Spotlight

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

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

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

Read the full piece here.

I. Introduction

We thank the Federal Communications Commission (FCC or “the Commission”) for the opportunity to offer comments to this public notice, “Delete, Delete, Delete,” [1] “in which the agency seeks comment on every rule, regulation, or guidance document that the FCC should eliminate for the purposes of alleviating unnecessary regulatory burdens.”[2] Described by Chairman Brendan Carr as a “sweeping deregulation initiative,”[3] this efforts builds on President Donald Trump’s 2025 executive actions on regulatory reform.[4]

Toward that end, we urge the Commission to take the “Delete, Delete, Delete” concept as far as possible, effectuating a streamlined FCC that retains only those functions undeniably critical to national interests that cannot be handled effectively by market forces or other government entities. Our suggestions in these comments should be seen as a “first step” toward a comprehensive strategy to deregulate the U.S. communications markets.

Section II of these comments suggests significant initiatives that would increase competition, foster innovation, and improve consumer welfare. Section III identifies relatively straightforward regulations that could be eliminated or streamlined. Section IV offers a list of notices of inquiry (NOIs) and notices of proposed rulemaking (NPRMs) that should be terminated.

II. Significant Initiatives

The U.S. communications landscape bears little resemblance to the world that existed when the Communications Act of 1934 established the regulatory structure still largely in place today. The digital revolution has transformed how Americans communicate, consume media, and access information. Yet, the regulatory frameworks that govern these modes of communication remain fragmented across different technological platforms performing essentially identical functions. This section examines several key areas ripe for regulatory reform: the Title I/Title II classification disparity, outdated media-ownership restrictions, inefficient transaction-review processes, and anachronistic must-carry/retransmission-consent rules. Together, these proposals offer a coherent approach to modernizing communications regulation to better align with prevailing technological realities, while also reducing unnecessary regulatory burdens that no longer serve their original purposes.

The proposals presented here share a foundation in common law and economics: that regulatory frameworks should reflect current market realities rather than historical technological distinctions. As communications technologies have converged, the artificial regulatory silos separating different transmission methods have become increasingly difficult to justify. By embracing a more technology-neutral approach focused on competitive outcomes, rather than legacy classifications, these reforms would create a more consistent and efficient regulatory environment that encourages innovation, while maintaining appropriate consumer protections. The following subsections outline specific approaches for reform in each area, along with practical implementation strategies that leverage existing statutory authorities to achieve meaningful deregulation without requiring comprehensive legislative action.

A. Title II Shell with Title I Contents (aka ‘Title I for All’)

The 6th U.S. Circuit Court of Appeals’ recent decision to strike down the FCC’s net-neutrality rules has revealed fundamental flaws in America’s communications regulatory framework.[5] For nearly 90 years, traditional telephone services have been regulated as “telecommunications services” under Title II of the Communications Act, facing stringent common-carrier obligations.[6] Meanwhile, broadband internet is classified as an “information service” under the more flexible Title I framework. This regulatory disparity persists despite dramatic changes in how Americans communicate; indeed, landline usage has dropped to just 25% of households and most voice communication now occurs through internet-based platforms using VoIP technology.[7]

Moving telecommunications services from Title II to Title I regulation would create a more consistent framework that better reflects today’s integrated communications landscape. The success of broadband under Title I demonstrates the benefits of this approach, with significant improvements in speed, availability, and competition since the early 2000s. Reclassifying traditional telecommunications under Title I would level the regulatory playing field, encourage infrastructure investment by reducing compliance costs, and establish a unified framework better aligned with modern digital-communications technology.

The most direct approach would be to reclassify all telecommunications services as “information services” under Title I. But without clear direction from Congress, this approach would likely face significant legal and political challenges, as evidenced by previous litigation over broadband classification under the guise of “net neutrality.” Thus, the FCC could use its existing tools to approach a de facto Title I regime for services currently classified under Title II. This approach would leverage several mechanisms.

1. Forbearance authority

Under Section 10(a) of the Telecommunications Act, the FCC has the power to refrain from, or forbear, enforcing certain Title II regulations if it determines that doing so is in the public interest. Specific forbearance targets include:

• Rate regulation (Sections 201-202, partially);
• Tariffing requirements (Section 203);
• Infrastructure-sharing mandates between incumbent local-exchange carriers (ILECs) and competitive local-exchange carriers (CLECs) (Sections 251-252);
• Accounting requirements (Sections 220, 260);
• Service-discontinuance approvals (Section 214); and
• Reporting requirements (Section 218).

2. Blanket approvals

The FCC has traditionally granted blanket approvals—broad and preemptive authorization for certain activities or services across entire categories—rather than requiring individual applications or case-by-case reviews. This approach eliminates the need for specific approvals for each instance of activity within the defined category, thereby expediting the processes and reducing administrative burdens significantly. For example, blanket approvals could allow telecommunications providers to implement infrastructure upgrades or service changes without undergoing lengthy regulatory reviews for each project. The FCC could streamline regulatory processes by issuing:

• Blanket Section 214 authorizations for entire categories of services;
• Presumptive approval for routine network changes (g., copper replacement); and
• Self-certification processes for market entry and exit.

3. Safe harbors and blanket waivers

A safe harbor is a legal provision that protects entities from liability or penalties when they comply with specific conditions outlined in a statute or regulation. For example, the FCC has established safe harbors for blocking illegal robocalls, shielding providers from liability for inadvertently blocking lawful calls if they follow approved analytics and caller-ID authentication protocols.[8]

A blanket waiver exempts a broad category of entities or activities from compliance with specific rules or requirements. Unlike case-by-case waivers, which are granted individually based on unique circumstances, blanket waivers apply universally to all parties within the defined scope. This approach simplifies regulatory processes and reduces administrative burdens for both the FCC and regulated entities. For instance, the National Telecommunications and Information Administration (NTIA) issued a blanket waiver under the Build America, Buy America Act to allow recipients of broadband-deployment grants to use certain foreign-manufactured components when domestic alternatives were unavailable.[9] The FCC should provide exemptions from certain rules, particularly where other regulations might already provide adequate consumer protection, such as:

• Reporting requirements and service-quality standards;
• Network-modification notifications;
• Customer disclosure rules that duplicate Federal Trade Commission (FTC) requirements; and
• Legacy service-support obligations.

4. Pro-competition regulatory presumptions

Pro-competition regulatory presumptions are policy principles that assume, by default, that market forces are sufficient to ensure fair practices, innovation, and consumer benefits in competitive markets. These presumptions shift the regulatory burden by requiring regulators to provide clear evidence of market failure before imposing new rules or maintaining existing ones. The goal is to reduce unnecessary regulation, foster competition, and encourage investment and innovation in the telecommunications sector. Such presumptions include:

• Competitive markets naturally drive providers to offer reasonable rates, improve service quality, and innovate without the need for heavy regulatory intervention;
• New technologies and services should be subject to minimal regulation by default, allowing them to develop and compete freely unless there is evidence of harm to consumers or competition;
• Regulatory action should only occur when there is clear, demonstrable evidence of market failure or anticompetitive behavior, ensuring that regulation addresses specific problems without stifling industry growth; and
• Past regulations should be reviewed regularly to determine whether they remain necessary in light of current market conditions; obsolete or redundant rules should be repealed.

By reducing regulatory uncertainty and compliance costs, these presumptions aim to create an environment conducive to investment in infrastructure and the development of new technologies.

One notable example of a pro-competition regulatory presumption is the FCC’s 2015 decision to adopt a rebuttable presumption that cable systems are subject to “effective competition.”[10] Prior to this change, the FCC presumed that cable operators lacked effective competition unless proven otherwise by challengers. This earlier presumption allowed local franchising authorities to regulate basic cable rates in most markets.

In 2015, the FCC reversed this presumption, reflecting changes in the multichannel video programming distributor (MVPD) marketplace. The agency cited increased competition from satellite providers (e.g., DirecTV and DISH) and telephone companies (e.g., Verizon FiOS and AT&T U-verse) as evidence that most cable operators now face effective competition. Under the new presumption, local authorities could no longer regulate basic cable rates unless they successfully rebutted the presumption by proving a lack of effective competition. This shift reduced regulatory burdens on cable operators—particularly smaller providers—while aligning regulations with the competitive realities of the video marketplace. The FCC justified this change as a way to “reflect the current MVPD marketplace,”[11] reduce unnecessary regulation, and promote innovation and investment in video services.

B. Media-Ownership Rules

The FCC’s quadrennial review process, established by Section 202(h) of the Telecommunications Act of 1996, provides a powerful mechanism for media-ownership deregulation that has been underutilized. The statutory language requires the FCC to review ownership rules every four years and to “repeal or modify” any regulation that is no longer “necessary in the public interest as the result of competition.”[12]

While courts have interpreted “necessary” to mean “convenient, useful, or helpful,” rather than “essential or indispensable,” the process still provides substantial flexibility.[13] The FCC can reasonably argue that, in today’s digital environment, almost none of the legacy ownership restrictions meet even this more lenient standard of necessity. The legislative history—or rather, the lack thereof—is also advantageous, as Section 202(h) was inserted without significant public discussion or scrutiny, reducing the constraints of legislative intent that might otherwise limit aggressive deregulation.[14]

1. Redefining the relevant competitive market

Historically, the FCC has narrowly defined the “relevant competitive market” as competition among broadcast stations within a designated market area.[15] This outdated conception fails to acknowledge the reality that broadcasters now compete directly with digital platforms, streaming services, social media, and online content providers for both audience attention and advertising revenue.

The FCC’s 2017 “Order on Reconsideration,”[16] upheld unanimously by the U.S. Supreme Court in FCC v. Prometheus Radio Project, established a critical precedent for this broader market definition when it eliminated the newspaper/broadcast and radio/television cross-ownership rules.[17] As we argued in our amicus brief before the Court, “[i]n the 24 years since the 1996 Act was enacted, the FCC has made repeated, good faith efforts to comply with its statutory mandate to repeal or modify regulations that are no longer necessary because of the competition local newspapers and broadcast stations now face from new digital media. But for most of that period, a single panel of judges on the Third Circuit has blocked those congressionally mandated regulatory reform efforts.”[18]

Importantly, the Supreme Court agreed. Writing for a unanimous Court, Justice Brett Kavanaugh concluded that the FCC had acted reasonably in determining that the media-ownership rules in question were no longer necessary to serve the agency’s public-interest goals—including viewpoint diversity—given the dramatic changes in the media marketplace. The Court emphasized that “[t]he FCC reasoned that the historical justifications for those ownership rules no longer apply in today’s media market,”^[19] and it reversed the lower court for having “substitute[d] its own policy judgment” for the agency’s.^[20] In doing so, the Court reaffirmed the FCC’s authority to make predictive judgments grounded in a broader conception of media competition that accounts for digital platforms, online content, and the modern information ecosystem.

The FCC should consider this broader market definition, and gather data that demonstrates how digital platforms have captured significant market share in news consumption, entertainment viewing, and advertising expenditures—all areas where broadcasters traditionally dominated.[21]

A particularly compelling argument centers on the asymmetric regulatory burden: digital competitors operate without the same ownership restrictions that apply to broadcasters, creating an uneven playing field.[22] The FCC should emphasize that, rather than protect competition, maintaining ownership restrictions in this environment actually harms it. Indeed, it serves to prevent traditional media from achieving the scale necessary to compete effectively with digital giants.

2. Strategic targeting of specific rules

Rather than a scattershot approach, “Delete, Delete, Delete” should prioritize specific rules for elimination based on their vulnerability to competition-based arguments and precedential value.

Local radio-ownership limits are particularly ripe for elimination. The profusion of streaming-audio services (Spotify, Apple Music, Pandora), podcasts, and satellite radio has fundamentally transformed audio consumption. The current tiered limits (e.g., allowing ownership of up to eight stations in markets with more than 45 stations) were established before these digital competitors existed.[23] Economic data showing declining radio advertising revenue (shown in Figure 1[24] below) and shifting audience demographics can powerfully demonstrate that these limits no longer serve their original purpose.

FIGURE 1: US Radio-Station Advertising Revenues by Type, 2006-2024 ($B)

SOURCES: Statista, BIA Advisory Services, Inside Radio

Building on the 2017 modifications that replaced the flat ban on owning two top-four stations with a case-by-case review process,[25] the FCC should also now eliminate local television-ownership rule  entirely. The proliferation of streaming-video services, social-media video content, and online news sources has fractured the television audience, making strict ownership limits unnecessary to ensure diverse viewpoints. Particular emphasis should be placed on how viewership patterns among younger demographics have shifted dramatically away from broadcast television, undermining the scarcity rationale.[26]

3. Addressing diversity and localism concerns

The most significant obstacle to easing media ownership is the concern that deregulation will harm media diversity and localism. Rather than avoid these concerns, the FCC should reframe them as better addressed through alternative means in the digital age.

For diversity, the Commission should argue that ownership limits are a crude and ineffective tool to promote viewpoint diversity in an era when consumers have access to virtually unlimited information sources online. The agency can propose that targeted programs supporting minority and female ownership would be more effective than blanket ownership restrictions that primarily benefit incumbent players.

For localism, the evidence suggests that economically struggling broadcast stations actually reduce their local-news coverage and rely more heavily on syndicated content.[27] The FCC should consider case studies demonstrating how consolidated ownership groups have sometimes increased their local-news investments by sharing resources across stations, while maintaining separate editorial operations. Additionally, the rise of digital-only local-news outlets is evidence that local-information needs can be met through multiple channels beyond traditional broadcasting.

The Supreme Court’s decision in Prometheus provides critical support here, as the Court held that the FCC’s conclusion that the repeal of the cross-ownership rules “would not have a material impact on minority and female ownership”[28] was reasonable and supported by the evidence, even if that evidence was not as comprehensive as some might prefer.

By leveraging the statutory mandate of Section 202(h), redefining the relevant competitive market to include digital platforms, strategically targeting vulnerable rules with compelling evidence, and proactively addressing diversity and localism concerns, the FCC can implement a substantial deregulatory agenda that would withstand legal scrutiny.

C. Transaction-Review Process

The FCC’s transaction-review process, rooted in the Communications Act of 1934, has evolved into a complex, time-consuming, and often unpredictable system that frequently duplicates efforts already undertaken by antitrust authorities.[29] The current dual-review system imposes substantial costs on merging parties without clear commensurate benefits. While the FTC and U.S. Justice Department (DOJ) focus narrowly on demonstrable competitive harms, the FCC employs a broader and more ambiguous “public interest” standard that allows for wide-ranging inquiries, and often demands conditions that extend beyond competition concerns.[30] This expansive approach not only creates regulatory uncertainty but also significantly increases transaction costs and extends timelines for business combinations that might otherwise benefit consumers through enhanced efficiencies and innovation.[31]

1. Eliminating duplicative data requirements

One immediate target for deregulation involves the extensive information requirements imposed on merger applicants. Merging parties currently must provide substantially similar competitive analyses and market data to both antitrust authorities and the FCC. This redundancy creates unnecessary administrative burdens, without providing proportionate regulatory benefits. Under the cost-benefit and regulatory-context principles of “Delete, Delete, Delete,” the FCC should eliminate requirements for data already submitted to antitrust authorities and instead implement a streamlined process that allows applicants to incorporate such materials by reference.

The FCC should also revise Form 604 (used for license transfers) to remove information requirements that extend beyond those necessary to evaluate specific, transaction-related public-interest concerns. By reducing these informational burdens, the Commission can decrease both the direct costs to applicants and the indirect costs associated with extended review timelines.

2. Reformulating the ‘public interest’ standard

Perhaps the most significant opportunity for meaningful deregulation involves narrowing the scope of the FCC’s interpretation of the “public interest” standard in the merger context. The current expansive interpretation has allowed the Commission to address matters only tangentially related to the transaction at-hand, effectively turning merger reviews into de-facto rulemaking proceedings.[32] This approach creates substantial regulatory uncertainty and violates the principle that regulatory interventions should be narrowly tailored to address specific, demonstrable harms.[33]

The FCC should issue a policy statement clarifying that its merger analysis will focus primarily on transaction-specific competitive effects that fall within its unique expertise regarding communications markets. This would align the FCC’s approach more closely with antitrust principles, while recognizing the Commission’s specialized knowledge. The reformulated standard should establish a rebuttable presumption that mergers that do not create demonstrable competitive harms serve the public interest, shifting the burden of proof from the applicants to the Commission to identify specific transaction-related harms.

This reformulation aligns with the “efficacy” and “legal framework” principles of “Delete, Delete, Delete,” as it would ensure that FCC reviews focus on areas where they can add unique value beyond the antitrust review. It would also reflect the changing legal landscape following the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo.[34]

3. Implementing tiered review procedures

While the FCC’s practice of transaction review is often ad hoc, the policy of review amounts to a one-size-fits-all approach that fails to account for the vast differences in complexity and potential impact among various communications transactions. Under the “practicality” principle of “Delete, Delete, Delete,” the FCC should establish a tiered review system, with expedited procedures for transactions that are unlikely to raise significant competitive or public-interest concerns.

For smaller transactions or those in more competitive markets, the Commission should implement a streamlined 45-day review process with abbreviated public-comment periods (15 days rather than 30) and presumptive approval absent specific identified concerns. For mid-tier transactions, a 90-day review timeline would apply, while only the largest or most complex transactions would warrant the full 180-day review period.

This tiered approach would reduce the regulatory burdens on smaller market participants, for whom the current process creates disproportionate barriers to entry. It would also allow the Commission to focus its resources on transactions with the greatest potential impact on consumers and competition.

4. Constraining merger conditions

The FCC’s practice of imposing extensive “voluntary” conditions on merging parties has evolved into a problematic form of regulation outside the traditional rulemaking process.[35] These conditions often extend well beyond addressing specific transaction-related harms and frequently include commitments related to broader policy objectives that could more appropriately be addressed through industrywide rulemaking.

Under the “cost-benefit” and “legal framework” principles, the FCC should establish clear guidelines that limit merger conditions to those that are: (1) directly related to mitigating specific, transaction-specific harms; (2) narrowly tailored to address those harms; and (3) limited in duration, with specific sunset provisions. The guidelines should explicitly prohibit the use of merger conditions as vehicles to advance policy objectives unrelated to the transaction or for extracting commitments that the Commission could not otherwise impose through its direct regulatory authority.

For any conditions that extend beyond remedying competitive harms, the Commission should be required to provide a detailed cost-benefit analysis demonstrating that the public-interest benefits of the condition substantially outweigh the costs imposed on the merging parties and, by extension, consumers.

5. Enhancing coordination with antitrust authorities

To reduce redundancy and improve efficiency, the FCC should formalize coordination procedures with the DOJ and FTC. This should include:

• Establishing a presumption that the FCC will defer to antitrust authorities’ competitive analysis in areas of overlapping jurisdiction;
• Creating joint information-sharing protocols to eliminate duplicative information requests;
• Aligning review timelines to provide greater predictability to merging parties; and
• Developing consultation procedures for merger conditions to ensure consistency in remedies.

By formalizing this coordination, the FCC can focus its review on unique communications-policy issues, while leveraging the antitrust agencies’ expertise in competitive analysis. This approach would reduce regulatory burdens without sacrificing consumer protection.

6. Implementing sunset reviews for existing rules

Many of the FCC’s current merger-review procedures have developed incrementally over decades without systematic evaluation of their continued necessity or effectiveness. Given the present focus on eliminating outdated regulations, the Commission should establish a comprehensive sunset-review process for all aspects of its merger-review framework. This process should include:

• Regular review of information requirements to eliminate outdated or unnecessary data collection;
• Systematic evaluation of past merger conditions to assess their effectiveness and determine whether similar conditions should be imposed in future transactions; and
• Periodic reassessment of procedural timelines to identify opportunities for further streamlining.

By implementing these sunset provisions, the FCC can ensure that its merger-review process remains relevant, efficient, and focused on contemporary market realities rather than historical regulatory approaches.

D. Forced-Access Rules: Must-Carry, Program Carriage, and Leased Access

The FCC regulates the relationship between television broadcasters and cable/satellite operators through must-carry and retransmission-consent rules. Established to protect local broadcasters, must-carry rules require cable and satellite providers to carry certain local television stations in their channel lineups.[36] Program-carriage rules, stemming from the 1992 Cable Act, apply to vertically integrated video programmers, and prohibit discrimination against nonaffiliate programming, as well as banning exclusive contracts unless the Commission determines they are in the public interest. Leased-access requirements from the 1992 Cable Act compel cable operators to set aside a certain percentage of their channels for commercial use by persons unaffiliated with the operator.[37]

Much as with the Fairness Doctrine, the FCC should open dockets to consider repealing these rules as inconsistent with the First Amendment, due to changes in the marketplace that undercut the original rationales justifying intermediate scrutiny.[38] Given the changed circumstances, the rules should be analyzed as though under a strict-scrutiny review by a court. From this vantage, the rules, which amount to compelled speech, would be unlikely to survive.

In Turner Broadcasting System v. FCC,[39] the Supreme Court applied intermediate scrutiny to the challenged must-carry provisions due to the special nature of cable in the marketplace. The Court pointed to the fact that “[w]hen an individual subscribes to cable, the physical connection between the television set and the cable network gives the cable operator bottleneck, or gatekeeper, control over most (if not all) of the television programming that is channeled into the subscriber’s home.”[40] As a result, a cable distributor would be positioned to “prevent its subscribers from obtaining access to programming it chooses to exclude.”[41]

Thus, must-carry provisions were “justified by the special characteristics of the cable medium: the bottleneck monopoly power exercised by cable operators and the dangers this power poses to the viability of broadcast television.”[42] Cable operators had a local monopoly over cable service to households, as only “one percent of communities [were] served by more than one cable system.”[43] This effectively gave cable operators the ability to “silence the voice of competing speakers with a mere flick of the switch.”[44] Based on the same rationale as Turner, the U.S. Court of Appeals for the D.C. Circuit upheld program-carriage and leased-access rules in Time Warner Entertainment Co. v. FCC.[45]

It is clear today that this is no longer the case. As then-Judge Kavanaugh put it when analyzing program-carriage requirements under Section 616 of the Communications Act:

But in the 16 years since the last of those cases [Time Warner] was decided, the video programming distribution market has changed dramatically, especially with the rapid growth of satellite and Internet providers. This Court has previously described the massive transformation, explaining that cable operators “no longer have the bottleneck power over programming that concerned the Congress in 1992.” Comcast Corp. v. FCC, 579 F.3d 1, 8 (D.C. Cir. 2009); see also Cablevision Systems Corp. v. FCC, 597 F.3d 1306, 1324 (D.C. Cir. 2010) (Kavanaugh, J., dissenting) (“This radically changed and highly competitive marketplace—where no cable operator exercises market power in the downstream or upstream markets and no national video programming network is so powerful as to dominate the programming market—completely eviscerates the justification we relied on in Time Warner for the ban on exclusive contracts.”)… In today’s highly competitive market, neither Comcast or any other video programming distributor possesses market power in the national video programming distribution market… Therefore, under these circumstances, the FCC cannot tell Comcast how to exercise its editorial discretion about what networks to carry any more than the Government can tell Amazon or Politics and Prose or Barnes & Noble what books to sell; or tell the Wall Street Journal or Politico or the Drudge Report what columns to carry; or tell the MLB Network or ESPN or CBS what games to show; or tell SCOTUSblog or How Appealing or The Volokh Conspiracy what legal briefs to feature.[46]

The FCC has already gathered considerable data on the vast changes in the video marketplace. It should consider opening dockets on how these changes undercut the constitutionality of forced-access rules.

E. Ensuring US Leadership in the Global Satellite Economy

The FCC should prioritize regulatory reforms to strengthen the competitiveness of U.S. firms in the rapidly evolving global space and satellite-communications sector. As private enterprises drive innovation in satellite technology and low-earth-orbit (LEO) deployments, overly restrictive or outdated domestic regulations risk ceding American leadership to foreign competitors operating under less burdensome oversight frameworks. Indeed, establishing a regulatory regime that encourages innovation, investment, and competition is critical to ensure continued U.S. dominance in the sector.[47]

A top-to-bottom review of FCC space and satellite policies is warranted to identify and eliminate regulatory asymmetries disadvantaging U.S.-licensed providers. Disparate treatment—such as more onerous licensing timelines, excessive equipment pre-certification requirements, and redundant importation rules—can generate substantial uncertainty and delays. These regulatory burdens impose direct costs on companies and broader costs on U.S. consumers and national interests—deterring innovation, discouraging capital investment, and reducing America’s global market share.

A particularly urgent area for reform concerns the equivalent power flux-density (EPFD) limits that govern the signal strength permitted for non-geostationary (NGSO) satellite transmissions. These limits—established by the International Telecommunication Union (ITU) in the late 1990s—were designed to prevent harmful interference with geostationary (GSO) satellites, but they reflect technological assumptions from a much earlier era. Modern NGSO systems—equipped with steerable beams, advanced signal processing, and adaptive interference mitigation—are artificially constrained by these outdated rules. As a result, current EPFD limits are a tremendous regulatory restriction on the ability of NGSO systems to serve consumers efficiently and cost-effectively.

The FCC has already recognized this issue by initiating an NPRM (SB Docket No. 25-157) to study the NGSO-GSO sharing regime in the 10.7–12.7 GHz, 17.3–18.6 GHz, and 19.7–20.2 GHz bands. The Commission should exploit the existing NPRM process to fully evaluate modernized EPFD methodologies and accelerate a transition toward a more efficient and evidence-based spectrum-sharing framework that maintains GSO protections while enabling the full potential of NGSO constellations. Ensuring that NGSO providers can deliver affordable high-capacity broadband to unserved and underserved populations is a national imperative, and the FCC must not allow regulatory inertia to serve as a barrier to this goal.

More broadly, to address the foregoing critical issues, the FCC should:

• Eliminate outdated pre-certification importation rulesthat stifle innovation and prototyping. The permissible-weight thresholds for satellite hardware imported prior to authorization should either be significantly increased or entirely eliminated, thereby removing logistical burdens and fostering more agile development cycles.
• Streamline equipment authorization for composite systems, including satellite constellations employing modular or multi-band designs. Current authorization processes do not reflect the practical realities of how these systems are built and tested, causing unnecessary duplication and market-entry delays.
• Remove unnecessary FCC-logo and compliance-statement requirementsfor unintentional radiators. These mandates add complexity without any substantial consumer-protection benefit, being more appropriate for retail electronics, rather than professional-grade satellite hardware.
• Resolve regulatory uncertainty in the 6 GHz band, recognizing the significant concerns of Wi-Fi providers and other terrestrial users. It is critical to establish a balanced framework that addresses these concerns while allowing satellite and terrestrial unlicensed operations to coexist effectively. Resolving this uncertainty will help unlock beneficial uses of spectrum and support potential innovations in service.
• Review and modernize legacy guidance documentsgoverning space and earth-station operations. Many existing policies reflect outdated technological assumptions and do not adequately accommodate such contemporary innovations as software-defined payloads, agile manufacturing processes, and rapid deployment iterations.

Historical experience underlines the importance of open, competitive entry. The FCC’s 1972 “Open Skies” policy catalyzed significant advancements by lowering barriers to entry, stimulating competitive market dynamics, and drastically reducing transmission costs.[48] Revisiting similar deregulatory initiatives could unlock further competitive potential in today’s increasingly crowded satellite landscape.[49]

Ultimately, modernizing the FCC’s regulatory framework to reflect the dynamic realities of contemporary space commerce is essential. Without these reforms, U.S. companies will increasingly seek more permissive foreign regulatory environments, threatening American economic interests and diminishing the FCC’s influence as a global regulatory leader.

III. Straightforward Regulations to Eliminate or Streamline

Eliminate civil monetary penalties designed to “punish and deter” the wrongdoer, rather than to “restore the status quo.” Indeed, the Supreme Court’s opinion in SEC v. Jarkesy may upend the FCC’s enforcement processes.[50] In Jarkesy, the Court ruled that, when the U.S. Securities and Exchange Commission (SEC) seeks civil penalties against a defendant for securities fraud, the defendant is entitled under the Seventh Amendment to a jury trial;  the agency must therefore bring the action in an Article III federal court. The FCC could in many cases face the daunting task of differentiating its enforcement procedure from the SEC’s in Jarkesy.

Eliminate E-Rate for school buses. The FCC’s order to subsidize Wi-Fi on school buses exceeds the agency’s statutory authority.[51] The FCC is authorized to use E-Rate funds only “to enhance … access to advanced telecommunications and information services for … school classrooms … and libraries.”[52]

Simplify broadband “nutrition labels.” The FCC’s broadband-nutrition-label rules, implemented in 2024, represent a significant regulatory intervention in how internet service providers (ISPs) communicate their service offerings to consumers.[53] The rules exceed the statutory requirements by mandating detailed disclosures—such as “typical” upload/download speeds and latency figures—that exceed the basic transparency provisions outlined in the Infrastructure Investment and Jobs Act. Additionally, the requirement for ISPs to update labels at all physical points of sale whenever service-plan changes impose administrative burdens not explicitly required by the statute.

Line discontinuance. Under “Delete, Delete, Delete,” the FCC initiative should streamline 47 C.F.R. § 63.71 by simplifying the procedural requirements for carriers seeking to discontinue legacy copper lines. For example, the FCC might reduce the mandatory customer-notification period for nondominant carriers (currently 15 days) or eliminate redundant filing steps for automated approvals, particularly in markets with competitive alternatives. Additionally, the FCC could revise § 63.71’s cost-benefit framework by aligning timelines for dominant carriers (60 days) with current market realities like widespread fiber or the availability of wireless, in order to accelerate infrastructure transitions. Merging overlapping provisions in § 63.71 and § 63.90 into a unified process for technology transitions could further reduce administrative burdens, while maintaining consumer safeguards through alternative-service requirements.

National Environmental Policy Act (NEPA) review for cell siting. Streamline exemptions and reduce oversight for cell-siting projects under 47 C.F.R. §§1.1301-1.1320. Routine environmental assessments for small-cell deployments are either redundant with state/local reviews, or outdated due to technological advancements. In either case, their elimination is justified under cost-benefit criteria. Expand categorical exclusions for low-impact projects—such as co-locations on existing structures—by revising §1.1306 to further limit environmental-assessment triggers. Delegate more NEPA-compliance responsibility to telecom providers through self-certification processes, aligning with the initiative’s goal of reducing administrative burdens.

Outdated common-carrier regulations that no longer reflect current technological and economic conditions:

• 47 C.F.R., Chapter 1, Subchapter B, Part 32 USOA. The Uniform System of Accounts was designed for a monopolistic, rate-of-return regulatory environment. Modern telecom markets are competitive, and carriers now use Generally Accepted Accounting Principles (GAAP). Retaining Part 32 imposes redundant compliance costs and stifles innovation by forcing outdated accounting practices on carriers.
• 47 C.F.R., Chapter 1, Subchapter B, Part 42 Preservation of Records of Communication Common Carriers. Digital recordkeeping and automated systems have rendered manual preservation obsolete. The FCC’s 2017 reforms to Part 32 already reduced recordkeeping burdens and overlapping state/federal rules create redundancy. Eliminating Part 42 would reduce administrative costs without compromising oversight.
• 47 C.F.R., Chapter 1, Subchapter B, Part 53 Special Provisions Concerning Bell Operating Companies. These rules reflect a 1980s monopoly-era mindset. Today’s broadband and wireless markets are highly competitive, and Bell operating companies (BOCs) face robust rivalry from cable, fiber, and wireless providers. Part 53 stifles BOCs’ ability to innovate and compete on equal footing.
• 47 C.F.R., Chapter 1, Subchapter B, Part 61 Tariffs. Tariff requirements were critical in monopoly markets, but thanks to competition, they are now largely obsolete. The FCC has already de-tariffed many services (g., business data services). Further simplification would reduce administrative burdens and align with market-driven pricing.
• 47 C.F.R., Chapter 1, Subchapter B, Part 63 Contains Section 214 Requirements (Particularly 47 C.F.R. §§ 63.60-63.602). These rules, including §§63.60–63.602, were designed for a pre-globalized telecom market. Today’s competitive landscape and streamlined processes (g., streamlined Section 214 approvals for non-dominant carriers) render these provisions redundant. Removing them would expedite market entry.
• 47 C.F.R., Chapter 1, Subchapter B, Part 65 Interstate Rate of Return Prescription, Procedures and Methodologies. Rate-of-return regulation is largely obsolete, as the FCC has transitioned most carriers to incentive-based frameworks (g., price caps). Part 65 perpetuates inefficiencies by tying investment decisions to artificial returns, rather than market signals, thus discouraging modernization.

Eliminate payphone rules: 47 C.F.R. § 64.1310 establishes procedures for completing carriers to compensate payphone-service providers through call-tracking systems, quarterly payments, and detailed reports verified by sworn statements. This rule has become outdated due to the dramatic decline in payphone usage (from 2.1 million units in 1999 to negligible numbers by 2025) as mobile phones now fulfill 95% of public-communication needs, rendering the costly audit requirements and rigid certification processes disproportionately burdensome relative to the dwindling compensation amounts. The FCC formally eliminated these audits in 2018 and relaxed certification rules, recognizing that legacy compliance costs hindered carriers without meaningfully protecting payphone providers in a marketplace where such services no longer serve critical infrastructure roles.

Section 706 reporting requirements: Section 706 of the Telecommunications Act (47 U.S.C. § 1302(b)) requires the FCC to annually assess whether advanced telecommunications capability “is being deployed to all Americans in a reasonable and timely fashion.” If deployment lags, the section mandates corrective actions, such as removing regulatory barriers. Critics argue that this framework has outlived its utility, as the statute’s ambiguous terms like “availability” and “reasonable and timely” now enable mission creep, with the FCC expanding its scope to include affordability, adoption metrics, and equity considerations beyond Congress’ original physical-deployment focus.[54]

The reporting mandate duplicates newer initiatives like the Infrastructure Investment and Jobs Act’s $42.5 billion Broadband Equity, Access, and Deployment (BEAD) program, while inviting regulatory overreach, as evidenced by recent FCC attempts to reinterpret Section 706 as an independent authority to impose broadband rate regulations and other policies unrelated to infrastructure deployment.[55] With 97% of U.S. households already having access to high-speed internet and private-sector 5G/fiber investments far outpacing federal programs, the Section 706 reporting process now primarily serves to justify expanding FCC jurisdiction, rather than addressing genuine deployment gaps.

Clarify revocation standards for automated calls and texts: Modify the revocation-of-consent rules for automated calls and texts by narrowing the definition of what constitutes a “reasonable” method for revoking consent. Alternatively, provide a clear safe harbor for callers who offer multiple straightforward and user-friendly revocation methods. The current standard—allowing revocation through “any reasonable means”—is overly vague and contributes to unnecessary litigation risks under the Telephone Consumer Protection Act (TCPA). These revised rules will become effective April 11, 2025.

Allow cable operators to merge with ILECs by extending forbearance: The current prohibition against mergers between cable operators and incumbent local-exchange carriers (ILECs) should be addressed through regulatory forbearance, building upon existing FCC precedents that permit cable operators to merge with competitive local-exchange carriers (CLECs). Maintaining this restriction unnecessarily hinders innovation, investment, and broader economic growth in the telecommunications sector.

Repeal or streamline PEG requirements to foster competitive fairness: Statutory requirements governing public, educational, or governmental (PEG) channels should be repealed entirely, or at minimum, streamlined significantly. These mandates place cable operators at an unjust disadvantage in today’s highly competitive media landscape. Additionally, these obligations raise serious constitutional concerns by imposing unequal regulatory burdens, and potentially infringing upon cable providers’ First Amendment rights.

Simplify or remove local review of franchise transfers: Eliminate the statutory requirement granting local authorities the power to review cable-franchise transfers. Alternatively, streamline procedures significantly to enable state and local entities to expedite decisions on franchise transfers. Current review processes impose unnecessary delays and regulatory burdens, hindering market efficiency and competitiveness.

Outage reporting:

• Remove mandatory 30-minute outage notification for wireline and VoIP providers: Eliminate the obligation requiring wireline and interconnected voice over internet protocol (VoIP) service providers to notify 911 and 988 emergency-service providers within 30 minutes of a network outage. Additionally, remove the requirement for providers to exercise “special diligence” in obtaining and maintaining accurate 911/988 facility contact information. These provisions are overly burdensome and impose unnecessary administrative demands on providers.
• Clarify that MVNOs are not obligated to submit outage reports: Mobile virtual-network operators (MVNOs) typically lack direct access to critical network information necessary for accurate reporting. Moreover, outages are already reported by the underlying facilities-based providers. Given that these providers directly compete with MVNOs, relying on their reporting mitigates concerns about accuracy and removes redundant regulatory burdens on MVNOs.

IV. NOIs, NPRMs, and Other Agency Actions to Terminate

Conclude the notice of inquiry on the following matters:

• Data caps. Data Caps in Consumer Broadband Plans, FCC 24-106, WC Docket No. 23-199. ICLE research indicates that data caps and usage-based pricing in broadband services help ISPs to manage network resources effectively, recover infrastructure costs, and promote economic efficiency by aligning prices with consumption.[56] Regulating these practices could be counterproductive, as usage-based pricing creates fairness by eliminating cross-subsidization, potentially making broadband more affordable for light users and increasing overall adoption rates.

End consideration of the following matters in which a notice of proposed rulemaking was issued:

• Requiring certain providers to submit an annual certification attesting that they have created, updated, and implemented cybersecurity and supply chain risk management plans. Protecting the Nation’s Communications Systems from Cybersecurity Threats, FCC 25-9, PS Docket No. 22-329.
• Blackout rebates. Customer Rebates for Undelivered Video Programming During Blackouts, FCC 24-2, MB Docket No. 24-20. ICLE research concludes that the proposed rules are unworkable and arbitrary.[57] Even if rebates could be reasonably and fairly calculated, the amount of such rebates would likely be only a few dollars and may be as little as a few pennies. In such cases, the enormous cost to the Commission, cable operators, and direct-broadcast-satellite (DBS) providers would be many times greater than the amount of rebates provided to consumers. It would be a much better use of the FCC’s and MVPD providers’ resources to abandon this rulemaking process and refrain from mandating rebates for programming blackouts.
• Prohibiting early-termination fees and billing-cycle fees. Promoting Competition in the American Economy: Cable Operator and DBS Provider Billing Practices, FCC 23-106, MB Docket No. 23-405. ICLE comments to the FCC in this matter conclude that the Commission should not regulate cable-television early-termination fees (ETFs).[58] Moreover, even if the Commission has authority to ban ETFs, doing so would be harmful to consumers and providers. Consumers who enter contracts with ETFs do so willingly with an expectation that they will pay a lower price over the term of their agreement. Producers benefit from reduced subscriber churn and uncertainty. Banning ETFs removes one dimension of consumer choice and provider competition. More importantly, a ban on ETFs would almost certainly lead to higher prices for cable and DBS consumers, the costs of which likely would swamp any speculated benefits of avoiding an ETF.
• Disclosing AI content in political ads. Disclosure and Transparency of Artificial Intelligence-Generated Content in Political Advertisements, FCC 24-74, MB Docket No. 24-211.
• Handset unlocking. Promoting Consumer Choice and Wireless Competition Through Handset Unlocking Requirements and Policies, FCC 24-77, WT Docket No. 24-186.
• Independent and diverse video-programming sources. Fostering Independent and Diverse Sources of Video Programming, FCC 24-44, MB Docket No. 24-115. In comments to the Canadian Radio-television and Telecommunications Commission (CRTC) in a similar matter, ICLE concludes that heavy-handed access regulations distort market incentives, while failing to achieve diversity goals.[59] Mandatory-carriage requirements and distribution quotas create inefficient cross-subsidization, where consumers pay higher prices for popular content to support niche programming that lacks genuine demand, while streaming has already dramatically reduced barriers to entry for content providers and given consumers unprecedented access to diverse programming options.
• Priority for local journalism and other local programming. Priority Application Review for Broadcast Stations that Provide Local Journalism or Other Locally Originated Programming, FCC 24-1, MB Docket No. 24-14. ICLE’s comments to the CRTC conclude that preferential regulatory treatment based on content production creates market distortions without addressing fundamental industry challenges.[60] The current broadcasting ecosystem already provides strong incentives for stations to produce local content, based on consumer demand, while the proposed regulatory advantage would artificially favor certain business models and potentially burden the Commission with subjective content evaluations that could raise First Amendment concerns.

Regarding the agency’s contemplated actions on Section 230 interpretation and investigations into CBS and YouTube TV, we acknowledge the Commission’s intention to clarify legal standards and address public concerns about content fairness and platform neutrality. On one hand, pursuing these investigations could demonstrate responsiveness to significant public interests and enhance transparency. On the other hand, recent judicial developments suggest caution.

Specifically, following the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, courts may no longer defer to agency interpretations previously supported by Chevron, potentially limiting the FCC’s authority to interpret Section 230 effectively. Additionally, given the constitutional protections outlined in NetChoice v. Moody concerning platforms’ First Amendment editorial rights, the Commission might encounter substantial legal obstacles. Similarly, the complaints against CBS and YouTube TV raise sensitive First Amendment concerns about editorial discretion. The Commission might reconsider whether continued investment of its resources in these areas is the most effective approach at this time, given the need to carefully balance regulatory clarity, constitutional principles, and efficient allocation of agency resources.

V. Conclusion

With this sweeping deregulatory initiative, the FCC has the opportunity to reshape U.S. communications policy to better reflect modern technological and market realities. By eliminating outdated, redundant, and burdensome regulations and streamlining existing frameworks, the FCC can significantly reduce compliance costs, foster innovation, and enhance competition across all segments of the communications industry. This approach not only aligns regulatory practices with contemporary market conditions but also adheres to constitutional principles by minimizing unnecessary governmental interference.

The recommendations outlined herein represent critical first steps toward a leaner, more efficient regulatory environment that prioritizes consumer welfare, economic growth, and technological advancement. We urge the Commission to fully embrace this deregulatory path, leveraging its existing statutory authority and judicial precedent to ensure that regulation remains narrowly tailored, justified by clear evidence of market failure, and conducive to a vibrant and competitive communications ecosystem.

[1] In Re: Delete, Delete, Delete (FCC GN Docket No. 25-133, Mar. 12, 2025), available at https://docs.fcc.gov/public/attachments/DA-25-219A1.pdf. For simplicity, unless stated otherwise, “regulations” will collectively refer to rules, regulations, or guidance documents.

[2] Press Release, FCC Chairman Carr Launches Massive Deregulation Initiative, Fed. Commun. Comm. (Mar. 12, 2025), available at https://docs.fcc.gov/public/attachments/DOC-410147A1.pdf.

[3] @BrendanCarrFCC, X.com (Mar. 12, 2025, 9:39 AM), https://x.com/BrendanCarrFCC/status/1899862730909037043.

[4] Presidential Action, Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative, White House (Feb. 19, 2025), https://www.whitehouse.gov/presidential-actions/2025/02/ensuring-lawful-governance-and-implementing-the-presidents-department-of-government-efficiency-regulatory-initiative; Presidential Action, Directing the Repeal of Unlawful Regulations, White House (Apr. 9, 2025), https://www.whitehouse.gov/presidential-actions/2025/04/directing-the-repeal-of-unlawful-regulations.

[5] Ohio Telecom Ass’n v. FCC, No. 24-3449 (6th Cir. 2025).

[6] Eric Fruits, Title I for All: Time to Modernize America’s Outdated Telecommunications Rules, Truth Mark. (Jan. 6, 2025), https://truthonthemarket.com/2025/01/06/title-i-for-all-time-to-modernize-americas-outdated-telecommunications-rules.

[7] Data Reveals Landline Phone Decline Statistics, Chamb. Comm. (Jul. 24, 2024), https://www.chamberofcommerce.org/landline-phone-statistics.

[8] In the Matter of Advanced Methods to Target and Eliminate Unlawful Robocalls, Alarm Industry Communications Committee Petition for Clarification or Reconsideration, American Dental Association Petition for Clarification or Reconsideration (CG Docket No. 17-59, FCC 20-96, Jul. 17, 2020), available at https://docs.fcc.gov/public/attachments/FCC-20-96A1.pdf.

[9] Limited Applicability Nonavailability Waiver of the Buy America Domestic Content Procurement Preference as Applied to Recipients of Middle Mile Grant Program Awards, Nat’l. Telecommun. Inf. Adm. (Apr. 19, 2023), available at https://www.commerce.gov/sites/default/files/2023-04/NTIA%20Middle%20Mile%20Final%20Waiver.pdf.

[10] In the Matter of Amendment to the Commission’s Rules Concerning Effective Competition, Implementation of Section 111 of the STELA Reauthorization Act (MB Docket No. 15-53, FCC 15-62, Jun. 3, 2015), available at https://docs.fcc.gov/public/attachments/FCC-15-62A1.pdf.

[11] Id. at ¶ 1.

[12] Codified at 47 U.S.C. §161(b).

[13] See Prometheus Radio Project v. FCC, 373 F.3d 372, 415 (2004), cert. denied, 545 U.S. 1123 (2005).

[14] Andrew Jay Schwartzman, Harold Feld, & Parul Desai, Section 202(h) of the Telecommunications Act of 1996: Beware of Intended Consequences, 58 Fed. Comm. L.J. 581, 583 (“There is no legislative history explaining its origin or what Congress may have intended in adopting it. Nor could there have been any meaningful discussion of what its unidentified sponsors may have sought, or what the conference committee which adopted it might have thought, as Section 202(h) was not subject to any public discussion prior to its adoption. Indeed, for several years after enactment of the 1996 Act, no one would publicly claim credit for having anything to do with its drafting and enactment.”)

[15] Dana A. Scherer, The FCC’s Rules and Policies Regarding Media Ownership, Attribution, and Ownership Diversity, Congr. Res. Serv. (Dec. 16, 2016), available at https://www.congress.gov/crs_external_products/R/PDF/R43936/R43936.6.pdf.

[16] In Re: 2014 Quadrennial Regulatory Review—Order on Reconsideration and Notice of Proposed Rulemaking (32 FCC Rcd. 9802, 2017).

[17] FCC v. Prometheus Radio Project, 592 U.S. 414, 417 (2021) [hereinafter “Prometheus Decision”].

[18] Brief of the International Center for Law & Economics as Amicus Curiae in Support of Petitioners, Nat’l Ass’n of Broadcasters v. Prometheus Radio Project, No 19-1241, Int’l. Ctr. Law Econ. (May 22, 2020), at 17, available at https://laweconcenter.org/wp-content/uploads/2020/05/ICLE-Amicus-Brief-96910004_1.pdf.

[19] Prometheus Decision at 426.

[20] Prometheus Decision at 423.

[21] See id. at 5-6 (“In the quarter century since the 1996 Act was enacted, competition from digital media has grown exponentially. Today, Americans have access to video and audio programming over hundreds of channels from both cable and satellite distributors. Americans also now have access to thousands of websites from which they can and do get whatever information they need—be it news, sports, or entertainment. And unlike in 1996, Americans can now enjoy video and audio programming and obtain a wide range of information from online websites either on a smart TV in their home or office or on a smartphone or tablet they can carry with them wherever they are.”).

[22] Eric Fruits, Media-Ownership Regulations in a Streaming World: Time to Change the Channel, Truth Mark. (Mar. 5, 2025), https://truthonthemarket.com/2025/03/05/media-ownership-regulations-in-a-streaming-world-time-to-change-the-channel.

[23] Scherer, supra note 15.

[24] Radio Station Advertising Revenues in the United States from 2006 to 2024, by Type, Statista (Mar. 2024), https://www.statista.com/statistics/253185/radio-station-revenues-in-the-us-by-source.

[25] See Order, In the Matter of 2014 Quadrennial Regulatory Review, MB Docket 14-50 (Jun. 4, 2021), available at https://docs.fcc.gov/public/attachments/DA-21-656A1.pdf

[26] For example, Nielsen information indicates that, from October 2023 to February 2025, broadcast viewing declined from 24.6% of viewing time to 21.2%, while streaming increased from 36.6% to 43.5%. See The Gauge, Nielsen Co. (Feb. 2025), https://www.nielsen.com/data-center/the-gauge.

[27] See, e.g., Kayla Wassell, Why Broadcast TV Stations and Daytime Programming “Are In Big Trouble,” Cord Cutters News (Aug. 24, 2023), https://cordcuttersnews.com/why-broadcast-tv-stations-and-daytime-programming-are-in-big-trouble  (“Local television stations are also scaling back on spending by shifting toward airing low-cost reruns and game shows.”).

[28] Prometheus Decision at 427.

[29] See, e.g., James R. Weiss & Martin L. Stern, Serving Two Masters: The Dual Jurisdiction of the FCC and the Justice Department over Telecommunications Transactions, 6 Commlaw Conspectus 195, 206 (1998); William J. Rinner, Optimizing Dual Agency Review of Telecommunications Mergers, 118 Yale L. J. 1571 (2009).

[30] Geoffrey Manne, Will Rinehart, Ben Sperry, Matt Starr, & Berin Szoka, The Law and Economics of the FCC’s Transaction Review Process, TPRC 41: The 41st Research Conference on Communication, Information and Internet Policy (Aug. 23, 2023), available at SSRN: https://ssrn.com/abstract=2242681 or https://laweconcenter.org/wp-content/uploads/2013/08/SSRN-id2242681.pdf.

[31] Weiss & Stern, id., at 205.

[32] Manne et al., supra note 30 (“In effect, the agency uses transaction reviews to impose the kinds of regulations that would otherwise require a formal rulemaking. In addition to side-stepping notice-and-comment requirements, this regulation-by-merger-condition creates a crazy quilt where different rules apply to different companies, sometimes in different markets.”).

[33] Stephen Breyer, Regulation and Its Reform (1982).

[34] 603 U.S. 369 (2024).

[35] Philip J. Weiser, Reexamining the Legacy of Dual Regulation: Reforming Dual Merger Review by the DOJ and the FCC, 61 Fed. Comm. L.J. 167, 170.

[36] Eric Fruits, Blackout Rebates: Tipping the Scales at the FCC, Truth Mark. (Mar. 6, 2024), https://truthonthemarket.com/2024/03/06/blackout-rebates-tipping-the-scales-at-the-fcc/.

[37] 47 U.S.C. § 532.

[38] Memorandum Opinion and Order, In Re: Complaint of Syracuse Peace Council Against Television Station WTVH, Fed. Commun. Comm’n (2 FCC Rcd Vol. 17, Aug. 4, 1987), at 5058, available at https://docs.fcc.gov/public/attachments/FCC-87-266A1.pdf (concluding that “the dramatic transformation in the telecommunications marketplace [since Red Lion] provides a basis for the Cour to reconsider its application of diminished First Amendment protection to the electronic media”).

[39] 512 U.S. 622 (1994) (Turner I).

[40] Id. at 656.

[41] Id.

[42] Id. at 661.

[43] Turner Broadcasting System v. FCC, 520 U.S. 180, 197 (1997) (Turner II).

[44] Id. (quoting Turner I, 512 U.S. at 656).

[45] 93 F.3d 957 (D.C. Cir. 1996).

[46] Comcast Cable Commcn’s v. FCC, 717 F.3d 982, 993-94 (2013) (Kavanaugh, J., concurring).

[47] See Kristian Stout & Michael Calabrese, Competition in the Low-Earth-Orbit Satellite Industry, Truth Mark. (Oct. 10, 2023), https://truthonthemarket.com/2023/10/10/competition-in-the-low-earth-orbit-satellite-industry.

[48] Thomas W. Hazlett, Dongning Guo, & Michael Honig, From “Open Skies” to Traffic Jams in 12 GHz: A Short History of Satellite Radio Spectrum, 1 J. L. & Innovation 66, 70-74 (2023).

[49] Id. at 81-83.

[50] Ben Sperry & Eric Fruits, How This Supreme Court Term Might Affect the FCC’s Digital-Discrimination Rule, Truth Mark. (Jul. 3, 2004), https://truthonthemarket.com/2024/07/03/how-this-supreme-court-term-might-affect-the-fccs-digital-discrimination-rule, citing SEC v. Jarkesy, 603 U.S. ___ (2024).

[51] Declaratory Ruling, Modernizing the E-Rate Program for Schools and Libraries (FCC 23-84, WC Docket No. 13-184, Oct. 25, 2023).

[52] 47 U.S.C. § 254(h)(2)(A); see also Maurine Molak v. FCC & USA, No. 23-60641 (5th Cir.).

[53] Report and Order and Further Notice of Proposed Rulemaking, In the Matter of Empowering Broadband Consumers Through Transparency (FCC 22-86, CG Docket No. 22-2, Nov. 14, 2022).

[54] See Protecting & Promoting the Open Internet, TechFreedom & ICLE Legal Comments (GN Docket No. 14-28, Jul. 17, 2014), at 62-91, available at https://laweconcenter.org/images/articles/tf-icle_nn_legal_comments.pdf.

[55] Id.

[56] See Eric Fruits, Kristian Stout, & Geoffrey A. Manne, The Economics of Broadband Data Caps and Usage-Based Pricing, Int’l. Ctr. Law Econ. (Oct. 23, 2024), available at https://laweconcenter.org/wp-content/uploads/2024/10/Data-Caps-2024.pdf.

[57] Eric Fruits, Ben Sperry, Kristian Stout, & Geoffrey A. Manne, Reply Comments of the International Center for Law & Economics, Notice of Proposed Rulemaking, In the Matter of Customer Rebates for Undelivered Video Programming During Blackouts, MB Docket No. 24-20, Int’l. Ctr. Law Econ. (Apr. 8. 2024) available at https://laweconcenter.org/wp-content/uploads/2024/04/FCC-Blackout-Rebates-2024.pdf.

[58] Eric Fruits, Ben Sperry, & Kristian Stout, Comments of the International Center for Law & Economics, Notice of Proposed Rulemaking, In the Matter of Promoting Competition in the American Economy: Cable Operator and DBS Provider Billing Practices, MB Docket No. 23-405, Int’l. Ctr. Law Econ. (Feb. 5, 2024) available at https://laweconcenter.org/wp-content/uploads/2024/02/2024-Early-Termination-Fee-Comments-Final.pdf.

[59] Eric Fruits, Kristian Stout, & Geoffrey A. Manne, Comments of the International Center for Law & Economics, The Path Forward—Working Towards a Sustainable Canadian Broadcasting System, Broadcasting Notice of Consultation CRTC 2025-2, Int’l. Ctr. Law Econ. (Feb. 24, 2025), available at https://laweconcenter.org/wp-content/uploads/2025/02/2025-CRTC-Comments.pdf.

[60] Id.

[A Portuguese-language version of this issue brief is available here.]

I. Introduction

The global dissemination of telecommunication technologies, notably 5G, has enhanced interconnectivity across networks, borders, and suppliers of high-tech products and services. The reliability and speed of these advanced technologies have served to enhance mobile broadband and improve applications used in the Internet of Things (IoT), robotic automation, artificial intelligence (AI), and autonomous vehicles, among others. Across many industries, they have yielded economic gains that are estimated to reach US$13.2 trillion by 2025[1].

Given the telecommunications sector’s economic value, a growing number of legal disputes across various jurisdictions have centred on standard-essential patents (SEPs) for telecom technologies, and their licensing on fair, reasonable and non-discriminatory (FRAND) terms. Standard-setting organizations (SSOs) typically require members to disclose their SEPs—that is, patents deemed essential for a given technical standard. In exchange for the broad adoption of those patents, the SEP holder will often commit to the SSO to license it on FRAND terms.

While such licensing terms would ideally be set through amicable negotiations between SEP holders and implementers, the parties may hold diverging views on such issues as the base determination, methodologies to calculate royalties, patent portfolio valuation, license duration, geographical scope, interpretation of non-discrimination requirements, and reciprocity in cross-licensing. FRAND disputes have also gone global, with parties engaged in forum shopping to find jurisdictions whose approach would be more favourable to them[2].

One major source of disagreement between SEP holders and implementers concerns the geographic scope of FRAND licensing. While SEP holders typically push for global portfolio licenses to cover their entire patent families worldwide, implementers often prefer territorially limited licenses covering only the specific countries where they face litigation. This tension has been a central issue in FRAND disputes worldwide, although recent court decisions and the parties’ own positions increasingly reflect that global licenses are FRAND-compliant.

Another significant point of contention is the interplay between the contractual nature of FRAND commitments and the application of competition law. While FRAND commitments are considered contractual obligations undertaken by SEP holders toward SSOs, these commitments also serve the broader purpose of preventing potential anticompetitive effects that might arise from any market power gained through standardization. This dual nature raises complex questions about whether breaches of FRAND commitments should be addressed primarily through contract-law remedies, or whether competition law should play a more prominent role in regulating FRAND-licensing practices—particularly when SEP holders gain significant market power after their technologies become part of industry standards.

This issue brief offers a comparative analysis of how two of the most important jurisdictions for FRAND jurisprudence—the United Kingdom (UK) and the United States (U.S.)[3]—have addressed key issues arising in these complex disputes. It focuses on global FRAND licensing and the nature of FRAND commitments, and the nuanced differences and similarities in how the courts in each jurisdiction have interpreted these doctrines.

Both jurisdictions recognize the efficiency of global portfolio licensing as standard industry practice, with courts in both countries acknowledging that global licenses can be FRAND-compliant, and that country-by-country licensing would be inefficient. The UK courts, following the landmark Unwired Planet v. Huawei decision, have in certain circumstances established clear authority to determine global FRAND rates without requiring specific consent from the parties. While U.S. courts have similarly set worldwide rates, this has typically only been done in contexts where the parties have agreed to court adjudication of global terms.

This brief will also assess how enforcement of FRAND commitments as a contractual obligation between SEP holders and the SSOs is carried out in each of these jurisdictions, highlighting the varying degrees to which courts in the UK and U.S. incorporate competition-law considerations. While both jurisdictions predominantly conceptualize FRAND commitments as contractual in nature, UK courts have maintained a narrow but present role for competition-law analysis under Article 102 TFEU. By contrast, U.S. courts have established a higher threshold for competition-law intervention, emphasizing that disputes over FRAND terms should be resolved through contract and patent-law frameworks, and shying away from antitrust remedies.

By examining the approaches adopted by these two influential jurisdictions to global FRAND licensing and the contractual nature of FRAND commitments, this piece aims to identify emerging practices and potential areas of convergence that could provide greater certainty for both SEP holders and implementers in an increasingly interconnected global telecommunications ecosystem. As the economic value of standardized technologies continues to grow and disputes over patent licensing continue, understanding these differing approaches can inform possible alternatives to resolve FRAND disputes more effectively.

II. Global FRAND Licensing

One major area of disagreement between SEP holders and implementers, which has led to numerous disputes, is the geographic scope of FRAND licensing. While SEP holders typically favour global licenses that encompass their entire patent portfolios, implementers often prefer territorially limited licenses covering only the specific countries where they face litigation. This tension has become a central issue in FRAND disputes and has led to legal battles involving the same parties concomitantly in Europe, Asia, and North America[4]. The prevalence of such disputes has sparked various proposals to address the issue, coming from academia[5] [6], policymakers[7], and the courts.

Courts have emerged as the principal arbiters to resolve the complex tensions between SEP holders and implementers regarding FRAND terms. The landmark case Unwired Planet v. Huawei[8][9] has served as precedent for subsequent decisions globally, influencing assessments by courts in the UK, U.S., continental Europe, and China, among others.

When Unwired Planet offered to license its global SEP portfolio to Huawei, the latter insisted on only licensing Unwired’s UK patents. Justice Colin Birss of the UK High Court, recognizing that both parties operated as multinationals, held that industry practice in “the vast majority” of cases favored worldwide licenses. He rejected Huawei’s country-by-country approach as impractical and inefficient, citing not only the cross-border mobility of telecommunications devices but also the substantial transactional inefficiencies of negotiating multiple licenses and maintaining “many different royalty calculations and payments”. Most significantly, in the context of Unwired Planet having asserted its UK SEPs against Huawei in the UK High Court, Justice Birss asserted the court’s authority to determine global FRAND rates, despite the territorial nature of patent rights. That understanding was subsequently upheld by both the UK Court of Appeal and Supreme Court in this case.

The Unwired Planet decision established several key principles. First, that FRAND encompasses a range of terms, rather than a single set. Acknowledging the complexity of licensing negotiations and the need for flexibility, the decision recognized that multiple different arrangements could all potentially satisfy FRAND requirements. Second, that the non-discrimination obligation does not require identical terms for all licensees but rather exists to prevent competitive disadvantages between similarly situated licensees. As such, Justice Birss favored a flexible approach where different terms could be offered to different licensees based on factors like their size, market position, or volume. Third, it established that courts could set specific, global FRAND royalty rates in this situation. Finally, it determined that injunctive relief is appropriate in the UK when implementers refuse court-determined FRAND terms. This provides an enforcement mechanism for SEP holders, balancing the implementer’s right to access standardized technology with the patent holder’s right to receive fair compensation, addressing the “hold-out” problem.

Following Unwired Planet v. Huawei, several significant UK cases have further developed the jurisprudence on global FRAND licensing. In Optis v. Apple[10], the UK High Court reinforced the precedent of setting global FRAND rates, with Justice Richard Meade determining that Apple had to accept a global license for Optis’ SEP portfolio or face a UK injunction[11]. This would mean that Apple could effectively have its products excluded from the UK market on grounds of infringing Optis’ UK patents. The court ultimately set a global FRAND rate, requiring Apple to pay US$5.13 million annually[12].

Similarly, in InterDigital v. Lenovo[13], where InterDigital sued Lenovo for patent infringement in the UK, the UK court further cemented its position as a forum for global FRAND determinations. Justice James Mellor set a global FRAND rate for InterDigital’s 3G, 4G, and 5G SEP portfolio and the court rejected Lenovo’s arguments for country-by-country licensing. These cases illustrate the UK courts’ consistent willingness to set global FRAND terms in such situations, their evolving methodologies to determine rates, and how they seek to balance the interests of SEP holders and implementers—further solidifying the principles established in Unwired Planet.

In its 2017 communication clarifying the European Union’s (EU) approach to SEPs, the European Commission also incorporated the efficiency approach of Unwired Planet in support of global FRAND licensing. Accordingly, the Commission “considers that the same principles of efficiency support the practice of SEP portfolio licensing for products with global circulation. As noted in a recent ruling, a country-by-country licensing approach may not be efficient and may not be in line with a recognised commercial practice in the sector”[14].

On the other side of the Atlantic, U.S. courts’ jurisprudence on global FRAND licensing reveals both points of convergence and divergence with their UK counterparts. Prior to Unwired Planet, the U.S. courts demonstrated in Microsoft v. Motorola[15] a willingness to assert jurisdiction over FRAND disputes, albeit with a more restrained approach to global rate-setting than seen in Unwired Planet. The case began when Microsoft sued Motorola in the U.S. District Court for the Western District of Washington, alleging breach of FRAND commitments related to video coding and Wi-Fi SEPs belonging to Motorola. Microsoft argued that Motorola demanded unreasonably high royalties for its SEPs. In his decision, Judge James Robart found that FRAND commitments constitute enforceable contracts between SEP holders and SSOs, with implementers as third-party beneficiaries. He further established a methodology to calculate appropriate FRAND royalties for the global SEP portfolio owned by Motorola.

Both Microsoft v. Motorola and Unwired Planet v. Huawei addressed the determination of FRAND royalty rates for SEPs, establishing judicial frameworks for calculating appropriate rates. But the approach in Microsoft v. Motorola also differed from Unwired Planet v. Huawei in certain key respects: while U.S. courts also assert jurisdiction over global FRAND disputes and recognize the global nature of these technologies, they typically stop short of imposing mandatory worldwide licensing terms. Instead, they determine appropriate FRAND rates as part of breach-of-contract remedies, with these rates serving as a framework for negotiation, rather than as court-mandated global licenses. This approach, subsequently affirmed by the 9^th U.S. Circuit Court of Appeals[16], reflects U.S. courts’ preference for establishing principles to guide parties toward negotiated solutions on global FRAND terms, while exercising more restraint in directly setting binding terms.

One possible explanation for this difference is that, unlike in Unwired Planet v Huawei, Motorola did not seek to enforce its U.S. patents against Microsoft in Microsoft v. Motorola. Microsoft therefore did not have the choice to either adhere to global FRAND terms set by the court or face an injunction in the U.S. By comparison, in each of the UK cases analyzed above, the implementer faced a choice of a UK injunction or accepting global FRAND terms set by the court, as the SEP holders had sought to enforce their UK patents in UK courts.

Following an approach similar to the UK courts in Unwired Planet, Judge James Selna of the U.S. District Court for the Central District of California decided in TCL v. Ericsson[17] to directly set global FRAND rates for Ericsson’s SEP portfolio. However, the U.S. Court of Appeals for the Federal Circuit later vacated Selna’s decision on procedural grounds[18], highlighting a key procedural difference in the U.S. system: the right to jury trial, rather than a single judge, to determine global FRAND rates.

Following the Federal Circuit’s decision, U.S. courts have largely returned to the more restrained Microsoft v. Motorola framework. Recent cases such as HTC v. Ericsson[19] and Lenovo v. InterDigital[20] have focused on establishing principles for global FRAND compliance and interpreting contractual obligations, rather than attempting to set specific global rates.

When U.S. courts address global portfolio licensing, they typically approach it through the lens of contractual interpretation and damages for breach, rather than imposing mandatory worldwide licensing terms to the parties. As a result, the parties’ autonomy in negotiations is preserved and market-oriented solutions are encouraged.

III. UK and US Contractual Approaches to FRAND Commitments

FRAND commitments emerge from standard-setting organizations (SSOs) when those SSOs’ members vote to incorporate patented technologies into industry standards. In exchange for standardization, SEP holders agree to make licenses to their essential patents available on fair, reasonable, and non-discriminatory terms.

Since most SSOs do not specify or interpret in their policies what comprises FRAND commitments[21], SEP holders and implementers face inherent challenges to reaching common ground in licensing negotiations, given their opposing economic interests. Nevertheless, the vast majority of FRAND licensing negotiations are resolved through private mutual agreements between SEP holders and implementers, rather than through court decisions.

When FRAND disputes do reach the courts, however, the disputes sometimes implicate the question of whether and to what extent competition law should play a role in FRAND disputes, or whether these issues should be left solely to contract and patent law. Finding the proper balance in such debates and determining which legal principles should be emphasized is crucial to ensuring both fair compensation for innovation and access to standardized technologies.

Both UK and U.S. courts have predominantly conceptualized FRAND commitments as contractual obligations between SEP holders and SSOs, with implementers considered third-party beneficiaries[22]. As such, FRAND commitments function as safeguards against anticompetitive behaviour, effectively limiting SEP holders’ ability to leverage market power arising from their patents once they are incorporated into technical standards.

The UK High Court considered competition concerns in Unwired Planet v. Huawei, concluding that Unwired Planet’s offers were not contrary to Art. 102(a) of the Treaty on the Functioning of the European Union (TFEU), which prohibits abusive behaviour by companies holding a dominant position[23]. Justice Birss held that there had been no breach of Article 102, clarifying that while the Court of Justice of the European Union (CJEU) had defined a clear safe harbour in Huawei v. ZTE[24], falling outside that harbour did not automatically entail a breach of EU competition law[25]. The Court dismissed all of Huawei’s competition-law counterclaims, including its argument that Unwired Planet was in breach of the Huawei v. ZTE principles, finding that failure by the patentee to comply with those principles does not necessarily mean an abuse has occurred.

In its final judgment in Unwired Planet v. Huawei[26], the UK Supreme Court reiterated the position that SEP holders seeking injunctive relief do not necessarily violate EU competition law when they deviate from the precise framework established in Huawei v. ZTE. More specifically, the Supreme Court agreed with Justice Birss that the fact that Unwired Planet filed the lawsuit before it had offered FRAND terms to Huawei did not constitute a violation of EU competition law[27]. This interpretation seeks to enhance efficiency for parties conducting FRAND negotiations, as it establishes clear boundaries for the application of competition law, while preserving the court’s ability to determine FRAND terms when negotiations fail.

The contractual framing was reinforced in Optis Cellular Technology LLC v. Apple Retail UK Ltd[28], where the UK High Court emphasized that an implementer’s obligation to accept a FRAND license arises from the contractual nature of the FRAND commitment, rather than from competition-law concerns about abuse of dominant position. The High Court ruled that there was neither dominance nor abuse and argued the implementer’s contention that they had been abuse of dominance was a disguised “attack on a party’s freedom to negotiate price”[29].

For their part, U.S. courts have primarily treated FRAND commitments as purely contractual obligations and hence have not integrated antitrust analysis in related cases. This contrasts with the approach of UK courts, even if the latter have applied only a very narrow interpretation of dominance and abuse under Art. 102 TFEU in FRAND disputes. As a result, U.S. courts have erected an even higher threshold for competition-law intervention in FRAND disputes under their jurisdiction.

In Microsoft v. Motorola[30], the district court affirmed that Motorola’s FRAND commitments to SSOs created an enforceable contract, with implementers like Microsoft serving as third-party beneficiaries. On summary judgment, the court held that “Microsoft entered into binding contractual commitments with the IEEE and the ITU, committing to license its declared-essential patents on RAND terms and conditions”[31]. At a later stage, the district court focused on determining contractually reasonable royalty rates, rather than addressing potential antitrust violations[32].

The contractual approach was further reinforced in HTC Corp. v. Telefonaktiebolaget LM Ericsson[33], where the 5th U.S. Circuit Court of Appeals held that the “FRAND commitment is embodied in Clause 6.1. of ETSI’s IPR [Intellectual Property Rights] Policy and is governed by French contract law”[34], thereby creating a contractual obligation for Ericsson to offer licenses on FRAND terms. Despite HTC’s original antitrust claims against Ericsson that alleged the latter engaged in anticompetitive conduct by not offering “royalties to HTC under reasonable rates”[35], the district court did not directly apply antitrust laws to resolve these claims. Instead, it found that HTC’s antitrust claims were subject to arbitration under prior license agreements[36].

More recently, the 9th U.S. Circuit Court of Appeals’ decision in FTC v. Qualcomm Inc.[37] further reinforced the distinction between contractual FRAND obligations and antitrust liability. The appeals court reversed the lower court’s finding of antitrust violations, raising the threshold to establish competition-law violations in FRAND contexts. The 9th Circuit found that the market in which Qualcomm operated and where harm was alleged to have taken place were distinct. In fact, the alleged harm would only affect Qualcomm customers, who operate outside the relevant markets where Qualcomm competes. Therefore, such alleged harm would be situated “beyond the scope of antitrust law”[38]. In addition, the court urged “caution about using the antitrust laws to remedy what are essentially contractual disputes between private parties engaged in the pursuit of technological innovation”[39]. It further rebutted the lower court’s assumption that royalties are anticompetitive in the antitrust sense, arguing that the fair value of SEP portfolios is to be assessed under patent law[40], and any potential breaches of FRAND commitments should be remedied by patent and contract law[41].

IV. Conclusion

Based on the comparative analysis offered here, one observes that the U.S. and UK approaches to global FRAND licensing share certain fundamental similarities in recognizing the global nature of SEP licensing and the practical inefficiencies of country-by-country FRAND licensing. Courts in both jurisdictions have asserted their jurisdiction to set global FRAND rates in certain cases and found that FRAND commitments create enforceable obligations.

The differences between the UK and U.S. approaches are more nuanced than is often appreciated: while UK courts have since Unwired Planet been more direct in setting specific global rates backed by injunctive relief, U.S. courts following Microsoft v. Motorola do assert jurisdiction over global disputes, but tend to establish guiding principles to shape negotiations, rather than imposing mandatory terms. This distinction reflects different judicial philosophies regarding the appropriate level of court intervention, rather than fundamentally incompatible views on global licensing. In practice, both approaches acknowledge the reality that most FRAND licenses are negotiated globally, with the vast majority of disputes resolved via settlement, rather than final judgment.

Where the jurisdictions’ approaches diverge is primarily in the specific mechanisms through which courts exert influence on FRAND-licensing negotiations. UK courts favor direct FRAND rate-setting in the context of enforcing the SEP holder’s UK patents, while U.S. courts prefer to establish analytical methodologies and guiding principles for assessing FRAND royalty rates that the parties can apply in their negotiations. But both UK and U.S. courts have a shared ultimate objective of facilitating efficient global licensing of standardized technologies.

This examination of judicial approaches to FRAND commitments reveals a clear preference for contractual and patent-law frameworks over competition-law interventions in both UK and U.S. jurisdictions, albeit with varying degrees of emphasis. The UK courts, while acknowledging the potential relevance of competition law in FRAND disputes, have established a high threshold for finding dominance or abuse under Article 102 TFEU, as evidenced in the seminal cases of Unwired Planet v. Huawei and Optis v. Apple. U.S. courts have gone further still, creating an even more stringent standard for the application of antitrust in FRAND contexts, as demonstrated in FTC v. Qualcomm, where the 9th Circuit explicitly cautioned against using antitrust law to resolve what it considers fundamentally contractual disputes.

This convergence toward a contractual interpretation of FRAND commitments demonstrates a pragmatic approach to the delicate balance sought between two imperatives: fostering technological innovation through fair remuneration to SEP holders and democratizing access to standardized technologies for implementers. By predominantly framing FRAND commitments as contractual obligations with implementers as third-party beneficiaries, both UK and U.S. courts have established a legal framework focused on the primacy of private ordering in technology markets, while maintaining judicial oversight when negotiations fail.

[1] The 5G Economy: How 5G Will Contribute to the Global Economy, IHS Markit (2019), available at https://www.qualcomm.com/content/dam/qcomm-martech/dm-assets/documents/the_ihs_5g_economy_-_2019.pdf.

[2] Jorge L. Contreras, The Global Standards Wars: Patent and Competition Disputes in North America, Europe and Asia 1 (University of Utah, College of Law Research Paper No. 353, 2018),353), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3106090.

[3] Other relevant jurisdictions that parties resort to for resolving FRAND disputes include Germany, China, Japan, France, the Netherlands, and India. The European Union’s Unified Patent Court (UPC), which became operational 1 June 2023, is expected to acquire relevance and become an additional authoritative reference in FRAND disputes over time.

[4] Contreras, supra note 2.

[5] Examples of legal scholarship stating that most FRAND disputes have a global dimension and ideally should result in licensing at a global level include, among others, Jorge L. Contreras et al., The Effect of FRAND Commitments on Patent Remedies, in PATENT REMEDIES AND COMPLEX PRODUCTS: TOWARD A GLOBAL CONSENSUS, 184 (Brad Biddle, Jorge L. Contreras, Brian J. Love, & Norman V. Siebrasse, eds.,  2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3248726. (“The continuing conduct of multiple parallel proceedings is not cost efficient or time efficient, in spite of the fact that many if not all FRAND disputes are global (and would ideally materialize in global FRAND licensing transactions”); Garry A. Gabison, Worldwide FRAND Licensing Standard, 8 AM. U. BUS. L. REV. 217 (2019), https://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1118&context=aublr.

[6] Jorge L. Contreras, Global Rate Setting: A Solution for Standards-Essential Patents?, 94 Wash. L. Rev. 701 (2019), https://digitalcommons.law.uw.edu/wlr/vol94/iss2/5.

[7] The European Commission has proposed a regulation on SEPs (COM((2023)232, https://single-market-economy.ec.europa.eu/publications/com2023232-proposal-regulation-standard-essential-patents_en), with the goal of enhancing transparency, reducing information asymmetry and facilitating agreements on FRAND licenses. The proposal raised concerns by stakeholders, and it was withdrawn by the Commission in Feb. 2025 “due to no foreseeable agreement.” Available at: https://ec.europa.eu/newsroom/eismea/items/871191/en.

[8] Unwired Planet Int’l Ltd v. Huawei Technologies & Ors. [2017] EWHC 711 (Pat), available at https://www.judiciary.uk/wp-content/uploads/2017/04/unwired-planet-v-huawei-20170405.pdf.

[9] Summaries of court rulings on FRAND disputes issued by the UK courts, the Court of Justice of the European Union, and the national courts of several EU member states are available at https://caselaw.4ipcouncil.com. A list with relevant UK cases on SEPs is available on the UK government website at https://www.gov.uk/guidance/uk-seps-case-law.

[10] Optis Cellular Technology LLC & Ors v. Apple Retail UK Ltd & Ors, [2021] EWHC 2564 (Pat).

[11] Id., par. 336-341.

[12] Optis Cellular Technology LLC & Ors v. Apple Retail UK Ltd & Ors, [2023] EWHC 1095 (Ch), par. 497, available at https://www.judiciary.uk/wp-content/uploads/2024/02/Optis-Cellular-Technology-v-Apple-Retail-UK-10.05.23-Redacted-version.pdf.

[13] InterDigital Technology Corporation & Ors v. Lenovo Group Ltd & Ors, [2023] EWHC 539 (Pat), https://www.wipo.int/wipolex/en/judgments/details/2187.

[14] Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee Setting Out the EU Approach to Standard Essential Patents, COM/2017/0712 final (2017), p. 7, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52017DC0712.

[15] Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR (W.D. Wash. 2013), https://www.wipo.int/wipolex/en/judgments/details/2218.

[16] Microsoft Corp. v. Motorola Inc., 696 F.3d 872 (9th Cir. 2012), https://www.wipo.int/wipolex/en/judgments/details/2224.

[17] TCL Communication Technology Holdings, Ltd. v. Telefonaktiebolaget LM Ericsson, consolidated cases Nos. 8:14-CV-00341 JVS-DFMx and 2:15-CV-02370 JVS-DFMx (C.D. Cal. 2018), https://www.wipo.int/wipolex/en/text/591444.

[18] TCL Communication Technology Holdings, Ltd. v. Telefonaktiebolaget LM Ericsson, 943 F.3d 1360 (Fed. Cir. 2019), https://www.wipo.int/wipolex/en/text/591372.

[19] HTC Corp. v. Telefonaktiebolaget LM Ericsson, 18-cv-00243, Dkt. No. 376 (E.D. Tex. 7 Jan. 2019), available at https://ipwatchdog.com/wp-content/uploads/2024/02/HTC-v.-Ericsson-Memorandum-Opinion-and-Final-Judgment-3.pdf.

[20] InterDigital Technology Corporation & Ors v. Lenovo Group Ltd & Ors, [2023] EWHC 539 (Pat), https://www.wipo.int/wipolex/en/judgments/details/2187.

[21] Chryssoula Pentheroudakis & Justus A. Baron, Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases, Jt. Res. Cent. (2017), at 166, https://publications.jrc.ec.europa.eu/repository/handle/JRC104068.

[22] This view has also been supported in the literature. See Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 Calif. Law Rev. 1889 (2002), https://ssrn.com/abstract=310122; see also David J. Teece, Restoring and Revitalizing Technology Markets for Mobile Wireless: Geopolitical Dimensions of Patented Technology Embedded in Standards, in 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things (Cambridge University Press, 2023), at 1-50, available at https://www.cambridge.org/core/books/5g-and-beyond/intellectual-property-and-competition-policy-in-global-wireless-markets/D3B7792D751E5AE28B4F565317F9A6F3#FN-fn-29.

[23] Justice Birss concluded that “a worldwide licence would not be contrary to competition law. Willing and reasonable parties would agree on a worldwide license. It is the FRAND licence for a portfolio like Unwired Planet’s and an implementer like Huawei. Therefore, Unwired Planet are entitled to insist on it. It follows that an insistence by Huawei on a licence with a UK only scope is not FRAND”. [2017] EWHC 711 (Pat), par. 572, available at https://www.judiciary.uk/wp-content/uploads/2017/04/unwired-planet-v-huawei-20170405.pdf.

[24] The European Court of Justice’s decision in Huawei v. ZTE (Case C-170/13, 2015, https://curia.europa.eu/juris/liste.jsf?num=C-170%2F13) established guidelines to evaluate potential market power abuses under Article 102 TFEU when SEP owners pursue injunctions. The decision outlined a procedural approach that requires SEP holders to notify the potential licensee about the specific patent infringement; provide a concrete FRAND-licensing proposal once the implementer shows interest; and give the implementer reasonable time to respond meaningfully. The ECJ positioned these steps not as rigid requirements, but as protective measures that, when followed, shield SEP holders from competition-law liability. The ECJ sought to balance competing interests of protecting intellectual property and access to courts on one hand, while preventing anticompetitive behaviour on the other.

[25] HTC Corp., supra note 19.

[26] Unwired Planet International Ltd. and Another (Respondents) v Huawei Technologies (UK) Co. Ltd. and Another (Appellants), [2020] UKSC 37, https://www.supremecourt.uk/cases/uksc-2018-0214.

[27] Id., par. 146.

[28] [2021] EWHC 2564 (Pat), available at https://www.judiciary.uk/wp-content/uploads/2024/02/Optis-Cellular-Technology-v-Apple-Retail-UK-10.05.23-Redacted-version.pdf.

[29] Id., par. 385.

[30] Microsoft Corp. v. Motorola, Inc., 854 F. Supp. 2d 993 (W.D. Wash. 2012), https://www.wipo.int/wipolex/en/text/591394.

[31] Id., at 17.

[32] Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR (W.D. Wash. 2013), https://www.wipo.int/wipolex/en/text/591387; see also Kassandra Maldonado, Breaching RAND and Reaching for Reasonable: Microsoft v. Motorola and Standard-Essential Patent Litigation, 29 Berkeley Technol. Law J. 419 (2014), available at https://lawcat.berkeley.edu/record/1126231?ln=en&v=pdf.

[33] HTC Corp. v. Telefonaktiebolaget LM Ericsson, 12 F.4th 476 (5th Cir. 2021), https://www.wipo.int/wipolex/en/judgments/details/2199.

[34] Id., at 12.

[35] HTC Corp. v. Telefonaktiebolaget LM Ericsson, 18-cv-00243, Dkt. No. 376 (E.D. Tex. 7 Jan. 2019), at 2, available at https://ipwatchdog.com/wp-content/uploads/2024/02/HTC-v.-Ericsson-Memorandum-Opinion-and-Final-Judgment-3.pdf.

[36] Id.

[37] Federal Trade Commission v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020), available at https://cdn.ca9.uscourts.gov/datastore/opinions/2020/08/11/19-16122.pdf.

[38] Id., at 30-31.

[39] Id., at 39.

[40] Id., at 44.

[41] Id., at 56.

INTEREST OF AMICUS CURIAE^[1]

The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan 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 to inform public-policy debates and has longstanding expertise in the evaluation of antitrust law and policy. ICLE has an interest in ensuring that antitrust law promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis.

The First Circuit’s decision in this case strays from settled legal principles and an evidence-based approach. In analyzing the joint venture in question—the Northeast Alliance (“NEA”)—the decision deviated from this Court’s precedent, misapplied the antitrust rule of reason, and mistakenly condemned a business arrangement that served the interests of consumers and competition. Worse, the uncertainty that the decision created about the antitrust analysis of joint ventures will discourage businesses from entering into them. ICLE submits this brief to urge the Court to grant the petition and correct the First Circuit’s departure from economically grounded antitrust principles.

INTRODUCTION AND SUMMARY OF ARGUMENT

This case turns on the application of Section 1 of the Sherman Act “to an important and increasingly popular form of business organization, the joint venture.” See Texaco v. Dagher, 547 U.S. 1, 5 (2006). The First Circuit started off on the right foot. Like the district court, it agreed that the default mode of competitive analysis under the Sherman Act—the “rule of reason” framework—applied to the NEA, a joint venture between American Airlines and JetBlue. App. 12a-13a. But instead of running through this Court’s standard-operating procedure for rule-of-reason cases, the First Circuit improvised. It applied a mode of analysis that bears little resemblance to the rule of reason as this Court frames it. In so doing, it seeded uncertainty about the legality of joint ventures that pool their resources, compete more effectively in the marketplace, and thereby promote consumers’ interests.

First, the First Circuit deviated from the settled rule-of-reason framework from the very beginning—it never identified evidence that the NEA produced “a substantial anticompetitive effect that harm[ed] consumers in the relevant market.” See Ohio v. Am. Express Co., 585 U.S. 529, 541 (2018). It improperly defined “output” to encompass the capacity and scheduling decisions of the co-venturers alone, ignoring every other airline in the market. And it otherwise talked itself into substituting analogy for “proof of actual detrimental effects.” See FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 460-61 (1986) (quotations omitted). The NEA looked to the First Circuit like a per se unlawful market allocation, so the First Circuit concluded that the NEA probably caused anticompetitive effects.

Second, the First Circuit reformulated the second step of the rule-of-reason framework to skew it against the co-venturers. In American Express, this Court explained that defendants need only “show a procompetitive rationale for [a] restraint,” at which point “the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.” 585 U.S. at 541-42. The First Circuit turned that showing on its head. It required the co-venturers to prove that the NEA generated procompetitive effects, to disprove other potential causes of those effects, and to rule out the possibility that the NEA might cause competitive dislocations in other, non-relevant markets. That was wrong on each count.

Third, left uncorrected, the First Circuit’s decision will chill competitors who wish to enter into joint ventures to enhance efficiency, lower costs, or “compete more effectively” in the marketplace. See Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768 (1984). “[T]he fact that joint ventures can have such procompetitive benefits surely stands as a caution against condemning their arrangements too reflexively.” Nat’l Collegiate Athletic Ass’n v. Alston, 594 U.S. 69, 88 (2021). But the First Circuit’s decision creates uncertainty where there was none. It flirted with applying the per se rule and invoked the ancillary-restraints doctrine, all in a case in which nobody—not the parties, the district court, nor the First Circuit itself—disputed that plenary rule-of-reason analysis applied.

The upshot: even businesses that secure the blessing of their regulator to form a joint venture—as American and JetBlue did here—cannot reasonably predict the legality of such arrangements. And that uncertainty jeopardizes a major driver of economic development and consumer benefits. Economic research has long recognized the significant consumer and competitive benefits that joint ventures can achieve by enabling companies to share risks, combine complementary assets, and realize economies of scale and scope in ways individual companies often cannot. See Carl Shapiro & Robert D. Willig, On the Antitrust Treatment of Production Joint Ventures, 4 J. Econ. Persp. 113, 114-117 (1990). There is every reason for the Court to dispel the confusion, grant the petition, reverse the judgment below, and repudiate the First Circuit’s gloss on the rule of reason as it applies to joint ventures.

ARGUMENT

A. The First Circuit Mangled this Court’s Rule of Reason

From the very beginning, the parties, the district court, and the First Circuit agreed that the rule of reason—“the accepted standard for testing whether a practice restrains trade in violation of § 1,” Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007)—applied to the NEA. App. 20a-22a, 122a-123a. A “three-step, burden shifting framework” governs that analysis. Am. Express, 585 U.S. at 541. “[T]he plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market.” Id. “If the plaintiff carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint.” Id. “If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.” Id. at 542. The First Circuit bent that framework out of shape at the first two steps of the process.

1. The First Circuit Broke with Precedent at the First Step of the Rule of Reason Analysis

The trouble started at the first step. In a direct-evidence case like this one, the plaintiff must present “proof of actual detrimental effects on competition … such as reduced output, increased prices, or decreased quality in the relevant market.” Id. (cleaned up).[2] The First Circuit declined to endorse most of the district court’s work on that score. It did not hold that “the NEA’s reduction in the number of competitors itself, or its [asserted] effects on JetBlue’s ‘maverick’ status, constituted standalone anticompetitive harms.” App. 22a n.8. Rather, it homed in on what it characterized as the district court’s finding that the NEA restricted output, and its intuition that the NEA looked like a per se unlawful market allocation. App. 16a-22a. It was wrong on both counts.

1. Start with the output argument. In the eyes of the First Circuit, less JetBlue or American service on any particular NEA route leads ineluctably to a finding of competitive harm that satisfies step one. Specifically, the First Circuit pointed to “markets that American and JetBlue both previously served,” in which “the NEA allocated the route to one carrier and caused the other to exit[.]” App. 18a. It ended its analysis there. App. 17a (“[W]hether there are other available routes to show anticompetitive harm matters not at all in this case because the district court expressly found output reduced.”).

The First Circuit missed the forest for the trees. In adopting a myopic focus on the co-venturers’ operational decisions, it forgot to ask the critical question about the NEA: did it produce “anticompetitive effects on the [relevant] market as a whole?” See Am. Express, 585 U.S. at 547. Had the First Circuit faithfully applied American Express, it would have had to say “no.”

In American Express, itself a government challenge under Section 1 of the Sherman Act, this Court corrected a remarkably similar error. To carry their burden at step one, the government enforcers argued that American Express’s anti-steering arrangements enabled it to charge supracompetitive credit-card fees to merchants on a per-transaction basis. Id. But this Court refused to review those arrangements through the prism of American Express’s fees alone. Rather, it required the enforcers “[t]o demonstrate anticompetitive effects on the [relevant] market as a whole” by “prov[ing] that Amex’s anti-steering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or otherwise stifled competition in the credit-card market.” Id.

The enforcers couldn’t, so they lost. Noting the enforcers’ inability to “prove that Amex’s anti-steering provisions … stifled competition among credit-card companies,” the Court explained that “while [Amex’s]  agreements ha[d] been in place, the credit-card market experienced expanding output and improved quality.” Id. at 549. Specifically with respect to output, the Court underscored that “[t]he output of credit-card transactions”—not just American Express’s transactions—“grew dramatically from 2008 to 2013, increasing 30%.” Id. And the Court pointedly refused to “infer competitive injury from price and output data absent some evidence that tend[ed] to prove that output was restricted or prices were above a competitive level.” Id. (emphasis added and quotations omitted).

The First Circuit repudiated that approach. It never required the government “[t]o demonstrate anticompetitive effects on the [relevant] market as a whole” by proving that the NEA increased fares above or suppressed flights below a competitive level. See id. at 547. Instead, it declared itself satisfied on the basis of effects evidence that pertained to American’s and JetBlue’s flights alone. App. 17a-18a. The government enforcers re-ran their American Express playbook and adduced the very same type of incomplete proof that this Court rejected at step one. And the First Circuit simply endorsed it. Standing on its own, that foundational error deserves review and reversal.[3]

2. The First Circuit compounded the problem by invoking the asserted “similarity between the NEA and naked market allocation” as a basis for holding that the government met its step-one burden to prove substantial anticompetitive effects. App. 22a. It cited no law in support of its core proposition—that a perceived “similarity” between the restraint at issue and a different one governed by the per se rule can substitute for effects evidence at step one. That omission is not surprising.

Step one calls for “a fact-specific assessment of market power and market structure aimed at assessing the challenged restraint’s actual effect on competition—especially its capacity to reduce output and increase price.” Alston, 594 U.S. at 88 (quotations omitted). It does not call for courts to analogize to per se unlawful restraints and assume that the arrangement at issue will produce similar effects. Indeed, this Court has warned against categorizing joint ventures as per se unlawful on that basis. See Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 9 (1979) (“When two partners set the price of their goods or services they are literally ‘price fixing,’ but they are not per se in violation of the Sherman Act.”).

The First Circuit’s contrary approach is a relic of a bygone era in antitrust enforcement. As the Fourth Circuit recently explained, “[p]reviously, the per se rule was extended to new categories of restraints largely because they resembled other per se restraints,” but “the Supreme Court has since cautioned courts against over-analogizing in the antitrust context[.]”). United States v. Brewbaker, 87 F.4th 563, 574 (4th Cir. 2023). The Court has expressed particular concern about lower courts applying per se analysis (or something like it) to “cooperative activity involving a restraint or exclusion,” where there are even “plausible arguments that [the activities] were intended to enhance overall efficiency and make markets more competitive.” Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 294-96 (1985); accord Cal. Dental Ass’n v. FTC, 526 U.S. 756, 771 (1999).

With its classification exercise, the First Circuit turned back the clock. And it forgot “[t]he whole point of the rule of reason,” which is not to analyze arrangements on the basis of judicial comparison to per se restraints, but “to furnish an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint to ensure that it unduly harms competition before a court declares it unlawful.” See Alston, 594 U.S. at 97 (quotations omitted).

Having driven into a ditch, the First Circuit just kept going. To rationalize its departure from settled step-one analysis, it invoked the ancillary-restraints doctrine. App. 21a (asserting that “JetBlue and American’s agreement to optimize their route schedules and thereby allocate markets within the NEA region was central, not ancillary, to the NEA”) (cleaned up). Courts apply that doctrine to choose the appropriate legal framework for a given arrangement—the per se rule or the rule of reason. E.g., Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., 9 F.4th 1102, 1109 (9th Cir. 2021) (“Under the ‘ancillary restraints’ doctrine, a horizontal agreement is ‘exempt from the per se rule,’ and analyzed under the rule-of-reason, if it meets [certain] requirements.”); accord Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986).

But the First Circuit had already decided by that point that the rule of reason applied to the NEA. App. 15a-17a. It could do no less given this Court’s precedent. See Dagher, 547 U.S. at 6 n.1 (“We presume for purposes of these cases that Equilon is a lawful joint venture …. Had respondents challenged Equilon itself, they would have been required to show that its creation was anticompetitive under the rule of reason.”). So its decision to revisit that choice under the auspices of the first step of the rule-of-reason analysis is both incoherent and wrong. See Herbert Hovenkamp, The Rule of Reason, 70 Fla. L. Rev. 81, 140 (2018) (“The ancillary restraints doctrine is not a comprehensive method for applying the rule of reason, but rather an early stage decision about which mode of analysis should be applied.”).

The First Circuit’s analysis is all the more inexplicable given this Court’s admonition that “the ancillary restraints doctrine has no application … where the business practice being challenged involves the core activity of the joint venture itself[.]” Dagher, 547 U.S. at 7. That is exactly the case here, and the First Circuit acknowledged as much. App. 21a (“JetBlue and American’s agreement to optimize their route schedules and thereby allocate markets within the NEA region was central, not ancillary, to the NEA.” (cleaned up)) But it flouted Dagher and applied the ancillary-restraints doctrine anyways. That error alone warrants this Court’s review.

2. The First Circuit Muddled the Proof Requirements and Evidentiary Burdens That Apply at the Second Step of the Rule of Reason Analysis.

The First Circuit largely washed its hands of the rule of reason analysis after step one, but not before it reframed the proof requirements and evidentiary burdens that apply at the second step. This Court has explained that a defendant carries its burden at that stage by “show[ing] a procompetitive rationale for the restraint,” at which point “the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means” at the third step. Am. Express, 585 U.S. at 541-42. The First Circuit pivoted away from that framework in at least three principal ways.

First, the First Circuit required the co-venturers to prove procompetitive effects rather than “show a procompetitive rationale,” as American Express requires. See id. The First Circuit demanded that American and JetBlue affirmatively demonstrate the NEA’s procompetitive “effects on consumers and the competitive process itself.” App. 25a (quotations omitted). And when the co-venturers attempted to do so—and to show how the NEA enabled them to compete more effectively against industry heavyweight Delta—the First Circuit rejected that rationale as “not cognizable.” App. 23a-24a (rejecting argument that “the NEA generated a procompetitive benefit for the purposes of step two in the sense that it better allowed the carriers to compete with Delta—the NEA’s principal purpose”). That holding finds little support in this Court’s precedent. See Copperweld, 467 U.S. at 768 (recognizing that “joint ventures … hold the promise of increasing a firm’s efficiency and enabling it to compete more effectively” (emphasis added)). And it would come as quite a surprise to Delta, whose executives insisted that it “[wa]s imperative” to mount a “commercial response” to the NEA at the time. Pet. 11.

Second, the First Circuit ratcheted up that burden by grafting a causation requirement on to its newly fashioned effects test. Not only did the co-venturers need to prove procompetitive effects, it held, but they also needed to definitively establish that it was the NEA that caused them. App. 26a-27a (criticizing American for asserted failure to show that co-venturers launched new routes “because of the NEA itself”) (quotations omitted).

Joint venturers, particularly airlines, make operational decisions for a constellation of different reasons. To require them to present evidence that definitively links any and all positive outcomes to the joint venture itself would hold them to an impossible standard. See Alston, 594 U.S. at 101 (“Firms deserve substantial latitude to fashion agreements that serve legitimate business interest—agreements that may include efforts aimed at introducing a new product into the marketplace.”); see also Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 986 (9th Cir. 2023) (“A procompetitive rationale is a [1] nonpretextual claim that the defendant’s conduct is [2] indeed a form of competition on the merits because it involves, for example, greater efficiency or enhanced consumer appeal.”) (cleaned up).

Third, and finally, the First Circuit required the co-venturers to prove a negative: that the capacity and output enhancements on NEA routes—benefits that each side’s experts appeared to acknowledge, Pet. 29—didn’t come at the expense of countervailing effects in other, non-relevant markets. But as the Ninth Circuit has explained, economic harms that manifest outside the relevant antitrust markets, “even if real, are not ‘anticompetitive’ in the antitrust sense—at least not directly—because they do not involve restraints on trade or exclusionary conduct in ‘the area of effective competition.’” FTC v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020) (quoting Am. Express, 585 U.S. at 543 & n.7). “[A]ctual or alleged harms to customers and consumers outside the relevant markets are beyond the scope of antitrust law,” see id. at 993, and they are certainly not a basis upon which to reject a showing of procompetitive effects at step two.

*         *         *

“Of all the procedural issues involved in antitrust litigation under the rule of reason, none are more critical than questions about assignment of the burden of proof and production, and the quality of the evidence that must be presented at each stage.” Hovenkamp, supra, 70 Fla. L. Rev. at 101. The First Circuit fundamentally erred in answering these “critical” questions. Its decision evinces a disregard for this Court’s precedent and the proper analysis of joint ventures under the rule of reason, and therefore warrants review.

B. The First Circuit’s Decision Will Chill Procompetitive Joint Ventures.

Setting aside its flawed legal analysis, the First Circuit’s decision threatens to profoundly impair the formation of joint ventures. Courts typically tread carefully in antitrust cases. “[E]ven under the best of circumstances, applying the antitrust laws can be difficult—and mistaken condemnations of legitimate business arrangements are especially costly, because they chill the very procompetitive conduct the antitrust laws are designed to protect.” Alston, 594 U.S. at 99 (cleaned up). “To know that the Sherman Act prohibits only unreasonable restraints of trade,” this Court has remarked, “is thus to know that attempts to meter small deviations is not an appropriate antitrust function.” Id. (cleaned up).

But the First Circuit jettisoned that careful approach here. And it took the position that the NEA was inherently more worthy of scrutiny and condemnation because it did not revolutionize the airline industry. App. 25a (“American does not meaningfully dispute the district court’s finding that the NEA in no way revolutionized the ‘product’ American and JetBlue provide: flights from one place to another.”); id. (noting that the NEA did not “create a new product or market that could not otherwise exist”). If that’s the standard by which joint ventures are to be judged, very few will be able to meet it.

Who will lose if the Court does not curb the First Circuit’s approach? Consumers and competition. Joint ventures like the NEA offer unique benefits for both. Within the economics literature, “[t]here is widespread agreement that collaborative activities can generate significant private benefits for the parents that correspond to genuine social benefits … [such as] synergies arising when venturers share complementary skills or assets … [and] economies of scale and scope.” Shapiro, supra, 4 J. Econ. Persp. at 114-15.

Joint ventures enable companies to “pool a portion of their resources within a common legal organization” through partnership, while still operating as independent entities. See Bruce Kogut, Joint Ventures: Theoretical and Empirical Perspectives, 9 Strategic Mgmt. J. 319, 319 (1988). They afford the venturers greater flexibility to negotiate, reconfigure, or unwind collaborations than do mergers, which entail a permanent, fully integrated transaction that may be costly to reverse. See Srinivasan Balakrishnan & Mitchell P. Koza, Information Asymmetry, Adverse Selection and Joint-Ventures: Theory and Evidence, 20 J. Econ. Behav. & Org. 99, 103 (1993). And joint ventures routinely benefit consumers and communities, even when they fall short of revolutionizing industries. See Dep’t of Justice, Antitrust Div. & Fed. Trade Comm’n, Joint Antitrust Statement Regarding COVID-19 (Mar. 2020), https://tinyurl.com/45pp24d2 (“[J]oint ventures may be necessary for businesses to bring goods to communities in need, to expand existing capacity, or to develop new products or services[.]”).

Under the aegis of the NEA, American and JetBlue strived to boost service frequencies to underserved airports, enhance schedule optionality in the face of tight FAA slot regulations and limited gate availability, and offer reciprocal loyalty benefits in one geographic location. App. 13a, 71a, 74a. And the joint venture served as the vehicle by which the co-venturers could realize productive efficiencies for consumers via collaboration, asset pooling, and knowledge sharing. Even the First Circuit grudgingly acknowledged that it achieved many of those goals. The NEA resulted in greater and more efficient utilization of takeoff and landing slots at two congested airports—JFK and LGA—and it succeeded in affording frequent fliers and corporate travelers benefits and discounts. App. 9a-11a. It also prompted an entrenched incumbent to make plans to mount a commercial response, even one that the First Circuit derided as “milquetoast, at best.” App. 25a. So the NEA may not have revolutionized the industry, but it made important progress in many respects.

Left uncorrected, the First Circuit’s decision will impede the formation of joint ventures that aim for incremental but concrete improvements. The decision hopelessly confuses the rule of reason analysis as it applies to joint ventures, flirts with the application of the per se rule, and otherwise expresses a hostility to creative solutions to persistent problems—like underutilized slots and gates at congested airports in the Northeast. It is a textbook example of a costly and “mistaken condemnation[] of legitimate business arrangements,” and it deserves correction. See Alston, 594 U.S. at 99. This Court should grant the petition and reverse the First Circuit’s decision.

CONCLUSION

The petition for a writ of certiorari should be granted.

[1] No counsel for any party authored this brief in whole or in part, and no entity or person other than amicus and its counsel made any monetary contribution toward the preparation or submission of this brief. Amicus timely notified all parties of its intent to file this brief.

[2] The First Circuit declined to affirm the district court’s “alternative step-one finding that plaintiffs established actual competitive harms indirectly based on American and JetBlue’s ‘market power.’” App. 22a n.8.

[3] Not only does the First Circuit’s redefinition of anticompetitive effects contravene American Express, it makes the First Circuit an outlier among its sister Circuits. The Second, Sixth, Ninth, Tenth, and Eleventh Circuits hold that a plaintiff must present evidence of an injury to competition in the market as a whole to satisfy step one of the rule of reason. See Pet. 17-21.

Imagine you’re a renter in a city where housing costs are sky-high. When the city council passes a rent-control law capping rents below the market rate, it feels like a victory. Finally, some relief! Indeed, the first people to benefit are those lucky tenants whose rents are now frozen or reduced.

But fast forward a bit: apartment hunting becomes an ordeal. Vacant units are almost impossible to find, maintenance of older buildings slips, and new construction slows to a crawl. Frustrated would-be renters keep asking: “Where did all the apartments go?”

It turns out that capping the price of rent—meant to make life easier—has nasty side effects that can leave consumers (renters) worse off overall.

Read the full piece here.

The Federal Trade Commission (FTC) announced April 14 that it has “launched a public inquiry into the impact of federal regulations on competition, with the goal of identifying and reducing anticompetitive regulatory barriers.” A request for public comment (RPC) on the inquiry has also been published in the Federal Register. 

Read the full piece here.

Regulações ex ante de mercados digitais — como o Digital Markets Act da União Europeia (DMA), o Digital Markets, Competition and Consumers Act (DMCC) do Reino Unido e a Seção 19a da Lei Concorrencial alemã — vêm buscando coibir práticas consideradas prejudiciais à concorrência e aos consumidores, incluindo a cada vez mais debatida conduta de self-preferencing.

Read the full piece here.

TL;DR

Background: An informal but longstanding policy at the Federal Communications Commission (FCC) known as the “news distortion” rule allows the agency, under certain conditions, to take action on complaints about the accuracy or bias of news coverage. Many argue the policy is outdated, legally dubious, and harmful to free speech in today’s diverse media environment. As the FCC considers broad deregulation under its “Delete, Delete, Delete” proceeding, this rule is a prime target for elimination. 

But… In February 2025, the FCC opened a docket to investigate claims of news distortion against CBS affiliate WCBS for airing an edited “60 Minutes” interview with then-Vice President Kamala Harris. In April, the FCC Chair Brendan Carr also accused Comcast’s “licensed operations” of news distortion regarding the administration’s deportation program.  

However… The news-distortion policy emerged when broadcast television and radio were the dominant news sources, and airwaves were considered a scarce public resource. Since then, however, the media landscape has been revolutionized by the internet, cable television, and social media, offering a plethora of news sources, both regulated and unregulated.

In today’s competitive and vibrant news environment, many argue that the news-distortion policy is an anachronism that chills speech and disadvantages traditional broadcasters. The FCC should at least consider arguments for its abolition.

KEY TAKEAWAYS

No Clear Standard of ‘News Distortion’

The news-distortion policy is an informal doctrine and has never been authorized by statute. This lack of a clear legislative mandate raises questions about the FCC’s authority to enforce it. 

The FCC has implemented the news-distortion policy for more than 50 years, but it remains uncodified. The lack of specific codified rules makes it difficult for broadcasters to understand what constitutes a violation and can lead to arbitrary enforcement. 

The policy grants the commission narrow authority to act on complaints about the accuracy or bias of news in cases where a strict four-part test is passed. But the criteria for determining “deliberate distortion” of a “significant event” are not well-defined. This vagueness is a major concern for broadcasters, who fear potential enforcement actions based on subjective interpretations.

Chilling Effect on the First Amendment

The National Association of Broadcasters (NAB) calls the news-distortion policy “legally dubious and constitutionally problematic.” They contend that it can have a “chilling effect” on broadcasters’ speech, as stations may self-censor or avoid covering controversial (and important) topics for fear of triggering FCC investigations and potential license challenges.

The First Amendment protects freedom of speech and of the press, and the government’s ability to regulate news content is highly constrained. The NAB argues that the policy is contrary to Supreme Court precedent that insists on clarity in regulations involving speech. Furthermore, the freedom to choose what to publish or not publish is a core aspect of editorial control protected by the First Amendment.

Unnecessary and Redundant

Many argue that the news-distortion policy is unnecessary and redundant in today’s media environment. With the proliferation of news sources online and through social media, the NAB notes there are “multiple mechanisms to hold news organizations accountable for their reporting without government intervention.” 

If a broadcaster presents inaccurate or biased information, viewers can easily turn to other sources, and the station’s credibility can be damaged in the marketplace of ideas. The marketplace itself provides a check on distorted news. Additionally, the Federal Trade Commission (FTC) has the authority to deal with false or misleading information, making the FCC’s hoax rule (which is often linked to the news-distortion policy) duplicative.

News Is No Longer Scarce

According to the Cato Institute, the news-distortion policy relies on “dubious theories of media outlet scarcity” that no longer hold. 

The original justification for some broadcast regulation stemmed from the limited number of available broadcast licenses. But such scarcity has been eliminated in the Digital Age, with countless online news outlets and platforms available to consumers. 

In FCC v. Fox Television, Justice Clarence Thomas noted in his concurrence that “dramatic technological advances” had “eviscerated the factual assumptions underlying” previous decisions upholding broadcast regulation. “Broadcast spectrum,” he wrote, “is significantly less scarce than it was 40 years ago.”

This abundance of information sources diminishes the need for government intervention to ensure the public receives diverse and accurate news.

A Competitive Disadvantage for Broadcasters

The news-distortion rule applies specifically to FCC-licensed broadcasters, while online news platforms and social media are not subject to the same scrutiny. 

This asymmetry puts traditional broadcasters at a competitive disadvantage, as unregulated online competitors can express themselves freely without fear of FCC investigation based on content. For example, a podcaster or a YouTube content creator could air a potentially biased interview nationally without the same regulatory concerns as a broadcast journalist.

Potential for Political Weaponization

Cato’s comments to the FCC argue that the news-distortion rule can be used as a “tempting regulatory weapon for members of the public, activists, and politicians.” That’s because politically motivated complaints can be filed, potentially leading to investigations that burden broadcasters even if no violation is ultimately found.

The Foundation for Individual Rights and Expression (FIRE) explains that the mere threat of an investigation or other oversight from the FCC can have real-world consequences for regulated firms.

Commenters: Delete the News-Distortion Rules

Among the thousands of comments submitted to the FCC in the “Delete, Delete, Delete” matter, nearly every comment regarding the news-distortion rule urged the agency to rescind the policy to provide clarity to broadcasters and the public. 

They argue that “deleting” the news-distortion rule would align the regulatory framework with the realities of the modern media marketplace and better protect First Amendment principles.

For more on this issue, see ICLE’s comments to the FCC’s  “Delete, Delete, Delete” proceeding or read the Truth on the Market post “Media-Ownership Regulations in a Streaming World: Time to Change the Channel.”

TL;DR

Background: The U.S. video-content market has undergone a fundamental shift over the past decade, driven primarily by the rise of subscription video-on-demand (SVOD) platforms like Netflix, Amazon Prime, and Hulu. Historically dominated by rigid, long-term licensing deals and inflexible cable bundles, the market has seen that these traditional models no longer align with consumer preferences and market realities. Technological innovations like improved digital-streaming infrastructure and more sophisticated audience analytics have allowed streaming services to enhance user engagement and the user experience with personalized on-demand content. These changes have accelerated the fragmentation of traditional audiences, challenging legacy providers to either adapt or risk becoming obsolete. 

But… The rapid growth and success of streaming platforms has revealed stark inefficiencies and competitive disparities in the existing regulatory frameworks. Legacy regulations designed for cable and broadcast television fail to accommodate the flexibility and innovation inherent in the streaming model, creating market distortions and hindering business-model dynamism. 

However… A more coherent regulatory approach could better reflect the current market landscape by adopting technology-neutral competition principles. Policymakers can foster greater efficiency, innovation, and consumer welfare by aligning regulations with modern market conditions, thus allowing streaming platforms and traditional video providers to compete on equal footing.

KEY TAKEAWAYS

Streaming Has Transformed the Video Industry

Streaming platforms have fundamentally altered the economics of video-content consumption. Initially, streaming services provided a compelling cost advantage, with hourly content costs as low as 20 cents, compared to cable’s 61 cents. While this cost gap has narrowed slightly, streaming maintains a cost advantage of approximately 50%. Moreover, improvements in broadband infrastructure, compression technology, and content-delivery networks have further enhanced streaming’s quality and reliability.

This value proposition has been enhanced with innovative pricing models, including lower-priced, ad-supported tiers. Additionally, streaming has expanded consumer choice and flexibility significantly. Films and series previously confined to theaters or premium-cable packages now frequently debut directly on streaming services. Furthermore, the substantial growth in original streaming content (from 28 series in 2013 to approximately 491 in 2023) highlights the enhanced diversity available to niche audiences and demonstrates the tangible consumer-welfare benefits of platform competition.

Contractual and Market Dynamics

Streaming has disrupted the industry’s traditional contractual practices. Historically dominated by multi-year, fixed-fee licensing agreements, the industry now relies increasingly on shorter-term and more flexible contracts that respond dynamically to subscriber tastes and market conditions. This shift to more frequent and tailored negotiations has empowered streaming platforms to manage content more effectively but has also introduced complexities, due to the need to manage numerous short-term deals.

The rise of direct-to-consumer (DTC) platforms has also changed the economics of content creation and distribution. Major studios like Disney Entertainment and Warner Bros. are able to bypass traditional distribution intermediaries to engage directly with viewers by prioritizing exclusive content on their own DTC services (Disney+ and Hulu, and Max, respectively). Under this model, content serves primarily as an investment to drive subscriber growth and retention rather than a revenue source through licensing fees. Some studios, such as Sony, have explicitly rejected the DTC model in favor of serving as an “arms dealer” of licensed content to other distribution channels, while others  employ a mix of DTC and licensing strategies. 

This mix of licensing arrangements requires both streamers and content producers to adopt increasingly sophisticated strategies, with terms tailored closely to performance metrics, audience-engagement data, and real-time analytics. This granular approach allows both producers and distributors to mitigate risk and swiftly adapt to shifting viewer preferences. While such flexibility makes transactions more complex, it also allows for innovation and experimentation, enabling more efficient allocation of resources and ultimately delivering greater value to consumers.

Integration and Bundling

Vertical integration has become a cornerstone strategy in the streaming era, with media giants like Disney and NBCUniversal integrating content creation with direct distribution (and ancillary offerings, like theme parks and merchandising) to control more layers of the value chain. Simultaneously, horizontal consolidation—such as Disney’s acquisition of Fox assets and WarnerMedia’s merger with Discovery—has created scale economies that enhance competitive positioning against rival streaming platforms.

The industry is also witnessing re-bundling trends, albeit fundamentally different from traditional cable bundles. Modern bundles are optional, transparent, and competitively priced, exemplified by Disney’s successful bundling of Disney+, Hulu, and ESPN+, which has significantly reduced subscriber churn.

These bundling and unbundling dynamics are driven primarily by evolving consumer preferences. Consumers regularly adjust their entertainment diet, moving fluidly between bundled offerings that provide broad convenience and à la carte options that allow for highly personalized selections. This continuous market experimentation demonstrates the need for regulatory frameworks that accommodate flexibility, rather than impose static business models. Allowing platforms to respond freely to consumer demand would further strengthen competition in the video marketplace.

Regulation in the Streaming Era

The regulatory frameworks designed for 20th century cable and broadcast markets serve the modern consumer-video marketplace poorly. These legacy rules create artificial barriers to competition, stifle investment, and complicate compliance, hindering innovation and consumer choice. The industry’s ongoing structural transformation and the fluidity of consumer preferences indicate the need for a modernized regulatory approach.

At this moment of heightened consideration of deregulation, Congress and the Federal Communications Commission should emphasize market-driven solutions and targeted reforms that recognize the evolving marketplace. Policymakers should craft principles-based rules that prioritize consumer welfare, transparency, flexibility, and allowing market forces to drive the video marketplace’s future. This would ensure continued innovation, dynamic competition, and enhanced consumer welfare in an increasingly streaming-driven industry.

For more on this issue, see Eric Fruits’  “Video Competition in the United States” and ICLE’s comments to the FCC’s “Delete Delete, Delete” proceeding.

Texas’ House and Senate are considering legislation to regulate payment-card transactions, with bills that proponents claim would save millions of dollars for merchants and consumers. The evidence, however, suggests that the benefits would accrue mostly to big-box stores, while smaller merchants and consumers will both suffer.

H.B. 4061 and S.B. 2056 would prohibit card-issuing banks from retaining interchange fees on the sales tax and tips portions of a card transaction. This is similar to an Illinois law currently subject to a preliminary injunction for violating federal law. 

But the Texas bills would go further by prohibiting banks with more than $85 billion in assets from coordinating with other banks to set interchange fees, or from using the default multilateral interchange fees set by Visa and Mastercard. Supporters claim this will foster competition and drive down costs for everyone. While some big-box chains might see savings, smaller retailers will face higher transaction fees and consumers would see prices rise.

Read the full piece here.

U.S. industrial-policy efforts frequently undermine themselves through counterproductive tax regulations, creating a paradox that hinders genuine investment and economic growth. Policymakers have committed substantial resources and political capital toward reshoring domestic manufacturing, upgrading national infrastructure, and enhancing American economic competitiveness. Indeed, these goals have been central to the Trump administration’s stated economic priorities. Yet despite these intentions, poorly structured tax policies simultaneously create substantial barriers to investment, growth, and global competitiveness.

Nowhere is this contradiction more evident than in the recent shift in business-interest-deduction rules under Section 163(j) of the Internal Revenue Code contained in the Tax Cuts and Jobs Act of 2017 (TCJA). The move from an EBITDA-based standard—which allowed companies to deduct interest payments calculated from earnings before interest, taxes, depreciation, and amortization—to an EBIT-based standard has severely restricted allowable deductions, dramatically raising the cost of debt-financed investments.

Read the full piece here.

FTC v. Meta Platforms Inc. has gone to court, and trial is just underway in the U.S. District Court for the District of Columbia. The Federal Trade Commission (FTC) alleges that Meta is currently, in 2025, engaged in monopolization in violation of Section 2 of the Sherman Antitrust Act by dint of having acquired Instagram in 2012 and WhatsApp in 2014.

Quasi-spoiler alert: I’m going to discuss various aspects of the case, burdened by a nagging question: What’s the point of the FTC’s lawsuit? It’s a simple question, but I’m not sure I have a good answer. I have reviewed, among other things, the FTC’s December 2020 complaint; its August 2021 first amended complaint; its September 2021 substitute amended complaint; its pre-trial brief; and the slides submitted with its opening statement, and I’m still not sure why they brought the case.

Read the full piece here.

The Federal Trade Commission’s (FTC) ongoing antitrust case against Meta has brought network effects into the spotlight, as the agency’s complaint and opening statement both lean heavily on networks as a source of competitive harm.

But the commission’s arguments fundamentally misunderstand how network effects interact with competition in digital markets. Far from being solely anticompetitive moats, network effects create nuanced competitive dynamics that the FTC fails to acknowledge.

Read the full piece here.

For too long, the Federal Communications Commission (FCC) has operated under a regulatory framework rooted in the Communications Act of 1934, written in an era when rotary phones and radio broadcasts dominated. This simply doesn’t cut it in 2025.

The communications world of today bears little resemblance to that of 1994, much less 1934. The rise of the internet, mobile broadband, streaming services, and countless digital platforms has shattered the old silos of regulation. Yet we still have regulatory frameworks that treat essentially identical functions differently based on outdated technological distinctions.

A prime example is the ongoing saga of Title I light-touch regulation versus Title II heavy-handed regulation. For nearly a century, traditional telephone services have faced stringent common-carrier obligations under Title II, while broadband internet operates under the more flexible Title I framework. This disparity persists even though landline usage has plummeted, and most voice communication now happens over the internet. The success of broadband under Title I—marked by significant improvements in speed, availability, and competition since the early 2000s—clearly indicates the benefits of a lighter regulatory touch.

With its “Delete, Delete, Delete” initiative, the FCC is finally asking the question the agency should have asked years ago: What rules, regulations, and guidance documents are no longer necessary and are, instead, stifling innovation and harming consumers?

In comments submitted to the FCC, my colleagues and I at the International Center for Law & Economics (ICLE) provide an initial roadmap for this much-needed deregulation. ICLE’s core argument is straightforward: the digital revolution has fundamentally reshaped the communications landscape, making many legacy regulations not only obsolete, but actively detrimental to competition and consumer welfare.

Read the full piece here.

April 4 marked the end of a notable week in global competition policy. The American Bar Association’s (ABA) Antitrust Section held its annual spring meeting, while Y Combinator hosted a virtual “Little Tech Competition Summit.” At the same time, Congress held two competition hearings, the U.S. Justice Department (DOJ) hosted an event on competition and speech, and senior antitrust enforcers spoke at an event put on by Capitol Forum and FGS Global.

With all the activity, even the staunchest neo-Brandeisian may have come to appreciate the value of occasional event consolidation.

Despite the varying locales and interests, many common areas of agreement appeared to emerge.

Read the full piece here.

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

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

Lobbyists for big box retailers want Arizona’s legislature to impose price controls on card transaction fees. They claim that doing so will save merchants millions of dollars that will be passed on to consumers.

But, we’ve heard this story before and it doesn’t end well. It’s also probably illegal.

Read the full piece here.

The European Court of Justice’s (ECJ) Android Auto judgment, delivered in late February, could mark a radical shift in how courts interpret the European Union’s essential-facilities doctrine, as well as the legal standard applied to “refusal to deal” cases. My colleague Giuseppe Colangelo has a great working paper analyzing the decision and its potential consequences.

The case raises a number of important questions, including the relevant market definition (is Android Auto a monopoly?) and the theory of harm (was anyone excluded from the market? Did this affect consumers?). This post will focus on what I see as the judgment’s internal inconsistencies, and how these are likely to leave European antitrust policy confused with regard to market incentives to create, innovate, and properly maintain digital platforms (or any productive asset, for that matter).

Read the full piece here.

It looks like GDPR reform, touching both its enforcement and its substantive rules, may be happening. I only hope that it will not be a wasted effort. In March, the EU Justice Commissioner announced that the EU Commission’s “simplification” agenda will involve reducing GDPR compliance burdens for smaller organisations. Moreover, Axel Voss, a prominent Member of the European Parliament from the dominant EPP faction called for a reform in the similar direction. Apparently, the privacy activist Max Schrems joined Voss’ call, though I assume with reservations and for different reasons. My regular readers won’t be surprised that I welcome the idea of GDPR reform, as I’ve been writing about GDPR’s problems and the need for change, most recently in A serious target for improving EU regulation: GDPR enforcement. However, even though we don’t know much about the various March proposals, what has been released causes me to worry that they are missing the biggest issue with the GDPR: its imbalanced, privacy-absolutist enforcement framework. In this text, I will briefly summarise what we know about the new proposals and what I think is missing in them.

Read the full piece here.

INTEREST OF AMICUS CURIAE^[1]

The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan 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 to inform public-policy debates and has longstanding expertise in the evaluation of antitrust law and policy. ICLE has an interest in ensuring that antitrust law promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis.

The First Circuit’s decision in this case strays from settled legal principles and an evidence-based approach. In analyzing the joint venture in question—the Northeast Alliance (“NEA”)—the decision deviated from this Court’s precedent, misapplied the antitrust rule of reason, and mistakenly condemned a business arrangement that served the interests of consumers and competition. Worse, the uncertainty that the decision created about the antitrust analysis of joint ventures will discourage businesses from entering into them. ICLE submits this brief to urge the Court to grant the petition and correct the First Circuit’s departure from economically grounded antitrust principles.

INTRODUCTION AND SUMMARY OF ARGUMENT

This case turns on the application of Section 1 of the Sherman Act “to an important and increasingly popular form of business organization, the joint venture.” See Texaco v. Dagher, 547 U.S. 1, 5 (2006). The First Circuit started off on the right foot. Like the district court, it agreed that the default mode of competitive analysis under the Sherman Act—the “rule of reason” framework—applied to the NEA, a joint venture between American Airlines and JetBlue. App. 12a-13a. But instead of running through this Court’s standard-operating procedure for rule-of-reason cases, the First Circuit improvised. It applied a mode of analysis that bears little resemblance to the rule of reason as this Court frames it. In so doing, it seeded uncertainty about the legality of joint ventures that pool their resources, compete more effectively in the marketplace, and thereby promote consumers’ interests.

First, the First Circuit deviated from the settled rule-of-reason framework from the very beginning—it never identified evidence that the NEA produced “a substantial anticompetitive effect that harm[ed] consumers in the relevant market.” See Ohio v. Am. Express Co., 585 U.S. 529, 541 (2018). It improperly defined “output” to encompass the capacity and scheduling decisions of the co-venturers alone, ignoring every other airline in the market. And it otherwise talked itself into substituting analogy for “proof of actual detrimental effects.” See FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 460-61 (1986) (quotations omitted). The NEA looked to the First Circuit like a per se unlawful market allocation, so the First Circuit concluded that the NEA probably caused anticompetitive effects.

Second, the First Circuit reformulated the second step of the rule-of-reason framework to skew it against the co-venturers. In American Express, this Court explained that defendants need only “show a procompetitive rationale for [a] restraint,” at which point “the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.” 585 U.S. at 541-42. The First Circuit turned that showing on its head. It required the co-venturers to prove that the NEA generated procompetitive effects, to disprove other potential causes of those effects, and to rule out the possibility that the NEA might cause competitive dislocations in other, non-relevant markets. That was wrong on each count.

Third, left uncorrected, the First Circuit’s decision will chill competitors who wish to enter into joint ventures to enhance efficiency, lower costs, or “compete more effectively” in the marketplace. See Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768 (1984). “[T]he fact that joint ventures can have such procompetitive benefits surely stands as a caution against condemning their arrangements too reflexively.” Nat’l Collegiate Athletic Ass’n v. Alston, 594 U.S. 69, 88 (2021). But the First Circuit’s decision creates uncertainty where there was none. It flirted with applying the per se rule and invoked the ancillary-restraints doctrine, all in a case in which nobody—not the parties, the district court, nor the First Circuit itself—disputed that plenary rule-of-reason analysis applied.

The upshot: even businesses that secure the blessing of their regulator to form a joint venture—as American and JetBlue did here—cannot reasonably predict the legality of such arrangements. And that uncertainty jeopardizes a major driver of economic development and consumer benefits. Economic research has long recognized the significant consumer and competitive benefits that joint ventures can achieve by enabling companies to share risks, combine complementary assets, and realize economies of scale and scope in ways individual companies often cannot. See Carl Shapiro & Robert D. Willig, On the Antitrust Treatment of Production Joint Ventures, 4 J. Econ. Persp. 113, 114-117 (1990). There is every reason for the Court to dispel the confusion, grant the petition, reverse the judgment below, and repudiate the First Circuit’s gloss on the rule of reason as it applies to joint ventures.

ARGUMENT

A. The First Circuit Mangled this Court’s Rule of Reason

From the very beginning, the parties, the district court, and the First Circuit agreed that the rule of reason—“the accepted standard for testing whether a practice restrains trade in violation of § 1,” Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007)—applied to the NEA. App. 20a-22a, 122a-123a. A “three-step, burden shifting framework” governs that analysis. Am. Express, 585 U.S. at 541. “[T]he plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market.” Id. “If the plaintiff carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint.” Id. “If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.” Id. at 542. The First Circuit bent that framework out of shape at the first two steps of the process.

1. The First Circuit Broke with Precedent at the First Step of the Rule of Reason Analysis

The trouble started at the first step. In a direct-evidence case like this one, the plaintiff must present “proof of actual detrimental effects on competition … such as reduced output, increased prices, or decreased quality in the relevant market.” Id. (cleaned up).[2] The First Circuit declined to endorse most of the district court’s work on that score. It did not hold that “the NEA’s reduction in the number of competitors itself, or its [asserted] effects on JetBlue’s ‘maverick’ status, constituted standalone anticompetitive harms.” App. 22a n.8. Rather, it homed in on what it characterized as the district court’s finding that the NEA restricted output, and its intuition that the NEA looked like a per se unlawful market allocation. App. 16a-22a. It was wrong on both counts.

1. Start with the output argument. In the eyes of the First Circuit, less JetBlue or American service on any particular NEA route leads ineluctably to a finding of competitive harm that satisfies step one. Specifically, the First Circuit pointed to “markets that American and JetBlue both previously served,” in which “the NEA allocated the route to one carrier and caused the other to exit[.]” App. 18a. It ended its analysis there. App. 17a (“[W]hether there are other available routes to show anticompetitive harm matters not at all in this case because the district court expressly found output reduced.”).

The First Circuit missed the forest for the trees. In adopting a myopic focus on the co-venturers’ operational decisions, it forgot to ask the critical question about the NEA: did it produce “anticompetitive effects on the [relevant] market as a whole?” See Am. Express, 585 U.S. at 547. Had the First Circuit faithfully applied American Express, it would have had to say “no.”

In American Express, itself a government challenge under Section 1 of the Sherman Act, this Court corrected a remarkably similar error. To carry their burden at step one, the government enforcers argued that American Express’s anti-steering arrangements enabled it to charge supracompetitive credit-card fees to merchants on a per-transaction basis. Id. But this Court refused to review those arrangements through the prism of American Express’s fees alone. Rather, it required the enforcers “[t]o demonstrate anticompetitive effects on the [relevant] market as a whole” by “prov[ing] that Amex’s anti-steering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or otherwise stifled competition in the credit-card market.” Id.

The enforcers couldn’t, so they lost. Noting the enforcers’ inability to “prove that Amex’s anti-steering provisions … stifled competition among credit-card companies,” the Court explained that “while [Amex’s]  agreements ha[d] been in place, the credit-card market experienced expanding output and improved quality.” Id. at 549. Specifically with respect to output, the Court underscored that “[t]he output of credit-card transactions”—not just American Express’s transactions—“grew dramatically from 2008 to 2013, increasing 30%.” Id. And the Court pointedly refused to “infer competitive injury from price and output data absent some evidence that tend[ed] to prove that output was restricted or prices were above a competitive level.” Id. (emphasis added and quotations omitted).

The First Circuit repudiated that approach. It never required the government “[t]o demonstrate anticompetitive effects on the [relevant] market as a whole” by proving that the NEA increased fares above or suppressed flights below a competitive level. See id. at 547. Instead, it declared itself satisfied on the basis of effects evidence that pertained to American’s and JetBlue’s flights alone. App. 17a-18a. The government enforcers re-ran their American Express playbook and adduced the very same type of incomplete proof that this Court rejected at step one. And the First Circuit simply endorsed it. Standing on its own, that foundational error deserves review and reversal.[3]

2. The First Circuit compounded the problem by invoking the asserted “similarity between the NEA and naked market allocation” as a basis for holding that the government met its step-one burden to prove substantial anticompetitive effects. App. 22a. It cited no law in support of its core proposition—that a perceived “similarity” between the restraint at issue and a different one governed by the per se rule can substitute for effects evidence at step one. That omission is not surprising.

Step one calls for “a fact-specific assessment of market power and market structure aimed at assessing the challenged restraint’s actual effect on competition—especially its capacity to reduce output and increase price.” Alston, 594 U.S. at 88 (quotations omitted). It does not call for courts to analogize to per se unlawful restraints and assume that the arrangement at issue will produce similar effects. Indeed, this Court has warned against categorizing joint ventures as per se unlawful on that basis. See Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 9 (1979) (“When two partners set the price of their goods or services they are literally ‘price fixing,’ but they are not per se in violation of the Sherman Act.”).

The First Circuit’s contrary approach is a relic of a bygone era in antitrust enforcement. As the Fourth Circuit recently explained, “[p]reviously, the per se rule was extended to new categories of restraints largely because they resembled other per se restraints,” but “the Supreme Court has since cautioned courts against over-analogizing in the antitrust context[.]”). United States v. Brewbaker, 87 F.4th 563, 574 (4th Cir. 2023). The Court has expressed particular concern about lower courts applying per se analysis (or something like it) to “cooperative activity involving a restraint or exclusion,” where there are even “plausible arguments that [the activities] were intended to enhance overall efficiency and make markets more competitive.” Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 294-96 (1985); accord Cal. Dental Ass’n v. FTC, 526 U.S. 756, 771 (1999).

With its classification exercise, the First Circuit turned back the clock. And it forgot “[t]he whole point of the rule of reason,” which is not to analyze arrangements on the basis of judicial comparison to per se restraints, but “to furnish an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint to ensure that it unduly harms competition before a court declares it unlawful.” See Alston, 594 U.S. at 97 (quotations omitted).

Having driven into a ditch, the First Circuit just kept going. To rationalize its departure from settled step-one analysis, it invoked the ancillary-restraints doctrine. App. 21a (asserting that “JetBlue and American’s agreement to optimize their route schedules and thereby allocate markets within the NEA region was central, not ancillary, to the NEA”) (cleaned up). Courts apply that doctrine to choose the appropriate legal framework for a given arrangement—the per se rule or the rule of reason. E.g., Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., 9 F.4th 1102, 1109 (9th Cir. 2021) (“Under the ‘ancillary restraints’ doctrine, a horizontal agreement is ‘exempt from the per se rule,’ and analyzed under the rule-of-reason, if it meets [certain] requirements.”); accord Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986).

But the First Circuit had already decided by that point that the rule of reason applied to the NEA. App. 15a-17a. It could do no less given this Court’s precedent. See Dagher, 547 U.S. at 6 n.1 (“We presume for purposes of these cases that Equilon is a lawful joint venture …. Had respondents challenged Equilon itself, they would have been required to show that its creation was anticompetitive under the rule of reason.”). So its decision to revisit that choice under the auspices of the first step of the rule-of-reason analysis is both incoherent and wrong. See Herbert Hovenkamp, The Rule of Reason, 70 Fla. L. Rev. 81, 140 (2018) (“The ancillary restraints doctrine is not a comprehensive method for applying the rule of reason, but rather an early stage decision about which mode of analysis should be applied.”).

The First Circuit’s analysis is all the more inexplicable given this Court’s admonition that “the ancillary restraints doctrine has no application … where the business practice being challenged involves the core activity of the joint venture itself[.]” Dagher, 547 U.S. at 7. That is exactly the case here, and the First Circuit acknowledged as much. App. 21a (“JetBlue and American’s agreement to optimize their route schedules and thereby allocate markets within the NEA region was central, not ancillary, to the NEA.” (cleaned up)) But it flouted Dagher and applied the ancillary-restraints doctrine anyways. That error alone warrants this Court’s review.

2. The First Circuit Muddled the Proof Requirements and Evidentiary Burdens That Apply at the Second Step of the Rule of Reason Analysis.

The First Circuit largely washed its hands of the rule of reason analysis after step one, but not before it reframed the proof requirements and evidentiary burdens that apply at the second step. This Court has explained that a defendant carries its burden at that stage by “show[ing] a procompetitive rationale for the restraint,” at which point “the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means” at the third step. Am. Express, 585 U.S. at 541-42. The First Circuit pivoted away from that framework in at least three principal ways.

First, the First Circuit required the co-venturers to prove procompetitive effects rather than “show a procompetitive rationale,” as American Express requires. See id. The First Circuit demanded that American and JetBlue affirmatively demonstrate the NEA’s procompetitive “effects on consumers and the competitive process itself.” App. 25a (quotations omitted). And when the co-venturers attempted to do so—and to show how the NEA enabled them to compete more effectively against industry heavyweight Delta—the First Circuit rejected that rationale as “not cognizable.” App. 23a-24a (rejecting argument that “the NEA generated a procompetitive benefit for the purposes of step two in the sense that it better allowed the carriers to compete with Delta—the NEA’s principal purpose”). That holding finds little support in this Court’s precedent. See Copperweld, 467 U.S. at 768 (recognizing that “joint ventures … hold the promise of increasing a firm’s efficiency and enabling it to compete more effectively” (emphasis added)). And it would come as quite a surprise to Delta, whose executives insisted that it “[wa]s imperative” to mount a “commercial response” to the NEA at the time. Pet. 11.

Second, the First Circuit ratcheted up that burden by grafting a causation requirement on to its newly fashioned effects test. Not only did the co-venturers need to prove procompetitive effects, it held, but they also needed to definitively establish that it was the NEA that caused them. App. 26a-27a (criticizing American for asserted failure to show that co-venturers launched new routes “because of the NEA itself”) (quotations omitted).

Joint venturers, particularly airlines, make operational decisions for a constellation of different reasons. To require them to present evidence that definitively links any and all positive outcomes to the joint venture itself would hold them to an impossible standard. See Alston, 594 U.S. at 101 (“Firms deserve substantial latitude to fashion agreements that serve legitimate business interest—agreements that may include efforts aimed at introducing a new product into the marketplace.”); see also Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 986 (9th Cir. 2023) (“A procompetitive rationale is a [1] nonpretextual claim that the defendant’s conduct is [2] indeed a form of competition on the merits because it involves, for example, greater efficiency or enhanced consumer appeal.”) (cleaned up).

Third, and finally, the First Circuit required the co-venturers to prove a negative: that the capacity and output enhancements on NEA routes—benefits that each side’s experts appeared to acknowledge, Pet. 29—didn’t come at the expense of countervailing effects in other, non-relevant markets. But as the Ninth Circuit has explained, economic harms that manifest outside the relevant antitrust markets, “even if real, are not ‘anticompetitive’ in the antitrust sense—at least not directly—because they do not involve restraints on trade or exclusionary conduct in ‘the area of effective competition.’” FTC v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020) (quoting Am. Express, 585 U.S. at 543 & n.7). “[A]ctual or alleged harms to customers and consumers outside the relevant markets are beyond the scope of antitrust law,” see id. at 993, and they are certainly not a basis upon which to reject a showing of procompetitive effects at step two.

*         *         *

“Of all the procedural issues involved in antitrust litigation under the rule of reason, none are more critical than questions about assignment of the burden of proof and production, and the quality of the evidence that must be presented at each stage.” Hovenkamp, supra, 70 Fla. L. Rev. at 101. The First Circuit fundamentally erred in answering these “critical” questions. Its decision evinces a disregard for this Court’s precedent and the proper analysis of joint ventures under the rule of reason, and therefore warrants review.

B. The First Circuit’s Decision Will Chill Procompetitive Joint Ventures.

Setting aside its flawed legal analysis, the First Circuit’s decision threatens to profoundly impair the formation of joint ventures. Courts typically tread carefully in antitrust cases. “[E]ven under the best of circumstances, applying the antitrust laws can be difficult—and mistaken condemnations of legitimate business arrangements are especially costly, because they chill the very procompetitive conduct the antitrust laws are designed to protect.” Alston, 594 U.S. at 99 (cleaned up). “To know that the Sherman Act prohibits only unreasonable restraints of trade,” this Court has remarked, “is thus to know that attempts to meter small deviations is not an appropriate antitrust function.” Id. (cleaned up).

But the First Circuit jettisoned that careful approach here. And it took the position that the NEA was inherently more worthy of scrutiny and condemnation because it did not revolutionize the airline industry. App. 25a (“American does not meaningfully dispute the district court’s finding that the NEA in no way revolutionized the ‘product’ American and JetBlue provide: flights from one place to another.”); id. (noting that the NEA did not “create a new product or market that could not otherwise exist”). If that’s the standard by which joint ventures are to be judged, very few will be able to meet it.

Who will lose if the Court does not curb the First Circuit’s approach? Consumers and competition. Joint ventures like the NEA offer unique benefits for both. Within the economics literature, “[t]here is widespread agreement that collaborative activities can generate significant private benefits for the parents that correspond to genuine social benefits … [such as] synergies arising when venturers share complementary skills or assets … [and] economies of scale and scope.” Shapiro, supra, 4 J. Econ. Persp. at 114-15.

Joint ventures enable companies to “pool a portion of their resources within a common legal organization” through partnership, while still operating as independent entities. See Bruce Kogut, Joint Ventures: Theoretical and Empirical Perspectives, 9 Strategic Mgmt. J. 319, 319 (1988). They afford the venturers greater flexibility to negotiate, reconfigure, or unwind collaborations than do mergers, which entail a permanent, fully integrated transaction that may be costly to reverse. See Srinivasan Balakrishnan & Mitchell P. Koza, Information Asymmetry, Adverse Selection and Joint-Ventures: Theory and Evidence, 20 J. Econ. Behav. & Org. 99, 103 (1993). And joint ventures routinely benefit consumers and communities, even when they fall short of revolutionizing industries. See Dep’t of Justice, Antitrust Div. & Fed. Trade Comm’n, Joint Antitrust Statement Regarding COVID-19 (Mar. 2020), https://tinyurl.com/45pp24d2 (“[J]oint ventures may be necessary for businesses to bring goods to communities in need, to expand existing capacity, or to develop new products or services[.]”).

Under the aegis of the NEA, American and JetBlue strived to boost service frequencies to underserved airports, enhance schedule optionality in the face of tight FAA slot regulations and limited gate availability, and offer reciprocal loyalty benefits in one geographic location. App. 13a, 71a, 74a. And the joint venture served as the vehicle by which the co-venturers could realize productive efficiencies for consumers via collaboration, asset pooling, and knowledge sharing. Even the First Circuit grudgingly acknowledged that it achieved many of those goals. The NEA resulted in greater and more efficient utilization of takeoff and landing slots at two congested airports—JFK and LGA—and it succeeded in affording frequent fliers and corporate travelers benefits and discounts. App. 9a-11a. It also prompted an entrenched incumbent to make plans to mount a commercial response, even one that the First Circuit derided as “milquetoast, at best.” App. 25a. So the NEA may not have revolutionized the industry, but it made important progress in many respects.

Left uncorrected, the First Circuit’s decision will impede the formation of joint ventures that aim for incremental but concrete improvements. The decision hopelessly confuses the rule of reason analysis as it applies to joint ventures, flirts with the application of the per se rule, and otherwise expresses a hostility to creative solutions to persistent problems—like underutilized slots and gates at congested airports in the Northeast. It is a textbook example of a costly and “mistaken condemnation[] of legitimate business arrangements,” and it deserves correction. See Alston, 594 U.S. at 99. This Court should grant the petition and reverse the First Circuit’s decision.

CONCLUSION

The petition for a writ of certiorari should be granted.

[1] No counsel for any party authored this brief in whole or in part, and no entity or person other than amicus and its counsel made any monetary contribution toward the preparation or submission of this brief. Amicus timely notified all parties of its intent to file this brief.

[2] The First Circuit declined to affirm the district court’s “alternative step-one finding that plaintiffs established actual competitive harms indirectly based on American and JetBlue’s ‘market power.’” App. 22a n.8.

[3] Not only does the First Circuit’s redefinition of anticompetitive effects contravene American Express, it makes the First Circuit an outlier among its sister Circuits. The Second, Sixth, Ninth, Tenth, and Eleventh Circuits hold that a plaintiff must present evidence of an injury to competition in the market as a whole to satisfy step one of the rule of reason. See Pet. 17-21.

I. Introduction

We thank the Federal Communications Commission (FCC or “the Commission”) for the opportunity to offer comments on CTIA—The Wireless Association’s (CTIA) petition for rulemaking.[1] CTIA requests that the FCC update its rules implementing the National Environmental Policy Act (NEPA) to facilitate wireless-broadband deployment across the country. First, CTIA asks the Commission to revise its rules to explicitly state that wireless-facility deployments conducted under a geographic area license, and which do not necessitate antenna-structure registration with the FCC, should not be classified as “major federal actions” under the purview of NEPA. Second, the petition urges the Commission to implement additional reasonable reforms to its NEPA procedures. These reforms should include establishing clear timelines and predictable standards for the environmental review of any wireless facilities that remain subject to NEPA regulations.

ICLE supports CTIA’s petition. Our support is consistent with ICLE’s recently submitted comments to the Commission in its Delete, Delete, Delete proceeding, recommending:

National Environmental Policy Act (NEPA) review for cell siting. Streamline exemptions and reduce oversight for cell-siting projects under 47 C.F.R. §§1.1301-1.1320. Routine environmental assessments for small-cell deployments are either redundant with state/local reviews, or outdated due to technological advancements. In either case, their elimination is justified under cost-benefit criteria. Expand categorical exclusions for low-impact projects—such as co-locations on existing structures—by revising §1.1306 to further limit environmental-assessment triggers. Delegate more NEPA-compliance responsibility to telecom providers through self-certification processes, aligning with the initiative’s goal of reducing administrative burdens.[2]

II. The Economic Benefits of Streamlined Wireless-Infrastructure Deployment

The deployment of robust and rapidly expanding wireless-broadband infrastructure yields significant positive economic impacts for the United States. The wireless industry plays an important role in American economic growth, contributing substantially to the nation’s gross domestic product (GDP) and supporting millions of jobs across various sectors.[3] The accelerated deployment of 5G and subsequent generations of wireless services holds the potential to spark a new wave of entrepreneurship, foster innovation across industries, and generate substantial economic opportunities for communities throughout the country.¹⁰ As then-Commissioner Brendan Carr noted in 2018: “Winning the race to 4G added $100 billion to our GDP. It led to $125 billion in revenue for U.S. companies that could have gone abroad. It grew wireless jobs in the U.S. by 84 percent.”[4]

Alas, the existing NEPA regulatory framework, particularly as it applies to wireless-infrastructure deployment, can create unnecessary impediments, lead to significant delays, and impose substantial costs on the industry.[5]

III. Current Application of NEPA to Wireless-Broadband Deployment

For this matter, the FCC’s rules implementing NEPA are codified in 47 CFR Part 1, Subpart I, which outlines the procedures the agency follows to evaluate the environmental impact of its actions, including the licensing and authorization of wireless facilities. Under the current regulatory landscape, the deployment of wireless infrastructure—even those under broad geographic-area licenses—can be subject to NEPA review. As CTIA notes in its petition, this can lead to often lengthy and costly processes, potentially impeding the swift expansion of wireless broadband networks across the country.[6] Writing in the Harvard Journal on Legislation, Rep. Buddy Carter (R-Ga.) concludes:

As providers attempt to meet consumer demand for higher broadband speeds, greater wireless connectivity, and more robust fiber backhaul, NEPA and NHPA reviews risk becoming the long pole in the regulatory review process—both in terms of costs and timing.[7]

This situation underscores how the current application of NEPA can create regulatory barriers that slow the progress of broadband expansion, despite the critical role that wireless infrastructure plays in driving economic growth and innovation.

IV. Legal and Policy Rationale for Excluding Certain Deployments from NEPA as Non-Major Federal Actions

NEPA mandates the preparation of environmental-impact statements for all “major Federal actions significantly affecting the quality of the human environment.” The definition of what constitutes a “major federal action” is therefore central to determining the scope of NEPA’s applicability. The Fiscal Responsibility Act of 2023 (FRA) introduced amendments to NEPA that provide a more specific definition of the term.[8] Under the FRA, a “major Federal action” is defined as an action that the relevant federal agency determines is subject to “substantial Federal control and responsibility.”[9] Importantly, the FRA also explicitly excludes from this definition non-federal actions that involve only minimal federal funding or involvement, particularly in situations where the federal agency lacks the authority to control the project’s ultimate outcome.[10]

In wireless-broadband deployment, the FCC’s role in issuing geographic-area licenses—without requiring individual antenna-structure registration for each subsequent facility—does not inherently equate to the level of “substantial” control and responsibility necessary to trigger NEPA review for every deployment. Geographic-area licenses primarily authorize spectrum use within a defined geographic region, granting licensees broad authority to operate without the need for FCC approval for each individual transmitter location.[11] CTIA correctly argues that, based on the FRA’s definition, these geographic-area deployments should not be categorized as major federal actions because the FCC does not maintain “substantial” control and responsibility over the specifics of each deployment.⁸ These deployments are driven primarily by private investment decisions, and the FCC does not dictate when or where a licensee chooses to construct its facilities within the licensed area.

This proposed exclusion aligns with the fundamental intent of NEPA, which is to focus environmental-review efforts on federal actions with the potential for truly significant environmental impacts. Recent actions by the Council on Environmental Quality (CEQ) further support this approach. The CEQ issued a guidance memorandum[12] urging federal agencies to revise their NEPA procedures to ensure consistency with the FRA and Executive Order 14154,[13] which emphasizes the need to streamline permitting processes. This guidance specifically suggests that agencies should identify categories of activities that should not be subject to NEPA review.

By clarifying that wireless deployments under geographic-area licenses without individual antenna-structure registration (ASR) are not major federal actions, the FCC would align its regulations with both the letter and spirit of NEPA, as amended, and with current administration policy objectives.

V. The Critical Need for Clear Timelines and Predictable Standards in NEPA Review

As we note above, uncertainty and delays within the NEPA-review process can harm the timely deployment of essential wireless infrastructure, impeding progress in expanding broadband access. Furthermore, the lack of clear and predictable standards in the permitting process can hamper investment in wireless networks.[14] The absence of consistency and predictability in how various agencies and localities process permit applications creates an environment of uncertainty that can discourage or slow infrastructure development.

The FRA itself introduced statutory deadlines for the completion of environmental reviews, underscoring the bipartisan recognition of the need for a more efficient process.[15] The Wireless Infrastructure Association (WIA) also advocates establishing predictable application-process timelines.[16] It supports the concept of “deemed granted” relief when permitting authorities fail to act within the specified timeframes.

These proposed reforms are entirely consistent with recent presidential directives and actions undertaken by the CEQ to expedite infrastructure permitting. Executive Order 14154 explicitly directed federal agencies to “undertake all available efforts to eliminate all delays within their respective permitting processes.”[17] Correspondingly, the CEQ issued guidance “[t]o promote consistency and predictability,” emphasizing the critical need to expedite permitting approvals and adhere to the deadlines established by the FRA.[18]

VI. Promoting Competition and Fostering Innovation in the Wireless-Broadband Market

A more streamlined regulatory process for wireless-infrastructure deployment can play a vital role in reducing barriers to entry and expansion for wireless-service providers. By simplifying and expediting the approval process, the overall costs and complexities associated with deploying new infrastructure can be reduced significantly, thereby lowering the threshold for new entrants seeking to compete in the market.

A more efficient regulatory environment has the potential to foster increased innovation within the wireless technologies and services sector. As financial and human resources are no longer tied up in protracted and cumbersome regulatory processes, they can be redirected toward investments in research and development. This shift in focus can foster the deployment of thousands of new wireless facilities, ultimately expanding the reach of advanced wireless technologies and driving further innovation in the services they enable. The wireless industry’s ongoing investment in infrastructure is a key driver of technological advancements, and a streamlined regulatory approach could help to ensure these investments are made more efficiently, leading to a more dynamic and innovative marketplace.

Toward that end, we recommend that the FCC adopt the changes proposed in CTIA’s petition for rulemaking to modernize its NEPA framework and facilitate the rapid and efficient deployment of wireless-broadband infrastructure nationwide, thereby promoting economic growth, competition, and innovation in this vital sector.

[1] Wireless Telecommunications Bureau Seeks Comment on CTIA Petition for Rulemaking, RM-12003 (Mar. 31, 2025), available at https://docs.fcc.gov/public/attachments/DA-25-290A1.pdf.

[2] Comments of the International Center for Law & Economics, In Re: Delete, Delete, Delete, FCC GN Docket No. 25-133 (Apr. 11, 2025), https://www.fcc.gov/ecfs/document/10411193772947/1.

[3] Hector Lopez & Julien Martin, The Economic Impact of Each Additional 100 MHz of Mid-band Spectrum for Mobile, NERA (Jan. 22, 2025), available at https://api.ctia.org/wp-content/uploads/2025/01/The-economic-impact-of-allocating-mid-band-spectrum-to-mobile.pdf (reporting the wireless industry supporting as much as $825 billion in GDP and 4.5 million jobs annually).

[4] Statement of Commissioner Brendan Carr, Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment, WT Docket No. 17-79; Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment, WC Docket No. 17-84 (Sep. 26, 2018), available at https://docs.fcc.gov/public/attachments/FCC-18-133A4.pdf.

[5] See, e.g., Second Report and Order, In the Matter of Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment, WT Docket No. 17-79 (Mar. 22, 2018) ¶ 11, available at https://docs.fcc.gov/public/attachments/FCC-18-30A1.pdf; see also Statement of Commissioner Brendan Carr, https://docs.fcc.gov/public/attachments/FCC-18-30A5.pdf (“Our outdated approach to NEPA and NHPA, for instance, is costing Americans tens of millions of dollars per year and delaying the rollout of new services”).

[6] Petition for Rulemaking, In the Matter of Petition for Rulemaking to Update Part 1, Subpart I of the Commission’s Rules Implementing the National Environmental Policy Act (Mar. 27, 2025), https://www.fcc.gov/ecfs/document/10327619008336/1.

[7] Earl L. Carter, Federalism and the Digital Divide: How Smart Permitting Reforms Can Unleash Rural Broadband Access, 61 Harv. J. on Legis. 225, 234 (2024).

[8] Fiscal Responsibility Act of 2023, Pub. L. No. 118-5, 137 Stat. 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48 and 49 (2023).

[9] 42 U.S.C. § 4336e.

[10] Id.

[11] 47 CFR § 22.911.

[12] Mem. from Katherine R. Scarlett, Chief of Staff, Council on Environmental Quality, Re: Implementation of the National Environmental Policy Act (Feb. 19, 2025), available at https://ceq.doe.gov/docs/ceq-regulations-and-guidance/CEQ-Memo-Implementation-of-NEPA-02.19.2025.pdf.

[13] E.O. 14154, Unleashing American Energy, 90 Fed. Reg. 8353 (Jan. 29, 2025).

[14] See, e.g., Brief for International Center for Law & Economics and Competitive Enterprise Institute as Amici Curiae Supporting Petitioner, In Re: MCP No. 185; Federal Communications Commission, in the Matter of Safeguarding and Securing the Open Internet, Declaratory Ruling, Order, Report and Order, and Order on Reconsideration, FCC 24-52, 89 Fed. Reg. 45404, Published May 22, 2024 (Aug. 19, 2024), available at https://laweconcenter.org/wp-content/uploads/2024/08/ICLE-and-CEI-Amicus-Brief-As-Filed.pdf-134578253-v1.pdf (“Because of the well-known and widely accepted risk-return tradeoff, firms facing increased uncertainty in investment returns will demand higher expected returns from the investments they pursue.”).

[15] Supra note 8.

[16] A Roadmap to Unlocking Connectivity Everywhere in the Next Administration, Wirel. Infrastruct. Assoc. (Jan. 8, 2025), available at https://wia.org/wp-content/uploads/2025/01/WIA-Policy-Priorities-for-Next-Administration_January-2025.pdf.

[17] Supra note 13.

[18] Scarlett, supra note 12.

PORTLAND, Ore. (April 14, 2025) – In comments filed with the Federal Communications Commission’s (FCC) “Delete, Delete, Delete” proceeding, the International Center for Law & Economics (ICLE) calls for the FCC to take a comprehensive and ambitious approach to deregulation, and streamline its focus to those core national interests that cannot be effectively addressed by market forces.

The following quote can be attributed to ICLE Senior Scholar Ben Sperry:

“The digital revolution has fundamentally reshaped the communications landscape, rendering many legacy regulations obsolete and counterproductive. Our analysis reveals significant opportunities to foster competition, spur innovation, and enhance consumer welfare by dismantling outdated frameworks. The FCC has a unique opportunity to align its regulatory approach with the realities of today’s dynamic markets, moving away from historical distinctions and embracing technology-neutral principles. This initiative should be viewed as the crucial first step toward a truly modern and efficient communications ecosystem.”

ICLE’s Recommendations to the FCC’s ‘Delete, Delete, Delete’ Initiative

Significant Initiatives:

• Pursue a de-facto Title I regulatory regime for services currently classified under the more onerous Title II;
• Redefine the relevant competitive market for media ownership to include digital platforms, and strategically eliminate outdated ownership rules;
• Streamline the FCC’s transaction-review process by eliminating redundancies, focusing on competitive effects, and implementing tiered review;
• Consider repealing forced-access rules like must-carry and leased access; and
• Implement reforms to strengthen U.S. firms’ competitiveness in the global satellite economy.

Straightforward Regulations to Eliminate or Streamline:

• Eliminate civil monetary penalties focused on punishment rather than restoration;
• Eliminate E-Rate funding for school buses;
• Simplify broadband “nutrition labels”;
• Streamline line-discontinuance regulations;
• Reduce National Environmental Policy Act (NEPA) review for cell-siting projects;
• Eliminate numerous outdated common-carrier regulations;
• Eliminate payphone rules;
• Repeal Section 706 reporting requirements;
• Clarify revocation standards for automated calls and texts;
• Employ forbearance to allow cable operators to merge with incumbent local-exchange carriers (ILECs);
• Repeal or significantly streamline public, educational, and governmental (PEG) programming requirements;
• Simplify or remove local reviews of franchise transfers; and
• Implement targeted reforms to outage reporting requirements for wireline, voice over internet protocol (VoIP), and mobile virtual-network operator (MVNO) providers.

Other Agency Actions to Terminate:

• Conclude the notice of inquiry (NOI) on data caps;
• End consideration of proposed rulemakings regarding cybersecurity certification, blackout rebates, prohibiting early-termination and billing-cycle fees, disclosing AI content in political ads, handset unlocking, independent and diverse video-programming sources, and priority for local journalism; and
• Reconsider agency actions related to Section 230 interpretation and investigations into CBS and YouTube TV.

To schedule an interview, contact Jim Fellinger at [email protected].

I. Introduction

The International Center for Law & Economics (ICLE) appreciates the Privacy Working Group’s efforts to develop a comprehensive federal data-privacy and security framework. Our comments specifically address the request for information’s (RFI) Section V on artificial intelligence (AI), although they are also relevant to such related issues as market effects and regulatory fragmentation.

In particular, we highlight two vital lessons for crafting effective federal privacy and AI legislation. First, fragmented state regulations that create diverse and conflicting standards for automated decision-making technologies (ADMT) and AI significantly undermine U.S. competitiveness in the global AI landscape, making clear federal preemption essential. Second, precise and informed definitions of ADMT and AI are fundamental to effective legislation, as these would help to ensure that regulations appropriately address genuine risks without inadvertently capturing routine or low-risk technologies.

We also emphasize that, in order to address ADMT, AI, and federal privacy standards comprehensively, it will almost certainly be necessary to craft multiple pieces of legislation. Given the complexity of the task, Congress should first prioritize a comprehensive privacy framework, and then separately tackle regulation of AI and ADMT through targeted, specialized legislation. Combining comprehensive privacy and AI regulation into a single legislative effort risks significant overreach and regulatory confusion. Moreover, because numerous states have already addressed ADMT in their privacy statutes, we urge Congress to enact clear preemption of state ADMT laws to provide consistency and prevent harmful regulatory fragmentation.

While the complexity, rapid evolution, and diverse applications of AI technologies counsel addressing AI regulation separately from comprehensive privacy legislation, we acknowledge that some concerns surrounding AI systems do intersect significantly with general privacy concerns. The appropriate response to these intersections is not to embed expansive or overly broad definitions of AI directly within privacy law. Rather, privacy legislation should maintain a fundamentally tech-neutral approach. This would ensure that privacy harms arising from AI systems can be effectively remedied using well-established, consistent privacy frameworks that are applicable to any technological context.

Congress must avoid inadvertently creating regulatory frameworks that unnecessarily burden innovation or complicate enforcement through overly broad AI-specific language. It is crucial that privacy law be sufficiently flexible to adapt to technological advancements, thereby providing clarity and efficiency for regulators and regulated entities alike.

Given the complexity and rapid evolution of AI technologies, Congress must pursue a thoughtful and targeted approach, crafting careful regulation that accurately reflects the diverse nature and varying risks associated with AI and ADMT. Such regulation must avoid overly broad definitions and standards that could stifle innovation and impose unnecessary burdens, particularly on smaller businesses and innovators.

II. Risks of Overly Broad AI Definitions and Regulation

The Privacy Working Group is correct to be concerned about the profusion of state-level regulations of AI and ADMT. Recent state-level proposals illustrate precisely the pitfalls that accompany fragmented approaches. The California Privacy Protection Agency (CPPA), for example, has promulgated regulations that define AI in such overly expansive terms that they would encompass virtually any system capable of generating outputs that influence physical or virtual environments.[1] Such definitions lack analytical precision; risk encompassing low-risk, commonplace technologies; impose unjustified compliance burdens; and create regulatory ambiguity.

Other states have similarly included ADMT provisions within various privacy laws, leading to varying standards and requirements across jurisdictions.[2] This patchwork regulatory landscape threatens to create significant confusion, disrupt interstate commerce, and ultimately undermine national competitiveness and innovation in critical AI sectors. There are several lessons to draw from this patchwork of state efforts.

A common pitfall associated with regulations for ADMT and AI is to adopt overly expansive or otherwise ambiguous definitions. For instance, California’s Privacy Protection Agency recently proposed defining AI as any “machine-based system that infers, from the input it receives, how to generate outputs that can influence physical or virtual environments.”[3] Similarly problematic are expansive interpretations of ADMT to include not only systems that autonomously make decisions or replace human judgments, but also technologies that merely “substantially facilitate human decision-making,” or whose outputs constitute a “key factor” in human decisions.[4]

Defining AI broadly without accounting for the diversity of AI applications—ranging from large language models (LLMs) and computer-vision systems to predictive-analytics tools—risks creating counterproductive and analytically unsound regulatory frameworks. Treating diverse AI technologies as functionally equivalent inevitably captures some low-risk software applications alongside genuinely high-risk systems. Such regulatory outcomes also threaten to impose unnecessary compliance burdens and potentially to distort competition by favoring large incumbents.

These excessively inclusive definitions often encompass a wide variety of routine business operations, from basic spreadsheet analyses and customer profiling to common marketing analytics. This could inadvertently impose stringent regulatory obligations on common practices that have minimal, if any, adverse impacts on consumer welfare or privacy interests. Small and medium-sized enterprises, in particular, would face significant uncertainty and disproportionately high compliance burdens.[5] Indeed, smaller firms already rely heavily on low-risk AI applications to boost productivity and maintain competitiveness in an increasingly technology-driven marketplace.[6]

Moreover, these broad definitions do not reflect the true diversity and heterogeneity inherent in AI technologies.[7] They fail to appropriately calibrate oversight to actual levels of risk, thereby threatening to stifle beneficial innovation and creating unnecessary economic burdens without corresponding consumer protections.[8] By contrast, adopting precise, harm-sensitive definitions would help ensure that regulatory efforts are targeted effectively, providing appropriate safeguards without undermining technological innovation and economic growth.[9]

Indeed, overly generalized regulations are likely to over-index toward conceptualizing AI in ways that presume the need for strong centralized control over development and distribution of AI technologies. This would bias regulatory frameworks toward proprietary, corporate-controlled AI products and may inadvertently disadvantage open-source AI initiatives, which would face disproportionate compliance burdens or inapposite legal and regulatory obligations. Given that open-source methodologies underpin substantial portions of the AI-development ecosystem—fostering innovation, competition, and broad economic benefits—Congress should ensure that federal AI regulations explicitly consider the unique characteristics of open-source development, avoiding inadvertently shifting innovation toward proprietary, closed models controlled by larger incumbents.

III. Benefits of an Incremental, Sector-Specific Regulatory Approach

The process of adopting ADMT and AI regulations should be incremental and tailored to specific sectors.[10] Such sector-specific regulation offers clear advantages by aligning regulatory oversight more closely with actual sector-specific risks. AI applications differ significantly across industries; for example, AI utilized in health-care diagnostics poses different regulatory challenges and risk profiles than AI used for retail inventory management, financial services, or marketing analytics.[11] By recognizing these differences, policymakers can craft targeted regulations that specifically address high-risk applications without unduly burdening low-risk uses.

Moreover, adopting sector-specific regulations would allow policymakers to leverage existing industry-specific regulatory frameworks and expertise, enhancing both the effectiveness and efficiency of oversight.[12] Financial regulators, for instance, are better positioned to address concerns related to fairness and transparency in automated-lending decisions, while health authorities are more adept at addressing the privacy and accuracy considerations inherent in medical-diagnostic technologies. Thus, a sector-specific approach can help to ensure that consumer protections are robustly enforced in areas where they are genuinely needed, without imposing unnecessary restrictions on innovation and efficiency in lower-risk contexts.[13]

This incremental approach aligns closely with recent recommendations at the federal level. Notably, the House Bipartisan Task Force on Artificial Intelligence explicitly recommended addressing AI challenges through existing regulatory frameworks whenever feasible, advocating for sector-specific expertise to guide oversight.[14] Similarly, the National Telecommunications and Information Administration (NTIA) has recommended adopting a marginal-risk framework, prioritizing empirically demonstrable harms and assessing the incremental risks posed by AI systems relative to existing alternatives or non-AI technologies.[15] Recognizing the uncertainties inherent to such an endeavor, the NTIA’s marginal-risk framework also cautions policymakers to remain modest in their expectations regarding ex-ante risk assessments. It would reserve heightened scrutiny only for genuinely high-risk applications in such sensitive domains as health care, criminal justice, and critical infrastructure.

By aligning federal policy with these targeted and empirically driven regulatory frameworks, Congress can better address legitimate AI risks without stifling technological advancement or economic innovation.[16]

IV. Impact on Small Businesses and Innovation

Adopting overly broad regulations to govern AI and ADMT would disproportionately affect small businesses, imposing excessive compliance costs and complexities that threaten their ability to compete and innovate.[17] Unlike larger corporations that possess extensive legal resources, small businesses frequently lack the capacity to manage intricate regulatory frameworks. Consequently, overly expansive definitions and regulatory requirements could become significant barriers to entry, discouraging smaller firms from adopting beneficial AI technologies critical to their operational efficiency and competitiveness.[18]

Indeed, evidence clearly demonstrates that AI technologies have already proven transformative for many small businesses, substantially enhancing their productivity, profitability, and capacity to innovate. Surveys indicate that approximately 95% of small businesses use at least one technology platform to streamline their operations, with nearly a quarter specifically adopting AI tools to improve marketing effectiveness, customer communications, and overall business performance.[19] For many small enterprises, adopting AI solutions has produced measurable improvements in profit margins, sales growth, and operational efficiency.[20] Furthermore, AI’s ability to automate routine tasks and reduce operational burdens has been particularly beneficial to smaller businesses, enhancing their ability to compete against larger market participants.[21]

By imposing disproportionate compliance obligations, overly broad regulatory approaches threaten to significantly diminish these productivity gains. Such regulations may deter small businesses from fully embracing AI solutions, potentially exacerbating existing challenges related to economic pressures, inflation, and workforce shortages.[22] In this respect, narrowly tailored, risk-sensitive federal regulations are essential to sustain the productivity-enhancing benefits of AI for small businesses, while also ensuring appropriate consumer protections.

V. Avoiding Fragmentation Through Clear Federal Preemption

A fragmented state regulatory landscape significantly undermines U.S. competitiveness in AI development and deployment. The rapid proliferation of state-level AI regulations has created substantial challenges, particularly in complying with widely divergent definitions, scopes, and compliance obligations across jurisdictions.[23] This fragmented regulatory environment imposes increased operational complexity and costs on businesses that operate at a national or regional scale, forcing them to navigate inconsistent rules and duplicative compliance burdens.[24] For example, a business developing AI solutions for health care or financial services might need to simultaneously comply with divergent state-level regulatory frameworks, each potentially imposing unique definitions and standards for ADMTs.

To mitigate these challenges and strengthen U.S. competitiveness in AI, Congress should implement a clear federal preemption framework designed to harmonize AI regulation across the states. Such federal preemption should establish uniform, precise definitions of key terms like AI and ADMT, as well as consistent, harm-based regulatory thresholds that would be applicable nationwide. By clearly delineating federal regulatory authority, Congress would significantly reduce compliance uncertainty, streamline operational efficiency, and facilitate investment decisions. This would allow businesses to confidently pursue AI innovation without fear of contradictory or unpredictable state-level regulatory interventions.

Ultimately, a harmonized national framework would provide essential regulatory certainty and predictability, essential for continued innovation and sustained investment in AI technologies. Clear federal preemption would not only simplify compliance, but also help to position the United States as a more attractive jurisdiction for AI developers and innovators. This approach would serve to safeguard the nation’s global leadership in digital technologies and ensure robust protections for consumers.

VI. Conclusion

As Congress moves forward with developing federal legislation, it is crucial to adopt narrowly tailored definitions and targeted, harm-based regulatory approaches. Regulations must reflect the actual diversity and varying risks associated with AI and ADMT in order to avoid unnecessary burdens on beneficial, low-risk applications.

Congress should prioritize incremental regulation grounded in demonstrated harms, rather than speculative risks. We strongly recommend focusing initially on the development of a comprehensive federal privacy framework, separate from any AI-specific legislation. Addressing privacy comprehensively first, followed by separate specialized laws to govern AI and ADMT, would reduce complexity and regulatory overreach.

Given the existing fragmented state regulatory landscape, Congress must clearly define the scope of federal preemption, explicitly including state-level ADMT laws. This will significantly reduce compliance uncertainty, streamline regulatory consistency nationwide, and protect smaller businesses and innovators.

Ultimately, by clearly delineating comprehensive privacy and targeted AI legislation, Congress can seize the opportunity to enhance consumer protections effectively, while safeguarding and promoting U.S. technological innovation, competitiveness, and leadership in the rapidly evolving AI landscape.

[1] California Privacy Protection Agency, Proposed Regulations (2024), available at https://cppa.ca.gov/regulations/pdf/ccpa_updates_cyber_risk_admt_ins_text.pdf [hereinafter “CPPA Proposal”].

[2] See Jennifer Johnson et al., State Legislatures Consider New Wave of 2025 AI Legislation, Covington & Burling LLP (Feb. 21, 2025), https://www.insideglobaltech.com/2025/02/21/state-legislatures-consider-new-wave-of-2025-ai-legislation (“Lawmakers in more than a dozen states have introduced legislation that would regulate the use of AI or automated decision-making tools (‘ADMT’) in specific sectors, including healthcare, insurance, employment, and finance.”).

[3] See CPPA Proposal, supra note 1 at § 7001(c).

[4] Id., § 7001(f).

[5] See Empowering Small Business: The Impact of Technology on U.S. Small Business, U.S. Chamber of Com. Tech. Engagement Ctr. (Sep. 14, 2023), at 3, available at https://www.uschamber.com/assets/documents/The-Impact-of-Technology-on-Small-Business-Report-2023-Edition.pdf; Open Source AI Is Leading to Breakthroughs in Healthcare, Education, and Entrepreneurship, Meta (Dec. 11, 2024), https://about.fb.com/news/2024/12/open-source-ai-is-leading-to-breakthroughs-in-healthcare-education-and-entrepreneurship.

[6] Id.; see also Julian Jacobs, Evidence Shows Productivity Benefits of AI, Ctr. Data Innov. (Jun. 11, 2024), https://datainnovation.org/2024/06/evidence-shows-productivity-benefits-of-ai.

[7] See Lazar Radic & Kristian Stout, What Is the Relevant Product Market in AI?, Concurrences: Artificial Intelligence and Competition Policy 107 (Sep. 16, 2024), at 109, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4927505.

[8] Id. at 110.

[9] See Kristian Stout et al., NIST AI 800-I, Managing Misuse Risk for Dual-Use Foundation Models, Int’l Ctr. L. & Econ. (Sep. 9, 2024), at 8-13, available at https://laweconcenter.org/wp-content/uploads/2024/09/NIST-AI-comments-final.pdf.

[10] See 118^th Congress, Bipartisan House Task Force Report on Artificial Intelligence vi-vii, 85 (2024), available at https://republicans-science.house.gov/_cache/files/a/a/aa2ee12f-8f0c-46a3-8ff8-8e4215d6a72b/E4AF21104CB138F3127D8FF7EA71A393.ai-task-force-report-final.pdf.

[11] Id.

[12] Id. at 6, 30.

[13] See Id. at 7, 17.

[14] Id.

[15] See Stout, supra note 9, at 8-13.

[16] Id.

[17] See U.S. Chamber, supra note 5, at 3.

[18] Id.

[19] Id. at 3-4.

[20] Id. at 2,23.

[21] Id. at 5.

[22] Id. at 2,15.

[23] See Rachel Curry, How AI Regulation in California, Colorado and Beyond Could Threaten U.S. Tech Dominance, CNBC Tech. Exec. Council (Nov. 21, 2024), https://www.cnbc.com/2024/11/21/how-ai-laws-in-california-states-threaten-us-tech-dominance.html.

[24] See Kristian Stout, The AI Legislative Puzzle, Truth Mark. (Nov. 7, 2024), https://truthonthemarket.com/2024/11/07/the-ai-legislative-puzzle.

I. Introduction

Thank you for the opportunity to discuss Montana’s HB 408 here today. My name is Ben Sperry, and I am a Senior Scholar of Innovation Policy for the International Center for Law & Economics (ICLE).

ICLE is a nonprofit, nonpartisan research center working with a roster of more than eighty academic affiliates and research centers from around the globe.[1] Our mission is to promote the use of law & economics methodologies to inform public policy debates. We believe that intellectually rigorous, data-driven analysis will lead to efficient policy solutions that promote consumer welfare and global economic growth.

My research focuses on the intersection of civil liberties and government regulation, including in the areas of online speech and safety. I have written extensively in the past few years about the First Amendment implications of policy approaches to protecting minors on the Internet, including age verification and parental consent proposals.[2]

HB 408, as proposed, would appear to suffer from First Amendment defects under current Supreme Court precedent. A better approach to protect minors online would invest in the education of parents and minors on how to use available tools and practical means to avoid online harms.

II. The First Amendment Law & Economics of Device Filter Mandates[3]

It is clear that access to the internet offers both tremendous benefits as well as potential harms, including and perhaps especially for minors.[4] An important public policy question is how to negotiate the tradeoffs between protecting minors from those harms without unnecessarily restricting both minors’ and adults’ access to lawful speech.

In the language of law & economics, the question is which party is the lowest-cost avoider of harms, bearing in mind relevant transaction and social costs.[5] Among the relevant social costs in this context is the risk of collateral censorship. The law should impose the cost of avoiding the harms of internet usage on the person(s) who can do so at the lowest cost. In the language of First Amendment jurisprudence, the question is whether a particular restriction on speech is the “least restrictive means among available, effective alternatives.”[6]

Here, HB 408 would require a device activated in the state to:

1. contain a filter;
2. ask the user to provide the user’s age during activation and account setup;
3. automatically enable the filter when the user is a minor based on the age provided by the user as provided in subsection (2);
4. allow a password to be established for the filter;
5. notify the user when the filter blocks the device from accessing a website; and
6. provide the option to deactivate and reactivate the filter for a user who is not a minor and who has the filter password.

Under the bill, civil liability would attach to the device manufacturer if the device does not have a filter and minors are able to access obscene material while using the device. A filter is defined as a “generally accepted and commercially reasonable software used on a device that is capable of preventing a device from accessing or displaying obscene content through internet browsers or search engines owned or controlled by the manufacturer in accordance with prevailing industry standards, including blocking known websites linked to obscene content via mobile data networks, wired internet networks, and wireless internet networks.”

Many device makers have already created tools to help parents protect their children online, including protections similar to those proposed by the device-filtering bills.[7] Indeed, Apple recently published a white paper detailing its efforts and new features aimed at giving parents more ability to monitor and control what their kids access.[8] But it remains far from clear that mandating device filters is costless.

The most important considerations for determining the extent of potential collateral censorship that might arise from device-filtering bills will include whether the law will require age verification and parental consent to access all content or just illegal content, as well as how much information would have to be collected to verify age or gain parental consent. To the extent they raise the transaction costs to access lawful content, age-verification and parental-consent laws may violate the First Amendment.[9]

After Supreme Court oral arguments in Free Speech Coalition v. Paxton, it seems likely the Court will reconsider its jurisprudence on online age verification. However, it is likely that they will limit their analysis to age-verification requirements that apply to content that is illegal for minors to access.[10] Assuming that will be the case, device-filtering laws that are aimed at restricting minors’ access to content that is obscene to them (i.e., primarily online pornography) will have a better chance at surviving First Amendment scrutiny than laws that would restrict access to content that is lawful for minors to access.

HB 408 is a mixed bag on this front. It is good that it focuses on “obscene content” which would be illegal for minors to access. But it still must do so in a way that is neither seriously overinclusive nor underinclusive. In the language of Brown v. Entertainment Merchant’s Association, HB 408 “straddles the fence between (1) addressing a serious social problem and (2) helping concerned parents control their children. Both ends are legitimate, but when they affect First Amendment rights they must be pursued by means that are neither seriously underinclusive nor seriously overinclusive.”[11] In that case, the late Justice Antonin Scalia wrote that California’s law forbidding minors from buying violent video games was “seriously underinclusive… because it permits a parental or avuncular veto” and “as a means of assisting concerned parents it is seriously overinclusive.”[12]

Under the HB 408, parents appear to retain the ability to turn off the filter. This might be because the law implicitly recognizes that filters may end up restricting access to lawful content (overinclusive) and thus it preserves parents’ ability to grant their children access to that content. But it may also effectively undercut the argument that the bill is narrowly tailored to the state interest of protecting children from obscene content (underinclusive) by extending parental consent to allow their children to access illegal content. In other words, this type of device-filtering law is either restricting speech too much in the name of paternalism or failing to live up to its purpose of protecting minors from obscenity like online pornography.

The requirement for device manufacturers to “ask the user to provide the user’s age during activation and account setup” is also far from clear. Is it enough to allow minors or parents to set up accounts as the device is being activated by simply inputting the birth dates of minor users? Requiring parents or minors to upload some kind of authorized document proving age would pose privacy risks, as well as presenting a transaction cost that many may be unwilling to bear. Low-cost age-verification measures like biometrics or zero-knowledge proofs might be possible, but it’s unclear how these would apply under HB 408.

Requiring too little data would likely lead to easy evasion of the law’s protections—whether it’s a minor user setting up the device and lying, or a parent helping their child to do so. Requiring too much data would raise transaction costs to the point that access to lawful speech for both adults and minors could be affected. The challenge for HB 408 is finding a way to require exactly the right amount of data to prove age, while not unduly restricting the ability of both minors and adults to access First Amendment-protected content.

Moreover, while online age-verification technology has clearly improved since the Supreme Court last considered the question, so have the tools to help parents and minors avoid harmful internet content. As mentioned above, Apple has introduced even more features to help parents protect their children while using Apple devices, but there are also tools available beyond the device level.[13] Montana could do far more to promote technological literacy for both parents and minors, while also promoting adoption (and creation of even more) of these tools. As the U.S. District Court for the Western District of Arkansas recently found when enjoining Arkansas’ age verification and parental consent law:

Age-verification requirements are also more restrictive than policies enabling or encouraging users (or their parents) to control their own access to information, whether through user-installed devices and filters or affirmative requests to third-party companies… To the extent that parents are not aware of these tools, notice to parents of their availability is a much less restrictive means of promoting the State’s interest.[14]

III. Conclusion

The best way to protect children online is to empower parents. But laws that require content filters on devices used by minors could lead to collateral censorship that would violate the First Amendment. Montana should refocus on helping parents and minors to navigate the internet by using the technological and practical means available to them, rather than imposing new barriers that may impact access to lawful speech.

[1] About ICLE, Int’l Ctr. L. & Econ., https://laweconcenter.org/about (last accessed Apr. 6, 2025).

[2] See Ben Sperry, Int’l Ctr. L. & Econ., https://laweconcenter.org/author/bensperry (last accessed Apr. 6, 2025).

[3] This testimony is adapted from a blog post examining a similar bill proposed in Idaho. See Ben Sperry, The Law & Economics of Online Age Verification and Parental Consent: Device-Filtering Edition, Truth Mark. (Mar. 12, 2025), https://truthonthemarket.com/2025/03/12/the-law-economics-of-online-age-verification-and-parental-consent-device-filtering-edition.

[4] See, e.g., Nat’l Acad. Sci. Engineering & Med., Social Media and Adolescent Health 4 (2023) (“[T]he use of social media, like many things in life, may be a constantly shifting calculus of the risky, the beneficial, and the mundane.”); id. at 92 (concluding after an extensive review of the literature that it “did not support the conclusion that social media causes changes in adolescent health at the population level”).

[5] See, generally, Ben Sperry, A Coasean Analysis of Online Age-Verification and Parental-Consent Regimes (ICLE Issue Brief 2023-11-09), available at https://laweconcenter.org/wp-content/uploads/2023/11/Issue-Brief-Transaction-Costs-of-Protecting-Children-Under-the-First-Amendment-.pdf.

[6] Ashcroft v. American Civil Liberties Union, 542 U.S. 656, 666 (2004).

[7] See, e.g., Families, Apple, https://www.apple.com/families (last accessed Apr. 6, 2025); How to Set Up Parental Controls on Google Play, Google, https://support.google.com/googleplay/answer/1075738 (last accessed Apr. 6, 2025); Set Parental Controls on Fire TV, Amazon, https://www.amazon.com/gp/help/customer/display.html?nodeId=GJF9SGT5262FJLQE (last accessed Apr. 6, 2025); How to Block Content Using Parental Controls, Roku, https://support.roku.com/article/208755938 (last accessed Apr. 6, 2025); Microsoft Family Safety, Microsoft, https://www.microsoft.com/en-us/microsoft-365/family-safety (last accessed Apr. 6, 2025).

[8] See Helping Protect Kids Online, Apple (Feb. 2025), available at https://developer.apple.com/support/downloads/Helping-Protect-Kids-Online-2025.pdf.

[9] See Sperry, supra note 5.

[10] For more, see Ben Sperry, Will the Supreme Court Change Its Mind About Age Verification, Truth Mark. (Jan. 17, 2025), https://truthonthemarket.com/2025/01/17/will-the-supreme-court-change-its-mind-about-age-verification.

[11] Brown v. Entertainment Merchants Ass’n, 564 U.S. 786, 805 (2011).

[12] Id.

[13] See Children Online Safety Tools, Compet. Enterp. Inst., https://cei.org/children-online-safety-tools (last accessed Apr. 6, 2025).

[14] NetChoice v. Griffin, 2025 WL 978607, at *13-14 (W.D. Ark. Mar. 31, 2025).

I. Introduction

We thank the Canadian Radio-television and Telecommunications Commission (“CRTC” or “the Commission”) for the opportunity to offer comments to this Broadcasting Notice of Consultation (“Consultation”).[1] We further request that you consider allowing Kristian Stout, author of these comments, to appear at the public hearing for this proceeding. As both a practicing musician with firsthand experience in the streaming economy and a policy expert specializing in copyright, licensing, and commercialization issues, he can offer valuable insights from each of these complementary perspectives. His background spans both the creative and analytical sides of the Canadian music ecosystem, allowing him to address these issues with both practical and theoretical understanding.

The Consultation addresses critical questions about how best to support Canadian content in a changing media landscape. The Commission seeks a comprehensive review of its regulatory framework for audio content, recognizing that approaches designed for traditional radio may not translate effectively to digital platforms. As the CRTC explicitly acknowledges in the Consultation, “current content requirements do not appear to work in an online context.”[2] This acknowledgment reflects the Commission’s understanding that streaming services operate with fundamentally different business models and audience relationships than do traditional broadcasters. What’s needed is a fresh regulatory approach that can achieve the objectives of cultural policy while respecting the technological realities of today’s audio ecosystem.

A common point of contention in these discussions concerns Canadian artists’ ability to earn a living in the current market. This issue is not local to Canada, as artists around the world have expressed dissatisfaction with streaming royalties.[3] But it is important that the CRTC separate such concerns from their charge to ensure the availability of Canadian and Indigenous audio content, and that Canadian content can be distributed both across Canada and around the world. Indeed, Canadian content is very popular outside of Canada.

With respect to streaming revenues, there complicated problems in both the supply and demand ends of the market. As noted in the Canadian 2021 Study of the Economic Impacts of Music Streaming, we face an apparent conundrum where “the business of recorded music (and streaming specifically) seems to be booming,” while simultaneously “reports of music creators earning de minimis sums on the use of their works on streaming services—or certainly not enough for a living wage—fill trade journals, blogs, policy reports and mainstream media.”[4]

Conditioned in part by widespread piracy serving to depress the market value of recorded music, many consumers simply no longer expect to have to pay to access that music. A 2018 survey found that nearly a third of listeners were unwilling to pay anything at all for a fully subscription-based streaming service, with two-thirds willing to pay up to US$10 monthly for such a service.[5] In the United States, there were 43 million vinyl records and 37 million compact discs sold in 2023.[6] But those sales accounted for just 16% of the recording industry’s revenues for the year, demonstrating that consumers are overwhelmingly more likely to gravitate to low-cost streaming services for music.[7] Coupled with the advance of recording and distribution technologies that enable artists at all levels to release professional-quality music,[8] the result has been an explosion of available music, even as consumers expect to pay as little as possible for access to that music.[9]

This situation cannot be resolved via regulatory fiat. Record companies and others engaged in the market have sought to address the difficult economics of music through investments in better streaming products and revenue models;[10] the availability of better physical media, such as vinyl;[11] and other innovations. But importantly, for those investments to yield dividends, music firms need to be able to continue to experiment with business models in order to find those that offer sustainable returns for artists.

Thus, we strongly support the Commission’s identified intention that:

this proceeding will help the Commission determine the best ways to [allow] traditional and online broadcasters [to] rely on flexible policies to support, promote and make available Canadian and Indigenous audio content in ways that fit their business models today and in the future…[and that] actions taken to support Canadian and Indigenous audio content are efficient, easily implementable, measurable and transparent.[12]

This laudable objective can be achieved through careful, forward-looking approaches that embrace, rather than resist, the streaming sector’s innovative business models. By developing flexible policies that recognize the fundamentally different discovery and consumption patterns in today’s audio landscape, the Commission can help to sketch a framework that supports Canadian creators, while allowing services to leverage their technological advantages to promote content discovery.

II. Canadian-Content Definitions and IP Ownership

The Consultation raises important questions about how to define Canadian content in a way that supports the Canadian creative sector, while avoiding unintended consequences. We are particularly concerned with the current approach to defining Canadian content, especially the emphasis on Canadian intellectual-property ownership as a necessary precondition, rather than one factor among many.[13]

Under existing CRTC requirements, Canadian-content qualification depends heavily on IP ownership and control at the time of production.[14] This rigid requirement can lead to paradoxical outcomes, such as where productions deeply rooted in Canadian culture, and created predominantly with Canadian talent and resources, fail to qualify as “Canadian” solely due to foreign IP-ownership arrangements.

This approach fundamentally misaligns incentives in content production and distribution. International-commercialization partnerships, which often require IP sharing or transfer arrangements, play a crucial role in helping Canadian content to reach global audiences across all forms of media.[15]

III. Discoverability in a Streaming Context

The Consultation also seeks information on challenges faced by broadcast undertakings in having their services and content promoted and discovered. In the streaming era, Canadian artists have unprecedented access to audiences, recently reaching 10.5% of global audiences.[16] Thus, given the relative size of the Canadian population, Canadian artists clearly punch well above their weight in representation on streaming services. [17]

Streaming services also have an incentive to reduce search time for consumers, as time spent searching for content is time not spent consuming it. Many services invest in developing curation algorithms customized for individual users.[18] Mandated discoverability regulations, such as algorithmic quotas, risk creating inefficiencies by overriding consumer preferences. To the extent that Canadian consumers demand more Canadian, Indigenous, or French-language content, existing algorithms already provide opportunities to discover it. Any regulation should be limited to transparency requirements, rather than prescriptive placement or prioritization.

IV. Alternative Approach to Supporting Canadian Content

Given the dynamic content landscape, the CRTC should exercise caution in considering new access mandates or extending existing ones. Regulations appropriate for current technology and market conditions can quickly become obsolete or counterproductive as markets evolve.

A more nuanced approach to regulation may better serve the Commission’s objectives than rigid requirements around ownership and content quotas. Such an approach would recognize that cultural production flourishes, not through isolation, but through dynamic interaction with global markets and distribution networks, while still maintaining appropriate safeguards for Canadian cultural interests.

Access regulation is potentially appropriate only in highly concentrated markets where substantial, persistent barriers to entry exist. The market for audio services is not such a market. Traditional access regulation assumes that market power derives primarily from control over physical infrastructure, whereas streaming services derive influence from network effects, superior use of data, and technological innovation—sources of power that are often transient.

V. Specific Responses to Consultation Questions

Q30. Does the Commission’s preliminary view for a renewed annual financial contribution framework, which includes online and traditional audio undertakings, align with various business models found within the current broadcasting system?

The Commission’s preliminary view to require contributions from all audio undertakings whose operators form part of broadcasting ownership groups with Canadian gross broadcasting revenues of $25 million or more represents a step toward regulatory symmetry but fails to recognize fundamental differences among divergent business models.[19]

Traditional broadcasters operate in a relatively constrained spectrum environment with direct regulatory benefits—such as protected service areas and exclusive frequency assignments—that justified historical contribution frameworks. In contrast, streaming services operate in an unconstrained internet environment with fundamentally different cost structures, revenue models, and user experiences.

A more proportionate approach would acknowledge these different structural positions by:

1. Recognizing content-discoverability initiatives—such as investments in advanced search and distribution technology—as legitimate contributions from streaming services, rather than imposing on them identical financial contribution frameworks; and
2. Accounting for the global investments that streaming services make in Canadian-content production and distribution that fall outside existing Canadian-content definitions, despite employing Canadian creative talent.

The rigid application of traditional broadcasting-contribution frameworks to streaming services risks creating market distortions and regulatory arbitrage. A more flexible approach that focuses on outcomes (Canadian-content creation and discovery), rather than identical contribution mechanisms, would better align with the diverse business models in today’s audio ecosystem.

Q32. Should the Commission require all traditional and online audio undertakings to allocate their financial contributions in the same way?

No, the Commission should not require identical allocation of financial contributions across all audio undertakings. A one-size-fits-all approach to contribution allocation would fail to account for vastly differing market positions, audience relationships, and content-discovery mechanisms across the audio ecosystem.

Instead, the Commission should adopt a flexible framework that allows for differentiated allocation based on several considerations.

Service Type and Audience Relationship: Traditional radio broadcasters have deep connections to local communities and may be better positioned to direct contributions toward local talent development, while streaming platforms with algorithmic recommendation engines might better support Canadian content through targeted discoverability and distribution initiatives.

Language Market Differences: The challenges facing French-language content differ significantly from those in the English-language market. Undertakings that serve French-language audiences should have greater flexibility to allocate contributions toward production, promotion, and distribution mechanisms specific to that market’s needs.

Contribution Efficacy: The ultimate goal of contribution rules should be to maximize the creation, distribution, and discovery of Canadian content, not to effect administrative simplicity. Undertakings should be permitted to concentrate contributions in areas where they can demonstrate the greatest impact, whether that’s in content development, promotion, or audience development.

A more tailored approach to contribution allocation would better serve the Act’s policy objectives, while recognizing the diverse operational realities of differing audio undertakings in today’s complex media environment.

Q44. Can AI be used innovatively to promote Canadian content?

Yes, artificial intelligence offers significant potential to promote Canadian content in innovative ways, underscoring that dynamic markets require flexible regulatory approaches, rather than static structural policies created for the broadcast era.

AI has already revolutionized content discovery, recommendation, and audience outreach in ways that traditional Canadian-content quotas could never achieve. For example, Spotify’s AI DJ feature learns from user preferences to create personalized content streams, while intelligently introducing new recommendations that align with core listener interests.[20] This creates a dual benefit for Canadian content: Canadian listeners who engage with domestic artists naturally receive more Canadian recommendations, while international listeners who enjoy music with characteristics similar to Canadian productions gain exposure to Canadian artists they might otherwise never discover.

These AI-powered discovery mechanisms demonstrate why the Commission’s focus should be on outcomes—ensuring Canadian content reaches appropriate audiences—rather than prescriptive distribution methods. Recommendation algorithms have already surpassed traditional programming practices in their ability to match content with interested listeners, creating value for both creators and audiences.

Furthermore, AI can assist smaller Canadian artists in audience development by identifying potential fans with remarkable precision, analyzing consumption patterns across billions of data points to find meaningful connections between content and listeners. This capability transcends geographic boundaries in ways that traditional broadcasting simply cannot match.

As AI continues to evolve rapidly, any regulatory framework that rigidly prescribes distribution methods risks interfering with these innovative discovery mechanisms, rather than harnessing their potential. The Commission should therefore focus on establishing principles and outcomes. while allowing flexibility in how those outcomes are ultimately achieved.

VI. Conclusion

The Commission faces a critical inflection point as it seeks to adapt Canada’s audio regulatory framework to the modern streaming ecosystem. While the objectives of promoting Canadian-content creation and accessibility remain important, the regulatory tools employed must evolve to match the technological and economic realities of today’s market.

Rigid approaches based on outdated broadcast paradigms risk not only failing to achieve their intended purposes but potentially harming the very Canadian creators they aim to support. By focusing on IP ownership rather than broader impacts, the current definitions create barriers to the very international partnerships that could expand the global reach of Canadian content. Such an outcome would harm the revenue stream of Canadian artists, who increasingly depend on global revenue to support themselves. This could also foster vicious negative feedback cycles that hinder the viability of artists’ careers in Canada.

Similarly, inflexible contribution frameworks that fail to recognize the fundamental differences between traditional broadcasters and streaming services risk creating market distortions that benefit neither creators nor consumers.

The streaming era presents unprecedented opportunities for Canadian artists to reach global audiences. If allowed to operate efficiently, the technologies that drive these platforms—particularly the emerging AI-driven recommendation systems—can serve as powerful tools to promote Canadian content. Regulatory approaches that work with, rather than against, these innovations will better serve the long-term interests of the Canadian audio ecosystem.

We urge the Commission to adopt a flexible, outcome-oriented framework that recognizes diverse business models and their unique contributions to the Canadian content ecosystem; allows for varied approaches to meeting content-promotion objectives; embraces technological innovation in content discovery; and measures success by the actual reach and impact of Canadian content, rather than by rigid compliance metrics.

With such an approach, the Commission can help ensure that Canadian creators thrive in the global audio marketplace, while preserving the cultural expression that makes Canadian content distinctive and valuable.

 

[1] CRTC, The Path Forward – Supporting Canadian and Indigenous Audio Content, Can. Radio-telev. Telecommun. Comm. (Broadcasting Notice of Consultation CRTC 2025-52, Feb. 20, 2025), https://crtc.gc.ca/eng/archive/2025/2025-52.htm [hereinafter “Consultation Document”].

[2] Consultation Document at ¶ 51.

[3] Daniel Tencer, 7 In 10 Musical Artists Dissatisfied with Streaming Music Payouts, Survey Finds, Music Bus. Worldw. (Jun. 19, 2024), https://www.musicbusinessworldwide.com/7-in-10-musical-artists-dissatisfied-with-streaming-music-payouts-survey-finds.

[4] 2021 Study of the Economic Impacts of Music Streaming on the Canadian Music Industry, Wall Commun. Inc. (2021), https://www.canada.ca/en/canadian-heritage/corporate/transparency/open-government/economic-impact-music-streaming.html#a5.

[5] Patrick Leu, What Is the Most You Would Be Willing to Pay for a Music Streaming Service Without Any Ads?, Statista (May 29, 2024), https://www.statista.com/statistics/819836/price-limit-music-streaming-service-without-ads.

[6] Wes Davis, Vinyl Records Outsell CDs For the Second Year Running, The Verge (Mar. 26, 2024), https://www.theverge.com/2024/3/26/24112369/riaa-2023-music-revenue-streaming-vinyl-cds-physical-media.

[7] Id.

[8] Eric Goldberg, A Studio in Every Home: DAWs, Plug-Ins and the Democratization of the Recording Studio, Harv. Technol. Oper. Manag. (Nov. 17, 2016), https://d3.harvard.edu/platform-rctom/submission/a-studio-in-every-home-daws-plug-ins-and-the-democratization-of-the-recording-studio.

[9] As of May 2023, there were more than 120,000 new tracks being uploaded to music-streaming services daily. See Murray Stassen, There Are Now 120,000 New Tracks Hitting Music Streaming Services Each Day, Music Bus. Worldw. (May 25, 2023), https://www.musicbusinessworldwide.com/there-are-now-120000-new-tracks-hitting-music-streaming-services-each-day.

[10] For example, Apple and Amazon reportedly pay out twice the amount per stream as Spotify—a direct effort to attract more interest into the use of their service. See Dylan Smith, Apple Music and Amazon Music Are Paying More Than Double Spotify’s Per-Stream Royalty Rate, Report Finds, Digit. Music News (Jan. 24, 2025), https://www.digitalmusicnews.com/2025/01/24/apple-music-royalty-rate-spotify-study.

[11] Davis, supra note 6.

[12] Id. at ¶ 11.

[13] Canadian Program Certification Guide, Can. Radio-telev. Telecommun. Comm., https://crtc.gc.ca/canrec/eng/guide1.htm#2.1 (last visited Apr. 1, 2025).

[14] Id.

[15] Charles H. Davis & Janice Kaye, International Film and Television Production Outsourcing and the Development of Indigenous Capabilities: The Case of Canada, in Locating Migrating Media (Greg Elmer, Charles H. Davis, Janine Marchessault, & John McCullough eds., 2010).

[16] Will Page, Laying a Foundation for Success: Canada’s Online Streaming Act, Music Can. (2023), 13, available at https://musiccanada.com/wp-content/uploads/2024/04/Laying-a-Foundation-for-Success-Canadas-Online-Streaming-Act.pdf.

[17] Canada accounts for about 0.49% of global population. Canada Population, Worldometer, https://www.worldometers.info/world-population/canada-population (last visited Apr. 1, 2025).

[18] See, e.g., DJ, Spotify, https://support.spotify.com/us/article/dj (last visited Apr. 1, 2025).

[19] Consultation Document at ¶ 78.

[20] Meet Your DJ, Spotify (Feb. 22, 2023), https://newsroom.spotify.com/2023-02-22/spotify-debuts-a-new-ai-dj-right-in-your-pocket.

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

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

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

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

This Policy Will Increase Rents and Reduce Housing Access

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

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

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

By banning these tools:

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

Key Flaws in the Text

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

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

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

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

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

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

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

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

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

For example:

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

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

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

Recommendations

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

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

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

Abstract

Introduction

Ex-ante regulatory frameworks for digital markets—such as the European Union’s Digital Markets Act (DMA),[1] the United Kingdom’s Digital Markets, Competition, and Consumers Act (DMCC),[2] and Section 19a of the German Act Against Competition Restraints (GWB)[3]—target specific practices deemed harmful to competition and consumers, including the oft-debated subject of “self-preferencing.”

Typically, such regimes impose prohibitions and obligations on a limited set of powerful technology firms. For instance, the DMA prohibits “gatekeepers” from favoring their own products in rankings and indexing; the DMCC bars firms with “strategic market status” from leveraging data advantages to benefit their own offerings; and Section 19a of the GWB restricts “firms of paramount significance” from privileging their own services over rivals.

Brazil appears to be following a similar path. Bill No. 2768/2022,[4] currently under congressional review, would require digital platforms with “essential access-control power” to provide “isonomic and non-discriminatory treatment to professional and end users.”

Despite these policy movements, however, neither the economic evidence nor the Conselho Administrativo de Defesa Econômica’s (CADE) legal precedents support a general presumption of harm or blanket ban against self-preferencing in Brazil. Rather than treating the conduct as inherently anticompetitive, Brazilian enforcement has to date favored a contextual, case-by-case approach. As I will try to address in this issue brief, this is likely not the correct regulatory direction to take.

The Concurrences Competition Law Dictionary offers a useful definition of self-preferencing:

Among exclusionary abuses of dominant position, self-preferencing is a conduct that falls under the more general category of abusive leverage, as it assumes an undertaking abusing its dominant position in a given market to extend that position in a closely related market (upstream, downstream or adjacent), to the detriment of competitor on the latter market.[5]

Under traditional competition law, self-preferencing is typically analyzed as a form of abuse of dominance, unilateral conduct, or monopolization. It may be understood as a specific type of leveraging or, alternatively, as a manifestation of the “raising rivals’ costs” (RRC)[6] theory. In this context, the conduct may be deemed unlawful when a dominant firm in one market favors its own products or services in a vertically related market, thereby either extending its dominance or impairing competitors’ ability to compete effectively in the second market.

While self-preferencing[7] has recently gained renewed attention in antitrust discussions surrounding digital markets,[8] the practice itself is far from new. It has long been a common business strategy in such traditional sectors as retail[9] and supermarkets,[10] where vertically integrated firms often promote their own brands or products. Moreover, many common and intuitive business practices—such as restaurants offering a “house wine,” gas stations selling their own fuel, large consulting firms providing accounting or legal services, or construction companies sourcing materials from their own subsidiaries—could be characterized, depending on how the conduct is framed by competition authorities, as tying practices or forms of “self-preferencing.”

Despite its growing prominence in discourse around digital markets, the term “self-preferencing” remains conceptually imprecise. The antitrust literature has not yet reached a conclusion on whether “self-preferencing” should be treated as a distinct category of harm or whether it is simply a new label for established theories of harm, such as leveraging, tying, or raising rivals’ costs (RRC). If self-preferencing is understood to apply across both digital and nondigital markets, then the characteristics of digital platforms—such as network effects, high economies of scale and scope, intensive use of data, low marginal costs, tipping dynamics, and significant (often collective) switching costs—raise other important questions. Do these characteristics transform the economic logic of self-preferencing and adapt it into a novel or slightly different theory of harm? Or, conversely, is the analytical core of traditional antitrust theory the same, with the only question being how to assess the practice within a given market context under a rule-of-reason analysis? Many major questions are yet to be answered either by the academic literature or competition-law decisions. Pablo Colomo describes the current use of “self-preferencing” as “an epithet capturing a diverse range of scenarios,” underscoring the conceptual vagueness that undermines its legal utility.[11]

Even under these various names and without a clearly defined legal framework, competition authorities have rarely treated self-preferencing as a priority for enforcement. This historical ambivalence raises another serious question: if the practice has not warranted strict antitrust intervention, should it now be subject to sweeping ex-ante prohibitions in the digital realm?

I. The Economics of Self-Preferencing: A Brief Review of the Literature

To understand the dynamics of self-preferencing, it is important to recognize that favoring one’s own products is often a rational and economically expected behavior. Michael Salinger,[12] former director of the U.S. Federal Trade Commission’s (FTC) Bureau of Economics, has noted that self-preferencing can stem from legitimate business strategies such as vertical or conglomerate integration aimed at eliminating double marginalization (EDM), which typically results in lower prices and procompetitive outcomes.

This rationale has been addressed in the broader economic literature on vertical integration. Nobel laureate Oliver Hart, building on the theory of transaction costs and incomplete contracts, explains that vertical integration can be understood as a consequence of the high costs of incomplete contracts:

In particular, when it is too costly for one party to specify a long list of the particular rights it desires over another party’s assets, then it may be optimal for the first party to purchase all rights except those specifically mentioned in the contract. Ownership is the purchase of these residual rights of control. Vertical integration is the purchase of the assets of a supplier (or of a purchaser) for the purpose of acquiring the residual rights of control.[13]

In this light, it is to be expected that firms vertically integrated under a single economic entity will rely on their own inputs, rather than sourcing them from competitors. Otherwise, vertical integration would become economically irrational or unsustainable, often leading to divestitures or spinoffs.

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

Furthermore, this commercial behavior of “self-preferencing” one’s own services or products reflects a broader economic logic found on both the supply and demand sides. For instance, on the consumer side, Nobel-winning economists Daniel Kahneman and Richard Thaler describe how the “endowment effect”[14] illustrates how individuals tend to assign greater value to goods they own—e.g., assuming their used car is worth more than others of similar value or quality. While this behavior is rooted in psychology, it offers an intuitive parallel: just as consumers tend to “self-preference” their own possessions, it is natural for firms to “self-preference” their own products. This is even more reasonable for firms, when considering objective factors such as improved supply-chain control, better inventory management, or reduced transaction costs.

Moving beyond theoretical frameworks, it is essential to consider the empirical literature on self-preferencing. As discussed earlier, the term may encompass practices like leveraging, tying, or raising rivals’ costs in nondigital markets. But as the purpose of this brief is to assess proposals for a blanket ban on self-preferencing in digital markets, the literature review here will be limited to studies focusing on that specific context.

Geoffrey Manne has examined empirical studies on platform economics and found that self-preferencing practices—though observed in different settings—tend to produce positive welfare outcomes or, at worst, neutral or ambiguous long-term effects. On this basis, he challenges the use of presumptions in antitrust analysis of vertical discrimination:

The problem [with the intensive criticism of illegal presumption of vertical discrimination], however, is that the claims of presumptive harm from vertical discrimination are based neither on sound economics nor evidence.[15]

A more recent literature review analyzing the effects of self-preferencing by digital platforms similarly concludes that “the welfare effects of self-preferencing are contingent on the specific form of self-preferencing as well as the market environment in which it occurs.”[16] While the authors do not explicitly offer a competition-policy recommendation, the results logically point toward rejecting any blanket presumption of illegality and instead supporting a case-by-case, effects-based approach.

Along the same lines, economists Emilie Feyler and Veronica Postal reach a similar conclusion in their review of self-preferencing by pricing algorithms, a context that raises further concerns due to the delegation of pricing decisions to automated systems.[17] They observe that:

There is no consensus from the economic literature on whether procompetitive benefits or possible anticompetitive considerations prevail in the context of self-preferencing algorithms used by digital platforms. Nor is there a consensus on the welfare effects of a policy intervention to correct bias in algorithmic recommendations. Determining the net impact of self-preferencing algorithms on competition and consumer welfare requires individualized analysis accounting for the workings of specific algorithms, competitive context, and market environment.[18]

Finally, the fact that self-preferencing often produces pro-competitive effects has been acknowledged even by some of the competition authorities that are currently considering more targeted ex-ante regulatory measures for digital platforms. For example, the Australian Competition & Consumer Commission (ACCC) noted in a report on digital practices:

Although self-preferencing conduct is often benign, self-preferencing conduct that leverages market power over a key online service into a related service, which is not justified by a procompetitive rationale, can distort competition and decrease consumer welfare.[19]

In short, the economic literature makes clear that any analysis of self-preferencing ultimately hinges on the specific facts of each case, as well as the broader market context. There is no consensus—either theoretical or empirical—to supports a general condemnation of the practice. On the contrary, many studies recognize that self-preferencing can produce efficiency gains, especially when linked to vertical integration or innovation strategies.

Accordingly, the current body of economic research does not support a presumption of illegality, let alone a blanket ban on self-preferencing by digital platforms. This is not to say that self-preferencing—as a form of leveraging, tying, or raising rivals’ costs—can never harm competition or consumers. It can and should be assessed according to the legal and economic evidence of each particular case. But moving from the current analytical stage, in which the practice is presumptively legal and often efficiency-enhancing, toward strict regulatory prohibitions appears to be, at the very least, very premature.

II. Despite CADE’s Limited Case Law on Self-Preferencing, the Rule of Reason Still Reigns

Building on this economic rationale, international antitrust case law—including the approach adopted by Brazil’s competition authority, CADE—generally treats self-preferencing as presumptively lawful and subject to a rule-of-reason analysis. As will be discussed, however, CADE’s case law on self-preferencing remains notably limited. Given the distinctive characteristics of digital markets, some Brazilian antitrust scholars—such as Beatriz Kira and Diogo Coutinho[20]—have argued that CADE should not only adapt existing theories of harm to the digital context, but also develop new ones tailored to these environments. From this perspective, self-preferencing is seen as a novel theory of harm that requires further conceptual and doctrinal refinement in digital competition enforcement.

In terms of case law, the EU’s Google Shopping decision is widely regarded as the international benchmark for self-preferencing in digital markets. The core allegation in that case[21] was that Google leveraged its market power to manipulate search results, favoring its own service—Google Shopping—by limiting the visibility of competing price-comparison platforms. The case illustrates a sharp divergence in how competition authorities assess similar conduct. In 2017, the European Commission[22] fined Google €2.42 billion for abusing its dominance in the search-engine market by granting an illegal advantage to its own comparison service. By contrast, in 2019, CADE’s Administrative Tribunal[23] dismissed the charges in a split 3–3 vote, with the former president casting the deciding vote in favor of dismissal.

The key difference in approach lies in evidentiary thresholds. While the European Commission found potential anticompetitive effects sufficient to establish liability, the majority at CADE relied on Technical Note No. 34/2018[24] from its Department of Economic Studies (DEE), which concluded that Google’s conduct stemmed from product innovations aimed at improving the user experience and delivering more accurate search results. The practice was therefore judged to be procompetitive, rather than anticompetitive. The dismissal was also grounded in a lack of robust evidence and a net-effects analysis of alleged predatory innovation, which found overall procompetitive efficiencies. In short, while the EU condemned Google’s self-preferencing, CADE saw insufficient grounds for a condemnation. This raises even further doubts about whether an ex-ante prohibition on self-preferencing is necessary for Brazil as, in the benchmark case, CADE decided that the practice was not ultimately anticompetitive. This lack of international convergence is also supported by the antitrust literature.[25]

The self-preferencing discussion in Brazil has not been limited to monopolization cases; it has also appeared (albeit rarely) in vertical-merger reviews. One notable example was the Nike/SBF–Centauro transaction, in which self-preferencing concerns played a central role. The merger involved the acquisition by SBF Group—owner of the “Centauro” sporting-goods retail chain—of the entire equity interest in Brazilian Nike that was previously held by the international Nike Group. As a result of the deal, SBF became the exclusive distributor of Nike products in Brazil and took over the operation of Nike’s physical and online retail channels. According to the parties, the transaction would allow SBF to integrate Nike’s operations into its existing omnichannel retail model.

In reviewing the deal, CADE’s General-Superintendent[26]—the authority’s investigative arm—found no evidence of either total or partial vertical foreclosure (discussed here under the label “self-preferencing”). While it acknowledged Nike’s dominant position in the “wholesale market for sporting goods” (a dominant position is presumed under Brazilian competition law when a firm’s market share exceeds 20% in a defined relevant market, according to Article 36, §2º), the SG concluded that SBF would not have the ability to foreclose access to Nike products for competing retailers.

The decision was appealed[27] by Netshoes, a competitor of SBF in the retail market, which argued that vertical foreclosure (self-preferencing) remained a risk and that behavioral remedies—specifically, an obligation to distribute Nike products on isonomic and nondiscriminatory terms—were necessary. In the end, CADE’s Administrative Tribunal and the merging parties negotiated an “administrative consent decree”[28] that required SBF to ensure equal and nondiscriminatory distribution of Nike products, thus addressing the self-preferencing concerns raised during the merger review.

The SulAmérica/Rede D’Or merger was another notable vertical-integration case in which the concept of “self-preferencing” appeared. But unlike the previous case, in which the SBF Group had both physical and online retail stores selling sporting goods (Nike and many other sporting-goods brands’ products), the SulAmérica case did not involve digital markets.

The transaction involved the incorporation of SulAmérica by Rede D’Or, resulting in the unification of their operations. Rede D’Or is one of the largest private health-care networks in Brazil, offering hospital, clinical, diagnostic, and related services across several states. SulAmérica, in turn, is a major player in the Brazilian insurance market, with a strong focus on health, dental, life, and personal accident coverage. According to the parties, the deal aimed to align and expand their respective health-related ecosystems to deliver integrated care and insurance services.

The vertical theory of harm raised in the case was that SulAmérica, as a health insurer, would likely “self-preference” Rede D’Or’s hospitals and clinics by steering patients toward them and discriminating against competing health-care providers—in other words, a traditional vertical-foreclosure scenario. Notably, a technical note from CADE’s Department of Economic Studies (DEE)[29] did not refer to the conduct as “self-preferencing,” but instead used the more established categories of “input and customer foreclosure.” The merger was ultimately approved without restrictions, based on CADE’s assessment that the parties lacked both the ability and the incentive to engage in anticompetitive foreclosure of rival hospitals.

These two cases show that CADE is attentive to conduct that could be labeled as self-preferencing. As previously discussed, however, the term “self-preferencing” lacks standardized definition. In both vertical-merger cases it examined, CADE analyzed the transactions under classical vertical theories of harm—namely, input and customer foreclosures, whether total or partial. These well-established concepts have more recently begun to be described as “self-preferencing” in both digital and nondigital markets. In this sense, for instance, one could say that AT&T would “self-preference” Time Warner content on its cable TV platforms in the noted AT&T/Time Warner merger, instead of saying that AT&T would partially foreclosure Time Warner contents to AT&T’s competitors. But these are, at their core, classic vertical-foreclosure scenarios—not the exact same type of theory applied in Google Shopping. While such rebranding (from vertical foreclosure to “self-preference”) may not be inaccurate, it is difficult, if not impossible, to reconcile this form of vertical analysis with the standalone abuse-of-dominance theory that underlies calls for a blanket ban on self-preferencing.

Returning to the monopolization cases, the rule-of-reason approach, as applied by CADE in the Google Shopping case, remains the standard framework to assess self-preferencing allegations. A significant ongoing example is the MSC/Maersk[30] investigation, in which the Brazilian Association of Customs Terminals and Premises (ABTRA) accuses Maersk, MSC, and their jointly controlled terminal operator BTP of leveraging their vertical integration and cooperative agreements to self-preference and favor BTP over competing terminals at the Port of Santos. The alleged conduct involves discriminatory and exclusionary practices that allegedly grant BTP undue competitive advantages in container-handling and bonded-storage services.

At this stage, CADE’s General-Superintendent has requested a study from the Department of Economic Studies (DEE) to assess whether the conduct generates efficiencies and, if so, how they compare to the potential anticompetitive effects. The fact that this self-preferencing case is being analyzed under a rule-of-reason framework, rather than treated as per-se illegal, reinforces CADE’s preference for case-by-case evaluation over broad ex-ante prohibitions. That Brazil’s most important current “self-preferencing” case falls totally outside the digital-market context (few markets are more “nondigital” than ship transportation and container handling), however, highlights the lack of clarity and standardization around the term.

III. Conclusion

Given the current stage of the self-preferencing debate in competition law, condemning a unilateral conduct practice solely under a self-preferencing theory of harm—regardless of how the term is defined—remains a high bar for enforcement.

Regarding the antitrust duty to deal, “[c]ompetition law does not impose a general duty to share competitive advantages with rivals and does not protect the structure of the market; hence, not every exclusionary effect automatically undermines competition.”[31] Similarly, as the practice carries a procompetitive and presumably legal rationale, “firms are not under a general duty to subsidize rivals.”[32]

Second, “self-preferencing is often inextricably linked to the procompetitive benefits that come with the integration of products and services. […] Experience and economic analysis suggest that the practices that are typically labeled as forms of self-preferencing should not be deemed prima facie unlawful irrespective of their effects – whether de jure or de facto.”[33]

In Brazil, a recent study conducted by the Legal Grounds Institute[34] quantitatively analyzed CADE’s decisions involving self-preferencing allegations, offering a holistic assessment of how the authority has approached the issue. While the number of relevant cases remains limited, the study offers important insights into the ongoing political debate over ex-ante regulation. One of its primary conclusions was that the low conviction rate does not justify a general prohibition: “When we look at markets in general, there have been few convictions for self-preferencing in CADE’s jurisprudence, with a conviction rate of 27% over the past 10 years.”[35] The study also notes that CADE tends to view self-preferencing as potentially pro-competitive:

As the analysis of CADE’s case law shows, the impact of self-preferencing conduct is far from being inherently anticompetitive. Indeed, even in convictions of a particular practice of self-preferencing, there is usually divergence among commissioners, including in so-called digital markets, what shows a lack of certainty that is uncongenial to a per se regulation.[36]

Moreover, the Legal Grounds Institute study underscores that CADE’s record does not justify a regulatory policy shift in digital markets:

There is no history at CADE of convictions for self-preferencing conduct in digital markets. One may argue that this supposed lenience is the very reason for changing the approach, but the point here is that making self-preferencing ex ante forbidden may be a radical move that inverts the spectrum of a vertical practice that may bring efficiencies and benefits to consumers in different contexts.[37]

The message of this issue brief is straightforward. Despite the absence of a clear and consistent definition, self-preferencing is presumptively lawful under CADE’s approach, given its potential procompetitive benefits. The next logical step would be to build a more substantial body of case law through enforcement actions against self-preferencing, condemning such conduct where actual anticompetitive harm is proven (since, in the current scenario and according to the Legal Grounds Institute study, CADE has never convicted any self-preferencing case in digital markets).

With sufficient precedent, it may become reasonable to adopt a presumption of illegality of self-preferencing in digital markets, shifting the burden of proof to defendants or applying other procedural or competition tools to ease enforcement. But only if that proves insufficient should ex-ante regulation be considered—i.e., once it is clearly demonstrated that self-preferencing typically harms competition and consumers, and the risk of overenforcement is low.

It is important to emphasize that moving through each of these stages typically requires time, case development by competition authorities, and the support of robust economic evidence. Even if one the finds the current pace of antitrust enforcement exceedingly slow, bypassing these steps—i.e., jumping directly from the status quo stage to full ex-ante prohibition, as envisioned in PL 2768/2022 or as may potentially be proposed by the Ministry of Finance—ignores the necessary legal and economic foundations for such an extreme shift in policy. Such an approach cannot be considered sound regulatory practice.

[1] Regulation 2022/1925, of the European Parliament and of the Council of 14 Sept. 2022, on Contestable and Fair Markets in the Digital Sector and Amending Directives (EU) 2019/1937 and 2020/1828 (Digital Markets Act), Eur. Comm. (Oct. 12, 2022), at 1, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022R1925.

[2] Digital Markets, Competition and Consumers Act 2024, UK Gov. (May 24, 2024), at c. 13, https://www.legislation.gov.uk/ukpga/2024/13/enacted.

[3] Gesetz Gegen Wettbewerbsbeschränkungen [GWB] [Act Against Restraints of Competition], Fed. Minist. Justice (Jul. 27, 1957), BGBl. I at 1081, https://www.gesetze-im-internet.de/englisch_gwb/englisch_gwb.html.

[4] Projeto de Lei No. 2.768, Câmara dos Deputados (2022), https://www.camara.leg.br/proposicoesWeb/prop_mostrarintegra?codteor=2214237&filename=PL%202768/2022.

[5] Self-Preference, Concurr. Dict. Compet. Law (Sep. 15, 2022), https://www.concurrences.com/en/dictionary/self-preference-111802.

[6] Steven C. Salop & David T. Scheffman, Raising Rivals’ Costs, 73 Am. Econ. Rev. 267 (1983), https://www.jstor.org/stable/1816853.

[7] Guillaume Duquesne et al., What Constitutes Self-Preferencing and Its Proliferation in Digital Markets, in Digital Markets Guide – Fourth Edition (Global Competition Rev. ed., Oct. 2, 2024), https://globalcompetitionreview.com/guide/digital-markets-guide/fourth-edition/article/what-constitutes-self-preferencing-and-its-proliferation-in-digital-markets.

[8] Competition Policy in Digital Markets: The Combined Effect of Ex Ante and Ex Post Instruments in G7 Jurisdictions, Organ. Econ. Co-oper. Dev. (Oct. 4, 2024), https://doi.org/10.1787/80552a33-en.

[9] Amanda Athayde, Direito da Concorrência e Supermercados: Como Essas Plataformas de Dois Lados Podem Trazer Riscos aos Consumidores?, 16 Rev. Direito GV (Feb. 10, 2020), https://doi.org/10.1590/2317-6172201940.

[10] Carolina Saito, Self-Preferencing Apenas em Mercados Digitais?, JOTA (Dec. 21, 2022), https://www.jota.info/artigos/self-preferencing-apenas-em-mercados-digitais.

[11] Pablo Ibáñez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles, 43 World Compet. 417 (2020), https://doi.org/10.54648/woco2020022.

[12] Michael A. Salinger, Self-Preferencing, in Global Antitrust Institute Report on the Digital Economy (Douglas H. Ginsburg & Joshua D. Wright eds., 2020), at 329, 329–368, https://gaidigitalreport.com/2020/08/25/self-preferencing.

[13] Sanford J. Grossman & Oliver D. Hart, The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration, 94 J. Pol. Econ. 691 (1986), https://doi.org/10.1086/261404.

[14] Daniel Kahneman, Jack L. Knetsch, & Richard H. Thaler, Experimental Tests of the Endowment Effect and the Coase Theorem, 98 J. Pol. Econ. 1325 (1990), https://doi.org/10.1086/261737.

[15] Geoffrey A. Manne, Against the Vertical Discrimination Presumption, Concurrences No. 2-2020 (May 2020), https://www.concurrences.com/en/review/issues/no-2-2020/foreword/against-the-vertical-discrimination-presumption-94267-en.

[16] Yuta Kittaka, Susumu Sato, & Yusuke Zennyo, Self-Preferencing by Platforms: A Literature Review, 66 Jpn. World Econ. 101191 (2023), https://doi.org/10.1016/j.japwor.2023.101191.?

[17] Emilie Feyler & Veronica Postal, Can Self-Preferencing Algorithms Be Pro-Competitive?, CPI Antitrust Chron. (Jun. 2023), at 5, available at https://www.competitionpolicyinternational.com/wp-content/uploads/2023/06/5-CAN-SELF-PREFERENCING-ALGORITHMS-BE-PRO-COMPETITIVE-Emilie-Feyler-Veronica-Postal.pdf.

[18] Id.

[19] Digital Platform Services Inquiry: Discussion Paper for Interim Report No. 5: Updating Competition And Consumer Law For Digital Platform Services, Aust. Compet. Consum. Comm. (Feb. 2022), available at https://www.accc.gov.au/system/files/Digital%20platform%20services%20inquiry.pdf.

[20] Beatriz Kira & Diogo R. Coutinho, Ajustando as Lentes: Novas Teorias do Dano Plataformas Digitais, 9 Rev. De Defesa da Concorrência 82, (Jun. 2021), https://doi.org/10.52896/rdc.v9i1.734

[21] Dario da Silva Oliveira Neto, Otávio Augusto de Oliveira Cruz Filho, & Alexandre Cordeiro Macedo, The Rule of Reason and the Fundamentals Against More Presumption-Based Illegality Legal Standards: Highlights on CADE’s Decisions on Digital Economy Issues, 12  J. Antitrust Enforc. 570 (2023), https://doi.org/10.1093/jaenfo/jnad042.

[22] Commission Decision of 27 June 2017, Case AT.39740 – Google Search (Shopping), 2018 O.J. (C 9) 11, Eur. Comm. (Jun. 27, 2017), available at https://ec.europa.eu/competition/antitrust/cases/dec_docs/39740/39740_14996_3.pdf.

[23] Paulo Burnier da Silveira & Victor Oliveira Fernandes, The Brazilian Competition Authority Decides to File Charges Against a Multinational Technology Company Due to One of Its Online Shopping Platform Features (Google), e-Competitions Bulletin, Art. No. 91181 (Jun. 2019) https://www.concurrences.com/en/bulletin/news-issues/june-2019/the-brazilian-competition-authority-decides-to-file-charges-against-a-en.

[24] Nota Técnica nº 34/2018/DEE/CADE, Processo Administrativo nº 08012.010483/2011-94, Conselho Administrativo de Defesa Econômica (Nov. 19, 2018), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?DZ2uWeaYicbuRZEFhBt-n3BfPLlu9u7akQAh8mpB9yODP3s4Xkowv9qF35FkSAM2hxXtRYnrpkhxBAKRhUpTIm_kb0guWVNihPtzC9415xikED6rDoAPiQUYFTrqj2ZO.

[25] Stephanie Vendemiatto Penereiro, Gustavo H. Kastrup, & Vitor Jardim Machado Barbosa, My Game, My Rules? O Enforcement Concorrencial do Brasil e do Mundo Relacionado ao Self-Preferencing, 1 Revista do IBRAC 59 (2023), https://revista.ibrac.org.br/index.php/revista/article/view/4/200.

[26] Anexo ao Parecer nº 17/2020/CGAA2/SGA1/SG/CADE, Ato de Concentração nº 08700.000627/2020-37, Conselho Administrativo de Defesa Econômica (Aug. 14, 2020), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?DZ2uWeaYicbuRZEFhBt-n3BfPLlu9u7akQAh8mpB9yNTvbEsQO6hM4OLUe5kpdugnCyZMLfLGz5eayQTZTy02uMnJteFo2jdtk-_FQpl06dcoGt93zn7JdCop-gADKVf.

[27] Netshoes, Recurso, Ato de Concentração nº 08700.000627/2020-37, Conselho Administrativo de Defesa Econômica (Sep. 1, 2020), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?DZ2uWeaYicbuRZEFhBt-n3BfPLlu9u7akQAh8mpB9yMvMUTZBztCiz5nljNFMlkJvwl3YPZynNDv5kWSSpe2bDOZrYHo1dL8Ce0Fxl3C11PFB8qSKBzf7vVP88QdTuqA.

[28] Acordo em Controle de Concentrações (ACC), Ato de Concentração nº 08700.000627/2020-37, Conselho Administrativo de Defesa Econômica (Sep. 1, 2020), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?DZ2uWeaYicbuRZEFhBt-n3BfPLlu9u7akQAh8mpB9yOJ5Xgeo8sm-drSUFY508gQJfKN3pzncQ4fYtcjfPxiS6altjTAqLGQxIK58F6YEAmxwhfAXx-sQcY3S1AuruPN.

[29] Nota Técnica nº 30/2022/DEE/CADE, Ato de Concentração nº 08700.003959/2022-35, Conselho Administrativo de Defesa Econômica (Nov. 7, 2022), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_processo_exibir.php?1MQnTNkPQ_sX_bghfgNtnzTLgP9Ehbk5UOJvmzyesnbE-Rf6Pd6hBcedDS_xdwMQMK6_PgwPd2GFLljH0OLyFT3Fr3NpoLkb1FQLNxKAd0MsaW6nmX9fL2xwRSOPcl3m.

[30] Nota Técnica nº 33/2023/CGAA11/SGA1/SG/CADE, Inquérito Administrativo nº 08700.003945/2020-50, Conselho Administrativo de Defesa Econômica (Apr. 19, 2023), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?HJ7F4wnIPj2Y8B7Bj80h1lskjh7ohC8yMfhLoDBLddY_X9cUsOiZo-Yts3uZC_BQ0G32xOmbb4JI-YXQ1fHyor_kWJ6kWm6VhlFtk9QIzigvujo4VOIKycL8XASUJFs-.

[31] Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, Int’l Ctr. L. Econ. (Sep. 22, 2022), available at https://laweconcenter.org/wp-content/uploads/2022/11/ICLE-White-Paper-2022-09-22-Antitrust-Unchained-The-EUs-Case-Against-Self-Preferencing.pdf.

[32] Colomo, supra note 11.

[33] Id.

[34] Legal Ground’s Report on the Impact of Bill 2768 on Legal Certainty: Summary of the Findings, Leg. Grounds Inst. (2024), available at https://legalgroundsinstitute.com/wp-content/uploads/2024/10/FindingsReportSelf-Preferencingfinal.pdf.

[35] Id.

[36] Id.

[37] Id.

I. Introduction

The philosopher Jean-Francois Lyotard coined the term “grand narrative” (grands récits, or “grand stories” in French) to refer to the meta-discourses or totalizing narratives of modernity that provide ideologies with a legitimizing history.^[1] The prevalent (or, at least, the loudest) grand antitrust narrative of today posits that so-called “digital markets” present unique anticompetitive and evidentiary challenges that can only be adequately addressed through ex-ante rules or strong presumptions that mitigate (if not entirely overturn) the previous “dogmatic” adherence to economic analysis. This story—a subplot in a broader fairy tale about the alleged unmitigated failure of antitrust in the “neoliberal era”^[2]—functions as the lynchpin of a new antitrust ideology that seeks to redefine the role of competition and competition law in society.^[3] Some jurisdictions, especially those seeking to catch up with the European Union and the United States, appear to have swallowed this tale hook, line, and sinker.^[4]

But as narratives go, this one has a glaring problem. The supposed consensus is, in fact, more fiction than fact, and can only be sustained under a strained interpretation of events and an increasingly selective reading of the literature.

First, digital markets are not the den of anticompetitive iniquity they are sometimes made out to be. As Herbert Hovenkamp^[5] has recently noted, digital markets don’t present the symptoms typically associated with systemic monopoly, such as slow growth, sluggish investment in R&D, and collusion. In other words, this is not the industry that rational, cost-effective antitrust authorities should prioritize. Second, antitrust authorities have roughly lost as many cases as they have won in digital markets. Enforcers’ mixed track record, combined with the fact that even the victories were hard fought in court (and not without controversy outside of it), suggests that the impugned conduct was anything but unequivocally pernicious for competition. Third, despite claims that there exists a consensus that digital markets necessitate special treatment under the competition laws, or stricter carve-outs from such laws, relatively few countries to date have taken significant steps in that direction, and only four such regulatory frameworks have been put into place. And even among proponents of this new form of competition regulation, there is no real consensus about the sorts of laws that are best suited for the task.

II. There Is No Consensus that Digital Markets Are Uniquely Anticompetitive

It is often assumed that digital markets—a term generally understood to mean those core markets in which Google, Amazon, Meta, Microsoft, and Apple are active (“GAMMA”)[6]—are notably prone to anticompetitive conduct and particularly vulnerable to monopolistic outcomes (tipping, winner-take-all, etc.). A baseline problem with this narrative is that the companies typically lumped together as defining “digital markets” (in fact, nearly every modern market, from banking to groceries, includes at least some significant digital component) are actually quite heterogeneous.[7] Generalizations about the competitive landscape across dozens of products and services rendered by different companies at different points in time are thus unlikely to be useful in any meaningful sense.

As Apple CEO Tim Cook has noted:

Tech is not monolithic. That would be like saying “All restaurants are the same” or “All TV networks are the same.”[8]

For instance, while Google (Alphabet) and Facebook (Meta) are information-technology firms that specialize in online advertising, Apple remains primarily an electronics-hardware company, with around 75% of its revenue coming from the sale of iMacs, iPhones, iPads, and accessories. As Amanda Lotz of the University of Michigan has observed:^[9]

The profits on those [hardware] sales let Apple use very different strategies than the non-hardware [“Big Tech”] companies with which it is often compared.

As such, even referring to these companies as constituent of the same industry (let alone market) makes little sense. Unless, of course, one is guided by political goals outside the purview of traditional antitrust law—as, e.g., the so-called “neo-Brandeisians” are.^[10]

Take, for example, the European Union’s Digital Markets Act (“DMA”). The reason the DMA’s notion of “gatekeeper” status appears so contrived^[11] from an economic, legal, and technical perspective is because the law’s economic, legal, and technical arguments were reverse engineered to apply to a set of predetermined firms that have little in common, apart from being, for the most part, U.S.-based, technologically intensive, and vastly resourced. Another thing they share is having used innovative business models to disrupt traditional industries,^[12] in the process capturing massive rents and attracting millions of users. In other words, they are the world’s most successful “tech”^[13] companies.^[14]

But even on its own terms, the notion that there exists a consensus that these digital markets specifically are uniquely and systematically anticompetitive in a way that requires pushing the boundaries of antitrust law is belied by legal, economic, and scholarly evidence.

For one, the U.S. Federal Trade Commission’s (FTC) attempts to stifle the GAMMA firms (and, in the process, to rewrite U.S. antitrust doctrine) have been a mixed bag to date, and have met with mounting resistance.

In 2023, the FTC failed to block Meta’s acquisition of virtual-reality company Within Unlimited. As Corbin Barthold[15] pointed out, even The New York Times had to admit the case was “built upon a little-tested legal theory that the deal would hurt future competition in an untested market.”^[16] The FTC’s challenge advanced the tortured theory that a budding market was already in danger of suffering a “substantial lessening of competition” from an acquisition that could, for all intents and purposes, contribute to developing that market by providing greater scale to a firm that remained just a small (albeit important) player. This so-called “actual potential competition” doctrine, building on the false contention that the antitrust laws reflect a statutory preference for “organic growth over growth through acquisition,”^[17] would effectively allow the FTC to challenge any acquisition where the agency could show that the acquirer might hypothetically develop the acquired business independently. This, however, is a fringe reading of U.S. antitrust law that is in no way endorsed by the mainstream,^[18] and that would, if accepted, decimate M&A-driven growth and innovation across the economy.^[19]

In a similar vein, the FTC also failed to stop Microsoft’s acquisition of Activision Blizzard. In July 2023, Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California ruled against the FTC, and denied the motion for a preliminary injunction. Contrary to the FTC’s assertions, the judge found that the deal would expand access to the Call of Duty franchise, especially since Microsoft had committed to keeping the popular action game on competitor Sony’s PlayStation platform (one of the FTC’s primary concerns). The FTC’s decision to appeal was met with strong backlash from venture-capital firms and investors, who argued in an open letter that the appeal “[threatened] the cycle of investment and entrepreneurship that drives America’s innovation economy.”^[20]  In addition, a group of 22 U.S. House Republicans sent a letter to the FTC urging it to drop the case and return to “sensible, consumer-oriented antitrust enforcement.”^[21]

The two cases’ failure momentarily foiled the agency’s aggressive attempts to recast vertical integration—which it had identified as one of the primary sources of the GAMMA firms’ success, and therefore a main source of concern—in the same light as horizontal mergers. But antitrust law has typically viewed the vertical integration as benign, and often even beneficial.^[22] As International Center for Law & Economics (ICLE) President Geoffrey Manne and former ICLE Director of Competition Policy Sam Bowman have explained:

Empirical research has consistently found vertical integration to be good for consumers through a number of mechanisms that allow for reduced costs and better product quality.^[23]

This is why antitrust merger enforcement has long relied on a fundamental distinction between horizontal and vertical mergers (or horizontal and vertical theories of harm, to be more precise): policymakers widely (and correctly) assume the former are far more likely to cause problems for consumers and competition than the latter.^[24]

Unable to persuade the courts, the FTC and U.S. Justice Department (“DOJ”) in 2023 issued draft merger guidelines that attempted to rewrite the law^[25] by, among other things, blurring the historical distinction between horizontal and vertical mergers,^[26] largely ignoring the costs of wrongly prohibiting or modifying mergers,^[27] and downplaying merger efficiencies.^[28] As many commentators have noted, however, the guidelines’ purpose is to provide a useful synthesis of established law, economic learning, and agency experience—not to create new doctrine.^[29] Far from forging a consensus, the 2023 draft merger guidelines thus far appear to have unraveled it.^[30]

There are even indications that, if they had their way, the agencies would cast all tech mergers—and perhaps even all mergers, period^[31]—as inherently problematic. For example, former Assistant U.S. Attorney General for Antitrust Jonathan Kanter and former FTC Chair Lina Khan have repeated the above-mentioned contention that U.S. antitrust law has a preference for “organic growth over acquisitions.”^[32] But, again, this interpretation of U.S. antitrust law generally, and of the Clayton Act specifically, is fanciful. As Gus Hurwitz and Geoffrey Manne have written on the 2023 merger guidelines:

Look at the antitrust agencies’ string of recent losses in major merger cases, including Microsoft’s acquisition of Activision and Meta’s acquisition of Within, to see that their views of antitrust law differ substantially from those of the courts.

The FTC has also suffered other important setbacks^[33] in its quest to realign antitrust law with the agenda to rein in U.S. tech firms. For example, the agency’s attempt to unwind Meta’s acquisitions of Instagram and WhatsApp, which it had waved through 10 years earlier, appears increasingly unlikely to succeed, given the competitive pressure exercised in the social-media space by the likes of TikTok, X.com, Mastodon, Bluesky, YouTube, Snapchat, Viber, Telegram, and Signal. The agency, nonetheless, appears undeterred.^[34] As Barthold put it:

The suit, premised on the notion that the social media market is static, has been overtaken by events.^[35]

Recent changes in the social-media market also cast doubt on the “tipping” theory often advocated by proponents of the DMA. Tipping theory suggests that competition in digital markets ceases once markets tip toward dominant players. Jinyul Ju of South Korea’s Pusan National University, who has criticized the Korea Fair Trade Commission’s (“KFTC”) platform-regulation bill, suggests that the tipping theory is “a mere hypothesis” without empirical basis. Ju also notes that:

Market definition becomes complex fact-based analyses with economic theories that from time to time lead to the intense debate in not only courtroom but also academic community. Any economic methods are contestable.^[36]

Thus, without substantial evidence, the tipping theory may risk false positives.

The Epic Games v. Apple saga put another dent in another one of the favorite dogmas of the new imaginary antitrust consensus: the idea that closed or semi-closed platforms are inherently worse for competition and consumers than open ones. The DMA elevates this dogma to the status of universal rule through the law’s interoperability requirement, laid down in Article 6(4).^[37] In 2021, however, the U.S. District Court for the Northern District of California found^[38] that Apple’s “walled-garden” model (specifically, its prohibition of third-party in-app payment systems and app stores) conferred important consumer benefits, including enhanced security and privacy. The court therefore upheld a much more nuanced understanding of the costs and benefits of each type of platform.^[39]

Other ongoing cases have also failed to curry anything even remotely close to unanimous support. The FTC’s 2023 case against Amazon,^[40] for instance, has been criticized for potentially harming consumer welfare if structural remedies are ultimately imposed in a bid to destroy Amazon’s incentive to give an “unfair” advantage to its own products on its own platform. As I argued in a piece co-authored with Geoffrey Manne,^[41] Amazon could presumably comply with any structural remedies designed to prevent it from exploiting its “anticompetitive flywheel” by shutting down its third-party Marketplace. Amazon itself would thus remain the only seller on Amazon.com—either running its logistics business solely for itself (the “Walmart option”) or offering its logistics service for off-platform sellers, as well (the “Shopify option”). This would be a huge step back for consumers and sellers currently active on Marketplace, although it may help some competitors who stand to gain from Amazon’s apparent ruin.

The case is emblematic of another questionable tenet of the “new antitrust consensus”: the idea that antitrust law should de-emphasize consumer welfare and focus on market structure, the protection of competitors, or vague notions of “fairness.” This idea is especially pertinent to digital markets, where prices are unquestionably low, and output is high. Such features mean that consumer harm is either difficult to prove, or that it does not exist.

Antitrust revisionists have sought to recast as reactionary any who would defend the hitherto uncontroversial view that antitrust law should remain tethered to robust economic analysis of effects on consumers. But this effort to shift the so-called Overton Window has been only partially successful. Contrary to the claims of consensus,^[42] a litany of voices from across the political spectrum have loudly opposed this new political philosophy of antitrust law.^[43]

Finally, not even antitrust agencies themselves are on the same page, with many current and former enforcement officials strongly disapproving of the new directions taken in competition law.

Formers senior officials at the FTC, for instance, have complained about that agency’s disregard for the law and statutory and precedential limits on the agency’s authority. In her letter of resignation,^[44] former FTC Commissioner Christine Wilson argued that “knowledgeable career staff have been scorned and sidelined,” leading to an exodus from the agency and a historical fall in staff morale.^[45] Further, according to Wilson, a “gag order was imposed on staff that prevented them from engaging in consumer and business education.” Due process, the rule of law, and precedent had apparently taken a back seat to ideology at the FTC.^[46] As Wilson wrote in a Wall Street Journal op-ed:

In November 2022, the commission issued an antitrust enforcement policy statement asserting that the FTC could ignore decades of court rulings and condemn essentially any business conduct [that] can be labeled with a nefarious adjective — ‘coercive,’ ‘exploitative,’ ‘abusive,’ ‘restrictive.”^[47]

As indicated above, many of these half-baked “you know it when you see it”^[48] theories of harm have targeted digital markets. This, indeed, has been Lina Khan’s focus since even before^[49] she joined the FTC.^[50] This approach has also extended to other areas of the FTC’s work, as reflected in sweeping revisions to several of the agency’s internal rules and procedures. Such changes, often made without public input, have included the withdrawal of enforcement guidelines and policy statements.

For example, in their dissent to the FTC’s adoption of revised Section 18 rulemaking, then-Commissioners Wilson and Noah Joshua Phillips noted that the procedural changes threatened to “undermine the goals of participation and transparency” and “limit public input,” while facilitating a biased evidentiary record.^[51]

ICLE’s Daniel J. Gilman, a former veteran FTC attorney advisor, has expressed concerns that these changes undermine the agency’s credibility and effectiveness. Furthermore, such actions “did little to signal the commission’s new view of its authority,” apart from indicating that a more expansive approach was forthcoming.^[52]

In sum, this is hardly the sort of landscape that shouts “consensus.” Even those court decisions that vindicate enforcers’ theories of harm are nowhere near the sort of victories that would justify elevating them to the level of universal principles that require no evidence of harm and admit no exemptions (see, e.g., the DMA).

III. There Is No Consensus that a Special Approach to Digital Markets Is Needed

Despite the EU’s premature vociferations claiming victory for writing the new  rulebook^[53] for digital competition regulation, the reception of that rulebook by the rest of the world has thus far been only lukewarm. To date, only a handful of countries^[54] have adopted sector-specific digital competition rules. In addition to the EU itself, Germany, Japan, and the United Kingdom have adopted regulatory regimes for digital markets that bear some resemblance to the DMA. Granted, other countries are considering the adoption of such rules (most notably, Brazil, Turkey, South Korea, South Africa, India, and Australia), but whether these will ultimately become law remains anyone’s guess.

In addition, the number of countries that have adopted ex-ante rules pales in comparison to those that have not. The United States, most notably, has rejected the path set out by the EU, as is evident from the slow death of the congressional antitrust legislative package^[55] amid growing criticism.^[56] Moreover, as Dae-Sik Hong and Daniel Sokol have pointed out:

The United States rejected such a legislative effort and its proponents have come under significant attack by academics and Congress. Likewise, most American courts have rejected this novel approach, and antitrust authorities that have brought lawsuits under such non-traditional legal theories have lost virtually every case, especially when seeking to block corporate mergers.^[57]

Other countries’ commitment to joining the alleged^[58] “global regulatory trend” are also teetering. For example, it was recently reported that India could scrap proposed legislation to regulate digital platforms,^[59] amid fierce backlash from lawyers. The South Korean government  earlier backtracked^[60] on its plans to pass the Platform Competition Promotion Act (“PCPA”), which was likewise inspired by the DMA. The South Korean government is instead contemplating a more modest—albeit still questionable—reform of its Fair Trade Act.^[61] The Philippines competition authority also recently ruled out a DMA-style bill.^[62]

Indeed, it is becoming more apparent that digital competition rules might be little more than a peculiarity of EU industrial policy. As I have pointed out previously,^[63] prior to the DMA’s adoption, many leading European politicians touted the law’s text as a protectionist industrial-policy tool that would hinder U.S. firms to the benefit of European rivals.^[64] French President Emmanuel Macron summarized it well when he said:

If we want technological sovereignty, we’ll have to adapt our competition law, which has perhaps been too much focused solely on the consumer and not enough on defending European champions.^[65]

Insofar as these goals are unique to a particular time and place (i.e., the EU in the 2020s), it is reasonable to assume they will not necessarily be shared by everyone. Sure enough, they are not. Indeed, some countries may be more interested in attracting digital platforms than in regulating,^[66] “disciplining,”^[67] or punishing them.^[68] Echoing the argument that “one size does not fit all” when it comes to digital competition regulation,^[69] Hong and Sokol note that among the reasons that ex-ante digital competition rules are inappropriate for South Korea is the marked differences between that nation’s economic, legal and regulatory context and that of the the EU:

Europe chose to regulate heavily for protectionist reasons. It lacks the tech infrastructure, innovative companies, and unicorns that are present in other vibrant economies like Korea. […] While Korea has approximately three times more unicorns than Japan, despite having a smaller gross domestic product, the adoption of a DMA-like approach may hurt Korea’s innovation advantage.^[70]

Similarly, Samir Ghandi argues that the DMA’s “one size fits all” approach would not work “for a dynamic Indian market with its own vibrant tech ecosystem.”^[71]

Other, less technologically intense countries like South Africa might have a still different set of priorities, such as attracting foreign direct investment to drive growth and the development of essential infrastructure. As I wrote in a piece with Geoffrey Manne:

Developing countries like South Africa should be especially wary of importing untested competition rules that impose government-mandated designs on the business models and user interfaces of innovative companies. It’s not trite to say that South Africa’s market is not the same as the EU’s. The consequences of unsound competition policy here may be to stymie foreign investment and domestic innovation exactly where they are needed most. […] This is a far cry from the untested, preemptive constraints contemplated by the [South Africa Competition Commission].^[72]

The point is that countries’ needs are as varied as those countries themselves. This does not preclude the possibility of common rules and standards; after all, most of the world’s competition-law systems have converged around some version of the consumer welfare standard.^[73] But one explanation for this commonality can be found in how the consumer welfare standard fares when compared to the alternatives:

The objective nature of the choice and interpretation of legal antitrust standards exists on a spectrum, and the [consumer welfare standard] conceptual congruence, measurability, and its connection to aspects that are almost universally considered to be relevant parameters of competition (price, innovation, quality) brings it closer to objectivity and further away from subjectivity.^[74]

Conversely, once it is understood that the DMA represents an attempt to pass off a sui generis, subjective policy choice as a universal regulatory paradigm, the case for harmonization quickly withers away. Clearly, not everyone is on board with trading economic performance for a set of questionable political goals.^[75] In this sense, one frequent criticism of ex-ante competition rules is that they ignore—or, at the very least significantly downplay—the effects on consumer welfare and innovation (the traditional bastions of competition policy). Instead of focusing on protecting competition to the benefit of consumers, digital competition rules commit the cardinal antitrust sin of protecting competitors. As former FTC Commissioner Maureen Ohlhausen has put it:

Some recent legislative and regulatory proposals appear to be in tension with this basic premise. Rather than focusing on protection of competition itself, they appear to impose requirements on some companies designed specifically to facilitate their competitors, including those competitors that may have fallen behind precisely because they had not made the same investments in technology, innovation or product offerings. For example, the Digital Markets Act (DMA) would force a ‘gatekeeper’ company to provide business users of its service, as well as those who provide complementary services, access to and interoperability with the same operating system, hardware, or software features that are available to or used by the gatekeeper. While this would restrain gatekeepers and presumably facilitate the interests of the gatekeeper’s rivals, it is not clear how this would protect consumers, as opposed to competitors.^[76]

This, of course, is only surprising if one falls for the story that digital competition rules—and the DMA, in particular—were ever intended to protect competition or the welfare of consumers. As I argued in a paper with Geoffrey Manne and Dirk Auer,^[77] their goal is instead to redistribute rents, protect competitors, and level down gatekeepers, even if it comes at the expense of consumers.^[78] There is no better example of this than the DMA, whose preamble explicitly disavows consumer welfare and economic efficiency as irrelevant under the new rules.

As commentators around the world have pointed out, this approach is likely to stymie dynamism in digital markets and harm consumers. As noted above, Hong and Sokol argue against introducing ex-ante digital competition regulations in South Korea, contending that such rules would stifle innovation, decrease investment, hurt startups and consumers, and jeopardize South Korea’s status as a regional leader in tech innovation.^[79] Carmelo Cennamo and Juan Santaló further argue that the DMA could produce a host of other harmful unintended consequences.^[80] For example, undermining gatekeepers’ ability to control access to their platforms could ultimately lead to lower levels of innovation. Obligations like data-sharing could reduce gatekeepers’ incentives to accumulate and process data, thereby diluting the competitive benefits and product improvements that result from such data collection.

Similarly, self-preferencing can drive value creation,^[81] and is often itself an expression of competition on the merits.^[82] There are several procompetitive reasons why firms may choose to give preferential treatment to their own downstream (or upstream) products or services, such as tighter quality control, better assurance of delivery (including better delivery tracking), lower transaction costs, and greater product differentiation. Thus, as Cennamo and Santaló have argued:

Prohibiting gatekeepers from giving their own products or services a better ranking or position on their platform than those of third parties, as the DMA does, might fail to take into account that those platform owners may also introduce their own products or services in order to steer innovation efforts towards certain areas or differentiate their ecosystem in strategic ways. This can lead to increased value for customers and overall innovation within a platform’s ecosystem.^[83]

Where gatekeepers face strong competition from other gatekeepers, the benefits of “cross-platform competition may outweigh the potential harm of reduced within-platform competition.”^[84]  This is applicable beyond the context of self-preferencing to closed and semi-closed platforms more generally. Indeed, as the court recognized in the Epic Games case, Apple’s ability to filter out harmful content on its iOS platform was an important differentiator with respect to Google’s relatively more open Android OS.[85]

While much of this discussion is rooted in theory and speculation, the DMA’s practical consequences are beginning to become apparent, as seen in delayed roll-outs of innovative products in the EU and a generally degraded consumer experience. In June 2024, for example, Apple announced it would delay the launch of three features in the EU (phone mirroring, SharePlay screen-sharing enhancements, and Apple Intelligence), citing security concerns the stem from the DMA’s interoperability requirements.^[86]

Meta similarly announced it would not launch its multimodal-AI models or products in the EU due to the “unpredictable regulatory environment.”^[87] While this may not refer specifically to the DMA (indeed, it could be referring to the EU’s GDPR or the AI Act), Meta had in 2023 already warned that “the DMA has caused, and may in the future cause, us to incur significant compliance costs and make changes to our products or business practices.”^[88] Among the obstacles Meta cited^[89] were the DMA’s large penalties (up to 20% of a company’s annual worldwide turnover in the case of recidivism, for which the bar is set extremely low) and its restrictions and requirements related to the combination of data across services, mergers and acquisitions, and product design.

Almost immediately following the DMA’s full entry into force in March 2024, Google removed useful features from its search results page, such as Google Flights and Google Maps.^[90] To avoid infringing the self-preferencing prohibition of the DMA, users in the EU are no longer allowed to access Google Maps by clicking on the thumbnail that pops up on Google search.^[91] Google explained these changes as follows:

We’ve always been focused on improving Google Search to help people quickly and easily find what they’re looking for. .. Rules that roll back some of these advances represent a fundamental shift in competition policy. We encourage other countries contemplating such rules to consider the potential adverse consequences — including those for the small businesses that don’t have a voice in the regulatory process.^[92]

This echoes arguments that Google’s parent Alphabet had made earlier. In its 2023 Form 10-K filing to the U.S. Securities and Exchange Commission (“SEC”), for example, the company lamented the uncertain regulatory landscape and contended that:

Our compliance with these laws and regulations may be onerous and could, individually or in the aggregate, increase our cost of doing business, make our products and services less useful, limit our ability to pursue certain business models, cause us to change our business practices, affect our competitive position relative to our peers, and/or otherwise harm our business, reputation, financial condition, and operating results. (emphasis added)^[93]

As Dirk Auer has pointed out,^[94] “not only is this inconvenient for consumers, but it has important ramifications for business users: Early estimates suggest that clicks from Google ads to hotel websites decreased by 17.6%^[95] as a result of the DMA.” Microsoft, another DMA gatekeeper, announced in November 2023 that it would delay the launch of some features in the EU—including Copilot, a generative AI chatbot. ^[96]

Some consumers and policymakers may be willing to accept these tradeoffs in pursuit of equity, fairness, contestability, “reining in” tech giants, or some other goal.^[97] But others, reasonably, may not. Thus, commentators from both within and outside the EU have increasingly questioned the need for rules that mechanically apply pre-set default solutions to the complex tradeoffs that have typically characterized competition-law analysis. This is of particular concern in dynamic markets driven by innovation, where uncertainty is endemic and where, except in the most egregious of cases,^[98] even the wisest enforcers can’t know a priori whether or not given conduct is procompetitive.^[99] Against this backdrop, tales of a supposed consensus in support of a special set of competition rules for digital platforms are rooted more in fantasy than in reality.

IV. There Is No Consensus About What the Correct Approach to Digital Competition Rules Should Be

Even in those jurisdictions that have taken steps to adopt “sector specific” competition rules in digital markets, there is no consensus about how these rules should be structured. To be sure, as I wrote in a recent paper with Geoffrey Manne and Dirk Auer,^[100] there are important thematic commonalities across so-called digital competition regulations. But on a legal and formal level, these approaches are vastly heterogeneous.

Digital competition rules find themselves in a “difficult epistemological situation,”^[101] where it is unclear whether they constitute competition law, sector-specific regulation (although digital markets are not sufficiently homogeneous to be considered a “sector”),^[102] or something else. Some have referred to them as the “lost child of competition law.”^[103]

Thus, some digital competition rules are an extension of competition-law frameworks and are sometimes even formally embedded into existing competition laws. In principle, where this is the case, it means that the standard goals and rationales of competition law still apply.

Germany, for instance, has amended its Competition Act by emphasizing the need to “intervene at an early stage in cases where competition is threatened by certain large digital companies.”^[104] The new rules enable the Bundeskartellamt to prohibit certain categories of conduct and impose remedies following a structural inquiry independent of any actual or potential abuse. Unlike the DMA, the Competition Act’s Article 19a permits targeted companies to justify their conduct. Contrary to the norms of competition law, however, the burden of proof rests with the defendant.

With its draft amendments to Law 4054 (Turkey’s Competition Act),^[105] Turkey has followed a similar path to Germany, although some of the new provisions go significantly further than even the DMA, partly due to their open-ended nature. For instance, the Turkish draft amendment would appear to prohibit all forms of tying and bundling, as well as potentially all exclusivity agreements. It also isn’t clear whether the prohibitions apply to all conduct by the designated digital platforms, or only to the “core platform services.”^[106] It also doesn’t contemplate any avenues for a defense—not even the narrow public-health and security exemptions laid down in the DMA.

South Korea recently scrapped plans for the PCPA—legislation inspired by the DMA.^[107] The KFTC and the government of recently impeached and indicted President Yoon Suk Yeol[108] instead announced support for amendments to the existing Fair Trade Act.^[109] Under the new rules, in cases where designated digital platforms are accused of self-preferencing, tying, or imposing most-favored nation (“MFN”) clauses or restrictions on multi-homing, the amendments would raise fines, reverse the burden of proof, and allow interim orders, including cease and desists, to be issued immediately. It also appears—although it is not certain—that the new rules would give targeted companies some leeway to mount a defense, such as by showing pro-competitive efficiencies.^[110]

There are other proposed and enacted digital competition rules that are at least nominally, competition-based, although their approaches differ. The UK’s Digital Competition and Consumers Bill (“DMCC”) allows the Competition and Markets Authority’s (“CMA”) newly created Digital Markets Unit (“DMU”) to impose “bespoke” conduct requirements on companies with “strategic market status.” This approach contrasts with the DMA, which contains (allegedly) self-executing blanket prohibitions by which all gatekeepers must abide.^[111] By contrast, under the DMCC, the DMU determines how each designated firm must conduct itself in order to achieve the law’s stated objectives of “fair dealing,” “open choices,” and “trust and transparency.” These conduct requirements must be chosen from a list of “permitted types” (e.g., prohibiting self-preferencing, or requiring choice screens).

S. 29 of the DMCC provides for a “countervailing benefits exception” to conduct requirements. But apart from the fact that the exemption sets a high bar to clear (the behavior must be “indispensable”), it also only applies once an investigation into breach of a conduct requirement is underway. As I have argued elsewhere, it is questionable how useful this defense will prove to be in practice.^[112]

India appears to be taking a middle path between the DMCC and the DMA, wherein certain firms would be designated as “systemically significant enterprises” and subject to six obligations and prohibitions, albeit with more space for customization by the enforcer. The Indian Draft Digital Competition Bill^[113] (“DDCB”) supplements the Indian Competition Act (“ICA”), but pursues different goals. The ICA’s stated goals^[114] are the protection of the interests of consumers and free trade, while the DDCB (like the DMA) pursues fairness and contestability.

Interestingly, however, the report^[115] that accompanied the DDCB’s publication stated that the bill’s goals were aligned with those of the ICA, as both supposedly aimed to promote “fairness and contestability.” This is surprising, since:

The Report of the High-Powered Expert Committee on Competition Law and Policy^[116] (“Raghavan Committee Report”), which served as the basis for the [2002] ICA, modernized Indian competition law by moving it away from the structure-based paradigm of the earlier Anti-Monopolies and Restrictive Trade Practices Act of 1969 and toward an economic-effects-based analysis. The Raghavan Committee Report was unequivocal in its support of consumer welfare as the system’s ultimate goal. Moreover, the report advised against a plurality of goals, including, specifically, “bureaucratic perceptions” of equity and fairness, which, it argued, were mutually contradictory, difficult to quantify, and potentially opposed to the sustenance of free, unfettered competition ^[117].

The difficulty of squaring the goals and rationale of digital competition rules and pre-existing competition laws shouldn’t come as a surprise, as the two are rooted in different normative visions of the role of competition and competition rules in society. At worst, these two visions are incompatible. Indeed, for digital competition rules, competition is no longer about efficiency or consumer welfare; it is instead about “fairness” and equity.

This recasts “competition” as a participatory process, where participation is more-or-less guaranteed, rather than a rivalrous one, where the overarching theme is precisely that it is not.^[118] Beyond the epistemological implications of this discrepancy, the contrived reinterpretation of competition laws to fit the new regulatory meta-narrative adds another spin on the complex relationship between competition law and digital competition regulation, with firms already operates under the looming threat of double and possibly even triple jeopardy.^[119] It suggests, in sum, that the goals of digital competition regulate may intermingle with and ultimately come to influence competition law. As I have written in the context of South Korea’s proposed reform of the Fair Trade Act:

Introducing these exogenous principles for oversight of digital platforms into the existing antitrust statute might subvert the prevailing system’s logic by emphasizing bigness, structural presumptions, and sui generis rules in ways that could eventually spread to other sectors and undermine the integrity, consistency, and predictability of the [antitrust] law.^[120]

Meanwhile, in the United States, several bills have been put forward that are formally separate from existing antitrust law, but cover some of the same conduct as would typically be addressed under U.S. antitrust law—albeit with seemingly different goals and standards.^[121] While the U.S. tech bills largely fail to describe their underlying goals, the bills’ titles and statements made by their sponsors suggest a set of overlapping concerns, such as preventing “material harm to competition” (which superficially sounds like an antitrust objective but, as the American Bar Association’s Antitrust Section has pointed out, isn’t);^[122] reducing “gatekeeper power in the app economy”; and “increasing choice, improving quality, and reducing costs for consumers.”^[123] But the measures also pursue other goals that are less obviously connected to competition, such as creating opportunities for small businesses and entrepreneurs, achieving a level playing field, and ensuring “fair” prices.^[124]

Brazil’s PL 2768,^[125] which has some of the lowest quantitative thresholds for a company to be considered a “gatekeeper” (roughly €11.6 million), pursues an expansive grab bag of social and economic goals, including freedom of initiative; free competition; consumer protection; reduced regional and social inequality; combating the abuse of economic power; widening social participation in matters of public interest; access to information, knowledge, and culture; and fostering innovation and mass access to new technologies and access models. Like the DMCC, the obligations and obligations would be tailored to each company. The provisions are broadly phrased, however, and some appear to be open to expansive interpretations. For example, Art.10(IV) prohibits gatekeepers from refusing access to business users—seemingly tout court (although Art.11 then requires enforcers to act with proportionality when establishing obligations).

Japan, whose Smartphone Act is part of an overarching policy shift “towards a new form of capitalism,”^[126] covers only four core platform services. By comparison, other digital competition rules typically cover around 10, replicating the DMA’s scope. Further, the Smartphone Act’s dos and don’ts would only apply when consumers access products or services on their phones (e.g., Google is only prohibited from engaging in self-preferencing on smartphones,^[127] but not on laptops or PCs). The Smartphone Act also allows greater scope for privacy and security exemptions. Whereas the DMA only allows for such exemptions in the case of interoperability and sideloading (the Smartphone Act also does not mandate sideloading), it appears that privacy, safety, and user protection constitute valid justifications for most types of conduct covered by the Smartphone Act.^[128]

In South Africa, the South Africa Competition Commission (“SACC”) published its Online Intermediation Platforms Market Inquiry Final Report,^[129] which calls for remedial actions against certain popular intermediation platforms. These are largely the usual GAMMA suspects, with Amazon was identified as a potential target of regulation despite not being present in South Africa at the time. These remedies would presumably be imposed by the SACC within the framework of the South African Competition Act. Unlike other digital ex-ante regulations, the SACC explicitly admits that its proposed remedies aim to redistribute wealth from the targeted digital companies to certain social groups—namely, South African companies, historically disadvantaged peoples (“HDPs”), and small and medium-sized enterprises (“SMEs”), particularly those owned by HDPs. For instance, the SACC’s report recommends requiring Google to add a South African flag identifier and South African platform filter to “aid consumers to easily identify and support local platforms in competition to global ones,” and to directly pay competitors R150 million (roughly $8 million) in “training, product support and other measures for SME and black-owned online firms to offset the competitive disadvantage faced on Google Search.”

A similar thread runs through the entire SACC report. It recasts “undistorted competition” as precisely the distortion of competition in favor of struggling small, local, and/or national competitors, and redefines competition regulation via a haphazard blend of industrial policy and wealth redistribution (e.g., Booking.com would be forced to invest in promoting SMEs and UberEats would be banned from offering deals to preferred customers that “decimate” SMEs).

There are two ways to interpret this. The first is that the South African model goes significantly further than the DMA—which, once again, cuts against the consensus narrative. The second is that the South African model is simply saying the quiet part out loud: Digital competition rules exist to redistribute rents, prop up select competitors (domestic SMEs, national champions, etc.), and “protect competition” by distorting it to hamstring incumbents.

But even if the latter is true, the fact that common themes exist across digital competition rules does not negate the many consequential differences in the design, enforcement, and structure of such rules. These discrepancies put the final nail in the coffin of the consensus narrative.

For example, will the DMCC’s “bespoke” interventions match those imposed under the DMA? Will they cover the same companies? In the few jurisdictions where privacy, security, and consumer welfare considerations still matter as defenses, will they be evaluated in the same way? Are digital competition rules part of competition law (as in Germany), or are they definitely not (as in the EU)?

These question have momentous conceptual but also practical implications: What will happen when the stated (although arguably pretextual) goals of fairness, equality, participation, and protection of SMEs (to name a few) inevitably clash with traditional notions of competition that use consumer welfare and economic efficiency as the relevant yardsticks to demarcate pro and anticompetitive conduct? What will the “consensual” solution be to ranking imponderable values across countries with vastly different strategic and policy priorities?

The truth is that nobody knows, but convergence, like consensus, appears unlikely under these circumstances.

V. Conclusion

The objective of this issue brief is not to dismantle the antitrust consensus about the need for special, sector-specific competition rules in digital markets. Rather, the goal is to argue that no such consensus exists and, by extension, that the meta-narrative on which the antitrust counter-revolution rests^[130] is grossly exaggerated, at best, and fanciful at worst. To be sure, I do not make the argument that there is a consensus in the opposite direction, either.

So why does it persist? Grand narratives will always be compelling because they tap into popular themes and prejudices to offer simple stories about (and solutions to) complex phenomena. As narratives go, the new antitrust meta-narrative is particularly difficult to dispel, because it rides a generational populist anti-capitalist wave built on a shaky but attractive ideational foundation: “techno-feudalism,” “surveillance capitalism,” “neoliberalism,” etc. These are the bogeymen of our time, and “Big Tech” embodies them all.

Here, narrative appeal trumps facts and analysis. It doesn’t matter that those brandishing the term cannot even properly define what “neoliberalism” is. It doesn’t matter that, despite the supposed hegemony of neoliberalism, government spending as a percentage of GDP has exploded.^[131] It doesn’t matter that markets are shot-through with laws and regulation.^[132] It doesn’t matter that “killer acquisitions” constitute a minuscule portion of tech acquisitions.^[133]

Meta-narratives are big stories that rely on big, sweeping claims. What they offer is a story of heroes and villains;^[134] good vs. evil; the righteous vs the wicked. And in such a story, there is no place for nuance and no need for evidence.

Ultimately, proponents of the DMA and similar regulatory regimes hope that their fantasy will become a self-fulfilling one. If they can convince the uncommitted that everyone else is already following suit, then no one will want to be left behind. But countries contemplating reform on this basis should understand that the antitrust consensus they are banking on is an illusion. By the time this illusion dissipates, it may be too late.

Grand narratives become harder to dispel with time, as they take root in the popular imagination. They are even harder to dispel once they are codified in law.

^[1] Jean-François Lyotard, The Postmodern Explained to Children: Correspondence, 1982–1985 (1992), (introducing the term “grand narrative” to describe totalizing narratives of modernity).

^[2] Thomas A. Lambert & Tate Cooper, Neo-Brandeisianism’s Democracy Paradox, 49 J. Corp. L. (2023).

^[3] Lazar Radic, Geoffrey A. Manne, & Dirk Auer, Regulate for What? A Closer Look at the Rationale and Goals of Digital Competition Regulations, 22(1) Berkeley Bus. L.J. (2024); Lazar Radic, Political Philosophy, Competition, and Competition Law: The Road to and from Neoliberalism, Part 3, Truth Mark. (Oct. 10, 2022), https://truthonthemarket.com/2022/10/10/political-philosophy-competition-and-competition-law-the-road-to-and-from-neoliberalism-part-3; Larry Kramer, Beyond Neoliberalism: Rethinking Political Economy, William & Flora Hewlett Found. (Apr. 26, 2018), https://hewlett.org/library/beyond-neoliberalism-rethinking-political-economy.

^[4] See, e.g., Aspectos Econômicos e Concorrenciais e Recomendações Para Aprimoramentos Regulatórios No Brasil, Ministerio da Fazenda (2024), available at https://www.gov.br/fazenda/pt-br/central-de-conteudo/publicacoes/apresentacoes/2024/outubro/arquivo/plataformas-digitais-concorrencia_10102024-pptx-1.pdf (reiterating many of the standard tropes of digital competition regulation—e.g., the uniqueness of digital platforms, the insufficiency of antitrust law, the pervasiveness of anticompetitive conduct, an alleged link between a country’s economic downturn and the economic dominance of a few tech companies, and asserting a supposed trend toward ex-ante regulation).

^[5] Robert Armstrong & Ethan Wu, What Big Tech Antitrust Gets Wrong: An Interview with Herbert Hovenkamp, Financ. Times (Jan. 19, 2024), https://www.ft.com/content/4eec8bc3-c892-4704-ae66-a4432c6d4fd7.

^[6] Press Release, Commission Designates Six Gatekeepers Under the Digital Markets Act, Eur. Comm. (Sep. 6, 2023), https://digital-markets-act.ec.europa.eu/commission-designates-six-gatekeepers-under-digital-markets-act-2023-09-06_en.

^[7] Amanda Lotz, Big Tech Isn’t a Monolith. It’s 5 Companies, All in Different Businesses, Houst. Chron. (Mar. 26, 2018), https://www.houstonchronicle.com/techburger/article/Big-Tech-isn-t-a-monolith-It-s-5-companies-12781761.php; Walid Chaiehloudj, On “Big Tech and the Digital Economy”: Interview with Professor Nicolas Petit, Compet. Forum (Jan. 11, 2021), https://competition-forum.com/on-big-tech-and-the-digital-economy-interview-with-professor-nicolas-petit.

^[8] Isobel Asher Hamilton, Tim Cook Says He’s Tired of Big Tech Being Painted as a ‘Monolithic’ Force That Needs Tearing Apart, Bus. Insid. (May 7, 2019), https://www.businessinsider.com/apple-ceo-tim-cook-tired-of-big-tech-being-viewed-as-monolithic-2019-5.

^[9] Lotz, supra note 7; see also Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth Mark. (Nov. 8, 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation.

^[10] Dirk Auer & Lazar Radic, The Legacy of Neo-Brandeisianism: History or Footnote?, Netw. Law Rev. (Jul. 9, 2024) https://www.networklawreview.org/auer-radic-brandeisianism.

^[11] Radic, supra note 9.

^[12] Adam Hayes, 20 Industries Threatened by Tech Disruption, Investopedia (Jan. 23, 2022), https://www.investopedia.com/articles/investing/020615/20-industries-threatened-tech-disruption.asp.

^[13] Alex Payne, What Is and Is Not a Technology Company, Arch. Today (May 7, 2021), https://archive.vn/XUh8C.

^[14] The 100 Largest Companies in the World by Market Capitalization in 2023, Statista (Jun. 2024), https://www.statista.com/statistics/263264/top-companies-in-the-world-by-market-capitalization.

^[15] Corbin K. Barthold, Failing Upward: For Lina Khan’s Federal Trade Commission, Dysfunction Is No Bar to Ambition, City J. (Aug. 17, 2023), https://www.city-journal.org/article/ftc-chair-lina-khan-fails-upward.

^[16] Ephrat Livni & Michael J. de la Merced, Microsoft’s Activision Deal Tests a New Global Alignment on Antitrust, N.Y. Times (Feb. 6, 2023), https://www.nytimes.com/2023/02/04/business/dealbook/microsofts-activision-deal.html.

^[17] Lina Khan & Jonathan Kanter, Joint Comment to Canada Competition Authority on the Ministry’s Public Consultation Paper on the Future of Competition Policy in Canada, Fed. Trade Comm. & U.S. Dep. Justice (Mar. 31, 2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/USFTC-USDOJ-joint-comment-to-Canada-Consultation-Paper.pdf.

^[18] Gus Hurwitz & Geoffrey Manne, Antitrust Regulation by Intimidation, Wall Str. J. (Jul. 24, 2023), https://www.wsj.com/articles/antitrust-regulation-by-intimidation-khan-kanter-case-law-courts-merger-27f610d9.

^[19] Alden Abbott, Chair Khan’s Latest Flawed Perspective on Mergers Ignores Empirics and Sound Economics, Truth Mark. (May 16, 2022), https://truthonthemarket.com/2022/05/16/chair-khans-latest-flawed-perspective-on-mergers-ignores-empirics-and-sound-economics.

^[20] Venture Capital Community Statement of Support for Amicus Brief Filed in F.T.C. v. Microsoft Corp. & Activision Blizzard, Inc., (Dec. 2024), available at https://blogs.microsoft.com/wp-content/uploads/prod/sites/5/2023/12/Venture-Capital-Statement-of-Support.pdf.

^[21] Letter from Members of Congress to Lina Khan, Chair, Rebecca Slaughter, Commissioner, & Alvaro Bedoya, Commissioner, Fed. Trade Comm. (Jul. 17, 2023), available at https://armstrong.house.gov/sites/evo-subsites/armstrong.house.gov/files/evo-media-document/house-letter-to-ftc-re-msft-abk-merger-final-7.17.2023_0.pdf.

^[22] Sam Bowman & Geoffrey Manne, Vertical Integration: Economies of Scope, Int’l Ctr. L. Econ. (Jul. 2020), available at https://laweconcenter.org/wp-content/uploads/2020/07/ICLE-tldr-Vertical-integration_-economies-of-scope-FINAL.pdf; Geoffrey A. Manne, Dirk Auer, Brian Albrecht, Eric Fruits, Daniel J. Gilman, & Lazar Radic, Comments of the International Center for Law and Economics on the FTC & DOJ Draft Merger Guidelines, Int’l Ctr. L. Econ. (Sep. 18, 2023), https://laweconcenter.org/resources/comments-of-the-international-center-for-law-and-economics-on-the-ftc-doj-draft-merger-guidelines.

^[23] Bowman & Manne, id.

^[24] Manne et al., supra note 22.

^[25] Daniel J. Gilman, The 2023 Merger Guidelines: What Are They Good For?, Int’l Ctr. L. Econ. (Jan. 29, 2024), https://laweconcenter.org/resources/the-2023-merger-guidelines-what-are-they-good-for.

^[26] Manne et al., supra note 22.

^[27] Richard A. Epstein, The DOJ and FTC’s Misguided Attack on Mergers, 49(2) J. Corp L. 276 (Jan. 23, 2024), available at https://jcl.law.uiowa.edu/sites/jcl.law.uiowa.edu/files/2024-01/Epstein_Final.pdf.

^[28] Luke M. Froeb, D. Daniel Sokol, & Liad Wagman, Cost-Benefit Analysis Without the Benefits or the Analysis: How Not to Draft Merger Guidelines, 97 S. Cal. L. Rev. PS1 (Aug. 10, 2023), available at https://southerncalifornialawreview.com/wp-content/uploads/2023/10/Froeb-Sokol-Wagman_Final.pdf.

^[29] Id.; see also Hurwitz & Manne, supra note 18.

^[30] Susan Dudley & Mary Sullivan, Recent Antitrust and Regulatory Changes Both Unravel the Consensus, Truth Mark. (Sep. 18, 2023), https://truthonthemarket.com/2023/09/18/antitrust-and-regulatory-changes-both-unravel-the-consensus.

^[31] Epstein, supra note 27.

^[32] Khan & Kanter, supra note 17.

^[33] Editorial Board, Another Lina Khan Theory Loses in Court, Wall Str. J. (May 15, 2024), https://www.wsj.com/articles/ftc-loses-lawsuit-welsh-carson-u-s-anesthesia-partners-kenneth-hoyt-lina-khan-9a83b653.

^[34] David Meyer, FTC Claims Facebook Withheld Information When Buying Instagram and WhatsApp, Fortune (Jun. 5, 2024), https://fortune.com/2024/06/05/ftc-facebook-withheld-information-instagram-whatsapp-meta-acquisition.

^[35] Barthold, supra note 15.

^[36] Jinyul Ju, Market Definition, Antitrust Error, and Digital Platforms in Korean Competition Law and Policy, 61(3) Pusan Natl. Univ. L. Rev. 225 (Dec. 11, 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3684985.

^[37] Council Regulation 2022/1925, of 14 September 2022, on Contestable and Fair Markets in the Digital Sector (Digital Markets Act), Off. J. Eur. Union, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R1925.

^[38] Epic Games Inc. v. Apple Inc., 4:20-cv-05640 (N.D. Cal. Sep. 10, 2021), https://www.courtlistener.com/docket/17442392/epic-games-inc-v-apple-inc.

^[39] For a more detailed account, see Andrei Hagiu, Proprietary vs. Open Two-Sided Platforms and Social Efficiency, Working Paper No. 06-12, Harvard Business School (May 2006), https://www.hbs.edu/ris/Publication%20Files/07-095.pdf; see also Alden Abbott et al., ICLE Brief for 9th Circuit in Epic Games v. Apple, Epic Games, Inc. v. Apple Inc., Int’l Ctr. L. Econ. (Apr. 1, 2022), https://laweconcenter.org/resources/icle-brief-for-9th-circuit-for-epic-games-v-apple.

^[40] FTC v. Amazon.com Inc., No. 2:23-cv-01495 (W.D. Wash. Nov. 5, 2024), https://www.ftc.gov/legal-library/browse/cases-proceedings/1910129-1910130-amazoncom-inc-amazon-ecommerce.

^[41] Lazar Radic & Geoffrey A. Manne, The FTC’s Gambit Against Amazon: Navigating a Multiverse of Blowback and Consumer Harm, Truth Mark. (Aug. 3, 2023), https://truthonthemarket.com/2023/08/03/the-ftcs-gambit-against-amazon-navigating-a-multiverse-of-blowback-and-consumer-harm.

^[42] Cristina Caffarra, “Consumer Welfare Is Dead”: What Do We Do Instead?—A Perspective from Europe, ProMarket (Apr. 27, 2023), https://www.promarket.org/2023/04/27/consumer-welfare-is-dead-what-do-we-do-instead-a-perspective-from-europe.

^[43] Herbert J. Hovenkamp, Is Antitrust’s Consumer Welfare Principle Imperiled?, 45(1) J. Corp. L. 65, available at https://jcl.law.uiowa.edu/sites/jcl.law.uiowa.edu/files/2021-08/Hovenkamp_Final_Web.pdf; Nicolas Petit & Lazar Radic, The Necessity of a 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; Christine S. Wilson & Adam S. Cella, Deconstructing the Worldview of the Neo-Brandeisians Through Marxism and Critical Legal Studies, 29 Geo. Mason L. Rev. 961 (2022), https://lawreview.gmu.edu/print__issues/deconstructing-the-worldview-of-the-neo-brandeisians-through-marxism-and-critical-legal-studies; Elyse Dorsey, Geoffrey A. Manne, Jan M. Rybnicek, Kristian Stout, & Joshua D. Wright, Consumer Welfare & the Rule of Law: The Case Against the New Populist Antitrust Movement, 47 Pepp. L. Rev. 861 (2020), https://digitalcommons.pepperdine.edu/plr/vol47/iss4/1.

^[44] Christine S. Wilson, Letter of Resignation to President Joseph R. Biden Jr., Fed. Trade Comm. (Mar. 2, 2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/p180200wilsonresignationletter.pdf.

^[45] Editorial Board, The Many Abuses of Lina Khan’s FTC, Wall Str. J. (Feb. 14, 2023), https://www.wsj.com/articles/christine-wilson-resigns-federal-trade-commission-lina-khan-ftc-87328998; Shane Tews & Mark Jamison, What’s Going On at the Federal Trade Commission? (with Bilal Sayyed—Part I), Am. Enterp. Inst. (Oct. 5, 2021), https://www.aei.org/podcast/whats-going-on-at-the-federal-trade-commission-with-bilal-sayyed-part-i.

^[46] Mark A. Jamison, Why Christine Wilson’s Resignation from the FTC Matters, The Hill (Mar. 29, 2023) https://thehill.com/opinion/finance/3920706-why-christine-wilsons-resignation-from-the-ftc-matters.

^[47] Christine Wilson, Why I’m Resigning as an FTC Commissioner, Wall Str. J. (Feb. 14, 2023), https://www.wsj.com/articles/why-im-resigning-from-the-ftc-commissioner-ftc-lina-khan-regulation-rule-violation-antitrust-339f115d.

^[48] Jamison, supra note 46.

^[49] Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 564 (2017), https://www.yalelawjournal.org/note/amazons-antitrust-paradox.

^[50] Lina M. Khan, The Separation of Platforms and Commerce, 119 Colum. L. Rev. 973 (2019), https://columbialawreview.org/content/the-separation-of-platforms-and-commerce.

^[51] Christine S. Wilson & Noah Joshua Phillips, Dissenting Statement of Commissioners Christine S. Wilson and Noah Joshua Phillips Regarding the Commission Statement On the Adoption of Revised Section 18 Rulemaking Procedures, Fed. Trade Comm. (Jul. 9, 2021), available at https://www.ftc.gov/system/files/documents/public_statements/1591702/p210100_wilsonphillips_joint_statement_-_rules_of_practice.pdf.

^[52] Daniel J. Gilman, Abby Normal, a Flood of Ill-Considered Withdrawals, and the FTC’s Theatre of Listening, Truth Mark. (Oct. 5, 2023), https://truthonthemarket.com/2023/10/05/abby-normal-a-flood-of-ill-considered-withdrawals-and-the-ftcs-theatre-of-listening.

^[53] Zach Meyers, Can the EU Set a Global Rulebook for Big Tech?, Ctr. Eur. Reform (Jun. 1, 2021), https://www.cer.eu/publications/archive/bulletin-article/2021/can-eu-set-global-rulebook-big-tech.

^[54] Thomas Graf, Jackie Holland, Henry Mostyn, & Patrick Todd, Digital Markets Regulation Handbook, Cleary Gottlieb https://content.clearygottlieb.com/antitrust/digital-markets-regulation-handbook/index.html.

^[55] Sangyun Lee, Lessons from Korea’s Roller-Coaster Ride Toward Platform (Non)Regulation, Truth Mark. (Sep. 25, 2024), https://truthonthemarket.com/2024/09/25/lessons-from-koreas-roller-coaster-ride-toward-platform-nonregulation.

^[56] Lazar Radic & Geoffrey A. Manne, The ABA’s Antitrust Law Section Sounds the Alarm on Klobuchar-Grassley, Truth Mark. (May 12, 2022), https://truthonthemarket.com/2022/05/12/the-abas-antitrust-law-section-sounds-the-alarm-on-klobuchar-grassley.

^[57] Dae-sik Hong & D. Daniel Sokol, Korea Should Prioritize Innovation, Not Misguided Platform Regulation, The Korea Her. (May 12, 2024), https://www.koreaherald.com/view.php?ud=20240512050148.

^[58] Sangyun Lee, LinkedIn (Sep. 27, 2024, 00:35:22), https://www.linkedin.com/posts/sangyunl_indian-digital-competition-law-teeters-lawyers-activity-7245289899409448960-0rtV?utm_source=share&utm_medium=member_desktop.

^[59] Charles McConnell, Indian Digital Competition Law Teeters, Lawyers Call for Rethink, Glob. Compet. Rev. (Sep. 26, 2024) https://globalcompetitionreview.com/article/indian-digital-competition-law-teeters-lawyers-call-rethink.

^[60] Chosun Ilbo, ‘Monopoly Platform’ Regulation Law Falls Away… Fair Trade Commission Cancels Plan Due to Industry Opposition, Naver News (Sep. 9, 2024), https://n.news.naver.com/mnews/article/023/0003857596?sid=101.

^[61] Kang Shin-woo, Amendment of the Fair Trade Act to Regulate Large Platforms… ‘Google, Apple, Naver, Kakao’ to Have Jurisdiction, Naver News (Sep. 9, 2024) https://n.news.naver.com/mnews/article/018/0005832606?sid=101; see also Heo Ji-hye, Platform Law that Changes Direction… Concerns Increase over Standards for Proof of Competition Restriction, Pressman (Sep. 9, 2024), https://www.pressman.kr/news/articleView.html?idxno=84619. Under the revisions, platforms must directly prove that their actions do not harm competitors, and that they benefit consumers and positively impact the market. In other words, the reforms essentially reverse the burden of proof. Critics like Hong Dae-sik warn that stringent oversight could discourage businesses to pursue new initiatives due to a lack of confidence in their ability to meet criteria. “Ultimately, if companies are not confident in the reasons they present to the Fair Trade Commission when taking certain actions, they will not take the actions.”

^[62] Charles McConnell, Exclusive: Philippine Competition Watchdog Rules Out DMA-Style Bill, for Now, Glob. Compet. Rev. (Sep. 20, 2024) https://globalcompetitionreview.com/article/exclusive-philippine-competition-watchdog-rules-out-dma-style-bill-now.

^[63] Radic, supra note 9.

^[64] Mathieu Pollet, France to Prioritise Digital Regulation, Tech Sovereignty During EU Council Presidency, Euractiv (Dec. 14, 2021), https://www.euractiv.com/section/digital/news/france-to-prioritise-digital-regulation-tech-sovereignty-during-eu-council-presidency; Lazar Radic, Digital-Market Regulation: One Size Does Not Fit All, Truth Mark. (Apr. 17, 2023), https://truthonthemarket.com/2023/04/17/digital-market-regulation-one-size-does-not-fit-all.

^[65] Barbara Moens & Paola Tamma, Macron and Merkel Defy Brussels with Push for Industrial Champions, Politico (May 18, 2020), https://www.politico.eu/article/macron-and-merkel-defy-brussels-with-push-for-industrial-champions.

^[66] Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 J. Antitrust Enforc. 123, 123-32 (Dec. 28, 2022), https://academic.oup.com/antitrust/article/11/1/123/6964483.

^[67] Geoffrey A. Manne, Dirk Auer, & Sam Bowman, Should ASEAN Antitrust Laws Emulate European Competition Policy?, 67 Singap. Econ. Rev. 1637 (Mar. 31, 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3709730.

^[68] Radic, supra note 64.

^[69] Id.

^[70] Hong & Sokol, supra note 57.

^[71] McConnell, supra note 59.

^[72] Lazar Radic & Geoffrey A. Manne, South Africa’s Competition Proposal Takes Europe’s DMA Model to the Extreme, Truth Mark. (Aug. 15, 2023), https://truthonthemarket.com/2023/08/15/south-africas-competition-proposal-takes-europes-dma-model-to-the-extreme.

^[73] Christine S. Wilson, Welfare Standards Underlying Antitrust Enforcement: What You Measure Is What You Get, Fed. Trade Comm. (Feb. 15, 2019), available at https://www.ftc.gov/system/files/documents/public_statements/1455663/welfare_standard_speech_-_cmr-wilson.pdf; Svend Albæk, Consumer Welfare in EU Competition Policy, Eur. Comm. (2013), available at https://competition-policy.ec.europa.eu/system/files/2021-09/consumer_welfare_2013_en.pdf.

^[74] Petit & Radic, supra note 43.

^[75] Dirk Auer, The Broken Promises of Europe’s Digital Regulation, Truth Mark. (Mar. 12, 2024), https://truthonthemarket.com/2024/03/12/the-broken-promises-of-europes-digital-regulation.

^[76] John Taladay & Maureen Ohlhausen, Are Competition Officials Abandoning Competition Principles?, 13 J.E.C.L. & Pract. 463 (Jul. 5, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4042226.

^[77] Radic et al., supra note 3.

^[78] Radic, supra note 9.

^[79] Hong & Sokol, supra note 57.

^[80] Carmelo Cennamo & Juan Santaló, Potential Risks and Unintended Effects of the New EU Digital Markets Act, Esade EcPol (Feb. 2023), available at https://www.esade.edu/ecpol/wp-content/uploads/2023/02/AAFF_EcPol-OIGI_PaperSeries_04_Potentialrisks_ENG_v5.pdf.

^[81] Lazar Radic & Geoffrey A. Manne, Amazon Italy’s Efficiency Offense, Truth Mark. (Jan. 11, 2022), https://truthonthemarket.com/2022/01/11/amazon-italys-efficiency-offense.

^[82] Pablo Ibáñez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles, 43 World Compet. 417 (Jul. 17, 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3654083.

^[83] Cennamo & Santaló, supra note 80.

^[84] Id.

[85] Epic Games, supra note 38.

^[86] Javier Espinoza & Michael Acton, Apple Delays European Launch of AI Features Because of EU Rules, Financ. Times (Jun. 21, 2024), https://www.ft.com/content/360751cb-7a22-48e0-9b00-6a30ff41dcfe.

^[87] Jess Weatherbed, Meta Won’t Release Its Multimodal Llama AI Model in the EU, The Verge (Jul. 18, 2024), https://www.theverge.com/2024/7/18/24201041/meta-multimodal-llama-ai-model-launch-eu-regulations .

^[88] Meta Platforms Inc. Annual Report (Form 10-K), U.S. Secur. Exch. Comm. (Dec. 31, 2023), https://www.sec.gov/Archives/edgar/data/1326801/000132680124000012/meta-20231231.htm.

^[89] Id.

^[90] Oliver Bethell, Complying with the Digital Markets Act, Google: The Keyword (Mar. 5, 2024), https://blog.google/around-the-globe/google-europe/complying-with-the-digital-markets-act; Adam Cohen, New Competition Rules Come with Trade-Offs, Google: The Keyword (Apr. 5, 2024) https://blog.google/around-the-globe/google-europe/new-competition-rules-come-with-trade-offs.

^[91] @laz_radic, X.com (May 3, 2024, 5:20 a.m.), https://x.com/laz_radic/status/1786325008345645321.

^[92] Cohen, supra note 90.

^[93] Alphabet Inc. Annual Report (Form 10-K), U.S. Secur. Exch. Comm. (Dec. 31, 2023), https://www.sec.gov/Archives/edgar/data/1652044/000165204424000022/goog-20231231.htm.

^[94] Auer, supra note 75.

^[95]  Mirai, LinkedIn (Feb. 8, 2024, 12:10:54), https://www.linkedin.com/feed/update/urn:li:activity:7161330551709138945.

^[96] Previewing Changes in Windows to Comply with the Digital Markets Act in the European Economic Area, Window Blogs (Nov. 16, 2023) https://blogs.windows.com/windows-insider/2023/11/16/previewing-changes-in-windows-to-comply-with-the-digital-markets-act-in-the-european-economic-area.

^[97] Cohen, supra note 90.

^[98] Mario Monti, Why and How? Why Should We Be Concerned with Cartels and Collusive Behaviour?, Eur. Comm. (Sept. 11, 2000), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_00_295.

^[99] Geoffrey A. Manne, Error Costs in Digital Markets, GAI Report on the Digital Economy 3 (Nov. 2020), available at https://gaidigitalreport.com/wp-content/uploads/2020/11/Manne-Error-Costs-in-Digital-Markets.pdf.

^[100] Radic et al., supra note 3.

^[101] Pierre Larouche & Alexandre De Streel, The European Digital Market: A Revolution Grounded on Traditions, 12 J.E.C.L. & Pract. 542 (2021), (arguing that the DMA’s conceptual nature is in a “difficult epistemological position”).

^[102] Radic, supra note 9.

^[103] Belle Beems, The DMA in the Broader Regulatory Landscape of the EU: An Institutional Perspective, 19 Eur. Competition J. 1–29 (Jan. 2023), https://www.tandfonline.com/doi/full/10.1080/17441056.2022.2129766.

^[104] Press Release, Amendment of the German Act Against Restraints of Competition, Bundeskartellamt (Jan. 19, 2021), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2021/19_01_2021_GWB%20Novelle.html.

^[105] Bahadir Balki, Nabi Can Acar, Helin Yüksel, Mehmet Mikail Demir, Seda Eliri, & Erdem Aktekin, A New Age for Digital Markets in Turkey? The Draft Amendment to the Law No. 4054 on the Protection of Competition, Kluwer Competition Law Blog (Oct. 25, 2022), https://competitionlawblog.kluwercompetitionlaw.com/2022/10/25/a-new-age-for-digital-markets-in-turkey-the-draft-amendment-to-the-law-no-4054-on-the-protection-of-competition.

^[106] Henry Mostyn, Patrick Todd, & Goksu Kalayci, Turkiye, Cleary Gottlieb (Dec. 2023), https://content.clearygottlieb.com/antitrust/digital-markets-regulation-handbook/turkey/index.html.

^[107] Ilbo, supra note 60.

[108] Jean Mackenzie & Ruth Comerford, Impeached S Korean President Charged with Insurrection, BBC News (Jan. 26, 2025), https://www.bbc.com/news/articles/cr53r1d0jz4o.

^[109] Shin-woo, supra note 61.

^[110] Lee, supra note 58.

^[111] Robert Wildner, The Digital Markets Act: What a Difference a Month Makes, Mob. Mark. (Apr. 9, 2024), https://mobilemarketingmagazine.com/the-digital-markets-act-what-a-difference-a-month-makes.

^[112] Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, Inst. Econ. Aff. (Sep. 18, 2023), https://iea.org.uk/publications/digital-overload-how-the-digital-markets-competition-and-consumers-bills-sweeping-new-powers-threaten-britains-economy.

^[113] Report of the Committee on Digital Competition Law, Gov. India Minist. Corp. Aff., (Feb. 27, 2024), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (hereinafter “India Digital Competition Report”).

^[114] The Competition Act, No. 12 of 2003, India Code (2003), available at https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf.

^[115] India Digital Competition Report, supra note 113.

^[116] Indian Competition Law, Vol. I, available at https://theindiancompetitionlaw.wordpress.com/wp-content/uploads/2013/02/report_of_high_level_committee_on_competition_policy_law_svs_raghavan_committee.pdf (last accessed Jan. 30, 2025).

^[117] Radic et al., supra note 3.

^[118] Id.

^[119] Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, Int’l Ctr. L. Econ. (May 19, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4070310.

^[120] Lazar Radic, Fair Trade Act Amendments Would Create Flaws, The Korea Times, (Dec. 11, 2024), https://www.koreatimes.co.kr/www/opinion/2024/12/137_384007.html.

^[121] H.R. 3849, 117th Congress (Jun. 24, 2024), https://www.congress.gov/bill/117th-congress/house-bill/3849/text; S. 2992, 117th Congress (Mar. 2, 2022), https://www.congress.gov/bill/117th-congress/senate-bill/2992/text; S. 2710, 117th Congress (Feb. 17, 2022), https://www.congress.gov/bill/117th-congress/senate-bill/2710.

^[122] Radic & Manne, supra note 56.

^[123] Radic et al., supra note 3.

^[124] Press Release, Klobuchar, Grassley, Colleagues to Introduce Bipartisan Legislation to Rein in Big Tech, Office of Sen. Amy Klobuchar (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech.

^[125] PL n. 2768/2022, Câmara dos Deputados (Brazil), (Nov. 10, 2022), https://www.camara.leg.br/proposicoesWeb/prop_mostrarintegra?codteor=2214237&filename=PL%202768/2022.

^[126] Grand Design and Action Plan for a New Form of Capitalism: 2023 Revised Version, Jpn. Cabinet Secr. (2023), available at https://www.cas.go.jp/jp/seisaku/atarashii_sihonsyugi/pdf/ap2023en.pdf; Outline of the Act on Promotion of Competition for Specified Smartphone Software, Jpn. Fair Trade Comm. (Jun. 2024), available at https://www.jftc.go.jp/file/240612EN3.pdf; @laz_radic, X.com (Aug. 14, 2024, 6:17 a.m.), https://x.com/laz_radic/status/1823665316200899036.

^[127] Simon Vande Walle, Is the EU’s Digital Markets Act Going Global? How Japan Is Crafting Its Own Version of Digital Regulation with the Smartphone Act, EU Renew (Aug. 21, 2024), https://eu-renew.eu/is-the-eus-digital-markets-act-going-global-how-japan-is-crafting-its-own-version-of-digital-regulation-with-the-smartphone-act.

^[128] JFTC, supra note 126.

^[129] Online Intermediation Platforms Market Inquiry, Compet. Comm. S. Afr. (2000-2019), https://www.compcom.co.za/online-intermediation-platforms-market-inquiry.

^[130] Lina M. Khan & Sandeep Vaheesan, Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents, 11 Harv. L. & Pol’y Rev. 235 (2017), https://scholarship.law.columbia.edu/faculty_scholarship/2790.

^[131] Chris Edwards, A Century of Federal Spending, Cato at Liberty (Mar. 16, 2023) https://www.cato.org/blog/century-federal-spending-1925-2025.

^[132] The Draghi Report, for instance, found that the European Union passed 13,000 acts from 2019 to 2024, four times more than the United States. See Mario Draghi, The Future of European Competitiveness, Eur. Comm. (Sep. 2024), available at https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en?filename=The%20future%20of%20European%20competitiveness%20_%20A%20competitiveness%20strategy%20for%20Europe.pdf.

^[133] Marc Ivaldi, Nicolas Petit, & Selcukhan Unekbas, Killer Acquisitions: Evidence from EC Merger Cases in Digital Industries, Antitrust Law J. (forthcoming), (Mar. 27, 2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4407333.

^[134] Thomas B. Nachbar, Heroes and Villains of Antitrust, 18 Antitrust Source 1–12 (Jun. 2019), https://www.law.virginia.edu/scholarship/publication/thomas-b-nachbar/642681.

Executive Summary

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

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

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

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

I. Introduction

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

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

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

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

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

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

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

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

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

II. Legal Standards for Market Definition

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

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

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

A. Brown Shoe ‘Practical Indicia’

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

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

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

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

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

B. Hypothetical Monopolist Test in a Two-Sided Market

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

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

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

For subprime credit cards, this means examining:

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

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

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

III. Demand-Side Substitution

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

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

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

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

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

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

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

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

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

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

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

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

IV. Supply-Side Substitution

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

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

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

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

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

SOURCE: Bank Policy Institute[40]

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

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

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

V. Procompetitive Effects for Subprime Consumers

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

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

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

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

VI. Conclusion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[28] CFPB, supra note 15.

[29] Id.

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

[31] Id.

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

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

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

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

[36] Santucci, supra note 32.

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

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

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

[40] Bank Policy Institute, supra note 20.

[41] Capital One, supra note 29.

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

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

[An Engllsh-language version of this issue brief is available here.]

I. Introdução

A disseminação de tecnologias de telecomunicação ao redor do globo, notadamente a tecnologia 5G, ampliou a interconectividade entre redes, fronteiras e fornecedores de produtos e serviços de alta tecnologia. Sua confiabilidade e velocidade aprimoram a banda larga móvel e avançam aplicações envolvendo a Internet das Coisas (IoT), automação de processos robóticos, inteligência artificial, veículos autônomos, entre outros. Tais aplicações catalisam ganhos econômicos em diversas indústrias, estimados em cerca de USD 13,2 trilhões até o presente ano de 2025[1].

Tendo em vista seu valor econômico, um número crescente de litígios judiciais tem ocorrido em várias jurisdições envolvendo Patentes Essenciais para Padrões (SEPs), voltadas a padrões técnicos (como o 5G) no setor de telecomunicações, e seu licenciamento em termos FRAND (Justos, Razoáveis e Não Discriminatórios).

As organizações de padronização (SSOs) em geral exigem que seus membros, representantes de indústrias de determinados setores, divulguem quaisquer patentes que possuam e que possam ser consideradas essenciais para um determinado padrão – as chamadas patentes essenciais para padrões (SEPs). Em troca da ampla adoção dessas patentes, o detentor da SEP frequentemente assume o compromisso, perante uma SSO, de licenciá-la em termos FRAND.

Embora tais termos de licenciamento idealmente sejam estabelecidos através de negociações amigáveis entre detentores de SEPs e implementadores, eles frequentemente manifestam entendimentos divergentes em relação à determinação da base e metodologia para o cálculo de royalties, valoração do portfólio de patentes, duração da licença, escopo geográfico, interpretação de requisitos de não discriminação e reciprocidade em licenciamento cruzado, para citar somente alguns temas. Disputas sobre FRAND sobre estas e outras questões tornaram-se globais, com as partes promovendo fórum shopping em várias jurisdições simultaneamente de modo a buscar decisões que lhes sejam mais favoráveis, de acordo com o posicionamento dos diferentes tribunais[2].

Uma área importante de desacordo entre detentores de SEPs e implementadores é o escopo geográfico do licenciamento FRAND. Enquanto detentores de SEPs tipicamente pressionam por licenças globais de portfólio que abranjam todas as suas famílias de patentes em âmbito global, implementadores frequentemente preferem licenças territorialmente limitadas, que incluam apenas os países específicos onde eles enfrentam litígios. Esta tensão tornou-se uma questão central em disputas FRAND de escopo global, embora recentemente as decisões judiciais e as próprias posições das partes reflitam cada vez mais que uma licença global é FRAND. Outro grande tema que gera controvérsia refere-se à interação entre a natureza contratual dos compromissos FRAND e a aplicação do direito da concorrência. Enquanto os compromissos FRAND são considerados como obrigações contratuais assumidas pelos detentores de SEPs em relação às SSOs, esses compromissos também servem ao propósito mais amplo de prevenir potenciais efeitos anticompetitivos que possam surgir de qualquer poder de mercado obtido por meio da padronização. Esta natureza dual levanta questões complexas sobre se violações dos compromissos FRAND devem ser abordadas principalmente através de remédios do direito contratual ou se o direito da concorrência deve desempenhar um papel mais proeminente na regulação das práticas de licenciamento FRAND, particularmente quando detentores de SEPs possuem poder de mercado significativo após suas tecnologias se tornarem parte dos padrões da indústria.

Este artigo apresenta uma análise comparativa sobre como duas das jurisdições relevantes na jurisprudência FRAND—o Reino Unido (UK) e os Estados Unidos (EUA)[3]—têm abordado estas questões-chave que surgem em disputas complexas. O artigo se concentra nos principais aspectos mencionados acima, a saber, o licenciamento FRAND em âmbito global e a natureza dos compromissos FRAND, revelando nuances pelos tribunais em cada jurisdição na interpretação dessas perspectivas, apesar delas serem por ambos compartilhadas de forma similar até certo ponto.

Neste sentido, ambas as jurisdições reconhecem a eficiência do licenciamento de portfólio mundial como prática padrão da indústria, com tribunais em ambos os países reconhecendo que licenças globais podem estar em conformidade com FRAND, e que o licenciamento negociado separadamente em cada país seria ineficiente. Enquanto os tribunais do Reino Unido, seguindo a sentença histórica Unwired Planet v. Huawei, estabeleceram sua própria competência para, em certas circunstâncias, determinar taxas FRAND globais sem a necessidade de consentimento específico das partes envolvidas em uma disputa, os tribunais dos EUA também estabelecem taxas FRAND em nível mundial, mas tipicamente em contextos onde as partes concordaram com a adjudicação judicial de tais termos.

O artigo avaliará, ainda, como a implementação de compromissos FRAND na forma de obrigação contratual entre detentores de SEPs e as SSOs é efetuada por cada uma dessas jurisdições, destacando as diferenças de graduação entre os tribunais no Reino Unido e dos EUA no entendimento sobre a análise de termos FRAND à luz do direito da concorrência. Enquanto ambas as jurisdições predominantemente conceitualizam compromissos FRAND como possuindo natureza contratual, os tribunais do Reino Unido mantiveram um papel limitado, embora presente, do direito da concorrência sob o Artigo 102 TFEU para a análise de compromissos FRAND. Por sua vez, os tribunais dos EUA estabeleceram limites mais restritivos para a aplicação do direito da concorrência, enfatizando que disputas sobre termos FRAND devem ser resolvidas através dos direitos contratual e de patentes, afastando-se assim de remédios junto ao direito antitruste.

Ao examinar os entendimentos adotados por essas relevantes jurisdições para licenciamento FRAND em âmbito global e a natureza contratual dos compromissos FRAND, este artigo visa identificar práticas emergentes e potenciais áreas de convergência que poderiam proporcionar maior grau de certeza, tanto para detentores de SEPs quanto para implementadores, em um ecossistema de telecomunicações cada vez mais interconectado a nível global. À medida que o valor econômico das tecnologias padronizadas continua a crescer e as disputas sobre seu licenciamento prosseguem, compreender essas diferentes perspectivas pode contribuir para informar possíveis alternativas para a resolução de disputas FRAND de forma mais eficaz.

II. Licenciamento FRAND de portfolios globais de SEPs

Uma área importante de desacordo entre detentores de SEPs e implementadores, no âmbito de disputas FRAND globais, é o escopo geográfico do licenciamento FRAND. Enquanto os detentores de SEPs tipicamente são a favor licenças globais de seus portfólios, os implementadores frequentemente preferem licenças territorialmente limitadas, relativas apenas aos países específicos aonde enfrentam litígios. Esta tensão tornou-se uma questão central em disputas FRAND e leva a batalhas legais globais. Estas disputas envolvem as mesmas partes em litígios paralelos na Europa, Ásia e América do Norte[4], e têm sido objeto de propostas sobre como abordar a questão, seja por parte da doutrina[5] [6], dos formuladores de políticas públicas [7] ou dos tribunais.

Os tribunais têm se mostrado os principais árbitros na resolução de disputas complexas entre detentores de SEPs e implementadores em relação aos termos FRAND. O caso emblemático Unwired Planet v. Huawei[8][9] influenciou decisões subsequentes globalmente, impactando as avaliações de outros tribunais sobre o tema no Reino Unido, EUA, Europa continental e China, para citar alguns.

Em relação aos fatos, no momento em que a Unwired Planet ofereceu para licenciar seu portfólio global de SEPs para a Huawei, esta insistiu em licenciar apenas as patentes da Unwired no Reino Unido. O Juiz Birss do Tribunal Superior do Reino Unido, reconhecendo que ambas as partes operavam como multinacionais, sustentou que a prática da indústria na “vasta maioria” dos casos favorecia licenças de âmbito mundial. Ele rejeitou o argumento de licenciamento segmentado por país defendido pela Huawei, considerando-o impraticável e ineficiente, citando não apenas a mobilidade transfronteiriça dos dispositivos de telecomunicações, mas também as ineficiências transacionais significativas em se negociar múltiplas licenças e manter “muitos cálculos e pagamentos de royalties diferentes”. Mais ainda, no contexto da Unwired Planet ter reivindicado suas patentes essenciais padrão (SEPs) britânicas contra a Huawei no Tribunal Superior do Reino Unido, o Juiz Birss afirmou a autoridade do tribunal para determinar taxas FRAND globais apesar da natureza territorial dos direitos de patente—um entendimento que foi mantido tanto pelo Tribunal de Apelação quanto pela Suprema Corte do Reino Unido neste caso.

Esta sentença estabeleceu vários princípios fundamentais posteriormente adotados por outros tribunais. Inicialmente, que FRAND representa uma gama de possibilidades a serem analisadas caso a caso, e não um único conjunto de termos pré-definidos e rígidos. Este princípio reconhece a complexidade das negociações de licenciamento FRAND e à necessidade de se permitir flexibilidade em sua análise, reconhecendo que uma variedade de combinações distintas podem potencialmente satisfazer os requisitos FRAND. Em segundo lugar, que a obrigação de não-discriminação não exige a negociação de termos idênticos para todos os licenciados, mas sim impede desvantagens competitivas entre licenciados em situações semelhantes. Como tal, o Juiz Birss preferiu adotar uma perspectiva flexível, em que diferentes termos FRAND poderiam ser ofertados a diferentes licenciados em potencial com base em fatores tais como tamanho, posição no mercado ou volume de produtos e serviços comercializados por cada um deles. Terceiro, a sentença estabeleceu que os tribunais podem definir taxas específicas de royalties FRAND em caráter global em tal situação. Finalmente, determinou que uma medida cautelar no Reino Unido por parte dos detentores de SEPs, visando coibir o uso de suas SEPs ainda não licenciadas por terceiros, é apropriada quando os implementadores recusam os termos FRAND determinados pelo tribunal. Assim, é fornecido aos detentores de SEPs um mecanismo de implementação de seus direitos, equilibrando-se o direito do implementador de acesso a tecnologias padronizadas com o direito do detentor da patente de receber uma compensação justa, abordando-se assim o problema do “hold-out”.

Após Unwired Planet v. Huawei, vários casos relevantes julgados no Reino Unido continuaram a desenvolver a jurisprudência sobre licenciamento FRAND em âmbito global. Assim, em Optis v. Apple[10], o Tribunal Superior do Reino Unido reforçou o precedente de estabelecer taxas FRAND globais, determinando que a Apple teria que optar ou por aceitar uma licença global para o portfólio de SEPs da Optis ou enfrentar o risco de concessão de medida cautelar a detentores de SEPs, visando coibir o uso de suas SEPs ainda não licenciadas no Reino Unido[11] – o que em prática implicaria na exclusão dos produtos da Apple do mercado do Reino Unido por violação das patentes da Optis no Reino Unido. O tribunal utilizou metodologias tanto “top-down” quanto de licenças comparáveis para estabelecer uma taxa FRAND em âmbito global, exigindo que a Apple pagasse US$5,13 milhões à Optis anualmente[12].

Em InterDigital v. Lenovo[13], em que a InterDigital processou a Lenovo por violação de patentes no Reino Unido, o tribunal do Reino Unido consolidou ainda mais sua posição como fórum para determinações FRAND globais, ao estabelecer uma taxa FRAND em âmbito global para o portfólio de SEPs de 3G, 4G e 5G da InterDigital. O tribunal empregou uma perspectiva “top-down” e rejeitou os argumentos da Lenovo em prol de um licenciamento limitado territorialmente a cada país.

Estes casos demonstram a inclinação e a constância com que os tribunais do Reino Unido estabelecem termos FRAND em âmbito global em tais situações, as metodologias por eles empregadas para a determinação de taxas FRAND e a perspectiva por eles utilizada para equilibrar os interesses dos detentores de SEPs e implementadores, sedimentando, assim, os princípios estabelecidos em Unwired Planet.

Da mesma forma, a Comissão Europeia, em sua “Comunicação de 2017 esclarecendo o entendimento da União Europeia (UE) para SEPs”, também incorporou a perspectiva de eficiência de Unwired Planet, apoiando o licenciamento FRAND em âmbito global. A Comissão “considera que os mesmos princípios de eficiência apoiam a prática de licenciamento de portfólio de SEP para produtos com circulação global. Como observado em uma decisão recente, um enfoque de licenciamento por país pode não ser eficiente e pode não estar alinhada com uma prática comercial reconhecida no setor”.[14]

Do outro lado do Atlântico, a jurisprudência dos tribunais norte-americanos sobre licenciamento FRAND em âmbito global revela tanto pontos de convergência quanto de divergência com suas contrapartes do Reino Unido. No caso Microsoft v. Motorola[15], anterior ao julgado britânico Unwired Planet, os tribunais dos EUA demonstraram disposição para afirmar sua jurisdição sobre disputas FRAND de âmbito global, embora com um enfoque mais restrito para a determinação de taxas globais do que aquele observado em Unwired Planet. O litígio se originou com o processo da Microsoft contra a Motorola no Distrito de Washington, no qual a primeira alegou violação de compromissos FRAND relacionados a SEPs de codificação de vídeo e Wi-Fi pertencentes à Motorola, argumentando que esta exigia royalties excessivamente altos por suas SEPs. Em sua sentença, o Juiz Robart estabeleceu que compromissos FRAND constituem contratos executáveis entre os detentores de SEPs e as SSOs, sendo os implementadores terceiros beneficiários. O tribunal estabeleceu, ainda, uma metodologia para calcular royalties FRAND apropriados para o portfólio global de SEPs de propriedade da Motorola.

Tanto Microsoft v. Motorola quanto Unwired Planet v. Huawei abordaram a determinação de taxas de royalties FRAND para SEPs, estabelecendo metodologias e critérios judiciais para calcular taxas apropriadas. No entanto, o entendimento em Microsoft v. Motorola diferiu de Unwired Planet v. Huawei em aspectos específicos: enquanto os tribunais dos EUA também afirmam jurisdição sobre disputas FRAND globais e reconhecem a natureza global dessas tecnologias, eles tipicamente se abstêm de impor termos de licenciamento mundial em caráter obrigatório. Ao invés disso, eles determinam taxas FRAND apropriadas como parte de remédios para violação de contrato, com essas taxas servindo como estrutura para a negociação de licenças globais entre as partes, sem que sejam impostas pelo tribunal. Este entendimento, subsequentemente afirmado pelo Nono Circuito[16], reflete a preferência dos tribunais norte-americanos pelo estabelecimento de princípios para orientar as partes em direção a soluções negociadas sobre termos FRAND globais, evitando impor a elas termos diretamente vinculantes. Uma possível explicação para essa diferença é que, ao contrário do caso Unwired Planet v Huawei, a Motorola não procurou impor suas patentes nos EUA contra a Microsoft no caso Microsoft v. Motorola e, portanto, a Microsoft não teve a opção de aderir aos termos globais da FRAND definidos pelo tribunal ou enfrentar uma liminar nos EUA. Em comparação, em cada um dos casos do Reino Unido analisados acima, o implementador teve que escolher entre uma liminar no Reino Unido ou aceitar os termos globais da FRAND estabelecidos pelo tribunal, já que os detentores de SEP tentaram impor suas patentes do Reino Unido nos tribunais do Reino Unido

Optando por acompanhar, de maneira ainda mais próxima, o entendimento dos tribunais em Unwired Planet, em TCL v. Ericsson[17] o Juiz Selna do Distrito Central da Califórnia adotou uma sentença similar à do Juiz Birss do Reino Unido, estabelecendo taxas FRAND específicas (incidindo estas sobre o portfólio de SEPs da Ericsson em âmbito global) em caráter obrigatório ao potencial licenciado (TCL). No entanto, o Circuito Federal posteriormente anulou esta sentença por motivos processuais[18], destacando uma diferença fundamental presente no sistema judicial norte-americano: o direito a julgamento por júri (ao invés de juízo monocrático) para a determinação de taxas FRAND globais.

Após esta sentença, os tribunais dos EUA retornaram em grande parte ao entendimento do tribunal em Microsoft v. Motorola. Casos recentes como HTC v. Ericsson[19] e Lenovo v. InterDigital[20] dedicaram-se a estabelecer princípios de conformidade com termos FRAND em âmbito global e a interpretar obrigações contratuais, ao invés de tentar estabelecer taxas globais específicas.

Quando os tribunais dos EUA abordam o licenciamento global de portfólios, eles tipicamente o fazem através da ótica da interpretação contratual e indenizações por quebra de contrato, em vez de impor termos de licenciamento mundial obrigatórios às partes, possivelmente pela razão explorada acima. Como resultado, a autonomia das partes nas negociações é preservada e soluções orientadas pela dinâmica de mercado são incentivadas.

III. Perspectivas contratuais relativas a compromissos FRAND adotadas pelos tribunais do Reino Unido e dos EUA

Os compromissos FRAND têm origem nas SSOs, quando seus membros votam a favor da incorporação de tecnologias patenteadas em padrões utilizados pela indústria relevante. Em troca da padronização, os titulares de SEP concordam em disponibilizar licenças para suas patentes essenciais em termos justos, razoáveis e não discriminatórios.

Como a maioria das SSOs não especifica, nem interpreta em suas políticas internas, em que consistem os compromissos FRAND em casos concretos[21], os detentores de SEPs e os implementadores enfrentam desafios durante suas negociações de licenciamento para alcançar um acordo comum, tendo em vista seus interesses econômicos opostos. No entanto, a grande maioria das negociações de licenciamento FRAND é resolvida através de acordos mútuos privados entre detentores de SEPs e implementadores.

Quando disputas FRAND chegam aos tribunais, entretanto, pode-se suscitar o debate sobre se o direito da concorrência deve intervir em disputas FRAND e em que medida, ou se essas questões devem ser deixadas exclusivamente para o direito contratual e de patentes. Encontrar o equilíbrio entre essas áreas e determinar qual delas deve ser enfatizada é crucial para garantir compensação justa pela inovação e acesso a tecnologias padronizadas.

Tanto os tribunais do Reino Unido como aqueles dos EUA têm predominantemente definido os compromissos FRAND como obrigações contratuais entre detentores de SEPs e SSOs, sendo os implementadores considerados como terceiros beneficiários[22]. Assim, os compromissos FRAND funcionam como salvaguardas contra comportamentos anticompetitivos, limitando a capacidade dos detentores de SEPs de alavancar poder de mercado decorrente de suas patentes quando as tecnologias que elas incorporam são integradas em padrões técnicos.

O Tribunal Superior do Reino Unido, em Unwired Planet v. Huawei, avaliou as preocupações concorrenciais e concluiu que o licenciamento em âmbito global oferecido pela Unwired Planet não são contrárias ao Art. 102(a) do Tratado sobre o Funcionamento da União Europeia (TFEU), que proíbe comportamento abusivo por empresas que detêm posição dominante no mercado relevante[23]. O Juiz Birss considerou que não houve violação do Artigo 102, esclarecendo que o Tribunal de Justiça da União Europeia (TJUE), na sentença Huawei v. ZTE[24], definiu uma lista de atos a serem adotados pelo detentor de SEPs que indicam conformidade com o direito concorrencial; contudo, ele considerou que o não-cumprimento estrito dessa lista não implica automaticamente em violação do direito da concorrência da UE[25]. O Tribunal rejeitou, assim, todas as alegações de violação do direito da concorrência apresentadas pela Huawei – inclusive o argumento de que a Unwired Planet não atuou em conformidade com os princípios estabelecidos na sentença de Huawei v. ZTE – afirmando que o descumprimento desses princípios por um titular de SEP não implica necessariamente na ocorrência de abuso nos termos do Art. 102 TJUE.

Na sentença final de Unwired Planet v. Huawei[26], a Suprema Corte do Reino Unido reforçou a posição do tribunal inferior no sentido de que os detentores de SEPs, ao buscarem tutela inibitória contra o uso de suas SEPs ainda não licenciadas, não violam o direito da concorrência da UE, mesmo quando se desviam da estrutura precisa estabelecida na sentença anterior pelo TJUE na disputa FRAND Huawei v. ZTE. Mais especificamente, apoiou a interpretação do Juiz Birss de que o fato de que o processo foi apresentado pela Unwired Planet antes de oferecer termos FRAND à Huawei não constituía uma violação do direito da concorrência da UE[27]. Este entendimento busca aumentar a eficiência para as partes que conduzem negociações FRAND, pois estabelece limites claros para a aplicação cautelosa do direito da concorrência, preservando a capacidade do tribunal de determinar termos FRAND quando as negociações falham e a situação exige, equilibrando assim os interesses dos detentores de SEPs e implementadores.

A ênfase contratual foi reforçada em Optis Cellular Technology LLC v. Apple Retail UK Ltd[28], onde o Tribunal Superior enfatizou que a obrigação de um implementador de aceitar uma licença FRAND surge da natureza contratual do compromisso FRAND, e não de preocupações do direito da concorrência sobre abuso de posição dominante. O tribunal afirmou que não havia nem dominância nem abuso. Ao avaliar estes, considerou a alegação do implementador como um disfarçado “ataque à liberdade de uma parte para negociar preço”[29].

Por sua vez, os tribunais dos EUA têm predominantemente tratado compromissos FRAND como obrigações puramente contratuais que, portanto, não integram a análise antitruste em casos relativos a FRAND. Isso contrasta com o entendimento dos tribunais do Reino Unido descrito acima, mesmo que estes últimos ainda apliquem uma interpretação muito restrita sobre a caracterização de dominância e abuso sob o Art. 102 TFEU em disputas FRAND. Como resultado, os tribunais dos EUA criaram um patamar ainda mais alto para que se estabeleça uma análise sobre a ótica do direito da concorrência em disputas FRAND sob sua jurisdição.

Em Microsoft v. Motorola[30], o Tribunal Distrital afirmou que os compromissos FRAND da Motorola com SSOs criaram contratos executáveis entre estas partes, sendo os implementadores, tais como a Microsoft, terceiros beneficiários dos mesmos. Em julgamento liminar, o tribunal sustentou que “Microsoft estabeleceu compromissos contratuais vinculantes com o IEEE e a ITU, comprometendo-se a licenciar suas patentes declaradas essenciais em termos e condições RAND”[31]. Posteriormente, o Tribunal Distrital concentrou-se em determinar taxas de royalties contratualmente razoáveis em vez de abordar potenciais violações antitruste[32].

A análise sob a ótica do direito contratual foi ainda reforçada em HTC Corp. v. Telefonaktiebolaget LM Ericsson[33], onde o Tribunal de Apelações do Quinto Circuito sustentou que o “compromisso FRAND está incorporado na Cláusula 6.1. da Política de IPR [Direitos de Propriedade Intelectual] da ETSI e é regido pelo direito contratual francês”[34], criando assim uma obrigação contratual para a Ericsson oferecer licenças em termos FRAND. Apesar das alegações antitruste originalmente apresentadas pela HTC contra a Ericsson, alegando que esta última se envolveu em conduta anticompetitiva ao não oferecer “royalties à HTC sob taxas razoáveis”[35], o Tribunal Distrital não aplicou diretamente as leis antitruste para resolver essas alegações. Ao invés disso, ele concluiu que as alegações antitruste da HTC estavam sujeitas a arbitragem sob acordos de licença anteriores[36].

Mais recentemente, a sentença do Tribunal de Apelações do Nono Circuito em FTC v. Qualcomm Inc.[37] reforçou ainda mais a distinção entre obrigações contratuais FRAND e responsabilidade antitruste. O Tribunal de Apelações do Nono Circuito reverteu o julgado do Tribunal Distrital que constatou a existência de violações antitruste, elevando assim o patamar para o estabelecimento de violações do direito da concorrência em contextos FRAND. O Tribunal de Apelações considerou que o mercado em que a Qualcomm operava e aquele em que se alegava que o dano havia ocorrido eram distintos. Segundo ele, o dano alegado afetaria apenas clientes da Qualcomm, que operam fora dos mercados relevantes em que a Qualcomm compete. Portanto, tal alegado dano estaria situado “além do escopo do direito antitruste”[38]. Além disso, o tribunal aconselhou “cautela sobre o uso das leis antitruste para remediar o que são essencialmente disputas contratuais entre partes privadas engajadas na busca de inovação tecnológica”[39]. Ele refutou, ainda, o entendimento do tribunal inferior a respeito de que royalties eram anticompetitivos sob a ótica do direito antitruste, argumentando que o valor justo dos portfólios de SEP deveria ser avaliado sob o direito de patentes[40], e estabeleceu que quaisquer potenciais violações de compromissos FRAND deveriam ser remediadas pelo direito de patentes e contratual[41].

IV. Conclusão

A partir da análise comparada realizada nesse artigo, é possível observar que os entendimento dos tribunais dos EUA e do Reino Unido para o licenciamento FRAND em nível global compartilham semelhanças fundamentais, tanto no que diz respeito ao seu reconhecimento da natureza global das disputas de licenciamento SEP como às ineficiências práticas do licenciamento FRAND efetuadas de país em país. Os tribunais em ambas as jurisdições reconheceram sua jurisdição para estabelecer taxas FRAND globais em determinadas circunstâncias e reconhecem compromissos FRAND como geradores de obrigações contratuais executáveis. As diferenças entre tais entendimentos são mais sutis do que usualmente retratadas: desde o caso Unwired Planet, os tribunais britânicos têm intervido de forma mais direta, calculando taxas FRAND globais para os casos específicos e forçando implementadores a aceitá-las sob o risco de medidas cautelares que impediriam o uso das patentes não licenciadas. Por sua vez, os tribunais americanos, seguindo o precedente de Microsoft v. Motorola, também reconhecem sua autoridade sobre disputas FRAND globais, mas parecem estabelecer princípios orientadores que moldam as negociações, em vez de impor termos obrigatórios nas circunstâncias desses casos. A divergência entre as abordagens das duas jurisdições reside principalmente nos mecanismos específicos através dos quais os tribunais exercem influência sobre as negociações de licenciamento—com tribunais do Reino Unido favorecendo a definição direta de taxas e execução por meio de tutela inibitória, enquanto os tribunais dos EUA preferem estabelecer os critérios, metodologias analíticas e princípios orientadores para avaliar taxas justas de royalties que as partes podem aplicar em suas negociações—e não em seu objetivo final comum, o de facilitar o licenciamento global de tecnologias padronizadas de maneira e. Na prática, ambas as perspectivas reconhecem que, na prática, a maior parte das licenças FRAND são negociadas globalmente, com a grande maioria das disputas sendo resolvidas por acordo ao invés de sentença judicial. A divergência entre as abordagens dessas duas jurisdições está principalmente nos mecanismos específicos por meio dos quais os tribunais exercem influência sobre as negociações de licenciamento FRAND – com os tribunais do Reino Unido favorecendo a definição direta da taxa FRAND no contexto da aplicação das patentes do titular da SEP no Reino Unido, enquanto os tribunais dos EUA, nas circunstâncias dos casos que surgiram, estabeleceram os critérios, as metodologias analíticas e os princípios orientadores para avaliar as taxas de royalties FRAND que as partes podem aplicar em suas negociações – em vez de seu objetivo final compartilhado por ambas jurisdições, qual seja, o de facilitar o licenciamento global eficiente de tecnologias padronizadas

A análise dos entendimentos judiciais relativos a compromissos FRAND revela, ainda, uma clara preferência por estruturas de direito contratual e de patentes vis-à-vis intervenções do direito da concorrência tanto pelos tribunais do Reino Unido como dos EUA, embora com diferentes níveis de ênfase. Os tribunais do Reino Unido, embora reconhecendo a potencial relevância do direito da concorrência em disputas FRAND, estabeleceram um limiar alto para encontrar dominância ou abuso sob o Artigo 102 TFEU, como evidenciado nos litígios Unwired Planet v. Huawei e Optis v. Apple. Os tribunais dos EUA foram além, criando um padrão ainda mais rigoroso para aplicação do direito da concorrência em contextos FRAND, como demonstrado em FTC v. Qualcomm, onde o Nono Circuito explicitamente advertiu contra o uso do direito antitruste para resolver o que considera como disputas fundamentalmente contratuais.

Esta convergência judicial rumo à interpretação contratual dos compromissos FRAND evidencia uma abordagem pragmática ao delicado equilíbrio almejado entre dois imperativos: fomentar a inovação tecnológica mediante remuneração justa aos detentores de SEPs e democratizar o acesso dos implementadores às tecnologias padronizadas. Ao enquadrar os compromissos da FRAND como obrigações contratuais perante SSOs e implementadores como terceiros beneficiários, os tribunais do Reino Unido e dos E.U.A. estabeleceram um enquadramento jurídico focado na primazia da ordem privada nos mercados de tecnologia, ao mesmo tempo em que mantêm a supervisão judicial quando as negociações fracassam.

[1] IHS Markit, The 5G Economy: How 5G will contribute to the global economy, 2019. Disponível em https://www.qualcomm.com/content/dam/qcomm-martech/dm-assets/documents/the_ihs_5g_economy_-_2019.pdf.

[2] Contreras, Jorge L., The Global Standards Wars: Patent and Competition Disputes in North America, Europe and Asia (January 20, 2018). Keio University Journal of Law, Politics and Sociology (Mar. 2018). Disponível em: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3106090.

[3] Outras jurisdições relevantes a que as partes recorrem para resolver disputas FRAND são Alemanha, China, Japão, França, Países Baixos e Índia. Espera-se que o Tribunal Unificado de Patentes (UPC), que se tornou operacional em 1º de junho de 2023 na União Européia, adquira relevância e se torne uma referência autoritária adicional em disputas FRAND ao longo do tempo.

[4] Supra nota 2.

[5] Exemplos de pesquisa jurídica afirmando que a maioria das disputas FRAND tem uma dimensão global e idealmente deveria resultar em licenciamento em nível global incluem, entre outros, Jorge L. Contreras, Thomas Cottier et. al., The Effect of FRAND Commitments on Patent Remedies ((Univ. of Utah Coll. of Law, Research Paper No. 286, 2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3248726, p. 184: “A condução contínua de múltiplos processos paralelos não é eficiente em termos de custo ou tempo, apesar do fato de que muitas, se não todas, as disputas FRAND são globais (e idealmente se materializariam em transações de licenciamento FRAND globais”; e Garry A. Gabison, Worldwide FRAND Licensing Standard, 8 Am. U. Bus. L. Rev. 217 (2019), https://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1118&context=aublr.

[6] Contreras, Jorge L., Global Rate Setting: A Solution for Standards-Essential Patents?, 94 Wash.L. Rev. 701 (2019). Disponível em: https://digitalcommons.law.uw.edu/wlr/vol94/iss2/5.

[7] A Comissão Europeia propôs um regulamento sobre SEPs COM((2023)232, (disponível em: https://single-market-economy.ec.europa.eu/publications/com2023232-proposal-regulation-standard-essential-patents_en), com o objetivo de aumentar a transparência, reduzir a assimetria de informações e facilitar acordos sobre licenças FRAND. A proposta suscitou preocupações das partes interessadas e foi retirada pela Comissão em fevereiro de 2025, “devido à ausência de acordo previsível”. Disponível em: https://ec.europa.eu/newsroom/eismea/items/871191/en.

[8] 2017] EWHC 711 (Pat). Disponível em: https://www.judiciary.uk/wp-content/uploads/2017/04/unwired-planet-v-huawei-20170405.pdf.

[9] Resumos de decisões judiciais sobre disputas FRAND emitidas pelos tribunais do Reino Unido, o Tribunal de Justiça da União Europeia e os tribunais nacionais de vários estados-membros da UE estão disponíveis em https://caselaw.4ipcouncil.com. Uma lista com casos relevantes do Reino Unido sobre SEPs com hiperlinks está disponível no site do governo do Reino Unido, em https://www.gov.uk/guidance/uk-seps-case-law.

[10] Optis Cellular Technology LLC & Ors v. Apple Retail UK Ltd & Ors, [2021] EWHC 2564 (Pat). Disponível em: https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Patents/2021/2564.html&query=(Optis)+AND+(Cellular)+AND+(Technology).

[11] Id., par. 336-341.

[12] Optis Cellular Technology LLC & Ors v. Apple Retail UK Ltd & Ors, [2023] EWHC 1095 (Ch), par. 497. Disponível em: https://www.judiciary.uk/wp-content/uploads/2024/02/Optis-Cellular-Technology-v-Apple-Retail-UK-10.05.23-Redacted-version.pdf.

[13] InterDigital Technology Corporation & Ors v. Lenovo Group Ltd & Ors, [2023] EWHC 539 (Pat). Disponível em: https://www.wipo.int/wipolex/en/judgments/details/2187.

[14] COMUNICAÇÃO DA COMISSÃO AO PARLAMENTO EUROPEU, AO CONSELHO E AO COMITÊ ECONÔMICO E SOCIAL EUROPEU Estabelecendo o entendimento da UE para Patentes Essenciais para Padrões, COM/2017/0712 final, p. 7.

[15] Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR (W.D. Wash. 2013). Disponível em: https://www.wipo.int/wipolex/en/judgments/details/2218.

[16] Microsoft Corp. v. Motorola Inc., 696 F.3d 872 (9th Cir. 2012). Disponível em: https://www.wipo.int/wipolex/en/judgments/details/2224.

[17]  TCL Communication Technology Holdings, Ltd. v. Telefonaktiebolaget LM Ericsson, consolidated cases Nos. 8:14-CV-00341 JVS-DFMx and 2:15-CV-02370 JVS-DFMx (C.D. Cal. 2018). Disponível em: https://www.wipo.int/wipolex/en/text/591444.

[18] TCL Communication Technology Holdings, Ltd. v. Telefonaktiebolaget LM Ericsson, 943 F.3d 1360 (Fed. Cir. 2019). Disponível em: https://www.wipo.int/wipolex/en/text/591372.

[19] HTC Corp. v. Telefonaktiebolaget LM Ericsson, 18-cv-00243, Dkt. No. 376 (E.D. Tex. Jan. 7, 2019). Disponível em: https://ipwatchdog.com/wp-content/uploads/2024/02/HTC-v.-Ericsson-Memorandum-Opinion-and-Final-Judgment-3.pdf.

[20] InterDigital Technology Corporation & Ors v. Lenovo Group Ltd & Ors, [2023] EWHC 539 (Pat). Disponível em: https://www.wipo.int/wipolex/en/judgments/details/2187.

[21] Thumm, N., editor(s), Pentheroudakis, C. and Baron, J., Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases, Joint Research Center, Publications Office of the European Union, Luxembourg, 2017, p. 166. Disponível em: https://publications.jrc.ec.europa.eu/repository/handle/JRC104068.

[22] Esta visão também foi apoiada por pesquisa especializada. Veja Lemley, Mark A., Intellectual Property Rights and Standard-Setting Organizations (April 1, 2002). 90 California Law Review 1889 (2002), UC Berkeley Public Law Research Paper No. 84, Disponível em: https://ssrn.com/abstract=310122 ou http://dx.doi.org/10.2139/ssrn.310122. Veja também Teece, David J., Restoring and Revitalizing Technology Markets for Mobile Wireless: Geopolitical Dimensions of Patented Technology Embedded in Standards. In: 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things, Cambridge University Press; 2023:1-50. Disponível em: https://www.cambridge.org/core/books/5g-and-beyond/intellectual-property-and-competition-policy-in-global-wireless-markets/D3B7792D751E5AE28B4F565317F9A6F3#FN-fn-29.

[23] Juiz Birss concluiu que “a worldwide license would not be contrary to competition law. Willing and reasonable parties would agree on a worldwide license. It is the FRAND license for a portfolio like Unwired Planet’s and an implementer like Huawei. Therefore, Unwired Planet are entitled to insist on it. It follows that an insistence by Huawei on a license with a UK only scope is not FRAND”. [2017] EWHC 711 (Pat). Disponível em: https://www.judiciary.uk/wp-content/uploads/2017/04/unwired-planet-v-huawei-20170405.pdf, par. 572.

[24] A sentença do Tribunal de Justiça Europeu em Huawei v. ZTE (Caso C-170/13, 2015) estabeleceu diretrizes para avaliar potenciais abusos de poder de mercado sob o Artigo 102 TFEU quando proprietários de SEPs buscam medidas cautelares. A sentença delineou uma perspectiva do ponto de vista processual, exigindo que os detentores de SEPs i) notifiquem o potencial licenciado sobre a infração específica da patente; ii) forneçam uma proposta concreta de licenciamento FRAND uma vez que o implementador demonstre interesse; e iii) deem ao implementador tempo razoável para responder significativamente. O TJUE posicionou essas medidas não como requisitos obrigatórios ou rígidos, mas sim como medidas protetivas que, uma vez adotadas, protegem os detentores de SEPs da responsabilidade do direito da concorrência. O Tribunal buscou equilibrar interesses concorrentes—protegendo a propriedade intelectual e o acesso aos tribunais de um lado, enquanto previne comportamento anticompetitivo do outro. Disponível em: https://curia.europa.eu/juris/liste.jsf?num=C-170%2F13.

[25] Supra nota 19.

[26] Unwired Planet International Ltd and another (Respondents) v Huawei Technologies (UK) Co Ltd and another (Appellants), [2020] UKSC 37. Disponível em: https://www.supremecourt.uk/cases/uksc-2018-0214.

[27] Id., par. 146.

[28] [2021] EWHC 2564 (Pat). Disponível em: https://www.judiciary.uk/wp-content/uploads/2024/02/Optis-Cellular-Technology-v-Apple-Retail-UK-10.05.23-Redacted-version.pdf.

[29] Id., par. 385.

[30] Microsoft Corp. v. Motorola, Inc., 854 F. Supp. 2d 993 (W.D. Wash. 2012). Disponível em: https://www.wipo.int/wipolex/en/text/591394.

[31] Id., pg. 17.

[32] Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR (W.D. Wash. 2013). Disponível em: https://www.wipo.int/wipolex/en/text/591387. Veja também Maldonado, Kassandra, Breaching RAND and Reaching for Reasonable: Microsoft v. Motorola and Standard-Essential Patent Litigation, Berkeley Technology Law Journal 29 (2014): 4. Disponível em: https://lawcat.berkeley.edu/record/1126231?ln=en&v=pdf.

[33] HTC Corp. v. Telefonaktiebolaget LM Ericsson, 12 F.4th 476 (5th Cir. 2021). Disponível em: https://www.wipo.int/wipolex/en/judgments/details/2199.

[34] Id., p. 12.

[35] HTC Corp. v. Telefonaktiebolaget LM Ericsson, 18-cv-00243, Dkt. No. 376 (E.D. Tex. Jan. 7, 2019), p. 2. Disponível em: https://ipwatchdog.com/wp-content/uploads/2024/02/HTC-v.-Ericsson-Memorandum-Opinion-and-Final-Judgment-3.pdf.

[36] Id.

[37] Federal Trade Commission v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020). Disponível em: https://cdn.ca9.uscourts.gov/datastore/opinions/2020/08/11/19-16122.pdf.

[38] Id., pp. 30-31.

[39] Id., p. 39.

[40] Id., p. 44.

[41] Id., p. 56.

I. Introduction

The common carrier obligation (“CCO”) requires railroads to provide transportation or service to any shipper on reasonable request.[1] Rooted in 19th-century common law, this duty historically ensured that railroads—once the dominant shipping carriers—served the public interest by hauling all manner of freight at fair rates. While the industry was partially deregulated with the Staggers Rail Act of 1980, Congress left the CCO duty intact (now codified at 49 U.S.C. § 11101 et seq.).[2]

Railroads have thrived in the decades since deregulation, as evidenced by the industry’s improved productivity and lower rates, both of which have been largely due to competitive pressures from other transportation modes. Real average rail-freight rates have dropped by roughly 44% since 1980 (inflation-adjusted), even as productivity and volumes have surged.[3] By the late 1990s, the Staggers Act had succeeded in creating a more innovative and financially stronger rail industry that could better compete with trucks and better meet shippers’ needs.[4]

But trucking was also deregulated in 1980. And unlike railroads, today’s motor carriers can generally choose what loads to carry and on what terms, without a statutory duty to serve all comers. This imbalance leaves railroads bearing unique burdens.

While trucking, barges, and pipelines have flourished in a deregulated environment, today’s freight market is radically different from what prevailed in the era when the CCO evolved. Further, many of the approaches taken to apply the CCO in order to regulate rail explicitly have proven counterproductive, given the dynamic nature of today’s shipping market.

Policymakers and industry stakeholders are currently debating whether the CCO, which the U.S. Surface Transportation Board (“STB”) has called “a pillar of the railroads’ obligations,”[5] should be updated or reinterpreted to reflect competitive realities in the modern freight market. The overarching question is how to protect shippers’ access to rail service without stifling railroads’ efficiency or their ability to compete with other modes of transportation.

This issue brief examines the CCO’s legal foundations and how it has been interpreted; the challenges it poses in the modern era; and the ways that intermodal competition has evolved under deregulation. It also explores why certain regulatory approaches have been counterproductive. It concludes by arguing for specific reforms to the CCO and rail regulations that would effect more market-oriented outcomes.

II. The Common Carrier Obligation

The CCO originates in common-law principles that required railroads (and other public carriers) to serve the public upon reasonable request. The Interstate Commerce Act of 1887 effectively codified these duties in broad terms.[6] Today, 49 U.S.C. §11101(a) provides that a rail carrier “shall provide the transportation or service on reasonable request,” encapsulating the duty to serve shippers at reasonable rates and with reasonable service. Notably, the U.S. Supreme Court has observed that the Interstate Commerce Act “codified the common-law obligations of railroads as common carriers,” and that it did so “in the most general terms.”[7] In other words, Congress set forth the obligation but left the specifics of what is “reasonable” to be fleshed out by regulators and courts over time.

Thus, given the lack of specificity in the statutory language, the precise scope of railroads’ obligations has been defined case-by-case. The STB (and, before it, the Interstate Commerce Commission  (“ICC”)) and courts have long recognized that, while a railroad must furnish service upon reasonable request, a common carrier’s obligation is not unlimited and does not require the carrier to fulfill every request without discretion.[8] Rather, the carrier is only required to act reasonably in its dealings with its customers.[9]

Moreover, the standard of what constitutes “reasonable service” is not especially rigid; it is contingent on the specific conditions and circumstances at the time.[10] This flexible approach ensures that, while railroads must provide service when warranted, they are not compelled to allocate unlimited resources in a manner that could jeopardize efficient operations. The CCO’s practical limits therefore allow railroads to tailor how they fulfill requests, so long as they do not flatly deny service without good cause.

At the same time, railroads cannot arbitrarily refuse to haul certain commodities, or arbitrarily preference certain customers.[11] Instead, the common-carrier duty imposes on railroads a baseline obligation to carry all goods within their common-carriage scope, barring a valid exception. Disputes have arisen at the extremes over whether railroads can even decline carriage for hazardous shipments, a matter discussed further, infra.

In short, the CCO is a real and enforceable duty, but one whose exact contours—whether a request and/or a service is “reasonable,” how far the duty extends in special cases—are often decided through regulatory judgment.

For example, BNSF Railway, the largest U.S. freight railroad, was recently found to have breached its common-carrier duty by curtailing service to a coal shipper below “reasonable” levels.[12] In that decision, the STB issued an injunction compelling BNSF to transport millions of tons of coal that the railroad had not planned to move, citing the railroad’s statutory obligation to provide “adequate” service upon reasonable request. Such interventions underscore the continued force of the CCO: regulators will step in when a railroad’s business-driven service modifications are perceived to collide with the duty to serve the public on reasonable terms.[13]

The CCO’s legal framework establishes a baseline duty to serve shippers, but with room for interpretation. Railroads cannot flatly refuse traffic tendered in the usual course of business (especially if the shipper has no alternative), but they retain some discretion in how to meet requests, and can seek relief from truly impossible demands. The tension between carriers’ commercial interests and shippers’ reliance on rail service is built into the CCO’s general language. As discussed in the next section, this tension has only grown in the modern era, as railroads operate in a competitive and largely deregulated marketplace.

A. The CCO in the Modern Era

The governing law allows shippers and carriers to negotiate mutually agreeable terms in contracts; this has been one of the enduring benefits of the deregulatory actions of the 1970s and 1980s, even as the CCO has been preserved as a failsafe for shippers to obtain rail service where no contract has been struck. But railroads have been concerned that the recent BNSF decision may allow shippers to invoke the CCO to extract historically abnormal terms from carriers, such as by requesting the STB to set requirements about service frequency, investments for surge demand, and traffic prioritization.

Large railroads and many of their customers sometimes disagree sharply about what the CCO requires, and there is cause to be concerned about such disagreements. An expansive interpretation of the CCO might hamstring railroads’ ability to run an efficient and profitable operation. Some recent operational innovations in rail service can reduce service frequency or flexibility for some shippers, even as they serve to increase overall reliability. Such changes should largely be encouraged, as they yield much more efficient operations that benefit shippers and carriers alike.[14]

Indeed, the CCO should be understood as a flexible framework that encourages innovation and adaptability, rather than a rigid mandate that preserves outdated service models. It ought to empower carriers to modify or discontinue unprofitable offerings and to experiment with new technologies that improve overall efficiency, even if this means that some shippers may not receive their preferred service mix at all times. The CCO should foster an environment in which market forces and competition drive service improvements, ensuring that carriers can adjust operations to meet evolving economic realities while still providing service on reasonable terms.

This has proven all the more important in the modern freight market, as intermodal competition for shipping has become more intense. A core premise behind the common carrier obligation, as it operates today, is that market competition among transportation modes can often protect shipper interests better than regulatory mandates. The Staggers Rail Act itself was predicated on this idea: Congress explicitly sought “to ensure effective intermodal competition” in freight transport.[15] Furthermore, in its statement of policy, Congress affirmed that regulation should be minimized to allow railroads to “rely on competition and the demand for services” to set rates and service terms, with a fallback to protect against abuse of market power.[16]

In 1980, railroads were struggling; bankruptcies were common, and rigid regulation prevented them from adapting. Staggers dramatically rolled back economic controls, allowing rail carriers to set rates more freely, enter into confidential contracts with shippers, and shed unproductive routes.^[17] The act retained a regulatory “backstop” for captive shippers (e.g., maximum rate relief in cases where no competition exists and rates exceed a certain threshold).[18] But fundamentally, it shifted policy toward letting competition and market demand—rather than blanket obligations—govern rail-service levels.

Four and a half decades later, the results of rail deregulation have been studied extensively. Virtually all analyses conclude that rail deregulation led to lower costs, lower shipping rates, and improved service innovation, benefiting both the industry and many of its customers. Since 1980, rail productivity has skyrocketed, while average real freight rates have fallen by more than 40%.[19] Railroads’ unit costs declined, and those efficiency gains were largely passed on to shippers in the form of more affordable rates.

By one estimate, rail shippers in 2019 paid about 44% less per ton-mile (inflation-adjusted) than they would have in 1980, reflecting the intense competitive pressure from trucks and other transportation modes in most markets.[20] The railroads’ financial health also improved markedly: from a position of near collapse in the 1970s, the industry is now revenue-adequate and able to invest billions annually in maintenance and capacity.[21] This turnaround is widely credited to the more flexible, market-driven environment post-Staggers.

In practice, the vast majority of rail freight today is inherently competitive. For many commodities and routes, shippers can choose between rail and truck transport (and sometimes waterways or pipelines). For example, most manufactured goods, consumer products, and food items can ship by either rail intermodal or by truck. Even bulk commodities like grain or coal often have alternatives: a grain elevator might have access to barge transport or employ trucks to a different rail line; a power plant might be served by two railroads or able to switch to natural gas (delivered by pipeline) if coal delivery falters.

In a major competition study, the STB found in 2009 that, while some shippers remain “captive” to a single railroad, the overall extent of captivity had been declining, as more short-line railroads and transload options emerged and as trucking became more efficient for longer distances.[22] In its study of the same subject, the Government Accountability Office (“GAO”) reached a similar conclusion.[23] Thus, driven by market competition, a significant majority of rail traffic now moves at rates that indicate effective competition, while truly captive traffic (paying very high rates relative to cost) is a small and somewhat shrinking portion of the whole.[24]

This context is vital when considering the common carrier obligation. Back in the early 1900s, if a railroad didn’t serve a town or discriminated against a shipper, that customer might have had no alternative means to ship goods. Today, that scenario is far less common. Freed from route and commodity restrictions since the Motor Carrier Act of 1980, motor carriers now provide ubiquitous competition, often able to serve even remote areas by road.[25] For many freight categories, railroads compete not only with one another, but trucks as well.

The playing field is uneven, however, when it comes to obligations: a trucking company can generally refuse a load (perhaps it’s too dangerous, unprofitable, or inconvenient) without legal penalty, whereas a railroad refusing a similar shipment could face STB enforcement under the CCO. This disparity can distort competition. As the Supreme Court has noted, “the Interstate Commerce Act codified the common-law obligations” of rail carriers,[26] but modern motor carriers and barges are not saddled with equivalent duties.

Deregulation holds the potential to harness market discipline in order to achieve efficient outcomes. In the rail context, this means allowing railroads to rationalize routes and services according to demand, which in turn lowers overall logistics costs. Indeed, one observed effect of Staggers was that railroads shed unprofitable lines.[27] While painful for some local shippers, this “right-sizing” of the network eliminated huge inefficiencies and enabled rail carriers to focus their investments on core routes—improving service for the majority of traffic.[28] By the late 1990s, rail carriers were “able to compete with trucks, invest in capacity, and respond flexibly to shippers’ needs,” thanks to the freedom granted by deregulation.[29] In other words, giving railroads more commercial freedom ultimately benefited shippers broadly through more competitive rates and a financially viable rail system.

The common carrier obligation was, however, one piece left largely untouched by deregulation. As discussed further below, railroads are still required to obtain agency approval to discontinue service on a line (or abandon it), and they still must quote common-carriage rates and serve traffic at those rates if requested (even though most large shippers now use confidential contracts). In a competitive environment, there is arguably less need for a broad mandatory-service obligation. In many markets, intermodal rivalry constrains railroads from behaving monopolistically; if they try, shippers will simply switch modes.

III. Specific Problems with the STB’s Interpretation of the CCO

The Surface Transportation Board’s interpretation of the common carrier obligation has created several significant tensions between the goals of regulatory policy and railroads’ need to operate viable businesses in a competitive marketplace. While the STB aims to protect shipper interests and ensure broad access to rail service, its expansive reading of the CCO often fails to adequately account for operational realities and the market conditions that rail carriers face. In particular, the board’s interpretations frequently result in mandates that can impair railroads’ ability to optimize their networks, manage risk effectively, or respond to changing market conditions.

Critically, the board’s approach often loses sight of the fundamental economic principle that should guide CCO interpretation: maximizing welfare for end consumers—the ultimate beneficiaries of freight transportation. While shippers may attempt to leverage the regulatory process for competitive advantage, the proper focus should be to ensure that CCO interpretations enhance market efficiency and ultimately benefit final consumers through lower prices and better service.

The current interpretative framework, by contrast, frequently devolves into arbitrating disputes between shippers and carriers without adequately considering whether the outcomes actually benefit end consumers, rather than simply granting advantages to particular market participants. This misaligned focus not only creates operational difficulties for railroads but potentially undermines the very consumer benefits that the CCO was intended to protect.

In several key areas, the board’s decisions have created operational challenges for carriers, while potentially undermining the efficiency gains that were achieved by partial deregulation. The following sections examine four specific areas where the STB’s interpretation of the CCO has produced particularly problematic outcomes: hazardous-waste transport obligations; challenges in discontinuing service on low-density lines; emergency-service orders that override private contracts; and rate-review procedures that can threaten carriers’ revenue adequacy. Each of these areas illustrates ways that overly rigid or expansive interpretations of the CCO may conflict with sound business practices and market-based decision making.

A. Hazardous-Waste Transport Obligations

Under 49 U.S.C. § 11101(a), U.S. rail carriers have a CCO to transport hazardous materials upon reasonable request. They cannot pick and choose their cargo based on risk. In Riffin v. Surface Transportation Board, the U.S. Circuit Court of Appeals for the D.C. Circuit upheld a decision that a rail carrier may not exclude classes of dangerous shipments (such as toxic-inhalation hazards) from its services.[30] In that case, an applicant sought to operate a short rail line but attempted to carve out an exception to refuse chlorine and similar hazardous chemicals, citing high insurance costs and liability concerns. The STB rejected the proposal, and the court affirmed, holding that railroads have a “statutory common carrier obligation to transport hazardous materials” so long as federal safety regulations permit their movement.[31] In other words, the duty to serve covers even extremely hazardous commodities, and this statutory mandate overrides any common-law right a carrier might claim to avoid particular cargo. The D.C. Circuit upheld the board’s authority to compel hazmat carriage as a valid interpretation of the law.[32]

This obligation, however, puts railroads in a difficult bind. Hauling chemicals like chlorine, anhydrous ammonia, or other highly toxic or flammable substances entails the risk of catastrophic accidents. The potential liability from a major release—whether caused by accident or sabotage—can be enormous, and only limited insurance coverage is available in the market for such worst-case scenarios. While rail carriers must carry expensive liability insurance, they remain exposed to uninsured risks because “there is no market for insurance that would fully protect railroads” in the event of a truly catastrophic hazardous release.[33] Accordingly, railroads incur significant costs to handle hazmat safely: higher insurance premiums, specialized safety procedures, and capital investments in tank-car safety and route-risk management.[34] These costs can far exceed those of ordinary freight service.

Critically, railroads have only limited ability to recoup the heightened cost of bearing such risks. By law, common-carrier rates must be “reasonable,”[35] and the STB polices rate reasonableness. In practice, this constrains railroads from simply charging sufficient rates on dangerous shipments to cover their potential liability.

By necessity, this makes it difficult, if not impossible, to accurately price risk into the service rates charged to shippers. Railroads cannot unilaterally set rates adequate to offset worst-case risks. If challenged, such rates are likely to be struck down as unreasonable, and in competitive markets, shippers would balk. The result is a cost-recovery gap: rail carriers effectively subsidize a portion of the risk associated with mandatory hazmat service, bearing uncompensated exposure. For example, a catastrophic toxic release could theoretically bankrupt even a major railroad, yet rates for transporting such materials do not fully account for that possibility.[36]

The CCO to haul hazardous cargo thus exemplifies the modern tension between public-service requirements and market-based risk management: railroads must shoulder outsized risks that their trucking competitors can often avoid, which in turn affects how carriers price services and insure their operations in the hazmat sector.

B. STB’s Emergency Powers and Overrides of Private Contracts

The Surface Transportation Board has broad emergency powers under 49 U.S.C. § 11123 to intervene when service disruptions threaten the public interest. In emergency situations—generally defined as circumstances like sudden network failures, severe congestion, or other failures of traffic movement—the board can issue service orders that direct railroads to take specific actions in order to alleviate the crisis. These orders can require one carrier to handle traffic for another, to prioritize certain shipments, or to temporarily reroute or share lines, even “without regard” to the normal operating arrangements.

Crucially, the STB’s emergency directives can also override private contractual arrangements between carriers and their shippers (or between connecting carriers). In effect, the board may mandate service levels or routes that differ from what the railroad originally agreed to, if the STB deems it necessary to address an urgent service shortfall.

Although such directives are meant for true emergencies (such as natural disasters or carrier shutdowns), the STB has shown in recent years that it is willing to use § 11123 powers in less extraordinary (but still serious) service crises. A prominent example came in late 2022, when severe railroad-service problems left a California poultry producer (Foster Farms) without sufficient animal-feed deliveries. Foster Farms petitioned the STB for relief, and the board issued an emergency-service order directing Union Pacific Railroad to supply and prioritize the needed grain-unit trains and to adhere to a specified delivery schedule.[37]

The order, issued under § 11123, essentially compelled the railroad, on pain of regulatory sanction, to provide capacity and service beyond what its private arrangements had guaranteed. Similarly, the board in 2023 took the unprecedented step of issuing a preliminary injunction requiring BNSF Railway to haul millions of tons of export coal for Navajo Transitional Energy Co. (NTEC) after finding that BNSF had been inadequately servicing that mine. BNSF was directed to transport 4.2 million tons of coal and, if capacity permitted, an extra 1 million tons to meet NTEC’s needs.[38] This mandate went well beyond BNSF’s own operating plan, effectively overriding the railroad’s allocation of locomotives, crews, and network capacity.

Such interventions create significant legal and operational uncertainty.[39] When there is always the potential for an emergency-service order to drop from above, a carrier cannot be sure that its privately negotiated contracts (which might limit volumes or specify transit times) will define its actual obligations. Instead, the railroad may be unexpectedly forced by regulators to furnish extra trains or to give priority to certain traffic, potentially at the expense of other customers or its broader operating plan.

In the NTEC coal case, for instance, BNSF argued on appeal that the board’s order compelled it to “stand ready to move billions of pounds of coal, never mind the effects on its network and the diversion of resources away from serving other shippers.”[40] Ultimately, the parties in that dispute settled, but the STB’s intervention nonetheless illustrates the rather extreme disruption that second guessing contracts can present. Because common-carrier service is provided on reasonable request, rather than guaranteed contract volumes, BNSF pointed out that NTEC itself had no firm obligation to ship the full 4 million tons, even though BNSF had to devote capacity as if it would, straining its system.[41]

Likewise, while the Foster Farms order was narrower in scope, it set a precedent that the board might micromanage individual supply chains whenever it perceives a looming crisis. This effectively serves to insert the regulator into the railroad’s day-to-day operations and nullify the normal contract or tariff terms during the emergency period.

These emergency powers risk undermining carriers’ ability to manage their own operations and capacity. Railroads carefully balance their resources among many customers; an unexpected order to prioritize one shipper can ripple throughout the network. To be sure, the statute tries to guard against abuse; for example, § 11123 instructs that the board should not issue an order that “substantially impairs” a carrier’s ability to serve its other customers or to fulfill its obligations.[42] In practice, however, these judgments are subjective.

The broader policy concern is that heavy-handed use of emergency orders could discourage private investment and planning. If railroads fear that carefully laid schedules and contracts can be upended by regulatory fiat, they may be more cautious about making capacity commitments or efficiency-driven changes (such as precision-scheduled-railroading techniques) that reduce operational slack. In short, while the STB’s emergency powers may be a necessary safety valve to protect the public in dire situations, their recent use in service-quality cases has prompted debate about the proper limits of intervention, and the need for clearer standards to avoid sowing uncertainty in the rail marketplace.

C. Final-Offer Rate Review and Its Impact on Rail Carriers

Final-offer rate review (FORR), a recently introduced STB procedure to adjudicate certain rail rate disputes, has become a flashpoint for the policy debate about fairness and the STB’s statutory authority. Under the CCO, rates must be reasonable; if a shipper believes they are not reasonable, they can bring a rate case. Traditionally, when a shipper believes a common-carrier rate is unreasonably high, the STB must determine a maximum reasonable rate under 49 U.S.C. §§ 10701 and 10704. In large rate cases, this has meant complex, data-intensive litigation, often employing the stand-alone-cost (SAC) test.[43]

The FORR process was modeled loosely on the arbitration process used in Major League Baseball contract disputes. FORR allows each party to submit its final offer for what the reasonable rate should be, and the board then selects one offer or the other, without modification, as the resolution.[44] The idea was to streamline decisionmaking by forgoing exhaustive economic analysis; rather than painstakingly calculating the best rate, the board would instead choose whichever side’s proposal it found more reasonable.

Rail carriers criticized this approach on both legal and practical grounds. They argued that FORR exceeds the STB’s authority under the Interstate Commerce Act, which requires the agency to determine and impose only reasonable rates.[45] Simply picking one of two proposals, the railroads contended, is an abdication of the board’s duty to conduct a reasoned analysis. In short, the FORR rule “flatly exceeds the agency’s authority” because the board would do “no independent analysis” and would abandon “sound economic principles” in favor of an arbitrary up-or-down choice.[46]

This critique found a receptive ear in the courts: in 2024, the 8th U.S. Circuit Court of Appeals vacated the STB’s FORR rule, holding that the process improperly prevented the board from giving due consideration to the statutory factors for rate reasonableness.[47] The court noted that the statute directs the STB to “review” challenged rates based on multiple factors (e.g., the carrier’s revenues, the transport conditions, etc.) per 49 U.S.C. § 10701(d)(2)), and that simply choosing between the shipper’s or railroad’s final offer without adjustment failed to meet that mandate.[48] In essence, the vacatur confirmed the rail industry’s view that FORR short-circuits the legal standard for rate review.

Further, from a policy perspective, the FORR unfairly limits carriers’ ability to defend their pricing and threatens their revenue adequacy. At the very least, traditional rate cases allow carriers to present detailed evidence of their costs, investment needs, and the rationale behind a challenged rate. The final-offer approach, by contrast, forces a binary choice and often comes with tight timelines and page limits that constrain evidence. In the STB’s initial proposal, small rate cases could be decided under FORR in as little as 135 days from start to finish, with each side’s submission limited in length and complexity.

Such uncertainty and one-way risk (since a railroad’s high final offer might simply be rejected in favor of the shipper’s lower figure) can serve to chill the railroads’ pricing flexibility. Carriers might preemptively restrain rate increases for fear that any aggressive pricing will be knocked down in a fast-track FORR case that they have scant ability to defend.

There is also the broader concern of revenue adequacy—the principle that rail regulation should allow carriers to earn sufficient revenue to attract investment and maintain their networks.[49] If shippers can routinely leverage FORR to win rate reductions, it will erode carriers’ earnings on traffic, which is often used to cross-subsidize infrastructure and service improvements systemwide.

For now, the FORR has been nullified. Going forward, the board may revisit how to craft a simplified rate review that survives legal scrutiny, perhaps by incorporating some independent analysis or making the program truly voluntary (the STB had also proposed a voluntary arbitration program alongside FORR). The risk of this sort of arbitrary intervention remains high. The FORR episode highlights the friction between expeditious shipper relief and robust procedural protection for carriers.

After decades of productive deregulation, mechanisms like FORR represent a step backward toward intrusive regulation that could hamstring pricing for the sake of a minority of disputes. The challenge for policymakers is to find a balanced solution that resolves smaller rate complaints efficiently, without undermining the economic foundation that has allowed the rail industry to achieve financial stability since deregulation.

D. Challenges in Discontinuing or Reducing Service on Low-Density Lines

Another challenge for U.S. rail carriers is the difficulty of shedding or scaling back service on lightly used, low-density branch lines. Under 49 U.S.C. § 10903, a railroad may not abandon a line (or discontinue service) without prior approval from the STB.[50] The law requires the STB to determine that an abandonment is consistent with the “public convenience and necessity” before allowing a carrier to exit a line.

Moreover, existing regulations promulgated under this law are a labyrinth of procedural requirements.[51] The process is often contentious and protracted, involving detailed filings, environmental reviews, possible offers of financial assistance from interested buyers, and the opportunity for protests by shippers and communities. Railroads facing dwindling traffic on a branch cannot simply halt service; they must continue to maintain the track and operate trains (even at a loss) until they receive regulatory permission to abandon the line.[52]

In many cases, local shippers or elected officials will oppose an abandonment out of concern for losing rail access, leading the STB to scrutinize the railroad’s profitability claims and sometimes to delay or deny the request.[53] The railroad’s common-carrier obligation thus endures unless and until the STB grants relief—effectively compelling carriers to serve “paper traffic” for public-interest reasons, even when a line is no longer economically viable.

The legal and regulatory framework governing line abandonments was somewhat liberalized by the Staggers Rail Act of 1980, but it still requires balancing career and public interests. The STB weighs such factors as the line’s current and prospective traffic, the revenue inadequacy or losses in maintaining the line, the availability of alternative transportation for shippers, and the broader regional impacts.[54] If an abandonment is approved, interested parties may invoke 49 U.S.C. § 10904 to force the carrier to sell the line for continued operation (often at its salvage value) rather than scrap it—another mechanism that can compel continuation of service under new ownership.

From the carrier’s perspective, these protections for low-density lines can impose serious economic burdens. Maintaining a stretch of track that sees only a handful of railcars (or none at all) can cost tens of thousands of dollars per-mile annually in maintenance, inspections, and taxes, with little or no revenue to offset it. Studies have found that the lowest-density rail lines face “formidable costs” to maintain or rehabilitate, far out of proportion to their traffic levels.[55]

This is one reason that Class I railroads have shed so many branch lines in the past: a short line or regional operator with lower overhead might keep them marginally profitable, but for a large railroad, these light routes undermine efficiency. By one estimate, the track-maintenance cost per-car-mile on small railroads (which operate many light-density lines) is more than three times higher than on Class I mainlines.[56]

STB proceedings illustrate the difficulties for carriers. In one noteworthy case, CSX Transportation sought to abandon an essentially defunct 122-mile line in West Virginia that had produced no freight revenue for more than a year.[57] The ICC (predecessor to the STB) initially denied the abandonment, relying on speculative hopes of future traffic and community opposition. The D.C. Circuit reversed that decision as unsupported by substantial evidence, noting it was undisputed that keeping the line would force the railroad to incur substantial losses with no realistic prospect of new business.[58] The court instructed that the carrier’s request be granted, emphasizing that regulators cannot shackle a railroad to a dead line based solely on hypotheticals.[59]

In many other situations, however, railroads end up negotiating compromises—such as selling the line to a short-line operator or agreeing to provide minimal “skeleton” service—rather than endlessly hemorrhaging money under forced operation. The economic impact of prolonged service mandates can be significant: capital and manpower tied up servicing a marginal line cannot be reallocated to more productive uses.

From a policy standpoint, this raises the question of whether the public benefits of preserving rural and low-volume rail service (and preventing “rail deserts”) justifies the costs imposed on carriers. The current framework tends to err on the side of preservation, sometimes at the expense of railroads’ financial health, and remains a point of contention among rail companies, shippers, and regulators.

IV. Proposals for Reform: Toward a Targeted, Deregulatory CCO

Given the dramatic evolution of freight markets and increased intermodal competition since 1980, several targeted reforms to the common carrier obligation could better align rail regulation with the deregulatory goals of the Staggers Act. While the CCO remains important as a backstop protection for shippers, its implementation should be modernized to reflect today’s competitive realities.

The following proposals aim to preserve essential shipper protections, while giving railroads greater flexibility to operate efficiently in a multi-modal marketplace. These reforms would reduce regulatory burdens where competitive alternatives exist, streamline dispute resolution, and foster better incentives for both carriers and shippers—all while maintaining the CCO’s core purpose of ensuring reasonable access to rail service.

A fundamental challenge in modernizing the CCO is ensuring that regulatory obligations align with market realities. Nowhere is this misalignment more evident than in the transportation of hazardous materials. Railroads face an absolute service mandate without corresponding market mechanisms to manage the associated risks and costs efficiently. While trucking companies can decline hazmat shipments that they cannot handle safely or economically, railroads must accept such traffic regardless of their risk-management capabilities or insurance costs.

One option to address this dilemma might be a federal reinsurance program to backstop hazmat transportation risks. Similar to models in nuclear power (Price-Anderson) and terrorism insurance (the Terrorism Risk Insurance Program), such a program would allow carriers to maintain primary coverage through private markets, with a federal reinsurance pool could share costs for catastrophic losses, either with the industry directly or with insurers that take on the industry’s risks. Another alternative would be to cap the industry’s liability and have the federal government absorb losses above a certain threshold, or simply to provide carriers with vouchers to offset the cost of insurance for hazmat risks they are forced to ship unwillingly. Any of these approaches would preserve the public interest in reliable hazmat transportation, while creating more predictable economics for carriers. They would maintain essential-service requirements while employing market forces to improve efficiency and cost allocation.

Another deregulatory reform would be to make it easier for railroads to discontinue or reduce service on low-density lines or lanes, provided that shippers have intermodal alternatives. Currently, formal abandonment of a rail line requires STB approval and can be contentious. Simplifying this—especially where a trucking option exists for the affected shippers—would acknowledge that the CCO’s purpose is not to trap railroads into serving every mile of track forever.

One mechanism could be to expand the use of “offer of financial assistance”[60] processes to allow other operators or interested entities to take over service if the incumbent railroad wishes to exit. If no one is willing to operate the service at a given subsidy or acquisition price, that’s strong evidence that continued operation is not economically reasonable, and the obligation could be lifted. Essentially, this pushes the market to reveal if a service is truly needed. If it is, then perhaps a local government or short line will step in. If not, the railroad can bow out without undue delay. By relieving railroads from prolonged forced operations where there is insufficient demand, resources can be reallocated to where they are most useful—improving overall efficiency in the freight network.

One quiet revolution of the Staggers Act was allowing confidential rail-shipper contracts, which now dominate freight-rail business. Under such contracts, the common-carrier rules (including tariff-rate availability and some service obligations) largely do not apply—the terms are privately negotiated. As of 2004, approximately 60% of rail traffic by revenue moved under contracts, not common-carrier tariffs, and that number is likely higher now.[61] Encouraging even greater use of contracts could effectively bypass CCO disputes, because the parties can specify service commitments, penalties for non-performance, and escape clauses as they see fit.

One reform, therefore, would be for the STB to limit the use of its own emergency powers or service orders when a contract exists, on the logic that the contract’s terms should govern instead. This would signal that, except in dire public emergencies, negotiated agreements are preferable to regulatory mandates. It also would encourage shippers to enter into contracts with realistic service requirements, rather than relying on the vague promise of CCO protection. The common-carrier tariff service could be viewed as service of last resort—available to truly small or ad-hoc shippers who cannot get a contract—rather than the primary regime. This is largely already the case, but formalizing it would be in line with the goals of deregulation. In regulatory parlance, this reform would maximize the domain of commercial contracts and minimize the domain of common carriage. Relatedly, the STB should make clear that it will not use evidence of contract negotiations as part of its examination of rates under the CCO.

With these guardrails in place, final-offer procedures could help to resolve service disputes more efficiently than traditional litigation, while still respecting market principles. The goal should be to create focused incentives for reasonable positions, while avoiding the coercive pressure that would force railroads to abandon legitimate defenses or accept below-market rates. This reformed approach would complement other CCO updates by providing a structured-but-fair process in cases where regulatory intervention is necessary.

The key is designing the system to achieve faster resolutions without sacrificing the economic principles that have guided rail regulation since Staggers. A careful balance must be struck between procedural efficiency and substantive protections for both carriers and shippers.

These proposals, individually and together, aim to update the common carrier obligation for the 21st century. They do not eliminate the duty outright; after all, railroads do remain important infrastructure and some check on their conduct is warranted. But the reforms would move the needle decidedly toward deregulation, relying more on competition and commercial negotiation, and less on blanket mandates. The result would be a CCO that is targeted, clear, and even-handed: it would kick in firmly where a railroad’s market power is unchecked (preventing abuse) but relax where competitive market forces suffice to discipline behavior.

V. Conclusion

Railroads’ common carrier obligation has long been a double-edged sword: a guardian of the public interest in freight transportation, but also a potential fetter on railroads’ ability to adapt and compete. In the current era of robust intermodal competition, preserving an expansive CCO that vests enormous discretion in the STB’s hands is simply neither necessary nor efficient. The spirit of deregulation that rescued the U.S. rail industry in 1980 can be extended to this last bastion of the old regulatory regime. By introducing further targeted rail reforms, we can ensure that railroads remain accountable without being overburdened.

For policymakers, the imperative is to promote a rational market. Trucks, barges, and pipelines do not operate under sweeping common-carrier duties today, yet shippers generally receive good service from those transportation modes due to competition and contract law. Rail can be governed by similar dynamics. A rebalanced CCO would let railroads say “no” or “not now” to certain traffic in certain situations, trusting that competition or alternatives will fill the gap—much as a trucking firm can decline a load and the market finds another carrier or mode to move it.

In cases where no alternative exists, a reformed CCO would ensure that the shipper is not abandoned: the railroad must still serve, but likely with greater compensation or under clearer rules that also take account of the railroad’s constraints. This approach would preserve the fundamental social contract of common carriage (access to essential services at fair terms) without clinging to one-size-fits-all mandates from a bygone era.

Ultimately, aligning the common carrier obligation with deregulatory principles will strengthen intermodal competition. Unshackled from obsolete requirements, railroads will be more agile competitors to trucking—investing in service improvements, pursuing new traffic, and pricing dynamically, secure in the knowledge that they won’t be penalized for rational business decisions. Shippers, in turn, would benefit from a healthier rail industry and more choices, as well as from a more transparent understanding of what service they can count on by right, and when they need to arrange alternatives.

[1] Shippers Committee, OT-5 v. I.C.C, 968 F.2d 75, 76 (D.C. Cir. 1992), https://casetext.com/case/shippers-committee-ot-5-v-icc.

[2] See Jack Novak et al., Railroads’ Common Carrier Obligation (Summary), U.S. Dep’t. of Agric. (Jun. 2020), available at https://www.ams.usda.gov/sites/default/files/media/RailroadsCommonCarrierObligation.pdf.

[3] See Matthew Jinoo Buck, How America’s Supply Chains Got Railroaded, The Am. Prospect (Feb. 4, 2022), https://prospect.org/economy/how-americas-supply-chains-got-railroaded.

[4] See TRB Special Report 318: Modernizing Freight Rail Regulation, TRB Transp. Rsch. Bd. of the Nat’l Acad., available at https://onlinepubs.trb.org/onlinepubs/sr/sr318highlights.pdf (last visited Feb. 26, 2025).

[5] Marybeth Luczak, AAR Backs BNSF, Calls STB Common Carrier Obligation Decision ‘Disastrous’, Ry. Age (Sep. 5, 2023), https://www.railwayage.com/freight/class-i/aar-backs-bnsf-calls-stb-common-carrier-obligation-decision-disastrous.

[6] Riffin v. Surface Transportation Board., No. 11-1480 (D.C. Cir. Oct. 25, 2013), https://cases.justia.com/federal/appellate-courts/cadc/11-1480/11-1480-2013-10-25.pdf?ts=1411135459.

[7] Am. Trucking Ass’ns v. A., T. & S. F. Ry. Co., 387 U.S. 397 (1967), at 406.

[8] Livestock, South, Southwest, Central and Western Territories, 346 I.C.C. 418 (1974), at 435.

[9] See Pa. R.R. Co. v. Puritan Coal Mining Co., 237 U.S. (1915), at 133.

[10] See B.J. Alan Co. Inc. v. I.C.C., 897 F.2d 561 (D.C. Cir. 1990).

[11] Louisville & Nashville R. Co. v. United States, 282 U.S. 740 (1931).

[12] See STB Grants Preliminary Injunction; Orders BNSF Railway Company to Transport 4.2 Million Tons of Coal for Navajo Transitional Energy Company, LLC, Surface Transp. Bd., (Jun. 23, 2022), available at https://www.stb.gov/wp-content/uploads/PR-23-11.pdf.

[13] A further problematic aspect of this case was that the board effectively used service levels proposed during private-contract negotiations to establish what constituted “adequate” service under the CCO. See, e.g., STB Decision Navajo Transitional Energy Company LLC, Docket No. NOR 42178 (2023), at 6-7. This blurred the traditional distinction between contract service (which typically provides premium service in exchange for volume commitments and is outside the board’s jurisdiction) and common-carrier service (wherein shippers make no volume commitments but receive basic tariff service). By establishing contract-level service as the required CCO standard, without requiring corresponding shipper commitments, the board significantly expanded the scope of the common-carrier obligation beyond its historical application.

[14] Id.

[15] See Gene C. Griffin, Synopsis of Staggers Rail Act of 1980, Bureau of Transp. Stat. (1981), at 1, available at https://rosap.ntl.bts.gov/view/dot/60546/dot_60546_DS1.pdf.

[16] Railroad Regulation: Economic and Financial Impacts of the Staggers Rail Act of 1980 (U.S. Gen. Acct. Off., GAO/RCED-90-80, May 1990), at 2, available at https://www.gao.gov/assets/rced-90-80.pdf.

[17] See B. Kelly Eakin et al., Railroad Performance Under the Staggers Act, Regulation (Dec. 2010), at 32, available at https://www.cato.org/sites/cato.org/files/serials/files/regulation/2010/12/regv33n4-6.pdf.

[18] Id. at 33

[19] Id. at 33; Buck, supra note 3, at 2.

[20] Buck, supra note 3.

[21] Eakin, supra note 17, at 34-35.

[22] A Study of Competition in the U.S. Freight Railroad Industry and Analysis of Proposals that Might Enhance Competition, Surface Transp. Bd. (2009), at 10-11, available at https://www.stb.gov/wp-content/uploads/files/docs/competitionStudy/Executive%20Summary.pdf.

[23] Id.

[24] Id.

[25] See Motor Carrier Reform Act of 1980, Pub. L. No. 96-296, 94 Stat. 793.

[26] American Trucking Assns., supra note 7, at 406.

[27] Eakin, supra note 17, at 33.

[28] Id.

[29] See TRB, supra note 4.

[30] Shippers Committee, supra note 1.

[31] Id.

[32] See Riffin v. STB, 733 F.3d 340 (D.C. Cir. 2013), at 344.

[33] See Freight Rail & Common Carrier Obligation, Ass’n of Am. R.R., https://www.aar.org/issue/common-carrier-obligation (last visited Mar. 24, 2025).

[34] Id.

[35] 49 U.S.C. §§ 10701(c), 10702.

[36] See Common Carrier Obligation: Why Freight Railroads Must Transport Hazmat, Ass’n of Am. R.R. (May 2023), available at https://www.aar.org/wp-content/uploads/2023/05/AAR-Hazmat-Common-Carrier-Obligiation-Fact-Sheet.pdf.

[37] See STB Directs Up to Deliver Trains to Foster Farms, Surface Transp. Bd. (Dec. 30, 2022), https://www.stb.gov/news-communications/latest-news/pr-22-56. A significant concern in this case was the board’s failure to clearly articulate the legal basis for its emergency-service order. Some board members expressed discomfort with what appeared to be an extension of regulatory authority without properly identifying the specific statutory grounds that empowered such intervention. This lack of clear legal foundation raised questions about the scope and limits of the STB’s emergency powers, potentially creating regulatory uncertainty for railroads operating in similar circumstances.

[38] See STB Grants Preliminary Injunction; Orders BNSF Railway Company to Transport 4.2 Million Tons of Coal for Navajo Transitional Energy Company, LLC, Surface Transp. Bd. (Jun. 23, 2022), available at https://www.stb.gov/wp-content/uploads/PR-23-11.pdf.

[39] Note also that the board has left the application of emergency-service order to contracts ambiguous. See Expedited Service, EP 628 (1998), at 10 (“However, where no transportation is being provided, we do not believe that the mere existence of a contract precludes us from providing for temporary emergency service, upon a proper showing, so that traffic can move while any contract-related issues are being litigated in the courts.”); see also Expedited Relief for Service Emergencies EP 762 (“The NPRM did not make any new proposal regarding the application of section 11123 to contract traffic. In Expedited Relief, EP 628, the Board concluded that any advance rejection of all authority to address situations where a contract exists in an emergency would be inappropriate and declined to include any bright-line   prohibition. Expedited Relief, EP 628, slip op. at 10. In the NPRM, the Board made no proposals changing the status of existing law on this issue and sees no reason to revisit that position here.”)

[40] Luczak, supra note 5.

[41] Luczak, supra note 5.

[42] 49 U.S.C. §?11123 (c) (2).

[43] See Union Pacific R.R. Co. v. Surface Transp. Bd., No. 22-3648, Slip op. (8^th Cir. Aug. 20, 2024), available at https://11f458b2-df01-4ad9-ae57-300f05b7cea3.usrfiles.com/ugd/11f458_18e19593646f4491a54f708c7597b93f.pdf.

[44] Id.

[45] Id.

[46] AAR Preliminary Statement on STB’s Final Offer Rate Review and ADR Decisions, Ass’n of Am. R.R. (Dec. 19, 2022), https://www.aar.org/news/aar-preliminary-statement-on-stbs-final-offer-rate-review-and-adr-decisions/#:~:text=FORR%2C%20the%20rule%20modeled%20on,shipper%20or%20by%20the%20railroad.

[47] Union Pacific R.R. Co., supra note 43.

[48] Union Pacific R.R. Co., supra note 43.

[49] 49 U.S.C. §?10704 (a) (2).

[50] While abandonment procedures can be burdensome, the STB does provide streamlined alternatives. Railroads may use an exemption proceeding under 49 C.F.R. § 1152.60, which involves fewer procedural hurdles than standard abandonment. Additionally, a special class exemption exists for out-of-service lines under 49 C.F.R. § 1152.50. Despite these options, the abandonment process still represents a regulatory constraint on railroads’ operational flexibility that their intermodal competitors do not face.

[51] 47 C.F.R. pt. 1152, https://www.ecfr.gov/current/title-49/subtitle-B/chapter-X/subchapter-B/part-1152.

[52]  See STB to Review Small Roads’ Line-Abandonment Rules, Progress. Railr. (Aug. 18, 2003), https://www.progressiverailroading.com/rail_industry_trends/news/STB-to-review-small-roads-line-abandonment-rules–5421.

[53] Railroad Ventures Inc. v. Surface Transp. Bd., 299 F.3d 523 (6th Cir. 2002).

[54] CSX Transportation Inc. v. Surface Transportation Board, 96 F.3d 1528 (D.C. Cir. 1996).

[55] See Deferred Maintenance and Delayed Capital Improvements on Class II and Class III Railroads, U.S. Dep’t of Transp. (1989), https://railroads.dot.gov/sites/fra.dot.gov/files/fra_net/14975/Deferred_Maintenace_and_Delayed.pdf#:~:text=concentration%20and%20magnitude%20of%20those,railroads%2C%20and%20assistance%20from%20communities; Testimony of Chuck Baker, President, American Short Line and Regional Railroad Association, Bd. the Surface Transp. Bd., Docket No. EP 711 (Sub-No.1), Reciprocal Switching (Feb. 14, 2022), https://www.aar.org/wp-content/uploads/2022/02/ASLRRA.pdf#:~:text=•%20Small%20railroads%20average%20%243,of%20their%20light%20density%20track.

[56] Id.

[57] CSX Transportation Inc., supra note 54.

[58] Id.

[59] Id., at 3, 4.

[60] 49 U.S.C. §?10904 (b).

[61] See Rail Freight Competition Study as Provided by Montana Senate Bill (SB) 315, R.R Industry Inc. (2004), available at https://www.mdt.mt.gov/publications/docs/brochures/railways/railcomp-study.pdf.

ICLE President Geoffrey A. Manne is quoted in this R Street Institute article on recent the U.S. District Court verdict against Google on DOJ v. Google antitrust case. Read the full article here.

The president and founder of the International Center for Law and Economics summarized it best: “By relieving the plaintiffs of having to show but-for causation, Judge Mehta relieved them of the burden of proving their case.” The problem with this is that it allowed the court to establish Google’s liability free from considering what, if anything, the court could actually do to fix the alleged problem. As it turns out, while most of the more reasonable proposals for a remedy may benefit Google’s rivals, they do not promote consumer welfare.

ICLE was quoted in this Bankrate story about Durbin Amendment and Credit Card Competition Act. Read the full story here.

Among other things, the amendment limited the debit interchange fee to a maximum of 0.05 percent of the transaction value plus 21 cents (with an extra cent for fraud protection). In practice, this brought the average debit card processing fee down 52 percent (from 50 cents to 24 cents), according to the International Center for Law and Economics.

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

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

Dirk Auer, director of competition policy at ICLE, is quoted in this tportal article on the EU’s recent antitrust fine levied against Apple and Meta. Read the full story here.

Both Apple and Meta, the owner of Facebook and Instagram, which was also fined 200 million euros on Wednesday, have announced appeals. Apple’s App Store is widely seen as one of the company’s key sources of profit. “It’s the crown jewel of Apple’s digital empire,” says Dirk Auer of ICLE (International Center for Law and Economics). 

 

 

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

The Commission’s DMA enforcement “continues to have features of what the Trump administration sees as problematic from a trade point of view,” said Dirk Auer, director of competition policy at the International Center for Law & Economics (ICLE).

“I think it’s pretty clear that the App Store is one of the crown jewels in Apple’s digital empire ? it’s one of the segments of its biz that is really profitable,” said ICLE’s Auer.

Dirk Auer, director of competition policy at ICLE, is quoted in this The Register article on Meta and Apple’s fines for non-compliance with the EU’s Digital Market Act. Read the full story here.

“These actions provide fodder for claims that Europe is targeting American tech champions for political reasons, not legal ones, and could provoke a cycle of escalating tariffs with consequences far beyond the digital realm,” Auer said. “These fines send a troubling signal: that Europe may be prioritizing punitive enforcement over practical outcomes.”

ICLE President Geoffrey A. Manne is quoted in this Reason article on DOJ v. Google’s antitrust case threat to tech giant’s free-to-consumer business model.  Read the full article here.

Geoffrey Manne, president of the International Center for Law and Economics, disagrees. Manne tells Reason he suspects “Google would be loath to change [the free-to-user model] if it can at all be avoided.” Manne thinks charging handset manufacturers for Android, which Google currently finances through search revenues, is a much more likely scenario. Still, Manne predicts the “remedies will either be fruitless (because people will continue to prefer and use Google) or affirmatively harmful (because Google will have reduced incentive and/or ability to compete).”

 

Daniel J. Gilman, Senior Scholar of competition policy at ICLE, is quoted in this Competitive Enterprise Institute article on technology platform censorship. Read the full story here.

There’s a myriad of issues underlying the RFI’s theories of law regarding the content moderation decisions of large tech platforms, likely best explained by Dan Gilman with the International Center for Law & Economics. And it’s important that Ferguson’s FTC avoid the errors of Lina Khan’s FTC.

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

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

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

Other things consumers can look out for include:

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

Brian Albrecht, Chief Economist at ICLE, is quoted in this Ad exchanger article on the positives and negatives of potential Google Ad tech breakup. Read the full story here.

Then there would be an appeal. Google has already announced it will appeal against last week’s decision, in addition to the decision in the search antitrust trial. Those appeals can stretch for a year or more.

And Google might win a reversal.

According to Albrecht, the ruling could be vulnerable on appeal, based on recent Supreme Court precedent in antitrust cases that requires proof of harm on both sides of a two-sided marketplace.

In other words, don’t hold your breath waiting for any immediate changes.

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

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

Lina Khan has been an outspoken critic of Big Tech since her law school days, demonstrating a singular focus on the big bad guys—first Amazon and then others. Now, as the chairwoman of the Federal Trade Commission, she has the chance to test her antitrust theories in court. But the FTC’s ongoing challenge against Meta, the parent company of Facebook, reveals the weakness of going after Big Tech in any way possible.

Read the full piece here.

ICLE was quoted in this Pittsburgh Business Journal story about Credit Card Competition Act. Read the full story here.

Brian Albrecht, chief economist at ICLE, was quoted in this AdWeek story about Meta’s trial with the FTC. Read the full story here.

But it’s a potentially tenuous position for the agency to take because it focuses on a different time—and ultimately, a different market than today’s, said Brian Albrecht, an antitrust expert and the chief economist at the International Center for Law and Economics, a nonprofit policy research organization.

“The government will want us to imagine—if even implicitly—that this is 2018 and Facebook and Instagram are the two big players,” Albrecht said. “But they aren’t anymore.”

And considering that both transactions were completed long ago, the burden of proof will be higher for the FTC than in some other antitrust cases, Albrecht said. Ultimately, he predicts that the FTC will be hard-pressed to convince a judge that the divestiture of Instagram and possibly of WhatsApp will meaningfully impact future competition in the market, because today “there are more competitors and options than ever.”

Dirk Auer, director of competition policy at ICLE, is quoted in this Law.com article on DMA enforcement decisions for big tech. Read the full story here.

“I don’t see much evidence, at least not publicly available, to suggest that they’re using these fines as a geopolitical bargaining chip,” he said.

Using the DMA fines as a negotiating tool would also mark a departure from long-standing practice, he added, describing EU antitrust enforcement decisions as generally “independent from political pressure.”

Instead, Auer suspects the decisions have not yet come out for “purely substantive reasons,” namely because Brussels officials are still finalizing them.

Auer said he expected the fines to be steep given the Commission’s track record —in the last few years it has issued billion-euro fines to Google, Apple, Meta and other large U.S. companies under the EU’s traditional antitrust enforcement process.

Ben Sperry, senior scholar of innovation policy at ICLE, is quoted in this Bloomberg Law article on an Arkansas social media age-check laws’. Read the full story here.

Sperry said courts have cited the US Supreme Court’s 2004 decision in Ashcroft v. ACLU —which asked “whether the challenged regulation is the least restrictive means among available, effective alternatives”—to reach the same conclusion in other cases relating to social media and obscene material online.

Ashcroft affirmed a preliminary injunction blocking a federal verification scheme that required an age certificate or financial account because it was was more restrictive than simply filtering out pornography.

Sperry also noted it will be interesting to see how the high court rules in a pending adult entertainment industry challenge to a Texas law that requires age gates for sites with significant amounts of pornography.

During oral arguments in Free Speech Coalition v. Paxton, the justices seemed to say that states should be able to keep kids from viewing online pornography, but expressed concern that an age verification gate for adult sites could still run afoul of the First Amendment. 

 

“I think what’s more likely is they’ll just distinguish it,” Sperry said. Age verification may be the least restrictive method to prevent children from seeing adult content, but “I think the Supreme Court wouldn’t go so far as to say that accessing lawful speech, which is mostly what’s on social media,” should be behind an age gate, he said.

An Arkansas-style approach “is not going to be fruitful,” said Ben Sperry, a scholar at the International Center for Law & Economics who writes about age verification policies.

“The question is who should be in charge of avoiding those harms,” Sperry said. Especially if “there’s tremendous benefits to using the internet as well.”

Threads from ICLE scholars on trending issues for the month of April 2025.

1/ One theory holds that the DMA’s vagueness is a bug—a regrettable by-product of a well-intentioned but rushed attempt to create a tool to rein in tech companies. Recent developments, however, suggest that this vagueness isn't an accident at all. ?

— Lazar Radic (@laz_radic) April 30, 2025

The next stage of the Google AdTech case is remedies, with a hearing this Friday and initial proposals due May 5.

September 22nd is the other date to remember.

A little background as we move into this next stage. pic.twitter.com/u5ZfFZTUIC

— Brian Albrecht (@BrianCAlbrecht) April 29, 2025

Proud to announce my coached team's victory in the Comparative Law in Action Challenge at @IEuniversity! They clinched 1st place and Best Legal Memoranda for their outstanding work on generative AI and IP rights.

Huge thanks to @ielawschool for a fantastic competition! pic.twitter.com/Dyloe21CCJ

— Lazar Radic (@laz_radic) April 29, 2025

Big decisions and fines against Apple and Meta today.

The coming hours and days will tell us whether the EU has exacerbated the ongoing trade war with the US.

But either way, these decisions are not a win for European consumers or its startups.

? https://t.co/PVCzlUqF7j

— Dirk Auer (@AuerDirk) April 23, 2025

Cracking open the 115?page ruling.

Going in, two Supreme?Court cases oomed large:

– Trinko (refusal?to?deal) and
– AmEx (two?sided platforms)

I want to focus on those in this first pass ? https://t.co/qDZpAxX4aV

— Brian Albrecht (@BrianCAlbrecht) April 17, 2025

#Regulation #DigitalMarkets ??

Apparently the proposal of the Lula da Silva administration to regulate digital markets is coming soon in the form of a new bill… ? pic.twitter.com/3MMDGfpe2E

— Mario Zúñiga (@MZunigaP) April 17, 2025

I am pleased to announce the first edition of the “Competition Law Doctoral Forum” at the Vrije Universiteit Amsterdam: https://t.co/WgykBEb7ZW
Co-organized by the @alti_VU and @LawEconCenter, the Forum aims to establish an annual gathering of promising PhD candidates in the… pic.twitter.com/MwWp0c9fL8

— Thibault Schrepel (@ProfSchrepel) April 16, 2025

The FTC's trial against Meta is underway.

So far, it seems the FTC (and Zuckerberg in 2012) fundamentally misunderstands network effects and how they interact with competition.

A short thread on the economics of network effects as relevant to this case: pic.twitter.com/Dzc9qDhDIw

— Brian Albrecht (@BrianCAlbrecht) April 16, 2025

The "Brussels Effect " is collapsing.

For years, the EU thought it could prosper by being the world's n°1 regulator.

This was a mistake, and the EU is now seeking to pare back key regulations while ditching plans for others.

So how did we get here and what happens next?

? pic.twitter.com/GM0pPYNdpF

— Dirk Auer (@AuerDirk) April 11, 2025

??Japan designates Apple, iTunes and Google for ex-ante regulation under the Smartphone Act. Why didn't the JFTC also designate Yahoo Japan — which surpasses the number of monthly active users? Some thoughts on the logic and consistency of the Act. 1/ https://t.co/ehn3uH2Uvz pic.twitter.com/8YxxW7ZyYD

— Lazar Radic (@laz_radic) April 4, 2025