From Moore’s Law to Market Rivalry: The Economic Forces That Shape the Semiconductor Manufacturing Industry

Executive Summary

Semiconductors are the foundational technology enabling virtually every aspect of contemporary economic activity, from artificial intelligence and cloud computing to medical devices and automotive systems. The competitive dynamics of semiconductor manufacturing directly determine the accessibility and affordability of computing power across all industries, shaping innovation, productivity, and the broader welfare gains that flow from digital technologies.

Despite its central importance, the industry’s fundamental economics are not well-understood, risking policy actions that could stifle the innovation engine that has powered the digital revolution. This paper demystifies those fundamental economic forces and clarifies the nature of competition in the semiconductor manufacturing industry.

Moore’s Law and Rock’s Law Create Unique Competitive Pressures

Two unique, interconnected technological imperatives define semiconductor manufacturing competition.

• Moore’s Law began as a rule of thumb about transistor counts doubling at a steady cadence. Today its practical meaning is broader: customers expect predictable gains in overall performance per watt and per dollar, and delivered on schedule. That pushes the industry through a relentless metronome of “beats,” where each node (manufacturing generation) must arrive on time with real, measurable gains. Falling behind by a single beat can cost customers for years.
• Rock’s Law is the darker side of Moore’s Law. It holds that, as chips get denser, the cost of making them rises exponentially. Advanced fabs now cost $10–20 billion, and a single high-NA EUV scanner (the heart of leading-edge lithography) runs north of $400 million. These are not scale or inflation artifacts; they’re the price of pushing matter toward the level of atomic precision demanded by Moore’s Law.

Together, these forces create recurring, high-stakes races unmatched by any other market in the world. In these races, firms must commit massive resources years in advance, under extreme uncertainty.

These technological forces produce a recurring “competition for the market” rather than “competition in the market”—a distinction that matters for understanding the market’s structure and dynamics. Unlike industries with relatively stable market structures, semiconductor manufacturing features periodic technological disruptions that can entirely reset competitive positions. Each new process node represents a fresh competition in which previous leaders may fall behind, and laggards may leapfrog ahead.

High Stakes and High Profits: Three Forces Shaping Competition

The pressures of Moore’s and Rock’s Laws and the sequential nature of innovation in semiconductor manufacturing force chipmakers into a recurring gamble: commit extraordinary sums to the next node—years before demand is certain and before yields are proven—or risk slipping behind. This dynamic creates the most high-stakes, high-risk competitive environment in modern manufacturing, in which massive upfront investments, technological uncertainty, market volatility, and supply-chain dependencies combine to create multiple layers of risk that even the most sophisticated firms struggle to manage. This environment is characterized by:

• Front-loaded capital risk: Leaders routinely invest tens of billions of dollars years before demand is certain. TSMC’s CapEx, for example, has run 30–50% of revenue since 2009 (peaking above 50% in 2021); including R&D, investment often exceeds 40–60% of revenue. These are existential bets, not routine expenditures. A missed bet doesn’t just mean a bad quarter; it results in stranded assets.
• Technology & execution risk: Each node is a multi-front physics problem involving (among other things) lithography, new transistor structures, novel materials, power delivery, metrology, and advanced packaging. A single miscalculated process decision can torpedo a firm’s reputation and ripple across years of products. Even the most successful firms experience bruising challenges securing sufficient yields deploying new technology on the way to securing reliable production volumes.
• Timing & demand risk: Firms must guess the right capacity, on the right node, for markets that may not exist yet. Miss the cycle and the firm is saddled with an expensive, idle plant; overshoot and it fuels a downturn. In this environment money alone cannot conjure the know-how or managerial coordination required to succeed.

These Forces Have Pushed the Industry Toward a Unique Structure of Specialization and Relational Contracting

The historical transformation from vertically integrated device manufacturers (IDMs) like Intel to the modern foundry model exemplified by TSMC represents an efficiency-enhancing response to Rock’s Law. As the cost and technological demands of manufacturing at the bleeding edge became unsustainable for non-specialized firms, the development of standardized design tools and collaboration routines lowered coordination costs. These enabled a separation of design and manufacturing which, in turn, facilitated valuable specialization and risk-sharing: Independent foundries aggregate demand across multiple customers, achieving economies of scale difficult for IDMs to reach, while also keeping their expensive fabrication equipment fully utilized.

This specialization created concrete economic benefits. Independent foundries achieve higher equipment utilization by serving diverse customers with different demand cycles. They spread enormous R&D costs across multiple clients rather than bearing them alone. The fabless model allowed companies like Nvidia to focus entirely on GPU architecture without operating fabs, while Qualcomm could specialize in wireless chips, and Broadcom in networking semiconductors. Meanwhile, each could access the same cutting-edge manufacturing technology that previously only giants like Intel could afford.

These sophisticated relationships are governed by relational contracts—contractual relationships whose precise terms depend on cooperative adjustments by the parties over time—and complex governance structures that solve extraordinary coordination challenges more efficiently than vertical integration or spot-market transactions. When capital investments reach tens of billions of dollars per facility and must be committed years before demand is certain, both foundries and their customers make relationship-specific investments that create bilateral dependence. Rather than evidence of market failure, these arrangements are market-based solutions enabling the massive, risky investments required for continued innovation.

Competition Occurs Through the Development of Dynamic Capabilities and the Relentless March of Creative Destruction

In this contest, what sustains success is not static market position but dynamic capabilities: a firm’s organizational capacity to sense opportunities, seize them through massive investments, and transform operations to deliver on technological transitions. Strong dynamic capabilities are much more significant than existing market shares as predictors of competitive outcomes. TSMC’s exceptional customer sensing and early EUV investments allowed it to surge ahead when Intel stumbled at 10nm, starkly demonstrating that leadership in advanced semiconductors depends on who redefines the technological frontier and executes the massive investments required. But this is not unique to TSMC. Samsung’s rapid technology absorption and Intel’s attempted pivot to foundry services all demonstrate how organizational capabilities, not market structure, determine competitive outcomes. Each technology generation triggers a new cycle of sensing, seizing, and transforming, with market positions reconstructed at each discontinuity.

Traditional static measures of market power—concentration ratios, market shares, profit margins—systematically mischaracterize this competitive environment. They confuse the temporary rewards of successful innovation with durable market power and mistake the efficient consolidation of an industry with scale economies for anticompetitive concentration. Two economic lenses help decode profits and market shares in chips:

• Returns to scarcity or “Ricardian rents” stem from owning unique productive assets or capabilities that others cannot easily replicate. They do not necessarily entail reduced output; the firm is simply so much more efficient or uniquely positioned that others cannot replicate it. ASML’s high margins, for example, reflect a Ricardian rent based on its unique technology, not a manipulative output restriction.
• Returns to entrepreneurship or “Schumpeterian rents” are earned by innovators due to a temporary lead before imitators catch up. These arise because technological imitation is not instantaneous; a firm that first commercializes a breakthrough chip or process can enjoy outsized profits for a period, even as it actively produces at full capacity. Such innovation returns are transient, however, and readily dissipated by the leader’s massive capital expenditures spent in the expectation that a challenger is always right around the corner.

Both types of returns are beneficial from an innovation-policy perspective as they incentivize enormous investments in R&D and capital. By the same token, static concentration and profitability metrics may be misleading as concentration may reflect efficient specialization rather than lessened competition, high returns may represent innovation rents rather than monopoly profits, and complex contractual relationships may solve coordination problems rather than exclude rivals.

I. Moore’s Law and Rock’s Law: Twin Drivers of Exponential Change

The semiconductor[1] manufacturing industry represents one of the most dynamic and consequential competitive arenas in the modern economy. Unlike traditional manufacturing sectors, where competitive advantage might stem from operational efficiency, brand recognition, or distribution networks, semiconductor competition is fundamentally shaped by two interconnected technological imperatives that create a unique and unforgiving competitive environment. Understanding these imperatives—and the market dynamics they generate—is essential for policymakers, researchers, investors, and industry participants seeking to assess competition in the industry.

Semiconductors are the foundational technology enabling virtually every aspect of modern economic activity, from artificial intelligence and cloud computing to medical devices and automotive systems. The stakes could not be higher. The competitive dynamics of semiconductor manufacturing directly determine the accessibility and affordability of computing power across all industries, shaping innovation, productivity, and the broader welfare gains that flow from digital technologies. Yet despite its central importance, recent policy discussions have often misunderstood the industry’s fundamental economics, risking interventions that could stifle the innovation engine that has powered the digital revolution.

While the broader semiconductor industry includes a wide range of international players, including both designers and producers of both logic and memory chips, this paper focuses on the competition landscape of the logic chip manufacturing segment,[2] where firms such as Samsung, Taiwan Semiconductor Manufacturing Company (“TSMC”), Intel, GlobalFoundries Inc., United Microelectronics Corporation (“UMC”), and Semiconductor Manufacturing International Corp. (“SMIC”) are the main participants.

A. Fundamental Investment Pressures

Two deceptively simple observations explain almost everything about how chip manufacturing markets behave and why competition in them (or, for them) takes such a distinctive form. The first is Moore’s Law, the famous prediction that transistor counts per chip (and thus potential performance per chip) roughly double on a predictable cadence.[3] This relentless technological progress has driven decades of compounding improvements and falling cost per unit of compute, creating the foundation for our digital economy. The regularity of this advancement means the industry moves in a relentless series of technology competition cycles, or “beats,” with each generation promising more performance at lower cost per transistor. The result is a set of customer and industry expectations that fuels an intense and relentless rivalry in which firms must constantly innovate simply to maintain their relative position, much like the Red Queen in Lewis Carroll’s tale, who must run constantly just to stay in place.[4]

Today, keeping pace with Moore’s Law is less about the number of transistors in a single integrated circuit per se, and more about overall performance—which increasingly depends not only on the development of ever-smaller transistors, but also on new materials technology, energy efficiency, novel transistor structures, design-technology optimization,[5] and advanced packaging.[6]

Figure 1: Potential roadmap extension for chip nodes

Source: imec’s chip scaling roadmap[7]

Figure 2: Advances in semiconductor technology [top line]—including new materials, advances in lithography, new types of transistors, and advanced packaging

Source: Mark Liu & H.-S. Philip Wong (2024)[8]

But Moore’s Law alone cannot explain the fierce competitive dynamics that define semiconductor manufacturing. There’s a second, less-celebrated rule that sets the stakes: Rock’s Law (sometimes described as “Moore’s Second Law”).[9] As chips get denser, the cost of manufacturing capacity rises exponentially.[10] In practical terms, each new generation of fabs[11] and equipment is vastly more expensive than the last. In the late 1960s, a cutting-edge semiconductor fab cost on the order of a few million dollars to build; by the early 2000s, it had escalated to the low billions.[12] Today, a single advanced, leading-edge fab in the U.S. (for nodes under 4nm) can cost $10–20 billion or more.[13] This exponential cost escalation is not merely a matter of inflation or scale. It reflects the fundamental physics of pushing manufacturing precision to near-atomic limits.[14]

Consider the sheer magnitude: Intel is currently building two new fabs in Arizona, originally projected to cost about $20 billion each, while Samsung’s upcoming fabs in Taylor, Texas, are estimated to cost around $37 billion. TSMC’s original investment for three fabs in Phoenix, Arizona, totaled $65 billion.[15] A high-NA EUV scanner—the ASML device at the heart of bleeding-edge semiconductor manufacturing, described as “the most complicated machine humans have built”[16]—alone costs over $400 million.[17]

These massive capital expenditures must be regularly and continually reinvested to manufacture each new node. Leading firms invest tens of billions annually on new facilities and equipment. TSMC, for example, budgeted roughly $36 billion in capital expenditure in 2022 to expand and upgrade its fabs, $30 billion in 2023, and another $29 billion in 2024 (See Table 1, below).[18] Intel and Samsung have similarly outsized spending expectations, with Intel recently announcing a multiyear, $100 billion expected investment plan,[19] although the future of that investment remains unknown given the U.S. government recently acquired a stake in the company.[20]

In addition, significant research and development (R&D) investment is also required to keep up with Moore’s Law. If we zoom out beyond just manufacturing to where we have better data, the semiconductor industry as a whole is one of the most R&D intensive industries in the world, typically ranking third or fourth after the pharmaceutical, biotech, and/or software industries. In 2024, overall U.S. semiconductor industry investment in R&D totaled $62.7 billion, representing 18% of U.S. semiconductor firms’ revenue.[21] For Intel (which, it is worth noting, invests in both design and manufacturing), U.S. R&D expenses in 2024 totaled $16.5 billion, or a massive 31% of the company’s revenue, while TSMC spent $6.4 billion on R&D in 2024.[22]

Figure 3: U.S. Semiconductor R&D Expenditure Percent of Sales by Industry

Source: SIA Factbook[23]

These company-specific investments reflect broader industry patterns. Across the U.S. semiconductor industry as a whole, combined capital expenditures and R&D spending have grown dramatically over the past two decades. Industry-wide investment increased from approximately $28 billion in 2001 to $119.5 billion in 2024—representing a compound annual growth rate of 6.4 percent, but higher since 2020.[24] More significantly, this investment intensity has remained remarkably stable as a percentage of sales despite market cyclicality, consistently hovering around 30% of revenue throughout this period.[25]

Figure 4: U.S. Semiconductor R&D and Capital Expenditures

Source: SIA Factbook[26]

The scale of per-employee investment further illustrates the capital-intensive nature of the industry. In 2024, U.S. semiconductor firms invested an average of $235,007 per employee in combined R&D and capital expenditures—up from approximately $100,000 per employee in 2001.

The semiconductor industry’s R&D intensity stands out even among high-technology sectors. U.S. semiconductor firms consistently spend over 15% of sales on R&D—a rate exceeded only by the pharmaceutical and biotechnology industry among major U.S. industries. In 2024, semiconductor R&D spending reached 18% of revenue, compared to approximately 15.6% for software and computer services, 11.4% for semiconductor manufacturing equipment, and just 5.5% for consumer electronics.[27]

Figure 5: U.S. Semiconductor Capital and R&D Expenditures as a Percent of Sales

Source: SIA Factbook[28]

This commitment to R&D is not merely a U.S. phenomenon but reflects a strategic positioning: U.S. semiconductor firms spend more on R&D as a percentage of sales (17.7%) than their counterparts in any other country, including Korea (11.8%), Taiwan (11.5%), Europe (10.8%), China (9.2%), and Japan (5.7%).[29] This R&D leadership has been sustained for over two decades, enabling U.S. firms to maintain their technological edge and nearly 50% global market share despite intense international competition.

This relentless investment race is itself a fundamental form of competition. Companies that falter in their investment commitments can fall behind technologically, losing their ability to serve customers who demand the latest process nodes. Table 1 illustrates TSMC’s—a leading semiconductor manufacturer—investment intensity over time, demonstrating remarkably consistent capital expenditures of about 30–50% of revenue. It also reflects how the pattern of CapEx and R&D spending for the broader semiconductor industry is reflected in the semiconductor manufacturing niche, as well.

Table 1: TSMC Historical Annual Investment Intensity (2009–2024)

Sources: TSMC 4Q management reports, 2009-2023; Macrotrends revenue and R&D series[30]

This data reveals the extraordinary financial commitment required to remain competitive. The semiconductor manufacturing industry demands technical expertise, management acumen, and the financial wherewithal to sustain investments that would represent the entire market capitalization of most companies in other industries.[31]

B. The Implications of Moore’s and Rock’s Laws

Taken together, Moore’s Law and Rock’s Law create a simple but unforgiving competitive logic: the technological clock speeds up while the financial ante keeps rising. The cadence of Moore’s Law forces firms to be ready with demonstrably better technology on a tight timeline, while Rock’s Law means getting ready requires significant, front-loaded investment that must be committed years before demand is certain. This creates a recurring, high-stakes bet where companies must commit extraordinary sums to develop the next technology node before knowing whether customers will materialize or whether their technical approach will succeed.

For decades, the semiconductor manufacturing industry managed these costs and risks under a vertically integrated business model. So-called integrated device manufacturers (IDMs) like Intel, IBM, and Texas Instruments handled the entire microchip creation process, from design and R&D to manufacturing and deployment. This model made economic sense when fabs cost millions rather than billions, when individual companies could achieve efficient scale in manufacturing, and when the tight coupling of design and manufacturing knowledge created competitive advantages.[32] But by the 1980s, the economics were beginning to shift. Rock’s Law was making it increasingly difficult for any single company to bear the full cost of staying at the technological frontier. At the same time, the semiconductor market was fragmenting from standardized products into thousands of specialized applications, each with different volume requirements.

Rock’s Law generated a fundamental reorganization of the industry driven by two complementary forces. First, as noted, the exploding fixed costs and execution risks of each new node made duplicated, in-house fabs economically inefficient and made underutilization of built capacity ruinously expensive. Second, and equally important, necessity and invention reduced the costs of vertically separated production and design. For example, standardization of design tools, manufacturing interfaces, and collaboration workflows dramatically reduced the transaction costs of coordinating across firm boundaries. Electronic design automation (EDA) tools became standardized around common languages and methodologies. Foundries developed comprehensive process design kits (PDKs) that allowed external designers to tailor their designs to a foundry’s specific manufacturing processes without mastering proprietary details. Digital collaboration platforms enabled real-time coordination between designers and manufacturers separated by oceans and organizational boundaries.

These changes fundamentally flipped the underlying economics of semiconductor manufacturing and ushered in a new golden age. An independent foundry could aggregate demand from many customers, keeping billion-dollar tools fully loaded and climbing learning curves faster than any integrated manufacturer. For chip designers, the massive, fixed cost of fab ownership converted into a variable cost paid per wafer, enabling thousands of specialized design companies to emerge where only dozens had existed before.

One predictable result of this shift was an increase in market concentration. But rather than a signal of less competition, this concentration was driven by economic efficiency—cheaper, faster technology development in a world where Moore’s cadence and Rock’s costs punish duplication and reward scale.

The competitive implications of these two laws should shape how we think about market power and competitive dynamics in this industry. When the cost of entry to the next node represents a tens-of-billion-dollar, multi-year commitment, firms must take extraordinary risks and must earn commensurate rewards to justify continued investment. At any given point, therefore, a static snapshot of market shares or profits could be misleading, suggesting a high degree of market power, but actually representing only a temporary return on investment.

Crucially, this is not a one-time race. Because each generation of chips resets the performance bar, the “losers” have an opportunity to strike back, and the “winners” face a renewed threat that is largely independent of previous success. Winners, in this sense, do not enjoy “monopoly rents” but rather temporary “innovation returns”[33]—resources that must be substantially dedicated to funding the next round in order to maintain market share. High returns or market share at any given moment thus likely reflect proportionate returns to superior execution in the most recent technology race rather than durable market power, and any gains may be transitory, as competition for the next beat could see a reversal of fortune.[34] Indeed, competitive success in semiconductor manufacturing does not require constant technological leadership: UMC has maintained profitable businesses for years by focusing on mature nodes, including by partnering with Intel,[35] but now “may be preparing an unexpected return to the cutting-edge arena it once abandoned.”[36] Indeed, independent estimates suggest that TSMC’s most profitable offering in 2024 was its 7nm node, not the more advanced 5nm or 3nm nodes.[37]

This competitive dynamic requires a fundamental reassessment of how competition policy should operate. As discussed below, semiconductor manufacturing does not resemble a conventional “competition in the market” model. Instead, it evolves through repeated cycles of “competition for the market,” where firms undertake costly, high-risk technological races that reshape the competitive standings with each new process generation. In this context, traditional structuralist critiques—focused on static indicators such as concentration levels, market shares, or profit margins—rely on an incomplete analytical lens and miss the core economic reality. The industry’s business structures, partnerships, and contracting practices generally reflect adaptive mechanisms to manage extreme coordination, capital, and technological risks, not exclusionary tactics. These governance arrangements are what make sustained innovation and multi-billion-dollar investments possible.

Misinterpreting these features as evidence of entrenched market power risks prompting misguided interventions that would slow innovation, undermine entry, and ultimately constrict access to high-performance computing. Given the central role semiconductors play in modern technological progress, competition policy cannot afford to misread the competitive dynamics at play or adopt measures that inadvertently stifle the innovation it seeks to protect.

*   *   *

In the following sections, we unpack these dynamics in detail. Section II examines the three defining features of semiconductor manufacturing markets that make competition uniquely challenging: the industry’s extreme capital intensity and dependence on massive up-front investments, the extraordinary (and constant) technological and execution hurdles involved, and the high degree of uncertainty surrounding timing and demand. Section III explores the industrial-organization economics of semiconductor specialization, describing how semiconductor manufacturing evolved from a vertically integrated business model to the current fabless-foundry paradigm. Section IV explores how competition occurs through dynamic “races for the market” at each new technology node, where firms compete for temporary leadership positions that must be continuously re-earned through innovation and investment. Finally, Section V concludes with some preliminary policy implications, arguing that misguided interventions based on a naïve reliance on traditional competition metrics could undermine the very mechanisms that have driven the industry’s remarkable pace of innovation.

II. The Persistent Challenge: Investment Under Extreme Uncertainty

Moore’s cadence sets the clock; Rock’s costs raise the ante. Together they force chip manufacturers into a recurring gamble: commit extraordinary sums to the next node—years before demand is certain and before yields are proven—or risk slipping a full cycle behind. This dynamic creates what is perhaps the most high-stakes, high-risk competitive environment in modern manufacturing, where the combination of massive upfront investments, technological uncertainty, market volatility, and supply chain dependencies creates multiple layers of risk that even the most sophisticated firms struggle to manage.

A. Capital Intensity and Front-Loaded Investment Risk

The scale of capital requirements in semiconductor manufacturing represents the first and most obvious source of risk. To build next-generation capacity, foundries spend tens of billions of dollars in anticipation of future demand. In 2021, for example, at the height of COVID-induced chip shortages, TSMC famously announced a $100 billion, three-year CapEx plan to expand capacity and develop new nodes.[38] Intel and Micron subsequently each announced their own $100 billion U.S. CapEx investments.[39] Samsung likewise has been investing heavily, with, among others, a new $17 billion fab in Texas.[40]

As shown above, TSMC’s historical capital expenditures have consistently amounted to 30-50% of revenue, reaching as high as 52.5% in 2021. Including R&D—a necessary adjunct to CapEx spending in an industry marked by inexorable technological advance—the company’s 2021 investment represented over 60% of revenue.[41] These investments represent existential bets rather than routine expenditures. If the demand for a specific capacity or node doesn’t materialize (or if a technology bet goes wrong), the foundry can be left with huge sunk costs (and mounting debt). A recent significant order for Samsung chips by Tesla, for instance, “is poised to make this entire [Texas] fab viable, which is critical not only for the 2nm process, but the processes to follow.”[42] But that outcome was uncertain beforehand: just weeks prior, Samsung was poised to delay its fab investment due to a lack of customers.[43]

The front-loaded nature of these investments amplifies the risk. Unlike other industries where capacity can be added incrementally in response to proven demand, semiconductor fabs must be built and equipped years before the technology they will produce is commercially viable. A decision to invest in 2nm capacity today requires semiconductor manufacturers to make investments based on uncertain projections of market demand, technological feasibility, and competitive positioning three to four years in the future—an eternity in the technology sector. As explained later, semiconductor manufacturers have developed ways to manage this risk, but they cannot eliminate it.[44]

B. Technological and Execution Risk

As crucial as it is, capital alone is insufficient to guarantee success in this industry. Indeed, as Rock’s Law suggests, as capital investment pushes the industry forward, it is met with increasingly demanding technological and managerial challenges.

Intel’s struggles with its 10nm process exemplified this challenge, but it is far from unique.

We’ve known for years that each new node brought greater challenges and tougher problems than the previous; that’s why fewer and fewer foundries bother operating on the leading edge at all. Intel might not have been the company anyone expected to slip, but the chances that somebody would have been rising every node.[45]

As semiconductor manufacturing approaches the physical limits of Moore’s Law, each new node presents unprecedented engineering challenges that can derail even the most experienced companies. And this technological risk manifests at multiple levels of the innovation stack.[46]

Lithography—the process by which a semiconductor’s intricate design is transferred from a template to actual silicon—was Intel’s undoing at the 10nm node.[47] Rather than adopt the latest technique (EUV), Intel attempted to shoehorn older technology into its new design.[48] “This decision—driven by poor management choices and a lack of technical expertise at the leadership level—led to Intel falling behind in process node advancements, missing deadlines, and losing its technological edge.”[49] TSMC and Samsung’s decision to embrace EUV despite these challenges ultimately proved correct, but Intel’s attempt to avoid these costs through advanced multi-patterning techniques was not unreasonable given the information available. Implementation of the then-bleeding-edge EUV technology also entailed significant and costly ancillary technological modifications that were not obviously cost-effective at the time.[50]

In fact, each node transition demands breakthrough innovations across dozens of interdependent technologies, requiring companies to solve new physics and engineering challenges that can derail even the most experienced firms. The shift at 22nm, for instance, entailed a fundamental change in chip architecture from a flat (2D) structure to an upright, three-dimensional design.[51] The current transition has introduced a formidable set of problems for, among other things, power delivery and metrology (the science of measurement)[52]—considerable manufacturing hurdles that explain difficulties like Samsung’s low initial yields at 3nm.[53] Looking forward, manufacturers must now deal with the subatomic complications of materials and design, where performance is limited by the fundamentals of quantum mechanics (e.g., wave-particle duality[54]), which allow electrons to tunnel through semiconductor barriers that are meant to stop them.[55]

As a result of this technological interdependence, execution risk is pervasive and unforgiving. The complexity creates multiple potential failure points where a single technical or manufacturing bottleneck can derail an entire generation of products. As scaling approaches physical limits, R&D challenges (like EUV lithography development, new transistor architectures, 3D heterogeneous integration, etc.) are formidable. There is no guarantee that a given approach will succeed on schedule—or at all.[56]

If a firm falls one cycle behind, it can suffer significant harm, leading to lost customers and diminished market share that are difficult (although not impossible) to recover. This is essentially what happened to Intel, which, by 2020, had lost the process leadership it held for decades.[57]

The severity of these challenges has forced some major players to exit the leading-edge race entirely. GlobalFoundries in 2018 decided to halt development of 7nm chips, essentially ceding the leading-edge race, because it determined the investment risk was too high relative to likely returns.[58] More recently, Intel has expressed that it may cancel even its 14A (angstrom) chips production if it can’t win a major customer.[59] That potential exit underscores a competitive reality: only those with sufficient financial and engineering muscle, and a sound commercial strategy, can play in the leading-edge arena, and even they must carefully calculate risk and ROI. Indeed, the makeup of the semiconductor manufacturing industry over time is a stark reminder of Joseph Schumpeter’s “perennial gale of creative destruction,”[60] as the industry’s incredible organizational, technological, and process advances have also led to a stampede of firms exiting the industry, fundamentally unable to keep pace with its inexorable competitive pressures (see Figure 6).

Figure 6: Semiconductor Industry Evolution (2002-2025)

Source: Yole Group[61]

C. Market Timing and Demand-Uncertainty Risk

Alongside high costs, semiconductor competition is marked by extreme uncertainty and risk. Companies must make billion-dollar bets on unproven technologies, future market demand, and execution of complex projects—any of which can fail.[62] The path of advancing chip technology is littered with expensive missteps and outright failures that illustrate how risky this business can be. For every successful node migration or breakthrough product, there are projects that ran over budget, were delayed for years, or had to be scrapped entirely (sometimes imperiling the firms involved).

The pressures of Moore’s and Rock’s Laws, in other words, create relentless problems around market timing. Firms must invest in capacity years ahead of demand, risking oversupply or obsolescence. If they guess wrong about demand (as happened in cyclical downturns such as after the Covid-19 pandemic), they end up with costly, idle fabs. If they invest too cautiously, they may face capacity constraints and lose business to rivals. In fact, in the past few years, around a dozen high-profile semiconductor fab projects in China (backed by provincial governments and investors) went bust after burning through an estimated $50–100 billion without ever producing revenue.[63] These “zombie fabs” testify to the complexity and risk: money alone could not guarantee success when technical know-how and supply chain integration were lacking.

The immense pressure to be prescient—and the enormous costs of failing to be so—also explain why periods of apparently high margins sometimes appear when a firm “wins” a node. Economically, they are best understood as “entrepreneurial rents”—the necessary rewards when huge, risky, front-loaded bets pay off—rather than durable monopoly profits. As Pleatsikas and Teece put it, “high net margins may merely be reflective of the high returns required on successful products, given the inherent uncertainty and riskiness of such investments.”[64] Those rents are transient and typically plowed back into the next round of investment.

The relationship between the leading chip manufacturing firm, TSMC, and two of the world’s most valuable firms, Apple and Nvidia, illustrates this competitive dynamic. Some critics have suggested that TSMC’s leading position in advanced manufacturing stems from exclusionary conduct,[65] or, from a structuralist perspective, that this leading position insulates it from competitive pressures.[66] But TSMC’s leadership is perhaps best explained by its ability to anticipate technological inflection points and align its capacity expansions with customers positioned to drive those shifts. The firm’s rise to the top was not preordained; it was secured by committing billions of dollars in new fabs and process technology at moments when demand was uncertain, but where the potential rewards for getting the bet right were transformative. Indeed, famously, as Intel delayed implementation of the then-uncertain EUV technology in 2014, TSMC (and Samsung) made significant investments necessary to adapt to its technological demands and embrace it.[67]

This pattern of successful risk-taking emerged early in TSMC’s relationships with its key customers. In the 2010s, TSMC made a decisive bet on Apple’s custom processors for the iPhone, anticipating that mobile computing would define the next decade.[68] More recently, it repeated this play by expanding its advanced packaging capacity for Nvidia, correctly forecasting the surge in demand for AI-powering GPUs.[69] In both cases, TSMC’s willingness to make large, irreversible capital investments well ahead of confirmed demand achieved two critical goals.

First, it secured an essential technological edge, creating manufacturing capabilities that competitors could not readily replicate. Second, it cultivated a market of reliable customers. Because industry leaders like Apple and Nvidia designed their flagship products around technology that only TSMC could provide, thanks to these investments, they rely on the foundry for their success.

This dynamic created a profitable, but precarious, mutual reliance. Neither party is in a position to dominate the other (as each is reliant upon the other). TSMC’s customers depended on its resulting unique manufacturing capabilities to realize their innovations, while TSMC’s high-risk gamble depended on its clients purchasing sufficient volumes from TSMC. At the same time, obtaining this valuable position was the product of enormous investment risk, extensive cooperation throughout the supply chain, and entrepreneurial managerial decision-making. The ability to realize large returns in such a situation is not “returns to monopoly,” but rather the returns to entrepreneurship, risk-taking, and good governance necessary to induce the up-front investment in those capabilities.

An extended passage discussing Apple’s 2010 outreach to TSMC—in an effort to find a neutral chip supplier after its previous supplier, Samsung, used its inside knowledge of Apple’s technology to copy elements of the iPhone for its own devices—exemplifies the nature of this bilateral dependence:

In 2010, Apple operations chief Jeff Williams reached out to [TSMC’s Chairman] Morris Chang… and convinced the Taiwanese group to make a major investment. “The risk was very substantial,” Williams recalled…. “If we were to bet heavily on TSMC, there would be no backup plan. You cannot double-plan the kind of volumes that we do. We want leading-edge technology, but we want it at established technology… volumes….”

…Chang agreed to take only half of Apple’s order. Even this partial commitment forced TSMC to borrow $7 billion, so it could invest $9 billion and devote 6,000 full-time employees working round the clock to bring up a new chips fab in eleven months, according to Williams. “In the end, the execution was flawless,” he said. The partial commitment forced Apple to toggle between Samsung and TSMC, which some in Cupertino saw as a plus—it meant that Apple wasn’t beholden to just one supplier for what serves as the brain within the iPhone. But [Johnny] Srouji’s [Apple semiconductor] team found it nightmarish to manage both suppliers. So Apple turned to TSMC on an exclusive basis, establishing over-the-top contract terms to protect itself. A person familiar with the contract characterized it as saying: “We need to make sure that you’re gonna go out of business—if you’re gonna put us at risk of going out of business” [emphasis added]. It was a “mutually assured destruction” type of situation, this person says, because if TSMC didn’t perform in any given year, there’d be no iPhone. So the Apple decision was made: “We are going to put all of our eggs in one basket, and then we’re gonna guard the basket” [emphasis added].[70]

This passage illustrates a critical trade-off in semiconductor sourcing strategies. While dual sourcing from multiple foundries is technically possible and can reduce supply risk, it imposes substantial costs: maintaining parallel design teams, managing different process technologies, coordinating separate validation cycles, and often accepting performance variations between suppliers. Apple initially attempted this approach, splitting orders between Samsung and TSMC, but found the operational complexity “nightmarish.”[71] Some firms accept these costs as insurance against supply disruption: AMD, for instance, has used TSMC, GlobalFoundries, and Samsung for different products.[72] For cutting-edge designs where performance is paramount, however, most customers ultimately choose single sourcing despite the risks, preferring to manage the consequences of dependency rather than accept the delays, costs, and performance compromises of dual sourcing.

Critically, this single-supplier outcome, when it occurs, is based on mutual dependence and substantial relationship-specific investments by both parties. In that case, those investments may be prohibitively costly to duplicate simultaneously across multiple manufacturers. Single-firm sourcing is an efficient choice, given the necessary investments, rather than exclusive dealing, as is sometimes alleged.[73] As Apple’s Jeff Williams has put it, “you cannot double plan for the volumes of technology that Apple requires[,] so partnerships are key.”[74]

Moreover, these arrangements do not compel customers (or manufacturers, for that matter) into permanent commitments. Although switching entails real costs—such as chip redesign, revalidation, and coordination with a new manufacturing partner—customers still have the option to move production if a foundry’s performance declines or a competitor offers superior technology or reliability. In fact, they not only retain this option, but they frequently exercise it, as shown by (among many others) Apple moving from Samsung to TSMC,[75] Xilinx switching from UMC to Samsung and TSMC,[76] and HiSilicon (Huawei) shifting from TSMC to SMIC.[77]

Overall, the semiconductor industry operates under extraordinary risk: massive upfront investments, technological uncertainty at the edge of physics, and volatile demand that can shift dramatically in the time between investment and production. The TSMC-Apple relationship illustrates one way that firms manage these risks: through mutual dependence and trust rather than restrictive contracts—a “mutually assured destruction” arrangement where both parties’ fortunes are inextricably linked.

III. The Economics of Semiconductor Specialization: From Integration to the Fabless-Foundry Revolution

The immense risks and capital requirements of the semiconductor industry are the direct result of its technological evolution. The relentless pressures of Moore’s Law (increasing transistor density) and Rock’s Law (escalating fab costs) led to the decreased reliance on traditional vertical integration. In its place, a specialized ecosystem emerged, governed by sophisticated contracts and long-term partnerships.

This transformation is not a market failure requiring regulation. On the contrary, it is a powerful example of what institutional economists have long observed: markets create novel governance structures to solve complex coordination problems. In an environment defined by high asset specificity (mutual dependence), complex or uncertain contingencies, and repeated, ongoing relationships, simple spot-market deals are inadequate, and full vertical integration is too rigid.[78] Instead, firms mitigate the risk of “hold-up” by engaging in relational contracting: “unique, interdependent relationships, wherein unknown contingencies or the intricacy of the required responses may prevent the specification of precise performance standards.”[79]

A. The Original Model: Vertical Integration and Integrated Device Manufacturers

In the early decades of the semiconductor era, chip manufacturing was dominated by IDMs such as Intel, Texas Instruments, Motorola, and IBM. These firms controlled the entire process from designing integrated circuits to fabricating wafers, packaging, and finished chips, employing the finished product themselves.[80]

This vertically integrated model proved efficient in the industry’s early stages when technological challenges and capital requirements, while substantial, were manageable within single organizations and when market demand was more predictable. Semiconductors were also fairly standardized.[81] The IDM approach offered clear advantages for managing the then-predominant risks inherent in semiconductor manufacturing. By controlling both design and manufacturing, companies could optimize their processes for their specific products, capture the full value chain, and avoid the coordination costs and hold-up risks that might arise from dealing with external partners. Thus, when Intel developed a new microprocessor design, it could simultaneously optimize its fabrication processes for that specific chip architecture, ensuring tight integration between design intent and manufacturing capability.

While this vertically integrated model proved efficient in the industry’s early stages, it required enormous capital expenditures for each firm to maintain state-of-the-art fabrication facilities. It also required each firm, regardless of its primary specialization, to develop and maintain the technological expertise and managerial acumen required to operate and integrate these manufacturing facilities.

Perhaps most critically from a competition standpoint, it prevented design innovation from emerging outside of established incumbent firms. This constraint created a classic chicken-and-egg problem for potential new entrants. As TSMC founder Morris Chang observed, many talented integrated circuit designers at companies like Texas Instruments and General Instruments wanted to start their own businesses, “but the one thing or the biggest thing that stopped them from leaving those companies was they couldn’t raise enough money to form their own company. Because at the time… it was thought that every company needed manufacturing, needed their wafer manufacturing, and the most capital-intensive part of a semiconductor company, of an [integrated circuit] company [was] the manufacturing.”[82]

B. The Seeds of Transformation: Capacity Sharing and Specialization Pressures

The seeds of competitive transformation were planted in the early 1980s when some semiconductor companies began entrusting the manufacturing of their chips to other companies, seeking to reduce costs and access excess manufacturing capacity:

The first step that led to the outsourcing of manufacturing was when companies began sharing their in-house fabs with other companies. A company with a large fab would have excess capacity at times. To keep the lines busy, they sold that capacity to other companies who needed more.[83]

This early capacity-sharing represented the first crack in the vertically integrated model and demonstrated the potential efficiency gains from specialization.

This shift was driven by both technological and economic pressures that were intensifying as Moore’s Law and Rock’s Law began their relentless march. The rising costs of staying current with each generation of process technology meant that even large IDMs occasionally found themselves with either excess capacity (during demand downturns) or insufficient capacity (during demand surges). Sharing capacity among firms allowed better utilization of expensive fabrication assets and provided a glimpse of the benefits that full specialization might offer.

Simultaneously, the semiconductor market was evolving from standardized products toward more specialized applications. New semiconductor companies began designing application-specific integrated circuits (ASICs), creating competitive pressure for manufacturing flexibility that the rigid IDM model struggled to accommodate.[84] This specialization trend intensified competitive dynamics by allowing firms to focus resources on their core competencies rather than spreading investments across the entire value chain. But the immense amount of capital needed to implement new fabs was still a major challenge for specialized and innovative chip-design startups.

C. The Foundry Model and Competitive Democratization

The turning point came in 1987 with the founding of TSMC, which pioneered the independent foundry model: a business focused exclusively on manufacturing chips for external design firms, fundamentally altering the competitive landscape of the semiconductor industry.[85] This separation of design and fabrication enabled the emergence of “fabless” companies like Qualcomm, Broadcom, Nvidia, and later, Apple, which could focus entirely on chip architecture and innovation without the capital and managerial burden of investing in and operating expensive fabrication plants.[86]

The independent foundry business model had several innovative features. Most importantly, manufacturers positioned themselves as neutral, non-competing suppliers, allowing them to serve competing fabless firms without the “conflicts of interest” inherent in vertically integrated rivals:

“[F]abless” firms were sometimes able to convince a bigger chipmaker with spare capacity to manufacture their chips. However, they always had second-class status behind the bigger chipmakers’ own production plans. Worse, they faced the constant risk that their manufacturing partners would steal their ideas. In addition, they had to navigate manufacturing processes that were slightly different at each big chipmaker. Not having to build fabs dramatically reduced startup costs, but counting on competitors to manufacture chips was always a risky business model.[87]

The foundry model’s competitive advantages extend far beyond simple cost savings. Independent foundries can aggregate demand from multiple customers. This aggregation allows foundries to spread the risk of demand swings across diverse customer bases and optimize capacity utilization, lowering the costs of capital investment.[88] And unlike IDMs, which must size their fabrication capacity to their own product demand, independent foundries can achieve economies of scale and still maintain higher utilization rates by serving multiple customers with varying demand cycles.

Perhaps most significantly, the foundry model transformed the semiconductor industry’s innovation dynamics through what economists might term the “democratization of innovation.” For customers, “[a] big advantage of the fabless model was shedding the high fixed cost of running a fab. In effect, the fixed costs of a fab were changed to variable costs.”[89] This transformation in the manufacturing process fundamentally altered the competitive landscape for semiconductor design by allowing semiconductor design firms (and, more recently, AI hyperscalers or “system companies”)[90] to specialize in their core competency—chip architecture and innovation—without the massive capital requirements and operational complexities of maintaining fabrication facilities.

“Outsourcing via fabrication plants like TSMC reduced upfront capital expenditure leading to increased entry of small firms responsible for a wide variety of niche digital consumer products.”[91] Small companies with innovative chip designs can access the same world-class manufacturing capabilities as established players, competing on the merits of their designs rather than their access to capital. This dynamic has enabled several established semiconductor companies, particularly U.S.-based firms, to enter the ranks of the world’s most valuable companies by focusing their competitive efforts on areas of comparative advantage. Nvidia became the world’s most valuable company ($4 trillion market cap) without ever owning a fab, focusing entirely on GPU architecture and AI innovation rather than manufacturing.[92]

D. The Ecosystem Response: Governance Without Integration

The transformation to the fabless-foundry model—and the more recent development of system companies such as Google, Apple, or Nvidia designing their own chips—reflects a fundamental shift in how the industry manages technological complexity and investment risk. The modern semiconductor ecosystem has evolved into a highly specialized network where each participant focuses on its core competencies while maintaining deep interdependencies with partners throughout the value chain.

Fabricating semiconductors entails a finely tuned interplay of scientific disciplines, where mastery over materials, chemistry, and microscale engineering is essential to shape matter at near-atomic precision. This complexity creates multiple dimensions of competition and specialization opportunities throughout the value chain. The semiconductor design and manufacturing process involves numerous stages and participants, each representing potential competitive bottlenecks or advantages.

The process begins with design and development, which may occur internally within companies or through external partnerships involving customers, researchers, and electronic design automation (EDA) tools and software providers. Manufacturing requires sophisticated equipment from specialized suppliers like ASML, which has achieved near-monopoly status in extreme ultraviolet (EUV) lithography equipment essential for leading-edge production.[93] The process also depends on specialized materials and concludes with assembly, testing, and packaging services, each of which has developed its own competitive dynamics and market structures. Figure 7 pictures this productive chain:

Figure 7: Semiconductor manufacturing production chain

Elaborated by authors based on Bown and Wang (2024)[94]

This complexity creates both competitive opportunities and constraints. While specialization allows firms to achieve competitive advantages in their focus areas, it also creates transaction costs and interdependencies that can affect incentives and competitive dynamics. For instance, equipment bottlenecks can limit foundries’ ability to expand capacity or adopt new technologies. Similarly, the availability of specialized materials or packaging services can influence the competitive positions of different foundries or regions.[95] Competitive dynamics in semiconductor manufacturing, therefore, cannot be understood by examining foundries in isolation. The entire ecosystem of upstream suppliers and downstream partners shapes who can compete effectively and on what terms.

The semiconductor supply chain involves highly specialized relationships characterized by substantial asset specificity—investments that are tailored to a particular partner or transaction. Chip designers and system companies, on the one hand, and manufacturers (foundries), on the other, both make relationship-specific investments. The fabless firm might co-develop custom process tweaks for its chips, share extensive intellectual property and know-how with the foundry, and, most importantly, design its products based on a foundry’s specific process technologies. The foundry, in turn, invests in manufacturing capacity upfront and builds a substantial portion of its upcoming fabrication space and capacity in anticipation of the customer’s needs, perhaps even tailoring processes or equipment to its specific products.

These relationship-specific investments have both benefits and costs. The benefits include aligned incentives, accelerated learning, and de-risked capacity expansion for foundries. Among the costs are increased switching costs (although still much lower than for a vertically integrated firm), possible foreclosure from early-node capacity, and hold-up possibilities. Notably, these switching cost and hold-up risks apply to both foundries and fabless firms.

As a result, coordination and contracting become critical, and the risk of hold-up or dependency is a concern that shapes competitive strategy. In response, much of the industry operates through nonstandard arrangements like relational contracting and strategic partnerships (and vertical integration in key spots) to mitigate these issues. As explained by Klein, Crawford & Alchian, these arrangements can be seen as an efficient response to risk allocation in information-constrained commercial environments rather than a foreclosure strategy.[96]

These bilateral dependencies fundamentally shape how competition occurs in the industry. Competition often happens in the forming and maintaining these vertical relationships rather than through simple spot-market transactions. Foundries compete intensively for major customers, sometimes accepting lower prices initially in exchange for volume commitments and the opportunity to build long-term partnerships. Customers, on the other hand, are typically large firms (e.g., Apple, Qualcomm, Nvidia, AMD), with bargaining power; they negotiate pricing and capacity allocations and weigh the risks of single sourcing against the benefits of deep collaboration with a trusted partner. The types of relationships, of course, vary depending on the parties and products involved.

The relative importance of formal contracts versus relational governance also varies with market conditions. During periods of supply-demand imbalance—like during the severe shortages from 2020 to 2023—formal contractual commitments may become more prevalent as a means for customers to guarantee excessively scarce supply. In such circumstances, the optimal allocation of risk may look different, leading to arrangements that effectively convert some of customers’ payments to an upfront capital investment (a riskier specific asset) in exchange for greater assurance that they will receive the wafers they need, when they need them. “[F]oundry customers generally do not place purchase orders far in advance to manufacture a particular type of product,” yet, according to TSMC, “some of our customers have entered into agreements with us to pay temporary receipts in order to retain specified capacity at our fabs.”[97]

TSMC disclosed that, by late 2021, it had received about $3.8 billion in customer pre-payments for future fab capacity.[98] From the customer perspective, while such long-term contractual commitments are not the industry norm, the ability to enter into these arrangements is beneficial for mitigating risk or planning aggressive sales strategies. As Nvidia notes in its 2024 Annual Report, for example: “In periods of growth, we may place non-cancellable inventory orders for certain product components in advance of our historical lead times, pay premiums, or provide deposits to secure future supply and capacity….”[99]

However, formal long-term contracts are not the only or even the most common solution to address the risk of hold-up. Instead, long-term relationships are sustained through deeply embedded relational contracting and carefully cultivated trust. TSMC, for instance, emphasizes that once it makes a commitment to a customer, it fully devotes itself to fulfilling it, projecting its reliability as a core driver of customer loyalty.[100] The company’s stated philosophy that “customers come first” reflects a deliberate strategy of building enduring partnerships underpinned by integrity and mutual dependence.[101] Through digital platforms and regular quarterly reviews, the company sustains continuous design, engineering, and logistical collaboration—allowing customers near real-time transparency into production and yield data.[102] These mechanisms foster a governance structure where implicit expectations and reputation—rather than strict legal enforcement—ensure performance and protect against opportunistic behavior.

The types of relationships, of course, vary depending on the parties and products involved. In areas with extreme asset specificity or potential hold-up issues, we sometimes see vertical integration as a solution. Intel’s integrated device model (design and manufacturing in-house) avoids contracting issues altogether for its CPUs (although it forgoes the benefits of specialization). Some fabless companies have acquired critical design and tool capabilities to reduce dependence on third parties.[103]

Similarly, foundries have moved upstream by offering design services and providing extensive, pre-designed, modular standard cell “libraries”[104] to deepen customer relationships. When asset specificity is high, parties will try to safeguard their investments, either contractually or by aligning ownership and incentives. All this shapes competition: it’s not a simple open market where any buyer can go to any seller at any time. Instead, there’s a dance of partnerships, with companies positioning themselves strategically (through technical collaboration, long-term relationships, and, of course, deal terms) to be among the first to access new process nodes.[105] Success in this environment depends on managing these complex vertical relationships effectively. Firms that excel as reliable partners—delivering on commitments and investing in mutual success—gain competitive advantages. In other cases, the challenge of asset specificity has driven the industry to develop complex contracting practices (like prepayments and capacity agreements) and, in some cases, to consolidate or integrate, which in turn affects how competition unfolds.

The competitive dynamics are further complicated by the fact that traditional categories (IDM versus foundry; competitor versus customer) have become increasingly blurred. Intel, while building its foundry business, simultaneously relies on TSMC to manufacture some of its own advanced components.[106] Samsung operates as both a major IDM producing its own processors and Galaxy smartphone chips, and as Samsung Foundry, a contract manufacturer serving external customers. Samsung’s own mobile division reportedly rejected its in-house processor for the flagship Galaxy S25 device, forcing its chip design division to lose the contract to Qualcomm.[107] These overlapping relationships create multiple vectors of competition: firms compete for foundry customers while simultaneously competing as those customers’ chip-design rivals, and may even compete with their own foundry customers’ products in end markets.

Intel’s experience underscores these dynamics. After years of prioritizing its IDM processes, Intel concluded that the industry’s shift toward disaggregated design had made specialization and a diversified customer base too valuable to forgo. It has therefore committed substantial capital to building a true foundry business—not only developing the necessary technical capabilities, but also attempting to adopt the pricing, service, and capacity-allocation norms required to be a neutral supplier.[108] Yet the timing has proved costly. Because foundry competition is relationship-intensive, Intel’s late entry runs headlong into reputational constraints, compounded by its earlier process stumbles. The result, to date, is a strategy that may be economically sound but remains commercially unproven: despite marquee announcements and heavy investment, external wafer starts remain limited relative to established rivals.[109] The U.S. government’s unprecedented involvement[110] and recent investments by Softbank and Nvidia[111] may well help, but managing relational contracting is about much more than dollars. Regardless, Intel’s pivot, even despite headwinds, provides strong evidence that specialization delivers net benefits—while also illustrating that asset specificity and relational contracting present unique competitive challenges.

IV. Dynamic Competition: “Competition for the Market” at Each New Node

The extraordinary economic forces outlined in Sections II and III—Moore’s Law, Rock’s Law, and the recurring investment requirements they create—combined with the industry’s evolution toward specialized ecosystem relationships (described in Section III), have produced a distinctive form of competition that differs fundamentally from traditional models of market rivalry. In this section, we characterize competition in the semiconductor manufacturing market in light of those forces and using the conceptual tools of economic and management literature.

A. Technology Races and the Economics of Temporary Leadership

The combination of Moore’s technological cadence and Rock’s exponential cost escalation, operating within the specialized fabless-foundry structure, creates what economists call “competition for the market” rather than “competition in the market.”[112] In traditional industries, firms compete primarily through operational efficiency, pricing, or incremental product improvements within relatively stable market structures. Semiconductor competition, by contrast, takes the form of intense, high-stakes races for technological leadership positions that reset the competitive landscape with each new generation.

Semiconductors are capital- and infrastructure-intensive and, in many segments, platform-esque. Once an instruction-set architecture (e.g., x86, ARM) or a software platform (e.g., NVIDIA’s CUDA) becomes established, it creates powerful network effects.[113] Software ecosystems, design tools, and engineering talent cluster around the leader, and switching costs can be significant. The leading firm then enjoys increasing returns from learning, scale, and scope in design and fabrication. Accordingly, market leadership is sustained less by short-run marginal-cost advantages than by accumulated compatibility, tooling, and talent network effects.

The next leader is determined at moments of technological or architectural transition: new process nodes, new chip architectures, or new computing paradigms (e.g., AI accelerators, neuromorphic chips). Firms compete to create and capture market leadership in what is, in one sense, a new market—or at minimum a reshaped market—rather than trying to undercut each other in yesterday’s market. The payoff for the first strategy likely dwarfs the payoff for the second.

Each move to a new process node—whether from 28nm to 16nm or from 5nm to 3nm—represents a fundamental reset of competitive positioning. As Evans & Schmalensee put it, firms in such industries “engage in dynamic, Schumpeterian competition for the market, through sequential winner-take-all races to produce drastic innovations, rather than through static price/output competition in the market.”[114] The primary competitive battleground is each new technological frontier. Once a company wins that race, competition within the established segment might temporarily diminish (leading to periods of high market share for the victor). Such positions are continuously under threat from the next wave of innovation, however. This dynamic explains why high concentration in a given chip segment can be consistent with robust overall competition: what matters is that firms had to fight hard to gain their position and must keep fighting via innovation to keep it. Competition is a succession of races for market leadership—from PCs to smartphones to AI chips—rather than a static tug-of-war within a settled market structure.

Semiconductor history is replete with such winner-take-all races. In the 1990s, the foundry segment (contract chip manufacturing) was an emerging market with several contenders vying to become the go-to manufacturer for fabless designers.[115] Though TSMC now holds the lion’s share of this market for foundry services (in part because of its superior execution and scale),[116] this outcome resulted from fierce competition for the market, not the absence of competition.

Similarly, each new chip niche (e.g., GPUs for graphics and AI; mobile SoCs for smartphones) has seen an initial period of rapid innovation and competition to capture market leadership, often ending with one or two firms on top. Nvidia’s early bet on GPU computing set it apart from many would-be GPU rivals, effectively allowing it to define and lead that market for years.[117] But that lead is continuously challenged by new races. Today, the current competition to lead in AI accelerators involves not just Nvidia but agile startups and powerful system companies designing custom chips.[118]

Technological innovation in chipmaking has the power to fundamentally reshape not only industry competition but even its overall structure. The nascent U.S. startup Substrate—which has already raised over $100 million on the strength of its purported success developing a particle-accelerator–driven X-ray lithography tool—exemplifies this potential.[119] If successful, Substrate’s approach could do more than just challenge ASML in advanced lithography; it could transform how chips are produced.[120] By planning to use its equipment in its own chip-manufacturing facilities instead of selling it to independent foundries, Substrate threatens to blur the traditional lines between equipment suppliers and chip manufacturers. Such a shift would dramatically alter the industry’s competitive dynamics, leaving current industry leaders (in lithography, manufacturing, and design) to catch up.

The global semiconductor manufacturing industry has seen successive changes in industrial leadership, often following a pattern of latecomers catching up and overtaking incumbents. This is described by “catch-up cycle” theory: a newcomer country or firm can leapfrog into leadership when certain windows of opportunity open, such as disruptive technological shifts, new surges in demand, or changes in policy and institutions.[121] In a catch-up cycle, yesterday’s leader may falter and a fast-following entrant seizes the moment to become the new leader, only to potentially be dethroned in the next cycle by another entrant.

Importantly, even within a single technology generation, high market share remains temporary. When a foundry wins the initial race to a new node, competitors continue improving their processes through accumulated volume and learning. Samsung’s 5nm node had this dynamic: while TSMC led early 5nm production, Samsung’s process matured to become a viable alternative, temporarily winning customers like Qualcomm for certain products.[122] This pattern has repeated at many nodes—initial winners enjoy temporary advantages that are eroded as trailing firms climb the learning curve, ensuring that market leadership must be continuously re-earned not just across technology generations, but within them.

B. The Role of Dynamic Capabilities in Sustained Competition

In semiconductor manufacturing, sustained success depends on dynamic capabilities—a firm’s ability to continuously reconfigure and upgrade its competencies in response to technological change. Strong dynamic capabilities are much more significant than existing market shares as a predictor of outcomes. Static advantages erode quickly in this fast-moving industry; what lets certain firms stay ahead is their superior capacity to learn, adapt, and innovate repeatedly.

The concept of dynamic capabilities, developed primarily by economist David Teece (one of the authors of this paper), refers to the organizational skills and processes that enable ongoing innovation and strategic change.[123] The three pillars of dynamic capabilities are sensing, seizing, and transforming.[124] In semiconductors, dynamic capabilities matter more than ordinary (efficacy-related) capabilities or market structure for several reasons:

• Rapid changes in technology: process nodes and architecture make large shifts every few years and dwarf whatever incremental efficacy can be squeezed out of the prior generation of chips.
• Ecosystems: success depends in part on the performance of ecosystem partners (foundries, EDA tools, customers) more than it does on internal efficiencies or market structure
• Massive sunk investments: once a firm commits (“seizes”), irreversibility is set in. Dynamic capabilities (when, where, and how to invest) become critical.
• But learning is not inexorably cumulative: accumulated process knowledge becomes a strategic asset only if continuously refreshed.

Figure 8 illustrates how these dynamic capabilities operate as a continuous cycle in semiconductor competition. Each new technology generation triggers another sensing, seizing, and transforming cycle. Firms that excel at rapid learning and timely reinvestment become leaders and can stay leaders if they sustain this cycle. The way particular firms engage with these activities determines how the market gets reconstructed with each technological discontinuity. Each cycle represents competition for the market, and firms unable to maintain the sense-seize-transform rhythm lose out when the next discontinuity hits.

Figure 8: The sense, seize, and transform cycle that expresses the strength of a firm’s dynamic capabilities

Real-world cases illustrate how dynamic capabilities translate into competitive edge. Samsung Electronics, once a latecomer, leveraged dynamic capabilities to become the world’s largest memory chip maker. A study of Samsung’s rise identified key management capabilities responsible for its rise: top leaders’ foresight in seizing opportunities, rapid learning through technology licensing and absorption, aggressive product and process innovation, diversification leveraging core competencies, and timely restructuring during crises.[125] These capabilities allowed Samsung to leapfrog incumbents, exploit “windows of opportunity” in the market, and sustain growth over decades. As the study concludes, Samsung’s experience “illustrates the importance of dynamic capabilities in creating competitive advantage and sustaining growth.”[126] More recently, Samsung has yielded its title to SK Hynix, which surpassed Samsung in Q2 2025 in the high-bandwidth memory chip market.[127]

TSMC’s evolution as an independent foundry provides another compelling example. Founder Morris Chang instilled a culture of relentless improvement and customer collaboration—effectively a dynamic capability in manufacturing and service.[128] TSMC continuously refined its processes, scaled production for diverse clients, and moved swiftly on each new technology node. This adaptability and “learning by doing” allowed TSMC to outpace IDMs like IBM and Intel in the foundry business.[129] As one study put it, “companies like Apple, Amazon, Nvidia and AMD and others have been able to leverage the competencies of TSMC’s ecosystem in manufacturing and challenge the position of Intel in overall chip performance.”[130] TSMC is able to take 85-90% of the assembly line tools in one generation, combined with all the institutional knowledge, to apply to the next.[131]

The distinction between ordinary and dynamic capabilities proves crucial for understanding why some firms maintain leadership across multiple technological discontinuities while others—despite superior resources and initial positions—fail to adapt.[132] The EUV lithography transition highlights this distinction. Moving from DUV to EUV was not an incremental improvement, but what Tushman and Anderson term a “competence-destroying” discontinuity[133]—requiring foundries to recognize the need to partially abandon decades of accumulated knowledge about multi-patterning, resist chemistry, and defect management and incur the cost of adopting a novel, immature technology in order to position themselves to compete in the future.

While Intel, with superior resources and process leadership, bet on extending its existing competency,[134] TSMC committed to EUV in 2014 at a time when critical challenges remained unsolved: mask defectivity exceeded acceptable limits by orders of magnitude, resist sensitivity made high-volume manufacturing impossible, and no pellicle materials could withstand EUV power levels.[135] This was a fundamental bet on an unproven technology trajectory. The reconfiguration required was substantial. As one analysis noted, EUV required “considerably more collaboration with external partners… which conflicted with [established] specialized approaches.”[136]

TSMC’s recent success exemplifies how dynamic capabilities drive competitive outcomes. The firm has shown exceptional sensing (understanding customers in part because it was close to them)[137] and seizing (it had a lower rate-of-return criterion for new fabs and began investing in next-generation tools ahead of Intel).[138] TSMC also benefited from fortuitous timing: graphics chips, which became central to TSMC’s portfolio, turned out to be better suited for data-intensive AI applications than anyone anticipated.[139] Intel, by contrast, stumbled at 10nm, allowing TSMC to surge ahead.[140] As Ben Thompson put it when discussing a wide range of stumbling blocks for Intel: “Clearly the opportunity was not seized. What is more concerning is that the question is no longer about seizing an opportunity but about survival.”[141] This leadership transition demonstrates that competition for leadership in cutting-edge semiconductors is not mainly about efficiency or market structure; it is about who redefines the technological frontier and follows through with the required massive investment in the fabs that this entails.

Beyond patents or scale, a firm’s organizational capacity to innovate repeatedly provides the most sustainable competitive advantage in semiconductors. Companies that can manage complex R&D pipelines, rapidly integrate new knowledge, and pivot when technology or markets shift will outperform those resting on past laurels. Incumbency becomes a double-edged sword: without strong dynamic capabilities, today’s leader can become tomorrow’s laggard when the next wave of innovation hits.

Importantly, these competitive attributes are difficult to quantify (and even to identify), and their outward manifestations—e.g., a reliance on novel, nonstandard industrial organization and contractual arrangements aimed at overcoming subtle market inefficiencies—can be mistaken for anticompetitive designs.[142] As we discuss below (Section V), accounting for these crucial but ephemeral aspects of semiconductor manufacturing market dynamics is essential for ensuring that policy interventions are beneficial.

Fundamentally, each new technology generation (e.g., each node shrink or architectural shift) triggers another sensing, seizing, and transforming cycle. Firms that are capable of rapid learning and timely reinvestment become leaders and may be able to remain ahead if they can continue to exercise their dynamic capabilities. But each cycle represents a new competition for the market, and firms unable to maintain the sense–seize–transform cycle lose out when the next discontinuity hits. As a result, the market is effectively reconstituted with each technological discontinuity. Looking at today’s market share as a measure of competition is akin to judging the results of a horse race by looking at the outcome of the last race. Rather, each generation of advanced semiconductors constitutes a new race. Any market dominance is provisional; one assesses competition not by looking at the winners of the last race or even the horses in the paddock, but by looking at the horses and their jockeys once they have left the starting gate.

C. Competition Through Creative Destruction

The principal battleground for foundries is technological advancement: Who can develop the most advanced manufacturing process technology and reliably produce chips with it at scale? This is often described as a technology “arms race” on node progression.[143] The competitive dynamics here have a “winner-take-most” flavor, at least for the time being. Being first to a new node and doing so with high yields (low defect rates), can allow a foundry to capture much of the high-end market for that generation.[144] At the 5nm node (circa 2020), for example, TSMC was 6–9 months ahead of Samsung and won virtually all the major mobile orders.[145] It was even further ahead of Intel (See Figure 9).

Figure 9: Process Node Launch Timelines

Source: Howard Yu (2025)[146]

Unlike a static winner-take-all market, however, these advantages largely reset with each generation, as competitors strive to catch up or leapfrog. While Intel reached 14nm before TSMC reached 16nm, TSMC was able to leapfrog to 10nm within 2 years.[147] Intel, after technological stumbles, aimed to progress five nodes in four years[148] and leapfrog from 7nm-equivalent to below 2nm within a couple of years by adopting new transistor architecture and other innovations. This ambitious attempt ran into trouble, however. Intel originally planned a 20A process,[149] but subsequently cancelled it for foundry customers, and recently pivoted from focusing on 18A for external customers, as well, due to lack of foundry-customer demand.[150] And yet, despite these difficulties, Intel recently said that it “continue[s] to make steady progress on yield and performance targets… and we remain committed to ramping [18A] technology to scale.”[151] Indeed, “[b]y starting 18A mass production [in 2025Q4], Intel became the first among foundry competitors to bring backside power delivery to market, while its Arizona fab becomes the first in the U.S. to hit 2nm-class mass production.”[152]

This leapfrogging dynamic means that the industry’s leadership is contestable.[153] Dominance must be continually re-earned, and even a firm with a large current share faces the threat that a rival’s technological breakthrough (or its own operational misstep) could trigger a customer exodus within one or two product cycles.

Looking at the semiconductor industry overall (not just semiconductor manufacturing), the churn among the industry’s top players over the past four decades has been dramatic, with firms rising and falling in the rankings as technological waves and market shifts created new opportunities for competitive advantage (See Table 2).

Table 2: Top 10 Global Semiconductor Firms by Sales Revenue (1980-2020)

Source: Bown & Wang (2024) (Shaded companies are domiciled in the U.S.)[154]

The data reveals the transient nature of semiconductor leadership. Companies that dominated in 1980—such as Texas Instruments, Motorola, and Philips—have been displaced by firms that barely existed or were much smaller players at the time. Intel’s rise to the top by 1990 reflected its success in microprocessors, while Samsung’s ascent from a regional player to a global leader illustrates how dynamic capabilities and strategic investment can enable catch-up and overtaking. TSMC’s emergence as a top-tier player by 2020 demonstrates how the then-novel foundry model’s success created entirely new paths to industry leadership. Meanwhile, the persistence of some players like Intel across multiple decades, despite fluctuations in ranking, shows that sustained success requires continuous adaptation and reinvestment in new capabilities as technological paradigms shift.

In semiconductors, companies invest heavily in CapEx and R&D and compete for future markets through technological breakthroughs, rather than only competing on prices in mature markets.[155] The TSMC–AMD partnership’s success in challenging Intel’s decades-long dominance in PC processors and cloud computing illustrates this dynamic. Intel’s long dominance was eroded when TSMC seized upon new process techniques (EUV) while AMD improved chip designs, illustrating how continuous innovation can overturn market positions.[156] This dynamic, innovation-driven competition forces firms to “run fast” just to stay in place, creating benefits for consumers in the form of rapid performance improvements.[157]

Semiconductor competition is fundamentally Schumpeterian, driven by innovation and the “perennial gales of creative destruction” rather than simple price-cutting.[158] As Petit and Teece describe Schumpeterian competition: “New technological phenomena are born of dynamic innovation-driven competition. As we have emphasized, competition is fueled not by static price-based rivalry, even though price for unit of performance may be lower even with no innovation (due to efficiency).”[159] Firms compete to leapfrog each other with drastic technological advances, such as new chip architectures or smaller process nodes, knowing that yesterday’s cutting-edge product can become obsolete tomorrow. Indeed:

When innovation and discovery are possible, potential entrants can leapfrog an incumbent by offering superior products and services. Sunk costs depreciate more rapidly—and more unpredictably— because of ceaseless change. Potential competition, in the form of Schumpeterian “creative destruction,” could be much more vigorous in spite of sunk costs.[160]

Finally, it must be noted that exit is as much a part of dynamic competition as is entry.[161] In industries marked by these sorts of technological and process innovations with “winner-take-most” characteristics, the remainder left over for less successful firms may not be enough to maintain viability. Depending on the relative rates of entry and exit, at any given time such markets may comprise only a relatively few firms—or, more likely, only a relatively few large, established firms, with a substantial fringe of newer, smaller startups. Indeed, the inexorable direction is likely toward fewer firms, as a single, successful new competitor will invariably outcompete multiple less successful incumbents.

This dynamic is hyper-focused on first-wave demand for new nodes. Meanwhile, however, competition for second and third-wave demand—as nodes mature—becomes more price-driven and accessible to a broader range of manufacturers. This multi-phase competitive dynamic ensures that even firms that miss the initial race can compete effectively as technologies mature.

But, as importantly, this means that there is little basis to infer a lack of competition from simply counting the number of firms (or the number of “large” or “cutting-edge” firms). The relative position of each generation of leaders is always contestable, confronting them with the pressures of immediate competition even with few or no existing competitors. Thus, despite a dwindling number of leading semiconductor manufacturing firms, the intensity of CapEx and R&D investment by those firms has consistently increased, along with improvements in output, quality, price, and variety.[162]

Traditional market analysis often fixates on monopoly returns: profits earned by restricting output and charging above-competitive prices.[163] But in semiconductor manufacturing, high profits more commonly derive from other forms of returns that do not stem from anticompetitive output restriction. High margins that occasionally appear in boom years mostly reflect scarcity (limited capacity or know-how) and entrepreneurial returns (temporary excess returns due to successful innovations), not monopoly power.

Returns to scarcity or “Ricardian rents” stem from owning unique productive assets or capabilities that others cannot easily replicate. In semiconductors, this could mean proprietary intellectual property, exceptional engineering talent, or access to rare inputs. These returns are akin to those earned by the owner of a uniquely fertile land (in David Ricardo’s classic example). They do not necessarily entail reduced output; the firm is simply so much more efficient or uniquely positioned that others cannot replicate it. Michael Jordan earned Ricardian rents because of his talents, not because he restricted the output of basketball. More relevant to this industry, ASML earning high margins as the sole supplier of cutting-edge EUV lithography tools reflects a Ricardian rent based on its unique technology, not a manipulative output restriction.[164]

Returns to entrepreneurship or “Schumpeterian rents” are earned by innovators due to a temporary lead before imitators catch up. These arise because technological imitation is not instantaneous; a firm that first commercializes a breakthrough chip or process can enjoy outsized profits for a period, even as it actively produces at full capacity. Such innovation returns are transient, disappearing as competitors eventually introduce similar technologies—or even before, as the incumbent dissipates those rents in the expectation that a challenger is always right around the corner.

Importantly, both types of returns are beneficial from an innovation policy perspective: they incentivize enormous investments in R&D and capital.[165] Indeed, as Pleatsikas and Teece observe, “[w]here innovative activity is high, it is unlikely that monopoly power exists. High R&D spending relative to sales is generally an indication that participants view product performance as the ultimate arbiter of competitive strength.”[166] This dynamic explains why policies designed to address traditional market power concerns may be inappropriate or counterproductive in semiconductor manufacturing.

V. Getting Semiconductor Competition Policy Right: A Cautionary Note

The semiconductor industry’s distinctive competitive dynamics—shaped by the relentless twin pressures of Moore’s Law and Rock’s Law—demand a fundamental rethinking of how competition policy should approach this critical sector. As this paper has demonstrated, the industry operates through recurring cycles of “competition for the market” rather than traditional “competition in the market,” where firms engage in high-stakes technological races that periodically reset competitive positions with each new process node.

Recent enforcement actions illustrate both appropriate and potentially misguided applications of competition policy. Whatever their substantive merits, the European Commission’s cases against Qualcomm and Broadcom, for example, appropriately targeted specific alleged exclusionary practices—such as payments conditioned on exclusive sourcing arrangements—that could foreclose rivals during critical market entry periods.[167] These interventions focused on conduct rather than market structure, recognizing that high market shares alone do not necessarily indicate anticompetitive behavior.[168]

More recently, by contrast, antitrust advocates and industrial policy proponents have raised concerns about the competitive dynamics in the foundry segment and the AI tech stack. This reflects a misreading of industry structure and dynamics. The American Economic Liberties Project, for instance, argues that “[t]he U.S. semiconductor industry used to be competitive and vibrant, but today it is too concentrated and is plagued by many of the dangers one would expect from a consolidated sector, notably shortages, weak innovation, high prices, and the pooling of risk by a monopolist.”[169] This is attributed to “[t]wo decades of patent abuse, exclusive deals, cheap money, and weak antitrust enforcement.”[170]

This critique fundamentally misunderstands the nature of competition in semiconductors, however. Its blindness to dynamic competition leads it to misattribute to market concentration what actually reflects the competitive dynamics of these markets, where the natural economics of Moore’s and Rock’s Laws interact with complex global supply chains and extreme demand volatility. The analysis presented in this paper suggests that standard indicators of market power—high market shares, long-term contracts, and customer relationship “stickiness”—are likely misleading in the semiconductor context.[171] These features often reflect the natural result of technological and economic forces rather than strategic behavior designed to exclude rivals. The semiconductor industry’s recurring pattern of competition for the market is characterized by fierce competition for technological leadership that resets with each generation, rather than a traditional winner-take-all race susceptible to permanent monopolization.

Getting the competitive assessment right is not merely an academic exercise; it could have profound policy consequences. Misguided analogies to digital platforms or traditional “natural monopolies” could tempt regulators into adopting preemptive measures ill-suited to the semiconductor manufacturing sector’s economics. Interventions that reduce the returns to successful innovation, constrain the formation of long-term customer relationships, or artificially fragment development efforts could undermine the incentives and coordination mechanisms that drive the industry’s remarkable pace of technological progress.

The industry’s sophisticated contractual relationships represent efficient responses to extraordinary coordination challenges rather than exclusionary arrangements. These governance solutions enable the massive, risky investments required for continued innovation. Proposals for ex ante regulation, mandatory access requirements, or industrial restructuring may seem appealing when framed as market-correcting mechanisms, but, failing to understand the market-correcting effects of the industry’s nonstandard industrial arrangements, they risk distorting the incentives and coordination mechanisms that drive the industry’s success.

From a competition enforcement perspective, agencies should resist the temptation to infer dominance or harm from structural indicators. Instead, if and when it arises, they should prioritize evidence of actual anticompetitive conduct and consumer harm, such as foreclosure or exclusionary exclusive dealing, and assess whether such behavior materially restricts rival access to fabrication capacity, essential technologies, or customers. Standard antitrust tools remain appropriate but must be applied with full appreciation of the industry’s economics, including the role of customer-driven innovation, massive capital expenditure requirements, and the high costs of switching or duplicating foundry capabilities.

On the policy side, governments should avoid measures that inadvertently entrench incumbents or stifle competition, as well as attempt to drum up demand-side competition. While targeted support for domestic manufacturing incentives may be justified on national security grounds, such support must be neutral in design and not favor specific firms or distort market demand. Policymakers should prioritize open access to global markets, encourage upstream R&D cooperation through public-private partnerships, and foster workforce development to address talent shortages. Export controls, while also potentially justified on national security grounds, can reduce competitive pressure from foreign manufacturers and should be designed carefully to minimize such effects.

Most importantly, governments should refrain from imposing artificial constraints—such as price controls, localization mandates, or excessive licensing restrictions—that undermine the incentives and flexibility required for this high-risk, high-reward sector to thrive. The semiconductor manufacturing industry’s competitive dynamics represent a compelling case study in Schumpeterian competition: rivalry through innovation and creative destruction rather than static price competition. Preserving these dynamics while addressing legitimate policy concerns requires a nuanced understanding of how technological forces shape market behavior and careful attention to the unintended consequences of even well-intentioned interventions.

An erroneous diagnosis of market power today could generate policy mistakes that choke innovation, deter entry, and ultimately reduce the availability and affordability of advanced computing power across the economy. The stakes are too high, and the industry too critical to global technological progress, to allow misunderstanding of competitive dynamics to drive counterproductive policy responses.

Endnotes

[1] In this paper, ‘integrated circuit,’ ‘microchip’ or ‘chip,’ and ‘semiconductor’ are used interchangeably. A chip is a set of electronic components patterned onto a silicon substrate. Strictly, ‘semiconductor’ refers to the substrate material on which circuits are constructed—usually silicon—whose conductivity is modified by adding impurities (‘doping’); in common usage it also refers to the chips themselves and the industry that makes them. See Daniel Nenni and Paul McLellan, Fabless: The Transformation of the Semiconductor Industry, loc. 54 (2013) (e-book); The Basics of Microchips, ASML (last visited Sep. 1, 2025), https://www.asml.com/en/technology/all-about-microchips/microchip-basics.

[2] Logic chips are the “brains” of electronic devices; they process information to complete a task. Memory chips store information. See The Basics of Microchips, id.

[3] In 1965, Gordon Moore, who later founded Intel, predicted that the number of transistors on computer chips would double approximately every two years, a pattern that became known as “Moore’s Law” and which has held true for half a century. This matters for another important reason: the cost of computing power has been decreasing at an even better pace—it has halved every one-and-a-half years over the last 60 years. See Max Roser, Hannah Ritchie & Edouard Mathieu, What Is Moore’s Law?, Our World in Data (Mar. 28, 2023), https://ourworldindata.org/moores-law.

[4] See Lewis Carroll, Through the Looking-Glass, and What Alice Found There 39 (1872): “Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you ran very fast for a long time, as we’ve been doing.” “A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

[5] Laura Peters, DTCO/STCO Create Path For Faster Yield Ramps, Semiconductor Engineering (Mar. 12, 2024), https://semiengineering.com/dtco-stco-create-path-for-faster-yield-ramps/.

[6] Samuel K. Moore, Keeping Moore’s Law Going Is Getting Complicated, IEEE Spectrum (May 24, 2023), https://spectrum.ieee.org/stco-system-technology-cooptimization.

[7] Smaller, better, faster: Imec presents chip scaling roadmap, Imec (Feb. 2, 2023), https://www.imec-int.com/en/articles/smaller-better-faster-imec-presents-chip-scaling-roadmap.

[8] Mark Liu & H.-S. Philip Wong, How We’ll Reach a 1 Trillion Transistor GPU. Advances in semiconductors are feeding the AI boom, IEEE Spectrum (Mar. 28, 2024), https://spectrum.ieee.org/trillion-transistor-gpu.

[9] See, e.g., Brian Potter, How to Build a $20 Billion Semiconductor Fab, Construction Physics (May 3, 2024), https://www.construction-physics.com/p/how-to-build-a-20-billion-semiconductor.

[10] In Rock’s formulation, doubling every four years.

[11] The term “fab” is used in the industry to refer to any semiconductor fabrication plant, whether run as part of an IDM (like Intel) or by an independent foundry (like TSMC). See Nenni and McLellan, supra note 1, at loc. 77.

[12] See Potter, supra note 9.

[13] See Anton Shilov, U.S. Semiconductor Renaissance: All the Upcoming Fabs, Tom’s Hardware (Aug. 29, 2022), https://www.tomshardware.com/news/new-us-fabs-everything-we-know (“Intel’s Fab 52 and Fab 62 will come online in 2024 and cost around $20 billion.”); America’s Chip Resurgence: Over $630 Billion in Semiconductor Supply Chain Investments, Semiconductor Industry Association (Last updated Jul. 28, 2025), https://www.semiconductors.org/chip-supply-chain-investments/.

[14] See Chris Miller, Chip War: The Fight for the World’s Most Critical Technology 217 (2022): By the mid-2000s, the layer of silicon dioxide on top of each transistor was only a couple of atoms thick, too small to keep a lid on all the electrons sitting in the silicon. To better control the movement of electrons, new materials and transistor designs were needed. Unlike the 2D design used since the 1960s, the 22nm node introduced a new 3D transistor, called a FinFET (pronounced finfet), that sets the two ends of the circuit and the channel of semiconductor material that connects them on top of a block, looking like a fin protruding from a whale’s back. The channel that connects the two ends of the circuit can therefore have an electric field applied not only from the top but also from the sides of the fin, enhancing control over the electrons and overcoming the electricity leakage that was threatening the performance of new generations of tiny transistors. These nanometer-scale 3D structures were crucial for the survival of Moore’s Law, but they were staggeringly difficult to make, requiring even more precision in deposition, etching, and lithography. This added uncertainty about whether the major chipmakers would all flawlessly execute the switch to FinFET architectures or whether one might fall behind.

[15] See Alexandra Alper, Stephen Nellis & Heekyong Yang, Exclusive: Samsung’s new Texas chip plant cost rises above $25 billion, Reuters (Mar. 15, 2023), https://www.reuters.com/technology/samsungs-new-texas-chip-plant-cost-rises-above-25-billion-sources-2023-03-15/. See also America’s Chip Resurgence, supra note 13; Press Release, TSMC Intends to Expand Its Investment in the United States to $165 Billion to Power the Future of AI, TSMC (Mar. 4, 2025), https://pr.tsmc.com/english/news/3210.

[16] Don Clark, The Tech Cold War’s ‘Most Complicated Machine’ That’s Out of China’s Reach, New York Times (Jul. 4, 2021), https://www.nytimes.com/2021/07/04/technology/tech-cold-war-chips.html (quoting Darío Gil, senior vice president at IBM).

[17] Katie Tarasov, Exclusive look at the creation of High NA, ASML’s new $400 million chipmaking colossus, CNBC (May 22, 2025), https://www.cnbc.com/2025/05/22/exclusive-look-at-high-na-asmls-new-400-million-chipmaking-colossus.html.

[18] See Taiwan Semiconductor Manufacturing Revenue 2009–2024, MacroTrends (Last visited Oct. 7, 2025), https://www.macrotrends.net/stocks/charts/TSM/taiwan-semiconductor-manufacturing/revenue.

[19] See Press Release, Biden-Harris Administration Finalize $7.86 Billion Funding Award Under US CHIPS Act, Intel (Nov. 26, 2024), https://newsroom.intel.com/corporate/intel-chips-act.

[20] Katherine Hamilton, Intel’s CHIPS Act Requirements Waived After U.S. Government Takes Stake, Morningstar (Aug. 29, 2025), https://www.morningstar.com/news/dow-jones/202508299268/intels-chips-act-requirements-waived-after-us-government-takes-stake.

[21] Semiconductor Industry Association, State of the U.S. Semiconductor Industry (2025), available at https://www.semiconductors.org/wp-content/uploads/2025/07/SIA-State-of-the-Industry-Report-2025.pdf.

[22] TSMC vs Intel in Research and Development (R&D) Spending, Stock Dividend Screener (Last updated Feb. 21, 2025), https://stockdividendscreener.com/technology/semiconductor/tsmc/research-and-development-spending-vs-intel/. It should be noted that Intel R&D expenditures also include spending related to product design, reflecting its vertically integrated structure.

[23] Semiconductor Industry Association, 2025 Factbook 19 (2025), https://www.semiconductors.org/wp-content/uploads/2025/05/2025-SIA-Factbook-FINAL-1.pdf.

[24] Id. at 12.

[25] Id. at 13.

[26] Id.

[27] Id. at 19.

[28] Id.

[29] Id. at 20.

[30] Taiwan Semiconductor Manufacturing Revenue, supra note 18.

[31] If TSMC’s $41.5 billion CapEx and R&D spend in 2022, for instance, were market cap, it would represent a firm about the size of Target or Electronic Arts, right in the middle of the S&P 500.

[32] Of course, for some firms, like Samsung and Texas Instruments, for example, it may continue to work. Other IDMs, like Intel, however, have struggled, at least in part because of the heightened managerial demands of an integrated structure. Many, like AMD, recognized the difficulties of sustaining the escalating costs of manufacturing and separated (in the case of AMD, spinning off its manufacturing division into GlobalFoundries, and eventually outsourcing the production of its most complex designs to TSMC. See Brandon Hill, AMD Commits All 7nm GPU and Zen 2 CPU Fabrication to TSMC Along with an Exec Shuffle, Hot Hardware (Aug. 27, 2018), https://hothardware.com/news/amd-7nm-gpu-zen-2-cpu-fab-tsmc.

[33] See Section IV.

[34] The most important cautionary tale—and then Cinderella story—in this regard is Intel. “Intel famously flubbed its initial 10 nanometer and 7 nanometer processes, and that gave rival AMD the jump in the server CPU market and also meant that Intel could not field GPU accelerators that could compete against Nvidia and AMD GPUs. Intel skipped 5 nanometer and 4 nanometer processes….” Timothy Prickett Morgan, Intel Puts the Process Horse Back in Front of the Foundry Cart, The Next Platform (Jul. 26, 2025), https://www.nextplatform.com/2025/07/25/intel-puts-the-process-horse-back-in-front-of-the-foundry-cart/. But now Intel’s “18A [for 18 angstrom] process is akin to a refined 2 nanometer process.” Id. And some sources suggest that Intel’s 18A has advantages over TSMC’s N2 (for 2 nanometer). See, e.g., Anton Shilov, Intel’s 18A and TSMC’s N2 process nodes compared: Intel is faster, but TSMC is denser, Tom’s Hardware (Feb. 13, 2025), https://www.tomshardware.com/tech-industry/intels-18a-and-tsmcs-n2-process-nodes-compared-intel-is-faster-but-tsmc-is-denser. Now “Intel has begun full-scale operation of its ‘Fab 52’ plant, which applies the 18A process…. Intel has opened the race for cutting-edge 2-nanometer (nm) semiconductor technology ahead of Samsung Electronics and TSMC, which had announced plans to mass-produce 2-nanometer chips within the year.” Kang Da-eun, Intel Begins Mass Production of 2-Nanometer Chips Ahead of Rivals, The Chosun Daily (last updated Oct. 10, 2025), https://www.chosun.com/english/industry-en/2025/10/10/JXRSSAD6SFCMTJCVJBEB4PP6MU/. Intel wasn’t the first to rapidly gain and lose (and regain) industry leadership, of course. TSMC—which had produced all of Apple’s A8 chips—famously fell behind in N16, leading Apple to dual source its A9 chips. See Apple to Split 14/16nm Orders Among Foundries Into 2016, EENews Europe (Sep. 17, 2015), https://www.eenewseurope.com/en/apple-to-split-14-16nm-orders-among-foundries-into-2016/. By N10, TSMC had bounced back and became the sole-source manufacturer for Apple’s A10X iPad chips. See The 10nm Process Rollout Continues to Evolve, TechInsights (last visited Oct. 1, 2025), https://www.techinsights.com/blog/10nm-process-rollout-continues-evolve.

[35] Press Release, Intel and UMC Announce New Foundry Collaboration, Intel (Jan. 25, 2024), https://newsroom.intel.com/intel-foundry/ifs-manufacturing-news-2024.

[36] UMC Reportedly Mulls Rejoining Advanced Node Race via Rumored Intel 6nm Tie-Up, Trendforce News (Jul. 2, 2025), https://www.trendforce.com/news/2025/07/02/news-umc-reportedly-mulls-rejoining-advanced-node-race-via-rumored-intel-6nm-tie-up/.

[37] See Jonathan Goldberg, How Profitable are TSMC’s Nodes: Crunching the Numbers, Techspot (Mar. 25, 2025), https://www.techspot.com/news/107278-how-profitable-tsmc-nodes-crunching-numbers.html.

[38] See TSMC to invest $100 billion over 3 years to meet chip demand, Reuters (Apr. 1, 2021), https://www.reuters.com/article/idUSKBN2BO3ZJ/.

[39] See Press Release, Micron Announces Historic Investment of up to $100 Billion to Build Megafab in Central New York, Micron (Oct. 4, 2022), https://investors.micron.com/news-releases/news-release-details/micron-announces-historic-investment-100-billion-build-megafab. See also Anton Shilov, Intel: Our Goal Is to Become Second Largest Foundry by 2030, Tom’s Hardware (Nov. 4, 2022), https://www.tomshardware.com/news/intel-our-goal-is-to-become-second-largest-foundry-by-2030.

[40] See Katie Tarasov, How Samsung and Texas Instruments made the Lone Star State the hub of U.S. chip manufacturing, CNBC (Jul. 20, 2023), https://www.cnbc.com/2023/07/20/texas-becomes-chip-hub-with-47-billion-investment-from-samsung-and-ti.html; America’s Chip Resurgence, supra note 13.

[41] See Table 1.

[42] See Ben Thompson, Tesla and Samsung, Customer Service and Intel, The U.S. Semi Supply Chain, Stratechery (Jul. 29, 2025), https://stratechery.com/2025/tesla-and-samsung-customer-service-and-intel-the-u-s-semi-supply-chain/.

[43] See Kim Jaewon & Cheng Ting-Fang, Samsung delaying completion of US chip plant due to lack of customers, Nikkei Asia (Jul. 3, 2025), https://asia.nikkei.com/business/technology/samsung-delaying-completion-of-us-chip-plant-due-to-lack-of-customers.

[44] See Section III.D.

[45] Joel Hruska, Intel Acknowledges It Was ‘Too Aggressive’ with Its 10nm Plans, Extreme Tech (Jul. 18, 2019), https://www.extremetech.com/computing/295159-intel-acknowledges-its-long-10nm-delay-caused-by-being-too-aggressive.

[46] Richard Rumelt, Intel’s Fall from Grace, Strategeion (Apr. 18, 2025), https://strategeion.substack.com/p/intels-fall-from-grace.

[47] See Paul Alcorn, Intel’s 10nm is Broken, Delayed Until 2019, Tom’s Hardware (Apr. 26, 2018), https://www.tomshardware.com/news/intel-cpu-10nm-earnings-amd%2C36967.html (“10nm is Intel’s last process based on traditional photolithography, and though Krzanich didn’t dive deep into details, he listed the lithography technique as a significant contributor to the low 10nm yields. The company will switch to EUV at 7nm. Currently, Intel’s multi-patterning process is generating too many yield-reducing defects to produce 10nm cost-effectively.”).

[48] See Bradford Morgan White, Intel: Stumbling in the Spotlight, Abort Retry Fail (Apr. 26, 2025), https://www.abortretry.fail/p/intel-stumbling-in-the-spotlight: Intel’s downward trajectory started in 2015 with the delay of 10nm which provided TSMC, Samsung, and GlobalFoundries the time needed to make progress. This delay was most likely due to high amounts multi-patterning as a result of sticking with DUV as opposed to EUV. While all manufacturers use multi-patterning, high amounts of multi-patterning increases the chance of a defect meaning yields drop until the company can rid the process of errors, and in some cases Intel was using six exposures to create single features. The lower the yield the higher the cost per wafer which can make the entire process node uneconomical. See also Rumelt, supra note 46: Because Intel prided itself on leadership in the highest power and performance chips, its technical leaders developed a strategy for succeeding at 10nm with 193nm UV lithography. The basic idea was aggressive multiple patterning and new techniques like self-aligned quadruple patterning (SAQP) and even quintuple/sextuple patterning on specific layers. New materials such as cobalt were adopted for interconnects. Intel also introduced COAG (Contact Over Active Gate), positioning the contact directly atop the transistor gate to conserve space, and utilized a design featuring a “single dummy gate.”

[49] Ralph Leftwich, Intel’s Delay in Adopting EUVL Created Today’s Struggles, LinkedIn (Apr. 6, 2025), https://www.linkedin.com/pulse/intels-delay-adopting-euvl-created-todays-struggles-ralph-leftwich-njq8c/.

[50] See Rumelt, supra note 46 (“The main challenges included mask defects, partly caused by Intel’s dependence on its proprietary design rules, software, EDA tools, and workflows. In contrast, the shift to EUV demanded considerably more collaboration with external partners (including ASML, Cadence, Synopsys, etc.), which conflicted with Intel’s specialized approach.”). See also Rick Merritt, EUV Nudges Toward 10nm, EE Times (Jun. 5, 2014), https://www.eetimes.com/euv-nudges-toward-10nm/; Usman Pirzada, Intel Confirms that EUV Lithography Will Not Be Used in 10nm Production, WCCF Tech (Sep. 8, 2014), https://wccftech.com/intel-confirms-no-euv-scanners-10nm-production/.

[51] Bradford Morgan White, Intel: Winning and Losing, Abort Retry Fail (Apr. 6, 2025), https://www.abortretry.fail/p/intel-winning-and-losing (“[H]ere again, Intel led the way to an entirely new transistor technology. Up to this point, the market had used strictly planar transistors. With Intel’s 22nm process, the world entered the era of the FinFET. In a FinFET design, the gate surrounds the channel on three sides providing a reduction in power consumption and a lowering of propagation delay (the time required for signal to travel through a transistor).”).

[52] See Gate-All-Around FET (GAA FET), Semiconductor Engineering Knowledge Center (Last visited Sep. 24, 2025), https://semiengineering.com/knowledge_centers/integrated-circuit/transistors/3d/gate-all-around-fet/ (“By stacking these planar channels vertically, the effective channel width is increased, resulting in increased device drive current capability with less leakage, reduced power consumption, and enhanced performance. However, the unique structure of GAA transistors makes design, metrology, inspection, and test significantly more challenging and expensive.”). See also, e.g., Brian Bailey, Impact Of GAA Transistors At 3/2nm, Semiconductor Engineering (Aug. 16, 2021), https://semiengineering.com/impact-of-gaa-transistors-at-3-2nm/; Mary A. Breton, Daniel Schmidt, Andrew Greene, Julien Frougier, & Nelson Felix, Review of Nanosheet Metrology Opportunities for Technology Readiness, 21(2) Journal of Micro/Nanopatterning, Materials, and Metrology 021206 (Apr. 2022).

[53] See Samsung’s Second-Gen 3nm GAA Process Shows 20% Yields, Missing Production Goals, TechPowerUp (Nov. 11, 2024), https://www.techpowerup.com/328680/samsungs-second-gen-3-nm-gaa-process-shows-20-yields-missing-production-goals.

[54] See Daisy Dobrijevic, The Double-Slit Experiment: Is Light a Wave or a Particle?, Space.com (Mar. 23, 2022), https://www.space.com/double-slit-experiment-light-wave-or-particle.

[55] See, e.g., Mark Veerasingam, Quantum Tunneling and the Semiconductors’ Struggle in the Miniaturization Race, Medium (Jun. 2, 2023), https://medium.com/@markveerasingam/quantum-tunneling-the-semiconductors-struggle-in-the-miniaturization-race-7ef2df8f9e48 (“Quantum tunneling occurs when a particle’s wavefunction, described by the Schrödinger equation, is not required to be zero inside a barrier, allowing it to pass through the barrier.… This means electrons can just pass through the transistor thus bypassing it’s [sic] switch-like nature.”).

[56] See Anton Shilov, Intel Will Cancel 14A and Following Nodes If It Can’t Win a Major External Customer, Tom’s Hardware (Jul. 24, 2025). https://www.tomshardware.com/tech-industry/semiconductors/intel-might-cancel-14a-process-node-development-and-the-following-nodes-if-it-cant-win-a-major-external-customer-move-would-cede-leading-edge-market-to-tsmc-and-samsung.

[57] See A Timeline of the Rise and Decline of Intel, Reuters (Last updated Sep. 18, 2025), https://www.reuters.com/technology/rise-decline-intel-2025-09-18/.

[58] See Samuel K. Moore, GlobalFoundries Halts 7-Nanometer Chip Development, IEEE Spectrum (Aug. 28, 2018), https://spectrum.ieee.org/globalfoundries-halts-7nm-chip-development.

[59] See Shilov, supra note 56.

[60] Joseph Schumpeter, Capitalism, Socialism and Democracy 84 (3^rd ed., 1950) (“Competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is… the perennial gale of creative destruction.”). See also Section IV.

[61] See Jean-Christophe Eloy, Thibault Buisson, Pierre Cambou & Emilie Jolivet, Chip Shortages: A 5nm European Fab Is Not the Answer, Yole Group (Mar. 10, 2021), https://www.yolegroup.com/strategy-insights/chip-shortages-a-5-nm-european-fab-is-not-the-answer/.

[62] See Shilov, supra note 56.

[63] See Anton Shilov, Zombie Fabs Plague China’s Chipmaking Ambitions, Failures Burning Tens of Billions of Dollars, Tom’s Hardware (Jul. 10, 2025), https://www.tomshardware.com/tech-industry/semiconductors/zombie-fabs-plague-chinas-chipmaking-ambitions-failures-burning-tens-of-billions-of-dollars.

[64] Christopher Pleatsikas & David Teece, The Analysis of Market Power in the Context of Rapid Innovation, 19 International Journal of Industrial Organization 665, 675 (2001).

[65] See, e.g., Todd Achilles, Erik Peinert & Daniel Rangel, Reshoring and Restoring: CHIPS Implementation for a Competitive Semiconductor Industry, American Economic Liberties Project Industrial Policy Series 27–28 (Feb. 2024), https://www.economicliberties.us/wp-content/uploads/2024/02/20240117-AELP-IndPolSeries-CHIPS-Paper_v4-1.pdf. See also Press Release, Economic Liberties Calls for DOJ Investigation of Apple’s Illegal Exclusive Dealings with TSMC, American Economic Liberties Project (Apr. 16, 2024), https://www.economicliberties.us/press-release/economic-liberties-calls-for-doj-investigation-of-apples-illegal-exclusive-dealing-with-tsmc.

[66] See Achilles, et al., id., at 3.

[67] On investor calls between 2016 and 2019, TSMC leadership consistently links the company’s record-breaking CapEx directly to the “7nm technology ramp.” In these calls, they would field questions from analysts about yield learning, mask costs, and tool readiness, confirming their heavy investment in solving these ancillary challenges to bring EUV to high-volume manufacturing. See, e.g., Edited Transcript–2330.TW: Q2 2018 Taiwan Semiconductor Manufacturing Co. Ltd. Earnings Call (Thomson Reuters StreetEvents, Jul. 19, 2018) at 3, available at https://investor.tsmc.com/english/encrypt/files/encrypt_file/english/2018/Q2/TSMC%202Q18%20transcript.pdf.

[68] See infra note . The investment referred there was to implement the fabs to build the iPhone chips.

[69] See Sarah Wu & Yimou Lee, Driven by AI boom, TSMC to Invest $2.9 Billion in Advanced Chip Plant in Taiwan, Reuters (Last updated Jul. 25, 2023), https://www.reuters.com/technology/tsmc-invest-nearly-29-bln-build-advanced-chip-plant-taiwan-media-2023-07-25/.

[70] Patrick McGee, Apple in China: The Capture of the World’s Greatest Company 222 (2025).

[71] Id.

[72] See Patrick Moorhead, AMD Officially Diversifies 14nm Manufacturing with Samsung, Forbes (Jul. 25, 2016), https://www.forbes.com/sites/patrickmoorhead/2016/07/25/amd-diversifies-14nm-manufacturing-with-samsung/.

[73] See, e.g., Achilles, et al., supra note 65, at 27–28.

[74] Daniel Nenni, TSMC: Semiconductors in the next ten years!, SemiWiki (Oct. 23, 2017), https://semiwiki.com/semiconductor-manufacturers/tsmc/7097-tsmc-semiconductors-in-the-next-ten-years/ (reporting on Williams’ remarks at TSMC’s 30^th Anniversary Forum event).

[75] See Kumar Priyadarshi, Why Apple Left Samsung for TSMC: The Journey of iPhone Processors, techovedas (Mar. 17, 2025), https://techovedas.com/why-apple-left-samsung-for-tsmc-the-journey-of-iphone-processors/.

[76] See Dylan McGrath, Xilinx confirms: Samsung, TSMC in, UMC out at 28-nm, EDN (Feb. 22, 2010), https://www.edn.com/xilinx-confirms-samsung-tsmc-in-umc-out-at-28-nm/.

[77] See Breaking News! Huawei places 14nm order with SMIC, EETimes (Jan. 15, 2020), https://en.eeworld.com.cn/mp/s/a79803.jspx.

[78] See, e.g., Benjamin Klein, Robert G. Crawford & Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 Journal of Law & Economics 297 (1978); Oliver E. Williamson, Transaction-Cost Economics: The Governance of Contractual Relations, 22 Journal of Law & Economics 233 (1979).

[79] Charles J. Goetz & Robert E. Scott, Principles of Relational Contracts, 67 Virginia Law Review 1089, 1092 (1981).

[80] See Christophe Lécuyer, Making Silicon Valley: Innovation and the Growth of High Tech, 1930–1970, at 266–94 (2006).

[81] See Miller, Chip War, supra note 14, at 69.

[82] The Complete History and Strategy of the TSMC, Season 9, Ep. 3, Acquired Podcast (Sep. 6, 2021), https://www.acquired.fm/episodes/tsmc.

[83] Nenni and McLellan, supra note 1, at 7.

[84] Id. at 8.

[85] Id. at 65–66.

[86] See Ben Thompson, The Intel Opportunity, Stratechery (May 2, 2013), https://stratechery.com/2013/the-intel-opportunity/: Most chip designers are fabless; they create the design, then hand it off to a foundry. AMD, Nvidia, Qualcomm, MediaTek, Apple—none of them own their own factories. This certainly makes sense: manufacturing semiconductors is perhaps the most capital-intensive industry in the world, and AMD, Qualcomm, et al have been happy to focus on higher margin design work.

[87] Miller, Chip War, supra note 14, at 67. Indeed, Samsung’s violation of Apple’s trust (by stealing Apple’s designs for its own, competing phones) eventually led to Apple replacing Samsung with TSMC as its primary chip manufacturer. See Eamon Barrett, How TSMC convinced Apple it would be a trustworthy partner, landing the Taiwan company its most significant semiconductor contract to date, Fortune (Feb. 10, 2023), https://fortune.com/2023/02/10/how-tsmc-convinced-apple-it-would-be-a-trustworthy-partner-landing-the-taiwan-company-its-most-significant-semiconductor-contract-to-date/.

[88] Jeffrey T. Macher and David C. Mowery, Vertical Specialization and Industry Structure in High Technology Industries, in Business Strategy Over the Industry Lifecycle (Advances in Strategic Management, Vol. 21) (Joel A.C. Baum & Anita M. McGahan eds., 2004) at 331–32 (“Since foundries tend to produce a wider product mix, they are less exposed to these financial risks.”).

[89] Nenni and McLellan, supra note 1, at 59.

[90] Prominent hyperscalers include AWS, Google Cloud, Azure, and Oracle. These so-called “system companies” have recently begun designing their own, home-grown, specialized chips—sometimes in partnership with traditional design firms. See, e.g., Robbie Whelan, OpenAI, Broadcom Make $10 Billion Deal for Custom AI Chips, Wall Street Journal (Sep. 5, 2025), https://www.wsj.com/tech/ai/openai-broadcom-deal-ai-chips-5c7201d2. (“‘If we’re talking about hyperscalers and gigantic AI factories, it’s very hard to get access to a high number of GPUs….’ To solve this problem, OpenAI has been working with Broadcom for over a year to develop a custom chip for use in model training.”).

[91] Jeff Thurk, Outsourcing Firm Innovation, and Industry Dynamics in the Production of Semiconductors, Notre Dame Department of Economics Working Paper (April 2024), available at https://static1.squarespace.com/static/5f62428af514a02c346d9c90/t/67852eb10eac8039c0b76e8f/1736781492338/Semiconductor.pdf.

[92] See, e.g., Lisa Eadicicco, Nvidia beats Apple and Microsoft to Become the World’s First $4 Trillion Company, CNN (Last updated Jul. 9, 2025), https://www.cnn.com/2025/07/09/investing/nvidia-is-the-first-usd4-trillion-company.

[93] See, e.g., The race is on to build the world’s most complex machine, The Economist (Mar.12, 2025), https://www.economist.com/science-and-technology/2025/03/12/the-race-is-on-to-build-the-worlds-most-complex-machine.

[94] Chad P. Bown & Dan Wang, Semiconductors and Modern Industrial Policy, 38 Journal of Economic Perspectives 81, 89 (2024).

[95] For example, in 2023–24, limited advanced-packaging (CoWoS) capacity at TSMC became the binding constraint on shipments of Nvidia’s AI GPUs. See Mark Tyson, TSMC Boosts CoWoS Production 20% to Meet Surging Demand, Tom’s Hardware (Nov. 13, 2023), https://www.tomshardware.com/news/tsmc-expands-cowos-capacity-by-20-percent.

[96] See Klein, et al., supra note 78.

[97] TSMC Form 20-F (2024 Annual Report) (filed Apr. 17, 2025) at 16, available at https://investor.tsmc.com/english/sec-filings.

[98] See Anton Shilov, TSMC Gets Billions in Prepayments for Fab Capacity, Tom’s Hardware (Nov. 17, 2021), https://www.tomshardware.com/news/tsmc-collects-huge-prepayments.

[99] NVIDIA Corp. Form 10-K (2024 Annual Report) (filed Feb. 26, 2025) at 8-9, available at https://investor.nvidia.com/financial-info/sec-filings/default.aspx.

[100] As one discussion notes of TSMC’s relationship with Apple, “establishing those high-level, executive relationships early on was integral to developing trust between the two companies. By putting its key people in the room, TSMC demonstrated its commitment to a ‘long-term relationship’ with Apple…, and assured Apple’s management that the manufacturer was taking Apple’s concerns seriously.” Barrett, supra note 87.

[101] See About TSMC: Values and Philosophy, TSMC (Last visited Oct. 1, 2025), https://www.tsmc.com/english/aboutTSMC/values.

[102] See TSMC, 2024 Sustainability Report (2024), available at https://esg.tsmc.com/file/public/e-AnInnovationPioneer_3.pdf.

[103] Apple, for example, purchased P. A. Semi (formerly Palo Alto Semiconductor) in 2008 to enable it to design custom chips for the iPod, iPhone, and other future mobile devices in-house. See Nick Wingfield, Jobs Still Hearts Intel, Wall Street Journal (Apr. 24, 2008), https://www.wsj.com/articles/BL-BB-855.

[104] In plain terms, instead of “making” chips, foundries help design them. They offer pre-made building blocks (standard-cell “libraries”) and ready-to-use reference designs, plus in-house or partner engineers who help customers assemble those blocks correctly for the foundry’s process. See e.g., Samsung Advanced Foundry Ecosystem, Samsung (Last visited Oct. 1, 2025), https://semiconductor.samsung.com/foundry/safe/.

[105] Reporting has repeatedly identified Apple (and at times Intel) as first adopters of TSMC’s leading nodes (e.g., 3nm), consistent with priority access for trusted, high-volume partners. See Apple, Intel become first to adopt TSMC’s latest chip tech—Nikkei, Reuters (Jul. 1, 2021), https://www.reuters.com/technology/apple-intel-become-first-adopt-tsmcs-latest-chip-tech-nikkei-2021-07-02/.

[106] See Paul Alcorn, Intel Details Core Ultra ‘Meteor Lake’ Architecture, Launches December 14, Tom’s Hardware (Last updated Sept. 19, 2023), https://www.tomshardware.com/news/intel-details-core-ultra-meteor-lake-architecture-launches-december-14. See also Figure 7.

[107] See Jeong-Soo Hwang, Chae-Yeon Kim & Eui-Myung Park, Samsung’s system chip, foundry business under close scrutiny for overhaul, KED Global (Mar. 6, 2025), https://www.kedglobal.com/korean-chipmakers/newsView/ked202503060008; John Mundy, Revealed: Why Samsung Galaxy phones keep ditching Qualcomm chips for Exynos, Tech Advisor (May 15, 2025), https://www.techadvisor.com/article/2772743/why-samsung-galaxy-phones-keep-ditching-qualcomm-chips-for-exynos.html.

[108] See Press Release, Intel Outlines Financial Framework for Foundry Business, Sets path to Margin Expansion, Intel (Apr. 2, 2024), https://www.intc.com/news-events/press-releases/detail/1687/intel-outlines-financial-framework-for-foundry-business.

[109] See Stephen Nellis & Max A. Cherney, Intel Discloses $7 Billion Operating Loss for Chip-making Unit, Reuters (Last updated Apr. 3, 2024), https://www.reuters.com/technology/intel-discloses-financials-foundry-business-2024-04-02.

[110] See Press Release, Intel and Trump Administration Reach Historic Agreement to Accelerate American Technology and Manufacturing Leadership, Intel (Aug. 22, 2025), https://newsroom.intel.com/corporate/intel-and-trump-administration-reach-historic-agreement.

[111] See Press Release, SoftBank Group and Intel Corporation Sign $2B Investment Agreement, Intel (Aug. 18, 2025), https://newsroom.intel.com/corporate/softbank-group-and-intel-corporation-sign-2b-investment-agreement. See also Press Release, NVIDIA and Intel to Develop AI Infrastructure and Personal Computing Products, Nvidia (Sep. 18, 2025), https://nvidianews.nvidia.com/news/nvidia-and-intel-to-develop-ai-infrastructure-and-personal-computing-products.

[112] Harold Demsetz, Why Regulate Utilities?, 11 Journal of Law & Economics 55 (1968). See also David S. Evans & Richard Schmalensee, Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries, NBER Working Paper No. 8268 (2001), available at https://www.nber.org/system/files/working_papers/w8268/w8268.pdf.

[113] See Michael Cusumano, Nvidia at the Center of the Generative AI Ecosystem—For Now, Communications of the ACM (Jan. 8, 2024), https://cacm.acm.org/opinion/nvidia-at-the-center-of-the-generative-ai-ecosystem-for-now/ (on CUDA’s ecosystem/network effects).

[114] Evans and Schmalensee, supra note 112, at 1.

[115] See Nenni and McLellan, supra note 1.

[116] See Global Semiconductor Foundry Market Share, Counterpoint Research (Jul. 12, 2024), https://counterpointresearch.com/en/insights/global-semiconductor-foundry-market-share.

[117] See Cusumano, supra note 113 (“Nvidia early on introduced architectural innovations that made its GPUs the hardware of choice, initially for gaming and then for many other applications.”).

[118] These include (among others) Google’s Tensor processing unit and Amazon’s Trainium chips. See Kaz Sato & Cliff Young, An In-depth Look at Google’s First Tensor Processing Unit (TPU), Google Cloud Blog (May 12, 2017), https://cloud.google.com/blog/products/ai-machine-learning/an-in-depth-look-at-googles-first-tensor-processing-unit-tpu; AWS Trainium, Amazon (Last visited Oct. 3, 2025), https://aws.amazon.com/ai/machine-learning/trainium/. All of which are further threatened by the race for quantum computing, which introduces potential disruption not only to competition in semiconductor design (and the way we use computers), but also semiconductor manufacturing.

[119] See Dylan Patel, Jeff Koch, Gerald Wong, & Andrew Wagner, How to Kill 2 Monopolies with 1 Tool, SemiAnalysis (Oct. 29, 2025), https://newsletter.semianalysis.com/p/how-to-kill-2-monopolies-with-1-tool; Heather Somerville, Peter Thiel-Backed Startup Secures $100 Million to Make Chips in U.S., Wall Street Journal (Oct. 28, 2025), https://www.wsj.com/tech/peter-thiel-backed-startup-secures-100-million-to-make-chips-in-u-s-baff93ac.

[120] See Patel, et al., id. (“Substrate isn’t stopping there. They intend to run the tools in their own fabs rather than sell to 3rd parties. The mission isn’t just XRL, it’s a new American foundry. The goal is to develop an entire end-to-end chipmaking process, buying off-the-shelf when suitable options exist, inventing when they don’t.”). It should be noted that the technology is, to say the least, unproven. Yet, as Patel, et al. note, while “[e]vidence so far is scarce, so we repeat these claims with some healthy skepticism…, external contacts and 3rd party reports are all telling us the same story: the litho tool is legit.” Id.

[121] Keun Lee & Franco Malerba, Catch-up Cycles and Changes in industrial Leadership: Widows of Opportunity and Responses of Firms and Countries in the Evolution of Sectoral Systems, 46 Research Policy 338 (2017), https://www.sciencedirect.com/science/article/abs/pii/S0048733316301408.

[122] See Stephen Nellis, Qualcomm Taps Samsung to Make New Flagship 5G Smartphone Chips, Reuters (Last updated Dec. 1, 2020), https://www.reuters.com/article/business/media-telecom/qualcomm-taps-samsung-to-make-new-flagship-5g-smartphone-chips-idUSL1N2IH042. By 2022 Qualcomm had returned to TSMC. See, e.g., Alan Friedman, Thanks to Poor Yields, Samsung Reportedly Loses Snapdragon Manufacturing Business to TSMC, Phone Arena (Feb. 22, 2022), https://www.phonearena.com/news/samsung-yield-on-snapdragon-chips-atrocious_id138616.

[123] See e.g., David J. Teece, Gary Pisano & Amy Shuen, Dynamic Capabilities and Strategic Management, 18 Strategic Management Journal 509 (1997).

[124] See David J. Teece, Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance, 28 Strategic Management Journal 1319 (2007).

[125] Seung-Joo Lee, Dynamic Capabilities at Samsung Electronics: Analysis of its Growth Strategy in Semiconductors, KDI School Working Paper Series No. 11–07 (Aug. 2011), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914116.

[126] Id. at 17.

[127] See Yoolim Lee, SK Hynix Surpasses Samsung as Top Memory Maker for First Time, Bloomberg (Jul. 31, 2025), https://www.bloomberg.com/news/articles/2025-07-31/sk-hynix-surpasses-samsung-as-top-memory-maker-for-first-time.

[128] See Ondrej Burkacky, Taeyoung Kim & Inji Yeom, Advanced chip packaging: How manufacturers can play to win, in McKinsey on Semiconductors (Ondrej Burkacky, et al. eds, 2024), available at https://www.mckinsey.com/~/media/mckinsey/industries/semiconductors/our%20insights/mckinsey%20on%20semiconductors%202024/mck_semiconductors_2024_webpdf.pdf.

[129] On cumulative learning as a driver of semiconductor manufacturing performance, see, for example, Douglas A. Irwin & Peter J. Klenow, Learning-by-Doing Spillovers in the Semiconductor Industry, 102 Journal of Political Economy 1200 (1994). On the retreat of integrated device manufacturers relative to the pure-play foundry model, see Abhirup Roy, IBM to Pay GlobalFoundries $1.5 Billion to Take Chip Unit, Reuters (Oct. 20, 2014), ibm-to-pay-globalfoundries-1-5-billion-to-take-chip-unit-idUSKCN0I908320141020.

[130] Morten Springborg, Leading Edge: Pushing the Boundaries and the Future of Compute, Worldwide Management White Paper (2020), at 6, available at https://cworldwide.com/media/deyfyvhg/leading-edge-pushing-the-boundaries-and-the-future-of-compute.pdf.

[131] Edited Transcript–2330.TW: Q2 2025 Taiwan Semiconductor Manufacturing Co. Ltd. Earnings Call (Refinitiv StreetEvents, Jul. 17, 2025), at 10, available at https://investor.tsmc.com/chinese/encrypt/files/encrypt_file/reports/2025-07/1f4f86c935f1de837672a6973154e64b26bdae57/TSMC%202Q25%20Transcript.pdf.

[132] The framework of ordinary versus dynamic capabilities originates with Sidney G. Winter, Understanding Dynamic Capabilities, 24 Strategic Management Journal 991 (2003) (distinguishing capabilities that enable firms to “make a living” in the short term from those enabling long-term adaptation and change).

[133] Michael L. Tushman & Philip Anderson, Technological Discontinuities and Organizational Environments, 31 Administrative Science Quarterly 439, 444 (1986).

[134] See, e.g., Bradford Morgan White, supra note 51.

[135] Peter Clarke, TSMC Orders EUV Lithography Tools for Production, Electronics360 (Nov. 25, 2014), https://electronics360.globalspec.com/article/4760/tsmc-orders-euv-lithography-tools-for-production.

[136] Rumelt, supra note 46.

[137] Ben Thompson, TSMC Earnings; A16 and TSMC’s Approach to Backside Power; Intel Earnings, Architecture, and AI, Stratechery (July 28, 2021), https://stratechery.com/2025/tsmc-earnings-a16-and-tsmcs-approach-to-backside-power-intel-earnings-architecture-and-ai/.

[138] Charlie Campbell, Inside the Taiwan Firm That Makes the World’s Tech Run, Time (Oct. 1, 2021), https://time.com/6102879/semiconductor-chip-shortage-tsmc/ (“Among his many breakthroughs, Chang pioneered the tactic of initially pricing chips at a loss, in the expectation that gaining an early market share would increase scale to the point when reduced costs would generate a profit.”).

[139] See Cusumano, supra note 113.

[140] See Alcorn, supra note 47.

[141] Ben Thompson, Intel Problems, Stratechery (Jan. 19, 2021), https://stratechery.com/2021/intel-problems/.

[142] There is a long and unfortunate history of antitrust institutions (including courts and enforcers) erroneously condemning nonstandard business practices as problematic deviations from a theoretical model of perfect competition. The urge to condemn practices not fully understood arises from an implicit (or sometimes explicit) assumption that deviations from perfect-model assumptions are more likely than not expressions of market power, rather than corrections of underlying market failures. See Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 Journal of Competition Law & Economics 153, 163–77 (2010).

[143] Byron Mckinney, Semiconductors and Chips: The 21st Century Arms Race, S&P Global (Sep. 1, 2022), https://www.spglobal.com/market-intelligence/en/news-insights/research/semiconductors-and-chips-the-21st-century-arms-race.

[144] It’s worth noting that the semiconductor industry’s node naming conventions have become increasingly divorced from actual physical measurements or performance metrics. A “7nm” node chip from one foundry may not be comparable in terms of a transistor’s physical dimensions to a similarly designated chip from another. “Today’s ‘7nm’ processes have no features that actually measure 7 nanometers, yet the terminology persists due to industry momentum and marketing considerations.” Jin Low, Is 7nm Just Marketing Hype? How to Actually Verify a Chip’s Manufacturing Process, Medium (Sep. 13, 2025), https://medium.com/ai-simplified-in-plain-english/is-7nm-just-marketing-hype-how-to-actually-verify-a-chips-manufacturing-process-bd9718515679.

[145] See Foundry Industry’s Robust Revenue Growth to Continue in 2021, Counterpoint (Jan. 11, 2021), https://www.counterpointresearch.com/insight/foundry-industry-revenue-growth-continue-2021.

[146] Howard Yu, Inside TSMC, the $1 Trillion Ghost foundry Behind Nvidia’s Crown, One Inch Ahead (Jul. 22, 2025), https://howardyu.substack.com/p/inside-tsmc-the-1-trillion-ghost.

[147] Id.

[148] See Press Release, Intel Launches World’s First Systems Foundry Designed for the AI Era, Intel (Feb. 21, 2024), https://newsroom.intel.com/intel-foundry/foundry-news-roadmaps-updates.

[149] See Anton Shilov, Intel Tapes Out Chips on 1.8nm and 2nm Production Nodes, Tom’s Hardware (Last updated Mar. 8, 2023), https://www.tomshardware.com/news/intel-completes-development-of-18a-20a-nodes.

[150] See Press Release, Continued Momentum for Intel 18A, Intel (Sep. 4, 2024), https://newsroom.intel.com/opinion/continued-momentum-for-intel-18a.

[151] See Comments from CEO Lip-Bu Tan and CFO Dave Zinsner, Intel CEO/CFO Earnings Call Comments (Jul. 24, 2025), available at https://download.intel.com/newsroom/2025/corporate/29r29Xn/Intel-2Q2025-Earnings-Call.pdf.

[152] See Intel Reportedly Begins 18A Production in Arizona, Panther Lake Reveal Set for Oct. 9, Tech PowerUp (Oct. 1, 2025), https://www.techpowerup.com/341531/intel-reportedly-begins-18a-production-in-arizona-panther-lake-reveal-set-for-oct-9.

[153] See generally William J. Baumol, Contestable Markets: An Uprising in the Theory of Industry Structure, 72 American Economic Review 1 (1982).

[154] Bown & Wang supra note 94, at 84. *Apple doesn’t technically sell chips to third parties but designs custom devices for internal use.

[155] See SIA 2025 Factbook, supra note 23, at 12–13.

[156] TSMC Annual Report 2020 (Mar. 12, 2021) at 11, available at https://investor.tsmc.com/static/annualReports/2020/english/pdf/e_all.pdf (“In addition, 7nm FinFET plus (N7+) has been in volume production since 2019, which was the first commercially available EUV foundry process technology in the world.”).

[157] See Carroll, supra note 4.

[158] See Schumpeter, supra note 60.

[159] Nicolas Petit & David Teece, Innovating Big Tech Firms and Competition Policy; Favoring Dynamic Over Static Competition, 30 Industrial & Corporate Change 1168, 1176 (2021).

[160] Jerry Ellig, Dynamic Competition and Public Policy: Technology, Innovation and Antitrust Issues 3 (2001).

[161] Measures of business dynamism focus on exit as well. See Baumol, supra note 153, at 14 (“Perhaps a bit newer is the emphasis on the importance of freedom of exit which is as crucial a requirement of contestability as is freedom of entry.”). See also, e.g., Ryan Decker, John Haltiwanger, Ron Jarmin, & Javier Miranda, The Role of Entrepreneurship in US Job Creation and Economic Dynamism, 28 Journal of Economic Perspectives 3 (2014).

[162] See, e.g. Figure 3, Figure 6, & Figure 7.

[163] See, e.g., Jean Tirole, The Theory of Industrial Organization (1988) at Ch. 1 (textbook treatment of monopoly power as higher price via restricted output).

[164] See The Race Is on to Build the Most Complex Machine, supra note 93. For more detail on ASML’s unique capabilities, see Marc Hijink, Focus: The ASML Way. Inside the Power Struggle Over the Most Complex Machine on Earth (2024).

[165] See Petit & Teece, supra note 159, at 14 (“Ricardian and Schumpeterian rents are beneficial as they incentivize investment in innovation. Monopoly rents, by contrast, are the rents society does not want to see.”).

[166] Pleatsikas & Teece, supra note 64, at 690.

[167] See Commission Decision of 24 January 2018 (Case AT.40220–Qualcomm (Exclusivity payments)); Commission Decision of 16 October 2019 (Case AT.40608–Broadcom).

[168] It should be noted that the Qualcomm decision was ultimately annulled by the Court, highlighting the complexity of applying traditional competition analysis to this sector. See Case T-235/18, Qualcomm, Inc. v. European Commission, ECLI:EU:T:2022:358, (Jun. 15, 2022).

[169] Achilles, et al., supra note 65 at 3.

[170] Id. at 4.

[171] See, e.g., Carl Shapiro, Antitrust in a Time of Populism, 61 International Journal of Industrial Organization 714, 730 (2018) (explaining how an increase in market concentration can reflect the forces of competition, with firms that provide better value gaining market share).

Abstract

In response to the long-standing crisis in the publishing industry, a range of regulatory measures has been proposed and implemented worldwide, aiming to compel large online platforms to negotiate the use of news content and provide fair remuneration to publishers. From this perspective, the structural decline of the publishing sector is attributed to digital platforms capturing a significant share of advertising revenues by free-riding on publishers’ investments in news production. Moreover, due to their reliance on referral traffic, publishers are perceived to suffer from a structural imbalance in bargaining power vis-à-vis these platforms. Within this framework, by introducing a revenue transfer mechanism based on a mandatory negotiation process, the Australian model has gained prominence and influenced policy approaches in several other jurisdictions. Against this background, the paper adopts a different research perspective. Rather than presuming the existence of a free-riding problem, it critically examines whether the rationale underlying these regulatory initiatives has been substantiated and supported by empirical evidence. The paper contends that the free-riding narrative serves chiefly as a rhetorical tool, strategically used to legitimize a mandated transfer of revenue that policymakers appear ready to pursue even in the absence of clear evidence that platform-based business models have caused economic harm to press publishers.

I. Introduction

Building on earlier International Center for Law & Economics (ICLE) research[1] into railroads and common-carrier obligations—highlighting how the U.S. rail industry’s competitive structure has evolved beyond common assumptions, with intermodal rivals, contractual arrangements, and capital-market discipline now central to constraining service and pricing—this issue brief offers an update on the state of rail-industry competition in 2025. In particular, it examines how the federal courts’ statutory interpretation in the wake of the 2024 Loper Bright decision are likely to intersect with the economic realities of modern rail markets, and how that intersection might reshape the analysis of regulatory authority.

Three focal points structure the discussion. First, the law’s treatment of market dominance requires a return to the statutory and economic foundations of the Staggers Act—an approach that recognizes product and geographic substitution, consistent with Congress’ original intent, rather than freezing competition analysis in a 1980s procedural mold.[2] Second, and in the same vein, the concept of revenue adequacy under §10704 must be understood as a floor designed to attract capital and network investment, not a ceiling that caps profitability. Third, the broad preemption provisions of the Interstate Commerce Commission Termination Act of 1995 (ICCTA) continue to function as pro-competitive infrastructure by preventing state and local overlays that would otherwise balkanize operations, raise costs, and shrink the effective competitive frontier.

Taken together, these themes show how the economically oriented frameworks of the Staggers Act and ICCTA remain relevant but must be applied with renewed textual discipline and contemporary evidence of competition. Statutory fidelity—sharpened by post-Loper Bright jurisprudence—and economic recognition of intermodal and geographic rivalry both point toward the same conclusion: regulatory interventions should be tightly bounded by text and justified only where competitive forces fail. In a networked industry such as rail, uniformity and competition are not opposing values; indeed, uniformity is what makes competition possible.

II. Statutory Text as First Principle: Grand Trunk in the Post-Loper Bright Era

The U.S. Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo marked a watershed moment in the history of U.S. administrative law.[3] In overruling Chevron U.S.A. v. Natural Resources Defense Council,[4] the Court abandoned the doctrine of complete judicial deference to “reasonable” agency interpretations of ambiguous statutes. While it remains premature to make definitive predictions about the post-Loper regulatory landscape, what is clear is that federal agencies will have to work harder to justify their own interpretations of relevant statutes.

In Chevron’s place, the Court has reaffirmed the Administrative Procedure Act’s command that “the reviewing court shall decide all relevant questions of law,” which ostensibly leaves a gap that will be filled by the pre-Chevron Skidmore deference.[5] The practical effect is that agencies may no longer rely on interpretive leeway to advance broad policy objectives untethered from statutory text. For regulated industries such as rail, which has historically operated under a densely detailed statutory framework, this shift places renewed emphasis on statutory fidelity and the limits of delegated authority.

The 7th U.S. Circuit Court of Appeals’ decision earlier this year in Grand Trunk v. STB demonstrates how courts are approaching rail regulation in the wake of Loper Bright, even without explicit reliance on that case.[6] At issue was the Surface Transportation Board’s (STB) reciprocal-switching rule, which would have compelled carriers to interchange traffic without a threshold finding that the incumbent’s service was inadequate.[7] For decades, both the Interstate Commerce Commission (ICC) and its successor, the STB, had construed 49 U.S.C. § 11102(c) to require such a predicate—phrased in earlier decisions as a showing of “actual necessity” or a “compelling reason,” and operationalized as a finding of inadequate service.[8]

The STB’s rule dispensed with this longstanding requirement, substituting a broader “public interest” inquiry.[9] The 7th Circuit vacated the rule, holding that the statutory text and history compelled the conclusion that inadequate service remained an indispensable prerequisite.[10] By treating that condition as optional, the STB was found to have exceeded its statutory authority. What’s notable is that the 7th Circuit reached this conclusion without invoking Loper Bright.

The court’s reasoning, however, exemplifies the post-Loper mode of review: a refusal to defer to an agency’s policy preferences where they are untethered from statutory language. Loper Bright made clear that ambiguity in a statute does not authorize agencies to create new regulatory regimes,[11] and Grand Trunk shows the application of this principle in practice—although under the guise of traditional statutory interpretation. Together, the two decisions underscore that the relevant inquiry is no longer whether an agency’s policy is “reasonable,” but whether Congress has authorized it expressly.

This shift is particularly significant for the economics of rail competition. It raises a heightened risk of invalidation for regulatory structures designed to reengineer market dynamics by administrative fiat, rather than by reference to statutory commands. In the rail market, a disciplined return to statutory text would also align with sound economic reasoning: statutes such as the Staggers Act[12] and the ICCTA[13] embody deliberate tradeoffs between competition and stability, and between rate flexibility and minimum service guarantees. Treating those compromises as pliable invitations to agency policymaking not only distorts the legal framework but unsettles the economic equilibrium that Congress sought to maintain.

III. Improving Competition Analysis: Statutory Tradeoffs and Economic Realities

The statutory compromises struck in the Staggers Act of 1980 and the ICCTA reflect a deliberate balance between deregulation and the choice to retain limited safeguards. On the one hand, Congress sought to restore competitive market dynamics by freeing carriers from pervasive rate and service controls that had pushed the industry toward insolvency. On the other hand, Congress preserved some tools—such as the common-carrier obligation and maximum-rate jurisdiction—to guard against the possibility of abuse where genuine market power persisted. These statutory tradeoffs are central to the economics of rail competition; they aim to promote efficiency and investment while preventing the reemergence of monopoly rents in captive-shipper markets.

Yet the STB’s competition analysis has not kept pace with these foundational compromises. Rate cases currently treat markets as static and narrowly defined, in contravention of Congress’ original intent. This is in tension with the reality that shippers today operate within far broader competitive environments.[14] Intermodal competition from trucking, pipelines, and even barges frequently constrains rail pricing, as does sourcing flexibility; shippers can alter production or distribution points to take advantage of regional rate differentials. By failing to incorporate these product and geographic alternatives into its analysis, the STB risks mischaracterizing the extent of rail-market power and, in turn, applying remedies that suppress efficient pricing or distort network investments.

This failure of modern competition analysis has emerged in rate cases where the STB refused to take account of many contemporary dynamics. In U.S. freight-rail regulation, a railroad’s “market dominance” must be established before the STB will review a rate’s reasonableness. Since 1998, however, the STB has refused to consider evidence of product or geographic competition when determining market dominance in rate cases.[15]

In other words, the STB examines only direct transportation alternatives (such as other rail carriers or modes) and ignores whether shippers could switch to other products or sourcing locations to avoid the challenged rail rate. This policy, affirmed in the early 2000s by the U.S. Circuit Court of Appeals for the D.C. Circuit,[16] was intended to simplify and expedite rate-dispute proceedings. But this narrow approach to market definition has become increasingly problematic in light of evolving competitive conditions. The STB’s exclusion of broader competition evidence is increasingly problematic—particularly given evolving market conditions in the freight-rail industry.

A. Market Dominance in Rail Regulation: Statutory Framework and STB Policy

Under federal law, the STB cannot review the reasonableness of a challenged rail rate unless the shipper first shows the carrier has “market dominance,” which is defined by statute as “an absence of effective competition from other rail carriers or modes of transportation to which a rate applies.”[17] Congress introduced this market-dominance test as part of railroad deregulation in the late 1970s and early 1980s in order to ensure that regulation applies only where a railroad has monopoly power.[18]

Early on, the ICC limited market-dominance inquiries to direct transportation competition—i.e., other railroads on the route (intramodal competition) or alternative modes like trucks, barges, or pipelines (intermodal competition).[19] The commission explicitly declined to consider “indirect” competition, such as product substitutes or geographic alternatives, and the D.C. Circuit upheld that limited approach as a reasonable and efficient reading of the statute.[20]

Soon after, however, the regulatory stance shifted. In the early 1980s the ICC reconsidered its rules and decided to include evidence of product and geographic competition in market-dominance determinations. For example, a railroad could fend off a market-dominance finding by showing that a captive shipper could avoid using its service by purchasing a substitute product (product competition) or by obtaining the commodity from or shipping it to a different location reachable by another carrier (geographic competition).[21] In upholding this approach, the 5th U.S. Circuit Court of Appeals opined that a fuller consideration of competition aligned with the Staggers Act’s goal for market-based rate setting where that was possible.[22]

The STB was created in 1996 to replace the ICC, and that change brought another policy reversal. By 1998, the STB concluded that accounting for product and geographic competition was impractical and counterproductive. In its December 1998 order Ex Parte No. 627, the STB announced it would “no longer consider evidence of product and geographic competition” in market dominance determinations.[23] The new rule, finalized in 1999, categorically excluded these indirect competition factors from the market-dominance phase. In practical terms, this meant that after 1999, a railroad could not defeat a market-dominance claim by arguing that the shipper had outside alternatives, such as different inputs or sourcing regions.

This policy was promptly challenged by the rail industry. In Association of American Railroads v. STB, however, the court upheld the STB’s discretion.[24] The D.C. Circuit found that the statutory definition of market dominance “does not require the STB to consider indirect (product and geographic) competition.”[25]

B. Why Excluding Broader Competition Is a Mistake in Today’s Environment

The STB’s refusal to consider product and geographic competition rests on an economically impoverished view of how rail markets work. By drawing an artificial boundary around “indirect competition,”[26] the board effectively assumes away the competitive constraints that matter most to shippers in the real economy. The result is a regulatory framework that too easily finds “market dominance” where none exists, inviting unnecessary interventions that distort both pricing and investment.

The core problem is that ignoring product and geographic factors produces a caricature of market power. Antitrust law and modern competition economics insist that market definition must account for reasonable substitutes—whether those substitutes take the form of alternative products or alternative sources of supply.[27] If a buyer can avoid an alleged monopolist’s rate increase by switching fuels or sourcing from a different region, the monopolist’s leverage is limited.

Yet the STB has chosen to exclude these very considerations. It treats the relevant market as confined to a single origin–destination pair and asks only whether another carrier or mode is available for that specific modality and geography. This narrow approach is at odds with the analytical frameworks applied by the U.S. Justice Department (DOJ) and Federal Trade Commission (FTC),[28] and it systematically increases the likelihood of false positives: findings of dominance in settings where real-world competition disciplines rates.

For example, in the 2023 Merger Guidelines, the federal antitrust agencies examine potential market concentration as follows:

Absent price discrimination, a relevant market is described by a product or group of products and a geographic area. In determining whether a hypothetical monopolist would be in a position to exercise market power, it is necessary to evaluate the likely demand responses of consumers to a price increase. A price increase could be made unprofitable by consumers either switching to other products or switching to the same product produced by firms at other locations. The nature and magnitude of these two types of demand responses respectively determine the scope of the product market and the geographic market.[29]

In other words, to determine the presence of market power in an antitrust case, it is necessary to look at the reasonable substitutes that would discipline that power. A rate-case evaluation has a nearly identical disposition: the question is whether a rail provider is exercising market power with rate increases. But to exclude relevant product and geographic markets is essentially to assume the outcome: a rail carrier is a monopolist because the STB decides its market is, by definition, a monopoly.

Concrete examples abound of how these product and geographic vectors undermine the STB’s position. In energy markets, railroads haul coal to power plants, but the rise of cheap natural gas and renewable alternatives has reshaped utility-fuel choices.[30] Abundant natural gas has transformed the generation mix, making coal a far less secure demand source. In practice, this means that even a railroad with sole access to a coal plant cannot raise rates with impunity; if rail delivery becomes too expensive, the utility can and will switch to gas-fired generation. The threat of substitution is a powerful competitive check. Yet under the STB’s framework, such a railroad is still deemed “market dominant,” and its rates subject to review and possible caps, as if no competition existed at all. Refusal to recognize product substitution is tantamount to automatically siding with shippers.

Geographic flexibility exerts similar pressures. Shippers frequently have multiple sourcing or destination options.[31] A utility facing high rail rates from Mine A may shift to Mine B, served by a different carrier or accessible by barge. Grain and chemical shippers may reposition shipments through different terminals or transloading points to arbitrage rate disparities. The economic reality is that the railroad’s residual demand curve is more elastic than it appears if one were to look solely at a single corridor. But because the STB bars geographic evidence, its decisions miss this elasticity and treat the carrier as more powerful than it is. In so doing, it risks intervening in markets that are already self-corrected through shipper substitution.

This critique goes further: by generating false positives, the STB creates significant dynamic inefficiencies. If a carrier is wrongly found to have market dominance, its rates may be capped below what competitive conditions would warrant. That misalignment can deprive railroads of revenues needed to recover high fixed costs and to invest in infrastructure. Over time, this undermines the revenue adequacy that Congress deliberately sought to restore through deregulation. Worse still, regulatory error can distort resource allocation—e.g., prolonging coal shipments that would otherwise exit the market in favor of gas, simply because regulators suppress the rail rate below its market-clearing level. Such distortions are deeply inefficient; they keep uneconomic flows alive while discouraging efficient capital deployment.

The economic disconnect has only grown more pronounced with time. The freight market of 2025 bears little resemblance to that of 1998.[32] Trucking competition has intensified, global supply chains have become more flexible, and advances in data and analytics make it easier than ever to quantify substitution possibilities. Rail-dependent industries—from agriculture to manufacturing—have become nimbler in shifting routes and suppliers. In this environment, the STB’s categorical refusal to acknowledge indirect competition looks increasingly anachronistic. What may once have been justified as a way to simplify cases now functions as a “myopic” view of competition that blinds regulators to the dynamics of a global, intermodal marketplace.

The inconsistency is striking when compared with the STB’s own treatment of other sectors. In pipeline cases, for instance, the STB has allowed evidence of product and geographic substitution to determine market power.[33] This discrepancy underscores that the exclusion is more the product of legacy procedural habits than of principled economic reasoning. For a regulator charged with relying on competition “to the maximum extent possible,” that is a fundamental flaw.[34]

C. Vulnerability of the STB’s Policy in the Post-Loper Bright Era

Ultimately, the courts originally upheld the STB’s exclusion of product and geographic competition primarily by invoking Chevron deference. In Association of American Railroads v. STB, the D.C. Circuit rejected the AAR’s challenge to the 1998 rule, not because it found the statute compelled the board’s reading, but because—under Chevron—the agency retained discretion to interpret the ambiguous statutory term “transportation” in its definition of market dominance.[35] As the D.C. Circuit explained in a follow-up case, the court explained:

Under Chevron the Board maintained discretion to interpret the market dominance definition so as to exclude indirect competition. Therefore, we deferred to its latest interpretation and accepted the Board’s reasoning.[36]

In other words, the judicial imprimatur rested not on the strength of the statutory text, but on a doctrine of agency deference.

That doctrinal foundation has now collapsed. In Loper Bright, the Court held that the Administrative Procedure Act requires lower courts to exercise independent judgment in deciding all questions of law, and that no special deference is owed to agency interpretations of ambiguous statutes.[37] This means that if the STB’s rule is challenged anew, the reviewing court cannot defer to the STB’s administrative judgment about efficiency. It must instead ask whether the statutory text and structure authorize the categorical exclusion of relevant competition evidence.

On its face, the statute does not. Section 10707 defines market dominance as the absence of effective competition from other rail carriers or modes of transportation,[38] and Congress’ broader policy directives stress reliance on “competition and the demand for services” wherever possible.[39] Those provisions would be difficult to square with the board’s prohibition on parties presenting economically relevant evidence of competition. Thus, even setting aside the practical market realities that make product and geographic competition economically salient, the STB’s position would be, at best, on tenuous legal footing in the post-Loper landscape. Federal courts must now scrutinize the statutory text directly, without deference to the STB’s view that excluding such evidence reduces complexity.

Once Chevron is stripped away, what remains is a rule that sacrifices substantive accuracy for administrative convenience—an approach courts are unlikely to uphold when the statutory policy tilts so heavily toward incorporating competitive forces. Put simply, the STB’s blanket prohibition may have survived under the deferential regime of Chevron, but it faces a far tougher slog under Loper Bright’s command of independent judicial review. Indeed, the board has conceded that product and geographic competition can effectively constrain rail rates.[40]

To remedy this legal infirmity, the STB should revisit its 1998 rule and restore consideration of product and geographic competition in market-dominance determinations, aligning its procedures with both the statutory text and contemporary competitive realities.

IV. Revenue Adequacy as a Floor, not a Ceiling

In the rail context, the statutory concept of “revenue adequacy” was introduced by §10704 of the Staggers Rail Act as part of Congress’ broader attempt to restore the financial health of an industry that had been brought to the brink of collapse by decades of pervasive rate and service regulation.[41] The statutory text instructs the STB to:

maintain … standards and procedures for establishing revenue levels for rail carriers … that are adequate, under honest, economical, and efficient management, for the infrastructure and investment needed to meet the present and future demand for rail services and to cover total operating expenses, including depreciation and obsolescence, plus a reasonable and economic profit or return (or both) on capital employed in the business.[42]

The central purpose was clear: Congress wanted private railroads to have the ability to attract capital and to maintain, modernize, and expand their networks.

Yet in recent decades, some have attempted to repurpose revenue adequacy as a tool to constrain railroads’ earnings, treating it as an implicit rate cap.[43] This view is in tension with both the statutory text and the economics of network investment. As Bernard Sharfman has argued, the text of §10704 links adequacy to the industry’s health and ability to attract capital; nothing in the statute authorizes the STB to use adequacy as the basis to lower maximum rate levels.[44] Revenue adequacy was meant to signal whether the system as a whole was capable of earning a competitive return on invested capital, not to set a ceiling for ratemaking in individual disputes. To invert adequacy from a floor into a cap is to treat a measure of industry health as if it were evidence of monopoly rents.

The economic problems with this inversion are significant. If regulators treat adequacy as a ceiling, they effectively punish railroads for achieving the very financial stability that Congress intended for them to attain. It also undermines market incentives to invest in long-lived, capital-intensive assets. Railroads face enormous, fixed costs in maintaining track, equipment, and safety systems, and their ability to fund these investments depends on sustained profitability.

Moreover, using adequacy levels as a de facto rate cap discourages carriers from pursuing efficiency gains or productivity improvements, since any financial gains will be clawed back through regulatory rate reviews. The result is a chilling effect on innovation and network expansion. As Sharfman emphasizes, this risks locking the industry into a “just enough to survive” equilibrium, when the statutory design was to ensure a robust, capital-attracting rail system.[45]

Instead, revenue adequacy should be treated as a health diagnostic, not as a lever for rate suppression.[46] In economic terms, adequacy is about dynamic efficiency: ensuring that the industry has sufficient resources to maintain and improve its infrastructure over time. Misusing it as a ceiling prioritizes short-term distributional gains for certain shippers at the expense of long-term system investment, a tradeoff that is both economically inefficient and contrary to congressional intent. Moreover, such a ceiling approach creates perverse incentives: railroads may avoid pursuing new efficiencies or cost savings, fearing that any margin will trigger more aggressive regulatory intervention.

In short, the proper reading of §10704 is that revenue adequacy functions as a threshold assurance—a guarantee that the system can attract the capital it needs. It is not a metric for determining whether railroads are “too profitable” or whether rates should be capped below levels permitted by competition and statutory maximum-rate standards. Using adequacy in this way violates both the statutory scheme and the basic principles of regulatory economics. As Sharfman concludes, adequacy should be viewed as a floor that protects the industry’s viability, not as a ceiling that undermines the very incentives Congress sought to preserve.[47]

Further, read through a post-Loper Bright lens, §10704’s architecture reinforces the reading that it was intended as a floor. The provision instructs the STB to assure adequacy so that private railroads can attract capital; it does not supply a freestanding mandate to cap earnings once that condition is met. Under de novo review, courts will ask whether Congress authorized the use the board proposes.

Treating adequacy as a ceiling is not a textual implementation of § 10704; it is a policy preference that reassigns the statute’s investment assurance into an earnings constraint. That is precisely the kind of atextual gloss that Loper makes difficult to defend. The safer—and more faithful—reading of the statutory text is that adequacy sets the investment floor, while any limits on rates must be justified case-by-case under the separate maximum-rate provisions and on a record that demonstrates actual market power.[48]

V. Preemption and the Networked Industries

Rail is the paradigmatic network industry. It relies on sunk, interconnected assets and generates value from seamless interstate operations. Congress codified that reality in the ICCTA, which vests the STB with exclusive jurisdiction over “transportation by rail carriers” and expressly preempts state and local regulation “with respect to regulation of rail transportation.”[49]

For nearly three decades, courts have read §10501(b) to bar state and local measures that seek to manage or govern rail operations, while tolerating truly general, neutral laws (e.g., building codes, fire and electrical safety) that do not unreasonably burden rail service. Appellate decisions have repeatedly enshrined this division. This congressional choice to make federal regulation “completely exclusive” underscores that preemption was an essential component of the ICCTA’s deregulatory design.[50] State or local schemes that function as rail-specific permitting, siting, or veto devices are preempted; truly general exercises of police power that do not intrude on operations typically survive.[51]

The doctrinal payoff of this express preemption is a single national baseline—not because uniformity is a value in itself, but because uniformity is part of what makes competition possible for a networked industry. It keeps assets fungible, schedules reliable, and intermodal/geographic substitutions viable.

Congress itself confirmed this structure by carving out narrow, express exceptions—e.g., the Clean Railroads Act of 2008,[52] which subjects certain solid-waste rail-transfer facilities to specified state and local oversight and gives the STB a tailored “land-use-exemption permit” role.[53] Thus, when Congress wants state overlay local rules within the rail domain, it does so explicitly. Absent such instruction, the ICCTA’s default is federal exclusivity over rail transportation.

Two additional clarifications matter. First, preemption analysis under §10501(b) is statutory; it is not a free-floating balancing test. The question is whether the challenged measure regulates rail transportation or amounts to a rail-targeted impediment to operations, facilities, or services. Second, overlapping statutes (e.g., the Federal Railroad Safety Act (FRSA))[54] have their own preemption/savings architectures; they do not diminish ICCTA’s independent field of exclusivity over economic regulation of rail transportation.

States often invoke the FRSA to justify regulatory overlays where the Federal Railroad Administration has not acted, but that argument misreads the statutory framework. The FRSA and ICCTA address distinct spheres—safety versus economic regulation—and the presence of an FRSA savings clause does not dilute the ICCTA’s field preemption over rail transportation. As the STB has explained, “when both the Board and FRA have jurisdiction, the later-enacted ICCTA preemption may impose restraints on state action even where the FRSA preemption does not.”[55]  The DOJ has taken the same position, emphasizing that:

[T]he FRSA cannot be read to create a loophole in the ICCTA that would permit a patchwork of state and local regulation over rail transportation simply because the regulations also happen to touch on “safety-related” matters.[56]

While Loper Bright casts a long shadow here as well, in the case of ICCTA §10501(b), the statutory command is so clear, and the legislative intent so unmistakably deregulatory, that both the STB and the courts should interpret preemption broadly and consistently. Congress paired express preemption with exclusive federal jurisdiction precisely to prevent state and local interference with rail operations.

In that context, Loper Bright reinforces, rather than undermines, the STB’s authority to articulate a uniform preemption policy grounded in the statute’s text. Both the board and reviewing courts should therefore err on the side of preemption: neutral, generally applicable laws may apply only insofar as they do not manage or govern rail transportation or impose unreasonable burdens on operations, while policy-driven efforts to steer routing, scheduling, equipment, or facility use are preempted at the threshold. The same textual discipline illustrated by Grand Trunk and the earlier market-dominance discussion applies no less to ICCTA preemption.

For a networked industry like rail, preemption is itself an infrastructure for competition. As discussed above, intermodal rivals and product/geographic substitutions provide discipline for modern rail markets. Patchwork regulation erodes those constraints in three predictable ways.

• Latency and uncertainty—state-by-state permits, facility-specific approvals, or rail-targeted fees—would lengthen cycle times and inject variance that shippers cannot hedge, dulling the price discipline of alternative routes or modes.
• Loss of fungibility—locomotive or equipment restrictions, conflicting emissions or crew mandates—reduces the interchangeability of assets across state borders, shrinking the practical option set for shippers.
• Cost layering—compliance costs accumulated across jurisdictions—raises delivered prices and compresses the competitive frontier that the STB should recognize in market-power analyses.

By contrast, the ICCTA’s uniform baseline lowers search and compliance costs and preserves the reliability and asset mobility on which effective competition depends.

A. Renewed State Overlays, Familiar Fault Lines

Various familiar pressure points have resurfaced since our 2024 report because of recent state initiatives. Several jurisdictions have adopted environmental controls tailored to rail operations, most notably “waste-by-rail” regimes that single out putrescible or construction-and-demolition material moved by rail.[57] These laws typically require enclosure, impose throughput or dwell-time caps, mandate buffer zones, or condition movement on rail-specific permits; they function, in practice, as commodity-specific operational vetoes, rather than neutral health measures.

Some states have also imposed rail-only fees framed as safety or hazardous-materials assessments. Typically, these are keyed to train movements, railcars, or hazardous contents, and dedicated to rail-specific funds coupled with inspection or planning mandates. Such fees operate less like neutral taxation and more like targeted regulation of operations and throughput.

For example, in 2023, Minnesota revived and increased a railroad/pipeline safety assessment that funds hazmat readiness—$4 million annually, with 70% charged to railroads according to route-miles—and with additional charges after “significant response” incidents. The state also created dedicated accounts for the hazmat rail-safety program.[58]

The California Air Resources Board’s (CARB) 2023 In-Use Locomotive Rule would have required railroad operators to fund emissions-indexed spending accounts; comply with a 30-minute idling cap and detailed reporting; and meet age-based operational limits, with zero-emission milestones for switchers and line-haul locomotives.[59] In that case, litigation followed. After CARB represented it would not enforce the rule—pending Environmental Protection Agency (EPA) action—it withdrew its authorization request in January 2025 and noticed a repeal. This left the rule as a salient—but ultimately withdrawn—example of a state rail-specific equipment/emissions mandate.[60]

B. Preemption as Pro-Competitive Infrastructure

ICCTA preemption is not a peripheral doctrine; it is integral to the statutory and economic synthesis developed here. As Loper Bright underscores, the statutory text controls and §10501(b) provides a uniquely clear textual command: exclusive federal jurisdiction, paired with express preemption of state and local regulation of rail transportation.

Reaffirming that command serves two core functions. First, it keeps regulatory authority within the statute’s bounds, ensuring that neither state overlays nor agency improvisations displace the structure Congress enacted. This was reflected in the jurisprudential theme running through Grand Trunk and beyond. Second, it preserves the conditions under which competition operates in a network industry. By blocking state interventions that would otherwise degrade reliability, raise delivered costs, and constrict product and geographic alternatives, ICCTA preemption protects the very competitive frontier the STB must recognize in its analyses.

In network industries, uniformity is not antithetical to competition; it is essential. Rail demonstrates this most vividly: only with a stable and uniform federal baseline can intermodal and geographic substitution discipline carrier pricing and investment choices. The ICCTA is the legal mechanism that delivers this uniformity, and in doing so, it ties the jurisprudential discipline of post-Loper Bright review to the economic realities of modern rail competition.

V. Conclusion

Read in context of the post-Loper Bright frame, the controlling question across rail regulation is no longer whether an agency’s policy is “reasonable” but whether Congress authorized it. Grand Trunk supplies the template. Begin with the statute, its structure, and settled predicates; do not creatively interpret around them. That same textual discipline requires that market-dominance and rate decisions must rest on the record’s evidence of competition, rather than on assumptions that markets are captive or static.

The economic corollary is straightforward. Where product and geographic substitution exist, competition analysis must admit it. Moreover, revenue adequacy under §10704 must be treated as the floor that Congress designed to sustain investment, not as an ad hoc ceiling on earnings. Where rates are to be restrained, the work belongs under §10707 on a case-specific record of market power. This alignment—text first, evidence next—preserves incentives to maintain and expand a capital-intensive network, while targeting intervention to those narrow settings where true dominance persists.

Finally, ICCTA preemption is not peripheral; it is infrastructure for competition in a network industry. A uniform federal baseline lowers latency and compliance costs, preserves asset fungibility and reliability, and keeps intermodal and geographic rivalry viable. Reaffirming robust §10501(b) preemption, modernizing competition analysis, and maintaining the floor reading of revenue adequacy would together yield a coherent legal-economic program. Statutory fidelity is not at odds with rail competition; it is the precondition for it.

[1] Kristian Stout, Common Carrier Reforms to Promote a Healthy Market in the Rail Industry, Int’l Ctr. for Law & Econ. (2025), https://laweconcenter.org/resources/common-carrier-reforms-to-promote-a-healthy-market-in-the-rail-industry.

[2] See H. Rep. 96-1430 (1980), at 96-97, https://www.congress.gov/bill/96th-congress/senate-bill/1946.

[3] Loper Bright Enterprises v. Raimondo, No. 22-451, 603 U.S. 369 (2024), available at https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf.

[4] Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984).

[5] Daniel Deacon, Loper Bright, Skidmore, and the Gravitational Pull of Past Agency Interpretations, Notice & Comment (Jun. 30, 2024), https://www.yalejreg.com/nc/loper-bright-skidmore-and-the-gravitational-pull-of-past-agency-interpretations.

[6] Grand Trunk Corp. v. Surface Transp. Bd., No. 24-1811 (7th Cir. 2025), available at https://www.govinfo.gov/content/pkg/USCOURTS-ca7-24-01811/pdf/USCOURTS-ca7-24-01811-0.pdf.

[7] Id. at 2.

[8] Id. at 12.

[9] Id.

[10] Id. at 30.

[11] Loper Bright, supra note 3.

[12] S. 1946, 96th Cong. (1979–80) (Staggers Rail Act of 1980), https://www.congress.gov/bill/96th-congress/senate-bill/1946.

[13] Id.

[14] See Stout, supra note 1.

[15] STB Stands by Its Decision to Exclude Product and Geographic Competition Considerations from Rate Complaints, Prog. Railroading (Apr. 3, 2001), https://www.progressiverailroading.com/rail_industry_trends/news/STB-stands-by-its-decision-to-exclude-product-and-geographic-competition-considerations-from-rate-complaints–3366.

[16] Ass’n Amer. R.R. v. Surface Transp. Bd., 237 F.3d 676 (D.C. Cir. 2001).

[17] 49 USC 10707(a).

[18] See Public Law 94-210, 94th Cong., 90 Stat. 31 (Feb. 5, 1976) (Railroad Revitalization and Regulatory Reform Act of 1976), available at https://www.congress.gov/94/statute/STATUTE-90/STATUTE-90-Pg31.pdf; Staggers Rail Act, supra note 12.

[19] Ass’n Amer. R.R. v. Surface Transp. Bd., No. 01-1213 (D.C. Cir. Oct. 8, 2002), https://law.justia.com/cases/federal/appellate-courts/cadc/01-1213/01-1213a-2011-03-24.html.

[20] Atchison, Topeka & Santa Fe Ry. v. ICC, 580 F.2d 623 (D.C. Cir. 1978).

[21] Western Coal Traffic League v. United States, 719 F.2d 772 (5th Cir. 1983) (en banc).

[22] Ass’n Amer. R.R. v. Surface Transp. Bd., 306 F.3d 1108 (D.C. Cir. 2002).

[23] Prog. Railroading, supra note 15.

[24] AAR, supra note 22.

[25] Id.

[26] AAR, supra note 22.

[27] See, e.g., United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377 (1956).

[28] See 2023 Merger Guidelines, U.S. Dep’t of Justice & Fed. Trade Comm’n (2023), § 4, https://www.justice.gov/atr/2023-merger-guidelines (broadly describing the mission of the FTC and DOJ to police antitrust harms in markets, including through the tools of market definition to determine where actual competition takes place).

[29] Id. (emphasis added).

[30] See, e.g., Electricity Demand in the Eastern United States Surged from Heat Wave, U.S. Energy Info. Admin., (Aug. 5, 2020), https://www.eia.gov/todayinenergy/detail.php?id=65604.

[31] See, e.g., A Study of Competition in the U.S. Freight Railroad Industry and Analysis of Proposals That Might Enhance Competition: Executive Summary, Christensen Assocs. (Revised Final Report, Nov. 2009), available at https://www.stb.gov/wp-content/uploads/files/docs/competitionStudy/Executive%20Summary.pdf (concluding that access to transportation alternatives creates competitive pressure that lowers rail rates); Kevin McCoy et al., The Importance of Highways to U.S. Agriculture, U.S. Dep’t of Agric. Agric. Mktg. Serv’n (Dec. 2020), available at https://www.ams.usda.gov/sites/default/files/media/Main_Highway_Report.pdf (noting that shippers will switch to highway transport as a lower-cost substitute when rail transport rates increase).

[32] See Stout, supra note 1.

[33] See STB Docket No. 41685, CF Industries, Inc., v. Koch Pipeline Co., LP, (May 3, 2000).

[34] 49 USC 10101(1).

[35] AAR, supra note 16.

[36] AAR, supra note 22.

[37] Loper Bright, supra note 3.

[38] 49 U.S.C. § 10707(a).

[39] 49 U.S.C. § 10101.

[40] See Market Dominance Determinations—Product and Geographic Competition, 3 S.T.B. 937, 945 n.49 (1998), available at https://www.stb.gov/wp-content/uploads/BV-3-Jan98-Dec98-937.pdf (acknowledging that “in certain circumstances product and geographic competition effectively limit railroad pricing”).

[41] 49 U.S.C. §10704.

[42] Id. at § 10704(a)(2).

[43] See, e.g., Russell Pittman, Two Roads Diverged: Two Alternate Strategies for Protecting Captive Freight Shippers in the “Americas” Model of Freight Rail Restructuring, U.S. Dep’t of Justice Antitrust Div. (Expert Analysis Group Discussion Paper EAG 24-2, Oct. 2024), https://www.justice.gov/atr/media/1372596/dl?inline (framing “revenue adequacy” as a constraint (ceiling) in certain ratemaking contexts to prevent monopoly pricing by claiming it is used to establish “constrained market pricing” in rate cases with captive shippers).

[44] Bernard S. Sharfman, The Significance of ‘Adequate Revenues’ Under the Staggers Rail Act of 1980, Transportation L.J. (forthcoming), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5236244.

[45] Id.

[46] Id.

[47] Id.

[48] There are other instances in the statute that support this view. See 49 U.S.C. § 10101(3) (stating U.S. policy is “to promote a safe and efficient rail transportation system by allowing rail carriers to earn adequate revenues, as determined by the Board”); 49 U.S.C. § 10707(a)(2) (requiring the board to “make an adequate and continuing effort to assist those carriers in attaining revenue levels prescribed under this paragraph”); 49 U.S.C. § 10704(a)(3) (directing the board to “annually determine which carriers are earning adequate revenues”); 49 U.S.C. § 10701(d)(2) (instructing the board to consider “the policy of this part that rail carriers shall earn adequate revenues” when evaluating rate reasonableness).

[49] 49 U.S.C. § 10501(b).

[50] See H.R. Rep. No. 104-311, at 95–96 (1995) (explaining that the ICCTA eliminated a limited state police-power exception “as unnecessary, in view of the Federal policy of occupying the entire field,” and that “[a]lthough States retain the police powers reserved by the Constitution, the Federal scheme of economic regulation and deregulation is intended to address and encompass all such regulation and to be completely exclusive”).

[51] Green Mountain R.R. Corp. v. Vermont, 404 F.3d 638, 643–46 (2d Cir. 2005) (ICCTA § 10501(b) broadly preempts state land-use permitting that functions as a rail-specific veto; notes that generally applicable health/safety codes may apply if they don’t unreasonably burden operations); N.Y. Susquehanna & W. Ry. Corp. v. Jackson, 500 F.3d 238, 252–54 (3d Cir. 2007) (ICCTA preempts state efforts that regulate operations, while allowing neutral laws of general applicability that do not unreasonably interfere); Friberg v. Kan. City S. Ry. Co., 267 F.3d 439, 443–45 (5th Cir. 2001) (Texas anti-blocking statute preempted because it directly regulates train operations/scheduling).

[52] 49 U.S. Code § 10908.

[53] 49 U.S. Code § 10909

[54] 49 U.S.C. §20109.

[55] STB Amicus Br. at 6, 9, Iowa, Chi. & E. R.R. v. Wash. Cnty., 384 F.3d 557 (8th Cir. 2004) (No. 03-3136), 2004 WL 6395939.

[56] Brief for the United States as Amicus Curiae, Ohio v. CSX Transp., 144 S. Ct. 545 (2024) (No. 22-459), 2023 WL 8112708, at *13.

[57] See, e.g., N.Y. Environmental Conservation Law § 27-0712, https://law.justia.com/codes/new-york/env/article-27/title-7/27-0712 (requires railcars hauling putrescible waste to be sealed with hard lids and non-putrescible waste to be covered with hard tarps); N.J.A.C. 7:26-2D.1, https://www.law.cornell.edu/regulations/new-jersey/N-J-A-C-7-26-2D-1 (imposes operational standards on rail carriers that transfer solid waste to/from rail cars, including sealed containers at all times and time-at-facility limits (e.g., a limit for putrescible waste of less than or equal to 72 hours)); New York City DSNY siting rules for putrescible and C&D transfer stations, available at https://www.nyc.gov/assets/dsny/downloads/about/adopted-rules/about-adopted-rule-siting-requirements-transfer-stations-0815.pdf (requires minimum buffer distances from residential/sensitive uses (e.g., 400–700 feet) and throughput conditions, keyed in part to whether material is moved by rail or vessel).

[58] Minn. Stat. § 299A.55 (2023), available at https://www.revisor.mn.gov/statutes/2023/cite/299A.55/pdf.

[59] Final Regulation Order: In-Use Locomotive Regulation, Cal. Air Res. Bd. (2022), Title 13, Cal. Code Regs. §§ 2478–2478.17, available at https://ww2.arb.ca.gov/sites/default/files/barcu/regact/2022/locomotive22/fro.pdf.

[60] Public Hearing to Consider the Proposed Repeal of the In-Use Locomotive Regulation: Staff Report, Initial Statement of Reasons, Cal. Air Res. Bd. (Apr. 29, 2025), available at https://ww2.arb.ca.gov/sites/default/files/barcu/regact/2025/locorepeal/isorlocorepealada.pdf.

Abstract

Antitrust scrutiny of large technology platforms has continued apace in ways both more and less familiar under the second Trump administration and its antitrust agencies. Of some controversy is enforcers’ interest in a novel area of inquiry; that is, whether—and under what conditions—content moderation might prove anticompetitive, in violation of the antitrust laws. That question raises another: if so, would enforcement of the antitrust laws against such content moderation run afoul of the speech clause of the First Amendment to the U.S. Constitution? We suggest a qualified “no” as an answer to the first question and a likely “yes” as an answer to the second. While one might, in the abstract, imagine an antitrust case against something like a tech platform’s content moderation practices, we suspect that finding facts and circumstances to make out a convincing antitrust case involving the actual tech platforms of interest would prove tough sledding. Moreover, recent Supreme Court precedent suggests limits to the reach of antitrust, at least as pertains to content moderation by privately operated tech platforms.

Is There an Empty Set at the Intersection of Antitrust and Content Moderation?

“President Trump has put a swift end to the weaponization of the federal government against Americans and their freedoms (. . .)” Andrew N. Ferguson^[1]

Antitrust scrutiny of large technology platforms has continued apace under the second Trump administration and the leadership appointed at the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) in 2025. Both the FTC and DOJ have maintained investigations, litigation, and, indeed, aggressive remedies proposals in the tech sector.[2] Beyond that, the agencies have opened a novel area of inquiry—one that raises a two-part question: first, whether—and under what conditions—content moderation might prove anticompetitive, in violation of the antitrust laws; and second, whether, in such cases—supposing there are some—enforcement of the antitrust laws runs afoul of the speech clause of the First Amendment to the U.S. Constitution. The case law seems to provide no precedent on private content moderation as an antitrust violation, and popular antitrust treatises, such as Areeda and Hovenkamp’s fourteen-volume Antitrust Law: An Analysis of Antitrust Principles and Their Application, do not appear to mention it at all.[3]

As we explain below, we suggest a qualified “no” as an answer to the first question and a likely “yes” as an answer to the second. Theoretically, one might imagine an antitrust case against something like a tech platform’s content moderation policies or practices. We suspect, however, that finding facts and circumstances to make out a convincing case involving the actual tech platforms of interest would prove tough sledding. Moreover, recent Supreme Court precedent suggests limits to the reach of antitrust, at least as pertains to content moderation by privately operated tech platforms. This does not seem a fruitful use of limited agency resources, and it may be something worse than that.

I. Content Moderation and Antitrust?

This new initiative seems to have begun with the FTC’s February 2025 announcement of a Request for Public Comment Regarding Technology Platform Censorship,[4] which was pitched as “a public inquiry to better understand how technology platforms deny or degrade users’ access to services based on the content of their speech or affiliations, and how this conduct may have violated the law.”[5]

That sort of request—a request for information (RFI)—is not a law-enforcement investigation, and it does not require any party to submit anything in particular—no subpoena power or compulsory process is invoked. It is one sort of broad preliminary inquiry that may inform the Commission and, potentially (or not), lead to a more formal study, reporting, or investigation. It fits broadly under the FTC’s authority under Section 6(a) of the FTC Act: “To gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person, partnership, or corporation engaged in or whose business affects commerce (. . .)”[6] As such, it might have been business as usual. Keeping up with market developments by various means—from rigorous empirical studies to issue-spotting workshops and RFIs—is a basic part of the FTC’s statutory mission.

Yet, the issue of platforms’ content moderation and the framing of the request hardly seemed a neutral inquiry into an area of potential interest.[7] It took little imagination to wonder whether an inquiry into “censorship” and how “technology platform” conduct “may have violated the law” may have skewed submissions to the agency and, perhaps, biased the inquiry itself. Encouraging input from “[t]ech platform users who have been banned, shadow banned, demonetized, or otherwise censored” (but no others) did not seem a neutral solicitation of public comment on the potential costs and benefits of platform conduct. Indeed, some of the Commission’s commentary seemed ominous. The FTC’s press release stated that “[c]ensorship by technology platforms is not just un-American, it is potentially illegal.”[8] Posting on the platform X, Chairman Ferguson (very) similarly opined that “Big Tech censorship is not just un-American, it is potentially illegal.”[9] Those may have been his genuine suspicions, but they were not reminiscent of the FTC’s long lauded history as a research-based enforcement agency. To some, they may have seemed to flirt with prejudgment.

A somewhat clearer statement of concerns can be found in a statement of interest (“Statement” or “SOI”) filed by the DOJ Antitrust Division in a private antitrust case brought against a number of major news publishers by, among others, the Children’s Health Defense Fund—an organization previously chaired by U.S. Health and Human Services Secretary Robert F. Kennedy Jr.[10]Nominally, at least, a statement of interest can be distinguished from an amicus brief filed on behalf of or in support of a party.[11] Still, it was a statement supportive of the plaintiffs in the matter and a formal submission to a federal court. It may, in that regard, be distinguished from information gathering and ex officio remarks by agency officials that are not themselves legal instruments or even official agency guidance documents.[12]

The DOJ’s Statement “takes no position on the application of the law to the facts alleged in Plaintiffs’ complaint or on the resolution of Defendants’ motion.”[13] That is consistent with an agency’s legitimate interest in the courts’ proper application of the laws that the agency is charged to enforce, an interest that extends to the legal principles themselves and not just their fit to specific facts alleged. Still, it is worth noting that the motion in question was a motion to dismiss for, among other things, failure to state a claim. Setting aside the facts, even as alleged, and the question of dismissal, leaves us with a question about how much clarification is on offer in the DOJ’s Statement.

The Statement notes that nonprice dimensions of competition, including product quality, could be the gravamen of an antitrust complaint under either Section 1 or Section 2 of the Sherman Antitrust Act.[14] That abstract point is uncontroversial. For example, in the 2010 Horizontal Merger Guidelines, the FTC and the DOJ stated: “Enhanced market power can also be manifested in non-price terms and conditions that adversely affect customers, including reduced product quality, reduced product variety, reduced service, or diminished innovation. Such non-price effects may coexist with price effects, or can arise in their absence. When the Agencies investigate whether a merger may lead to a substantial lessening of non-price competition, they employ an approach analogous to that used to evaluate price competition.”[15]

Historically, the agencies have considered non-price effects in certain merger reviews under the Sherman and Clayton Acts,[16] and federal courts have noted the importance of non-price dimensions of competition in antitrust cases.[17] Hence, when considering hospital mergers, certain qualitative aspects of care may be salient: ceteris paribus, higher rates of post-operative infection are uniformly considered lower-quality outcomes,[18] and such non-price effects may be important, perhaps especially where exogenous constraints limit price competition.

But such antitrust cases are few and far between, and for good reason. For one thing, the conditions under which product quality (or quality-adjusted price) may be suppressed independent of (more easily assessed) price and output effects may be limited. Second, the material qualitative attributes of products may be numerous and diverse. At some level, such attributes may be indefinitely many and constitutive of the product itself. While the entire bundle of such attributes may have a market valuation, and while there may be market prices for certain variable product attributes (such as trim levels on an automobile), objective assessments—even ordinal assessments—of the value of individual qualitative attributes are far from the norm.

Both problems may have been skirted in the FTC’s 1965 Macaroni case. There, the Court of Appeals for the Seventh Circuit agreed with the FTC that the “highest quality macaroni products are made from 100% semolina and such products have the best consumer acceptance of all macaroni products.”[19] It was alleged that the defendant producers of dried pasta had agreed, through their association, to fix the amount of that “highest quality” input as a uniform cost-control measure. And so, the Seventh Circuit agreed with the FTC that “where all or the dominant firms in a market combine to fix the composition of their product with the design and result of depressing the price of an essential raw material, they violate the rule against price-fixing agreements as it has been laid down by the Supreme Court.”[20] That is, the agreement was determined to be an agreement among horizontal competitors to fix quality-adjusted prices.

What would it mean to make out an analogous case for a platform’s content moderation policies? Of course, with unilateral conduct, we might even assume, for the sake of argument, that a given platform has lowered the quality of its content moderation and fail to find a viable case. Even firms with market power are typically free to price and design products as they will, subject to market (not regulatory or antitrust) discipline. But what if we—or a plaintiff—were to challenge that assumption? Content moderation policies—as written and as implemented—may themselves bundle (or exemplify) complex attributes and they are, in any case, but some of the many non-price attributes of a social media or other tech platform. We—the authors—may prefer one or another content moderation policy. One or both of us might find all of them to be acceptable or unacceptable in meeting our preferences. But our preferences do not constitute an intersubjective utility function, much less a market-wide assessment or ordering of content moderation policies, much less such an assessment or ordering of various tradeoffs, across non-price dimensions of product quality across platforms. With such policies, one person’s meat may be another’s poison, and variation across policies may be fundamental to healthy differentiated interbrand competition among platforms. The problem of valuation seems fundamentally confounding, even before we consider that there is no straightforward way to link qualitative variation to price with such services.

Formal comments submitted to the FTC by the International Center for Law & Economics put the problem thus: “The complexity inherent to the tradeoffs (. . .) are even more difficult to assess when different consumer groups have sharply contrasting views of what constitutes indicia of quality along each of these dimensions. With political media, most would prefer to have more of what they want to read available, and less of what they don’t want available, even if it comes at the expense of other consumers’ preferences. There is no easy way to quantify and weigh general consumer welfare where one group’s moderation preferences necessarily come at the expense of another’s. In this sense, a non-price-effects analysis of political bias would be even more complex than a complaint based on user privacy. (. . .) when it comes to the algorithm that determines what is seen and in what order, or what is fact checked, or even what is monetized, there is no clear preference that all consumers share.”[21]

The DOJ’s Statement recognizes that, in the abstract, a full rule of reason approach may be demanded if agreements among competitors regard the joint development of, e.g., voluntary product quality standards or information sharing about (input) product quality, whereas a truncated analysis may be appropriate when competitors agree “on the pricing or features of the products they will and will not sell.”[22] In the abstract, well enough. But the Macaroni case is easily distinguished to the point where it is hard to see how platform content-moderation policies could be tantamount to price fixing. Without opining on the facts alleged and ways in which they might or might not fit the law, the DOJ’s Statement seems to elide all the hard questions about the ways in which platform content moderation might or might not run afoul of the antitrust laws. It is unclear whether there is anything left to their clarification beyond the tepid point that non-price dimensions of competition may be relevant to antitrust analysis.

Similarly, we might consider the DOJ’s numerous citations to the Supreme Court’s 1945 decision in Associated Press,[23] which was about exclusionary conduct and not content moderation or non-price competition. Nothing in the decision turns on the question of whether the AP had unduly restricted its own access to news and thus had diminished the quality of its own product, or access to any specific quantity or quality of news on the part of its members. As detailed more below, it is not clear that the case says anything about the First Amendment considerations that a content moderation antitrust case might pose. Leaving aside the question of how to read Associated Press through the lens of subsequent First Amendment jurisprudence, the DOJ’s Statement seems to establish little (if anything) more than the proposition that the business conduct of firms engaged in protected speech, among other activities, is not generally immune from antitrust scrutiny, even if some of their business conduct may be.

The DOJ’s Statement indulges in high-flying language about the importance of antitrust and “viewpoint competition in the marketplace of ideas.” Yet it avoids or even obscures everything that is hard about the underlying controversy—and indeed the larger issue—on at least two fundamental points:

• What would it take for the plaintiffs to prevail on—or even establish antitrust standing to bring—their underlying antitrust complaint?
• How might antitrust liability or remedies be subject to First Amendment limitations?

The question of liability—and, indeed, the requirements of antitrust standing (above and beyond Article III standing)—goes to the basic question of what it would take for the plaintiffs in the case at issue to establish, or even adequately plead, harm to competition, and not just harm to the plaintiffs themselves. Stepping back from the facts alleged in the underlying private complaint, The DOJ’s Statement sheds little to no light on the questions whether and under what conditions the content moderation policies of tech platforms might run afoul of the antitrust laws, independent of First Amendment questions.

II. Antitrust, Content Moderation, and the First Amendment

The DOJ’s Statement does little to clarify the extent to which the First Amendment may cabin or even preclude antitrust liability for private content moderation decisions, whether cases are brought by private plaintiffs or a government enforcement agency. And the First Amendment questions are many. The Statement’s numerous citations to Associated Press ignore what may be key aspects of that decision, even as it seeks to clarify the relationship between antitrust and the First Amendment as the Court understood it in 1945. How to read it through the lens of subsequent First Amendment jurisprudence—notably, cases involving news organizations, such as Miami Herald Pub. Co. v. Tornillo[24] and online content moderation, such as Moody v. NetChoice[25]—is hardly considered at all.

Moreover, much as with the FTC’s platform censorship inquiry, the DOJ’s Statement elides the First Amendment’s distinction between government action and private action. The Statement cites, among other sources, Nobel laureate economist F. A. Hayek and Justice Oliver Wendell Holmes’ dissent in Abrams v. United States,[26] to bolster the idea that diverse sources of speech are good for the marketplace of ideas. But these citations argue against government restrictions on speech, not against private ordering.

The Supreme Court has repeatedly made clear that the First Amendment only restrains government actors,[27] and that it affords private actors wide latitude to police speech on their property.[28] Antitrust law, after all—certainly antitrust action by federal enforcers—is government action, itself subject to the First Amendment.[29] The DOJ cites Hayek to bolster the argument that antitrust law may be used to ensure diverse voices in the marketplace of ideas.[30] But DOJ’s citation is inapposite. Hayek’s article—“The Use of Knowledge in Society”—argues that market actors, rather than government bureaucrats, are best positioned to utilize dispersed information. The article cited by the DOJ argues against central control by government actors.

The DOJ’s Statement also ignores the limitations on remedies presented by the Associated Press decision itself. There, the Court noted: “The decree does not compel AP or its members to permit publication of anything which their ‘reason’ tells them should not be published. It only provides that, after their ‘reason’ has permitted publication of news, they shall not, for their own financial advantage, unlawfully combine to limit its publication.”[31] In other words, antitrust remedies may not compel social-media platforms to publish material they do not wish to publish, whether because it is purported misinformation or for any other reason.

And, of course, there is the Supreme Court’s 2024 decision in Moody v. NetChoice. At issue there were Florida and Texas laws that purported to regulate “large social-media companies and other internet platforms.”[32] While recognizing that the state laws differed in various respects, the Court noted that both laws would “curtail the platforms’ capacity to engage in content moderation—to filter, prioritize, and label the varied third-party messages, videos, and other content their users wish to post.”[33] The decision seems very much on point, even if the content moderation at issue may not exhaust the issues of potential concern to the FTC.   In Moody, the Court reasoned that “a State may not interfere with private actors’ speech to advance its own vision of ideological balance. States (and their citizens) are of course right to want an expressive realm in which the public has access to a wide range of views. That is, indeed, a fundamental aim of the First Amendment. But the way the First Amendment achieves that goal is by preventingthe government from ‘tilt[ing] public debate in a preferred direction.’ Sorrell v. IMS Health Inc., 564 U. S. 552, 578–579 (2011). It is not by licensing the government to stop private actors from speaking as they wish and preferring some views over others. And that is so even when those actors possess ‘enviable vehicle[s]’ for expression. [Hurley v. Irish-American Gay, Lesbian, and Bisexual Group of Boston, 515 U.S. 557, 577 (1995).] In a better world, there would be fewer inequities in speech opportunities; and the government can take many steps to bring that world closer. But it cannot prohibit speech to improve or better balance the speech market. On the spectrum of dangers to free expression, there are few greater than allowing the government to change the speech of private actors in order to achieve its own conception of speech nirvana. That is why we have said in so many contexts that the government may not ‘restrict the speech of some elements of our society in order to enhance the relative voice of others.’ Buckley v. Valeo, 424 U. S. 1, 48–49 (1976) (per curiam). That unadorned interest is not ‘unrelated to the suppression of free expression,’ and the government may not pursue it consistent with the First Amendment.”[34]

It is worth noting that courts have consistently rejected claims that would require tech platforms to carry speech. In Jian Zhang v. Baidu.com,[35] the U.S. District Court for the Southern District of New York found that the application of a New York public accommodations law to a Chinese search engine that “censored” pro-democracy speech is inconsistent with the right to editorial discretion, stating that “there is a strong argument to be made that the First Amendment fully immunizes search-engine results from most, if not all, kinds of civil liability and government regulation.”[36] Other courts have similarly found that tech platforms have a right to editorial discretion that limits antitrust claims.[37]

An antitrust case against advertisers would likely fare no better. In FTC v. Superior Ct. Trail Lawyers Ass’n,[38] the Supreme Court considered the interaction of antitrust law and the First Amendment in a group-boycott case in which a lawyer’s association joined together to refuse to represent indigent defendants until the District of Columbia government increased their fees.[39] The Court distinguished the case from NAACP v. Claiborne Hardware Co.,[40] arguing that in this case “the undenied objective of [the lawyer association’s] boycott was an economic advantage for those who agreed to participate,”[41] while the black citizens who boycotted white merchants in Claiborne County, Mississippi, “sought no special advantage for themselves.”[42] The government may regulate economic activity, but it may not infringe the First Amendment in doing so.

Here, the motivation for advertisers to withdraw from various platforms may be driven by various considerations beyond the mere economic, such that it would be challenging to attribute a motive of consolidating or exercising market power. That might be a relatively trivial point with unilateral conduct. But that attribution would be challenging with joint conduct as well. Even the DOJ’s Statement recognizes that joint conduct about minimum quality standards or the identification of unreliable or otherwise damaging sources might be a case of voluntary standard setting, which could be procompetitive.[43] Turning to First Amendment concerns, a reviewing court would likely see an advertiser’s decision not to be associated with content that it finds damaging to its brand to be a legitimate expression of its First Amendment rights. The decision to disassociate from particular content ecosystems could reflect an exercise of expressive choice, or a prudent measure to safeguard intangible reputational assets—activities that may themselves possess First Amendment dimensions. Decisions to adhere to, or participate in, standard-setting on these dimensions seem to raise the same constitutional questions.

While preserving brand equity is undeniably intertwined with a firm’s overall economic well-being, it is analytically distinct from a concerted effort to manipulate market conditions in ways traditionally scrutinized under antitrust doctrines. Indeed, decisions to curtail advertising, while potentially serving long-term reputational interests or expressive aims, might concurrently impose immediate opportunity costs or a reduction in revenue, to the extent that advertising correlates with product or service sales. Ascertaining the primary impetus behind such conduct—whether predominantly expressive, reputational, or anticompetitively economic in the Trial Lawyers sense—presents a nuanced evidentiary challenge.

In either case, antitrust agencies would confront a formidable challenge if they sought to design remedies in such a case that would comport with existing First Amendment jurisprudence. Governmental compulsion of speech by private entities is generally disfavored. Social-media companies’ creation of expressive products through curation and other moderation decisions, and businesses’ decisions on whether or not to advertise on a particular platform, are both First Amendment-protected activities. Consequently, any remedial measure that would compel a social-media entity to host specific speech or mandate that businesses engage in specific advertising would likely raise substantial First Amendment questions.

There may be a path through the thicket. But the path is not obvious, and the prospect of its discovery seems unpromising.

III. Settlements, Agency Letters and Soft Law?

Several additional forays by the agencies—especially the FTC—merit consideration. One is a consent order in a merger matter involving Omnicom Group’s acquisition of the Interpublic Group of Companies.[44] Also of interest are a series of letters sent to various tech firms by Andrew Ferguson, in his capacity as chairman of the FTC.[45] In Omnicom, the FTC had filed a complaint alleging that there had been a history of coordination in the market for media-buying services and that a “history of coordination in an industry creates the risk of future coordination, in particular post-merger, where there will be one less significant competitor.”[46]

Perhaps. A history of unlawful, anticompetitive coordination involving merging parties might well underscore concerns about post-merger conduct. At the same time, the complaint did not allege a history of price fixing or market allocation agreements among the parties to the transaction; it did not allege that the merger was likely to lead to price fixing involving the merged entity and others in the market; and it did not allege (or explain how) the merger was likely to lead to increased prices or reduced output in the relevant market. Rather, it focused on the potential for a reduction in non-price competition. As we saw above discussing the DOJ’s SOI in Children’s Health Defense, the Omnicom complaint noted the potential for firms to coordinate on, e.g., standards of harmful or sensitive content. Further, the FTC complaint stated, “[s]uch practices may have influenced the approaches of online platforms to censor speech about controversial topics and deny access or services to users. Such approaches are relatively transparent and easily observable by competitors.”[47]

In the abstract, an enforcer might well be concerned about the prospect of coordinated action post-merger. Coordination, like the acquisition of market power, may raise concerns about increased prices, reduced output, or, indeed, increased quality-adjusted prices. But the complaint makes a weak case for such concerns, and it raises all the problems we saw above with the DOJ’s Statement and the FTC’s request for information. It raises such concerns, but it does nothing to resolve them. Moreover, given such concerns, and given a thoroughgoing lack of precedent (or economic basis) for such a case, one might well worry if merger complaints seem to be raised, and settled, conditional on a regulator’s comfort with a deal’s potential (whether likely or not) impact on the marketplace of ideas (or, as in this case, advertising ideas).

One interesting question is whether these types of enforcement actions could amount to unconstitutional coercion. In NRA v. Vullo,[48] the Supreme Court considered the efforts of the New York State Department of Financial Services (DFS) to strong-arm consent decrees with an insurer and an insurance broker designed to harm the advocacy efforts of the National Rifle Association (NRA). The DFS had those entities “agree[] not to provide any NRA-endorsed insurance programs (even if lawful)”[49] The Court ruled 9-0 that this was unconstitutional coercion, stating that “a government official cannot do indirectly what she is barred from doing directly: A government official cannot coerce a private party to punish or suppress disfavored speech on her behalf.”[50] Despite the DFS having authority over insurance regulation, it could not use that authority to suppress speech activities.

Here, the issue is slightly different, as the FTC is attempting to use a consent order to ensure Omnicom cannot coordinate with other advertisers nor act on its own to direct, refuse, or decline advertisements based on “political or ideological viewpoints expressed in content” of media publishers.[51] In other words, the FTC is trying to compel advertisers not to consider what content ads may run beside on social media platforms or other forms of media. Businesses that do not wish for their advertising dollars to run alongside content they find distasteful because it could harm their brand (and thus bottom line) should have the ability to employ advertising agencies to help them in their goals. This is the reverse issue of that presented in Vullo, one that was considered in Moody with a twist: whether the government can indirectly compel speech by forbidding advertising agencies from considering viewpoints on those media platforms. Nonetheless, the same principle should apply: the government cannot do indirectly what it may not do directly.

The FTC could argue that it is merely attempting to fulfill its enforcement mandate. Settlements may efficiently resolve antitrust concerns, and the agency has wide latitude when entering into consent agreements with merging parties. But it is not clear that FTC orders can coerce advertising agencies to carry material against their better business judgment and their customers’ wishes without violating the First Amendment. This is why the order is careful to state that it only applies to agreements between Omnicom and “any third party with respect to Media Buying Services” and not to “any agreement (. . .) between Omnicom and an Advertiser,” making clear that “exclusion lists (. . .) or Other means of differentiating between Media Publishers developed at the express direction of a particular client (. . .) are expressly permitted.”[52] Nonetheless, the focus of the order as a whole is clearly on the issue of content, not the normal concerns of collusion to fix prices, reduce output, or allocate markets.

The letters to various tech companies offer another example of the FTC’s efforts to curtail what it sees as censorship. These letters were issued in August 2025. First, on August 21, the FTC announced a series of letters from Andrew Ferguson, in his capacity as chairman of the FTC, to “more than a dozen” tech firms, including Akamai, Alphabet, Amazon, Apple, Cloudflare, Discord, GoDaddy, Meta, Microsoft, Reddit, Signal, Snap, Slack and X, and posted a “model letter.”[53] The letters noted that “[b]ecause online platforms have become so critical to public discourse, pervasive online censorship in recent years has outraged the American people. Not only have Americans been censored and expelled from platforms for uttering opinions and beliefs that were not shared by a small Silicon Valley elite, the previous administration actively worked to encourage such censorship.”[54]

The letters also suggest that such “censorship” might be a response to regulatory or other pressures imposed by foreign governments, and cautioned that compliance with such pressures might violate Section 5 of the FTC Act, including the consumer protection or unfair or deceptive acts or practices (UDAP) prong of Section 5 if, for example, firms promised a certain level or mechanism of security for consumers’ personal information but failed to deliver on that promise.

Rhetorical flourishes aside, we do not doubt that some Americans have been displeased and others outraged by the moderation practices of one or another tech platform, even as others may have felt differently. Moreover, the letter is correct in that substandard privacy and security practices by tech firms (among others) might be in violation of Section 5, whether or not imposed in response to foreign pressure. As informal guidance for industry—albeit not under the imprimatur of the Commission itself—the letter is potentially useful. At the same time, it adds almost nothing to extant guidance from the agency, but for the strained bundling with the question of content moderation at the heart of this essay.

The August 28 letter to Sundar Pichai, CEO of Alphabet (Google’s parent company), is similar, but seems more pointed—perhaps even threatening. As above, the letter raises concerns about potential violations of Section 5 of the FTC Act, with a focus on the consumer protection prong. But the letter to Pichai stops just short of alleging that conduct by Google violates the FTC Act. Citing contestable allegations by third parties, and no legal or research findings,[55] Ferguson writes to Pichai, “due to recent reporting that suggests Alphabet’s administration of Gmail is designed to have partisan effects, and accordingly to notify you that Alphabet may be engaging in unfair or deceptive acts or practices.”[56]

Again, there is no reason why an agency might not provide guidance to industry, and no reason why an FTC chairman, or any other sitting commissioner, might not raise general concerns about either competition or consumer protection matters under the agency’s jurisdiction. The question remains whether writing “[a]s the Chairman of the FTC, I write to inform you of your obligations under the FTC Act. Any act or practice inconsistent with these obligations could lead to an FTC investigation and potential enforcement action”[57] is just that, or something more. There may be many fine lines on a spectrum running from inquiry, to opining, to “jawboning,”[58] to pressure, to coercion. We are not sure where best, along that spectrum, to situate the missives from the chairman (but not the Commission). We are unsure, notwithstanding Chairman Ferguson’s welcome assurance, in his letter, that “President Trump has put a swift end to the weaponization of the federal government against Americans and their freedoms (. . .)”[59]

IV. Conclusion

Our conclusion is brief and limited. The U.S. agencies are right that non-price dimensions of products and services might rightly figure in competition matters. That is an entirely uncontroversial position. They are right, too, that the firms operating such platforms are not generally immune from antitrust scrutiny, across all conduct and all lines of business, simply because they engage in protected speech. That, too, is entirely uncontroversial. At the same time, the conditions under which an enforcer might make out a good antitrust case about a platform’s content moderation policies seem limited and poorly fit to what is generally known about such policies. The same might be said of consumer protection actions under the FTC Act. Moreover, the Supreme Court has been clear that the First Amendment’s prohibition of censorship regards government censorship, not private moderation, and that the speech clause protects content moderation decisions against government intervention that would otherwise fall within state or federal police powers. What is left for content moderation by tech platforms at the intersection of antitrust liability and the First Amendment may or may not be the empty set. But it is limited, to be sure. And the agencies’ ongoing inquiries and interventions in the space seem an unpromising waste of limited resources, at best.

[1]        Model Letter Sent to Tech Companies from Andrew N. Ferguson, Chairman, U.S. Fed. Trade Comm’n, Aug. 21, 2025, at 1, https://www.ftc.gov/system/files/ftc_gov/pdf/ftc-unfair-security-letter-ferguson.pdf.

[2]        Enforcement matters brought by the Department of Justice and the Federal Trade Commission include lawsuits against Amazon, Apple, Google (two matters), Meta (two matters), and Microsoft. See U.S. and Plaintiff States v. Apple, case No. 2:24-cv-04055 (D.N.J. 2024) (Compl.); FTC and Plaintiff States v. Amazon.com, Inc., case No. 2:23-cv-01495 (W.D. Wa. 2023) (Compl.); FTC v. Microsoft Corp., case No. 3:23-cv-02880 (N.D. Cal. 2023) (Compl. for Temporary Restraining Order and Preliminary Injunction); U.S. and Plaintiff States v. Google LLC, case No. 1:23-cv-00108 (E.D. Va. 2023) (Compl.); FTC v. Meta Platforms, Inc., case No. 5:22-cv-04325 (N.D. Cal. 2022) (Compl. for Temporary Restraining Order and Preliminary Injunction); FTC v. Facebook, Inc., case No. 1:20-cv-03590 (D.D.C. 2021) (Compl. for Injunctive and Other Equitable Relief); U.S. and Plaintiff States v. Google LLC, case No. 1:20-cv-03010 (D. D.C. 2020) (Compl.).

[3]        See, e.g., H. Hovenkamp, Principles of Antitrust, 3rd ed., West Academic Publishing, St. Paul, 2025; P. E. Areeda and H. Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, 4th–5th ed., Wolters Kluwer, New York, 2022 (absence of the issue from these treatises confirmed by searching contents and indices, and by email with Herbert Hovenkamp, Sept. 21, 2025).

[4]        Fed. Trade Comm’n, Request for Public Comment Regarding Technology Platform Censorship, Feb. 20, 2025, https://www.ftc.gov/system/files/ftc_gov/pdf/P251203CensorshipRFI.pdf.

[5]        Fed. Trade Comm’n, Press Release, Federal Trade Commission Launches Inquiry on Tech Censorship, Feb. 20, 2025, https://www.ftc.gov/news-events/news/press-releases/2025/02/federal-trade-commission-launches-inquiry-tech-censorship.

[6]        15 U.S.C. § 46(a).

[7]        See, e.g., D. J. Gilman, Antitrust at the Agencies: Private Anticompetitive Censorship Edition, Truth on the Market, Feb. 21, 2025, https://truthonthemarket.com/2025/02/21/antitrust-at-the-agencies-private-anticompetitive-censorship-edition/.

[8]        Press Release, supra note 5.

[9]        Post, Andrew Ferguson, Chairman, FTC, X, Feb. 20, 2025, https://x.com/AFergusonFTC/status/1892619431991287893.

[10]      Statement of Interest of the United States, Children’s Health Defense v. WP Co., Civil Action No. 1:23-cv-2735 (D.D.C. filed Jul. 11, 2025), https://www.justice.gov/atr/media/1407666/dl?inline.

[11]      See 28 U.S.C. § 517 (authorizing the Department of Justice to “attend to the interests of the United States” in a pending suit).

[12]      See J. Casper, FTC’s Ferguson Says Tech Censorship Practices May Violate Antitrust Law, Broadband Breakfast, Mar. 25, 2025, https://broadbandbreakfast.com/ftcs-ferguson-says-tech-censorship-may-violate-antitrust-law/.

[13]      Statement of Interest of the United States, supra note 10, at 2.

[14]      See, e.g., National Macaroni Manufacturers Association, et al., Petitioners, v. Federal Trade Commission, Respondent, 345 F.2d 421 (7th Cir. 1965); see also, Comments of the International Center for Law & Economics RE: FTC-2025-0023-0001, Request for Public Comments Regarding Technology Platform Censorship, May 21, 2025, https://laweconcenter.org/wp-content/uploads/2025/05/FTC-RFI-Technology-Platform-Censorship-2025.pdf.

[15]      U.S. Dep’t Justice and U.S. Fed. Trade Comm’n, Horizontal Merger Guidelines, Aug. 19, 2010, at 2, https://www.justice.gov/atr/file/810276/dl?inline= (withdrawn Dec. 2023).

[16]      National Macaroni Manufacturers Ass’n, supra note 14; see also, M. Jones, B. Kobayashi and J. O’Connor, Economics at the FTC: Non-Price Merger Effects and Deceptive Automobile Ads, FTC Working Paper, Dec. 2018, https://www.ftc.gov/system/files/documents/reports/economics-ftc-non-price-merger-effects-deceptive-automobile-ads/1812-be-rio.pdf (FTC Bureau of Economics analysis of the non-price effects of the proposed merger between DraftKings, Inc. and FanDuel Ltd.).

[17]      National Macaroni Manufacturers Ass’n, supra note 14; United States v. Continental Can Co., 378 U.S. 441 (1964).

[18]      The U.S. Department of Health & Human Services has developed certain measures of hospital quality, including certain core outcomes and process measures. See, e.g., Dep’t Health & Human Servs., Agency for Health Care Research and Quality, Major Hospital Quality Measurement Sets, https://www.ahrq.gov/talkingquality/measures/setting/hospitals/measurement-sets.html.

[19]      National Macaroni Manufacturers Ass’n, 345 F.2d at 424.

[20]      Ibid. at 426.

[21]      See Comments of the International Center for Law & Economics, supra note 14, at 20.

[22]      Statement of Interest of the United States, supra note 10, at 13.

[23]      Associated Press v. United States, 326 U.S. 1 (1945).

[24]      Miami Herald Pub. Co. v. Tornillo, 418 U.S. 241 (1974).

[25]      Moody v. NetChoice, LLC, 603 U.S. 707 (2024).

[26]      Abrams v. United States, 250 U.S. 616 (1919) (Holmes, J., dissenting).

[27]      Manhattan Community Access Corp. v. Halleck, 139 S. Ct. 1921 (2019).

[28]      Moody, 603 U.S. at 731 (“[T]he First Amendment offers protection when an entity engaging in expressive activity, including compiling and curating others’ speech, is directed to accommodate messages it would prefer to exclude.”).

[29]      See, e.g., B. Sperry, First Amendment Conflict of Visions Redux: The Case of Facebook’s Oversight Board and the Threat of Antitrust Action, Truth on the Market, May 12, 2020, https://truthonthemarket.com/2020/05/12/first-amendment-conflict-of-visions-redux-the-case-of-facebooks-oversight-board-and-the-threat-of-antitrust-action/.

[30]      Statement of Interest of the United States, supra note 10, at 5 (citing F. A. Hayek, The Use of Knowledge in Society, Amer. Econ. Rev., Vol. 35, No. 4, 1945, pp. 519–530).

[31]      Associated Press, 326 U.S. at 20, n.18.

[32]      Moody, 603 U.S. at 707.

[33]      Ibid.

[34]      Ibid. at 741–742.

[35]      10 F. Supp. 3d 433 (S.D. N.Y. Mar. 28, 2014).

[36]      Ibid. at 438.

[37]      See, e.g., E-Ventures Worldwide LLC v. Google Inc., 2017 WL 2210029, at *4 (M.D. Fla. Feb. 8, 2017); Langdon v. Google, Inc., 474 F. Supp. 2d 622, 629–630 (D. Del. 2007).

[38]      493 U.S. 411 (1990).

[39]      See ibid. at 414.

[40]      458 U.S. 886 (1982).

[41]      Superior Ct. Trail Lawyers Ass’n, 493 U.S. at 426.

[42]      Ibid.

[43]      See Statement of Interest of the United States, supra note 10, at 13 (“[V]oluntary product standards promulgated with ‘meaningful safeguards’ can sometimes have ‘significant procompetitive advantages.’ Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 (1988).”).

[44]      Decision and Order, Fed. Trade Comm’n, In the Matter of Omnicom Group Inc. and the Interpublic Group of Companies, Inc., docket No. C-4823, Sept. 26, 2025, https://www.ftc.gov/system/files/ftc_gov/pdf/OmnicomOrder.pdf.

[45]      See Fed. Trade Comm’n, Press Release, FTC Chairman Ferguson Warns Companies Against Censoring or Weakening the Data Security of Americans at the Behest of Foreign Powers, Aug. 21, 2025, https://www.ftc.gov/news-events/news/press-releases/2025/08/ftc-chairman-ferguson-warns-companies-against-censoring-or-weakening-data-security-americans-behest (regarding letters sent to “more than a dozen prominent technology companies”); Model Letter Sent to Tech Companies from Andrew N. Ferguson, supra note 1; Fed. Trade Comm’n, Press Release, Federal Trade Commission Chairman Andrew N. Ferguson Issues Letter on Gmail Using Partisan Filtering, Aug. 28, 2025, https://www.ftc.gov/news-events/news/press-releases/2025/08/federal-trade-commission-chairman-andrew-n-ferguson-issues-letter-gmail-using-partisan-filtering; Letter from Andrew N. Ferguson, FTC Chairman, to Sundar Pichai, Alphabet Corp., re Potential FTC Act Violations Related to Partisan Administration of Gmail, Aug. 28, 2025, https://www.ftc.gov/system/files/ftc_gov/pdf/ferguson-letter-alphabet-ceo-re-potential-ftc-act-violations-related-to-partisan-administration-of-gmail.pdf.

[46]      Complaint, Fed. Trade Comm’n, In the Matter of Omnicom Group Inc. and the Interpublic Group of Companies, Inc., docket No. C-4823, at 3 (Sept. 26, 2025), https://www.ftc.gov/system/files/ftc_gov/pdf/2410059C4823OmnicomComplaint.pdf. The complaint defined “Media Buying Services” as “media purchases of advertising inventory across any type of media and purchases on behalf of, or for later resale to, customers or potential customers (advertisers) but does not include other media services sold or billed separately by the company, such as media planning or campaign management.” Ibid.

[47]      Ibid. at 4.

[48]      602 U.S. 175 (2024).

[49]      Ibid. at 185.

[50]      Ibid. at 190.

[51]      Decision and Order, supra note 44, at 3.

[52]      Ibid. at 3–4.

[53]      Model Letter Sent to Tech Companies from Andrew N. Ferguson, supra note 1.

[54]      Ibid. at 1.

[55]      For a critique of the citations in the letter, see D. J. Gilman, Antitrust at the Agencies: Moderation in All Things Edition, Truth on the Market, Sept. 3, 2025, https://truthonthemarket.com/2025/09/03/antitrust-at-the-agencies-moderation-in-all-things-edition/.

[56]      Letter from Andrew N. Ferguson to Sundar Pichai, Alphabet Corp., supra note 45, at 1.

[57]      Ibid. at 2.

[58]      W. Duffield, Jawboning against Speech, Cato Institute, Sept. 12, 2022, https://www.cato.org/policy-analysis/jawboning-against-speech.

[59]      Model Letter Sent to Tech Companies from Andrew N. Ferguson, supra note 1, at 1.

Abstract

I. Introduction

The Promoting Responsible and Open Codes Act (PRO Codes Act), introduced in June by U.S. Reps. Darrell Issa (R-Calif.) and Deborah Ross (D-N.C.),[1] has exposed a long-simmering tension within the world of standards development. On its face, the bill offers a straightforward promise: if a private standard is incorporated by reference into law, that standard must be made freely available to the public. Beneath that promise, however, is a complex set of questions about the economics of standards setting, the role of copyright in sustaining that system, the risks of sweeping statutory reforms that fail to account for the breadth of business models under consideration, and the further attendant risks when Congress wades into a complicated area of litigation.

In contrast to the bold claims made both by the bill’s sponsors[2] and supporters [3] and its critics,[4] the real promise and danger raised by the PRO Codes Act is not that it entrenches copyright, but that it hollows it out—transforming a property right into a conditional license revocable at the government’s whim. Worse, it risks normalizing broad “public-spirited” exceptions to copyright that are untethered from the careful doctrines courts have developed over decades. Properly understood, the PRO Codes Act is not a reinforcement of copyright but a distortion that would weaken it for the very organizations that depend on it most.

Standards are indispensable to the modern economy. They form the hidden architecture of markets and regulation, governing everything from boilers and electrical wiring to aircraft design, medical devices, and nuclear facilities. Their creation requires deep technical expertise and countless hours of volunteer effort, and their adoption by governments has long been praised as a means to harness expert knowledge without the expense and politicization of agency-drafted codes. Copyright revenues can be essential to sustaining this enterprise, ensuring that standards organizations can recover the costs of developing works that—once produced—can be copied at almost no cost.

The current debate over the PRO Codes Act, however, highlights that not all standards-development organizations (SDO) operate in the same way. Two distinct business models have emerged. On one side are voluntary-adoption SDOs, which rely on volunteer engineers and technical experts to produce consensus standards and sustain their work through private, generally commercial sales. On the other side are lobbying-oriented SDOs, which supplement technical work with lobbying campaigns to secure wholesale statutory adoption; they then typically invoke copyright to meter access to the law text.

Both models depend on copyright, and both are legally entitled to enforce it. But the lobbying model raises sharper questions because of the way it couples lobbying with property rights, creating the appearance—if not the reality—of something like “unclean hands.”[5] It is this dynamic, not copyright itself, that has drawn legislative attention, and that fuels the push for legislation like the PRO Codes Act.

The danger is that, by targeting copyright across the board, rather than tailoring its response to one business model, Congress could destabilize the entire ecosystem of standards development. The PRO Codes Act risks collapsing the distinction between the voluntary-adoption and lobbying approaches, and introducing a de facto compulsory-licensing regime that would undercut the very property rights on which standards creation depends.

This issue brief examines these models, demonstrating how each interacts with copyright. It also considers the law & economics implications of the PRO Codes Act’s attempt to redraw the line between public access and private incentives.

II. The PRO Codes Act Doesn’t Mean What You Think It Means

Reps. Issa and Ross have cast their bill as a measure that will “protect public access to federal rules,” while also recognizing the role of private standards in the regulatory process.[6] The sponsors’ stated goal is to assure citizens enjoy free online access to incorporated standards, while preserving the copyright protection that funds those standards’ development. The ensuring debate, however, has split the interested parties into two sharply opposed camps, each of which has framed the proposal in ways that obscure its real long-term effects.

Opponents of the bill have described it as a giveaway to standards bodies. UpCodes, a startup that has litigated against SDOs to force publication of model building codes online, argues that the bill “locks up the law” and empowers private organizations to monetize access to rules that bind the public.[7] Others have warned that the bill would “attempt to copyright the law” and may itself be unconstitutional,[8] arguing that it constitutes a privatization of law that undermines public access.[9]

Supporters of the bill, by contrast, characterize the PRO Codes Act as essential copyright protection, arguing that it would preserve the incentive structure for standards development while ensuring transparency.[10] Not surprisingly, the measure has been championed by the International Code Council (ICC) and the National Fire Protection Association (NFPA), the two SDOs whose lobbying activity, as discussed below, may have been an important factor in forcing Congress to consider this “fix.”

That this cross-cutting lineup of interested parties argues the positions they do is not without irony. Among the bill’s opponents are copyright skeptics, who see the measure as a copyright giveaway, but they are joined in opposition by voluntary-adoption SDOs, who fear the bill will undermine their business model. Meanwhile, while the bill’s supporters are typically pro-copyright institutions, the measure they are defending could transform copyright into a contingent right that would evaporate if incorporated into law unless certain access conditions are met. Put differently, while popular rhetoric treats the PRO Codes Act as strengthening copyright, a careful examination of the economic incentives of copyright in the SDO context suggests that it may fact weaken copyright by subjecting the development and promulgation of codes to a form of compulsory licensing.

The real issue in this debate is not whether citizens should have access to the law—no one disputes that principle—but how to achieve that goal without destabilizing the intellectual-property foundation on which standards development rests. The next sections examine two frequently employed business models of standards development—the voluntary-adoption model and the lobbying model—before returning to the PRO Codes Act to assess how it would affect each and why it risks undermining, rather than reinforcing, copyright.

III. Two Business Models of Standards-Setting Organization

The PRO Codes Act debate, though focused on a relatively narrow segment of the standards ecosystem, brings to the surface broader issues of incentive design, the structure of the standards marketplace, and the stability of copyright policy. To understand the potential downstream effects of any legislative intervention, it is useful to examine two popular models for the commercialization of standards development implicated by the proposed legislation.

A. The Voluntary-Adoption Standards Model

Voluntary-adoption SDOs emerged largely in the late 19th and early 20th centuries, often in response to public-safety crises or industrial inconsistencies. The American Society of Mechanical Engineers (ASME) turned to standardization in the 1880s following a series of deadly boiler explosions and soon published its boiler code to prevent further accidents.[11] Underwriters Laboratories (UL) was founded in 1894 by insurance companies to address rampant fire hazards from unsafe consumer products.[12] The American Society for Testing and Materials (now known as ASTM International), founded in 1898, arose from concerns about the inconsistent quality of steel rails used in the railroad industry.[13]

A common characteristic of these organizations is their reliance on volunteer technical committees composed of engineers, academics, government officials, and industry participants. Decisions are reached through consensus ballots and public review, which—under ANSI’s accreditation regime—must reflect a balance of interests to prevent domination by any single stakeholder.[14]

Voluntary-adoption SDOs—such as ASME, ASTM International, or the Institute of Electrical and Electronics Engineers (IEEE)—do not typically engage in extensive lobbying campaigns to secure wholesale statutory enactment of their codes. This is not to say these organizations never participate in the political process, but their business models do not generally depend on the lobbying process to secure statutory enactment the way the ICC and NFPA models do (as discussed below). ASME, for example, emphasizes that its codes are developed by volunteer committees and are “frequently referenced in regulations worldwide,” attributing such adoption to their technical credibility, rather than political advocacy.[15] Similarly, ASTM International attributes the widespread citation of its standards in law to “technical excellence and global consensus,” rather than lobbying.[16]

This reliance on expertise makes voluntary standards something of a “default” status for standards adoption, which is further supported by federal policy. Under the National Technology Transfer and Advancement Act[17] and OMB Circular A-119, federal agencies are directed to use voluntary-consensus standards wherever possible. At the margins, this reduces SDOs’ need to rely on lobbying campaigns to develop a sustainable business model.[18]

Examples of this model abound. ASME’s volunteer committees, for example, maintain the Boiler and Pressure Vessel Code, a core set of safety standards that federal regulators—including the Occupational Safety and Health Administration (OSHA) and the Nuclear Regulatory Commission (NRC)—incorporate by reference routinely.[19] ASTM International now maintains roughly 12,000 voluntary-consensus standards, widely used in construction, petroleum, environmental regulation, and manufacturing. Federal agencies such as the Environmental Protection Agency (EPA) and the Consumer Product Safety Commission (CPSC) incorporate ASTM International standards by reference into regulations governing emissions testing and product safety.[20] IEEE produces hundreds of standards for electrical and computer engineering, including the well-known IEEE 802 Wi-Fi protocols.[21] Founded 1905, the Society of Automotive Engineers (now known as SAE International) continues to supply aviation and automotive standards referenced by the Federal Aviation Administration (FAA) and U.S. Transportation Department (DOT).[22] The American Concrete Institute (ACI) produces the ACI 318 structural code, which is widely referenced in building regulations.[23]

1. The economics of the voluntary-adoption model

Voluntary-adoption SDOs typically do not rely heavily on dues or public appropriations. Instead, their primary source of revenue is the sale of standards documents. ASTM International, for example, derives roughly 85% of its funding from publication sales, with only about 15% from membership fees.[24]

Thus, such SDOs have generally argued that their ability to continue producing technical standards depends on revenue from the sale of copyrighted materials. Because developing consensus standards requires expert committees, extensive consultation, and periodic revision, SDOs maintain that the ability to earn copyright revenues is essential to their work.[25] Courts have acknowledged this claim, even as other courts have questioned whether industry and regulatory incentives might suffice without copyright protection.[26]

But what must be acknowledged is the uneven economics of standards setting: only some standards are incorporated widely into law or command significant market demand, while many others serve narrower or specialized purposes. While there has been, to date, no broadly available quantification of sales distribution across standards, it is reasonable to infer—drawing on patterns in other creative markets—that revenues are likely concentrated in just a handful of broadly adopted or “blockbuster” standards, which in turn help to sustain the development of more specialized standards with more limited commercial appeal.[27]

Given this reality, the voluntary-adoption model is uniquely vulnerable to shifts in copyright doctrine. Incorporation by reference (IBR) allows regulators to require compliance with an external standard by citing it directly in law, rather than reproducing the text. Moreover, IBR allows updates to the standards to be reflected in the law without the need to promulgate new regulations or pass new legislation. Regulators have generally held that incorporation does not place the standard into the public domain.[28] OSHA, for instance, has repeatedly confirmed that “copyright laws protect national consensus standards,” even when incorporated into OSHA rules.[29]

From an economic perspective, the voluntary-adoption model represents a unique solution to the public-goods problem. Standards have high fixed development costs but, once created, can be reproduced (or incorporated by reference) at negligible marginal cost. Absent some exclusion mechanism, there would be chronic underinvestment. Copyright creates a limited exclusion that allows SDOs to recoup costs, while volunteer labor minimizes the need for large financial outlays.

The voluntary-adoption model’s efficiency stems from its ability to pool technical expertise that governments could not feasibly replicate at scale. Agencies would face significant opportunity costs, both financial and political, if forced to draft thousands of engineering standards internally. Volunteer-consensus processes also produce broader stakeholder buy-in, which enhances compliance and legitimacy.[30] At the same time, the backdrop of copyright ensures that SDOs will be able to fund ongoing work, even for standards that do not generate large market demand.

B.  The Lobbying Model of Standards Development

In contrast to the voluntary-adoption model of standards development is what we can call the “lobbying model.” While it is true that this SDO business model similarly relies on engineering expertise and consensus-building activities, it is distinct in that it seeks to leverage copyright to encourage promulgation of standards-reliant codes. For example, the ICC advertises that an important part of its government-relations team’s mission is to “advocate for the adoption, implementation and enforcement of current building safety codes, standards and policies.”[31] The NFPA notes that its staff “engage[] with policymakers at all levels of government to support adoption and use of NFPA codes and standards.”[32] And at least one account of the relationship between these two organizations detailed the intense lobbying battle between ICC and NFPA in the early 2000s, when each group deployed “lobbyists, political ads, and grassroots campaigns” to persuade states and cities to adopt their specific codes.[33]

The evidence suggests it is likely this business model that has generated many of the conflicts that have inspired legislation like the PRO Codes Act.

1. Mechanics of the lobbying model of standards development

In contrast to the voluntary-adoption approach, the commercialization portion of the lobbying model centers on two sequential moves. First, a private body like the ICC or the NFPA drafts a comprehensive code and lobbies legislatures and agencies to adopt this code wholesale (often with minimal amendments). Second, once legal force is attached, the organization asserts copyright in the text of the law and sells access to the code via print, PDFs, and subscriptions, while offering only constrained read-only portals as a free option.

This two-stage maneuver—leveraging the political process to create a legal obligation and then invoking copyright to control the text—structures a business model in which legal adoption helps to create a captive market for the publisher’s editions.[34] This can generate significant revenue for the relevant standards bodies:

To understand the battle between NFPA and ICC, it is useful to avoid thinking of the two groups as associations of code geeks. Rather, think of them as two publishing houses engaged in a war for book sales. Codebooks are a big business in the United States and abroad. When a city or a state adopts one model code or the other, it means that thousands of code officials, architects, engineers and others must purchase new copies to keep on their desks. In 2004, NFPA pulled in $58 million from publication sales, while ICC earned $25 million.[35]

The ICC, which emerged through consolidation of various regional model-code bodies, most notably publishes the International Codes (“I-Codes”), which serve as the baseline building regulations for most U.S. jurisdictions.[36] The NFPA, founded in 1896, develops hundreds of safety standards, including NFPA 70 (National Electrical Code) and NFPA 101 (Life Safety Code), which are widely adopted by reference.[37] Once enacted, the ICC’s I-Codes and the NFPA codes are sold at textbook-level price points and supplemented by paid digital subscriptions that offer broader functionality.[38]

The lobbying model can create tension because it sits at the fault line between private copyright enforcement and the public’s right to know the law. As we discuss in the next section, courts have been forced to confront the economic and legal consequences of allowing private SDOs to both press for their texts to become legally binding and then restrict access to those same texts once enacted.

C. Relevant Case Law

The overlap between voluntary-adoption and lobbying-oriented SDOs becomes most visible in the courts. Whatever differences exist in their business models, both types of SDO ultimately confront the same question: what becomes of copyright once private standards are incorporated into binding law? Judicial treatment of this issue has been uneven across circuits and contexts, but it reflects a common baseline principle—citizens must be able to access the laws that govern them, even when those laws originate as privately authored texts.

Early decisions reflected a strong inclination to preserve copyright protection, notwithstanding incorporation. In Practice Management v. AMA, the 9th U.S. Circuit Court of Appeals upheld copyright in the American Medical Association’s (AMA) Current Procedural Terminology (CPT) coding system, despite its incorporation into Medicare regulations, as the court reasoned that government reference did not divest the AMA of authorship or originality.[39] Similarly, in CCC Information Services v. Maclean Hunter, the 2nd U.S. Circuit Court of Appeals confirmed copyright protection for an automobile-valuation guide, even though state law required insurers to use it.[40] These cases underscored the view that mere legal reliance on a work did not erase the statutory protections conferred by the Copyright Act—a view congenial to SDOs that depend on copyright revenues to sustain costly consensus-driven technical work.

The 5th U.S. Circuit Court of Appeals, however, took a different approach in Veeck v. SBCCI, where a citizen posted online the building codes of two Texas towns that had adopted a model code verbatim.[41] Sitting en banc, the court held that, once a model code is enacted as municipal law, it loses copyright protection under both the government-edicts doctrine and the merger doctrine.[42] The court reasoned that “public ownership of the law means precisely that ‘the law’ is in the ‘public domain’ for whatever use the citizens choose to make of it,” emphasizing that citizens must have free access to the rules that bind them.[43] The circuit court’s decision was rooted in the idea that, once enactment renders a standard a non-substitutable public good, exclusionary rights function as a toll on compliance, rather than as an incentive for creation.

Importantly, the Veeck court was careful to limit its holding to the wholesale adoption of model codes as law, noting that the case did not involve extrinsic technical standards. This distinguishes that opinion from cases that uphold copyright protection for incorporated technical works.[44] Veeck thus struck most directly at lobbying-oriented SDOs, whose revenue model depends on wholesale enactment of their codes. When enactment itself triggers loss of copyright, it undercuts the very mechanism on which they rely to convert technical documents into guaranteed markets. By contrast, voluntary-adoption SDOs generally see their standards incorporated by reference, rather than enacted wholesale, and thus remain better positioned to preserve copyright protection under prevailing doctrine.

This difference is not merely procedural: when a standard is incorporated by reference, it remains a privately authored work that is used by law but not transformed into law, allowing copyright to persist under, for example, the “reasonable availability” regime established by OMB Circular A-119. Wholesale adoption, however, turns the text into the law itself, triggering the “law is public domain” problem at the heart of Veeck. As discussed below, the PRO Codes Act threatens to collapse this distinction, treating both models as functionally equivalent and thereby extending statutory protection to the lobbying-oriented model, while destabilizing the voluntary-adoption one.

Subsequent cases have, however, shifted away from the government-edicts doctrine and instead relied on fair use to reconcile public access with copyright. In American Society for Testing & Materials v. Public.Resource.Org, the U.S. Circuit Court for the D.C. Circuit upheld nonprofit republication of standards incorporated by reference into law, reasoning that such dissemination was transformative: while SDOs published standards for commercial sale, Public.Resource.Org republished them to educate the public about legal obligations.[45] The court also found the “reading rooms” that SDOs maintained to be inadequate, noting they often barred printing, downloading, or robust searching.[46] Doctrinally, this fair-use holding applied across the board—sweeping in both lobbying-oriented and voluntary-adoption SDOs alike.

The ICC’s litigation against UpCodes, a startup offering searchable online building codes, pushed these tensions into the commercial realm. The district court echoed Veeck in holding that private entities cannot wield copyright to bar access to enacted law, while leaving unresolved questions about non-enacted provisions and advertising claims. The case highlights the remaining gray area: nonprofit republication for educational purposes has been immunized, while commercial republication is still subject to closer scrutiny, with courts weighing the public benefits of wider access against potential market substitution.

These cases did not emerge in a vacuum. The most acute disputes, such as Veeck and UpCodes, arose from the distinctive incentives of lobbying-oriented SDOs, which campaign for wholesale enactment of their codes and then invoke copyright to meter access once those codes have become law. That strategy created the scarcity dynamic that brought these conflicts into the courts. Voluntary-adoption SDOs like ASTM International have been swept into the same doctrinal current—most notably in Public.Resource.Org, where fair use applied to their standards incorporated by reference—but their exposure reflects the breadth of the doctrine, rather than the business model they pursued. The underlying political pressure for legislation such as the PRO Codes Act seems to stem far more from the lobbying-oriented posture of ICC and NFPA.

Moreover, this jurisprudence is critical to understanding the stakes of the PRO Codes Act. Courts have already developed tools to balance access and incentives, allowing standards to remain protected as intellectual property, while ensuring that the public is not priced out of compliance. The PRO Codes Act, by contrast, threatens to displace these doctrines with a blunt statutory rule that collapses distinctions among SDOs and risks destabilizing copyright protections across the board. The next section turns to that legislation, analyzing its likely effects on both voluntary-adoption and lobbying-driven models of standards development.

IV. The Law & Economics of the PRO Codes Act

Into this complicated case law, Congress is considering injecting the PRO Codes Act. Framed as a transparency measure, its core provision declares that, once a private standard is incorporated by reference into law, it must be posted online for free.[47] If the standards body fails to provide that access, it will lose its copyright in the work.[48]

Supporters argue that this rule addresses a basic democratic concern: citizens should not have to pay, or navigate paywalled reading rooms, to learn the rules that govern them.[49] For proponents, the problem is straightforward—codes that function as law are often accessible only through expensive books or restricted digital portals. By forcing free posting, the bill purports to guarantee that binding legal obligations are accessible to all.

At first glance, the policy appeal is strong. Courts in cases like Veeck and Public.Resource.Org have reasoned that, once private standards become law, restricting access through paywalls or high-friction portals imposes deadweight losses by charging tolls for access to a non-substitutable public good.

Yet the PRO Codes Act addresses this problem in a way that risks undermining copyright more broadly. By conditioning copyright protection on whether a standard has been incorporated by reference, the bill effectively converts government adoption into a trigger for compulsory licensing at zero price. This approach does not simply guarantee access; it extinguishes property rights whenever the state adopts a private work. That is to say, a third party gets to exercise veto power over an SDO’s property rights.

Critically, entities like ICC and NFPA are just as entitled as any other standards body to enforce their copyrights. This approach to funding their operations is not per se objectionable, even as litigation has challenged whether incorporated statutes should or should not qualify for a fair-use exception. What is relevant here is how the lobbying-oriented model appears to foment many of the legal crises to which the PRO Codes Act seeks to respond. To the extent there is a problem the courts have not addressed, the fix is not to create a major exception to copyright. It should be to examine the activity that generates such problems and tailor any appropriate responses to that activity. Here, it is likely the combination of political adoption and subsequent reliance on exclusivity that makes the lobbying-oriented model uniquely open to criticism.

Further, the design of the PRO Codes Act could disproportionately harm voluntary-adoption standards bodies, which do not lobby for their codes to be adopted wholesale, but whose works are frequently referenced in federal and state regulations—access to which is very likely already covered under fair use. Unlike lobbying-oriented SDOs, who seek enactment as part of their business model, voluntary-adoption SDOs have little control over whether their codes are cited by regulatory bodies. Under the PRO Codes Act, such adoption would effectively eliminate the SDOs’ copyrights, erasing the very revenue stream that sustains the cross-subsidized development of technical safety standards.

The economic consequences of such a shift are significant. If SDOs cannot rely on publication revenues, many would likely have to scale back or abandon development of standards that lack commercial scale. Government bodies could, in theory, step in with funding, but doing so would require major new appropriations and would risk politicizing technical work now performed through professional consensus.

The U.S. advantage in global standards setting has long rested on a decentralized ecosystem of private SDOs, drawing on volunteer expertise and sustained by intellectual property. Weakening the property rights that support this ecosystem would risk slowing code updates, reducing technical quality, and further risk ceding international leadership to rivals. China’s “Standards 2035” plan, for example, explicitly aims to supplant U.S. and European standards as global benchmarks.[50] A policy that destabilizes U.S. SDOs could inadvertently accelerate that shift.

The PRO Codes Act also raises a more general property-rights concern. Once Congress sets the precedent that state action extinguishes copyright, the principle could spread beyond standards. If textbooks, software, or other works used by government (or, indeed, other “deserving” third parties) were deemed incorporated into a work of “public concern,” would they also lose protection?

The PRO Codes Act’s narrow focus on civil-engineering codes masks the breadth of its doctrinal innovation. It would collapse the distinction between using a work in governance and expropriating it into the public domain. This is a distortion ultimately caused by using one particular business model as the spark to restructure copyright itself.

The PRO Codes Act would fundamentally alter the current balance of law and directly undermine the business models of the voluntary-adoption SDOs. Under existing doctrine, when a voluntary-consensus standard is incorporated by reference, it does not automatically fall into the public domain. Courts have occasionally curtailed copyright (for example, by recognizing nonprofit republication as fair use), but these rulings have been case-by-case and have left intact the broader rights of standards bodies outside those narrow contexts. Agencies guided by OMB Circular A-119 must ensure “reasonable availability,” a requirement that can be satisfied through limited reading rooms or online portals. This approach permits SDOs to continue selling full copies—which are searchable, printable, and portable—while meeting their public-access obligations.

The PRO Codes Act would replace that flexible system with a rigid statutory rule and would, in essence, codify the lobbying-oriented SDOs’ business model. Once a standard is incorporated by reference, it would have to be posted online for free. If the SDO failed to do so, it would lose its copyright altogether. This turns copyright from a stable property right into a contingent interest revocable by government action.

Even compliance would bring risks. By mandating open online posting, the bill strips SDOs of control over how their works are made available and threatens to erode revenue streams that depend on users purchasing official editions. In short, the bill destabilizes SDOs’ rights, undermines their ability to sustain their business model, and exposes them to uncompensated forfeiture of the intellectual property on which their work depends.

A more balanced policy response would start from the premise that copyright is worth preserving as the foundation of creative and technical enterprise. The problem with the lobbying-oriented model is not copyright per se, but the way it is coupled with lobbying for wholesale statutory adoption. The PRO Codes Act mistakenly attacks copyright across the board, rather than targeting the lobbying-driven dynamics that generate actual problems in public access. In doing so, it threatens voluntary-adoption organizations that exemplify the public-interest rationale for copyright protection.

It is likely that the best approach to this issue is to do nothing, leaving courts to continue calibrating the balance through doctrines like fair use and the government-edicts rule. That approach already ensures nonprofit republication and public-domain status where texts are enacted verbatim, while leaving SDOs’ revenue streams intact. In short, Congress should reject statutory “fair use” expansion in the form proposed by the PRO Codes Act. Codifying a blanket rule that incorporation extinguishes copyright unless the rightsholder gives away his property would put at odds two distinct issues: ensuring access to the law and preserving the economic incentives that sustain the private development of standards.

V. Conclusion

Copyright undergirds the distinct but fragile business models that sustain standards development. For voluntary-adoption SDOs, copyright revenues provide the cross-subsidies needed to maintain a vast portfolio of technical rules, most of which would never be commercially viable on their own. For lobbying-oriented SDOs, copyright plays a different role, functioning as part of a two-stage maneuver, alongside lobbying to secure wholesale adoption. Both models illustrate how property rights serve as the backbone of the standards ecosystem, even as they invite scrutiny from courts and policymakers.

The PRO Codes Act threatens to upend this balance by introducing compulsory licensing by stealth. By tying copyright to government incorporation, the bill does not merely guarantee access but distorts the structure of property rights, creating a precedent that could undermine innovation, erode U.S. competitiveness, and unsettle the careful balance between public access and private incentive. Framed as a transparency measure, it risks entrenching one contested business model, while destabilizing the broader ecosystem of standards development.

The economic stakes are clear. SDOs provide technical infrastructure on a scale and at a level of expertise that government bodies could not replicate without extraordinary cost. Their continued viability depends on predictable intellectual property protections. Undermining those rights in the name of transparency would erode the capacity for innovation and distort the broader architecture of property law.

In short, the PRO Codes Act is a miscalibrated response. It overcorrects problems created by lobbying-driven SDOs and, in doing so, threatens the sustainability of voluntary-adoption SDOs. The better path is not to abandon copyright, but to preserve and refine the flexible tools already available in law—fair use, licensing, and targeted judicial scrutiny. Those mechanisms have long balanced access with incentives, and they remain far better suited to the complexities of standards development than the blunt instrument of statutory compulsory licensing.

[1] Pro Codes Act, H.R. 4009, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/house-bill/4009.

[2] Press Release, Issa, Ross Introduce Legislation to Protect Public Access to Federal Rules, Regulations, Off. Rep. Darrell Issa (Jun. 23, 2025), available at https://issa.house.gov/media/press-releases/issa-ross-introduce-legislation-protect-public-access-federal-rules.

[3] See Copyright Alliance Issues Statement Supporting HJC Markup of Pro Codes Act, Copyright All. (Apr. 17, 2024), https://copyrightalliance.org/press-releases/pro-codes-act.

[4] See Pro Codes Act, UpCodes https://up.codes/pro-codes-act (last visited Oct. 2025); The Real Truth About the “Pro Codes” Act, Ass’n Res. Libs. (Mar. 22, 2024), available at https://www.arl.org/wp-content/uploads/2024/03/The-Real-Truth-about-the-Pro-Codes-Act.pdf.

[5] The equitable doctrine of “unclean hands” prevents a party from obtaining judicial relief when its own conduct has been unethical or in bad faith in relation to the matter at issue. See, e.g., Restatement (Second) of Torts § 940 (1979). This is not to suggest that enforcing copyrights constitutes an improper manipulation of legal process, but rather that invoking property rights as part of a strategy that leverages public authority to create a captive market raises analogous concerns.

[6] Issa, supra note 2.

[7] UpCodes, supra note 4.

[8] Canyon Brimhall, The Pro Codes Act Attempts to Copyright the Law – But Is It Constitutional?, R Street Inst. (Mar. 2024), https://www.rstreet.org/commentary/the-pro-codes-act-attempts-to-copyright-the-law-but-is-it-constitutional.

[9] ARL, supra note 4.

[10] Copyright Alliance Applauds Introduction of the Pro Codes Act, Copyright All. (Mar. 2022), https://copyrightalliance.org/press-releases/pro-codes-act.

[11] FAA, Voluntary Industry Standards and their Relationship to Government, Fed. Av. Admin. (1996), at 27, available at http://www.faa.gov/about/office_org/headquarters_offices/ast/media/vol_std.pdf.

[12] Id.

[13] Id. at 28.

[14] See, e.g., Frequently Asked Questions, ASTM Int’l, https://www.astm.org/faq (last visited Oct. 2025).

[15] Codes & Standards Development, Amer. Soc. Mech. Eng’rs., https://www.asme.org/codes-standards (last visited Oct. 2025).

[16] About ASTM International, ASTM Int’l, https://www.astm.org/about (last visited Oct. 2025).

[17] National Technology Transfer and Advancement Act of 1995, Public Law 104-113 (1995), https://www.nist.gov/standardsgov/national-technology-transfer-and-advancement-act-1995.

[18] OMB Circular A-119, Off. Mgmt. Bdgt. (2016), available at https://share.ansi.org/Shared%20Documents/About%20ANSI/Why-Voluntary-Consensus-Standards-Incorporated-by-Reference-into-Federal%20Government%20-Regulations-Are-Copyright-Protected.pdf

[19] Voluntary Industry Standards and Their Relationship to Government, Fed. Av. Admin. Off. Com. Space Transp. (FAA/AST) (1996) at 27, 42, available at http://www.faa.gov/about/office_org/headquarters_offices/ast/media/vol_std.pdf.

[20] S. Michael Gentine & Kelsie Sicinski, D.C. Circuit: “Fair Use” Means Sharing Safety Standards Incorporated by CPSC Is Fair Game, Arnold & Porter Kaye Scholer LLP (Oct. 30, 2023, https://www.arnoldporter.com/en/perspectives/blogs/consumer-products-and-retail-navigator/2023/10/dc-circuit-fair-use-means-sharing-safety-standards.

[21] IEEE 802 LAN/MAN Standards Committee (LMSC), Inst. Elec. Electronics Eng’rs., https://www.ieee802.org (last visited Oct. 9, 2025); The Evolution of Wi-Fi Technology and Standards, IEEE Standards Ass’n., https://standards.ieee.org/beyond-standards/the-evolution-of-wi-fi-technology-and-standards (last visited Oct. 9, 2025).

[22] Order 8110.116, Fed. Av. Admin. (Sep. 23, 2011), available at https://www.faa.gov/documentLibrary/media/Order/8110.116.pdf.

[23] 2022 ACI 318-19 Building Code Requirements for Structural Concrete and Commentary on Building Code Requirements for Structural Concrete (ACI 318R-19), Int’l Code Council, https://codes.iccsafe.org/content/ACI31819R2022P2 (last visited Oct. 9, 2025); Jack Moehle, Introducing ACI 318-19: Building Code Requirements for Structural Concrete, B. Safety J. (Aug. 26, 2019), https://www.iccsafe.org/building-safety-journal/bsj-technical/introducing-aci-318-19-building-code-requirements-for-structural-concrete.

[24] FAA/AST, supra note 19, at 42.

[25] Copyright in Standards Incorporated by Reference into Law and the Pro Codes Act, CRS Product No. R47656, Cong. Res. Svcs. (Aug. 8, 2025); Am. Soc’y for Testing & Materials v. Public.Resource.Org, Inc.., 896 F.3d 437 (D.C. Cir. 2018).

[26] Veeck v. Southern Building Code Congress Int’l, Inc., 293 F.3d 791 (5th Cir. 2002).

[27] See generally John Burroughs, Incorporated Standards and Fair Use: Remaining Uncertainties Set the Stage for Further Litigation, Univ. Chi. Bus. L. Rev. Online Edition (2024), https://businesslawreview.uchicago.edu/online-archive/incorporated-standards-and-fair-use-remaining-uncertainties-set-stage-further.

[28] Why Voluntary Consensus Standards Incorporated by Reference into Federal Government Regulations Are Copyright Protected, Amer. Nat’l. Standards Inst. (n.d.) at 13, available at https://share.ansi.org/Shared%20Documents/About%20ANSI/Why-Voluntary-Consensus-Standards-Incorporated-by-Reference-into-Federal%20Government%20-Regulations-Are-Copyright-Protected.pdf.

[29] Updating OSHA Standards Based on National Consensus Standards; Personal Protective Equipment, 74 Fed. Reg. 46,350 (Sep. 9, 2009), https://www.osha.gov/laws-regs/federalregister/2009-09-09.

[30] See discussion supra notes 15-20 and accompanying text.

[31] Advocacy – Government Relations, Int’l Code Council, https://www.iccsafe.org/advocacy (last visited Oct. 2025).

[32] Public Policy and Advocacy, Nat’l. Fire Prot. Ass’n., https://www.nfpa.org/advocacy (last visited Oct. 2025).

[33] Sarah Harney, The Code War, Governing (Aug. 11, 2010), https://www.governing.com/archive/Code-War.html.

[34] Id.; Protect Safety Codes by Supporting Advancement of the Pro Codes Act, Int’l Code Council (2024), https://www.iccsafe.org/building-safety-journal/bsj-news/protect-safety-codes-by-supporting-advancement-of-the-pro-codes-act-2; Free Access to NFPA Codes and Standards, Int’l Ass’n Fire Chiefs, https://www.iafc.org/topics-and-tools/resources/resource/free-access-to-nfpa-codes-and-standards (last visited Oct. 2025).

[35] See Harney, supra note 25.

[36] Id.

[37] James Peterkin & Scott Mason, Navigating IBC and NFPA Differences, Health Facilities Mgmt. (Jul. 14, 2022), https://www.hfmmagazine.com/articles/4500-navigating-ibc-and-nfpa-differences.

[38] International Building Code®, Int’l Code Council https://shop.iccsafe.org/2021-international-building-coder.html (as of October 2025, ICC’s 2021 IBC listed at $203 in softcover, with a $112 license for digital content); NFPA LiNK, Nat’l. Fire Prot. Ass’n., https://www.nfpa.org/product/nfpa-70-national-electrical-code-nec/p0070code/nfpa-70-national-electrical-code-nec-2023/7023sb (as of October 2025, NFPA 70 (2023) was listed at about $161 in softcover, with an approximately a $168 annual subscription fee for a license).

[39] Practice Mgt. Info. Corp. v. American Med. Ass’n, 121 F.3d 516 (9th Cir. 1997), opinion amended by (9th Cir. 1998) 133 F3d 1140.

[40] CCC Info. Servs. v. Maclean Hunter Mkt. Reports, Inc., 44 F.3d 61, 74 (2nd Cir. 1994).

[41] Veeck v. SBCI, supra note 26.

[42] See id. at 801, 795.

[43] Id. at 799.

[44] Id. at 804.

[45] Am. Soc’y for Testing & Materials v. Public.Resource.Org, Inc., 82 F.4th 1262, 1265 (D.C. Cir. 2023).

[46] Id. at 1270.

[47] Pro Codes Act, supra note 1, at § 123(b).

[48] Id.

[49] See, e.g., Copyright Alliance, supra note 3.

[50] Yi Wu, China Standards 2035 Strategy: Recent Developments and Implications for Foreign Companies, China Br. (Jul. 26, 2022), https://www.china-briefing.com/news/china-standards-2035-strategy-recent-developments-and-their-implications-foreign-companies.

Over the past decade, the intersection of privacy and antitrust has become a central focus in discussions on the role of data in digital markets.[1] As data are the key input for many digital services, platforms strive to collect and process as much user information as possible. In addition to harvesting their own data, they increasingly rely on external sources through data-sharing agreements to enhance their offerings. This is particularly critical for platforms whose business models depend on monetising user information through targeted advertising and personalised content. In such cases, personal data become the most valuable asset, enabling platforms to secure privileged access to consumer attention and offer sellers a competitive edge.

As a result, privacy has moved to the forefront of regulatory concerns, with policymakers increasingly examining whether data accumulation strategies both compromise individual privacy and reinforce platform dominance. This has led to calls for integrating privacy considerations into antitrust enforcement and fostering closer collaboration between competition and data protection authorities. According to this view, strong network effects may reduce platforms’ incentives to compete on privacy, whereas increased competition in digital markets could enhance privacy outcomes for users. Further, while privacy concerns may be essential to assessing data accumulation strategies that fall outside the scope of traditional antitrust provisions, antitrust authorities could play a more effective role in safeguarding data protection.

However, critics of such an integrationist approach argue that conflating privacy infringements with antitrust violations risks blurring the distinct goals and tools of the two regimes. They warn that such convergence could undermine enforcement coherence, especially given the subjective nature of privacy preferences and the privacy paradox. More broadly, treating privacy breaches as competitive harms may lead to regulatory overreach, turning antitrust authorities into general-purpose enforcers.

Against this background, while U.S. antitrust cases have begun to emphasize privacy [2], Europe remains the primary testing ground for an integrated privacy–antitrust approach due to two main factors. First, the General Data Protection Regulation (GDPR) marked the start of the European regulatory agenda for digital markets. Second, on the antitrust front [3], the German Facebook case stands out as a landmark example of using competition law to address privacy concerns by applying antitrust tools beyond their traditional scope to fill perceived gaps in privacy enforcement.[4]

Read the full piece here.

[1] For a recent overview, see Giuseppe Colangelo, ‘The privacy/antitrust curse: insights from GDPR application in competition law proceedings’, 70 Antitrust Bulletin 113 (2025).

[2] See, e.g., U.S. v. Apple, Case No. 24-cv-04055 (D.N.J. 2024), see also Julie Grangeon, United States: The Department of Justice and sixteen states sue big tech player for illegal monopoly (Apple), 22 March 2024, Concurrences N° 2-2024, Art. N° 118694, pp. 220-222; Christopher Casey, Sarah O’Laughlin Kulik, Sean P. McConnell, Andrew John (AJ) Rudowitz, The US DoJ and 16 State Attorneys General file a suit alleging the monopolization of smartphone markets and degrading of user experiences (Apple), 21 March 2024, e-Competitions March 2024, Art. N° 117925; and US Department of Justice Antitrust Division, The US DoJ alongside 16 other State and District AGs files a civil antitrust lawsuit against a Big Tech company for monopolizing smartphone markets (Apple), 21 March 2024, e-Competitions March 2024, Art. N° 117801; Federal Trade Commission v. Facebook, Case No. 1:20-cv-03590 (D.D.C. 2021), see US Federal Trade Commission, The US FTC files an amended complaint against a social media company alleging it resorted to an illegal buy-or-bury scheme to crush competition after a string of failed attempts to innovate (Facebook), 19 August 2021, e-Competitions August 2021, Art. N° 102162; U.S. et al. v. Google, Case No. 1:20-cv-03010 (D.D.C. 2020), Thomas A. Lambert, The US DoJ and eleven States with Republican attorneys general sued a Big Tech company for monopolizing the markets for general internet search services, search advertising, and “general search text” advertising (Google), 20 October 2020, e-Competitions October 2020, Art. N° 98540; Lesley Hannah, Stella Gartagani, The US DoJ files a complaint against a search engine for its unlawful monopolization of the search and the search advertising markets (Google), 20 October 2020, e-Competitions October 2020, Art. N° 97836; and Andrew Cook, Robert McKenna, The US DOJ files an antitrust complaint against a search engine for abuse of dominance (Google), 20 October 2020, e-Competitions October 2020, Art. N° 97371.

[3] Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC, [2016] OJ L 119/1.

[4] Bundeskartellamt, 7 February 2019, Case B6-22/16. See Clement Hoff Munk, The German Competition Authority holds that a social media company abused its dominant position by making the collection of data on its users from third parties a condition for access to its social network (Facebook), 7 February 2019, e-Competitions February 2019, Art. N° 116987; Kyriakos Fountoukakos, Marcel Nuys, Peter Rowland, Juliana Penz-Evren, The German Competition Authority forces a social network company to change its data collection policy (Facebook), 7 February 2019, e-Competitions February 2019, Art. N° 101432; and Alexandre G. Verheyden, Philipp Werner, Jörg Hladjk, Undine Von Diemar, The German Competition Authority considers that a social network company’s data processing terms, enabling the collection, merger, and use of user data without valid consent, constitutes an abuse of a dominant position (Facebook), 7 February 2019, e-Competitions February 2019, Art. N° 101443.

Abstract

In April 2025, the Office of the Comptroller of the Currency cleared the proposed $35 billion merger of Capital One and Discover Bank, making the combined company the third-largest credit card issuers by volume. Because of the highly decentralized nature of the U.S. credit card industry, the merger typically would draw minimal regulatory scrutiny. Because of the significant market share of the two entities in the so-called “subprime” credit card market, however, the merger presented a novel question at the intersection of competition policy and consumer financial services—whether the “subprime” market should be analyzed as a separate market for antitrust purposes. According to one estimate the combined entity will have approximately 30% of the subprime market at the time the merger is consummated.

The OCC did not specifically address whether there was a “subprime” market that should be treated as a separate market for purposes of analyzing the effect on consumers and competition. We agree with that analysis. Although the term “subprime” is used colloquially, defining a “sub-prime market” lacks a determinate and stable definition for purposes of rigorous antitrust analysis. Moreover, consumers who participate in the subprime market are subject to constant change and turnover, moving frequently between the subprime and prime markets. Finally, given the permeability of any demarcation between “prime” and “subprime” consumers, other large credit card issuers already have a presence in the subprime market and could easily expand their existing opera-tions if Capital One-Discover attempted to increase prices for consumers.

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