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About: Politicized arguments have dominated competition-law discourse around the globe in recent years. Too often, legal and economic substance is lost in popular rhetoric that . . .
In a column last Friday, I noted a spate of matters being rushed through the Federal Trade Commission (FTC) in the final weeks of Lina . . .
In a column last Friday, I noted a spate of matters being rushed through the Federal Trade Commission (FTC) in the final weeks of Lina Khan’s tenure as chair. I was hardly the only one to notice (see the dissenting statements of Chairman Andrew Ferguson and Commissioner Melissa Holyoak on the FTC’s closed Jan. 16 commission meeting).
The internet is now abuzz with reports of even more curious behavior from the commission—namely, that the FTC has been building its antitrust case against Amazon on the strength of testimony from Temu, a Chinese-owned online marketplace that connects customers directly with manufacturers in China and that competes directly with Amazon. It’s a dubious case, and new FTC leadership ought to take a good hard look at the details, and at the question of whether this specific antitrust case is a sensible way to deploy FTC resources.
Introduction We thank the Government of Canada and the Competition Bureau for the opportunity to comment on its review of the Merger Enforcement Guidelines (Guidelines).[1] . . .
We thank the Government of Canada and the Competition Bureau for the opportunity to comment on its review of the Merger Enforcement Guidelines (Guidelines).[1] The International Center for Law & Economics (ICLE) is a nonprofit, nonpartisan global research and policy center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of competition law and policy. ICLE’s interest is to ensure that competition law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis.
The consultation asks us to navigate a world in the aftermath of Bills C-56[2] and C-59[3] (Bills). The Bills introduced changes to Canadian competition law that are, in our view, severely misguided. The most problematic of these changes are encoding structural presumptions in the Competition Act and jettisoning the efficiency exemption in merger review. In our view, these changes signal a worrying turn away from sound economic analysis and toward formalistic line-drawing based on market structure. Notwithstanding these complaints, the changes are now fait accompli—at least, until the next legislative reform. The question therefore becomes one of mitigating their damage. We believe that the Guidelines could have a role to play in this regard. This is, by and large, how we have framed our comments (Comments) to the Competition Bureau’s consultation (Consultation).
Our Comments focus primarily on the following aspects of the Guidelines:
In its ongoing efforts to ensure that antitrust law in general, and merger control in particular, remain tethered to sound principles of economics, law, and due process, ICLE has submitted responses to consultations and published papers, articles, and reports in a number of jurisdictions. These include the European Union, the United States, Brazil, the Republic of Korea, the United Kingdom, India, and Canada. In January 2024, for example, ICLE submitted comments[4] to the Competition Bureau’s public consultation on its “Artificial Intelligence and Competition” discussion paper.[5] These and other publications are available on ICLE’s website.[6]
Bill C-59 incorporated structural presumptions into the Competition Act’s merger-review process.[7] As the Consultation notes, structural presumptions are, at best, an imperfect proxy for market power and, at worst, a misleading one.[8]
The assumption that “too much” concentration is harmful assumes both that a market’s structure is what determines economic outcomes, and that it is possible to know what the “right” amount of concentration is. As economists have understood since at least the 1970s (and despite an extremely vigorous, but futile, effort to show otherwise), market structure does not determine economic outcomes.[9]
Once perfect knowledge of technology and price is abandoned, [competitive intensity] may increase, decrease, or remain unchanged as the number of firms in the market is increased.… [I]t is presumptuous to conclude… that markets populated by fewer firms perform less well or offer competition that is less intense.[10]
This view is well-supported, and is held by scholars across the political spectrum.[11] The absence of correlation between increased concentration and either anticompetitive causes or deleterious economic effects is also demonstrated by a recent influential empirical paper from Shanat Ganapati. Ganapati finds that the increase in industry concentration in U.S. non-manufacturing sectors between 1972 and 2012 was “related to an offsetting and positive force—these oligopolies are likely due to technical innovation or scale economies. [The] data suggests that national oligopolies are strongly correlated with innovations in productivity.”[12] In the end, Ganapati found, increased concentration resulted from beneficial growth in firm size in productive industries that “expand[s] real output and hold[s] down prices, raising consumer welfare, while maintaining or reducing [these firms’] workforces.”[13] Sam Peltzman’s research on increasing concentration in manufacturing finds that it has, on average, been associated with both increased productivity growth and widening margins of price over input costs. These two effects offset each other, leading to “trivial” net price effects.
Further, the presence of harmful effects in industries with increased concentration cannot be readily extrapolated to other industries. Thus, while some studies have plausibly shown that an increase in concentration in a particular case has led to higher prices (which has been found true in only a minority of the relevant literature), assuming the same result from an increase in concentration in other industries or other contexts is simply not justified:
The most plausible competitive or efficiency theory of any particular industry’s structure and business practices is as likely to be idiosyncratic to that industry as the most plausible strategic theory with market power.[14]
As Chad Syverson aptly summarized:
Perhaps the deepest conceptual problem with concentration as a measure of market power is that it is an outcome, not an immutable core determinant of how competitive an industry or market is… As a result, concentration is worse than just a noisy barometer of market power. Instead, we cannot even generally know which way the barometer is oriented.[15]
In other words, depending on the nature and dynamics of the market in question, competition may well be protected under conditions that preserve a certain number of competitors in the relevant market. But competition may also be protected under conditions in which a single winner takes all on the merits of their business.[16] It is reductive, and bad policy, to presume that a certain number of competitors is always and everywhere conducive to better economic outcomes, or indicative of anticompetitive harm.
None of this means that concentration measures have no use in merger enforcement. Instead, it demonstrates that market concentration is often unrelated to antitrust enforcement, because it is driven by factors endogenous to each industry. As indicated earlier, the limited value of structural presumptions in elucidating competitive outcomes is recognized in the Consultation—at least, in theory. It is also recognized in the context of agreements and arrangements in s.90.3 of the Competition Act, which states that “for the purpose of subsections (1) and (2), the Tribunal shall not make the finding solely on the basis of evidence of concentration or market share.”
And yet it, is not entirely clear—in the aftermath of Bill C-59, and especially following the elimination of the efficiencies defense—how defendants could rebut the structural presumption laid down in s.92, other than by refuting the market-concentration calculus put forward by the Bureau. This essentially turns merger review under the Competition Act into a formalistic exercise where—despite assurances to the contrary—market structure is outcome-determinative. It also jars with the logic that applies to conduct under s. 90.1, thereby rendering the Competition Act conceptually rudderless.
The Guidelines can mitigate the unintended consequences of Bill C-59 by relativizing the value of structural presumptions. This can be done by clarifying that market structure is only a proxy for determining whether a transaction significantly lessens competition; explaining how structural presumptions can be rebutted; and clarifying that there is no “one size fits all” presumption across all industries. The overarching theme should be this: merger review is not a tool to organize markets along the Bureau’s preferred structural composition, but merely a tentative indication preceding a full-blow analysis.
Conversely, if the Guidelines double-down on Bill C-59’s structural turn, Canada risks stifling the dynamism of its own economy and destroying the significant benefits that accrue from procompetitive transactions, which account for the vast majority of mergers.[17] As Aaron Wudrick—former director of the Domestic Policy Programme at the Macdonald-Laurier Institute and now director of policy for MP Pierre Poilievre—has pointed out, “[structural presumptions] are very bad a idea, and [are] essentially evidence-free populism run amok.”[18] This echoes our arguments about the flimsy connection between market structure and economic performance. Similarly, Wudrick argues that:
The very premise is faulty, because concentration measures alone—as opposed to market power—are a poor proxy for the level of competition that prevails in a given market. I understand this can seem counterintuitive to a lot of people in the abstract, but in practice, it makes more sense: say you have one competitor, in particular, offering lower prices, higher quality, or newer cutting-edge products, so they end up breaking from the pack. They gain customers, and their market share rises. So this higher concentration is actually signaling more, rather than less, competition![19]
A formalistic adherence to market structure, in a misguided attempt to cater to populist anti-bigness sentiment, can penalize precisely those companies that, as Wudrick puts it, “break from the pack.” Consumers would, in turn, be left worse off “due to the unintended consequences in this populist rush to ‘get’ the big guys.”[20]
This form of populism may momentarily assuage some of the political pressure stemming from the high cost of living, but the “victory” is bound to be a Pyrrhic one—both as the economic harms of a flawed economic policy become apparent, and as consumers become aware that they are expected to foot the bill. With the impending change of administration in the United States, the populist “neo-Brandeisian moment” may have passed in that country,[21] and Canada would be unwise to replicate it at its lowest ebb.
The Bureau’s recognition of the importance of monopsony power in labor markets is a welcome development. The recent changes to the Competition Act that explicitly include labor as a “product” for the purposes of merger review appropriately reflect the importance of labor-market competition.[22] As the Bureau acknowledges, the economic literature is increasingly concerned with how employers may exercise market power over their workforce, influencing wages, benefits, and working conditions.[23]
Before getting to the explicit guidance, however, it would be worthwhile to take a fuller look at the economic literature.[24] The Bureau cites papers that find high concentration levels.[25] It is worth recognizing that one of these papers is restricted only to manufacturing, while the other relies on online job-posting data. The administrative data directly measure employment levels and shares, instead of being restricted to online vacancies as a proxy for employment.
This distinction matters, because employment shares are the natural counterpart of market shares—a cornerstone of antitrust enforcement. Concentration measures based on vacancies will be systematically higher than those based on employment, because not all firms will hire in any given period (in addition to any other issues with the data sample). Using the most direct comparison available, the governmental microdata finds an average Herfindahl–Hirschman Index (HHI) roughly one-tenth as large as that found using vacancy data. For example, Elizabeth Weber Handwerker and Matthew Dey directly compare the concentration measures in their data to the 26 occupations studied by Jose Azar, Iona Marinescu, and Marshall Steinbaum.[26] They find an HHI in the private sector of 0.0383, compared to 0.3157 in Azar, Marinescu, & Steinbaum.
The point is not to take a firm stance on the level of concentration in labor markets, especially labor markets in Canada, but instead to recognize nuances in the literature.
When thinking about the connection between concentration and wages, rather than concentration in isolation, it is also worth noting that most papers (including those cited by the Bureau) that find lower wages in markets with higher employer concentration do not differentiate rural from urban labor markets.[27] Rural and urban labor markets can differ significantly in terms of their economic structures, job opportunities, and wage levels. Any regression of wages on concentration is likely picking up something unrelated to concentration directly.
There is good evidence that employer concentration does not lead to depressed wages. For example, Ivan Kirov and James Traina find that rising markdowns (the gap between worker productivity and wages) are more strongly associated with technology-related factors—such as automation and managerial practices—than with employer concentration.[28] Moreover, they caution that:
These results suggest the workhorse assumptions behind some of the labor-market power literature might need reevaluation, particularly work that uses cross-sectional variation to infer trends in labor-market power. Concentration is likely an inappropriate measure of labor-market power in this case.
Their critique underscores the limitations of relying heavily on concentration metrics to assess labor-market competition, especially when making claims about trends over time. As Steven Berry, Martin Gaynor, and Fiona Scott Morton write:
A main difficulty in [the monopsony power literature] is that most of the existing studies of monopsony and wages follow the structure-conduct-performance paradigm; that is, they argue that greater concentration of employers can be applied to labor markets and then proceed to estimate regressions of wages on measures of concentration. For the same reasons we discussed above, studies like this may provide some interesting descriptions of concentration and wages but are not ultimately informative about whether monopsony power has grown and is depressing wages.[29]
This is not to say that indirect evidence of market power is entirely without value. These studies can provide useful background information to guide antitrust policy. Moreover, antitrust law itself often relies on indirect measures of market power, such as concentration ratios and HHIs. In the case of antitrust enforcement, however, these measures are typically derived from carefully defined relevant markets. Defining the relevant market for labor is a complex task that requires considering such factors as job characteristics, worker skills, worker mobility, and geographic scope. There is currently little consensus among labor economists about the best way to define labor markets for antitrust purposes.
While the Bureau points to true features of labor markets around search frictions, the conclusion “that labour markets may be narrow” is premature, if “may” means more than mere possibility. There are also features of labor markets that push in the opposite direction. Often, the relevant market cannot be narrowed to even a handful of readily identifiable companies. For the vast majority of workers, a great number of potential employers would remain following a merger. This “potential competition”—the range of feasible employers that present an outside option to the merged companies’ present employees—limits the merged firm’s ability to exercise monopsony power in its labor negotiations. While we are not aware of publicly available data that would more comprehensively illustrate worker flows among different companies (and industries), such flows of retail workers into and out of roughly adjacent labor markets make intuitive sense. As economist Kevin Murphy has explained:
If you look at where people go when they leave a firm or where people come from when they go to the firm, often very diffuse. People go many, many different places. If you look at employer data and you ask where do people go when they leave, often you’ll find no more than five percent of them go to any one firm, that they go all over the place. And some go in the same industry. Some go in other industries. Some change occupations. Some don’t. You look at plant closings, where people go. Again, not so often a big concentration of where they go to. If you look at data on where people are hired from, you see much the same patterns. That’s kind of a much more diffuse nature.[30]
Fundamentally, the labor-economics literature has offered little guidance to date on how to define markets in labor cases. Concentration varies greatly, depending on the exact definition of the relevant market, especially the geographic market. It is virtually impossible to know what outside options to include in the relevant market, and it may not always be possible to identify even where such potential employers are located (e.g., are commuting zones better proxies for the relevant geographic labor market than metropolitan areas?). These market-definition issues are far more acute in monopsony cases than in traditional monopoly cases, both because the intrinsic question of substitutes is more complicated and because there is far less precedent to guide parties and enforcers. That makes enforcers’ jobs more difficult. But if the goal is to promote competition, instead of simply reducing the number of mergers, it is important to recognize the difficulties, rather than assume they do not exist.
If the Guidelines wish to stress labor markets and monopsony, it is also worth noting the differences. Suppose, for now, that a merger either generates efficiency gains or market power, but not both. In a monopoly case, if there are efficiency gains from a merger, the quantity sold in the output market will increase. With sufficient data, the agencies will be able to see (or estimate) the efficiencies directly in the output market. Efficiency gains result in either greater output at lower unit cost, or else product-quality improvements that increase consumer demand. In contrast, if the merger simply enhances monopoly power without efficiency gains, the quantity sold will decrease, either because the merging parties raise prices or quality declines. The empirical implication of the merger is seen directly in the market in question
The monopsony case is, however, rather more complicated. Ultimately, we can be certain of the effects of monopsony only by looking at the output market, not the input market where the monopsony power is claimed. Consider, again, a merger that generates either efficiency gains or market (in this case, monopsony) power. A merger that creates monopsony power will necessarily reduce the prices and quantity purchased of inputs like labor and materials. But this same effect (reduced prices and quantities for inputs) would also be observed if the merger is efficiency-enhancing. If there are efficiency gains, the merged entity may purchase fewer of one or more inputs than the parties did pre-merger. For example, if the efficiency gains arise from the elimination of redundancies in a hospital merger, the hospital will buy fewer inputs, hire fewer technicians, or purchase fewer medical supplies.
We have seen there are scale efficiencies associated with hospital mergers. As work from the U.S. Federal Trade Commission (FTC) Bureau of Economics explains, there can be scale efficiencies associated with “surgical procedures that exhibit a volume-outcome relationship.”[31] Typically, these are high-risk, complex procedures. “By consolidating such procedures at fewer hospitals, or by sending experienced personnel from one hospital to another, a system potentially can reap the benefits of increased scale.”[32] That is, reassignment of personnel and/or consolidation of procedures (and attendant personnel) at fewer hospitals can facilitate more efficient and higher-quality provision of services, even as it may decrease labor demand in certain geographic markets. This may even reduce the wages of technicians or the price of medical supplies, even if the newly merged hospitals do not exercise any market power to suppress wages.[33]
Taking these complications, which go beyond the concerns in standard monopoly cases, the Guidelines should also explicitly acknowledge the interactions among output markets and input markets, and what they mean for the assessment of merger efficiencies. Monopsony markets do not present a mirror image of monopoly markets. Merger reviews should therefore assess both input markets (e.g., labor) and output markets (e.g., products) simultaneously. In other words, considering some effects outside the relevant market is essential when evaluating effects in labor markets. The assessment of efficiencies must also take into account the potential offsetting effects on workers from lower wages (or slower wage growth), which is not explicitly addressed in this guidance.
As a general note, it is highly doubtful that digital platforms truly warrant an overhaul of existing merger-review principles, or a lex specialis. Indeed, it is unlikely that these markets exhibit any greater tendency toward anticompetitive conduct than others. In fact, these industries—if we can call them that—tend to perform comparatively better than others. As Herbert Hovenkamp has noted, when deciding which industries they should pursue, antitrust authorities typically focus on those that are characterized by poor economic performance. By contrast:
With Big Tech, we’re looking at probably the most productive part of the economy. The rate of innovation is high. They spend a lot of money on R&D. They are among the largest patent holders. There’s very little evidence of collusion. They seem to be competing with each other quite strongly. They pay their workers relatively well and have fairly educated workforces. None of this is a sign that these are industries we should be pursuing. That doesn’t mean they don’t do some anti-competitive things. But the whole idea that we should be targeting Big Tech strikes me as fundamentally wrong-headed.[34]
As Geoffrey Manne and Dirk Auer have argued, antitrust enforcers’ hostility toward digital platforms may be fueled more by dystopian populism than actual evidence of widespread harm.[35] When revisiting the Guidelines, the Bureau should not fall for some of the fallacies that paint digital platforms as uniquely problematic or prone to anticompetitive conduct.
For instance, the Consultation states that strong network effects may make markets prone to “tipping,” especially when combined with economies of scale and the use of large volumes of data. This is an argument that has become increasingly common, and the Competition Bureau is certainly not the first to raise it. The crux of the argument is that “the collection and use of data creates a feedback loop of more data, which ultimately insulates incumbent platforms from entrants who, but for their data disadvantage, might offer a better product.”[36] This self-reinforcing cycle purportedly leads to market domination by a single firm.[37] Thus, it is argued that, e.g., Google’s “ever-expanding control of user personal data, and that data’s critical value to online advertisers, creates an insurmountable barrier to entry for new competition.”[38]
But it is important to note the conceptual problems these claims face. Because data can be used to improve the quality of products and/or to subsidize their use, the idea that data serves as an entry barrier suggests that any product improvement or price reduction made by an incumbent could be problematic for any new entrant. This is tantamount to the argument that competition itself is a cognizable barrier to entry. Of course, it would be a curious approach to antitrust if competition were treated as a problem, as it would imply that firms should under-compete—i.e., should forego consumer-welfare enhancements—in order to inculcate a greater number of firms in a given market simply for its own sake.[39]
Meanwhile, actual economic studies of data-network effects have been few and far between, with scant empirical evidence to support the theory.[40] Andrei Hagiu and Julian Wright’s theoretical paper offers perhaps the most comprehensive treatment of the topic to date.[41] The authors ultimately conclude that data-network effects can be of varying magnitudes and with varying effects on firms’ incumbency advantage.[42] They cite Grammarly (an AI writing-assistance tool) as a potential example: “As users make corrections to the suggestions offered by Grammarly, its language experts and artificial intelligence can use this feedback to continue to improve its future recommendations for all users.”[43]
Despite the paucity of evidence, however, policymakers and antitrust enforcers have been keen to embrace data-driven network-effect theories of harm. For example, it is remarkable that, in its section on “[t]he data advantage for incumbents,” the Furman Report created for the UK government cited only two empirical economic studies, and those studies offer directly contradictory conclusions with respect to the question of the strength of data advantages.[44] Nevertheless, the Furman Report concludes that data “may confer a form of unmatchable advantage on the incumbent business, making successful rivalry less likely,”[45] and adopts without reservation “convincing” evidence from non-economists that have no apparent empirical basis.[46]
This trend is likewise evident in other jurisdictions, including the EU and the United States.[47] Unfortunately, these concerns rest on little-to-no empirical evidence, either in the economic literature or the underlying case records. Accordingly, it is important that the Guidelines recognize the procompetitive aspects of so-called digital platforms, network effects, and data, rather than treating their mere existence as a smoking gun that signals anticompetitive harm. While data could, in certain circumstances, confer on a company the ability and incentive to foreclose rivals, this should be tempered by the recognition that data can also be (i) the source of procompetitive conduct that enhances consumer welfare and (ii) not an insurmountable barrier to entry.
On the latter point, consider generative AI. Given common assumptions about the advantages conferred by data and data-driven network effects, it would be reasonable to assume that firms like Google, Meta, and Amazon should be in pole position to dominate the burgeoning market for generative AI. After all, these firms have not only been at the forefront of the field for the better part of a decade, but they also have access to vast troves of data, the likes of which their rivals could only dream when they launched their own services.
To date, however, this is not how things have unfolded—although it bears noting that these markets remain in flux and the competitive landscape is susceptible to change. The first significantly successful generative-AI service was arguably not from either Meta—which had been working on chatbots for years and had access to, arguably, the world’s largest database of actual chats—or Google. Instead, the breakthrough came from a previously unknown firm called OpenAI.
This raises several crucial questions: how have these AI upstarts managed to be so successful, and is their success just a flash in the pan before Web 2.0 giants catch up and overthrow them? While we cannot answer either of these questions dispositively, we offer what we believe to be some relevant observations concerning the role and value of data in digital markets.
A first important observation is that empirical studies suggest that data exhibits diminishing marginal returns. In other words, past a certain point, acquiring more data does not confer a meaningful edge to the acquiring firm. As Catherine Tucker put it following a review of the literature: “Empirically there is little evidence of economies of scale and scope in digital data in the instances where one would expect to find them.”[48]
Likewise, following a survey of the empirical literature on the topic, Manne & Auer conclude that:
Available evidence suggests that claims of “extreme” returns to scale in the tech sector are greatly overblown. Not only are the largest expenditures of digital platforms unlikely to become proportionally less important as output increases, but empirical research strongly suggests that even data does not give rise to increasing returns to scale, despite routinely being cited as the source of this effect.[49]
Ultimately, establishing a business model to extract and organize the right information is more important than simply owning vast troves of data.[50] Even in those instances where high-quality data is an essential parameter of competition, it does not follow that having vaster databases or more users on a platform necessarily leads to better information for the platform.
Indeed, if data ownership consistently conferred a significant competitive advantage, these new firms would not be where they are today. This does not, of course, mean that data is worthless. Rather, it means that competition authorities should not assume that merely possessing data is a dispositive competitive advantage, absent compelling empirical evidence to support such a finding. In this light, the Guidelines should seek to accurately reflect the nuances surrounding data-driven advantages.
A second potential area of concern relates to conglomerate or non-horizontal mergers. The Consultation indicates that these may be important in mergers involving digital platforms, given the complementarity of the products involved. The Competition Bureau should be careful, however, not to treat every merger involving a digital platform as a de facto horizontal merger under the flawed assumption that, but for the acquisition, one of the merging firms likely would launch its own competing vertical product.[51] Similarly, if “digital ecosystems” are defined broadly to include any products that are actually or potentially complimentary, and if strengthening a “digital ecosystem” makes a merger suspect of anticompetitive harm, then virtually any acquisition involving a digital platform could, in theory, be deemed anticompetitive insofar as it would give the acquiring firm the ability (and incentive) to, e.g., give preferential treatment to its complementary product over those of rivals.
This logic could apply to anything from Amazon’s acquisition of robot vacuum cleaners (Amazon could preference its own vacuum cleaners on Marketplace); AI partnerships (Apple could “tie” an AI to its iOS); maps services (Google Maps); etc. It is easy to see the problem with this theory: it has no obvious limiting principles. Any two products could potentially be complementary in the boundless domain of “digital ecosystems.” Of course, in a given case, under specific facts and circumstances, a large, diversified tech firm might consider or achieve entry into a vertical, or “complimentary” market. But a possibility under some facts and circumstances is a far cry from a general likelihood.
The implication of this research[52] is that mergers between firms that are either vertically related or active in unrelated markets routinely or typically have significant horizontal effects.[53] This can be the case, either when merging firms are potential competitors or when they compete in innovation markets (i.e., they have overlapping R&D pipelines, or may have them in the future).[54] Endorsing this approach to merger review wholeheartedly, however, would have profound policy ramifications. Indeed, should authorities assume the counterfactual to a merger is that the acquirer will compete with the target directly, then every merger effectively becomes a horizontal one. This would obfuscate the well-established, fundamental conceptual difference between horizontal and vertical mergers.
A horizontal merger combines firms that compete in the same relevant market, which necessarily reduces the number of firms engaged in head-to-head competition and may eliminate substitutes. That reduction inherently tends to increase prices, but the price effect may be trivial. In addition, market responses (competitive repositioning or new entry) or other benefits of the merger (savings in transaction and other costs, enhanced investment incentives) may neutralize or offset the impetus to higher prices. But because those benefits are not automatic (and the reduction of direct competition is), they must be proven, rather than assumed, if the merger otherwise poses a significant risk of anticompetitive effects.
A vertical merger, by contrast, combines firms with an upstream or downstream (e.g., seller-buyer) relationship—that is, “firms or assets at different stages of the same supply chain.”[55] Examples include a manufacturer acquiring a distributor or a firm that provides a manufacturing input. The economic consequences of combining complements rather than substitutes are fundamentally different. Whereas the first-order effect of a horizontal merger is upward pricing pressure, the first-order effect of a vertical merger is downward pricing pressure. Vertical mergers typically entail the elimination of double marginalization, which is akin to downward pricing pressure (and often considered alongside efficiencies).[56]
Vertical integration also typically internalizes externalities in research and development, resulting in greater investment.[57] Like horizontal mergers, vertical mergers also often confer other benefits, such as operational and transactional efficiencies.[58] Thus, while both types of mergers can create benefits from cost savings, their intrinsic effects move in opposite directions: higher prices and less investment with horizontal mergers, and lower prices and more investment with vertical mergers.
Here, once again, the Competition Bureau should be careful not to fall prey to alarmist theories of harm, generalizations with little basis in reality, and anti-tech commotion. To avoid stifling procompetitive mergers that result in the integration of complimentary products from which consumers benefit (as well as foreclosing an important exit strategy for startups),[59] the Guidelines should be very clear as to which conglomerate mergers are problematic, and under which circumstances. Otherwise, the Competition Act risks throwing the baby out with the bathwater.
The Bureau intends the revised Guidelines to focus on non-price effects,[60] with a clear emphasis on privacy. As the Consultation notes:
Future merger reviews may examine privacy as a non-price dimension of competition which may be harmed when competition is lessened or prevented. It may be challenging to measure impacts on privacy. As such, it may be helpful for the guidelines to include information on the aspects of privacy that may be affected by mergers, including:
transparency regarding data practices,
whether meaningful consent is obtained,
the extent of data collection,
the use or sharing of collected data,
storage and retention terms,
encryption and protection,
data portability rights, or
other parameters.[61]
While this is reasonable, in principle, and in line with antitrust law’s best practices and the consumer-welfare standard, it also merits caution.[62] The U.S. 2010 Horizontal Merger Guidelines (2010 HMGs), for example, recognized that anticompetitive effects may “be manifested in non-price terms and conditions that adversely affect consumers.”[63] This, of course, includes effects on consumer privacy. The theory behind this is that a merger between two entities—one that is more privacy-protective and one that is less—could lead to less privacy overall (framed here as more data collection for targeted advertising) because there would be one less firm to put competitive pressure on the newly merged firm. Thus, competition authorities reviewing such mergers are encouraged to consider the impact on privacy as part of their analysis.
For example, in Google’s 2007 acquisition of DoubleClick, the FTC explicitly considered the impact of the transaction on “non-price attributes of competition, such as consumer privacy.”[64] While a merger has never been blocked solely due to privacy concerns, it clearly can be analyzed as a form of non-price competition. The lack of enforcement on these grounds may, however, be due to the clear difficulties in applying such a framework.
First, non-price effects may be difficult to measure. As Doug Melamed and Nicolas Petit have pointed out:
Like all decision-makers, antitrust agencies and courts are constrained in their ability to discover facts that are imperfectly observable (e.g., successful entry deterrence), measurable (e.g., product quality) or predictable (e.g., innovation and technological progress). Some data are easier to obtain, and some facts are easier to establish. So public and private antitrust enforcers have, for reason of prudence or pragmatism, focused on price and output effects.[65]
Second, product-quality effects can be extremely difficult to distinguish from price effects. Quality-adjusted price is usually the touchstone by which antitrust regulators assess prices for competitive-effects analysis. Disentangling (allegedly) anticompetitive quality effects from simultaneous (neutral or pro-competitive) price effects is, at best, an imprecise exercise. For this reason, it is very difficult to prove a product-quality case alone and would require connecting the degradation of a particular element of product quality to a net gain in advantage for the monopolist.
This means, for example, that the price of free access for users of multi-sided platforms must be balanced against the cost of data collection.[66] For instance, most users of digital apps and websites strongly prefer free access in exchange for their data, as evidenced by the fact that very few pay for subscription models that eschew data collection. The consumer-welfare standard would require looking at the quality-adjusted price to consider whether a merger would help or harm consumers on privacy grounds. One of the tradeoffs inherent in this exercise is whether blocking a potential merger could mean higher prices for many users in the name of protecting privacy.
For example, imagine a hypothetical device maker with high levels of privacy protection that charges more for its products and requires fee-based access to apps in the app marketplace for its devices. Imagine this device maker is acquired by a rival that has lower-cost devices and mostly “free” apps in its stores, which are cross-subsidized via targeted ads powered by data collection. If an antitrust-enforcement agency rejects this acquisition on privacy grounds, there would be a potential cost to those consumers who would have experienced lower prices for the devices and free apps. Determining the tradeoffs among device and app selection, price, and privacy for the consumer-welfare analysis in such a case would be extremely difficult.
Invariably, product quality can be measured on more than one dimension. For instance, product quality could include both function and aesthetics: A watch’s quality lies in both its ability to tell time, as well as how nice it looks on your wrist. A non-price-effects analysis involving product quality across multiple dimensions becomes exceedingly difficult if there is a tradeoff in consumer welfare between the dimensions. Thus, for example, a smaller watch battery may improve its aesthetics, but also reduce its reliability. Any such analysis would necessarily involve a complex and imprecise comparison of the relative magnitudes of harm/benefit to consumers who prioritize one type of quality over another.
All other things being equal, it is plausible that consumers would prefer more privacy. But not only are there potential tradeoffs between price and privacy online, but there could be an important tradeoff between privacy and other product qualities, such as how well an algorithm for a search engine or a social-media news feed works. One of the reasons many users prefer Google over the more privacy-oriented DuckDuckGo, for instance, is because of how well the search algorithm works—empowered, in part, by data collected online.[67]
For enforcers, this again leads to a question of how to consider tradeoffs under the consumer-welfare standard. Without more information, it will be very difficult to determine whether consumers care more about data collection or the other product qualities that data collection could empower. The preferences among users about the relative weighting of product features is, moreover, likely to be highly heterogeneous, making a generalized assessment of given features exceedingly difficult.
In sum, the question of antitrust-relevant product quality really comes down to the relative numbers of, and magnitude of harm to, consumers who prefer more privacy protection versus those who prefer a better product experience and/or a lower price. To make out an antitrust case based on privacy harms, antitrust regulators would have to compare the magnitude of harms to what appears to be a small group of privacy-sensitive consumers (who have not otherwise protected themselves by using marketplace tools like tracking-blockers or the opt-out options provided by major ad networks and data brokers) to the benefits received by the supermajority of consumers who are less privacy-sensitive. Beyond the enormous difficulty of performing such analysis, it seems extraordinarily unlikely that the harms would outweigh the benefits, on net.
A final consideration is also important. When considering using competition law, enforcers should consider that Canada already has an extensive data-privacy legal framework.[68] Accordingly, any attempt to harness competition law to protect privacy should be cautious about possible unintended effects, such as barriers to competition or the generation of high compliance costs due to possible redundancies, lack of legal clarity or predictability, or even contradictions.
The Bureau’s emphasis on innovation effects in merger review is well-placed, as dynamic competition through innovation represents a crucial dimension of market rivalry that can have significant consequences for consumer welfare.[69] The relationship between market structure and innovation is, however, often ambiguous—requiring careful analysis, rather than broad presumptions. Bill C-59’s aggressive stance against concentration[70] might undercut dynamic competition, as size and scale are often conducive to innovation.
The economic literature examining the relationship between market structure and innovation presents mixed findings that defy simple characterization. As Richard Gilbert notes in his survey of the empirical literature, studies “do not reach a consensus, other than to note that innovation effects can differ dramatically for firms that are at different levels of technological sophistication.”
Table 6.1 summarizes the conclusions from these interindustry studies for the effects of competition and industry structure on innovation. Unfortunately, these studies do not reach a consensus, other than to note that innovation effects can differ dramatically for firms that are at different levels of technological sophistication. Although some studies find a positive relationship between measures of innovation and competition (alternatively, a negative relationship between innovation and industry concentration), others find that the relationship exhibits an inverted-U, with the largest effects at moderate levels of industry concentration or competition, and at least one study reports a negative relationship between competition (measured by Chinese import penetration) and innovation (measured by citation-weighted patents and R&D investment. One consistent finding is that an increase in competition has less of a beneficial effect, and may have a negative effect, on innovation incentives for firms that are far behind the industry technological frontier.[71]
This ambiguity is reflected in seemingly contradictory findings across industries. For instance, Ronald Goettler and Brett Gordon[72] found that concentration led to higher innovation rates in semiconductors, while Mitsuru Igami reached the opposite conclusion when studying the hard-disk-drive industry.[73]
Perhaps most notably, the seminal work of Philippe Aghion et al. identified an inverted-U relationship between competition and innovation.[74] This finding, however, warrants careful interpretation. While increased competition may spur innovation up to a point, the relationship varies significantly across industries and depends on numerous factors, including firms’ relative technological positioning. The relationship that holds true for the economy as a whole does not necessarily apply in any given case. While the research on market structure and innovation does not directly apply to mergers, it illustrates similar tradeoffs involved.
Looking at mergers directly, if there is an emerging consensus, it is that protecting innovation requires a nuanced, context-dependent approach, rather than blanket presumptions about market structure. Drawing directly from Marc Bourreau et al., we can develop a more nuanced understanding of the relationship between mergers and innovation.[75] The authors demonstrate that the impact of mergers on incentives for innovation can be decomposed into two fundamental effects: a market-power effect and an externality effect. This decomposition helps explain why blanket presumptions about merger effects on innovation may be misleading.
The market-power effect captures how changes in output following a merger affect innovation incentives. Specifically, when a merger reduces output, it typically diminishes firms’ incentives to innovate when innovation would increase their margins (Bourreau et al., 2024). But the authors also show that this effect’s magnitude and direction can vary depending on how the merger affects the return to investment per-unit of output.
The externality effect, meanwhile, encompasses two distinct mechanisms. First, merged entities internalize the impact of each firm’s innovation on the other firm’s demand—what the authors deem the “innovation diversion effect.” Second, mergers affect firms’ margins and therefore their incentives to innovate when innovation increases sales, termed the “demand expansion effect” (Bourreau et al., 2024). Importantly, the authors demonstrate that the externality effect’s direction depends on the relative magnitude of price-diversion versus innovation-diversion ratios.
This framework helps to explain why policies that uniformly restrict mergers may have unintended consequences for innovation. Igor Letina, Armin Schmutzler, and Regina Seibel demonstrate that prohibiting acquisitions can have a weakly negative effect on innovation, even when such policies may enhance static competition.[76] Their research identifies that this effect operates through multiple channels, including reduced incentives for startup investment when exit through acquisition is foreclosed. This finding suggests that merger policy must carefully balance static competition benefits against potential dynamic innovation effects.
The Guidelines should therefore avoid adopting what might be called a “structuralist innovation presumption”—i.e., the assumption that more firms in a market will necessarily produce greater innovation. Such a presumption would be at odds with the economic literature. The Guidelines should also recognize that innovation effects may sometimes diverge from price effects. A merger might increase market power, while simultaneously enhancing innovation output through various mechanisms, including:
The telecommunications industry provides instructive evidence of such divergent effects. Research examining “4-to-3” mobile-carrier mergers has found that, while price effects were ambiguous, capital expenditures—a key proxy for investment and innovation —consistently increased post-merger.[77] This aligns with findings that markets with three facilities-based operators often saw the highest levels of per-firm investment, suggesting stronger incentives for infrastructure development and technological advancement. Similarly, Elena Patel and Nathan Seegert found that “hospitals in concentrated markets increased investment by 5.1 percent more than firms in competitive markets.”[78]
To properly assess innovation effects, the Guidelines should adopt a framework that:
Bill C-56 repealed the efficiency defense in Canadian merger review. Prior to the repeal, this provision meant that a merger’s anticompetitive effects could be weighed against cost savings. As Aaron Wudrick has argued: “[The efficiency defense] was an explicit acknowledgment that there are tradeoffs involved in competition.”[79] Indeed, tradeoffs under uncertainty are endemic in competition law. This is magnified in the context of merger review where, rather than addressing past misconduct, authorities must predict whether a transaction is likely to harm competition in the future.
The repeal of the efficiency defense was unfortunate. But while efficiencies are no longer relevant under s.96 of the Competition, as Wudrick points out, an efficiency defense can arguably still be invoked as “other factors” under s.93 of the Competition Act.[80] If this is the case, as it should indeed be interpreted, the Guidelines should expressly state this, and clearly establish how and when this should be claimed and proved (and who bears the burden of proof). This would help economic agents to have predictability (a fundamental characteristic of the rule of law), whether in the planning of their investments, in the structuring of their operations, or as part of the merger-control procedure.
Efficiency, after all, is the basic objective of antitrust law. Competition is not an end in itself, but rather a means to an end. We protect competition because market competition is generally the most effective way to ensure the efficient allocation of resources.[81] That is why most competition-enforcement regimes recognize that a merger that may have significant anticompetitive effects should nevertheless be permitted if it would also result in efficiency improvements that are greater than the anticompetitive effects.[82]
Efficiencies, of course, are difficult to quantify and verify. The burden of proof of the efficiencies gained through the merger should be mainly on the merging firms, considering they are the lowest-cost producer of such information.
Considering the wording of s.93, the Guidelines could follow the structure of, and include similar rules and procedures as, the European Commission’s Guidelines on the assessment of horizontal mergers,[83] which establish that:
… the Commission performs an overall competitive appraisal of the merger. In making this appraisal, the Commission takes into account the factors mentioned in Article 2(1), including the development of technical and economic progress provided that it is to the consumers’ advantage and does not form an obstacle to competition.[84]
The Commission’s guidelines, however, include a high burden of proof to accept these efficiencies, establishing that “efficiencies should be substantial and timely, and should, in principle, benefit consumers in those relevant markets where it is otherwise likely that competition concerns would occur.”[85] The bar shouldn’t be set that high, given that most mergers are pro-competitive. Projections of efficiencies should be accepted if they can be verified by reasonable means and under a preponderance-of-the-evidence standard.
The consultation asks if the current guidelines “sufficiently address mergers involving nascent competitors,” which may include so-called “killer acquisitions.” While the “killer acquisitions” theory has captured the attention of scholars and authorities, and some consider them a material risk to competition (particularly in technology markets),[86] the evidence of real harm is weak. This is because the “killer acquisitions” theory does not differentiate between legitimate and efficient discontinuations of acquired products and the elimination of potential competitors.[87] Acquisitions of nascent and potential competitors undertaken with the intention of reducing competition have also been described as “killer acquisitions,” even if the acquisitions do not involve products being discontinued.[88]
Along similar lines, it is sometimes argued that large tech firms create so-called “kill zones” around their core businesses.[89] All of these practices are said to harm innovation by deterring competitors from investing in innovations that compete with incumbents.[90] The overarching theme of the above research is that existing antitrust doctrine is ill-equipped to handle these practices or, at the very least, that antitrust law should be enforced more vigorously in these settings.
But while the above research identifies important and potentially harmful conduct that cannot be dismissed out of hand, it is important to recognize its inherent limitations when it comes to informing normative policy decisions. Indeed, there is a vast difference between identifying categories of conduct that sometimes harm consumers and being able to isolate individual instances of anticompetitive behavior.[91] The above is merely a restatement of the error-cost framework, which highlights that the existence of false negatives is not a sufficient condition for heightened intervention:
The fact—if it can be proved—that there were some false negatives does not imply that there has been underenforcement with respect to the optimal level of enforcement. In other words, in the digital space the argument can be made that an optimal merger policy on average leads to ex-post “underenforcement.” Moreover, even if the level of enforcement has been lower than optimal, one must be careful not to swing to the opposite side, especially in high-tech industries. The chilling effect on innovation could be significant.[92]
Instead, it must always be the case that a change to the standards of government intervention to prevent more of these false negatives (with their inherent tradeoffs) ultimately increases social welfare overall.[93]
Take the example of Google. The company has acquired at least 270 companies over the last two decades.[94] It has been argued that some of Google’s acquisitions—including those of YouTube, Waze, and DoubleClick—may have been anticompetitive.[95] The real test for regulators, however, is whether they could reliably identify which of Google’s 270 acquisitions are actually anticompetitive, and to do so under a decision rule that causes less harm to consumers from false positives than is caused by the current false negatives.[96] If the anticompetitive mergers are such a tiny percentage of total mergers, and if identifying them a priori is difficult, then a precautionary-principle strategy that results in many false positives would likely not merit the benefits from blocking one or two anticompetitive mergers.
Indeed, but for Google and Facebook’s investments in YouTube and Instagram, respectively, it is far from clear that a mere “video-hosting service” or “photo-sharing app” would have grown into the robust competitors that advocates assume. Apart from the potential synergies arising from the combination of these products with the acquiring companies’ other products,[97] corporate control by the acquiring company may lead to these firms being better managed. This concept of M&A as creating a “market for corporate control” adds an important new dimension to the understanding of the tradeoffs involved in merger control.[98]
These anticompetitive theories of harm can be separated into three broad categories: (1) large incumbents have become so dominant in their primary markets that venture capitalists decline to fund startups that compete head-on, reducing potential competition; (2) large incumbents acquire potential competitors or non-competitor startups so as to reduce the competition along several dimensions, and (3) incumbents purchase competitors to shut down their overlapping innovation pipelines (i.e., “killer acquisitions”). With this in mind, applying the error-cost framework should lead policymakers to carefully consider the following questions when evaluating the merits and policy implications of economic research in this space:
In addition to these error-cost-related questions, we must also question whether the results of these studies are relevant outside the specific markets they examine, and whether they give sufficient weight to countervailing procompetitive justifications.
The above suggests that authorities should consider the full picture before doing away with existing presumptions. For instance, while lowering merger-filing thresholds may enable enforcers to review and block some anticompetitive mergers that currently go unchallenged, it will also have other costs for which enforcement agencies must account. Indeed, lowering filing thresholds will significantly increase the number of mergers that agencies must review. This will increase enforcement costs, delay the clearance of some socially beneficial deals, and stretch agency resources (potentially leading to certain deals receiving less attention than is currently the case, which may increase both false positives and negatives).
[1] Reviewing the Merger Enforcement Guidelines, Government of Canada, The Competition Bureau (Nov. 7, 2024), https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/reviewing-merger-enforcement-guidelines.
[2] An Act to Amend the Excise Tax Act and the Competition Act, 2023 (Bill C-56)(Can.).
[3] An Act to Implement Certain Provisions of the Fall Economic Statement Tabled in Parliament on November 21, 2023 and Certain Provisions of the Budget Tabled in Parliament on March 28, 2023 (Bill C-59)(Can.).
[4] Geoffrey A. Manne, Dirk Auer, Aaron Wudrick, & Mario Zúñiga, Comments of the International Center for Law & Economics and the Macdonald-Laurier Institute: Competition Bureau Canada Public Consultation on ‘Artificial Intelligence and Competition’ Discussion Paper, Int’l. Ctr. Law Econ (Aug. 13, 2024), available at https://laweconcenter.org/wp-content/uploads/2024/08/Comments-of-the-ICLE-Merger-Consultarion-AUS.pdf.
[5] Artificial Intelligence and Competition Discussion Paper, Competition Bureau of Canada (Mar. 20, 2024), https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/artificial-intelligence-and-competition.
[6] International Center for Law & Economics, https://laweconcenter.org.
[7] Competition Act, 1985 (R.S.C., C-34) s.92.2. (Can.).
[8] (“Market concentration is a useful, but imperfect, indicator of the competitive harm that may result from a merger”).
[9] See Harold Demsetz, Industry Structure, Market Rivalry, and Public Policy, 16 J.L. & Econ. 1 (1973); see also, e.g., Richard Schmalensee, Inter-Industry Studies of Structure and Performance, in 2 Handbook of Industrial Organization 951-1009 (Richard Schmalensee & Robert Willig, eds., 1989); William N. Evans, Luke M. Froeb, & Gregory J. Werden, Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures, 41 J. Indus. Econ. 431 (1993); Steven Berry, Market Structure and Competition, Redux, FTC Micro Conference (Nov. 2017), available at https://www.ftc.gov/system/files/documents/public_events/1208143/22_-_steven_berry_keynote.pdf; Nathan Miller et al., On the Misuse of Regressions of Price on the HHI in Merger Review, 10 J. Antitrust Enforcement 248 (2022).
[10] Harold Demsetz, The Intensity and Dimensionality of Competition, in Harold Demsetz, The Economics of The Business Firm: Seven Critical Commentaries 137, 140-41 (1995).
[11] Supra note 9.
[12] Shanat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13(3) Am. Econ. J. Microecon. 309-327, 324 (Aug. 2021).
[13] Id., at 309.
[14] Timothy F. Bresnahan, Empirical Studies of Industries with Market Power, in HANDBOOK OF INDUSTRIAL ORGANIZATION, 1011, 1053-54 (Richard Schmalensee & Robert Willig, eds., 1989).
[15] Chad Syverson, Macroeconomics and Market Power: Context, Implications, and Open Questions, 33(3) J. Econ. Perspect. 23-43, 26 (2019).
[16] Nicolas Petit & Lazar Radic, The Necessity of the Consumer Welfare Standard in Antitrust Analysis, ProMarket (Dec. 18, 2023), https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.
[17] For example, in the EU, 94% of mergers are cleared without commitments, whereas only about 6% are allowed with remedies, and less than 0.5% of mergers are blocked or withdrawn by the parties. See Joanna Piechucka, Tomaso Duso, Klaus Gugler, & Pauline Affeldt, Using Compensating Efficiencies to Assess EU Merger Policy, VoxEU (Jan. 10, 2022), https://cepr.org/voxeu/columns/using-compensating-efficiencies-assess-eu-merger-policy; see also, Robert Kulick & Andre Card, Mergers, Industries, and Innovation: Evidence from R&D Expenditure and Patent Applications, NERA Economic Consulting (Feb. 2023), available at https://www.uschamber.com/assets/documents/NERAMergers-and-Innovation-Feb-2023.pdf (finding that mergers are responsible for as much as $13.5 billion in increased research and development expenditure annually).
[18] Aaron Wudrick, The View from Canada: A TOTM Q&A with Aaron Wudrick, Truth on the Market (Jun. 12, 2024), https://truthonthemarket.com/2024/06/12/the-view-from-canada-a-totm-qa-with-aaron-wudrick.
[19] Id.
[20] Id.
[21] On the uncertain legacy of neo-Brandeisianism, see Dirk Auer & Lazar Radic, The Legacy of Neo-Brandeisianism: History or Footnote? Network Law Review (Jul. 9, 2024) https://www.networklawreview.org/auer-radic-brandeisianism.
[22] Supra note 1.
[23] See, e.g., Suresh Naidu, Eric A. Posner, & Glen Weyl, Antitrust Remedies for Labor Market Power, 132 Harv. L. Rev. 536 (2018).
[24] For a full review of the labor-monopsony literature and how it relates to antitrust, see Brian C. Albrecht, Dirk Auer, & Geoffrey A. Manne, Labor Monopsony and Antitrust Enforcement: A Cautionary Tale, ICLE White Paper No. 2024-05-01, available at https://laweconcenter.org/wp-content/uploads/2024/05/Labor-Monopsony-Antitrust-final-.pdf.
[25] Supra note 1 (citing Jose Azar, Iona Marinescu, & Marshall Steinbaum, Labor Market Concentration, 57 J. Hum. Res. S167, S197 (Supp. 2022).
[26] See Elizabeth Weber Handwerker & Matthew Dey, Some Facts About Concentrated Labor Markets in the United States, 63 Indus. Rel. 132, 135 (2023).
[27] Efraim Benmelech, Nittai K. Bergman, & Hyunseob Kim, Strong Employers and Weak Employees, How Does Employer Concentration Affect Wages?, 57 J. Hum. Res. S200 (Supp. 2022)
[28] Ivan Kirov & James Traina, Labor Market Power and Technological Change in US Manufacturing, conference paper for Institute for Labor Economics (Oct. 2022), at 42, available at https://conference.iza.org/conference_files/Macro_2022/traina_j33031.pdf.
[29] Steven Berry, Martin Gaynor, & Fiona Scott Morton, Do Increasing Markups Matter? Lessons from Empirical Industrial Organization, 33 J. Econ. Persp. 44, 57 (2019) (emphasis added).
[30] Transcript: Public Workshop on Competition in Labor Markets, Antitrust Div. of the U.S. Justice Dep’t (Sep. 23, 2019), available at https://www.justice.gov/atr/page/file/1209071/download.
[31] Keith Brand, Martin Gaynor, Patrick McAlvanah, David Schmidt, & Elizabeth Schneirov, Economics at the FTC: Office Supply Retailers Redux, Health Care Quality Efficiencies Analysis, and Litigation of an Alleged Get Rich Quick Scheme, 45 Rev. Indus. Org. 325 (2014).
[32] Id.
[33] Some efficiency-enhancing mergers will be identifiable, of course. For example, if the merger raises quantities and prices for all inputs, that must be efficiency-enhancing. The problem, as always, is with the hard cases.
[34] Herbert Hovenkamp, What Big-Tech Antitrust Gets Wrong, Financial Times (Jan. 19, 2024), https://www.ft.com/content/4eec8bc3-c892-4704-ae66-a4432c6d4fd7.
[35] Geoffrey A. Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 Geo. Mason. L. Rev. 1281, 1286 (2021). (“Underlying this pessimism is a pervasive assumption that new technologies will somehow undermine the competitiveness of markets, imperil innovation, and entrench dominant technology firms for decades to come. This is a form of antitrust dystopia. For its proponents, the future ushered in by digital platforms will be a bleak one—despite abundant evidence that information technology and competition in technology markets have played significant roles in the positive transformation of society”).
[36] John M. Yun, The Role of Big Data in Antitrust, in The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020) at 233, https://gaidigitalreport.com/2020/08/25/big-data-and-barriers-to-entry/#_ftnref50; see also, e.g., Robert Wayne Gregory, Ola Henfridsson, Evgeny Kaganer, & Harris Kyriakou, The Role of Artificial Intelligence and Data Network Effects for Creating User Value, 46 Acad. Of. Mgmt. Rev. 534 (2020), final pre-print version at 4, http://wrap.warwick.ac.uk/134220 (“A platform exhibits data network effects if, the more that the platform learns from the data it collects on users, the more valuable the platform becomes to each user.”); see also Karl Schmedders, José Parra-Moyano, & Michael Wade, Why Data Aggregation Laws Could be the Answer to Big Tech Dominance, Silicon Republic (Feb. 6, 2024), https://www.siliconrepublic.com/enterprise/data-ai-aggregation-laws-regulation-big-tech-dominancecompetition-antitrust-imd.
[37] See also Consultation. (“Strong network effects may make certain digital markets prone to ‘tipping’ (where a single dominant firm, or group of firms, emerges in the market), especially when combined with economies of scale and scope or the use of large volumes of data.”).
[38] Nathan Newman, Search, Antitrust, and the Economics of the Control of User Data, 31 Yale J. Reg. 401, 409 (2014) (emphasis added); see also id. at 420 & 423 (“While there are a number of network effects that come into play with Google, [‘its intimate knowledge of its users contained in its vast databases of user personal data’] is likely the most important one in terms of entrenching the company’s monopoly in search advertising…. Google’s overwhelming control of user data… might make its dominance nearly unchallengeable.”).
[39] See also Yun, supra note 36, at 229 (“[I]nvestments in big data can create competitive distance between a firm and its rivals, including potential entrants, but this distance is the result of a competitive desire to improve one’s product.”).
[40] For a review of the literature on increasing returns to scale in data (this topic is broader than data-network effects), see Manne & Auer, supra note 35, at 1281, 1344.
[41] Andrei Hagiu & Julian Wright, Data-Enabled Learning, Network Effects, and Competitive Advantage, 54 Rand J. Econ. 638 (2023).
[42] Id. at 639. The authors conclude that “Data-enabled learning would seem to give incumbent firms a competitive advantage. But how strong is this advantage and how does it differ from that obtained from more traditional mechanisms…”
[43] Id.
[44] See Jason Furman, Diane Coyle, Amelia Fletcher, Derek McAuley, & Philip Marsden (Dig. Competition Expert Panel), Unlocking Digital Competition (2019), at 32-35 (“Furman Report”), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf.
[45] Id. at 34.
[46] Id. at 35. To its credit, it should be noted, the Furman Report counsels caution before mandating access to data as a remedy to promote competition. See id. at 75. With that said, the Furman Report maintains that such a remedy should be on the table, because “the evidence suggests that large data holdings are at the heart of the potential for some platform markets to be dominated by single players and for that dominance to be entrenched in a way that lessens the potential for competition for the market.” Id. In fact, the evidence does not show this.
[47] See, e.g., Natasha Lomas, EU Checking if Microsoft’s OpenAI Investment Falls Under Merger Rules, TechCrunch (Jan. 9, 2024), https://techcrunch.com/2024/01/09/openai-microsoft-eu-merger-rules; Amended Complaint, In the Matter of Meta Platforms Inc., Mark Zuckerberg, & Within Unlimited Inc. (No. 605837), Fed. Trade Comm’n. (Oct. 13, 2022), at 11, available at https://www.ftc.gov/system/files/ftc_gov/pdf/D09411%20-%20AMENDED%20COMPLAINT%20FILED%20BY%20COUNSEL%20SUPPORTING%20THE%20COMPLAINT%20-%20PUBLIC%20%281%29_0.pdf.
[48] Catherine Tucker, Digital Data, Platforms and the Usual [Antitrust] Suspects: Network Effects, Switching Costs, Essential Facility, 54 Rev. Indus. Org. 683, 686 (2019).
[49] Auer & Manne, supra note 35, at 1345.
[50] See Yun, supra note 36, at 235 (“Even if data is primarily responsible for a platform’s quality improvements, these improvements do not simply materialize with the presence of more data—which differentiates the idea of data-driven network effects from direct network effects. A firm needs to intentionally transform raw, collected data into something that provides analytical insights. This transformation involves costs including those associated with data storage, organization, and analytics, which moves the idea of collecting more data away from a strict network effect to more of a ‘data opportunity.’”).
[51] See, e.g., Cristina Caffarra, Gregory S. Crawford, & Tommaso Valletti, “How Tech Rolls”: Potential Competition and “Reverse” Killer Acquisitions, Antitrust Chronicle (May 26, 2020) (“Large digital platforms in particular have exceptional abilities to pursue organic expansion but also opportunities to ‘roll up’ (willing) startups to ‘get there faster’, ‘buying’ instead of expending effort in rival innovation. Foregoing such effort is never good for consumers and society as a whole: while innovative effort is costly, it will often yield multiple providers and differentiated services, with socially desirable properties.”).
[52] Id.
[53] See, e.g., Steven C. Salop, Potential Competition and Antitrust Analysis: Monopoly Profits Exceed Duopoly Profits, Working Paper (Apr. 28, 2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3839631; see also C. Scott Hemphill & Tim Wu, Nascent Competitors, 168 U. Pa. L. Rev. 1879 (2019).
[54] See, e.g., Salop, id. See also Giulio Federico, Gregor Langus, & Tommaso Valletti, Horizontal Mergers and Product Innovation, 59 Int’l J. Indus. Org. 1 (2018).
[55] U.S. Dep’t of Justice, Antitrust Div. & F.T.C., Vertical Merger Guidelines 1 (2020).
[56] David Reiffen & Michael Vita, Comment: Is There New Thinking on Vertical Mergers? 63 Antitrust L.J. 917, 920 (1995).
[57] Henry Ogden Armour & David J. Teece, Vertical Integration and Technological Innovation, 62 Rev. Econ. & Stat. 470 (1980).
[58] Dennis W. Carlton, Transaction Costs and Competition Policy, 73 Int’l J. Indus. Org. 1 (2019); Oliver Williamson, The Economic Institutions of Capitalism 86 (1985).
[59] On this point, see Sam Bowman & Sam Dimitriu, Better Together: The Procompetitive Effects of Mergers in Tech, The Entrepreneurs Network (Sep. 13, 2021), https://www.tenentrepreneurs.org/research/better-together-the-procompetitive-effects-of-mergers-in-tech (arguing that acquisition is a key route to exit for entrepreneurs).
[60] Supra note 1, Section 2.8.
[61] Id.
[62] On non-price dimensions of the consumer-welfare standard, see Nicolas Petit & Lazar Radic, The Superiority of the Consumer Welfare Standard, EUI Law Working Paper 2024/20, 16-19 (2024).
[63] U.S. Dep’t of Justice & F.T.C., Horizontal Merger Guidelines (2010), available at https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf.
[64] Statement of the Federal Trade Commission, Google/DoubleClick, No. 071-0170, available at https://www.ftc.gov/system/files/documents/public_statements/418081/071220googledc-commstmt.pdf.
[65] Douglas A. Melamed & Nicolas Petit, The Misguided Attack on the Consumer Welfare Standard in the Age of Platform Markets. 54 Rev. Indus. Org. 741, 753 (2019).
[66] See, e.g., Alastair R. Beresford, Dorothea Ku?bler, & So?ren Preibusch, Unwillingness to Pay for Privacy: A Field Experiment (SFB 649 Discussion Paper 2011-010, 2011), available at https://ftp.iza.org/dp5017.pdf; Jens Grossklags & Alessandro Acquisti, When 25 Cents Is Too Much: An Experiment on Willingness-to-Sell and Willingness-to-Protect Personal Information, in Proceedings of the Sixth Workshop on the Economics of Information Security (2007), available at https://econinfosec.org/archive/weis2007/papers/66.pdf; Mary Ellen Gordon, The History of App Pricing, and Why Most Apps are Free, The Flurry Blog (Jul. 18, 2013), http://blog.flurry.com/bid/99013/The-History-of-App-Pricing-AndWhy-Most-Apps-Are-Free.
[67] Though not the only important explanation of the quality of the algorithm, data collection—especially for indexing purposes—has been a bigger driver of Google’s success. See, e.g., Daisuke Wakabayashi, Google Dominates Thanks to an Unrivaled View of the Web, N.Y. Times (Dec. 14, 2020), https://www.nytimes.com/2020/12/14/technology/howgoogle-dominates.html.
[68] See, e.g., Canada’s Privacy Act, the Charter of Rights and Freedoms, the Criminal Code, local government’s personal information-protection laws, the Personal Information Protection and Electronic Documents Act (PIPEDA), among others.
[69] See, e.g., Consultation. (“The Competition Tribunal previously described innovation as ‘the most important type of competition’ and confirmed that harm to dynamic competition and innovation can be central to a finding of substantial prevention or lessening of competition”)(references omitted for coherence).
[70] See generally, Section I.
[71] Richard J. Gilbert, Innovation Matters: Competition Policy for the High-Technology Economy, 116 (2020)
[72] Ronald L. Goettler & Brett R. Gordon, Does AMD Spur Intel to Innovate More?, 119 J. Pol. Econ. 1141, 1141 (2011)
[73] Mitsuru Igami, Estimating the Innovator’s Dilemma: Structural Analysis of Creative Destruction in the Hard Disk Drive Industry, 1981–1998, 125 J. Pol. Econ. 798, 798 (2017)
[74] Philippe Aghion, Nick Bloom, Richard Blundell, Rachel Griffith, & Peter Howitt, Competition and Innovation: An Inverted-U Relationship, 120 Q. J. Econ. 702 (2005).
[75] Marc Bourreau, Bruno Jullien, & Yassine Lefouili, Horizontal Mergers and Incremental Innovation, HAL Open Science (2024), available at https://hal.science/hal-04790973v1/document.
[76] Igor Letina, Armin Schmutzler, & Regina Seibel, Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies, 65 Int. Ec. Rev. 591-622 (Feb. 20, 2024), https://onlinelibrary.wiley.com/doi/10.1111/iere.12689.
[77] Eric Fruits, Justin (Gus) Hurwitz, Geoffrey A. Manne, Julian Morris, & Alec Stapp, Static and Dynamic Effects of Mergers: A Review of the Empirical Evidence in the Wireless Telecommunications Industry, OECD Directorate for Financial and Enterprise Affairs Competition Committee, Global Forum on Competition, DAF/COMP/GF(2019)13 (Sep. 4, 2020), available at https://one.oecd.org/document/DAF/COMP/GF(2019)13/en/pdf.
[78] Elena Patel & Nathan Seegert, Does Market Power Encourage or Discourage Investment? Evidence From the Hospital Market, 63 J.L. Econ. 667, 667 (2020)
[79] Supra note 18.
[80] Id. See also Competition Act, s.93(h).
[81] OECD, Interim Report on Convergence of Competition Policies, GD(94)64, at Annex, para. 4
[82] Id. See, e.g., the 2010 HMGs and European Commission’s Merger Regulation, Council Regulation No. 139/2004 (Jan. 20, 2004).
[83] Guidelines on the Assessment of Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings, C 31/03, European Commission (2004).
[84] Id., para 76.
[85] Id., para 79.
[86] Jonathan Barnett, “Killer Acquisitions” Reexamined: Economic Hyperbole in the Age of Populist Antitrust, 3 U. Chic. Law Rev. 39 (2023), at 42.
[87] See, e.g., Axel Gautier & Joe Lamesch, Mergers in the Digital Economy, 54 Info. Econ. & Pol’y (2000) (“There are three reasons to discontinue a product post acquisition: the product is not as successful as expected, the acquisition was not motivated by the product itself but by the target’s assets or R&D effort, or by the elimination of a potential competitive threat. While our data does not enable us to screen between these explanations, the present analysis shows that most of the startups are killed in their infancy.”).
[88] John M. Yun, Potential Competition, Nascent Competitors, and Killer Acquisitions, 18 Global Antitrust Institute Report on the Digital Economy 652, 652–53 (2020).
[89] Sai Krishna Kamepalli, Raghuram Rajan, & Luigi Zingales, Kill Zone (NBER Working Paper 85, 2020), at 40
[90] Colleen Cunningham, Florian Ederer, & Song Ma, Killer Acquisitions, 129 J. Pol. Econ. 649-702 (2021), at 694.
[91] It remains important to distinguish conduct that harms consumers overall from conduct that merely harms certain parameters of competition, while improving others. In other words, antitrust law should prohibit conduct when the category to which that conduct belongs is generally harmful to consumers and/or when harmful occurrences of that conduct can be readily distinguished. See, e.g., Eric Fruits et al., supra note 77 at 18 (“Studies that do not consider these [non-price] effects are incomplete for purposes of evaluating the mergers’ consumer welfare effects, and [are] all-too easily used by advocates to misleadingly predict negative consumer outcomes. This is not necessarily a criticism of the studies themselves, which generally do not make comprehensive policy conclusions. The reality is that it is exceptionally difficult to comprehensively study even price effects, such that a well conducted study of price effects alone is a valuable contribution to the literature. Nevertheless, in the context of evaluating prospective transactions, the results of such studies must be discounted to account for their exclusion of non-price effects.”).
[92] Luís Cabral, Merger Policy in Digital Industries (CEPR Discussion Paper No. DP14785, May 2020), at 12, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3612854.
[93] See Carl Shapiro, Antitrust in a Time of Populism, 61 Int’l J. Indus. Org. 714, 741 (2018).
[94] See id. at 740.
[95] Id.
[96] Id.
[97] For example, YouTube’s search and recommendations engines being developed by Google, the world’s leading internet-search company, or Instagram’s ad platform being integrated with Facebook’s.
[98] See Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965), at 117–19.
STATEMENT OF INTEREST The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual . . .
The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies and economic learning to inform policy debates and has long-standing expertise evaluating antitrust law and policy.
Amici also include 17 scholars of antitrust law and economics (“Scholars of Law and Economics”) at leading universities and research institutions across the United States. Their names, titles, and academic affiliations are listed in the Appendix. All possess expertise in, and collectively have conducted extensive research on, antitrust law and economics.
ICLE and the Scholars of Law and Economics have an interest in ensuring that antitrust law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. That includes advising against decisions that impede competition between digital ecosystems and far-reaching injunctions that could deteriorate the quality of mobile ecosystems, thereby harming the interests of consumers and app developers.[1]
The district court issued an injunction that would alter agreements between Google LLC (“Google”) and over 500,000 non-party U.S. app developers and require redesign of Google’s app store, Google Play. It has purportedly done so to remediate the antitrust claims of a single competitor, Epic Games, Inc. (“Epic”) which has no apps on Google Play; and it has done so notwithstanding that Epic lost a parallel antitrust challenge to Apple following a bench trial, Epic Games, Inc. v. Apple Inc., 559 F. Supp. 3d 898 (N.D. Cal. 2021), a decision affirmed by this Court. Epic Games, Inc. v. Apple Inc., 67 F.4th 946 (9th Cir. 2023). The decision and injunction pose risks to the safety, security, and reputation of Google Play—risks highly likely to harm competition between Google Play and its leading competitor, Apple’s App Store. That harm to competition would, in turn, harm consumers on both sides of the Google Play platform: end-consumers of the apps available on the platform and the app developers who depend on the platform to reach those end-consumers.
The decision below should be reversed because of errors of law and fact, and because it is incompatible with the district court’s decision in Epic Games v. Apple.
First, the decision and injunction below were based on an erroneous market definition that ought to have been precluded by the district court’s decision in Epic Games v. Apple. Instead, the injunction is predicated on an improper market definition that excludes Apple from the relevant market. That error obscures the nature of competition at issue in the case, and it supports a false ascription of market power to Google Play.
Second, having improperly permitted the jury to exclude Apple from the relevant market, the district court did not permit proper consideration of the pro-competitive justifications for Google’s conduct, which are significant in a two-sided transaction market like the one in which Google competes. In fact, there is an absence of evidence demonstrating any competitive harm in the properly defined market. Compounding the problem, the injunction threatens to undermine many of the pro-competitive benefits of Google’s conduct and harm consumers.
Finally, the injunction would impose a duty to deal that is generally repudiated under the antitrust laws. While a narrow duty to deal may be imposed as a remedy under special circumstances, the injunction issued below exceeds the bounds of established exceptions to the general rule.
Given the significant risks posed by the decision below and the district court’s injunction, ICLE and the Scholars of Law and Economics urge this Court to reverse.
This Court has repeatedly recognized the importance of market definition in antitrust cases: “A threshold step in any antitrust case is to accurately define the relevant market.” FTC v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020) (“Qualcomm”) (quoting Ohio v. Am. Express Co. (“Amex”), 585 U.S. 529, 543 (2018).) While recognizing that there may be some cases that do not require courts to define “the exact contours of the relevant market,” in most cases, “[c]ourts usually cannot properly apply the rule of reason without an accurate definition of the relevant market.” Epic Games, Inc., 67 F.4th at 974 n.6 (quoting Amex, 585 U.S. at 543). Further, as this Court has observed, “[m]ost restraints . . . are subject to the Rule of Reason: a multi-step, burden-shifting framework that “requires courts to conduct a fact-specific assessment” to determine a restraint’s “actual effect” on competition.” Id., quoting Amex, 585 U.S. at 541 (quoting Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984)). Market definition typically is important because “[t]he relevant market for antitrust purposes is ‘the area of effective competition’—i.e., ‘the arena within which significant substitution in consumption or production occurs.’” Epic Games, Inc., 67 F.4th at 975, quoting Amex, 585 U.S. at 543 (quoting Phillip E. Areeda & Herbert Hovenkamp, Fundamentals of Antitrust Law § 5.02 (4th ed. 2017)). That is, the market definition provides the contours of the relevant market, “the field in which meaningful competition is said to exist,” Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997). Correspondingly, the domain in which competition is alleged to be impaired by unlawful conduct is where the plaintiff must demonstrate actual or likely harm to competition and consumers.
At trial below, the jury found that Epic had proved two relevant single-brand product markets: “a market for the distribution of Android apps, and for Android in-app billing services for digital goods and services transactions.” Order Den. J. as a Matter of Law (“JMOL”), ECF No. 652; In re Google Play Store Antitrust Litigation, 3:21-md-02981-JD, ECF No. 984, at 3 (N.D. Cal. July 3, 2024) (hereinafter “Order Den. JMOL”). This Court, however, had already sustained a finding that rightly rejected Epic’s assertion of a single-brand market in parallel litigation, filed by the same plaintiff, on the same day, in the same court. Epic Games, Inc., 67 F.4th at 980–81. Issue preclusion should have barred Epic from relitigating the question whether the relevant market for mobile gaming transactions is a single-brand market that is operating-system-specific. Issue preclusion “bars parties from relitigating an issue if the same issue was adjudicated in prior litigation.” SEC v. Stein, 906 F.3d 823, 828 (9th Cir. 2018). It applies if “(1) the issue at stake was identical in both proceedings; (2) the issue was actually litigated and decided in prior proceedings; (3) there was a full and fair opportunity to litigate the issue; and (4) the issue was necessary to decide the merits.” Snoqualmie Indian Tribe v. Washington, 8 F.4th 853, 864 (9th Cir. 2021) (citation omitted).
All four elements are satisfied with respect to the question of whether Google competes with Apple in providing the allegedly monopolized services. This Court has already recognized parallels between Epic’s antitrust and state law challenges to Google Play’s policies and Apple’s App Store policies, Epic Games, Inc., 67 F.4th at 969 n.3, and it has rightly rejected Epic’s assertion of a single-brand market. Id. at 980–81. Epic alleged and argued for a single-brand market in Epic v. Apple, and the district court in that matter rightly rejected Epic’s proposed market definition following “a sixteen-day bench trial.” Id. at 966. In each case, the underlying controversy had to do with the terms under which Epic could market a specific game, Fortnite, on an app store developed, maintained, and owned by a third party; namely, Apple in Epic v. Apple and Google in this matter.
The district court attempts to distinguish the issues in this matter, arguing that they are distinct because Epic (1) “took a very different approach to the markets in this case” and (2) did not “argue for aftermarkets for Android app distribution and Android in-app payment solutions, derived from a foremarket for Android devices.” JMOL at 7. Those assertions, however, do not alter the settled question of whether Google competes with Apple in providing the allegedly monopolized services.
That Epic “took a wholly different approach for the antitrust claims against Google, and offered wholly different evidence about relevant markets than that offered in the case against Apple,” id. at 7, is immaterial. As this Court recognized in SEC v. Stein, 906 F.3d 823 (9th Cir. 2018), the relitigation of decided questions of fact is barred by issue preclusion, even when different evidence and arguments are proffered. Id. at 828; see also Hilson v. Lopez, No. 12-cv-06016-JD, 2014 WL 4380674, at *2 (N.D. Cal. Sept. 4, 2014) (“[O]nce an issue has been resolved in a prior proceeding, there is no further fact-finding to be performed.”) (citation omitted); 50 C.J.S. Judgments § 1043 (May 2024 Update) (“Under the issue preclusion doctrine, a party may not be permitted to introduce new or different evidence to relitigate a factual issue which was presented and determined in a former action. Litigation of an issue necessarily encompasses all arguments and evidence that could be presented to resolve the issue . . . .”).
Moreover, the district court is incorrect in stating that Epic did not here argue for Android-specific aftermarkets. To the contrary, the district court itself noted that Epic “took maximum advantage” of its freedom “to argue for Android-only relevant markets,” Order Den. JMOL at 7, and “presented substantial evidence showing that Android-only product markets made factual and economic sense for this case.” Id. at 8. Those observations concede that Epic did “argue for aftermarkets for Android app distribution and Android in-app payment solutions, derived from a foremarket for Android devices.” Id. at 7. Epic simply failed to establish what it argued.
The district court’s claim to the contrary appears to rest on its observation that Epic did not use the phrase “single-brand aftermarket” in making its case here. Id. at 8 (“Epic never presented or even mentioned a ‘single-brand aftermarket’ in this case….”). But an allegation of a single-brand aftermarket does not depend on any incantation or specific phrasing. In Epic v. Apple, the district court rejected Apple’s argument that Epic’s failure to “explicitly use the terms ‘foremarket’ and ‘aftermarket’ in its complaint” precluded Epic from properly pleading an aftermarket theory. 67 F.4th at 955. There, the court rejected the elevation of “form over substance.” Id. at 979. The same applies here. As the court below observed, Epic “took maximum advantage” of its opportunity “to argue for Android-only relevant markets.” Order Den. JMOL at 7.
In fact, in Epic v. Apple, the district court found that the relevant markets were not operating-system-specific but instead featured competition between Google and Apple. This Court affirmed that finding. Inter-brand competition was underscored in that matter, with the district court’s finding that Epic’s Fortnite enabled cross-platform play, including not just players on mobile devices but those on, inter alia, Sony’s PlayStation, Microsoft’s Xbox, the Nintendo Switch, Windows PCs, and Mac computers. Epic Games, Inc., 559 F. Supp. at 927; see also Epic Games, Inc., 67 F.4th at 967. The relevant market is a multi-brand market in which Google and Apple engage in inter-brand competition, and issue preclusion should have barred Epic from relitigating the issue.
As noted above, this Court has already sustained a finding that rightly rejected Epic’s assertion of a single-brand market in parallel litigation, filed on the same day, in the same court. Epic Games, Inc., 67 F.4th at 980–81. The finding of a multi-brand market in Epic v. Apple was correct and should apply here, even independent of a proper application of issue preclusion.
To be precise, the district court in Epic Games Inc. v. Apple Inc. found the relevant market to be “the smaller recognized mobile gaming transactions submarket . . . [which] does not include the Switch or game streaming services.” F. Supp. 3d at 987. In that market, the court found that “the two dominant players are Apple (App Store) and Google (Google Play app store), [along] with several other Android OS players including the Samsung (Samsung Galaxy Store).” Id. at 976. To find a single-brand market in this case is not merely to differ on the “exact contours of the relevant market.” Epic Games, Inc., 67 F.4th at 974 n.6 (quoting Amex, 585 U.S. at 543). Rather, it is to fundamentally misunderstand who is competing in which “area of effective competition.” Epic Games, Inc., 559 F. Supp. 3d at 1014.
That error is fundamental to the Section 1 and Section 2 allegations that the district court put before a jury, which depend upon findings of market power or monopoly power. There are, for example, two elements to a monopolization claim under Section 2 of the Sherman Act: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966). Courts may, moreover, infer the requisite monopoly power from a “predominant share of the market.” Id. at 571. Hence, to ignore the vigorous competition between Google and Apple leads not just to an erroneous assessment of Google’s market share but suggests the requisite possession of monopoly power by a defendant, Google, that does not have a predominant—or even leading—share of the market, properly defined. Google and Apple compete for apps and, importantly, to have app developers develop apps for their platforms first.
Market share alone is not dispositive on the question of market power, as “[b]lind reliance upon market share, divorced from commercial reality, could give a misleading picture of a firm’s actual ability to control prices or exclude competition.” Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 924 (9th Cir. 1980). It may, however, be “the most important factor,” Pac. Coast Agr. Export Ass’n v. Sunkist Growers, Inc., 526 F.2d 1196, 1204 (9th Cir. 1975); and, in this case, both market share and commercial reality indicate strong inter-brand competition, as the court found in Epic v. Apple.
Correspondingly, the erroneous finding of a single-brand market obscures the district court’s finding, in Epic v. Apple, that while Apple does not possess market power in the relevant market, “the evidence does suggest that Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share.” 559 F. Supp. 3d at 1032. Hence, the costly remedies that the district court would impose upon Google in the instant case would impair Google’s ability to compete with the market leader in mobile gaming transactions in the United States; they would also impair Google’s ability to compete with its leading competitor in the broader app market. That is, the injunction ordered by the court below would benefit a single competitor, Epic, but not the competition or, in turn, the consumers who depend upon competition among Google, Apple, and others for app sales and purchases.
The district court correctly recognized that “the Google Play Store is a “two-sided platform market” that “offers products or services to two different groups who both depend on the platform to intermediate between them.” In re Google Play Store Antitrust Litig., 3:20-cv-05671-JD, Dkt. No. 850, at ECF p. 22 (N.D. Cal. Dec. 6, 2023) (Final Jury Instructions, Instruction No. 18). For Google Play, “developers who wish to sell their apps” are on one side of the market and “consumers that wish to buy those apps” are on the other. Id.
In Amex, the Supreme Court stressed that a unique analysis of anticompetitive effects is necessary when a plaintiff alleges an antitrust violation in a two-sided transaction market. See 585 U.S. at 542–45. Two-sided markets connect two distinct sets of users whose demands for the platform are interdependent—i.e., consumers’ demand for a platform increases as more products are available and, conversely, product developers’ demand for a platform increases as additional consumers use the platform, increasing the overall potential for transactions. Due to the complex dynamics of two-sided markets, conduct that is entirely consistent with—and actually promotes—healthy competition overall may appear anticompetitive when the effects on only one set of customers are considered. See Geoffrey A. Manne, In Defence of the Supreme Court’s “Single Market” Definition in Ohio v. American Express, 7 j. of antitrust enf’t 104, 110 (2019) (“[E]vidence of a price effect on only one side of a two-sided platform can be consistent with either neutral, anticompetitive, or procompetitive conduct.”).
The Supreme Court thus recognized that it is improper to assess the presence of anticompetitive effects by focusing on only one side of a two-sided market. Amex, 585 U.S. at 547 (“Evidence of a price increase on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power.”).
Indeed, even scholars critical of Amex recognize the importance of considering effects on both sides of a two-sided market. In their paper arguing strenuously against the Court’s two-sided market definition in Amex, for example, Michael Katz and Jonathan Sallet acknowledge that “in assessing whether a hypothetical monopolist selling newspapers to readers would find a [small significant non-transitory increase in price (“SSNIP”)] profitable, one would have to consider the effects on advertising revenues in addition to effects on subscription revenues . . . . In this regard, considering prices on both sides of a platform (even if the prices are in separate markets) is much less novel than it may appear.” Michael Katz & Jonathan Sallet, Multisided Platforms and Antitrust Enforcement, 127 YALE L.J. 2142, 2160 (2018).
Firms in two-sided markets commonly use vertical restrictions like those challenged by Epic—including anti-steering provisions—to serve legitimate aims. The benefits of such vertical restrictions are conspicuous when app stores are correctly assessed holistically, as two-sided transaction markets; conversely, they are obscured if one applies “one sided logic to two sided markets.” Julian Wright, One-sided Logic in Two-sided Markets, 3 Rev. of Network Econ. 44 (2004). Just as in Amex, there are pro-competitive reasons for the provisions at issue.
Hence, at issue in Epic v. Apple were vertical restrictions, imposed by Apple, that required in-app purchases on iOS devices to use Apple’s in-app payment processor and limited the ability of app developers using the platform to “steer” users to alternative payment options. Correspondingly, at issue below was “Epic’s objection to Google’s requirement that Epic use Google’s billing system” Order Den. JMOL at 2, and, as the district court recognized, “anti-steering restrictions in [Google’s] DDA agreements” that limited, among other things, “usage of a third-party payment method.” Id. at 20. Notably, some of Google’s restrictions, i.e., it’s discouraging, but not barring, side-loading of apps purchased elsewhere, are less stringent than those found not to be anticompetitive in Epic v. Apple.
These legitimate aims include allowing for the recoupment of investments, and to provide tangible pro-competitive benefits such as increased privacy, security, and market-wide output. Given this, the Supreme Court, in Amex, 585 U.S. at 544–45, ruled that “there is nothing inherently anticompetitive about . . . antisteering provisions.” Id. at 551.
Such vertical provisions can, among other things, prevent merchants from free-riding, thereby increasing the availability of “‘tangible or intangible services or promotional efforts’ that enhance competition and consumer welfare.” Id. at 551 (quoting Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 890–91 (2007)). Free-riding, left untreated, would undermine Google’s incentives to maintain and improve Google Play, thereby leading to diminished product quality and reduced output.
The problem of free-riding is front and center in the district court’s injunction, and it was front and center in Epic’s complaint below. As the district court noted, “[a] particular sticking point was Epic’s objection to Google’s requirement that Epic use Google’s billing system and pay Google a 30% fee on all in-app purchases made by Fortnite users. Epic wanted to use its own in-app payment solution and not pay Google a 30% cut, which Google refused to allow.” Order Den. JMOL at 2. That is, Epic sought to avoid paying Google a commission on in-app purchases made by Fortnite users who acquired Fortnite via Google’s app store, Google Play.
The problem of free-riding is doubly conspicuous given Epic’s business model. As this court recognized in Epic v. Apple, “Epic monetizes Fortnite using a ‘freemium’ model: The game is free to download, but a user can purchase certain content within the game, ranging from game modes to cosmetic upgrades for the user’s character.” 67 F.4th at 967. Hence, what Epic sought to do before its removal from Google Play and Apple’s App store, was to build the installed base of Fortnite players, at a below-cost price of zero, by free-riding on the installed bases of both Google Play and Apple App Store consumers, and then direct those customers to purchase improvements directly from Epic, with no commissions paid to the firms that developed and maintained the app stores that brought Epic its customers.
Antitrust law has long recognized that increased prices, reduced output, and degraded product quality are key indicia of competitive harm. See, e.g., Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 52 (1911) (citing the danger that a monopoly will “fix the price,” impose a “limitation on production,” or cause a “deterioration in quality of the monopolized article”); Sherman Act Section 2 Joint Hearing: Empirical Perspectives Session Hr’g Tr. 13, Sept. 26, 2006 (Scherer) (observing that reluctance to “cannibalize the rents that they are earning on the products that they already have marketed” may make monopolists “sluggish innovators”); Sherman Act Section 2 Joint Hearing: Welcome and Overview of Hearings Hr’g Tr. 25, June 20, 2006 (Barnett) (identifying as “a major harm of monopoly” the possibility that a monopolist may not feel pressure to innovate).
The order below recognizes that competitive harm comprises “the loss of some of the benefits of competition, such as lower prices, increased output, or higher product quality,” and insists that the jury’s findings of anticompetitive conduct and effects were “supported by substantial evidence,” Order Den. JMOL at 16. Absent, however, from the record below and the district court’s injunction is evidence of increased price, lower product quality (or increased quality-adjusted price), reduced output, or a lack of innovation across the platform. There does not, moreover, appear to be any finding of supra-competitive pricing. No doubt Epic objected to Google’s requirements and fee. That objection does not establish that Google charged supra-competitive prices; and it does not show that Google’s fees were established or maintained by anticompetitive conduct. In Epic’s parallel case, this court recognized that “a firm with market power is a price-maker, not a price-taker, that economic theory expects in a competitive market.” 67 F.4th at 983. Evidence in this case suggests, however, that Google was a price taker, initially following Apple’s lead on pricing, thus attempting to match pricing policies set by its larger—and main—competitor, and often lowering (rather than raising) prices for many app developers. See Transcript of Trial Proceedings Held On Nov. 27, 2023, Testimony of B. Douglas Bernheim, In re Google Play Store Antitrust Litigation, 3:21-md-02981-JD, ECF No. 845, at 2480:22–2481:20 (N.D. Cal. Dec. 6, 2023).
In brief, we do not see evidence of an output reduction or a decline in quality on either side of the two-sided market, much less when viewing the market as a whole. Certainly, output has increased steadily on both sides of Google Play (and on both sides of Apple’s app store). And we do not see evidence, much less adequate evidence, that Google exploited market power to raise prices to supra competitive levels.
Google owns valuable resources that it has created and steadily improved, at considerable expense. These include Google Play, which provides users in the Android ecosystem with a convenient and secure means of acquiring the applications (Tr. 1141:2–17) that are “essential components of smartphones” (Tr. 2456:18–20). Among other things, the injunction would require Google to make its catalog of two-plus million apps appear in and distribute to competitors’ app stores. Epic would also like free access to Android users and, specifically, Google Play. None of these parties would be in a position to maintain the Android ecosystem in the same way Google does. Given this, reducing the fees Epic pays to Google may benefit Epic while harming consumers, as Google would have less incentive to invest in its ecosystem.
Moreover, steering consumers to other payment systems, together with catalog sharing and third-party app store distribution, could expose Google Play users to privacy, security, and safety issues, among others.[2] These are moving targets online, but the injunction would limit Google’s efforts to serve these critical consumer interests, as Google would have to prove that any measures it takes with respect to third-party app stores and their apps “are strictly necessary and narrowly tailored.”
In brief, the injunction undercuts the pro-competitive rationale recognized by the Supreme Court in Amex and by this Court in Epic v. Apple. Absent intervention by this Court, Google will have to comply with a nationwide injunction that undercuts these benefits. That is directly relevant to the merits of the remedies decision below, as there is no credible argument that the broad sweep of the injunction—across all of Google’s agreements with all app developers who do, or will, market their apps via Google Play—is necessary to remedy the alleged harm to the sole plaintiff in this case. It also is relevant to the question of liability where the district court’s jury instructions precluded the jury’s consideration of precisely the cross-market effects contemplated in Amex.
Antitrust law largely repudiates the notion that firms have a “duty to deal.” As the Supreme Court has observed, “as a general matter, the Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.” Verizon Commc’ns Inc. v. Law Offices of Curtis Trinko, 540 U.S. 398, 408 (2004) (quoting United States v. Colgate & Co., 250 U.S. 300, 307 (1919)). That general antitrust principle is “not unqualified.” Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601 (1985). However, as the Trinko Court made clear, Aspen Skiing “is at or near the outer boundary of § 2 liability.” Trinko, 540 U.S. at 409. At that outer boundary, to terminate dealing with an established customer, when that decision makes no economic sense but for its anticompetitive effects, may be anticompetitive. Id.
The district court correctly observed this general principle in Jury Instruction No. 24: “As a general rule, businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and conditions of that dealing. . . . It is not unlawful for Google to prohibit the distribution of other app stores through the Google Play Store, and you should not infer or conclude that doing so is unlawful in any way.”
Nonetheless, the district court has issued an injunction that would, inter alia, require Google to make its catalog of apps available in competitors’ app stores and to distribute rival app stores through the Google Play Store. The district court reasoned that, “[i]f the jury finds that monopolization or attempted monopolization has occurred, the available injunctive relief is broad, including to terminate the illegal monopoly, deny to the defendant the fruits of its statutory violation, and ensure that there remain no practices likely to result in monopolization.” In re Google Play Store Antitrust Litig., 3:20-cv-05671-JD, Dkt. No. 701, at 6 (N.D. Cal. Oct. 7, 2024) (quoting Optronic Techs., Inc. v. Ningbo Sunny Elec. Co., Ltd., 20 F.4th 466, 486 (9th Cir. 2021)).
The case law does not, however, suggest that any and all remedies are warranted given a finding of antitrust liability. First, “relief must be based on a ‘clear indication of a significant causal connection between the conduct enjoined or mandated and the violation.’” Optronic Techs. v. Ningbo Sunny Electronic Co., 20 F.4th 446, 486 (9th Cir. 2021) (quoting United States v. Microsoft Corp., 253 F.3d 34, 105 (D.C. Cir. 2001)). In Microsoft, the causal connection between conduct and harm was merely inferred, not proven. At the remedy phase, that was deemed insufficient to sustain a remedy allegedly aimed at correcting anticompetitive harm. Here, however, the connection between the conduct to be remedied and the alleged harm is not even alleged (let alone inferred). Indeed, it was specifically disclaimed by the court in Jury Instruction No. 24.
Also, in Optronic, this Court sought to remediate discriminatory contract terms, providing that all similarly situated customers be provided access on similar terms. Analogous remedies may be feasible in circumstances where the antitrust harm alleged stems from discriminatory treatment. See also, e.g., Associated Press v. United States, 326 U.S. 1 (1945).
Imposing a duty to deal with new firms, on new terms, is a different matter entirely. In Associated Press, for example, “[t]he Court did not reach the question whether AP was obliged to admit any newcomers at all. Although Justice Frankfurter’s concurring opinion agreed with the divided lower court that a business clothed in a public interest must deal with all, the Court expressly disclaimed any such ‘public utility concept.’” Herbert Hovenkamp, Unilateral Refusals to Deal, Vertical Integration, and the Essential Facility Doctrine, Univ. of Iowa Legal Studies Research Paper No. 08-31 (July 14, 2008), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1144675. And in MetroNet this court recognized that Trinko does not require a defendant to provide access to a competitor if it isn’t already providing access elsewhere. See MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124, 1132 (9th Cir. 2004).
A remedy mandating the distribution of app stores is equivalent to a determination that the failure to distribute constitutes a violation of the law—contradicting both the jury instruction and settled case law. Imposing a duty to deal without a showing of anticompetitive effect imposes liability by inference: in effect, it circumvents rule of reason analysis and assumes anticompetitive harm. See Hovenkamp, Unilateral Refusals, at 28 (“[Unilateral refusal to deal under Sec. 2] comes dangerously close to being a form of ‘no-fault’ monopolization[.]”).
As noted above, privacy, security, and platform management challenges are ubiquitous, moving targets from both technical and business standpoints, and the injunction would limit Google’s ongoing efforts to serve critical consumer interests, as Google would have to prove that any measures it takes with respect to third-party app stores and their apps “are strictly necessary and narrowly tailored.” That requirement is at odds with basic antitrust principles, as it assigns to an untested, court-created committee countless management decisions about both Google Play and the Android operating system. That is tantamount to central planning. Economics has, with increasing rigor and empirical evidence, documented the disadvantages of central planning since Adam Smith’s The Wealth of Nations. See Ronald H. Coase, Lecture to the Memory of Alfred Nobel, The Nobel Prize, https://www.nobelprize.org/prizes/economic-sciences/1991/coase/lecture/ (last visited Nov. 25, 2024). Courts, too, have long recognized that they are ill-suited to balancing the “benefits of an improved product design against the resulting injuries to competitors.” See Allied Orthopedic Applicants Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 1000 (9th Cir. 2010); see also Trinko LLP, 540 U.S. at 408.
It is no surprise that few cases have followed Aspen Skiing, especially in the wake of Trinko. 540 U.S. at 409; Herbert Hovenkamp, The Monopolization Offense, 61 Ohio State L.J. 1035, 1044–45 (2000) (noting that “the courts have generally responded” to “problems” in the doctrine “by construing the Aspen and [Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451 (1992)] cases narrowly”); Lindsey Edwards, et al., Section 2 Mangled: FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing, 8 J. Antitrust Enf’t 335, 337 (2019) (“[Trinko] . . . clarified and narrowed Aspen Skiing and reinforced the importance of a company’s right freely to decide with whom to transact.”); Geoffrey Manne & Joshua Wright, If Search Neutrality Is the Answer, What’s the Question?, 2012 Colum. Bus. L. Rev. 152, 192–193 (2012) (noting that Trinko limited a competitor’s duty to deal under Aspen Skiing to “an extremely narrow set of circumstances” and that courts and antitrust agencies “have been reluctant to expand the duty”).
Indeed, commentators understandably concluded that Aspen Skiing’s liability theory was severely undermined after Trinko and Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U.S. 438 (2009). Easterbrook, supra p. 9, at 441–42; Richard A. Epstein, Judge Koh’s Monopolization Mania: Her Novel Antitrust Assault Against Qualcomm Is an Abuse of Antitrust Theory, 98 neb. l. rev. 250 (2019) (stating that Trinko held that a duty to deal exists only in “exceptional circumstances” and that “[m]odern antitrust law has established a strong safe harbor of per se legality against the claim of illegal techniques toward monopolization”); see also Qualcomm, 969 F.3d at 994 (emphasizing that the Court in Trinko warned that “the Aspen Skiing exception should be applied only in rare circumstances”).
Accordingly, because mainstream scholarship generally does not support compelled dealing, and Aspen Skiing provides, at best, the “outer boundary” for that doctrine, unilateral refusals to deal can give rise to liability only in very narrow circumstances that do not exist here. The connection between Aspen Skiing and Kodak—the Court’s follow-on limited duty to deal case—is especially salient in this case, given the allegation of monopolization of an aftermarket by a firm with market power in a foremarket.
In Epic v. Apple, this Court recognized and applied the Supreme Court’s skepticism of lock-in claims, and the heighted burden they impose on plaintiffs: “to establish a single-brand aftermarket, a plaintiff must show: (1) the challenged aftermarket restrictions are ‘not generally known’ when consumers make their foremarket purchase; (2) ‘significant’ information costs prevent accurate life-cycle pricing; (3) ‘significant’ monetary or non-monetary switching costs exist; and (4) general market-definition principles regarding cross-elasticity of demand do not undermine the proposed single-brand market.” 67 F.4th at 977. And specifically, “[w]here a plaintiff asserts a Kodak-style single-brand aftermarket, it bears the burden of ‘rebut[ting] the economic presumption that . . . consumers make a knowing choice to restrict their aftermarket options when they decide in the initial
(competitive) market to enter a[] . . . contract.’” Epic Games Inc., 67 F.4th at 978 (citing Newcal Indus. v. Ikon Office Solution, 513 F.3d 1038, 1050 (9th Cir. 2008)).
The Supreme Court’s skepticism in Kodak, and this Court’s holding in Epic v. Apple, are consonant with the economic learning on antitrust cases involving aftermarkets and lock-in, according to which monopolization is possible but uncommon. See, e.g., Carl Shapiro, Aftermarkets and Consumer Welfare: Making Sense of Kodak, 63 Antitrust L.J. 483, 485 (1995) (concluding that “significant or long-lived consumer injury based on monopolized aftermarkets is likely to be rare, especially if equipment markets are competitive”); see also Carl Shapiro & David J. Teece, Systems Competition and Aftermarkets, An Economic Analysis of Kodak, 39 The Antitrust Bulletin 135 (1994); Dennis Carlton, A General Analysis of Exclusionary Conduct and Refusals to Deal: Why Aspen and Kodak are Misguided, 68 Antitrust L.J. 659 (2001); cf. Benjamin Klein, Market Power in Antitrust After Kodak, 3 Supreme Court Econ. Rev. 43 (1993).
Google, of course, has no market power in smartphones, smartphone operating systems, or mobile gaming app transaction markets. Apple is the U.S. market’s leading smartphone manufacturer, and while Google does manufacture Android smartphones, it is not the sole or even leading manufacturer of Android phones. That is, Google lacks market power in a credible foremarket; and as this court noted in Epic v. Apple, Epic failed to demonstrate that smartphone consumers are generally unaware of the ecosystems, including apps and app stores, within which smartphones operate. Moreover, Epic failed to demonstrate, and the jury below did not find, that purchasers of Android smartphones are unaware of Google Play or pertinent restrictions (either in Google Play or in competing app stores) when purchasing their smartphones. That goes, of course, to the question of liability, as the jury’s findings were inadequate, as a matter of law, to their finding of monopolization of the relevant aftermarket. It also goes to the remedy, and the extraordinary duty to deal that the district court would impose on Google, but not on its main competitor, Apple, or other competitors.
For the foregoing reasons, we urge this Court to vacate.
[1] The amici represent that no party’s counsel authored this brief in whole or in part, no party or party’s counsel contributed money that was intended to fund preparing or submitting this brief, and no person—other than amici and their counsel—contributed money that was intended to fund preparing or submitting the brief. Amici file this brief with the consent of Google LLC.
[2] For an example of potential privacy and security risks, among others, see, e.g., Compl. ¶¶ 61–71, United States v. Epic Games, Inc., No. 5:22-CV-00518 (E.D.N.C. 2022) (alleging violations of the Children’s Online Privacy Protection Act and Section 5 of the FTC Act for privacy violations and unfair billing practices through Fortnite); see also, Press Release, Fortnite Video Game Maker Epic Games to Pay More Than Half a Billion Dollars over FTC Allegations of Privacy Violations and Unwanted Charges, Fed. Trade Comm’n (Dec. 19, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/12/fortnite-video-game-maker-epic-games-pay-more-half-billion-dollars-over-ftc-allegations.
In a column last Friday, I noted a spate of matters being rushed through the Federal Trade Commission (FTC) in the final weeks of Lina . . .
In a column last Friday, I noted a spate of matters being rushed through the Federal Trade Commission (FTC) in the final weeks of Lina Khan’s tenure as chair. I was hardly the only one to notice (see the dissenting statements of Chairman Andrew Ferguson and Commissioner Melissa Holyoak on the FTC’s closed Jan. 16 commission meeting).
The internet is now abuzz with reports of even more curious behavior from the commission—namely, that the FTC has been building its antitrust case against Amazon on the strength of testimony from Temu, a Chinese-owned online marketplace that connects customers directly with manufacturers in China and that competes directly with Amazon. It’s a dubious case, and new FTC leadership ought to take a good hard look at the details, and at the question of whether this specific antitrust case is a sensible way to deploy FTC resources.
President Donald Trump has issued a slew of executive orders (EOs) in his first week back in office. But one that caught my attention was . . .
President Donald Trump has issued a slew of executive orders (EOs) in his first week back in office. But one that caught my attention was the EO titled “Restoring Freedom of Speech and Ending Federal Censorship.”
Lina Khan built her name arguing that modern antitrust enforcement was fundamentally broken. Her meteoric rise from law student to chair of the Federal Trade . . .
Lina Khan built her name arguing that modern antitrust enforcement was fundamentally broken. Her meteoric rise from law student to chair of the Federal Trade Commission (FTC) was fueled by calls to radically restructure how we think about competition. Under her leadership, the FTC spent four years failing to revolutionize antitrust, while succeeding on bread-and-butter cases.
Recently, in the runup to a change in administration, Khan’s FTC was in a mad dash to file cases, including its second Robinson-Patman Act complaint in a month after a 25-year hiatus. Incoming Chair Andrew Ferguson did not even have time to write his dissent before the commission’s press release went out. But rather than demonstrating the promised renaissance of antitrust enforcement, this most recent complaint against PepsiCo. reveals an agency falling back on outdated legal theories and procedural shortcuts.
In comparison to the year prior, 2024 may have seemed a quiet time for Peruvian competition law, but it was not without important developments. Heralded worldwide . . .
In comparison to the year prior, 2024 may have seemed a quiet time for Peruvian competition law, but it was not without important developments. Heralded worldwide as the “year of elections,” 2024 brought changes to the Peruvian competition agency (the National Institute for the Defense of Competition and the Protection of Intellectual Property, or INDECOPI, after its Spanish acronym). Karin Cáceres, originally appointed to replace Julián Palacín as the institution’s president in 2023, resigned in April. Appointed in her place was Alberto Villanueva Eslava, a former member and president of the INDECOPI Court’s Specialized Chamber for Bankruptcy Proceedings. Villanueva has a more technical profile and more extensive knowledge of the institution, and his appointment was welcomed by several specialists.
TL;DR Background: As many policymakers, regulators, and competition agencies around the world rush to introduce digital competition regulations (DCRs) inspired primarily by the European Union’s . . .
Background: As many policymakers, regulators, and competition agencies around the world rush to introduce digital competition regulations (DCRs) inspired primarily by the European Union’s (EU) Digital Markets Act (DMA), Latin American policymakers and agencies have proven no exception.
Brazil ostensibly leads the region’s regulatory arms race with its Bill No. 2768/2022, currently under discussion in the Brazilian National Congress, although the government has recently indicated it may opt for an as-yet-undefined “more flexible approach.” Similar proposals have been floated in Mexico and other jurisdictions.
But… The case for ex-ante regulation of digital platforms is weak in Latin American markets, which do not currently suffer from a general lack of competition. Indeed, Latin America has significantly more pressing social problems to address, including infrastructure and education, among others. Rather than enable a swift “regulatory Reconquista” of European-inspired regulation, Latin America should follow its own path.
European law has long influenced legislation in Latin America. The enactment of the EU General Data Protection Regulation (GDPR) in 2016, for example, resulted in a proliferation of data-privacy laws across Latin America that were substantially similar to the GDPR. This transpired despite mounting evidence that the GDPR has hindered venture-capital investment in Europe and that it contributed to increased market concentration. More recently, and due in part to broader geopolitical considerations, the EU has looked to bolster its influence across the region by touting the benefits of digital competition regulations like the DMA.
Various Latin American policymakers and agencies have made clear their interest in following this path. The Andean Community, for instance, is considering specific regulations for digital markets.
In Mexico, the Federal Economic Competition Commission (COFECE) published a digital-strategy plan that included creating a Digital Markets Competition Unit similar to the United Kingdom’s Digital Markets Unit.
Brazil’s Bill No. 2768/2022 remains under discussion in the Brazilian National Congress, although the government has proposed taking a “more flexible approach.”
There is little evidence, however, that insufficient competition is a significant problem in Latin American digital markets. While there may be some reasonable concerns about competition in the digital economy, competition concerns (i.e., strategic barriers to entry imposed by a dominant incumbent) aren’t the primary constraint on the use of digital services and products in the region. Most who have studied the region identify far more fundamental problems, such as infrastructure, quality of access and use, and education.
According to the Organisation for Economic Co-operation and Development (OECD), for example, “[l]ess than half of Latin Americans have used a computer or have sufficient skills to use computers for basic professional tasks (…) [and] Only 8% used computers for programming.”
While there are few comprehensive assessments of the state of competition in Latin American digital markets, studies of such markets as e-commerce, fintech, and ride-hailing platforms demonstrate consistent growth and relatively frequent and easy entry.
For example, there is empirical evidence that Amazon not only faces competition across the region but that it competes intensively with other distribution channels and has had a net-positive welfare effect for consumers. Indeed, while Amazon is often accused in various markets of being a monopolist, in Latin America, it often finds itself the underdog against the regional unicorn Mercado Libre and other local incumbents.
One recent report on Latin America and the Caribbean found that “(a)s of August 2022, there were 893 B2C or C2C online marketplaces in the LAC region, accounting for 2,876 websites (URLs).” The recent entry of such competitors as Shein suggests that Latin American e-commerce markets remain highly competitive. Moreover, there is a substantial margin for expansion, which suggests that demand could grow even more.
The above does not mean that anticompetitive conduct cannot arise in digital markets. In those cases, however, competition law should be sufficient to deter conduct that is harmful to competition and consumers.
Some critics of traditional competition law argue that it suffers from the alleged failures of being “too slow” and “too hard” for plaintiffs. This, such critics contend, is sufficient justification to promulgate ex-ante digital competition regulations like the DMA.
But despite the alleged “technical challenges” that digital markets present to antitrust-law methodology and procedures, traditional competition-law tools are, relatively speaking, much better suited to address any possible competition issues than ex-ante rules. For instance, competition law is more flexible and is able to consider more pieces of relevant information.
Despite the relatively small number of cases brought by competition agencies in Latin America, there have been several notable ones that allow us to conclude that, as in the EU, the existing antitrust laws can be used to address the same kinds of conduct that are targeted by digital competition regulations.
If the goal is to improve Latin America’s digital markets and deploy them in service of growth and productivity across the region, there are more important reforms that should be under consideration. To start, policymakers should explore ways to attract more existing digital-market firms to invest in the region and should facilitate the creation of new ones. While legal reforms are indeed needed to accomplish that goal, the focus should be on implementing proper “rule of law” mechanisms, removing regulatory barriers, improving access to infrastructure, expanding the breadth of telecommunications networks, and providing better access to education—both in general and specifically with regard to the skills needed to use digital products and services.
For more on this issue, see the ICLE white paper “¿Ex Ante Regulation of Digital Platforms in Latin America (or, the “Regulatory Reconquista”)?” by Mario Zúñiga.
I have just flown home from France and boy are my arms fatigués. I was in Paris for meetings and, especially, for the International Center for . . .
I have just flown home from France and boy are my arms fatigués. I was in Paris for meetings and, especially, for the International Center for Law & Economics’ (ICLE) conference (co-sponsored by European University Institute’s Department of Law, IE Law School Madrid, and the Vrije Universiteit Amsterdam’s Law & Technology Institute) “Substance over Slogans: Strengthening the Foundations of Antitrust.” We had a truly excellent and varied lineup, including notable participants from academia, government agencies, and legal professionals from the United States, UK, Europe, and Asia. Leading lights and a broad range of views were on hand—if not quite so broad as to include advocates of the “neo-Brandeisian” approach to antitrust.
New York State lawmakers decided in 2021 to take a swing at making internet service more affordable with the state’s Affordable Broadband Act (ABA). The . . .
New York State lawmakers decided in 2021 to take a swing at making internet service more affordable with the state’s Affordable Broadband Act (ABA). The law says that internet providers in New York must offer low-income subscribers two plans:
There are some small allowances for price increases every few years and possible exemptions for smaller broadband providers. To qualify, subscribers must be at or below 185% of the federal poverty guidelines or eligible for the National School Lunch Program.
Who would have thought such a simple law would generate such a stink?
The lawsuit that the U.S. Justice Department (DOJ) filed last August against the real-estate software provider RealPage, as well as a report issued last month by the White House . . .
The lawsuit that the U.S. Justice Department (DOJ) filed last August against the real-estate software provider RealPage, as well as a report issued last month by the White House Council of Economic Advisers (CEA) claiming to find $3.8 billion in consumer harms in the rental-housing market arising from the use of algorithmic-pricing tools, both stand as stark examples of the kinds of fundamental misunderstandings of both artificial-intelligence (AI) tools and market dynamics that the incoming administration will need to address.
Initiatives like these, taken in the waning days of the Biden administration, threaten to establish dangerous precedents that could chill innovation, while failing to address genuine challenges in the housing market. Their timing is particularly concerning, as courts and regulators are just beginning to grapple with how to approach AI across multiple sectors.
Acomment published in my local alt-weekly newspaper raised a provocative question: Funny, isn’t it, how when some tech billionaire “disrupts” an industry, bankrupting businesses and putting people . . .
Acomment published in my local alt-weekly newspaper raised a provocative question:
Funny, isn’t it, how when some tech billionaire “disrupts” an industry, bankrupting businesses and putting people out of work, it’s presented as a good thing, yet when the state “disrupts” an industry to cut back on fossil fuels pollution and other environmental damage, the disruption is presented as a problem.
I live in Portland, Oregon, and comments like these are sure to generate a lot of nodding heads and silent finger snaps.
With Wednesday’s oral argument in Free Speech Coalition v. Paxton, the U.S. Supreme Court is now set to possibly reconsider its jurisprudence on online age verification. Reading the . . .
With Wednesday’s oral argument in Free Speech Coalition v. Paxton, the U.S. Supreme Court is now set to possibly reconsider its jurisprudence on online age verification. Reading the tea leaves is hard, but the oral arguments do seem to suggest that there is broad agreement that the 5th U.S. Circuit Court of Appeals got the standard of review wrong.
Below I will consider some of the big issues that came up in the oral arguments: the distinction between online age verification and checking IDs in the offline world; whether the Court will limit online age verification to pornography; and the impact of technology on the First Amendment assessment.
My prediction: the Court will likely find age-verification laws aimed at preventing minors from accessing online pornography are subject to strict scrutiny, and remand for the lower courts to determine whether the record shows the law is narrowly tailored in light of modern age-verification technology. This would be consistent with the primary precedent on the issue, Ashcroft v. ACLU.
Over the next year, we will learn how the tenures of Federal Trade Commission Chair Lina Khan and Department of Justice Assistant Attorney General Jonathan . . .
Over the next year, we will learn how the tenures of Federal Trade Commission Chair Lina Khan and Department of Justice Assistant Attorney General Jonathan Kanter abidingly altered the operations of their respective agencies. Love the Neo-Brandeisian approach to antitrust or hate it, the outgoing administration rejected the norms that restrained antitrust law—and potential abuses of it—for the past half-century. The greatest question for the future of antitrust enforcement in the United States as the Trump administration comes into power is whether the new FTC and DOJ leadership will reestablish previous restraints or embrace the freedom that the Biden enforcers championed to push antitrust law beyond its conventional limits.
I. Introduction One of the central controversies surrounding Judge Mehta’s decision in the U.S. Google Search antitrust case[1] is whether the court applied the correct . . .
One of the central controversies surrounding Judge Mehta’s decision in the U.S. Google Search antitrust case[1] is whether the court applied the correct legal standard of proof to find that Google’s default distribution agreements caused anticompetitive harm. The decision adopts an extraordinarily permissive standard, holding that the government need show only that Google’s challenged distribution agreements “reasonably appear capable of” contributing to its monopoly power.[2] This standard, derived from the D.C. Court of Appeals’ 2001 Microsoft decision,[3] fundamentally misunderstands both the precedent and the nature of causation in antitrust cases.
As I have discussed elsewhere,[4] the decision relies on this reduced standard to sidestep crucial questions of causation, finding that “Google’s distribution agreements are exclusionary (. . .) because they ensure that half of all GSE [general search engine] users in the United States will receive Google as the preloaded default on all Apple and Android devices.”[5] But receiving Google Search as the preloaded default is exclusionary only if consumers are shown to prefer alternative search engines and are unable to switch easily to them.
Instead, this permissive standard leads the court to accept a series of logical fallacies and evidentiary shortcuts throughout its analysis. Most critically, it allows the court to infer causation from correlation, assuming, in effect, that because Google’s market dominance accompanied its default distribution agreements, it must have been caused by them. This post hoc reasoning permeates the decision, infecting everything from its analysis of the default arrangements to its assessment of alternative distribution channels.
The problem is that this is almost certainly an incorrect reading of the case law. Indeed, as Judge Douglas Ginsburg and Koren Wong-Ervin argue, the “reasonably appear capable of” standard is a special case, applicable in limited circumstances (which are absent in Google Search): “Reading Microsoft and Rambus together, the key takeaway is that only when anticompetitive effects are shown (as required by Microsoft and Rambus) does the ‘reasonably capable of’ causation standard apply to allegations that exclusionary conduct killed a nascent threat. Only when these conditions are met may the government avoid having to show that the threat would have become a real competitor but for the alleged exclusionary conduct.”[6]
The reduced standard’s inapplicability here matters precisely because it allows the court to skip over crucial analytical steps that would expose the weaknesses in its presumed causal chain. By merely asking whether Google’s agreements could have contributed to its market position, rather than proving they actually did so, the court avoids confronting the substantial evidence—much of which, remarkably, is referenced by the court itself—that Google’s position stems from consumer preferences rather than anticompetitive exclusion.
The proper analysis of exclusive dealing arrangements presents an analytical challenge: even where an exclusive dealing arrangement might be capable of enabling the defendant to acquire or maintain monopoly power, it is also possible that the defendant would have acquired or maintained monopoly power absent the exclusive deal. Indeed, this latter scenario is especially likely where, as here, the evidence suggests strong consumer preferences for the dominant firm’s product.
Typically, a plaintiff must show that, absent the challenged behavior, the foreclosed competitor would have actually threatened the incumbent’s market power—that is, that the challenged conduct, and not something else, was the cause of the alleged anticompetitive effect.
The proper analysis must ferret out the distinction between the two and show, at the very least, that the substantially more likely cause of foreclosure was anticompetitive conduct rather than something else. Only where that assessment is truly impossible—as in the specialized facts in Microsoft involving a nascent, inchoate threat—is the causation requirement relaxed.
The challenge for courts is to avoid the post hoc fallacy—the assumption that because market success accompanies certain conduct, it must have been caused by that conduct. This is especially dangerous in technology markets, where network effects and scale economies mean that market leadership often appears inevitable in retrospect, even when it was earned through competition rather than exclusion.
It should be immediately obvious why “reasonably appear capable of” cannot possibly be the correct general standard—and why it makes no sense to suggest that a less strict standard of proof is particularly appropriate for exclusive-dealing arrangements.
We do not need to ask if the (allegedly) exclusive-dealing agreements at issue “reasonably appear capable of significantly contributing to maintaining Google’s monopoly power” because, of course, they are capable of contributing to Google’s monopoly power. That is why there are scores of antitrust cases looking at the effects of distribution agreements.[7] If prevailing in such a case required only that an agreement could possibly advance a dominant firm’s competitive position, then no exclusive (or quasi-exclusive) agreement would ever be legal.
We ask whether exclusive agreements “reasonably appear capable of” maintaining monopoly, instead of asking whether they actually maintained monopoly, only when the connection between what is being excluded and monopoly maintenance is inherently unclear—as in Microsoft, where it was unknowable whether Netscape Navigator would eventually constitute a competitive threat to Microsoft’s operating-system dominance. But here, that is not a question. Where the rival is a direct competitor with a close substitute product, an exclusive distribution deal by a dominant incumbent is always capable of foreclosing (at least some of) the rival’s distribution. In such circumstances, it is simply not consistent with the plaintiff’s burden of proof to allow them to show only that the challenged conduct is the sort that could maintain monopoly, rather than that the defendant’s conduct, in fact, caused anticompetitive harm.
Judge Mehta holds that Google’s distribution deals had anticompetitive effects “because they ensure that half of all [general search engine] users in the United States will receive Google as the preloaded default on all Apple and Android devices.”[8] He derives this conclusion (which he repeats several times) from the testimony of one of the plaintiffs’ economic experts, Michael Whinston, who finds that “50% of all queries in the United States are run through the default search access points covered by the challenged distribution agreements.”[9]
Judge Mehta’s claim is that, because users do not switch away from defaults very often, and because the “market realities” of the search market—given Google’s default distribution deals—are that half of all relevant searches occur through access points covered by those deals, we can conclude that those deals foreclose competitors from 50% of the general search market.
But this is not how you measure foreclosure, and the assertion that that number shows that Google’s default deals—and not something else—“significantly contribut[e] to maintaining Google’s monopoly power”[10] is fallacious.
This analysis commits the fundamental post hoc fallacy. Just because the government shows there is “significant” usage of Google’s default services post hoc—meaning, given Google’s default deals, and after consumers have chosen which search engine to use—does not mean it has proven that 50% of the market was foreclosed from access by competitors. Nor does it mean that the government has met its burden of proving that this was caused by the challenged agreements.
Perhaps all of those consumers are inframarginal consumers who would have chosen Google Search anyway, even if it were not the default. In other words, perhaps all of them were perfectly capable of accessing Bing, but simply chose not to. In that case, the post hoc usage data would tell us nothing about the extent of foreclosure; it would tell us only about consumer preferences. The reality may be somewhere in between, but even the extreme (that is, that all observed usage of Google Search over Bing is attributable to consumer preference, and none to foreclosure by Google’s default distribution deals) cannot be ruled out simply by observing post hoc usage.
For this reason, demonstrating foreclosure requires comparison to the but-for world. It requires showing, in other words, that, absent Google’s deals, Bing would have had access to and been chosen by substantially more marginal consumers (those who view Bing and Google as effective substitutes and would not expend extra cost to use one search engine or the other).[11] This is so for three reasons.
First, these agreements are not, in fact, “exclusive.” That matters because it is much harder to infer that it was the agreements, and not consumer preferences for a particular product, that caused Google’s dominance when consumers have ample opportunity at low or no cost to exercise their preferences to not use Google Search. The court’s reasoning commits the post hoc fallacy by assuming that because Google’s high market share followed its agreements, it must have been caused by them rather than by consumer preferences.
Second, and relatedly, Google’s maintenance of the observed large share of these default searches is just as consistent with a non-problematic set of facts (consumers simply prefer Google Search and, knowing that, distributors offer Google as the default) as with a problematic one (consumers use Google Search only because it is the default service, and distributors offer Google Search as the default only because Google pays them to do so).
So much of Judge Mehta’s conclusion that Google’s default deals are exclusive (despite not actually being “exclusive”) turns on his contention that defaults are the best way for search engines to distribute themselves,[12] and, therefore, that Google tying up default access is sufficient to establish the requisite amount of foreclosure for an exclusive-dealing claim.
But “conduct [does] not violate antitrust laws where absent that conduct consumers would still receive the same product and the same amount of competition.”[13] The but-for world matters, and the relevant question is the relative “amount of competition.”
We cannot measure the amount of competition as Judge Mehta and Prof. Whinston do, by looking at what people choose post hoc. This is a fairly useless statistic. It says next to nothing about what share of marginal searchers use Google because it is the default, and what share use Google because they prefer it. It also says nothing about what share are inframarginal consumers who would use Google regardless of the cost of accessing it. That, in turn, tells you nothing about the amount of competition that existed before they made their choices.[14]
Nor can we simply look at the scope of the default distribution agreements. If people can still easily choose other search providers despite the default deals, those deals cannot be said to foreclose competition—at the very least, not simply in proportion to the share of the market covered by those deals.
Third and finally, failing to demand that the plaintiffs demonstrate that Google’s default distribution deals actually foreclosed competitors, and allowing them effectively to prove their case by showing only that the deals made Google’s large market share “somewhat more likely,”[15] erases the requirement that plaintiffs can win only if they prove that challenged conduct causes anticompetitive harm. This is an invitation for dramatically erroneous decisions.[16]
The problems with the court’s approach to defaults are not merely abstract. In fact, the empirical evidence in this case provides a concrete demonstration of why default arrangements cannot explain Google’s market position. Unlike in Microsoft, we do have actual competition and consumer behavior to assess in understanding the extent of the competitive threat and whether Google’s challenged conduct impaired it. Indeed, there is copious evidence in the case—and in Judge Mehta’s opinion, in fact—that the cause of Bing’s limited market share was not Google’s default distribution deals, but consumers’ preference for Google Search over Bing.
The empirical evidence of user switching behavior contradicts the court’s assumptions about default lock-in. With respect to the conclusion that the cost to users of choosing the non-default option is higher, that is inherently true, of course. But it is arguably trivially so. Judge Mehta spends a fair amount of time on this question (although not in the proper context of this but-for assessment) before arriving at his conclusion that being a non-default is tantamount to being excluded. His analysis is unconvincing, however.
First, the analysis is heavily influenced by the assertions of the government’s behavioral expert, Antonio Rangel. As I will discuss below, some empirical data specific to the context at hand is used to bolster the more general behavioral claims of the government’s expert (which I believe cuts in many respects against Judge Mehta’s conclusions). But it is clear that any ambiguity (of which there was a considerable amount) was presumed by Judge Mehta to be consistent with asserted general behavioral patterns.[17]
The main problem with this is not so much that behavioral science is wrong (surely, it is correct that the more friction there is to switch from a default, the less likely someone will switch), but that it is not dispositive. This makes it a weak basis for meeting the plaintiffs’ burden.
It is also not clear that general behavioral theories have the same traction in the specific environment at issue. As Dan Gilman has discussed,[18] the learnings of behavioral science were established in settings quite different than search engine defaults. As he writes: “Generalizing findings from, e.g., cereal-box placement to the durability of search-engine defaults seems a stretch (or entirely speculative).”[19]
But what really matters in this case is not the direction of the behavioral assumptions, but the magnitude. The claim here is that the availability of switching does not sufficiently negate the effective exclusivity of defaults to permit rivals to compete. That claim depends on the extent to which users tend not to switch away from defaults, not just the fact that they sometimes do not.
Consider the Mozilla experiment: “In a 2016 experiment, Mozilla switched the default GSE on both new and existing users from Google to Bing. By the twelfth day, Bing had kept only 42% of the search volume. After some additional time, those numbers dropped to 20–35% (. . .).”[20] This real-world test demonstrates that users readily switch away from defaults when they prefer an alternative.
Similarly, even when users are presented with a neutral option (e.g., a “choice screen”), they appear to make essentially the same choices as when presented with a default. In Europe, where Google has since 2020 implemented a search-engine choice screen on Android following the EU’s 2018 antitrust decision against it,[21] Google’s share of the search engine market has barely budged.[22]
It is exceedingly difficult to square these facts with the court’s conclusions on the functional irrelevance of non-default options.
The Windows desktop environment provides some of the clearest evidence against the court’s post hoc reasoning about the effect of defaults on competition. Consider the actual evidence of people switching to the non-default on PC desktops. It turns out that a lot of Windows desktop users download Chrome and use Google Search there, rather than relying on Bing, which is the default search engine in the Edge browser: “To be sure, downloads of an alternative browser occur with greater frequency on Windows desktop computers. On such devices, Edge is the default browser and Bing is the default search engine. Yet, Google’s search share on Windows devices is 80%, with most of the queries flowing through the Chrome default, which means Chrome was downloaded onto the device.”[23]
Despite this, Judge Mehta is quick to note that, for those users who still use Edge, Bing is the most used search engine: “The power of defaults is evident, however, from the share of Bing users on Edge. Bing’s search share on Edge is approximately 80%; Google’s share is only 20%. Even if one assumes that some portion of those Bing searches are performed by Microsoft-brand loyalists, Bing’s uniquely high search share on Edge cannot be explained by that alone. The default on Edge drives queries to Bing.”[24]
One might suggest that all this shows is that people really prefer Chrome to Edge, not that they prefer Google Search to Bing enough to switch away from the default (on either browser). Except that, as the opinion points out, “Google’s dominance on Windows cannot, however, be attributed simply to the popularity of Chrome. Google had an 80% search share on Windows when Chrome first launched, and that share has remained steady ever since.”[25] If that is the case, it can mean only that the default search on Windows desktops is not very sticky—and it is not just because users prefer Chrome to Edge; apparently, it is because they prefer Google Search to Bing.
This evidence particularly exposes the flaw in the court’s post hoc reasoning. Google achieved an 80% search share on Windows before Chrome launched, maintaining that share afterward. This sequence directly contradicts the assumption that default agreements determine market outcomes. If the post hoc logic were correct, we would expect to see Bing dominating Windows search given its default position in Edge.
So how does the court conclude that it supports the “power of defaults” that, of those users who do not switch to Chrome on Windows desktops, approximately 80% use Edge’s default? If most Windows users who prefer Google Search to Bing switch from the default by downloading and switching to Chrome instead of by switching the default search engine in Edge, then, of course, most of those who remain on Edge will us Bing: If they preferred Google to Bing, they would have switched to Chrome.
Whatever “choice friction” impedes the movement away from the default search engine on Windows desktops, it is not strong enough to prevent people from maneuvering around it in spades—they just do not often do so directly by switching the default search engine in Edge.[26]
Similarly, strong evidence against default lock-in comes from vertical search. Judge Mehta asserts that “Google often warns that competition is ‘only a click away.’ However, ‘[t]he paltry penetration in the market by competitors over the years has been a refutation of [that] theory by tangible and measurable results in the real world.’”[27]
But there is plenty of evidence to demonstrate that competition is, in fact, just a click away. Indeed, some of it was evidence the court used to exclude specialized vertical search providers (e.g., Amazon and TripAdvisor) from the relevant market. Without challenging that conclusion here, it appears eminently “tangible and measurable” to the question of whether users will switch to alternative search engines that, when the alternative is demonstrably superior for the query at issue, they do so in droves: “A 2020 Bank of America study reported that 58% of users search Amazon first when they seek to make an online purchase, as opposed to only 25% who go first to Google, demonstrating Google’s secondary status as a starting point for users with high commercial intent. (. . .) Microsoft recognizes that ‘if Bing or Google were not doing vertical searches well, or at least not having organic results that people could click to get to vertical search engines,’ users might bypass GSEs and instead search directly on Amazon from the outset. (. . .) [A]nalysis show[s] that a query sample of Google’s top 25 non-navigational shopping queries attracts more queries weekly on Amazon (3.7 million) than Bing (0.4 million) (. . .) [and] that Yelp’s local query volume is higher than Google’s and much higher than Bing’s (. . .).”[28]
None of these alternative vertical search engines is installed as the default. Yet, users readily switch to them when they offer better results. Whether or not this is sufficient to affect the court’s relevant market or market-share analysis, it is surely enough to demonstrate that users are not locked into defaults when the “choice friction” required to switch from them is small relative to the benefit. That, in turn, is a function of the quality of the search provider, not the method by which it is distributed.
The court’s dismissal of alternative distribution channels commits the post hoc fallacy twice over. First, it assumes that because users do not often use these channels, they must not be viable. Second, it assumes that because Google’s market share remained high after implementing its agreements, despite the existence of alternative distribution channels, those agreements must have caused its market position.
The majority of the decision’s discussion of consumers’ behavior around defaults is largely impressionistic, not quantitative. For example, Judge Mehta notes that “[a]nother non-default search access point is the bookmarks page on a browser. The Safari ‘Favorites’ page, for instance, contains preloaded icons to access Google, Bing, and Yahoo. A user also can add a new search engine on that page. But few consumers use this channel, as it first requires finding the Favorites page in a new Safari tab, which requires an ‘extra click.’ Google itself receives only 10% of its searches on Safari through the bookmark.”[29]
Strictly speaking, 10% is “quantitative,” but the decision’s conclusions based on this data are decidedly impressionistic. Judge Mehta asserts that Google receiving “only” 10% of searches on Safari through the bookmark is an insignificant volume. But in that setting—where Google Search is already the default on Safari and can be accessed simply by typing in Safari’s URL bar, and in which it is alleged that virtually no one ever uses anything other than default search on Safari—why would there be any searches at all on Google via the bookmark? If that number of searches is different from zero, it would appear to demonstrate that it is indeed a relevant channel by which consumers can find search engines, including non-default ones. In other words, 10% may be “insignificant” as a share of Google searches, but it is quite significant with respect to the relevant legal standard, which is meant to measure the availability of competition, not its actual uptake.
Indeed, “nearly 40% of queries on Apple’s mobile devices flow through non-default search access points, such as default bookmarks or organic search.”[30] Judge Mehta dismisses this by arguing that “the fact that some consumers access search on non-default access points is not dispositive on exclusivity.”[31] “Not dispositive” is not quantitative. While the statement is true, the burden of proof is on the plaintiffs, and this not being dispositive cuts against them, not against Google.
Instead, Judge Mehta claims that “mere user access to these less efficient channels of distribution does not render the browser agreements non-exclusive.”[32] A significant part of the defense of this position turns on an analogy to Microsoft and the argument there that it was sufficient that Microsoft foreclosed access to the best method of distribution. Indeed, the next sentence after the quote above is, “Microsoft again illustrates the point.”[33] But does it?
Judge Mehta says this case is the same as Microsoft where the court “reject[ed] the argument that Microsoft’s licensing agreements with OEMs were not exclusive ‘because Netscape is not completely blocked from distributing its product,’ as ‘although Microsoft did not bar its rivals from all means of distribution, it did bar them from the cost-efficient ones.’”[34] He then asserts that “[t]he record here resembles that in Microsoft. Users are free to navigate to Google’s rivals through non-default search access points, but they rarely do.”[35]
The analogy to Microsoft fails most obviously on the point that the “market realities” have changed a lot since the late 1990s. Downloading Netscape from the internet was wholly unfamiliar, exceedingly complex, and truly difficult for PC users back then—a real “choice friction” and thus not really a viable alternative. But downloading a competing search engine or browser today is trivially easy, and users do it all the time (to the tune of 12.6 billion app downloads in the United States in 2023 alone).[36] In this environment, the fact that users do not download or use competing general search engines sufficiently to displace Google Search despite the ease of doing so suggests that it is consumer preference for Google Search, not the relative inefficiency of the channel of distribution, that causes this result.
Instead, Judge Mehta concludes that, while “a user can download Chrome, Edge, or [DuckDuckGo] onto an Apple device,” “[t]his, too, is not an easily accessible search point, as it involves similar choice friction as acquiring a search application. Google receives only 7.6% of all queries on Apple devices through user-downloaded Chrome.”[37]
Not only is downloading an application, in fact, trivially easy, but the fact that Google receives only 7.6% of search queries on Apple devices through Chrome, but “most”[38] of its queries on Windows desktops through user-downloaded Chrome is decidedly ambiguous. Maybe that shows that people download Chrome on Windows not to get easy access to Google Search but because the Chrome browser is superior to the Edge browser, while it is not any better than Safari. But it is also consistent with the conclusion that people are not prevented from accessing their preferred search provider (Google Search)—they just do not need to download Chrome on Apple devices to get easy access to it, while they do need to do so on Windows devices.
The opinion also says that “[t]he court in Microsoft did not say that these contracts caused zero market foreclosure merely because Internet Explorer had other, less-efficient means of reaching users.”[39] True. But the court in Microsoft also did not say that any amount of difference in distribution efficiency was sufficient to maintain that a non-exclusive agreement was effectively exclusive.
As noted, it is now utterly simple to switch search providers on virtually every platform and at multiple decision points on each. Defaults do not prevent that, and prioritized placement (from, e.g., a spot on the Android home screen) does not even crowd out alternatives once they are downloaded (which can then be similarly accessed from priority positions on the home screen). “Very slightly less efficient” could still be “efficient.” The fact that the difference between the foreclosed and available channels of distribution in Microsoft was large enough to matter does not mean that the difference between them in Google Search is large enough to matter.
In response, Judge Mehta goes back to post hoc user conduct to hold that the fact that users do not often use these alternatives shows that the difference does matter here, and that Google’s default distribution deals are effectively exclusive and lead to foreclosure: “Sure, users can access Google’s rivals by switching the default search access point or by downloading a rival search app or browser. But the market reality is that users rarely do so. The fact that exclusive agreements allow users to reach rivals through other means does not make the foreclosure number zero.”[40]
But it cannot be a sufficient argument that “the market reality is that users rarely do so.” That market reality is exactly what is at issue in the case. Using the lack of user uptake from trivially easy alternative distribution channels as evidence that those alternative distribution channels are not relevant assumes the conclusion. It is poor legal reasoning.
Judge Mehta’s decision in the Google Search case rests on a fundamental misapplication of legal precedent and a failure to properly assess causation. By adopting Microsoft’s “reasonably appear capable of” standard, the court dramatically lowered the burden of proof required in exclusive dealing cases without sufficient justification. Unlike the nascent, speculative threat at issue in Microsoft, the competitive dynamics between Google and its rivals like Bing are well understood and amenable to concrete analysis.
The court’s reliance on post hoc market share data and behavioral assumptions regarding defaults, rather than rigorous analysis of actual foreclosure effects, is particularly problematic. The evidence presented shows that users readily switch away from default search providers when alternatives offer superior results, and that alternative distribution channels are far more viable than the court acknowledges. The opinion thus fails to establish that Google’s distribution agreements, rather than consumer preference or competitive merit, caused the observed market outcomes.
By focusing instead on impressionistic assessments of default “stickiness” and conflating correlation with causation, the court effectively relieves the government of its burden to prove that Google’s agreements, rather than other factors, maintained its market position through anticompetitive means.
[1] United States et al. v. Google LLC, Memorandum Opinion, case No. 20-cv-3010 (APM) (D.D.C. Aug. 5, 2024), https://www.tn.gov/content/dam/tn/attorneygeneral/documents/pr/2024/pr24-59-Google.pdf (“Google Search decision”).
[2] Ibid. at 216 (“The key question then is this: Do Google’s exclusive distribution contracts reasonably appear capable of significantly contributing to maintaining Google’s monopoly power in the general search services market? The answer is ‘yes.’”).
[3] U.S. v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (“Microsoft”).
[4] See G. A. Manne, A Critical Analysis of the Google Search Antitrust Decision, ICLE White Paper 2024-08-14 (Aug. 14, 2024), https://ssrn.com/abstract=4930626.
[5] Google Search decision at 216.
[6] Douglas H. Ginsburg and Koren Wong-Ervin, Challenging Consummated Mergers Under Section 2, CPI North America Column (May 25, 2020) at 3, https://www.pymnts.com/cpi-posts/challenging-consummated-mergers-under-section-2-2 (citing Microsoft, 253 F.3d at 34, and Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008) (“Rambus”)).
[7] See, among many others, Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997); United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005); In re EpiPen Mktg., Sales Pracs. & Antitrust Litig., 44 F.4th 959 (10th Cir. 2022); McWane, Inc. v. FTC, 783 F.3d 814 (11th Cir. 2015); Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991 (9th Cir. 2010); R.J. Reynolds Tobacco Co. v. Philip Morris Inc., 199 F. Supp. 2d 362 (M.D.N.C. 2002) (aff’d, 67 Fed. App’x 810 (4th Cir. 2003)).
[8] Google Search decision at 216.
[9] Ibid. at 217.
[10] Ibid. at 216.
[11] See generally J. D. Wright, Moving Beyond Naïve Foreclosure Analysis, Geo. Mason L. Rev., Vol. 19, No. 5, 2012, pp. 1163–1198; ibid. at 1181–1182 (“The primary thrust of this Article is that accurately measuring the foreclosure produced by any allegedly exclusionary agreement requires foreclosure to be measured relative to what would be obtained but for that agreement.”); T. G. Krattenmaker and S. C. Salop, Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power over Price, Yale L.J., Vol. 96, No. 2, 1986, pp. 209–294, at 259 (defining a “net foreclosure rate” as “the percentage of the suppliers’ capacity that was available to rivals before the exclusionary rights agreement was adopted but that is no longer available as a result of the agreement”).
[12] See, e.g., Google Search decision at 24 (“The most efficient channel of GSE distribution is, by far, placement as the preloaded, out-of-the-box default GSE.”).
[13] Rambus, 522 F.3d at 466 (citing Schuylkill Energy Res., Inc. v. Penn. Power Light Co., 113 F.3d 405, 414 (3d Cir. 1997)).
[14] It might be relevant to assess whether the size of Google’s payments was sufficient to induce distributors to promote it as the default to an extent out of proportion to its relative quality advantage (and thus, presumably, consumer preferences). But the court did not undertake this analysis.
[15] Rambus, 522 F.3d at 464.
[16] See Ginsburg and Wong-Ervin, supra note 6, at 4 (“Without requiring proof of but-for causation, there is great risk of erroneously condemning [conduct] that may be procompetitive.”). See generally G. A. Manne, Error Costs in Digital Markets, in The Global Antitrust Institute Report on the Digital Economy, J. D. Wright and Douglas Ginsburg (eds.) 2020, https://gaidigitalreport.com/wp-content/uploads/2020/11/Manne-Error-Costs-in-Digital-Markets.pdf.
[17] See, e.g., Google Search decision at 26 (“That users overwhelmingly use Google through preloaded search access points is explained in part by default bias, or the ‘power of defaults.’ The field of behavioral economics teaches that a consumer’s choice can be heavily influenced by how it is presented. The consensus in the field is that ‘defaults have a powerful impact on consumer decisions.’”) (citations omitted). See also ibid. at 31 and 229.
[18] See D. J. Gilman, Google, Amazon, Switching Costs, and Red Herrings, Truth on the Market (Nov. 22, 2023), https://truthonthemarket.com/2023/11/22/google-amazon-switching-costs-and-red-herrings.
[19] Ibid.
[20] Google Search decision at 117 (citations omitted).
[21] See Eur. Comm., decision C(2018) 4761 final of July 18, 2018, Google Android, case COMP/AT.40099, https://competition-cases.ec.europa.eu/cases/AT.40099.
[22] See Mobile Search Engine Market Share in Europe — July 2024, StatCounter (last visited Oct. 12, 2024), https://gs.statcounter.com/search-engine-market-share/mobile/europe/#monthly-202001-202408 (showing that Google’s EU mobile search engine market share was 97.32% in January 2020 (just before the choice screen was implemented) and 95.96% in July 2024—a change of 1.37 percentage points).
[23] Google Search decision at 33 (citations omitted).
[24] Ibid. (citations omitted).
[25] Ibid. at 32.
[26] Or, at least, they do not anymore. But 80% of searches on Windows desktops ran through Google Search even before Chrome existed. Ibid. at 32. That means that, apparently, a substantial majority of users were perfectly willing and able to overcome the “choice friction” and switch to Google Search even within Windows’ default browser
[27] Ibid. at 236 (quoting Dentsply, 399 F.3d at 194).
[28] Ibid. at 53–54 (citations omitted).
[29] Ibid. at 32 (citations omitted).
[30] Ibid. at 207.
[31] Ibid. at 208.
[32] Ibid. at 209.
[33] Ibid.
[34] Ibid. (citing Microsoft, 253 F.3d at 64).
[35] Ibid.
[36] See, e.g., L. Ceci, Number of Mobile App Downloads Worldwide from 2021 to 2023, by Country (in Billions), Statista (Nov. 9, 2024), https://www.statista.com/statistics/1287159/app-downloads-by-country/#:~:text=In%202023%2C%20mobile%20apps%20in,generated%20approximately%2012.6%20billion%20downloads (“In 2023 (. . .) users in the United States generated approximately 12.6 billion downloads.”).
[37] Google Search decision at 32.
[38] See ibid. (“Google’s search share on Windows devices is 80%, with most of the queries flowing through the Chrome default (. . .).”)
[39] Ibid. at 221.
[40] Ibid.
The U.S. government’s case in the Google Search matter raised complex questions of law and fact.[1] The former are more likely issues for appeal, due . . .
The U.S. government’s case in the Google Search matter raised complex questions of law and fact.[1] The former are more likely issues for appeal, due in no small part to the trial court’s traditional function as finder of fact. The findings are interesting all the same difficult, too, casual reactions to the decision notwithstanding.
The court’s treatment of the facts in evidence may have implications beyond the instant case. In that regard, two issues seem especially salient. First is the question of default bias, which might be termed a question of the “stickiness” of default settings for general search engines (GSEs) or of switching costs. That is, to what extent does a system’s choice of a default GSE diminish or impede the ability of other GSEs to compete?
Second, what sort of answer to the first question is required to establish liability for monopolization under Section 2 of the Sherman Act? For example, if the degree of stickiness to establish monopolization is (a) one that prevents actual or would-be rivals from reaching minimum efficient scale or, stronger, (b) one that prevents actual or would be rivals from reaching minimum efficient scale and would not make economic sense but for that exclusionary effect, then we can ask about the minimum efficient scale required to compete.
Part of what is interesting about the first question is that Judge Mehta’s decision on liability seemed to credit expert testimony from behavioral economics.[2] Behavioral economics however distinct from the behavioral sciences generally—continues to develop as a field of research. But whatever its scientific interest and broader policy implications,[3] behavioral economics has made few inroads in antitrust jurisprudence, and perhaps no systematic ones. Further, it has been argued that the apparent dearth of applications in antitrust law (or competition policy) should persist.[4] While I admit to some sympathy for skepticism about behavioral antitrust generally, its demise is hardly settled,[5] and this essay does not mean to resolve the general question whether behavioral research could find more purchase than it has in competition policy.
Rather, I consider the apparent role of the behavioral evidence presented in the Google Search case as a model inroad for the field. Specifically, Judge Mehta’s opinion repeatedly cites testimony from Professor Antonio Rangel on “choice friction” and the “stickiness” of default settings.[6] For example, the opinion states, as a finding of fact, that “as Dr. Rangel convincingly explained, the combination of user habit, Google’s brand, and choice friction creates a powerful default effect that drives most consumers to use the default search access points occupied by Google.”[7] Reviewing Rangel’s slides for the case, the high-level message seems clear: “Search engine defaults generate a sizable and robust bias towards the default” and “[s]earch engine default effects have stronger effects on mobile devices than on personal computers.”[8]
Some see the application of behavioral evidence in the case to be salutary.[9] I do not. At one level, Professor Rangel’s general observation about defaults seems unsurprising. Changing anything—lunch reservations or seats around a table—implies transition costs (or switching costs), however high or low. Any sort of default might generate a bias toward the default position. That might be a robust observation across domains, whether it has anything to do with mobile phones, browsers, and GSEs or not, and it might have been a general observation before the advent of behavioral economics. The findings of fact do not ascribe any particular weights to the contributions of, say, choice frictions and “Google’s brand,” while other findings of fact suggest that Google earned its reputational assets, at least to the extent that Google innovated in developing what was, and remains, according to other findings of fact in the decision, a superior GSE.
What, then, was the contribution of behavioral economics? “Sizable” is vague, to be sure, but it is not without connotation: “sizable” implies large or very large effects, if not any precise numerical quantity. Additional slides seem to amplify the connotation, even if there are no obvious citations to studies of the search defaults at issue. For an example that might seem familiar to readers of Thaler and Sunstein’s Nudge, Rangel’s slides state: “In Austria, where citizens were registered as organ donors by default, 99% were registered donors. In neighboring Germany, where citizens had to affirmatively register, only 12% were registered donors.”[10] The delta is indeed striking, especially if we assume that switching costs are low and that baseline beliefs and preferences are similar across the two nations. It is merely a correlation, but it is striking, nonetheless.
Commentary on the case has identified that specific correlation, among others, as illustrative. Crémer et al. state that “[t]here is extensive behavioral economics literature documenting substantial default effects in both laboratory and field experiments. For instance, defaulting people into organ donation schemes leads to 99% participation, compared to just 12% when people need to register.”[11]
There is indeed extensive evidence of default effects in different choice settings. Still, one might wonder whether the single correlation presented in the expert testimony may be unrepresentative. As it happens, there is a body of research on the impact of defaults on rates of organ donation—no surprise there, given the medical import of organ donation.[12] That research does not, however, suggest that the story is nearly as simple or striking as the German/Austria example might imply. Overall, it suggests that many factors, besides the default, might produce different effects in the real world and that, in fact, diverse factors have been observed to bear on donation rates.[13] Or, as a 2019 review of experimental, cross-sectional, and longitudinal evidence observed, opt-out (presumed consent) defaults are associated with higher rates of donation, but the observed magnitudes vary considerably, and the default is “just one factor among many.”[14]
One study using a time series of European data from 1991 to 2001 controlled for variables documented to affect donation rates, including nations’ transplant infrastructure, educational level, and religion. In nations where the default is donation (opt-out nations), the authors observed “a significant [P<0.02] increase in donation, increasing from 14.1 to 16.4, a 16.3% increase.”[15] The delta is substantial, but it is a far cry from that which might be implied by Rangel’s testimony.
A more recent study, employing panel data from the EU-27 countries plus Croatia, found that “presumed consent countries have 28% to 32% higher cadaveric donation and 27% to 31% higher kidney transplant rates in comparison to informed consent countries, after accounting for potential confounding factors.”[16] Again, we have a substantial effect, but a variable one; and even leaving aside the question of causality, we see an observed effect that is considerably smaller than that implied by Rangel’s Austria/Germany example.
Similar research, and experimental research, suggest that any number of vectors or inputs might make a difference, including (i) the type of decision or subject matter of the default; (ii) the framing (the way the default and the alternatives are presented); (iii) the current default itself; (iv) users’ beliefs about the riskiness of the current default (or of switching); (v) the source of the default; and (vi) the familiarity of the user with the type of choice at issue.[17] Much of this is a way of saying that context matters, which also includes the notion that “the value of an option depends not only on the option in question, but also on the other options in the choice set.”[18] And, indeed, various characterizations of context dependence of choice are endemic in the larger literature.[19]
Rangel’s own body of work, while highly varied, can be situated within this tradition. He has, for example, studied mechanisms of attention as they might be applied to varying grocery shelf placement, if not in actual grocery-store settings. And Google’s default deals have been likened to slotting fees paid for desirable grocery-shelf placement.[20]
For example, he and co-authors have studied visual attention and choice, with experiments displaying certain food choices to investigate, e.g., the influence of visual salience on the amount of attention devoted to a display. Experiments on visual saliency and consumer choice[21] suggest that the visual properties of, e.g., packaging can influence visual attention, which can bias choice in experiments where items were displayed in marked screen “shelves” (not actual grocery shelves), and eye tracking was measured. Rangel and colleagues observed that eliminating peripheral display of alternatives approximately doubled the attention biases—the amount of attention devoted to a displayed food item. The authors “suggest that individuals might be influenceable by settings in which only one item is shown at a time, such as e-commerce.”[22] And they might be. These are legitimate areas of inquiry. But how, if at all, is one supposed to generalize the experimental findings such that they can be applied to the efficacy of GSE default settings? What is the applicable model?
To some extent, the misfit between the empirical evidence and its application in the case may be due to misuse of the available science, and not the experimental research itself.[23] We need not assail the research methods or findings to observe that the experiments do not quite measure or model the extent to which, say, varied cereal displays in grocery stores (for which manufacturers might pay slotting fees) modulate the choices made by either marginal consumers, those with established preferences, or on average. For example, manipulating the relative amount of attention that research subjects pay to projections of appetitive (desirable) and aversive food items, it was observed that appetitive items were 6–11% more likely to be chosen with long fixation (exposure)—with a similar but somewhat different bias for aversive items.[24] The effect of visual salience is most pronounced when consumers are (experimentally) forced to make very fast choices, across a range of image exposures from 70 to 500 milliseconds. That is, the very longest exposure was half a second.[25]
These are, of course, very different magnitudes than the ones we see in the evidentiary slides. They are much smaller magnitudes, and the largest of them are observed to be associated with very rapid forced choices. That is not to say that the results from specific choice experiments are more representative of the degree to which a given default setting for a browser or search engine might or might not impede switching—something the experiments were not designed to test. Rather, given the apparent complexity of the affective, perceptual, and cognitive mechanisms at play, we simply do not know how to generalize from the experimental findings to the market dynamics at issue in the Google Search case. We do not know, and we ought not to pretend we do. Again, observed effects seem to vary greatly across the nature, framing, and context of the choice at issue, and that variation may be one of the most robust observations we can make about the choice literature.[26]
Perhaps more than that, the specific examples of default effects identified by the government’s expert witness and certain commenters seem not so much arbitrary as cherry-picked—that is, highly skewed results suggesting that some default effects in some choice domains may be very large, while ignoring conspicuous evidence that observed effects vary considerably and, apparently, due to numerous factors. On balance, it seems more misleading than informative—less charitably, quoting Bentham, we might say that appeals to scientific authority in the case were “nonsense on stilts.”[27]
To be sure, the court’s finding on the stickiness of default status does not rest solely on the evidence from behavioral economics. But the juggling of real-world correlations (e.g., Google’s share of search on Android devices in Europe, where there is no default GSE, and of desktop search on Windows machines, which come preloaded with Microsoft’s Edge browser, on which Bing is the default search engine) seems worse than its handling of the behavioral evidence—indeed, it seems fundamentally confusing.[28]
There is another technical issue at the heart of Google’s scale advantage. That is not simply whether Google enjoys some scale advantage in data or “compute,” but whether (a) such advantages are the result of the default agreements, (b) are likely to be durable, (c) prevent rivals, such as Microsoft’s Bing, from reaching minimum efficient scale, and perhaps (or perhaps not) (d) whether the purchase of those scale advantages, via those agreements, would make no economic sense but for the (relative) harm they do to Bing.
There is ample evidence that large language models (LLMs) require significant computational resources, including both the various infrastructure resources that are often bundled under the rubric “compute” and access to large datasets for training data.[29] These resources are fundamental prerequisites of machine learning generally, which includes, but is hardly limited to, LLMs. Entry is far from costless. Scaling training data and model parameters have paid dividends in fact,[30] and it may be understandable that, building on observations about scaling in LLMs,[31] some have suggested scaling “laws” (not classical, general results) that may imply ever-increasing returns to scale.[32] There is, as Narayanan and Kapoor describe it, a “seeming predictability of scaling,” one which rests on “a misunderstanding of what research has shown.”[33]
Scaling is not free, however, and there is no reason to suppose its capacity to generate functionally superior models is boundless.[34] Scale advantages may be context- and application-specific, and may evidence decreasing (and eventually negative) returns to scale. Hence, for example, “downward pressure on model size” has been observed across the industry,[35] and there has been increasing interest in, among other things, the quality of training data and diverse efforts at developing small(er) language models.[36] Interest in “pre-training” data, data filtering, fine-tuning, and “curation” has seen promising results in the development of, e.g., Meta’s Llama 3 (an open source LLM),[37] Berkeley’s Koala,[38] Stanford’s Alpaca,[39] and others. The question about entry barriers may be sharpened further by the recent launch of OpenAI’s ChatGPT Search.[40]
The pace of development has been considerable, if not staggering, challenging (if not confounding) both theoretical frameworks[41] and the predictions of market developments, even in the relatively near term. And whatever the limits or constraints on scale advantages in theory, there remains the question of what we know about the data requirements minimally efficient scale and the extent to which the defaults at issue in the Google case did or did not impede rivals’ ability to achieve it.
For example, it has been reported that over 1.3 billion unique visitors used Microsoft’s Bing GSE in December 2023.[42] Moreover, as recognized by the district court, Bing is set as the default search engine in Microsoft’s Edge browser, and Edge, in turn, is the default browser in Windows desktop machines. Windows is the leading desktop operating system, with a reported market share of approximately 72% worldwide. Microsoft’s market cap is one of the world’s largest—larger, even, than that of Google’s parent, Alphabet, Inc.
What is the scale of data required to reach minimally efficient scale, such that Microsoft’s access to data falls short, the extremely large installed base of Microsoft consumers across the firm’s product range and, specifically, of Bing users, notwithstanding? One cannot find an answer to that question in the court’s decision in the Google Search case.
If there were, we could ask, further, how much of the shortage is due to the default agreements at issue in the case, given that, as found by the district court, Google first achieved a scale advantage by dint of innovation and its provision of a uniquely excellent GSE. Gregory Werden—former chief counsel for antitrust at the Department of Justice (DOJ)—puts the problem as follows: “Plaintiffs argued, ‘By controlling search defaults, Google ensures that it has—and will always have—more scale than any other general search engine. This scale gives Google an impenetrable advantage . . . .’ But if ‘more scale’ generates an ‘impenetrable advantage,’ Google’s monopoly was assured without resort to the alleged exclusionary conduct.”[43]
The assumption is that Google’s quantitative advantage in search yields an unassailable, indeed self-perpetuating, advantage in the scale of training data and, hence, the quality of Google’s GSE. Perhaps, but the relationship between searches and the scale of the training data used in developing relevant foundation models was not in evidence; neither was any account of Microsoft’s presumed lack of—and inability to acquire—sufficient training data to compete.
That seems an issue whether or not the court should have adopted the “no economic sense” test derived from Aspen Skiing,[44] which the U.S. Supreme Court has said “is at or near the outer boundary of §2 liability.”[45] That is, we wonder what degree of “foreclosure” may be attributed to the agreements at issue in the case, setting aside that Google’s default agreements may have made good economic sense, for Google, because (i) they helped Google improve its product (and not merely impair the products of rivals) and (ii) given Google’s earned scale advantage, primary exposure to marginal GSE consumers was valuable both for competing as a GSE and for Google’s consumers in ad markets (including but not limited to the “general text advertising” market found by the court).
U.S. antitrust law—like competition policy more widely—has never been a purely analytic matter: settled law does not yield algorithms into which enforcers and courts can input observations, turn the crank, and find decisions on liability (much less remedies) as definite outputs. Cases—like the Google Search case—may present difficult questions of fact and law. And, of course, there is the judicial analog of semantics: of the fit between observed facts and established law. The foregoing is not meant to impugn the role of judgment as a judicial function (whatever its black-box characteristics as a cognitive function).
It is meant to raise questions about the government’s case and the court’s opinion in the Google Search case. There are ex post questions, of course: what facts were presented to, or found by, the court, and were they adequate to sustain the government’s burden of proof? In that regard, I am somewhat more sympathetic to the impressionistic (and vague) account of scale, to the extent that, as I observed above, it is built on roughly established—if not actually law-like—observations of scale advantages in training LLMs and other machine learning systems. That is, I am somewhat more sympathetic about the purported scale advantage, if not to the legal conclusions that were supposed to follow from it.
I am considerably less sympathetic to the evidence from behavioral economics, which seems, as I noted, “nonsense on stilts.” It proved nothing, on any reasonable construction of proof.
Ex ante, the technical issues presented by the case seem to present challenges going forward. And the specific challenges presented by the Google Search case seem in some ways the tip of the iceberg, given the dynamism observed in AI and AI-fueled tech. With what confidence can enforcers project market developments even two years hence? How can they test counterfactuals? We need not insist on anything remotely approaching precision or certainty to worry about the unintended consequences of hand-waving.
[1] The government’s complaint is at https://www.justice.gov/opa/press-release/file/1328941/dl. The U.S. district court’s August 2024 decision on liability is United States v. Google, LLC, case No. 20-cv-3010 (APM) (D.D.C. Aug. 5, 2024).
[2] J. Crémer, A. Fletcher, P. Heidhues, G. Kimmelman, G. Monti, R. Podszun, M. Schnitzer and F. Scott Morton, What We Learn About the Behavioral Economics of Defaults from the Google Search Monopolization Case, ProMarket, Feb. 27, 2024, https://www.promarket.org/2024/02/27/what-we-learn-about-the-behavioral-economics-ofdefaults-from-the-google-search-monopolization-case; O. Vásquez Duque, Antitrust Regulation of Big Tech Needs a Better Understanding of Behavioral Economics, ProMarket, Dec. 19, 2023, https://www.promarket.org/2023/12/19/antitrustregulation-of-big-tech-needs-a-better-understanding-of-behavioral-economics.
[3] For a widely discussed approach, see R. H. Thaler and C. R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness, Yale University Press, New Haven, 2008. Summarizing diverse views of potential consumer protection interventions based on behavioral economics, see, e.g., J. P. Mulholland, Fed. Trade Comm’n Bureau of Economics, Summary Report on the FTC Behavioral Economics Conference (2007), https://www.ftc.gov/sites/default/files/documents/reports/summary-report-ftcbehavioral-economics-conference/070914mulhollandrpt.pdf.
[4] For fundamentally skeptical views of the role of behavioral economics in competition policy, see, e.g., A. Devlin and M. Jacobs, The Empty Promise of Behavioral Antitrust, Harv. J. L. & Pub. Pol’y, Vol. 37, No. 3, 2015, pp. 1009–1063 (“The recurring question for policymakers is whether behavioral antitrust can advance the state of the art in a meaningful way. The answer, at present, is ‘no.’” Ibid. at 1063); see also, G. A. Manne and T. J. Zywicki, Uncertainty, Evolution, and Behavioral Economic Theory, J. L. Econ. & Pol’y, Vol. 10, No. 3, 2014, pp. 555–580; J. D. Wright and D. H. Ginsburg, Behavioral Law and Economics: Its Origins, Fatal Flaws, and Implications for Liberty, Nw. U. L. Rev., Vol. 106, No. 3, 2012, pp. 1033–1090; K. Zeiler, Cautions on the Use of Economics Experiments in Law, J. Inst. & Theoretical Econ (JITE)/Zeitschrift für die gesamte Staatswissenschaft, Vol. 166, 2010, pp. 178–193.
[5] For more ambitious views about applications, see, e.g., M. E. Stucke, Reconsidering Antitrust’s Goals, B.C. L. Rev., Vol. 53, Issue 2, 2012, pp. 551–630; A. P. Reeves and M. E. Stucke, Behavioral Antitrust, Ind. L.J., Vol. 86, Issue 4, 2011, pp. 1527–1586.
[6] There appear to be 21 citations to Professor Rangel’s testimony in the published decision.
[7] Ibid. at 229 (citing findings of fact ¶¶ 65–74).
[8] The U.S. Department of Justice has posted a redacted version of Professor Rangel’s slides. Prof. Antonio Rangel, Behavioral Economics Expert, Ex. No. UPXD101, 1:20-cv-03010-APM, https://www.justice.gov/d9/2023-09/416682.pdf.
[9] Supra note 2.
[10] Rangel slides, supra note 8 (Defaults Strongly Influence Choice).
[11] Crémer et al., supra note 2 (internal citation omitted).
[12] See, e.g., Organ Donation Statistics, Health Resources & Servs. Admin., U.S. Dep’t Health & Human Servs. Admin. (2024), https://www.organdonor.gov/learn/organdonation-statistics (reporting, e.g., the number of people on the national transplant waiting list and the number who die each day waiting for a transplant).
[13] E. J. Johnson and D. G. Goldstein, Defaults and Donation Decisions, Transplantation, Vol. 78, No. 12, 2004, pp. 1713–1716.
[14] M. Steffel, E. F. Williams and D. Tannenbaum, Does Changing Defaults Save Lives? Effects of Presumed Consent Organ Donation Policies, Behav. Sci. & Pol’y, Vol. 5, Issue 1, 2019, pp. 69–88, at 78.
[15] E. J. Johnson, M. Steffel and D. G. Goldstein, Making Better Decisions: From Measuring to Constructing Preferences, Health Psychol., Vol. 24, No. 4 (Suppl.), 2005, pp. S17–S22, at S19.
[16] Z. B. Ugur, Does Presumed Consent Save Lives? Evidence from Europe, Health Econ., Vol. 24, No. 12, 2015, pp. 1560–1572, DOI: 10.1002/hec.3111.
[17] Ibid.
[18] A. R. Otto, S. Devine, E. Schulz, A. M Bornstein and K. Louie Context-Dependent Choice and Evaluation in Real-World Consumer Behavior, Sci. Rep., Vol. 12, No. 1, 2022, art. 17744, https://doi.org/10.1038/s41598-022-22416-5.
[19] A. Tversky and I. Simonson, Context-Dependent Preferences, Mgmt. Sci., Vol. 39, Issue 10, 1993, pp. 1179–1297, https://doi.org/10.1287/mnsc.39.10.1179; J. S. Trueblood, S. D. Brown, A. Heathcote and J. R. Busemeyer, Not Just for Consumers: Context Effects Are Fundamental to Decision Making, Psych. Sci., Vol. 24, No. 6, 2013, pp. 901–908, https://doi.org/10.1177/0956797612464241.
[20] B. Albrecht, Trade Promotions in High Tech, Truth on the Market, Dec. 21, 2020, https://truthonthemarket.com/2020/12/21/trade-promotions-in-high-tech.
[21] See, e.g., B. Eum, S. Dolbier and A. Rangel, Peripheral Visual Information Halves Attentional Bias Choices, Psych. Sci., Vol. 34, Issue 9, 2023, pp. 984–998, https://doi.org/10.1177/09567976231184878; K. C. Armel, A. Beaumel and A. Rangel, Biasing Simple Choices by Manipulating Relative Visual Attention, Judgement & Decision Making, Vol. 3, Issue 5, 2008, pp. 396–403, doi:10.1017/S1930297500000413; I. Krajbich, C. Armel and A. Rangel, Visual Fixations and the Computation and Comparison of Value in Simple Choice, Nature Neurosci., Vol. 13, 2010, pp. 1292–1298; M. Milosavljevic, V. Navalpakkam, C. Koch and A. Rangel, Relative Visual Saliency Differences Induce Sizable Bias in Consumer Choice, J. Consumer Psych., Vol. 22, Issue 1, 2012, pp. 67–74.
[22] Eum et al., supra note 21, at 984.
[23] See Zeiler, supra note 4 (discussing “common misuses of quantitative results from economics experiments”).
[24] Milosavljevic et al., supra note 21.
[25] Ibid.
[26] Notes 14–16 and accompanying text, supra.
[27] J. Bentham, Anarchical Fallacies (1796) (published in, e.g., The works of Jeremy Bentham: Published under the superintendence of his executor, John Bowring, Vol. 2, William Tait, Edinburgh, 1843).
[28] G. A. Manne, A Critical Analysis of the Google Search Antitrust Decision, Int. Ctr. For Law & Econ., ICLE White Paper 2024-08-14, Aug. 14, 2024, https://laweconcenter.org/wp-content/uploads/2024/08/Manne-Google-Search-Decision-Analysis-2024-08-14.pdf; G. J. Werden, Harm to the Competitive Process in the Google Case, MercatusWorking Paper, July 9, 2024, https://www.mercatus.org/research/working-papers/harm-competitive-process-googlecase; D. J. Gilman, Some Thoughts on the Google Decision, for Those Who Haven’t “Binged” It Yet, Truth on the Market, Aug. 20, 2024, https://truthonthemarket.com/2024/08/20/some-thoughts-on-the-google-decision-for-those-who-havent-binged-it-yet.
[29] For a review, see M. A. K. Raiaan, Md S. H. Mukta, K. Fatema, N. M. Fahad, S. Sakib, M. M. J. Mim, J. Ahmad, M. E. Ali, S. Azam, A Review on Large Language Models: Architectures, Applications, Taxonomies, Open Issues and Challenges, IEEE Access, Vol. 12, 2024, pp. 26839–26874, https://doi.org/10.1109/ACCESS.2024.3365742.
[30] See, e.g., T. Schrepel and A. Pentland, Competition Between AI Foundation Models: Dynamics and Policy Recommendations, MIT Connection Science Working Paper, July 2024 (describing the increasingly large scale of training datasets and number of parameters across successive versions of OpenAI’s ChatGPT).
[31] See, e.g., J. Kaplan, S. McCandlish, T. Henighan, T. B. Brown, B. Chess, R. Child, S. Gray, A. Radford, J. Wu and D. Amodei, Scaling Laws for Neural Language Models, Jan. 23, 2020, https://arxiv.org/abs/2001.08361.
[32] That popular (over)generalization may exceed Kaplan et al., ibid., and, for example, Rich Sutton’s well-known statement of pessimism about AI methods that do not continue to scale arbitrarily with increased computation. R. Sutton, The Bitter Lesson, Mar. 13, 2019, https://www.cs.utexas.edu/~eunsol/courses/data/bitter_lesson.pdf.
[33] A. Narayanan and S. Kapoor, AI Scaling Myths, AI Snake Oil, June 27, 2024, https://www.aisnakeoil.com/p/ai-scaling-myths (to be sure, Narayanan and Kapoor recognized that past increases in model size, dataset scale, and training compute have paid tremendous dividends in LLM performance).
[34] Ibid. See also, e.g., S. Hooker, On the Limitations of Compute Thresholds as a Governance Strategy, July 30, 2024, https://doi.org/10.48550/arXiv.2407.05694 (“Evidence to-date suggests we are not good at predicting what abilities emerge at different scales.”); R. Schaeffer, H. Schoelkopf, B. Miranda, G. Mukobi, V. Madan, A. Ibrahim, H. Bradley, S. Biderman and S. Koyejo, Why Has Predicting Downstream Capabilities of Frontier AI Models with Scale Remained Elusive?, June 6, 2024, https://arxiv.org/abs/2406.04391.
[35] Narayanan and Kapoor, supra note 33.
[36] See, e.g., Y. Li, S. Bubeck, R. Eldan, A. Del Giorno, S. Gunasekar, and Y. T. Lee, Textbooks Are All You Need II: phi-1.5 technical report, Microsoft Research, Sept. 11, 2023, https://arxiv.org/pdf/2309.05463 (developing natural language processing model, phi-1.5, with apparent performance on natural language tasks comparable to models 5x larger); X. Geng, A. Gudibande, H. Liu, E. Wallace, P. Abbeel, S. Levine and D. Song, Koala: A Dialogue Model for Academic Research, Berkeley A. I. Rsch., Apr. 3, 2023, https://bair.berkeley.edu/blog/2023/04/03/koala (discussing the Koala chatbot and suggesting “that models that are small enough to be run locally can capture much of the performance of their larger cousins if trained on carefully sourced data”).
[37] For an overview, see Meta, Introducing Meta Llama 3: The most capable openly available LLM to date, Apr. 18, 2024, https://ai.meta.com/blog/meta-llama-3.
[38] Geng et al., supra note 36.
[39] R. Taori, I. Gulrajani, T. Zhang, Y. Dubois, X. Li, C. Guestrin, P. Liang and T. B. Hashimoto, Alpaca: A Strong, Replicable Instruction-Following Model, Stanford Univ. Ctr. for Rsch. on Found. Models (2024), https://crfm.stanford.edu/2023/03/13/alpaca.html.
[40] Introducing ChatGPT Search, OpenAI, Oct. 31, 2024, https://openai.com/index/introducing-chatgpt-search.
[41] Raiaan et al., supra note 29.
[42] Worldwide visits to Bing.com from July to December 2023, Statista, 2024, https://www.statista.com/statistics/752270/range-of-bingcom-based-on-unique-visitors.
[43] G. J. Werden, Harm to the Competitive Process in the Google Case, Mercatus Ctr. Antitrust & Comp. Working Papers, July 9, 2024, https://www.mercatus.org/research/working-papers/harm-competitive-process-google-case.
[44] Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).
[45] Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 409 (2004).
On August 5, 2024, Judge Amit P. Mehta issued his long-awaited opinion on liability in United States v. Google.[1] Joined by the attorneys general of . . .
On August 5, 2024, Judge Amit P. Mehta issued his long-awaited opinion on liability in United States v. Google.[1] Joined by the attorneys general of 11 U.S. states, the U.S. Department of Justice (DOJ) had filed its monopolization complaint,[2] under Section 2 of the Sherman Act,[3] almost four years prior, in the waning months of the Trump administration. Judge Mehta found Google liable for illegal monopoly maintenance (or monopolization) in two markets: general search service (GSS) and general text advertising.[4]
At the same time, Judge Mehta dismissed various of the states’ claims against Google, although he sustained Counts I and III of the plaintiff states’ complaint to the extent that those claims were coextensive with Counts I and III of the U.S. government’s complaint.[5] The government’s second claim was rejected, as Judge Mehta found that Google lacked the requisite market power for a Section 2 violation in the broader search advertising market.[6]
The question of remedies remains, as proceedings have been bifurcated into separate liability and remedies phases, as the plaintiffs had requested. A decision on remedies is expected by August 2025.
Judge Mehta’s 286-page memorandum opinion is detailed and carefully reasoned, but that is not to say that it is uncontroversial or that an appeal cannot find traction. Commentary on the U.S. government’s case, and on the decision of the district court, has been substantial and, like contributions to this On-Topic, divided.[7] Issues on appeal may include, among others, market definition (perhaps especially that of the general text advertising market) and various questions about the governing standard for establishing monopolization, including the question whether the government was required to show “but for” causation of competitive harm.
Google, unquestionably, has a very large share of general search in the United States. The decision says that “[b]y 2020, it was nearly 90%, and even higher on mobile devices at almost 95%.” Still, as the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) noted in Microsoft, “merely possessing monopoly power is not itself an antitrust violation.”[8] What was alleged, and what Judge Mehta found, was illegal monopolization; that is, “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”[9]
To unpack a complex matter slightly, the DOJ alleged, and Judge Mehta found, certain contracts unlawful: Google has entered into agreements with certain device manufacturers (notably, but not exclusively, Apple) and Mozilla, which developed and markets Firefox. Under those contracts, Google is the default general search engine (GSE) preloaded in, e.g., Apple’s Safari (and hence on iPhones) and Mozilla’s Firefox browsers. These were deemed de facto exclusive-dealing contracts, although nothing in the contracts precludes access to other browsers or other search engines and it is, in fact, possible for users to switch. As such, these contracts were alleged to foreclose access to the market by actual and would-be competitors—access to the markets, that is, access to competition for a certain share of general search and, hence, allegedly, access to the advertising markets at issue.
Hence, central to the findings of illegal monopoly maintenance was the issue of “exclusionary conduct,” just as the D.C. Circuit ruled that exclusionary conduct was critical to illegal monopoly maintenance in Microsoft.
And the decision’s construction and application of the D.C. Circuit’s 2001 decision in Microsoft may appear front and center on appeal. Unlawful “exclusionary conduct” was the gravamen of the U.S. government’s complaint in Google Search, just as it had been in Microsoft.
That, in turn, raises difficult questions about the role of causation in proving monopolization. The Google Search decision recognizes that even truly exclusionary contracts are not per se illegal under U.S. antitrust law. Liability turns on the question whether the default agreements caused Microsoft’s Bing GSE, among others, to be excluded from access to the market, and what the DOJ had to show to establish causation.
Microsoft recognizes that, “to be condemned as exclusionary, a monopolist’s act must have an ‘anticompetitive effect.’ That is, [the monopolist] must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.”[10] And “the plaintiff, on whom the burden of proof of course rests (. . .) must demonstrate that the monopolist’s conduct indeed has the requisite anticompetitive effect.”[11]
At the same time, Mehta reasons that causation does not require but-for proof; that is, the plaintiff is not required to show that, but for the defendant’s exclusionary conduct, the anticompetitive effects would not have followed. Such a standard would create substantial proof problems, as “neither plaintiffs nor the court can confidently reconstruct . . . a world absent the defendant’s exclusionary conduct.”[12]
And that raises the question of what it means to say that the conduct caused the competitive harm at issue if not that, but for the defendant’s exclusionary conduct, or some other intervening cause, the anticompetitive effects would not have followed.
In Microsoft, the D.C. Circuit found what it called an “underlying proof problem.” That is, for “nascent competitors,” such as Netscape, the plaintiffs (the government) could not, as a practical matter, establish the “but for” counterfactual. Under those conditions at least, faced with uncertainty about what, e.g., Netscape might have become as a competitor, the circuit court reasoned that it could infer causation under a lower evidentiary standard.
To some degree, “the defendant is made to suffer the uncertain consequences of its own undesirable conduct,” i.e., the practices that had been shown to have had anticompetitive effects. In these carefully limited circumstances, the questions were “(1) whether as a general matter the exclusion of nascent threats is the type of conduct that is reasonably capable of contributing significantly to a defendant’s continued monopoly power and (2) whether Java and Navigator reasonably constituted nascent threats at the time Microsoft engaged in the anticompetitive conduct at issue.”[13]
Was Judge Mehta right in holding that Microsoft’s burden of proof applies? Of particular interest is that Mehta explicitly distinguishes a later opinion of the D.C. Circuit; that is, the court’s 2008 opinion in Rambus,[14] where, seven years after the Microsoft decision, the court applied the but-for causation standard: “in the world that would have existed (. . .) [the] alleged deception cannot be said to have had an effect on competition in violation of the antitrust laws.”[15]
According to Judge Mehta’s opinion, the 2008 determination that “the Commission failed to demonstrate that Rambus’s conduct was exclusionary, and thus to establish its claim that Rambus unlawfully monopolized the relevant markets,”[16] was confined to the peculiarities of the standard-setting claims at issue. He reasoned that “Rambus does not establish a categorical rule that the anticompetitive effects of an exclusive agreement must be measured against a but-for world,”[17] because otherwise the 2008 Rambus decision would have repudiated Microsoft, and it does not. That is, Rambus dealt with a special case—an exception to the general rule established by Microsoft.
That view of Rambus is controversial, and it may well find traction on appeal. A discussion of the D.C. Circuit’s opinion in Microsoft, in a 2020 article by Judge Douglas Ginsburg and Koren Wong-Ervin,[18] may be instructive, even if it does not settle the question as a matter of law (or bind courts going forward). As it happens, Judge Ginsburg was the chief judge of the D.C. Circuit when the court issued its per curiam opinion in Microsoft; and he may have authored that opinion, in whole or in part. In brief, Ginsburg and Wong-Ervin argue that Microsoft is the special case, an exception to the general rule that was restated in Rambus.
On that view, in Microsoft, the standard was not lowered simply because the government could not meet a higher one. Rather, numerous findings of fact in Microsoft were taken to have established the effects of Microsoft’s conduct; these, in turn, were deemed to have kept Netscape and others, as matters of fact, from reaching the minimum efficient scale at which they could have become effective competitors to Microsoft. Under those conditions, faced with uncertainty about what Netscape might have become as a competitor, the circuit court reasoned that it could infer causation under a lower evidentiary standard.
Ginsburg and Wong-Ervin argue that Rambus underscored the general rule, and not an exception to it, in deciding “that the agency failed to prove that ‘but for’ the defendant’s conduct, there would have been harm to the competitive process.”[19]
The contributions to this On-Topic cover a range of views on the Google Search matter, from the merits of the district court opinion on liability to challenging issues in the remedies phase. Notably, the contributors—including those highly critical of the district court’s findings of liability—uniformly recognize that the opinion was carefully drafted, based on close attention to the facts and the law in the case.
Ioannis Stefatos reviews the district court’s opinion favorably, finding it grounded in “market realities” rather than theoretical possibilities. Given entry barriers, the apparent effects of the contracts at issue, and the degree of apparent foreclosure, he suggests that “the court clearly established the causal link between Google’s exclusionary practices and the ensuing anticompetitive harm.”
Walid Chaiehloudj also views the decision favorably, while reserving judgment on the ultimate impact of the decision on relevant markets and, more broadly, on U.S. antitrust law. Contrasting U.S. and European antitrust approaches, he takes it as a given that Google enjoys a dominant market position and that Google’s default agreements are exclusionary and anticompetitive. He suggests that U.S. antitrust has been too concerned with Type I errors—false positives—and that Judge Mehta’s findings were accurate and his rejection of the “but-for” causation standard articulated in Rambus was salutary. He reserves judgment on the ultimate impact of the case, given, first, the simple fact that the court has yet to impose remedies, second, that we have yet to see how the decision will fare on appeal, and, third, that future market developments may be hard to predict in any case.
Jonathan Barnett, in contrast, argues that Judge Mehta’s opinion, while carefully reasoned, falls prey to what he calls “the tyranny of the model.” That is, the opinion relies overmuch on an abstract model of “‘default bias,’ mostly as set forth in the academic literature, [paying] insufficient attention to on-the-ground competitive conditions in search markets.” As a consequence, he suggests that the court paid insufficient attention to the factual record and actual market dynamics at play, which “most likely [do] not,” in Barnett’s view, support the finding of an unlawful exclusionary practice.
My own piece, similarly, critiques the use of certain generalizations in the court’s findings of fact. Specifically, it focuses on evidence from behavioral economics regarding default bias and evidence of scale effects—and purported self-perpetuating scale advantages—in engineering general search engines. It is argued that both sorts of generalities are overstated and misapplied in the district court’s decision. Those might not be leading vulnerabilities on appeal, but they are important to the extent that similar reasoning could be applied in tech monopolization cases going forward.
Gregory Werden is similarly critical of the court’s decision, if on different grounds. Werden suggests that the bifurcation of the trial into liability and remedies phases obscures key questions about what Google should have done differently; that is, what alternative arrangements would not be de facto exclusive, such that they would have made a competitive difference? The decision of liability turns, in part, on the notion that the default agreements at issue prevent rivals from reaching the scale at which they might effectively compete (perhaps, minimally efficient scale). Werden finds the connection tenuous, first because Google achieved significant scale advantages in advance of the arrangements at issue, and second, because of Google’s share of general search on Windows machines running Microsoft’s Edge, on which Bing is the preloaded default browser. Werden argues that the proper question for the court should have been whether Google’s arrangements flunk the “no economic sense” test described in Microsoft. He suggests that they did not. Among other things, “Apple concluded that installing Microsoft’s Bing as the default in Safari would not make business sense even if Apple got every penny of Microsoft’s GSA revenue from Safari users.”
Bilal Sayyed’s contribution takes a different tack, looking forward to the remedies phase and the diverse behavioral and structural remedies proposed by the government (and advocated by some commentors). He focuses specifically on the treatment of structural remedies in exclusive dealing and refusal to deal matters, by the U.S. enforcement agencies and the courts, in the wake of the D.C. Circuit’s decision in Microsoft, where the court “indicated that ‘structural relief (. . .) require[s] a clearer indication of a significant causal connection between the conduct and creation or maintenance of the market power. Absent such causation, the antitrust defendant’s unlawful behavior should be remedied by ‘an injunction against continuation of that conduct.’” He notes that, since the Microsoft decision, “[n]either the [Federal Trade] Commission nor the Department of Justice has pursued structural relief in matters finding monopolization through exclusive dealing or discriminatory practices.” Rather, across industries and courts, “the agencies’ remedies have aligned with the requirement of Microsoft that the remedy address the conduct or agreements that allegedly maintained or enhanced the defendant’s or respondent’s monopoly power. They did not require relief that attempted to undo monopoly power not found to have been obtained unlawfully.” He argues that the factual findings in the liability phase, coupled with Microsoft’s remedy principles, “should constrain the DOJ from seeking structural relief.” And, further, that they “will undoubtedly constrain the court from ordering structural relief.”
Courtney C. Radsch & Karina Montoya also discuss potential remedies in the case. Given the findings of liability, they argue for far reaching behavioral remedies in addition to certain divestitures. They argue that the complexity of the technical space and commercial activity at issue suggest that narrow remedies will be ineffective and potentially call for utilities-style regulation.
Kai-Uwe Kühn and Miroslava Marinova critique Judge Mehta’s decision, although their critique is at least somewhat agnostic on the question whether “a deeper analysis (. . .) would have altered the outcome.” Kühn and Marinova focus on the relationship between the D.C. Circuit’s Microsoft and Rambus decisions discussed above, noting that “Judge Mehta relied heavily on the Microsoft precedent, treating it as a general rule.” They argue, to the contrary, that Rambus articulates the general standard for monopolization cases under Section 2 of the Sherman Act: “but-for” causation. Microsoft, they argue, in keeping with Ginsburg and Wong-Ervin, is a special case, fashioned to deal with the specific conduct at issue, its demonstrated effects on nascent competitors, and the difficulty of forecasting its likely effects on what competition would have become, but for the conduct at issue. By way of contrast, the Google case “involves well-established competitors like Bing in a mature market.” The difference is “crucial,” they say, given ample evidence of the competitive interactions between existing competitors. The court’s erroneous market definition effectively lowered the government’s burden of proof, distracting from the difficult—but not necessarily intractable— question whether Google’s default agreements caused harm to competition or were, in the alternative, efficient allocations of default status. They acknowledge that “Google’s agreements with device manufacturers and browsers may raise legitimate concerns about market foreclosure,” but that the proper resolution of those concerns is not clear.
On their analysis, one “should expect markets for exclusive default placement of search engines to develop to allocate such defaults efficiently. This will lead to considerable payments to browsers or device manufacturers for these default slots.” But that does not, for them, settle the question whether the specific terms of the agreements at issue did or did not have the requisite “but-for” effects.
Geoffrey Manne also critiques Judge Mehta’s reliance on Microsoft’s “edentulous” test for causation, instead of the “but-for” causation standard articulated in Rambus. Manne argues that this dramatically—and wrongly— lowered the government’s burden of proof based on a misunderstanding of “both the precedent and the nature of causation in antitrust cases.” Throughout the decision, he identifies examples of “post hoc reasoning”; that is, fallacious inferences from correlation to causation.
[1] United States v. Google, LLC, 2024 WL 3647498, at *66 (D.D.C. Aug. 5, 2024).
[2] Ibid. (Compl.) (Oct. 20, 2020.)
[3] 15 U.S.C. § 2.
[4] United States v. Google at 276.
[5] Ibid.
[6] Ibid. at 180.
[7] Compare, e.g., G. J. Werden, Harm to the Competitive Process in the Google Case, Mercatus Ctr. Antitrust and Comp. Working Papers, July 9, 2024, https://www.mercatus.org/research/working-papers/harm-competitive-process-google-case (critiquing the government’s case) with E, Hovenkamp, What Does the Google Antitrust Decision Mean and Where Will It Take Us?, ProMarket, Aug. 22, 2024, https://www.promarket.org/2024/08/22/what-does-the-google-antitrust-decision-mean-and-where-will-it-take-us (arguing that default placements had anticompetitive effects). See also, e.g., G. A. Manne, A Critical Analysis of the Google Search Antitrust Decision, ICLE White Paper 2024-08-14, Aug. 14, 2024, https://laweconcenter.org/resources/a-critical-analysis-of-the-google-search-antitrust-decision; D. A. Crane, Ranking the Big Tech Monopolization Cases, Yale J. Reg. (Notice & Comment, online), Mar. 26, 2024, https://www.yalejreg.com/nc/ranking-the-big-tech-monopolization-cases-by-daniel-a-crane; D. J. Gilman and B. C. Albrecht, Ranking the Big Tech Monopolization Cases in the Wake of the Google Search Decision, Yale J. Reg. (Notice & Comment, online), Sept. 19, 2024, https://www.yalejreg.com/nc/ranking-thebig-tech-monopolization-cases-in-the-wake-of-the-google-search-decision-perspectivesof-some-economists-and-legal-scholars-by-daniel-j-gilman-brian-c-albrecht.
[8] United States v. Microsoft, 253 F.3d 34, 51 (D.C. Cir. 2001).
[9] Ibid. at 50.
[10] Ibid. at 58.
[11] Ibid.
[12] United States v. Google at 220.
[13] Microsoft, 253 F.3d at 79.
[14] Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008).
[15] United States v. Google at 218–219.
[16] Rambus, 522 F.3d at 467.
[17] United States v. Google at 219.
[18] D. H. Ginsburg and K. Wong-Ervin, Challenging Consummated Mergers Under Section 2, CPI North America Column, May 25, 2020, https://www.competitionpolicyinternational.com/wp-content/uploads/2020/05/North-America-Column-May-2020-4-Full.pdf.
[19] Ibid. at 4 (citing Rambus, 522 F.3d at 466).
Em 10 de outubro de 2024, o Ministério da Fazenda do Brasil publicou seu relatório sobre os aspectos econômicos e competitivos das Plataformas Digitais (o “Relatório”), após . . .
Em 10 de outubro de 2024, o Ministério da Fazenda do Brasil publicou seu relatório sobre os aspectos econômicos e competitivos das Plataformas Digitais (o “Relatório”), após um período de consulta pública. Vale a pena analisar cuidadosamente as conclusões do relatório e o contexto da consulta pública.
In a video posted to Instagram earlier this week, Meta Platforms CEO Mark Zuckerberg announced “major changes” to Facebook and Instagram’s content-moderation policies and operations. . . .
In a video posted to Instagram earlier this week, Meta Platforms CEO Mark Zuckerberg announced “major changes” to Facebook and Instagram’s content-moderation policies and operations. Zuckerberg highlighted the importance of allowing private market actors to decide the best way to balance the speech interests of their users. As we move into a new administration, one hopes we can leave behind government pressure campaigns intended to direct how social-media companies should exercise their editorial judgment.
The early data from New York City’s congestion-pricing experiment is rolling in. If you look at affected routes, you see a clear drop when the fee kicks in. Read . . .
The early data from New York City’s congestion-pricing experiment is rolling in. If you look at affected routes, you see a clear drop when the fee kicks in.
TL;DR Background: Payment cards generate significant benefits for both merchants and consumers. Consumers benefit from their convenience, security, and rewards. Merchants benefit from enhanced security, . . .
Background: Payment cards generate significant benefits for both merchants and consumers. Consumers benefit from their convenience, security, and rewards. Merchants benefit from enhanced security, as well as higher throughput and larger per-ticket sales.
These benefits are made possible through the interchange fees retained by issuing banks, which go to fund network infrastructure, fraud prevention, and rewards programs, balancing payment networks’ two-sided markets (consumers and merchants).
But… Some state lawmakers have sought to enact laws limiting the retention of interchange fees on certain taxes. Illinois has passed legislation that covers both taxes and tips.
However… Such prohibitions would harm consumers, banks, and merchants.
Merchants would likely see a fall in card use, resulting in reduced throughput and lower revenue. Smaller merchants would lose out relative to larger merchants.
Banks and credit unions would lose revenue. Smaller local banks and credit unions would be hit worse due to their relatively constrained ability to distribute costs.
Consumers would likely see reduced card rewards and other benefits, as banks seek to compensate for lost revenue.
State and local governments might see an increase in the costs of enforcing sales tax and a fall in revenue due to reduced economic activity.
The ubiquity of card payments makes it easy to take them for granted. But ill-conceived regulation can serve to reduce or even eliminate the immense benefits of card-payment networks to both merchants and consumers.
Payment systems are an example of a two-sided market with cross-side network effects. To grow and maintain such a market, it is often necessary for one side to subsidize the other. In the case of payment networks, these cross-side subsidies can include collection, payment default, fraud monitoring, various kinds of insurance, and other account-related costs, as well as reward programs such as cashback and airline miles.
They also include fees to the network operator, which cover not just the network’s operation and maintenance, but also investments in such innovations as the EMV chip, contactless payments, and 3DS, all of which help to reduce fraud. In four-party networks, the card-issuing bank covers these costs by deducting an “interchange fee” from the amount remitted to the merchant’s acquiring bank.
All but five of the 50 states charge state sales taxes. Economists generally find that sales taxes are superior to taxes on income or capital because they are less distortionary and can lead to more revenue over the long term.
In addition to state sales tax, other forms of taxation may also be applied at the point of sale. Most notably, excise taxes are applied to certain items, such as alcohol, tobacco, and gasoline.
Merchants are generally best-positioned to calculate how much in point-of-sale taxes is owed and to whom, since they know what they are selling, how much they charge, and where they are physically located. It would be practically infeasible to implement taxes at the point of sale without the cooperation of—and reporting by—merchants.
From the perspective of economic efficiency, electronic payments and electronic reporting together serve to minimize the combined costs of merchant compliance and government administration. Perhaps in part reflecting this, several state governments offer tax rebates or discounts to encourage electronic sales-tax reporting.
Large merchants often argue that it is unfair for them to have to pay interchange fees on point-of-sale taxes and on tips to their employees. In June 2024, Illinois became the first state to pass legislation limiting the retention of interchange fees for taxes and gratuities. Under the IFPA, the merchant may determine whether interchange fees on taxes and gratuities are excluded or later rebated.
Whether it will be technically feasible for (especially smaller) merchants to exclude taxes and tips from interchange fees at the point of sale (POS) remains unclear. Doing so is likely to require significant changes to the way transaction information is collected within POS systems, and ultimately transmitted across payments networks.
The IFPA will require banks to significantly modify how their payment systems work in order to separate transaction interchange fees from tips and taxes, resulting in a downstream effect on credit and debit-card transactions.
Prohibiting issuing banks from retaining interchange fees on taxes and other elements of a transaction at the point of sale would create significant market distortions. Specifically, it would:
Recently, the U.S. District Court for the Northern District of Illinois granted a preliminary injunction staying implementation of the IFPA. The court noted that compliance for banks will be “extraordinarily expensive” since “[c]urrently, there is no system that separates out these fees.”
The court found the law is likely preempted by federal laws regulating national banks that allow for the collection of interchange fees.
For more on this issue, see ICLE’s issue brief “State Regulation of Interchange Fees” and the recent district court order in Illinois Bankers Ass’n v. Raoul granting a preliminary injunction against the IFPA.
Created as part of the Infrastructure Investment and Jobs Act that President Joe Biden signed into law in November 2021, the Broadband Equity, Access, and . . .
Created as part of the Infrastructure Investment and Jobs Act that President Joe Biden signed into law in November 2021, the Broadband Equity, Access, and Deployment (BEAD) program is supposed to provide $42.45 billion to U.S. states, territories, and the District of Columbia to help with broadband planning, deployment, mapping, equity, and adoption—all overseen by the National Telecommunications and Information Administration (NTIA).
Now nearly three years old, the BEAD program has been beset by red tape and regulatory headaches from the outset. One of the more migraine-inducing provisions has been NTIA’s treatment of so-called “alternative technologies” such as low-Earth-orbit (LEO) satellites and unlicensed fixed wireless (ULFW).
Late last year, the NTIA took a small step toward relieving the pain by asking for comments on how to loosen the process for alternative technologies to qualify for BEAD grants. In our response, my colleagues and I at the International Center for Law & Economics (ICLE) recommended that NTIA take a more technology-neutral approach.
NTIA ultimately released its updated guidance at year-end 2024. To call the revised guidance a baby step toward technology neutrality would be an overstatement. Rather, the new guidance continues the agency’s cautious and overly hierarchical approach that risks undermining the program’s goals. While the inclusion of nontraditional technologies like LEO and ULFW is a welcome development, the NTIA’s framework falls short of embracing the much-needed technology-neutral principles essential for efficient and equitable broadband deployment.
Last year, T-Mobile announced its intention to enter into a transaction with UScellular. The deal would include acquiring UScellular’s wireless operations, including its wireless customers . . .
Last year, T-Mobile announced its intention to enter into a transaction with UScellular. The deal would include acquiring UScellular’s wireless operations, including its wireless customers and stores, as well as select spectrum assets. In addition, T-Mobile would enter into a long-term agreement to lease space on more than 2,000 UScellular towers.
Valued at $4.4 billion in cash and assumed debt, the transaction has raised only a few eyebrows, most notably among a half-dozen U.S. senators, including Sen. Elizabeth Warren (D-Mass.). In a letter to the U.S. Justice Department (DOJ) and Federal Communications Commission (FCC), the senators argued that the acquisition would further consolidate an already highly concentrated market, reducing competition and potentially leading to higher prices and fewer choices for consumers.
While the transaction will eliminate UScellular from some aspects of the wireless-services market, an issue brief published by the International Center for Law & Economics (ICLE) finds that the deal has the potential to generate significant consumer benefits and—contrary to the senators’ concerns—enhance competition in the mobile-wireless market.
Antitrust policy in the United States generally doesn’t experience immediate dramatic revision with each new administration, and it’s unlikely that this time will be different. . . .
Antitrust policy in the United States generally doesn’t experience immediate dramatic revision with each new administration, and it’s unlikely that this time will be different. With that said, I would hope that the new administration will take a close look at recent enforcement policy, particularly regarding “Big Tech,” where there’s a concerning trend toward what I term “negative industrial policy.” This approach—which I’ve observed throughout my tenure as general counsel at IBM, Apple, and Qualcomm—risks undermining U.S. competitiveness on the global stage.
This post features an interview with Alden Abbott, a distinguished scholar of law & economics and senior research fellow at the Mercatus Center at George . . .
This post features an interview with Alden Abbott, a distinguished scholar of law & economics and senior research fellow at the Mercatus Center at George Mason University. Alden served as general counsel of the Federal Trade Commission (FTC) during the first Trump administration.
The growing focus on labor-market power and antitrust enforcement has sparked important debates about both the empirical foundations and practical implementation of these emerging policy . . .
The growing focus on labor-market power and antitrust enforcement has sparked important debates about both the empirical foundations and practical implementation of these emerging policy priorities. In a recent piece for ProMarket, Eric Posner argues that overwhelming academic evidence supports expanding antitrust scrutiny of labor markets—criticizing, in particular, the skepticism expressed by the Federal Trade Commission’s (FTC) Melissa Holyoak of labor-related provisions in the FTC’s originally proposed Hart-Scott-Rodino (HSR) rule changes.
The 6th U.S. Circuit Court of Appeals’ recent decision striking down the Federal Communications Commission’s (FCC) latest net-neutrality rules did more than just settle a decades-long debate . . .
The 6th U.S. Circuit Court of Appeals’ recent decision striking down the Federal Communications Commission’s (FCC) latest net-neutrality rules did more than just settle a decades-long debate about broadband regulation; it also exposed a fundamental flaw in the United States’ approach to communications policy. In a nutshell, the issue is that we treat traditional telephone service as a heavily regulated “telecommunications service” under an outdated New Deal-era framework.
For nearly 90 years, telephone networks have been regulated as common carriers under Title II of the Communications Act, facing extensive obligations on rates, service quality, and universal access. This made sense when AT&T held a monopoly over voice communications. But today’s technology landscape bears little resemblance to that era.
This post features an interview with Scott Lincicome, vice president of general economics at the Cato Institute and of Cato’s Herbert A. Stiefel Center for . . .
This post features an interview with Scott Lincicome, vice president of general economics at the Cato Institute and of Cato’s Herbert A. Stiefel Center for Trade Policy Studies.
This post features an interview with Peter Craddock, a partner in the Brussels office of Keller & Heckman LLP. Peter helps companies innovate and use . . .
This post features an interview with Peter Craddock, a partner in the Brussels office of Keller & Heckman LLP. Peter helps companies innovate and use data better in the European Union and worldwide.
We are excited to announce the launch of “Perspectives on Industrial Policy,” a new Truth on the Market symposium intended to gather insights from leading experts in . . .
We are excited to announce the launch of “Perspectives on Industrial Policy,” a new Truth on the Market symposium intended to gather insights from leading experts in economics, law, and public policy. This series aims to explore the promises and pitfalls of industrial policy at a time when it occupies a central role in political and economic discourse. By bringing together diverse voices, we hope to foster a nuanced understanding of what industrial policy can achieve—and where it might go wrong.
The U.S. Supreme Court will on Jan. 10 hear an appeal of a Dec. 6 decision from the U.S. Circuit Court of Appeals for the D.C. Circuit . . .
The U.S. Supreme Court will on Jan. 10 hear an appeal of a Dec. 6 decision from the U.S. Circuit Court of Appeals for the D.C. Circuit upholding a 2024 federal law requiring Chinese company ByteDance to divest itself of the TikTok platform. The law will take effect Jan. 19, unless the Supreme Court strikes it down.
Even assuming the law is upheld, it is possible that the new Trump administration may nevertheless consider whether to allow TikTok to continue to operate in the United States as a subsidiary of ByteDance.
The future status of TikTok merely foreshadows a large number of important business-related U.S.-China conflicts that will substantially affect economic growth and innovation.
In a 3-2 party-line vote, a divided Federal Trade Commission (FTC) moved Dec. 18 to seek a federal district court injunction against Southern Glazer’s Wine . . .
In a 3-2 party-line vote, a divided Federal Trade Commission (FTC) moved Dec. 18 to seek a federal district court injunction against Southern Glazer’s Wine and Spirits LLC, the largest U.S. distributor of wines and spirits. The FTC complaint alleges that Southern’s discounting practices discriminated against small independent businesses, violating the Robinson-Patman Act (RPA), to the detriment of competition. The FTC requests that the court order Southern to charge the same net prices to all competing purchasers.
The incoming Trump administration’s commitment to reduce extremely costly regulatory burdens will feature the new Department of Government Efficiency’s (DOGE) evaluation of federal overregulation. But economic research indicates . . .
The incoming Trump administration’s commitment to reduce extremely costly regulatory burdens will feature the new Department of Government Efficiency’s (DOGE) evaluation of federal overregulation. But economic research indicates that harmful regulatory bloat exists at the state level, as well. The new administration may wish to propose solutions to state regulatory overreach that harms many Americans.
The Supreme Court agreed to hear oral arguments on the government’s TikTok ban next month, just days before it’s supposed to take effect. If the Supreme Court . . .
The Supreme Court agreed to hear oral arguments on the government’s TikTok ban next month, just days before it’s supposed to take effect. If the Supreme Court upholds the ban, many of the 100,000 independent workers who rely on TikTok as either a primary job or a side gig could face devastating economic consequences.
The Australian government’s announcement earlier this month of a proposed new competition regime for digital marketplaces has a long history. The Australian Competition and Consumer Commission (ACCC) . . .
The Australian government’s announcement earlier this month of a proposed new competition regime for digital marketplaces has a long history.
The Australian Competition and Consumer Commission (ACCC) has been investigating digital-market competition for nearly a decade. The latest iteration of the ACCC’s digital platforms inquiry has published nine interim reports, with a tenth report to come. A previous iteration of the inquiry also released its own issues paper, preliminary report, and final report.
I don’t know if this is the end of an era, the end of an error, a bit of both, or something far more complicated . . .
I don’t know if this is the end of an era, the end of an error, a bit of both, or something far more complicated than that, but let’s start with Federal Trade Commission (FTC) Commissioner Melissa Holyoak’s dissent in In the Matter of Southern Glazer’s Wine and Spirits, which is a part of the FTC’s bold, if misguided, endeavor to reanimate the Robinson-Patman Act (RPA).
It’s a dreary December morning and, on your way to work, you stop at a coffee shop. There are only three people in line, so . . .
It’s a dreary December morning and, on your way to work, you stop at a coffee shop. There are only three people in line, so you assume you’ll be served quickly.
But after a few minutes, you notice the customer at the front of the queue fumbling as they laboriously count out the exact change. The next customer is muttering cuss words under his breath, while the one in front of you is staring blankly at the sign behind the barista that says “Cash Only.”
As the year comes to a close, it is worth reviewing how governments around the world—including at both the state and federal level in the . . .
As the year comes to a close, it is worth reviewing how governments around the world—including at both the state and federal level in the United States—have approached online regulation to protect minors. I will review several of the major legislative and regulatory initiatives, with brief commentary on the tradeoffs involved in each approach.
TL;DR Background: T-Mobile, one of the “big three” U.S. wireless carriers, plans to acquire UScellular, a struggling regional provider that serves about 1% of U.S. . . .
Background: T-Mobile, one of the “big three” U.S. wireless carriers, plans to acquire UScellular, a struggling regional provider that serves about 1% of U.S. wireless subscribers. UScellular has been losing customers and struggling to keep up with 5G investments due to financial constraints.
The $4.4 billion deal must be approved by both the U.S. Justice Department (DOJ) and the Federal Communications Commission (FCC).
But… Some lawmakers are concerned that the merger would eliminate UScellular as a competitor. They worry that further market concentration could lead to higher prices and fewer consumer choices.
However… T-Mobile would gain access to UScellular’s valuable low-band spectrum, which is crucial for providing coverage in rural areas. The deal also includes access to more than 2,000 UScellular towers, allowing T-Mobile to expand its network more efficiently than building new infrastructure from scratch.
In addition, the growing strength of cable-wireless providers—especially Comcast and Spectrum—has added a new competitive dynamic to the market, helping to keep prices in check.
UScellular faces several fundamental challenges that have made it difficult for the company to compete. With only 4.5 million subscribers (compared to T-Mobile’s 121 million), UScellular can’t achieve the same economies of scale as larger carriers. This has meant higher costs per-subscriber for everything from network operations to equipment purchases.
About 40% of UScellular’s coverage area is rural, where providing service is more expensive due to challenging terrain, longer distances between population centers, and fewer access points for infrastructure. After purchasing spectrum for network improvements, the company’s debt has doubled to $3 billion, limiting its ability to invest in new technology and to compete on price.
Today’s U.S. wireless markets are competitive and dynamic. In recent years, more consumers have obtained a mobile device, they have more carrier options, and they have experienced vast improvements in performance.
As a result, consumers in nearly every local market in the country can choose from among three or more providers. Moreover, despite rising nationwide concentration in mobile, the Consumer Price Index for wireless services has fallen by more than 20% over the past 15 years.
Cable companies like Xfinity and Spectrum have entered the wireless market, capturing more than half of new subscribers in recent years. These cable-wireless providers now account for about 4% of all wireless subscribers and offer competitive pricing through bundled services.
The merger could significantly benefit rural communities. T-Mobile would gain access to UScellular’s valuable low-band spectrum, which is crucial for providing coverage in rural areas. The deal also includes access to more than 2,000 UScellular towers, allowing T-Mobile to expand its network more efficiently than building new infrastructure from scratch.
T-Mobile plans to combine UScellular’s spectrum with its existing holdings to create more extensive and efficient networks. This integration could happen quickly, as the acquired spectrum is compatible with T-Mobile’s existing equipment and, in most cases, would require only software updates.
T-Mobile expects to expand the number of households eligible for its 5G Home Internet service by more than 1 million, particularly in rural areas. This could provide much-needed competition in areas where broadband options are limited. In a filing with the FCC, T-Mobile claims that most UScellular customers will experience improved mobile service at lower prices following the merger.
Some lawmakers have expressed worry that the merger could reduce competition and lead to higher prices. But these concerns are likely overstated.
UScellular is not a significant competitive force and does not act as a “maverick” that competitively disrupts the market. Its small size and financial struggles mean it doesn’t meaningfully influence national pricing or competition.
In contrast, for more than a decade, T-Mobile has positioned itself as a disruptive force in the market. The company’s acquisition of UScellular will generate efficiencies that can be translated to consumer benefits through lower prices, expanded coverage, and improved services.
Moreover, in many areas where UScellular operates but T-Mobile doesn’t, the merger would simply replace one provider with another, maintaining the same number of competitors. In addition, the growing strength of cable-wireless providers has added a new competitive dynamic to the market, helping to keep prices in check.
T-Mobile’s acquisition of UScellular would improve rural-broadband access by providing the combined firm with more resources and infrastructure to bolster its network in rural areas. The acquisition would also provide T-Mobile with a substantial increase in low-band spectrum, which is critical to delivering broadband services in rural areas.
UScellular’s inability to maintain or expand investment has led to a decline in the company’s network quality relative to national carriers, resulting in reduced customer satisfaction. The company’s reduced revenues and higher cost structure have likewise forced it to prioritize short-term cost-cutting measures over long-term investments. The T-Mobile acquisition would address these investment constraints by integrating UScellular’s assets into its financially stronger and more scalable national operations.
The merger requires approval from the FCC and the DOJ. Based on the available evidence, regulators should view this deal favorably.
Unlike mergers between major carriers, this acquisition involves a struggling regional provider whose assets could be used more efficiently by T-Mobile.
Moreover, this merger may be a case in which removing an uncompetitive provider could serve to enhance competition through increased efficiencies and by allowing T-Mobile to provide better coverage and service at lower prices.
There is, however, one potential wrinkle. T-Mobile’s parent company is German telecommunications giant Deutsche Telekom, and the DOJ stated it wants to review the transaction to determine whether it poses a threat to U.S. national security.
For more on this issue, see ICLE’s issue brief “The Competitive Effects of the Proposed T-Mobile/UScellular Merger.”
The General Data Protection Regulation (GDPR), the EU’s data-protection law, requires accuracy in processing personal data. But generative-AI services, such as large language models (LLM), may “hallucinate” . . .
The General Data Protection Regulation (GDPR), the EU’s data-protection law, requires accuracy in processing personal data. But generative-AI services, such as large language models (LLM), may “hallucinate” or reflect information that is false but widely spread.
On one hand, such inaccuracies may seem like an inherent feature of the technology. On the other, some major LLM providers aspire to make their products more accurate, and perhaps even to “organize the world’s information and make it universally accessible and useful,” to borrow Google’s famous mission statement.
They say that when you’re raising kids, the days drag on, but the years fly by. The same could be said for this year in . . .
They say that when you’re raising kids, the days drag on, but the years fly by. The same could be said for this year in telecom policy. In 2024, the telecommunications industry faced a whirlwind of regulatory changes, legal challenges, and more than its fair share of fire drills without a fire. Let’s use this last Hootenanny of the year to look back at some key developments in Telecomland.
Our latest guest in Truth on the Market’s “Global Voices Forum” series is Dae Sik Hong, a professor of economic law at South Korea’s Sogang University . . .
Our latest guest in Truth on the Market’s “Global Voices Forum” series is Dae Sik Hong, a professor of economic law at South Korea’s Sogang University Law School. We discuss the proposed Platform Competition Promotion Act, potential changes to South Korea’s Competition Act, recent interventions by the Korea Fair Trade Commission, and the near-term future for platform regulation in the country.
The U.S. Justice Department (DOJ) late last month filed its much-anticipated initial proposed final judgment in the Google Search antitrust case. The proposal—to use a bit of . . .
The U.S. Justice Department (DOJ) late last month filed its much-anticipated initial proposed final judgment in the Google Search antitrust case. The proposal—to use a bit of baseball parlance—swung for the fences. Maybe they’ll get a hit, or maybe even a home run. Or not. Dodgers superstar Shohei Ohtani hit a whopping 54 home runs in 2024, but he struck out three times as often.
The push to break up Big Tech companies has become a popular refrain among politicians and pundits on both sides of the Atlantic, and, here in . . .
The push to break up Big Tech companies has become a popular refrain among politicians and pundits on both sides of the Atlantic, and, here in the U.S., both sides of the aisle. In response to a federal judge’s ruling in August that Google had an illegal monopoly over search traffic, the Justice Department has proposed that the company sell off Chrome, the world’s most-used web browser, as a remedy. While drastic, this may seem like a clean solution to Google’s dominance in search: Yank apart the distribution network.
Recent headlines about the U.S. Justice Department’s (DOJ) antitrust case targeting Google Search echo a familiar policy script. In a recent Wall Street Journal op-ed, Thomas Lenard and Scott . . .
Recent headlines about the U.S. Justice Department’s (DOJ) antitrust case targeting Google Search echo a familiar policy script. In a recent Wall Street Journal op-ed, Thomas Lenard and Scott Wallsten warn that forcing Google to share its technology could undermine innovation—a lesson they say we should have learned from telecommunications policy decades ago.
The United States is the birthplace of antitrust, starting with the enactment of the Sherman Antitrust Act in 1890. During the late 19th and early . . .
The United States is the birthplace of antitrust, starting with the enactment of the Sherman Antitrust Act in 1890. During the late 19th and early 20th century, cartels were common in Europe, while U.S. antitrust enforcers unraveled them. Only after World War II did European countries incrementally adopt competition law in various forms. Since that time, competition laws have been adopted virtually around the world.
INTEREST OF AMICUS CURIAE The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the . . .
The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies and economic learning to inform policy debates and has long-standing expertise evaluating antitrust law and policy.
ICLE has an interest in ensuring that antitrust law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. That includes ensuring that antitrust enforcement is not used to stifle innovation and expose companies to liability for engaging in rational and efficient economic behavior, topics written upon extensively by ICLE scholars including Brian C. Albrecht, Dirk Auer, Daniel J. Gilman, Geoffrey A. Manne, and Mario A. Zúñiga.[1]
Plaintiffs allege two violations of Section 1 of the Sherman Act: a hub-and-spoke conspiracy claim based on allegations that each Hotel Defendant[2] subscribed to Rainmaker software provided by defendant Cendyn, and a claim that each Hotel Defendant’s license of that software also constituted an unlawful vertical restraint. Plaintiffs’ claims are inconsistent not only with binding Circuit precedent, but also with economic theory and common economic experience.
First, plaintiffs fail to plausibly allege the “rim” of a hub-and-spoke conspiracy through an agreement among competitors. Plaintiffs offer no direct evidence and rely instead on the mere fact that Hotel Defendants subscribe to the same software as thousands of other hotels. But subscribing to the same software does not imply an agreement to do anything, much less fix prices. The revenue management functions that Rainmaker automates are lawful. And automating lawful commercial activity does not make that activity unlawful. Not only do plaintiffs concede that Hotel Defendants frequently override Rainmaker’s pricing recommendations, belying any claim of an agreement on prices, but that behavior is consistent with fundamental economic principles that deter coordinated pricing. Plaintiffs offer no basis to infer a conspiracy from firms seeking to benefit from the significant efficiencies provided by automation.
Second, plaintiffs fundamentally mischaracterize both the nature of the contracts and the software licensed through those contracts in attempting to plead a vertical restraint claim. The agreements are software licenses, not agreements to set prices or otherwise restrain trade. Exposing companies to treble damages based on the simple fact that they licensed the same software that their competitors licensed or may later decide to license would set a dangerous precedent.
Plaintiffs’ first count required them to plead: “(1) a hub . . . ; (2) spokes, such as competi[tors] that enter into vertical agreements with the hub; and (3) the rim of the wheel, which consists of horizontal agreements among the spokes.” In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186, 1192 (9th Cir. 2015). As with all allegations of horizontal agreements based on parallel conduct where direct evidence is absent, the sufficiency of plaintiffs’ allegations “turns on the suggestions raised” by defendants’ “conduct when viewed in light of common economic experience.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 565 (2007); see also id. at 554 (parallel conduct may be “consistent with conspiracy, but just as much in line with a wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market”).
These legal standards matter. Alleged hub-and-spoke conspiracies may share features with legitimate business conduct, such as normal discussions between suppliers and distributors, and retaining consultants to advise on outsourcing of certain aspects of a business. Courts correctly proceed with caution in this area of the law. The trial court here correctly found that plaintiffs’ allegations based on Hotel Defendants’ separate and independent decisions to subscribe to Rainmaker’s software over the course of a decade did not plausibly plead a hub-and-spoke conspiracy.
As former FTC Commissioner and then-Acting Chair Maureen Ohlhausen explained: “There is nothing inherently wrong with using mathematics and computers to engage more effectively in commercial activity, regardless of whether that activity is participation in the financial markets or the selling of goods and services.” Maureen K. Ohlhausen, Acting Chairman, U.S. Federal Trade Commission, Should We Fear the Things That Go Beep in the Night? Some Initial Thoughts on the Intersection of Antitrust Laws and Algorithmic Pricing at 3 (May 23, 2017), https://www.ftc.gov/system/files/documents/public_statements/1220893/ohlhausen_-_concurrences_5-23-17.pdf. That is, the automation of lawful business practices does not render them unlawful. This principle directly applies to the hotel industry’s use of revenue management software to analyze market conditions and optimize pricing strategies, just as it applies to business analytics, accounting, and tax software more broadly.
At its core, Rainmaker’s software simply automates what human revenue managers have long done manually—observe publicly available competitor prices, analyze market conditions, and make pricing recommendations that price-setters can take or leave in their discretion. The fact that this process, including its constituent computations, can now be automated through algorithms, implemented via software and computers, rather than performed by individuals does not transform it into anticompetitive conduct. This leads Ohlhausen to a simple thought experiment—you can get a good sense of whether an automated business practice is legal by evaluating whether it would be legal if “a guy named Bob” did it instead. Ohlhausen, supra, at 10.
Plaintiffs reference this thought experiment in their brief, but miss the point. See Opening Br. (“OB”) at 3. As the trial court recognized, unlike in Ohlhausen’s hypothetical, there is no allegation here that Rainmaker’s pricing recommendations to one subscriber are based on the confidential information of another subscriber. ER-9; SER-12–13; see also Answering Br. (“AB”) at 11–12, 14–16, 32–36.
There is nothing unlawful about many subscribers independently seeking out the features that Rainmaker actually provides—scale, speed, and accuracy. Plaintiffs acknowledge that Rainmaker software is used by “5,500 hotels in 110 countries.” 5-ER-789 ¶191. Apart from their location on the Las Vegas Strip, however, nothing in the complaint distinguishes Hotel Defendants from other Rainmaker subscribers who are not named as defendants. There is no basis to imply a price-fixing conspiracy between a handful of the thousands of hotels subscribing to Rainmaker. Taking plaintiffs’ theory to its logical conclusion (that all subscribers are engaged in a price-fixing conspiracy) would result in limiting Rainmaker and similar software to a single subscriber in a geographic market to avoid any price fixing.
Plaintiffs acknowledge that Rainmaker allows hotels to customize algorithms based on their individual data, provides discretion to override pricing recommendations, and does not share confidential data between competitors. 5-ER-743 ¶121; 5-ER-720 ¶80; 2-ER-74 at 54:4–15. These features help preserve independent decision-making and differentiate prices. In other words, the software does not serve as the sort of commitment device required for firms to cement a conspiracy.
Indeed, there is no economic incentive to coordinate pricing through Rainmaker’s software. Basic economic theory teaches that any attempt at coordination faces an inherent instability: each participant has a powerful incentive to “cheat” by undercutting the coordinated price to gain market share. This creates a prisoner’s dilemma where the dominant strategy is to deviate from any attempted coordination. See Christopher R Leslie, Trust, Distrust, and Antitrust, 82 Tex. L. Rev. 515, 524–528 (2004); N. Gregory Mankiw, Principles of Microeconomics 344–45 (8th ed. 2018). Plaintiff’s own allegations demonstrate that this dynamic persists here, fatally undermining any theory of algorithmic coordination.
As plaintiffs acknowledge, hotels can and do freely reject Rainmaker’s pricing recommendations. Indeed, hotels rejected these recommendations so frequently that Rainmaker waged what the complaint describes as a “never-ending battle” trying to “convince” them to stop “overrid[ing] its pricing recommendations.” 5-ER-687 ¶8. This ability and demonstrated willingness to reject pricing recommendations preserves the fundamental competitive dynamic that makes coordination unstable. Just as in a traditional prisoner’s dilemma, each hotel maintains both the ability and incentive to undercut any attempted coordinated price by rejecting recommendations that are higher than their profit-maximizing competitive price. Basic economic theory predicts that hotels will choose to undercut when doing so would be profitable. The complaint’s allegations that hotels frequently did exactly that—override recommendations when it served their individual interests—confirms that prediction. That is also consistent with the economic research. See, e.g., Jeanine Miklós-Thal & Catherine Tucker, Collusion by Algorithm: Does Better Demand Prediction Facilitate Coordination Between Sellers?, Management Science, Articles in Advance, at 2 (Feb. 20, 2009), https://doi.org/10.1287/mnsc.2019.3287 (finding better demand forecasting “increases each firm’s temptation to undercut price in periods when consumers are predicted to be willing to pay high prices”).
This dynamic is particularly powerful in the hotel market because hotels compete on both price and the non-price dimensions of competition that differentiate hotels, such as the quality and availability of various amenities, services, and furnishings. A hotel that rejects high price recommendations can rapidly gain occupancy at its competitors’ expense. The complaint itself alleges that casino hotels historically focused on maximizing occupancy because guests “generate other sources of revenue through gaming.” 5-ER-685 ¶ 3. This creates an especially strong incentive to reject high price recommendations and undercut competitors to drive occupancy and capture this ancillary revenue—exactly the type of “cheating” that makes coordination unstable.
In sum, Rainmaker’s software does nothing to solve the prisoner’s dilemma at the heart of any attempted coordination. Each hotel retains both the ability and incentive to reject supra-competitive price recommendations, gain market share, and undermine any attempted coordination. The complaint’s allegations that hotels frequently did exactly that confirms the economic theory that predicts such behavior. So do the allegations that hotels could customize Rainmaker to account for their own preferences, which could influence price recommendations for individual properties. See 5-ER-724 ¶¶86–87; 5-ER-734 ¶105; 5-ER-736 ¶108; 5-ER-744 ¶121. This reality is fundamentally inconsistent with any plausible theory of anticompetitive coordination. Rather, it reinforces the “critical role” of human judgment in using predictive software. Ajay K. Agarwal, et al., Human Judgement and AI Pricing, National Bureau of Economic Research, Working Paper 24284, at 2 (Feb. 2018), http://www.nber.org/papers/w24284 (analyzing the divergent incentives of vendors and users of predictive AI).
Economic theory not only points away from collusion, but also highlights the efficiencies that drive the use of software like Rainmaker. There is no reason to infer conspiracy merely from subscribing to widely used software based on the efficiencies it offers.
The economic literature has extensively documented how automated tools help firms optimize capacity utilization, respond rapidly to demand fluctuations, and reduce transaction costs in ways that enhance market efficiency. For example, Brynjolfsson and McElheran designed a seminal management and organizational practices survey studying how data affected firms’ decision-making. See Erik Brynjolfsson & Kristina McElheran, Data in Action: Data-Driven Decision Making in U.S. Manufacturing, Center for Economic Studies Working Paper 16–06 (2016), https://www2.census.gov/ces/wp/2016/CES-WP-16-06.pdf. That survey found that increasing the usage of data-driven decision-making is linked to a statistically significant boost in productivity of 3% or more on average. Id. at 3. Studies have also shown that “better demand forecasting can, in fact, lead to lower prices and higher consumer welfare.” Miklós-Thal, supra, at 2.
Dynamic pricing enabled by revenue management software may account for anticipated or unanticipated changes on either the demand side or the supply side. These changes may be market-wide; for example, demand may ebb and flow seasonally. But they can also drive price differences—not convergence—on a property-specific level. For example, property specific customization of the software, as well as human judgment in overriding pricing recommendations, can accommodate demand side factors, such as an individual hotel’s hosting a popular sporting event, music concert, or conference, and supply-side factors, such as a temporary decrease in the number of available rooms at a property due to hotel renovations.
Dynamic pricing also enhances consumer welfare. In traditional fixed-price models, hotels must set prices well in advance based on limited information. This creates inefficiencies where prices may be too high during low demand periods (reducing consumer surplus) or too low during peak periods (creating shortages). Automated pricing allows hotels to adjust prices dynamically based on actual demand conditions. The best research on dynamic pricing, due to data availability, is from the airline industry. There, dynamic pricing, which is really only possible at scale with some sort of algorithmic pricing, helps consumer welfare on average. See, e.g., Nan Chen & Przemyslaw Jeziorski, Consequences of Dynamic Pricing in Competitive Airline Markets at 3 (Jan. 26, 2023), https://ssrn.com/abstract=4285718.
Plaintiffs’ attempt to characterize basic revenue management practices as inherently suspicious ignores these well-documented efficiencies. Features like competitor price monitoring and automated price recommendations are not nefarious—they are essential tools that help a hotel operate more efficiently in a complex market environment. Just as manufacturers use inventory management software to optimize production or retailers use demand forecasting to manage stock levels, hotels use revenue management systems to operate more efficiently.
Plaintiffs’ theory, if accepted, would dramatically expand antitrust liability to encompass routine business practices that enhance rather than harm competition. In plaintiffs’ view, the mere fact that a company licenses the same analytical software as competing companies and receives pricing recommendations based on public data transforms ordinary vertical licensing agreements into antitrust violations. This sweeping theory cannot be reconciled with fundamental economic principles.
All of this has significant implications that extend well beyond the hotel industry. Many industries use third-party vendors that provide data analytics and pricing tools. As noted, airlines use fare analytics software to optimize route pricing. Retailers use inventory management systems that suggest pricing based on competitive data. Manufacturers use ERP systems that incorporate competitor benchmarking. Under plaintiffs’ theory, these common business arrangements could all constitute antitrust violations simply because competitors use the same vendor’s analytical tools to process public data and receive recommendations.
The economic problem of this position becomes clear when applied to simpler tools. If multiple gas stations use Excel spreadsheets with the same pricing formulas, is that an antitrust violation? If retailers use the same market research firm’s pricing surveys, have they joined a hub-and-spoke conspiracy? If manufacturers rely on the same forecasting software to set production levels, are they unlawfully coordinating output? There is no basis for distinguishing plaintiffs’ theory from these scenarios.
This is particularly problematic for smaller market participants who rely on third-party vendors because they lack resources to develop sophisticated analytical tools internally. If using the same vendor as competitors creates antitrust risk, many firms would be forced to either develop costly proprietary systems or forgo analytical tools altogether. This would harm rather than enhance competition by raising barriers to entry and denying smaller players access to efficiency-enhancing technology, including technology that increases price transparency based on publicly available data, benefiting customers and suppliers alike.
Moreover, adopting plaintiffs’ theory would stifle innovation. As former Deputy Assistant Attorney General Roger Alford explained: “we cannot presume the simple use of pricing algorithms is an antitrust violation. . . . Misplaced enforcement efforts have the potential to discourage innovation and deter efficiency-enhancing pricing.” Roger Alford, Deputy Assistant Attorney General, Antitrust Division, U.S. Dep’t of Justice, The Role of Antitrust in Promoting Innovation at 8 (Feb. 23, 2018), https://www.justice.gov/opa/speech/file/1038596/dl. Plaintiffs’ complaint is a prime example of the sort of economically unmoored enforcement efforts that are properly rejected.
Plaintiffs’ second claim challenges the vertical agreements between Rainmaker and each Hotel Defendant—the spokes of plaintiffs’ hub-and-spoke claim—as independent violations of Section 1, asserting that “[e]ach individual agreement between a Defendant Hotel Operator and Rainmaker in isolation had the anticompetitive effect of artificially inflating prices for hotel rooms operated by that Defendant.” 5-ER-897 ¶366. But that challenges simple license agreements themselves. And, “[u]nlike horizontal agreements among competitors, which are relatively uncommon, vertical agreements between actual or would-be suppliers and customers are everywhere. Sales, licenses, franchises, employment agreements, and information arrangements are commonplace. Their very ubiquity indicates that only a few will be of antitrust concern.” Phillip K. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1437 (Supp. 2024). The Rainmaker license agreement is not one of those few.
The Rainmaker software license does not create any restraint on decision-making, much less price. Rather, Plaintiffs admit that the software simply recommends prices that licensees can accept or reject at will. See 5-ER-720 ¶80 (subscribers may accept recommendations “as much or as little as [they] want”); see also AB 56-60. And, for the reasons discussed above, there is no economic incentive to accept prices without being contractually obligated to do so. See supra Part I.B.
Exposing companies to treble damages simply for subscribing to software that their competitors may ultimately also decide to subscribe to would set a dangerous precedent. And inferring a conspiracy—horizontal or vertical—at the pleading stage based on the mere licensing of software would subject countless companies across many different industries to burdensome antitrust discovery, precisely what the governing pleading standards were designed to prevent. See Twombly, 550 U.S. at 558 (“[I]t is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, . . . but quite another to forget that proceeding to antitrust discovery can be expensive.”). The trial court correctly concluded that plaintiffs’ complaint did not satisfy those standards.ICLE does not contend that all uses of pricing software are necessarily lawful. Competitors could agree amongst themselves to fix prices, and they could use computational tools to maintain an unlawful agreement. But it would be improper—poor reasoning and bad policy—to infer such an agreement from the mere fact that competitors happen to use the same commercially available software.
For the above reasons, this Court should affirm the judgment dismissing plaintiffs’ complaint.
[1] ICLE represents that no party’s counsel authored this brief in whole or in part, no party or party’s counsel contributed money that was intended to fund preparing or submitting this brief, and no person—other than ICLE and its counsel—contributed money that was intended to fund preparing or submitting the brief. ICLE files this brief with the consent of all parties.
[2] Hotel Defendants are: Caesars Entertainment, Inc., Treasure Island, LLC, Wynn Resorts Holdings, LLC, JC Hospitality LLC, and Blackstone Inc. and Blackstone Real Estate Partners VII L.P..
STATEMENT OF INTEREST The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual . . .
The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies and economic learning to inform policy debates and has long-standing expertise evaluating antitrust law and policy.
Amici also include 17 scholars of antitrust law and economics (“Scholars of Law and Economics”) at leading universities and research institutions across the United States. Their names, titles, and academic affiliations are listed in the Appendix. All possess expertise in, and collectively have conducted extensive research on, antitrust law and economics.
ICLE and the Scholars of Law and Economics have an interest in ensuring that antitrust law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. That includes advising against decisions that impede competition between digital ecosystems and far-reaching injunctions that could deteriorate the quality of mobile ecosystems, thereby harming the interests of consumers and app developers.[1]
The district court issued an injunction that would alter agreements between Google LLC (“Google”) and over 500,000 non-party U.S. app developers and require redesign of Google’s app store, Google Play. It has purportedly done so to remediate the antitrust claims of a single competitor, Epic Games, Inc. (“Epic”) which has no apps on Google Play; and it has done so notwithstanding that Epic lost a parallel antitrust challenge to Apple following a bench trial, Epic Games, Inc. v. Apple Inc., 559 F. Supp. 3d 898 (N.D. Cal. 2021), a decision affirmed by this Court. Epic Games, Inc. v. Apple Inc., 67 F.4th 946 (9th Cir. 2023). The decision and injunction pose risks to the safety, security, and reputation of Google Play—risks highly likely to harm competition between Google Play and its leading competitor, Apple’s App Store. That harm to competition would, in turn, harm consumers on both sides of the Google Play platform: end-consumers of the apps available on the platform and the app developers who depend on the platform to reach those end-consumers.
The decision below should be reversed because of errors of law and fact, and because it is incompatible with the district court’s decision in Epic Games v. Apple.
First, the decision and injunction below were based on an erroneous market definition that ought to have been precluded by the district court’s decision in Epic Games v. Apple. Instead, the injunction is predicated on an improper market definition that excludes Apple from the relevant market. That error obscures the nature of competition at issue in the case, and it supports a false ascription of market power to Google Play.
Second, having improperly permitted the jury to exclude Apple from the relevant market, the district court did not permit proper consideration of the pro-competitive justifications for Google’s conduct, which are significant in a two-sided transaction market like the one in which Google competes. In fact, there is an absence of evidence demonstrating any competitive harm in the properly defined market. Compounding the problem, the injunction threatens to undermine many of the pro-competitive benefits of Google’s conduct and harm consumers.
Finally, the injunction would impose a duty to deal that is generally repudiated under the antitrust laws. While a narrow duty to deal may be imposed as a remedy under special circumstances, the injunction issued below exceeds the bounds of established exceptions to the general rule.
Given the significant risks posed by the decision below and the district court’s injunction, ICLE and the Scholars of Law and Economics urge this Court to reverse.
This Court has repeatedly recognized the importance of market definition in antitrust cases: “A threshold step in any antitrust case is to accurately define the relevant market.” FTC v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020) (“Qualcomm”) (quoting Ohio v. Am. Express Co. (“Amex”), 585 U.S. 529, 543 (2018).) While recognizing that there may be some cases that do not require courts to define “the exact contours of the relevant market,” in most cases, “[c]ourts usually cannot properly apply the rule of reason without an accurate definition of the relevant market.” Epic Games, Inc., 67 F.4th at 974 n.6 (quoting Amex, 585 U.S. at 543). Further, as this Court has observed, “[m]ost restraints . . . are subject to the Rule of Reason: a multi-step, burden-shifting framework that “requires courts to conduct a fact-specific assessment” to determine a restraint’s “actual effect” on competition.” Id., quoting Amex, 585 U.S. at 541 (quoting Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984)). Market definition typically is important because “[t]he relevant market for antitrust purposes is ‘the area of effective competition’—i.e., ‘the arena within which significant substitution in consumption or production occurs.’” Epic Games, Inc., 67 F.4th at 975, quoting Amex, 585 U.S. at 543 (quoting Phillip E. Areeda & Herbert Hovenkamp, Fundamentals of Antitrust Law § 5.02 (4th ed. 2017)). That is, the market definition provides the contours of the relevant market, “the field in which meaningful competition is said to exist,” Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997). Correspondingly, the domain in which competition is alleged to be impaired by unlawful conduct is where the plaintiff must demonstrate actual or likely harm to competition and consumers.
At trial below, the jury found that Epic had proved two relevant single-brand product markets: “a market for the distribution of Android apps, and for Android in-app billing services for digital goods and services transactions.” Order Den. J. as a Matter of Law (“JMOL”), ECF No. 652; In re Google Play Store Antitrust Litigation, 3:21-md-02981-JD, ECF No. 984, at 3 (N.D. Cal. July 3, 2024) (hereinafter “Order Den. JMOL”). This Court, however, had already sustained a finding that rightly rejected Epic’s assertion of a single-brand market in parallel litigation, filed by the same plaintiff, on the same day, in the same court. Epic Games, Inc., 67 F.4th at 980–81. Issue preclusion should have barred Epic from relitigating the question whether the relevant market for mobile gaming transactions is a single-brand market that is operating-system-specific. Issue preclusion “bars parties from relitigating an issue if the same issue was adjudicated in prior litigation.” SEC v. Stein, 906 F.3d 823, 828 (9th Cir. 2018). It applies if “(1) the issue at stake was identical in both proceedings; (2) the issue was actually litigated and decided in prior proceedings; (3) there was a full and fair opportunity to litigate the issue; and (4) the issue was necessary to decide the merits.” Snoqualmie Indian Tribe v. Washington, 8 F.4th 853, 864 (9th Cir. 2021) (citation omitted).
All four elements are satisfied with respect to the question of whether Google competes with Apple in providing the allegedly monopolized services. This Court has already recognized parallels between Epic’s antitrust and state law challenges to Google Play’s policies and Apple’s App Store policies, Epic Games, Inc., 67 F.4th at 969 n.3, and it has rightly rejected Epic’s assertion of a single-brand market. Id. at 980–81. Epic alleged and argued for a single-brand market in Epic v. Apple, and the district court in that matter rightly rejected Epic’s proposed market definition following “a sixteen-day bench trial.” Id. at 966. In each case, the underlying controversy had to do with the terms under which Epic could market a specific game, Fortnite, on an app store developed, maintained, and owned by a third party; namely, Apple in Epic v. Apple and Google in this matter.
The district court attempts to distinguish the issues in this matter, arguing that they are distinct because Epic (1) “took a very different approach to the markets in this case” and (2) did not “argue for aftermarkets for Android app distribution and Android in-app payment solutions, derived from a foremarket for Android devices.” JMOL at 7. Those assertions, however, do not alter the settled question of whether Google competes with Apple in providing the allegedly monopolized services.
That Epic “took a wholly different approach for the antitrust claims against Google, and offered wholly different evidence about relevant markets than that offered in the case against Apple,” id. at 7, is immaterial. As this Court recognized in SEC v. Stein, 906 F.3d 823 (9th Cir. 2018), the relitigation of decided questions of fact is barred by issue preclusion, even when different evidence and arguments are proffered. Id. at 828; see also Hilson v. Lopez, No. 12-cv-06016-JD, 2014 WL 4380674, at *2 (N.D. Cal. Sept. 4, 2014) (“[O]nce an issue has been resolved in a prior proceeding, there is no further fact-finding to be performed.”) (citation omitted); 50 C.J.S. Judgments § 1043 (May 2024 Update) (“Under the issue preclusion doctrine, a party may not be permitted to introduce new or different evidence to relitigate a factual issue which was presented and determined in a former action. Litigation of an issue necessarily encompasses all arguments and evidence that could be presented to resolve the issue . . . .”).
Moreover, the district court is incorrect in stating that Epic did not here argue for Android-specific aftermarkets. To the contrary, the district court itself noted that Epic “took maximum advantage” of its freedom “to argue for Android-only relevant markets,” Order Den. JMOL at 7, and “presented substantial evidence showing that Android-only product markets made factual and economic sense for this case.” Id. at 8. Those observations concede that Epic did “argue for aftermarkets for Android app distribution and Android in-app payment solutions, derived from a foremarket for Android devices.” Id. at 7. Epic simply failed to establish what it argued.
The district court’s claim to the contrary appears to rest on its observation that Epic did not use the phrase “single-brand aftermarket” in making its case here. Id. at 8 (“Epic never presented or even mentioned a ‘single-brand aftermarket’ in this case….”). But an allegation of a single-brand aftermarket does not depend on any incantation or specific phrasing. In Epic v. Apple, the district court rejected Apple’s argument that Epic’s failure to “explicitly use the terms ‘foremarket’ and ‘aftermarket’ in its complaint” precluded Epic from properly pleading an aftermarket theory. 67 F.4th at 955. There, the court rejected the elevation of “form over substance.” Id. at 979. The same applies here. As the court below observed, Epic “took maximum advantage” of its opportunity “to argue for Android-only relevant markets.” Order Den. JMOL at 7.
In fact, in Epic v. Apple, the district court found that the relevant markets were not operating-system-specific but instead featured competition between Google and Apple. This Court affirmed that finding. Inter-brand competition was underscored in that matter, with the district court’s finding that Epic’s Fortnite enabled cross-platform play, including not just players on mobile devices but those on, inter alia, Sony’s PlayStation, Microsoft’s Xbox, the Nintendo Switch, Windows PCs, and Mac computers. Epic Games, Inc., 559 F. Supp. at 927; see also Epic Games, Inc., 67 F.4th at 967. The relevant market is a multi-brand market in which Google and Apple engage in inter-brand competition, and issue preclusion should have barred Epic from relitigating the issue.
As noted above, this Court has already sustained a finding that rightly rejected Epic’s assertion of a single-brand market in parallel litigation, filed on the same day, in the same court. Epic Games, Inc., 67 F.4th at 980–81. The finding of a multi-brand market in Epic v. Apple was correct and should apply here, even independent of a proper application of issue preclusion.
To be precise, the district court in Epic Games Inc. v. Apple Inc. found the relevant market to be “the smaller recognized mobile gaming transactions submarket . . . [which] does not include the Switch or game streaming services.” F. Supp. 3d at 987. In that market, the court found that “the two dominant players are Apple (App Store) and Google (Google Play app store), [along] with several other Android OS players including the Samsung (Samsung Galaxy Store).” Id. at 976. To find a single-brand market in this case is not merely to differ on the “exact contours of the relevant market.” Epic Games, Inc., 67 F.4th at 974 n.6 (quoting Amex, 585 U.S. at 543). Rather, it is to fundamentally misunderstand who is competing in which “area of effective competition.” Epic Games, Inc., 559 F. Supp. 3d at 1014.
That error is fundamental to the Section 1 and Section 2 allegations that the district court put before a jury, which depend upon findings of market power or monopoly power. There are, for example, two elements to a monopolization claim under Section 2 of the Sherman Act: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966). Courts may, moreover, infer the requisite monopoly power from a “predominant share of the market.” Id. at 571. Hence, to ignore the vigorous competition between Google and Apple leads not just to an erroneous assessment of Google’s market share but suggests the requisite possession of monopoly power by a defendant, Google, that does not have a predominant—or even leading—share of the market, properly defined. Google and Apple compete for apps and, importantly, to have app developers develop apps for their platforms first.
Market share alone is not dispositive on the question of market power, as “[b]lind reliance upon market share, divorced from commercial reality, could give a misleading picture of a firm’s actual ability to control prices or exclude competition.” Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 924 (9th Cir. 1980). It may, however, be “the most important factor,” Pac. Coast Agr. Export Ass’n v. Sunkist Growers, Inc., 526 F.2d 1196, 1204 (9th Cir. 1975); and, in this case, both market share and commercial reality indicate strong inter-brand competition, as the court found in Epic v. Apple.
Correspondingly, the erroneous finding of a single-brand market obscures the district court’s finding, in Epic v. Apple, that while Apple does not possess market power in the relevant market, “the evidence does suggest that Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share.” 559 F. Supp. 3d at 1032. Hence, the costly remedies that the district court would impose upon Google in the instant case would impair Google’s ability to compete with the market leader in mobile gaming transactions in the United States; they would also impair Google’s ability to compete with its leading competitor in the broader app market. That is, the injunction ordered by the court below would benefit a single competitor, Epic, but not the competition or, in turn, the consumers who depend upon competition among Google, Apple, and others for app sales and purchases.
The district court correctly recognized that “the Google Play Store is a “two-sided platform market” that “offers products or services to two different groups who both depend on the platform to intermediate between them.” In re Google Play Store Antitrust Litig., 3:20-cv-05671-JD, Dkt. No. 850, at ECF p. 22 (N.D. Cal. Dec. 6, 2023) (Final Jury Instructions, Instruction No. 18). For Google Play, “developers who wish to sell their apps” are on one side of the market and “consumers that wish to buy those apps” are on the other. Id.
In Amex, the Supreme Court stressed that a unique analysis of anticompetitive effects is necessary when a plaintiff alleges an antitrust violation in a two-sided transaction market. See 585 U.S. at 542–45. Two-sided markets connect two distinct sets of users whose demands for the platform are interdependent—i.e., consumers’ demand for a platform increases as more products are available and, conversely, product developers’ demand for a platform increases as additional consumers use the platform, increasing the overall potential for transactions. Due to the complex dynamics of two-sided markets, conduct that is entirely consistent with—and actually promotes—healthy competition overall may appear anticompetitive when the effects on only one set of customers are considered. See Geoffrey A. Manne, In Defence of the Supreme Court’s “Single Market” Definition in Ohio v. American Express, 7 j. of antitrust enf’t 104, 110 (2019) (“[E]vidence of a price effect on only one side of a two-sided platform can be consistent with either neutral, anticompetitive, or procompetitive conduct.”).
The Supreme Court thus recognized that it is improper to assess the presence of anticompetitive effects by focusing on only one side of a two-sided market. Amex, 585 U.S. at 547 (“Evidence of a price increase on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power.”).
Indeed, even scholars critical of Amex recognize the importance of considering effects on both sides of a two-sided market. In their paper arguing strenuously against the Court’s two-sided market definition in Amex, for example, Michael Katz and Jonathan Sallet acknowledge that “in assessing whether a hypothetical monopolist selling newspapers to readers would find a [small significant non-transitory increase in price (“SSNIP”)] profitable, one would have to consider the effects on advertising revenues in addition to effects on subscription revenues . . . . In this regard, considering prices on both sides of a platform (even if the prices are in separate markets) is much less novel than it may appear.” Michael Katz & Jonathan Sallet, Multisided Platforms and Antitrust Enforcement, 127 YALE L.J. 2142, 2160 (2018).
Firms in two-sided markets commonly use vertical restrictions like those challenged by Epic—including anti-steering provisions—to serve legitimate aims. The benefits of such vertical restrictions are conspicuous when app stores are correctly assessed holistically, as two-sided transaction markets; conversely, they are obscured if one applies “one sided logic to two sided markets.” Julian Wright, One-sided Logic in Two-sided Markets, 3 Rev. of Network Econ. 44 (2004). Just as in Amex, there are pro-competitive reasons for the provisions at issue.
Hence, at issue in Epic v. Apple were vertical restrictions, imposed by Apple, that required in-app purchases on iOS devices to use Apple’s in-app payment processor and limited the ability of app developers using the platform to “steer” users to alternative payment options. Correspondingly, at issue below was “Epic’s objection to Google’s requirement that Epic use Google’s billing system” Order Den. JMOL at 2, and, as the district court recognized, “anti-steering restrictions in [Google’s] DDA agreements” that limited, among other things, “usage of a third-party payment method.” Id. at 20. Notably, some of Google’s restrictions, i.e., it’s discouraging, but not barring, side-loading of apps purchased elsewhere, are less stringent than those found not to be anticompetitive in Epic v. Apple.
These legitimate aims include allowing for the recoupment of investments, and to provide tangible pro-competitive benefits such as increased privacy, security, and market-wide output. Given this, the Supreme Court, in Amex, 585 U.S. at 544–45, ruled that “there is nothing inherently anticompetitive about . . . antisteering provisions.” Id. at 551.
Such vertical provisions can, among other things, prevent merchants from free-riding, thereby increasing the availability of “‘tangible or intangible services or promotional efforts’ that enhance competition and consumer welfare.” Id. at 551 (quoting Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 890–91 (2007)). Free-riding, left untreated, would undermine Google’s incentives to maintain and improve Google Play, thereby leading to diminished product quality and reduced output.
The problem of free-riding is front and center in the district court’s injunction, and it was front and center in Epic’s complaint below. As the district court noted, “[a] particular sticking point was Epic’s objection to Google’s requirement that Epic use Google’s billing system and pay Google a 30% fee on all in-app purchases made by Fortnite users. Epic wanted to use its own in-app payment solution and not pay Google a 30% cut, which Google refused to allow.” Order Den. JMOL at 2. That is, Epic sought to avoid paying Google a commission on in-app purchases made by Fortnite users who acquired Fortnite via Google’s app store, Google Play.
The problem of free-riding is doubly conspicuous given Epic’s business model. As this court recognized in Epic v. Apple, “Epic monetizes Fortnite using a ‘freemium’ model: The game is free to download, but a user can purchase certain content within the game, ranging from game modes to cosmetic upgrades for the user’s character.” 67 F.4th at 967. Hence, what Epic sought to do before its removal from Google Play and Apple’s App store, was to build the installed base of Fortnite players, at a below-cost price of zero, by free-riding on the installed bases of both Google Play and Apple App Store consumers, and then direct those customers to purchase improvements directly from Epic, with no commissions paid to the firms that developed and maintained the app stores that brought Epic its customers.
Antitrust law has long recognized that increased prices, reduced output, and degraded product quality are key indicia of competitive harm. See, e.g., Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 52 (1911) (citing the danger that a monopoly will “fix the price,” impose a “limitation on production,” or cause a “deterioration in quality of the monopolized article”); Sherman Act Section 2 Joint Hearing: Empirical Perspectives Session Hr’g Tr. 13, Sept. 26, 2006 (Scherer) (observing that reluctance to “cannibalize the rents that they are earning on the products that they already have marketed” may make monopolists “sluggish innovators”); Sherman Act Section 2 Joint Hearing: Welcome and Overview of Hearings Hr’g Tr. 25, June 20, 2006 (Barnett) (identifying as “a major harm of monopoly” the possibility that a monopolist may not feel pressure to innovate).
The order below recognizes that competitive harm comprises “the loss of some of the benefits of competition, such as lower prices, increased output, or higher product quality,” and insists that the jury’s findings of anticompetitive conduct and effects were “supported by substantial evidence,” Order Den. JMOL at 16. Absent, however, from the record below and the district court’s injunction is evidence of increased price, lower product quality (or increased quality-adjusted price), reduced output, or a lack of innovation across the platform. There does not, moreover, appear to be any finding of supra-competitive pricing. No doubt Epic objected to Google’s requirements and fee. That objection does not establish that Google charged supra-competitive prices; and it does not show that Google’s fees were established or maintained by anticompetitive conduct. In Epic’s parallel case, this court recognized that “a firm with market power is a price-maker, not a price-taker, that economic theory expects in a competitive market.” 67 F.4th at 983. Evidence in this case suggests, however, that Google was a price taker, initially following Apple’s lead on pricing, thus attempting to match pricing policies set by its larger—and main—competitor, and often lowering (rather than raising) prices for many app developers. See Transcript of Trial Proceedings Held On Nov. 27, 2023, Testimony of B. Douglas Bernheim, In re Google Play Store Antitrust Litigation, 3:21-md-02981-JD, ECF No. 845, at 2480:22–2481:20 (N.D. Cal. Dec. 6, 2023).
In brief, we do not see evidence of an output reduction or a decline in quality on either side of the two-sided market, much less when viewing the market as a whole. Certainly, output has increased steadily on both sides of Google Play (and on both sides of Apple’s app store). And we do not see evidence, much less adequate evidence, that Google exploited market power to raise prices to supra competitive levels.
Google owns valuable resources that it has created and steadily improved, at considerable expense. These include Google Play, which provides users in the Android ecosystem with a convenient and secure means of acquiring the applications (Tr. 1141:2–17) that are “essential components of smartphones” (Tr. 2456:18–20). Among other things, the injunction would require Google to make its catalog of two-plus million apps appear in and distribute to competitors’ app stores. Epic would also like free access to Android users and, specifically, Google Play. None of these parties would be in a position to maintain the Android ecosystem in the same way Google does. Given this, reducing the fees Epic pays to Google may benefit Epic while harming consumers, as Google would have less incentive to invest in its ecosystem.
Moreover, steering consumers to other payment systems, together with catalog sharing and third-party app store distribution, could expose Google Play users to privacy, security, and safety issues, among others.[2] These are moving targets online, but the injunction would limit Google’s efforts to serve these critical consumer interests, as Google would have to prove that any measures it takes with respect to third-party app stores and their apps “are strictly necessary and narrowly tailored.”
In brief, the injunction undercuts the pro-competitive rationale recognized by the Supreme Court in Amex and by this Court in Epic v. Apple. Absent intervention by this Court, Google will have to comply with a nationwide injunction that undercuts these benefits. That is directly relevant to the merits of the remedies decision below, as there is no credible argument that the broad sweep of the injunction—across all of Google’s agreements with all app developers who do, or will, market their apps via Google Play—is necessary to remedy the alleged harm to the sole plaintiff in this case. It also is relevant to the question of liability where the district court’s jury instructions precluded the jury’s consideration of precisely the cross-market effects contemplated in Amex.
Antitrust law largely repudiates the notion that firms have a “duty to deal.” As the Supreme Court has observed, “as a general matter, the Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.” Verizon Commc’ns Inc. v. Law Offices of Curtis Trinko, 540 U.S. 398, 408 (2004) (quoting United States v. Colgate & Co., 250 U.S. 300, 307 (1919)). That general antitrust principle is “not unqualified.” Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601 (1985). However, as the Trinko Court made clear, Aspen Skiing “is at or near the outer boundary of § 2 liability.” Trinko, 540 U.S. at 409. At that outer boundary, to terminate dealing with an established customer, when that decision makes no economic sense but for its anticompetitive effects, may be anticompetitive. Id.
The district court correctly observed this general principle in Jury Instruction No. 24: “As a general rule, businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and conditions of that dealing. . . . It is not unlawful for Google to prohibit the distribution of other app stores through the Google Play Store, and you should not infer or conclude that doing so is unlawful in any way.”
Nonetheless, the district court has issued an injunction that would, inter alia, require Google to make its catalog of apps available in competitors’ app stores and to distribute rival app stores through the Google Play Store. The district court reasoned that, “[i]f the jury finds that monopolization or attempted monopolization has occurred, the available injunctive relief is broad, including to terminate the illegal monopoly, deny to the defendant the fruits of its statutory violation, and ensure that there remain no practices likely to result in monopolization.” In re Google Play Store Antitrust Litig., 3:20-cv-05671-JD, Dkt. No. 701, at 6 (N.D. Cal. Oct. 7, 2024) (quoting Optronic Techs., Inc. v. Ningbo Sunny Elec. Co., Ltd., 20 F.4th 466, 486 (9th Cir. 2021)).
The case law does not, however, suggest that any and all remedies are warranted given a finding of antitrust liability. First, “relief must be based on a ‘clear indication of a significant causal connection between the conduct enjoined or mandated and the violation.’” Optronic Techs. v. Ningbo Sunny Electronic Co., 20 F.4th 446, 486 (9th Cir. 2021) (quoting United States v. Microsoft Corp., 253 F.3d 34, 105 (D.C. Cir. 2001)). In Microsoft, the causal connection between conduct and harm was merely inferred, not proven. At the remedy phase, that was deemed insufficient to sustain a remedy allegedly aimed at correcting anticompetitive harm. Here, however, the connection between the conduct to be remedied and the alleged harm is not even alleged (let alone inferred). Indeed, it was specifically disclaimed by the court in Jury Instruction No. 24.
Also, in Optronic, this Court sought to remediate discriminatory contract terms, providing that all similarly situated customers be provided access on similar terms. Analogous remedies may be feasible in circumstances where the antitrust harm alleged stems from discriminatory treatment. See also, e.g., Associated Press v. United States, 326 U.S. 1 (1945).
Imposing a duty to deal with new firms, on new terms, is a different matter entirely. In Associated Press, for example, “[t]he Court did not reach the question whether AP was obliged to admit any newcomers at all. Although Justice Frankfurter’s concurring opinion agreed with the divided lower court that a business clothed in a public interest must deal with all, the Court expressly disclaimed any such ‘public utility concept.’” Herbert Hovenkamp, Unilateral Refusals to Deal, Vertical Integration, and the Essential Facility Doctrine, Univ. of Iowa Legal Studies Research Paper No. 08-31 (July 14, 2008), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1144675. And in MetroNet this court recognized that Trinko does not require a defendant to provide access to a competitor if it isn’t already providing access elsewhere. See MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124, 1132 (9th Cir. 2004).
A remedy mandating the distribution of app stores is equivalent to a determination that the failure to distribute constitutes a violation of the law—contradicting both the jury instruction and settled case law. Imposing a duty to deal without a showing of anticompetitive effect imposes liability by inference: in effect, it circumvents rule of reason analysis and assumes anticompetitive harm. See Hovenkamp, Unilateral Refusals, at 28 (“[Unilateral refusal to deal under Sec. 2] comes dangerously close to being a form of ‘no-fault’ monopolization[.]”).
As noted above, privacy, security, and platform management challenges are ubiquitous, moving targets from both technical and business standpoints, and the injunction would limit Google’s ongoing efforts to serve critical consumer interests, as Google would have to prove that any measures it takes with respect to third-party app stores and their apps “are strictly necessary and narrowly tailored.” That requirement is at odds with basic antitrust principles, as it assigns to an untested, court-created committee countless management decisions about both Google Play and the Android operating system. That is tantamount to central planning. Economics has, with increasing rigor and empirical evidence, documented the disadvantages of central planning since Adam Smith’s The Wealth of Nations. See Ronald H. Coase, Lecture to the Memory of Alfred Nobel, The Nobel Prize, https://www.nobelprize.org/prizes/economic-sciences/1991/coase/lecture/ (last visited Nov. 25, 2024). Courts, too, have long recognized that they are ill-suited to balancing the “benefits of an improved product design against the resulting injuries to competitors.” See Allied Orthopedic Applicants Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 1000 (9th Cir. 2010); see also Trinko LLP, 540 U.S. at 408.
It is no surprise that few cases have followed Aspen Skiing, especially in the wake of Trinko. 540 U.S. at 409; Herbert Hovenkamp, The Monopolization Offense, 61 Ohio State L.J. 1035, 1044–45 (2000) (noting that “the courts have generally responded” to “problems” in the doctrine “by construing the Aspen and [Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451 (1992)] cases narrowly”); Lindsey Edwards, et al., Section 2 Mangled: FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing, 8 J. Antitrust Enf’t 335, 337 (2019) (“[Trinko] . . . clarified and narrowed Aspen Skiing and reinforced the importance of a company’s right freely to decide with whom to transact.”); Geoffrey Manne & Joshua Wright, If Search Neutrality Is the Answer, What’s the Question?, 2012 Colum. Bus. L. Rev. 152, 192–193 (2012) (noting that Trinko limited a competitor’s duty to deal under Aspen Skiing to “an extremely narrow set of circumstances” and that courts and antitrust agencies “have been reluctant to expand the duty”).
Indeed, commentators understandably concluded that Aspen Skiing’s liability theory was severely undermined after Trinko and Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U.S. 438 (2009). Easterbrook, supra p. 9, at 441–42; Richard A. Epstein, Judge Koh’s Monopolization Mania: Her Novel Antitrust Assault Against Qualcomm Is an Abuse of Antitrust Theory, 98 neb. l. rev. 250 (2019) (stating that Trinko held that a duty to deal exists only in “exceptional circumstances” and that “[m]odern antitrust law has established a strong safe harbor of per se legality against the claim of illegal techniques toward monopolization”); see also Qualcomm, 969 F.3d at 994 (emphasizing that the Court in Trinko warned that “the Aspen Skiing exception should be applied only in rare circumstances”).
Accordingly, because mainstream scholarship generally does not support compelled dealing, and Aspen Skiing provides, at best, the “outer boundary” for that doctrine, unilateral refusals to deal can give rise to liability only in very narrow circumstances that do not exist here. The connection between Aspen Skiing and Kodak—the Court’s follow-on limited duty to deal case—is especially salient in this case, given the allegation of monopolization of an aftermarket by a firm with market power in a foremarket.
In Epic v. Apple, this Court recognized and applied the Supreme Court’s skepticism of lock-in claims, and the heighted burden they impose on plaintiffs: “to establish a single-brand aftermarket, a plaintiff must show: (1) the challenged aftermarket restrictions are ‘not generally known’ when consumers make their foremarket purchase; (2) ‘significant’ information costs prevent accurate life-cycle pricing; (3) ‘significant’ monetary or non-monetary switching costs exist; and (4) general market-definition principles regarding cross-elasticity of demand do not undermine the proposed single-brand market.” 67 F.4th at 977. And specifically, “[w]here a plaintiff asserts a Kodak-style single-brand aftermarket, it bears the burden of ‘rebut[ting] the economic presumption that . . . consumers make a knowing choice to restrict their aftermarket options when they decide in the initial
(competitive) market to enter a[] . . . contract.’” Epic Games Inc., 67 F.4th at 978 (citing Newcal Indus. v. Ikon Office Solution, 513 F.3d 1038, 1050 (9th Cir. 2008)).
The Supreme Court’s skepticism in Kodak, and this Court’s holding in Epic v. Apple, are consonant with the economic learning on antitrust cases involving aftermarkets and lock-in, according to which monopolization is possible but uncommon. See, e.g., Carl Shapiro, Aftermarkets and Consumer Welfare: Making Sense of Kodak, 63 Antitrust L.J. 483, 485 (1995) (concluding that “significant or long-lived consumer injury based on monopolized aftermarkets is likely to be rare, especially if equipment markets are competitive”); see also Carl Shapiro & David J. Teece, Systems Competition and Aftermarkets, An Economic Analysis of Kodak, 39 The Antitrust Bulletin 135 (1994); Dennis Carlton, A General Analysis of Exclusionary Conduct and Refusals to Deal: Why Aspen and Kodak are Misguided, 68 Antitrust L.J. 659 (2001); cf. Benjamin Klein, Market Power in Antitrust After Kodak, 3 Supreme Court Econ. Rev. 43 (1993).
Google, of course, has no market power in smartphones, smartphone operating systems, or mobile gaming app transaction markets. Apple is the U.S. market’s leading smartphone manufacturer, and while Google does manufacture Android smartphones, it is not the sole or even leading manufacturer of Android phones. That is, Google lacks market power in a credible foremarket; and as this court noted in Epic v. Apple, Epic failed to demonstrate that smartphone consumers are generally unaware of the ecosystems, including apps and app stores, within which smartphones operate. Moreover, Epic failed to demonstrate, and the jury below did not find, that purchasers of Android smartphones are unaware of Google Play or pertinent restrictions (either in Google Play or in competing app stores) when purchasing their smartphones. That goes, of course, to the question of liability, as the jury’s findings were inadequate, as a matter of law, to their finding of monopolization of the relevant aftermarket. It also goes to the remedy, and the extraordinary duty to deal that the district court would impose on Google, but not on its main competitor, Apple, or other competitors.
For the foregoing reasons, we urge this Court to vacate.
[1] The amici represent that no party’s counsel authored this brief in whole or in part, no party or party’s counsel contributed money that was intended to fund preparing or submitting this brief, and no person—other than amici and their counsel—contributed money that was intended to fund preparing or submitting the brief. Amici file this brief with the consent of Google LLC.
[2] For an example of potential privacy and security risks, among others, see, e.g., Compl. ¶¶ 61–71, United States v. Epic Games, Inc., No. 5:22-CV-00518 (E.D.N.C. 2022) (alleging violations of the Children’s Online Privacy Protection Act and Section 5 of the FTC Act for privacy violations and unfair billing practices through Fortnite); see also, Press Release, Fortnite Video Game Maker Epic Games to Pay More Than Half a Billion Dollars over FTC Allegations of Privacy Violations and Unwanted Charges, Fed. Trade Comm’n (Dec. 19, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/12/fortnite-video-game-maker-epic-games-pay-more-half-billion-dollars-over-ftc-allegations.
Introduction We thank the Government of Canada and the Competition Bureau for the opportunity to comment on its review of the Merger Enforcement Guidelines (Guidelines).[1] . . .
We thank the Government of Canada and the Competition Bureau for the opportunity to comment on its review of the Merger Enforcement Guidelines (Guidelines).[1] The International Center for Law & Economics (ICLE) is a nonprofit, nonpartisan global research and policy center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of competition law and policy. ICLE’s interest is to ensure that competition law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis.
The consultation asks us to navigate a world in the aftermath of Bills C-56[2] and C-59[3] (Bills). The Bills introduced changes to Canadian competition law that are, in our view, severely misguided. The most problematic of these changes are encoding structural presumptions in the Competition Act and jettisoning the efficiency exemption in merger review. In our view, these changes signal a worrying turn away from sound economic analysis and toward formalistic line-drawing based on market structure. Notwithstanding these complaints, the changes are now fait accompli—at least, until the next legislative reform. The question therefore becomes one of mitigating their damage. We believe that the Guidelines could have a role to play in this regard. This is, by and large, how we have framed our comments (Comments) to the Competition Bureau’s consultation (Consultation).
Our Comments focus primarily on the following aspects of the Guidelines:
In its ongoing efforts to ensure that antitrust law in general, and merger control in particular, remain tethered to sound principles of economics, law, and due process, ICLE has submitted responses to consultations and published papers, articles, and reports in a number of jurisdictions. These include the European Union, the United States, Brazil, the Republic of Korea, the United Kingdom, India, and Canada. In January 2024, for example, ICLE submitted comments[4] to the Competition Bureau’s public consultation on its “Artificial Intelligence and Competition” discussion paper.[5] These and other publications are available on ICLE’s website.[6]
Bill C-59 incorporated structural presumptions into the Competition Act’s merger-review process.[7] As the Consultation notes, structural presumptions are, at best, an imperfect proxy for market power and, at worst, a misleading one.[8]
The assumption that “too much” concentration is harmful assumes both that a market’s structure is what determines economic outcomes, and that it is possible to know what the “right” amount of concentration is. As economists have understood since at least the 1970s (and despite an extremely vigorous, but futile, effort to show otherwise), market structure does not determine economic outcomes.[9]
Once perfect knowledge of technology and price is abandoned, [competitive intensity] may increase, decrease, or remain unchanged as the number of firms in the market is increased.… [I]t is presumptuous to conclude… that markets populated by fewer firms perform less well or offer competition that is less intense.[10]
This view is well-supported, and is held by scholars across the political spectrum.[11] The absence of correlation between increased concentration and either anticompetitive causes or deleterious economic effects is also demonstrated by a recent influential empirical paper from Shanat Ganapati. Ganapati finds that the increase in industry concentration in U.S. non-manufacturing sectors between 1972 and 2012 was “related to an offsetting and positive force—these oligopolies are likely due to technical innovation or scale economies. [The] data suggests that national oligopolies are strongly correlated with innovations in productivity.”[12] In the end, Ganapati found, increased concentration resulted from beneficial growth in firm size in productive industries that “expand[s] real output and hold[s] down prices, raising consumer welfare, while maintaining or reducing [these firms’] workforces.”[13] Sam Peltzman’s research on increasing concentration in manufacturing finds that it has, on average, been associated with both increased productivity growth and widening margins of price over input costs. These two effects offset each other, leading to “trivial” net price effects.
Further, the presence of harmful effects in industries with increased concentration cannot be readily extrapolated to other industries. Thus, while some studies have plausibly shown that an increase in concentration in a particular case has led to higher prices (which has been found true in only a minority of the relevant literature), assuming the same result from an increase in concentration in other industries or other contexts is simply not justified:
The most plausible competitive or efficiency theory of any particular industry’s structure and business practices is as likely to be idiosyncratic to that industry as the most plausible strategic theory with market power.[14]
As Chad Syverson aptly summarized:
Perhaps the deepest conceptual problem with concentration as a measure of market power is that it is an outcome, not an immutable core determinant of how competitive an industry or market is… As a result, concentration is worse than just a noisy barometer of market power. Instead, we cannot even generally know which way the barometer is oriented.[15]
In other words, depending on the nature and dynamics of the market in question, competition may well be protected under conditions that preserve a certain number of competitors in the relevant market. But competition may also be protected under conditions in which a single winner takes all on the merits of their business.[16] It is reductive, and bad policy, to presume that a certain number of competitors is always and everywhere conducive to better economic outcomes, or indicative of anticompetitive harm.
None of this means that concentration measures have no use in merger enforcement. Instead, it demonstrates that market concentration is often unrelated to antitrust enforcement, because it is driven by factors endogenous to each industry. As indicated earlier, the limited value of structural presumptions in elucidating competitive outcomes is recognized in the Consultation—at least, in theory. It is also recognized in the context of agreements and arrangements in s.90.3 of the Competition Act, which states that “for the purpose of subsections (1) and (2), the Tribunal shall not make the finding solely on the basis of evidence of concentration or market share.”
And yet it, is not entirely clear—in the aftermath of Bill C-59, and especially following the elimination of the efficiencies defense—how defendants could rebut the structural presumption laid down in s.92, other than by refuting the market-concentration calculus put forward by the Bureau. This essentially turns merger review under the Competition Act into a formalistic exercise where—despite assurances to the contrary—market structure is outcome-determinative. It also jars with the logic that applies to conduct under s. 90.1, thereby rendering the Competition Act conceptually rudderless.
The Guidelines can mitigate the unintended consequences of Bill C-59 by relativizing the value of structural presumptions. This can be done by clarifying that market structure is only a proxy for determining whether a transaction significantly lessens competition; explaining how structural presumptions can be rebutted; and clarifying that there is no “one size fits all” presumption across all industries. The overarching theme should be this: merger review is not a tool to organize markets along the Bureau’s preferred structural composition, but merely a tentative indication preceding a full-blow analysis.
Conversely, if the Guidelines double-down on Bill C-59’s structural turn, Canada risks stifling the dynamism of its own economy and destroying the significant benefits that accrue from procompetitive transactions, which account for the vast majority of mergers.[17] As Aaron Wudrick—former director of the Domestic Policy Programme at the Macdonald-Laurier Institute and now director of policy for MP Pierre Poilievre—has pointed out, “[structural presumptions] are very bad a idea, and [are] essentially evidence-free populism run amok.”[18] This echoes our arguments about the flimsy connection between market structure and economic performance. Similarly, Wudrick argues that:
The very premise is faulty, because concentration measures alone—as opposed to market power—are a poor proxy for the level of competition that prevails in a given market. I understand this can seem counterintuitive to a lot of people in the abstract, but in practice, it makes more sense: say you have one competitor, in particular, offering lower prices, higher quality, or newer cutting-edge products, so they end up breaking from the pack. They gain customers, and their market share rises. So this higher concentration is actually signaling more, rather than less, competition![19]
A formalistic adherence to market structure, in a misguided attempt to cater to populist anti-bigness sentiment, can penalize precisely those companies that, as Wudrick puts it, “break from the pack.” Consumers would, in turn, be left worse off “due to the unintended consequences in this populist rush to ‘get’ the big guys.”[20]
This form of populism may momentarily assuage some of the political pressure stemming from the high cost of living, but the “victory” is bound to be a Pyrrhic one—both as the economic harms of a flawed economic policy become apparent, and as consumers become aware that they are expected to foot the bill. With the impending change of administration in the United States, the populist “neo-Brandeisian moment” may have passed in that country,[21] and Canada would be unwise to replicate it at its lowest ebb.
The Bureau’s recognition of the importance of monopsony power in labor markets is a welcome development. The recent changes to the Competition Act that explicitly include labor as a “product” for the purposes of merger review appropriately reflect the importance of labor-market competition.[22] As the Bureau acknowledges, the economic literature is increasingly concerned with how employers may exercise market power over their workforce, influencing wages, benefits, and working conditions.[23]
Before getting to the explicit guidance, however, it would be worthwhile to take a fuller look at the economic literature.[24] The Bureau cites papers that find high concentration levels.[25] It is worth recognizing that one of these papers is restricted only to manufacturing, while the other relies on online job-posting data. The administrative data directly measure employment levels and shares, instead of being restricted to online vacancies as a proxy for employment.
This distinction matters, because employment shares are the natural counterpart of market shares—a cornerstone of antitrust enforcement. Concentration measures based on vacancies will be systematically higher than those based on employment, because not all firms will hire in any given period (in addition to any other issues with the data sample). Using the most direct comparison available, the governmental microdata finds an average Herfindahl–Hirschman Index (HHI) roughly one-tenth as large as that found using vacancy data. For example, Elizabeth Weber Handwerker and Matthew Dey directly compare the concentration measures in their data to the 26 occupations studied by Jose Azar, Iona Marinescu, and Marshall Steinbaum.[26] They find an HHI in the private sector of 0.0383, compared to 0.3157 in Azar, Marinescu, & Steinbaum.
The point is not to take a firm stance on the level of concentration in labor markets, especially labor markets in Canada, but instead to recognize nuances in the literature.
When thinking about the connection between concentration and wages, rather than concentration in isolation, it is also worth noting that most papers (including those cited by the Bureau) that find lower wages in markets with higher employer concentration do not differentiate rural from urban labor markets.[27] Rural and urban labor markets can differ significantly in terms of their economic structures, job opportunities, and wage levels. Any regression of wages on concentration is likely picking up something unrelated to concentration directly.
There is good evidence that employer concentration does not lead to depressed wages. For example, Ivan Kirov and James Traina find that rising markdowns (the gap between worker productivity and wages) are more strongly associated with technology-related factors—such as automation and managerial practices—than with employer concentration.[28] Moreover, they caution that:
These results suggest the workhorse assumptions behind some of the labor-market power literature might need reevaluation, particularly work that uses cross-sectional variation to infer trends in labor-market power. Concentration is likely an inappropriate measure of labor-market power in this case.
Their critique underscores the limitations of relying heavily on concentration metrics to assess labor-market competition, especially when making claims about trends over time. As Steven Berry, Martin Gaynor, and Fiona Scott Morton write:
A main difficulty in [the monopsony power literature] is that most of the existing studies of monopsony and wages follow the structure-conduct-performance paradigm; that is, they argue that greater concentration of employers can be applied to labor markets and then proceed to estimate regressions of wages on measures of concentration. For the same reasons we discussed above, studies like this may provide some interesting descriptions of concentration and wages but are not ultimately informative about whether monopsony power has grown and is depressing wages.[29]
This is not to say that indirect evidence of market power is entirely without value. These studies can provide useful background information to guide antitrust policy. Moreover, antitrust law itself often relies on indirect measures of market power, such as concentration ratios and HHIs. In the case of antitrust enforcement, however, these measures are typically derived from carefully defined relevant markets. Defining the relevant market for labor is a complex task that requires considering such factors as job characteristics, worker skills, worker mobility, and geographic scope. There is currently little consensus among labor economists about the best way to define labor markets for antitrust purposes.
While the Bureau points to true features of labor markets around search frictions, the conclusion “that labour markets may be narrow” is premature, if “may” means more than mere possibility. There are also features of labor markets that push in the opposite direction. Often, the relevant market cannot be narrowed to even a handful of readily identifiable companies. For the vast majority of workers, a great number of potential employers would remain following a merger. This “potential competition”—the range of feasible employers that present an outside option to the merged companies’ present employees—limits the merged firm’s ability to exercise monopsony power in its labor negotiations. While we are not aware of publicly available data that would more comprehensively illustrate worker flows among different companies (and industries), such flows of retail workers into and out of roughly adjacent labor markets make intuitive sense. As economist Kevin Murphy has explained:
If you look at where people go when they leave a firm or where people come from when they go to the firm, often very diffuse. People go many, many different places. If you look at employer data and you ask where do people go when they leave, often you’ll find no more than five percent of them go to any one firm, that they go all over the place. And some go in the same industry. Some go in other industries. Some change occupations. Some don’t. You look at plant closings, where people go. Again, not so often a big concentration of where they go to. If you look at data on where people are hired from, you see much the same patterns. That’s kind of a much more diffuse nature.[30]
Fundamentally, the labor-economics literature has offered little guidance to date on how to define markets in labor cases. Concentration varies greatly, depending on the exact definition of the relevant market, especially the geographic market. It is virtually impossible to know what outside options to include in the relevant market, and it may not always be possible to identify even where such potential employers are located (e.g., are commuting zones better proxies for the relevant geographic labor market than metropolitan areas?). These market-definition issues are far more acute in monopsony cases than in traditional monopoly cases, both because the intrinsic question of substitutes is more complicated and because there is far less precedent to guide parties and enforcers. That makes enforcers’ jobs more difficult. But if the goal is to promote competition, instead of simply reducing the number of mergers, it is important to recognize the difficulties, rather than assume they do not exist.
If the Guidelines wish to stress labor markets and monopsony, it is also worth noting the differences. Suppose, for now, that a merger either generates efficiency gains or market power, but not both. In a monopoly case, if there are efficiency gains from a merger, the quantity sold in the output market will increase. With sufficient data, the agencies will be able to see (or estimate) the efficiencies directly in the output market. Efficiency gains result in either greater output at lower unit cost, or else product-quality improvements that increase consumer demand. In contrast, if the merger simply enhances monopoly power without efficiency gains, the quantity sold will decrease, either because the merging parties raise prices or quality declines. The empirical implication of the merger is seen directly in the market in question
The monopsony case is, however, rather more complicated. Ultimately, we can be certain of the effects of monopsony only by looking at the output market, not the input market where the monopsony power is claimed. Consider, again, a merger that generates either efficiency gains or market (in this case, monopsony) power. A merger that creates monopsony power will necessarily reduce the prices and quantity purchased of inputs like labor and materials. But this same effect (reduced prices and quantities for inputs) would also be observed if the merger is efficiency-enhancing. If there are efficiency gains, the merged entity may purchase fewer of one or more inputs than the parties did pre-merger. For example, if the efficiency gains arise from the elimination of redundancies in a hospital merger, the hospital will buy fewer inputs, hire fewer technicians, or purchase fewer medical supplies.
We have seen there are scale efficiencies associated with hospital mergers. As work from the U.S. Federal Trade Commission (FTC) Bureau of Economics explains, there can be scale efficiencies associated with “surgical procedures that exhibit a volume-outcome relationship.”[31] Typically, these are high-risk, complex procedures. “By consolidating such procedures at fewer hospitals, or by sending experienced personnel from one hospital to another, a system potentially can reap the benefits of increased scale.”[32] That is, reassignment of personnel and/or consolidation of procedures (and attendant personnel) at fewer hospitals can facilitate more efficient and higher-quality provision of services, even as it may decrease labor demand in certain geographic markets. This may even reduce the wages of technicians or the price of medical supplies, even if the newly merged hospitals do not exercise any market power to suppress wages.[33]
Taking these complications, which go beyond the concerns in standard monopoly cases, the Guidelines should also explicitly acknowledge the interactions among output markets and input markets, and what they mean for the assessment of merger efficiencies. Monopsony markets do not present a mirror image of monopoly markets. Merger reviews should therefore assess both input markets (e.g., labor) and output markets (e.g., products) simultaneously. In other words, considering some effects outside the relevant market is essential when evaluating effects in labor markets. The assessment of efficiencies must also take into account the potential offsetting effects on workers from lower wages (or slower wage growth), which is not explicitly addressed in this guidance.
As a general note, it is highly doubtful that digital platforms truly warrant an overhaul of existing merger-review principles, or a lex specialis. Indeed, it is unlikely that these markets exhibit any greater tendency toward anticompetitive conduct than others. In fact, these industries—if we can call them that—tend to perform comparatively better than others. As Herbert Hovenkamp has noted, when deciding which industries they should pursue, antitrust authorities typically focus on those that are characterized by poor economic performance. By contrast:
With Big Tech, we’re looking at probably the most productive part of the economy. The rate of innovation is high. They spend a lot of money on R&D. They are among the largest patent holders. There’s very little evidence of collusion. They seem to be competing with each other quite strongly. They pay their workers relatively well and have fairly educated workforces. None of this is a sign that these are industries we should be pursuing. That doesn’t mean they don’t do some anti-competitive things. But the whole idea that we should be targeting Big Tech strikes me as fundamentally wrong-headed.[34]
As Geoffrey Manne and Dirk Auer have argued, antitrust enforcers’ hostility toward digital platforms may be fueled more by dystopian populism than actual evidence of widespread harm.[35] When revisiting the Guidelines, the Bureau should not fall for some of the fallacies that paint digital platforms as uniquely problematic or prone to anticompetitive conduct.
For instance, the Consultation states that strong network effects may make markets prone to “tipping,” especially when combined with economies of scale and the use of large volumes of data. This is an argument that has become increasingly common, and the Competition Bureau is certainly not the first to raise it. The crux of the argument is that “the collection and use of data creates a feedback loop of more data, which ultimately insulates incumbent platforms from entrants who, but for their data disadvantage, might offer a better product.”[36] This self-reinforcing cycle purportedly leads to market domination by a single firm.[37] Thus, it is argued that, e.g., Google’s “ever-expanding control of user personal data, and that data’s critical value to online advertisers, creates an insurmountable barrier to entry for new competition.”[38]
But it is important to note the conceptual problems these claims face. Because data can be used to improve the quality of products and/or to subsidize their use, the idea that data serves as an entry barrier suggests that any product improvement or price reduction made by an incumbent could be problematic for any new entrant. This is tantamount to the argument that competition itself is a cognizable barrier to entry. Of course, it would be a curious approach to antitrust if competition were treated as a problem, as it would imply that firms should under-compete—i.e., should forego consumer-welfare enhancements—in order to inculcate a greater number of firms in a given market simply for its own sake.[39]
Meanwhile, actual economic studies of data-network effects have been few and far between, with scant empirical evidence to support the theory.[40] Andrei Hagiu and Julian Wright’s theoretical paper offers perhaps the most comprehensive treatment of the topic to date.[41] The authors ultimately conclude that data-network effects can be of varying magnitudes and with varying effects on firms’ incumbency advantage.[42] They cite Grammarly (an AI writing-assistance tool) as a potential example: “As users make corrections to the suggestions offered by Grammarly, its language experts and artificial intelligence can use this feedback to continue to improve its future recommendations for all users.”[43]
Despite the paucity of evidence, however, policymakers and antitrust enforcers have been keen to embrace data-driven network-effect theories of harm. For example, it is remarkable that, in its section on “[t]he data advantage for incumbents,” the Furman Report created for the UK government cited only two empirical economic studies, and those studies offer directly contradictory conclusions with respect to the question of the strength of data advantages.[44] Nevertheless, the Furman Report concludes that data “may confer a form of unmatchable advantage on the incumbent business, making successful rivalry less likely,”[45] and adopts without reservation “convincing” evidence from non-economists that have no apparent empirical basis.[46]
This trend is likewise evident in other jurisdictions, including the EU and the United States.[47] Unfortunately, these concerns rest on little-to-no empirical evidence, either in the economic literature or the underlying case records. Accordingly, it is important that the Guidelines recognize the procompetitive aspects of so-called digital platforms, network effects, and data, rather than treating their mere existence as a smoking gun that signals anticompetitive harm. While data could, in certain circumstances, confer on a company the ability and incentive to foreclose rivals, this should be tempered by the recognition that data can also be (i) the source of procompetitive conduct that enhances consumer welfare and (ii) not an insurmountable barrier to entry.
On the latter point, consider generative AI. Given common assumptions about the advantages conferred by data and data-driven network effects, it would be reasonable to assume that firms like Google, Meta, and Amazon should be in pole position to dominate the burgeoning market for generative AI. After all, these firms have not only been at the forefront of the field for the better part of a decade, but they also have access to vast troves of data, the likes of which their rivals could only dream when they launched their own services.
To date, however, this is not how things have unfolded—although it bears noting that these markets remain in flux and the competitive landscape is susceptible to change. The first significantly successful generative-AI service was arguably not from either Meta—which had been working on chatbots for years and had access to, arguably, the world’s largest database of actual chats—or Google. Instead, the breakthrough came from a previously unknown firm called OpenAI.
This raises several crucial questions: how have these AI upstarts managed to be so successful, and is their success just a flash in the pan before Web 2.0 giants catch up and overthrow them? While we cannot answer either of these questions dispositively, we offer what we believe to be some relevant observations concerning the role and value of data in digital markets.
A first important observation is that empirical studies suggest that data exhibits diminishing marginal returns. In other words, past a certain point, acquiring more data does not confer a meaningful edge to the acquiring firm. As Catherine Tucker put it following a review of the literature: “Empirically there is little evidence of economies of scale and scope in digital data in the instances where one would expect to find them.”[48]
Likewise, following a survey of the empirical literature on the topic, Manne & Auer conclude that:
Available evidence suggests that claims of “extreme” returns to scale in the tech sector are greatly overblown. Not only are the largest expenditures of digital platforms unlikely to become proportionally less important as output increases, but empirical research strongly suggests that even data does not give rise to increasing returns to scale, despite routinely being cited as the source of this effect.[49]
Ultimately, establishing a business model to extract and organize the right information is more important than simply owning vast troves of data.[50] Even in those instances where high-quality data is an essential parameter of competition, it does not follow that having vaster databases or more users on a platform necessarily leads to better information for the platform.
Indeed, if data ownership consistently conferred a significant competitive advantage, these new firms would not be where they are today. This does not, of course, mean that data is worthless. Rather, it means that competition authorities should not assume that merely possessing data is a dispositive competitive advantage, absent compelling empirical evidence to support such a finding. In this light, the Guidelines should seek to accurately reflect the nuances surrounding data-driven advantages.
A second potential area of concern relates to conglomerate or non-horizontal mergers. The Consultation indicates that these may be important in mergers involving digital platforms, given the complementarity of the products involved. The Competition Bureau should be careful, however, not to treat every merger involving a digital platform as a de facto horizontal merger under the flawed assumption that, but for the acquisition, one of the merging firms likely would launch its own competing vertical product.[51] Similarly, if “digital ecosystems” are defined broadly to include any products that are actually or potentially complimentary, and if strengthening a “digital ecosystem” makes a merger suspect of anticompetitive harm, then virtually any acquisition involving a digital platform could, in theory, be deemed anticompetitive insofar as it would give the acquiring firm the ability (and incentive) to, e.g., give preferential treatment to its complementary product over those of rivals.
This logic could apply to anything from Amazon’s acquisition of robot vacuum cleaners (Amazon could preference its own vacuum cleaners on Marketplace); AI partnerships (Apple could “tie” an AI to its iOS); maps services (Google Maps); etc. It is easy to see the problem with this theory: it has no obvious limiting principles. Any two products could potentially be complementary in the boundless domain of “digital ecosystems.” Of course, in a given case, under specific facts and circumstances, a large, diversified tech firm might consider or achieve entry into a vertical, or “complimentary” market. But a possibility under some facts and circumstances is a far cry from a general likelihood.
The implication of this research[52] is that mergers between firms that are either vertically related or active in unrelated markets routinely or typically have significant horizontal effects.[53] This can be the case, either when merging firms are potential competitors or when they compete in innovation markets (i.e., they have overlapping R&D pipelines, or may have them in the future).[54] Endorsing this approach to merger review wholeheartedly, however, would have profound policy ramifications. Indeed, should authorities assume the counterfactual to a merger is that the acquirer will compete with the target directly, then every merger effectively becomes a horizontal one. This would obfuscate the well-established, fundamental conceptual difference between horizontal and vertical mergers.
A horizontal merger combines firms that compete in the same relevant market, which necessarily reduces the number of firms engaged in head-to-head competition and may eliminate substitutes. That reduction inherently tends to increase prices, but the price effect may be trivial. In addition, market responses (competitive repositioning or new entry) or other benefits of the merger (savings in transaction and other costs, enhanced investment incentives) may neutralize or offset the impetus to higher prices. But because those benefits are not automatic (and the reduction of direct competition is), they must be proven, rather than assumed, if the merger otherwise poses a significant risk of anticompetitive effects.
A vertical merger, by contrast, combines firms with an upstream or downstream (e.g., seller-buyer) relationship—that is, “firms or assets at different stages of the same supply chain.”[55] Examples include a manufacturer acquiring a distributor or a firm that provides a manufacturing input. The economic consequences of combining complements rather than substitutes are fundamentally different. Whereas the first-order effect of a horizontal merger is upward pricing pressure, the first-order effect of a vertical merger is downward pricing pressure. Vertical mergers typically entail the elimination of double marginalization, which is akin to downward pricing pressure (and often considered alongside efficiencies).[56]
Vertical integration also typically internalizes externalities in research and development, resulting in greater investment.[57] Like horizontal mergers, vertical mergers also often confer other benefits, such as operational and transactional efficiencies.[58] Thus, while both types of mergers can create benefits from cost savings, their intrinsic effects move in opposite directions: higher prices and less investment with horizontal mergers, and lower prices and more investment with vertical mergers.
Here, once again, the Competition Bureau should be careful not to fall prey to alarmist theories of harm, generalizations with little basis in reality, and anti-tech commotion. To avoid stifling procompetitive mergers that result in the integration of complimentary products from which consumers benefit (as well as foreclosing an important exit strategy for startups),[59] the Guidelines should be very clear as to which conglomerate mergers are problematic, and under which circumstances. Otherwise, the Competition Act risks throwing the baby out with the bathwater.
The Bureau intends the revised Guidelines to focus on non-price effects,[60] with a clear emphasis on privacy. As the Consultation notes:
Future merger reviews may examine privacy as a non-price dimension of competition which may be harmed when competition is lessened or prevented. It may be challenging to measure impacts on privacy. As such, it may be helpful for the guidelines to include information on the aspects of privacy that may be affected by mergers, including:
transparency regarding data practices,
whether meaningful consent is obtained,
the extent of data collection,
the use or sharing of collected data,
storage and retention terms,
encryption and protection,
data portability rights, or
other parameters.[61]
While this is reasonable, in principle, and in line with antitrust law’s best practices and the consumer-welfare standard, it also merits caution.[62] The U.S. 2010 Horizontal Merger Guidelines (2010 HMGs), for example, recognized that anticompetitive effects may “be manifested in non-price terms and conditions that adversely affect consumers.”[63] This, of course, includes effects on consumer privacy. The theory behind this is that a merger between two entities—one that is more privacy-protective and one that is less—could lead to less privacy overall (framed here as more data collection for targeted advertising) because there would be one less firm to put competitive pressure on the newly merged firm. Thus, competition authorities reviewing such mergers are encouraged to consider the impact on privacy as part of their analysis.
For example, in Google’s 2007 acquisition of DoubleClick, the FTC explicitly considered the impact of the transaction on “non-price attributes of competition, such as consumer privacy.”[64] While a merger has never been blocked solely due to privacy concerns, it clearly can be analyzed as a form of non-price competition. The lack of enforcement on these grounds may, however, be due to the clear difficulties in applying such a framework.
First, non-price effects may be difficult to measure. As Doug Melamed and Nicolas Petit have pointed out:
Like all decision-makers, antitrust agencies and courts are constrained in their ability to discover facts that are imperfectly observable (e.g., successful entry deterrence), measurable (e.g., product quality) or predictable (e.g., innovation and technological progress). Some data are easier to obtain, and some facts are easier to establish. So public and private antitrust enforcers have, for reason of prudence or pragmatism, focused on price and output effects.[65]
Second, product-quality effects can be extremely difficult to distinguish from price effects. Quality-adjusted price is usually the touchstone by which antitrust regulators assess prices for competitive-effects analysis. Disentangling (allegedly) anticompetitive quality effects from simultaneous (neutral or pro-competitive) price effects is, at best, an imprecise exercise. For this reason, it is very difficult to prove a product-quality case alone and would require connecting the degradation of a particular element of product quality to a net gain in advantage for the monopolist.
This means, for example, that the price of free access for users of multi-sided platforms must be balanced against the cost of data collection.[66] For instance, most users of digital apps and websites strongly prefer free access in exchange for their data, as evidenced by the fact that very few pay for subscription models that eschew data collection. The consumer-welfare standard would require looking at the quality-adjusted price to consider whether a merger would help or harm consumers on privacy grounds. One of the tradeoffs inherent in this exercise is whether blocking a potential merger could mean higher prices for many users in the name of protecting privacy.
For example, imagine a hypothetical device maker with high levels of privacy protection that charges more for its products and requires fee-based access to apps in the app marketplace for its devices. Imagine this device maker is acquired by a rival that has lower-cost devices and mostly “free” apps in its stores, which are cross-subsidized via targeted ads powered by data collection. If an antitrust-enforcement agency rejects this acquisition on privacy grounds, there would be a potential cost to those consumers who would have experienced lower prices for the devices and free apps. Determining the tradeoffs among device and app selection, price, and privacy for the consumer-welfare analysis in such a case would be extremely difficult.
Invariably, product quality can be measured on more than one dimension. For instance, product quality could include both function and aesthetics: A watch’s quality lies in both its ability to tell time, as well as how nice it looks on your wrist. A non-price-effects analysis involving product quality across multiple dimensions becomes exceedingly difficult if there is a tradeoff in consumer welfare between the dimensions. Thus, for example, a smaller watch battery may improve its aesthetics, but also reduce its reliability. Any such analysis would necessarily involve a complex and imprecise comparison of the relative magnitudes of harm/benefit to consumers who prioritize one type of quality over another.
All other things being equal, it is plausible that consumers would prefer more privacy. But not only are there potential tradeoffs between price and privacy online, but there could be an important tradeoff between privacy and other product qualities, such as how well an algorithm for a search engine or a social-media news feed works. One of the reasons many users prefer Google over the more privacy-oriented DuckDuckGo, for instance, is because of how well the search algorithm works—empowered, in part, by data collected online.[67]
For enforcers, this again leads to a question of how to consider tradeoffs under the consumer-welfare standard. Without more information, it will be very difficult to determine whether consumers care more about data collection or the other product qualities that data collection could empower. The preferences among users about the relative weighting of product features is, moreover, likely to be highly heterogeneous, making a generalized assessment of given features exceedingly difficult.
In sum, the question of antitrust-relevant product quality really comes down to the relative numbers of, and magnitude of harm to, consumers who prefer more privacy protection versus those who prefer a better product experience and/or a lower price. To make out an antitrust case based on privacy harms, antitrust regulators would have to compare the magnitude of harms to what appears to be a small group of privacy-sensitive consumers (who have not otherwise protected themselves by using marketplace tools like tracking-blockers or the opt-out options provided by major ad networks and data brokers) to the benefits received by the supermajority of consumers who are less privacy-sensitive. Beyond the enormous difficulty of performing such analysis, it seems extraordinarily unlikely that the harms would outweigh the benefits, on net.
A final consideration is also important. When considering using competition law, enforcers should consider that Canada already has an extensive data-privacy legal framework.[68] Accordingly, any attempt to harness competition law to protect privacy should be cautious about possible unintended effects, such as barriers to competition or the generation of high compliance costs due to possible redundancies, lack of legal clarity or predictability, or even contradictions.
The Bureau’s emphasis on innovation effects in merger review is well-placed, as dynamic competition through innovation represents a crucial dimension of market rivalry that can have significant consequences for consumer welfare.[69] The relationship between market structure and innovation is, however, often ambiguous—requiring careful analysis, rather than broad presumptions. Bill C-59’s aggressive stance against concentration[70] might undercut dynamic competition, as size and scale are often conducive to innovation.
The economic literature examining the relationship between market structure and innovation presents mixed findings that defy simple characterization. As Richard Gilbert notes in his survey of the empirical literature, studies “do not reach a consensus, other than to note that innovation effects can differ dramatically for firms that are at different levels of technological sophistication.”
Table 6.1 summarizes the conclusions from these interindustry studies for the effects of competition and industry structure on innovation. Unfortunately, these studies do not reach a consensus, other than to note that innovation effects can differ dramatically for firms that are at different levels of technological sophistication. Although some studies find a positive relationship between measures of innovation and competition (alternatively, a negative relationship between innovation and industry concentration), others find that the relationship exhibits an inverted-U, with the largest effects at moderate levels of industry concentration or competition, and at least one study reports a negative relationship between competition (measured by Chinese import penetration) and innovation (measured by citation-weighted patents and R&D investment. One consistent finding is that an increase in competition has less of a beneficial effect, and may have a negative effect, on innovation incentives for firms that are far behind the industry technological frontier.[71]
This ambiguity is reflected in seemingly contradictory findings across industries. For instance, Ronald Goettler and Brett Gordon[72] found that concentration led to higher innovation rates in semiconductors, while Mitsuru Igami reached the opposite conclusion when studying the hard-disk-drive industry.[73]
Perhaps most notably, the seminal work of Philippe Aghion et al. identified an inverted-U relationship between competition and innovation.[74] This finding, however, warrants careful interpretation. While increased competition may spur innovation up to a point, the relationship varies significantly across industries and depends on numerous factors, including firms’ relative technological positioning. The relationship that holds true for the economy as a whole does not necessarily apply in any given case. While the research on market structure and innovation does not directly apply to mergers, it illustrates similar tradeoffs involved.
Looking at mergers directly, if there is an emerging consensus, it is that protecting innovation requires a nuanced, context-dependent approach, rather than blanket presumptions about market structure. Drawing directly from Marc Bourreau et al., we can develop a more nuanced understanding of the relationship between mergers and innovation.[75] The authors demonstrate that the impact of mergers on incentives for innovation can be decomposed into two fundamental effects: a market-power effect and an externality effect. This decomposition helps explain why blanket presumptions about merger effects on innovation may be misleading.
The market-power effect captures how changes in output following a merger affect innovation incentives. Specifically, when a merger reduces output, it typically diminishes firms’ incentives to innovate when innovation would increase their margins (Bourreau et al., 2024). But the authors also show that this effect’s magnitude and direction can vary depending on how the merger affects the return to investment per-unit of output.
The externality effect, meanwhile, encompasses two distinct mechanisms. First, merged entities internalize the impact of each firm’s innovation on the other firm’s demand—what the authors deem the “innovation diversion effect.” Second, mergers affect firms’ margins and therefore their incentives to innovate when innovation increases sales, termed the “demand expansion effect” (Bourreau et al., 2024). Importantly, the authors demonstrate that the externality effect’s direction depends on the relative magnitude of price-diversion versus innovation-diversion ratios.
This framework helps to explain why policies that uniformly restrict mergers may have unintended consequences for innovation. Igor Letina, Armin Schmutzler, and Regina Seibel demonstrate that prohibiting acquisitions can have a weakly negative effect on innovation, even when such policies may enhance static competition.[76] Their research identifies that this effect operates through multiple channels, including reduced incentives for startup investment when exit through acquisition is foreclosed. This finding suggests that merger policy must carefully balance static competition benefits against potential dynamic innovation effects.
The Guidelines should therefore avoid adopting what might be called a “structuralist innovation presumption”—i.e., the assumption that more firms in a market will necessarily produce greater innovation. Such a presumption would be at odds with the economic literature. The Guidelines should also recognize that innovation effects may sometimes diverge from price effects. A merger might increase market power, while simultaneously enhancing innovation output through various mechanisms, including:
The telecommunications industry provides instructive evidence of such divergent effects. Research examining “4-to-3” mobile-carrier mergers has found that, while price effects were ambiguous, capital expenditures—a key proxy for investment and innovation —consistently increased post-merger.[77] This aligns with findings that markets with three facilities-based operators often saw the highest levels of per-firm investment, suggesting stronger incentives for infrastructure development and technological advancement. Similarly, Elena Patel and Nathan Seegert found that “hospitals in concentrated markets increased investment by 5.1 percent more than firms in competitive markets.”[78]
To properly assess innovation effects, the Guidelines should adopt a framework that:
Bill C-56 repealed the efficiency defense in Canadian merger review. Prior to the repeal, this provision meant that a merger’s anticompetitive effects could be weighed against cost savings. As Aaron Wudrick has argued: “[The efficiency defense] was an explicit acknowledgment that there are tradeoffs involved in competition.”[79] Indeed, tradeoffs under uncertainty are endemic in competition law. This is magnified in the context of merger review where, rather than addressing past misconduct, authorities must predict whether a transaction is likely to harm competition in the future.
The repeal of the efficiency defense was unfortunate. But while efficiencies are no longer relevant under s.96 of the Competition, as Wudrick points out, an efficiency defense can arguably still be invoked as “other factors” under s.93 of the Competition Act.[80] If this is the case, as it should indeed be interpreted, the Guidelines should expressly state this, and clearly establish how and when this should be claimed and proved (and who bears the burden of proof). This would help economic agents to have predictability (a fundamental characteristic of the rule of law), whether in the planning of their investments, in the structuring of their operations, or as part of the merger-control procedure.
Efficiency, after all, is the basic objective of antitrust law. Competition is not an end in itself, but rather a means to an end. We protect competition because market competition is generally the most effective way to ensure the efficient allocation of resources.[81] That is why most competition-enforcement regimes recognize that a merger that may have significant anticompetitive effects should nevertheless be permitted if it would also result in efficiency improvements that are greater than the anticompetitive effects.[82]
Efficiencies, of course, are difficult to quantify and verify. The burden of proof of the efficiencies gained through the merger should be mainly on the merging firms, considering they are the lowest-cost producer of such information.
Considering the wording of s.93, the Guidelines could follow the structure of, and include similar rules and procedures as, the European Commission’s Guidelines on the assessment of horizontal mergers,[83] which establish that:
… the Commission performs an overall competitive appraisal of the merger. In making this appraisal, the Commission takes into account the factors mentioned in Article 2(1), including the development of technical and economic progress provided that it is to the consumers’ advantage and does not form an obstacle to competition.[84]
The Commission’s guidelines, however, include a high burden of proof to accept these efficiencies, establishing that “efficiencies should be substantial and timely, and should, in principle, benefit consumers in those relevant markets where it is otherwise likely that competition concerns would occur.”[85] The bar shouldn’t be set that high, given that most mergers are pro-competitive. Projections of efficiencies should be accepted if they can be verified by reasonable means and under a preponderance-of-the-evidence standard.
The consultation asks if the current guidelines “sufficiently address mergers involving nascent competitors,” which may include so-called “killer acquisitions.” While the “killer acquisitions” theory has captured the attention of scholars and authorities, and some consider them a material risk to competition (particularly in technology markets),[86] the evidence of real harm is weak. This is because the “killer acquisitions” theory does not differentiate between legitimate and efficient discontinuations of acquired products and the elimination of potential competitors.[87] Acquisitions of nascent and potential competitors undertaken with the intention of reducing competition have also been described as “killer acquisitions,” even if the acquisitions do not involve products being discontinued.[88]
Along similar lines, it is sometimes argued that large tech firms create so-called “kill zones” around their core businesses.[89] All of these practices are said to harm innovation by deterring competitors from investing in innovations that compete with incumbents.[90] The overarching theme of the above research is that existing antitrust doctrine is ill-equipped to handle these practices or, at the very least, that antitrust law should be enforced more vigorously in these settings.
But while the above research identifies important and potentially harmful conduct that cannot be dismissed out of hand, it is important to recognize its inherent limitations when it comes to informing normative policy decisions. Indeed, there is a vast difference between identifying categories of conduct that sometimes harm consumers and being able to isolate individual instances of anticompetitive behavior.[91] The above is merely a restatement of the error-cost framework, which highlights that the existence of false negatives is not a sufficient condition for heightened intervention:
The fact—if it can be proved—that there were some false negatives does not imply that there has been underenforcement with respect to the optimal level of enforcement. In other words, in the digital space the argument can be made that an optimal merger policy on average leads to ex-post “underenforcement.” Moreover, even if the level of enforcement has been lower than optimal, one must be careful not to swing to the opposite side, especially in high-tech industries. The chilling effect on innovation could be significant.[92]
Instead, it must always be the case that a change to the standards of government intervention to prevent more of these false negatives (with their inherent tradeoffs) ultimately increases social welfare overall.[93]
Take the example of Google. The company has acquired at least 270 companies over the last two decades.[94] It has been argued that some of Google’s acquisitions—including those of YouTube, Waze, and DoubleClick—may have been anticompetitive.[95] The real test for regulators, however, is whether they could reliably identify which of Google’s 270 acquisitions are actually anticompetitive, and to do so under a decision rule that causes less harm to consumers from false positives than is caused by the current false negatives.[96] If the anticompetitive mergers are such a tiny percentage of total mergers, and if identifying them a priori is difficult, then a precautionary-principle strategy that results in many false positives would likely not merit the benefits from blocking one or two anticompetitive mergers.
Indeed, but for Google and Facebook’s investments in YouTube and Instagram, respectively, it is far from clear that a mere “video-hosting service” or “photo-sharing app” would have grown into the robust competitors that advocates assume. Apart from the potential synergies arising from the combination of these products with the acquiring companies’ other products,[97] corporate control by the acquiring company may lead to these firms being better managed. This concept of M&A as creating a “market for corporate control” adds an important new dimension to the understanding of the tradeoffs involved in merger control.[98]
These anticompetitive theories of harm can be separated into three broad categories: (1) large incumbents have become so dominant in their primary markets that venture capitalists decline to fund startups that compete head-on, reducing potential competition; (2) large incumbents acquire potential competitors or non-competitor startups so as to reduce the competition along several dimensions, and (3) incumbents purchase competitors to shut down their overlapping innovation pipelines (i.e., “killer acquisitions”). With this in mind, applying the error-cost framework should lead policymakers to carefully consider the following questions when evaluating the merits and policy implications of economic research in this space:
In addition to these error-cost-related questions, we must also question whether the results of these studies are relevant outside the specific markets they examine, and whether they give sufficient weight to countervailing procompetitive justifications.
The above suggests that authorities should consider the full picture before doing away with existing presumptions. For instance, while lowering merger-filing thresholds may enable enforcers to review and block some anticompetitive mergers that currently go unchallenged, it will also have other costs for which enforcement agencies must account. Indeed, lowering filing thresholds will significantly increase the number of mergers that agencies must review. This will increase enforcement costs, delay the clearance of some socially beneficial deals, and stretch agency resources (potentially leading to certain deals receiving less attention than is currently the case, which may increase both false positives and negatives).
[1] Reviewing the Merger Enforcement Guidelines, Government of Canada, The Competition Bureau (Nov. 7, 2024), https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/reviewing-merger-enforcement-guidelines.
[2] An Act to Amend the Excise Tax Act and the Competition Act, 2023 (Bill C-56)(Can.).
[3] An Act to Implement Certain Provisions of the Fall Economic Statement Tabled in Parliament on November 21, 2023 and Certain Provisions of the Budget Tabled in Parliament on March 28, 2023 (Bill C-59)(Can.).
[4] Geoffrey A. Manne, Dirk Auer, Aaron Wudrick, & Mario Zúñiga, Comments of the International Center for Law & Economics and the Macdonald-Laurier Institute: Competition Bureau Canada Public Consultation on ‘Artificial Intelligence and Competition’ Discussion Paper, Int’l. Ctr. Law Econ (Aug. 13, 2024), available at https://laweconcenter.org/wp-content/uploads/2024/08/Comments-of-the-ICLE-Merger-Consultarion-AUS.pdf.
[5] Artificial Intelligence and Competition Discussion Paper, Competition Bureau of Canada (Mar. 20, 2024), https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/artificial-intelligence-and-competition.
[6] International Center for Law & Economics, https://laweconcenter.org.
[7] Competition Act, 1985 (R.S.C., C-34) s.92.2. (Can.).
[8] (“Market concentration is a useful, but imperfect, indicator of the competitive harm that may result from a merger”).
[9] See Harold Demsetz, Industry Structure, Market Rivalry, and Public Policy, 16 J.L. & Econ. 1 (1973); see also, e.g., Richard Schmalensee, Inter-Industry Studies of Structure and Performance, in 2 Handbook of Industrial Organization 951-1009 (Richard Schmalensee & Robert Willig, eds., 1989); William N. Evans, Luke M. Froeb, & Gregory J. Werden, Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures, 41 J. Indus. Econ. 431 (1993); Steven Berry, Market Structure and Competition, Redux, FTC Micro Conference (Nov. 2017), available at https://www.ftc.gov/system/files/documents/public_events/1208143/22_-_steven_berry_keynote.pdf; Nathan Miller et al., On the Misuse of Regressions of Price on the HHI in Merger Review, 10 J. Antitrust Enforcement 248 (2022).
[10] Harold Demsetz, The Intensity and Dimensionality of Competition, in Harold Demsetz, The Economics of The Business Firm: Seven Critical Commentaries 137, 140-41 (1995).
[11] Supra note 9.
[12] Shanat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13(3) Am. Econ. J. Microecon. 309-327, 324 (Aug. 2021).
[13] Id., at 309.
[14] Timothy F. Bresnahan, Empirical Studies of Industries with Market Power, in HANDBOOK OF INDUSTRIAL ORGANIZATION, 1011, 1053-54 (Richard Schmalensee & Robert Willig, eds., 1989).
[15] Chad Syverson, Macroeconomics and Market Power: Context, Implications, and Open Questions, 33(3) J. Econ. Perspect. 23-43, 26 (2019).
[16] Nicolas Petit & Lazar Radic, The Necessity of the Consumer Welfare Standard in Antitrust Analysis, ProMarket (Dec. 18, 2023), https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.
[17] For example, in the EU, 94% of mergers are cleared without commitments, whereas only about 6% are allowed with remedies, and less than 0.5% of mergers are blocked or withdrawn by the parties. See Joanna Piechucka, Tomaso Duso, Klaus Gugler, & Pauline Affeldt, Using Compensating Efficiencies to Assess EU Merger Policy, VoxEU (Jan. 10, 2022), https://cepr.org/voxeu/columns/using-compensating-efficiencies-assess-eu-merger-policy; see also, Robert Kulick & Andre Card, Mergers, Industries, and Innovation: Evidence from R&D Expenditure and Patent Applications, NERA Economic Consulting (Feb. 2023), available at https://www.uschamber.com/assets/documents/NERAMergers-and-Innovation-Feb-2023.pdf (finding that mergers are responsible for as much as $13.5 billion in increased research and development expenditure annually).
[18] Aaron Wudrick, The View from Canada: A TOTM Q&A with Aaron Wudrick, Truth on the Market (Jun. 12, 2024), https://truthonthemarket.com/2024/06/12/the-view-from-canada-a-totm-qa-with-aaron-wudrick.
[19] Id.
[20] Id.
[21] On the uncertain legacy of neo-Brandeisianism, see Dirk Auer & Lazar Radic, The Legacy of Neo-Brandeisianism: History or Footnote? Network Law Review (Jul. 9, 2024) https://www.networklawreview.org/auer-radic-brandeisianism.
[22] Supra note 1.
[23] See, e.g., Suresh Naidu, Eric A. Posner, & Glen Weyl, Antitrust Remedies for Labor Market Power, 132 Harv. L. Rev. 536 (2018).
[24] For a full review of the labor-monopsony literature and how it relates to antitrust, see Brian C. Albrecht, Dirk Auer, & Geoffrey A. Manne, Labor Monopsony and Antitrust Enforcement: A Cautionary Tale, ICLE White Paper No. 2024-05-01, available at https://laweconcenter.org/wp-content/uploads/2024/05/Labor-Monopsony-Antitrust-final-.pdf.
[25] Supra note 1 (citing Jose Azar, Iona Marinescu, & Marshall Steinbaum, Labor Market Concentration, 57 J. Hum. Res. S167, S197 (Supp. 2022).
[26] See Elizabeth Weber Handwerker & Matthew Dey, Some Facts About Concentrated Labor Markets in the United States, 63 Indus. Rel. 132, 135 (2023).
[27] Efraim Benmelech, Nittai K. Bergman, & Hyunseob Kim, Strong Employers and Weak Employees, How Does Employer Concentration Affect Wages?, 57 J. Hum. Res. S200 (Supp. 2022)
[28] Ivan Kirov & James Traina, Labor Market Power and Technological Change in US Manufacturing, conference paper for Institute for Labor Economics (Oct. 2022), at 42, available at https://conference.iza.org/conference_files/Macro_2022/traina_j33031.pdf.
[29] Steven Berry, Martin Gaynor, & Fiona Scott Morton, Do Increasing Markups Matter? Lessons from Empirical Industrial Organization, 33 J. Econ. Persp. 44, 57 (2019) (emphasis added).
[30] Transcript: Public Workshop on Competition in Labor Markets, Antitrust Div. of the U.S. Justice Dep’t (Sep. 23, 2019), available at https://www.justice.gov/atr/page/file/1209071/download.
[31] Keith Brand, Martin Gaynor, Patrick McAlvanah, David Schmidt, & Elizabeth Schneirov, Economics at the FTC: Office Supply Retailers Redux, Health Care Quality Efficiencies Analysis, and Litigation of an Alleged Get Rich Quick Scheme, 45 Rev. Indus. Org. 325 (2014).
[32] Id.
[33] Some efficiency-enhancing mergers will be identifiable, of course. For example, if the merger raises quantities and prices for all inputs, that must be efficiency-enhancing. The problem, as always, is with the hard cases.
[34] Herbert Hovenkamp, What Big-Tech Antitrust Gets Wrong, Financial Times (Jan. 19, 2024), https://www.ft.com/content/4eec8bc3-c892-4704-ae66-a4432c6d4fd7.
[35] Geoffrey A. Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 Geo. Mason. L. Rev. 1281, 1286 (2021). (“Underlying this pessimism is a pervasive assumption that new technologies will somehow undermine the competitiveness of markets, imperil innovation, and entrench dominant technology firms for decades to come. This is a form of antitrust dystopia. For its proponents, the future ushered in by digital platforms will be a bleak one—despite abundant evidence that information technology and competition in technology markets have played significant roles in the positive transformation of society”).
[36] John M. Yun, The Role of Big Data in Antitrust, in The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020) at 233, https://gaidigitalreport.com/2020/08/25/big-data-and-barriers-to-entry/#_ftnref50; see also, e.g., Robert Wayne Gregory, Ola Henfridsson, Evgeny Kaganer, & Harris Kyriakou, The Role of Artificial Intelligence and Data Network Effects for Creating User Value, 46 Acad. Of. Mgmt. Rev. 534 (2020), final pre-print version at 4, http://wrap.warwick.ac.uk/134220 (“A platform exhibits data network effects if, the more that the platform learns from the data it collects on users, the more valuable the platform becomes to each user.”); see also Karl Schmedders, José Parra-Moyano, & Michael Wade, Why Data Aggregation Laws Could be the Answer to Big Tech Dominance, Silicon Republic (Feb. 6, 2024), https://www.siliconrepublic.com/enterprise/data-ai-aggregation-laws-regulation-big-tech-dominancecompetition-antitrust-imd.
[37] See also Consultation. (“Strong network effects may make certain digital markets prone to ‘tipping’ (where a single dominant firm, or group of firms, emerges in the market), especially when combined with economies of scale and scope or the use of large volumes of data.”).
[38] Nathan Newman, Search, Antitrust, and the Economics of the Control of User Data, 31 Yale J. Reg. 401, 409 (2014) (emphasis added); see also id. at 420 & 423 (“While there are a number of network effects that come into play with Google, [‘its intimate knowledge of its users contained in its vast databases of user personal data’] is likely the most important one in terms of entrenching the company’s monopoly in search advertising…. Google’s overwhelming control of user data… might make its dominance nearly unchallengeable.”).
[39] See also Yun, supra note 36, at 229 (“[I]nvestments in big data can create competitive distance between a firm and its rivals, including potential entrants, but this distance is the result of a competitive desire to improve one’s product.”).
[40] For a review of the literature on increasing returns to scale in data (this topic is broader than data-network effects), see Manne & Auer, supra note 35, at 1281, 1344.
[41] Andrei Hagiu & Julian Wright, Data-Enabled Learning, Network Effects, and Competitive Advantage, 54 Rand J. Econ. 638 (2023).
[42] Id. at 639. The authors conclude that “Data-enabled learning would seem to give incumbent firms a competitive advantage. But how strong is this advantage and how does it differ from that obtained from more traditional mechanisms…”
[43] Id.
[44] See Jason Furman, Diane Coyle, Amelia Fletcher, Derek McAuley, & Philip Marsden (Dig. Competition Expert Panel), Unlocking Digital Competition (2019), at 32-35 (“Furman Report”), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf.
[45] Id. at 34.
[46] Id. at 35. To its credit, it should be noted, the Furman Report counsels caution before mandating access to data as a remedy to promote competition. See id. at 75. With that said, the Furman Report maintains that such a remedy should be on the table, because “the evidence suggests that large data holdings are at the heart of the potential for some platform markets to be dominated by single players and for that dominance to be entrenched in a way that lessens the potential for competition for the market.” Id. In fact, the evidence does not show this.
[47] See, e.g., Natasha Lomas, EU Checking if Microsoft’s OpenAI Investment Falls Under Merger Rules, TechCrunch (Jan. 9, 2024), https://techcrunch.com/2024/01/09/openai-microsoft-eu-merger-rules; Amended Complaint, In the Matter of Meta Platforms Inc., Mark Zuckerberg, & Within Unlimited Inc. (No. 605837), Fed. Trade Comm’n. (Oct. 13, 2022), at 11, available at https://www.ftc.gov/system/files/ftc_gov/pdf/D09411%20-%20AMENDED%20COMPLAINT%20FILED%20BY%20COUNSEL%20SUPPORTING%20THE%20COMPLAINT%20-%20PUBLIC%20%281%29_0.pdf.
[48] Catherine Tucker, Digital Data, Platforms and the Usual [Antitrust] Suspects: Network Effects, Switching Costs, Essential Facility, 54 Rev. Indus. Org. 683, 686 (2019).
[49] Auer & Manne, supra note 35, at 1345.
[50] See Yun, supra note 36, at 235 (“Even if data is primarily responsible for a platform’s quality improvements, these improvements do not simply materialize with the presence of more data—which differentiates the idea of data-driven network effects from direct network effects. A firm needs to intentionally transform raw, collected data into something that provides analytical insights. This transformation involves costs including those associated with data storage, organization, and analytics, which moves the idea of collecting more data away from a strict network effect to more of a ‘data opportunity.’”).
[51] See, e.g., Cristina Caffarra, Gregory S. Crawford, & Tommaso Valletti, “How Tech Rolls”: Potential Competition and “Reverse” Killer Acquisitions, Antitrust Chronicle (May 26, 2020) (“Large digital platforms in particular have exceptional abilities to pursue organic expansion but also opportunities to ‘roll up’ (willing) startups to ‘get there faster’, ‘buying’ instead of expending effort in rival innovation. Foregoing such effort is never good for consumers and society as a whole: while innovative effort is costly, it will often yield multiple providers and differentiated services, with socially desirable properties.”).
[52] Id.
[53] See, e.g., Steven C. Salop, Potential Competition and Antitrust Analysis: Monopoly Profits Exceed Duopoly Profits, Working Paper (Apr. 28, 2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3839631; see also C. Scott Hemphill & Tim Wu, Nascent Competitors, 168 U. Pa. L. Rev. 1879 (2019).
[54] See, e.g., Salop, id. See also Giulio Federico, Gregor Langus, & Tommaso Valletti, Horizontal Mergers and Product Innovation, 59 Int’l J. Indus. Org. 1 (2018).
[55] U.S. Dep’t of Justice, Antitrust Div. & F.T.C., Vertical Merger Guidelines 1 (2020).
[56] David Reiffen & Michael Vita, Comment: Is There New Thinking on Vertical Mergers? 63 Antitrust L.J. 917, 920 (1995).
[57] Henry Ogden Armour & David J. Teece, Vertical Integration and Technological Innovation, 62 Rev. Econ. & Stat. 470 (1980).
[58] Dennis W. Carlton, Transaction Costs and Competition Policy, 73 Int’l J. Indus. Org. 1 (2019); Oliver Williamson, The Economic Institutions of Capitalism 86 (1985).
[59] On this point, see Sam Bowman & Sam Dimitriu, Better Together: The Procompetitive Effects of Mergers in Tech, The Entrepreneurs Network (Sep. 13, 2021), https://www.tenentrepreneurs.org/research/better-together-the-procompetitive-effects-of-mergers-in-tech (arguing that acquisition is a key route to exit for entrepreneurs).
[60] Supra note 1, Section 2.8.
[61] Id.
[62] On non-price dimensions of the consumer-welfare standard, see Nicolas Petit & Lazar Radic, The Superiority of the Consumer Welfare Standard, EUI Law Working Paper 2024/20, 16-19 (2024).
[63] U.S. Dep’t of Justice & F.T.C., Horizontal Merger Guidelines (2010), available at https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf.
[64] Statement of the Federal Trade Commission, Google/DoubleClick, No. 071-0170, available at https://www.ftc.gov/system/files/documents/public_statements/418081/071220googledc-commstmt.pdf.
[65] Douglas A. Melamed & Nicolas Petit, The Misguided Attack on the Consumer Welfare Standard in the Age of Platform Markets. 54 Rev. Indus. Org. 741, 753 (2019).
[66] See, e.g., Alastair R. Beresford, Dorothea Ku?bler, & So?ren Preibusch, Unwillingness to Pay for Privacy: A Field Experiment (SFB 649 Discussion Paper 2011-010, 2011), available at https://ftp.iza.org/dp5017.pdf; Jens Grossklags & Alessandro Acquisti, When 25 Cents Is Too Much: An Experiment on Willingness-to-Sell and Willingness-to-Protect Personal Information, in Proceedings of the Sixth Workshop on the Economics of Information Security (2007), available at https://econinfosec.org/archive/weis2007/papers/66.pdf; Mary Ellen Gordon, The History of App Pricing, and Why Most Apps are Free, The Flurry Blog (Jul. 18, 2013), http://blog.flurry.com/bid/99013/The-History-of-App-Pricing-AndWhy-Most-Apps-Are-Free.
[67] Though not the only important explanation of the quality of the algorithm, data collection—especially for indexing purposes—has been a bigger driver of Google’s success. See, e.g., Daisuke Wakabayashi, Google Dominates Thanks to an Unrivaled View of the Web, N.Y. Times (Dec. 14, 2020), https://www.nytimes.com/2020/12/14/technology/howgoogle-dominates.html.
[68] See, e.g., Canada’s Privacy Act, the Charter of Rights and Freedoms, the Criminal Code, local government’s personal information-protection laws, the Personal Information Protection and Electronic Documents Act (PIPEDA), among others.
[69] See, e.g., Consultation. (“The Competition Tribunal previously described innovation as ‘the most important type of competition’ and confirmed that harm to dynamic competition and innovation can be central to a finding of substantial prevention or lessening of competition”)(references omitted for coherence).
[70] See generally, Section I.
[71] Richard J. Gilbert, Innovation Matters: Competition Policy for the High-Technology Economy, 116 (2020)
[72] Ronald L. Goettler & Brett R. Gordon, Does AMD Spur Intel to Innovate More?, 119 J. Pol. Econ. 1141, 1141 (2011)
[73] Mitsuru Igami, Estimating the Innovator’s Dilemma: Structural Analysis of Creative Destruction in the Hard Disk Drive Industry, 1981–1998, 125 J. Pol. Econ. 798, 798 (2017)
[74] Philippe Aghion, Nick Bloom, Richard Blundell, Rachel Griffith, & Peter Howitt, Competition and Innovation: An Inverted-U Relationship, 120 Q. J. Econ. 702 (2005).
[75] Marc Bourreau, Bruno Jullien, & Yassine Lefouili, Horizontal Mergers and Incremental Innovation, HAL Open Science (2024), available at https://hal.science/hal-04790973v1/document.
[76] Igor Letina, Armin Schmutzler, & Regina Seibel, Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies, 65 Int. Ec. Rev. 591-622 (Feb. 20, 2024), https://onlinelibrary.wiley.com/doi/10.1111/iere.12689.
[77] Eric Fruits, Justin (Gus) Hurwitz, Geoffrey A. Manne, Julian Morris, & Alec Stapp, Static and Dynamic Effects of Mergers: A Review of the Empirical Evidence in the Wireless Telecommunications Industry, OECD Directorate for Financial and Enterprise Affairs Competition Committee, Global Forum on Competition, DAF/COMP/GF(2019)13 (Sep. 4, 2020), available at https://one.oecd.org/document/DAF/COMP/GF(2019)13/en/pdf.
[78] Elena Patel & Nathan Seegert, Does Market Power Encourage or Discourage Investment? Evidence From the Hospital Market, 63 J.L. Econ. 667, 667 (2020)
[79] Supra note 18.
[80] Id. See also Competition Act, s.93(h).
[81] OECD, Interim Report on Convergence of Competition Policies, GD(94)64, at Annex, para. 4
[82] Id. See, e.g., the 2010 HMGs and European Commission’s Merger Regulation, Council Regulation No. 139/2004 (Jan. 20, 2004).
[83] Guidelines on the Assessment of Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings, C 31/03, European Commission (2004).
[84] Id., para 76.
[85] Id., para 79.
[86] Jonathan Barnett, “Killer Acquisitions” Reexamined: Economic Hyperbole in the Age of Populist Antitrust, 3 U. Chic. Law Rev. 39 (2023), at 42.
[87] See, e.g., Axel Gautier & Joe Lamesch, Mergers in the Digital Economy, 54 Info. Econ. & Pol’y (2000) (“There are three reasons to discontinue a product post acquisition: the product is not as successful as expected, the acquisition was not motivated by the product itself but by the target’s assets or R&D effort, or by the elimination of a potential competitive threat. While our data does not enable us to screen between these explanations, the present analysis shows that most of the startups are killed in their infancy.”).
[88] John M. Yun, Potential Competition, Nascent Competitors, and Killer Acquisitions, 18 Global Antitrust Institute Report on the Digital Economy 652, 652–53 (2020).
[89] Sai Krishna Kamepalli, Raghuram Rajan, & Luigi Zingales, Kill Zone (NBER Working Paper 85, 2020), at 40
[90] Colleen Cunningham, Florian Ederer, & Song Ma, Killer Acquisitions, 129 J. Pol. Econ. 649-702 (2021), at 694.
[91] It remains important to distinguish conduct that harms consumers overall from conduct that merely harms certain parameters of competition, while improving others. In other words, antitrust law should prohibit conduct when the category to which that conduct belongs is generally harmful to consumers and/or when harmful occurrences of that conduct can be readily distinguished. See, e.g., Eric Fruits et al., supra note 77 at 18 (“Studies that do not consider these [non-price] effects are incomplete for purposes of evaluating the mergers’ consumer welfare effects, and [are] all-too easily used by advocates to misleadingly predict negative consumer outcomes. This is not necessarily a criticism of the studies themselves, which generally do not make comprehensive policy conclusions. The reality is that it is exceptionally difficult to comprehensively study even price effects, such that a well conducted study of price effects alone is a valuable contribution to the literature. Nevertheless, in the context of evaluating prospective transactions, the results of such studies must be discounted to account for their exclusion of non-price effects.”).
[92] Luís Cabral, Merger Policy in Digital Industries (CEPR Discussion Paper No. DP14785, May 2020), at 12, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3612854.
[93] See Carl Shapiro, Antitrust in a Time of Populism, 61 Int’l J. Indus. Org. 714, 741 (2018).
[94] See id. at 740.
[95] Id.
[96] Id.
[97] For example, YouTube’s search and recommendations engines being developed by Google, the world’s leading internet-search company, or Instagram’s ad platform being integrated with Facebook’s.
[98] See Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965), at 117–19.
Introduction We appreciate the opportunity to respond to the European Commission’s Consultation on the Proposed Measures for Interoperability Between Apple’s iOS Operating System and Connected . . .
We appreciate the opportunity to respond to the European Commission’s Consultation on the Proposed Measures for Interoperability Between Apple’s iOS Operating System and Connected Devices (DMA.100203).
The Commission’s enforcement of Article 6(7) of the Digital Markets Act (DMA) has brought Apple’s iOS ecosystem under scrutiny. This provision mandates that designated operating systems and virtual assistants must ensure “effective interoperability” with third-party devices and services.
Unfortunately, while the provision is designed to benefit competition, that outcome is far from certain in the case at-hand. Indeed, as we explain in our comments, the maximalist vision of enforcement the Commission is contemplating poses grave risks to user security, the user experience, and innovation, with few countervailing benefits to competition. Apple’s iOS ecosystem is routinely praised for its integration and user safety, but both it and its users now face enhanced risks that stem from the Commission’s proposal for forced interoperability under the DMA.
Against this backdrop, these comments aim to highlight the potentially adverse effects of the Commission’s interpretation of Article 6(7). Specifically, they address: (i) the security risks associated with mandating far-reaching open access to iOS’s key features (as opposed to a more surgical approach); (ii) the economic and consumer implications of undermining the tightly integrated iOS ecosystem; and (iii) alternative and more balanced approaches to achieve interoperability without sacrificing user safety, impairing the user experience, or slowing innovation.
In short, we argue that it is possible to achieve the DMA’s goals while avoiding the harmful outcomes for European consumers and the tech ecosystem that are virtually inevitable under the approach the Commission currently envisions.
Article 6(7) of the DMA introduces a legal obligation for gatekeepers such as Apple to ensure “effective interoperability” between their operating systems and third-party devices and services, so long as this does not “compromise the integrity of the operating system”.[1]
The underlying rationale is to foster competition by granting smaller competitors access to ecosystems that traditionally have been closed or tightly controlled. While this principle has some intuitive appeal, its application to highly integrated and security-conscious systems like iOS raises significant questions about its practicality and potential downsides, especially when policymakers opt for an exceedingly narrow interpretation of the security justifications offered by the DMA.
Implementing the interoperability requirements outlined in Article 6(7) for iOS presents a series of intricate technical and operational challenges. One major issue stems from the fact that many core features of iOS—such as near-field communication (NFC) capabilities and background application activity—are deliberately designed to be locked down. These features play a critical role in ensuring both the system’s security and the seamless performance users have come to expect from Apple devices. As we explain below, allowing third parties entirely unfettered access to these sensitive functions would fundamentally alter iOS’s security architecture, introducing potential vulnerabilities that could lead to serious breaches of user data, unauthorized financial transactions, and other malicious activities.
Moreover, interoperability at the scale envisioned by the DMA would require significant technical investment to establish and maintain secure and reliable communication protocols between iOS and third-party systems. The development of such standards is inherently complex, demanding extensive collaboration among stakeholders, rigorous testing, and ongoing oversight to address emerging threats and to ensure a consistent user experience. Yet the current DMA framework lacks clear guidelines or mechanisms to facilitate such a process, leaving a critical gap in its enforcement strategy. In short, as we have argued elsewhere, the Commission needs to give gatekeepers (including Apple) more time to design and market test remedies that achieve an appropriate balance between the DMA’s competition-related goals and the protection of user security.
Under the principle of proportionality, Commission decisions must not go beyond what is “necessary to achieve the desired end”.[2] Furthermore, to comply with Article 6(7) of the DMA, the Commission must also allow “necessary and proportionate” departures from full interoperability. As a result, in the case at-hand, it must ask whether it is necessary to force unlimited interoperability between the Apple OS and third-party devices (as opposed to the DMA’s requirement of “effective” interoperability) in order to promote more “contestability and fairness” in digital markets.
In that regard, it is important to consider that market competition already provides significant interoperability between Apple and third-party devices. As a producer of complementary products (e.g., both smartphones like the iPhone and wireless headphones like Airpods), Apple may have the ability—and may appear to have incentive—to completely foreclose third-party products in order to maximize the sale of its own products. These incentives, however, are mitigated by the fact that at least some consumers want to use other brands.
Admittedly, Apple does have some market power, and there is some “stickiness” to its ecosystem. But it is misguided to view this “stickiness” as a problem. Rather, because it arises from Apple’s integrated product design—its efforts to ensure that its products “work seamlessly together” to create “a magical experience” for users[3]—“stickiness”, in this context, is simply another way of describing features that better satisfy consumer demand. These efforts are a function of competition: Apple competes with Android to (among other things) provide consumers with the most integrated and most comfortable smartphone ecosystem.
But a non-negligible share of users prefer and use other brands, such as headphones from Sony, Sennheiser, Bose, and JBL, among innumerable others. Sophisticated audiophiles may prefer high-fidelity headphones; frequent travelers may prefer headphones with the best noise-canceling features, etc. Apple’s headphones, while apparently suitable for most people, may not satisfy all of these diverse consumer preferences. Thus, in response to such preferences, Apple not only allows these competing products to work with its own devices, but it also provides some enhanced connectivity/interoperability features that allow these devices to operate with much of the same core functionality as Apple’s own offerings. Apple products of course, have the best (“full”) interoperability: e.g., pairing is more seamless, and more information is displayed, sometimes automatically. But the differences are largely trivial. See, for instance, how the iPhone displays information about Airpods’ pairing and battery (Figure 1).
Source: Beebom[4]
That precise display isn’t available for other headphones. But other manufacturers’ products enjoy similar features, replicating the core functionality of Apple’s headphones. Once paired with an iPhone, for instance, most headphones can connect automatically to the smartphone. Information about the headphones’ battery, AirPlay, and other connectivity options are also easily accessible. See, for instance, how iOS displays information about the JBL Tune 700BT Headphones (Figure 2).
It is also possible to download third-party apps (from Sony, JBL, and Bose, for example) that allow a wider range of controls and provide more information about the devices.[5] The same is true of fitness trackers and other wearables.[6]
While this is not exactly the same treatment that Apple provides its own devices, it is difficult to see why the operation of such features must be identical to facilitate competition. Indeed, as noted, these third-party devices differ from Apple’s on many dimensions. It is unclear why differentiation on, say, battery display obviates the “contestability” engendered by Apple allowing third-party headphones with, say, higher sound quality or better waterproofing to connect with its devices.
Regardless, Apple quite clearly provides more than sufficient connectivity to allow users to try third-party devices, get more information about them, and to keep using them, if that is their preference. Considering that these devices do not entail significant switching costs and that consumers can and do readily “multi-home” (i.e., use AirPods while jogging, or JBL or Bose headphones for work purposes), the user experience that Apple provides facilitates considerable “contestability” and provides third-party manufacturers a manifestly fair chance to compete.
This matters, because Article 6(7) of the DMA tolerates limits to full interoperability where they are necessary and proportionate to protect “the integrity” of operating systems, software, and hardware.[7] The DMA therefore contemplates a weighing process, under which trivial limits to interoperability (which, as explained above, is the case here) are legal if they are necessary to preempt larger harms to the ecosystem (which, as explained below, would be a consequence of the Commission’s proposed measures). In other words, mandating full interoperability in this case, as the Commission seeks to do, would provide almost no additional benefits to third parties, but entail significant risks and costs for consumers. Given this, the Commission must permit small departures from full interoperability where they are both necessary and proportionate.
Unfortunately, the trivial competitive benefits that might be achieved by the Commission’s proposed measures would come at a significant cost to European consumers.
The Commission’s preliminary findings suggest an expansive interpretation of Article 6(7), advocating for opening APIs and features broadly without sufficient regard for the consequences.[8] But this maximalist approach risks overwhelming gatekeepers (including Apple) with compliance requirements, diverting resources away from innovation, and potentially delaying the introduction of new features.
Furthermore, the indiscriminate nature of this enforcement could exacerbate users’ security risks, as third-party developers may lack the incentives or capabilities to match Apple’s stringent security standards. The combination of increased vulnerabilities and a slower pace of innovation threatens to undermine consumer welfare—and even to reduce the benefits to third-party rivals of platform connectivity.
The forced interoperability proposed under Article 6(7) introduces significant risks to user security. Many of the features targeted for interoperability—such as devices’ NFC capabilities and wireless-file-transfer functionalities like AirDrop—are integral to the iOS ecosystem’s security infrastructure. These features were designed with stringent safeguards to prevent unauthorized access and to ensure that users’ sensitive information remains protected. By mandating that third-party developers gain access to these APIs and functionalities, the Commission’s approach would create opportunities for exploitation by malicious actors.
Requiring Apple to offer third-party developers unrestricted access to NFC functionalities could facilitate skimming attacks and other forms of unauthorized transactions.[9] A piece published on the NordVPN blog lists 10 security risks associated with the improper use of, and unbridled access to, smartphones’ NFC chips.[10] One such risk is that NFC prompts may be used to trigger the download and installation of malware—a risk further compounded by the DMA’s requirement that iOS users be allowed to sideload applications.[11] Mandating access to the NFC chip also increases the likelihood of relay attacks (where NFC information is intercepted by a third party), because NFC interoperability information and protocols will be made public.
Much the same can be said about mandating third-party access to iOS’s AirDrop functionality. Again, according to NordVPN, AirDrop presents several security risks that would be compounded by the measures the Commission seeks to impose. These risks range from comparatively mundane threats, such as leaks of email addresses and phone numbers (because AirDrop may use this personal information to identify parties) to more significant security hazards, such as “man-in-the-middle” attacks (where an attacker accesses a private exchange) and malware attacks (where an attacker sends an infected file via AirDrop).[12]
The point is that those parts of the iOS ecosystem that the Commission would seek to open are particularly sensitive. By refusing to acknowledge and account for the inherent tradeoffs, the Commission’s proposal risks degrading the security of European users. These risks are further compounded by other DMA provisions, such as users’ ability to sideload apps and the requirement that third-party apps should be able to function in the background.
This is not just theoretical speculation. The Microsoft/CrowdStrike outage that kept airlines, hospitals, banks, and other businesses down for hours, generating great disruption for thousands of consumers,[13] could have been—at least, in part—generated by an interoperability mandate. Indeed, as explained by the Financial Times:
Giving software companies that kind of access to an operating system is dangerous — it means you can quickly lose control of your computer if any of the software providers you rely on makes a mistake or is compromised. That is why Apple began informing third-party developers in 2020 that it would no longer grant them kernel-level access to the MacOS operating system (and also quite possibly why the CrowdStrike problem didn’t affect Apple devices).
But not all the fault lies with Microsoft. A 2009 agreement between the company and the European Commission requires it to grant outside developers the same access to Windows that its own security software has. The idea was to make it possible for other software companies to compete with Microsoft by ensuring many of its products and services are interoperable with outside software and tools. That’s a worthy goal, and many provisions in the agreement are entirely reasonable, such as requiring that Outlook support common calendar event and scheduling formats.
But the 2009 agreement is profoundly flawed in requiring Microsoft to make all of the APIs, or programming functions, that its own security software products use available to manufacturers of third-party security software products. This is the provision that requires Microsoft to give kernel-level access to companies such as CrowdStrike. Until it is changed, it’s not clear that Microsoft can implement the chief lesson of this debacle and start phasing out access, as Apple did four years ago.[14]
Critics of this view may retort that those third parties who interoperate with iOS are well-situated to ensure their services safely interact with Apple’s ecosystem, but things are not quite so simple. Third-party developers may lack the resources to implement equivalent security measures. Apple’s security protocols are supported by substantial investments in research, engineering, and real-time monitoring of threats. Third-party developers, particularly smaller firms, may not possess the same level of technical expertise or financial capacity to replicate these safeguards. And because security failings are likely to be attributed to the most visible entity—in this case, Apple—third parties might not have the right incentives to provide optimal levels of security.
At the same time, of course, unscrupulous actors with no incentive to maintain security safeguards are sure to try to exploit any loopholes created by the Commission. The result is an inevitable increase in vulnerabilities, leaving European users more exposed to risks that could have been mitigated within a more controlled ecosystem.
Beyond the security risks discussed above, the sort of interoperability the Commission is demanding may also have a sizable impact on the performance of users’ devices.
For example, allowing third-party applications to run in the background without adequate controls can significantly reduce battery life, as has been observed on competing platforms like Android.[15] As one journalist put it: “Got the case of a quickly dying phone? It might be your background apps!”.[16] The issue arises because background activity consumes system resources, often without users’ awareness. And because users may be unable to attribute battery degradation to a specific application, developers may have weak incentives to minimize the energy their apps consume.
Given this, forcing Apple to allow background execution for all apps would compel Apple to include larger batteries in its phones. iPhones currently offer comparable battery life to Android devices, despite using smaller battery packs.[17] In turn, this can be expected to raise the cost of Apple devices and to degrade the user experience.
Similar problems may also arise with regard to data privacy. Third-party applications may intentionally or inadvertently collect user data during background operations, raising serious privacy concerns. Such changes not only diminish the user experience, but also erode trust in the iOS platform, which has built its reputation on seamless performance and reliability. While privacy breeches entail a direct threat to users, degrading platform quality will harm both users and the very third-party rivals the Commission intends to help.
The upshot is that the Commission’s proceedings threaten to degrade aspects of the iOS experience that European consumers value deeply.
The economic consequences of the Commission’s approach to interoperability extend beyond security and performance issues. By undermining Apple’s tightly integrated ecosystem, the DMA creates incentives for companies—including other large platforms covered under the DMA, such as Meta—to leverage Apple’s platform rather than invest in creating competing functionality, devices, and operating systems.
This strategy runs counter to the DMA’s stated goal of fostering competition. Instead of encouraging innovation and the development of new ecosystems, the current enforcement approach facilitates free-riding, wherein competitors stand to benefit from Apple’s investments without bearing the associated costs. This dynamic would not only stifle competition, but may also lead to higher costs for consumers, as regulatory compliance expenses are passed on through increased product prices. Additionally, the uncertainty surrounding broad and indiscriminate enforcement could deter investment in the European technology sector. Companies might hesitate to commit resources if they perceive that their proprietary innovations could be subject to forced sharing without adequate protections.
Finally, the economic implications extend to the broader market structure. By facilitating access to Apple’s APIs and features, the DMA might inadvertently entrench large competitors who are better positioned to capitalize on these openings, rather than enabling smaller firms to grow. This could lead to further consolidation, contrary to the DMA’s goals of decentralizing power and enhancing competition.
In summary, the Commission’s maximalist interpretation of Article 6(7) creates a confluence of risks that could compromise user security, degrade device performance, and undermine economic incentives for genuine competition. A more measured approach to interoperability—one that prioritizes user safety and fostering innovation—would better serve the interests of European consumers and the broader tech ecosystem.
In light of these considerations, a more nuanced approach to interoperability is essential. By focusing on targeted solutions that balance the desire for competition with the imperatives of user security and system integrity, the Commission can better align its enforcement of Article 6(7) with its overarching objectives.
A more effective way to achieve the goals of Article 6(7) without compromising user safety or innovation is to adopt a targeted approach to interoperability. This would involve limiting access to critical APIs and functionalities to a select group of trusted partners, vetted through stringent qualification processes.
For instance, Apple could work with the Commission and industry stakeholders to identify high-value use cases where interoperability is most beneficial to consumers. These could include APIs related to productivity, health monitoring, or other well-defined areas that enhance the user experience without exposing sensitive features like biometric authentication or NFC to unnecessary risks.
By focusing on specific high-impact areas, the Commission could encourage competition and innovation without disrupting the core integrity of Apple’s ecosystem. Such a framework would also allow for tighter oversight and quality control, ensuring that third-party developers meet the same high standards for security and performance that users expect from Apple products.
Another viable solution would be to encourage collaborative development between Apple and its competitors to establish secure interoperability protocols. This could involve creating industry standards for interoperability that prioritize security and reliability. For example, Apple, Meta, and other key players could collaborate to develop APIs with well-defined parameters, ensuring that only necessary data is shared, while safeguarding critical system functions.
Collaborative frameworks have the added benefit of fostering mutual accountability, as all parties would share responsibility to maintain the integrity of interoperable features. Such an approach would not only minimize security risks, but could also build trust among users, developers, and regulators.
A risk-based approach to interoperability would prioritize user safety by categorizing system features according to their sensitivity and potential significance. For example, low-risk features like calendar synchronization or basic file sharing could be made relatively more accessible, while high-risk features like background execution and NFC capabilities would remain restricted. This tiered system would allow for a gradual and controlled expansion of interoperability, giving Apple and its partners the time and resources to adapt to new standards without jeopardizing user safety or system performance.
This approach would also enable the Commission to better align its enforcement efforts with its stated goals of fostering competition and protecting consumers. By addressing interoperability in a measured and strategic manner, the DMA could achieve its objectives without imposing undue burdens on developers or exposing users to unnecessary risks.
The enforcement of Article 6(7) of the DMA presents a complex set of challenges that demand careful consideration. While the goal of fostering competition through interoperability may be laudable, the Commission’s current approach risks undermining user security, degrading device performance, and imposing economic costs that outweigh the benefits. The unintended consequences of broad and indiscriminate enforcement threaten to weaken consumer trust and stifle innovation in Europe’s digital markets.
To better achieve the DMA’s objectives, the Commission should adopt a more targeted, risk-based approach to interoperability. This would require focusing on high-value use cases, fostering collaboration among key industry players, and ensuring that mandates are proportionate to the risks involved. By aligning enforcement with these principles, the Commission could promote genuine competition and innovation while safeguarding the interests of European consumers.
[1] Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on Contestable and Fair Markets in the Digital sector and Amending Directives (EU) 2019/1937 and (EU) 2020/1828, art. 6 (7), 2022 O.J (L 265) 1, 36 (hereinafter “DMA”).
[2] Consolidated Version of the Treaty on European Union, art. 5(4), 26 October 2012, O.J. (C 326) 13 (hereinafter “the TEU”).
[3] Felix Richter, Apple’s Tightly Knit iPhone Ecosystem, STATISTA (25 March 2024), https://www.statista.com/chart/31973/likelihood-of-iphone-users-using-other-apple-devices.
[4] Beebom Staff, How to Check AirPods Battery Level, Beebom (18 December 2023), https://beebom.com/how-check-airpods-battery-level.https://beebom.com/how-check-airpods-battery-level.
[5] See, e.g., JBL, APPLE APP STORE, https://apps.apple.com/us/app/jbl-headphones/id1053136947 (last visited 8 January 2025); Sony Sound Connect, APPLE APP STORE, https://apps.apple.com/us/app/sony-sound-connect/id1168502924 (last visited 8 January 2025); Bose Connect App, BOSE, https://www.bose.com/apps/bose-connect?srsltid=AfmBOoq89DANpx8D7U3jdKDzX-MxXYfK6ID7vYJCBvxmt5X6JRiZC4Bi (last updated 8 January 2025).
[6] See, e.g., Fitbit, APPLE APP STORE, https://apps.apple.com/us/app/fitbit-health-fitness/id462638897 (last visited 8 January 2025).
[7] DMA, art. 6(7).
[8] Case Summary, Case DMA, 100203 – Consultation on the Proposed Measures for Interoperability Between Apple’s iOS Operating System and Connected Devices, EUROPEAN COMM’N, (18 December 2024), available at https://digital-markets-act.ec.europa.eu/document/download/ee7ba643-6cd6-494d-8552-cbaaaf18426a_en?filename=DMA.100203%20-%20Case%20summary.pdf (hereinafter “Apple IOS Case Summary”).
[9] Malcolm Higgins, NFC Security: 10 Security Risks You Need to Know, NORDVPN (10 August 2023), https://nordvpn.com/blog/nfc-security.
[10] Id.
[11] Id.
[12] Ilma Viena?indyt?, Is AirDrop Secure? How to Use It Safely, NORDVPN (12 December 2023), https://nordvpn.com/blog/is-airdrop-safe.
[13] Adam Satariano, Derrick Bryson Taylor, Remy Tumin, & Danielle Kaye, Outage for Microsoft Users Knocks Out Systems for Airlines and Hospitals in Chaotic Day, N.Y. Times (19 July 2024), https://www.nytimes.com/live/2024/07/19/business/global-tech-outage.
[14] Josephine Wolff, Software Crash Exposes Tensions Between Security and Competition, F.T. (28 July 2024), https://www.ft.com/content/60dde560-194a-40d1-8c98-1d96d6d019a0.
[15] Tristan Rayner, How to Stop the Android Apps Running in the Background, Android Auth. (13 May 2024), https://www.androidauthority.com/stop-android-background-apps-664842.
[16] Id.
[17] Robert Triggs, iPhone 16 and 16 Pro vs Android Battery Life Test: Which Phones Last the Longest?, Android Auth. (19 October 2024), https://www.androidauthority.com/iphone-vs-android-battery-life-3490706.
PORTLAND, Ore. (Dec. 12, 2024) – The International Center for Law & Economics (ICLE) offers the following statement on the Federal Trade Commission’s (FTC) just-announced . . .
PORTLAND, Ore. (Dec. 12, 2024) – The International Center for Law & Economics (ICLE) offers the following statement on the Federal Trade Commission’s (FTC) just-announced proceedings against Southern Glazer’s Wine and Spirits, alleging the company violated the Robinson-Patman Act of 1936 (RPA) by offering discounts and rebates to large national and regional chains that it did not extend to small and independent businesses.
The proceeding marks the commission’s first RPA case in more than a quarter-century, and revives a long-discredited interpretation of the statute that it establishes a per se ban on price discrimination, rather than just those discriminatory practices that harm competition.
The following quote can be attributed to ICLE President Geoffrey A. Manne:
There’s a distinct irony that, having just successfully challenged the Kroger/Albertsons merger by arguing that supermarkets compete only with each other—and not with supercenters, club stores, Instacart, or e-commerce—the FTC in this case effectively argues that chain stores do not actually compete with each other, and that only the competition provided by small retailers can discipline pricing. It’s a particularly strange argument to make in defense of the Robinson-Patman Act, whose original purpose was to remove price competition.
The following quote can be attributed to ICLE Chief Economist Brian Albrecht:
The FTC will need to show the price discrimination alleged in this case isn’t justified by cost differences in serving different customers. If distributors are forced to ignore genuine cost differences just to maintain an artificial price parity, the result could be harms to consumers. But most concerning about the initial complaint is the lack of concrete evidence of harm arising from specific price differences. Even when there aren’t cost differences, the economic evidence is clear that price discrimination can actually raise consumer welfare.
For more on the Robinson-Patman Act, see Brian’s October 2022 piece in National Review or Geoff’s January 2022 testimony to the U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law.
To schedule an interview with Geoff or Brian about the topic, contact ICLE Media and Communications Manager Elizabeth Lincicome at (919) 744-8087 or [email protected].
PORTLAND, Ore. (Dec. 10, 2024) – The International Center for Law & Economics (ICLE) offers the following statement on today’s opinion from Judge Adrienne Nelson . . .
PORTLAND, Ore. (Dec. 10, 2024) – The International Center for Law & Economics (ICLE) offers the following statement on today’s opinion from Judge Adrienne Nelson of the U.S. District Court for the District of Oregon in Federal Trade Commission v. Kroger & Albertsons, as well as the order from the State of Washington Superior Court for King County in State of Washington v. Kroger, et al., both enjoining the proposed merger of supermarkets Kroger Co. and Albertsons.
The following quote can be attributed to ICLE President Geoffrey A. Manne:
The FTC and U.S. Justice Department (DOJ) have been forcefully pushing for antitrust market-definition and merger-review standards based primarily on qualitative criteria that the U.S. Supreme Court laid out in its 1968 Brown Shoe v. United States decision, rather than the quantitative economic tests that have since been developed and become the gold standard. Recent courts—including this one and the U.S. District Court for the Southern District of New York in the Tapestry/Capri merger case earlier this year—have accepted these efforts. The result is questionable market definitions, based more on vibes than on economics.
In this case, the court rejected the parties’ assertion that they face strong competition from “supercenters” like Walmart and Costco. While the court is correct that supermarkets face competition from one another, it is clear that the intended purpose of this merger is to better position Kroger to compete with its most aggressive supercenter rivals. Moreover, insisting on a market definition determined by supermarkets’ role as a place where consumers engage in “one-stop shopping” makes little sense in a world of plentiful e-commerce options, such as those offered by Instacart and Amazon. Blocking the merger based on a determination that these sources of competition are not part of the relevant market appears backward-looking.
The following quote on labor-market concerns raised in the case can be attributed to ICLE Chief Economist Brian Albrecht:
While Judge Nelson ultimately chose to base her decision on the consumer-market claims, she was correct to find that the FTC did not present sufficient evidence to establish its labor-monopsony claims in the federal case. Indeed, the retail-labor market is demonstrably competitive and workers have a wide range of alternative employment options—both in and out of the retail sector. Unfortunately, the court did not outright reject the exceedingly narrow market definition of “union grocery labor.“
For more on the topic, see ICLE’s October 2023 white paper “Food-Retail Competition, Antitrust Law, and the Kroger/Albertsons Merger” and the July 2023 issue brief “Five Problems with a Potential FTC Challenge to the Kroger/Albertsons Merger.”
To schedule an interview with Geoff, Brian, or other ICLE scholars about the case, contact ICLE Media and Communications Manager Elizabeth Lincicome at (919) 744-8087 or [email protected].
Despite its growing success, open banking (OB) struggles to present a coherent identity. Indeed, despite its widespread adoption around the world, various models can . . .
Despite its growing success, open banking (OB) struggles to present a coherent identity. Indeed, despite its widespread adoption around the world, various models can be identified based on rationales, the nature of data-sharing obligations, and the standardisation process. Against this background, the paper aims to evaluate the consistency of OB policies. To this end, our analysis adopts a novel approach by examining the primary rationales behind OB regulatory initiatives in some major countries (i.e., the EU, UK, Australia, the US, India, and Singapore). Identifying these rationales is crucial for assessing whether the specific features of OB solutions implemented in each country are aligned with the intended policy goals. Therefore, the paper first identifies the primary rationales supporting OB initiatives in these countries and then examines their data-sharing and standardisation approaches. By mapping the primary rationales and models in terms of data-sharing obligations and standardisation solutions, the comparative analysis shows that variations in models and approaches among the examined jurisdictions do not necessarily reflect differences in the policy goals pursued through the OB regime. As a result, by recommending regulatory and technical solutions that better align with the intended policy goals of an OB regime, such a comparative analysis can assist policymakers in countries considering the introduction of open banking to design a model that best suits their needs.
What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of . . .
What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model with heterogeneous firms so that preferences are non-separable in off-market time and market consumption and show that this changes the welfare implications of markup heterogeneity. In this context, homogeneity of markups is neither necessary nor sufficient for efficiency. The marginal cost of the marginal firm is weakly inefficiently high when off-market time and market consumption are complements and inefficiently low when they are substitutes, and the equilibrium allocation devotes weakly too few resources to firm creation. However, when off-market time and market consumption are perfect complements, markups are heterogeneous across firms and yet the equilibrium allocation is efficient.
Why did antitrust law in most jurisdictions adopt the consumer welfare standard (CWS)? A popular explanation, which we term the Critical Political Economy Theory . . .
Why did antitrust law in most jurisdictions adopt the consumer welfare standard (CWS)? A popular explanation, which we term the Critical Political Economy Theory of Antitrust (CPETA) pretends that the CWS reflects the triumph of conservative, anti-enforcement, and free-market ideology. The CPETA asserts that neoliberals like Robert Bork and his acolytes cajoled US courts into believing that antitrust law application required a narrow focus on economic evidence of consumer harm. By limiting the universe of injuries cognizable under antitrust law and raising plaintiffs’ burden of proof, the CWS achieved the neoliberals’ intended purpose: to enucleate antitrust law of any social and political relevance. This ‘minimalist’ version of antitrust law was subsequently globalized as part of the standard neoliberal ideological package, under the auspices of US hegemony.
The CPETA is a fable. First, the CWS is not a “plant” of Robert Bork and the Chicago School. Antitrust history shows footprints of a CWS as far back as the common law of the seventeenth century, in the first cases of the US Supreme Court, and antitrust legislation in the US and the EU decades before the ascent of neoliberalism. Second, the proposition that the CWS is slanted against antitrust enforcement cannot be reconciled with many demonstrable instances in which the CWS leads to more antitrust law intervention, not less. In fact, proponents of more antitrust enforcement in the 1980s favored the CWS over more “laissez-faire” alternatives.
What explains the success of the CWS is a more mundane, practical need for endowing real-life cases with the weight of empirical evidence. By adding an evidential filter, the CWS makes sense of an absurdly vast statute that could, on its face, condemn everything from law firm partnerships to wedding contracts. We conclude that CWS is a judicial interest in the truth about market competition, not a socially constructed power structure propelled by the skullduggery of a neoliberal cabal. The former explains the emergence and endurance of the CWS in US antitrust law. This view further suggests that it would have been plausible for antitrust law to orient itself towards a CWS without Robert Bork.
Standard essential patents (SEPs) exemplify the tension between the dual nature of intellectual property, which is both national and international. While standards have a . . .
Standard essential patents (SEPs) exemplify the tension between the dual nature of intellectual property, which is both national and international. While standards have a global dimension, patents confer territorial rights, making the implementation of standards geographically constrained. As technical standards are a strategic tool, countries have developed national standards strategies that prioritize securing technological leadership. Unsurprisingly, SEPs have become a geopolitical issue and a significant factor in international tensions. In this context, China’s growing role in international standardization has further politicized the process of standard-setting. This paper argues, however, that the approaches taken by EU and US courts and policymakers regarding SEPs have inadvertently aided China in effectively implementing its strategy. The paper identifies the root of the problem in the uncertainty surrounding the economic and legal interpretation of fair, reasonable, and non-discriminatory (FRAND) licensing terms, as well as in the willingness of national courts to act as global licensing tribunals. Additionally, the paper investigates whether the ongoing strategies of the U.S. and the EU align with their stated goal of achieving technological leadership.
National courts worldwide are increasingly resolving patent disputes in ways that carry significant global implications. In effect, these local courts are interpreting their national patent laws in ways that influence how companies operate internationally. This is evident, for instance, in the handling of standard essential patents (SEPs) disputes, where national courts are increasingly willing to set royalty rates that apply on a global scale.
This “glocal” interpretation of patent law has created a fragmented global intellectual property (IP) landscape marked by contradictions. Although it is often cited as a prime example of globalization, it is simultaneously influenced by economic nationalist concerns about domestic industries and local economic development.[1]
Such a dual nature has historically characterized the evolution of IP regimes and the pendulum swings back and forth over the years. Indeed, while it can be argued that IP protection has roots in economic nationalist motives, the international IP system has consistently expanded in territorial and regulatory scope over the last century. Nonetheless, at the same time, the more IP rights play a key role in the global economy, being essential in promoting international trade, the more their nationalist origins seem to resurface.[2]
The case of SEPs is a prominent example of this tension. Indeed, standards are seemingly one of the most important yet fragile pillars of the modern tech economy.
On the one side, as the growing interconnectedness of an increasing volume and diversity of things requires interoperability, technical standards are set to reinforce their role by enhancing network value, facilitating market integration, and creating a single global market. The development of the mobile communications industry clearly illustrates this globalization trend.[3] Specifically, the shift from the first generation of national standards to the second generation of regional standards aimed at fostering the European single market, and finally to global partnerships created to develop 3G, 4G, and 5G, reflects the increasing demand for a supranational standard.
On the other side, despite the global dimension of standards, patents grant territorial rights, making the deployment of standards territorial as well. As a result, both the filing and litigation of SEPs are matters of strategic decision-making, as countries may differ significantly in their approach to patent protection. Furthermore, the global reach of technology markets inevitably leads to transnational litigation over SEPs. Indeed, since SEPs are included in global portfolios and the related products are sold in multiple markets, legal action for perceived infringements may need to be taken in several jurisdictions. Moreover, with the rise of the Internet of Things (IoT) and the evolution of many industries depending on advanced mobile telecommunication standards, the latter are crucial to both national economies and security.[4]
As a result, countries have deployed national standards strategies prioritizing efforts to secure a technological leadership, in particular for critical and emerging technologies (CET), namely for advanced technologies carrying strategic significance for competitiveness and national security.[5] In addition, countries may have strong interests in preventing their companies’ SEPs from being adjudicated in foreign jurisdictions because of the risks of national measures that may adversely affect their protection and enforcement.[6]
As technical standards represent a strategic tool for technological competition among countries, it is no surprise that they have become a matter of geopolitics and a significant factor in potential tensions in international relationships.[7] Therefore, once again, the dilemma arising from the dual dimension (i.e., national and global) of patent protection comes to the forefront. While the pivotal role of standards nurtures the nationalist nature of patents, local regulatory solutions cannot ignore the intrinsic interdependency among economies in a highly interconnected global environment. Further, they must consider the potential countermeasures adopted by other countries to favor domestic firms, leading to a global race to the bottom.
Against this background, the paper traces the roots of the problem to the uncertainty surrounding the SEP protection. Interventions that affect the reliable enforcement of SEPs impact their value and the incentives to innovate, which are essential for supporting a country’s technological leadership. Therefore, by analyzing relevant policy documents, legislative initiatives, and case law, this paper aims to investigate the ongoing strategies undertaken by the U.S. and EU to assess whether they are consistent with the purported goal of pursuing technological leadership. Notably, the paper argues that, although China’s growing role in international standardization has indeed contributed to the politicization of standard-setting, it is not the sole cause. The underlying issues stem from ongoing debates about the interpretation of fair, reasonable, and non-discriminatory (FRAND) commitments, the role of national courts in setting royalties for global patent portfolios, and the issuance of anti-suit injunctions (ASIs). Together with China’s approach to standardization, policy decisions by Western countries have influenced the valuation of SEPs and created substantial opportunities for forum shopping.
The paper is structured as follows. Section 2 investigates the roots of the current geopolitical battle over SEPs. Section 3 outlines the recent standardization strategies of the U.S. and EU and analyzes whether their policy goals of pursuing technological leadership align with their approaches to the legal implications of FRAND commitments, particularly concerning the limited ability of FRAND-encumbered SEP holders to fully monetize their innovations through injunctions. Section 4 concludes.
Since they are fundamentally a form of self-regulation, technical standards are not inherently subjects of geopolitical rivalry. However, their political relevance has increased alongside their growing strategic role in modern economies. As a result, technical standard-setting, once primarily the domain of cooperation and competition among private actors, has become a central arena for rivalry among countries.[8]
The turning point in this recent trend is often attributed to China’s new approach to standardization. While traditional Western leaders typically follow a model characterized by market leadership with government support, China has adopted a distinct strategy by actively pursuing state-driven standards as a key element of its national policies.[9]
While China’s growing influence in international standardization has certainly contributed to the politicization of standard-setting, this paper argues that it is not the sole explanation for the phenomenon. The roots of the issue lie in longstanding controversies over the meaning of FRAND commitments and the role of national courts in determining royalties for global patent portfolios. These factors have ultimately affected the value of SEPs and created significant opportunities for forum shopping.
Therefore, before illustrating the Chinese strategy, this Section examines the approaches emerged in Western countries regarding licensing rules for standard-setting participation, the possibility to set global royalty rates, and the availability of ASIs.
A significant part of the geopolitical conflicts reflects the apparent failure of the main rules designed to manage the relationship between patent holders and implementers. In particular, the current situation seems to be a natural consequence of the flawed process for determining FRAND terms.
The standardization process is successful as long as it benefits all participants. Specifically, patent owners must receive fair compensation for their research efforts and implementers must have access to the best technological solutions under terms that enable them to profitably commercialize products incorporating those standards. However, while much of the policy debate has centered on reducing the leverage of patent holders in negotiations with implementers—allowing the latter to profitably commercialize products incorporating standardized technology—the equally important condition of ensuring proper compensation for patent holders has received far less attention from scholars and policymakers.[10]
Notably, in the early stages, many argued that the primary objective of standard development organizations (SDOs) in setting licensing rules should be to reduce the hold-up problem for implementers.[11] This would be achieved by preventing SEP holders from demanding excessively high royalties. According to this perspective, since implementers invest significant resources to comply with a standard, once the standard is established, due to the specific investments made and the impracticality of switching to a non-compliant alternative technology (which would hinder product marketability), SEP holders could gain substantial leverage and demand royalties far beyond the fair value of their contribution to the standard. In this context, FRAND policies are crucial, as implementers and SEP holders typically begin negotiations only after the implementers have already used and potentially infringed upon the technologies covered by SEPs. Consequently, to address the hold-up problem, SDOs generally require SEP holders to commit to FRAND terms when joining the working group.[12]
The pure hold-up rationale has been progressively questioned by a strand of literature which has raised doubts because of the lack of empirical evidence highlighting the relevance of the opposite risk (hold-out or reverse hold-up).[13] In this scenario, licensees might engage in strategic practices, such as refusing reasonable offers from patent holders and prolonging litigation to avoid paying royalties or to depress prices.[14]
Courts have finally and correctly interpreted the FRAND commitment as a tool for tackling both hold-up and hold-out opportunistic behaviour, aiming to strike a fair balance between the different interests involved.[15]
Nonetheless, there is still limited knowledge about the meaning of FRAND commitment and its economic and legal implications are largely controversial.
In general, from an economic perspective, requiring that licenses be provided on fair and reasonable terms aims to ensure that SEPs are available at a price equivalent to their market value before they were declared essential. Similarly, the non-discrimination requirement seeks to prevent SEP holders from extracting monopoly premiums through selective licensing. This includes preventing them from “migrating their monopoly power from the FRAND-regulated market to unregulated standard-implementing product markets” by licensing only to one or a few implementers or by offering favorable terms to selected implementers in a discriminatory manner.[16]
However, there are no generally accepted tests to determine whether a particular licence satisfies a FRAND commitment. Courts even differ on whether there is a single true FRAND rate or if FRAND can encompass a range of acceptable terms.[17]
Further, because of the divergence between hold-up and hold-out theories, no consensus also exists over the legal effects of FRAND commitments.
In particular, it is highly disputed whether the licensing of SEPs under FRAND terms is a competition issue. While proponents of the hold-up theory argue that the governance of SDOs should be subject to antitrust scrutiny and that compliance with FRAND commitments should be enforced through antitrust provisions, another perspective suggests that such enforcement would unfairly favor technology implementers. This latter viewpoint contends that SEP licensing should be governed by contract law, as hold-up risks arise from the sunk investments already made by implementers, affecting their negotiation power. Therefore, these risks are seen as a problem of contract incompleteness rather than an antitrust issue stemming from the misuse of market power.
Similar divergences arise regarding remedies. While, in principle, patent holders have the right to seek injunctions against the sale of infringing goods, the risk of hold-up has led policymakers and courts to limit injunctive relief for holders of FRAND-encumbered SEPs. Indeed, according to a well-established view, in certain circumstances, a FRAND commitment should be seen as a waiver of the general right to seek such remedies.[18] In addition, it is unclear whether SEP holders are required to grant a FRAND licence to any implementer seeking a licence, including component makers (so-called licence-to-all approach), or if they are allowed freely to target the supply chain level at which the licence is to be granted (so-called access-for-all approach).[19]
The regulatory framework on FRAND commitments developed in the U.S and EU has a counterpart in the Asian scenario, determining a progressive international convergence on a no-injunction rule stemming from the SEP holder’s acceptance to license on FRAND terms.[20] China, in particular, has consistently used its patent and competition laws to limit SEP enforcement, aiming to reduce the royalties that local device manufacturers must pay to foreign SEP holders.[21]
By and large, it’s not surprising that the illustrated uncertainty about the (relevant) economic and legal implications of FRAND commitments has led to litigation and incentivized forum shopping in countries perceived as more favorable to either patent holders or implementers.
Despite these uncertainties, national courts are increasingly positioning themselves as global licensing tribunals, which exacerbates the dual dimension (local and global) of SEPs.
This trend was triggered by the UK courts’ decisions in Unwired Planet v. Huawei.[22] In this case, the courts found that global portfolio licensing is a common industry practice that offers efficiency benefits, such as saving transaction costs for both licensors and licensees and eliminating the need to determine a royalty rate on a patent-by-patent basis. The UK Supreme Court, referencing judgments from key jurisdictions (i.e., Germany, China, Japan, EU, and the U.S.), argued that the principles outlined in these judgments suggest that, “in appropriate cases”, courts in those jurisdictions would determine the terms of a global FRAND license.[23]
Following the lead of UK courts, other national courts have also asserted the authority to set the terms of FRAND licenses for global SEP portfolios. For instance, the Judicial Court of Paris did so in TCL v. Philips[24] and Xiaomi v. Philips[25], the District Court of The Hague in Vestel v. Philips[26], and the U.S. District Court for the Central District of California in TCL v. Ericsson.[27]
Chinese courts have also joined this trend as the Supreme Court has repeatedly affirmed their jurisdiction over global royalty rates of SEPs.[28] After all, in Sharp v. Oppo, the Supreme Court celebrated the emergence of China as a guide, rather than a follower, in setting international intellectual property rules.[29]
Finally, in delivering a proposal for a regulation that would overhaul the entire SEPs licensing system, the European Commission has recently suggested that the FRAND determination may refer to global rates.[30] Indeed, although the new regulation would apply only to SEPs in force in the EU, FRAND determinations would still concern global SEP licenses unless otherwise specified by the parties, either through mutual agreement or by the party requesting the continuation of the FRAND determination. The EU’s focus on this issue seems partly in response to concerns over forum shopping, particularly in light of “certain emerging economies” that are adopting a “much more aggressive approach in promoting home-grown standards and providing their industries with a competitive edge in terms of market access and technology roll-out.”[31]
The phenomenon of national courts determining global FRAND rates has further heightened the risk of a “race to the courthouse” among litigants and a “race to the bottom” among jurisdictions.[32] This trend incentivizes forum shopping and the adoption of countermeasures like ASIs. Indeed, by setting global licensing terms, courts may seek to position themselves as attractive venues for specific types of litigants (SEP holders or implementers), while parties are encouraged to file suits in favorable jurisdictions as quickly as possible to capitalize on the advantages of being the first to act.
The increasing politicization of patent protection has been finally intensified by ASIs, which have recently emerged as a phenomenon that significantly impacts the dynamics of SEP litigation, drawing considerable attention from specialized literature.[33] It is sufficient to note that the EU has filed a case against China at the WTO, arguing that Chinese ASIs are inconsistent with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).[34] According to the EU, starting from 2020, Chinese courts have deprived SEP holders of the ability to effectively protect their technologies in non-Chinese courts. Notably, through ASIs, China unilaterally imposes rules that benefit its own enterprises, as Chinese manufacturers have requested these injunctions to pressure patent holders into granting them cheaper access to European technology.
ASIs are orders that restrain a party from pursuing foreign proceedings or enforcing a judgment obtained in foreign courts. Although they have existed in transnational litigation since fifteenth-century England, SEP disputes have brought ASIs into a new dimension. Generally, ASIs can be beneficial by containing litigation costs and reducing the likelihood of inconsistent outcomes across jurisdictions. However, rather than resolving disputes, the issuance of an ASI has sparked a new form of unwelcome competition. Litigants and courts have begun to devise anti-anti-suit injunctions (AASIs), which block a party from seeking or enforcing an ASI, and anti-anti-anti-suit injunctions (AAASIs), which prevent a party from obtaining an AASI to block another party from requesting or enforcing an ASI, and so on. In sum, given the significant national interests associated with standard-setting, anti-suit strategies have become effective tools for countries to protect and entrench their technological, economic, and political advantages in the international political economy.
The surge in ASIs and the risks associated with their opportunistic use in the SEP landscape are linked to the previously illustrated role certain national courts have assumed as de facto global licensing tribunals. Some courts’ tendency to set high rates may attract patent holders to those jurisdictions, while implementers, in turn, may seek to challenge these outcomes in courts known for being hostile to patent holders and inclined to set lower rates.
In this context, the primary reason behind the recent stance of Chinese courts on ASIs is their desire to become the ultimate venue for setting global FRAND licensing rates between parties. Indeed, Chinese courts are known for determining FRAND royalty rates that are lower than those set by judges in other countries, making China an attractive jurisdiction for SEP implementers.
However, although interest in the role of ASIs in SEP litigation has been sparked by a sudden increase in the number of ASIs issued by Chinese courts, it is worth noting that the first ASIs in SEP litigation were granted in the U.S.[35] As US courts initiated the first ASI battles, primarily involving the U.S. and China, Chinese courts have essentially followed the same path as their US counterparts. Meanwhile, other jurisdictions have mostly responded to anti-suit orders that preclude actions within their own territories. Moreover, in the EU, a clear divide has emerged between common law jurisdictions (e.g., the UK) and civil law jurisdictions (e.g., France and Germany). The latter are more reluctant to recognize the effectiveness of ASIs and are more inclined to resist interference by foreign courts.
As mentioned, China has established itself as a major jurisdiction for SEP litigation, competing with other countries, in particular EU and the U.S. It has been noted that, as a latecomer, China has adopted a distinct approach compared to traditional leaders like the U.S. and Europe.[36] This strategy, often referred to as techno-nationalism, involves a country’s deliberate efforts to promote and protect its own technological capabilities and industries to gain a competitive edge in advanced technology innovation.[37]
While EU and the U.S. follow a model based on market leadership with government support, China has actively pursued a state-driven standards strategy as a key element of its national policy. More specifically, recognizing the crucial importance of technical standard-setting, China has shifted from a state-controlled to a state-centric approach to technical standardization.[38] Namely, despite all aspects of the standardization system remain closely guided by the party-state, China has recently implemented a two-tier standardization system that integrates both state and market elements. Indeed, the 2015 strategic industrial plan, commonly known as “Made in China 2015,” emphasized the need to strengthen IP protection by leveraging market institutions, enabling firms to self-declare their own technology standards and actively participate in international SDOs. As a result, to align strategic policy objectives with domestic technical standard-setting, China has steadily expanded its influence in international technical standardization, leading to a growing number of leadership roles within standardization bodies.[39] Finally, through the “China Standards 2035” plan, China seeks to set the global standards for next-generation technologies.
The new Chinese stance has raised concerns among US and EU policymakers, who are worried about the challenges it poses to their longstanding leadership in standards, as well as the implications for competitiveness and national security. However, it should not be overlooked that the Western countries’ approach to SEPs have contributed to China’s increasingly central role in global standard-setting, which is a key factor in the ongoing geopolitical tensions. Notably, the analysis of the economic and legal meaning of FRAND, the (limited) rote of injunctive reliefs, the willingness to set global royalty rates and to issue ASIs generates a sort of crowding out. Indeed, on all of these issues, Western countries have been the first movers, allowing other nations, including China, to adopt and adapt these strategies for their own benefit.
Considering the current geopolitical scenario, one might wonder whether the solutions adopted to address the challenges posed by SEPs are part of a coherent strategy after all.
Against this background, the next Section aims at investigating the coherence of EU and US approaches to SEPs and whether recent and ongoing policy initiatives are effective in safeguard (or reclaiming) their technological leadership.
The growing role of China in international standardization has contributed to the politicization of standard-setting. At the same time, the approaches taken by EU and US courts and policymakers regarding the legal implications of FRAND commitments, as well as the extraterritorial impact of decisions on royalty rates and ASIs, have aided China in effectively implementing its strategy.
In particular, the strategy pursued in the EU and the U.S. regarding the availability of injunctions for SEP holders appears quite inconsistent with the concerns raised about Chinese policy. US and EU policymakers complain about Chinese courts’ and authorities’ willingness to promote domestic economic interests by undervaluing foreign SEPs and setting lower FRAND rates.[40] Indeed, it has been noted that, in the wireless communications supply chain, companies based in the Western countries (e.g, Arm, Ericsson, Nokia, and Qualcomm) are net technology suppliers, meanwhile companies based in China or primarily operating there (e.g., Apple) are implementers.[41] As a net technology user in the smartphone supply chain, China has a vested economic interest in devaluing SEPs. However, as traditional leaders, the EU and the U.S. have promoted, from very beginning, an approach aimed at challenging the economic value of SEPs imposing limits on royalty rates that SEP holders can demand. This approach has been justified with the need to avoid hold-up problems and the goal has been pursued by enforcing FRAND commitments and reducing the possibility for FRAND-encumbered SEPs holders to seek injunctions.
As policymakers on both sides of the Atlantic are considering new initiatives on SEPs, it is worth examining whether these efforts align with the stated goal of achieving technological leadership.
In May 2023, the Biden-Harris Administration announced the “United States Government National Standards Strategy for Critical and Emerging Technology”, which is intended to support ongoing private sector-led initiatives and plans, with a specific focus on CET.[42]
The strategy, as stated in its premise, is a response to the challenges the U.S. faces regarding its longstanding leadership in standards and the core principles of international standard-setting, which it has upheld for decades alongside like-minded partners.[43] Indeed, “[s]trategic competitors are actively seeking to influence international standards development, particularly for CET, to advance their military-industrial policies and autocratic objectives.”[44] Therefore, the U.S. is committed to renew its efforts to “the rules-based and private sector-led approach to standards development, and complement the innovative power of the private sector with strategic government and economic policies, public engagements, and investments in CET.”[45] To this end, the U.S. Government states it will also deepen standards cooperation with allies and partners to support a robust standards governance process, specifically to enhance and protect the private sector-led international standards process.[46]
Consistent with such a strategy, in July 2024 the U.S. Department of Commerce published an interim final rule amending the Export Administration Regulations to reinforce the U.S. leadership and participation in global standards development by making it easier for US companies to navigate export controls while participating in standards-setting.[47] According to the U.S. Department of Commerce, without these revisions, there is greater risk that standards would be developed without the participation and input of U.S. companies, which harms U.S. national security.
At the same time, some bills that would strengthen patent rights have been put before the U.S. Congress. For instance, the Defending American Courts Act would penalize parties seeking to assert foreign ASIs to restrict an action for patent infringement before a US court or the International Trade Commission.[48] More recently, the Realizing Engineering, Science, and Technology Opportunities by Restoring Exclusive (RESTORE) Patent Rights Act would restore the rebuttable presumption that an injunction is warranted after a court makes a final ruling that patent rights are being infringed[49], thus overriding the Supreme Court’s decision in eBay v. MercExchange.[50] The bill moves from the premise that, since eBay, obtaining both permanent and preliminary injunctions in patent cases has become extremely difficult and rare, as recently shown by a study.[51] As a result, the current patent law would fail to protect inventors and “leaves them vulnerable to intellectual property theft from adversaries like China.”[52]
In this context, with regards to SEPs, U.S. agencies have traditionally been influenced by proponents of the hold-up theory. This strand of literature suggests that SEP owners inherently possess market power, which they can leverage to impose unfair terms on implementers, and that, therefore, a FRAND commitment should prevent the SEP owner from seeking injunctive relief.[53]
Accordingly, in a 2007 report, the Federal Trade Commission (FTC) and the Department of Justice (DoJ) focused entirely on the hold-up problem, starting from the premise that SEP owners can hold up firms wishing to implement the standard by setting higher royalties and less favorable licensing terms than they could have before the standard was established.[54] The risk of hold-out is not addressed at all, with the term hold-out mentioned only once in a footnote.[55]
In a similar vein, in 2011, the FTC proposed aligning the eBay framework with competition policy, recommending that courts consider the public interest in avoiding patent hold-up, which “can increase costs and deter innovation.”[56] The FTC further noted that hold-up in the standard-setting context can be “particularly acute.”[57] Therefore, it argued that a FRAND commitment should be relevant to the injunction analysis, as it provides strong evidence that denying the injunction would not irreparably harm the patentee.[58]
Moreover, in 2013, the DoJ, in collaboration with the U.S. Patent and Trademark Office (PTO), issued a policy statement recommending caution in granting injunctions based on infringement of FRAND-encumbered SEPs.[59] By their view, the remedy of an injunction may be inconsistent with the public interest when it is incompatible with the terms of a patent holder’s existing FRAND licensing commitment to an SDO.[60] Nonetheless, the 2013 policy statement acknowledged that injunctive relief may be an appropriate remedy in some circumstances, such as when the putative licensee constructively refuses to engage in a negotiation to determine FRAND terms.[61]
In 2019, the DoJ, the PTO, and the National Institute of Standards and Technology (NIST) endorsed a significant policy shift by rejecting the no-injunction rule and recognizing hold-out as a more serious impediment to dynamic innovation than hold-up.[62] Notably, the agencies moved from the concern that the 2013 policy statement was misinterpreted to suggest that a unique set of legal rules should be applied in disputes concerning patents subject to a FRAND commitment and that injunctions and other exclusionary remedies should not be available in actions for infringement of SEPs. Such an approach would be “detrimental to a carefully balanced patent system, ultimately resulting in harm to innovation and dynamic competition.”[63] Accordingly, by withdrawing the 2013 policy statement, the agencies clarified thata patent owner’s FRAND commitment is a relevant factor in determining appropriate remedies, but need not act as a bar to any particular remedy.[64]
Further, the 2019 policy statement rejected the idea that antitrust law is applicable to FRAND dispute arguing that antitrust law should not be used to police FRAND commitments made by patent holders to SDOs.[65] By this view, deriving antitrust liability from an alleged violation of FRAND commitments discourages the established principle of market-based pricing, distorts SEP licensing negotiations, and ultimately deters pro-competitive or competitively neutral behavior.[66]
Moreover, updating its previous IEEE’s Business Review Letter, the DoJ stated that “concerns over hold-up as a real-world competition problem have largely dissipated” and the 2015 Letter proved to be incorrect in focusing on the risk of hold-up without considering the possibility of hold-out by patent implementers or the effect on patent holders’ innovation incentives.[67]
In 2021 the pendulum swung back again. The White House Executive Order on “Promoting Competition in the American Economy” suggested to reconsider the 2019 SEP policy statement “[t]o avoid the potential for anticompetitive extension of market power beyond the scope of granted patents, and to protect standard-setting processes from abuse.”[68] As a result, in 2022 it was withdrawn and the DoJ stated that it will “review conduct by SEP holders or standards implementers on a case-by-case basis to determine if either party is engaging in practices that result in the anticompetitive use of market power or other abusive processes that harm competition.”[69]
In February 2022, the EU presented its new standardization strategy.[70] Standards are considered “at the core of the EU single market” and, according to the strategy, “Europe’s competitiveness, technological sovereignty, ability to reduce dependencies and protection of EU values … will depend on how successful European actors are in standardization at international level.”[71] Therefore, by adopting language similar to that used by US policymakers, the goal is to position the EU as a “global frontrunner” in standards development, enhancing its potential as a “first-mover” in leading international standards-setting by leveraging cooperation with like-minded international partners, particularly in emerging technology areas of strategic interest.[72]
Against this backdrop, it is however acknowledged that “the strategic importance of standards has not been adequately recognised at the cost of EU leadership in standards-setting.”[73] Notably, while traditionally the EU has maintained a strong global presence in international standardization and has a solid track record of translating international standards into European ones, the geopolitical landscape has shifted significantly in recent years.[74] Indeed, other actors now take a much more assertive approach to international standardization and have gained influence within international standardization committees.[75] Therefore, the EU is required to promote a “more strategic approach” to international standardization activities.[76]
At the same time, the European Commission has delivered a proposal for a regulation that would overhaul the entire SEPs licensing system.[77]
The purported goals are to make the EU “attractive” for standards innovation and encourage both SEP holders and implementers to innovate in the EU and be “competitive in non-EU markets.”[78] The proposed initiative moves from the premises that standardisation is a “key contributor” to industrial innovation and competitiveness, and successful standards rest on cutting-edge technologies, which require “substantial investments in research and development.”[79] Finally, the initiative is also considered important in the context of global developments as certain emerging economies are taking a much more “aggressive approach in promoting home-grown standards” and providing their industries with a competitive edge in terms of market access and technology roll-out.[80]
Against this background, in the context of SEPs, the EU has initially adopted a similarly restrictive approach to the availability of injunctive reliefs as seen in the U.S. This is well illustrated by the longstanding conflict between the European Commission and the German courts.
The largest number of SEP disputes in the EU are litigated in Germany, where courts are traditionally perceived patent owner-friendly. Indeed, under the framework crafted by the German Federal Supreme Court (Bundesgerichtshof) in the Orange Book Standard decision to clarify whether a SEP holder could claim for injunction, the competition law defence has been granted to implementers/infringers in a very few cases.[81] Namely, according to Orange Book Standard, the defendant had to advance an unconditional licence offer and was required to behave from the point of its offer as if the plaintiff had accepted it, hence the defendant must have already paid the offered royalties, albeit in escrow. Against this approach, in Motorola and Samsung the Commission took a different stance, establishing that infringers could avoid an injunction by stating a rather unspecific willingness to license and by accepting the binding determination by a third party.[82]
In Huawei, in order to strike a fair balance between the different interests involved and address both the risks of hold-up and hold-out, the Court of Justice delivered its own framework introducing a code of conduct that would shield SEP holders from the risk of an antitrust proceedings and implementers from injunction requests.[83] In this scenario, the CJEU acknowledged that the exercise of remedies to protect IP rights may be considered unlawful for the purposes of competition law only in “exceptional circumstances” and subordinated any limitation of injunctions to the demonstration of the licensee’s willingness to sign a FRAND deal. Nonetheless, tension between the European Commission and German courts persist, as the former remains sensitive to complaints from stakeholders that the current German court practices contradict Huawei by increasing the availability of injunctions and effectively reinstating Orange Book Standard.[84]
In this scenario, by further restraining the availability of injunctive reliefs, the recent EU Commission’s regulatory proposal brings back the conflict with German courts.[85] Moreover, the Commission endorses an anti-injunction approach which is inconsistent with the CJEU’s stance in Huawei.[86]
The proposal notably introduces a mandatory dispute resolution process as a prerequisite for accessing the competent courts of Member States. Before a SEP holder can initiate patent infringement proceedings, or an implementer can seek a determination or assessment of FRAND terms and conditions, a FRAND determination by a conciliator must first occur.[87] Furthermore, enforcement before a national court is also barred when FRAND terms and conditions are at issue in antitrust cases, particularly under the national application of the Huawei framework.[88]
Although the mandatory conciliation is not supposed to replace the Huawei process[89], nonetheless such a mechanism represents an attempt to discard the CJEU’s framework, rather than complementing it. After all, the Commission has not concealed its dissatisfaction with the Huawei framework and its implementation by national courts, arguing that it has proven inadequate for handling the complexities of SEP licensing negotiations, as both licensing and enforcement remain inefficient.[90] As a result, the approach outlined in the proposal marks a departure from the one adopted by the CJEU. While the latter developed the willing licensee test to balance the interests of all parties, the proposed pre-trial compulsory conciliation would limit SEP holders’ ability to seek injunctions beyond what Huawei allows, tilting the balance in favour of implementers. Indeed, implementers could freely challenge SEPs, whereas patent owners would be unable to initiate infringement proceedings without first undergoing the mandatory FRAND determination process.
In general, the proposal is imbalanced, driven primarily by a hold-up bias while completely disregarding hold-out risks. Notably, its provisions seem one-sided, suggesting a need to redistribute value from SEP owners to implementers. The regulation’s costs would be borne solely by SEP holders, while the implementers would gain all the benefits.[91] Furthermore, with less than 10% of implementers based in Europe, the regulation would effectively subsidize non-EU implementers.[92]
The immediate effect of this approach would be to devalue European SEPs, potentially jeopardizing future investments in innovation. This outcome should be especially concerning for EU policymakers, as the Impact Assessment shows that while Chinese companies now own one-third of all SEPs —doubling their share in just seven years— EU ownership has dropped from 22% to 15% over the same period.[93]
Moreover, against this background, the significant role of the long-awaited, newly established Unified Patent Court (UPC) in the SEPs landscape should not be overlooked.[94] Notably, the UPC has the authority to decide on FRAND terms (especially when raised as a defense in infringement proceedings), as well as on injunctions and ASIs. This brings about the further challenge of ensuring coordination between the UPC and the EU Intellectual Property Office’s Competence Center, which is tasked with key responsibilities under the proposed Regulation. These include creating and managing the SEP register, conducting essential checks, and facilitating licensing agreements, particularly concerning aggregate FRAND royalty determinations.
Finally, it is worth noting that the criticism surrounding the proposal has also been echoed by the EU’s traditional global partners, which questioned its economic justification as there is no discernible evidence of a market failure that needs to be addressed.
Former government U.S. officials have publicly expressed serious concerns about the European Commission’s policy, warning that it threatens European and American innovation leadership, and, by extension, the economic success and security of both regions.[95] In a Senate hearing, the Secretary of Commerce revealed that the U.S. Government has expressed concerns about the impact of the EU’s proposed legislation on US patent holders.[96]
With regards to the UK, as part of the Government’s long-term plan for delivering innovation-led growth[97], in 2021 the Intellectual Property Office (IPO) launched a consultation seeking views as to whether the ecosystem surrounding SEPs is functioning efficiently and effectively, thus assessing whether government intervention is required.[98] In response to IPO’s findings, the UK Government opted for some non-regulatory interventions aimed at improving implementers’ understanding of the SEPs ecosystem through the introduction of a SEPs Resource Hub and improving international collaboration.[99] More importantly, announcing the launch of a technical consultation to deliver these objectives, the UK Government expressly stated that it “will not be consulting on making legislative changes to narrow the use of injunctions in SEPs disputes.”[100]
The U.S. PTO and the UK IPO have recently signed a memorandum of understanding that will provide a framework for collaboration between on SEP policies to ensure a balanced standards ecosystem.[101] The alliance between the two offices further highlights the contrast with the unilateral regulatory approach proposed by the European Commission.
The analysis of the EU and US scenarios reveals a disconnect between the goals of their standardization strategies and their policies regarding SEPs.
On one hand, Western policymakers recognize the strategic importance of standards and the challenges posed by China’s industrial policy, which is accused to promote domestic economic interests by undermining foreign IP protection. Consequently, there is an emphasized need to intensify efforts to safeguard leadership in standard-setting in response to the shifting geopolitical landscape, including strengthening cooperation with like-minded international partners. The scenario is constantly evolving as other countries, such as Brazil and India, are emerging as attractive venues for SEP litigations.[102]
On the other hand, the U.S. and the EU continue to support a no-injunction policy for FRAND-encumbered SEPs, whose rationale is to tackle hold-up concerns preventing SEP holders from requesting injunctions because of the alleged risk of charging higher royalties on implementers. Further, the recent SEP regulatory initiative by the European Commission and the different approaches adopted by the U.S. and the UK demonstrate unilateralism, rather than alliance.
In summary, while the EU and U.S. criticize Chinese practices aimed at undervaluing their patents before the WTO, they simultaneously endorse a policy that limits SEP holders’ ability to fully monetize their innovations, rather than providing strong protection for SEPs. Since many SEP holders are based in the EU or U.S., this policy effectively benefits Chinese implementers.
The no-injunction policy becomes even more perplexing given the doubts surrounding the very existence of hold-up. If there is no empirical evidence to support hold-up, denying patent owners the ability to seek injunctions effectively encourages implementers to engage in efficient infringement, resulting in undercompensation and underdeterrence for SEP violations.[103] Indeed, in the absence of injunctions, the legal remedies available are insufficient to fully compensate for willful infringement. Therefore, without the credible threat of an injunction as a safeguard, users have strong incentives to violate their obligations under the FRAND contract.
The Impact Assessment Report accompanying the European Commission’s regulatory proposal offers a clear illustration of the perspective of SEP owners, although this perspective was ultimately disregarded in the proposal.[104] To participate in standard creation, prospective SEP holders must invest significant time and resources in R&D to develop and patent new technology globally. This investment is made without any guarantee that the inventor’s patents will be included in the standard or that the standard will gain market acceptance. Even once a standard is accepted, it can take time before it is widely adopted, while patents have a limited duration. Consequently, SEP holders have a limited window to earn returns on their R&D investments through royalties. Additionally, unlike other patents, SEP holders are bound by the FRAND commitment.
Against this background, the risk of holdout is particularly significant for SEP owners with large, global portfolios of complementary patents across multiple jurisdictions.[105] These patentees typically prefer to license their entire SEP portfolio at once to reduce transaction costs. However, implementers may be incentivized to challenge the validity or essentiality of each patent on a jurisdiction-by-jurisdiction basis. Indeed, this approach leads to high litigation costs, and licensees may use it to delay negotiations, aiming to secure lower royalties and more favorable licensing terms.[106] As a consequence, injunctive remedies are essential to ensuring that patent holders and implementers engage in good-faith negotiations.[107]
There is general consensus, even among supporters of hold-up theory, that effective patent remedies are essential to maintaining the patent system’s incentives for innovation.[108] Injunctions, in particular, safeguard the exclusivity that underpins the patent system’s innovation incentives. Additionally, the credible threat of an injunction serves as a deterrent to infringement and encourages parties to engage in licensing.
Therefore, limitations on the availability of injunctive relief should be permitted only under strict and exceptional circumstances. Since FRAND commitments are meant to address both hold-up and hold-out opportunistic behavior, any limitations on injunctions should be contingent upon the licensee demonstrating a genuine willingness to agree to a FRAND deal. From this perspective, rather than being criticized, the German courts’ approach should be welcomed for imposing strict requirements on implementers to prove their willingness.
US and EU policymakers are increasingly concerned about China’s “predatory” approach to standardization.[109] They complain that China has moved beyond relying on central planning to direct the business decisions of its industries and enterprises. Instead, it now employs a state-led strategy aimed at securing the dominance of Chinese companies in both domestic and global markets. As part of this effort to achieve international dominance, China is focusing on both traditional and emerging industries. It is not only providing its own industries with unprecedented financial and regulatory support but also actively implementing policies designed to disadvantage and eventually displace foreign competitors.[110]
These concerns, however, are not being addressed with a coherent strategy on SEPs. IP protection is shaping the geopolitical landscape and SEP enforcement is crucial for promoting innovation. By limiting the ability of SEP holders to fully monetize their innovations, the EU and US no-injunction policies is inconsistent with their ambitions for technological leadership. Meanwhile, due to their approach to remedies in SEP litigation, other countries (such as Brazil and India) have become increasingly attractive to foreign companies.
Despite their stated goals, the EU and US strategies will be unable to support the standards ecosystem without providing adequate protection for SEPs.
[1] See Alexander Peukert, Economic Nationalism in Intellectual Property Policy and Law, in Intellectual Property Ordering beyond Borders (eds., Henning Grosse Ruse-Khan and Axel Metzger), Cambridge University Press, 2022, 64, arguing that economic nationalist concerns lie at the heart of the global IP system.
[2] Ibid., 95.
[3] Jianwei Dang, Byeongwoo Kang, and Ke Ding, International protection of standard essential patents, (2019) 139 Technological Forecasting & Social Change 75.
[4] See, more in general, the recent Draghi report (Mario Draghi, The future of European competitiveness, (2024)
https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en), where it is suggested that security should play an increasingly important role in light of geopolitical changes affecting trade policy. Therefore, a modern competitiveness agenda must also incorporate security considerations.
[5] See, e.g., U.S. Government, National Standards Strategy for Critical and Emerging Technology, (2023) https://www.whitehouse.gov/wp-content/uploads/2023/05/US-Gov-National-Standards-Strategy-2023.pdf; UK Foreign Secretary and the Secretary of State for Science, Innovation and Technology, The UK’s International Technology Strategy, (2023) https://www.gov.uk/government/publications/uk-international-technology-strategy/the-uks-international-technology-strategy; European Commission, An EU Strategy on Standardisation. Setting global standards in support of a resilient, green and digital EU single market, COM(2022) 31 final; Chinese Communist Party, National Standardization Development Outline, (2021) https://cset.georgetown.edu/wp-content/uploads/t0406_standardization_outline_EN.pdf.
[6] The EU has filed a case against China at the World Trade Organization (WTO) for restricting EU companies from going to foreign courts to protect their SEPs: see World Trade Organization, China – Enforcement of intellectual property rights, (2022) File No. DS611, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds611_e.htm.
[7] See, e.g., Mi-jin Kim, Doyoung Eom, and Heejin Lee, The geopolitics of next generation mobile communication standardization: The case of open RAN, (2023) 47 Telecommunications Policy 102625; Tim Ru?hlig, The New geopolitics of technical standardisation: A European perspective, (2023) 3 Future Europe 102; Sophie Faaborg-Andersen and Lindsay Temes, The Geopolitics of Digital Standards, (2022) https://www.belfercenter.org/publication/geopolitics-digital-standards. More in general, see Maximilian von Laera, Knut Blinda, and Florian Ramel, Standard essential patents and global ICT value chains with a focus on the catching-up of China, (2022) 46 Telecommunications Policy 102110, showing that the relevant macroeconomic effects of SEPs and arguing that they should be regarded as tools for maintaining value creation within a country.
[8] Ru?hlig, supra note 7.
[9] Kim, Eom, and Lee, supra note 7.
[10] Jorge Padilla and Andrew Tuffin, The Geopolitical Implications of Patent Holdout and the Ensuing Race to the Home Court, (2023) 5G and Beyond. Intellectual Property and Competition Policy in the Internet of Things (Jonathan M. Barnett and Sean M. O’Connor, eds.), Cambridge University Press: Cambridge, 195.
[11] See, e.g., Carl Shapiro, Injunctions, Hold-Up, and Patent Royalties, (2010) 12 American Law and Economics Review 280; Joseph Farrell, John Hayes, Carl Shapiro, and Theresa Sullivan, Standard Setting, Patents, and Hold-Up, (2007) 74 Antitrust Law Journal 603; Mark A. Lemley and Carl Shapiro, Patent Holdup and Royalty Stacking, (2007) 85 Texas Law Review 1991.
[12] See, e.g., European Commission, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, (2023) OJ C 259/1, §458.
[13] See, e.g., Bowman Heiden and Justus Baron, The Economic Impact of Patent Holdout, (2023) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4505268; Gerard Llobet and Jorge Padilla, A theory of socially inefficient patent holdout, (2023) 32 Journal of Economics & Management Strategy 424; Bowman Heiden and Nicolas Petit, Patent “Trespass” and the Royalty Gap: Exploring the Nature and Impact of Patent Holdout, (2018) 34 Santa Clara High Technology Law Journal 179; Richard A. Epstein and Kayvan B. Noroozi, Why incentives for “patent holdout” threaten to dismantle FRAND and why it matters, (2017) 32 Berkeley Technology Law Journal 1381. See also U.S. Department of Justice, U.S. Patent and Trademark Office, and National Institute of Standards and Technology, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments, (2019) https://www.justice.gov/atr/page/file/1228016/dl, considering hold-out an even more serious impediment to dynamic innovation than hold-up.
[14] See, e.g., Llobet and Padilla, supra note 13, arguing that patent holdout often leads to socially excessive litigation, thus causing innovators to be undercompensated or even allowing implementers to steal, especially when patent owners are relatively small, financially constrained, or have a local dimension and, therefore, they may be unable to afford litigation costs.
[15] See CJEU, 16 July 2015, Case C-170/13, Huawei Technologies v. ZTE, ECLI:EU:C:2015:477.
[16] A Douglas Melamed and Carl Shapiro, How Antitrust Law Can Make FRAND Commitments More Effective, (2018) 127 The Yale Law Journal 2110, 2113-2115.
[17] Notably, while the US methodological approach aims at developing tools that allow courts to define royalty rates, the European view relies on a set of conditions that assess the FRAND-compliance of the licensing parties during the negotiations, in order to leave the actual determination of FRAND rates to the parties. See CJEU, supra note 15; and European Commission, Setting out the EU approach to Standard Essential Patents, COM(2017) 712 final, stating that “there is no one-size-fits-all solution to what FRAND is”, since what can be considered fair and reasonable differs from sector to sector and over time. See also UK Court of Appeal, Unwired Planet [2018] EWCA Civ 2344, overturning the single FRAND rate definition endorsed by Justice Birss in Unwired Planet [2017] EWHC 1304 (Pat) and stating that the economic evidence does not support such an inflexible approach and that it is unreal to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of license terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances.
[18] See, e.g., Apple v. Motorola, 869 F. Supp. 2d 901 (N.D. Ill. 2012), stating that the patent holder that accepts a FRAND commitment voluntarily agrees to a liability rule since it considers his interest adequately satisfied by FRAND terms. See also U.S. Department of Justice and U.S. Patent and Trademark Office, Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments, (2013) https://www.justice.gov/atr/page/file/1118381/dl, arguing that, in some circumstances, the remedy of an injunction or exclusion order may be inconsistent with the public interest and, more precisely, that an exclusion order based on a FRAND-encumbered patent “may harm competition and consumers by degrading one of the tools SDOs employ to mitigate the threat of such opportunistic actions by the holders of F/RAND-encumbered patents that are essential to their standards.” In the EU scenario, the CJEU in Huawei (supra note 15) established a new set of exceptional circumstances under which the exercise of an exclusive right linked to an intellectual property right may involve abusive conduct for the purposes of competition law (the so-called willing licensee test).
[19] See Oscar Borgogno and Giuseppe Colangelo, SEPs licensing across the supply chain: an antitrust perspective, (2021) 11 Queen Mary Journal of Intellectual Property 484.
[20] With specific regard to China, see State Administration for Market Regulation (SAMR), Provisions on Prohibiting the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition, (2023) https://www.samr.gov.cn/zw/zfxxgk/fdzdgknr/fgs/art/2023/art_e155397fbe5c4c05ad3c1838c1322ad2.hml; SAMR, Anti-Monopoly Guidelines in the Field of Standard Essential Patents, (2023) https://www.samr.gov.cn/hd/zjdc/art/2023/art_6422b2fb728f486b9814349213ea07c6.html. For an overview of the Chinese case law, see Ying Du and Chengyue Zhang, Navigating the new approach and evolving theory: a study of injunctive relief for SEPs in China, (forthcoming) Asia Pacific Law Review.
[21] See, e.g., Jonathan M. Barnett, Antitrust Mercantilism: The Strategic Devaluation of Intellectual Property Rights in Wireless Markets, (2023) 38 Berkeley Technology Law Journal 259 (2023).
[22] Unwired Planet International v. Huawei Technologies, [2017] EWHC 711 (Pat), [2019] 4 CMLR 7, aff’d [2018] EWCA Civ 2344, [2018] RPC 20, aff’d [2020] UKSC 37. The High Court of Justice, under Mr Justice Birss, described country-by-country licensing as “madness.” However, it is worth noting that, in the previous Vringo Infrastucture v. ZTE, [2015] EWHC 214 (Pat), the same judge dismissed the argument that the refusal to accept a particular global license would indicate the unwillingness of the licensee to agree to global licensing in general, stating that “just because it may be so that the global portfolio offer is a FRAND offer, it does not follow that the global portfolio licence on offer is the only set of terms which could be FRAND.”
[23] [2020] UKSC 37, 67.
[24] Tribunal Judiciaire de Paris, Case No. RG 19/02085 (2020).
[25] Tribunal Judiciaire de Paris, Case No. RG 20/12558 (2021).
[26] Court of The Hague, Case No. C/09/604737 / HA ZA 20-1236 (2022).
[27] TCL Commc’n Tech Holdings v. Telefonaktiebolaget LM Ericsson, 2017 WL 6611635 (C.D. Cal. 2017), superseded by TCL Commc’n Tech Holdings v. Telefonaktiebolaget LM Ericsson, 2018 WL 4488286 (C.D. Cal. 2018), rev’d in part and vacated in part, TCL Commc’n Tech Holdings v. Telefonaktiebolaget LM Ericsson, 943 F3d (Fed. Cir. 2019).
[28] Supreme People’s Court of China, Case Zhi Min Ju No. 282 (2023), Inter Digital v. Oppo; Case Zhi Min Xia No. 167 (2022), Oppo v. Nokia; Case Zhi Min Xia No. 517 (2020), Oppo v. Sharp. See also Intermediate People’s Court of Chongqing, Case Yu Min Chu No. 1232 (2023), Nokia v. Oppo; Hubei Province – Wuhan Intermediate People’s Court, Case E 01 Zhi Min Chu No. 169 (2020), Xiaomi v. Inter Digital; Intermediate People’s Court of Shenzhen City of Guangdong Province, Case Yue 03 Min Chu No. 689 (2020), Oppo v. Sharp; Hubei Province – Wuhan Intermediate People’s Court, Case E 01 Zhi Min Chu No. 743 (2020), Samsung v. Ericsson.
[29] Case Zhi Min Xia No. 517, supra note 28.
[30] European Commission, Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, COM(2023)232, Recital 8 and Article 38(6). For an analysis of the EU proposal, see, e.g., Giuseppe Colangelo, FRAND determination under the European SEP Regulation Proposal: discarding the Huawei framework? (2024) 70 European Competition Journal 393; Oscar Borgogno and Giuseppe Colangelo, Devaluing SEPs: Hold-up bias and side effects of the European Draft Regulation, (2024) 15 Journal of Intellectual Property, Information Technology and E-Commerce Law 27; Josef Drexl, Dietmar Harhoff, Beatriz Conde Gallego, and Peter R. Slowinski, Position Statement of the Max Planck Institute for Innovation and Competition of 6 February 2024 on the Commission’s Proposal for a Regulation on Standard Essential Patents, (2024) 73 GRUR International 647.
[31] European Commission, supra note 30, Explanatory Memorandum, 2.
[32] See Jorge L. Contreras, The New Extraterritoriality: FRAND Royalties, Anti-Suit Injunctions and the Global Race to the Bottom in Disputes over Standards-Essential Patents, (2019) 25 Boston University Journal of Science & Technology Law 251.
[33] For an analysis also of the growing case law, see, e.g., Alexandr Svetlicinii and Fali Xie, The anti-suit injunctions in patent litigation in China: what role for judicial self-restraint? (2024) 19 Journal of Intellectual Property Law & Practice 734; Yurong Zhang, Jincheng Li, and Wei Yang, The dilemma and improvement of anti-suit injunctions in standard-essential patent litigation in China, (2024) 52 Computer Law & Security Review 105929; Igor Nikolic, Global Standard Essential Patent Litigation: The Anti-Suit and Anti- Anti-Suit Injunctions, (2023) 30 George Mason Law Review 427; Wentong Zheng, Weaponizing Anti-Suit Injunctions in Global FRAND Litigation, (2023) 30 George Mason Law Review 413; Enrico Bonadio and Nicola Lucchi, Antisuit injunctions in SEP disputes and the recent EU’s WTO/TRIPS case against China, (2023) 26 The Journal of World Intellectual Property 477; Giuseppe Colangelo and Valerio Torti, Anti?Suit Injunctions and Geopolitics in Transnational SEPs Litigation, (2022)14 European Journal of Legal Studies 45; Jorge L. Contreras, Anti-Suit Injunctions and Jurisdictional Competition in Global FRAND Litigation: The Case for Judicial Restraint, (2022) 11 NYU Journal of Intellectual Property & Entertainment Law 171; Felix K. Hess, US anti?suit injunctions and German anti?anti?suit injunctions in SEP disputes, (2022) 25 The Journal of World Intellectual Property 536.
[34] European Commission, EU requests two WTO panels against China: trade restrictions on Lithuania and high-tech patents, (2022) https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7528.
[35] Microsoft v. Motorola, 871 F Supp 2d 1089 (W.D. Wash. 2012).
[36] Kim, Eom, and Lee, supra note 7.
[37] Ibid.
[38] Ru?hlig, supra note 7.
[39] Kim, Eom, and Lee, supra note 7; Ru?hlig, supra note 7.
[40] See, e.g., Office of the U.S. Trade Representative, 2023 Report to Congress on China’s WTO Compliance, (2024) https://ustr.gov/sites/default/files/2023%20USTR%20Report%20on%20China’s%20WTO%20Complaince%20(Final)%20(USTR%20Website).pdf; European Commission, Report on the protection and enforcement of intellectual property rights in third countries, SWD (2021) 97 final, 19; Office of the U.S. Trade Representative, 2021 Special 301 Report, (2021) 47-48, https://ustr.gov/sites/default/files/files/reports/2021/2021%20Special%20301%20Report%20(final).pdf.
[41] Jonathan M. Barnett, Why Robust Intellectual Property Rights in Wireless Technologies Are a National Security Imperative, (2024) https://www.hudson.org/intellectual-property/why-robust-intellectual-property-rights-wireless-technologies-are-national-jonathan-barnett.
[42] U.S. Government, supra note 5. See also U.S. Government, Implementing the National Standards Strategy for Critical and Emerging Technology, (2024) https://www.whitehouse.gov/briefing-room/statements-releases/2024/07/26/fact-sheet-implementing-the-national-standards-strategy-for-critical-and-emerging-technology/. Previously, a proposed bill, the Technology Standards Task Force Act, S 1498, Cong. 117th (2021) directed the Office of Science and Technology Policy to establish a task force on setting emerging technology standards.
[43] U.S. Government, supra note 5, 3.
[44] Ibid.
[45] Ibid.
[46] Ibid., 12.
[47] U.S. Department of Commerce, Bureau of Industry and Security, Standards-Related Activities and the Export Administration Regulations, (2024) https://www.federalregister.gov/documents/2024/07/25/2024-16379/standards-related-activities-and-the-export-administration-regulations-corrections.
[48] S 3772, 117th Cong. (2022).
[49] S 4840, 118th Cong. (2024).
[50] 547 U.S. 388 (2006). In Apple v. Motorola, 757 F.3d 1286 (Fed. Cir. 2014), the Federal Circuit stated that the eBay framework “provides ample strength and flexibility for analyzing FRAND-committed patents and industry standards in general,” finding no reason to create “a separate rule or analytical framework for addressing injunctions for FRAND-committed patents.”
[51] Kristina M.L. Acri ne?e Lybecker, Injunctive Relief in Patent Cases: the Impact of eBay, (2024) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4866108. See also U.S. Department of Justice, U.S. Patent and Trademark Office, and National Institute of Standards and Technology, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments, (2019) 9, https://www.justice.gov/atr/page/file/1228016/dl.
[52] Press release, Senator Coons, colleagues introduce bipartisan, bicameral bill to restore injunctive relief for patent infringement, (2024) https://www.coons.senate.gov/news/press-releases/senator-coons-colleagues-introduce-bipartisan-bicameral-bill-to-restore-injunctive-relief-for-patent-infringement.
[53] See, recently, Letter from Former Government Officials, Professors, & Academics to DOJ regarding Avanci Business Review Letter, (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4250512.
[54] U.S. Federal Trade Commission and U.S. Department of Justice, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, (2007), https://www.ftc.gov/reports/antitrust-enforcement-intellectual-property-rights-promoting-innovation-competition-report-issued-us.
[55] Ibid., 65, fn 40.
[56] U.S. Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition, (2011) 233, https://www.ftc.gov/sites/default/files/documents/reports/evolving-ip-marketplace-aligning-patent-notice-and-remedies-competition-report-federal-trade/110307patentreport.pdf.
[57] Ibid., 234.
[58] Ibid., 235.
[59] U.S. Department of Justice and U.S. Patent and Trademark Office, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments, (2013) https://www.justice.gov/atr/page/file/1118381/dl.
[60] See, ibid., 6, arguing that a SEP holder may attempt to use an exclusion order to pressure an implementer of a standard to accept more onerous licensing terms than the patent holder would be entitled to receive consistent with the FRAND commitment.
[61] Ibid., 7.
[62] U.S. Department of Justice, U.S. Patent and Trademark Office, and National Institute of Standards and Technology, supra note 51.
[63] Ibid., 4.
[64] Ibid.
[65] Ibid., fn 9.
[66] Makan Delrahim, The “New Madison” Approach to Antitrust and Intellectual Property, (2018) https://www.justice.gov/opa/speech/file/1044316/dl. See also Statement of Interest of the United States in Continental Automotive Systems v. Avanci, No. 3:19- CV-02933-M (N.D. Tex. 2020), https://www.justice.gov/atr/case-document/file/1253361/dl. See also FTC v. Qualcomm (969 F.3d 974, 9th Cir. 2020), highlighting “the persuasive policy arguments of several academics and practitioners with significant experience in SSOs, FRAND, and antitrust enforcement, who have expressed caution about using antitrust laws to remedy what are essentially contractual disputes between private parties engaged in the pursuit of technological innovation.”
[67] See U.S. Department of Justice, Update to the 2015 Business Review Letter, (2020) https://www.justice.gov/atr/business-review-letters-and-request-letters, expressing concerns that the 2015 Letter was misinterpreted and subject to intentional manipulation abroad allowing foreign competition authorities’ actions against SEP holders.
[68] §5(d), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/. See also Rebecca Kelly Slaughter, SEPs, Antitrust, and the FTC, (2021) 5, https://www.ftc.gov/system/files/documents/public_statements/1598103/commissioner_slaughter_ansi_102921_final_to_pdf.pdf, arguing that “[w]hile [holdout] may well be a problem in the licensing world, it does not pose the same concerns from a competition standpoint as holdup, which has the potential to exclude firms from implementing a standard. … If a potential licensee has engaged in willful infringement, the patent holder has remedies in patent law, including the potential for enhanced damages. Unilateral holdout does not involve the abuse of market power to stymie consumer choice that holdup does, and therefore does not trigger antitrust concerns in the same way” (emphasis in original).
[69] U.S. Department of Justice, U.S. Patent and Trademark Office, and National Institute of Standards and Technology, Withdraw 2019 Standards-Essential Patents (SEP) Policy Statement, (2022) https://www.justice.gov/opa/pr/justice-department-us-patent-and-trademark-office-and-national-institute-standards-and#:~:text=“The%20withdrawal%20of%20the%202019,of%20Commerce%20for%20Standards%20and.
[70] European Commission, supra note 5.
[71] Ibid., 1.
[72] Ibid., 9-10.
[73] Ibid., 1.
[74] Ibid., 5.
[75] Ibid.
[76] Ibid.
[77] European Commission, supra note 30.
[78] Ibid., Explanatory Memorandum, 1.
[79] Ibid.
[80] Ibid., 2.
[81] Bundesgerichtshof (BGH), 6 May 2009, Case KZR 39/06.
[82] European Commission, 29 April 2014, Cases AT.39985 and AT.39939.
[83] CJEU, supra note 15.
[84] European Commission, Impact Assessment Report Accompanying the Document Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, SWD(2023) 124 final, 154 and 158. The reference is, in particular, to the Sisvel v. Haier decision (5 May 2020, Case KZR 36/17), where the German Federal Supreme Court held that an implementer must participate in licence agreement negotiations in a target-oriented manner, making offers of its own and showing willingness to accept a licence on any terms that are FRAND, rather than merely rejecting the patent holder’s offers. On the evolution of the German case law and its compliance with Huawei, see Andrea Aguggia and Giuseppe Colangelo, SEPs infringement and competition law defence in German case law, (2024) 14 Queen Mary Journal of Intellectual Property 73; Nicholas Banasevic and Zuzanna Bobowiec, SEP-Based Injunctions: How Much Has the Huawei v ZTE Judgment Achieved in Practice, (2023) 14 Journal of European Competition Law & Practice 121.
[85] See European Commission, supra note 84, 158, arguing that the German Federal Court “effectively contradicted the CJEU’s judgement Huawei v. ZTE and brought back the Orange Book Standard … re-shift[ing] the main burden of negotiations on licensees and increase[ing] the availability of injunctions.” Recently, the Commission has even intervened in a German dispute (HMD v. VoiceAge EVS) submitting an amicus curiae brief to criticize the German patent jurisprudence and advocate for a stringent and sequential application of the negotiation steps outlined in Huawei (https://competition-policy.ec.europa.eu/document/download/66e0bd63-36da-4b27-9eef-70602a8c7be2_en?filename=2024_Amicus_Curiae_6U3824_22Kart_de.pdf).
[86] Colangelo, supra note 30.
[87] European Commission, supra note 30, Article 34.
[88] Ibid., Article 56(4).
[89] European Commission, supra note 84, 43 and 58.
[90] European Commission, Intellectual property – new framework for standard-essential patents, (2022) 3, https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents_en.
[91] See the comparison between the expected costs and benefits envisaged by the European Commission, supra note 84, 58.
[92] Robin Jacob and Igor Nikolic, ICLE Feedback to EU Commission’s public consultation, (2023) https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-framework-for-standard-essential-patents/F3433917_en.
[93] European Commission, supra note 84, 8.
[94] See Enrico Bonadio and Magali Contardi, The Unified Patent Court and Standard Essential Patents, (2024) 46 European Intellectual Property Review 571.
[95] Christine A. Varney, Makan Delrahim, David J. Kappos, Andrei Iancu, Walter G Copan, and Noah Joshua Phillips, Comments on European Commission’s Draft “Proposal for Regulation of the European Parliament and of the Council Establishing a Framework for Transparent Licensing of Standard Essential Patents”, (2023) https://ipwatchdog.com/wp-content/uploads/2023/04/Comments-on-European-Commission-Draft-SEP-Regulation-by-Former-US-Officials-1.pdf.
[96] http://www.fosspatents.com/2023/05/us-secretary-of-commerce-expressed.html?m=1.
[97] UK Government, UK Innovation Strategy: leading the future by creating it, (2021) https://www.gov.uk/government/publications/uk-innovation-strategy-leading-the-future-by-creating-it/uk-innovation-strategy-leading-the-future-by-creating-it-accessible-webpage.
[98] UK Intellectual Property Office, Standard Essential Patents and Innovation: Call for views, (2021) https://www.gov.uk/government/consultations/standard-essential-pate…for-views/standard-essential-patents-and-innovation-call-for-views.
[99] UK Government, Standard Essential Patents: 2024 forward look, (2024) https://www.gov.uk/government/publications/standard-essential-patents-2024-forward-look/standard-essential-patents-2024-forward-look.
[100] Ibid.
[101] U.S. Patent and Trademark Office, USPTO and the UK IP office agree to collaborate on policies related to standard essential patents, (2024) https://www.uspto.gov/about-us/news-updates/uspto-and-uk-ip-office-agree-collaborate-policies-related-standard-essential.
[102] See, e.g., IAM, India: the rising sun of SEP enforcement in 2024, (2024) https://www.iam-media.com/article/india-the-rising-sun-of-sep-enforcement-in-2024; IAM, Availability of preliminary injunctions makes Brazil an attractive litigation venue for SEP owners, (2023)
https://www.iam-media.com/hub/sepfrand-hub/2023/article/availability-of-preliminary-injunctions-makes-brazil-attractive-litigation-venue-sep-owners . See also Enrico Bonadio and Shreya Sampathkumar, Mapping the Indian Case Law on Standard Essential Patents, (2024) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4838382; Enrico Bonadio, Jorge Tinoco, and Daniel Leopoldino, SEPs Injunctions with a Tropical Flavour: the Brazilian Scenario, (2024) https://patentblog.kluweriplaw.com/2024/10/08/seps-injunctions-with-a-tropical-flavour-the-brazilian-scenario/.
[103] See, e.g., Jonathan M. Barnett and David J. Kappos, Restoring Deterrence. The Case for Enhanced Damages in a No-Injunction Patent System, in 5G and Beyond. Intellectual Property and Competition Policy in the Internet of Things, supra note 10, 129; Kristen Osenga, Efficient Infringement in the SEP Space, ibid., 111; Epstein and Noroozi, supra note 13.
[104] European Commission, supra note 84, 11-15.
[105] Padilla and Tuffin, supra note 10, 197. See also Kirti Gupta and Urska Petrovcic, Evidence of Systematic “Patent Holdout”, (2023) 38 Berkeley Technology Law Journal 575.
[106] See European Commission, supra note 84, 12-14, reporting that SEP owners’ main challenges include facing lengthy negotiations and the high cost of licensing due to the various means used by implementers to delay the obtaining of a licence. The Commission’s Impact Assessment also documented that, in order to be able to better assess the value that their technology brings to the standard implementations, a SEP holder would wait around 2 to 4 years until the standard is implemented in the market and then approach companies in specific markets to offer them licences. This is followed by negotiations, which take on average 3 years and potentially litigation in case parties cannot reach an agreement (adding another 1 to 2.5 years).
[107] See, e.g., Lybecker, supra note 51; Kristen J. Osenga, The Loss of Injunctions under eBay: Evidence of the Negative Impact on the Innovation Economy, (2024) https://www.hudson.org/regulation/loss-injunctions-under-ebay-evidence-negative-impact-innovation-economy; Adam Mossoff, The Injunction Function: How and Why Courts Secure Property Rights in Patents, (2021) 96 Notre Dame Law Review 1581.
[108] See, e.g., U.S. Federal Trade Commission, supra note 56, 4 and 26.
[109] Office of the U.S. Trade Representative, 2023 Report to Congress on China’s WTO Compliance, supra note 40, 3.
[110] Ibid.
Executive Summary The proposed transaction between T-Mobile US Inc. (T-Mobile) and United States Cellular Corporation (UScellular) does not appear to present any significant competitive harms . . .
The proposed transaction between T-Mobile US Inc. (T-Mobile) and United States Cellular Corporation (UScellular) does not appear to present any significant competitive harms and carries the potential of significant consumer benefits via increased competition among wireless providers. Thus, based on current publicly available information, the Federal Communications Commission (FCC) and the U.S. Justice Department (DOJ) should approve the transaction in its entirety for the following reasons:
T-Mobile in May 2024 announced its intention to enter into a transaction with UScellular.[1] The deal would include the acquisition of UScellular’s wireless operations, including its wireless customers and stores, as well as select spectrum assets.[2] As part of the deal, T-Mobile would enter into a long-term agreement to lease space on more than 2,000 UScellular towers. The transaction is valued at approximately $4.4 billion in cash and assumed debt.
The transaction would combine the assets of one of the three largest national wireless carriers (T-Mobile) with a regional provider (UScellular) that has faced challenges due to its lack of scale and density. UScellular currently covers approximately 10% of the U.S. population and accounts for about 1% of wireless connections nationwide. The parties claim the transaction would strengthen T-Mobile’s position in the rural and less densely populated areas where UScellular has focused its operations. After the transaction, T-Mobile will acquire about 30% of UScellular’s spectrum holdings in the 600 MHz, 700 MHz A Block, PCS, AWS, and 2.5 GHz bands, which could help to improve T-Mobile’s network capacity and coverage in certain areas.
The transaction will require approval from regulatory bodies, including the Federal Communications Commission (FCC) and the U.S. Justice Department (DOJ), who will assess its potential impact on competition in the wireless market. While there has been limited public opposition to the transaction, a July 2024 letter from several U.S. senators to the DOJ and FCC urged the regulators to scrutinize the acquisition in light of previous wireless mergers.[3] The letter argued that the acquisition would further consolidate an already highly concentrated market, reducing competition and potentially leading to higher prices and fewer choices for consumers.
The senators pointed to negative effects following T-Mobile’s previous acquisition of Sprint, including allegedly slower price declines and some recent price increases after the expiration of several merger commitments. The letter claims the transaction would eliminate potential competition between T-Mobile and UScellular in rural markets, where network expansion was anticipated. In addition, the letter claims the transaction would further concentrate spectrum holdings among the largest carriers, potentially hindering competition from smaller firms.
The senators’ letter, however, overlooks a major factor driving both T-Mobile’s previous acquisition of Sprint, which was cleared by the courts in 2020, and its proposed transaction of UScellular. Much as with Sprint, T-Mobile is seeking to acquire certain assets of a “weakened competitor”[4] in order to employ its assets in a more productive manner.
In a sense, this is a potential example of what the late Henry Manne called the “market for corporate control.”[5] T-Mobile believes it can take over a subset of UScellular’s assets and use them more efficiently. Indeed, UScellular appears to be in an even worse competitive position than Sprint, as UScellular is only a regional competitor with a very small market share and few competitive prospects outside of this proposed transaction.[6] T-Mobile has shown itself to be an innovator in the wireless space and could continue to enhance its ability to compete with Verizon and AT&T in rural markets with the addition of UScellular’s spectrum and its presence in those markets.
While the transaction will eliminate UScellular from some aspects of the wireless services market, it has the potential to generate significant consumer benefits and, contrary to the concerns raised in the senators’ letter, enhance competition in the mobile wireless market.
This issue brief evaluates some of the key issues surrounding the transaction from the perspective of law and economics. It is crucial to consider the current dynamics of the mobile-wireless market. Criticisms of the deal to date have overlooked the growing competition that market leaders face from EchoStar, cable/cable wireless, and other wireless providers. The transaction would allow T-Mobile to better compete against these new entrants and other large incumbents, potentially driving innovation and improved services.
In addition, the transaction would likely yield substantial consumer benefits, particularly in those rural areas where UScellular has a strong consumer presence but lags competitors in deploying the latest technology. Notably, T-Mobile’s resources and technology could accelerate the deployment of 5G networks in these underserved regions, helping to bridge the digital divide. Moreover, the transaction could also lead to more efficient use of scarce spectrum resources. T-Mobile’s expertise in network optimization could enhance the use of the acquired spectrum holdings, improving overall network capacity and performance.
Today’s U.S. wireless markets are competitive and dynamic. In recent years, more consumers have obtained a mobile device and have more options for carriers, and they have experienced vast improvements in performance.
Pew reports that 98% of Americans now have mobile phones and 91% have smartphones.[7] Just five years earlier, only 77% of Americans had a smartphone.[8] As of 2017, “cable wireless” (mobile service offered by cable providers) was virtually unknown.[9] Today, cable wireless accounts for nearly 4% of subscribers (Table 1). 5G technology was first rolled out in 2018; today, 77% of operator locations have 5G.[10] Consumers in nearly every local market in the country can choose from among three or more providers as of 2022.[11]
Source: Companies; Statista[12]
In comments to the FCC regarding the T-Mobile/Sprint merger, ICLE concluded:
[T]he merger of T-Mobile and Sprint would plausibly create a third truly national competitor in this market. In other words, in the market for nationwide 5G networks, this transaction amounts to a 2-to-3 merger, resulting in the creation of a viable, new market entrant….[13]
That conclusion was correct. Today, T-Mobile operates in all 50 states, has approximately 79,300 towers (owned and leased),[14] and about 120,000 cell sites.[15] Because of its coverage, the FCC characterizes T-Mobile as one of the three “nationwide service providers” in the United States with a network that is “truly ubiquitous.”[16]
UScellular operates in parts of 21 states, owns 4,388 towers, and operates 6,990 cell sites in service.[17] Because its coverage does not span the entire country and is not contiguous (Figure 1), the FCC has characterized UScellular as a “multi-regional service provider,” rather than a “nationwide service provider.”[18]
Note: Red circles indicate areas where UScellular has coverage, but T-Mobile does not.
Source: Compare Cellular[19]
The population across UScellular’s coverage footprint totals 32 million people or less than 10% of the U.S. population. At 4.5 million subscribers, the company accounts for approximately 1% of U.S. wireless subscribers (Table 1). In 2021, UScellular President and CEO Laurent Therivel indicated the company had a market share of “high 30% to low 40%” in Iowa and Wisconsin and “around the teens” across the rest of its footprint.[20]
Despite T-Mobile’s nationwide coverage, some spots served by UScellular are not well served by T-Mobile, as shown in Figure 1. These include much of Nebraska; portions of Wisconsin, Iowa, Kansas, Oklahoma; and much of Appalachia. These are areas in which the transaction would not reduce the number of competing firms, as T-Mobile would simply replace UScellular in areas where T-Mobile lacks coverage or combine assets to create even more effective competition against other providers.
T-Mobile’s network performance across the UScellular footprint generally lags behind T-Mobile’s national averages. T-Mobile claims these limitations have inhibited its ability to deliver a customer experience in these areas comparable to that enjoyed in the rest of the nation. Due in part to these shortcomings, T-Mobile estimates the postpaid customer share within UScellular’s footprint is well below its share nationwide.
Any antitrust review by regulators must first define the acquisition’s relevant product market. There are several compelling reasons why cable wireless providers such as Xfinity Mobile and Spectrum Mobile should be included within the market defined as relevant to the T-Mobile/UScellular transaction.
In less than a decade, cable-wireless providers have rapidly evolved from nascent entrants to significant competitive forces in the mobile-telecommunications market (Table 1). Their market share has grown substantially, with recent estimates indicating they’ve captured more than half of new subscribers.[21] This growth demonstrates that consumers view cable-wireless offerings as viable substitutes for traditional wireless services. Moreover, cable-wireless providers now cover a significant portion of the population, including within UScellular’s footprint.[22] This indicates that their services are widely available, and they compete directly with traditional carriers in many local markets.
Cable-wireless providers exhibit unique competitive characteristics that exert substantial pressure on traditional carriers. This includes their ability to bundle wireless services with home internet and television-channel packages;[23] leverage extensive Wi-Fi networks for traffic offloading;[24] and market to existing customer bases[25] in ways that grant them distinct advantages in pricing and service offerings. These providers have demonstrated the capacity to influence market prices and force traditional carriers to respond competitively.[26]
Including cable-wireless providers in the relevant market would offer a more accurate picture of the competitive landscape that the entity would face after the transaction. It would reflect the reality that consumers have an expanding array of choices for their wireless services beyond just traditional national carriers. Their inclusion would also likely result in a more nuanced assessment of market concentration and competitive effects. Further, regulators should consider not only the current market shares of cable-wireless providers, but also their trajectory and potential for future growth.
UScellular suffers from numerous competitive disadvantages, as summarized by the company’s CEO:
Nationwide wireless providers enjoy scale, density, and cost advantages that UScellular lacks, enabling them to realize lower per-subscriber operating expenditures, amortize greater capital investments over their covered populations, and achieve higher profitability despite sometimes offering lower prices. The structural disadvantages we face manifest across every part of our business, ranging from spectrum and network costs to non-network expenses like advertising and distribution.[27]
Some of UScellular’s disadvantages stem from fundamental factors, such as the company’s relatively small and discontinuous network. These disadvantages inhibit UScellular’s ability to achieve scale economies, leading to higher operating costs and reduced quality of service. Combined, these factors have negatively affected the company’s financial condition, further hindering UScellular’s competitiveness.
Approximately 40% of UScellular’s covered population is rural.[28] The company’s CEO identifies several factors that increase the costs of deploying to rural and other less-densely populated areas, such as:[29]
Because of these higher costs, establishing cell towers in rural and less-densely populated areas may be unprofitable, thus leading to lower cell-tower density.[30] As a result, consumers are more likely to experience inconsistent cell reception and less-reliable cell-phone signals.[31] Therivel has indicated that UScellular’s network quality is “falling behind” its competitors and that “customers often leave because of poor network performance.”[32]
UScellular operates in parts of 21 states (Figure 1) and accounts for about 1% of U.S. wireless subscribers (Table 1). It has about one-third fewer subscribers than each of the next three largest providers—Spectrum Mobile, Xfinity Mobile, and DISH Boost. Since 2020, UScellular has lost 10% of its subscribers (500,000) and is expected to continue to lose market share into the foreseeable future.[33] With its smaller size, UScellular does not benefit from the economies of scale that its larger competitors have.
Economies of scale are a well-known phenomenon that occur when the average cost of production (e.g., cost per-subscriber) decreases as output (e.g., number of subscribers) increases.[34] One source of economies of scale is fixed costs that do not vary with output. As output expands, these fixed costs are spread across more units of production and the average fixed cost per-unit declines. The FCC’s notes “[r]elatively high fixed costs in relation to the number of customers may limit the number of firms that can enter and survive in a market.”[35]
SOURCE: Therivel Declaration
Volume discounts on inputs are another source of economies of scale. Therivel explained that UScellular’s relatively small size does not allow the company to achieve the same economies of scale as its competitors (Figure 2):
It costs UScellular more to operate our network and create network capacity compared to the nationwide wireless providers. For example, UScellular’s average cost of service per subscriber per month ($13.53) is nearly twice that of T-Mobile’s ($7.39 when excluding Sprint merger-related costs). In addition, our fixed costs are spread across 4.5 million subscribers compared to the 100 million-plus subscribers for each of the larger nationwide carriers. … We also cannot negotiate at scale to get lower prices for some products like equipment. And our rural and more sparsely populated footprint is costlier to serve than denser areas (because costs are averaged across geographies, we have a disadvantageous average relative to our rivals).[36]
UScellular appears to be stuck in a vicious circle in which its inability to benefit from scale economies hinders its ability to attract and retain customers which, in turn, further stifles its ability to achieve scale economies, as noted in a letter from T-Mobile and UScellular to the FCC:
In other words, fewer subscribers mean less revenue to spend on network improvements and the customer experience; that spend is further decreased by the need to pay back debt; and the resulting network experience in turn leads to even fewer subscribers.[37]
UScellular identifies several consequences of its limited scale:
UScellular’s scale disadvantage extends from its inability to attract and retain customers due to its diminished financial condition. For example, in its effort to compete by modernizing its network, UScellular acquired C-band spectrum in 2021 and 3.45 GHz spectrum in 2022. To finance these acquisitions, the company’s long-term debt doubled from $1.5 billion to $3.0 billion.[46] In 2023, the interest expense of that additional debt amounted to $130 million, or about 3% of the company’s revenue.[47]
Because of its higher costs and shrinking revenues, UScellular’s operating cash flows are “considerably below” the margins of nationwide carriers.[48] This limits its ability either to invest in its network or to compete on price.[49]
The U.S. Supreme Court has repeatedly cautioned that “[t]he antitrust laws … were enacted for the ‘protection of competition, not competitors.’”[50] Across decades of decisions, the Court has consistently recognized that this is the very “purpose of the antitrust laws.”[51] The 9th U.S. Circuit Court of Appeals recently observed that there is a difference “between anticompetitive behavior, which is illegal under federal antitrust law, and hypercompetitive behavior, which is not.”[52] The 9th Circuit also noted that a firm that exercises “market dominance” may, nevertheless, “play[] a powerful and disruptive role in those markets.”[53]
For more than a decade, T-Mobile has positioned itself in just such a disruptive role with its “Un-carrier” approach.[54] T-Mobile’s transaction with UScellular will generate efficiencies that can be translated to consumer benefits through lower prices, expanded coverage, and improved services.
T-Mobile’s transaction with UScellular would improve rural-broadband access by providing the combined firm with more resources and infrastructure to bolster its network in rural areas. The acquired UScellular spectrum would also provide T-Mobile with a substantial increase in low-band spectrum, a critical component to deliver broadband services in rural areas. T-Mobile’s current low-band spectrum holdings in UScellular’s footprint are reportedly 20% lower than in other areas.[55] The transaction would allow T-Mobile to address this deficiency by acquiring spectrum in the 600 MHz and 700 MHz A Block bands.[56]
The added spectrum would also help T-Mobile to improve network speeds and capacity, particularly in areas where its network is currently weak.[57] Under the deal, T-Mobile would lease space on more than 2,000 UScellular towers, enabling it to densify its network in rural areas.[58] This increased density would result in enhanced coverage, improved signal strength, and faster data speeds for consumers in these areas.[59]
T-Mobile plans to leverage the increased capacity from the acquired spectrum and network densification to expand its 5G Home Internet service in UScellular’s footprint.[60] This expansion would provide a competitive alternative to traditional broadband providers in rural areas. The transaction would allow T-Mobile to expand the number of households eligible for its Home Internet service by more than 1 million, and would support a significantly larger number of households than UScellular currently can.[61]
Following the transaction, T-Mobile has expressed plans to prioritize network improvements in rural areas.[62] They aim to rapidly operationalize network enhancements and bring benefits like lower prices and value-added services to customers in these regions.[63] Additionally, T-Mobile will inherit UScellular’s existing rural-customer base, increasing the economic incentive for them to invest in network coverage and quality in these less-densely populated locations.[64]
The transaction is primarily motivated by a strategic objective to enhance its network capabilities, particularly in areas where UScellular currently holds a stronger position. The transaction would provide T-Mobile with access to UScellular’s spectrum assets, allowing for aggregation and more efficient spectrum utilization.[65] UScellular currently faces limitations in spectrum aggregation due to its holding fewer contiguous blocks of spectrum.[66] This fragmentation reduces spectral efficiency (i.e., the optimal use of spectrum such that the maximum amount of data can be transmitted with the fewest transmission errors), requiring a denser network deployment to achieve comparable download speeds. By acquiring and combining certain of these fragmented blocks with their existing holdings, T-Mobile could create larger contiguous channels, enhancing spectral efficiency and enabling higher data-transmission rates using the same amount of spectrum.[67]
The acquired UScellular spectrum holdings would be a complement T-Mobile’s holdings. UScellular possesses valuable low-band spectrum in the 600 MHz and 700 MHz A Block bands, which are essential for wider coverage, particularly in rural areas.[68] T-Mobile’s existing network would be significantly strengthened by incorporating these low-band assets. Additionally, UScellular’s mid-band spectrum in the PCS, AWS, and 2.5 GHz bands would further bolster T-Mobile’s 5G-deployment capabilities.[69]
As noted above, the transaction would also grant T-Mobile access to lease space on more than 2,000 UScellular towers. This access is crucial for T-Mobile to densify its network, particularly in areas where its infrastructure is currently limited.[70] By using UScellular’s existing towers, T-Mobile could expand its coverage and capacity without incurring the costs of building new cell sites.
The integration of UScellular’s spectrum assets into T-Mobile’s network is anticipated to be a swift and cost-effective process.[71] Since the acquired spectrum falls within bands already supported by T-Mobile’s existing network equipment, activation can be achieved through software reconfiguration.[72] This method allows for almost-instantaneous deployment in most cases, leading to a near-immediate realization of network synergies.
The network integration process would be accelerated through T-Mobile’s planned deployment of Multi-Operator Core Network (MOCN) technology immediately following the transaction’s close.[73] MOCN would enable seamless interoperability between T-Mobile and UScellular networks, allowing customers of both carriers to automatically connect to whichever network provides superior service.[74] This integration approach is particularly efficient since nearly all UScellular consumer devices are already compatible with T-Mobile’s network infrastructure, enabling migration through over-the-air software updates without requiring hardware replacements.[75] The MOCN implementation would permit immediate unification of the radio access networks, ensuring uninterrupted service for UScellular customers during the transition period while facilitating rapid realization of network synergies.[76]
By leveraging UScellular’s existing infrastructure and readily integrable spectrum assets, T-Mobile could significantly reduce its capital expenditure on network deployment.[77] The cost savings would stem from using UScellular’s existing towers, efficient spectrum integration through software reconfiguration, and the ability to deploy a larger, more efficient network.
T-Mobile has a demonstrated history of successfully integrating acquired companies and quickly realizing network synergies. Following its combination with MetroPCS in 2013, T-Mobile completed network integration and realized target synergies a year ahead of schedule, also achieving 40 percent higher synergies than initially planned.[78] This integration involved a market-by-market refarming of spectrum from MetroPCS’s CDMA network to T-Mobile’s LTE network.[79] T-Mobile’s 2020 merger with Sprint also resulted in a greatly improved network.[80] T-Mobile’s network strategy is to rapidly implement improved network performance to further its “Un-carrier” approach.[81] The company expects that most UScellular customers will be able to migrate to the T-Mobile network via an over-the-air software update, with no need for new handsets or SIM cards.[82]
As noted above, the integration of the UScellular network will use the T-Mobile network as the anchor, with increased density and coverage achieved by integrating UScellular base stations and spectrum. The spectrum acquired from UScellular is in bands already supported on the T-Mobile network, allowing for rapid deployment via software reconfiguration. The integration of leased UScellular base stations with T-Mobile radios is projected to be completed within 18 to 24 months, with some geographies completed within the first few months after closing. This experience with integrating networks, particularly the rapid integration after the MetroPCS transaction, indicates that T-Mobile has the capability to swiftly realize the network synergies expected from the UScellular transaction.
We reviewed the empirical literature on the effects of wireless mergers and market concentration on pricing, investment, and innovation.[83] The literature indicates that increased concentration—particularly in markets with three facilities-based operators—is associated with higher levels of long-term investment and potentially greater dynamic benefits. These benefits include faster and more reliable cellular service, reflecting improvements in dynamic-welfare effects. The evidence also suggests that mergers resulting in markets with more symmetrical structures (i.e., where providers have roughly equal market shares) may further strengthen these positive investment effects.
A recently published retrospective of T-Mobile’s acquisition Sprint found that both the merged companies and overall industry investment increased relative to pre-merger investment:
The 2018–2021 investment profile for US mobile networks shows that T-Mobile more than offset any decline in reported capital spending from the elimination of Sprint: the national US wireless carriers invested $63.5 billion in the two-year period 2020–2021, up from $58.9 billion in the two-year period 2018–2019. T-Mobile, alone, increased its capital spending from $5.9 billion in 2019 to $12.1 billion in 2021 (following the merger). The wireless industry’s share of total U.S. corporate capital expenditure (adjusting for inflation as well as other macroeconomic trends) did not decline, but rather rose slightly, from 0.66 percent in 2018–2019 to 0.68 percent in 2020–2021, according to UBS Investment Research.[84]
As discussed above, as a small regional carrier, UScellular faces significant financial and structural disadvantages relative to national carriers like T-Mobile. These disadvantages include a lack of scale and density in its footprint, higher operational costs, and an inability to keep pace with the capital expenditures required for network upgrades and 5G deployment. Indeed, much of UScellular’s current network is 3G or 4G LTE, rather than 5G, as noted by one analyst:
Essentially, folks in Iowa and Wisconsin have a decent chance of finding U.S. Cellular 5G coverage in their backyard; meanwhile, folks in Nebraska, Illinois, and Missouri will just have to cross their fingers and hope that they live in a 5G-covered zone. Other than that, U.S. Cellular has small, dot-sized pockets of 5G coverage in the other states.[85]
UScellular Chief Technology Officer Michael Irizarry reports that the company’s “5G deployment has lagged behind that of our competitors due to limited capital, which… places us at a competitive disadvantage in terms of network quality.”[86]
UScellular’s inability to maintain or increase its investments has led to a decline in the company’s network quality relative to national carriers, which has resulted in reduced customer satisfaction. The company’s reduced revenues combined with its higher cost structure has forced it to prioritize short-term cost-cutting measures over long-term investments.[87] The transaction would effectively address these investment constraints by integrating the acquired UScellular assets into its financially stronger and more scalable national operations.
T-Mobile’s network performance within UScellular’s footprint generally lags its national averages, hindering its ability to compete effectively in those areas. This lag is primarily attributed to T-Mobile’s lack of spectrum depth and less-dense network infrastructure relative to competitors like AT&T and Verizon. Recognizing this weakness, T-Mobile sees the transaction as an opportunity to bolster its investment in these underserved areas. By acquiring certain UScellular spectrum assets and leveraging its existing tower infrastructure, T-Mobile can cost-effectively enhance its network capacity, coverage, and service quality in these regions.
The enhanced network capacity and 5G capabilities resulting from the transaction would create opportunities for innovation and service improvements. For instance, T-Mobile plans to expand its 5G Home Internet service within UScellular’s footprint, particularly in rural areas.[88] This expansion aligns with T-Mobile’s strategic objective of leveraging its 5G network to disrupt the in-home broadband market and offer a competitive alternative to traditional fixed-line providers, in line with the company’s “Un-carrier” approach.[89]
[1] Press Release, T-Mobile to Acquire UScellular Wireless Operations and Deliver Exceptional Value, a Superior 5G Experience and Unparalleled Benefits to Millions of Customers, T-Mobile (May 28, 2024), https://www.t-mobile.com/news/business/uscellular-acquisition-operations-assets.
[2] Applications of T-Mobile US Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286 ¶ 31 (Sep. 13, 2024), https://www.fcc.gov/ecfs/search/search-filings/filing/109132166915081 [hereinafter “Applications”].
[3] Letter from Elizabeth Warren, Amy Klobuchar, Christopher Murphy & Bernard Sanders, U.S. Senators to Jonathan Kanter, Assistant Attorney General, Dept. of Justice & Jessica Rosenworcel, Chair, FCC (Jul. 22, 2024), available at https://www.warren.senate.gov/imo/media/doc/final_-_warren_letter_to_doj_and_fcc_re_t-mobile_uscellular_merger.pdf.
[4] Cf. New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179, 224 (S.D.N.Y. 2020) (finding that the “weight of the evidence at trial establishes that Sprint is caught in a vicious cycle caused by its inability to finance meaningful network investment, which perpetuates a low-quality network that drives away customers and limits Sprint’s ability to generate the cash necessary to reduce its financial constraints… and Sprint’s ability to improve that product is hindered by substantial hurdles in financing network development.”)
[5] Henry Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965).
[6] See Notice of Ex Parte Presentation, Applications of T-Mobile US Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286, at 2-3 (Oct. 3, 2024), available at https://www.fcc.gov/ecfs/document/100352474704/1.
[7] Mobile Fact Sheet, Pew Research Ctr. (Nov. 13, 2024), https://www.pewresearch.org/internet/fact-sheet/mobile/.
[8] Id.
[9] Press Release, Comcast Introduces Xfinity Mobile, Comcast (Apr. 6, 2017), https://corporate.comcast.com/news-information/news-feed/comcast-xfinity-mobile.
[10] 5G in America, CTIA (2024), https://www.ctia.org/the-wireless-industry/5g-in-america; 5G in the U.S.—Additional Mid-band Spectrum Driving Performance Gains, Ookla (Jun. 24, 2024), https://www.ookla.com/articles/5g-in-the-us-q1-2024.
[11] 2022 Communications Marketplace Report, In the Matter of Communications Marketplace Report, GN Docket No. 22-203 (Dec. 30, 2022) ¶ 64 [hereinafter 2022 Communications Marketplace Report].
[12] Number of T-Mobile Customers in the United States from 2010 to 2024, by Quarter and Contract Type, Statista (Apr. 2024), https://www.statista.com/statistics/219564/total-contract-customers-of-t-mobile-usa-by-quarter; AT&T Wireless Subscribers and Connections from 1st Quarter 2017 to 1st Quarter 2024, Statista (Jul. 2024), https://www.statista.com/statistics/1125140/total-mobility-subscribers-connections; Financial and Operating Information as of June 30, 2024, Verizon (Jul. 20, 2024), https://www.verizon.com/about/file/71961/download?token=zvOuCYvo; Who We Are, Charter Communications (2024), https://corporate.charter.com/about-charter; EchoStar Resets Boost Mobile Brand, Mobile World Live (Jul. 18, 2024), https://www.mobileworldlive.com/dish-network/echostar-resets-boost-mobile-brand; Press Release, Xfinity Mobile & Comcast Business Mobile Surpass 7 Million Lines, Comcast (Sep. 9, 2024), https://corporate.comcast.com/stories/xfinity-mobile-seven-million; Press Release, UScellular Reports First Quarter 2024 Results, UScellular (May 3, 2024), https://investors.uscellular.com/news/news-details/2024/UScellular-reports-first-quarter-2024-results/default.aspx.
[13] Comments of the International Center for Law and Economics in Opposition to Petitions to Deny, In the Matter of Applications of T-Mobile US, Inc. and Sprint Corporation for Consent to Transfer Control of Licenses and Authorizations, WT Docket No. 18-197 (Sep. 17, 2018), available at https://laweconcenter.org/wp-content/uploads/2018/09/ICLE-Comments-TMobile-Sprint-Merger.pdf.
[14] Ex Parte Presentation, Applications for the Transfer of Control of Mint Mobile, LLC and UVNV, Inc. from Ka’ena Corporation to T-Mobile US, Inc., GN Docket No. 23-171 (May 17, 2024), 31, https://www.fcc.gov/ecfs/document/105200428121304/2.
[15] What Is a Cell Site? How Do Cell Sites Work?, Tower Genius (May 2024), https://www.towergenius.com/cell-site.
[16] 2022 Communications Marketplace Report, supra note 11, ¶ 64.
[17] Quarterly Report (Form 10-Q), UScellular (Aug. 2, 2024), available at https://d18rn0p25nwr6d.cloudfront.net/CIK-0000821130/7ec3a639-4d10-468b-b1d0-cc66357b1746.pdf.
[18] 2022 Communications Marketplace Report, supra note 11, ¶ 64.
[19] Marisa Crane, U.S. Cellular Coverage Map: How U.S. Cellular Compares to AT&T, Verizon, T-Mobile, and Sprint, Compare Cellular (Mar. 20, 2020), https://www.comparecellular.com/coverage-maps/us-cellular-coverage-map.
[20] Bevin Fletcher, UScellular Expects to Nab Market Share in 2021, Fierce Network (Jan. 8, 2021), https://www.fierce-network.com/operators/uscellular-ceo-expect-pivot-to-growth-2021.
[21] Jeff Baumgartner, Cable’s Wireless Blitz Picks up More Steam, LightReading (Aug. 16, 2024), https://www.lightreading.com/wireless/cable-s-wireless-blitz-picks-up-more-steam.
[22] Decl. of Laurent Therivel, Applications of T-Mobile US, Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286 ¶ 31 (Sep. 13, 2024), https://www.fcc.gov/ecfs/document/109132166915081/5 [hereinafter “Therivel Declaration”] (reporting cable wireless has more than 1.3 million handset subscribers in UScellular’s footprint); see also, Mike Dano, Cable MVNOs Are Beginning to Hurt U.S. Cellular, LightReading (Aug. 6, 2019), https://www.lightreading.com/mobile-core/cable-mvnos-are-beginning-to-hurt-u-s-cellular (reporting about 45% of UScellular’s footprint overlapped with Charter, Comcast, or Altice in 2019).
[23] Therivel Declaration, supra note 22, ¶ 19.
[24] Id. ¶ 18 (“According to their own data, cable wireless providers offload approximately 90 percent of their traffic to Wi-Fi, versus up to 80 percent for wireless providers like UScellular. In other words, cable wireless customers use a full 50 percent less cellular network capacity than our customers do.”); see also, Jack Reid, Comcast and Charter Are in a Better Position Than Smaller Cable Companies To Resist Fixed Wireless Competition, S&P Global Ratings Says, Yahoo Finance (Jun. 5, 2024), https://finance.yahoo.com/news/comcast-charter-better-position-smaller-212413329.html.
[25] Decl. of Jonathan Orszag, Applications of T-Mobile US, Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286 ¶ 90 (Sep. 13, 2024), https://www.fcc.gov/ecfs/document/109132166915081/7 [hereinafter “Orszag Declaration”].
[26] Decl. of Michael Katz, Applications of T-Mobile US, Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286 ¶17 (Sep. 13, 2024), https://www.fcc.gov/ecfs/document/109132166915081/3 [hereinafter “Katz Declaration].
[27] Therivel Declaration, supra note 22, ¶ 6.
[28] Decl. of Michael S. Irizarry, Applications of T-Mobile US, Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286 ¶ 17 (Sep. 13, 2024), https://www.fcc.gov/ecfs/document/109132166915081/6 [hereinafter “Irizarry Declaration”].
[29] Therivel Declaration, supra note 22, ¶ 24.
[30] Rural Area Cell Phone Booster: A Comprehensive Guide, KING (Jul. 10, 2023), https://kingconnect.com/blog/rural-area-cell-phone-booster-a-comprehensive-guide.
[31] Id.
[32] Therivel Declaration, supra note 22, ¶ 10.
[33] Irizarry Declaration, supra note 28, ¶ 19.
[34] See Paul Krugman & Robin Wells, Economics (4th ed., 2015) 348.
[35] Twentieth Report, In the Matter of Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993 Annual Report and Analysis of Competitive Market Conditions With Respect to Mobile Wireless, Including Commercial Mobile Services, WT Docket No. 17-69 (Sep. 27, 2017), at 22, available at https://docs.fcc.gov/public/attachments/FCC-17-126A1.pdf, citing John Sutton, Sunk Costs and Market Structure (1991); Luis Cabral, Introduction to Industrial Organization, Ch. 14 (2000); Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organization (4th ed., 2005), at 41 (2005); George S. Ford, Thomas M. Koutsky, & Lawerence J. Spiwak, Competition after Unbundling: Entry, Industry Structure, and Convergence, 59 Fed. Comm. L. J. 331 (Mar. 2007), at 332, 337.
[36] Therivel Declaration, supra note 22, ¶ 9.
[37] Notice of Ex Parte Presentation, Applications of T-Mobile US, Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286 (Oct. 3, 2024), https://www.fcc.gov/ecfs/document/100352474704/1.
[38] Id. (“[F]ootprint-wide fixed-cost investments, such as building the network core or a digital service platform, must meet higher return thresholds for us to consider them.”).
[39] Id. (“We also cannot negotiate at scale to get lower prices for some products like equipment.”); Irizarry Declaration, supra note 28, ¶ 16 (Sep. 13, 2024), (“We purchase smaller volumes of equipment and services than our nationwide competitors, which I expect leads to our paying higher prices as a result.”).
[40] Irizarry Declaration, supra note 28, ¶ 22 (“[W]e face disadvantages acquiring spectrum relative to our competitors. Our footprint often only covers parts of a FCC spectrum licensed area (e.g., a Partial Economic Area), making the purchase of spectrum economically inefficient for us relative to our nationwide competitors. For example, in recent auctions that involve geographic licensing based on PEAs—which are smaller auction regions than the FCC has used in other auctions—portions of Northern California (specifically, Alpine, Inyo, Lassen, Mono, Plumas, and Sierra counties) are included in PEA 76 (Reno, NV), which also includes most of Nevada. We operate in Northern California, and therefore having a spectrum license there is desirable. But because we do not operate in Nevada, that spectrum license is too costly for us. Indeed, we did not bid on this PEA in recent spectrum auctions. Rather, our competitors, who could utilize it more broadly and spread the cost among more subscribers, ultimately won licenses for this PEA in these auctions.”).
[41] Therivel Declaration, supra note 22, ¶ 33 (“However, given that our operating cash flow (“OCF”) margins are already considerably below the large nationwide carriers due to our relative cost position and lack of scale … coupled with the advantaged economics of cable wireless, that differentiator can’t be a low-price strategy. A low- price strategy would not overcome these challenges or create the necessary cash flows required for investment in the network. Indeed, while we engaged in aggressive device and service discounts in 2022, those efforts were not successful and we continued to lose subscribers….”).
[42] Id. ¶ 15 (“[U]nlike nationwide wireless providers, UScellular’s limited footprint means that it cannot offer a comprehensive nationwide network at wholesale, meaning that an MVNO or cable provider using UScellular’s network must either be limited to the UScellular footprint or partner with one or more additional carriers.”).
[43] Id. ¶ 13 (“Our smaller scale also affects our cost to operate call centers. For example, to cover hours of operation in queues with lower call volume, we need to staff not to volume but to ensure resource coverage for the hours the call center is open.”).
[44] Id. ¶ 12 (“Scale also challenges us when it comes to attracting third-party agents and national retail partners to market and sell our services. … Our nationwide competitors also have the scale to attract multiple national retailers to distribute their services, whereas we only work with Walmart and are not invited to do so in every store located in our footprint. Other national retailers will not work with us because we do not cover enough of their footprint—whereas having the ability to partner with another national retailer could be valuable to us because there are some rural areas where we cannot attract an agent or locate a company-owned store because it is not profitable.”).
[45] Id. ¶ 11 (“Due to the geographically dispersed nature of our footprint covering portions of 21 states, it is impractical and not cost- effective to make use of the cheapest forms of advertising in terms of cost per impressions served: national and mass market print, radio, or television advertising. For example, advertising spots are sold nationally per Designated Market Area (“DMA”). .. [I]n at least out of 62 DMAs, our footprint only partially overlaps with DMA boundaries. As a result, UScellular cannot realistically buy the kind of advertising that nationwide carriers are able to employ for less cost and with substantially greater efficiency, which makes us less competitive and increases the cost of customer acquisition.”).
[46] Irizarry Declaration, supra note 28, ¶ 12.
[47] Therivel Declaration, supra note 22, ¶ 22; Orszag Declaration, supra note 25, Fig. 7.
[48] Irizarry Declaration, supra note 28, ¶ 33; see also Orszag Declaration, supra note 25, ¶ 64.
[49] Therivel Declaration, supra note 22, ¶¶ 22, 33, 42, 47.
[50] Brunswick Corp. v. Pueblo Bowl-O-Mat Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)).
[51] Leegin Creative Leather Prods. Inc. v. PSKS Inc., 551 U.S. 877, 906 (2007). See also United States v. Phila. Nat’l Bank, 374 U.S. 321, 367 n.43 (1963) (quoting Brown Shoe, 370 U.S. at 320); Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 767, n.14 (1984), (quoting Brunswick, 429 U.S. at 488); Cargill Inc. v. Monfort of Colo. Inc., 479 U.S. 104, 110 (1986), (quoting Brunswick, 429 U.S. at 488); Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990), (quoting Brown Shoe, 370 U.S. at 320); Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) (quoting Brown Shoe, 370 U.S. at 320).
[52] FTC v. Qualcomm Inc., 969 F.3d 974, 982 (9th Cir. 2020).
[53] Id. at 1005.
[54] Alexandra Withrow, T-Mobile: Becoming the Un-carrier Case Study Application and Teaching Note, (W. Wash. U., May 15, 2015), https://cedar.wwu.edu/scholwk/2015/Day_two/22/ (“In late 2012, T-Mobile and newly appointed CEO John Legere found a new way to play the game, and set out to change T-Mobile’s reputation as a second-rate phone carrier and become the Un-Carrier. This meant no service contracts, inexpensive upgrades and flexible plans.”).
[55] Decl. of Ankur Kapoor, Applications of T-Mobile US, Inc. and United States Cellular Corporation for Consent to Transfer Control of Licenses and Authorizations, GN Docket No. 24-286 ¶ 3 (Sep. 13, 2024), https://www.fcc.gov/ecfs/document/109132166915081/4 [hereinafter “Kapoor Declaration”].
[56] Id. ¶ 6.
[57] Id. ¶ 3.
[58] Id. ¶ 2.
[59] Id. ¶¶ 6-7.
[60] Id. ¶ 19; Katz Declaration, supra note 26, ¶ 9.
[61] Kapoor Declaration, supra note 55, ¶ 19 (“T-Mobile estimates that we will be able to increase the number of households eligible for Home Internet services in the Footprint by over [redacted] million and increase the number of households that can be supported by the service by [redacted].”).
[62] Katz Declaration, supra note 26, ¶ 12.
[63] Id. ¶ 10.
[64] Kapoor Declaration, supra note 55, ¶¶ 21-22.
[65] Id. ¶¶ 6, 10.
[66] Therivel Declaration, supra note 22, ¶ 8.
[67] Kapoor Declaration, supra note 55, ¶ 12.
[68] Id. ¶¶ 6-7.
[69] Id.
[70] Id. ¶¶ 2-3, 13.
[71] Id. ¶¶ 25-26.
[72] Id. ¶ 24.
[73] Applications, supra note 2 at 29-30.
[74] Id.
[75] Id.
[76] Id.
[77] Id. ¶ 17.
[78] Kapoor Declaration, supra note 55, ¶ 28.
[79] Id.
[80] Katz Declaration, supra note 26, ¶¶ 5, 10.
[81] Id.
[82] Kapoor Declaration, supra note 55, ¶ 24.
[83] Eric Fruits, Justin (Gus) Hurwitz, Geoffrey A. Manne, Julian Morris, & Alec Stapp, Static and Dynamic Effects of Mergers: A Review of the Empirical Evidence in the Wireless Telecommunications Industry, OECD, DAF/COMP/GF(2019)13 (Sep. 4, 2020), available at https://one.oecd.org/document/DAF/COMP/GF(2019)13/en/pdf.
[84] Thomas W. Hazlett & Robert W. Crandall, No “Cozy Triopoly,” 47 Regulation 8, 11 (Sum. 2024), available at https://laweconcenter.org/wp-content/uploads/2024/07/regulation-v47n2-2.pdf.
[85] Tyler Abbott, U.S. Cellular Coverage Map: How It Compares to The Big 3, WhistleOut (Jun. 18, 2024), https://www.whistleout.com/CellPhones/Guides/us-cellular-coverage-map.
[86] Irizarry Declaration, supra note 28, ¶ 6.
[87] Therivel Declaration, supra note 22, ¶ 47.
[88] Katz Declaration, supra note 26, ¶ 9; Kapoor Declaration, supra note 55, ¶ 19.
[89] Katz Declaration, supra note 26, ¶ 5.
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, . . .
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, and the Vrije Universiteit Amsterdam’s Law & Technology Institute presented “Substance Over Slogans: Strengthening the Foundations of Antitrust.”
In a closing panel tying together the day’s themes, moderator and ICLE Academic Affiliate Thibault Schrepel (Vrije Universiteit) was joined by Pinar Akman (University of Leeds), Reiko Aoki (Japan Free Trade Commission), Gustavo Augusto (CADE (Spain)), Andy Chen (Taiwan Fair Trade Commission), Richard Gilbert (University of California Berkeley), Herbert Hovenkamp (University of Pennsylvania), Marc Ivaldi (Toulouse School of Economics), Francisco Marcos (IE University Law School), Philip Marsden (Bank of England), and Paul Seabright (Toulouse School of Economics). Video of the full panel is embedded below.
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, . . .
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, and the Vrije Universiteit Amsterdam’s Law & Technology Institute presented “Substance Over Slogans: Strengthening the Foundations of Antitrust.”
In a panel moderated by ICLE Director of Competition Policy Dirk Auer, presenters Richard Gilbert (University of California Berkeley) and Ginger Zhe Jin (University of Maryland)—along with discussants Reiko Aoki (Japan Free Trade Commission), Marc Ivaldi (Toulouse School of Economics), and Koren Wong-Ervin (Jones Day)—examined how antitrust analysis should regard the importance of competitiveness and innovation. Video of the full panel is embedded below.
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, . . .
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, and the Vrije Universiteit Amsterdam’s Law & Technology Institute presented “Substance Over Slogans: Strengthening the Foundations of Antitrust.”
In a panel moderated by ICLE Senior Scholar Lazar Radic, presenters Kenneth Elzinga (University of Virginia) and Herbert Hovenkamp (University of Pennsylvania)—along with discussants Cani Fernandez Vicien (CNMC (Spain)), Frederic Jenny (ESSEC Business School), and Dennis Carlton (University of Chicago)—explored the consumer welfare standard and what role it continues to play in competition analysis. Video of the full panel is embedded below.
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, . . .
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, and the Vrije Universiteit Amsterdam’s Law & Technology Institute presented “Substance Over Slogans: Strengthening the Foundations of Antitrust.”
In a discussion moderated by ICLE Chief Economist Brian Albrecht., 2016 Economics Nobel Laureate Oliver Hart of Harvard University explored antitrust and the costs and benefits of ownership. Video of the full talk is embedded below.
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, . . .
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, and the Vrije Universiteit Amsterdam’s Law & Technology Institute presented “Substance Over Slogans: Strengthening the Foundations of Antitrust.”
In a panel moderated by European University Institute Joint Chair in Competition Law Nicolas Petit, presenters Pinar Akman of the University of Leeds and Dennis Carlton of the University of Chicago—along with discussants Gustavo Augosto (CADE (Brazil)), Andy Chen (TFTC (Taiwan)), and Philip Mardsen (Bank of England)—explored the economics of digital platforms and whether they merit a new approach to competition law. Video of the full panel is embedded below.
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, . . .
On Jan. 17, 2025 in Paris, the International Center for Law and Economics’ (ICLE), the European University Institute’s Department of Law, IE Law School Madrid, and the Vrije Universiteit Amsterdam’s Law & Technology Institute presented “Substance Over Slogans: Strengthening the Foundations of Antitrust.”
Kicking off the conference were introductory comments from Francisco Marcos (IE University Law School), followed by a presentation from Paul Seabright (Toulouse School of Economics), moderated by Thibault Schrepel (Vrije Universiteit Amsterdam), exploring six common antitrust slogans and the substance behind them. Video of the full talk is embedded below.
ICLE Director of Innovation Policy Kristian Stout was a guest on the Comic Book School podcast to discuss the role of the public domain in . . .
ICLE Director of Innovation Policy Kristian Stout was a guest on the Comic Book School podcast to discuss the role of the public domain in comic-book storytelling. Video of the full episode is embedded below.
ICLE Senior Scholar Mario Zúñiga took part in a recent panel organized by Telefónica del Perú and moderated by Mario Cortijo, editor of journalistic projects . . .
ICLE Senior Scholar Mario Zúñiga took part in a recent panel organized by Telefónica del Perú and moderated by Mario Cortijo, editor of journalistic projects at the El Comercio newspaper, titled “Sustainability in Telecommunications: A Key for the Economic and Social Development of Peru.” Other panelists in this Spanish-language discussion included Elena Maestre of Telefónica; Lucas Gallitto, director for Latin America for the Global System for Mobile Association; and Virginia Nakagawa, a Peruvian lawyer and arbitrator with more than 30 years of experience as a senior executive in the public and private sector. Video of the full panel is embedded below.
ICLE Academic Affiliate Liya Palagashvili was a guest on the Commonwealth Foundation’s Disunion podcast to discuss her forthcoming research on the costs and benefits of . . .
ICLE Academic Affiliate Liya Palagashvili was a guest on the Commonwealth Foundation’s Disunion podcast to discuss her forthcoming research on the costs and benefits of powerful labor unions. Audio of the full episode is embedded below.
ICLE Chief Economist Brian Albrecht was a guest on The Curious Task podcast to discuss how policymakers can think more like economists by emphasizing the . . .
ICLE Chief Economist Brian Albrecht was a guest on The Curious Task podcast to discuss how policymakers can think more like economists by emphasizing the role of prices, tradeoffs, and unintended consequences in shaping effective policies. Audio of the full episode is embedded below.
About: Politicized arguments have dominated competition-law discourse around the globe in recent years. Too often, legal and economic substance is lost in popular rhetoric that . . .
ICLE senior scholar for innovation policy, Ben Sperry, shared legal perspective in this USA Today story on the looming US TikTok ban. Read the full . . .
ICLE senior scholar for innovation policy, Ben Sperry, shared legal perspective in this USA Today story on the looming US TikTok ban. Read the full story here.
Trump issued an executive order on Jan. 20 to extend the ban on TikTok, implemented by former President Joe Biden last year. The order granted a 75-day extension, which Trump said will allow him to consult with his advisors and heads of “relevant” departments and agencies to address national security concerns posed by TikTok.
Ben Sperry, senior scholar at the International Center for Law & Economics, said the executive order falls into a “gray area.” Under federal law, it remains illegal for U.S. companies, like internet hosting services and app stores, to maintain, distribute and update TikTok, as the platform remains owned by Chinese company ByteDance. However, Trump’s order invites companies to “break” this law, under the impression they will not face repercussions, Sperry said.
R.J. Lehmann, editor and chief and senior fellow at ICLE, shared perspective in The Dispatch on the regulatory challenges with homeowners’ insurance in the wake . . .
R.J. Lehmann, editor and chief and senior fellow at ICLE, shared perspective in The Dispatch on the regulatory challenges with homeowners’ insurance in the wake of the Los Angeles wildfires. Read the full story here.
“Regulators have two roles, R.J. Lehmann, editor-in-chief for the International Center for Law & Economics, told Bloomberg: to make sure insurers are solvent, and to protect consumers. Insurers sometimes need to be saved from themselves. For example, insurers have incentive to underprice risks, he observes, in order to attract business from their competition. There’s also a first-mover disadvantage to raising premiums, as it immediately makes that insurer less competitive in the marketplace.”
Brian Albrecht, chief economist at ICLE, shared perspective in this Money Week article exploring challenges to the UK’s economic growth. Read the full article here. . . .
Brian Albrecht, chief economist at ICLE, shared perspective in this Money Week article exploring challenges to the UK’s economic growth. Read the full article here.
Many of the most important levers behind growth may be difficult for government to influence because they rely on firms and their management, and, crucially, what they spend their money on. In this area of business change and innovation, several new ideas and discussions have emerged in recent months that are worth digging into. Take AI. This whole niche within technology tends to prompt breathless statements. Typical of this is a recent article from the US by Brian Albrecht, chief economist at the International Centre for Law & Economics.
He argues that “we are on the verge of an AI-driven boom… the data suggest we could get back to the kind of productivity growth we saw during the IT boom of the late 1990s and early 2000s”. He reckons we may be underestimating productivity growth by as much as 0.5% of GDP because of mismeasured AI investments alone.
Gus Hurwitz, director of law and economics programs at ICLE, contributed to this Associated Press article about President Trump’s executive order to suspend the TikTok . . .
Gus Hurwitz, director of law and economics programs at ICLE, contributed to this Associated Press article about President Trump’s executive order to suspend the TikTok ban. Read the full story here.
Despite the intense scrutiny and potential costs involved, the machinations over TikTok are in some ways just business as usual for the tech companies involved, according to Gus Hurwitz, a legal scholar with the International Center for Law and Economics.
“The fines that we’re talking about are civil penalties and companies risk civil penalties all the time,” Hurwitz said.
Gus Hurwitz, director of law and economics at ICLE, offered perspective in this The Guardian story on President Trump’s legal authority surrounding a U.S. ban . . .
Gus Hurwitz, director of law and economics at ICLE, offered perspective in this The Guardian story on President Trump’s legal authority surrounding a U.S. ban on TikTok. Read the full story here.
The way the TikTok ban works is that rather than targeting TikTok or ByteDance, it will punish the companies that distribute and host the app. That means Google and Apple could see billion-dollar fines if they continue to offer TikTok in their app stores. But, legal scholars say, Trump could indicate he won’t go after them either.
“Big tech companies could say: ‘Trump has told us he wants TikTok, and we want to be in good with the president,’” said Gus Hurwitz, an academic director at the University of Pennsylvania Carey Law School. He said the companies could continue to allow downloads of TikTok and trust the justice department won’t sue them.
Hurwitz said this could get tricky, however, because the president could just as easily change his mind. This whole situation “isn’t about the law”, he said. “This is about political judgments and business judgments that the companies are going to be making.”
Ben Sperry, senior scholar for innovation policy at ICLE, offered perspective in Observador on Meta’s recent changes to content moderation. Read the full article here. . . .
Ben Sperry, senior scholar for innovation policy at ICLE, offered perspective in Observador on Meta’s recent changes to content moderation. Read the full article here.
Ben Sperry, a senior scholar on innovation policy at the International Center for Law & Economics (ICLE), adds another issue to the concerns about Meta’s new policies: the backlash from advertisers. “X tried something different [with community ratings and moderation], because it seemed at the time it was bought that there was a demand, at least from some people, for more discourse, less fact-checking, if you will. And it tried it”—which Meta is now following….“But that doesn’t mean it’s going to stay that way.
Other social networks have tried to address speech issues, but Meta doesn’t just have to answer to users, it also has to answer to advertisers.” Sperry notes that the old Twitter “lost a lot of advertisers when it changed its moderation policies.” “Meta might lose too, we’ll see. They might change their minds again.”
Gus Hurwitz, director of law and economics programs at ICLE, offered perspective in this EuroNews story on the US TikTok ban. Read the full article . . .
Gus Hurwitz, director of law and economics programs at ICLE, offered perspective in this EuroNews story on the US TikTok ban. Read the full article here.
US TikTok users with Android devices might also be able to continue to update the platform through third-party app stores, a method called sideloading.
But bypassing the security protocols that well-known app stores have in place might also leave users more vulnerable to malware, said Gus Hurwitz, a professor at the University of Pennsylvania with expertise in telecommunications and technology.
Gus Hurwitz, director of law and economics programs at ICLE, was quoted in this Politico article on the TikTok ban and challenges posed to U.S. . . .
Gus Hurwitz, director of law and economics programs at ICLE, was quoted in this Politico article on the TikTok ban and challenges posed to U.S. lawmakers by other Chinese apps. Read the full story here.
It’s unclear if apps RedNote and Lemon8 are here to stay — especially with the slim chance that TikTok gets an eleventh-hour reprieve. University of Pennsylvania law professor Gus Hurwitz said app stores would likely be wary of Chinese alternatives becoming liabilities under the TikTok law.
“They’re not going to be allowed any more than TikTok is,” he said. “The companies — the Googles and Apples — they’re going to be vigilant looking for these non-TikTok apps that also need to be removed.”
Ray Lehmann, editor-in-chief and senior fellow at ICLE, contributed to this Al Jazeera story on the L.A. wildfires. Read the full article here. In 2017, . . .
Ray Lehmann, editor-in-chief and senior fellow at ICLE, contributed to this Al Jazeera story on the L.A. wildfires. Read the full article here.
In 2017, the Thomas Fire razed 1,060 structures in California’s Ventura and Santa Barbara. In July 2018, the Mendocino Complex Fire destroyed 280 structures in Mendocino, Lake, Colusa and Glenn counties, and in November 2018, the Camp Fire destroyed almost 19,000 buildings in Northern California’s Butte County.
Proposition 103 “contributed to the challenges” faced in the California insurance market, Ray Lehmann, senior fellow at independent research organisation, International Center for Law and Economics, told Al Jazeera.
Lehmann said the most notable of these challenges is that the proposition has “historically not permitted insurers to consider the cost of reinsurance or the output of forward-looking catastrophe models when filing rates”.
Gus Hurwitz, director of law and economics at ICLE, offered perspective in this The Guardian story on President Trump’s legal authority surrounding a U.S. ban . . .
Gus Hurwitz, director of law and economics at ICLE, offered perspective in this The Guardian story on President Trump’s legal authority surrounding a U.S. ban on TikTok. Read the full story here.
The way the TikTok ban works is that rather than targeting TikTok or ByteDance, it will punish the companies that distribute and host the app. That means Google and Apple could see billion-dollar fines if they continue to offer TikTok in their app stores. But, legal scholars say, Trump could indicate he won’t go after them either.
“Big tech companies could say: ‘Trump has told us he wants TikTok, and we want to be in good with the president,’” said Gus Hurwitz, an academic director at the University of Pennsylvania Carey Law School. He said the companies could continue to allow downloads of TikTok and trust the justice department won’t sue them.
Hurwitz said this could get tricky, however, because the president could just as easily change his mind. This whole situation “isn’t about the law”, he said. “This is about political judgments and business judgments that the companies are going to be making.”
Gus Hurwitz, director of law and economics programs at ICLE, offered perspective in a Politico article on the TikTok SCOTUS ruling. Read the full story . . .
Gus Hurwitz, director of law and economics programs at ICLE, offered perspective in a Politico article on the TikTok SCOTUS ruling. Read the full story here.
Without a sale, TikTok will technically be banned by the time Trump enters the Oval Office, which complicates his calculus for any dealmaking but could also generate momentum.
“Allowing the law to go into effect will be the headline news for quite some time. Supreme Court defies Trump. Tiktok ban goes into effect over Trump’s will,” University of Pennsylvania law professor Gus Hurwitz told POLITICO. “That will give Trump an antagonist — the Supreme Court — to be political against.”
Geoffrey A. Manne, president and founder of ICLE, offered perspective on Lina Kahn’s legacy in this article for Law360. Click here to read the full . . .
Geoffrey A. Manne, president and founder of ICLE, offered perspective on Lina Kahn’s legacy in this article for Law360. Click here to read the full story.
“There’s literature that wouldn’t have existed but for this antitrust moment,” said Geoffrey A. Manne, founder and president of the International Center for Law and Economics, a right-leaning think tank that has railed against DOJ and FTC efforts to fundamentally reshape antitrust enforcement, including through pushing back against the power of Big Tech.
Manne said it’s hard to say how much of a lasting effect the change in public zeitgeist will have on antitrust enforcement, and it’s hard to separate Khan and Kanter’s efforts from the moment itself. But Biden’s enforcers, he said, “gave it momentum that it wouldn’t have had.”
Gus Hurwitz, director of law and economics programs at ICLE, offers perspective in this USA Today story on how the policy debate over TikTok creates . . .
Gus Hurwitz, director of law and economics programs at ICLE, offers perspective in this USA Today story on how the policy debate over TikTok creates a unique political dynamic for the incoming Trump administration. Read the full article here.
Gus Hurwitz, a senior fellow at the University of Pennsylvania Carey Law School, said the only definitive way Trump can stop the ban is to work with Congress to reverse it – which seems unlikely.
“More realistically, this gives Trump a platform to speak out against the past administration, the Supreme Court, and others who he might want to blame for TikTok being banned,” Hurwitz said. “That political dynamic will be interesting to watch in the coming months.”
Research from Brian Albrecht, chief economist at ICLE, is cited in this piece in The Dispatch on the Los Angeles wildfires and public policy. Read . . .
Research from Brian Albrecht, chief economist at ICLE, is cited in this piece in The Dispatch on the Los Angeles wildfires and public policy. Read the full article here.
The place to start is California’s onerous regulation of homeowners insurance, which has probably encouraged many Angelenos to live in more fire-prone areas and has kept many of them underinsured or without insurance entirely. As economist Brian Albrecht detailed last week, citing a deep dive paper from his colleagues at the International Center for Law and Economics (ICLE), California’s Proposition 103 forces private insurers to price their products not just below hypothetical market rates but well below their cost—creating “the biggest gap between rates and risk in the nation.” Albrecht adds that the system is also highly inflexible and insanely slow: California’s speed of rate approvals ranked second-to-last among the 50 states (and D.C.) over the last five years, with an average of 236 days for homeowners insurance. And it’s been getting worse:
Dirk Auer, director of competition policy at ICLE, is quoted in this Daily Caller piece by Stephen Moore focused on European tech regulation and antitrust . . .
Dirk Auer, director of competition policy at ICLE, is quoted in this Daily Caller piece by Stephen Moore focused on European tech regulation and antitrust cases brought against U.S. companies.
Yet Europe’s bureaucrats have declared that Apple cannot charge product developers who are given access to the company’s operating systems. It is like getting to ride the train for free.
Interoperability is a dangerous concept — especially when it comes to security and privacy. Apple places a premium on maintaining the integrity of its devices and protecting its users’ data. But there is no guarantee that third parties given unfettered access to the Apple platform will have the same high standards.
That is going to leave Europe’s users of Apple products at greater risk of getting hacked. The results could be “disastrous,” points out Dirk Auer of the International Center for Law and Economics. “Users’ identity could be leaked, their money stolen, and their data could be compromised.”
Gus Hurwitz, director of law and economics programs at ICLE, offered perspective in Verify This on the implications of a TikTok ban in the U.S. . . .
Gus Hurwitz, director of law and economics programs at ICLE, offered perspective in Verify This on the implications of a TikTok ban in the U.S. Read the full article here.
If the TikTok ban goes into effect, web hosting companies will also be barred from hosting the website from an internet browser, according to the law. But many people on social media claim U.S. TikTok users could use a VPN, or a virtual private network, that allows users to mask their location to access it online.
A VPN encrypts your traffic data and then routes it through private tunnels to secure servers around the world, which prevents anyone else from being able to read it. However, if large droves of users do that, it’s possible that tech companies, such as Apple or Google, could recognize it as a legal liability and find other ways to clamp down on the app.
TikTok users with Android devices might also be able to continue to update their apps through third-party app stores, a method called sideloading. But bypassing the security protocols that well-known app stores have in place might also leave users more vulnerable to malware, according to Gus Hurwitz, a professor at the University of Pennsylvania with expertise in telecommunications and technology.
ICLE Editor-in-Chief R.J. Lehmann was quoted by Reason in a story about the Los Angeles wildfires and public policy in the region. Read the full . . .
ICLE Editor-in-Chief R.J. Lehmann was quoted by Reason in a story about the Los Angeles wildfires and public policy in the region. Read the full piece here.
Did these same insurance regulations result in more building in Los Angeles’ wildfire-prone area and thus more homes being devoured by wildfire?
The answer is “maybe,” says Ray Lehman, a senior fellow at the International Center for Law and Economics. He says fire risk doesn’t increase linearly with the amount of development that’s built in fire-prone areas.
Building a little bit of housing in a wildfire-prone area increases risk because that small amount of housing is next to a lot of combustible nature. But building a lot of housing reduces fire risk because that combustible nature is consumed by less flammable development.
There’s a point where the marginal additional home goes from increasing an area’s fire risk to reducing it.
Conceivably, California’s artificially reduced premiums increased development in wildfire-prone areas, says Lehman. Whether that increased development increased or decreased wildfire risk is harder to say.
That calculation is also complicated by the fact that “there will always be very wealthy people who like to live on very large properties on cliffsides in the woods,” says Lehman.
ICLE Editor-in-Chief R.J. Lehmann was quoted by Reason in a story about California’s fragile property-insurance market. You can read the full piece here. As of . . .
ICLE Editor-in-Chief R.J. Lehmann was quoted by Reason in a story about California’s fragile property-insurance market. You can read the full piece here.
As of November 2022, nearly 2.4 million policies were in ZIP codes covered by non-renewal moratoriums, according to a September 2023 report by the International Center for Law and Economics (ICLE).
…Insurers’ non-renewal rates increased 36 percent in the years following the 2017 and 2018 fires, according to ICLE. Over the same period, the number of policies written by FAIR, the state’s insurer of last resort, increased by 225 percent.
…The trouble is that reinsurance rates (which are not regulated under Prop. 103) have been rising to account for increased wildfire risk. The concentration of wildfire losses in recent years and the rising risk of future wildfire losses means that basing premiums on past averages of wildfire losses is “wholly inadequate” to cover insurers’ risks, says the ICLE report.
…”It’s a step in the right direction,” says Lehmann. “Broadly speaking, the insurance commissioner, to the extent that he can, has been reasonable at allowing rate increases for companies that want to continue to do business in California.”
Insurance Portal – An ICLE white paper about California’s Proposition 103 insurance-regulatory system was cited the subject of a story in Insurance Portal. You can read . . .
Insurance Portal – An ICLE white paper about California’s Proposition 103 insurance-regulatory system was cited the subject of a story in Insurance Portal. You can read full piece here.
For those curious about why a company would exit certain markets altogether, as has been the case with State Farm exiting California’s homeowners’ insurance market in 2023, followed shortly by the exit of Allstate – a new whitepaper from the International Center for Law & Economics takes an in-depth look at California’s Proposition 103, which they say makes the ratemaking process there unpredictable at best.
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the CBC in a story about TikTok’s challenge of a law that would . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the CBC in a story about TikTok’s challenge of a law that would require it be divested by its Chinese parent. You can read the full piece here.
The case amounts to a clash between two fundamental principles of U.S. law: the First Amendment right to free speech versus the government’s authority to determine national security concerns, said Gus Hurwitz, academic director of the Center for Technology, Innovation and Competition at the University of Pennsylvania’s Carey Law School in Philadelphia.
Hurwitz said ByteDance’s position is that the intended effect of the law is to stop the company from speaking to Americans.
“The company is making a pretty straightforward First Amendment-style argument here, that they are a speech platform, that in many ways they are no different from a newspaper, a magazine, any other website,” Hurwitz said in an interview with CBC News.
…”I expect that if the court is going to side with TikTok, we will hear very quickly,” likely next week, Hurwitz said. “If an injunction isn’t immediately issued … I would interpret that silence to mean with very high confidence that the court is going to decide against TikTok.”
…Trump could issue an executive order that postpones enforcement of the law, Hurwitz said, but added that in the long term, it’s unlikely the new president would use up political capital trying to get the law overturned when so many Republican lawmakers are firmly opposed to Chinese ownership of the app.
An ICLE white paper on the problems with California’s Prop 103 system of insurance regulation was cited by Cato at Liberty in a post about . . .
An ICLE white paper on the problems with California’s Prop 103 system of insurance regulation was cited by Cato at Liberty in a post about the insurance crisis facing the state in the wake of major wildfires. You can read the full piece here.
The CDI rejected or delayed approval for substantial rate increases in many cases, creating a de facto price cap. Previous research from scholars at the International Center for Law and Economics shows that the average delay was 293 days between 2020 and 2022—a significant worsening from the average of 157 days between 2013 and 2019.
In fact, between 2017 and 2022, California was the worst state in the country for “rate suppression,” having the biggest gap between “the actuarially indicated rate and the rate approved by regulators.”
ICLE Chief Economist Brian Albrecht was cited by Marginal Revolution in a post mentioning his recent thread on X.com about the California wildfires. You can . . .
ICLE Chief Economist Brian Albrecht was cited by Marginal Revolution in a post mentioning his recent thread on X.com about the California wildfires. You can read the full piece here.
Brian Albrecht on fire insurance and price controls. Excellent and important thread, for instance: “Over the last 5 years, CA ranks 50th in speed of rate approvals. The avg delay is 236 days for homeowners and 226 days for auto insurance.”
ICLE Director of Law & Economics Programs Gus Hurwitz was cited by the Associated Press in a story about the TikTok case before the U.S. . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was cited by the Associated Press in a story about the TikTok case before the U.S. Supreme Court. You can read the full piece here.
U.S. TikTok users with Android devices might also be able to continue to update the platform through third-party app stores, a method called sideloading. But bypassing the security protocols that well-known app stores have in place might also leave users more vulnerable to malware, said Gus Hurwitz, a professor at the University of Pennsylvania with expertise in telecommunications and technology.
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by CNN in a story about the Supreme Court’s deliberations in TikTok’s challenge of . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by CNN in a story about the Supreme Court’s deliberations in TikTok’s challenge of a law forcing its Chinese parent to divest of the company. You can read the full piece here.
“I expect that we have a preview of the court’s ultimate disposition in this case in Justice Barrett’s concurrence … where she really was looking to probably this law where she said that the First Amendment does not extend to foreign-owned corporations,” said Gus Hurwitz, a senior fellow at Penn Carey Law School who specializes in tech law and online speech issues.
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by Bloomberg Law in a story about the TikTok case before the U.S. Supreme . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by Bloomberg Law in a story about the TikTok case before the U.S. Supreme Court. You can read the full piece here.
The solicitor general’s “credibility before the court is of paramount importance,” said Gus Hurwitz of the University of Pennsylvania Carey Law School. Given the arguments Sauer is making, it’s “hard to understand how this is going to affect that reputation in the long term,” said Hurwitz, who is academic director of the school’s Center for Technology, Innovation & Competition.
…The solicitor general is a repeat player at the Supreme Court, Hurwitz said, noting that the government is often involved in the most contentious and significant cases.
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the Christian Science Monitor on the national-security implications of the TikTok ban. You . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the Christian Science Monitor on the national-security implications of the TikTok ban. You can read the full piece here.
“The impacts of this case are more likely to be felt as we see [more] regulations restricting trade [and] structuring commerce in the interest of national security,” says Gus Hurwitz, a senior fellow at the University of Pennsylvania Carey School of Law.
An ICLE issue brief on the proposed merger of T-Mobile and UScellular was cited by Law360 in a story about regulatory review of the transaction. . . .
An ICLE issue brief on the proposed merger of T-Mobile and UScellular was cited by Law360 in a story about regulatory review of the transaction. You can read the full piece here.
In December, conservative scholars and researchers at the International Center for Law & Economics said the deal would put the assets of a “weakened competitor” to more productive use under T-Mobile, and that without the deal, UScellular appears to be in a “worse competitive position” than even Sprint was when T-Mobile acquired it.
ICLE Senior Scholar Eric Fruits was quoted by Communications Daily in a story about his recent proposal to reclassify telephone service under Title I. You . . .
ICLE Senior Scholar Eric Fruits was quoted by Communications Daily in a story about his recent proposal to reclassify telephone service under Title I. You can read the full piece here.
A federal court’s dismissal last week of the FCC’s net neutrality rules (see 2501020028) raises the question of why traditional phone service still faces strict Title II regulation when modern phone networks are increasingly integrated with the internet, International Center for Law & Economics Senior Scholar Eric Fruits wrote Monday. A minority of U.S. households have a landline phone, and platforms like Microsoft Teams and Zoom have largely replaced traditional phone calls, he added. Meanwhile, traditional carriers’ networks handle integrated voice, video and data services. As such, modern communications is stuck in an antiquated regulatory framework, prompting the need for Congress to move telecom services into the Title I rules regime governing information services, Fruits argued. This “would level the regulatory playing field, enabling traditional carriers to compete more effectively with internet-based platforms,” and encourage infrastructure investment by reducing compliance costs and regulatory uncertainty, he added. A universal service goal could be maintained under Title I, and the FCC could still implement targeted consumer protections through its Title I powers.
ICLE Director of Innovation Policy Kristian Stout was quoted by Communications Daily about the reappointment of members of the newly reconstituted Commerce Spectrum Management Advisory . . .
ICLE Director of Innovation Policy Kristian Stout was quoted by Communications Daily about the reappointment of members of the newly reconstituted Commerce Spectrum Management Advisory Committee. You can read the full piece here.
The appointments mean the incoming administration won’t have the chance to “populate the advisory committee as it sees fit,” said a former federal official: “The group represents a solid cross-section of the industries affected, but it is an opportunity to lock in the Biden administration’s chosen” committee. “It feels more like a last-minute check-the-box move than a genuine effort to set CSMAC on the right path,” said Kristian Stout, director-innovation policy at the International Center for Law & Economics.
ICLE Senior Scholar Eric Fruits was quoted by Communications Daily in a story about the Federal Communications Commission’s retransmission-consent blackout rules. You can read the . . .
ICLE Senior Scholar Eric Fruits was quoted by Communications Daily in a story about the Federal Communications Commission’s retransmission-consent blackout rules. You can read the full piece here.
International Center for Law & Economics Senior Scholar Eric Fruits emailed that with the agenda for the Jan. 15 meeting — Rosenworcel’s last — not including retrans consent blackout rebates, the issue has been back-burnered. No items are scheduled for a vote during that meeting (see 2412230045). Fruits — a critic of the blackout rebates proposal (see 2403060071) — said the reporting requirements “seem to be fairly ‘light touch.'” A rebate would be unworkable due to such challenges as identifying the affected subscribers, he said. “My guess is that the FCC says that they have now ‘done something’ about retransmission consent agreement blackouts, call it a day, and move on.”
ICLE was cited by Communications Daily in an item about the proposed combination of T-Mobile and UScellular. You can read the full piece here. The International . . .
ICLE was cited by Communications Daily in an item about the proposed combination of T-Mobile and UScellular. You can read the full piece here.
The International Center for Law & Economics (ICLE) told the FCC that T-Mobile’s proposed buy of “substantially all” of UScellular’s wireless operations, including some of its spectrum (see 2405280047), should have little effect on wireless competition. “UScellular is a struggling regional carrier with significant structural disadvantages compared to national carriers like AT&T, Verizon, and T-Mobile,” said a filing posted Thursday in docket 24-286: “T-Mobile sets its plan prices nationally and does not adjust them based on localized competition, including UScellular’s presence, pricing, or service offerings and quality.” ICLE said given UScellular’s size, “limited footprint, and uncompetitive pricing,” it “plays no role as a ‘maverick’ disrupting the market and is unlikely to do so into the foreseeable future.”
ICLE Senior Scholar Ben Sperry was cited by Reason in a piece rounding up tech policy developments in 2024. You can read the full piece . . .
ICLE Senior Scholar Ben Sperry was cited by Reason in a piece rounding up tech policy developments in 2024. You can read the full piece here.
Ben Sperry, a senior scholar with the International Center for Law and Economics (ICLE), has a good year-end reflection on international developments related to kids, technology, and “protection.”
ICLE Senior Scholar Julian Morris was quoted by U.S. News & World Report in a story about the pending merger of Capital One and Discover. . . .
ICLE Senior Scholar Julian Morris was quoted by U.S. News & World Report in a story about the pending merger of Capital One and Discover. You can read the full piece here.
“I’m sure that through the merger process, they’ll integrate the customers of both organizations in an effective manner,” says Julian Morris, senior scholar at the International Center for Law & Economics, or ICLE, which published a white paper on the merger in July.
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the USA Today in a story about the U.S. Supreme Court’s decision to hear . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the USA Today in a story about the U.S. Supreme Court’s decision to hear TikTok’s appeal of its challenge to a law that would force divestment by the company’s Chinese ownership. You can read the full piece here.
“This is the sort of government regulation of speech that the First Amendment is intended to prevent,” said Gus Hurwitz, a senior fellow at the University of Pennsylvania Carey Law School. “But this is the set of facts and circumstances where the court is most likely to nonetheless allow that regulation.”
An ICLE amicus brief supporting NetChoice in its challenge of California’s Age-Appropriate Design Code was cited in a blog post at Freedom to Tinker. You . . .
An ICLE amicus brief supporting NetChoice in its challenge of California’s Age-Appropriate Design Code was cited in a blog post at Freedom to Tinker. You can read the full piece here.
The International Center for Law & Economics, supporting NetChoice, argues that the AADC would create an untenable situation for platforms, forcing them to either water down content moderation policies to avoid liability or implement overly aggressive enforcement of existing standards. They contend that data collection and content curation are “inextricably intertwined,” arguing that restricting data collection inevitably impacts content delivery. Their position suggests that without data-driven content tailoring, platforms would need to switch to subscription models or exclude minors entirely, fundamentally altering their current business models and reducing the speech available online.
ICLE Chief Economist Brian Albrecht was quoted by Fortune magazine about stock market movements in the wake of the Federal Reserve’s recent inflation forecast. You . . .
ICLE Chief Economist Brian Albrecht was quoted by Fortune magazine about stock market movements in the wake of the Federal Reserve’s recent inflation forecast. You can read the full piece here.
Brian Albrecht, chief economist at the International Center for Law and Economics, noted that, as always, reading any stock movement is “a fickle thing,” he told Fortune.
“Here the timing strongly suggests it’s because of the worry of inflation returning (or the Fed thinking it will),” said Albrecht.
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted in a press release from Penn Carey Law about the U.S. Supreme Court’s decision . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted in a press release from Penn Carey Law about the U.S. Supreme Court’s decision to take up TikTok’s challenge of legislation that would force the company’s divestment by its Chinese parent. You can read the full piece here.
“The Court’s move is surprising but also makes a great deal of sense,” said Senior Fellow and CTIC Academic Director Gus Hurwitz.
The Supreme Court has agreed to expedite TikTok v. Garland and decide whether the controversial ban on the app violates the First Amendment. The Court will hear oral arguments on January 10, 2025.
Gus Hurwitz, Senior Fellow and Academic Director of the Center for Technology, Innovation & Competition (CTIC) at the University of Pennsylvania Carey Law School, provided the following commentary…
ICLE Senior Scholar Julian Morris was quoted by CardRates.com in a story about his recent white paper examining state restrictions on interchange fees. You can . . .
ICLE Senior Scholar Julian Morris was quoted by CardRates.com in a story about his recent white paper examining state restrictions on interchange fees. You can read the full piece here.
In his white paper, “State Regulation of Interchange Fees,” Morris argues the law should not survive. Not only is it unconstitutional, he argues, but it would also place unprecedented administrative burdens and extra costs on issuers and merchants doing business in Illinois, especially smaller businesses, banks, credit unions, and financial technology companies.
The consequences will compound if more states follow the Illinois example and replace market dynamics with what Morris considers arbitrary political judgment — as some are currently considering.
Increased costs will reduce rewards and other consumer benefits from using cards. The resulting decline in card use will reduce overall sales volume and card usage as a percentage of sales, putting a damper on a system that has evolved over decades to incentivize the maximum number of consumers and merchants to participate.
The court will likely rule on the legislation before the close of 2024. No matter how it rules, Morris’s white paper stands as a justification for continued vigilance against antimarket legislative action related to the card payment system.
“Illinois is the first place anywhere in the world to have attempted to impose this carve-out for interchange fees on sales tax and tips,” Morris said. “Why would a state government want to do something that ends up distorting the cost basis for transactions?”
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the Washington Times in a story about the U.S. Supreme Court’s decision to . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by the Washington Times in a story about the U.S. Supreme Court’s decision to hear TikTok’s appeal of its challenge to a law that would force divestment by the company’s Chinese ownership. You can read the full piece here.
Gus Hurwitz, academic director of the Center for Technology, Innovation & Competition at the University of Pennsylvania Carey Law School, said a Supreme Court hearing rather than an injunction made sense.
“The justices don’t want to delay implementation of the law if they are likely to affirm the D.C. Circuit’s decision to uphold it, but not delaying the law would seriously harm TikTok. Hearing the full case in January lets the justices engage with the facts in more detail and gives them surer footing to decide whether or not to enjoin the law until they reach a final decision,” he said.
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by Bloomberg Law in a story about the U.S. Supreme Court’s decision to hear . . .
ICLE Director of Law & Economics Programs Gus Hurwitz was quoted by Bloomberg Law in a story about the U.S. Supreme Court’s decision to hear TikTok’s appeal of its challenge to a law that would force divestment by the company’s Chinese ownership. You can read the full piece here.
“The heart of this case is balancing the First Amendment against two things: first, national security concerns generally and, second, the court’s deference to Congress and the executive in making those national security determinations,” said Gus Hurwitz, academic director of the Center for Technology, Innovation and Competition at the University of Pennsylvania’s Carey School of Law.
He said it is “quite unlikely” the court will overturn the law, in part because of an opinion earlier this year by Justice Amy Coney Barrett saying that foreign corporations and people don’t have First Amendment rights.
An ICLE issue brief on the proposed merger of T-Mobile and UScellular was cited by Law360 in a story about the brief. You can read . . .
An ICLE issue brief on the proposed merger of T-Mobile and UScellular was cited by Law360 in a story about the brief. You can read the full piece here.
A free-market think tank is urging the federal government to clear the way for T-Mobile’s $4.4 billion purchase of UScellular’s wireless operations, saying in a new report that because the smaller UScellular poses no real competitive threat to T-Mobile, the deal could carry significant consumer benefits through increased competition.
Released Monday, the new report from a trio of conservative scholars and researchers at the International Center for Law & Economics claims that the deal would put the assets of a “weakened competitor” to more productive use under T-Mobile, and that without the deal, UScellular appears to be in a “worse competitive position” than even Sprint, which T-Mobile acquired in 2020.
“T-Mobile’s acquisition [of] UScellular will generate efficiencies that can be translated to consumer benefits through lower prices, expanded coverage and improved services,” the report says.
In particular, the report claims that the deal would help improve broadband access in rural areas by allowing T-Mobile to better compete with AT&T and Verizon in rural markets with UScellular’s towers and spectrum assets.
ICLE was cited by Reason in a story about a court decision blocking the proposed merger of Kroger and Albertsons. You can read the full . . .
ICLE was cited by Reason in a story about a court decision blocking the proposed merger of Kroger and Albertsons. You can read the full piece here.
The International Center for Law & Economics regards these concerns as dubious, considering the highly competitive nature of retail labor markets and that the stores’ unions’ collective-bargaining agreements would likely counterbalance “any attempted exercise of monopsony power by the merged firm.”
ICLE Director of Innovation Policy Kristian Stout was quoted by Reason in a story about Sen. Mike Lee’s (R-Utah) age-verification bill. You can read the . . .
ICLE Director of Innovation Policy Kristian Stout was quoted by Reason in a story about Sen. Mike Lee’s (R-Utah) age-verification bill. You can read the full piece here.
“One of the most significant concerns about age-verification mandates is their potential to abet privacy breaches and magnify data-security risks,” notes Kristian Stout at Truth on the Market…
Stout also notes that there are constitutional concerns with banning minors from using app stores entirely just because some portion of content therein might be inappropriate.
“This kind of proposal is…rooted in the idea of comparing app providers to bars and taverns, a comparison that courts have explicitly rejected. Just as it would be unconstitutional to ban minors from entering a shopping mall on the grounds that one of the mall’s stores sells alcohol, it is similarly problematic to restrict access to entire digital platforms or app stores due to the presence of some potentially inappropriate content.”
ICLE Chief Economist Brian Albrecht was quoted by Law.com in a story about court decisions blocking the proposed merger of supermarkets Kroger and Albertsons. You . . .
ICLE Chief Economist Brian Albrecht was quoted by Law.com in a story about court decisions blocking the proposed merger of supermarkets Kroger and Albertsons. You can read the full piece here.
“While Judge Nelson ultimately chose to base her decision on the consumer-market claims, she was correct to find that the FTC did not present sufficient evidence to establish its labor-monopsony claims in the federal case,” Brian Albrecht, chief economist at the International Center for Law & Economics, said Tuesday in a press statement.
“Indeed, the retail-labor market is demonstrably competitive and workers have a wide range of alternative employment options—both in and out of the retail sector,” Albrecht added. “Unfortunately, the court did not outright reject the FTC’s exceedingly narrow market definition of ‘union grocery labor.’”
ICLE President Geoffrey A. Manne was quoted by The Denver Post in a story about federal and state courts blocking the proposed merger of supermarkets . . .
ICLE President Geoffrey A. Manne was quoted by The Denver Post in a story about federal and state courts blocking the proposed merger of supermarkets Kroger and Albertsons. You can read the full piece here.
However, a nonproft research center criticized the approaches the courts used to reach their decisions as “based more on vibes than economics.” The courts rejected the grocers’ arguments that their greatest competition is from Walmart and other food super centers, not each other, said Geoffrey A. Manne, president at the International Center for Law & Economics, calling the determination “backward-looking.”
ICLE President Geoffrey A. Manne was quoted by The Dispatch in a story about the U.S. Justice Department’s proposed remedies in the Google Search antitrust . . .
ICLE President Geoffrey A. Manne was quoted by The Dispatch in a story about the U.S. Justice Department’s proposed remedies in the Google Search antitrust case. You can read the full piece here.
If you want to do a deeper dive on the legal side of this case, I’d direct you to Geoffrey Manne’s “A Critical Analysis of the Google Search Antitrust Decision.” Manne used to be my boss, so blame him for any errors I make in antitrust law. But this piece does a good job going into all of the legal minutiae, and especially the problem of bifurcation, which is when a case is split into two parts, the liability phase and the remedy phase. With Google, the DOJ separated the arguments over harm from the arguments over remedies. Manne summarized the big takeaway on X:
Threads from ICLE scholars on trending issues for the month of January 2025. Be sure to tune in this afternoon (2pm ET) as I discuss . . .
Be sure to tune in this afternoon (2pm ET) as I discuss the question of remedies in the Google Search antitrust case. With @AsheeshKAgarwal, Anant Raut, & Tom DeMatteo (from @BasedMikeLee's ofc). Organized by @FedSoc. Link below. pic.twitter.com/xiqA4YBPWW
— Geoffrey Manne (@geoffmanne) January 29, 2025
.@LawEconCenter: “If courts were to treat the use of common pricing software as tantamount to collusion, that precedent could chill innovation far beyond the #realestate sector.” https://t.co/NcPm4TKDSN #AI #artificialintelligence #antitrust #technology #tech #proptech
— RealPage Public Policy (@rppublicpolicy) January 27, 2025
Last week, I was able to chat with Oliver Hart at our @LawEconCenter event, "Substance over Slogans."
The focus was on contracts, the nature of the firm, and what his research means for antitrust. I was especially excited about his more recent work.
Here's what I learned: pic.twitter.com/mlX1FXHLh3
— Brian Albrecht (@BrianCAlbrecht) January 23, 2025
Excited about my new publication (with @PankhudiK05) “The many shades of open banking: A comparative analysis of rationales and models” in @PolicyR! #OpenBanking #FinTech
Check it out here: https://t.co/YLyoXI8kac pic.twitter.com/1wFA3OLojP— Giuseppe Colangelo (@GiuColangelo) January 22, 2025
The FTC's mad dash to file cases before the administration change continues.
This time it's Pepsi for… *checks notes*… giving volume discounts to big retailers? ?
The Robinson-Patman lunacy continues… pic.twitter.com/FmeydsWFQg
— Brian Albrecht (@BrianCAlbrecht) January 17, 2025
My quick thoughts/takes on the TikTok opinion.
First, the opinion itself: assumes but doesn't decide the 1A is implicated; applies intermediate scrutiny; the law easily survives.
Opinion is per curium with concurrences from Sotomayor and Gorsuch. 1/
— Gus Hurwitz (@GusHurwitz) January 17, 2025
With today's TikTok decision and Wednesday's oral arguments on online age verification in Free Speech Coalition v. Paxton, online speech issues return to the Supreme Court. @TOTMblog today, I have a post on the Paxton oral arguments (a ?)https://t.co/ux08WgQBdE
— Ben Sperry (@RBenSperry) January 17, 2025
Two major macro trends since 1980:
– Rising markups
– Declining business dynamismBy now, it’s accepted that market power killed dynamism.@UpdatedPriors and I find that the industry data tells a completely different story.
Conventional wisdom => ??? ? on our updated paper pic.twitter.com/O2EAZAbjNi
— Brian Albrecht (@BrianCAlbrecht) January 15, 2025
Is it back to the middle ages for Canadian antitrust? Recent reforms of the Competition Act jettison economic analysis by allowing the Bureau to intervene on the basis of market concentration alone & by eliminating the efficiencies defense. 1/5 pic.twitter.com/eZVdQZFnz8
— Lazar Radic (@laz_radic) January 14, 2025
On behalf of @LawEconCenter, @geoffmanne, @AuerDirk and yours truly have submitted comments to the @EuropeanCommiss Consultation on the Proposed Measures for Interoperability Between Apple’s iOS Operating System and Connected Devices (DMA.100203). Short ? pic.twitter.com/jGmRGm5hTC
— Mario Zúñiga (@MZunigaP) January 10, 2025
With Meta's Announcement of new moderation policies, I consider hest this means for online speech over @TOTMblog (a ?):https://t.co/hLXUi0Ubw4
— Ben Sperry (@RBenSperry) January 10, 2025
@bencasselman has a interesting NYT piece about economists losing influence in policy.
Lots to think about in it. A few reactions ?https://t.co/Dgf9q09L2W
— Brian Albrecht (@BrianCAlbrecht) January 10, 2025
California is burning. The tragedy of the destruction is unfathomable.
On top of that, many homes don’t have insurance. Why?
This is because of price controls. But CA's Prop 103 system goes way beyond normal insurance price controls into total dysfunction ?
— Brian Albrecht (@BrianCAlbrecht) January 10, 2025
It seems the NTIA really wants to stack the deck against LEOs such as Starlink and Amazon's soon-to-be-launched Kuiper.https://t.co/hWth5kPUji pic.twitter.com/B9pMtZW6QG
— Eric Fruits, Ph.D. (@ericfruits) January 8, 2025
If you’re following the Palisades fire and are curious about why concerns about underinsurance and availability are so prominent in California, @raylehmann and I have a paper for you. If you hate reading papers, here’s the upshot (thread).
— Ian Adams (@IAtheTeapot) January 8, 2025
A new digital symposium at @TOTMblog looks to gather diverse voices to explore the promises and pitfalls of industrial policy at a time when it occupies a central role in political and economic discourse.https://t.co/vIQ5T3KqeZ
— Int'l Ctr Law & Econ (@LawEconCenter) January 7, 2025
When you buy a product, you pay twice:
1. Money to the company
2. Time to actually use itMost economics ignores #2.
With Tom Phelan and @nickpretnar, we show how this consumer time use changes markups, firm entry, and efficiency. ? pic.twitter.com/CXPJduLxbU
— Brian Albrecht (@BrianCAlbrecht) January 7, 2025
Threads from ICLE scholars on trending issues for the month of January 2025. 1/ This paper w @CompetitionProf explores a provocative idea: the rise of . . .
1/ This paper w @CompetitionProf explores a provocative idea: the rise of the consumer welfare standard wasn’t a top-down neoliberal coup, but a pragmatic response to the need for legal certainty, administrability, and evidence in judicialized systems. ? https://t.co/LsRatCElXR pic.twitter.com/EclruF2yPu
— Lazar Radic (@laz_radic) December 24, 2024
Some remarkable, last-minute, under-the-radar memory holing by the outgoing Biden DOJ Antitrust Division @JusticeATR. Somehow I didn't see this mentioned in Kanter's self-congratulatory exit monologue. ?
— Geoffrey Manne (@geoffmanne) December 19, 2024
The hot new thing in antitrust is labor market power. How big of a deal is it really?
Eric Posner criticizes @MHolyoakFTC for being skeptical of aggressive labor antitrust and using HSR filing to enforce it.
But the evidence isn't what he claims. https://t.co/MJBirhkHFd
— Brian Albrecht (@BrianCAlbrecht) December 19, 2024
Why can't Europeans have nice things?@EU_Competition is trying to break open the iOS ecosystem. It believes interoperability will help third party devices compete.
But these efforts will merely compromise user security and delay product improvements for Europeans.
— Dirk Auer (@AuerDirk) December 19, 2024
The push for aggressive labor antitrust enforcement is growing, but is it backed by solid evidence? At Truth on the Market, @BrianCAlbrecht and I argue that the case for expanded labor antitrust is (at least so far) weaker than proponents claim. ? pic.twitter.com/ddGo8RGgue
— Geoffrey Manne (@geoffmanne) December 18, 2024
1/In a year in which South Korea ?? has proposed more than a dozen other legislative proposals for platform regulation, what should be on policymakers' minds after todays hearing on digital platform regulation? A ? https://t.co/zxTYaPa4CK pic.twitter.com/NtefuGNoDP
— Lazar Radic (@laz_radic) December 18, 2024
1/ Australia has reformed its merger control regime. Biggest changes include a mandatory notification regime, an expansion of the "substantial lessening of competition test" & focus on serial acquisitions. Light Monday morning ? https://t.co/Viqjqe9IZF pic.twitter.com/Vzqn4tsigP
— Lazar Radic (@laz_radic) December 16, 2024
Quick thread if you ever hear "there's no evidence the RPA raises prices and harms consumers" or "RPA helps small businesses":
It's thin, but it's not nothing ?
— Brian Albrecht (@BrianCAlbrecht) December 12, 2024
The FTC just filed its first Robinson-Patman case in ~25 years.
And while price discrimination can be concerning, I have some questions about this one… Who exactly is it going to help? Consumers? pic.twitter.com/EsQMOFaNws
— Brian Albrecht (@BrianCAlbrecht) December 12, 2024
#Antitrust #DigitalMarkets #Apple #Brazil
??A week ago, @CadeGovBr issued a preventive injunction ordering @Apple to allow users to download 3rd-party apps and make purchases on its devices, from outside its App Store. Now a federal judge has overturned that injunction. ?(1/x) pic.twitter.com/gpuBwfjGYT
— Mario Zúñiga (@MZunigaP) December 11, 2024
1/ Japan’s announcement that it would designate companies subject to its new, stricter competition framework on 20 January, the same day as Trump’s inauguration, got me thinking about the implications of ex-ante rules targeting US firms under Trump’s “America First” doctrine. ?… pic.twitter.com/OAY3Riqr6z
— Lazar Radic (@laz_radic) December 11, 2024
? FTC wins its preliminary injunction to block the Kroger/Albertsons merger ?
Not surprising but debatable.
But let's see the reasoning pic.twitter.com/5xhlhhEaU6
— Brian Albrecht (@BrianCAlbrecht) December 10, 2024
MAI Systems, a 1990s 9th Circuit Decision, Set to Play a Starring Role in Copyright Fights Between Media Companies and AI Firms $BABA $BIDU $MSFT https://t.co/7DSYXnb6t6
h/t @SaraMorrison
— The Capitol Forum (@Capitol_Forum) November 27, 2024
Reading through the DC Circuit panel's decision upholding the TikTok ban and this is very interesting in light of our own government's alleged coercion of social media companies in Murthy
(a short ?) pic.twitter.com/M554Z7w1yr— Ben Sperry (@RBenSperry) December 6, 2024
New @LawEconCenter wp just released on “The politicization of IP protection: the case of standard essential patents.” The paper is forthcoming in European Intellectual Property Review (EIPR) https://t.co/sWO5ahc8yi.
— Giuseppe Colangelo (@GiuColangelo) December 6, 2024
1/8: Recent headlines about the DOJ’s antitrust case against Google echo a flawed playbook from the 1990s: forcing companies to share their tech undercuts innovation. We’ve seen this before with the Telecommunications Act of 1996. ? pic.twitter.com/eddAkBOi9u
— Eric Fruits, Ph.D. (@ericfruits) December 5, 2024
(1) The International Center for Law & Economics and 17 scholars of law and economics have filed an amicus brief (the brief of amici curiae, below) in the 9th Circuit, in support of the appellants (Google).
— Daniel J Gilman (@DanielJGilman1) December 5, 2024
I just gave this talk. It's silly to think we need to "Make America Competitive Again."
We're crazy competitive! A few graphs to keep in mind https://t.co/GxqmewU9Qy pic.twitter.com/nCSfKl96Yi
— Brian Albrecht (@BrianCAlbrecht) December 4, 2024
1/11 A country Y seeking to copy a regulatory remedy from country X should first seek to understand two things: (i) is the problem addressed present in Country Y and (ii) is what country X considers a problem also a problem from the perspective of Country Y. ?
— Lazar Radic (@laz_radic) December 3, 2024
1/12 Recently, the Australian Government unveiled its proposal for a new ex-ante regulation of digital platforms. In a speech last night, Hon Stephen Jones defended the proposal. Here's my take. ? https://t.co/YfiZuFWtbs
— Lazar Radic (@laz_radic) December 3, 2024
? New blog post ?@EU_Competition recently fined Meta almost €800 million for tying its secondhand marketplace to the Facebook social network.
The decision is part of a broader push that is degrading internet services and diminishing tech investments in the EU.
— Dirk Auer (@AuerDirk) December 2, 2024