Spotlight

If it looks like a duck, walks like a duck and quacks like a duck, then it just may be a duck.
—Walter Reuther

Executive Summary

Rate regulation can take many forms. Rates may be regulated through overt price controls, such as price ceilings or price floors; through less-overt rules governing the pace of price changes; or through quality mandates or restrictions. Some rate regulations can provide short-run benefits to certain groups of consumers or producers, but often result in shortages or surpluses that diminish overall welfare. In the long run, rate regulation often distorts investment incentives, leading to a misallocation of investment (e.g., to under- or over-investment).

For these reasons, since the late 1970s, direct rate regulation generally has fallen out of favor across most sectors of the economy, although there are some—such as insurance and utilities—where it remains commonplace. Nevertheless, elected officials and other policymakers frequently come under pressure from constituents and stakeholders to “do something” about the price of goods and services in the ostensibly “deregulated” sectors of the economy, such as when consumers characterize short-term price disruptions as “price gouging.” In some cases, firms may seek regulations to “stabilize” prices, while in others, rate regulation may be seen as a means to “increase access” to crucial goods and services.

Because the costs of overt rate regulations are so well-known, price controls are often buried under layers of bureaucracy or wrapped in with other policies and programs, such that policymakers can plausibly claim that their proposals do not…

Executive Summary

A well-placed cadre of progressive scholars and advocates—several of whom have in more recent years come to occupy top positions in America’s antitrust agencies—have long-focused their attention distinctly on high-profile mergers and acquisitions. For more than a decade, hardly a deal could be proposed without these critics claiming that it would create an unassailable monopoly, be the final nail in the coffin of small businesses, and/or cement the political sway of big business. For these so-called “neo-Brandeisian” critics, the repeated pattern has been, first, to entreat authorities to block these deals and then, should they be cleared nonetheless, to cite such approvals as evidence that U.S. antitrust law is in dire need of reform.

The bombastic rhetoric employed by these critics stands in sharp contrast with the technocratic and measured approach to enforcement that has traditionally been the norm for U.S. antitrust agencies and courts. Indeed, for better or worse, antitrust case law in the United States generally focuses on tangible and short-term metrics, rather than hypothetical doomsday scenarios that are notoriously hard to predict. Under this measured approach—rooted in the consumer welfare standard—theories of harm are dismissed if they rely on mere conjecture. Unsurprisingly, the critics have routinely lambasted this status quo.

But the paradigm has been shifting. With the elevation of progressive critics such as Lina Khan to chair the Federal Trade Commission (FTC), Jonathan Kanter to head the U.S. Justice Department’s (DOJ) Antitrust Division, and Tim Wu to serve as special assistant to President…

Rep. Carter and the Members of NCOIL,

Thank you for inviting me. My name is R.J. Lehmann, and I am the editor-in-chief and a senior fellow with the International Center for Law & Economics. ICLE is a think tank based in Portland, Oregon, dedicated to promoting the law & economics approach to legal analysis, and to issues of public policy more generally.

Some of you may know me from my prior work at the R Street Institute, which I co-founded in 2012. Among the hats I wore at R Street was running the institute’s insurance policy project, and I was the author of the first nine editions of R Street’s annual report card evaluating insurance regulation in the 50 states.

It was actually early in our days at R Street that I first encountered the topic before us today. After the tragic shootings at Sandy Hook Elementary in December 2012, there was a pressing call for new and creative thinking about ways to address the scourge of firearms violence. Being a research center that was, at that point, devoted almost exclusively to insurance issues, we explored whether mandatory insurance could be part of the solution to promote firearms safety, just as mandatory auto insurance has served to promote driving safety and mandatory workers compensation insurance has served to promote workplace safety. So, while I’m about to tell you why I think these mandates are a bad idea, I want to note at the top that I do understand the intuition.

What we concluded, after batting…

Bloomberg Law – ICLE Senior Scholar Daniel Gilman was quoted by Bloomberg Law in a story about a challenge before the 7th U.S. Circuit Court of Appeals regarding so-called “no-poach” agreements among McDonald’s franchisees. You can read full piece here.

Daniel Gilman, senior scholar at the International Center for Law & Economics, doesn’t believe this type of agreement is unlawful, but said if the courts don’t allow it franchises will figure out ways to deal with that, as some of them have already.

…Current FTC leadership wants to get at both vertical and horizontal constraints, Gilman, a former FTC attorney advisor, said, but “we’re not looking at an FTC or DOJ investigation” here.

The FTC is “trying to develop this new position and blend what have long been considered distinct routes to analyzing vertical and horizontal restraints, so part of this may be planting the flag for them. But I don’t buy it,” Gilman said.

National Review – ICLE Scholars Brian Albrecht, Dirk Auer, Eric Fruits, and Geoffrey A. Manne were cited by National Review in an item about ICLE’s white paper on “doomsday mergers.” You can read full piece here.

Economists at the International Center for Law and Economics have written a paper looking back at a different species of false alarm that we often hear from the media: doomsday mergers.

Brian Albrecht, Dirk Auer, Eric Fruits, and Geoffrey Manne recount the predictions made about six mergers that were allowed to take place despite considerable backlash from progressives. They looked at Amazon’s purchase of Whole Foods, consolidation in the beer industry, Bayer’s purchase of Monsanto, Google’s purchase of Fitbit, Facebook’s purchase of Instagram and WhatsApp, and Ticketmaster’s merger with Live Nation.

“Our retrospective analysis shows that many of the alarmist predictions of the past were completely untethered from prevailing market realities, as well as far removed from the outcomes that emerged after the mergers,” they write.

They look at indicators such as stock prices, market share, and financial performance to evaluate the claims made by progressives before the mergers took place. The paper has copious citations to news reports, academic papers, and relevant statistics to back up their analysis.

New Civil Liberties Alliance – The International Center for Law & Economics was mentioned by the New Civil Liberties Alliance in a media release regarding Judge Lewis Liman of the U.S. District Court for the Southern District of New York citing the amicus brief filed jointly by ICLE and NCLA in moving to dismiss the Bystolic antitrust litigation. You can read full release here.

“The Court agrees with the argument in the amicus brief from the New Civil Liberties Alliance and the International Center for Law and Economics that the appropriate question is the “net” benefit conferred by the reverse payment and not its gross size vel non.”

In its amicus brief, NCLA argued that Congress has long mandated that courts should strive to maintain a balance between the sometimes-competing claims of the patent law and antitrust law, and that antitrust law should not be used to shortchange the rights of patent holders. NCLA’s successful amicus curiae brief was joined by the International Center for Law and Economics.

Reason – ICLE Scholars Brian Albrecht, Dirk Auer, Eric Fruits, and Geoffrey A. Manne were cited by Reason in an item about ICLE’s white paper on “doomsday mergers.” You can read full piece here.

A new paper from the International Center for Law & Economics (ICLE) looks at panicky predictions about past business mergers that haven’t panned out as the doomsayers warned. The paper comes as the Federal Trade Commission (FTC) and the Department of Justice “prepare to release updated federal merger guidelines that the agencies say will better detect and prevent illegal and anticompetitive deals,” notes ICLE in a press release. But bureaucrats and politicians don’t have a great track record on predicting the effects of particular mergers, suggest Brian Albrecht, Dirk Auer, Eric Fruits, and Geoffrey A. Manne in “Doomsday Mergers: A Retrospective Study of False Alarms.”The authors point to alarms sounded over Amazon’s 2017 purchase of Whole Foods, Bayer’s 2018 merger with Monsanto, Google’s 2019 purchase of Fitbit, and Anheuser-Busch InBev’s 2016 acquisition of SABMiller. In the latter case, “critics claimed [the acquisition] would increase the price of beer and decimate the burgeoning craft-beer segment,” they write:

Instead, the concentration of the beer industry decreased after the mergers, prices did not increase on average, and the craft-beer segment thrived. This is not to say that all is rosy; the price of some beers did indeed increase after the wave of mergers. Regardless, it is clear the post-merger outcome was a far cry from the doomsday scenario that critics predicted.

People feared that Google’s purchase of Fitbit would lead to consumer privacy violations and make Google more dominant in advertising, because Google would use data from the devices in its advertising business. “The fear was that, by purchasing Fitbit, Google would be in a position to better target ads throughout its entire platform, thereby increasing its hold on the broader advertising industry,” note the authors. But:

Four years on, however, the opposite appears to have happened. From 2017 to 2022, Google’s share of online advertising spend has steadily declined, falling from 34.7% to 28.8%.118 And it is not just in relative terms; the company’s quarterly earnings reports show a clear decline in ad revenue, including year-over-year drops in the fourth quarter of 2022 of 8.6% for the Google network and 7.0% for YouTube. As usual, critics may retort that Google’s revenues and market shares would have declined even more absent the merger but, once again, that was not the initial claim. Instead, they wrote that the merger would give Google an unbreakable grip on the online-advertising industry—the “horse has bolted” as Gregory Crawford put it—and that has not been the case.

You can read the full report here. The authors conclude with a warning: “We should be skeptical of kneejerk projections of doom, whether from activists, competition scholars, or media pundits.”

Law360 – ICLE Director of Competition Policy Dirk Auer was quoted by Law360 in a story about ICLE’s white paper on “doomsday mergers.” You can read full piece here.

“When we hear critics saying this merger is going to be disastrous and antitrust is not up to the task, that just doesn’t pan out,” Auer told Law360 in an interview.

The paper puts ICLE in the middle of the policy debate between defenders of traditional merger review rooted in how deals will affect consumer prices and advocates of a more expansive and aggressive approach often described as neo-Brandeisians. In addressing the last two mergers, the paper also speaks to current enforcement actions.

Cryptopolitan – ICLE Academic Affiliate Thibault Schrepel was quoted by Cryptopolitan in a story about what the EU Data Act will mean for so-called “smart contracts.” You can read full piece here.

Professor Thibault Schrepel of the Vrije Universiteit Amsterdam expressed his concerns in a tweet about the Act, which he believes “endangers smart contracts to the extent that no one can predict.” Furthermore, he highlighted potential sources of legal uncertainty in the Act, particularly concerning who has the authority to stop or interrupt a smart contract.

Blockworks – ICLE Academic Affiliate Thibault Schrepel was quoted by Blockworks in a story about Article 30 of the EU Data Act. You can read full piece here.

Thibault Schrepel, an associate professor at the VU University Amsterdam, noted in a tweet that this new bill “endangers smart contracts to an extent that no one can predict.”

“Article 30 does not provide clarity as to who should be able to ‘terminate the continued execution of transactions,’” Schrepel tweeted. “Is it the creator of the smart contract? Public authorities? Courts?”

Ledger Insights – ICLE Academic Affiliate Thibault Schrepel was quoted by Ledger Insights in a story about how the EU Data Act affects smart contracts for data sharing. You can read full piece here.

Professor Thibault Schrepel, Co-Director of the Amsterdam Law & Technology Institute at VU Amsterdam, noted that the smart contract clause doesn’t define ‘smart contracts for data sharing’. If this is cleared up to apply for example to machine to machine (M2M) data sharing, then some of the other aspects of the clause might be less concerning.

He notes on Twitter that a key issue is who should have control over a smart contract kill switch. It could be the smart contract creator, some public authorities, or the courts. Our take is that, in practice, it makes sense to be the creator because the whole point is to be able to act in an emergency. This would have the side effect of making it hard to argue that the creator doesn’t control the smart contract, something protocol creators prefer not to have to argue they are decentralized. However, if the scope is M2M data sharing, control might not be as contentious. On the other hand, if it applied to DeFi, it could raise additional concerns.

Observador – ICLE Associate Director of Legal Research Ben Sperry was quoted by the Portuguese online newspaper Observador in a story about Section 230 and the Gonzalez v. Google case before the U.S. Supreme Court. You can read full piece (in Portuguese) here.

Foi a tentativa do Congresso de proteger os primeiros passos da internet. “Era dar o poder a estas primeiras plataformas da internet para, basicamente, tomarem as suas próprias decisões de moderação sem medo de que isso as tornasse responsáveis pelo discurso de terceiros nas suas plataformas”, resume Ben Sperry ao Observador, diretor associado da área de investigação legal do International Center for Law & Economics (ICLE). “Dá imunidade às empresas online de serem responsabilizadas, pelo menos na maioria das circunstâncias, pelo que terceiros publicam quando estão nos seus sites.” Com o tempo, a Secção 230 foi ganhando diferentes apelidos, desde tábua de salvação das tecnológicas até carta livre da prisão, como no jogo Monopólio.

[Transl.] It was Congress’ attempt to protect the internet as it took its first steps. “It was about empowering those original internet platforms, basically, to make their own moderation decisions without having to worry that this would make them responsible for the speech of third parties on their platforms,” Ben Sperry, associate director of legal research for ??the International Center for Law & Economics (ICLE), summarized for the Observer. “It gives online companies immunity from liability–at least, in most cases–for what third parties post on their sites.” Over time, however, Section 230 has changed from a lifeline for a new technology to a “get out of jail free” card, as in the game Monopoly.

…Também Ben Sperry, diretor associado da área de investigação legal do International Center for Law & Economics (ICLE), reconhece que os juízes do Supremo não mostraram estar “com apetite” para “alterar significativamente a forma como funciona o artigo 230”. “Pareciam céticos aos argumentos trazidos pelos advogados dos Gonzalez, por isso parece-me provável que não vão decidir a favor da família”, acrescenta.

[Transl.]…Ben Sperry, associate director of the legal research for ??the International Center for Law & Economics (ICLE), also said that the Supreme Court justices did not appear to “have an appetite” to “significantly change the way Section 230 works.” “They seemed skeptical of the arguments made by Gonzalez’s lawyers, so it seems likely to me that they will not decide in favor of the family,” he added.

…A liberdade de expressão online também poderá ficar em causa. Nesse caso, Ben Sperry, da ICLE, considera que a resposta das redes sociais poderá passar por “restringir o conteúdo do utilizador para evitar responsabilidades”.

[Transl]…Online freedom of expression may also be at stake. Ben Sperry of ICLE believes that social networks could respond to this case by “restricting user content to avoid liability.”

…Ben Sperry, da ICLE, nota que uma decisão favorável aos Gonzalez que implique os algoritmos “não só terá impacto no YouTube e na Google, como também na vasta filosofia da economia da internet”. “Se não tivéssemos o algoritmo e as recomendações, teríamos de saber exatamente o que procuramos e como o encontrar. As redes sociais sabem aquilo que procurámos no passado [o histórico] e o contexto do que procuramos. Se se remover o algoritmo de recomendações da equação, isso tornará os produtos realmente menos úteis.”

[Transl.] …Ben Sperry of ICLE notes that a ruling for the Gonzalezes that faults the algorithms “will impact not only YouTube and Google, but the entire basis of the Internet economy.” “If we didn’t have algorithms and recommendations, we would have to know exactly what we’re looking for and how to find it. Social networks know what we have looked for in the past and the context of what we are looking for. If you remove the recommendations algorithm from the equation, it actually makes the products less useful.”

The Dispatch – ICLE President Geoffrey Manne was quoted by The Dispatch in an item about reports of staff dissatisfaction at the Federal Trade Commission. You can read full piece here.

These are unprecedented levels of dissatisfaction for the agency. “Those numbers are nothing like what we’ve seen at the FTC before,” Geoffrey Manne, president of the International Center for Law and Economics, told The Dispatch. “The dissatisfaction seems to be not just with some kind of general political allegiance, but with how the agency is being run since the new administration has been there.”

Law360 – An International Center for Law & Economics report was cited by Law360 in a story about pole-attachment rules in West Virginia. You can read full piece here.

In August 2022, the International Center for Law and Economics, a legal think tank, advised that broadband infrastructure deployment obstacles persist because of the high costs of upgrading utility poles.

According to the Oregon-based research group, costs should be allocated based on the depreciated value of the pole being replaced, the incremental costs and benefits of the new poles, and early replacement costs.

Axios – ICLE Associate Director of Legal Research Ben Sperry was quoted by Axios in a story about the Supreme Court’s pending decision in the Section 230 case Google v. Gonzalez. You can read full piece here.

ICLE Academic Affiliate Adam Mossoff joined the AirTalk podcast produced by radio station KPCC in Los Angeles to discuss the trademark and intellectual property issues in the U.S. Supreme Court’s Jack Daniel’s Properties, Inc. v. VIP Products LLC case. The full episode is embedded below.

ICLE Director of Innovation Policy Kristian Stout was interviewed by RFD-TV for a story item about the challenges involved in connecting rural areas to broadband internet.

One of the threats that could affect the efficacy of this program could be different state authorities not necessarily focusing on people who have traditionally been very difficult to connect to the internet but looking at lower hanging fruit that it’s easier to connect, like people who

might have slower than extremely fast but are faster than what we consider nonexistent broadband service. There are a number of hurdles that have just traditionally existed everywhere in the United States for broadband deployment. These include things like municipal permitting, getting rights of way, and then one of the largest drivers cost is access to utility poles across the United States. There are some more complicated problems that go into accessing these poles around whether they’re privately-owned or whether they’re owned by municipalities and co-ops, which can easily explode costs for a particular deployment and make it so that the money that the federal government is directing to reach these remote areas is not being fully-used to reach these people but is instead being wasted.

ICLE President Geoffrey Manne was cited by Matt Perault of the Center on Technology Policy at the University of North Carolina at Chapel Hill during Perault’s recent appearance on The Lawfare Podcast. His comments are quoted here and the full episode is embedded below.

I saw Geoff Manne give the Hayek lecture at Duke last week and he presented a case that was actually very critical of Section 230 along these lines, making the case that there’s meritorious litigation that because of 230 never gets its day in court and that there are a variety of social harms that tech platforms, at least in some cases, don’t bear any of the costs for.

Silicon Valley Bank’s spectacular failure demonstrated a fatal flaw in the U.S. system of deposit insurance: The Federal Deposit Insurance Corp.’s coverage limit of $250,000 appears insufficient to prevent bank runs. But raising or eliminating this cap, as some commentators suggest, would create incredible moral hazard. Instead, the FDIC should reduce risk like an insurer would, by pricing it and spreading it around.

Read the full piece here.

Mandates to restrict the flow of data across national boundaries have taken hold in a growing number of jurisdictions, including India. Spearheaded by nations like China, Iran, and Russia, the idea has vocal proponents among those who claim it will forward the goal of “digital sovereignty.”

Read the full piece here.

Self-preferencing by a powerful service provider is usually analyzed as constituting an exclusionary abuse of market power. Examples of this kind of abuse might include the provider manipulating search and recommendation rankings to favor its own goods over close competitors (Google Shopping case) or integrating its own applications into an operating system that artificially worsens the performance of competing software (Microsoft case; Android case). This focus stands in line with the practice of competition authorities and courts on both sides of the Atlantic, and we are not denying that it represents an important avenue of competition policy enforcement.

Read the full piece here.

The dumbest economics discussion over the past few years — and that’s a high bar — has to go to “greedflation.” The White House tried to blame the greed of meat packers and gas companies for rising prices. I would have blamed the Fed for inflation, but I’m no political strategist. According to this theory, inflation rose in the first half of 2022 because, all of a sudden, people became greedy. I guess. They must have become less greedy when inflation fell in the second half of 2022. I don’t know how this theory is supposed to work. Someone write down a model!

Read the full piece here.

Spring is here, and hope springs eternal in the human breast that competition enforcers will focus on welfare-enhancing initiatives, rather than on welfare-reducing interventionism that fails the consumer welfare standard.

Read the full piece here.

In February’s FTC roundup, I noted an op-ed in the Wall Street Journal in which Commissioner Christine Wilson announced her intent to resign from the Federal Trade Commission. Her departure, and her stated reasons therefore, were not encouraging for those of us who would prefer to see the FTC function as a stable, economically grounded, and genuinely bipartisan independent agency. Since then, Wilson has specified her departure date: March 31, two weeks hence.

Read the full piece here.

Franchising plays a key role in promoting American job creation and economic growth. As explained in Forbes (hyperlinks omitted)…

Read the full piece here.

The Minnesota Senate Commerce Committee last week passed SF 1598, the Digital Fair Repair Bill. The bill from Sen. Rob Kupec, DFL-Moorhead, would require manufacturers to provide independent repair companies access to relevant repair information.

Read the full piece here.

Wildfire has hit Assemblymember Damon Connolly’s (D-San Rafael) Northern California district particularly hard in recent years, including the devastating Glass and LNU Lightning Complex fires in 2020, the Nuns and Tubbs fires in 2017, and the Valley fire in 2015.

Read the full piece here.

The 117^th Congress closed out without a floor vote on either of the major pieces of antitrust legislation introduced in both chambers: the American Innovation and Choice Online Act (AICOA) and the Open Apps Market Act (OAMA). But it was evident at yesterday’s hearing of the Senate Judiciary Committee’s antitrust subcommittee that at least some advocates—both in academia and among the committee leadership—hope to raise those bills from the dead.

Read the full piece here.

The Senate Judiciary Committee’s Subcommittee on Privacy, Technology, and the Law will host a hearing this afternoon on Gonzalez v. Google, one of two terrorism-related cases currently before the U.S. Supreme Court that implicate Section 230 of the Communications Decency Act of 1996.

We’ve written before about how the Court might and should rule in Gonzalez (see here and here), but less attention has been devoted to the other Section 230 case on the docket: Twitter v. Taamneh. That’s unfortunate, as a thoughtful reading of the dispute at issue in Taamneh could highlight some of the law’s underlying principles. At first blush, alas, it does not appear that the Court is primed to apply that reading.

Read the full piece here.

There is a line of thinking according to which, without merger-control rules, antitrust law is “incomplete.” Without such a regime, the argument goes, whenever a group of companies faces with the risk of being penalized for cartelizing, they could instead merge and thus “raise prices without any legal consequences.”

Read the full piece here.

It seems that large language models (LLMs) are all the rage right now, from Bing’s announcement that it plans to integrate the ChatGPT technology into its search engine to Google’s announcement of its own LLM called “Bard” to Meta’s recent introduction of its Large Language Model Meta AI, or “LLaMA.” Each of these LLMs use artificial intelligence (AI) to create text-based answers to questions.

Read the full piece here.

Executive Summary

In what the Discussion Paper refers to as a “moment of reckoning” for competition law, it is crucial that the Government not overreact with experimental legislative reform that will later be exceedingly difficult to unwind. Five main conclusions can be drawn from this submission, and they warrant a much more restrained approach.

First, the Government should follow several important guiding principles when it decides what competition policy is appropriate for Canada. Any potential reform should be based on careful examination of the facts and evidence, as well as the specifics of Canada’s economy, and it should be scrupulous in applying the error-costs framework. In addition, despite frequent rhetoric to the contrary, it is entirely unclear that “digital” markets present the sort of unique challenges that would necessitate an overhaul of the Competition Act. Accordingly, evidence does not recommend that Canada follow the sort of competition regulation or reform contemplated elsewhere, nor should Canada be compelled to act just because other countries are “doing something.”

Second, there is no rhyme or reason to presumptions against self-preferencing behavior. Self-preferencing is normal business conduct that can, and often does, yield procompetitive benefits, including efficiencies, enhanced economies of scope, and an improved products for consumers. In addition, a ban on self-preferencing would cause harms for the startup ecosystem by discouraging acquisitions by large firms, which would ultimately diminish the incentives for startups. This is presumably not what the Government wants to achieve.

Third, altering the purpose of the Competition Act would be a grave…

As alumni of the Federal Trade Commission, we are providing these comments in response to the agency’s proposed Non-Compete Clause Rule. As we explained in a letter dated September 20, 2022 (attached), we have devoted significant portions of our careers to protecting consumers and competition and we continue to care deeply about the agency and its mission. Moreover, many of us agree that non-compete clauses can unreasonably limit competition, depending on factors such as the clause’s scope and duration. We applaud the FTC for examining this issue and offer no comments on the rule’s merits.

Instead, we write to express a number of concerns with the rulemaking process and with the rule’s potential impact on the FTC’s ability to fulfill its mission:

• First, as compared to prior rulemakings, the FTC lacks a firm factual foundation for this rule. The FTC has brought only a handful of enforcement actions involving noncompetes, all very recent, and the empirical literature provides only mixed support for the rule.
• Second, the rule rests on a very thin legal basis. The FTC has not attempted a competition rulemaking in decades, and the courts are limiting the ability of administrative agencies to exercise authority without a clear basis in statutory language.
• Third, this proposal could imperil the FTC’s future. In the past, Congress has responded to overly aggressive rulemaking by limiting the FTC’s authority. This rulemaking could easily lead to a diminished FTC that is less able to protect consumers in the future.
• Fourth, if promulgated, this rule could swallow the…

Introduction

The UK Payment System Regulator (PSR) is currently in the process of conducting two market reviews related to card payments. One of the two regards consumer cross-border interchange fees between the United Kingdom and the European Economic Area (EEA),[1] while the other relates to card scheme and processing fees.[2] This brief raises some initial concerns regarding the two reviews.

The most significant concern these market reviews raise is the implied “market” under investigation. By focusing narrowly on two very specific aspects of the overall payment system, the reviews almost by definition rule out a full analysis of the ecosystem. This is most unfortunate. Decades of research shows categorically that payment systems are highly complex multi-sided markets that have evolved over many decades—and continue to evolve—into a delicately balanced, technologically advanced ecosystem.

Payment systems and the thousands of banks that interoperate over them have invested tens of billions of dollars into their development. These investments, and associated innovations in technologies and the rules governing the systems, have been driven by a decades-long process of dynamic competition. That process has involved not only the main payment-system operators, but also many other businesses involved in payments processing. As a result, billions of consumers are now able to use payment cards and millions of merchants accept them. The system’s economic benefits unquestionably far outweigh the costs.

While it is always possible to conceive of models against which extant payment systems may appear “imperfect,” that does not necessarily mean there is any…

Rep. Carter and the Members of NCOIL,

Thank you for inviting me. My name is R.J. Lehmann, and I am the editor-in-chief and a senior fellow with the International Center for Law & Economics. ICLE is a think tank based in Portland, Oregon, dedicated to promoting the law & economics approach to legal analysis, and to issues of public policy more generally.

Some of you may know me from my prior work at the R Street Institute, which I co-founded in 2012. Among the hats I wore at R Street was running the institute’s insurance policy project, and I was the author of the first nine editions of R Street’s annual report card evaluating insurance regulation in the 50 states.

It was actually early in our days at R Street that I first encountered the topic before us today. After the tragic shootings at Sandy Hook Elementary in December 2012, there was a pressing call for new and creative thinking about ways to address the scourge of firearms violence. Being a research center that was, at that point, devoted almost exclusively to insurance issues, we explored whether mandatory insurance could be part of the solution to promote firearms safety, just as mandatory auto insurance has served to promote driving safety and mandatory workers compensation insurance has served to promote workplace safety. So, while I’m about to tell you why I think these mandates are a bad idea, I want to note at the top that I do understand the intuition.

What we concluded, after batting…

Background: The European Commission is about to unveil draft regulation that will more tightly regulate how patents are incorporated into technology standards. The Commission’s expert report and call for comments suggest that it wants to create a regime of third-party checks that would verify whether inventors’ patents are truly essential to a technology standard (i.e., “essentiality checks”). The goal ultimately is to ensure that standard-essential patents (SEPs) are adequately disclosed to would-be licensees. There are thousands of SEPs that underpin the technologies powering the digital economy, thus making it essential that firms coordinate to develop and implement these technologies.

However… It is unclear that such regulation would improve upon the status quo. While it might not be perfect, the existing approach to essentially checks has seen SEP-reliant industries provide countless technological breakthroughs. This has led industries where SEPs are particularly relevant to occupy key geostrategic positions. By contrast, imposing heavy-handed regulation risks not only that there will be harm to consumers, but the potential that the West’s strategic position relative to adversarial foreign powers like China or Russia may be weakened.

THE ROLE OF ESSENTIALITY CHECKS

Technical standards (e.g., 5G, WiFi, USB-C, etc.) often rely on hundreds—sometimes thousands—of distinct inventions that can each be covered by multiple patents. 

Firms that commercialize goods incorporating these technologies need to know which patents are essential to those standards—thus avoiding situations where license fees are paid for technologies that are not necessary to practice a given standard.

Essentiality checks can potentially streamline this process, thereby limiting the over- and/or under-disclosure of SEPs. But this is a complex and costly endeavor. The benefits of achieving perfect disclosure of SEPs—be it via market forces or regulation—are thus unlikely to outweigh the costs.

WHO SHOULD ASSESS ESSENTIALITY?

As things stand, a patent’s essentiality is determined in various ways. These include the use of patent pools, self-assessments by inventors, and evaluations outsourced to third-party experts. 

Whatever one thinks of that heterogeneous approach, it is clear that the SEP industry has thrived under this laissez-faire paradigm, and that competition among the various inventors, implementers, and standards-development organizations (who bring inventors and implementers together) has played a useful role in optimizing these processes. Regulators should thus be wary not to upset the apple cart.

In contrast, the Commission’s expert report and its call for comments both suggest that it favors a more centralized system in which government institutions, such as patent offices, would act as backstops for essentiality checks. 

Such a system would not be without risks. Indeed, there is little evidence that SEP-heavy industries are underperforming. Any reform thus risks creating more friction than it removes.

WHAT ABOUT SANCTIONS?

There are fears that excessive sanctions for failing to adequately disclose essential patents could tilt the bargaining power in SEP-reliant industries toward implementers. In turn, this could undermine inventors’ incentive to produce new technologies.

In recent years, courts around the world have sought to strike an appropriate balance between the interests of inventors and implementers. In doing so, they have foiled attempts by several regulators to limit the royalties that inventors can extract; to prevent them from obtaining injunctions against infringers of their patents; and to determine the level of the value chain at which royalties are to be calculated. 

One concern is that the draft regulation may seek to forward those goals by assessing penalties for failing to comply with its provisions. For instance, inventors may lose the ability to bring injunctions against infringers if a third party deems their patent to be non-essential. Given the vital role that these injunctions play, such a policy would be misguided.

GEOSTRATEGIC IMPACT 

Finally, overburdening firms that are active in the SEP space could erode the West’s technological leadership relative to states with manufacturing-reliant economies whose political leaders routinely undermine the intellectual property rights of foreign firms.

Many SEPs, particularly those relevant to the telecommunications sector, are held by companies in the West and specifically in the United States. The lion’s share of implementers, by contrast, are based in China. Policies that impose significant costs on inventors and benefit implementers may thus amount to a subsidy to Chinese firms and a tax on Western innovation.

These harmful consequences are magnified in light of China’s strategic effort to shape international technology standards. With European firms systematically deterred from participating in the development of open technology standards, Chinese firms—directed by their government authorities—will gain significant control of the technologies that underpin tomorrow’s digital goods and services. The consequences are potentially catastrophic.

For more on this issue, see ICLE’s academic output on standard essential patents here and here, and our response to the Commission’s recent consultation here. 

Threads from ICLE scholars on current topics.

Last week @LawEconCenter filed comments responding to Canada's @ISED_CA consultation on the future of competition policy.

Here are 7 guiding principles that jurisdictions contemplating digital market regulations should carefully consider.

A ?

https://t.co/dCkTBIZkd7

— Dirk Auer (@AuerDirk) April 3, 2023

1/ What do ducks have to do with price controls? A ? …

— Eric Fruits, Ph.D. (@ericfruits) March 30, 2023

.@SenMikeLee has introduced a new bill he says will "restore and protect competition in digital advertising by eliminating conflicts of interest that have allowed the leading platforms in the market to manipulate ad auctions and impose monopoly rents."https://t.co/tCd1JZaxEw

— Int'l Ctr Law & Econ (@LawEconCenter) March 30, 2023

Remember when Amazon bought Whole Foods in 2017?

Lina Khan warned the merger would expand Amazon's "fief." Yes. Amazon is a feudal lord in this worldview.

As the Khan crew gets ready to rewrite the merger guidelines, let's look back at their predictive powers in the past: pic.twitter.com/DDk5hz2sTf

— Brian Albrecht (@BrianCAlbrecht) March 28, 2023

This is the end of an era for EU competition policy. The guidance paper was the high water mark of efforts to make enforcement more economically literate. That ship has sailed.

Paradoxically, repealing the guidance is absolutely the right move today.

Why? A ? https://t.co/4eesW5jrIE

— Dirk Auer (@AuerDirk) March 27, 2023

As the @FTC and @JusticeATR prepare updated federal merger guidelines, a new @LawEconCenter paper looks back at several recent high-profile mergers that drew apocalyptic warnings about potential harm to competition and consumers. https://t.co/W57TxmYVn3

— Int'l Ctr Law & Econ (@LawEconCenter) March 22, 2023

1/7 The Internet Archive “controlled digital lending” (CDL) case is apparently facing a skeptical judge. Totally predictable. The fair use claim in this case barely passes a laugh test. ?https://t.co/zoJ7Qxd6qC#ControlledDigitalLending #copyrightlaw #fairuse

— kristian stout (@kristianstout) March 22, 2023

1/8 So many bad ideas, so little time. CA is proposing a new tax for online platforms, aimed at supporting journalism. However, it'll likely do more harm than good for news consumers and producers. ? https://t.co/PuaoPRoweK

— kristian stout (@kristianstout) March 21, 2023

1/11 We don't talk enough about how dodgy the ACCESS Act is — but we should, especially after today's Senate Judiciary Subcommittee hearing. ?https://t.co/5kXSGVLrUp

— Lazar Radic (@laz_radic) March 7, 2023

While I haven’t gotten into WSJ (I’ve tried) I have written many critical pieces Khan and only a few on Kanter. Why?

It’s not racism or sexism. Khan simply is worse for the future of antitrust. Quick ? https://t.co/EjhkSCwnMM

— Brian Albrecht (@BrianCAlbrecht) March 3, 2023

The DMA stakeholder workshop on "App store related provisions" takes place today. Policymakers should take this opportunity to leave their comfort zone and grapple with six uncomfortable truths.?https://t.co/XztQOrJmz7

— Lazar Radic (@laz_radic) March 6, 2023

I take a deep dive into European digital privacy law with @MBarczentewicz. Among other things, we discuss: The Irish DPC’s ruling against Meta, the French CNIL’s recent sanctions of Apple & Voodoo Games, & the future of EU–US data flows. https://t.co/80172YqUik

— Eric Seufert (@eric_seufert) March 1, 2023

JUST OUT: our paper “Shaping #Interoperability for the #IoT: The Case for #Ecosystem-Tailored #Standardisation” has been just published in European Journal of Risk Regulation (EJRR) https://t.co/7TCTGyVyhi

— Giuseppe Colangelo (@GiuColangelo) March 1, 2023