The Wrong Track: How the Railway Safety Act Risks Derailing Innovation

Executive Summary

American freight railroads are safer today than at any point in their history. Accident rates, hazardous-material releases, and employee fatalities have all declined over the past two decades, driven largely by private investment and innovation.

The Railway Safety Act, introduced after the 2023 East Palestine derailment, would impose prescriptive mandates, including crew-size requirements, federal detector standards, expanded inspections, and accelerated tank-car replacement timelines. These measures assume additional regulation will improve safety.

This issue brief argues the Act is unlikely to do so. It mandates sweeping rulemakings without cost-benefit analysis, relies on rigid requirements that risk locking in current technology, and includes provisions—especially the two-person crew mandate—that lack a clear evidentiary basis. It also expands regulation in ways that dilute focus on the highest-risk operations and may exceed the industry’s capacity to comply.

The costs are substantial. Compliance could reach billions of dollars, while the scale of accident reduction needed to justify those costs is implausible given current trends. Law & economics research further shows that regulatory accumulation in freight transportation raises costs, reduces output, and weakens innovation-driven growth.

A better approach is performance-based regulation: set measurable safety targets and allow firms flexibility in how to achieve them. Policymakers should preserve voluntary industry initiatives and support smaller carriers through targeted funding.

Freight rail safety is improving. The priority should be to sustain that progress, not impose mandates that risk undermining it.

I.          Introduction: A Safer Industry Meets Rising Regulatory Pressure

American freight railroads are safer today than at any point in their history. Over the past two decades, the train accident rate per million train-miles has fallen by more than 38%,[1] h hazardous-materials train accident rates have declined by at least 61%,[2] and employee on-duty fatalities reached an all-time low of seven in 2023.[3] Bureau of Labor Statistics injury-rate data place rail transportation squarely in the middle of the American industrial landscape—comparable to general freight trucking and retail trade, and well below air transportation, warehousing, and urban transit.[4] Freight rail remains one of the safest modes of surface freight transport in the United States, and the gap continues to widen.

Political demand for sweeping new railroad safety mandates has nevertheless surged. The February 2023 derailment of Norfolk Southern Train 32N in East Palestine, Ohio—caused by an overheated wheel bearing[5] —pushed rail safety to the center of public debate. Congress responded by introducing and reintroducing the Railway Safety Act across two successive sessions.[6]

This issue brief argues that the proposed Railway Safety Act, despite its rhetorical appeal, suffers from three fundamental deficiencies. First, it mandates sweeping federal rulemakings without requiring cost-benefit analysis, in tension with Executive Order 14192’s deregulatory framework.[7] Second, its prescriptive mandates risk locking in current technology and discouraging the innovation that has driven the industry’s safety gains. Third, several prominent provisions—particularly the two-person crew mandate—appear driven less by safety evidence than by political economy concerns. A better approach would recognize the industry’s substantial safety gains and avoid layering on regulations that do not address identifiable problems. Short of that, policymakers should adopt performance-based regulation that sets measurable safety targets while preserving flexibility to innovate.

The Railway Safety Act also offers a useful case study in how political-economy dynamics can produce net-harmful regulation. A high-profile incident generated intense public demand for action. Concentrated interest groups then shaped the legislative response, while policymakers largely overlooked a factual record of improving safety and ongoing innovation. The result is a bill that would likely impose billions in compliance costs without demonstrated safety benefits, even as the industry’s baseline trajectory remains positive.

This pattern is not unique to rail policy. It reflects a broader regulatory tendency: policymakers confronting complex, technical systems often focus on prescriptive solutions crafted under political pressure, rather than evaluating how those mandates may displace more effective, innovation-preserving alternatives. Error-cost analysis and regulatory forbearance provide a more reliable framework for achieving public-interest goals without foreclosing beneficial market adaptation.

Recent academic work underscores the stakes. Bentley Coffey, Patrick McLaughlin, and Pietro Peretto show in a multi-industry endogenous-growth model that per-unit transportation costs constrain innovation-driven growth; policies that raise those costs—including cumulative regulation—can dampen the translation of manufacturing productivity gains into aggregate output.[8] Their companion empirical paper finds that a 5% increase in federal regulatory restrictions on a freight transportation mode raises unit costs by 0.8–2.3% and reduces quantities shipped by 1.4–4.1%, with effects that persist and compound over time.[9] In this context, the Railway Safety Act is likely to do more harm than good.

II.          The Railway Safety Act: Structure, Mandates, and Tensions

The Railway Safety Act first appeared as S. 576 in March 2023, introduced by Sen. Sherrod Brown (D-Ohio) in the immediate aftermath of the East Palestine derailment. The Senate Commerce Committee approved the bill in May 2023, but it never reached the floor during the 118th Congress.[10] Lawmakers reintroduced it in the House in February 2025 (H.R. 928) and again in the Senate on Feb. 24, 2026 (S. 3903), led by Sen. Jon Husted (R-Ohio) and cosponsored by Sens. Maria Cantwell (D-Wash.), Roger Marshall (R-Kan.), Eric Schmitt (R-Mo.), Tammy Baldwin (D-Wis.), Amy Klobuchar (D-Minn.), Bernie Moreno (R-Ohio), and John Fetterman (D-Pa.).[11]

The bill’s core provisions include a mandatory two-person crew for all Class I freight trains; a federal framework governing the spacing, maintenance, sensitivity, and data protocols for wayside defect-detection systems; an expanded definition of “high-hazard trains” (HHT) using a five-car threshold for flammable gases; accelerated tank-car retrofit and phaseout timelines; expanded pre-departure and locomotive inspection requirements; state notification requirements for hazardous-material movements; and higher civil penalties.[12]

These mandates sit uneasily alongside the current administration’s deregulatory framework. Executive Order 14192, issued Jan. 31, 2025, directs agencies to identify at least 10 existing regulations for repeal for every new rule they propose.[13] For fiscal year 2025, the order further requires that the total incremental cost of all new regulations be “significantly less than zero.”[14]

An executive order does not bind Congress, but it highlights a clear policy divide. The administration has articulated a pro-growth, deregulatory agenda, while some congressional constituencies continue to favor prescriptive mandates. That tension raises a central question: whether additional command-and-control safety rules make sense when, as discussed infra, the industry’s safety record continues to improve under the current framework.

The Railway Safety Act would require the U.S. Department of Transportation (DOT) and the Federal Railroad Administration (FRA) to issue a series of new rules with significant compliance costs. This is precisely the type of regulatory expansion Executive Order 14192 seeks to prevent. The interaction between the two is not merely theoretical. If the FRA attempted to comply with both simultaneously, it would need to repeal a substantial number of existing rules and demonstrate a net reduction in regulatory costs—an implausible outcome given the scope of the Act’s mandates.

Much of the political momentum behind the Railway Safety Act rests on the perception that train derailments are a growing crisis. A commonly cited comparison notes more than 1,300 U.S. derailments in 2019, compared with just 73 in the European Union, even though EU rail traffic spans more than five times as many rail-kilometers.[15] That comparison obscures more than it reveals.

First, roughly 60% of U.S. derailments occur in rail yards at very low speeds—the functional equivalent of parking-lot fender benders.[16] Mainline derailments, which pose the greatest risk to public safety, remain at historic lows. Second, the EU uses different reporting methodologies, emphasizing rates per billion train-kilometers and often excluding comparable low-severity yard incidents. Third, the underlying systems differ fundamentally. The U.S. network is freight-dominant and moves far more tonnage per rail-kilometer, while European systems are overwhelmingly passenger-oriented. Direct comparisons between the two are not meaningful.

The long-term trend is clear. Federal Railroad Administration data show equipment-caused train accidents have declined 38% since 2005,[17] and axle- and bearing-related accidents have fallen roughly 81% since the early 1980s. The agency attributes much of this progress to the widespread adoption of wayside hot-bearing detectors and related monitoring technologies.[18] These gains have occurred under the existing regulatory framework. Any policy change should therefore account for how new mandates might disrupt the innovation that produced them.

III.          Private Incentives and Prescriptive Safety Regulation

Prescriptive safety regulation typically rests on a familiar market-failure story: firms underinvest in safety because they do not fully internalize the social costs of accidents, and government mandates must close the gap. The Railway Safety Act adopts that logic. The freight rail industry’s response after East Palestine, however, complicates the narrative.

Within months of the derailment, Class I railroads deployed roughly 1,000 additional wayside detectors, lowered bearing-temperature alert thresholds, adopted industry-wide predictive analytics, and expanded first-responder access to real-time railcar data—investments that outpaced any plausible federal rulemaking.[19] These actions reflect strong private incentives: liability exposure, reputational capital, network reliability, and the economics of asset preservation. In this environment, the case for additional prescriptive regulation weakens. The proposed mandates would largely codify existing practices, but at higher cost and with less flexibility.

The industry has also committed to developing a shared standard for bearing-trending analysis—an algorithmic approach that identifies degradation patterns before absolute temperature thresholds trigger alerts.[20] This trajectory suggests that the Act does not correct a market failure. It instead layers compliance costs onto an already-functioning incentive structure, with effects that extend beyond the industry’s balance sheet.

The Minnesota Wayside Detector System Study, a legislatively mandated assessment completed in March 2026, reinforces this point.[21] The study surveys roughly five wayside-detection technologies deployed on Minnesota’s rail system and 11 additional detector types in use across North America, including hot-bearing detectors, wheel-impact load detectors, acoustic bearing detectors, dragging-equipment detectors, and machine-vision inspection portals. It also examines emerging systems such as distributed fiber-optic sensing and light detection and ranging (LiDAR)-based infrastructure monitoring.[22]

The study’s cost-benefit analysis proves especially revealing. It models three detector-spacing scenarios—10, 15, and 20 miles—applied statewide to nearly 1,000 miles of Class II and Class III track. In each case, recurring operating costs exceed quantified safety benefits, producing a negative cumulative net impact over a 10-year horizon.[23] Because a state legislature commissioned the study, not the industry, its findings carry particular weight. They undermine the premise that federally mandated detector standards would generate net benefits, especially for smaller carriers.

Federal Railroad Administration inspections point in the same direction. In January 2024, the FRA published its High-Hazard Flammable Train Route Assessment, summarizing inspections of more than 2,600 wayside detectors across 28 railroads. Inspectors found that railroads generally monitored detector performance closely, though they identified issues at roughly 120 sites, including calibration drift and inverted transducers.[24] The broader lesson is straightforward: voluntary industry standards often precede federal regulation, not the reverse, because firms can adapt more quickly than regulators.

IV.          Structural and Analytical Defects in the Railway Safety Act

Even setting aside the political-economy dynamics discussed above, the Railway Safety Act suffers from a set of analytical and structural defects that warrant separate attention. Its core provisions impose prescriptive, uniform mandates rather than risk-weighted, performance-based approaches that an error-cost framework would favor. The bill also omits the cost-benefit discipline that typically constrains major rulemakings. Several key terms—from the five-car threshold in the expanded high-hazard-train definition to fixed detector-spacing and two-person-crew requirements—appear to reflect negotiated compromises rather than empirical evidence about where risk actually concentrates.

These design choices have concrete consequences. They direct safety capital toward specifications likely to become obsolete before regulators finalize implementing rules. They shield incumbent detection technologies from competition by next-generation alternatives. They also impose fixed compliance costs on smaller carriers that do not track marginal risk on their networks. The result is a regulatory regime that treats a dynamic engineering problem as a static checklist—one that predictably produces less safety, less innovation, and more concentrated harm among the least well-resourced participants than the performance-based alternatives discussed above.

A.             The Absence of Cost-Benefit Constraints

The most fundamental objection to the Act is structural. It mandates sweeping DOT rulemakings without requiring the agency to show that each rule’s benefits justify its costs. This approach departs from the longstanding cost-benefit framework set out in OMB Circular A-4—reinstated in its 2003 form by Executive Order 14192—which requires rigorous analysis for economically significant regulations.[25] More importantly, the Act’s prescriptive mandates would limit the Federal Railroad Administration’s ability to make evidence-based regulatory decisions. Even if the agency’s own analysis shows that a requirement’s costs exceed its safety benefits, the statute would require the agency to proceed.

Available estimates suggest that the compliance burden would run into the billions over a decade. One analysis places the cost of the detector-spacing provision alone between $1.1 billion and $2.2 billion.[26] The 2008 Positive Train Control mandate—a single, comparable requirement—cost U.S. freight railroads roughly $10 billion to $15 billion over its implementation period.[27] The Act would layer multiple additional mandates on top of that baseline, with cumulative costs that could rival or exceed the PTC experience.

To justify expenditures of that magnitude, proponents would need to show that the Act prevents a comparable volume of accidents. Before adopting such costly measures, Congress should at least direct the Congressional Research Service or the FRA to estimate the likely compliance burden.

Empirical benchmarks highlight the gap. An analysis of FRA accident data commissioned by the North Carolina Department of Transportation finds that the average property-damage cost of a rail incident is about $122,000 in 2020 dollars.[28] Even high-severity derailments—those involving roughly 40 or more loaded freight cars—reach only about $2.6 million.[29]

A simple break-even calculation illustrates the mismatch. Assume total compliance costs comparable to Positive Train Control—about $10 billion over a decade. Using the $122,000 average property-damage figure, the Act would need to prevent roughly 80,000 incidents to cover its costs. Even valuing each prevented event at $2.6 million, the Act would still need to prevent nearly 4,000 severe derailments over the same period. Neither scenario is plausible. Mainline derailments on Class I railroads number in the low hundreds each year, and the long-term trend continues to decline. No realistic set of prescriptive mandates could reduce incidents at the scale required to satisfy this cost-benefit threshold.

The empirical literature reinforces these concerns. Recent work finds that regulatory accumulation in freight transportation suppresses investment in productivity-enhancing innovation: a 5% increase in regulatory restrictions raises unit shipping costs by 0.8–2.3% and reduces freight volumes by 1.4–4.1%, with effects that compound over time.[30] These are not one-time adjustment costs; they represent persistent constraints on economic growth. The broader literature reaches similar conclusions. One estimate finds that federal regulation added since 1949 reduced annual U.S. output growth by about one percentage point on average, resulting in a 28% reduction in output by 2005.[31]

B.             Misaligned Risk Targeting in Core Provisions

Expanding the HHT definition to include flammable gas may respond to East Palestine. The Act’s five-car threshold, however—far below the existing standard of 20 or more continuous tank cars or 35 total—rests on no clear risk assessment and would sweep a far larger set of trains into heightened regulation.[32] Existing voluntary “Key Train” practices, codified in Circular OT-55-R, already impose 50-mph speed limits and siding requirements on the highest-risk movements, including those carrying toxic-inhalation-hazard materials, large volumes of hazmat, or spent nuclear fuel.[33] Lowering the threshold risks shifting attention away from genuinely high-risk operations toward routine freight traffic, imposing costs without corresponding safety gains.

The Act’s expanded locomotive and pre-departure inspection requirements reflect a prescriptive, process-oriented approach. They dictate how railroads must inspect equipment rather than what safety outcomes they must achieve. Nothing in the record suggests that more manual inspections would have prevented the East Palestine derailment, which resulted from a bearing failure that developed between automated detector readings, not from an inspection lapse.[34]

C.             Prescriptive Design and Innovation Suppression

The regulatory-design literature has long identified the limits of this approach. Cary Coglianese and David Lazer distinguish among technology-based regulation, which specifies means; performance-based regulation, which specifies ends; and management-based regulation, which requires firms to design their own safety systems to a specified vision.[35] Performance-based and management-based approaches generally outperform prescriptive mandates because they preserve flexibility and encourage efficient solutions. Railroads have already deployed acoustic bearing detectors, machine-vision portals, and trending-analysis algorithms. But the Federal Railroad Administration’s existing prescriptive framework has not adapted to allow these technologies to satisfy regulatory requirements, effectively reducing the return on safety innovation and likely discouraging further investment.

The Act’s provisions establishing federal standards for detector thresholds, spacing, and data protocols pose a particular risk to innovation. The relevant technology remains in flux. The Minnesota study identifies five wayside-detector types currently deployed in the state, 11 additional types in use elsewhere in North America, and a set of emerging technologies—including distributed fiber-optic sensing for landslide and rockfall detection, light detection and ranging (LiDAR)-based infrastructure monitoring, and IoT-enabled remote-condition systems—many still in pilot-project phases.[36] A federal rule written today would codify 2026-era technology. Given the Federal Railroad Administration’s multi-year rulemaking timelines, the resulting standards could become obsolete before they take effect.

Positive Train Control offers a cautionary example. Congress mandated PTC in 2008, locking in a technological specification before the system had fully matured. Implementation ultimately cost the industry roughly $10 billion to $15 billion and required repeated statutory deadline extensions.[37] The mandate imposed substantial costs and delays while foreclosing potentially superior alternatives.[38] The Act’s detector and tank-car provisions risk repeating that pattern.

Coffey, McLaughlin, and Peretto’s growth model explains why this matters beyond railroads. In their framework, transportation is an integral component of production, and per-unit transportation costs set a lower bound on market prices and returns to innovation. When prescriptive mandates raise those costs, they do more than reallocate resources within the transportation sector; they weaken the innovation-growth feedback loop across the broader economy.[39] Technology-freezing regulation in freight rail thus carries macroeconomic consequences.

D.            Tank Car Mandates and Capacity Constraints

Section 110 illustrates similar design flaws. It accelerates the phaseout of older-generation tank cars in certain Class 3 flammable-liquid service, setting a primary deadline of Dec. 31, 2027, with a one-year fallback to Dec. 31, 2028 if the secretary determines that manufacturing or retrofit capacity is insufficient. Section 110(b) directs the secretary to remove or revise any conflicting deadlines immediately, and Section 110(d) requires a Government Accountability Office (GAO) review of manufacturing and retrofit capacity within 18 months of enactment.

This acceleration largely duplicates a transition already in progress. Bureau of Transportation Statistics data show that compliance with DOT-117 standards rose from 56% in 2021 to 59% in 2022, with about 6,914 additional cars built or retrofitted in 2023—a trajectory that would converge on the current statutory deadline of May 1, 2029 without further intervention.[40] At most, the Act advances compliance by roughly 17 months. Section 110(b)’s directive to revise conflicting deadlines also risks creating a regulatory gap by voiding existing schedules before new ones take effect, introducing uncertainty into fleet planning and capital investment.

Capacity constraints compound the problem. The Bureau of Transportation Statistics reports that certified facilities produced or retrofitted about 6,914 tank cars in 2022, reflecting the system’s practical annual throughput.[41] Compressing the deadline to December 2027 would require the industry to process the remaining noncompliant fleet at a pace well above demonstrated capacity. If that compression leads to equipment shortages or service disruptions, it would impose costs on shippers and consumers without clear incremental safety benefits, given that safer tank-car designs are already entering the fleet through market-driven replacement.[42]

E.              The Two-Person Crew Mandate

The Act’s two-person crew mandate presents a similar evidentiary gap. The Federal Railroad Administration concluded in 2019 that it “cannot provide reliable or conclusive statistical data” on whether one-person crews are safer or less safe than multiple-person crews.[43] The agency reversed course in its 2024 final rule without introducing new statistical evidence, relying instead on qualitative judgments about redundancy.[44] The mandate would override collective-bargaining agreements and eliminate the operational flexibility railroads use to tailor staffing to route conditions, traffic density, and available technology. Its primary effect would be to preserve employment levels—a legitimate policy goal in some contexts, but one better addressed through collective bargaining than through safety regulation.

V.          A Performance-Based Alternative

If prescriptive mandates are the wrong tool, what should replace them? The regulatory-design literature and the railroad industry’s recent experience point to a performance-based approach.

First, the Federal Railroad Administration should adopt performance-based regulation. Instead of prescribing detector spacing, crew size, and inspection procedures, the agency should set measurable safety targets—derailments per million train-miles, hazmat release rates, bearing-failure rates—and allow railroads to determine how best to achieve them. Marc Scribner finds the FRA has been “highly prescriptive” and “slow to adopt performance-based alternatives,” and calls for a systematic shift toward outcome-oriented regulation.[45]

First, the Federal Railroad Administration should adopt performance-based regulation. Instead of prescribing detector spacing, crew size, and inspection procedures, the agency should set measurable safety targets—derailments per million train-miles, hazmat release rates, bearing-failure rates—and allow railroads to determine how best to achieve them. Marc Scribner finds the FRA has been “highly prescriptive” and “slow to adopt performance-based alternatives,” and calls for a systematic shift toward outcome-oriented regulation.

Third, smaller carriers need targeted support, not unfunded mandates. The Minnesota study shows that detector mandates would impose net losses on rural short-line railroads. Existing programs—the Consolidated Rail Infrastructure and Safety Improvements (CRISI) Program, Infrastructure for Rebuilding America (INFRA) grants, and state initiatives such as Minnesota’s Short Line Infrastructure Maintenance Tax Credit—can help smaller carriers adopt safety technologies at a pace consistent with their financial capacity.[46]

Finally, the macroeconomic evidence supports regulatory restraint. Coffey, McLaughlin, and Peretto find that regulatory accumulation in freight transportation reduces labor, fuel, and capital productivity across all major freight modes. Their counterfactual simulations show that these costs do not remain within the regulated firms; they propagate through the supply chain, raising prices, reducing shipment volumes, and weakening the innovation-driven growth process. Performance-based regulation that limits prescriptive rule accumulation, preserves investment incentives, and allows railroads to allocate resources toward the highest-return safety technologies would advance both safety and economic growth.

VI.          Conclusion

The Railway Safety Act responds to a real tragedy. But sound regulatory design requires more than urgency and good intentions. The Act imposes sweeping prescriptive mandates without cost-benefit justification, in tension with Executive Order 14192’s deregulatory framework. It targets risks imprecisely, substitutes uniform rules for evidence-based prioritization, and would require the Federal Railroad Administration to proceed with rulemakings even where costs exceed benefits.

These design flaws carry predictable consequences. The Act risks locking in current-generation technology, discouraging the innovation that has driven decades of safety gains, and imposing fixed compliance costs that fall hardest on smaller carriers. It would layer billions of dollars in new mandates onto an industry where accident rates, hazmat releases, and equipment-related failures have all declined over time under the existing framework. Its most visible provision—the two-person crew mandate—lacks a clear evidentiary basis and reflects political compromise more than demonstrated safety need.

The broader lesson extends beyond rail policy. Prescriptive, command-and-control regulation often treats dynamic engineering and operational problems as static compliance exercises. In doing so, it can displace more effective, innovation-preserving approaches while introducing economy-wide costs. As the law & economics literature shows, regulatory accumulation in freight transportation raises per-unit costs, suppresses productivity, and weakens the innovation-growth process that underpins long-run economic performance.

A better approach is available. Performance-based regulation would set clear, measurable safety targets—such as derailments per million train-miles or hazmat release rates—while allowing railroads to determine how best to meet them. Policymakers should preserve the voluntary, industry-led initiatives that have already accelerated safety improvements, continue to rely on the FRA’s collaborative advisory process, and provide targeted support to smaller carriers through existing funding programs. This framework aligns incentives, encourages technological progress, and directs resources toward the highest-return safety investments.

Freight rail safety is improving. The central policy challenge is not to react reflexively to high-profile incidents, but to sustain and accelerate that progress. The Railway Safety Act, as currently structured, risks doing the opposite—imposing large, certain costs in pursuit of uncertain and unquantified benefits.

[1] Fed. R.R. Admin., U.S. Dep’t of Transp., Train Accident (Not at Highway-Rail Crossings) Summary, https://data.transportation.gov/stories/s/dsuf-xcni (last visited May 1, 2026) (showing incidents fell from 4.139 per million miles in 2005 to 2.554 in 2025).

[2] Fed. R.R. Admin., U.S. Dep’t of Transp., Rail Safety Overview Report (1.12), https://data.transportation.gov/stories/s/Rail-Safety-Overview-Report-1-12-/dsuf-xcni (last visited May 1, 2026) (reporting 39 hazmat releases in 2005 and 15 in 2025); see also Ass’n of Am. R.Rs., Press Release, FRA 2023 Data Affirms Rail’s Strong, Sustained Safety Record (Mar. 4, 2024), https://www.aar.org/news/fra-2023-data-affirms-rails-strong-sustained-safety-record (claiming a roughly 75% reduction based on FRA data not currently available).

[3] Fed. R.R. Admin., U.S. Dep’t of Transp., Employee on Duty Fatalities, Injuries, and Illnesses, https://data.transportation.gov/stories/s/Employee-on-Duty-Fatalities-Injuries-and-Illnesses/khzx-vxu4 (last visited Apr. 24, 2026) (showing a 68% decline since 2005).

[4] Bureau of Lab. Stats., U.S. Dep’t of Lab., Table 1: Incidence Rates of Nonfatal Occupational Injuries and Illnesses by Industry and Case Type, 2024, https://www.bls.gov/iif/nonfatal-injuries-and-illnesses-tables/table-1-injury-and-illness-rates-by-industry-2024-national.htm (last visited May 1, 2026) (reporting incidence rates per 100 full-time workers: rail transportation (3.4), general freight trucking (3.1), retail trade (3.0), construction (2.2), grocery stores (4.1), air transportation (6.5), urban transit systems (6.1), and warehousing and storage (4.8)).

[5] Nat’l Transp. Safety Bd., Norfolk Southern Railway Derailment with Subsequent Hazardous Material Release and Fires, East Palestine, Ohio (Feb. 3, 2023), NTSB/RIR-24/05, https://www.ntsb.gov/investigations/AccidentReports/Reports/RIR2405%20CORRECTED.pdf.

[6] Railway Safety Act of 2023, S. 576, 118th Cong. (2023); Railway Safety Act of 2025, H.R. 928, 119th Cong. (2025); Railway Safety Act of 2026, S. 3903, 119th Cong. (2026); see also Press Release, Sen. Maria Cantwell, Cantwell, Husted, Colleagues Reintroduce Bipartisan Railway Safety Act (Feb. 24, 2026), https://www.commerce.senate.gov/2026/2/cantwell-husted-colleagues-reintroduce-bipartisan-railway-safety-act.

[7] Unleashing Prosperity Through Deregulation, Exec. Order No. 14,192, 90 Fed. Reg. 9,065 (Feb. 6, 2025).

[8] Bentley Coffey, Patrick A. McLaughlin & Pietro F. Peretto, Transportation, Innovation and Growth (Working Paper, Apr. 9, 2026), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6444398.

[9] Bentley Coffey, Patrick A. McLaughlin & Pietro F. Peretto, Regulation and the Cost of Moving Goods (Hoover Inst. Econ. Working Paper, Mar. 20, 2026), https://www.hoover.org/sites/default/files/research/docs/26108-McLaughlin-Coffey-Peretto.pdf.

[10] S. 576, 118th Cong. (2023); see also Cong. Budget Off., Cost Estimate for S. 576 (Sept. 2023), https://www.cbo.gov/publication/59947.

[11] H.R. 928, 119th Cong. (2025); S. 3903, 119th Cong. (2026).

[12] S. 3903, 119th Cong. §§ 102–109 (2026).

[13] Exec. Order No. 14,192, § 3, 90 Fed. Reg. at 9,065, supra note 7.

[14] Id. § 3(b).

[15] See Alex N. Press, As Rail Executives Grow Richer, Train Derailments Have Become Commonplace, Jacobin (Feb. 2023), https://jacobin.com/2023/02/train-derailments-east-palestine-norfolk-southern-profits; see also Gregory Labelle, Letter: Does the U.S. Even Care About Rail Safety? The Numbers Suggest It Doesn’t, LehighValleyLive.com (Apr. 11, 2023), https://www.lehighvalleylive.com/opinion/2023/04/does-the-us-even-care-about-rail-safety-the-numbers-suggest-it-doesnt-letter.html. U.S. figures derive from FRA Form 6180.54 accident/incident data; see Fed. R.R. Admin., Off. of Safety Analysis, Train Accidents and Rates, https://safetydata.fra.dot.gov/officeofsafety/publicsite/query/TrainAccidentsFYCYWithRates.aspx. EU figures derive from Eurostat; see Eurostat, Railway Safety Statistics in the EU, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Railway_safety_statistics_in_the_EU.

[16] Fed. R.R. Admin., U.S. Dep’t of Transp., Accident/Incident Data (2019), https://data.transportation.gov/stories/s/2ju5-8zxb (showing 784 yard derailments out of 1,344 total derailments in 2019).

[17] Fed. R.R. Admin., supra note 2.

[18] Fed. R.R. Admin., U.S. Dep’t of Transp., Off. of Rsch., Dev. & Tech., An Implementation Guide for Wayside Detector Systems (2019), https://railroads.dot.gov/elibrary/implementation-guide-wayside-detector-systems.

[19] See Ass’n of Am. R.Rs., Freight Railroads Announce Key Safety Measures in Drive to Zero Accidents (Mar. 2023), https://www.aar.org/news/freight-railroads-announce-key-safety-measures-in-drive-to-zero-accidents (announcing approximately 1,000 additional hot-bearing detectors, a 170°F alert threshold, and expanded trending analysis); Ian Jefferies, Ass’n of Am. R.Rs., Statement for the Record Before the Subcomm. on R.Rs., Pipelines & Hazardous Materials, H. Comm. on Transp. & Infrastructure 3 (July 23, 2024), https://www.congress.gov/event/118th-congress/house-event/LC73449/text [hereinafter Jefferies Statement] (citing FRA and AAR data and describing implementation of voluntary commitments, including expansion of AskRail to more than 2.3 million first responders); Fed. R.R. Admin., U.S. Dep’t of Transp., Safety Advisory 2023-01: Evaluation of Policies and Procedures Related to the Use and Maintenance of Hot Bearing Wayside Detectors, 88 Fed. Reg. 13,376 (Mar. 3, 2023); see also Cong. Rsch. Serv., East Palestine, OH, Train Derailment and Hazardous Materials Shipment by Rail: Frequently Asked Questions, R47435 (2024).

[20] CPCS Transcom for Minn. Dep’t of Transp., 2025 Wayside Detector System Study (2026), https://www.lrl.mn.gov/docs/2026/mandated/260603.pdf [hereinafter MnDOT CPCS Report]; see also Ass’n of Am. R.Rs., Freight Railroads Announce Key Safety Measures in Drive to Zero Accidents (Mar. 2023), https://www.aar.org/news/freight-railroads-announce-key-safety-measures-in-drive-to-zero-accidents.

[21] MnDOT CPCS Report, supra note 20.

[22] Id. §§ 2.1, 3.1 (cataloguing 16 distinct wayside detector technologies); id. at 34 (describing distributed fiber-optic sensing); id. (describing light detection and ranging (LiDAR)).

[23] MnDOT CPCS Report, supra note 20, ch. 6, Economic and Industry Impacts, at 53–58 (modeling 10-year cost-benefit scenarios at 10-, 15-, and 20-mile detector spacing on Class II and III track and finding negative cumulative net impacts across all scenarios).

[24] Fed. R.R. Admin., U.S. Dep’t of Transp., High-Hazard Flammable Train Route Assessment & Legacy Tank Car Focused Inspection Program: Summary Report (Jan. 22, 2024), https://railroads.fra.dot.gov/sites/fra.dot.gov/files/2024-01/HRA%20Final%20Report_01.22.24.pdf.

[25] Unleashing Prosperity Through Deregulation, supra note 7; Off. of Mgmt. & Budget, Circular A-4 (2003).

[26] Michael F. Gorman, Rail Safety Policy After East Palestine, Regulation (Summer 2023), https://www.cato.org/regulation/summer-2023/rail-safety-policy-after-east-palestine.

[27] Cong. Rsch. Serv., Positive Train Control (PTC): Overview and Policy Issues, R42637 (2018), https://www.congress.gov/crs-product/R42637; see also Ass’n of Am. R.Rs., Positive Train Control, https://www.aar.org/issue/positive-train-control (estimating industry PTC investment at approximately $15 billion).

[28] Steven Bert et al., The Comprehensive Cost of Rail Incidents in North Carolina, Report No. FHWA/NC/2020-44, at 7 & app. fig. 45, at A-19 (Inst. for Transp. Rsch. & Educ., N.C. State Univ., Dec. 2020).

[29] Id. at 7 fig. 6 & app. figs. 45 & 47, at A-19, A-21.

[30] Coffey, McLaughlin & Peretto, Regulation and the Cost of Moving Goods, supra note 9.

[31] John W. Dawson & John J. Seater, Federal Regulation and Aggregate Economic Growth, 18 J. Econ. Growth 137 (2013), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2223315.

[32] Compare 49 C.F.R. § 171.8 (current HHFT definition), with S. 576 § 102 (proposed HHT definition).

[33] Ass’n of Am. R.Rs., Recommended Railroad Operating Practices for Transportation of Hazardous Materials, Circular OT-55-R (eff. July 1, 2022), https://www.aar.org/wp-content/uploads/2022/07/2022-07-01-OT-55-R-CPC-KBD.pdf.

[34] Nat’l Transp. Safety Bd., supra note 5.

[35] Cary Coglianese & David Lazer, Management-Based Regulation: Prescribing Private Management to Achieve Public Goals, 37 Law & Soc’y Rev. 691, 693–96 (2003), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=297162.

[36] MnDOT CPCS Report, supra note 20, figs. 2 & 10, at 5–6 & 16–17, §§ 3.2.4–3.2.5, at 32, 34.

[37] Jerry Ellig & Patrick A. McLaughlin, Preventing a Regulatory Train Wreck: Mandated Regulation and the Cautionary Tale of Positive Train Control (Mercatus Ctr., Working Paper, June 2016), https://www.mercatus.org/media/57556/download.

[38] Id.

[39] Coffey, McLaughlin & Peretto, Transportation, Innovation and Growth, supra note 8.

[40] Railway Safety Act of 2026, S. 3903, 119th Cong. § 110(a), (c), (d) (2026); Bureau of Transp. Stat., U.S. Dep’t of Transp., Fleet Composition of Rail Tank Cars Carrying Flammable Liquids: 2023 Report to Congress (Sept. 2023), https://www.bts.gov/sites/bts.dot.gov/files/2023-09/BTS_Tank_Car_Report_To_Congress_9_13_2023.pdf (reporting monthly production rates); Cong. Rsch. Serv., Freight Rail Safety Issues in the 119th Congress, R47911 (2025) (summarizing industry concerns about accelerated retrofit timelines in current Railway Safety Act proposals).

[41] Bureau of Transp. Stat., U.S. Dep’t of Transp., Fleet Composition of Rail Tank Cars Carrying Flammable Liquids: 2023 Report to Congress v–vi (Sept. 2023), https://www.bts.gov/sites/bts.dot.gov/files/2023-09/BTS_Tank_Car_Report_To_Congress_9_13_2023.pdf.

[42] Id.

[43] Train Crew Staffing, 84 Fed. Reg. 24,735, 24,741 (May 29, 2019), https://www.govinfo.gov/content/pkg/FR-2019-05-29/pdf/2019-11088.pdf.

[44] Train Crew Size Safety Requirements, 89 Fed. Reg. 25,502, 25,508 (Apr. 9, 2024), https://www.federalregister.gov/documents/2024/04/09/2024-06625/train-crew-size-safety-requirements.

[45] Marc Scribner, Toward Performance-Based Transportation Safety Regulation, Competitive Enter. Inst. (Mar. 2017), https://cei.org/studies/toward-performance-based-transportation-safety-regulation.

[46] MnDOT CPCS Report, supra note 20, ch. 6.

Abstract

The abuse of economic dependence is undergoing a revival, driven by the growing policy emphasis on restoring fairness in digital markets. Legal provisions originally intended to address bargaining power imbalances in traditional, brick-and-mortar settings are now being repurposed as part of the digital enforcement toolkit. Yet the scope and antitrust character of these rules remain contested. Indeed, a central paradox persists. If antitrust law aims to protect competition rather than individual competitors, it is unclear why abuses of economic dependence belong under its purview rather than contract law. Conversely, if such abuses do affect market dynamics, the distinction from abuses of dominant position becomes blurred. Drawing on the insights of transaction cost economics, this paper offers a critical analysis of national provisions on the abuse of economic dependence and outlines a framework for defining the scope and criteria of such abuse as a standalone antitrust offence, with the aim of ensuring consistency between its application and the principles of transaction cost economics.

 

Abstract

The competitive market is informationally efficient; people only need to know prices to implement a competitive allocation. However, the standard formulation of competitive markets assumes that prices are not set by strategic agents but by “supply and demand” and thus neglects the underlying role of market microstructure. We show that if prices are determined by strategic agents, then intermediation is necessary for markets to achieve informational efficiency. We study two specific market microstructures: a model where trade is intermediated by market-makers and a model of random matching and bargaining. First, we show that an economy where competition among market-makers determines prices can approximate the informational efficiency of the competitive model. Second, we show that as the complexity of the economy increases, matching markets require infinitely more information than the competitive market.

Abstract

Abstract

We prove that Berry inversion (recovering a market’s latent demand index from observed shares) is necessary, not just sufficient, for identifying every market’s demand curve. The experimental average equals the market-specific demand curve if and only if demand is additively separable in price and the latent state, a condition standard discrete-choice models violate. When separability fails, Berry inversion is the abduction step (recovering the market’s latent state from data) in Pearl’s causal hierarchy: without it, even price-only counterfactuals are set-identified, and counterfactuals that also change product characteristics require a stronger recoverability condition. In a merger simulation, market-specific price predictions differ by a factor of two, driven entirely by unobserved demand conditions that experiments cannot distinguish.

Executive Summary

Global health governance has shifted in ways that weaken democratic accountability while concentrating policy influence. The World Health Organization (the WHO), once a technical coordinating body, now operates within a broader ecosystem of Democratically Deficient Organizations (DoDOs)—intergovernmental institutions, philanthropic foundations, NGOs, and private actors that shape policy without meaningful public oversight. The move from assessed contributions to donor-driven, earmarked funding has severed the link between WHO priorities and member-state control. In its place, a small group of funders—most notably the Bill & Melinda Gates Foundation and Bloomberg Philanthropies—now exert outsized influence over global health agendas.

This brief shows how that system operates in practice. In tobacco control and pandemic governance, foundation funding, WHO authority, NGO advocacy, and academic research reinforce one another to produce policy consensus insulated from scrutiny. Law & economics frameworks help explain the result: incentives favor persistence over performance. The WHO’s Framework Convention on Tobacco Control (FCTC) has not accelerated global declines in smoking, while discouraging harm-reduction approaches that have succeeded in countries such as Sweden. Proposals to expand WHO authority in pandemic preparedness risk replicating the same institutional failures revealed during COVID-19.

The problem is not insufficient resources, but weak accountability. The brief proposes reforms to restore it: rebalance WHO funding toward assessed contributions, strengthen transparency and conflict-of-interest rules, open governance processes, embrace harm reduction, and return policymaking authority to domestic democratic institutions. Without such changes, the continued expansion of the DoDO model will deepen existing failures—with consequences measured in human lives.

“The urge to save humanity is almost always a false front for the urge to rule.”

— H.L. Mencken

I.        Introduction

The World Health Organization was founded in 1948 with a mandate to coordinate international efforts to combat disease and improve public health. In its early decades, it built considerable prestige through tightly targeted, outcome-oriented vertical programs: mass vaccination campaigns, technical assistance to developing nations, and focused assaults on diseases such as smallpox, malaria, yaws, and tuberculosis.[1] The eradication of smallpox in 1980 remains the WHO’s signature achievement—and arguably the greatest accomplishment of any international organization.[2]

The seeds of institutional decay, however, were already taking root. In 1978, the Alma-Ata Declaration announced the goal of “Health for All by the Year 2000,” shifting the WHO’s strategy from vertical disease control to a comprehensive, horizontal model centered on primary health care and the social determinants of health.[3] This was not a marginal adjustment. It marked a shift in institutional character. Health policy became as political as scientific. In that arena, the advantage rarely goes to those with the best evidence; it goes to those with the loudest voices and the deepest pockets.[4]

This strategic pivot opened the door to broader structural changes in global health governance—changes that fit squarely within the framework of Democratically Deficient Organizations (DoDOs).[5] As explained in the introductory paper in this series, the DoDO concept describes how intergovernmental bodies, NGOs, foundations, and corporations exercise substantial policy-shaping authority while remaining largely insulated from democratic accountability. The result is a self-reinforcing ecosystem: failure justifies expansion, dissent is recast as moral deviance, and those most affected by policy decisions have little meaningful voice in shaping them.

This paper applies the DoDO framework to global health. The global health DoDO ecosystem centers on the WHO, alongside a constellation of philanthropic foundations (led by the Bill & Melinda Gates Foundation and Bloomberg Philanthropies), advocacy NGOs (often funded by those same foundations), pharmaceutical companies, and a revolving cadre of public health academics whose careers depend on the regulatory apparatus they help design.

Bruce Yandle’s “Baptists and bootleggers” analogy provides a useful complement. Baptists supply the moral justification for regulation, while bootleggers quietly profit from it.[6] In global health governance, the “Baptists” include public health campaigners, WHO officials, and celebrity philanthropists who frame every policy question in terms of lives saved or children protected. The bootleggers include pharmaceutical companies that benefit from regulatory choices, consulting firms that administer programs, NGOs whose funding depends on sustained crisis, and academics whose grants and publications flow from institutional consensus. No conspiracy is required. Incentives do the work.

II.        The Political Economy of WHO Financing

To understand how the WHO became a DoDO, follow the money. The organization’s original design relied on assessed contributions from member states—mandatory dues based on national income. The World Health Assembly (WHA) retained collective control over how those funds were spent.[7] The system was imperfect, but it preserved at least a loose connection between the WHO’s priorities and the collective will of its members. That connection has now been severed.

By the 2023–2024 biennium, roughly 84% of the WHO’s budget came from voluntary contributions, most of them earmarked by donors rather than the WHA.[8] In that same period, the United States was the largest contributor, followed by the Bill & Melinda Gates Foundation and Germany. Each of those three donors individually provided more funding than most member states combined.[9] Lawrence Gostin, himself a WHO collaborating center director, noted in 2015 that the organization fully controlled only about 20% of its budget.[10] Donors effectively dictate the rest.

This is not just a shift in financing. It is a quiet transformation in governance. When a private foundation contributes more to a UN agency than nearly every sovereign state—and specifies how the money must be spent—it acquires policymaking authority without any of the constraints that bind even the most dysfunctional governments. The Gates Foundation faces no elections, no parliamentary scrutiny, no freedom-of-information requests, and no judicial review. It answers only to its founders.[11]

Devi Sridhar and Ngaire Woods describe this arrangement as “trojan multilateralism”: the use of multilateral institutions to advance bilateral and private donor agendas.[12] The pattern is familiar. A foundation selects a priority—polio eradication, pandemic preparedness, vaccine delivery. It funds WHO programs aligned with that priority, often building parallel structures such as GAVI (the Global Alliance for Vaccines and Immunization) and CEPI (the Coalition for Epidemic Preparedness Innovations) that sit alongside, and often sidestep, the WHO’s formal governance. It also funds academic research to validate the approach, NGOs to advocate for it, and media coverage to amplify it. The appearance of multilateralism remains. The substance does not. Accountability to member states—let alone voters—evaporates.[13]

The concern here is not philanthropy as such. Foundations can and often do support valuable health interventions. A foundation that builds clinics or expands vaccine access raises few objections. The problem arises when funding comes with policy conditions. At that point, financial support becomes a vehicle for influence. In intergovernmental bodies and executive agencies—already distant from democratic oversight—those conditions further dilute accountability. In the case of the WHO, earmarked funding has compounded weak WHA oversight and accelerated its evolution into a DoDO.

III.        Gates and the Philanthropic Policy Model

The Bill & Melinda Gates Foundation warrants particular scrutiny—not because its intentions are necessarily malign, but because its influence is so extensive that it reshapes the structure of global health governance. With annual spending on health-related activities averaging roughly $4 billion in recent years, much of it directed to NGOs and academic researchers, the foundation is not merely a major donor. It operates as a de facto health policy institution, shaping spending priorities and regulatory agendas, especially at the WHO and in lower-income countries.[14]

Anne-Emanuelle Birn traces the origins of this model to the Rockefeller Foundation’s dominance of international health in the early 20th century.[15] Linsey McGoey’s analysis of the Gates Foundation shows how its grant-making creates a dense web of financial dependencies that discourages dissent.[16] Universities, think tanks, NGOs, and media organizations that receive Gates funding have strong incentives to endorse its approach and equally strong incentives to avoid scrutinizing it. McGoey’s conclusion is blunt: there is “no such thing as a free gift.” Every grant carries strings, whether acknowledged or not.

The foundation’s influence on the WHO raises sharper concerns. It funds not only the academics and NGOs whose research and advocacy inform WHO decision making, but also the WHO itself—both directly and indirectly. For example, it funds GAVI, which the WHO helps govern.[17] More importantly, as David McCoy and his co-authors document in The Lancet, the foundation participates directly in policymaking across the system:[18]

The foundation actively engages in policy making and agenda setting activities; it has representatives that sit on the governing structures of many global health partnerships; it is part of a self-appointed group of global health leaders known as the H8 (together with WHO, the World Bank, GAVI Alliance, the Global Fund, UNICEF, the United Nations Population Fund [UNFPA], and UNAIDS); and has been involved in setting the health agenda for the G8. The Gates Foundation is also involved in setting the research agenda of several public health priorities, a role that was controversially criticised by the former head of WHO’s malaria programme, who complained that the dominance of the Gates Foundation in malaria research risked stifling the diversity of views among scientists.[19]

This is the DoDO ecosystem in full view. A large philanthropic foundation—accountable primarily to its founders and board—funds research, advocacy, and media, while also participating directly in policymaking and agenda setting. The foundation and its institutional allies operate largely outside democratic oversight, yet shape regulatory and policy decisions that affect billions.

IV.        Bloomberg and the Financing of Tobacco Control

If the Gates Foundation shows how one large DoDO can shape health policy broadly, Bloomberg Philanthropies shows how a single DoDO can dominate a narrow regulatory domain. Since 2005, Michael Bloomberg has committed more than $1.6 billion to global tobacco-control initiatives through the Bloomberg Initiative to Reduce Tobacco Use.[20]

The initiative operates through a network of implementing partners, including the Campaign for Tobacco-Free Kids (CTFK), Vital Strategies, the Johns Hopkins Bloomberg School of Public Health, the CDC Foundation, and the WHO.[21] These organizations provide technical assistance, fund advocacy campaigns, support research, and help governments implement tobacco-control policies in low- and middle-income countries.

Through this structure, philanthropic funding supports both the development of global norms—particularly those associated with the WHO’s Framework Convention on Tobacco Control (FCTC)—and the domestic advocacy needed to entrench those norms in national regulatory systems.

Adopted in 2003, the FCTC was the first treaty negotiated under WHO auspices and remains the organization’s most ambitious exercise of normative authority. More than 180 countries are parties. Its objectives were straightforward: reduce tobacco use, limit exposure to secondhand smoke, and address the global burden of tobacco-related disease.[22]

The results have fallen short. When the FCTC entered into force in 2005, the world had roughly 1.1 billion smokers. Nearly two decades later, that number remains largely unchanged.[23] Population growth of about 20% has produced a corresponding decline in prevalence, but that decline largely reflects trends already underway before the treaty.

Steven Hoffman and his co-authors confirm this point in a rigorous quasi-experimental analysis published in the BMJ, finding “no evidence to indicate that global progress in reducing cigarette consumption has been accelerated by the FCTC treaty mechanism.”[24]

Some countries have achieved sharper declines in smoking prevalence—notably Sweden, the United Kingdom, and Japan. These outcomes largely reflect the availability of lower-risk nicotine alternatives, including snus, e-cigarettes, and heated tobacco products, which enable substitution away from combustible cigarettes.

Sweden provides the clearest population-level example. Since the introduction of snus in the 1970s, Swedish consumers have steadily shifted toward this lower-risk form of smokeless tobacco. Most EU countries banned snus in 1992, preventing similar substitution. Sweden secured an exemption when it joined the EU in 1995.

The divergence is stark. Adult male smoking prevalence in Sweden has fallen below 5%, far below the EU average of more than 20%.[25] Smoking-related mortality among Swedish men is correspondingly the lowest in the EU, a pattern Lars Ramström and Tom Wikmans link to substitution from cigarettes to snus.[26]

The EU ban on snus created a decades-long natural experiment across an entire customs union. The outcome is clear: harm reduction works.[27] Continuing the experiment looks less like caution than inertia bordering on negligence. (Proposed as a formal trial, it would likely fail any ethics review.)

The FCTC and the WHO have nonetheless rejected snus as a harm-reduction tool. A 2003 WHO report states: “There is no evidence to recommend that any smokeless tobacco product should be used as part of a harm reduction strategy.”[28] More recent guidance reiterates the position,[29] emphasizing risks while discouraging comparative claims about relative harm.[30]

The WHO applies an even more precautionary approach to e-cigarettes—rebranded as “electronic nicotine delivery systems,” or ENDS—despite evidence that they are far less harmful than cigarettes and more effective than conventional nicotine-replacement therapies at supporting cessation.[31]

The FCTC sits at the center of Bloomberg’s campaign. The institutional architecture is a textbook DoDO. Bloomberg funds academic research that provides intellectual support. It funds NGOs such as CTFK and members of the Global Alliance for Tobacco Control (GATC), which lobby governments to adopt FCTC-aligned policies. It also funds the WHO, which supplies the normative framework those NGOs deploy.

Bloomberg Philanthropies is not the only funder. The Gates Foundation, the Wellcome Trust, the Robert Wood Johnson Foundation, and various governments also contribute.[32] In some cases, government agencies fund NGOs that advocate for the agencies’ own policies, creating the appearance of grassroots support and short-circuiting democratic scrutiny.[33]

Pharmaceutical companies add another layer. Firms that manufacture nicotine-replacement therapies and cessation drugs benefit from regulatory limits on competing nicotine products. Some have funded advocacy organizations that lobby for those restrictions.[34] The logic of Yandle’s model becomes visible: bootleggers underwriting Baptists.

Taken together, this ecosystem reflects a top-down agenda shaped by a small group of funders, with Bloomberg at its center. Money flows through academics and NGOs that generate and promote policy arguments,[35] creating the appearance of broad consensus while narrowing the range of acceptable views.

This manufactured consensus is reinforced by expansive interpretations of FCTC Article 5.3. Intended to shield policy from tobacco-industry influence, it has been applied so broadly that it restricts engagement with entities only tangentially connected to tobacco.

The result borders on the absurd. The FCTC Conference of the Parties has met behind closed doors since 2010, excluding journalists and the public,[36] while NGOs aligned with the prevailing framework participate and publicly shame dissenting countries through “Dirty Ashtray Awards.”[37]

Interpol was denied observer status at COP6 in 2014 because it had accepted funding from Philip Morris International for anti-smuggling efforts.[38] The WHO’s Tobacco Cessation Consortium, launched in 2022, excludes tobacco and non-medical nicotine firms under Article 5.3 while including pharmaceutical and technology companies as partners.[39]

The contrast is stark. Companies that profit from medically sanctioned cessation products are welcomed. Companies that produce lower-risk alternatives—often more effective at helping smokers quit—are excluded.

The consequences can be perverse. In 2022, the WHO refused Emergency Use Listing for Covifenz, a COVID-19 vaccine developed by the Canadian company Medicago, because Philip Morris International held roughly a one-third stake in the firm. Health Canada had already authorized the vaccine, with efficacy exceeding 70%.[40] The WHO’s objection was not safety, but institutional policy under the FCTC.

The result was that low- and middle-income countries lost access to a viable vaccine during a pandemic because of a tobacco company’s investment. It is difficult to imagine a clearer case of policy overriding public health.

Some insiders have begun to question the system. Former WHO department directors Robert Beaglehole and Ruth Bonita conclude in The Lancet that the FCTC “is no longer fit for purpose, especially for low-income countries,” and call for harm reduction to be integrated into the framework.[41]

The treaty now functions less as a tool for harm reduction than as an institution oriented toward its own preservation.[42] The incentives embedded in the DoDO ecosystem have, so far, impeded reform.

V.        Cascades, Consensus, and Policy Entrenchment

The persistence of failed policies in the face of contrary evidence demands explanation. Timur Kuran and Cass Sunstein’s concept of availability cascades offers a useful framework.[43] An availability cascade occurs when repetition, not evidence, drives belief. The more often a claim circulates in public discourse, the more cognitively “available” it becomes—and the more likely people are to accept it as true.[44]

In the global health DoDO ecosystem, these cascades are driven by availability entrepreneurs. The mechanism is straightforward. A foundation funds research at a prestigious university. The research supports the foundation’s preferred policy. The foundation funds NGOs to promote the findings. Those NGOs lobby the WHO. The WHO issues guidance citing the research. Governments implement the guidance. The foundation then funds further research showing that implementation falls short, justifying additional funding and renewed intervention.

This circuit operates with minimal external constraint. At no point does meaningful democratic accountability enter the process. Research circulates within a closed funding network. NGOs answer to donors, not the populations they claim to represent. The WHO’s governance structures are dominated by health ministry officials rather than elected representatives. Governments often implement WHO guidance through administrative action rather than legislation, further insulating the process from political scrutiny.

Christopher Snowdon has documented a related phenomenon in the form of “sock puppet” NGOs—organizations that present as independent but rely on funding from the same entities whose policies they promote.[45] In that setting, a government agency uses an NGO to advance policies that would struggle under direct political scrutiny.

In global health, the pattern is broader and less transparent. Funding often originates from private foundations rather than governments, obscuring the underlying relationships.

The Gates Foundation’s simultaneous funding of the WHO, GAVI, academic research centers, and advocacy NGOs creates what can fairly be described as full-spectrum dominance of the policy space. Nearly every voice in the conversation is, directly or indirectly, funded by the same source.

VI.        Institutional Expansion Without Reform

The FCTC model is now spreading across global health governance with notable speed. The same DoDO architecture—WHO normative authority, foundation funding, NGO advocacy, and closed-door decision making—has expanded beyond tobacco to alcohol, sugar, ultra-processed foods, and pandemic governance.[46]

The proposed WHO Pandemic Agreement (formerly the “Pandemic Treaty”) marks the most ambitious extension of this model to date.[47] Drawing on the FCTC precedent, it would expand the WHO’s role in pandemic preparedness and response. Proposed provisions include surveillance obligations, benefit-sharing requirements for pathogen data, and “sustainable financing” mechanisms that would further entrench reliance on voluntary contributions—and with it, donor influence over priorities.

The COVID-19 pandemic exposed the institutional weaknesses the DoDO framework predicts. The WHO’s delayed response to the initial outbreak, its acceptance of Chinese government assurances, and its reluctance to investigate the laboratory-leak hypothesis reflected structural constraints, not isolated errors. An organization dependent on the goodwill of powerful member states and donors will predictably hesitate to challenge them.[48]

The Independent Panel for Pandemic Preparedness and Response reached a similar conclusion: the WHO lacked both the authority and the independence to respond effectively. The proposed remedy—more authority, more funding, more institutional machinery—misses the point. Expanding the powers of an institution already shaped by donor influence does not resolve the underlying problem.[49] It reinforces it.

The pattern extends to pharmaceutical regulation. The WHO’s prequalification program, funded in significant part by the Gates Foundation through UNITAID, plays a central role in determining which drugs and vaccines qualify for purchase with international donor funds.[50]

Despite decades of WHO involvement, substandard and falsified medicines remain widespread in low- and middle-income countries. Institutional incentives emphasize process compliance—reports, meetings, and grant disbursement—over measurable outcomes.[51]

The system excels at coordination and documentation. It performs less well at ensuring that patients in Lagos or Dhaka receive effective medicines.[52]

VII.        Incentives, Insulation, and Persistence

The preceding analysis reveals a consistent structural logic that defines health DoDOs. Several reinforcing mechanisms sustain the system and explain its persistence.[53]

Incentive misalignment. Every actor in the health DoDO ecosystem benefits from the continuation of the problem rather than its resolution. The WHO’s budget expands with each new health crisis. Foundations justify their existence by identifying new threats. NGOs rely on ongoing emergencies to sustain funding. Pharmaceutical companies profit from both disease and treatment. Academics build careers around an expanding regulatory apparatus. This is not conspiracy but ecology. Each actor pursues its own incentives, and those incentives align in ways that perpetuate the system.[54]

Democratic insulation. The system operates at a remove from democratic accountability. International agreements bind successor governments. Voluntary contributions bypass legislative appropriations. Expert committees, rather than elected officials, set technical standards. The populations most affected—often in developing countries—have little or no voice in the institutions that shape the policies governing their health.

Knowledge monopoly. Foundations influence not only policy, but the production of policy-relevant knowledge. By funding research, training researchers, and shaping institutional prestige, they exercise significant agenda-setting power. Dissent rarely faces direct censorship. It is filtered out through funding decisions. Researchers who challenge prevailing assumptions risk losing grants, publication opportunities, and career advancement. The result is a self-reinforcing consensus.

Failure as justification. Failure does not trigger reform; it triggers expansion. When the FCTC falls short of reducing global tobacco use, the response is to call for stronger implementation and additional funding. When the WHO underperforms during crises such as Ebola or COVID-19, the response is to expand its authority and resources. Mancur Olson’s logic of collective action explains why.[55] The beneficiaries of the system—bureaucrats, consultants, NGOs—are concentrated, organized, and motivated. The costs fall on diffuse populations that face high barriers to collective action. The system therefore persists, even when its results do not justify its expansion.

VIII.        Accountability Before Expansion

The health DoDO complex may be the most consequential of all DoDO ecosystems because its failures are measured in human lives. Eight million tobacco deaths annually. Millions more from malaria, tuberculosis, and childhood diseases that persist not for lack of effective interventions, but because the institutional apparatus prioritizes process over outcomes. A pandemic response that too often deferred to institutional constraints. And now a proposed Pandemic Agreement that would entrench the same structures that failed.

The path forward requires more than marginal reform. It requires restructuring international health cooperation around accountability and subsidiarity.

Funding reform. The WHO’s financing model must restore the primacy of assessed contributions. As long as the organization depends on voluntary, earmarked funding from a small group of donors, it will reflect their priorities rather than those of its members. If governments are unwilling to fund the WHO through assessed contributions, that reluctance is itself informative. It suggests they do not value its activities enough to support them through democratic fiscal processes.

Transparency and conflicts of interest. The revolving door among foundations, the WHO, and the NGO sector should be transparent and subject to conflict-of-interest rules at least as stringent as those applied to the tobacco industry under Article 5.3. If influence from Philip Morris is unacceptable, influence from major foundations should face comparable scrutiny. At a minimum, equivalent standards of transparency and accountability should apply.

Open governance. The FCTC’s decision-making process must be opened to public scrutiny. Closed-door negotiations on policies affecting billions are incompatible with democratic governance. Excluding journalists, independent researchers, and dissenting voices protects institutional incumbents, not the public.

Harm reduction. Harm reduction should be treated as a core principle of health policy, not a deviation from orthodoxy. Evidence from Sweden, the United Kingdom, Japan, and New Zealand shows that risk-proportionate regulation saves lives. The FCTC’s refusal to incorporate this evidence reflects institutional incentives, not scientific caution.

Democratic control. Health policies that affect domestic populations should be determined by domestic democratic institutions, not delegated to international bodies with attenuated accountability. International cooperation has a role in coordination, information sharing, and technical assistance. It is not a substitute for democratic self-governance.

The architects of the postwar international order understood that legitimacy flows from accountability. They designed the WHO to serve its member states, not to direct them. That relationship has reversed. Restoring it will require confronting not only entrenched institutional interests, but also the assumption that technical expertise and good intentions can substitute for democratic consent.

They cannot. They never have. In global health, where the stakes are measured in millions of lives, the cost of that assumption is too high to ignore.

[1] World Health Org., The Third Ten Years of the World Health Organization: 1968–1977, 45–60 (1978).

[2] Frank Fenner et al., Smallpox and Its Eradication 1345–48 (World Health Org. 1988).

[3] World Health Org., Declaration of Alma-Ata, Int’l Conf. on Primary Health Care (Sept. 12, 1978), https://www.who.int/teams/social-determinants-of-health/declaration-of-alma-ata.

[4] Marcos Cueto, The Origins of Primary Health Care and Selective Primary Health Care, 94 Am. J. Pub. Health 1864, 1864–74 (2004).

[5] Julian Morris, Defending Democracy from the DoDOs: How Power Escapes Democratic Control, Int’l Ctr. for L. & Econ. 4–6 (Mar. 12, 2026), https://laweconcenter.org/wp-content/uploads/2026/03/Defending-Democracy-from-the-DoDOs.pdf.

[6] Bruce Yandle, Bootleggers and Baptists—The Education of a Regulatory Economist, 7 Regulation 12, 12–16 (1983); Adam Smith & Bruce Yandle, Bootleggers and Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics 15–40 (Cato Inst. 2014).

[7] Devi Sridhar & Ngaire Woods, Trojan Multilateralism: Global Cooperation in Health, 4 Global Pol’y 325, 325–35 (2013).

[8] World Health Org., Programme Budget 2022–2023: Financial Overview and Contributors (2023), https://open.who.int (last visited Mar. 10, 2026); see also Flexibly Funding WHO? An Analysis of Its Donors’ Voluntary Contributions, 8 BMJ Glob. Health e011232 (2023).

[9] Id.

[10] Lawrence O. Gostin et al., The Normative Authority of the World Health Organization, 129 Pub. Health 854, 856–58 (2015).

[11] Sophie Harman, The Bill and Melinda Gates Foundation and Legitimacy in Global Health Governance, 22 Global Governance 349, 349–68 (2016).

[12] Sridhar & Woods, supra note 7.

[13] Devi Sridhar, Who Sets the Global Health Research Agenda? The Challenge of Multi-Bi Financing, 9 PLoS Med. e1001312 (2012).

[14] Calculations by authors based on Bill & Melinda Gates Found., 2023 Annual Report (2024), and Bill & Melinda Gates Found., 2024 Annual Report (2025) (finding roughly $2 billion in annual spending classified as “global health,” with comparable additional spending on closely related categories such as vaccine development, malaria, and tuberculosis).

[15] Anne-Emanuelle Birn, Philanthrocapitalism, Past and Present: The Rockefeller Foundation, the Gates Foundation, and the Setting(s) of the International/Global Health Agenda, 12 Hypothesis e8 (2014).

[16] Linsey McGoey, No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy (Verso 2015).

[17] David McCoy et al., The Bill & Melinda Gates Foundation’s Grant-Making Programme for Global Health, 373 Lancet 1645, 1645–53 (2009).

[18] Judith Richter, Public-Private Partnerships and International Health Policy-Making: How Can Public Interests Be Safeguarded? 31–50 (World Health Org. 2004).

[19] McCoy et al., supra note 17, at 1650.

[20] Bloomberg Philanthropies, Bloomberg Initiative to Reduce Tobacco Use, https://www.bloomberg.org/public-health/reducing-tobacco-use (last visited Apr. 2, 2026); Philanthropy N.Y., Bloomberg Philanthropies Launches $420 Million Initiative to Reduce Tobacco Use Globally (Feb. 2, 2023), https://philanthropynewyork.org/news/bloomberg-philanthropies-commits-additional-420-million-reduce-tobacco-use-globally (last visited Apr. 2, 2026).

[21] Campaign for Tobacco-Free Kids, Bloomberg Initiative to Reduce Tobacco Use, https://www.tobaccofreekids.org/what-we-do/global/bloomberg (last visited Apr. 2, 2026).

[22] WHO Framework Convention on Tobacco Control art. 5.3, May 21, 2003, 2302 U.N.T.S. 166.

[23] GBD 2019 Tobacco Collaborators, Spatial, Temporal, and Demographic Patterns in Prevalence of Smoking Tobacco Use and Attributable Disease Burden in 204 Countries and Territories, 1990–2019, 397 Lancet 2337 (2021); World Health Org., Global Report on Trends in Prevalence of Tobacco Use 2000–2030 (4th ed. 2021).

[24] Steven J. Hoffman et al., Impact of the WHO Framework Convention on Tobacco Control on Global Cigarette Consumption: Quasi-Experimental Evaluations Using Interrupted Time Series Analysis and In-Sample Forecast Event Modelling, 365 BMJ l2287 (2019); see also Steven J. Hoffman & Cigdem Tan, Overview of Systematic Reviews on the Health-Related Effects of Government Tobacco Control Policies, 15 BMC Pub. Health 744 (2015).

[25] Eur. Comm’n, Special Eurobarometer 539: Attitudes of Europeans Towards Tobacco and Related Products (2023).

[26] Lars Ramström & Tom Wikmans, Mortality Attributable to Tobacco Among Men in Sweden and Other European Countries: An Analysis of Data in a WHO Report, 12 Tobacco Induc. Dis. 14 (2014).

[27] Id.; see also Karl Fagerström & Elsy-Britt Schildt, Should the European Union Lift the Ban on Snus? Evidence from the Swedish Experience, 98 Addiction 1191, 1191–95 (2003).

[28] World Health Org., Scientific Advisory Committee on Tobacco Product Regulation (SACTob), Recommendation on Smokeless Tobacco Products 4 (2003).

[29] World Health Org. Framework Convention on Tobacco Control Secretariat, Smokeless Tobacco Products: Guide to Drafting Regulation to Implement the WHO FCTC 4, 8 (2024).

[30] Id. at 22.

[31] Julian Morris, The World Health Organization’s Opposition to Tobacco Harm Reduction: A Threat to Public Health?, Reason Fdn. (2016); Ann McNeill et al., E-Cigarettes: An Evidence Update—A Report Commissioned by Public Health England (Aug. 2015) (finding vaping approximately 95% less harmful than combustible cigarettes); Royal Coll. of Physicians, Nicotine Without Smoke: Tobacco Harm Reduction 56–75 (2016) (endorsing e-cigarettes as a cessation tool); Peter Hajek et al., A Randomized Trial of E-Cigarettes Versus Nicotine-Replacement Therapy, 380 New Eng. J. Med. 629, 629–37 (2019) (finding e-cigarettes nearly twice as effective as nicotine-replacement therapy for smoking cessation); Angela Difeng Wu et al., Electronic Cigarettes for Smoking Cessation: An Overview of Systematic Reviews and Evidence and Gap Map, Addiction (Mar. 26, 2026) (reporting higher ≥6-month cessation rates with nicotine e-cigarettes across multiple comparisons); Renée O’Leary et al., Examining E-Cigarettes as a Smoking Cessation Treatment: A Critical Umbrella Review Analysis, 266 Drug Alcohol Depend. 112520 (2025) (finding e-cigarettes more effective than other cessation treatments).

[32] See, e.g., Bill & Melinda Gates Found., Michael Bloomberg and Bill Gates Join to Combat Global Tobacco Epidemic, https://www.gatesfoundation.org/ideas/media-center/press-releases/2008/07/michael-bloomberg-and-bill-gates-join-to-combat-global-tobacco-epidemic (last visited Apr. 2, 2026); Wellcome Tr., Commercial Determinants of Health Programme; Robert Wood Johnson Found., Tobacco Policy Research and Advocacy Programs, https://www.rwjf.org (last visited Mar. 10, 2026). Philanthropic funding for global tobacco-control advocacy often flows through a small set of intermediary organizations—such as the Campaign for Tobacco-Free Kids, Vital Strategies, and the International Union Against Tuberculosis and Lung Disease—that distribute grants, coordinate advocacy campaigns, and provide technical assistance to governments. This structure creates a tightly integrated policy network aligning funding, research, and advocacy. See Sridhar & Woods, supra note 8.

[33] Christopher Snowdon, Sock Puppets: How the Government Lobbies Itself and Why 8–18 (Inst. of Econ. Aff. 2012).

[34] See, e.g., Pfizer Inc., U.S. Medical, Scientific, Patient and Civic Organization Funding Report: Fourth Quarter 2014 (2015) (listing grants to the Campaign for Tobacco-Free Kids, including $25,000 for the “2014 Youth Advocates of the Year Event”), https://cdn.pfizer.com/pfizercom/responsibility/grants_contributions/Yes_Report-2014-08.29.2017.pdf (last visited Apr. 2, 2026).

[35] Bloomberg Philanthropies, E-cigarettes, https://www.bloomberg.org/public-health/reducing-tobacco-use/e-cigarettes (last visited Apr. 4, 2026).

[36] See, e.g., World Health Org. Framework Convention on Tobacco Control, Conf. of the Parties, Fifth Sess., Summary Record of the Second Committee B Meeting, ¶ 2, FCTC/COP/5/REC/2 (Nov. 17, 2012), https://apps.who.int/gb/fctc/PDF/cop5/FCTC_COP5_REC2.pdf (last visited Apr. 4, 2026); World Health Org. Framework Convention on Tobacco Control, Conf. of the Parties, Rules of Procedure, Rule 5 (providing that sessions may be closed to the public).

[37] See Framework Convention Alliance (now Global Alliance for Tobacco Control), Dirty Ashtray Awards, COP advocacy materials (issued at successive Conferences of the Parties).

[38] WHO Framework Convention on Tobacco Control, Guidelines for Implementation of Article 5.3 (2008) (recommending that governments limit interactions with the tobacco industry and avoid partnerships with tobacco-related entities); see also WHO Framework Convention on Tobacco Control, Conf. of the Parties, Sixth Sess., Interpol’s Application for Observer Status, FCTC/COP/6/4 (July 24, 2014); see also Interpol, Interpol Global Complex for Innovation and Cooperation on Illicit Trade (discussing cooperation on illicit tobacco trade).

[39] World Health Org., Pharma, Tech and Social Media Companies Join Forces with WHO to Launch the Tobacco Cessation Consortium During World Health Summit in Berlin, Germany (Oct. 20, 2022), https://www.who.int/news/item/20-10-2022-pharma–tech-and-social-media-companies-join-forces-with-who-to-launch-the-tobacco-cessation-consortium-during-world-health-summit-in-berlin–germany.

[40] Tony Kirby, Philip Morris Ejected from Canadian Vaccine Collaboration, 11 Lancet Respiratory Med. e40 (2023); see also WHO Refuses Emergency Use Listing for Medicago COVID-19 Vaccine Due to Philip Morris International Ties, Tobacco Asia (Mar. 18, 2022).

[41] Robert Beaglehole & Ruth Bonita, Tobacco Control: Getting to the Finish Line, 399 Lancet 1865 (2022).

[42] Christopher Snowdon, Killjoys: A Critique of Paternalism 85–96 (Inst. of Econ. Aff. 2017) (discussing the “closed shop” dynamics of FCTC COP meetings).

[43] Timur Kuran & Cass R. Sunstein, Availability Cascades and Risk Regulation, 51 Stan. L. Rev. 683, 683–768 (1999).

[44] Id. at 720–35.

[45] Snowdon, supra note 33, at 15–18 (describing how government-funded NGOs can create an “astroturf” effect that simulates grassroots support for policies originating within the bureaucracy).

[46] Ilona Kickbusch et al., The Commercial Determinants of Health, 401 Lancet 1223 (2023); Jeff Collin, Kelley Lee & Karen Bissell, The Framework Convention on Tobacco Control: The Politics of Global Health Governance, 23 Third World Q. 265 (2002); Christopher Snowdon, The Art of Suppression: Pleasure, Panic and Prohibition Since 1800 185–220 (Little Dice 2011).

[47] World Health Org., WHO Pandemic Agreement: Zero Draft, WHO Doc. A/INB/4/3 (Feb. 1, 2023).

[48] Indep. Panel for Pandemic Preparedness & Response, COVID-19: Make It the Last Pandemic 22–40 (2021); Lawrence O. Gostin, Suerie Moon & Benjamin M. Meier, Reimagining Global Health Governance in the Age of COVID-19, 110 Am. J. Pub. Health 1615 (2020); World Health Org., WHO-Convened Global Study of Origins of SARS-CoV-2: China Part (2021) (describing the laboratory-incident hypothesis as “extremely unlikely,” a conclusion later questioned by governments and scientific commentators); David Relman, Opinion: To Stop the Next Pandemic, We Need to Unravel the Origins of COVID-19, 375 Science 1262 (2021).

[49] Lawrence O. Gostin, The Future of the World Health Organization: Lessons Learned from Ebola, 93 Milbank Q. 475, 480–82 (2015).

[50] Roger Bate, Phake: The Deadly World of Falsified and Substandard Medicines 145–70 (AEI Press 2014).

[51] World Health Org., Substandard and Falsified Medical Products (Fact Sheet) (updated 2023), https://www.who.int/news-room/fact-sheets/detail/substandard-and-falsified-medical-products; Shinobu Ozawa et al., Prevalence and Estimated Economic Burden of Substandard and Falsified Medicines in Low- and Middle-Income Countries, 1 JAMA Network Open e181662 (2018); Roger Bate et al., Substandard and Falsified Anti-Tuberculosis Drugs: A Preliminary Field Analysis, 17 Int’l J. Tuberculosis & Lung Disease 308, 308–11 (2013).

[52] Amir Attaran et al., How to Achieve International Action on Falsified and Substandard Medicines, 345 BMJ e7381 (2012).

[53] Morris, supra note 5, at 15–18.

[54] Yandle, supra note 6, at 14–15; Morris, supra note 5, at 4–7.

[55] Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups 53–65 (Harvard Univ. Press 1965).

A Portuguese language version of this white paper is available here. 

Executive Summary

On September 18, 2025, the Brazilian government submitted Bill 4,675/2025 to the House of Representatives as part of President Luiz Inácio Lula da Silva’s “Digital Brazil Agenda.” The bill would amend Brazil’s Competition Law (Lei No. 12,529/2011) to create a new Digital Markets Superintendency (SMD) within the Administrative Council for Economic Defense (CADE), empower it to designate firms of “systemic relevance in digital markets” for up to 10 years, and impose “special obligations” drawn from a non-exhaustive statutory menu. These include prohibitions on self-preferencing, interoperability mandates, data portability requirements, mandatory merger notification regardless of existing thresholds, and broad business-user data access rights.

This paper argues that the bill is neither necessary under the current framework of Brazilian Competition Law (BCL) nor supported by compelling evidence from the antitrust literature. If enacted, it would require substantial modification to reduce its legal, economic, and institutional risks.

A.       Overarching Findings

Three findings anchor this conclusion.

1. Existing competition law already achieves the bill’s stated objectives. CADE’s December 2025 settlements with Apple and Google demonstrate that case-by-case enforcement through traditional Termos de Compromisso de Cessação (TCCs) already produces the outcomes the bill seeks to impose through ex ante These settlements were tailored to specific market conditions and allowed security-sensitive balancing that rigid rules cannot replicate. Despite CADE’s active oversight of digital markets, there remains no adjudicated finding of infringement under the BCL concerning the types of conduct the bill would regulate, weakening the evidentiary case for a sweeping new regime.
2. European evidence counsels caution. Emerging empirical evidence from the EU’s Digital Markets Act (DMA) suggests that regulatory obligations have harmed consumers, failed to shift market dynamics, and chilled innovation without delivering on contestability promises. Studies document measurable welfare losses. DMA-mandated changes to Google Maps increased search queries by 21% without increasing traffic to competing services. Chiara Farronato, Andrey Fradkin, and Alexander MacKay find that removing Amazon’s private-label products would reduce consumer surplus by 5.5%. Other evidence shows that Amazon’s post-DMA search results display fewer products (an 18% decline) and fewer sellers per product (a 7% decline). Consumer surveys report increased friction in routine online tasks, while 80% of respondents had no awareness of the DMA. Innovation costs are also significant. Apple, Meta, and Google have delayed European product launches due to compliance requirements, creating an “innovation tax” on consumers in regulated jurisdictions. At the macro level, Mario Draghi’s 2024 report finds that Europe’s productivity gap with the United States is largely explained by the technology sector and identifies excessive regulation as a key contributing factor.

3. Brazil’s institutional constraints amplify the risks. Brazil ranks 78th of 143 countries on the Rule of Law Index and 124th on ease of doing business, increasing the risks associated with broad regulatory discretion. The country already faces the “Brazil Cost,” estimated at approximately R$1.7 trillion annually (roughly 19.5% of GDP), and ranks among the most restrictive jurisdictions in OECD product-market regulation indicators. The bill also carries geopolitical risk. As the United States increasingly frames foreign digital regulation as discriminatory toward U.S. firms, adopting a DMA-style regime may expose Brazil to policy responses that lawmakers have not fully considered.

B.        Summary of Recommendations

The paper offers three tiers of recommendations, together with targeted revisions to the bill’s most problematic provisions.

1.       Tier 1: Forgo Ex Ante Regulation; Strengthen Existing Enforcement

The preferred approach is to forgo ex ante regulation and instead strengthen CADE’s existing enforcement toolkit through additional resources, streamlined procedures, and targeted market studies and sector inquiries. Brazil should allow more evidence to accumulate from jurisdictions that moved first before imposing untested regulatory burdens.

Alternative models demonstrate that broad regulation is not the only option. Japan’s Mobile Software Competition Act, effective December 2025, adopts a narrower approach focused on smartphone software ecosystems, incorporates objective-justification defenses tied to cybersecurity and system stability, does not require web-based sideloading, and explicitly protects device security and user information. A targeted model of this kind is more likely to achieve policy objectives without the collateral costs of a comprehensive regime.

2.       Tier 2: If Ex Ante Regulation Proceeds, Impose Substantial Guardrails

The bill raises five principal concerns. The following modifications would mitigate its most significant risks:

a)         Objectives and Limiting Principles (Art. 47-B)

The bill’s objectives—reducing entry barriers, protecting the competitive process, and promoting freedom of choice—lack a consumer-welfare anchor and risk justifying intervention that protects competitors rather than consumers.

Recommendations:

• Enshrine consumer welfare as the regime’s explicit limiting principle.
• Retain the three objectives only as indicators of potential harm, not as independent bases for enforcement.

b)         Designation Test (Art. 47-C; Art. 87-A)

The designation framework conflates market reach with market power and relies on structural proxies that risk capturing firms whose size reflects competitive success.

Recommendations:

• Require demonstrated, durable market power as a prerequisite for designation.
• Replace “systemic relevance” with “substantial market power” or “competitive significance.”
• Apply designation to specific services, not entire corporate groups.
• Shorten the designation period to three to five years, with mandatory periodic review.
• Remove counterproductive factors, such as “multiple digital products or services.”
• Incorporate indicators of actual competitive constraints, including potential competition and technological disruption.

c)         Institutional Design (Arts. 14-A, 14-B)

The creation of a second superintendency risks fragmentation, overlap, and inconsistent enforcement.

Recommendations:

• House the digital-markets function within the existing General Superintendence.
• Introduce complaint-screening mechanisms to deter strategic filings.
• Clarify regulatory responsibilities through statutory provisions.
• Address resource constraints explicitly.

d)         Prohibited and Mandated Practices (Art. 47-E)

The bill’s per se prohibitions and mandates risk condemning procompetitive conduct and creating tensions with security, privacy, and investment incentives.

Recommendations:

• Recognize that self-preferencing, vertical integration, and related practices can be procompetitive.
• Replace vague categories such as “predatory or abusive strategies” with effects-based standards.
• Introduce structured defenses based on security, privacy, fraud prevention, and trade-secret protection.
• Require proportionality assessments and mandatory CADE-ANPD coordination.
• Remove the blanket merger-notification requirement or replace it with a targeted call-in mechanism.

e)         Defenses (Art. 47-E, §2; Art. 87-B, §1; Art. 87-G)

The absence of an efficiencies defense creates a fundamental inconsistency with the BCL.

Recommendations:

• Adopt a meaningful efficiencies defense aligned with Articles 36, § 1 and 88, § 6 of the BCL.
• Replace “may consider” with “shall consider.”
• Define “economic justification” as requiring proportionality, net consumer benefit, and least-restrictive means, and make it judicially reviewable.
• Require reasoned economic analysis in Tribunal decisions..

3.       Tier 3: At a Minimum, Require a Regulatory Impact Assessment

At a minimum, the bill should undergo a rigorous Regulatory Impact Assessment prior to enactment. Brazil’s Economic Freedom Act (Lei No. 13,874/2019) already imposes such requirements on regulatory agencies, and Congress should apply the same standard to legislation of this magnitude. The European Commission conducted such an assessment before adopting the DMA; no equivalent preceded Bill 4,675/2025.

C.       Final Observation

Brazil has the opportunity to learn from, rather than replicate, the experience of jurisdictions that moved first. The available evidence suggests that the costs of ex ante digital regulation are real and measurable, while its benefits remain uncertain. Strengthening existing competition-law tools, investing in institutional capacity, and maintaining regulatory humility offer a more promising path for promoting consumer welfare and innovation.

I.          Introduction

On September 18, 2025, the Brazilian government submitted Bill 4,675/2025 to the House of Representatives as part of President Luiz Inácio Lula da Silva’s “Digital Brazil Agenda.”[1] The bill would amend Brazil’s Competition Law (BCL)[2] to create a new Digital Markets Superintendency (Superintendência de Mercados Digitais, or SMD) within the Administrative Council for Economic Defense (CADE). It would empower the SMD to designate firms of “systemic relevance in digital markets” (relevância sistêmica em mercados digitais) for up to 10 years and impose “special obligations.” These obligations may include prohibitions on self-preferencing, interoperability mandates, data-portability requirements, mandatory merger notification regardless of existing thresholds, and broad business-user data-access rights.[3]

This paper argues that the bill is neither necessary under the current BCL framework nor supported by compelling, undisputed evidence from the antitrust literature.[4] Three findings anchor this conclusion.

First, CADE’s December 2025 settlement with Apple shows that existing Brazilian competition law already can achieve the outcomes the bill seeks to mandate. Through case-by-case enforcement, CADE secured tailored, security-sensitive remedies—including the allowance of third-party app stores, alternative payment systems, and the removal of anti-steering restrictions—without resorting to ex ante regulation.[5]

Second, a growing body of empirical evidence, particularly from the European Union’s Digital Markets Act (DMA), suggests that at least some digital regulatory obligations have harmed consumers, failed to shift market dynamics, and chilled innovation, without delivering on promised gains in contestability.

Third, Brazil’s institutional constraints heighten the risks of broad regulatory discretion. Brazil ranks 78th of 143 countries on rule of law[6] and 124th on ease of doing business.[7] These conditions make expansive, discretionary regulation more likely to generate error costs than in the jurisdictions the bill seeks to emulate.[8]

The paper proceeds in two parts. Section II situates the bill in its Brazilian and international context and presents the affirmative case that ex ante regulation is unnecessary—or, at minimum, untested and premature. Section III offers a systematic critique of the bill’s core provisions, including its institutional design, prohibitions, and mandates.

The paper concludes with tiered recommendations. First, it proposes strengthening CADE’s existing enforcement toolkit. Second, it outlines guardrails to mitigate risks if ex ante regulation proceeds. Third, it recommends a minimum requirement of a rigorous regulatory-impact assessment.

II.      The Case Against Ex Ante Regulation in Brazil

The case for Bill 4,675/2025 rests on two implicit premises: first, that digital markets in Brazil exhibit competition problems that existing law cannot adequately address; and second, that the ex ante regulatory model developed abroad has proven sufficiently effective to justify adoption in Brazil. Neither premise withstands scrutiny.

This section evaluates those assumptions from four complementary angles.

Section II.A situates the bill within the broader global shift toward ex ante digital-market regulation. It shows that, despite frequent claims to the contrary, there is no settled international consensus on either the necessity or the design of such regimes.

Section II.B turns to Brazil’s own experience. It examines CADE’s recent enforcement actions—particularly the Apple and Google settlements—and shows that existing Brazilian competition law already can deliver the same types of outcomes the bill seeks to mandate, without imposing additional regulatory burdens.

Section II.C then assesses the growing empirical record from the European Union’s Digital Markets Act (DMA). The available evidence suggests that ex ante obligations have, in some cases, increased consumer costs, failed to shift competitive dynamics, and introduced frictions without delivering measurable gains in contestability.

Section II.D explains why these risks are amplified in Brazil. The country’s institutional constraints, existing regulatory burdens, opportunity costs, and geopolitical exposure make the adoption of a discretionary, design-based regulatory regime particularly hazardous.

Taken together, these considerations undermine the bill’s core justification. They show not only that Brazil lacks a demonstrated need for ex ante intervention, but also that the model it seeks to emulate carries significant and well-documented risks.

A.       The Rise of Ex Ante Digital Regulation—and Its Limits

Over the past decade, a series of influential policy reports argued that traditional antitrust enforcement struggles to address fast-moving digital markets. The most prominent—the European Commission’s Competition Policy for the Digital Era (the “Cremer Report”), the United Kingdom’s Unlocking Digital Competition (the “Furman Report”), and the Stigler Center’s study of digital platforms—converged on a shared diagnosis. They contended that network effects, data advantages, and tipping dynamics create structural barriers that ex post enforcement cannot remedy in a timely manner.[9] Filippo Lancieri and Patricia Sakowski later synthesized these reports, documenting the extent to which they rely on a common intellectual framework that treats digital markets as structurally prone to entrenchment.[10]

This intellectual convergence helped catalyze a wave of legislative initiatives, including Germany’s Section 19a of the GWB (2021), the European Union’s Digital Markets Act (DMA) (2022), and the United Kingdom’s Digital Markets, Competition and Consumers Act (DMCC) (2024).[11]

Supporters often portray this shift as reflecting a broad international consensus. That claim overstates the degree of agreement. As Lazar Radic explains in his analysis of the “imaginary antitrust consensus,” no consensus exists on three foundational premises: whether digital markets are inherently more prone to anticompetitive conduct, whether ex ante rules are necessary to address any such risks, or—among proponents—what an optimal regulatory framework should look like.[12] Outside the European Union, adoption of DMA-style regimes remains limited, particularly in the United States.[13]

Herbert Hovenkamp offers a related critique. He argues that antitrust’s firm-specific approach remains better suited to digital markets precisely because platforms differ in inputs, products, customer relationships, and third-party interactions. Broad ex ante rules, by contrast, risk misfiring in heterogeneous markets.[14]

To the extent a common purpose emerges from these regimes, it may not center on consumer protection. Critics argue that measures like the DMA instead aim to “level down” large firms and redistribute rents to politically favored rivals, rather than address demonstrable structural harms.[15]

Brazil’s engagement with this debate has followed a winding path. Its first major proposal, Bill 2,768/2022, combined the DMA’s rigid regulatory structure with the rhetoric of the U.S. “New Brandeis” movement, citing both the European model and the work of Lina Khan and Tim Wu.[16] That bill stalled in committee.

In January 2024, the Ministry of Finance’s Secretariat of Economic Reforms launched a public consultation on digital platform regulation, receiving 298 submissions from 72 participants.[17] The Ministry’s post-consultation report, published in October 2024, rejected the DMA’s blanket prohibitions.[18] Instead, it proposed a flexible “hybrid” model that would allow CADE to designate systemically relevant platforms and impose tailored obligations following a detailed, case-specific investigation of each firm’s business model.

That report underpins Bill 4,675/2025. Even so, it rests on questionable premises—particularly the assumption that digital markets tend toward “winner-take-all” outcomes.[19] Empirical evidence shows that tipping and entrenchment are not universal features of platform markets.[20] They must be demonstrated, not presumed.

Against a backdrop of unrelated concerns about children’s online safety, the executive branch unveiled its “Digital Brazil Agenda” on September 17, 2025, and submitted Bill 4,675/2025 the following day.[21] As noted above, the bill would amend Brazil’s Competition Law to create a digital-markets regulatory apparatus within CADE. It would establish a Superintendência de Mercados Digitais (SMD) empowered to designate firms of “systemic relevance” and impose “special obligations” drawn from a non-exhaustive statutory menu.

Mimicking foreign regimes, even if that is the goal, does not establish the existence of market failures in Brazil’s digital economy. The Ministry’s consultation record reveals sharply divided stakeholder views. Some observers—including the Coalition for App Fairness, Mercado Livre, and Match Group—argued that existing enforcement is insufficient. Others—including Amazon Brazil, Google, CCIA, camara-e.net, academic groups, and think tanks such as the Legal Grounds Institute, the Information Technology and Innovation Foundation (ITIF), the Global Antitrust Institute (GAI), and TechFreedom—countered that current antitrust tools are flexible enough to address digital markets without incurring the innovation costs of ex ante regulation.[22]

The bill also reflects broader global tensions surrounding these regimes. Its Explanatory Memorandum (Exposição de Motivos Interministerial, or EMI) claims the proposal is tailored to Brazilian conditions.[23] At the same time, it asserts that the law would place Brazil “at the vanguard” (na vanguarda) of digital-platform regulation alongside Germany, Japan, and the United Kingdom.[24] This aspiration to regulatory leadership sits uneasily with the claim that the bill reflects a cautious, evidence-based response to domestic conditions.

Ultimately, the burden rests on proponents to demonstrate a Brazil-specific problem that only an ex ante regime can solve. As the next section shows, the available evidence points in the opposite direction.

B.        Existing Brazilian Competition Law Is Sufficient

The strongest argument against Bill 4,675/2025 is empirical, not theoretical. Brazil’s existing competition-law framework has already demonstrated its ability to achieve the bill’s stated objectives.

In December 2025, CADE reached a landmark settlement with Apple through a Termo de Compromisso de Cessação (TCC). The agreement requires Apple to permit third-party app stores on iOS, enable alternative payment processors, remove anti-steering restrictions that prevented developers from informing users about lower-priced alternatives, and adopt neutral language in its communications about these changes.[25] Apple was required implement these measures within 105 days under a three-year agreement.

CADE secured a parallel outcome in the Android ecosystem. That same month, it finalized another sweeping TCC with Google.[26] The agreement prohibits Google from conditioning Google Play Store licensing on the preinstallation or preferential placement of proprietary apps such as Google Search and Google Chrome. It also bars Google from tying revenue-sharing payments to device manufacturers and network operators to the exclusion of rival search services. Google had to notify its partners of these changes and renounce incompatible exclusivity provisions within 45 days, also under a three-year agreement.

These settlements deliver the same types of outcomes that Bill 4,675/2025 would impose through its menu of “special obligations.” CADE achieved them through existing law, with several advantages over an ex ante regime.

First, the remedies were tailored to the specific facts and competitive dynamics of each case. In the Apple matter, for example, the company resisted a direct sideloading mandate on legitimate security and privacy grounds, yet still implemented substantial ecosystem changes. Case-by-case enforcement thus permits the kind of nuanced, security-sensitive balancing that rigid ex ante rules may not replicate.[27]

Second, the settlements produced concrete, enforceable commitments with clear timelines. By contrast, ex ante regimes often generate open-ended obligations that evolve through ongoing negotiation. As Europe’s experience with the DMA illustrates, such frameworks can devolve into moving targets and perpetual compliance disputes, where “conflicts of interest will be deemed resolved only when competitors are satisfied”—an inherently unstable equilibrium disconnected from consumer welfare.[28]

Given their sweeping effects, ex ante digital-market rules should be adopted only after a clear, market-wide showing that Brazil faces systemic failures that ex post enforcement cannot adequately address. In legal terms, that showing would ordinarily rest on a sufficiently developed body of case law justifying such far-reaching intervention. That condition has not been met.[29]

To be sure, the Apple and Google cases demonstrate that CADE is actively engaged in digital markets. They show sustained attention and an ability to deliver meaningful outcomes.[30] But those outcomes were achieved through negotiated settlements, not adjudicated decisions on the merits. As a result, no infringement findings exist under Brazilian competition law in digital markets for the types of conduct that an ex ante regime would regulate.

That distinction matters. Settlements may replicate the practical effects of liability findings, but they do not establish legal precedent. The absence of adjudicated violations weakens the case for expanding Brazilian competition law into a rigid ex ante framework.

Brazil thus lacks a sufficiently developed domestic evidentiary record to justify such a regime. The recent settlements reinforce this point: they show not that current law is inadequate, but that it is capable of addressing alleged concerns through targeted enforcement. An ex ante framework would become more plausible only if experience under existing law produced a robust record demonstrating persistent enforcement failures.

CADE’s own market study underscores this gap. The Cadernos do Cade: Mercados de Plataformas Digitais reflects both the agency’s technical sophistication and the limits of its enforcement record.[31] On one hand, the study documents CADE’s growing expertise across platform markets. On the other, it confirms that past investigations have resulted in settlements or dismissals, not infringement findings.[32]

This absence of convictions does not signal institutional weakness. To the contrary, CADE remains one of the world’s most respected competition authorities. The OECD’s 2019 peer review described Brazil’s regime as “largely a success” and praised CADE’s “technical capabilities.”[33] The agency continues to demonstrate proactive enforcement. In 2024, for example, it opened investigations into acquisitions of AI startups by large technology firms below standard merger-notification thresholds, using existing tools to address emerging concerns.[34]

Proponents of the bill raise two principal counterarguments. First, some note that CADE’s Google Shopping case ended in a tie vote, resolved by the president’s casting vote, and that digital investigations can take five to seven years.[35] These concerns are real. But they do not justify creating an entirely new regulatory apparatus. The Apple and Google settlements show that CADE’s toolkit has bite.[36] If enforcement speed is the issue, the appropriate response is to allocate more resources and streamline procedures—not to build a parallel regulatory regime with its own institutional costs. Europe’s DMA experience has produced the very problems it sought to avoid: lengthy proceedings, protracted compliance negotiations, and parallel antitrust investigations.[37]

Second, supporters point out that CADE itself has endorsed the idea of ex ante regulation. In its submission to the Ministry of Finance’s consultation,[38] the agency supported a complementary framework to address “dysfunctions in digital ecosystems, such as functional and distributive failures.”[39] At the same time, CADE emphasized the need to better understand the heterogeneity of digital markets[40] and highlighted the importance of a rigorous regulatory-impact analysis. Such an analysis preceded the DMA in Europe.[41] No comparable assessment preceded Bill 4,675/2025.

CADE’s institutional views merit serious consideration. But they must be weighed against the agency’s own enforcement record. An authority that has secured DMA-like outcomes through existing tools has shown, in practice, that it does not require an entirely new regulatory layer to achieve those results. Moreover, support for ex ante regulation in principle does not validate the specific design choices embedded in Bill 4,675/2025.

Those design choices raise additional concerns. The bill would create a new superintendency, introduce a non-exhaustive list of remedies, rely on unclear economic standards, and omit an efficiency defense. These features carry significant risks for Brazil’s digital economy. Evidence from other jurisdictions underscores those risks.

C.       Evidence from the DMA: Limited Benefits and Emerging Costs

Bill 4,675/2025 does not emerge in an international vacuum. The European Union’s Digital Markets Act (DMA) has been fully applicable since May 2023,[42] giving policymakers the benefit of observed outcomes, rather than theoretical projections. The emerging evidence is not encouraging.

The most granular evidence comes from Louis-Daniel Pape and Michelangelo Rossi, who examined the DMA’s restrictions on self-preferencing in the relationship between Google Search and Google Maps.[43] In January 2024, Google removed the Maps tab and clickable links from map previews on EU search pages to comply with Article 6(5) of the DMA. Using a difference-in-differences design comparing EU and non-EU countries, the authors find that mapping-related search queries in the EU increased by more than 21%. Despite this increase, overall visits to Google Maps did not change, and competing mapping services did not gain traffic. The regulation forced users to take additional steps to reach the same destination, increasing search costs without delivering meaningful competitive benefits. As the authors concluded, “these findings indicate that the DMA had weak competitive effects, highlighting Google Maps’ dominance in a market where alternatives remain limited.”[44]

Similar patterns appeared in e-commerce. Chiara Farronato, Andrey Fradkin, and Alexander MacKay conducted a field experiment on Amazon’s private-label products.[45] They found that prohibiting Amazon from offering its own brands would reduce consumer surplus by 5.5% due to lost variety. They concluded that “[c]ontrary to concerns about self-preferencing, demoting Amazon brands in search results does not increase welfare….”[46] Moreover, “[t]he consumer benefits from Amazon brands are driven both by cost advantages and by the product variety they generate… [with] value approximately 80 percent higher than the value of random products appearing in the same searches.”[47]

Additional evidence points in the same direction. Christian Peukert et al. presented preliminary findings on “Amazon’s Shrinking Shelf.”[48] Using a difference-in-differences framework, they documented an 18% decline in the number of products displayed in search results and a 7% decline in the number of sellers per product in the EU following DMA and Digital Services Act (DSA) changes.[49] These results suggest a narrowing of consumer choice.

Consumer surveys corroborated these findings. A study by the European Center for International Political Economy (ECIPE) and the European Public Policy Partnership (EPPP), based on 3,500 respondents across seven Central and Eastern European countries, found that 39% of users reported more cumbersome online tasks after the DMA, about one-third described their experience as “less seamless and more confusing,” and 80% had little or no awareness of the DMA.[50] The study found no evidence of lower prices, improved privacy, or increased contestability. Consumer behavior remained largely unchanged: more than 70% of respondents still relied on Google Search multiple times daily, and dependence on incumbent platforms remained “as strong as ever.”[51]

A separate survey by Nextrade Group of 5,000 EU consumers reported similar results. Among heavy search-engine users, 60% said routine searches took up to 50% longer, and 42% of frequent travelers reported less useful flight and hotel results.[52] These consumer costs coincided with broader economic impacts. Carmelo Cennamo, Tobias Kretschmer, Ioanna Constantiou, and Eliana Garcés estimated that DMA provisions could reduce EU service-sector revenues by up to €114 billion annually—approximately 0.64% of total sector turnover[53]—equivalent to losses of up to €1,122 per worker, depending on digital intensity.[54]

The DMA’s enforcement trajectory reinforces these concerns. In March 2025, the European Commission issued preliminary noncompliance findings against Alphabet,[55] with sanctions likely to follow.[56] In April 2025, it imposed fines of €500 million on Apple and €200 million on Meta.[57] Both companies have appealed.[58] In January 2026, the Commission opened two sets of specification proceedings against Google, covering Android and its AI services, including Gemini.[59] These developments suggest a pattern: when initial compliance proves insufficient, regulators move from setting obligations to prescribing technical implementation.[60] Enforcement thus becomes a continuous administrative process, requiring sustained oversight and significant institutional resources.

While ex ante regulation may accelerate intervention, it also increases the risk of false positives. Such regimes can impose remedies that generate “negative consequences in terms of innovation.”[61] Because the DMA relies on “detailed and absolute obligations… that do not admit of proof to the contrary,” and applied them across platforms regardless of business-model differences, it effectively “dispens[es] with the investigation itself… in a manner that is close to summary justice,” potentially penalizing conduct that benefits competition.[62]

Beyond immediate consumer effects, ex ante regulation appears to chill innovation. Apple delayed the European rollout of several features—including AirPods live translation, iPhone mirroring, and Apple Maps enhancements—citing risks to security, privacy, and user experience.[63] Meta postponed the EU launch of Threads due to uncertainty about data-integration rules.[64] Google reported that compliance with overlapping frameworks—including the DMA, Digital Services Act, and AI Act—has delayed product launches by up to a year,[65] particularly for AI-integrated services.[66] These delays function as an “innovation tax” on consumers in regulated jurisdictions—with costs that are real but diffuse, and unlikely to generate political backlash.[67]

Evidence from earlier European digital regulation reinforced these concerns. Mert Demirer, Diego Jiménez Hernández, Dean Li, and Sida Peng found that the GDPR reduced data storage by 25.7% and data processing by 15.4% among EU firms relative to U.S. counterparts, consistent with a 22.4% increase in data costs.[68] Smaller firms bore disproportionately higher burdens. The GDPR thus operates less as a neutral governance tool than as a tax on data-intensive activity.

Jian Jia, Ginger Zhe Jin, and Liad Wagman found that venture-capital investment in European technology startups declined by 26.1% in the year following the GDPR’s implementation.[69] Subsequent work found these effects persisted for at least 2.5 years.[70] The GDPR thus appears to have dampened startup financing and growth prospects.

Layering the DMA’s behavioral obligations onto this framework was bound to compound these effects. As prior research noted, “the GDPR experience demonstrates how sweeping regulation may create barriers to entry or encourage market exit among small tech firms.”[71]

The broader macroeconomic context underscores these concerns. In a widely cited 2024 report, former European Central Bank President Mario Draghi identified the technology sector as the primary driver of the growing productivity gap between the European Union and the United States.[72] He concluded that Europe lagged in the very technologies that will shape future growth.[73]

Draghi attributed this gap, in significant part, to regulatory constraints:

The problem is not that Europe lacks ideas or ambition. We have many talented researchers and entrepreneurs filing patents. But innovation is blocked at the next stage: we are failing to translate innovation into commercialisation, and innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive regulations.[74]

Europe’s innovation gap is stark. Only four of the world’s 50 largest technology companies are European.[75] The region lacks counterparts to firms such as Google, Apple, Amazon, Meta, OpenAI, and Anthropic. These structural weaknesses may deepen if the DMA reduces startup exit opportunities[76] or weakens core revenue models, such as digital advertising.[77]

Causation is complex. But the correlation between Europe’s regulatory posture and its innovation deficit is difficult to ignore. Jurisdictions considering similar frameworks should weigh these tradeoffs carefully.

D.       Elevated Risks in the Brazilian Context

The foregoing evidence from Europe is concerning on its own terms. The risks of importing this model are even greater in Brazil. Institutional capacity constraints, existing regulatory burdens, opportunity costs, and geopolitical exposure all amplify the potential downsides of ex ante regulation.

Institutional capacity presents the most immediate concern. Brazil ranks 78th of 143 countries on the World Justice Project Rule of Law Index[78] and 124th on ease of doing business.[79] These rankings suggest that broad regulatory discretion is a particularly risky policy tool for Brazil. Digital antitrust regulation is especially vulnerable to capture because “the extremely high stakes will increase the incentives for incumbent digital firms to use regulation to protect the economic status quo.”[80] It also creates risks of politically motivated enforcement, reduced foreign investment, and slower long-term growth.[81] These concerns carry added weight in Brazil, which ranks 107th of 181 countries on Transparency International’s Corruption Perceptions Index.[82]

Even well-resourced regulators face capacity constraints. The European Commission—despite its institutional advantages—has filled only 19 of 80 planned DMA positions, a 76% shortfall, as Director-General for Competition Olivier Guersent has acknowledged.[83] CADE is likely to face even greater challenges, particularly because Bill 4,675/2025 does not provide for additional resources.[84]

The Ministry of Finance has stated that the proposed Digital Markets Superintendency (SMD) would be created through internal reorganization, without additional funding.[85] That claim implies one of two outcomes. Either the new regime will be under-resourced, increasing the risk of low-quality decisions, or it will divert scarce personnel from CADE’s core antitrust functions. Neither outcome is desirable. Ex ante regimes require specialized expertise that goes beyond traditional competition law and economics. Monitoring and enforcing design-based obligations demands capabilities in data science, engineering, and digital product development. A simple reallocation of existing staff is unlikely to meet these demands.

Brazil’s broader regulatory environment compounds these concerns. The country has long struggled with the “Custo Brasil,” which reflects structural inefficiencies that raise the cost of doing business, deter investment, and suppress entrepreneurship. [86] A 2019 study by Movimento Brasil Competitivo, conducted with the Ministry of Development, Industry, Trade, and Services, estimated that these inefficiencies imposed an annual burden of roughly R$1.7 trillion (about $330 billion), or 19.5% of GDP in 2022. “This means that producing and operating in Brazil costs R$1.7 trillion more per year than in countries belonging to the Organization for Economic Cooperation and Development (OECD).”[87] These costs stem not only from regulatory distortions, but also from tax complexity, infrastructure gaps, bureaucracy, and legal uncertainty.[88]

International benchmarks reinforce this diagnosis. OECD Product Market Regulation indicators for 2023–24 rank Brazil as the fifth-worst of 51 countries in economy-wide regulatory burden.[89] The OECD highlights the need to simplify administrative requirements, reduce retail price controls, and strengthen mechanisms to assess the competitive impact of regulation.[90] These priorities point toward regulatory simplification—not expansion.

A 2022 OECD review reached a similar conclusion: Brazil’s regulatory challenges reflect structural weaknesses in the design, coordination, and evaluation of policy.[91] The report emphasized persistent gaps in regulatory-impact assessment, stakeholder consultation, and ex post evaluation. These findings suggest that Brazil should rationalize its regulatory framework before adding new layers. At a minimum, any new regulation should meet a high evidentiary threshold and demonstrate clear net benefits for consumers.

Opportunity costs further weaken the case for ex ante intervention. As Mario Zúñiga argues, competition concerns are not the most pressing policy priority in Latin America. Greater gains would come from reforms that reduce entry barriers, expand telecommunications infrastructure, and improve public goods such as education and legal certainty.[92]

A January 2026 ITIF report makes a related point: countries should calibrate regulatory stringency to their level of economic development. For emerging economies, flexible and interoperable frameworks are preferable to rigid EU-style rules.[93] Brazil’s priority should be attracting investment, not imposing compliance-heavy regimes that may deter entry.[94]

Geopolitical considerations add another layer of risk. Digital-platform regulation tends to fall disproportionately on U.S.-based firms. Critics have characterized the DMA as a “non-tariff attack”[95] on U.S. technology companies.[96] Of the seven DMA-designated gatekeepers, five are U.S. firms: Alphabet, Amazon, Apple, Meta, and Microsoft.[97] Regardless of intent, ex ante regimes de facto concentrate regulatory burdens on American companies.

The geopolitical environment has shifted significantly. Since 2025, the United States has treated foreign digital regulation as a matter of trade policy. The Trump administration has characterized such measures as “unfair taxes” or “overseas extortion.” In February 2025, President Donald Trump directed the Office of the U.S. Trade Representative to consider tariffs and other responses to foreign regulatory actions deemed discriminatory.[98]

Senior officials have reinforced this position. Vice President J.D. Vance criticized the DMA, the DSA, and the GDPR as barriers to innovation.[99] In December 2025, Secretary of State Marco Rubio imposed visa restrictions on European officials linked to digital regulation, signaling a willingness to escalate beyond trade measures.[100]

Brazilian officials have downplayed these risks. Finance Minister Dario Durigan has argued that U.S. antitrust enforcement against digital platforms suggests Brazil need not fear retaliation. That comparison is incomplete.[101] Traditional ex post enforcement differs fundamentally from a standing, designation-based regime of ongoing obligations. The United States may not treat these approaches as equivalent.

Durigan also emphasized the bill’s formal neutrality.[102] But formal neutrality does not eliminate geopolitical exposure. Even country-neutral rules may disproportionately affect U.S. firms and be perceived accordingly.

The assertion that EU tech regulation is discriminatory is not merely a complaint from American boardrooms; it is supported by the design and application of the laws themselves. While European officials vehemently deny protectionist intent, claiming that the rules apply to all, the empirical reality tells a different story of targeted enforcement and “gerrymandered” criteria.[103]

Brazil retains full sovereignty over its regulatory choices. But given the current geopolitical environment, ignoring these risks would be imprudent.

A final observation on the bill’s claimed “flexibility” is warranted. As noted, the Brazilian approach is presented as more flexible and adaptive than the DMA and therefore less susceptible to its rigidity.[104] In the Ministry of Finance’s post-consultation report, the DMA serves as an important reference point, but the Ministry acknowledges that many submissions criticized the DMA model as overly rigid.[105] It therefore considers alternative approaches and ultimately recommends a “new hybrid regulatory system” that is “more flexible and adaptable,”[106] based on designating systemically relevant platforms and tailoring obligations on a case-by-case basis.[107]

That framing, however, does not resolve the underlying concerns. The bill, as submitted, still includes a non-exhaustive menu of obligations, granting CADE broad discretion to impose remedies on designated firms. Even when company-specific obligations are described as more tailored, they can, “over time,” “become a powerful force for locking in incumbents and erecting barriers to new entrants, paradoxically harming competition.”[108]

As Mario Zúñiga argues, the complexity of proving abuse-of-dominance claims serves an important function. It acts as a filter that helps agencies distinguish harmful conduct from potentially beneficial practices. This is a feature, not a bug, of case-by-case enforcement—one that an ex ante regime risks displacing.[109]

Recent experience in other jurisdictions reinforces this concern. Even where authorities formally rely on ex post enforcement, regulators have increasingly adopted sweeping remedies without establishing concrete consumer harm. South Africa’s Competition Commission has recommended that e-commerce firms separate retail and marketplace operations. Mexico’s COFECE has proposed that Amazon and Mercado Libre unbundle streaming services. The UK CMA has preliminarily advanced broad, DMA-like remedies based solely on strategic market status.[110]

In this context, “flexibility” is not necessarily a safeguard. When combined with broad discretion and weak limiting principles, it becomes a vehicle for expansive and unpredictable intervention—one that, at a minimum, undermines legal certainty and increases the risk of error.

III.     Substantive and Institutional Defects in Bill 4,675/2025

Even if one were to accept that existing Brazilian competition law is insufficient for digital markets—a premise that, as we have argued, is contradicted by CADE’s enforcement record and unsupported by empirical evidence from jurisdictions that moved first—the bill’s specific provisions would still raise serious concerns. This section therefore turns to the design and substance of Bill 4,675/2025.

The analysis does not attempt to catalog every provision. Instead, it focuses on those elements that are most consequential and that, if adopted, would require modification to better serve Brazilian consumers and the broader economy.

Five concerns stand out.

First, the bill’s guiding objectives—reduction of barriers to entry, protection of the competitive process, and promotion of freedom of choice—lack the consumer-welfare anchor that constrains enforcement under the BCL. This risks granting regulators broad discretion without a clear benchmark for evaluating outcomes.

Second, the designation criteria conflate market reach with market power, relying on structural proxies that risk capturing firms whose size reflects competitive success rather than durable dominance.

Third, the bill’s institutional design introduces governance gaps, including risks of fragmentation, resource constraints, and strategic use of the regime by private actors.

Fourth, the bill’s per se prohibitions and affirmative mandates risk condemning conduct that is often procompetitive, while creating unresolved tensions with security, privacy, and investment incentives.

Fifth, the absence of a meaningful efficiencies defense further distances the regime from the BCL and increases the likelihood of costly enforcement errors.

The subsections that follow examine each of these concerns in turn.

A.       Objectives and Limiting Principles

1.       The Consumer Welfare Standard and Brazilian Competition Law

The Brazilian government chose to frame Bill 4,675/2025 as an amendment to Brazil’s Competition Law (BCL)—similar to the UK’s DMCC and Germany’s Section 19a of the GWB—rather than as a standalone regulatory regime like the EU’s DMA. The bill thus embeds new digital-market powers within Brazil’s existing antitrust framework.

That design choice carries important implications. It situates ex ante digital regulation within the institutional and doctrinal boundaries of the BCL, importing both its strengths and its constraints. Any assessment of the bill must therefore consider its consistency with the underlying logic of Brazilian competition law.

Although the BCL does not include an explicit statement of purpose, its provisions—read systematically—reveal a coherent set of guiding principles. Article 1 establishes the law’s constitutional foundations:

This Law structures the Brazilian Competition Defense System (SBDC) and provides for the prevention (merger control) and repression of violations against the economic order, guided by the constitutional principles of freedom of initiative, free competition, the social function of property, consumer protection, and the repression of the abuse of economic power.[111]

These principles, drawn from Article 170 of the Brazilian Federal Constitution, do not provide an operational test for enforcement. They function instead as constitutional anchors that must be translated into practice through CADE’s case law and administrative decisions. The sole paragraph of Article 1 further clarifies that “the collectivity (society) is the holder of the legal rights protected by this Law.”[112]

Articles 4 and 6 reinforce the institutional structure. They define CADE as a “judicial entity… constituted as a federal autonomous agency”[113] and an “adjudicating body.”[114] This structure distinguishes Brazil from the United States. CADE acts as an administrative adjudicator, not as a prosecutorial authority that must seek judicial approval in an adversarial system.

Article 36 provides greater analytical clarity. Its § 1 introduces a central limiting principle:

Achieving dominance in a market by natural process and by being the most efficient economic agent in relation to competitors does not characterize the violation set forth in item II [“to control the relevant market for goods and services”] of the head provision of this article.[115]

This provision anchors Brazilian competition policy. Dominance is not unlawful per se. Market power—whether large or monopolistic—is permissible if it results from efficiency, innovation, or superior performance. In such cases, competitive success reflects consumer preference, not harm.

That logic implies a further requirement: enforcement must demonstrate harm to consumers. CADE must show that conduct leads to higher prices, reduced output, lower quality, or diminished innovation before it can intervene.

This framework aligns closely with the consumer-welfare standard.[116] While formulations differ in the literature, the standard consistently rejects the idea that market power achieved through superior performance constitutes a violation of antitrust law. Intervention is justified only when conduct harms consumers, not competitors.

The consumer-welfare principle is even clearer in merger control. Article 88 prohibits mergers that eliminate competition or create or reinforce dominance, [117] but it allows approval subject to a key limitation:

The mergers referred to in § 5 of this article may be authorized, provided that the limits strictly necessary to achieve the following objectives are observed:

I — cumulatively or alternatively:

1. a) to increase productivity or competitiveness;
2. b) improve the quality of goods or services; or
3. c) promote efficiency and technological or economic development; and

II — that a significant portion of the resulting benefits are passed on to consumers.[118]

Thus, even mergers that raise competitive concerns may proceed if efficiencies outweigh harms and consumers receive a “significant portion” of the benefits. As in United States v. Baker Hughes,[119] this structure implicitly shifts the burden of proof: once CADE establishes a prima facie concern, merging parties may rebut it by demonstrating verifiable efficiencies.

In practice, the BCL evaluates conduct through its effects on consumers—closer to Herbert Hovenkamp’s interpretation of the standard[120] than to Robert Bork’s total-welfare approach.[121]

CADE’s 2016 Horizontal Merger Guidelines confirm this reading. They adopt a “non-negative net effect” standard:[122] mergers must be approved if they do not harm consumer welfare and blocked if they do.

CADE’s case law reinforces the same conclusion. As Eric Hadmann Jasper observes:

An analysis of Brazilian competition law and CADE’s regulations and documents indicates, at least at this stage of the research, a diffusion of national antitrust principles/purposes (i.e., freedom of initiative, free competition, social function of property, consumer protection/consumer welfare, repression of abuse of economic power, efficiency, and protection of the competitive process) and a slight primacy of consumer welfare, at least with regard to the analysis of mergers. Finally, an examination of CADE precedents reveals a diffuse list of purposes, with emphasis on “consumer welfare” (6 mentions, including the expression “maximization of economic value to the consumer”), protection of competition (3 mentions), protection of markets (3 mentions), efficiency (2 mentions), economic welfare (2 mentions), and social effects (2 mentions).[123]

Gustavo Manicardi Schneider and Rodrigo Fialho Borges reach a similar conclusion:

Among these documents (those that defined consumer welfare), two directly adhered to Hovenkamp’s standard of consumer welfare, one directly mentioned Bork but emphasized allocative efficiency, and 12 adopted the definition of consumer welfare contained in CADE’s H Guidelines.[124]

Consumer welfare is therefore not an abstract concept in Brazilian law. It is the operative standard embedded in Articles 36 and 88, CADE’s guidelines, and its administrative practice. Enforcement focuses on consumer outcomes—not on protecting individual competitors.

2.       Article 47-B’s Departure from Consumer Welfare

Against this backdrop, Bill 4,675/2025 introduces a potential conflict. Article 47-B identifies three objectives for digital regulation: (i) reducing barriers to entry; (ii) protecting the competitive process; and (iii) promoting freedom of choice.[125]

These goals may appear unobjectionable. But they lack limiting principles tied to measurable welfare outcomes. As a result, they risk expanding enforcement beyond economically grounded standards and increasing false positives.

a)         Reduction of barriers to entry

Entry barriers play an important role in traditional antitrust analysis. CADE evaluates them in merger review[126] and unilateral conduct cases[127] as part of a broader effects analysis. High barriers may enable firms to raise prices, reduce output, or suppress innovation.[128]

The bill changes that role. It transforms barriers to entry from an analytical factor into a regulatory objective.

That shift is consequential. Under current law, CADE evaluates barriers as one element among many. It does not seek to eliminate them as an end in itself. The bill’s approach departs from this framework.

Economic theory supports caution. While potential entry can discipline firms,[129] artificially increasing contestability does not necessarily improve outcomes. In markets characterized by network effects and scale economies, intervention may simply redistribute rents without benefiting consumers:

[W]here network effects or scale economies predominate (as is always the case with digital platforms), enhanced contestability by policy is most likely to redistribute rents but not necessarily to serve consumers or create competition. ‘[I]f the market cannot profitably accommodate another entrant, due to scale economies and the nature of the oligopoly interaction, entry will be followed by some firm’s exit and another period of high prices.’ If all increased contestability does is to replace one gatekeeper with another, it can hardly be said to improve competitive outcomes.[130]

Moreover, this same economic theory suggests that artificially expanding contestability—by removing barriers to entry—in an effort to increase the number of competitors beyond an existing oligopoly (or even duopoly) “may have little effect on outcomes because such markets already behave as if they are competitive.”[131] To the extent that an explicit objective of entry-barrier reduction rests on the assumption that markets are inherently more competitive when they have more entrants, that assumption lacks clear economic justification.

While facilitating entry may improve outcomes in cases of pure monopoly—where no meaningful prospect of entry exists—the same does not hold in the typical “gatekeeper” market. In such markets, a dominant platform may hold a large and durable market share, yet still face—and at times successfully repel—the threat of entry. In those settings, artificially enhanced entry may do little to promote competition. Incumbency advantages often stem from the firm’s ability to deliver the benefits of scale or scope to consumers, rather than from constraints imposed on rivals. In such cases, policies aimed at lowering entry barriers risk supporting competitors rather than competition or consumer welfare.[132]

In sum, barriers to entry may reflect genuine market failures, but they may also arise from economies of scale, quality investments, network effects that benefit consumers, or the natural advantages of a superior product.[133] A regime that treats barrier reduction as an end in itself—without requiring that such reductions improve consumer welfare—risks mandating access, unbundling, or interoperability in contexts where the very barrier at issue underpins the product’s value.

As the foundational error-cost literature emphasizes, reducing barriers that result from efficient conduct can impose costs that are difficult to reverse, particularly in technology markets.[134]

Elevating barriers to entry from a diagnostic variable to an explicit regulatory objective therefore represents a conceptual overreach. There is no clear economic or legal justification for treating their suppression as an end in itself.

b)         Protection of the competitive process

The second objective—“protection of the competitive process”—is conceptually vague and analytically weak. Brazilian law does not define the term, and comparative experience offers little guidance.

As Nicolas Petit and Lazar Radic observe:

The “protection of the competitive process” is similarly redundant. All acts of bad conduct spelled out in antitrust statute epitomize “distortions of the competitive process”. Collusion removes independence from competitors and monopolization eliminates rivalry. Both standards add nothing to text law and are thus circular, with Herbert Hovenkamp calling them “slogans.”[135]

Conceptually appealing though it may be, “protection of the competitive process” suffers from the same measurability problem that plagues the DMA’s fairness objective.[136] Without clear limiting principles or a defined analytical methodology, the concept risks being interpreted in almost limitless ways.

This indeterminacy creates broad discretion for decision-makers. It encourages competitors to bring self-aggrandizing complaints, undermines legal predictability for businesses, and increases the likelihood of arbitrary enforcement—including enforcement that shields less efficient competitors from market exit.

Such open-endedness is particularly problematic in an administrative-adjudication setting, where clarity and foreseeability are essential to the rule of law and to effective business compliance.[137]

c)         Promotion of freedom of choice

The third objective—“freedom of choice”—is similarly problematic. It lacks a clear connection to measurable welfare outcomes and may conflict with consumer-welfare analysis:

The fatal flaw in the consumer choice standard is that it simply, indeed simplistically, rejects economic analysis of consumer preferences as the fundamental guiding principle of antitrust analysis, including the preferences consumers express in making unavoidable tradeoffs between price and nonprice values. The consumer choice standard rejects even the view that the role of antitrust is to protect the competitive process as one that produces desirable outputs (i.e., consumer welfare) in favor of an antitrust regime that analyzes nonprice competition as a standalone and inviolable virtue.[138]

While product variety and consumer choice may, in certain contexts, correlate with competitive intensity, they are not reliable proxies for consumer welfare. As a practical matter, the promotion of choice over consumer welfare is rooted in structural presumptions that assume a causal relationship between the number of firms or brands in a market and consumer welfare. But “[t]hese presumptions have no basis in modern economic theory, are not supported by empirical evidence, and are likely to provide misleading answers to the very questions concerning nonprice competition and innovation that the choice standard was designed to address.”[139]

Moreover, a market offering a wide array of products does not necessarily generate greater consumer benefit if most options are inferior or overpriced. Conversely, markets dominated by a smaller number of high-quality, efficient products may yield higher welfare, even where choice is more limited. Consumer preferences—not the sheer number of options—ultimately determine the connection between products and consumers’ needs. Competition can therefore narrow choice when consumers gravitate toward superior products, and this natural process should not be mistaken for harm.[140]

Empirical analysis of CADE’s practice supports this interpretation. Borges and Schneider find that “freedom of choice,” along with “information made available to consumers,” appears only once as a proxy for consumer welfare in CADE’s decisions, whereas “price” appears 94 times—by far the most common indicator. [141] Price, quality, quantity, and innovation remain the key measurable variables through which CADE operationalizes the consumer-welfare standard. “Freedom of choice,” by contrast, is conceptually diffuse and analytically weak.

d)         Remedying these issues

Taken together, Article 47-B’s objectives depart from the consumer-welfare framework embedded in the BCL. Even when they align in particular cases, they substitute clear, economically grounded analysis with vague and potentially misleading proxies.

Two conclusions follow. First, the objectives lack measurable standards capable of guiding decision-making. In practice, enforcers will likely revert—explicitly or implicitly—to consumer-welfare analysis. Second, because the bill amends the BCL rather than creating a separate regime, the consumer-welfare standard remains the governing benchmark.

Consumer welfare, in other words, must prevail over the bill’s alternative objectives.

The remedy is straightforward. The bill should require that any obligation imposed under the digital-markets regime demonstrably advance consumer welfare. This would preserve flexibility while ensuring that interventions target harm to consumers—not merely harm to competitors. It would also align the new framework with the core principles of Brazilian competition law and limit the risk of rent-seeking and overenforcement.[142]

B.        Designation Criteria and the Risk of Regulating Size Rather Than Harm

The bill’s designation mechanism, set out in Article 47-C, operates through two tiers: qualitative criteria and revenue thresholds.[143] The qualitative criteria include multi-sidedness, network effects, vertical integration into adjacent markets, a strategic intermediary position for third-party business users, access to significant personal or commercial data, a large base of business and end users, and a portfolio of multiple digital products or services[144]

Paragraph 2 establishes revenue thresholds of R$50 billion in global annual gross revenue or R$5 billion in Brazil, with authority granted to the ministers of finance and justice to adjust these thresholds by joint act.[145] Designation applies to the entire economic group and lasts up to 10 years, renewable through a new proceeding.[146]

1.       Regulating Size Rather Than Demonstrable Market Power

The central problem with this framework is that it targets characteristics that are not only common, but often efficiency-enhancing and procompetitive.

Multi-sidedness is the defining economic structure of platform businesses; it is a feature, not a pathology.[147] Vertical integration produces well-documented efficiencies, including the elimination of double marginalization.[148] Broad product portfolios may reflect economies of scope or dynamic capabilities that generate consumer benefits across services. Access to data often reflects product quality and consumer demand, not exclusionary conduct.[149]

By treating these features as triggers for a decade-long regulatory designation, the bill risks converting business success into a regulatory offense.

At the same time, the framework omits key indicators of actual competitive constraint. A designation regime grounded in competition economics would instead assess factors such as the presence of potential competition, the degree of substitutability, exposure to technological disruption (including AI-driven entry), constraints from offline competitors, and countervailing power from users or suppliers. These factors better capture whether a firm can exercise market power.

The bill’s terminology reinforces this misalignment. The concept of “systemic relevance” points to size and economic importance rather than competitive dynamics. This framing suggests that firms are targeted because they are large or central to the digital economy—not because they can harm competition. A more appropriate standard would require “substantial market power” or “competitive significance,” anchoring designation in established antitrust principles.

Revenue thresholds compound the problem. As William Landes and Richard Posner showed, firm size and market share are poor proxies for market power. Market power depends on demand elasticity and supply-side constraints, including the ability of rivals and potential entrants to respond.[150] Harold Demsetz likewise demonstrated that large firm size often reflects efficiency, particularly in innovation-driven sectors where scale enables sustained investment.[151]

The government estimates that five to 10 firms—overwhelmingly U.S.-based technology companies—would meet the designation criteria.[152] This underscores that the regime targets a narrow set of global firms based on size thresholds,[153] rather than demonstrated competitive harm in Brazil.[154]

The problem is further compounded by the bill’s application to the entire economic group (todo o grupo econômico), rather than to specific services where competitive concerns arise.[155] This risks regulating activities unrelated to any identified harm, imposing costs disconnected from any coherent theory of competition.

These features raise serious error-cost concerns. As Frank Easterbrook emphasized, false positives—erroneously condemning or deterring procompetitive conduct—are especially costly in dynamic markets.[156] Geoffrey Manne extends this analysis to digital platforms, where integration and coordination often generate consumer benefits, and where regulatory error can chill innovation.[157]

A more coherent approach would require a demonstration that a firm possesses “lasting market power that cannot be disciplined by actual or potential competition within a reasonable period of time.” Relevant indicia would include substantial entry barriers, evidence of consumer harm, limited competitive pressure from rivals, and weak responsiveness of market participants.

Comparative frameworks highlight these shortcomings. The UK’s DMCC requires a finding of “substantial and entrenched market power” and “strategic significance.”[158] Germany’s Section 19a GWB requires a formal determination that a firm holds a dominant position before obligations attach.[159]

The inclusion of “multiple digital products or services” as a designation factor is particularly counterproductive. It risks deterring one of the most important sources of competition—entry by large firms into adjacent markets. Cross-market competition often represents the most meaningful constraint on incumbents. Treating such expansion as evidence of regulatory concern contradicts the bill’s stated objective of reducing entry barriers.[160]

The 10-year designation period raises additional concerns. Digital markets evolve rapidly. David Evans documents substantial churn in platform leadership over periods shorter than a decade.[161] A designation lasting until 2037 could outlive the competitive conditions that justified it.

While Article 87-B, § 3 allows review of specific obligations, it does not provide for periodic reassessment of the designation itself. This rigidity contrasts with other regimes. The DMA requires review at least every three years, the DMCC sets a five-year designation period, and Germany’s regime also limits designation to five years.

Brazil’s framework is therefore broader and less constrained: it combines open-ended qualitative criteria, adjustable thresholds, and a long designation period.

Introducing stronger limiting principles would materially improve the regime. The bill should require a finding of durable market power, limit designation to specific services rather than entire corporate groups, and mandate periodic review at shorter intervals—such as three to five years.

C.       Institutional Design and Governance Risks

1.       The New Superintendency and Its Oversight Gaps

The bill creates a new Digital Markets Superintendency (SMD) within CADE, led by a superintendent nominated by the president and confirmed by the Senate, serving a two-year term renewable once.[162] The SMD’s remit is expansive. It will monitor digital markets, request information, initiate and investigate designation proceedings, impose and oversee compliance with special obligations, pursue noncompliance proceedings, and publish an annual priorities agenda subject to approval by CADE’s Tribunal and in consultation with the Ministry of Justice.[163] In practice, the SMD would serve as the administrative engine of the ex ante regime.

A closer examination of the SMD’s architecture raises broader governance concerns. These include how jurisdiction will be allocated, who may trigger proceedings, whether CADE will have sufficient resources to administer the regime, and how the new body will interact with existing sectoral regulators. The issue is not whether CADE should develop specialized expertise in digital markets—which may well be justified—but whether the bill does so in a manner consistent with CADE’s institutional design, coherent in its allocation of powers, and sufficiently constrained to avoid duplication, strategic use by private actors, and institutional uncertainty.

Four concerns arise.

a)         Institutional fragmentation

First, the creation of a second superintendency within CADE risks institutional fragmentation and mission duplication. Understanding this concern requires situating the SMD within CADE’s existing structure.

CADE is composed of three bodies: the Administrative Tribunal, the General Superintendence (SG), and the Department of Economic Studies (DEE). The SG is the agency’s operational core. It investigates mergers, cartels, and unilateral conduct, issuing decisions and recommendations that may be final in straightforward cases or referred to the Tribunal for adjudication. The SG is headed by a single General Superintendent, appointed by the president and confirmed by the Senate for a two-year term, renewable once. The Tribunal, composed of six commissioners and a president serving four-year nonrenewable terms, adjudicates complex matters, including condemnations, merger remedies, and transaction prohibitions. The DEE provides economic analysis to support both the SG and the Tribunal.

The separation between the SG and the Tribunal reflects a clear institutional logic. The SG serves as the investigative arm, while the Tribunal provides collegiate adjudication. Creating an additional investigative authority that would likewise refer cases to the same Tribunal duplicates this structure. A more coherent alternative would be to establish a specialized digital-markets unit within the existing SG.

This concern is not merely theoretical. The SG already investigates anticompetitive conduct in digital markets, as demonstrated by the Google and Apple cases. A parallel superintendency creates risks of jurisdictional overlap, inconsistent enforcement standards, and competition for resources and institutional prominence.

Comparative experience reinforces this point. The EU administers the DMA within the European Commission through coordination between DG COMP and DG CONNECT.[164] The UK houses its digital-markets regime within the CMA through the Digital Markets Unit (DMU) and a board-level committee.[165] Germany enforces Section 19a within the Bundeskartellamt through existing divisions supported by a specialized digital unit.[166] The common pattern is specialization within existing structures, not duplication alongside them.

Article 14-B, § 1 attempts to address jurisdictional overlap by transferring unilateral-conduct cases involving designated firms from the SG to the SMD. This provision seeks to ensure coherence between special obligations and conduct investigations. It does not, however, resolve the broader inconsistency between cases involving designated firms (handled by the SMD) and those involving non-designated firms (handled by the SG). That asymmetry would not arise if digital-market expertise were integrated within the SG. A unitary structure would be more coherent, more efficient, and less prone to jurisdictional friction.

b)         Vulnerability to rent-seeking

Second, the bill’s standing provisions create significant vulnerability to rent-seeking. Proceedings for designation or the imposition of special obligations may be initiated by “any interested party,”[167] by CADE’s Tribunal or SG,[168] or by certain public bodies that trigger immediate initiation.[169]

In a regime where designation carries decade-long obligations and substantial penalties, this open-ended standing creates a powerful incentive for strategic complaints. Commercial rivals, trade associations, or politically connected entities may use the process to impose costs on competitors.

This risk is not hypothetical. The consultation process already revealed that some proponents of ex ante regulation are themselves market participants with interests adverse to likely designated firms. Match Group, for example, advocated an interventionist regime targeting app-store gatekeepers, particularly Apple. Regardless of the merits of its arguments, the alignment is predictable. Firms that are large but below the designation threshold have strong incentives to support rules that impose asymmetric burdens on larger rivals.

The statutory framework should account for this dynamic. Without tighter guardrails, the regime risks becoming a vehicle for competitor-driven regulatory pressure, rather than a tool targeted at demonstrated harm to competition and consumers.[170]

c)         Resource constraints

Third, the resource question remains unresolved. The Ministry of Finance has asserted that the SMD can be funded through internal reallocations, without additional appropriations.[171] That claim is difficult to reconcile with the bill’s scope.

Administering the regime will require managing simultaneous designation proceedings, obligation-setting, compliance monitoring, and enforcement actions across multiple global firms. These tasks involve complex technical questions, including interoperability, data governance, security architecture, and algorithmic design. They require specialized expertise that goes well beyond traditional competition law and economics.

Even the European Commission, with significantly greater resources, has acknowledged capacity constraints in implementing the DMA.[172] An under-resourced regime will either produce superficial analysis or lead to prolonged proceedings—undermining the claimed advantage of ex ante regulation as a faster alternative to ex post enforcement.

d)         Unclear allocation of regulatory responsibilities

Finally, the bill’s provisions on coordination with sectoral regulators remain vague. Article 47-F calls for cooperation but does not clearly allocate responsibilities.[173]

Memoranda of understanding could partially address this ambiguity, but relying on future agreements introduces uncertainty. Greater clarity should be embedded in the statute itself. Clear lines of authority are essential to avoid duplication, conflict, and gaps in enforcement, particularly in complex digital markets where multiple regulators may claim jurisdiction.

D.       Prohibited and Mandated Practices

1.       The Perils of Per Se Rules in Complex Markets

Article 47-E(IV) creates a non-exhaustive list of prohibitions that CADE may impose on designated firms. These include self-preferencing (favoring own offers or services), tying, restrictions on third-party access, anti-steering provisions, and “predatory or abusive strategies.”[174] This subsection focuses on the three most consequential categories, with particular attention to self-preferencing, which illustrates the broader shortcomings of ex ante obligations.

a)         Self-preferencing

The economic literature does not support treating self-preferencing as a per se offense. “The notion that platform entry into competition with edge providers is harmful to innovation is entirely speculative… there is certainly no basis for a presumption of harm.”[175]

A categorical prohibition would invert the well-established principle that vertical arrangements are generally efficient.[176] Indeed,

in vertically integrated structures, some form of self-preferencing is not only natural, but is often a manifestation of efficiency. By internalizing transactions and eliminating double markups, vertical integration reduces costs, which can translate into lower prices and improved outcomes for consumers. As a result, in this context, self-preferencing tends to be the rule, rather than the exception, and its baseline economic effect is typically procompetitive.[177]

In digital markets, such a prohibition would constrain platforms’ ability to refine user interfaces and integrate services, potentially foreclosing conduct that generates substantial consumer value while increasing the risk of overenforcement—a textbook Type I error.

A proper analysis must distinguish between exclusionary self-preferencing and legitimate business conduct. The former requires durable market power, substantial foreclosure, and demonstrable consumer harm. The latter includes efficiency-enhancing practices such as eliminating double marginalization, enforcing quality control, reducing search costs, and maintaining ecosystem security.[178] As the literature emphasizes, “self-preferencing by dual-role platforms is not necessarily detrimental… [and] the effectiveness of policy interventions… depends largely on the type of self-preferencing and the specific environment.”[179]

Empirical evidence reinforces this conclusion. Studies show that platform integration can expand demand and stimulate complementor activity. Empirical evidence reinforces this conclusion. Studies show that platform integration can expand demand and stimulate complementor activity. Zhuoxin Li and Ashish Agarwal find that Facebook’s integration of Instagram increased demand for photography applications more broadly, benefiting third-party developers.[180] Jens Foerderer and his coauthors similarly show that Google’s introduction of Google Photos increased user attention and demand in the photography category, leading to greater complementor innovation and entry.[181] Evidence from video-game ecosystems likewise suggests that strong first-party offerings expand installed bases and enlarge opportunities for third-party developers.[182]

Restrictions on self-preferencing can generate welfare losses. Chiara Farronato, Andrey Fradkin, and Alexander MacKay show that removing Amazon’s private-label products leads to a 5.5% decline in consumer surplus, driven largely by reduced variety.[183] Efforts to demote private labels do not generate welfare gains. Yusuke Zennyo’s theoretical work similarly finds that “a ban on one’s own content biases” may raise commissions and prices, harming both consumers and sellers.[184] Early evidence from the DMA also suggests that limiting self-preferencing increases user friction without improving contestability.[185]

Brazil’s own enforcement record points in the same direction. A 2025 report by the Legal Grounds Institute finds that CADE’s conviction rate for self-preferencing is only 27% over the past decade.[186] More importantly, there is no history of convictions for self-preferencing in digital markets.[187] As the report notes:

As the analysis of CADE’s case law shows, the impact of self-preferencing conduct is far from being inherently anticompetitive. Indeed, even in convictions of a particular practice of self-preferencing, there is usually divergence among commissioners, including in so-called digital markets, [which] shows a lack of certainty that is uncongenial to a per se regulation.[188]

The study concludes that making self-preferencing ex ante forbidden would be a “radical move” that inverts a practice often associated with efficiencies and consumer benefits.[189]

Self-preferencing thus illustrates the core problem with ex ante prohibitions: they risk condemning conduct that neither theory nor evidence supports treating as inherently harmful. Where effects are context-dependent and contested, categorical bans are ill-suited. Reclassifying a frequently efficiency-enhancing practice as presumptively unlawful risks eliminating benefits that CADE’s effects-based approach has historically recognized. The absence of convictions in Brazil reflects not underenforcement, but an evidence-based approach that requires demonstrated harm.

b)         Steering

Anti-steering prohibitions raise distinct concerns rooted in two-sided market economics. If platforms cannot prevent free-riding on their investments in discovery, trust, payments, and user experience, they may respond by raising prices on other margins or reducing investment.[190]

The CADE-Apple settlement illustrates the complexity of these tradeoffs. It imposed anti-steering remedies while accommodating Apple’s security and privacy concerns. That calibrated, case-specific approach is difficult to replicate through rigid ex ante prohibitions.

c)         ‘Predatory or abusive strategies’

The residual category of “predatory or abusive strategies” is exceptionally open-ended. Combined with a 10-year designation period and significant sanctions, this vagueness risks chilling legitimate innovation. Firms face moving compliance targets without clear benchmarks, creating an environment in which success can never be conclusively demonstrated while rivals can continually demand further intervention.[191]

The bill should replace this per se prohibition with an effects-based standard requiring a showing of concrete consumer harm, consistent with CADE’s existing practice. At minimum, the statute should explicitly recognize that vertical integration, self-preferencing, and related practices can be procompetitive.

2.       Interoperability, Data Portability, and ‘Free’ Access Mandates

Article 47-E(V) establishes a set of positive obligations, including data-transfer tools, “free and effective” interoperability, third-party app access, business-user data access, default-setting flexibility, complaint mechanisms, and non-discriminatory terms.[192] While CADE may “consider” information-security and legal obligations, this is a permissive standard—not a structured defense.[193] These obligations raise several concerns.

a)         Security tradeoffs

Mandating interoperability and open ecosystems increases attack surfaces and undermines secure-by-design architectures. The DMA experience already reveals increased risks related to fraud, malware, data-sharing, and weakened platform security protections.[194]

The CADE-Apple settlement again illustrates the superiority of case-by-case analysis. Apple was able to resist certain mandates on security grounds while still implementing meaningful changes—an outcome unlikely under rigid statutory rules.[195]

b)         Privacy and LGPD interaction

The interaction with Brazil’s LGPD raises additional risks. While the LGPD provides for data portability, it conditions that right on regulatory oversight and the protection of trade secrets.[196] Broad competition-law mandates for data access risk conflicting with privacy and confidentiality protections or creating inconsistent obligations between CADE and the ANPD.

The DMA illustrates this tension. Its data-sharing provisions may undermine GDPR objectives, creating tradeoffs between compliance regimes.[197] Brazil risks importing similar conflicts unless privacy and security considerations are made mandatory, not discretionary.

c)         Interoperability

The academic literature counsels caution. Marc Bourreau, Jan Krämer, and Miriam Buiten conclude that mandated interoperability may entrench incumbents, reduce incentives to innovate, and require ongoing regulatory oversight.[198] It may also reduce incentives to multi-home, undermining a key source of competitive discipline.[199]

The UK’s Ofcom similarly warns that interoperability mandates can weaken innovation incentives and enable free-riding.[200] As it notes, “a more closed approach may be necessary… to protect a fair return on investment.”[201]

d)         Data portability

Data portability mandates have shown limited effectiveness. Inge Graef, Martin Husovec, and Jeroen van den Boom show that GDPR portability remains subject to legal and practical uncertainty.[202] Peter Swire and Yianni Lagos argue that portability applies even absent market power[203] and effectively creates a per se rule where competition law would apply a case-by-case analysis.[204]

The OECD warns that portability may increase security risks and disproportionately burden smaller firms.[205] Universal mandates may also prevent certain business models from emerging, imposing unseen costs.[206]

e)         Remedying these issues

The bill should include explicit defenses based on security, privacy, fraud prevention, quality assurance, and trade secrets. Interoperability and data-access obligations should be subject to proportionality analysis, and coordination with the ANPD should be mandatory.

More broadly, “free” access mandates resemble compelled dealing. By forcing firms to share infrastructure, data, and services without compensation, they risk undermining investment incentives.[207] If firms cannot capture returns on ecosystem investments, they will reduce those investments—degrading consumer value.

3.       Mandatory Merger Notification for Designated Firms

Article 47-E(I) allows CADE to require designated firms to notify all mergers, regardless of thresholds.[208] While concerns about “killer acquisitions” are legitimate, this approach is disproportionate.

A blanket reporting requirement would strain agency resources and capture transactions with no competitive risk. It may also weaken startup exit opportunities, which are critical to venture capital investment. As Geoffrey Manne, Sam Bowman, and Dirk Auer explain, acquisitions play a central role in startup financing and innovation incentives.[209]

Increasing regulatory friction risks discouraging investment and entrepreneurship. As Gordon Phillips and Alexei Zhdanov show, acquisitions provide a key exit pathway that sustains venture capital activity.[210]

By increasing the friction and uncertainty associated with every acquisition by a designated firm, the bill may inadvertently deter the very acquisition activity that channels capital and talent into the startup ecosystem. “Put simply, acquisitions may offer an exit to early investors in cases where IPOs are not a realistic prospect, thus increasing the incentive to invest in startups in the first place; barriers to market exit have been known to slow investments.”[211]

Ex ante regulations on potential acquirers risk a “regulate the acquirers, harm the targets” dynamic: by constraining incumbent acquisitions, it may eliminate a crucial exit pathway for startups, dampen investor interest, and weaken the broader innovation ecosystem.[212]

Brazilian law already provides a solution. Article 88, § 7 allows CADE to review below-threshold transactions within one year. CADE has demonstrated its willingness to use this authority, including in recent AI-related investigations.[213] CADE’s 2024 probes into below-threshold Big Tech acquisitions of AI startups demonstrate that the authority is both willing and able to scrutinize transactions that fall outside the standard notification framework.[214]

The proposed provision therefore duplicates existing tools while imposing additional costs. A targeted “call-in” mechanism—triggered by specific risk factors and supported by published guidance—would achieve the same objectives with fewer negative effects.

E.        Defenses and the Absence of an Efficiencies Standard

1.       The Missing Efficiencies Defense

Article 47-E, § 2 provides that, when imposing special obligations on firms designated as having systemic relevance in digital markets, CADE “may consider” three limiting or justificatory factors: (i) information-security features, (ii) the firm’s existing legal and regulatory compliance duties, and (iii) product or service features that enhance the functionality of the firm’s ecosystem.[215] Two points follow.

First, the permissive “may consider” formulation offers little meaningful constraint on CADE’s discretion and provides limited legal certainty; replacing it with a mandatory “shall consider” requirement would serve as a more effective safeguard. Second, regarding the list of considerations, the provision omits the most fundamental defense in competition policy: an explicit efficiency justification.

Ideally, this requirement should also give rise to a substantive right. Designated firms should be entitled to challenge obligations before the Tribunal on the ground that the economic justification is insufficient, disproportionate, or fails to demonstrate net consumer benefit. Without such a right, the requirement risks functioning as a procedural formality rather than a meaningful constraint on regulatory discretion.

As discussed above,[216] the absence of an efficiencies defense conflicts with a foundational principle of Brazilian competition law.[217] Article 36, § 1 of the BCL provides that dominance achieved through the “natural process” of superior efficiency does not constitute an infringement. An ex ante regime embedded within the same statutory framework that denies firms the ability to invoke efficiency would create a doctrinal inconsistency. The same conduct could be lawful under general competition law but prohibited under the bill’s digital-markets provisions—an inconsistency that would generate uncertainty and invite strategic litigation.

To the extent the bill seeks alignment with the UK’s DMCC rather than the EU’s DMA, it adopts the less defensible approach. The DMA contains no general efficiencies defense. Recital 23 explicitly excludes economic-justification arguments from the designation inquiry and provides only narrow, non-economic mechanisms for suspension or exemption.[218] The DMCC includes a limited analogue in its “countervailing benefits exemption,”[219] but the five-part test is onerous. It requires firms to show that (i) the conduct generates user benefits, (ii) those benefits outweigh competitive harm, (iii) they could not be achieved without the conduct, (iv) the conduct is proportionate, and (v) it does not eliminate effective competition.[220] In practice, these conditions are so restrictive that the provision is “likely to be of little—and possibly no—practical value.”[221]

Brazil should, at minimum, adopt a provision analogous to the DMCC’s, but the better approach is to incorporate a clear efficiencies defense aligned with traditional competition law.

The absence of such a defense is not incidental. It reflects the underlying objectives of many ex ante regimes, which “prioritize fairness and a distorted notion of contestability over efficiency and consumer welfare,” protecting competitors rather than competition.[222] Indeed, excluding efficiencies defenses is often a deliberate design choice: allowing firms to justify their conduct on efficiency grounds would undermine a framework aimed at redistributing rents rather than promoting consumer welfare.[223]

If Brazil intends to remain consistent with the BCL, it should avoid replicating this design. A meaningful efficiencies defense should:

1. allow firms to demonstrate that their conduct generates efficiencies that outweigh potential harms;
2. align with Articles 36, § 1 and 88, § 6 of the BCL;
3. explicitly recognize privacy, security, and innovation as legitimate countervailing benefits; and
4. apply a proportionality standard rather than an indispensability test, ensuring the defense functions as a real safeguard rather than a theoretical right.

A related procedural gap appears in Article 87-G, which governs the Tribunal’s decisions. For designation proceedings, Article 87-G(I) requires only “the specification of the facts” supporting designation.[224] For obligations, Article 87-G(II) requires a description of the obligations and applicable fines, but not an explanation of why those obligations are warranted, proportionate, or beneficial to consumers.

This omission is significant. A decision that merely recites facts without explaining how those facts support the legal conclusion—or without addressing the economic consequences of the remedy—fails to provide the reasoned analysis necessary for judicial review or for an effective defense. At minimum, Article 87-G should require that the Tribunal articulate a reasoned economic analysis demonstrating that the designation or obligation is proportionate, that its expected benefits outweigh its costs, and that the chosen measures are the least restrictive means of achieving the bill’s objectives.

IV.     Conclusion and Recommendations

Bill 4,675/2025 is well intentioned and, in several respects, more carefully designed than the DMA. It remains premature, however, to adopt an ex ante regulatory regime for digital markets in Brazil. The bill’s foundational premise—that existing Brazilian competition law is inadequate—is contradicted by CADE’s recent enforcement record, most notably the Google and Apple settlements, which achieved outcomes similar to those contemplated by the bill through case-by-case enforcement. At the same time, emerging empirical evidence from the EU’s DMA suggests that this regulatory model has, at least in some instances, harmed consumers, chilled innovation, and failed to deliver on its promises of increased contestability. Brazil’s institutional constraints further amplify these risks, making broad regulatory discretion more hazardous than in the jurisdictions the bill seeks to emulate.

We offer three tiers of recommendations.

First, Brazil should forgo ex ante regulation and instead strengthen CADE’s existing enforcement toolkit. The Google and Apple settlements demonstrate that the current framework is capable of addressing digital-market concerns. If speed is a concern, the appropriate response is to invest in CADE’s resources, streamline procedures, and expand the use of targeted market studies and sector inquiries. Brazil should also allow more evidence to accumulate from jurisdictions that have already adopted ex ante regimes before imposing untested regulatory burdens on its own economy.

Alternative models underscore that broad, economy-wide regulation is not the only option. Japan’s Mobile Software Competition Act, which took effect in December 2025, adopts a narrower, more targeted approach[225] It applies specifically to smartphone software ecosystems, incorporates objective-justification defenses tied to cybersecurity and system stability, does not require web-based sideloading, and explicitly protects device security and user information. If Brazil ultimately determines that intervention is warranted, a more focused model of this kind is more likely to achieve its objectives without the collateral costs of a comprehensive ex ante regime.

Second, if ex ante regulation proceeds nonetheless, the bill requires substantial guardrails. Consumer welfare should be enshrined as the regime’s explicit limiting principle. The designation test should require demonstrated market power, not merely size, and the designation period should be shortened with mandatory periodic review. A meaningful efficiencies defense—aligned with Articles 36, § 1 and 88, § 6 of the BCL and calibrated to a proportionality standard—should allow firms to demonstrate that their conduct generates benefits that outweigh potential harms. The blanket merger-notification requirement should be removed, given the existing mechanism in Article 88, § 7, or replaced with a targeted call-in power. Designation should apply to specific services rather than entire corporate groups. The bill’s standing provisions should incorporate screening mechanisms to filter out strategic or frivolous complaints. Finally, the SMD should be integrated within the existing General Superintendence, rather than established as a parallel authority with separate leadership.

Third, and at a minimum, the bill should be subjected to a rigorous Regulatory Impact Assessment prior to enactment. Brazil’s Economic Freedom Act already imposes such requirements on regulatory agencies,[226] and Congress should treat this standard as a baseline for novel legislative interventions. The bill should not advance on the basis of political momentum tied to unrelated digital-policy initiatives. The stakes—for consumers, innovation, and Brazil’s position in the global digital economy—are too high to proceed without evidence-based deliberation.

Brazil has the opportunity to learn from, rather than replicate, the experience of jurisdictions that moved first. The available evidence suggests that the costs of ex ante digital regulation are real and measurable, while its benefits remain uncertain. A country that ranks 78th on the rule-of-law index and 124th on ease of doing business cannot afford to adopt regulatory models whose costs fall disproportionately on consumers, firms, and the broader innovation ecosystem. The more productive path is to strengthen the competition-law tools that have already demonstrated their effectiveness, invest in institutional capacity, and preserve the regulatory humility that sound law & economics demands.

[1] Projeto de Lei No. 4.675, de 2025, Câmara dos Deputados [hereinafter Bill 4,675/2025 or the Bill]. The bill forms part of Agenda Brasil Digital, a six-initiative package aimed at creating a safer, more competitive, and more innovative digital environment. Its centerpiece is the enactment of the Digital Child and Teenager Act (Lei No. 15.211/2025).

[2] Lei No. 12.529, de 30 de novembro de 2011, Diário Oficial da União [D.O.U.] de 1.12.2011 (Braz.) [hereinafter the BCL].

[3] A Bill 4,675/2025, art. 47-E. The provision sets out a non-exhaustive list of “special obligations” that CADE may impose on firms designated as “systemically relevant.” Because the list is expressly non-exclusive, CADE may impose virtually any remedy it considers appropriate. This broad discretion expands the agency’s authority and heightens the need for clear statutory limits, procedural safeguards, and meaningful constraints on its remedial powers.

[4] The paper also identifies the key modifications needed, if the bill is enacted, to reduce its legal, economic, and institutional risks.

[5] Dario Oliveira Neto & Mario Zúñiga, Apple in Brazil: Ex Post Antitrust Meets Ex Ante Ambitions, Truth on the Mkt. (Feb. 4, 2026), https://truthonthemarket.com/2026/02/04/apple-in-brazil-ex-post-antitrust-meets-ex-ante-ambitions.

[6] See World Justice Project, WJP Rule of Law Index 2025: Brazil (2025), https://worldjusticeproject.org/rule-of-law-index/country/2025/Brazil.

[7] See World Bank Group, Doing Business 2020: Comparing Business Regulation in 190 Economies (2020), https://openknowledge.worldbank.org/server/api/core/bitstreams/75ea67f9-4bcb-5766-ada6-6963a992d64c/content. Brazil ranked 124th out of 190 economies. The World Bank discontinued the Doing Business project in 2020 after a methodological overhaul and replaced it with the Business Ready (B-READY) initiative. Brazil has not been surveyed in either B-READY edition to date. See also World Bank Group, Business Ready (2025), https://openknowledge.worldbank.org/entities/publication/a35eb0e7-328a-46a3-8713-ce8ef8a7c9e3.

[8] See Mario Zúñiga, Parsing Brazil’s ‘More Flexible’ Approach to Digital Markets, Truth on the Mkt. (Feb. 5, 2025), https://truthonthemarket.com/2025/02/05/parsing-brazils-more-flexible-approach-to-digital-markets (noting Brazil’s low ranking on the Rule of Law Index).

[9] Jacques Crémer, Yves-Alexandre de Montjoye & Heike Schweitzer, Competition Policy for the Digital Era, Eur. Comm’n (2019), https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf; Jason Furman, Unlocking Digital Competition: Report of the Digital Competition Expert Panel, HM Treasury (2019), https://assets.publishing.service.gov.uk/media/5c88150ee5274a230219c35f/unlocking_digital_competition_furman_review_web.pdf; Stigler Ctr. for the Study of the Econ. & the State, Final Report of the Stigler Committee on Digital Platforms (2019), https://www.chicagobooth.edu/-/media/research/stigler/pdfs/digital-platforms—committee-report—stigler-center.pdf.

[10] See Filippo Lancieri & Patricia Sakowski, Competition in Digital Markets: A Review of Expert Reports, 26 Stan. Tech. L. Rev. 65 (2023) (synthesizing the common analytical framework across leading digital competition policy reports).

[11] Regulation 2022/1925 of the European Parliament and of the Council of 14 September 2022 on Contestable and Fair Markets in the Digital Sector and Amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act), 2022 O.J. (L 265) 1 [hereinafter DMA], https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32022R1925; Digital Markets, Competition and Consumers Act 2024, c. 13 (U.K.) [hereinafter DMCC], https://www.legislation.gov.uk/ukpga/2024/13/contents; Gesetz gegen Wettbewerbsbeschränkungen [GWB] [Act Against Restraints of Competition] § 19a (Ger.), https://www.gesetze-im-internet.de/englisch_gwb/englisch_gwb.html.

[12] Lazar Radic, The Imaginary Antitrust Consensus, 9 Eur. Competition & Regul. L. Rev. 22 (2025).

[13] Id.

[14] See Herbert Hovenkamp, Antitrust and Platform Monopoly, 130 Yale L.J. 1952, 1955 (2021) (arguing for firm-specific antitrust enforcement over broad ex ante regulation).

[15] See Geoffrey A. Manne, Lazar Radic & Dirk Auer, Regulate for What? A Closer Look at the Rationale and Goals of Digital Competition Regulations, 22 Berkeley Bus. L.J. 201 (2025).

[16] See Projeto de Lei nº 2.768, de 2022, Câmara dos Deputados, https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2337417 (citing Tim Wu’s scholarship, the U.S. House Judiciary Committee’s report Investigation of Competition in Digital Markets, and the DMA in the bill’s justification section (“Justificação”)).

[17] See Tomada de Subsídios: Aspectos Econômicos e Concorrenciais de Plataformas Digitais, Ministério da Fazenda, Secretaria de Reformas Econômicas (2024), https://www.gov.br/participamaisbrasil/concorrencia-plataformas-digitais. See also Dario da Silva Oliveira Neto, Some Remarks on the Comments Submitted to the Brazilian Public Consultation on Economic and Competitive Aspects of Digital Platforms Held by the Ministry of Finance, Kluwer Competition L. Blog (June 4, 2024), https://legalblogs.wolterskluwer.com/competition-blog/some-remarks-on-the-comments-submitted-to-the-brazilian-public-consultation-on-economic-and-competitive-aspects-of-digital-platforms-held-by-the-ministry-of-finance.

[18] See Brazilian Secretariat of Economic Reforms (Ministry of Finance), Digital Platforms: Competition Aspects and Regulatory Recommendations for Brazil (Dec. 16, 2024), https://www.gov.br/fazenda/pt-br/central-de-conteudo/publicacoes/relatorios/sre/digital-platforms-competition-regulatory-recommendations-brazil-en.pdf.

[19] See Herbert Hovenkamp, Antitrust and Platform Monopoly, supra note 14, at 1970 (“Notwithstanding overwhelming evidence to the contrary, the market for digital platforms is often said to be winner-take-all. But this is rarely true.”).

[20] See Jonathan M. Barnett, Illusions of Dominance: Revisiting the Market-Power Assumption in Platform Ecosystems, 86 Antitrust L.J. 1 (2024); Christopher Yoo, Network Effects in Action, in The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg eds., 2020), https://gaidigitalreport.com/2020/08/25/network-effects-in-action.

[21] Agenda Brasil Digital was unveiled at a political ceremony on Sept. 17, 2025. See also Dario Oliveira Neto & Lazar Radic, Brazil’s Digital Markets Bill: A DMA Through the Back Door?, Truth on the Mkt. (Sept. 24, 2025), https://truthonthemarket.com/2025/09/24/brazils-digital-markets-bill-a-dma-through-the-back-door.

[22] See Brasil, Relatório de Sistematização das Contribuições à Tomada de Subsídios nº 1/2024, Ministério da Fazenda, Secretaria de Reformas Econômicas (2024), https://www.gov.br/fazenda/pt-br/central-de-conteudo/publicacoes/relatorios/sre/relatorio-sre-tomada-de-subsidios.pdf/view.

[23] Exposição de Motivos Interministerial nº 00099/2025 MJSP AGU MF MGI, https://www.camara.leg.br/proposicoesWeb/prop_mostrarintegra?codteor=3003060&filename=PL%204675/2025.

[24] Id. at 3 (“This proposal introduces new measures that place Brazil at the vanguard of competition protection on digital platforms, alongside legal systems such as Germany, Japan, and the United Kingdom.”).

[25] See Ebazar.com.br Ltda. & Mercado Pago Instituição de Pagamento Ltda. v. Apple Inc. & Apple Services LATAM LLC, Processo Administrativo No. 08700.009531/2022-04, Conselho Administrativo de Defesa Econômica [CADE] (Braz.); In re Apple Inc. & Apple Services LATAM LLC, Requerimento de TCC No. 08700.006953/2025-62, Conselho Administrativo de Defesa Econômica [CADE] (Braz.). See also Conselho Administrativo de Defesa Econômica [CADE], CADE Signs a Cease and Desist Agreement with Apple (Jan. 5, 2026), https://www.gov.br/cade/en/matters/news/cade-signs-a-cease-and-desist-agreement-with-apple; Public Version of Apple TCC, https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?HJ7F4wnIPj2Y8B7Bj80h1lskjh7ohC8yMfhLoDBLddagMC0PGtHHNJ5OLjWmXqqKoNDHq57WbWDJKa4eAKK0enGmrJphBHiCJbWXKXvI8K_s-573DMQSRm2YO5d-Z. See also Oliveira Neto & Zúñiga, supra note 5.

[26] See CADE ex officio v. Google Inc. & Google Brasil Internet Ltda., Inquérito Administrativo No. 08700.002940/2019-76, Conselho Administrativo de Defesa Econômica [CADE] (Braz.); In re Google LLC & Google Brasil Internet Ltda., Requerimento de TCC No. 08700.007062/2025-23, Conselho Administrativo de Defesa Econômica [CADE] (Braz.). See also Conselho Administrativo de Defesa Econômica [CADE], CADE Signs Cease and Desist Agreement with Google (Dec. 22, 2025), https://www.gov.br/cade/en/matters/news/cade-signs-cease-and-desist-agreement-with-google; Public Version of Google TCC, https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?HJ7F4wnIPj2Y8B7Bj80h1lskjh7ohC8yMfhLoDBLddbIYnvUI1X8bWwIhToKTn1x5R0mu6h3LUb759k5CTmSg4i6bYBGxz4PFNami4VYRNZ3Y2xQJfx6E2IFcAjrYNqQ.

[27] See Oliveira Neto & Zúñiga, supra note 5.

[28] See Geoffrey A. Manne, Dirk Auer, Lazar Radic, Selçukhan Ünekbas & Mario A. Zúñiga, ICLE Response to First Review of the Digital Markets Act, Int’l Ctr. for L. & Econ. (Sept. 24, 2025), https://laweconcenter.org/resources/icle-response-to-first-review-of-the-digital-markets-act/ (finding that DMA enforcement has produced “lengthy proceedings, protracted compliance discussions, and frequent recourse to parallel competition-law investigations”) [hereinafter ICLE DMA Review Response].

[29] See Abbott B. Lipsky, Douglas H. Ginsburg, Alexander Raskovich & Dario da Silva Oliveira Neto, Comment of the Global Antitrust Institute on the Brazilian Ministry of Finance, Department of Economic Reform Request for Contributions: Economic and Competitive Aspects of Digital Platforms 24 (Geo. Mason Univ. L. & Econ. Rsch. Paper No. 24-11, May 2024), https://ssrn.com/abstract=4815130. The authors note that EU case law under Articles 101 and 102 TFEU aligns with DMA obligations, while Brazil lacks a comparable body of precedent. They report that, of seven Brazilian antitrust cases involving digital platforms, only three reached a decision—and all were dismissed—while four remain under investigation. No infringement has yet been found in Brazilian digital markets.

[30] See supra notes 25-26.

[31] Conselho Administrativo de Defesa Econômica [CADE], Mercados de Plataformas Digitais, Cadernos do CADE (rev. ed. 2023) (Braz.), https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.

[32] Id. at 162 (“Between 1995 and Apr. 30, 2023, 23 investigations were initiated regarding the markets examined [digital markets] in this report. Of these, 9 remained under investigation, 11 were dismissed, and 3 were closed through Termos de Cessação de Conduta (TCC). The conduct primarily involved exclusivity agreements and abuse of dominance.”). This data is likely outdated, but CADE still has not issued a fully adjudicated conviction in digital-market cases.

[33] Org. for Econ. Co-op. & Dev. (OECD), OECD Peer Reviews of Competition Law and Policy: Brazil (2019), https://www.oecd.org/daf/competition/oecd-peer-reviews-of-competition-law-and-policy-brazil-2019.htm. See also Geoffrey A. Manne, Dirk Auer & Mario Zúñiga, ICLE Comments to Brazil’s CADE on Competition in Digital Ecosystems of Mobile Devices, Int’l Ctr. for L. & Econ. (Feb. 11, 2025), https://laweconcenter.org/resources/icle-comments-to-brazils-cade-on-competition-in-digital-ecosystems-of-mobile-devices (citing the OECD’s finding that CADE “is considered one of the most efficient public agencies in Brazil” as evidence of its capacity to address digital-market challenges).

[34] See Conselho Administrativo de Defesa Econômica [CADE], The General Superintendence Is Investigating the Acquisitions of Artificial Intelligence Startups by Big Tech Companies (Aug. 26, 2024), https://www.gov.br/cade/pt-br/assuntos/noticias/superintendencia-geral-apura-aquisicoes-de-startups-de-inteligencia-artificial-por-big-techs. In merger control, CADE may review consummated transactions below the notification threshold for up to one year under Article 88(7) of the Brazilian Competition Law. See infra Section III.D.3.

[35] See Beatriz Kira, Brazil’s Fair Digital Competition Bill Offers an Alternative to Regulating Big Tech, ProMarket (Nov. 7, 2025), https://www.promarket.org/2025/11/07/brazils-fair-digital-competition-bill-offers-an-alternative-to-regulating-big-tech; Victor Oliveira Fernandes, Brazil’s Calibrated Revolution in Digital Competition, ProMarket (Nov. 12, 2025), https://www.promarket.org/2025/11/12/brazils-calibrated-revolution-in-digital-competition. For a comprehensive analysis of the Brazilian Google Shopping case, see Dario da Silva Oliveira Neto, Otávio Augusto de Oliveira Cruz Filho & Alexandre Cordeiro Macedo, The Rule of Reason and the Fundamentals Against More Presumption-Based Illegality Legal Standards: Highlights on CADE’s Decisions on Digital Economy Issues, 12 J. Antitrust Enforcement 570 (2024).

[36] See Oliveira Neto & Zúñiga, supra note 5.

[37] Manne, Auer, Radic, Ünekbas & Zúñiga, supra note 28, at 9.

[38] See Conselho Administrativo de Defesa Econômica [CADE], CADE’s Contribution to the Ministry of Finance’s Public Consultation for Regulation of Digital Platforms 4 (Apr. 2024), https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/contribuicoes-do-cade/contribuicoes-cade-ministerio%20fazenda-ingl%C3%AAs.pdf.

[39] Id at 4.

[40] Id. at 19–20. CADE emphasizes the need for a comprehensive, technically grounded Regulatory Impact Analysis (RIA) before imposing new obligations on digital platforms. It notes that such a study should assess market characteristics—including concentration, entry barriers, innovation, and user behavior (e.g., single- and multi-homing)—as well as potential anticompetitive effects from vertical and conglomerate integration. A rigorous RIA, CADE explains, is essential to ensure effective and responsible sector-specific regulation.

[41] Id. at 20 (“This process was exemplified by the European Commission (EC) when introducing the DMA, where three approaches to regulation were examined.”).

[42] The Digital Markets Act entered into force on Nov. 1, 2022, and became applicable on May 2, 2023. In practice, however, enforcement of its core obligations began in March 2024, when the first designated gatekeepers were required to comply. This reflects the European Commission’s initial gatekeeper designations in September 2023, followed by the six-month compliance period provided under the regulation.

[43] Louis-Daniel Pape & Michelangelo Rossi, Is Competition Only One Click Away? The Digital Markets Act’s Impact on Google Maps, Mktg. Sci. (forthcoming 2026), https://doi.org/10.1287/mksc.2025.0159.

[44] Id. at 1.

[45] Chiara Farronato, Andrey Fradkin & Alexander MacKay, Vertical Integration and Consumer Choice: Evidence from a Field Experiment, Working Paper (Mar. 2026), https://alexandermackay.org/files/Vertical%20Integration%20and%20Consumer%20Choice%20-%20Evidence%20from%20a%20Field%20Experiment.pdf.

[46] Id. at 1.

[47] Id. at 35.

[48] Christian Peukert et al., Shrinking Shelf: The Effects of Digital Regulation on Amazon, Presentation at the Workshop on the Economics of the DMA (Sept. 22, 2025), https://www.tse-fr.eu/sites/default/files/TSE/documents/conf/2025/4._longtail_ec_0925.pdf.

[49] Id. at 14, 18.

[50] European Ctr. for Int’l Political Econ. & European Pub. Pol’y P’ship, What About Us? Consumer Response to the Digital Markets Act, ECIPE Occasional Paper No. 10/2025, at 14 (2025), https://ecipe.org/wp-content/uploads/2025/10/ECI_OccasionalPaper_10-2025_LY05.pdf [hereinafter ECIPE, What About Us?].

[51] Id. at 24 (“Reliance on Google, Meta, Apple, and other incumbents remains as strong as ever…”).

[52] Nextrade Group, Impact of the Digital Markets Act (DMA) on Consumers Across the European Union: Results from a Survey with 5,000 Consumers (Sept. 2025), https://www.nextradegroupllc.com/_files/ugd/478c1a_9d7c98475ce8404188d2f8dbb1c9d2ff.pdf.

[53] Carmelo Cennamo, Tobias Kretschmer, Ioanna Constantiou & Eliana Garcés, Economic Impact of the Digital Markets Act on European Businesses and the European Economy, LAMA Econ. Rsch. 45–46 (June 2025), https://www.dmcforum.net/publications/economic-impact-of-the-digital-markets-act-on-european-businesses-and-the-european-economy.

[54] Id. at 46.

[55] Press Release, Eur. Comm’n, Commission Sends Preliminary Findings to Alphabet Under the Digital Markets Act (Mar. 19, 2025), https://digital-markets-act.ec.europa.eu/commission-sends-preliminary-findings-alphabet-under-digital-markets-act-2025-03-19_en.

[56] Foo Yun Chee, Exclusive: Google Faces EU Fine Next Year for Favouring Own Services, Sources Say, Reuters (Dec. 11, 2025), https://www.reuters.com/world/google-faces-eu-fine-next-year-favouring-own-services-sources-say-2025-12-11.

[57] Press Release, Eur. Comm’n, Commission Finds Apple and Meta in Breach of the Digital Markets Act (Apr. 22, 2025), https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1085.

[58] Action brought on July 4, 2025—Meta Platforms v. Comm’n (Case T-435/25), 2025 O.J. (C 5214), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ%3AC_202505214. See also Foo Yun Chee, Apple Takes Fight Against $587 Million EU Antitrust Fine to Court, Reuters (July 7, 2025), https://www.reuters.com/sustainability/boards-policy-regulation/apple-takes-fight-against-587-million-eu-antitrust-fine-court-2025-07-07.

[59] Press Release, Eur. Comm’n, Commission Opens Proceedings to Assist Google in Complying with Interoperability and Online Search Data Sharing Obligations Under the Digital Markets Act (Jan. 27, 2026), https://digital-markets-act.ec.europa.eu/commission-opens-proceedings-assist-google-complying-interoperability-and-online-search-data-sharing-2026-01-27_en.

[60] Onyeka Aralu & Dirk Auer, From Cure to Care: The DMA’s Chronic Regulation Problem, Truth on the Mkt. (Feb. 12, 2026), https://truthonthemarket.com/2026/02/12/from-cure-to-care-the-dmas-chronic-regulation-problem.

[61] Carlo Stagnaro & Christian Năsulea eds., Digital Revival? How Regulation Prevents the Rise of European Tech Leaders 38 (EPICENTER Feb. 2025), https://www.epicenternetwork.eu/wp-content/uploads/2025/02/Digital-Revival_revised_web.pdf (“The scope of remedies can shape product design, services, business models, and even firm structure. These interventions raise complex, often highly technical issues and may carry negative implications for innovation.”).

[62] Id. at 37.

[63] Apple Inc., The Digital Markets Act’s Impacts on EU Users (Sept. 24, 2025), https://www.apple.com/newsroom/2025/09/the-digital-markets-acts-impacts-on-eu-users. Apple also delayed the rollout of Apple Intelligence in June 2024, citing concerns that the DMA’s interoperability mandates could compromise device security. See Akshaya Asokan, Apple to Delay AI Rollout in Europe: Smartphone Giant Fingers Regulation Meant to Restrain Big Tech, Bank Info Security (June 21, 2024), https://www.bankinfosecurity.com/apple-to-delay-ai-rollout-in-europe-a-25598.

[64] See, e.g., Dan Milmo, Meta Delays EU Launch of Twitter Rival Threads Amid Uncertainty Over Personal Data Use, The Guardian (July 5, 2023), https://www.theguardian.com/media/2023/jul/05/meta-delays-eu-launch-of-twitter-rival-threads-amid-uncertainty-over-personal-data-use.

[65] See Egle Markeviciute, Consumer Waiting Game: Why Do Tech Products Launch Later in Europe?, Euronews (Sept. 26, 2025), https://www.euronews.com/next/2025/09/26/consumer-waiting-game-why-do-tech-products-launch-later-in-europe.

[66] See Cynthia Kroet, Google’s AI Feature on Hold in Most EU Member States Due to ‘Strict Rules’, Euronews (Apr. 1, 2025), https://www.euronews.com/next/2025/04/01/googles-ai-feature-on-hold-in-most-eu-member-states-due-to-strict-rules.

[67] See Anti-American Antitrust: How Foreign Governments Target U.S. Businesses: Hearing Before the Subcomm. on the Admin. State, Reg. Reform, and Antitrust of the H. Comm. on the Judiciary, 119th Cong. 17 (Dec. 16, 2025) (statement of Dirk Auer), https://docs.house.gov/meetings/JU/JU05/20251216/118753/HHRG-119-JU05-Wstate-AuerD-20251216-U2.pdf. Auer explains that regulatory costs are spread across millions of consumers: when users receive “a less useful list of links” instead of integrated tools, they “lose time and convenience” but often attribute the decline to the product itself, rather than regulation. This “rational ignorance” shields regulators from accountability. He adds that while aggregate welfare losses may be significant, the per-user harm is too small to generate backlash, and foreign firms’ objections are easily dismissed as the “whining of monopolists.”

[68] Mert Demirer, Diego J. Jiménez Hernández, Dean Li & Sida Peng, Data, Privacy Laws and Firm Production: Evidence from the GDPR 42 (Nat’l Bureau of Econ. Rsch., Working Paper No. 32146, Feb. 2026), https://www.diegojimenezh.com/assets/pdf/Demirer_et_al2023_Privacy.pdf.

[69] Jian Jia, Ginger Z. Jin & Liad Wagman, The Short-Run Effects of GDPR on Technology Venture Investment, 40 Mktg. Sci. 661 (2021).

[70] Jian Jia, Ginger Zhe Jin & Liad Wagman, The Persisting Effects of the EU General Data Protection Regulation on Technology Venture Investment, Antitrust Source 1, 6 (June 2021), https://www.americanbar.org/content/dam/aba/publishing/antitrust-magazine-online/2021/june-2021/jun2021-jia.pdf.

[71] Lazar Radic & Dirk Auer, A Europe Fit for the Age of Startups: Rhetoric and Reality in the EU’s Digital Package, Int’l Ctr. for L. & Econ. 17 (Aug. 1, 2025), https://laweconcenter.org/resources/a-europe-fit-for-the-age-of-startups-rhetoric-and-reality-in-the-eus-digital-package.

[72] Mario Draghi, The Future of European Competitiveness: Part A: A Competitiveness Strategy for Europe, Eur. Comm’n (Sept. 2024), https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en.

[73] Id. at 24 (“The key driver of the rising productivity gap between the EU and the US has been digital technology … and Europe currently looks set to fall further behind. The main reason EU productivity diverged from the US in the mid-1990s was Europe’s failure to capitalize on the first digital revolution … both in generating new tech companies and diffusing digital technology across the economy. Excluding the tech sector, EU productivity growth over the past twenty years would be broadly at par with the US. Europe is lagging in the breakthrough digital technologies that will drive future growth.”).

[74] Id. at 6 (emphasis added).

[75] See id. at 14 (“Only four of the world’s top 50 tech companies are European, and the EU’s global position in tech is deteriorating: from 2013 to 2023, its share of global tech revenues fell from 22% to 18%, while the U.S. share rose from 30% to 38%.”).

[76] See infra Section III.D.3.

[77] See Radic & Auer, supra note 71, at 42 (“To the extent the Digital Package imposes burdens on large firms and, through compliance costs and reduced exit opportunities, raises barriers for startups to scale, it may undermine the goal of fostering competitive European firms and reclaiming technological leadership.”).

[78] See World Justice Project, supra note 6.

[79] See World Bank Group, supra note 7.

[80] Joseph V. Coniglio, Lilla Nóra Kiss, Giorgio Castiglia & Hadi Houalla, A Policymaker’s Guide to Digital Antitrust Regulation, Info. Tech. & Innovation Found. (Mar. 31, 2025), https://itif.org/publications/2025/03/31/a-policymakers-guide-to-digital-antitrust-regulation.

[81] Matthias Bauer, Dyuti Pandya & Vanika Sharma, EU Export of Regulatory Overreach: The Case of the Digital Markets Act (DMA) 2 (Eur. Ctr. for Int’l Political Econ., Policy Brief No. 08/2025, 2025), https://ecipe.org/publications/eu-export-of-regulatory-overreach-dma.

[82] Corruption Perceptions Index 2025, Transparency Int’l (Feb. 10, 2026), https://www.transparency.org/en/cpi/2025.

[83] Jean Comte, ‘Grossly Understaffed’ EU Competition Enforcers Must Prioritize, Guersent Says, MLex (Apr. 8, 2025), https://www.mlex.com/mlex/articles/2322385.

[84] See infra Section III.C.

[85] See Edoardo Ghirotto, Fazenda Diz que Cade Terá Realocação de Equipes se PL 4675/25 for Aprovado, JOTA (Nov. 28, 2025), https://www.jota.info/executivo/fazenda-diz-que-cade-tera-realocacao-de-equipes-se-pl-4675-25-for-aprovado.

[86] See, e.g., Confederação Nacional da Indústria, Custo Brasil: O Vilão Invisível que Não Anda Só (2025), https://cni.portaldaindustria.com.br/custo-brasil.

[87] Observatório do Custo Brasil, Observatório do Custo Brasil: Ferramenta para Monitorar Políticas Públicas Estratégicas com Potencial na Redução do Custo Brasil e Melhoria da Competitividade, https://custobrasil.org.br.

[88] Ministério do Desenvolvimento, Indústria, Comércio e Serviços [MDIC], Agenda de Redução do Custo-Brasil, Secretaria de Competitividade e Política Regulatória, Melhoria do Ambiente de Negócios 5 (June 2025), https://static.portaldaindustria.com.br/portaldaindustria/noticias/media/filer_public/0b/79/0b7935cb-c61c-48f6-98d9-a5fd323b95b7/relatriocustobrasil012025.pdf (“O Custo Brasil é um dos principais obstáculos ao crescimento sustentável e à competitividade da economia nacional, refletindo ineficiências como excesso de burocracia, infraestrutura deficiente, insegurança jurídica e distorções regulatórias.”).

[89] Org. for Econ. Co-op. & Dev. (OECD), Key Takeaways from the 2023–2024 Update of the OECD Product Market Regulation Indicators (2024), https://www.oecd.org/en/topics/product-market-regulation.html.

[90] Org. for Econ. Co-op. & Dev. (OECD), OECD Product Market Regulation (PMR) Indicators: How Does Brazil Compare? (2024), https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/product-market-regulation/Brazil_PMR%20country%20note.pdf.

[91] Org. for Econ. Co-op. & Dev. (OECD), Regulatory Reform in Brazil, OECD Reviews of Regulatory Reform (2022), https://www.oecd.org/content/dam/oecd/en/publications/reports/2022/06/regulatory-reform-in-brazil_da75f3f8/d81c15d7-en.pdf.

[92] See Mario A. Zúñiga, Regulatory Reconquista: Ex-Ante Regulation of Digital Platforms in Latin America, Int’l Ctr. for L. & Econ. (Mar. 17, 2025), https://laweconcenter.org/resources/regulatory-reconquista-ex-ante-regulation-of-digital-platforms-in-latin-america.

[93] Ayesha Bhatti, How the Brussels Effect Hinders Innovation in the Global South, Ctr. for Data Innovation (Jan. 26, 2026), https://itif.org/publications/2026/01/26/how-brussels-effect-hinders-innovation-in-global-south.

[94] See, e.g., Geoffrey A. Manne & Dirk Auer, Brussels Effect or Brussels Defect: Digital Regulation in Emerging Markets, Truth on the Mkt. (Dec. 20, 2022), https://truthonthemarket.com/2022/12/20/brussels-effect-or-brussels-defect-digital-regulation-in-emerging-markets (“The most pressing challenge is to attract investment from international tech firms in the first place, not how to regulate their conduct.”).

[95] Robert D. Atkinson, Letter to the Trump Administration Regarding Non-Tariff Attacks on U.S. Tech Firms and Industries, Info. Tech. & Innovation Found. (July 2, 2025), https://itif.org/publications/2025/07/02/letter-regarding-non-tariff-attacks-on-ustech-firms-and-industries.

[96] Mikołaj Barczentewicz, The Digital Markets Act as an EU Digital Tax: When Compliance Costs Dwarf Regulatory Estimates, Truth on the Mkt. (July 8, 2025), https://laweconcenter.org/resources/the-digital-markets-act-as-an-eu-digital-tax-whencompliance-costs-dwarf-regulatory-estimates.

[97] Gatekeepers, Eur. Comm’n (last visited Mar. 12, 2026), https://digital-markets-act.ec.europa.eu/gatekeepers_en.

[98] See The White House, Defending American Companies and Innovators from Overseas Extortion and Unfair Fines and Penalties, Presidential Actions (Feb. 21, 2025), https://www.whitehouse.gov/presidential-actions/2025/02/defending-american-companies-and-innovators-from-overseas-extortion-and-unfair-fines-and-penalties.

[99] See Siladitya Ray, JD Vance Knocks EU’s Regulation of U.S. Tech Giants: “America Cannot Accept That”, Forbes (Feb. 11, 2025), https://www.forbes.com/sites/siladityaray/2025/02/11/jd-vance-knocks-eus-regulation-of-us-tech-giants-america-cannot-accept-that.

[100] See Kim Marcrael, U.S. Sanctions Former EU Official Over Digital-Content Law, Wall St. J. (Dec. 24, 2025), https://www.wsj.com/world/europe/u-s-sanctions-former-eu-official-over-digital-content-law-c41f574c.

[101] See Patricia Campos Mello, Governo Quer Urgência no Novo Antitruste Digital e Não Teme Reação dos EUA, Diz Dario Durigan, Folha de S. Paulo (Nov. 2, 2025), https://www1.folha.uol.com.br/mercado/2025/11/governo-quer-urgencia-no-novo-antitruste-digital-e-nao-teme-reacao-dos-eua-diz-dario-durigan.shtml.

[102] Id.

[103] Auer, supra note 67, at 18.

[104] See Zúñiga, supra note 8.

[105] See Digital Platforms, supra note 18, § 3.1.

[106] Id. at § 4.1.

[107] Id. at § 4.1.1, Proposal 1.

[108] Giorgio Castiglia, Brazil Should Avoid Rushing Into DMA-Style Regulation, Info. Tech. & Innovation Found. (Feb. 20, 2026), https://itif.org/publications/2026/02/20/brazil-should-avoid-rushing-into-dma-style-regulation.

[109] See Zúñiga, supra note 8.

[110] Id.

[111] BCL, art. 1.

[112] Id.

[113] Id. art. 4.

[114] Id. art. 6.

[115] Id. art. 36, § 1.

[116] Org. for Econ. Co-op. & Dev. (OECD), The Consumer Welfare Standard: Advantages and Disadvantages Compared to Alternative Standards (2023), https://www.oecd.org/content/dam/oecd/en/publications/reports/2023/05/consumer-welfare-standards-advantages-and-disadvantages-compared-to-alternative-standards_4de3277e/3d174fdf-en.pdf (noting that the consumer welfare standard admits “a range of alternative definitions” and “many nuanced takes,” and extends beyond price to include quality, variety, service, and innovation).

[117] See BCL, art. 88, § 5.

[118] Id. art. 88, § 6.

[119] United States v. Baker Hughes, 908 F.2d 981 (D.C. Cir. 1990).

[120] See Herbert Hovenkamp, Is Antitrust’s Consumer Welfare Principle Imperiled?, 45 J. Corp. L. 101 (2019), https://jcl.law.uiowa.edu/sites/jcl.law.uiowa.edu/files/2021-08/Hovenkamp_Final_Web.pdf.

[121] See generally Kenneth Heyer, Consumer Welfare and the Legacy of Robert Bork, 57 J.L. & Econ. 19 (2014), https://www.journals.uchicago.edu/doi/abs/10.1086/676463. Legally, this means that even if a merger increases total welfare through efficiencies, CADE must reject it unless the parties show that a significant share of those gains will accrue to consumers.

[122] Conselho Administrativo de Defesa Econômica [CADE], Guia para Análise de Atos de Concentração Horizontal (July 2016) (Braz.), https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/guias-do-cade/guia-para-analise-de-atos-de-concentracao-horizontal.pdf.

[123] Eric Hadmann Jasper, Paradoxo Tropical: A Finalidade do Direito da Concorrência no Brasil, 7 Rev. de Defesa da Concorrência 171, 186–87 (2019).

[124] Gustavo Manicardi Schneider & Rodrigo Fialho Borges, Qual Bem-Estar do Consumidor? Um Objetivo sem Significado, 188 Rev. Dir. Mercantil, Indus., Econ. & Fin. 65, 89 (2025).

[125] Bill 4,675/2025, supra note 1, art. 47-B, §§ I–III.

[126] For an explanation of why scale alone does not constitute antitrust harm, see Brian Albrecht, Scale and Antitrust: Where Is the Harm?, Int’l Ctr. for L. & Econ. (Nov. 22, 2023), https://laweconcenter.org/wp-content/uploads/2023/11/tldr-Scale.pdf.

[127] CADE has not issued formal guidelines on unilateral conduct but is expected to do so in 2026 or 2027 following an internal initiative and the hiring of an external consultant. In practice, CADE defines the relevant market and assesses dominance before evaluating conduct. Consistent with this approach, proposed guidelines by the Instituto Brasileiro de Estudos de Concorrência, Consumo e Comércio Internacional (IBRAC) include a preliminary step to assess dominance based on market definition and market-power analysis. See Instituto Brasileiro de Estudos de Concorrência, Consumo e Comércio Internacional [IBRAC], Guia de Condutas Unilaterais (2020), https://ibrac.org.br/wp-content/uploads/2024/03/IBRAC_-_Guia_de_Condutas_Unilaterais.pdf.

[128] See CADE, Guia para Análise de Atos de Concentração Horizontal, supra note 122, § 2.5.1.

[129] Marius Schwartz, The Nature and Scope of Contestability Theory, 38 Oxford Econ. Papers (New Series), Supplement: Strategic Behaviour and Industrial Competition 37, 38–39 (1986). See generally William J. Baumol, Contestable Markets: An Uprising in the Theory of Industry Structure, 72 Am. Econ. Rev. 1 (1982); William J. Baumol, John Panzar & Robert D. Willig, Contestable Markets and the Theory of Industry Structure (rev. ed. 1988).

[130] Manne, Auer & Radic, Regulate for What?, supra note 15, at 236 (quoting Schwartz, id. at 38).

[131] Id. at 236–37.

[132] See, e.g., Maureen K. Ohlhausen & John M. Taladay, Are Competition Officials Abandoning Competition Principles?, 13 J. Competition L. & Prac. 463, 465 (2022) (“Some recent legislative and regulatory proposals appear to depart from this basic premise. Rather than protecting competition itself, they impose requirements on certain firms to benefit rivals, including those that lagged in investment, innovation, or product development. While such measures may constrain gatekeepers and assist competitors, it remains unclear how they benefit consumers, as opposed to competitors.”).

[133] See, e.g., Harold Demsetz, Barriers to Entry, 72 Am. Econ. Rev. 47, 56 (1982) (“The challenge in crafting policy on entry barriers lies in distinguishing socially desirable from undesirable costs. A narrow focus on production costs overlooks investments in reputation, innovation risk, and efficient scale, while ignoring how current policy shapes future incentives.”). See also Brian Albrecht, What Is a Barrier to Entry?, Truth on the Mkt. (July 7, 2023), https://truthonthemarket.com/2023/07/07/what-is-a-barrier-to-entry (“The problem with Bain’s framework is not his definition but its failure to distinguish cause from effect and endogenous from exogenous factors. Many so-called barriers—such as product differentiation and scale—reflect firm choices and dynamic competition, rather than fixed structural constraints.”).

[134] See Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1, 15 (1984); Geoffrey A. Manne, Error Costs in Digital Markets, in The Global Antitrust Institute Report on the Digital Economy 33 (Douglas H. Ginsburg & Joshua D. Wright eds., 2020), https://laweconcenter.org/wp-content/uploads/2020/11/SSRN-id3733662.pdf.

[135] Lazar Radic & Nicolas Petit, The Superiority of the Consumer Welfare Standard, EUI Dep’t of L. Working Paper No. 2024/20 (Dec. 15, 2024), https://ssrn.com/abstract=5065469.

[136] See Manne, Radic & Auer, Regulate for What?, supra note 15, at XX (observing that digital competition regimes grounded in vague goals such as “fairness” and “contestability,” untethered to consumer welfare, lack clear benchmarks and risk protecting competitors rather than competition).

[137] This concern is not unique to Brazil. Ex ante regimes globally tend to reshape competition-law concepts in subtle but significant ways, subordinating consumer welfare to broader and more abstract goals and, in doing so, transforming competition regimes into mechanisms for rent redistribution among firms. See Manne, Radic & Auer, Regulate for What?, supra note 15, at 217–28 (analyzing how ex ante regimes subvert traditional competition-law principles); id. at 228–34 (documenting rent redistribution as a common objective).

[138] Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 Fordham L. Rev. 2405, 2409 (2013).

[139] Id. at 2416–17.

[140] If harmful, standard competition analysis already accounts for it. See, e.g., id. at 2422 (“While incorporating product variety, quality, and innovation into welfare analysis is desirable when done correctly…, modern antitrust analysis comfortably incorporates the tradeoffs between price and quality that consumers face.”).

[141] See Schneider & Borges, supra note 124, at 88.

[142] See Thom Lambert, Rent-Seeking and Public Choice in Digital Markets, in The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg eds., 2020), https://gaidigitalreport.com/2020/08/25/rent-seeking-and-public-choice-in-digital-markets; Manne, Auer & Radic, Regulate for What?, supra note 15, at 254.

[143] See Bill 4,675/2025, supra note 1, art. 47-C.

[144] Id. at §§ I-VI.

[145] See id.

[146] See id.

[147] See, e.g., Jean-Charles Rochet & Jean Tirole, Platform Competition in Two-Sided Markets, 1 J. Eur. Econ. Ass’n 990 (2003).

[148] See, e.g., Francine Lafontaine & Margaret Slade, Vertical Integration and Firm Boundaries: The Evidence, 45 J. Econ. Lit. 629, 633–37 (2007).

[149] See 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. 1281 (2021).

[150] William M. Landes & Richard A. Posner, Market Power in Antitrust Cases, 94 Harv. L. Rev. 937 (1981).

[151] See Harold Demsetz, Industry Structure, Market Rivalry, and Public Policy, 16 J.L. & Econ. 1 (1973). See also Chad Syverson, Macroeconomics and Market Power: Context, Implications, and Open Questions, 33 J. Econ. Persp. 23, 26 (2019) (“[C]oncentration is worse than just a noisy barometer of market power. Instead, we cannot even generally know which way the barometer is oriented.”); Steven Berry, Martin Gaynor & Fiona Scott Morton, Do Increasing Markups Matter? Lessons from Empirical Industrial Organization, 33 J. Econ. Persp. 44, 46 (2019) (“Within the field of industrial organization, the structure-conduct-performance approach has been discredited for a long time.”); id. at 48 (“In short, there is no well-defined ‘causal effect of concentration on price,’ but rather a set of hypotheses that can explain observed correlations….”).

[152] See Ministério da Fazenda, Governo Federal Envia à Câmara dos Deputados Projeto para Regulação Concorrencial das Big Techs (Sept. 17, 2025), https://www.gov.br/fazenda/pt-br/assuntos/noticias/2025/setembro/governo-federal-envia-a-camara-dos-deputados-projeto-para-regulacao-concorrencial-das-big-techs (“It is estimated that five to ten platforms operating in Brazil will be designated.”).

[153] See Manne, Radic & Auer, supra note 15, at 229–33 (documenting how ex ante regimes across jurisdictions aim to redistribute rents from large, predominantly U.S.-based, technology firms to domestic competitors and business users).

[154] See Oliveira Neto & Radic, Brazil’s Digital Markets Bill: A DMA Through the Back Door?, supra note 21.

[155] See Bill 4,675/2025, supra note 1, art. 87-A, § 2.

[156] See Easterbrook, supra note 134.

[157] See Manne, Error Costs in Digital Markets, supra note 134.

[158] DMCC, ch. 1, §§ 2–5.

[159] Gesetz gegen Wettbewerbsbeschränkungen [GWB] [Competition Act], as amended by Gesetz, Oct. 25, 2023, Bundesgesetzblatt, Teil I [BGBl. I] 294 (Ger.), § 19a(1)(1).

[160] See supra Section III.A.2.a.

[161] David S. Evans, Attention Rivalry Among Online Platforms, 9 J. Competition L. & Econ. 313 (2013).

[162] See Bill 4,675/2025, supra note 1, art. 14-A, § 2.

[163] See id., art. 14-B.

[164] See DMA, Eur. Comm’n (last visited Mar. 26, 2026), https://digital-markets-act.ec.europa.eu/index_en (“The European Commission is the sole enforcer of the DMA. A joint team in the Directorates-General for Competition (DG COMP) and Communications Networks, Content and Technology (DG CONNECT) is responsible for its implementation and enforcement.”).

[165] Working in Digital at the CMA, Competition & Markets Auth. (last visited Mar. 26, 2026), https://www.civil-service-careers.gov.uk/cma-working-in-digital-at-the-cma.

[166] Bundeskartellamt, The Bundeskartellamt: Organisation, Tasks and Activities (2022), https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Broschueren/Brochure_About_%20Bundeskartellamt.pdf.

[167] See Bill 4,675/2025, supra note 1, arts. 87-A–87-B.

[168] See id. at arts. 87-A, § 5 & 87-B, § 5.

[169] See id. at arts. 87-A, § 6 & 87-B, § 6.

[170] For a comprehensive analysis of the risks and consequences of regulatory extortion, see Fred S. McChesney, Money for Nothing: Politicians, Rent Extraction, and Political Extortion (1997).

[171] See Ghirotto, supra note 85.

[172] See Comte, supra note 83.

[173] See Oliveira Neto & Radic, supra note 21.

[174] See Bill 4,675/2025, supra note 1, art. 47-E, § IV(b)–(h).

[175] Geoffrey A. Manne, Against the Vertical Discrimination Presumption, Concurrences, No. 2, at 1 (May 2020).

[176] See generally Geoffrey A. Manne, Kristian Stout & Eric Fruits, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 68 Kan. L. Rev. 923 (2020).

[177] Dario Oliveira Neto, Self-Preferencing in Brazil: Should We Regulate Before We Understand?, Int’l Ctr. for L. & Econ. 4 (2025), https://laweconcenter.org/resources/self-preferencing-in-brazil-should-we-regulate-before-we-understand.

[178] See, e.g., Michael Salinger, Self-Preferencing, in The Global Antitrust Institute Report on the Digital Economy 329, 333 (Joshua D. Wright & Douglas H. Ginsburg eds., 2020), https://gaidigitalreport.com/2020/08/25/self-preferencing; Manne, supra note 175.

[179] Yuta Kittaka, Susumu Sato & Yusuke Zennyo, Self-Preferencing by Platforms: A Literature Review, 66 Japan & the World Econ. 101191, 8 (2023). See also Feng Zhu, Friends or Foes? Examining Platform Owners’ Entry into Complementors’ Spaces, 28 J. Econ. & Mgmt. Strategy 23, 27 (2019).

[180] See Zhuoxin Li & Ashish Agarwal, Platform Integration and Demand Spillovers in Complementary Markets: Evidence from Facebook’s Integration of Instagram, 63 Mgmt. Sci. 3438 (2017).

[181] See Jens Foerderer et al., Does Platform Owner’s Entry Crowd Out Innovation? Evidence from Google Photos, 29 Info. Sys. Res. 444 (2018).

[182] See Carmelo Cennamo, Yuan Gu & Feng Zhu, Value Co-Creation and Capture in the Creative Industry: The U.S. Home Video Game Market, Working Paper (2016), http://questromworld.bu.edu/platformstrategy/files/2017/06/PlatStrat_2017_paper_21.pdf.

[183] See Farronato et al., supra note 45.

[184] Yusuke Zennyo, Platform Encroachment and Own-Content Bias, 70 J. Indus. Econ. 684, 705 (2022).

[185] See Pape & Rossi, supra note 43; Nextrade Grp., supra note 52, at 2; ECIPE, What About Us?, supra note 50, at 14.

[186] See Legal Grounds Institute, Legal Grounds’ Report on the Impact of Bill 2768 on Legal Certainty: Summary of the Findings (2025), https://legalgroundsinstitute.com/wp-content/uploads/2024/10/FindingsReportSelf-Preferencingfinal.pdf.

[187] Id. at 10.

[188] Id.

[189] Id.

[190] See Rochet & Tirole, Platform Competition in Two-Sided Markets, supra note 147 (analyzing two-sided platform economics and the welfare effects of limits on cross-subsidization and steering).

[191] See Manne et al., ICLE DMA Review Response, supra note 28, at 14.

[192] See Bill 4,675/2025, supra note 1, art. 47-E(V)(a)–(h).

[193] See id. art. 47-E, § 2 (providing that CADE “may consider” information-security factors).

[194] See Kati Suominen, New Costs and Cybersecurity Challenges Flagged as DMA Compliance Starts, Ctr. for Strategic & Int’l Stud. (Mar. 22, 2024), https://www.csis.org/analysis/new-costs-and-cybersecurity-challenges-flagged-dma-compliance-starts.

[195] See Oliveira Neto & Zúñiga, supra note 5.

[196] See Brasil, Lei nº 13.709, de 14 de agosto de 2018, art. 18(V) (Braz.) [hereinafter LGPD].

[197] See Matthew Kilcoyne & Joseph V. Coniglio, Comments to European Commission, In the Matter of: Consultation on Joint Guidelines on the Interplay Between DMA and GDPR, Info. Tech. & Innovation Found. (Dec. 4, 2025), https://itif.org/publications/2025/12/04/comments-european-commission-joint-guidelines-on-interplay-between-dma-and-gdpr.

[198] Marc Bourreau, Jan Krämer & Miriam Buiten, Interoperability in Digital Markets, Ctr. on Regul. in Eur. [CERRE] (Mar. 2022), https://cerre.eu/wp-content/uploads/2022/03/220321_CERRE_Report_Interoperability-in-Digital-Markets_FINAL.pdf.

[199] See Brian Albrecht, Network Effects and Interoperability, Int’l Ctr. for L. & Econ. (May 5, 2023), https://laweconcenter.org/wp-content/uploads/2023/05/Interoperability-TLDR.pdf.

[200] Ofcom, Mandated Interoperability in Digital Markets 18–19 (Econ. Discussion Paper Series, Issue 8, Nov. 2, 2023), https://www.ofcom.org.uk/siteassets/resources/documents/research-and-data/economic-discussion-papers-/discussion-paper-mandated-interoperability-in-digital-markets?v=330343 (“There is a fundamental interaction between innovation and interoperability….”).

[201] Id. at 8.

[202] See Inge Graef, Martin Husovec & Jeroen van den Boom, Spill-Overs in Data Governance: Uncovering the Uneasy Relationship Between the GDPR’s Right to Data Portability and EU Sector-Specific Data Access Regimes, 9 J. Eur. Consumer & Mkt. L. 3 (2020).

[203] Peter Swire & Yianni Lagos, Why the Right to Data Portability Likely Reduces Consumer Welfare: Antitrust and Privacy Critique, 72 Md. L. Rev. 335, 339 (2013).

[204] Id. at 352.

[205] Christian Reimsbach-Kounatze & Andras Molnar, The Impact of Data Portability on User Empowerment, Innovation, and Competition 5 (OECD Going Digital Toolkit Note No. 25, June 2024), https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/06/the-impact-of-data-portability-on-user-empowerment-innovation-and-competition_ee329380/319f420f-en.pdf.

[206] Geoffrey A. Manne & Sam Bowman, Data Portability and Interoperability: The Promise and Perils of Data Portability Mandates as a Competition Tool, Int’l Ctr. for L. & Econ. (Sept. 10, 2020), https://laweconcenter.org/resources/issue-brief-data-portability-and-interoperability-the-promise-and-perils-of-data-portability-mandates-as-a-competition-tool.

[207] See, e.g., Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407–08 (2004) (warning that compelling firms to share the source of their advantage may weaken incentives for both incumbents and rivals to invest in beneficial facilities).

[208] See Bill 4,675/2025, supra note 1, art. 47-E(I).

[209] See generally Geoffrey A. Manne, Samuel Bowman & Dirk Auer, Technology Mergers and the Market for Corporate Control, 86 Mo. L. Rev. 1047 (2022).

[210] Gordon M. Phillips & Alexei Zhdanov, Venture Capital Investments, Merger Activity, and Competition Laws Around the World, 13 Rev. Corp. Fin. Stud. 303, 307 (2024).

[211] Manne, Bowman & Auer, supra note 211, at 1113–14.

[212] See generally Radic & Auer, A Europe Fit for the Age of Startups, supra note 71.

[213] See BCL, art. 88.

[214] Oliveira Neto & Zúñiga, supra note 5.

[215] See Bill 4,675/2025, supra note 1, art. 47-E § 2.

[216] See supra Section III.A.1.

[217] See BCL, art. 36.

[218] See DMA recital 23 (“Any justification on economic grounds seeking to enter into market definition or to demonstrate efficiencies deriving from a specific type of behaviour by the undertaking providing core platform services should be discarded, as it is not relevant to the designation as a gatekeeper.”).

[219] See DMCC, pt. 1, ch. 3, § 29 (Countervailing Benefits Exemption).

[220] See id. § 29(2)(a)–(h).

[221] Dirk Auer, Matthew Lesh & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, Inst. of Econ. Affs. (Sept. 19, 2023), https://laweconcenter.org/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web-1.pdf.

[222] See Manne, Radic & Auer, Regulate for What?, supra note 15, at 201.

[223] See id. at 249–54 (arguing that ex ante regimes treat consumer-welfare losses as acceptable tradeoffs for competitor benefits and for supply-chain wealth transfers deemed “fair” by regulators).

[224] Bill 4,675/2025, supra note 1, art. 87-G(I).

[225] Fredrik Erixon, Andrea Dugo & Dyuti Pandya, Reviewing the Digital Markets Act: Inspirations from Japan, Eur. Ctr. for Int’l Political Econ. [ECIPE] (Feb. 2026), https://ecipe.org/insights/dma-review-inspirations-from-japan.

[226] Lei No. 13.874, de 20 de setembro de 2019, Diário Oficial da União [D.O.U.] de 20.09.2019 (Braz.), art. 5.

Introduction

The rise of artificial intelligence (“AI”) systems trained on large datasets, which often include copyrighted works, has led to thorny questions of how to apply intellectual property law in this developing space. Around the world, policymakers have been considering different approaches to striking a balance between protecting copyright holders and promoting innovative new uses of copyrighted material, such as generative AI.¹ Courts have also considered how copyright law, which in the United States includes doctrines like fair use, applies to the use of copyrighted material as inputs to train datasets.²

Assuming that Congress is not about to step in with some form of a “text and data mining” exemption in copyright law,³ there are, broadly speaking, two ways to facilitate training. First, the content can be licensed. However, the sheer scale of data needed, coupled with a very low marginal value for individual works, potentially makes this approach impractical. Second, developers hope to use “fair use” as an affirmative defense to any infringing acts. The issue here is that, technically, this constitutes an infringement in the first place—otherwise, an affirmative defense would not be necessary.

Moreover, it is not facially obvious that an excused infringement would not violate other bodies of law outside of copyright—for instance, competition law. Thus, even if copyright law permits certain uses through fair use or other exceptions, consumer protection or competition authorities could step in as well and police attempts to use copyrighted material as inputs for training as “unfair.” For instance, the Federal Trade Commission (“FTC”) offered a comment to the U.S. Copyright Office in October 2023 arguing that “under certain circumstances, the use of pirated or misuse of copyrighted materials could be an unfair practice or unfair method of competition under Section 5 of the FTC Act.”⁴ The FTC went so far as to even say “conduct that may be consistent with copyright laws nevertheless may violate Section 5.”⁵

Below, we consider the intersection between copyright and competition policy in the context of using copyrighted works as inputs for generative AI. Part I provides context by introducing an economic approach to the questions of copyright and fair use for AI inputs, including looking at cases which have been considered so far in the United States. Part II then considers the intersection of FTC Section 5 with copyright law, outlining the FTC’s proposed approach in its comment to the Copyright Office. Part III then argues the FTC’s approach would lead to contradictions between copyright and competition and consumer protection law reducing the incentives for innovation and competition that underlie both.

I.      Law and Economics of AI and Copyright

To properly understand the intersection between copyright law, AI, and competition policy, a background in the economics of copyright is necessary. While this is an evolving area without established answers, the Copyright Office has conducted considerable work to frame the economic issues at play when examining the use of copyrighted works in artificial intelligence training.⁶ Courts have also begun to issue decisions in cases involving copyright and AI training.

A.      The Economic Foundations of Copyright and AI Innovation

Copyright law functions as a crucial mechanism for fostering innovation by establishing exclusive property rights that incentivize creative development.⁷ These rights enable creators to prevent unauthorized exploitation of their work, providing essential economic incentives that ultimately enhance collective social welfare. Creative works, being inherently non-excludable and non-rivalrous, constitute public goods that would face significant underproduction without copyright protection, as unfettered copying would substantially diminish expected returns on creative investment.⁸

This protective framework necessarily grants rightsholders a degree of market power that can elevate prices and potentially restrict access to resources.⁹ To maintain an appropriate equilibrium, copyright systems incorporate temporal limitations and exceptions—particularly fair use—that serve as critical counterbalances promoting broader societal interests.¹⁰ This delicate balance between creator compensation and public access represents the fundamental challenge underlying copyright policy.

The system exhibits what might be characterized as a “hydraulic relationship” between various elements of copyright protection.¹¹ Similar to fluid dynamics, where pressure applied in one chamber creates corresponding movement elsewhere, strengthening protections in one domain often necessitates increased flexibility in another to preserve systemic balance.¹² This hydraulic principle becomes particularly evident when transformative technologies like AI challenge established frameworks. Imposing significant restrictions at the input stage may require corresponding flexibility regarding outputs and vice versa.

AI systems present unprecedented challenges for policymakers and courts attempting to balance creative production incentives against beneficial utilization of copyrighted materials for technological advancement. While AI training on copyrighted materials could potentially alter creative incentives, excessive licensing requirements or competition-oriented obligations could significantly impair innovation and utility in AI development.

Several fundamental principles warrant consideration in this context. First, copyright’s inherent limitations prove highly relevant to AI training scenarios. Copyright law protects specific expressions rather than underlying ideas—a distinction that is potentially significant when AI systems transform inputs into novel expressions.¹³ The fair use doctrine further permits transformative applications that generate new expressions from protected works.¹⁴ While fair use remains contentious in AI contexts, the substantial good-faith debate demonstrates the uniqueness of AI training and the difficulty of applying traditional copyright frameworks to this innovation.¹⁵

Second, requiring individualized licensing for all copyrighted works used in AI training would impose prohibitive practical challenges and transaction costs.¹⁶ Contemporary AI models commonly train on billions of text fragments and images from across the internet. Negotiating separate licenses for each protected work would necessitate millions of transactions, rendering comprehensive licensing practically impossible at the scale required for effective AI development.¹⁷

While proponents have proposed collective licensing models to address these challenges through clearinghouses that negotiate blanket licenses for rightsholder groups,¹⁸ significant obstacles persist. Not all content owners would participate in such collectives, creating coverage gaps particularly for independent creators.¹⁹ Mandatory collective licensing could potentially create concerning monopolistic structures that eliminate competitive pressure.²⁰ As the Supreme Court recognized in Broadcast Music, Inc. v. CBS,²¹ even voluntary collective licensing arrangements require careful antitrust scrutiny to ensure they do not create arrangements that “threaten the proper operation of our predominantly free-market economy.”²² In the absence of clear market failure, voluntary solutions might be preferable, as evidenced by some media companies already negotiating direct arrangements.²³ The current landscape features an inconsistent patchwork of approaches, with some major content owners demanding licenses while numerous smaller creators remain outside any collective framework.²⁴

Furthermore, determining appropriate licensing fees presents fundamental valuation challenges. AI models utilize billions of inputs, making it nearly impossible to determine the value of individual contributions during training. Given the vast volume of necessary input data, even conventionally valuable content may have extremely small marginal value in training contexts.

These practical difficulties suggest that focusing regulatory attention on outputs rather than inputs represents a more economically sound approach. This would prioritize addressing copyright violations in final outputs while maintaining the creativity-innovation balance that copyright law aims to achieve.

This output-focused approach circumvents the implementation challenges associated with comprehensive input licensing. Once outputs are generated and commercially deployed, valuation becomes more feasible in defined markets. The contribution assessment of particular inputs would rely on similarity analysis—a familiar approach in copyright adjudication. Additional protections for creators’ distinctive characteristics would facilitate commercial negotiations,²⁵ while standard copyright mechanisms would remain available to address infringing uses.

B.     Recent Cases

A growing body of litigation has been examining whether AI developers may legally use copyrighted materials to train their models. Although most cases remain in early procedural stages, two significant judicial decisions provide important precedent. The following analysis examines the courts’ reasoning in these pivotal cases.

1.      Thomson Reuters v. Ross Intelligence

In Thomson Reuters Enterprise Center GmbH v. Ross Intelligence, Inc.,²⁶ the Delaware District Court examined Ross Intelligence’s use of “Bulk Memos” to train its AI legal-research tool.²⁷ A third party, LegalEase, created these memos based on Westlaw headnotes. Initially, Ross sought to license Westlaw headnotes directly from Thomson Reuters but was refused because Thomson Reuters didn’t want to assist a potential competitor. As an alternative strategy, Ross purchased Bulk Memos from LegalEase—documents described as “lawyers’ compilations of legal questions with good and bad answers.” ²⁸ LegalEase directed its lawyers to create these memos using Westlaw headnotes, which Thomson Reuters had developed by extracting legal principles from judicial opinions. Ross subsequently used these Bulk Memos to train an AI system designed to compete in the legal research market.

The question at issue was whether the copies of the Bulk Memos made by Ross for the training of its AI model infringed the rights held by Thomson Reuters in the Westlaw headnotes.

First, the court considered whether the record established a case of copyright infringement. Thomson Reuters had to show that “(1) it owned a valid copyright and (2) Ross copied protected elements of the copyright work.”²⁹ This was important here because Thomson Reuters claimed to hold a copyright over headnotes that were created by quoting and summarizing parts of judicial opinions that are not copyrightable.³⁰ After concluding that (most of) the headnotes were copyrightable,³¹ the court had to determine whether copying occurred, which means Thomson Reuters had to prove “(a) actual copying, and (b) substantial similarity.”³² The court found the actual copying was present because the “Bulk Memo questions for this batch closely resemble the headnotes’ text and that the headnotes differ significantly from the text of the judicial opinions.”³³ The court, under the same reasoning, found most of the Bulk Memos were substantially similar to the Westlaw headnotes. Accordingly, the court granted summary judgment “on the headnotes [for which the] language very closely tracks the language of the Bulk Memo question but not the language of the case opinion.”³⁴

Then, applying Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith,³⁵ the court emphasized that when a new use shares the same or highly similar purpose as the original work, this strongly indicates a lack of transformation.³⁶ In this case, Ross’s use of Westlaw headnotes to develop a competing legal research tool meant the underlying purpose of the original expression remained fundamentally unchanged.³⁷ Rather than adding new meaning, commentary, or purpose, Ross merely repackaged the headnotes in a format that served virtually identical functionality—helping users locate relevant legal cases. Consequently, the court determined that factor one (which considers the purpose and character of the use) weighed heavily against a finding of fair use because the use was commercial and not transformative.³⁸

Ross attempted to draw an analogy to “intermediate copying” cases, such as Sega Enterprises Ltd. v. Accolade, Inc. ³⁹ and Sony Computer Entertainment, Inc. v. Connectix Corp.,⁴⁰ where courts permitted limited copying of functional code for the purpose of reverse engineering.⁴¹ Ross’s analogy compared AI training (converting protected works into numerical weights) with reverse engineering (copying application programming interfaces to create compatible software).

The court, however, distinguished these cases on the basis that they involved functional computer code—primarily comprising unprotected ideas—and were necessary for ensuring compatibility between systems.⁴² By contrast, the Westlaw headnotes constitute creative expression, and the copying at issue was not essential to uncover any unprotected elements.⁴³ This distinction further undercut the argument that Ross’s use could be deemed transformative.

The commercial nature of Ross’s use also contributed to the court’s adverse view. By seeking to profit from a product that competes directly with Westlaw, Ross’s use maintained the same “research” or “reference” purpose inherent in Westlaw’s headnotes. This commercial aim, coupled with the absence of any significant recontextualization of the original material, reinforced the conclusion that Ross’s copying failed to achieve the requisite transformation.⁴⁴

Ultimately, because Ross’s appropriation of the headnotes did not introduce any new meaning or commentary beyond their original function, the court held that the copying was insufficiently transformative to qualify for fair use. The convergence of an unaltered purpose and the direct competition with Westlaw’s established market for headnotes served as a pivotal basis for rejecting the fair-use defense in this case.

On factor two, which focused on the nature of the original work, the court found that the Westlaw headnotes were “not that creative” compared to the original judicial opinions, thus siding with Ross.⁴⁵ Factor three, on how much of the work was used, also went to Ross.⁴⁶ The court found that “[t]here is no factual dispute: Ross’s output to an end user does not include a West headnote. . . . Because Ross did not make West headnotes available to the public, Ross benefits from factor three.”⁴⁷

Factor four, which is the most important factor of fair use, is the “likely effect on the market for the original.”⁴⁸ Here, the court again pointed out that Ross intended to create a market substitute to compete with Westlaw. The court emphasized that while the public may have an interest in judicial opinions, the “public has no right to Thomson Reuters’s parsing of the law. Copyrights encourage people to develop things that help society, like good research tools. Their builders earn the right to be paid accordingly.”⁴⁹ On balance, the court decided that the factors weighed against the fair-use defense. This case has become the first AI and copyright case to be appealed to a circuit court.⁵⁰

Despite the Ross decision, general purpose large language models (“LLMs”) might successfully establish fair use under its market-effects analysis. Unlike Ross’s specialized legal research tool, general purpose LLMs typically operate in different markets than the original works they process during training.⁵¹ The Ross court itself explicitly differentiated between Ross’s product and generative AI systems:

Ross was using Thomson Reuters’s headnotes as AI data to create a legal research tool to compete with Westlaw. It is undisputed that Ross’s AI is not generative AI (AI that writes new content itself). Rather, when a user enters a legal question, Ross spits back relevant judicial opinions that have already been written.⁵²

Unlike Ross’s product, which directly competed with Westlaw’s legal research service, general purpose LLMs serve fundamentally different purposes than the original works in their training data. These models create new content rather than reproducing existing works, potentially transforming input data into novel outputs like stories or images.⁵³ This creative function distinguishes them from tools that merely repackage copyrighted content.

This distinction strengthens the transformative-use argument for general purpose LLMs. When an AI generates original content inspired by—but not duplicating—existing works, the transformation process substantially alters both the form and function of the source material.⁵⁴ This transformative quality presents a stark contrast to the Ross case, where the copied content served essentially the same purpose in both original and derivative forms.

However, while general purpose LLMs may not directly compete with original works, they could potentially impact derivative markets by diminishing future licensing opportunities for rightsholders. Despite this concern, under the Ross framework, the distinct market positioning of general purpose LLMs might still favor AI developers in fair-use analyses. Nevertheless, given the multifaceted approach of fair use, this market distinction alone cannot guarantee protection without careful consideration of all relevant factors that safeguard creators’ economic interests.

2.      Tremblay v. OpenAI

In Tremblay v. OpenAI, Inc.,⁵⁵ the Northern District of California considered whether AI systems trained on copyrighted materials could infringe copyright law through their outputs.⁵⁶ The court evaluated a motion to dismiss focusing specifically on allegations of vicarious copyright infringement.

The central question was whether ChatGPT’s outputs violated copyright law when the underlying model had been trained on plaintiffs’ copyrighted books.⁵⁷ Unlike Ross, which focused on the copying of works during training, Tremblay addressed whether the outputs themselves constituted infringement.

The court framed its analysis around vicarious infringement,⁵⁸ first assessing whether plaintiffs had adequately alleged direct infringement in ChatGPT’s outputs. The plaintiffs argued that because OpenAI had copied their books for training purposes, “every output” of ChatGPT automatically qualified as an infringing derivative work. However, the court rejected this reasoning, emphasizing that copyright infringement requires proof of both actual copying and unlawful appropriation (substantial similarity).⁵⁹ Critically, the “[p]laintiffs fail to explain what the outputs entail or allege that any particular output is substantially similar—or similar at all—to their books.”⁶⁰

This decision highlights an important principle: Copyright infringement should be evaluated at the output stage based on substantial similarity to original works. While the litigation continues, this holding contributed significant clarity to the application of copyright law to AI systems. It properly places the emphasis on analyzing specific outputs rather than automatically deeming all generations from a model trained on copyrighted materials as infringing. Copyright holders retain protection against substantially similar outputs, but training an AI on copyrighted works does not render all its outputs presumptively infringing.

3.      Bartz v. Anthropic PBC ⁶¹

In Bartz v. Anthropic PBC,⁶² the Northern District of California considered another putative class action against an AI firm, alleging infringement for unauthorized copies of their works to train their LLM.⁶³ Anthropic motioned for summary judgment on the grounds of fair use.⁶⁴

Rather than treating all copying as a monolithic “AI training” use, the court carefully parsed Anthropic’s conduct into separate analytical buckets:

(1) Copies used specifically to train large language models, which the court found transformative under traditional fair-use analysis;⁶⁵

(2) The format conversion of legitimately purchased print books into digital library copies, which qualified as fair use under a distinct format-shifting rationale;⁶⁶ and

(3) The creation of a general-purpose digital library using pirated materials, which failed fair-use scrutiny entirely.⁶⁷

This tripartite structure proves crucial because each category of copying serves different purposes, involves different acquisition methods, and implicates different copyright concerns. Determining infringing use cases therefore requires independent analysis under the four-factor fair-use framework.⁶⁸

Importantly, the court’s analysis was limited to input-side copying and did not address whether AI-generated outputs might themselves infringe copyright, noting that “[a]uthors do not allege that any LLM output provided to users infringed upon [a]uthors’ works,”⁶⁹ and explicitly stating that “if the outputs were ever to become infringing, [a]uthors could bring such a case.”⁷⁰

The court’s methodical separation of these use cases demonstrates how courts will likely approach future AI copyright cases: not as broad categorical determinations about AI training, but as nuanced examinations of specific copying practices and their individual justifications.

The court’s analysis of the use of copies in AI training represents perhaps the most significant judicial endorsement to date of AI development under fair-use doctrine. The court grounded its reasoning in an analogy to human learning, noting that “[l]ike any reader aspiring to be a writer, Anthropic’s LLMs trained upon works not to race ahead and replicate or supplant them—but to turn a hard corner and create something different.”⁷¹

This framing proved crucial in distinguishing the case from Thomson Reuters Enter. Centre GmbH v. Ross Intel. Inc., where the court found against fair use.⁷² The key distinction lay in the nature of the AI system: Ross involved training “a competing AI tool for finding court opinions in response to a given legal topic,” which was “not transformative.”⁷³ By contrast, Anthropic’s Claude represents generative AI that creates new content, rather than merely replicating the function of existing databases.

The court’s analysis was bolstered by a critical factual finding: No infringing content ever reached users. The court emphasized that “[a]uthors do not allege that any infringing copy of their works was or would ever be provided to users by the Claude service.”⁷⁴ This absence of direct downstream infringement proved dispositive, as the court noted that filtering software prevented any exact copies or substantial reproductions from reaching the public.

The decision also rejected the authors’ argument that computers should be treated differently from humans in learning contexts. In particular, in rejecting the argument that an LLM learning the creative techniques of source material did not constitute fair use, the court observed that copyright “does not extend to ‘method[s] of operation, concept[s], [or] principle[s],’”⁷⁵ thus analogizing a work’s intangible elements to a “method of operation.”⁷⁶

In a separate but equally important holding, the court found that Anthropic’s conversion of purchased print books to digital formats constituted fair use under a format-shifting theory. Drawing on precedents from Sony Corp. of America v. Universal City Studios,⁷⁷ American Geophysical Union v. Texaco, Inc.,⁷⁸ and the Authors Guild v. Google, Inc. ⁷⁹ litigation, the court concluded that “[s]torage and searchability are not creative properties of the copyrighted work itself but physical properties of the frame around the work or informational properties about the work.”⁸⁰

This analysis proved crucial because it established that legitimate acquisition followed by format conversion differs fundamentally from unauthorized copying. The court emphasized that “every purchased print copy was copied in order to save storage space and to enable searchability as a digital copy. The print original was destroyed. One replaced the other.”⁸¹ Importantly, there was no evidence that digital copies were shared outside the company.⁸²

The decision carefully cabined this holding, noting that while the authors “might have wished to charge Anthropic more for digital than for print copies,”⁸³ the U.S. Constitution’s language “nowhere suggests that [the copyright owner’s] limited exclusive right should include a right to divide markets or a concomitant right to charge different purchasers different prices for the same book . . . .”⁸⁴ This reasoning reinforces the first-sale doctrine, while accommodating technological needs for format conversion.

The court’s treatment of pirated library copies represents the decision’s most significant limitation on AI companies. Despite finding the ultimate training-use transformative, the court firmly rejected the notion that transformative downstream use can cure upstream piracy. As the court colorfully noted, citing Anthropic’s oral arguments:

You can’t just bless yourself by saying I have a research purpose and, therefore, go and take any textbook you want. That would destroy the academic publishing market if that were the case.⁸⁵

The court identified the fundamental flaw in Anthropic’s approach: “[b]uilding a central library of works to be available for any number of further uses”⁸⁶ constituted a separate use from training LLMs. Critically, Anthropic “retained pirated copies even after deciding it would not use them or copies from them for training its LLMs ever again.”⁸⁷ This retention for general purposes, rather than specific transformative use, proved fatal to the portion of the decision judging the fair-use defense on the storage of pirated materials.

The court’s analysis drew important distinctions from cases where intermediate copying was excused. Unlike Perfect 10, Inc. v. Amazon.com, Inc. ⁸⁸ or Kelly v. Arriba Soft Corp.,⁸⁹ where copies were “immediately transformed into a significantly altered form” and deployed directly into transformative uses, Anthropic’s pirated copies were “downloaded and maintained ‘forever’” for a general purpose library.⁹⁰

The decision explicitly rejected the argument that eventual transformative use can retroactively justify initial piracy, emphasizing that “[e]ach use of a work must be analyzed objectively” under Warhol’s framework.⁹¹ This holding establishes that AI companies cannot rely on fair use as a blanket justification to acquire copyrighted materials through unauthorized means.

4.      Kadrey v. Meta

On June 25, 2025, Judge Vince Chhabria granted Meta’s cross-motion for partial summary judgment on fair-use grounds in Kadrey v. Meta Platforms, Inc.⁹² Thirteen well-known authors, led by Richard Kadrey, had alleged that Meta’s Llama models were trained on copies of their books scraped from “shadow libraries.”⁹³ The court acknowledged the direct copying but held the training use lawful under 17 U.S.C. § 107, emphasizing that the plaintiffs’ two principal theories of market harm—(i) occasional “regurgitation” of snippets and (ii) the loss of a putative licensing market for training data—were “clear losers.”⁹⁴

Yet the opinion pointedly identified a third, undeveloped theory that might change the calculus: If AI outputs “flood the market with similar works,” the resulting market dilution could undercut authors’ ability to sell their original books.⁹⁵ The judge characterized that argument as “potentially winning,” but found the record devoid of evidence tying the Meta Llama model’s current or foreseeable outputs to any substitution effect for the plaintiffs’ works.⁹⁶ In consequence, the ruling is a victory for broad-purpose training on the facts presented, not a blanket endorsement of unlicensed training writ large.

The decision therefore extends the line begun in Bartz v. Anthropic by reaffirming that large scale ingestion of text can be transformative and thus fair use. What is new—and worrisome—is the court’s willingness to frame market harm around speculative output substitution rather than the copying of inputs itself. If accepted by courts, that conflation opens a path for future plaintiffs to survive early motions even without locating infringing passages: They need only posit that model-generated books might depress demand for their own. If embraced, such a dilution theory would shift the fair-use inquiry toward policing downstream creativity, a result at odds with copyright’s traditional focus on actual substitution.

For present purposes, Kadrey underscores two messages that animate the next Part of this paper. First, courts remain skeptical of licensing-market and snippet-regurgitation claims, signaling a judicial appetite for doctrinal clarity over rhetoric. Second, and more importantly, the “market dilution” dicta reveal how quickly copyright analysis can become entangled with broader competition-policy concerns when judges conflate learning inputs with generative outputs. Untangling those strands—protecting training while addressing genuinely infringing outputs—will be essential to preserving both innovation incentives and the integrity of authors’ markets.

C.      Summary

The economic analysis of copyright’s foundational principles, coupled with emerging judicial interpretations in cases involving artificial intelligence, is beginning to clarify the legal landscape for AI systems trained on copyrighted materials. This evolving jurisprudence reflects the courts’ efforts to balance the tension inherent in copyright’s hydraulic system—protecting creators’ economic incentives while facilitating technological innovation that serves distinct markets. Through decisions such as Thomson Reuters v. Ross Intelligence, Tremblay v. OpenAI, and Bartz v. Anthropic PBC, courts are contributing toward a nuanced framework that distinguishes between different types of AI systems based primarily on their economic impact on copyright holders’ markets.

The developing jurisprudential framework appears to establish two significant principles. First, some courts have rejected the proposition that all outputs from an AI system trained on copyrighted materials are per se infringing; rather, plaintiffs must demonstrate substantial similarity between specific outputs and protected works, consistent with traditional copyright infringement analysis. Second, whether the resulting AI system directly competes with the market for the original copyrighted works may substantially influence the fair-use inquiry at the training stage. This analytical approach potentially creates a viable path for general-purpose LLMs to qualify for fair-use protection where their outputs serve distinctly different market functions than the original works used in training.

If the Anthropic decision gains traction in other courts, it would seem to draw a clear roadmap for AI companies navigating copyright law. First, strategic sourcing beats piracy: Companies should acquire training materials through legitimate channels—purchase, licensing, or authorized access. The court’s finding that format shifting of legitimately acquired materials constitutes fair use further provides a viable path for companies needing digital copies for computational purposes.

Second, output liability emerges as the next frontier. Because no infringing content reached users in this case, future litigation will likely focus on whether AI-generated outputs themselves infringe copyright. The court explicitly noted that “if the outputs were ever to become infringing, [a]uthors could bring such a case.”⁹⁷

Third, the decision signals potential legislative solutions. It very well may be the case that generative AI will create hurdles for creators seeking to monetize their work. But it also could be that new markets emerge to allow artists to be remunerated on, for example, some sort of new property right in “name, image, and likeness.”⁹⁸ That would, however, likely require some sort of legislative enactment, perhaps by amending the Lanham Act⁹⁹ with an extension of the concept of trademark.

Notwithstanding these initial judicial determinations, it would be premature to conclude that all such uses of copyrighted materials will ultimately receive official sanction. As the subsequent Part explores, competition authorities may exercise their regulatory discretion to characterize even technically non-infringing or excused infringing uses of copyrighted materials as constituting unfair methods of competition. This introduces an additional layer of legal complexity that transcends traditional copyright analysis.

II.     How Can Fair Use Be Unfair?

Assuming judicial recognition of a fair-use exception for the incorporation of copyrighted materials as training inputs for AI systems, a complex regulatory question emerges regarding the FTC’s potential jurisdiction over such otherwise permissible activities. This jurisdictional inquiry necessitates examination of Section 5 of the Federal Trade Commission Act (“FTC Act”), which confers broad authority to proscribe “unfair methods of competition” and “unfair or deceptive acts or practices” in commerce.¹⁰⁰ The subsequent analysis first delineates the Commission’s statutory authority under Section 5 jurisprudence and attendant agency interpretations, followed by an examination of the Commission’s recent commentary to the United States Copyright Office regarding the potential application of this authority to artificial intelligence training methodologies that utilize copyrighted materials.

A.      Section 5 Authority

Section 5 of the FTC Act states that “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.”¹⁰¹ The Commission may not declare an act or practice unlawful “on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”¹⁰²

Case law and FTC guidance have further developed these high-level principles. Below, unfair methods of competition (“UMC”) and unfair or deceptive acts or practices (“UDAP”) will both be introduced in order to better understand the FTC’s argument on how the use of copyrighted materials as AI inputs could violate the FTC’s Section 5 authority.

1.      UMC Unfairness

The jurisprudential framework defining “unfair methods of competition” has evolved primarily through case law interpretation and administrative guidance.¹⁰³ Understanding this evolution is essential to evaluating the FTC’s current approach to AI training and copyright.

a. Historical Development and Judicial Foundation¹⁰⁴

From its inception, Congress intended Section 5 to provide the FTC with greater flexibility than that afforded by the Sherman and Clayton Acts, allowing it to address anticompetitive practices that might not fit neatly within the strict definitions of existing antitrust statutes. This design aimed to prevent the new antitrust framework from becoming static and unable to adapt to novel forms of anticompetitive conduct.

A landmark Supreme Court decision, FTC v. Sperry & Hutchinson Co.,¹⁰⁵ significantly affirmed the FTC’s expansive authority under the UMC prong.¹⁰⁶ The Court held that the FTC could proscribe practices as “unfair” even if those practices did not violate the letter or the spirit of the antitrust laws.¹⁰⁷ The Sperry & Hutchinson ruling empowered the Commission to consider broader “public values beyond simply those enshrined in the letter . . . of the antitrust laws” when determining whether a method of competition was unfair.¹⁰⁸ This decision is foundational to understanding the FTC’s capacity to act against conduct that might otherwise be permissible under traditional antitrust analysis.

More recently, the Commission’s 2022 “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act”¹⁰⁹ signaled a renewed commitment to a broad interpretation of its UMC authority. This statement explicitly asserts that Section 5’s reach extends beyond the Sherman and Clayton Acts, targeting conduct that may violate “‘the spirit’ of the antitrust laws” or is in its “incipiency.”¹¹⁰ The 2022 Policy Statement emphasizes that the FTC will focus on conduct that “goes beyond competition on the merits”¹¹¹ and “tend[s] to negatively affect competitive conditions.”¹¹² Notably, it suggests that demonstrating actual anticompetitive harm or market power, often a rigorous requirement in traditional antitrust litigation, may not be necessary in all Section 5 UMC cases.¹¹³ This approach effectively lowers the evidentiary burden for the FTC compared to standard antitrust enforcement, enabling challenges to conduct that might survive scrutiny under the Sherman or Clayton Acts.

This policy reflects an intent to use Section 5 as a dynamic tool, potentially to counteract judicial interpretations that some argue have narrowed the scope of traditional antitrust statutes, such as the Supreme Court’s decision in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP,¹¹⁴ which constrained the essential facilities doctrine.¹¹⁵

b.      Analytical Framework

The test for identifying whether conduct is an unfair method of competition includes first a determination that the challenged conduct is a method of competition, and second that it is unfair.¹¹⁶

To constitute a method of competition under the Commission’s analytical framework, the challenged conduct must satisfy two threshold criteria. First, it must represent affirmative action “undertaken by an actor in the marketplace,”¹¹⁷ rather than merely reflecting structural market conditions such as entry barriers or industry concentration levels. Second, the conduct must necessarily implicate competitive dynamics. The Commission has indicated that certain behaviors outside traditional antitrust boundaries—including the misuse of regulatory processes or violations of generally applicable laws, may satisfy this requirement when they affect competition.¹¹⁸

For instance, the Commission cites Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp. ¹¹⁹ for the proposition that defrauding the patent office could be a basis for an antitrust violation.¹²⁰ The Court found such abuse of regulatory process could be a basis for a Sherman Act Section 2 claim, but it was not a per se violation.¹²¹ The Commission also cites In re American Cyanamid Co.,¹²² as an example of finding misleading statements and withholding of information leading to a patent could be found to be an unfair method of competition.¹²³

The concept of “unfairness” within the Commission’s Section 5 jurisprudence encompasses conduct that “goes beyond competition on the merits.”¹²⁴ The Commission employs two principal criteria to evaluate whether conduct constitutes impermissible, non-meritorious competition: first, whether the conduct is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature,” and second, whether it “tend[s] . . . to negatively affect competition conditions.”¹²⁵

These evaluative criteria operate on a sliding scale within the Commission’s analytical framework, such that compelling evidence of one criterion may diminish the quantum of evidence required for the other.¹²⁶ Significantly, the Commission has clarified that actual anticompetitive harm need not be demonstrated; rather, a tendency to produce negative competitive effects suffices to establish a violation.¹²⁷

When presented with a prima facie case of an unfair method of competition, the Commission will consider potential justifications, albeit within narrowly circumscribed parameters. The Commission categorically rejects mere pecuniary benefits accruing to the respondent as sufficient justification.¹²⁸ Any proffered justification must be legally cognizable, non-pretextual, and narrowly tailored to minimize competitive harm.¹²⁹ Furthermore, the Commission requires that the asserted benefits manifest in the same market where the competitive harm occurs.¹³⁰ Even when these stringent requirements are satisfied, the claimed benefits must outweigh the competitive harm to constitute a valid defense.¹³¹

2.      UDAP Unfairness

The Commission’s authority to designate consumer practices as “unfair” or “deceptive” under Section 5 underwent significant legislative curtailment following congressional concerns regarding perceived administrative overreach in the late 1970s.¹³² In response to congressional scrutiny, the Commission promulgated its Policy Statement on Unfairness, which articulated interpretive principles aligned with the statutory parameters subsequently codified at 15 U.S.C. § 45(n).¹³³

Under this framework, unjustified consumer injury constitutes the cardinal consideration in consumer unfairness analysis. To satisfy the statutory threshold, such injury must satisfy three conjunctive elements: It must be (1) substantial, (2) not outweighed by countervailing consumer or competitive benefits, and (3) not reasonably avoidable through consumer action.¹³⁴

The substantiality requirement mandates that actionable harm transcend mere triviality or speculative injury. While economic detriment typically satisfies this criterion, substantial health and safety risks may likewise establish unfairness, whereas subjective or emotional harms generally fall outside the Commission’s enforcement purview.¹³⁵

The Commission’s balancing inquiry acknowledges that “[m]ost business practices entail a mixture of economic and other costs and benefits,”¹³⁶ necessitating careful evaluation of offsetting market advantages. Under this calculus, practices are deemed unfair only when “injurious in [their] net effects,”¹³⁷ requiring the Commission to weigh consumer injury against potential market efficiencies.

Finally, the reasonable avoidability criterion reflects the Commission’s deference to market self-correction through informed consumer choice. As articulated in the Policy Statement, “[n]ormally we expect the marketplace to be self-correcting, and we rely on consumer choice—the ability of individual consumers to make their own private purchasing decision without regulatory intervention—to govern the market.”¹³⁸ The Commission thus directs its enforcement authority not toward “second-guess[ing] the wisdom of particular consumer decisions, but rather to halt some form of seller behavior that unreasonably creates or takes advantage of an obstacle to the free exercise of consumer decision making.”¹³⁹ Paradigmatic examples include information asymmetries that prevent meaningful comparison shopping, coercive service contract tactics, and fraudulent health claims—practices that undermine the consumer’s capacity for autonomous market participation.¹⁴⁰

3.      The Convergence Problem: UMC and UDAP Unfairness Standards

The distinction and potential for overlap between UMC “unfairness” and UDAP “unfairness” can create significant regulatory ambiguity with particular relevance to AI copyright issues. While UDAP unfairness is governed by the codified three-part test in § 45(n) focusing on consumer injury, UMC unfairness, particularly as articulated in the 2022 Policy Statement, appears more open-ended. It relies on “indicia of unfairness” (such as conduct being coercive, exploitative, or abusive) and a “tendency to negatively affect competitive conditions.”¹⁴¹

This divergence implies that conduct not meeting the “substantial consumer injury” threshold for UDAP unfairness might still be challenged as an “unfair method of competition” if it is deemed to adversely affect the broader competitive landscape, even if direct, quantifiable consumer harm is less apparent or does not meet the § 45(n) criteria. This offers an alternative avenue for the FTC to intervene against conduct that might have been cleared under one specific aspect of its authority or by a court applying a similar consumer injury standard.

This regulatory flexibility becomes particularly problematic in the AI training context. Consider a scenario where an AI developer’s use of copyrighted materials under fair use cannot satisfy the UDAP unfairness standard because consumers suffer no substantial injury—indeed, consumers may benefit from improved AI capabilities. Under the more expansive UMC framework, however, the same conduct could be characterized as “exploitative” of rightsholders or as having a “tendency to negatively affect competitive conditions” in content markets, even without demonstrable consumer harm.

This dual-track approach effectively allows the FTC to forum shop within its own authority, selecting the standard most likely to yield enforcement success rather than applying consistent principles. Such regulatory arbitrage undermines legal predictability and threatens to circumvent the careful limitations Congress imposed on UDAP authority following the Commission’s overreach in the 1970s.

B.      FTC Comment to Copyright Office

With the foregoing analytical framework established, it becomes possible to examine the Commission’s potential application of unfairness principles to copyrighted materials used in artificial intelligence training. In 2023, the United States Copyright Office initiated an inquiry regarding artificial intelligence and copyright law,¹⁴² to which the Commission submitted a formal comment articulating its relevant enforcement interests and identifying potential competition and consumer protection concerns implicated by generative AI technologies.¹⁴³

In its submission, the Commission first catalogued its enforcement activities relating to artificial intelligence business practices before addressing competitive concerns. The Commission asserted that “rapid development and deployment of AI also poses potential risks to competition,” with particular emphasis on market concentration among “dominant” technology firms possessing critical AI inputs including technological infrastructure, computational resources, and training data access.¹⁴⁴ Based on these market dynamics, the Commission maintained that its unfair methods of competition authority constituted an essential regulatory tool.

With specific reference to copyrighted works as training inputs, the Commission stated that “under certain circumstances, the use of pirated or misuse of copyrighted materials could be an unfair practice or unfair method of competition under Section 5 of the FTC Act.”¹⁴⁵ Certain applications of this principle align logically with established unfairness jurisprudence. For instance, the Commission noted that copyright-violative conduct—such as unauthorized training on protected expression or commercializing outputs that mimic creators’ distinctive attributes—may constitute unfair methods of competition or unfair practices, particularly when such conduct “deceives consumers, exploits a creator’s reputation or diminishes the value of her existing or future works, reveals private information, or otherwise causes substantial injury to consumers.”¹⁴⁶ Such reasoning comports with traditional unfairness analysis where copyright infringement (absent fair use) serves as the predicate violation.

However, the Commission’s position extends considerably further, asserting that “conduct that may be consistent with the copyright laws nevertheless may violate Section 5.”¹⁴⁷ This expansive interpretation potentially encompasses lawful uses of copyrighted material—including those protected under the fair use doctrine—within the ambit of unfairness regulation.

The Commission’s justification for this jurisdictional expansion appears questionable upon scrutiny. The Commission contends that “[m]any large technology firms possess vast financial resources that enable them to indemnify the users of their generative AI tools or obtain exclusive licenses to copyrighted (or otherwise proprietary) training data, potentially further entrenching the market power of these dominant firms.”¹⁴⁸ This argument’s persuasiveness depends entirely on the premise that fair use would not apply to smaller AI companies seeking to utilize identical data. If fair use doctrine permits such utilization—as recent jurisprudential developments suggest it might for general-purpose systems—then both established technology firms and emerging competitors would enjoy equivalent legal access to these inputs.

Moreover, the Commission’s market power reasoning with respect to licensing deals could paradoxically support imposing affirmative dealing obligations on major copyright holders (at least with respect to their relations with small AI developers), an outcome that would seem to contradict established antitrust principles. For example, Thomson Reuters, as one of two dominant legal research providers through its Westlaw service, might under such logic be compelled to license its proprietary headnotes to market entrants like Ross Intelligence to facilitate competitive AI development. This reasoning would effectively transform copyright—a legal regime designed to grant exclusive rights—into a vehicle for mandatory licensing, at least for entities with substantial market share.

The tension becomes particularly apparent when considering the essential facilities doctrine in antitrust jurisprudence. While this doctrine has been significantly narrowed by the Supreme Court in cases such as Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, the Commission’s approach could be an attempt to resurrect a more expansive interpretation specifically for copyright holders.¹⁴⁹ If a dominant technology firm’s exclusive licensing of copyrighted materials constitutes an unfair method of competition due to potential market foreclosure, then symmetrically, a dominant copyright holder’s refusal to license to potential competitors would logically present similar competitive concerns. This interpretive approach would effectively subordinate copyright law’s exclusivity principles to competition policy considerations whenever a copyright holder achieves significant market position.

Furthermore, such reasoning introduces significant doctrinal inconsistency. The Copyright Office and courts have carefully delineated when fair use applies to innovative technologies, calibrating intellectual property protections to balance creator incentives with technological progress. Allowing the Commission to determine that legally permissible uses under copyright law—including fair use—nonetheless constitute unfair methods of competition would create competing legal standards that undermine this carefully crafted equilibrium. Copyright holders and AI developers would face contradictory legal obligations, where conduct explicitly permitted under one legal regime could simultaneously be prohibited under another.

In sum, the Commission has advanced the proposition that even fair use of copyrighted materials in AI training may constitute an unfair method of competition or unfair act or practice. The subsequent analysis will demonstrate that this regulatory approach would potentially undermine innovation and competition—the foundational values that animate copyright, antitrust, and consumer protection jurisprudence.

III. The FTC Should Not Discourage Innovation by Undermining Copyright and Fair Use

The optimal approach would harmonize copyright and competition law by preventing unsuccessful copyright infringement claims from serving as the foundation for unfairness claims. Courts should preserve copyright law’s carefully calibrated balance by limiting independent unfairness claims.

This Part analyzes how the FTC’s Copyright Comment makes incorrect assumptions about the market for AI training, which colors its analysis. Then, it makes a case for why the law of unfairness should be limited to situations where there is a clear underlying violation of copyright law, unexcused by fair use. Finally, it considers how courts have handled state-level unfair competition claims as an example of reading copyright law and competition law consistently.

A.      FTC’s Comment to the Copyright Office Makes Incorrect Assumptions About the AI Training Market

The FTC’s proposed approach misunderstands the dynamism in AI technology markets and risks overweighting rightsholder interests in AI training contexts. The Commission’s perspective reflects several problematic assumptions about both the technical functioning of AI and market realities.

First, the approach effectively grants rightsholders protections exceeding traditional copyright boundaries. No legal consensus exists on how AI systems conceptually engage with copyrighted works. While arguments exist that AI models “memorize” content,¹⁵⁰ research demonstrates that careful data curation can significantly reduce such memorization.¹⁵¹ Moreover, AI systems only make “true” copies during training; they transform works into tokens and abstract “weight” adjustments rather than storing original text sequences.¹⁵² The resulting model contains billions of parameters that form “a vast sea of numbers, with no direct correspondence to the original text.”¹⁵³ This tokenization process enables models to learn language patterns without reproducing creative expression in their permanent files.¹⁵⁴ Thus, fair use remains a live controversy requiring careful consideration before agencies impose competition-based restrictions.¹⁵⁵

Second, the FTC’s approach would itself create prohibitive transaction costs. Much internet content used in AI training lacks centralized management, making comprehensive rightsholder identification virtually impossible. Even if possible, the transaction costs would likely lead to less-capable AI models due to input constraints, or force reliance on synthetic data with potentially negative effects on model quality.¹⁵⁶

Third, value assignment at the input stage presents insurmountable challenges. Copyright Office analysis confirms that with foundation models ingesting billions of works, individual works’ influence becomes so diluted that even minimal licensing transaction costs would exceed that work’s share of model utility.¹⁵⁷ Even highly valuable literary collections represent mere drops in the vast training corpus. Traditional valuation methods become impractical—multiplying per-work fees by millions or billions yields astronomically high costs disconnected from actual impact on the model.

Furthermore, monetization in generative AI occurs primarily at the output stage when models produce valuable content, not during data ingestion. Without methods to connect specific generated content to particular training examples, input valuation remains highly speculative and likely de minimis for most individual works.

Finally, restrictive approaches risk creating AI systems that disproportionately reflect perspectives from entities with market power or established licensing frameworks. This undermines representation of independent creators and non-commercial knowledge sources, potentially producing AI systems biased toward commercially dominant viewpoints rather than reflecting the full spectrum of human knowledge and creative expression.

B.      Unfairness Without Violation? Why the FTC Should Not Treat Alleged or Excused Legal Conduct as Unfair Competition

The FTC’s invocation of Section 5 unfairness authority in contexts involving other legal regimes bears a striking resemblance to the tort doctrine of negligence per se. Under that doctrine, a violation of a statute may serve as evidence of breach in a negligence case, but courts impose strict limits on when such violations may be used to establish tort liability.¹⁵⁸ Crucially, negligence per se applies only where there has been an actual violation of a statute, and that violation is unexcused.¹⁵⁹ If the defendant raises and successfully invokes a statutory defense—such as impossibility, necessity, or compliance under emergency conditions—then the mere fact of technical noncompliance is insufficient to establish liability.¹⁶⁰ Similarly, if the statute was not designed to prevent the type of harm at issue, courts will not apply the negligence per se doctrine.¹⁶¹

By contrast, the FTC’s theory of unfairness lacks these core doctrinal constraints. The Commission’s 2023 comment to the U.S. Copyright Office asserts that even uses of copyrighted material “consistent with copyright laws” may still constitute unfair methods of competition under Section 5.¹⁶² This approach treats legal compliance not as a defense but as a separate, potentially irrelevant question—allowing the Commission to recharacterize excused conduct (such as a use found to be fair under the Copyright Act) as independently “unfair.”

The FTC’s treatment of legal violations, more notably, non-violations, under its unfairness authority exhibits a profound internal inconsistency. In some regulatory contexts, the FTC treats clear statutory violations as proxies for anticompetitive harm. For instance, in labor and employment cases, the Commission has suggested that violations of workplace safety or labor laws may be evidence of an exercise of market power.¹⁶³ Yet in others, such as copyright and fair use, the FTC implies that conduct consistent with the governing legal framework may nonetheless be deemed “unfair.”¹⁶⁴ This inconsistency reveals a troubling elasticity in the agency’s approach: where it suits the enforcement agenda, legal compliance may be disregarded or recharacterized as evidence of harm.

Consider the FTC’s increasing interest in labor market practices. In recent policy discussions, the agency has emphasized the relationship between employer conduct—such as wage suppression, no-poach agreements, or safety violations—and potential labor market concentration.¹⁶⁵ A violation of Occupational Safety and Health Administration regulations, for example, is often cited not only as a harm in itself but as a symptom of monopsony power.¹⁶⁶

Yet in stark contrast, when addressing uses of copyrighted materials in AI training, the FTC takes precisely the opposite view. The Commission’s 2023 comment to the U.S. Copyright Office asserted that “conduct that may be consistent with copyright laws nevertheless may violate Section 5.”¹⁶⁷ In other words, even where courts have determined that no copyright violation has occurred the FTC reserves the right to label that same conduct “unfair.” This reveals a reverse asymmetry: Here, non-violation still equals market abuse.

This doctrinal inconsistency erodes the distinction between unlawful conduct and conduct that the law affirmatively permits. Courts, by contrast, have consistently treated legal compliance and affirmative defenses as relevant, and often dispositive, in determining liability. In copyright law, the fair use doctrine is not a mere procedural hurdle; it is a substantive determination that the conduct in question does not give rise to liability. As the Supreme Court has held, fair use is not a lesser form of infringement but a doctrine that “permits courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster.”¹⁶⁸

Copyright law (including its fair use doctrine and related limitations) is a fully articulated legal regime, carefully constructed by Congress and interpreted by courts to balance exclusive rights with innovation and expressive freedom. By asserting that conduct “consistent with copyright law” may still constitute an unfair method of competition under Section 5, the FTC risks imposing liability for actions that the Copyright Act explicitly permits. This threatens to unravel the statutory equilibrium, subjecting developers and creators to duplicative or conflicting standards.

Allowing the FTC to treat alleged or excused violations of other laws as per se “unfair” under Section 5 creates a regulatory framework unmoored from statute, judicial precedent, or objective standards. Such an approach threatens to convert Section 5 into a floating liability regime, where enforcement decisions hinge not on defined legal boundaries but on agency discretion. In this framework, legal compliance—including compliance confirmed by judicial findings—offers no safe harbor, while allegations alone may suffice to trigger regulatory sanction.

This discretionary expansion of unfairness authority poses serious risks for legal predictability and innovation. By failing to cabin its enforcement actions to conduct that is clearly unlawful and unexcused, the FTC fosters an environment of retrospective enforcement—where conduct deemed permissible at the time may be recharacterized as unfair after the fact. This uncertainty chills risk-taking and innovation, particularly in areas like AI development where legal doctrines such as fair use remain actively contested.

To safeguard the integrity of both legal compliance and competition enforcement, the FTC should constrain its unfairness authority to situations involving clear statutory violations that are not excused by affirmative defenses or legal exceptions. This would ensure that Section 5 complements, rather than contradicts, the substantive laws it touches—and restores much-needed stability to the Commission’s enforcement approach.

C.      The FTC’s Pattern of Treating Lawful Conduct as Unfair: Precedents for Copyright Overreach

The FTC’s assertion that conduct “consistent with copyright laws nevertheless may violate Section 5”¹⁶⁹ is not an isolated position but reflects a broader pattern of regulatory expansion. Examining the Commission’s enforcement history reveals multiple instances where it has challenged conduct that was arguably permissible under other legal frameworks or had been cleared by specialized authorities. These precedents illuminate the practical risks of allowing the FTC to second-guess copyright law’s careful balance through unfairness claims.

1.      Circumventing Sherman Act Requirements: Invitations to Collude

The FTC’s treatment of inchoate anticompetitive conduct demonstrates its willingness to expand beyond traditional legal boundaries. In Drug Testing Compliance Group, LLC, the Commission challenged a mere invitation to collude as an unfair method of competition, even though no agreement was formed.¹⁷⁰ Under established Sherman Act jurisprudence, such conduct would not constitute a violation because it lacks the requisite “contract, combination . . . or conspiracy” element.¹⁷¹ Unlike under the 2015 UMC Policy Statement,¹⁷² the current version allows for much more expansive enforcement actions against “incipient” threats to competition.¹⁷³

This approach effectively allows the FTC to prosecute conduct that the Department of Justice could not pursue under traditional antitrust law. While the Commission characterizes this as addressing “incipient” violations, it fundamentally alters the legal landscape by criminalizing preparatory conduct that Congress chose not to prohibit directly. The parallel to copyright is clear: just as the FTC bypasses Sherman Act requirements by invoking Section 5, it seeks to bypass fair-use determinations by recharacterizing potentially lawful copying as unfair competition.

2.      Meta-Regulation of Specialized Agencies: Orange Book Patent Listings

The Commission’s challenges to pharmaceutical patent listings in the FDA’s Orange Book reveal another dimension of regulatory overreach. These patents are granted by the USPTO—which presumes their validity—and listed through FDA procedures. Yet the FTC routinely challenges the listing of certain medical devices under its unfair methods of competition authority.¹⁷⁴

This creates a precedent where the FTC positions itself as a meta-regulator, second-guessing determinations made by agencies with specialized expertise. The USPTO evaluates patent validity, and the FDA administers the listing process according to established regulations. By recharacterizing the use of these regulatory entitlements as anticompetitive, the FTC undermines the coherence of the federal regulatory framework.

The copyright parallel is direct: Just as the FTC challenges patent holders’ use of USPTO-granted rights and FDA procedures, it seeks to challenge AI developers’ use of copyright materials that courts might deem protected by fair use. In both contexts, the Commission treats compliance with an established legal regime as irrelevant to its broader unfairness authority.

3.      Expanding Beyond Specific Statutory Frameworks: Data Privacy Practices

Perhaps most relevant to the copyright context is the FTC’s approach to data privacy. The Commission has explicitly asserted that data practices may be “unfair” under Section 5 even when they comply with specific privacy statutes like COPPA, HIPAA, or state laws like the CCPA.¹⁷⁵ This principle directly parallels the Commission’s position on copyright: that conduct “consistent with copyright laws nevertheless may violate Section 5.”

This approach transforms the FTC into a roving commission empowered to find “unfairness” wherever specific statutory schemes permit conduct the Commission disfavors. Rather than respecting the policy choices embedded in specialized legislation, the Commission treats its general unfairness authority as superior to Congress’s specific enactments.

4.      The Outer Boundary of Section 5 Authority

The Commission’s most ambitious extensions of stand-alone Section 5 authority have arisen in the so-called “patent ambush” context. Dell,¹⁷⁶ Rambus,¹⁷⁷ N-Data,¹⁷⁸ and Unocal ¹⁷⁹ show the Commission reaching past established patent and contract doctrines when it believed deception inside a collective decision-making body created ex-post market power. They represent the high-water mark of Section 5’s expansion—bold enough to secure consent orders in Dell, N-Data, and Unocal, yet fragile enough to collapse on appeal in Rambus.

All four episodes shared three elements. First, the challenged firm took part in a collective-choice process whose legitimacy depends on candor: an SSO in Dell,¹⁸⁰ Rambus,¹⁸¹ and N-Data and a public rule-making in Unocal.¹⁸² Second, the Commission alleged concrete deception capable of inducing reliance. Dell and Unocal flatly denied owning relevant patents;¹⁸³ Rambus and N-Data withheld or repudiated licensing commitments while watching rivals devote investments into the chosen technology.¹⁸⁴ Third, the deception was said to confer ex post market power by locking an entire industry into the patented technology once switching became impracticable.¹⁸⁵ Only when those three predicates lined up did the Commission feel confident invoking its stand-alone unfair-competition authority.

Even then, the outcomes were mixed. Dell capitulated quickly,¹⁸⁶ and N-Data settled after a divided vote that drew two dissents questioning the theory’s novelty.¹⁸⁷ Rambus, by contrast, is the cautionary limit case: the D.C. Circuit vacated the Commission’s order because it could not see proof that the relevant standards body would have adopted a different standard “but for” the nondisclosure.¹⁸⁸ Unocal settled only after a merger placed negotiating pressure on the company.¹⁸⁹ Taken together, the quartet shows that Section 5 can fill gaps left by patent, contract, or fraud doctrines—but only where intentional deception distorts a decision-making forum and plausibly produces durable market power.

That historical pattern is instructive precisely because it is absent from the Commission’s current rhetoric on generative-AI training. In the patent-ambush cases, the Commission did not claim that exercising a valid patent was inherently “unfair.” The gravamen was the deceptive acquisition of that patent-enhanced position—an “extra element” beyond the lawful assertion of a statutory right. By contrast, the FTC’s 2023 comment to the Copyright Office asserts that an AI developer’s use of copyrighted materials may violate Section 5 even when a court holds the copying to be fair use. In other words, the Commission now proposes to condemn conduct because it complies with the governing intellectual-property regime, not because it secretly subverts it. That move would stretch Section 5 well past the boundary charted by Dell, Rambus, N-Data, and Unocal.

The distinction matters for both doctrine and policy. Section 5 interventions premised on deception do not threaten the predictability of patent (or copyright) law because they target conduct the specialist regime never intended to bless. Declaring “unfair” a use that copyright affirmatively permits, by contrast, would create a direct conflict between two federal statutes, depriving innovators of any stable safe harbor. Far from policing a gap, the Commission would manufacture one.

5.      Implications for Copyright and AI Innovation

These precedents reveal a consistent pattern: The FTC regularly treats compliance with other legal frameworks as potentially irrelevant to its unfairness analysis. Whether the conduct involves Sherman Act requirements, USPTO/FDA procedures, or specific privacy statutes, the Commission maintains that its Section 5 authority operates independently.

Applied to copyright, this pattern suggests the FTC would likely pursue unfairness claims against AI training practices regardless of fair-use determinations. Just as it challenges disfavored patent listings despite USPTO approval, or data practices despite HIPAA compliance, the Commission would likely characterize fair use of copyrighted materials as “unfair” whenever it serves broader enforcement objectives.

This approach fundamentally undermines legal predictability and the careful policy balances Congress has struck. Copyright law, like patent and privacy law, reflects specific Congressional choices about how to balance competing interests. Allowing the FTC to override these determinations through open-ended unfairness claims effectively nullifies the specialized frameworks Congress has created.

D.      State Law Unfair Competition Claims and Copyright Fair Use: Recent Jurisprudence

While the FTC operates under federal statutory authority and thus is not constrained by copyright preemption principles that limit state unfair competition claims,¹⁹⁰ the judicial reasoning in the preceding state cases offers valuable guidance. The same logic that applies to preemption of copyright claims recast as duplicative state competition claims applies in equal force to the use of open-ended federal unfairness authority to end-run the Copyright Act. The preemption of claims that recast copyright causes of action as non-copyright causes of action would prevent regulatory authorities from obtaining, in effect, duplicative opportunities to penalize identical conduct under different legal theories. Moreover, this analytical framework provides essential legal certainty for artificial intelligence developers by ensuring that conduct deemed permissible under copyright doctrine cannot be subsequently recharacterized as unfair competition without additional elements of wrongdoing. Maintaining this doctrinal consistency across legal regimes serves the fundamental interests of both regulatory predictability and technological innovation.

Recent litigation has examined whether state law unfair competition claims can succeed in cases where copyright fair use might apply to AI training. Courts have generally been skeptical of such claims, finding them preempted by federal copyright law absent additional elements beyond mere copying, and for good reason. The principle of copyright preemption stems from the Copyright Act’s express provision that state law claims are preempted when they concern works “within the subject matter of copyright” and assert “legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.”¹⁹¹ Courts have consistently interpreted this provision to bar state unfair competition claims that merely restate copyright infringement allegations without an “extra element” that qualitatively differentiates the claim from copyright protection.¹⁹² This doctrine preserves the federal scheme’s integrity by ensuring that copyright’s carefully balanced rights and limitations cannot be circumvented through alternative state law theories addressing identical conduct.

As noted above, in Thomson Reuters v. Ross,¹⁹³ that court rejected Ross’s fair-use defense for copying Westlaw’s copyrighted headnotes to train an AI legal research tool. In the District of Delaware litigation, Thomson Reuters had characterized Ross’s actions as both copyright infringement and unfair competition, the court held the unfair competition claim preempted due to the “gravamen of [the] claim [being] the same as . . . [the] copyright claim.”¹⁹⁴ Notably, the FTC has previously cited this case as an example where an AI developer’s conduct might constitute an “unfair method of competition” regardless of copyright liability determinations.¹⁹⁵

In Tremblay v. OpenAI, Inc., plaintiffs alleged both copyright infringement and unfair competition related to the training of GPT models on their books without permission.¹⁹⁶ The court dismissed the unfair competition claim in July 2024 while allowing the copyright claim to proceed.¹⁹⁷ The judge determined that the state law unfair competition allegations lacked the necessary “extra element” beyond unauthorized copying (such as deception or passing off) required to escape federal copyright preemption.¹⁹⁸

Similarly, in the GitHub Copilot litigation concerning AI training on open-source code, the court dismissed unfair competition claims brought under California law to the extent they were based on other failed claims.¹⁹⁹ Without an independent wrong beyond reproduction of code snippets, the unfair competition theory could not stand.²⁰⁰

These cases illustrate a consistent principle: State law unfair competition claims involving AI training data cannot succeed when they merely restate copyright infringement allegations. Courts have required an “extra element” such as misrepresentation, passing off, or consumer deception to overcome copyright preemption. When fair use applies—or even potentially applies—to the underlying copying, courts have rightfully rejected attempts to reframe the same conduct as unfair competition without additional wrongful elements beyond the copying itself.

Conclusion

The FTC’s proposed approach risks undermining innovation without adequately addressing the core challenges at the intersection of copyright and AI. By potentially treating even fair use of copyrighted materials as “unfair competition,” the Commission would create regulatory uncertainty that could significantly hamper AI development.

A more balanced approach would recognize what might be called the “hydraulics of copyright”—when pressure is applied in one area of copyright law, it creates a counterbalancing effect elsewhere. Rather than restricting AI development at the input stage through potentially overlapping and contradictory regulatory regimes, policymakers should focus on solutions at the output stage. This would recognize both the transformative nature of AI training and the legitimate interests of creators in protecting their works from direct competition.

When AI models generate outputs that substantially resemble protected works, copyright law already provides mechanisms to challenge such outputs. Strengthening these protections while permitting fair use at the training stage would maintain the essential balance between protecting creators and encouraging innovation.

The FTC should limit its unfairness authority to cases where courts have found copyright infringement without fair-use protection. This approach would align copyright law with competition and consumer protection principles while maintaining the balance necessary for innovation. Ideally, Congress should also clarify that the preemption principles embodied in 17 U.S.C. § 301(a) for state competition claims should also guide federal agencies’ application of unfairness authority to AI training.

By focusing regulatory attention on outputs rather than inputs, AI innovation can flourish while creators receive appropriate protection and compensation. This forward-looking approach acknowledges the dynamic nature of AI markets and the shared goal of all relevant legal frameworks: promoting innovation and enhancing consumer welfare through a vibrant creative economy.