similar to that for browsers regarding Apple’s default apps, like Apple Calendar and Apple Maps (GL, pp. 89-90). However, just as with Safari, Apple Calendar, and Apple Maps are the default apps on iPhones because they are integrated with iOS and function smoothly. If iPhone users select apps other than Apple’s, unaware of this fact, they will experience unexpected inconvenience. Furthermore, even with current iPhones, users can download from the App Store, for example, Google Maps or Google Calendar. Therefore, the JFTC should avoid requiring Apple to display a “selection screen”, allowing Apple to take alternative measures. Furthermore, even if the JFTC requires Apple to display a “selection screen,” the JFTC should allow Apple to display Apple Calendar or Apple Maps at the top.

The European Commission published the text of its April Decision on Meta’s “pay or consent” scheme as implemented until November 2024. Since then, Meta has made significant changes to Facebook and Instagram in the EU, introducing a free “less-personalized ads” option. Yet the Commission maintains “that it is possible that Meta’s non-compliance is ongoing.”

I examine the Commission’s reasoning for why Meta may still be non-compliant and explore potential solutions for Meta. I also analyze the Commission’s striking approach: its stated willingness to ignore the economic pain DMA enforcement imposes on gatekeepers. This stance affects all gatekeepers, including Amazon, Apple, Google, and Microsoft. A separate piece will provide my legal analysis of the Decision’s other aspects.

The headline from April focused on Meta’s EUR 200M fine—far below the maximum EUR 15.2B (10% of global turnover). This relatively modest penalty seems designed to deflect attention from the Decision’s prohibitionist and economically uninformed legal reasoning, perhaps hoping a lower sum will prevent the U.S. administration from viewing this as a tax or tariff.

Read the full piece here.

Brian Albrecht, Chief Economist at ICLE, is quoted in this Reason article on the Trump administration’s wages war on Meta. Read the full story here.

Albrecht points to TikTok as a firm that successfully entered the attention economy market and gained “hundreds of millions of users by offering a superior experience” despite preexisting social media networks.

Julian Morris, senior scholar at ICLE, was quoted in this U.S. News and World Report article on what should cardholders expect from  Capital One-Discover merger. Read the full article here. 

Even though the merger was approved, changes won’t happen overnight. If you’re considering opening an account with either Capital One or Discover now, you can feel comfortable doing so.

“I’m sure that through the merger process, they’ll integrate the customers of both organizations in an effective manner,” says Julian Morris, senior scholar at the International Center for Law & Economics, or ICLE, which published a white paper on the merger in July.

Other things consumers can look out for include:

• Improved fraud protection. This is especially relevant when it comes to e-commerce, Wang says. “Capital One has invested a lot in these merchant data exchanges,” he says. “They could try to build that deeper into the Discover network.”
• Increased promotion of no-fee checking. Capital One offers a checking account with no monthly fee or minimum balance requirement, as does Discover. This is also a product that is less commonly available. The merger could boost that product. “The company should be better able to market no-fee, no-minimum-balance bank accounts to underserved low- and middle-income consumers,” Morris and other ICLE contributors wrote in the July white paper.

Dirk Auer, director of competition policy at ICLE, is quoted in this Playtech article on the ongoing case against Apple in the European Union. Read the full story here.

In a geopolitical climate where “digital sovereignty” has become a major theme in Europe, actions against Apple are seen not just as regulatory measures but as gestures of strategic autonomy. According to Dirk Auer of the International Center for Law & Economics, the DMA is exactly the kind of initiative that Trump sees as a non-tariff barrier against American interests.

Eric Fruits, senior scholar at ICLE, is mentioned in this The Globe and Mail article about the Capital One-Discover $35 billion merger means to credit and debit cardholders. Read the full story here.

Eric Fruits, a senior expert at the International Center for Law and Economics, says that one of Capital One’s first steps after the merger will probably be to switch its debit cards to use Discover’s payment network. This change could increase the fees Capital One earns from card swipes, bringing in more money. Fruits added that within the next few months or a year, customers might see new rewards debit cards. Because of the merger, Capital One can bypass certain rules (called the Durbin amendment), allowing it to offer better rewards. This could be a big benefit for Capital One and its customers.

Julian Morris, senior scholar at ICLE, is mentioned in this Washington Examiner article on how proposed credit card interest rate caps could backfire by limiting access to credit and harming the very working Americans they aim to help. Read the full article here.

It should be no surprise that government-mandated price controls fail to achieve their intended aims in practice, since they make no sense in theory. The tactic yields an “inefficient allocation of goods and services.” A diverse array of commentators, including Vivek Ramaswamy, the Hoover Institution, and the International Center for Law and Economics, agree that price controls are a flawed policy.

ICLE Director of Innovation Policy Kristian Stout was a panelist at an event hosted by the Congressional Internet Caucus Academy to discuss how Federal Communications Commission rules should be updated to reflect the rise of streaming-video platforms. Video of the full event is embedded below.